work place retirement plan and would be a big step in the wrong direction. i have over 20 years experience actually selling plans to small business owners. with rare exceptions, the current year's tax savings was a critical factor and often the only factor supporting their decision to put in a plan. now it's not the small business owners are selfish. quite the contrary. but in real life they aren't sitting on lots of cash. savings generated from the retirement plan tax incentives provides cash to help make contributions required by the nondiscrimination rules reducing the incentive literally reduces the cash the small business owner has to work with. there is not a doubt in my mind that reduced incentives would mean fewer plans and less contributions toward workers' retirement. one of the questions posed for this hearing is whether or not there are too many types of plans. the simple answer is no. a proposal to combine all defined contribution plans into a single type of plan might look like simplification on paper but in practice combining 401(k),

403 b and 457 bs into a single plan would disrupt savings for employees of state and local governments and other nonprofits. and believe me when you're talking to an employer about setting up a plan options and flexibility are not the enemy and one size definitely does not fit all. that is not to say simplification isn't needed. for example we support the small business pension promotion act sponsored by representatives gerlach, kind, and others. we'd be pleased to work with the committee on these and other simplifications. in summary, the road to improved retirement security for working americans is expanded work place savings. reducing incentives for small business owners to sponsor retirement plans is the opposite of what needs to be done. i'd be pleased to discuss these issues further with the committee or answer any questions you may have. thank you very much. >> thank you very much. mr. sweetman, you are recognized for five minutes. >> chairman camp and ranking member levin, thank you for the opportunity to testify at this hearing. i'm the principal in the groom law group a law firm that

focuses exclusively on employee benefits law. prior to joining groom i was the benefits tax counsel at the office of tax policy in the department of treasury from 2001 to 2005. i will testify today about the simplification proposals for retirement savings accounts that we developed at the office of tax policy and that were included in the bush administration's budget proposals for fiscal years 2004 and 2005. please note that i am speaking today on my own behalf and not speaking on behalf of the firm or any firm client in my testimony. one of the reasons to simplify that currently provide various incentives for individual retirement savings, for employer based retirement savings, and for other savings objectives such as the payment of medical expenses or educational expenses. all of these savings vehicles have different eligibility requirements and the amount of the tax benefits could change based on the individual's income status or his or her participation in other savings programs. employer provided safe

retirement savings vehicles present their own level of complexity. under the internal revenue code there are a number of retirement savings vehicles that employers can adopt, including 401(k) plans, 403 b plans, 457 b plans. some rules vary depending on the type of plan and there are limitations on the type of entity that can adopt certain types of plans. multiple nondiscrimination rules add complexity to the administration of these plans. while nondiscrimination rules are a means of making sure that lower paid employees share in the benefits provided under these savings plans, some commentators argue that the level of complexity is excessive in relation to the benefits that lower paid employees receive. the administration's 2004 budget proposal outlined a simplified system of retirement savings with only three types of tax favored vehicles -- lifetime savings accounts, lsas, retirement savings accounts,

rsas, and employer retirement savings accounts ersas. lifetime savings accounts, individuals would be able to contribute $5,000 on an after tax base toys an lsa. amounts contributed would grow on a tax free basis. there would be no income limitations on who could contribute to an lsa. distributions from these accounts could be made at any time regardless of the individual's age, and could be used for any reason by the account owner. those individuals with limited means to save might be more willing to contribute to an lsa because they could access the money saved in the lsa in the event of an emergency, which is different than making contributions to a retirement based system. next was retirement savings account, rsas. individuals could contribute $5,000 on an after tax basis to an rsa with account earnings growing on a tax free basis.

like the lsa no income limits would apply to contributions to an rsa. qualified distributions, i.e., those made after an individual attained age 58 or in the event of death or disability would be tax free. all other distributions would be considered nonqualified distributions and would be included in income to the extent that the distribution exceeds basics. finally employer savings accounts. they would be available to all employees regardless of the type of employee entity and would generally follow existing rules for 401(k) plans including the 401(k) contribution limit, catch up contribution limit for employees aged 50 and above and the availability of roth contributions. the nondiscrimination testing rules would be simplified and eliminated if lower paid employees had high savings rates under the plan.

