National Association of Insurance and Financial Advisors
2901 Telestar Court Falls Church, VA 22042-1205
703/770-8100 FAX: 703/770-8151
www.naifa.org
2901 Telestar Court Falls Church, VA 22042
Phone (703) 641-9400 Fax (703) 641-9885
www.aalu.org
Special Action Alert
TO: All NAIFA Members
FROM: Randy R. Kilgore, CLU,
LUTCF, RHU, NAIFA President
FROM: Robert B.
Plybon, CLU, ChFC, AALU President
DATE: February 19, 2004
SUBJECT: LSAs HURT LIFE INSURANCE, ANNUITIES, LONG-TERM SAVINGS
Overview: Life insurance and annuities face a serious threat in Congress from a well-intended, but harmful, proposal called Lifetime Savings Accounts (LSAs). The 2005 federal budget plan renews last year's call to create LSAs. NAIFA and AALU believe Lifetime Savings Accounts pose a serious risk to long-term security provided through permanent life insurance and annuities, and other means of long-term savings.
Call to Action: NAIFA and AALU ask that you email your state's two U.S. Senators and your Representative today and urge them to oppose the creation of Lifetime Saving Accounts. You can send a message using AALU's Grassroots Action Center at Center at http://econstituent.votenet.com/naifa, selecting "LSAs Hurt Life Insurance, Annuities, Long-Term Savings," then "Take Action Now" and filling out the requested information. You can use the sample email at that site or compose your own, working from the talking points below.
Why LSAs Hurt Life Insurance, Annuities & Long-term Savings: An LSA is an unrestricted savings or investment account that receives special tax treatment. Any individual (adult or child) may deposit up to $5,000 (after tax) per year into the account regardless of income. The account gets tax-free "inside build-up" on current earnings, and account balances may be withdrawn tax-free at any time for any reason. The lack of restrictions on LSAs has caused some to call them "lifetime spending accounts." A tax advantage for unrestricted LSAs would discourage families from purchasing permanent life insurance and annuities-savings vehicles that contribute far more to financial security and long-term savings.
Thank you for your much-needed action on this
issue. If you have questions or need additional information, please
contact Mike Kerley (NAIFA) at 703/770-8155, mkerley@naifa.org; Heather
Eilers-Bowser (NAIFA) at 703/770-8158, heilersb@naifa.org; or Tom Korb
(AALU) at 703/641-8120, korb@aalu.org.
Talking Points In Opposition to LSAs
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Everyone knows the importance for individuals and families to set aside funds for retirement and family security purposes. LSAs will encourage saving and spending now, undercutting financial discipline.
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It is imperative that the nations' policy makers recognize the importance of creating long-term versus short-term capital. Certainly the country and individuals need near-term liquidity for near-term spending goals. But even more the country needs a source of long-range capital.
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As for individuals, they will eventually reach a point where income production is no longer practical. At that point they will only have the long-range savings they set aside when they were younger.
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As proposed, Lifetime Savings Accounts are very appealing. Too appealing, in fact! The concern is that they will attract funds that people, particularly middle-income workers, would be better served putting into qualified retirement plans, annuities and life insurance.
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Small business owners need a balance of incentives to establish pension plans for themselves and their employees and rules that discourage looking out for just the financial security needs of the business owner. Between the proposal for Retirement Savings Accounts and the generous Lifetime Savings Accounts, one wonders how many small business owners will establish a retirement plan for their employees. Studies show a very clear correlation between the employer match under a typical 401(k) plan and the likelihood of rank and file employees participating in the plan.
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Even though LSAs sound good, their long-range effect will be counterproductive. Members of Congress should oppose the creation of LSAs.
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DRAFT LETTER
Dear Senator/ Representative ______________,
I am contacting you because I oppose the creation of Lifetime Savings Accounts, and want to urge you to oppose them as well.
As an insurance agent and financial advisor I have seen so many instances of the harm done where individuals save and spend for short-term purposes and neglect to save for long-term security. Unfortunately, as I read it, Lifetime Savings Accounts as proposed in the new budget plan will encourage even more short-term saving and spending. As a result, I believe LSAs, because they will favor short term savings over saving for retirement, will have a very negative consequence in the long run for individuals, their families and ultimately the country.
Congress has granted taxpayers significant tax benefits intended to encourage people to set aside funds in pension plans, annuities, life insurance and investment accounts for long-range security needs. These vehicles also carry varying degrees of tax penalty designed to discourage withdrawing funds for current consumption. LSAs would be given tax-free "inside build up" treatment for up to $5,000 that individuals contribute per year, the same treatment given to life insurance and annuities. However, LSAs would receive much more favorable tax treatment upon withdrawal. There would be no tax on withdrawals from an LSA at any time, at any age and for any purpose.
The long-range implications for putting new money into LSAs, or worse, shifting money from existing annuities and life insurance to an LSA are frightening. I believe people will be less prepared for the financial realities of living too long or dying too early. Why? Because LSAs will encourage them to save and then spend for current wants.
One more factor to remember is that life insurance and annuities are the key source of capital that insurance companies invest in the economy, life insurance companies being the number one source of long-term capital in the United States. A shift from life insurance and annuities to LSAs may well starve the country of long-term capital in the future.
On the surface, LSAs sound good. But the long-term consequences will be bad. I ask you to oppose their creation.