Increased protection of IRAs wins vote
By Marcy Gordon
Associated Press
WASHINGTON — The House voted yesterday to increase government insurance on IRAs and 401(k) accounts held in banks from $100,000 to $260,000, responding to a White House endorsed trend among many Americans to roll their money into more conservative investments as they near retirement.
"Increasingly, older people's accounts are getting larger," said Roy Green, a financial services lobbyist for the AARP, the 35-million-member behemoth of people over 50.
Whether certificates of deposit, money-market accounts or simple passbook savings, such accounts offer little prospect of growing appreciably, but they also won't erode or disappear with ups and downs in the stock and bond markets.
The House vote was 413-10 for the legislation, which also raised the $100,000 ceiling on bank accounts not earmarked for retirement to $130,000.
The measure would raise maximum insurance coverage for deposits for the first time since 1980, when it was $40,000 per account.
Proponents say the move is needed to keep pace with inflation and encourage more people to save. With inflation, $40,000 in 1980 would be worth nearly $94,000 today.
Republicans have pushed the bill through the House before, only to see it die in the Senate, where memories linger of taxpayers having to fork over $132 billion for the savings-and-loan bailout of the late 1980s and early 1990s.
The banking industry has lobbied for an increase in the program established during the Depression.
Smaller community banks, especially, believe that it would help them compete for deposits with bigger institutions.
Critics, including Federal Reserve Chairman Alan Greenspan, complain that to protect the wealthy, a burden potentially bigger than that of the thrift bailout would be imposed on taxpayers.
Rep. Carolyn Maloney, D-N.Y. said that with an estimated 2 percent of bank accounts exceeding $100,000, the change would benefit few depositors.
The legislation also would require that the insurance coverage for deposit accounts, after being raised, be changed to reflect inflation every five years. It would combine the federal bank insurance fund with the fund for savings and loans, with a view to creating a single, more diverse fund that would be less vulnerable to regional economic problems.
In the Senate, Banking Committee Chairman Richard Shelby, R-Ala., "has concerns that this may cause greater exposure to taxpayers," his spokesman Andrew Gray said yesterday.
After the vote yesterday, Federal Deposit Insurance Corp. Chairman Donald Powell issued a statement saying his independent agency "will continue to work with the Senate to get a bill onto the president's desk so that it can become law."