although the simply haification not exist in congress our efforts to recommend changes to the current retirement savings system was i believe worth while. any effort to advance tax reform will likely include a review of retirement savings initiatives. if one goal of tax reform is to simplify the current system i would recommend that the committee examine the work of the office of tax policy during the bush administration. thank you for this opportunity to address the committee. i will be happy to answer any of your questions. >> thank you. and mr. john, you are recognized for five minutes. >> thank you. chairman camp and ranking member levin i appreciate the opportunity to testify before you this morning on ways to ensure that all americans have the opportunity to save for retirement. i'm david john, a senior research fellow at the heritage foundation and also the deputy director of the retirement security project. this is an issue that transcends ideological and partisan differences. for those who have access to a

payroll deduction retirement savings account, the current system works fairly well. however, millions of americans still lack that ability. in theory, they could save it in an ira. but as jack and judy have shown, only a maximum of about 5% actually do so on a regular basis. many of these workers who lacked the ability to save through payroll deduction are part-time employees of smaller businesses -- women, members of minority groups, younger workers, or all four. social security, even if it was fully funneleded, only provides about half the income needs of an average income worker. either we can ensure that everyone has the ability to save to provide for themselves in retirement or a congress in the near future will face demands for additional taxpayer paid benefits. those demands will be very hard to resist. ensuring that all americans have the opportunity to save will require some hard decisions. the proposal developed by mark

avery who was then at brookings for automatic iras would provide a relatively simple cost effective way to increase retirement securities for millions of americans. the automatic i.r.a. would enable these americans to save for retirement by allowing them to regularly contribute amounts from their own pay checks to an i.r.a. the plan is simple for both employers and employees. employees would be automatically enrolled into their employers' automatic i.r.a. automatic enrollment is a process that is proven to build participation which employees like and under which employees have complete control ultimately of their own retirement savings decisions. to avoid confusion, and to keep costs low, all automatic i.r.a.s would offer three and only three investment choices. for employers the plan is also very simple. they would be asked to do the same thing they now do to withhold income and other taxes from an employee's paycheck except that the money would go

into an i.r.a. instead of to the treasury. employer contributions would neither be required nor permitted. employers would not be required to comply with arisa rules or other types of regulations that apply to 401(k)s or a variety of other things. the simplifications eliminate almost all the costs associated with an automatic i.r.a. the plan also includes a tax credit designed to cover any remaining startup in administrative costs. while the automatic i.r.a. is especially valuable for new savers it would be equally valuable for older savers who change jobs from a company that offers a 401(k) plan to a smaller company that currently has no type of retirement savings plan. right now these workers stand to have gaps which cripple their ability to build retirement security. however, under the automatic i.r.a. they could roll their 401(k) type accounts into the automatic i.r.a. and continue savings. that would also work if they went to a larger company.

this is not partisan or ideological proposal. the concept has been endorsed by a number of varied publications such as "national review" and the "new york times." it has been endorsed by significant conservative and liberal officials and other types of officials. earlier this year representative richard neil introduced hr-4049 the automatic i.r.a. act of 2012. whilt heritage foundation is 5013 c nonprofit does not and cannot endorse any legislation let me say the policy contained in his bill would significantly improve our retirement savings system. my written statement also discusses the value of simplifying current confusing series of retirement savings accounts so that ordinary americans and employers can better understand them. in addition, my statement discusses two modest proposals. first to use tax information to encourage taxpayers to consolidate their retirement accounts if they desire to do so

and, second, to include social security administration on an annual 401(k) or i.r.a. statement so that the account owner has a complete picture of their expected total retirement income in time to make a change so that they could actually increase savings and improve their potential outcome. it also discusses a des ishlt of allowing multiple employers to share a retirement savings platform and a thought or two about tax retirement savings. i'd be happy to discuss them at any point. thank you for giving me this opportunity to testify. i look forward to your questions. >> thank you very much. mr. hardic, you are recognized for five minutes. i think your microphone -- thank you. >> thank you for the opportunity to speak with you today on behalf of the american benefits council. i am an attorney with over 30 years' experience specializing in retirement plans. i served as benefits tax counsel at the treasury department and was the senate finance committee tax counsel responsible for retirement issues during consideration of the 1986 tax

reform act. this committee, the ways and means committee, has been responsible for every major improvement in retirement savings. that includes the bipartisan retirement security act passed in 2001. the legislation that established the successful framework for defined contribution plans and i.r.a.s that is still in place today. that 2001 bill was cosponsored by you, chairman camp, by you, ranking member levin, we thank you both for that. it was cosponsored by every senior republican still serving on this committee and by ten of the 15 democrats serving, now serving on this committee. it was cosponsored by speaker boehner, minority leader pelosi, majority leader canter, and minority leader hoyer. promoting retirement savings is an area where republicans and democrats have long been able to agree and we urge you to continue your support in the context of tax reform. the current retirement system is

