Reforming the private retirement system has been one of the rare issues that Congress has been able to move on in a bipartisan way in recent years.
The SECURE Act was signed into law last December as part of a larger appropriations bill and Congressional advocates on the issue were hoping for a repeat in 2020. The House Ways and Means Committee recently unveiled a bill – known colloquially as “Secure Act 2.0” – with further reforms.
But as Washington finalizes its spending plans for the end of the year, it appears that retirement reform measures won’t be included and will have to wait until 2021.
“It's more likely now that it would be right after the first of the year,” House Ways and Means Committee Chairman Richard Neal (D., Mass.) told Yahoo Finance in an interview this week, adding that he sees no reason “we couldn't have this done and on the new president's desk in late winter.”
One of the bill’s main sponsors, Rep. Kevin Brady (R., Texas), had told reporters immediately after the election he was hopeful "that there's such a strong bipartisan support for a new retirement security bill that we can move that quickly.” Brady, Ranking Member of the House Ways and Means Committee, pointed to end-of-the-year spending bills as a possible vehicle for the bill. Those must-pass pieces of legislation were the vehicle that got the SECURE Act - which included measures like removing the age limit restricting IRA contributions and expanding access to annuities in retirement plans - done in 2019.
The details on the reported $1.4 trillion spending package – the type of bill that Congress must pass every year – are currently being kept under wraps and many aspects still need to be negotiated, so things could change. It’s also unclear if any economic stimulus measures will end up as a part of the final funding package.
Neal remains optimistic of a retirement bill in 2021: “We intend to get this up and going, it's ready to go,” he said. But it could be equally or more challenging to find space on the Congressional calendar for the legislation as President-elect Joe Biden will be trying to get his Cabinet approved and his campaign agenda enacted.
‘The most important advance of retirement savings in 15 years’
Neal called the 2019 SECURE Act “the most important advance of retirement savings in 15 years,” and pointed to provisions in his new bill that build on it.
Perhaps the most significant piece of the new legislation is a rule pushing new employees to automatically enroll in their company’s retirement plan if one is offered. Employees could opt out, but the default would be enrollment.
The bill would also push up the age for mandatory distributions in all private retirement plans (including 401(k)s and IRAs) from 72 to age 75.
Other provisions include changes to the SAVERS credit, which lets certain lower-income workers get additional tax breaks when they save for retirement. This change would simplify the program and index the credit to inflation.
Another provision in the bill makes it easier for employees to find their lost retirement accounts by creating a national database. The provision would help workers who move from company to company keep track of their retirement accounts. It would also help workers who move from state to state who participated in the various state-level plans (state-level IRA plans have been gaining traction around the country).
In addition to the bipartisan support in the House, many of these provisions have found backing in the Senate in a similar bill championed by Sen. Rob Portman (R., Ohio) and Sen. Ben Cardin (D-Md.).
A ‘career issue’
Neal notes that, whatever the timeline for this particular bill, retirement reform is a “career issue” for him with broader ambitions in the years ahead. Democrats and Republicans have been able to show remarkable bipartisan support on the issue when the focus is on reforms to the private retirement system.
“I think [the bipartisan streak] is because a lot of this stuff is forward-looking,” said Andrew Biggs, a conservative-leaning retirement expert and resident scholar at the American Enterprise Institute, in a recent interview. “Where things get divisive is how you deal with the mistakes of the past,” he said, pointing to some of the funding shortfalls that Social Security could see in the coming years.
According to recent analyses, the Social Security program could run short of money by 2031.
“Clearly, I think that at some point we're going to need to look at the whole idea of raising Social Security benefits,” Neal said. “President Biden did indicate during the campaign that he's open to the discussion, I'm open to the discussion.”
The average Social Security benefit for 2020 is about $1,503 a month. The debate during the Democratic primary was around how much — not whether — to increase those payouts. At the time, Sen. Bernie Sanders advocated the most ambitious plan, with Biden more focused on targeted benefit increases. Biden has voiced support for increases in survivor benefits and benefit increases for the oldest Americans, as well as a minimum benefit for workers who spent at least 30 years paying into the system.
Any Democratic plans to boost benefits, which will almost surely require an increase in payroll tax rates, will likely face strong Republican opposition.
Talking with reporters just days after the 2020 election, Rep. Brady pointed to Republican gains in the U.S. House of Representatives and said his takeaway was that “Americans rejected higher taxes at the ballot box.”
Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.