A provision of the $1.7 trillion spending plan that was enacted on Friday has been touted as helping millions of Americans save more for retirement. But the true gain may go to a somewhat more secure group: the financial services sector.
Secure 2.0 would change how individuals participate in retirement programs from forcing them to opt-in to requiring them to opt out. The provision is intended to expand participation. In addition, it allows workers to make repayments on student loans as a substitute for retirement plan contributions, meaning they can receive matching contributions from their employers by paying off this debt, raises the age for required distributions from plans, and expands a tax-deductible saver’s credit.
However, as with so many far-reaching expenditure laws that receive little public discussion, the legislation also benefits corporate interests with a major financial stake in the result.
Some of these provisions are wonderful and support individuals who wish to save, but this is a major boost to the financial services business, said Washington-based economist Monique Morrissey. She stated that certain portions of the measure are “hidden as savings incentives.”
According to Harvard law professor Daniel Halperin, one of the most obvious benefits for business is the clause that gradually raises the age for obligatory distributions from 72 to 75. “The objective is to leave that money there as long as possible,” he stated, to collect administrative fees. Firms continue to collect fees from individuals with $5 million to $10 million in savings.
Senate lobbying filings reveal that companies, including BlackRock Funds Services Group, Prudential Financial, Pacific Life Insurance, and industry lobbying groups, pushed politicians on Secure 2.0. Prudential’s Katherine DeBerry praised the passing of Secure 2.0, adding that it will help ensure that employees’ retirement assets will endure a lifetime.
Sens. Rob Portman (R-Ohio) and Benjamin L. Cardin (D-Maryland) was responsible for shepherding Secure 2.0 through the omnibus spending measure. Most of Secure 2.0’s 92 provisions were derived from the Cardin-Portman legislation that the Senate Finance Committee overwhelmingly adopted in the summer.
Senator Cardin is pleased to have been a part of developing a balanced package backed by industry, labor, and consumer organizations, said Sue Walitsky, a spokesman for Senator Cardin. The program protects and encourages retirement savings among the most vulnerable, especially those with modest incomes.
Portman’s spokeswoman, Mollie Timmons, stated that Secure 2.0’s features would assist part-time workers and make retirement plans more accessible to small businesses, which is where most low-income workers are working.
According to OpenSecrets, both politicians’ campaigns have received substantial contributions from firms associated with the retirement industry, with Cardin receiving $329,271 from the securities and investment industry between 2017 and 2022 and Portman receiving $515,991 from the same industries during the same time frame.
Analysts believe the measure has some positive aspects for most Americans, such as the introduction of employer emergency savings and retirement accounts. The new accounts let employees establish tax-sheltered emergency reserves. The Act also enhances the saver’s credit, which offers a 50% tax credit on savings up to $2,000 immediately put into the IRA or retirement plan of the taxpayer.
Morrissey and other retirement experts say the provisions highlight the need to strengthen Social Security, the social program that supports more than 70 million retirees, disabled people, and children. Based on the annual Social Security and Medicare trustees report, the program’s trust fund will not be able to provide full benefits beginning in 2035. The Social Security system, funded by payroll taxes collected from employees and employers, is many Americans’ sole retirement savings vehicle.
In the comprehensive budget plan enacted on Friday, legislators allowed almost half of the $1.4 billion increase in Social Security expenditures recommended by the Biden administration.
Over the past decade, funding for the Social Security Administration has progressively declined while the number of individuals it supports has increased, said Nancy LeaMond, executive vice president of AARP. This has resulted in increased wait times, overburdened field offices, and record-breaking disability processing times. She stated, “There is work to be done.”
57% of U.S. respondents agreed in a January Pew Research Center survey that “taking actions to make the Social Security system fiscally viable” is a top priority for the president and Congress. 56% of Democrats and 58% of Republicans deemed Social Security protection a key concern.
Nancy Altman, co-director of the advocacy group Social Security Works, stated that Congress should appropriately finance Social Security if “the objective was to truly assist middle-income families.”
Nonetheless, the most recent proposal represents a modest effort to aid the millions of Americans who have not prepared for retirement. According to census data, nearly half of Americans save for their retirement. 58% of baby boomers of working age possessed at least one form of retirement account in 2020, followed by 56% of Gen Xers, 49% of millennials, and 7.7% of Gen Zers.
Olivia Mitchell, a Wharton School economist who specializes in retirement savings, predicts that the passage of Secure 2.0 may be felt most strongly by employees of businesses that match their contributions.
She stated that data indicates auto-enrollment can initially increase retirement plan coverage, but participation may decline over time.
Mitchell examined OregonSaves, the first state-based plan of its sort, automatically enrolled workers whose employers did not provide retirement savings programs. After one year, she discovered that just 36% of workers had a positive balance. After one year, fewer than half of the plan participants contributed. Nevertheless, she stated, “it remains true that low-income employees who often switch occupations are a tough target for retirement savings schemes.”