One version of the famous quote attributed to Otto von Bismark in the 19th century is “Laws are like sausages. It’s better not to see them being made.” Perhaps. But staying abreast of retirement policies and related legislative issues, and participating in the process, benefits the financial well-being of all of us.
I was happy to once again attend the NAPA DC Fly-in Forum July 25th and 26th. The National Association of Plan Advisors (NAPA) is part of the American Retirement Association, the leading organization on advocating for improved retirement outcomes for Americans. This was my fifth year participating in DC Fly-in Forum.
My Capitol Hill visits included conversations with Senator Ernst and her staff and staff from the offices of Senator Grassley and Congresswoman Hinson.
Primary topics for conversation included the need for technical corrections to SECURE 2.0 and opposition to a proposal by some legislators to create a new Federal Government Retirement Fund.
SECURE 2.0 Corrections Needed
Several technical issues with the SECURE 2.0 Act of 2022 are necessary. This is not uncommon when Congress passes a large and complicated law that includes various last minute changes before it is passed. Congress passed the legislation on December 23, 2022 and the President signed it into law on December 29th.
Oppose Federal Government Retirement Fund for the Private Sector
In December 2022, a bipartisan group of Members of Congress introduced legislation that would create a new federal government managed fund for qualifying workers that currently do not have access to a workplace-based retirement plan. While well-intentioned, the legislation is impractical, unfair, and may cause harm to Social Security. Our elected representatives were asked to oppose this bill if it is reintroduced.
There are several reasons for opposition to this proposal. The Fund is not subject to many of the laws and regulations that apply to private sector plans, which provide robust protections to consumers. The bill provides a Government Match to individuals saving in the Fund and an additional contribution regardless of how much the individual is saving. In addition, the Government Match is more than twice as valuable as the Saver’s Match in SECURE 2.0 for private sector plans. Furthermore, the eligible population is more than twice that eligible for the Saver’s Match.
The proposal would provide government-subsidized matching and other contributions to tens of millions of workers, but only if they use the Fund. This would incentivize employers to close their company 401(k) plan and utilize the new government-subsidized fund, in many cases with more generous “employer” contributions to rank and file employees.
Social Security is an essential component of our social safety net that provides a guaranteed source of retirement income and plays a vital role in reducing poverty. The proposed legislation would create an additional federal government retirement program, but with individual accounts and federally funded matching contributions. It would directly compete with our traditional Social Security program for a predictable government funding source, ultimately putting Social Security at risk.
SECURE 2.0 is not yet even one-year old. Provisions of SECURE 2.0 were designed to further stimulate adoption of new retirement plans by small businesses. Time needs to be given for this to happen so that more workers are covered by retirement plans. Plus, we already have significant activity at the state level working to complement these initiatives. Over 15 states already mandate that most businesses either offer a retirement plan for their employees or participate in their state-based IRA program. .
While I didn’t see sausages being made when I was in Washington D.C., I did try to influence retirement policies and related lawmaking for the benefit of all.