Pres. Bush's plan encourages savings.

• Position: Investment

We've all heard the talk about how consumer spending will boost the economy. How about consumer savings? That's the route taken by Pres. Bush's proposed retirement plan. Consumer savings ultimately will lead to economic recovery in the U.S., contend experts at Evaluation Associates (EAI), a Norwalk, Connecticut-based, full-service consulting firm for the institutional investment community. "If you really encourage people--who have the ability to save--to save, it benefits everybody," indicates Phil Maisano, chairman and chief executive officer of EAI. "If people save more, that drives down the cost of capital because there is more capital available. As the cost of capital goes down, it makes growth more available and companies more willing to expand."

Consumer savings also brings down--and keeps down--interest rates. With the cost of corporate borrowing lowered, companies can expand and create jobs. Increasing the pool of capital also lowers the cost of government debt, which lessens government budget deficits and decreases the need for the Federal government to borrow money.

Maisano predicts that the Bush plan also could have far-reaching effects on Social Security. "You're going to lessen the dependence on Social Security in a way that might allow the government to distribute benefit payments based on need rather than automatic disbursements. If you give people the opportunity to save their own money, they may not be so dependent on a government check."

The Bush plan calls for the creation of three new retirement vehicles: Lifetime Savings Accounts (LSAs), Retirement Savings Accounts (RSAs), and Employer Retirement Savings Accounts (ERSAs).

LSAs would enable individuals to save as much as $7,500 per year. The funds would grow tax-deferred and could be taken out tax-free at any time and for any purpose. The only catch is that contributions are not tax deductible. RSAs would replace individual retirement accounts including Roth IRAs, and traditional and nondeductible IRAs. Individuals could contribute $7,500 each year, and the funds would not be taxed if they were withdrawn after the age of 58. There is no tax deduction on contributions. Contribution limits for both LSAs and RSAs would be indexed for inflation. ERSAs would replace employee-sponsored retirement plans, such as 401(k), 457, and 403(b) plans, by rolling them all into one. The lone retirement vehicle that won't be affected is the...