Bill issuance helps retirees and boosts the financial industry

WASHINGTON — Part of the $1.7 trillion spending bill passed Friday has been billed as a dramatic step toward propping up the retirement accounts of millions of American workers. But the real windfall may go to a much safer group: the financial services industry.

Labeled Secure 2.0, the retirement savings measure would reset the way people enroll in retirement plans from requiring them to sign up for plans to requiring them to opt out. The facility is intended to increase participation.

It also allows employees to use their student loan payments as a replacement for their contributions to their retirement plans, meaning they can get the same retirement contributions from their employers by paying off that debt, raises the age for required benefits from plans, and extends a tax-deductible amount from depositors credit.

But as with so many far-reaching spending bills that receive little public attention, the provisions of the legislation also benefit corporate interests with a major financial stake in the outcome.

Some of these amenities are good and we want to help people who want to save, but this is a huge boon to the financial services industry,” said Monique Morrissey, an economist at the liberal Economic Policy Institute in Washington.

Daniel Halperin, a Harvard law professor who specializes in tax policy and retirement savings, said one of the most obvious benefits to the industry is the provision that gradually raises the retirement age from 72 to 75. The goal is to leaving money there for as long as possible, to collect administrative costs, he said. For people who saved $5 to $7 to $10 million, companies continue to collect fees. It’s crazy that they leave it there.

Companies such as BlackRock Funds Services Group, Prudential Financial, Pacific Life Insurance and corporate lobby groups such as the Business Roundtable and American Council of Life Insurers are just a few of the entities that have lobbied lawmakers for Secure 2.0, Senate lobbying revelations show.

Katherine DeBerry, a Prudential representative, said the company welcomes the arrival of Secure 2.0, stating that it “will help employees make their retirement savings last a lifetime.

A Blackrock representative declined to comment, and Pacific Life, the Business Roundtable and the American Council of Life Insurers did not respond to Associated Press requests for comment. The disclosure forms require only minimal information about the result the lobbyists sought.

Retired Senator Rob Portman (R-Ohio) and Senator Ben Cardin (D-Md.) had guided Secure 2.0 through the massive spending bill known as an omnibus. Nearly half of the 92 provisions in Secure 2.0 stem in whole or in part from Cardin-Portman legislation that was unanimously approved by the Senate Finance Committee over the summer.

Senator Cardin is proud of his role in producing a balanced package supported by business, labor and consumer groups,” Cardin spokesperson Sue Walitsky said in a statement. It protects and encourages retirement savings among the most vulnerable, particularly people with lower incomes.

Mollie Timmons, a Portman spokeswoman, said the provisions of Secure 2.0 will help part-time workers and help more small businesses offer retirement plans to their employees, where most lower-income workers work.

Both lawmakers’ campaigns have received large contributions from companies associated with the retirement industry, according to OpenSecrets, with Cardin receiving $329,271 from the securities and investment industries from 2017 to 2022 and Portman receiving $515,996 from the same industries during the same period.

There are good provisions in the legislation for the average American, experts say, such as creating emergency savings accounts for employers in addition to retirement accounts. The new accounts allow employees to create tax-sheltered rainy day funds. The legislation also expands the savings credit, which offers a 50 percent tax credit on savings up to $2,000 that will be deposited directly into a taxpayer IRA or retirement plan.

Morrissey and other pension experts also say the provisions are a reminder of the need to strengthen Social Security, the social program that benefits more than 70 million recipients, retirees, disabled people and children. The annual Social Security and Medicare report released in June says that the program’s trust fund will not be able to pay full benefits as of 2035.

For many Americans, Social Security, funded by payroll taxes collected from employees and their employers, is their only way to save for retirement.

In the sweeping spending package passed Friday, lawmakers authorized about half of the $1.4 billion spending increase proposed by the Biden administration for Social Security.

Funding for the Social Security Administration has steadily eroded over the past decade as the number of people it serves has grown, said Nancy LeaMond, AARP’s executive vice president. “This has resulted in longer wait times, overcrowded field offices and disability processing times that have reached an all-time high.

More needs to be done,” she said.

In a January Pew Research Center poll, 57 percent of American adults said taking steps to make the Social Security system financially sound should be a top priority for the president and Congress. Securing Social Security received bipartisan support, with 56% of Democrats and 58% of Republicans calling it a top priority.

Nancy Altman, co-director of Social Security Works, an advocacy group, said Congress would need to adequately fund Social Security if the goal was to really help middle-income families.

Still, the latest legislation is a small step designed to help the millions of Americans who haven’t saved for retirement.

US Census data shows that about half of Americans are saving for retirement. In 2020, 58% of working-age baby boomers had 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, says the results of Secure 2.0’s arrival are felt most with employees of companies that match their employees’ contributions.

She said research shows that auto-enrollment may initially increase retirement plan coverage, but participation may decline over time.

Mitchell studied the first state-based plan of its kind, OregonSaves, which automatically enrolled employees whose company had no retirement savings plans. She found that only 36% of employees had a positive balance after one year. Less than half of those in the plan were still contributing after a year.

Nevertheless, she said, the fact remains that low-wage workers who change jobs are often a difficult target to reach through retirement savings plans.