PTAZX Putnam Arizona Tax Exempt Income Fund

Proposals by Washington deficit hawks to cap or eliminate tax incentives that encourage Americans to save for retirement are “short-sighted” and could contribute to sending millions of low- and moderate-income workers into retirement with little or no savings, said Putnam Investments President and Chief Executive Officer Robert L. Reynolds. Speaking before the Greater Boston Chamber of Commerce Executive Forum today, Reynolds called on the Congressional delegation in Massachusetts, the birthplace of the mutual fund industry and a national ‘hub’ for retirement services, to oppose any policy shift that could undercut incentives for workers to save or employers to offer workplace savings plans.

“We absolutely need to take steps to balance the federal budget and put the nation on the path to fiscal solvency, but nothing we do to achieve national solvency should come at the expense of personal solvency, especially private retirement savings or incentives for companies to offer 401(k) plans to their workers. Those most severely hurt if savings incentives were cut would be low and moderate income workers who need help in saving for their futures.” said Reynolds. “I urge the Massachusetts Congressional delegation to take the lead in defending policies that enable millions of working Americans to save for a secure and dignified retirement.”

Contrary to any notion that savings tax deferrals benefit only the well-to-do, Reynolds noted that workers earning less than $100,000 annually received 62 percent of all retirement-related tax expenditures while paying just 26 percent of federal income taxes. By contrast, workers earning more than $200,000 annually received just 11 percent of all retirement-related tax expenditures despite paying 52 percent of all federal income taxes.1

Among low to moderate income workers, those earnings between $30,000 and $50,000, having access to savings plans on the job is vital, Reynolds said. 71.5 percent of such workers save for retirement if they have a workplace savings plan, but just 4.6 percent of workers in the same income bracket who lack a plan on the job save through an Individual Retirement Account.2 A shift in policy that reduces incentives for companies to offer plans could backfire, Reynolds warned, “sending many millions of people towards retirement in the future with essentially no savings at all – and potentially increasing future demand for government assistance.”

Reynolds pointed out that reductions in retirement savings incentives during the last major tax overhaul in 1986 caused a significant drop in retirement savings. He warned that reduction in savings incentives now being considered in Washington could have an even more severe impact, since few younger workers today have access to traditional defined benefit savings plans.

In addition to protecting existing incentives to save, Reynolds has called for extending savings opportunities to many millions of working Americans who currently lack access to a workplace savings plan. Reynolds endorsed the auto-IRA payroll deduction proposal – originally put forward by the Heritage Foundation and the Brookings Institution -- as a reasonable, cost-effective way for millions of lower-income workers to save through an IRA at their job.

“Expanding access to retirement savings programs through ideas such as the auto-IRA proposal would give millions more workers a stake in our free enterprise system and the opportunity to build a real nest egg for their future. Every dollar that retirement savers set aside today likely means that much less they will need in government assistance in the future,” said Reynolds. “National solvency and personal solvency complement each other. We should never pit one against the other. We need policies that foster both. I hope that our Congressional delegation will take the lead on this in Washington.”

Reynolds, a 30-year retirement savings industry veteran, has long been an outspoken advocate for reforming and revitalizing both public and private retirement systems as part of an effort to restore the nation’s finances. He previously has called for universal adoption by workplace plans of auto-enrollment, savings escalation and guidance on appropriate asset allocation, all of which were authorized by the Pension Protection Act of 2006, and has called on Congress to adopt reforms to preserve the essence of Social Security and protect the truly needy.

Putnam Investments and Retirement

Since Reynolds became Putnam’s President and CEO in 2008, the company has deepened its commitment to the retirement market and launched a series of innovations and initiatives to meet emerging customer needs. In recognition of its leadership in retirement savings, Putnam was named the inaugural recipient of the “Retirement Leader of the Year” award at the 2011 annual Mutual Fund Industry Awards.

In addition to such initiatives as the Lifetime IncomeSM Analysis Tool, Putnam also has announced plans to launch a suite of income-oriented mutual funds that aim to help advisors work with retirees in developing strategies for monthly income flows, at varying levels of risk tolerance, to flexibly address their changing lifestyle financial needs throughout retirement. The product suite, composed of Putnam Retirement Income Fund Lifestyle 1, Putnam Retirement Income Fund Lifestyle 2, and Putnam Retirement Income Fund Lifestyle 3, is expected to have broad applicability for defined-contribution, IRA and other retirement assets.

Putnam also created new levels of fee transparency disclosures designed to provide plan sponsors with the clearest, most complete overview of fees and expenses in the workplace savings industry. In addition, it has expanded the services it offers to 401(k) retirement plans and has developed products to meet the needs of those planning for or already in retirement. The firm has created a platform that provides flexible and scalable services and solutions for advisors, consultants and their plan sponsor clients in every segment of the retirement market.

Putnam RetirementReady® Funds, the firm’s suite of 10 target-date/lifecycle retirement funds, were the first suite of lifecycle funds to integrate absolute return strategies. Employed in retirement portfolios, Putnam Absolute Return Funds* are intended to pursue positive returns in up and down markets, to help protect against the harmful effects of adverse investment returns and to seek to reduce volatility.

About Putnam Investments

Founded in 1937, Putnam Investments is a leading global money management firm with over 70 years of investment experience. The firm was recently named one of the top 15 mutual fund families by Lipper/Barron’s for the second consecutive year. At the end of April 2011, Putnam had $130 billion in assets under management, including mutual fund assets of $71 billion and institutional assets of $59 billion. Putnam has offices in Boston, London, Frankfurt, Amsterdam, Tokyo, Singapore and Sydney. For more information, visit putnam.com.

Putnam mutual funds are distributed by Putnam Retail Management.

*Putnam’s Absolute Return Funds are not intended to outperform stocks and bonds during strong market rallies.

1 Data provided by American Society for Pension Professionals and Actuaries (ASPPA) for tax year 2010.

2 Source: Employee Benefits Research Institute (2010) estimate using 2008 Panel of SIPP (covered by Employer Plan) and EBRI estimate (Not Covered by an Employee Plan- IRA only).

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