The government wants Americans to take more initiative for retirement planning.
On May 16, 2019, Alessandra Malito writes on Market Watch:
Lawmakers from across the country are proposing legislation to encourage more Americans to save for retirement, and they’ve got a list of ways to do it.
The Senate held a hearing this week for the “Retirement Security and Savings Act,” which would allow people with little in savings to catch up and also help small businesses provide retirement plans to its workers. Senator Ron Wyden, a Democrat from Oregon and a member of the Senate Finance Committee, introduced another bill this week that would match a worker’s student loan repayments to go toward their employer-sponsored retirement account.
“There’s certainly momentum on this issue,” said Kathleen Coulombe, vice president of retirement security at the American Council of Life Insurers, a Washington, D.C.-based life insurance trade group.
The House of Representatives is expected to vote on the Retirement Enhancement and Savings Act by the end of the month, a bill that would expand auto-enrollment features, link small businesses together to offer retirement accounts and describe a fiduciary responsibility. The SECURE Act (Setting Every Community Up for Retirement Enhancement Act) is also waiting for a vote in the House.
“The retirement savings system that we have is actually very good but it can be improved,” said Bob Grohowsky, head of legislative and regulatory affairs at financial services firm T. Rowe Price. TROW, -0.88% “All of these ideas are ideas to build upon the system we have.”
Though there are numerous provisions to save for retirement, such as 401(k) plans and IRAs, Americans are not saving enough for retirement. Some may not have access to employer-sponsored retirement accounts, which would let them save more than they could in an IRA, and others may have access but may not prioritize retirement saving when they have so many other obligations to pay for, like housing, student loans, raising a family or building a business. Data from studies and surveys consistently show how unprepared Americans are for retirement.
Along with saving and planning for retirement, Congress is discussing ways to improve Social Security, which is facing insolvency in the next 16 years. If nothing is done, the program will still pay benefits to the elderly and the disabled, but it will be about 80% of what they’re owed. Meanwhile, states have taken it upon themselves to create programs that would offer, and in some cases mandate, small businesses to offer retirement plans in the form of individual retirement accounts.
Many of these bills overlap each other in certain aspects. Here’s a more detailed explanation of each of these proposals, and where they stand:
Retirement Security and Savings Act
The bill, also known as the Portman-Cardin bill as it was proposed by Ohio Republican Senator Rob Portman and Maryland Democratic Senator Ben Cardin, was reintroduced to Congress on Tuesday and sets forth a myriad ways to improve the current retirement savings system:
• Increases the “catch up” contribution to $10,000 from the current $6,000 for individuals 50 and older with 401(k) plans;
• Allows employers to make addition contributions for employees in SIMPLE retirement plans;
• Gives employers bigger tax breaks, such as increasing the credits employers who offer safe harbor plans get and for small businesses that start a new retirement plan;
• Creates a “government match” for low-income savers by allowing the Saver’s Credit to go directly toward their retirement accounts;
• Allows companies to match student loan repayments to their retirement plans;
• Includes part-time workers in 401(k) plans;
• Increases the required minimum distribution age to 72 from 70 ½ years old by 2023, and then age 75 in 2030; creates an exception for individuals with $100,000 or less in eligible accounts, so that they can continue saving instead of having to withdraw; and reduces the penalty for failing to take RMDs from 50% to 25% of what they should have distributed.
“It has a lot of common sense things that would make life easier for retirement savers and plan sponsors and administrators,” Grohowsky said.
Sen. Wyden’s student loan bill
This proposal was originally part of other retirement security bills, including the Retirement Security and Savings Act, but Sen. Wyden introduced the concept as a stand-alone proposal as well this week. The proposal, called Retirement Parity for Student Loans Act, would let employers make matching contributions to a 401(k) for employees who are paying off student loans, but not mandate it.
