Tubbs Jones Introduces the Flexible Retirement Savings Act

WASHINGTON, Sept. 27 /PRNewswire/ -- Today, Congresswoman Stephanie Tubbs Jones joined Ways and Means colleague Nancy L. Johnson (R-CT) in introducing the Flexible Retirement Savings Act of 2005. This legislation will address the critical issues of long-term care and retirement savings. Specifically, it creates a tax incentive for people to annuitize a portion of their savings as a way to protect against longevity or outliving their savings. In addition, it breaks down artificial walls that discourage people from coupling a life insurance policy or an annuity with a long-term care policy.

"As the American population ages, it is important that we begin to address the various public policy changes that will need to take place to accommodate the estimated 87 million Americans over the age of 65 that will be living in our society by the middle of this century," stated Rep. Tubbs Jones. "This legislation proposes common sense solutions to the problems posed by an aging society such as long-term care and lifetime savings through Annuities."

The Flexible Retirement Savings Act will address the following:

- Long-Term Care: Under current law benefits paid from stand-alone
long-term care insurance are non-taxable. However, if the long-term
care insurance is a contingency as part of an annuity or life insurance
policy, the benefits are considered taxable income. This legislation
simply grants the same tax-free treatment that exists for stand-alone
long-term care to combination insurance. In addition, the bill provides
more flexibility by allowing people to exchange their life insurance or
annuity for a long-term care policy tax free. Right now, if an
individual wants to exchange a life policy or an annuity for a
long-term care policy, they must pay income taxes on the cash value of
the policy.

- Lifetime Savings through Annuities: The Flexible Retirement Savings Act
creates a tax incentive for people to use lifetime annuities. The
proposal would exclude from federal income taxes half of the payments
from a non-qualified, lifetime annuity up to an annual limit of $20,000
(so a $40,000 annuity would only be taxed on $20,000). For an
individual in the 25 percent bracket, for example, the tax savings
could be as much as $5,000 annually. (A non-qualified annuity is
purchased with after tax dollars and is not part of an employers
sponsored retirement plan or IRA).

Over the next several decades, federal and state budgets will be strained by the costs to care for an aging population. Medicaid is currently struggling to cope with the long-term care costs of seniors and our other entitlement programs, Medicare and Social Security, face massive future deficits. While The Flexible Retirement Savings Act does not address these programs directly, it does encourage people to use their savings wisely and protect themselves from financial trouble, and at the same time it will alleviate pressure on public coffers. More importantly, it follows in the spirit and tradition of bipartisan policymaking that remains a hallmark of our private savings initiatives. People want to take responsibility for their well-being and not leave a huge burden for their children or grandchildren. This legislation is a step in that direction.