As part of a package to make the tax cuts passed last year permanent, Republican Rep. Kevin Brady, chair of the House Ways and Means Committee, will include a proposal that would drastically change the way Americans save for retirement.
Brady’s proposal is expected to include a revamped version of the Retirement Enhancement and Savings Act of 2018 that was proposed in March. The bill could make it easier for small businesses to offer 401(k) retirement accounts to workers and provide some with annuity-like vehicles, which provide guaranteed income during retirement.
“In many ways, this provision helps recreate traditional pension plans that used to promise workers that no matter how long they lived, they’d get a monthly check thanks to their former employer,” Dirk Kempthorne, CEO of the American Council of Life Insurers wrote in an op-ed.
The changes would be the most significant to retirement savings since 2006. That could be especially important as nearly half of working-age families have nothing saved in retirement accounts. Analysis from the Federal Reserve found that the median working-age family had only $5,000 saved in 2013.
A major culprit for the lack of retirement savings is the disappearance of pensions for most workers. Just 13% of workers now covered by pensions or “defined benefit” retirement programs. U.S. pension funds also are underfunded to the tune of trillions of dollars and a recent Yahoo Finance analysis found that pension fund managers have cost taxpayers at least $600 billion and possibly up to $1 trillion through poor performance and high fees. The cost falls to taxpayers in the form of higher taxes or reduced public services because pensions are guaranteed.
The proposals in the Retirement Enhancement and Savings Act expected to be included in Brady’s tax reform proposal may also provide employees of small businesses with access to multiple-employer plans, or MEPs. MEPs allow small companies to join together with others, spreading plan administrative costs over more participants, lowering fees.
MEPs are a major part of the not-for-profit healthcare conglomerate being worked on by Amazon, Berkshire Hathaway and JPMorgan Chase.
“The need for this legislation is clear,” Kempthorne wrote. “Every day 10,000 Americans will reach age 65, and half will live to age 85 or older. Without help, many people throughout the country and across the economic and political spectrum will be unprepared for retirements that could last 20, 30 years or more.”
Unfortunately, analysts say the bill is likely a non-starter for Congress, despite the inclusion of the bi-partisan retirement reform package. The bill also could contain additional corporate tax rate cuts and a lower capital gains rate.
“Republicans think they have a political winner in pushing for more tax cuts just before the election, but we don’t see evidence of public support – either in the polls or anecdotally; many voters say corporations and the wealthy have gotten too much already. And estimates of the budget deficit continue to surge; red ink could exceed $1 trillion in fiscal 2019,” Greg Valliere, chief global strategist at Horizon Investments, wrote in a note to clients.
Valliere said he’s expecting Republicans to lose control of the House of Representatives in November and that the proposal is largely an attempt to get a proposal for more tax cuts on the record.
“If there’s a recession between now and 2025 — a pretty safe bet — Brady can claim that his bill, expanding the tax cuts and making them permanent, would be the perfect medicine,” he said.