sweetnam and mr. john you are recognized for five minutes. >> chairman camp and ranking member levin i appreciate the chance to testify before 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 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 can save it at a higher rate but as jack and judy have shown only a maximum of 5% actually do so on a regular basis. many of these workers who lack the ability to save through payroll deductions for part-time employers or smaller businesses, women, members of minority groups, younger workers are all for. social security even if it was fully funded, only provides about half the retirement income

sweetnam, your testimony mentions that following the bush administration's proposal simplifying this area, many interested parties were concerned about the proposal resulting in fewer savings opportunities being available to small businesses, causing them to opt out of offering an employer-based savings vehicle. you also mentioned that the 2005 budget proposal addressedel some of those concerns. can you just elaborate for us what you heard during your proposal and what changes you made to the '05 budget, and if congress were to move forward on meaningful reforms, what are some of the transition rules that you -- that you might advise us to keep in mind? >> well, the two big things that were -- were problems was one in 2004, we had the lsa and the rsa contribution amount at $7,500. and we reduced it to $5,000. and what we had heard from some of the -- some of the policy folks, particularly aspa being one, was that by having that high of a tax-favored savings amount, some smaller business people might say, well, you know what, i can put in $7,500 in my lsa, $7,500 in my rsa. i don't ne

sweetnam. >> let me focus in on the individual savings. one of the things we tried to do was to eliminate the income limits because when you have them, you're not sure whether you are eligible to make a contribution to an ira. 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 ira contributions. there used to be blinds to make those contributions on april 15. once we put in the income limits, they went away. i think that was one of the things we tried to do. the second thing we tried to do, and i think david alluded to this, was our lsa proposal. it was a means for people to save and to pull money out of those accounts for any reason. one of the things people have to realize is that people's savings means change over time. young people may be thinking about savings but they may not be thinking about retirement savings. i have a 30-year-old son. what is he saving for a tax saving to buy a house. when he gets older, he is going to be saving for retirement. what

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 r

sweetnam, if i could ask you, should congress make sure we protect esops as successful savings retirement vehicles, and also attempt to simplify the defined contribution retirement system, as well? >> when we looked at the retirement simplification, when i was part of the treasury department, we thought that the esops were perfectly fine. and we didn't -- we didn't try to modify them at all. and i -- you know, under my personal thoughts are, you know, i've dealt with the -- with esops and fsops over my career, and they provided very good benefits for people. so i think that, you know -- i think one of the things you're hearing from everyone here is that we shouldn't be cutting back on retirement benefits, and esops and s corporation esops are an important benefit. and i think that everybody is fine with continuing on. >> ms. miller, you're nodding your head. should esops be used at that structure, serve as a model as part of tax reform or just having that encop compass? >> i think it's important to maintain them. i'm not sure i can say they're a model. when you're dealing with an employer

sweetnam, your testimony mentions following the bush administration's proposal simplifying this area come in many interested parties were concerned about the proposal resulting in fewer savings opportunities being available to small businesses, causing them to opt-out you also mention the 2005 budget proposal it drives some of those concerns. can you elaborate on what you heard during your proposal and what changes you made to the 05 budget and if congress were to move forward on meaningful reforms, what are some of the transition rules that she might advise us to keep in mind? >> well, the two big things that were problems was one in 2004, we had the lsa and the rsa contribution amount is $7500 we reduced it to $5000. what we have heard from some of the policy folks, particularly after being one, was fed by having that high a tax favored savings amount, some smaller business depot might say you know what, i can put men 7000 and the lsa, 7500. i sheltered everything. i don't need any further savings through an employer provider. the other thing that we do is in the er essay proposal,