Expense accounting helps retirees and boosts the financial industry

WASHINGTON – A section of The $1.7 trillion spending bill was passed on Friday was billed as a dramatic move to shore up the retirement accounts of millions of US workers. But the real stroke of luck could go to a far safer group: the financial services industry.

The retirement plan, dubbed “Secure 2.0,” would reshape the way people enroll in retirement plans — from being required to enroll in plans to being required to opt out. The provision is intended to ensure greater participation.

It also allows workers to use their student loan payments as a substitute for their contributions to their retirement plans — meaning they can get matching pension contributions from their employers by paying off that debt — increases the age for required plan distributions, and expands a tax – deductible savings loan.

But like so many sweeping spending laws that get little public attention, the legislation’s provisions also benefit corporate interests that have a strong financial stake in the outcome.

“Some of these provisions are good and we want to help people who want to save — but it’s a huge boon for the financial services industry,” said Monique Morrissey, an economist at the liberal Economic Policy Institute in Washington. Some parts of the bill, she says, are “disguised as austerity incentives.”

Daniel Halperin, a Harvard law professor who specializes in tax policy and pension plans, said one of the clearest benefits for the industry is the provision that gradually raises the age for mandatory payouts from 72 to 75. “The goal is to keep that money there for as long as possible” to collect management fees, he said. “Companies continue to charge for people who have saved $5 million, $7 million, $10 million. It’s crazy to allow them to leave it there.”

Companies like BlackRock Funds Services Group, Prudential Financial, Pacific Life Insurance, and business lobby groups like the Business Roundtable and the American Council of Life Insurers are just a few of the organizations that have introduced Secure 2.0 legislation to the Senate Lobbying Disclosures Show.

Katherine DeBerry, a Prudential representative, said the company welcomes the adoption of Secure 2.0, stating that it “will help ensure employees’ retirement plans 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 requests for comment from the Associated Press. The disclosure forms require minimal information about the outcome the lobbyists are seeking.

Retired Senators Rob Portman (R-Ohio) and Sen. Ben Cardin (D-Md.) had guided Secure 2.0 through the massive spending bill known as the Omnibus. Nearly half of the 92 provisions in Secure 2.0 stem in whole or in part from the Cardin-Portman legislation, which was passed unanimously by the Senate Finance Committee this summer.

“Senator Cardin is proud of his role in creating a balanced package supported by business, workers and consumer groups,” Cardin spokeswoman Sue Walitsky said in a statement.

Mollie Timmons, a spokeswoman for Portman, said the Secure 2.0 provisions would “help part-time workers and help more small businesses offer retirement plans to their workers, which is where most low-income workers work.”

Both lawmakers’ campaigns have garnered major contributions from companies linked to the pension industry — with Cardin receiving, according to OpenSecrets $329,271 from the securities and investment industry from 2017 to 2022 and Portman $515,996 from the same sectors in the same period.

Experts say the legislation has good provisions for average Americans, like creating employer emergency savings accounts alongside retirement accounts. The new accounts allow workers to invest tax-protected funds for rainy days. The legislation also expands the savings loan, which provides a 50 percent tax credit on savings up to $2,000 that go directly into a taxpayer’s IRA, or retirement plan.

Morrissey and other pensions experts also say the provisions are a reminder of the need to strengthen Social Security – the welfare program that benefits more than 70 million recipients – pensioners, the disabled and children. Annual Social Security and Medicare trustees report Released on June 1, it says the program’s trust fund will be unable to pay full benefits from 2035 onwards.

For many Americans, Social Security—funded by payroll taxes levied on workers and their employers—is one her only means of retirement provision.

In the sweeping spending package passed Friday, lawmakers approved about half of the Biden administration’s proposed $1.4 billion increase in spending on Social Security.

“Social Security Administration funding has steadily declined over the past decade while the number of people it serves has grown,” said Nancy LeaMond, executive vice president of AARP. “This has resulted in longer wait times, overwhelmed field offices and disability processing times soaring to an all-time high.

“More needs to be done,” she said.

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

Nancy Altman, co-director of Social Security Works, an advocacy group, said Congress should fund Social Security appropriately if “the goal is to really help middle-income families.”

Still, the recent legislation is a small step meant to help millions of Americans who haven’t been saving for retirement.

That’s according to data from the US Census about half of Americans save for their retirement. In 2020, 58% of working-age baby boomers owned at least some type of retirement account, followed by 56% of Gen X, 49% of Millennials, and 7.7% of Gen Z.

Olivia Mitchell, a Wharton economist who specializes in pensions, says the results of Secure 2.0 adoption will be felt most strongly among workers at companies who are increasing their employees’ contributions.

She said research suggests that automatic enrollment may initially increase pension plan coverage, but participation may decrease over time.

Mitchell studied the first government plan of its kind, OregonSaves, which automatically enrolls workers whose companies do not have retirement plans. She found that only 36% of workers had a positive record after one year. Less than half of plan beneficiaries were still making contributions after a year.

Nonetheless, she said, “the fact remains that low earners, who frequently change jobs, are a elusive target for retirement plans.”

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https://www.local10.com/news/politics/2022/12/25/spending-bill-aids-retirees-and-boosts-financial-industry/ Expense accounting helps retirees and boosts the financial industry

Sarah Y. Kim

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