working. it's working for the almost 80% of full-time employees with access to retirement plans at work. it works for the almost 100 million americans who have saved through workplace retirement plans or i.r.a.s. so the first and most important principle to consider when you discuss tax reform and the retirement system is do no harm. in 2012, 80% of households with defined contribution plans said that tax savings were a big incentive to contribute. almost half say they -- said they would not contribute at all to any retirement savings if it weren't for their defined contribution plan. today coverage and nondiscrimination requirements, the savers' credit and various other rules ensure the benefits in defined contribution plans are delivered fairly across all income groups. current rules also provide balanced incentives that encourage business owners to voluntarily maintain retirement plans and encourage employee

participation. any major restructuring of the system that reduces or tries to reallocate existing retirement tax incentives is a gamble we cannot afford to take when dealing with the retirement security of working and retired americans. reducing retirement savings incentives to pay for other initiatives would be counterproductive. proposals that appear to increase short-term federal tax revenue from changes in the retirement savings incentives generally get those additional revenues because individuals are saving less for retirement. making matters worse, as ms. miller indicated, short-term revenue gain from changes in the retirement incentives under the current budget rules is an illusion because when a worker saves less money today, it will mean smaller distributions and less tax revenue when the person retires. just like the short-term budget scoring conventions the tax expenditure score keeping also

does not paint an accurate picture. the bulk of today's estimated retirement tax expenditure comes from savings that are already in retirement plans and i.r.a.s, not from new contributions. so that big tax expenditure number cannot be turned into big new tax revenues without retroactively taxing the existing retirement savings nest eggs of americans. that action would rightly be seen as a breach of trust by those workers who contributed and those employers who contributed on the assumption that this money would grow tax free and be taxed only at distribution. still, the retirement system can and should be improved for all americans especially those with lower incomes who find it most difficult to save. tax reform offers the opportunity to do just that by building on the existing system not by tearing it apart. today employer sponsored plans make effective use of payroll deduction, provide fiduciary oversight and typically include an employer contribution.

more americans need access to those work place retirement savings plans and all americans should be encouraged to save at higher levels. one area that deserves particular attention is the automatic enrollment and automatic increase strategies. those are planned where workers must opt out of planned participation rather than opt in and where the default contribution levels are increased each year. these plan designs increase participation and savings rates significantly especially for low income, younger, and minority workers. more employers are adopting these designs each year but greater incentives should be considered to accelerate that trend. we also believe much could be done to reduce the costs of plan administration. for example, regulations on delivery of required notices should be brought into the 21st century to better accommodate electronic delivery. we stand ready to work with the members of this committee to assist the members of this committee in continuing its long history of promoting retirement

savings. >> thank you. thank you all for that excellent testimony. today's tax filing day and that is the deadline which americans have to spend millions of hours preparing their taxes. because our system is a complex one. and not only is compliance complicated but long-term financial planning is complicated as well because of our code. i'd like to just explore and ask each of you how the tax code is performing in the area of retirement security. employers who want to offer a retirement plan, retirement savings option as you mentioned they have a choice as many of you said of many different proposals out there with different rules. and certainly individuals trying to save for retirement have one set of rules. individuals trying to save for health have another system with another set of rules. and families trying to save for education also have many options

available. each with its own set of rules. but my question is, should the system, and i -- i'll start with mr. hardic and go down the line. should the system of existing tax advantage retirement savings, should those be consolidated to make it easier for individuals to save? if you have an opinion on that? >> most americans that have retirement plans are quite happy with the plans they have. the fact is plan participants and most employers do not choose between a 401(k) plan or a 43 b plan or 457 plan. they simply have one. those choices are not particularly difficult and when they do come into play they're made by employers. what you get if you try to consolidate is you make everyone reconsider and everyone amend their plans. that can be very disruptive and

for the individuals involved and expensive for the employers that have to do that. i'd add that the abc members are also very concerned about any proposals that would consolidate retirement savings options with savings vehicles for other purposes like education or health. most people save for a purpose and confusing that retirement savings message could be very counterproductive. >> all right. mr. john? >> i understand what my colleague just said, but the fact is when we talked to multiple small businesses and the like, the number of different types of savings plans and, frankly, the rather confusing numbers and names, caused a fairly great anxiety among small businesses that were considering starting some sort of a plan especially the ones that were fairly early in that process. so something that would consolidate, something that

would simplify. not the least of which as i say is a simple marketing technique just changing the name of the blasted things. i mean, what is a 401(k)? when it comes right down to it. it would be exceedingly useful. there is another aspect of this, though, which is that you referred to savings for different things. and as you pointed out, there are a wide variety of different types of advantages or tax code treatments. it would actually be much simpler if you just created all real savings the same way and exempted it from income without necessarily having to have one level for a 401(k), one for college savings, one for various and sundry other savings. savings that is not consumption is actually an exceedingly valuable thing and should be encouraged so to the point that you look at simplification it is not just the matter of the

