What’s on the agenda for retirement legislation in 2022?
Let’s start with the retirement initiatives that are waiting in the wings:
,SAFE ACT 2.0There’s a set of enhancements to 401(k)s and other retirement savings programs that have worked since the original Safeguard Act was passed, well, pretty much. The House version of it contains elements such as
- allowing employers to match the amount to be paid to employees as student loan debt service with the intention of expediting repayment so that those employees can move on to early retirement savings,
- Require employers that already offer retirement plans, with an opt-out opportunity, to automatically enroll new employees in those plans.
- increasing the catch-up contribution for those 50 and older, and
- Gradually increasing the age at which required minimum distributions take effect, eventually until age 75.
Although the bill has bipartisan support Senate Edition There are different provisions. And while it’s stopped, supporters are hopeful For action in early 2022. Remember that the original SECURE Act was likewise on hold until it was annexed to a near-passed budget bill in 2019.
Separately, early versions of the “Build Back Better” bill went even further, requiring that all employers with five or more employees be Required to offer a retirement plan With 6% automatic contribution for new employees (with opt-out allowed) for their employees. To reduce the burden on employers, they will be allowed to elect to use only IRAs based on a list of eligible IRAs prepared by a government agency.
as well as at the state level 14 states have implemented retirement savings programs, generally requires that all employers that do not otherwise offer a retirement savings program automatically enroll their employees (with the permission to opt-out) in a state-run IRA, of which six are active. and others are yet to be implemented. According to the Georgetown Center for Retirement Initiatives, and in 19 states, there is a legislative proposal or study in 2021.
At the same time, advocates for poor veterans and the disabled were pushing for an increase in the monthly benefits provided through the Supplemental Security Income (SSI) program. As it stands, single individuals receive a benefit that is approximately 75% of the single-person federal poverty rate, or about 90% adding in food stamps (SNAP) and heat assistance; Taking into account the supplementary benefits, married couples get benefits of almost 100% of the poverty rate of two persons. The Supplemental Security Income Restoration Act of 2021 would have raised the basic benefit to 100% of the single-person poverty rate, per capita (that is, doubling the benefit for married couples). Because the government’s poverty rate limit operates on the assumption that sharing a family reduces a couple’s living expenses, this would mean that a couple with SSI benefits would receive about 150% of the two-person poverty level. profit will be equal to
And, of course, there’s the Social Security 2100 Act, which would optionally increase Social Security benefits in a number of ways (and considered more liberal), from a new minimum benefit of 125% of the poverty level for people with a 30-year work history. Increase in the CPI index, the factor used for the PIA formula for the lowest tranche of income, from 90% to 93%. It’s not a law that has serious potential for passage, but I should at least mention it for completeness. And so did President Biden, when a candidate proposed replacing the 401(k) tax deferral with a system of credits, to move the savings incentives to low-income workers, but, to the best of my knowledge, , the choice of which has not appeared again since then.
And to this mix comes the latest attempt by AEI scholar and forevermore Cassandra Andrew Biggs to convince readers that, like His December 13 op-ed puts it, “America’s ‘retirement crisis’ is a media myth.”
The core of his argument is this:
- Nothing was the “golden age” of employer pension provision. In 1981, only 27% of newly surveyed retirees reported receiving private pension benefits; In part, this was because a large number of pension participants (9 out of 10 in 1972) did not vest their pension benefits.
- On average, employer benefits have not decreased as a result of the rise of 401(k)s; Instead employers “retain their contributions to retirement plans substantially” so that employee contributions boosted the overall balance.
- As a result, no matter how depressing it is, a story can be told by groups like the Center for Retirement Research. National Retirement Risk Index, which predicts that half of all American households “At the risk of being unable to maintain their pre-retirement standard in retirement,” in fact, older Americans are doing quite well. 8 out of 10 told pollsters that they have enough money to “live comfortably”, and less than 5% say they are “finding it difficult to get by.”
- And part, at least, of these two conflicting narratives is not that activists prefer narratives of “crisis”, but rather that data that has traditionally been used is error-prone or misses the story. Also (as he’s said elsewhere on several occasions, including a recent one) morningstar interview) Projections of future retirement income suggest that future retirees will do just as well, and in fact, poverty rates are projected to decline.
Is Biggs right?
Here are some tables I made from the Federal Reserve survey they referenced, Survey of Household Economics and Decision Making,
Yes, everyone loves watching data visualizations, but these simple tables tell an interesting story. The question, after all, is one that is very subjective – it is not how much one is in debt, but allows each person to interpret “just getting on” or “doing fine” for themselves. And according to their own interpretation, even in the lowest income group relatively few people express financial difficulties.
And, as a reminder, the “U-shaped” life satisfaction curve has been well documented, that as people move past middle age, they are more likely to express satisfaction with their lives, Whether due to an objective improvement in circumstances or simply a changed attitude (although some of that improvement may be, on the other hand, that disgruntled older people die on average at a younger age).
So where do we go from here? Here are some thoughts.
First, we need to take into account the difference between efforts to ensure that the elderly do not face real physical deprivation, whether it is a lack of nutritious food or adequate housing or medical needs, and retirement planning for Americans. Efforts to help make and efforts to reduce them expressed concern about the unknowns of retirement.
Second, welfare issues, such as social isolation, and the larger questions of the “right” form of long-term care support provision, are not simple issues of finance, but are nonetheless important as Americans age, and these topics do not. Must be overshadowed by a “retirement crisis” narrative. It should go without saying that we must also urgently turn our attention to the Medicare system.
And, third, in one important respect our models may fail us: experts have produced a set of recommendations for asset allocation and income spend-down in retirement, and a set of projections to build on those models. Which falls apart when our new low-interest world continues, like in Japan, to be a temporary situation that resolves itself as we recover from the pandemic. Whether it is the result of government policies or the inevitable consequence of a changing economy, it could affect both Biggs’ estimates of retiree welfare and the path to retirement security envisaged by legislation such as the Secure Act 2.0.
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