Americans, especially millennials, argue student loan debt is keeping them from saving for their future, as well as spending on everyday necessities and meeting other financial goals. “Millions of college grads are buried under tens of thousands of dollars in student loan debt that prevents them from building their future — buying a home, saving for retirement and starting a family,” Sen. Wyden said, according to The Hill. “The sooner workers start to save for retirement the better, and paying down student loans shouldn’t stop them from building their nest egg.” https://thehill.com/policy/finance/443459-top-finance-dem-offers-bill-to-help-those-repaying-student-loans-save-for
Also see: As industry spends millions on lobbying, Congress moves on retirement legislation
Then there are the SECURE Act and RESA, which are essentially the same proposal but in two different chambers (the House and Senate, respectively).
SECURE Act
The SECURE Act, which was passed by the House Committee on Ways and Means in April, has four major parts:
• Small businesses could work together to create multiemployer 401(k) plans and see tax credits for including automatic enrollment for those accounts;
• Automatic escalation maximums could be topped at 15% (up from 10% now), which would allow employees to save significantly more in their plans;
• The age for required minimum distributions would increase to 72 years old, up from 70 ½ right now. Workers would also be able to contribute to their IRAs after turning 70, which is currently prohibited;
• And part-time workers would be eligible for retirement benefits, after meeting certain requirements (like working at least 1,000 hours in a year, or 500 hours for three consecutive years).
RESA
Many of the ideas in these bills, as well as the legislation themselves, have been introduced a few times to Congress. RESA has been discussed in similar ways since 2016, and includes small changes to the current retirement savings infrastructure. The proposal would allow businesses to create multiple employer plans without needing to be within the same industry and wouldn’t punish all companies in those MEPs if one were to violate the rules. The proposal also makes it more attractive for small businesses to incorporate auto-enrollment. Lastly, it would help employees see their savings as lifetime income, by requiring benefit statements to translate their savings into lifetime income at least once a year.
Gary Reber Comments:
I’ve said it before and I’ll say it again: It’s great to be unemployed and retired if you can afford it!
So far the attempts to address the fact that Americans are not saving enough for retirement do not address the REAL cause. And the proposals put forth fall far shot by “trillions” of dollars. They are all based on a denial of consumption, which effectively reduces demand for the responsible growth of the economy.
The plain truth is that more than four in five older Americans expect to keep working during their latter years, a sign that traditional retirement is out of reach for vast swaths of society. According to a recent survey poll conducted by the Associated Press-NORC Center for Public Affairs Research, among Americans ages 50 and older who currently have jobs, 82 percent expect to work in some form during retirement.
In other words, “retirement” is increasingly becoming a misnomer.
For those who have been dependent on employment and/or welfare, the problem is that financially sustainable retirement is and will no longer be a reality. Even with Social Security, which is funded through payroll taxes called the Federal Insurance Contributions Act tax (FICA) and/or Self Employed Contributions Act Tax, (SECA), one must have had a job to be eligible for the entitlement — and the amount of Social Security is based on the income level generated from one’s employment record of payroll tax contributions.
Employer-provided pensions continue to decrease and personal savings is not the norm among the vast majority of American households who must spend virtually every earned dollar on living expenses, and incur consumer debt to secure automobiles and housing, as well as other consumption. While increasingly individuals are finding it necessary to continue working in retirement to supplement their income, most older Americans discontinue full-time career work and struggle to meet obligations with minimum-pay part- and full-time jobs. A proportion of retirees also receive income from welfare programs, such as Supplemental Security Income and other life-support services funded through tax extraction and government debt.
This perspective should serve as the “reality” from which to explore prospects for effectively dealing with eroding retirement security.
Proposals that have received national media attention offer lifetime income security funded out of current savings, meaning further reductions in consumption out of already inadequate incomes. They also aggregates everything into a “private sector” institution that is custom designed to be “too big too fail.”
Such proposals will not succeed in providing any real, substantial retirement security for the majority of Americans whose jobs do not earn more than substance week-to-week and month-to-month wages. The proposals are designed to encourage Americans to save for retirement and require personal savings and denial of consumption. This is unrealistic given that the Americans with the least opportunity must reduce what is inadequate consumption income in order to accumulate savings for retirement, which for most Americans will be inadequate.
