America’s New Retirement Bill Raises Many Questions but Offers Few Solutions
In case you missed it, the House just passed, by an overwhelming majority of 414-5, the Securing a Strong Retirement Act of 2022, a.k.a. SECURE Act 2.0 (H.R.2954), a new bill touted to address America’s looming retirement infrastructure collapse.
Voters are being told that the provisions in the bill would benefit both retirement savers and employers.
Particularly in light of the Department of Labor’s recent 401(k) restrictions on portfolio diversification, I decided to dissect the legislation in hopes of understanding precisely how these amendments to employer-sponsored retirement plans would benefit Americans, impact the economy and, of course, resolve America’s retirement crisis.
Unfortunately, after undergoing this investigative process, I was left with more questions than answers.
Highlighted below are key components of the bill, the cost/revenue estimates according to the Congressional Budget Office’s (CBO) Cost Estimate report (which relies on estimates provided by the Joint Committee on Taxation (JCT)) as well as lingering questions.
This bill mandates that employers (except for businesses with 10 or fewer employees or are less than 3 years old) automatically enroll eligible workers in 401(k) plans at a rate of 3% of salary, which would increase annually until the employee is contributing 10% of their pay (with a cap at 15%). Employees would be able to opt out of automatic enrollment or adjust their contributions. According to the CBO Cost Estimate report, this particular provision would reduce America’s revenues by $6.1 billion over the 2021-2031 period – of that amount, $449 million would be off-budget.
How will this provision help the 70% of Americans presently living paycheck to paycheck[1], unable to afford to make any contributions at all, who will likely have no other choice but to opt out of automatic enrollment?
This bill increases catch-up contributions from $6,500 to $10,000 for individuals nearing retirement age and requires certain retirement plans to designate catch-up contributions as Roth (after-tax) contributions. Under current law, employees ages 50 or older can make additional contributions to retirement plans, usually on a before-tax basis. H.R. 2954 would require catch-up contributions to be made on an after-tax basis for certain government and private-sector plans. According to the CBO report, this provision would increase America’s revenues by $13.2 billion over the 2021-2031 period.
How will this provision help nearly half of American adults ages 55 to 66 with zero retirement savings[2] or the 40% of baby boomers who are living paycheck to paycheck[3]?
This bill enables the election of all or some of an employer match be applied to a Roth 401(k) using after-tax dollars. According to the CBO report, this provision would increase America’s revenues by $13.0 billion over the 2021-2031 period.
How will this provision help the 70% of Americans presently living paycheck to paycheck, and therefore unable to afford to make any of the contributions eligible to be matched?
This bill increases the starting age for required minimum distributions (RMDs) to 73 in 2022, 74 in 2029 and 75 by 2032, up from the current 72. According to the CBO report, this change would reduce America’s revenues by $6.9 billion over the 2021-2031 period.
How does this provision help the whopping 37.8% of American Seniors ages 65+ who would be living below the poverty line if not for their social security checks?[4]
This bill allows certain retirement plan administrators to rely on employees’ certification that they qualify for hardship distributions from retirement plans and that the distribution amounts do not exceed immediate and heavy financial need. According to the CBO report, this provision would increase America’s revenues by $407 billion over the 2021-2031 period.
I believe that the $407 billion estimate is likely to be a typographical error in the CBO report as it appears to be recorded as $407 million on the JCT spreadsheet. I have requested clarity on the correct amount. I have also requested the assumptions which were used by the JCT to calculate the correct figure. The JCT directed me to the CBO and the CBO directed me to the JCT and the JCT then informed me that they do not make their assumptions available to the public. Without the assumptions, how do we know that any of these numbers weren’t created out of thin air? Did our elected officials get a copy of the assumptions? And, how could 414 representatives of congress have voted for a bill likely containing a $406.6 billion error in the CBO report?
This bill would require the Secretary of Labor, in consultation with the Secretary of the Treasury, to establish an online searchable database (to be managed by the Department of Labor) that will be known as the “Retirement Savings Lost and Found”. According to the CBO report, this government-run database would cost taxpayers $410 million over the 2021-2031 period. The report also indicates that $70 million of that $410 million would be spent in in the first four years purely for “planning”.
I have also sought clarity on how the $410 million will be allocated but, of course, got nowhere as the JCT does not disclose its assumptions. This is unfortunate since every taxpayer should want to know how an entity spends $70 million on “planning”. I’ve read a lot of business plans during the course of my career. With all due respect to the government, in not one business plan have I ever seen a line item in a “Use of Proceeds” for “planning.” Businesses in the private sector don’t get paid to think about implementation. They get paid to execute. Why shouldn’t government entities be held to the same standards? Furthermore, why is a centralized government database even needed at all when distributed ledger (blockchain) technology can process, validate, locate and authenticate at a fraction of the cost and without government intrusion?
While I hail the bipartisanship, this bill is, at best, a band-aid on a gunshot wound. While the optics may help politicians in their re-election campaigns, this legislation does little to assist the majority of Americans who are woefully unprepared for retirement. Furthermore, it does nothing to thwart a looming retirement-induced financial crisis. In fact, if anything, this bill places further strains on businesses and the economy (unless, of course, you count the imaginary $406 billion in the CBO report).
This bill does; however, benefit “BigFina” (Big Finance) as well as its publicly-traded darlings by ensuring that more retirement dollars are kept in 401(k)s where they are confined to conventional asset classes like stocks, bonds and mutual funds and kept far away from America’s small businesses and budding innovators.
This bill will also surely benefit the entity or entities on the receiving end of the $410 million earmarked to “plan” and eventually build this government-run lost and found. Did we not learn anything from the billions of taxpayer dollars squandered on the failed Obamacare website?
While a government-run database to keep track of our retirement dollars is chilling in of itself, it warrants asking why the government is so hell-bent on pushing people towards the 401(k) at all. The 401(k) is a dying retirement product that is becoming increasingly useless to a labor force that grows more gig-centric with each passing day. Even worse, the government peddles this ineffectual retirement vehicle while simultaneously weakening it through the actions of its labor department. The DOL is continuously restricting the investment options allowed in the 401(k), thereby limiting the holder’s potential for greater risk-adjusted portfolio returns.
I can see how the magnitude of portfolio diversification could be lost on lawmakers who are guaranteed lifelong six-figure pensions, at the expense of taxpayers, and therefore, need not concern themselves with portfolio performance. But their incognizance should not inhibit every single American from asking the most important question of all: why is the federal government so interested in tracking our nest eggs and controlling where and how our retirement capital is invested?
[1] AmeriLife survey
[2] U.S. Census Bureau’s Survey of Income and Program Participation (SIPP).
[3] pymnts.com / Lending Club
[4] Center on Budget of Policy Priorities, CBPP.org