accounts but the matter of savings itself. >> all right. thank you. mr. sweetnam? >> thank you. let me first focus in on the individual retirement savings. first off, i think one of the things we tried to do in the administration's proposal was to eliminate the income limits because when you have those income limits you really weren't quite sure whether you were eligible to make a contribution to an i.r.a. in fact, if any of you remember prior to the income limits being put on, banks used to stay open on tax day until midnight in order to accept people's i.r.a. contributions. there used to be lines in banks to make i.r.a. contributions on april 15th. once we put in the income limits, those lines went away. i think that was one thing we

tried to do in our proposal. the second thing we tried to do and i think david alluded to this was with our rsa and lsa proposal. our lsa proposal was a means for people to save for any reason and to pull money out of those accounts to use for any reason. one thing people have to realize is people's savings needs change over time. younger people may be thinking about savings but may not be thinking about retirement savings. i have a 30-year-old son but he is saving to buy that house which i think would be a good thing. when he gets a little bit older he'll be saving for retirement. what we tried to do with our lsa proposal was to give lower income people or people who were

at the margins of savings a way to have a tax favored vehicle in order to have savings. on the retirement side i think one of the things that you've seen, i probably have been practicing as long as randy, and what we have seen over the years is congress legislating to make the differences between the various types of retirement plans less and less and less. and so that what we were trying to do in our proposal was take the final step. all of the plans have the same contribution amounts. we just said let's take the final step lanl nate the various code -- eliminate the various code differences between the two. but congress has been going that way over the last few years.

>> right. thank you. ms. miller? >> thank you. i'd like to focus on the employer side of this. i think it actually ties into the individual, too, in that when you're talking to a small employer it really isn't that confusing. if you pull somebody that's not thinking about retirement plan and say here's this, this, this, but if you're actually talking to an employer saying do you want to put in a retirement plan you are saying do you want an i.r.a. based plan or one that has a trust that your employees are more likely to leave the money in? if you put your money into a 401(k) for them they can't pull it out right away. if you put it into a simple plan they might run off with it. you're drawing those distinctions. and then you're really talking about how much can you afford and what would you like to do? and this is where i get concerned about the proposals for individual savings in that right now we have the $5,000 i.r.a. limit and then you can go up to, you know, $10,000 for a simple plan and then you can go up to $17,000 for the individual

deferral in a qualified retirement plan. so there really are rewards for stepping up and providing better benefits. i think that's why the system really has been working so well. if you have, and there is a proposal for, i'm sorry, a deferral only safe harbor of like $8,000 or $10,000. what happens is if you have somebody that can put $5,000 -- a small business owner can put $5,000 in an i.r.a., $5,000 in an lsa. sudden polly there is no reason in the world in terms of what they can save on a tax favored basis for them to put in a simple plan. right now they have the $5,000 i.r.a. if they want to put in $10,000 they're going up to a simple plan. you have to be careful that what you do on the individual savings side doesn't disrupt the structure that really works pretty well on the individual employer side. i think when you look at it from an employer's perspective in selling them a plan, there are

options. there are things you can do as opposed to the i.r.a. charge at the beginning of bill's testimony where it is basically telling you when you can't do something. with the employer side it's here's what you can do. here are your options. it's very positive on the employer side. >> all right. thank you. mr. vanderheid? >> thank you. while we don't take positions on proposals of this sort i find a lot to agree with in what randy and judy just said. i think from a rather abstract viewpoint if you look at what's happening with respect to employers, you would introduce a whole new set of nondiscrimination testing if you did something like this. the other thing you have to keep in mind is many employees are very targeted in what they're saving for and i think what you would need to keep in mind is if you make it rather amore fousse as far as an overall savings target it is going to be much more difficult for any individual to find out whether or not they are basically ontrack for a specific

retirement income. >> all right. thank you. mr. levin may inquire. >> well, thank you very, very much for your testimony. mr. chairman, i think this is a hearing that has significance for tax reform for this issue and beyond. because while there are some differences among you, some, and i think everyone believes we can improve the system, i think your testimony issues a warning to those who propose to eliminate all tax expenditures or those who equate tax expenditures loosely with tax loop holes. because this tax expenditure, i

think, is not a loop hole. it's a policy. and some have essentially said, let's start by eliminating them all and go on from there. and some propose --.