Furthermore, no longer are jobs secure as tectonic shifts in the technologies constantly eliminate the necessity for masses of human workers.
Does anyone really believe that the interest rate to be paid under the proposed programs advocated will be sufficient and able to avert the decline in the value of the money as the government continues to flood the economy with increasingly non-asset-based debt?
The proposals rely on the requirement to reduce consumption in the economy at a time when what is needed is expansion of the economy supported by increased consumption.
As my colleague Michael Greaney at the Center for Economic and Social Justice (www.cesj.org) states, “under the prevailing Keynesian paradigm, of course, ‘saving’ is always defined as the excess of income over consumption. If you want to save, then, the iron assumption of Keynesian economics is that you must consume less.”
The American consumer is being put into an impossible situation of being asked to consume more to drive the economy and reduce saving, and at the same time are being told they must reduce consumption dramatically in order to accumulate sufficient savings for retirement.
Of course, the whole problem would go away if we financed both retirement and wealth-creating, income-producing physical productive capital needs out of “future savings,” thereby increasing the capacity to consume and support the economy while simultaneously building financial security for EVERY American citizen.
A far better and productive approach would be to create a new way for working and non-working Americans to start their own retirement savings: MyCHA. CHA stands for Capital Homestead Account. It would be a super-IRA or asset tax shelter for citizens. The Treasury should start creating an asset-backed currency that will enable every child, woman and man to establish a CHA at their local bank to acquire a growing full-earnings, dividend-bearing stock portfolio comprised of newly-issued stock representative of viable American growth corporations, both established and start-ups, to supplement their incomes from work and all other sources of income.
We can create new asset-backed money for investment through the existing but dormant Section 13(2) rediscount mechanism of each of the 12 regional Federal Reserve banks that would be backed by “future savings” (that is, future profits from higher levels of marketable goods, products, and services).
The CHA would function as a savings and income account that effectively would build a nest egg over time, using interest-free, insured capital credit loans. A CHA would be offered to EVERY American, whether employed or not. Of course, those employed may also have additional opportunities to acquire personal ownership in their companies using an Employee Stock Ownership Plan (ESOP) trust financial mechanism.
The CHA would process an equal allocation of productive credit to EVERY citizen (all children, women and men) exclusively for purchasing full-earnings, full-dividend payout shares in companies needing funds for growing the economy and private sector jobs for local, national and global markets. The shares would be purchased on credit wholly backed by projected “future savings” in the form of new productive capital assets as well as the future marketable products and services produced by the newly added technology, renewable energy systems, plant, rentable space and infrastructure added to the economy. Risk of default on each stock acquisition interest-free loan would be covered by private sector capital credit risk insurance and reinsurance, but would not require citizens to reduce their funds for consumption to purchase shares. There would be no prerequisite requirement to qualify for an annual set capital credit loan other than American citizenship.
This idea to stimulate economic growth and provide retirement security for EVERY American is based on the premise that what is needed is for the system to facilitate spreading the ownership of productive capital more broadly as the economy grows with full payout of dividend earnings, without taking anything away from the 1 to 10 percent who now own 50 to 90 percent of the corporate productive capital wealth assets. In doing so, the ownership pie would desirably get much bigger and their percentage of the total ownership would decrease, as ownership gets broader and broader.
This would benefit the traditionally disenfranchised poor and working and middle class, who are propertyless in terms of owning productive capital assets. It would also result is tremendous economic growth, which would benefit everyone including the already wealthy ownership class, and create opportunities for real jobs, not make-work as an expanded economy is built that can support general affluence for EVERY American citizen. Thus, as productive capital income is distributed more broadly and the demand for products and services is distributed more broadly from the earnings of capital, the result would be the sustentation of consumer demand, which will promote economic growth. That also means that over time, EVERY child, woman and man can accumulate a diversified portfolio of wealth-creating, income-producing productive capital assets to provide economic security in retirement and not be dependent on having to work during retirement or rely on government-assisted welfare.
