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A Retirement Plan for Job-Hopping Workers

December 08, 2002|James H. Smalhout | James H. Smalhout is a financial writer and author of "The Uncertain Retirement."

The American Automobile Assn., Kaiser Permanente, Blue Cross/Blue Shield and other large, independent insurance carriers all could make excellent sponsors. Congress should give the new Triple-A plans, with independent third parties behind the wheel, the same valuable tax treatment enjoyed by traditional defined-benefit plans and 401(k)s.

Employers should welcome the new plans. Group contracts, no doubt, would cut costs. And employer contributions would make them a breed apart from today's IRAs.

But the ultimate beneficiaries would be retirement savers, and they have needs that aren't being met with current pension plans. Many would be better off in a defined-benefit plan, but without back-loading. Such a thing, unfortunately, doesn't exist in today's marketplace. Workers should have better choices at four stages:

* they should be able to choose a Triple-A plan or to stick with the old way;

* savers, once in a Triple-A plan, should decide whether and to what extent they want to take a defined-benefit approach;

* Triple-A plans should offer a menu of cost-effective investment choices, unlike most 401(k)s and IRAs today;

* annuity choices should be attractive. Only TIAA-CREF, the 401(k)-type system for many college professors, private school employees and others, seems to have made a serious effort to provide retirement payments that protect retirees against inflation and other risks of living longer than expected. Not surprisingly, the market for individual retirement annuities today is minuscule.

This may be a propitious time to introduce Triple-A pensions. Companies that, until recently, used traditional defined-benefit plans to puff up their bottom lines will be paying for this legerdemain for years to come. Many will be sorely tempted to switch to 401(k)s. Workers, however, will be leery. That's one more reason why Triple-A pensions could be the best way forward. But it won't happen until Congress stops staring into the rearview mirror and takes a sober look down the road ahead.

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