WASHINGTON (AP) — Part of the $1.7 trillion spending bill passed Friday was touted as a major step toward bolstering the retirement accounts of millions of American workers. But the real windfall may have flowed to a much safer group: financial services.
The retirement savings measure called Secure 2.0 will reset the way people enroll in retirement plans—from asking them to opt in to asking them to opt out. The regulation aims to ensure greater participation.
It also allows workers to use their student loan payments in lieu of their retirement plan contributions—meaning they can get matching pensions from their employers by paying off debt—increasing the age at which the plan requires distributions and expanding the Taxes – credit for deductible savers.
But like many far-reaching spending bills that have received little public attention, the legislation’s provisions favor corporate interests, and the outcome carries powerful sway over economic interests.
“Some of these terms are good, and we want to help people who want to save — but it’s been a huge boon for the financial services industry,” said Monique Morrissey, an economist at the Liberty Economic Policy Institute in Washington. Some parts of the bill were “masquerading as savings incentives,” she said.
One of the most obvious benefits for industry is the gradual increase in the mandatory distribution age from 72 to 75, said Daniel Halperin, a Harvard law professor who specializes in tax policy and retirement savings. “The goal is to keep the money there for as long as possible,” for an administrative fee, he said. “For people who save $5, $7, $10 million, companies keep charging. It’s crazy to allow them to keep it there.”
Companies such as BlackRock Funds Services Group, Prudential Financial, Pacific Life Insurance, and business lobby groups such as the Business Roundtable and the Council of American Life Insurance Companies are just some of the entities lobbying lawmakers on Secure 2.0, according to Senate lobbying disclosures.
Katherine DeBerry, a Prudential representative, said the company applauds the passage of Secure 2.0, saying it “will help ensure employees’ retirement savings last a lifetime.”
A representative for Blackrock declined to comment, and Pacific Life, the Business Roundtable and the Council of American Life Insurance Companies did not respond to requests for comment from The Associated Press. The disclosure form requires only minimal information about the outcome the lobbyist is seeking.
Retiring Senators Rob Portman (R-Ohio) and Senator Ben Cardin (D-Maryland) have been spearheading Secure 2.0 with a massive spending bill known as the omnibus plan. Nearly half of the 92 provisions in Secure 2.0 came in whole or in part from the Cardin-Portman legislation unanimously approved by the Senate Finance Committee this summer.
“Senator Cardin is proud of his role in crafting a balanced package supported by business, labor and consumer groups,” Cardin spokesman Suvalicki said in a statement. “It protects and encourages retirement savings for the most vulnerable, especially those on low incomes.”
Mollie Timmons, a spokeswoman for Portman, said the Secure 2.0 provisions would “help part-time workers and help more small businesses offer retirement plans to their employees, where most low-income workers are employed.” here.”
Both lawmakers’ campaigns have received significant donations from companies tied to the retirement industry — Cardan received $329,271 from the securities and investment industry from 2017 to 2022, and Portman from the same period, according to OpenSecrets data. Industry received $515,996.
Experts say there are good provisions in the legislation for ordinary Americans, such as setting up an employer emergency savings account alongside a retirement account. The new account lets employees create a tax-protected rainy day fund. The legislation also expands credit for savers, offering a 50% tax credit on up to $2,000 in savings that goes directly into a taxpayer’s IRA or retirement plan.
Morrissey and other retirement experts also say the rules serve as a reminder of the need to strengthen Social Security – the social program that benefits more than 70 million recipients – retirees, people with disabilities and children. The annual Social Security and Medicare trustees’ report, released in June, said the program’s trust funds will not be able to pay all benefits starting in 2035.
For many Americans, Social Security — funded by payroll taxes levied on workers and their employers — is their only means of saving for retirement.
In the sweeping spending plan passed Friday, lawmakers approved about half of the $1.4 billion spending increase proposed by the Biden administration for Social Security.
“Over the past decade, Social Security has steadily lost money while increasing the number of people it serves,” said Nancy LeaMond, AARP executive vice president. wait times, overwhelmed field offices and disability processing times soared to all-time highs.
“More has to be done,” she said.
In a January poll by the Pew Research Center, 57 percent of U.S. adults said “taking steps to make the Social Security system financially sound” should be a top priority for the president and Congress. Ensuring Social Security has bipartisan support, with 56 percent of Democrats and 58 percent of Republicans citing it as a top priority.
Nancy Altman, co-director of the advocacy group Social Security Work, said Congress should adequately fund Social Security if “the goal is to really help middle-income families.”
Still, the latest legislation is a small step toward helping the millions of Americans who haven’t yet saved for retirement.
U.S. Census data shows that about half of Americans are saving for retirement. In 2020, 58% of working-age Baby Boomers have at least one type of retirement account, followed by 56% of Gen Xers, 49% of Millennials and 7.7% of Gen Zers.
Olivia Mitchell, a Wharton economist who specializes in retirement savings, said the results of Secure 2.0 adoption are likely to be most affected by the company’s employees who match their contributions.
Studies have shown that auto-enrollment initially increases retirement plan coverage, but participation rates can decline over time, she said.
Mitchell looked at the first state-based plan of its kind, OregonSaves, which automatically enrolls workers at companies without retirement savings plans. She found that only 36% of workers had a positive balance after one year. A year later, less than half of those in the program were still donating.
Still, she said, “the fact remains that low-income workers who frequently change jobs have a hard time reaching their goals through retirement savings plans.”
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