One might ask how we failed to grasp the significance of productive capital’s input and the necessity for broad private sector individual ownership? Unfortunately, ever since the 1946 passage of the Full Employment Act, economists and politicians formulating national economic policy have beguiled us into believing that economic power is democratically distributed if we have full employment — thus the political focus on job creation and redistribution of wealth rather than on full production and broader productive capital ownership accumulation. This is manifested in the belief that labor work is the ONLY way to participate in production and earn income. Yet, the wealthy ownership class knows that this notion is idiotic.
In real productive terms, productivity gains are the result of tectonic shifts in the technologies of production, which consequently eliminates the need for human labor, destroys jobs, and devalues the worth of labor.
One should ask what form would the structural reforms take. Employment in this new enlightened age would start at the time one enters the economic world as a labor worker, to become increasingly a productive capital owner, and at some point to retire as a labor worker and continue to participate in production and to earn income as a productive capital asset owner until the day you die. As a substitute for inheritance and gift taxes, a transfer tax would be imposed on the recipients whose asset holdings exceeded $1 million. This would encourage those owning concentrations of productive capital assets (effectively the 1 to 10 percent) to spread out their monopoly-sized estates to all members of their family, friends, servants and workers who helped create their fortunes, teachers, health workers, police, other public servants, military veterans, artists, the poor and the disabled.
Other stipulations for the structural reform would entail tax policy reform to incentivize corporations to pay out all profits to their owners as taxable personal incomes to avoid paying stiff corporate income taxes and to finance their growth by issuing new full-earnings, full-dividend payout shares for broad-based individualized employee and citizen ownership with full-voting rights.
We need to encourage the insurance industry to expand their product lines to market Capital Credit Insurance to cover the risk of default for banks making loans to Capital Homesteaders under the proposed Capital Homestead Act. Under the provisions of the Act, risk of default on each stock acquisition loan would be covered by private sector capital credit risk insurance and reinsurance issued by a new government agency (ala the Federal Housing Administration concept), but would not require citizens to reduce their funds for consumption to purchase shares.
The end result is that ALL American citizens would become empowered as owners to meet their own consumption needs and government would become more dependent on economically independent citizens, thus reversing our country’s trend where all citizens are becoming more dependent for their economic well-being on the “state,” our only legitimate social monopoly.
Implementing the Capital Homestead Act would significantly empower ALL Americans to accumulate over time a viable, diversified ownership portfolio in our nation’s growth companies and create a truly unique, global-leading just and environmentally responsible Ownership Society that fosters personalism, creativity and innovation. Embarking on a new path to prosperity, opportunity and economic justice will expand growth of our market economy in ways that democratize future ownership opportunities, while building a future economy that can support general affluence for EVERY American.
In conclusion, the conventional savings required — denial-of-consumption — programs would be completely unnecessary if we had Capital Homesteading. Our elected representatives should advocate for the passage of the Capital Homestead Act.
See two references to the proposed Capital Homestead Act at http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm.
For more on how to accomplish such structural reform, see “Financing Economic Growth With ‘FUTURE SAVINGS’: Solutions To Protect America From Economic Decline” at http://www.foreconomicjustice.org/?p=17032, “A Solution To Eroding Retirement Security” at http://www.foreconomicjustice.org/?p=10470 and “The Income Solution To Slow Private Sector Job Growth” at http://www.nationofchange.org/income-solution-slow-private-sector-job-growth-1378041490
Support the enactment of the proposed Capital Homestead Act (aka Economic Democracy Act and Economic Empowerment Act) at http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/ and http://www.cesj.org/learn/capital-homesteading/ch-vehicles/. And The Capital Homestead Act brochure, pdf print version at http://www.cesj.org/wp-content/uploads/2014/11/C-CHAflyer_1018101.pdf and Capital Homestead Accounts (CHAs) at http://www.cesj.org/learn/capital-homesteading/ch-vehicles/capital-homestead-accounts-chas/.
