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Last week Treasury Secretary John Snow joined Sen. Craig Thomas, R-Wyo., and Rep. Sam Johnson, R-Texas, in announcing the introduction of the SAVE Initiative, making three of the four savings accounts proposed in the Bush administration's 2006 budget a legislative reality.
"Personal savings accounts are an integral part of any solution that puts us on the road to Social Security reform," Mr. Snow said. "I'm confident that later this year we're going to see major Social Security legislation."
Two types of accounts are designed to be used together: lifetime savings accounts, aimed at boosting savings generally, and retirement savings accounts. A person could contribute $5,000 in after-tax dollars to each, for a total of $10,000 a year. Interest on the accounts earned cannot be taxed.
The accounts would have no income or age restrictions. For example, a family of four could save up to $40,000 a year. What's more, money could be withdrawn at any time from lifetime accounts.
The lifetime accounts are intended to replace traditional savings accounts, and balances from qualified tuition plans and Coverdell education savings accounts could be transferred to these lifetime accounts.
Lifetime accounts would allow people to "save when you want to for what you want to," Rep. Johnson said last week.
The Texas Republican said the accounts - because they accumulate interest tax-free and withdrawals are easy - are a better option for lower-income savers than President Bush's proposed individual development account. That account, which envisions a government matching-fund for lower-income individuals but also limits on withdrawals, was the one account proposed in the President's budget that was not part of last week's legislative package.
"The lifetime savings account would be an excellent option for those currently eligible for individual development accounts to save money," Rep. Johnson said in a statement. "Lower-income Americans are sometimes just one paycheck away from bankruptcy, and an LSA would allow them to save for any of life's emergencies and needs in one account."
But some financial services providers fear easy withdrawal could discourage people from building a true safety net.
"The LSAs, we just don't think is the right way to go. What our country needs is long-term savings, and we think this would hurt the country's long-term savings rate," said Jack Dolan, a spokesman for the American Council of Life Insurers. "We think there are better ways to promote long-term savings."
Still, Mr. Dolan said ACLI is pleased that policymakers are taking the savings issue seriously.
The retirement savings account is similar to a Roth IRA and could end up replacing it. Unlike a lifetime account, the retirement accounts would have to be funded by earned income. IRAs could continue to exist or may be rolled into RSAs. Roths would probably just be renamed RSAs, the Treasury Department said.
RSAs, because of their simplicity, might draw more investors than IRAs have, said Paul Merski, the chief economist and director of federal tax policy at Independent Community Bankers of America.
"The current IRAs available are very restricted, with lots of complexities that discourage people to save," he said. "The beauty of these new RSAs is a lot of the onerous rules or restrictions will be removed."
The third savings proposal would consolidate the slew of employer-sponsored retirement accounts now known as 401(k), 403(b), and 457(b) into employer retirement savings accounts.
E. Thomas Foster Jr., national spokesman for Hartford Financial Services Inc. retirement plans, said community banks would benefit greatly from such a change because the new accounts would be much easier to administer.
"For the smaller banking field, this is an outstanding opportunity," Mr. Foster said. "One of the things in terms of running a 401(k) is sometimes it is more expensive because of various discrimination rules that apply. If ERSA were to come to fruition, it could simplify a lot of underlying testing issues."
Congress has been down this road before - more than once.
The four accounts in the President's budget were proposed last year, and the Individual Development Account was also in the 2004 budget plan. Sen. Thomas and Rep. Johnson introduced a similar bill last year, but it was not enacted.
Still some proponents are encouraged, arguing that the hot debate over Social Security reform could give savings vehicles a boost."Finally, politically the time ripened to where, frankly, the administration decided to pull them off the shelf," said Doug McClure, president and chief executive of Rocky Mountain Bank and Trust in Florence, Colo. "This is really the first time that there's probably been political capital expended on it."
Mark Iwry said passage remains unlikely, however. He was the Treasury's chief pension official from 1995 to 2001 and who is now a Brookings Institution senior fellow.
The proposed accounts "tend to pose a threat to the private pension system, tend to have a questionable impact on increasing actual saving, tend to favor high-income individuals rather than those who most need additional savings, and raise concerns about fiscal responsibility partly because the revenue costs tend to be postponed beyond the conventional budget window," he said.
Mr. McClure agreed that tax breaks are a tough sell in a time of budget deficits.
"The proposals are tax-favored savings vehicles, so that brings it into the debate of the budget deficit," and that remains a key variable, he said.
Mr. McClure said concerns over a lack of savings may trump concerns over lost tax revenue.
"What may seem to be a short-term negative turns into a long-term winner if we can grow our economy," he said. "We can't grow the economy without developing additional capital."
