Update 354: Nest Eggs Bills on the Hill
Is it Goose Eggs or Law after Floor Vote?
A big-ticket bipartisan bill is blasting through Congress? Really? Or is this “Infrastructure Week” again? No, this is serious stuff and it’s about retirement. We look at the two leading proposals to address the dire underpreparedness of Americans for retirement and ask if they are serious enough.
Underlying the debate is a strategic choice confronting progressive Democrats (or just progressives) in Congress this year: bake in such policy gains as you can in bipartisan legislation and improve the baseline for 2020 or wait until you can start fresh with more structural reforms and a Senate majority in 2020 or…
This is our only update of the week, so happy Memorial Day weekend, everyone.
Tomorrow, the House will have a vote on final passage of the Setting Every Community Up for Retirement Enhancement, or SECURE, Act. The bill is part of a bipartisan and bicameral effort aimed at trying to boost retirement savings. According to the GAO, 48 percent of Americans 55 and older have nothing saved in a 401(k) contribution plan or individual retirement account.
The Senate version, the Retirement Enhancement and Savings Act (RESA), was jointly introduced by Sens. Grassley and Wyden in April and has not yet had a Senate Finance mark-up. SECURE and RESA contain many of the same provisions, including authorization of “open” multi-employer pension arrangements (MEPs), auto-enroll features, and incentives for small business owners to adopt new retirement plans.
While the two bills have undergone years of bipartisan negotiation and include a number of similar provisions, they also have differences that need to be reconciled. If enacted, the final legislation would be the most comprehensive retirement security reform since the Pension Protection Act of 2006.
SECURE-ing Savings in Retirement
The SECURE Act aims squarely at boosting Americans’ retirement savings. The bill seeks to improve:
- Access: the bill contains a number of provisions intended to incentivize small businesses to contribute to, and provide for, employee retirement savings and benefits.
- Saving for longer/“lifetime” income: the bill repeals the age cap for IRA contributions, increases the minimum distribution age from 70½ to 72, limits sponsors’ fiduciary liability in the provision of lifetime income and encourages portability of lifetime income investments.
- Savings options: the bill expands the allowable use of college saving “529 Plans” to pay down student loans and to pay for apprenticeship programs.
- MEPs: the bill removes certain restrictions on formation of multi-employer retirement plans (MEPs), which are utilized by small business owners to pool resources, achieve economies of scale, and earn greater returns.
On Monday, the House Rules Committee adopted an amendment offered by Rep. Neal stripping out language to expand the use of 529 Plans for homeschooling and private school expenses. The amendment threatened to scuttle bipartisan agreement over the bill, with House Ways & Means Ranking Member Kevin Brady saying that a last minute change would “lower bipartisan support” for the bill. After unanimously passing the Ways and Means Committee, the SECURE Act comes to the House floor tomorrow for a final vote. It is expected to pass by a wide margin, despite the last minute fracas over the use of 529 Plans.
SECURE + RESA = A Path Forward?
At the end of the 115th Congress, the House passed their version of RESA, but the Senate failed to act, due in part to the breakdown in budget negotiations. RESA advocates are still hopeful that Senate Finance Committee Chair Chuck Grassley and Ranking Member Ron Wyden can reach an agreement with each other and their counterparts in the House on the 116th’s SECURE Act and send the finished product to the President.
Chairman Neal’s removal of the controversial 529/education proposal, which many Democrats viewed as a hard pill to swallow and was subject to a point of order in the Senate, may make the path forward smoother than expected. Still, some hurdles remain. Certain community newspapers around the country have pension plans that are failing, and while the SECURE Act provides them with forms of relief, such relief is not in the Senate’s bill. RESA also tweaks the House bill, removing the 10 percent cap on automatic contributions for multiple employer plans (MEPs), increasing the credit for small employer pension startup costs, and changing IRAs.
The success of these bills is largely a function of the bill managers’ ability to maintain bipartisan support, even if certain provisions like the 529/education piece fall by the wayside. As of Tuesday, Ways and Means Ranking Member Brady — formerly an ardent SECURE Act supporter — is noncommittal on whether to support the Manager’s Amendment because of the nixed 529 proposal. Additionally, as time goes on and the 2020 Presidential Campaign heats up, Democrats will be wary about giving the President anything he can call a ‘win’.
Retirement Security and Savings Act (RSSA)
Meanwhile, Senate Finance Committee Members Cardin and Portman are pushing their own retirement legislation. The Retirement Security & Savings Act, S. 1431, contains many of the same or similar provisions as RESA, but goes some steps further.
Along with the RESA-incorporated changes to small business tax incentives, S. 1431 would better expand access to retirement savings plans for low-income Americans currently without coverage. It enhances the existing Saver’s Credit income thresholds and makes the credit directly refundable. The Saver’s Credit gives a tax break to low-and moderate-income taxpayers who are saving for retirement, and is currently nonrefundable. S. 1431 also expands the eligibility of 401(k)s to include part-time workers that complete between 500 and 1,000 hours of service for two consecutive years.
It will be worth watching whether Cardin/Portman provisions will be added to RESA during Senate markup of the bill, or whether it can be passed as standalone legislation, building on the success of a — fingers crossed — enacted RESA.
Twilight Years Coming into Light
High rates of personal savings, combined with a generous pension and social security benefits, have been at the heart of the American retirement system for decades. Recently, however, this structure has been threatened. Employer-sponsored pension plans are disappearing. The Social Security Trust Fund will be depleted by 2034, and lawmakers on both sides of the aisle have already proposed benefit cuts to keep the program solvent. Stagnant wages and increasing costs of living have squeezed Americans so much that saving for retirement is a luxury few can afford.
While political gridlock and misaligned incentives prevent progress on solving fundamental issues, SECURE Act/RESA represents a small step forward towards helping workers save and helping small businesses incentivise saving. Strengthening the country’s retirement system is needed, the political will seems to be there, and with the 2020 campaign not yet in full swing, the timing might work out.
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