Feb., 26/Virginia/ -- As part of its budget package for fiscal 2004, the administration has proposed sweeping changes in the rules for retirement savings, including the use of Individual Retirement Accounts. The restructuring would open up greater savings opportunities, especially for affluent households.

However, the prospect of lost tax revenue and threats to the availability of employer-sponsored savings plans have provoked questions in Congress and among benefit specialists.

As part of its budget package for fiscal 2004, the administration has proposed sweeping changes in the rules for retirement savings, including the use of Individual Retirement Accounts.

The restructuring would open up greater savings opportunities, especially for affluent households. However, the prospect of lost tax revenue and threats to the availability of employer-sponsored savings plans have provoked questions in Congress and among benefit specialists.

"No longer will people have to worry about the endless maze of confusing rules," said Pam Olson, the Treasury Department's assistant secretary for tax policy, when announcing the savings- plan proposals in late January.

In addition, the administration wants to create Lifetime Savings Accounts that would allow individuals to save for any purpose, including retirement, education and health-care needs. Savers would be able to withdraw their money at any age without being taxed on dividends, interest or capital gains.

A new Retirement Savings Account, which would replace IRAs, and the Lifetime Savings Account, Olson said, "will have one powerful goal: making savings for everyday life and retirement security easier and more attractive."

Although a bill with those proposals has not yet been submitted to Congress, an army of critics already has emerged. Life insurers are worried about a falloff in their sales of annuities. Deficit hawks have expressed concern about significant losses of tax revenue, and liberal advocacy groups have attacked the savings measure as another tax break for the wealthy.

Glenn Sulzer, a senior tax analyst with the business research and publishing company CCH Inc., said the prospects for passage appeared slim because of fears about lost tax revenue and burgeoning deficits.

For the Treasury, "the biggest impact would come when people are taking tax-free withdrawals when they retire" several years from now, Sulzer said.

Bruce D. Harrington, vice president of product development for the mutual-fund group MFS Investment Management, said he was optimistic about the prospects for the administration's proposals. Congress, he predicted, would act on the savings measures but not before making several changes.

"This plan has a lot of morphing ahead of it," he said.

The administration introduced its proposals amid rising concern about the modest levels of retirement savings by U.S. households.

Not only are people living longer, but health-care costs are also rising sharply, said Dallas L. Salisbury, president of the Employee Benefit Research Institute, a business-supported organization that monitors retirement and health-care issues.

That means retirees will require greater financial resources to maintain their living standards. However, most Americans haven't adjusted to the fact that they should be setting aside much more for their retirement, Salisbury said.

"We have to figure out a way for Americans to save more and to get into a savings culture," he said.

Meanwhile, some cracks have emerged in existing retirement- savings programs. Many households that were putting aside money in 401(k) plans and IRAs have seen those assets battered by three years of losses in the stock market.

They aren't alone. Corporations' defined-benefit pension plans have been bloodied by losses on their equity investments, too. To meet their obligations to retirees, many companies are having to pump cash into their pension plans, something they didn't have to do during the bull market of the late 1990s.

Defined-benefit plans provide retirees with a set monthly payment based on their years of service at a company and what they earned while working there. Because of the administrative costs and long- term obligations of these plans, their number has been shrinking steadily in the past decade.

In their place, many companies have offered a less costly alternative, 401(k) plans. These are funded by contributions of pre- tax dollars from employees' pay. Companies offer participating employees a mix of investment options, and some companies match at least part of what employees put into the plans.

The use of pre-tax money enables the assets of a 401(k) account to accumulate more quickly than they would otherwise. Still, the investment risks are borne by the employee, not by the company they work for. With a defined-benefit pension plan, the company offering the plan is responsible for its performance.

These are some key features of the savings accounts proposed by the Bush administration and some of the critics' concerns:

Retirement Savings Accounts: These would take the place of Individual Retirement Accounts and operate much like a Roth IRA. There would be no tax deduction on a saver's contributions, and withdrawals made after age 58 would be tax-free.

Savers could contribute as much as $7,500 a year, or more than twice the current maximum contribution to an IRA and Roth IRA. The ceiling for contributions would be indexed to rise with inflation.

Roth IRAs would be converted automatically to Retirement Savings Accounts. Traditional IRAs could be converted to the new account, but it would require paying taxes on the IRA's past earnings.

Savers with traditional IRAs would not be required to convert their accounts to a Retirement Savings Account, but they would be barred from making contributions to IRAs.

Lifetime Savings Accounts: Individuals could use these to save for any purpose without being taxed on interest, dividends or capital gains. Savers would be allowed to contribute as much as $7,500 a year. In addition, parents and relatives would be able to contribute to a child's Lifetime Savings Account.

When asked about their reluctance to use retirement-savings accounts, people who weren't saving have responded, "I don't have any money to save" or "I won't have access to the money if I need it," said Salisbury of the Employee Benefit Research Institute. The flexibility of the Lifetime Savings Account might encourage some of these lower-income workers to put aside something for retirement, he said.

Critics, however, contend that easy access to the funds in a Lifetime Savings Account may siphon away money that some individuals would have put into retirement-savings accounts.

Employer Retirement Savings Accounts: These would simplify the rules for a handful of different employer-sponsored accounts that have similar goals but different rules for eligibility, contribution limits, tax treatment and withdrawal restrictions.

"This complexity discourages many employers from offering any plan at all," Olson of the Treasury Department said when announcing the administration's proposals. "This is especially true of small employers who together employ four out of every 10 workers."

Existing 401(k) accounts would be unaffected by the conversion to Employer Retirement Savings Accounts. Contributions to the accounts would be treated the same, and withdrawals would still be subject to income tax.

An Employer Retirement Savings Account could be provided by any employer, and participants would be allowed to contribute as much as $12,000 a year, the current ceiling for 401(k) contributions.

For decades, the federal government has provided tax incentives to companies and their owners for offering retirement plans to their workers.

To make sure that the company's retirement benefits aren't overly concentrated among the officers and key employees, the retirement plan must meet certain government-imposed tests. Some of those tests, which can add to the cost of maintaining a retirement plan, would be eliminated by the Bush administration.

Some retirement-plan specialists endorse the efforts to simplify those tests. However, they worry that some small-business owners still might be tempted to avoid offering an Employer Retirement Savings Account or to scrap their company's existing plan.

The availability of tax-free savings from Retirement Savings Accounts and Lifetime Savings Accounts could outweigh the tax benefits that some owners would reap from using a company-sponsored plan for employees.

Under the Bush administration's proposal, a business owner and spouse would be able to set aside $7,500 each in two Retirement Savings Accounts and another $7,500 each in two Lifetime Savings Accounts for a total of $30,000 of retirement savings a year.

Some business owners may decide that using this combination of accounts would be more effective than dealing with the complexities and costs of an Employer Retirement Savings Account, said Ed Ferrigno, vice president of Washington affairs for the Profit Sharing/401(k) Council of America, a group of companies that offer employer-sponsored retirement accounts to employees.

The reduced availability of retirement-savings accounts in the workplace, he said, would mean that many lower-income workers participating in 401(k) plans today would stop saving for retirement.

"We think employers add tremendous value," Ferrigno said, "particularly for the at-risk savers who tend to have lower incomes and less education."