SECURE 2.0 hearing shows fissure in retirement policy

Retirement security is regarded as one of the few issues that brings Democrats and Republicans together in Congress, but a House subcommittee hearing today on the Secure Act 2.0 showed that there are limits on that bipartisanship.

The legislation, co-authored by Reps. Richard Neal, D-Mass., and Kevin Brady, R-Tex., includes dozens of measures that would affect retirement saving, including a provision to hike the minimum required distribution age from 72 to 75 over 10 years. It would also increase coverage for part-time workers, establish a nationwide lost-and-found system for 401(k) accounts and seek to expand automatic enrollment and automatic contribution escalation in employer-sponsored plans. The bill, which passed a House committee last month, stands a 53% chance of being enacted, according to an estimate from Skopos Labs cited by Govtrack.

Despite the sweeping nature of the legislation, which would piggyback on the success of 2019’s Secure Act, few of the actual provisions were discussed during the hearing. Instead, legislators focused on whether there was a need to improve retirement saving and sought to address whether the 401(k) system has failed by disproportionately favoring affluent and white savers. Republicans also used much of their time to deride the Democrat-led American Rescue Plan signed into law in March, which included bailout money for underfunded multiemployer pension plans.

Democrats sought to highlight the shortfalls of the current retirement savings system, directing questions at witnesses including The New School professor Teresa Ghilarducci; director of University of California at Berkeley’s Retirement Security Program Nari Rhee; and AARP’s director of legislative policy for government affairs, David Certner. Republicans focused their questions on Andrew Biggs, resident scholar at the American Enterprise Institute.

While progress has clearly been made in retirement security, there is a danger of regression, Ghilarducci said.

“Before Social Security and defined-benefit plans were established, workers were more likely to die than they were to retire. They died in their boots,” she said. “Five years after Social Security was passed, it was only the privileged who were truly able to retire.”

About 3% of people were able to retire voluntarily around 1940, she noted.

Today, people in the bottom third by income in the U.S. have a retirement spanning an average of 12 years, while that figure is only slightly higher, at 14 years, for those in the upper third, she said. However, a widening income gap threatens that, and “right now, all of us at the hearing are at greater risk of our parents moving in with us than our parents faced with our grandparents,” Ghilarducci said.

“If we don’t do something, we’ll have more elders in poverty.”

While about half of private-sector workers have access to defined-contribution plans, it is unequal by industry, occupation, wage level and race, Rhee said.

In the hotel and restaurant industry, which employs a disproportionately high percentage of Black and Latino workers, access to a 401(k) is about 33%, she noted. About 46% of Black households and 37% of Latino households have at least on member who has a pension or a DC plan, she said. Median account balances in 401(k)s and IRAs are also skewed heavily by race, with the figures being $13,000 among white households and $0 among Black and Latino households, she noted.

The system also has lower benefits for women, due to the gender pay gap, time out of the workforce and longer life expectancy, she said.

However, about 80% of retirees in a Gallup survey have said they have enough income to live comfortably, Biggs said.

“Never before have retiree incomes been so high or poverty rates been so low,” he said.

Despite the ubiquity of pension plans about 50 years ago, only about 39% people actually participated, due to vesting requirements, he said. Passage of the Employee Retirement Income Security Act and more stringent standards of pension plans meant that fewer employers offered them, instead switching years later to 401(k)s. About 60% of working-age people are covered by retirement plans today, he said. However, gaps in coverage remain, particularly among small businesses, which would benefit from having an easier time setting up plans and facing less fiduciary liability, he noted.

Regarding the American Rescue Plan, Congress could similarly move to bail out severely underfunded state and local pensions, such as Illinois’s, Biggs said. Should that happen, Congress should seek much more oversight of those systems, perhaps by subjecting them to ERISA, he said.

Because savings in 401(k)s and IRAs have gone up for all groups in recent years, “to me, there’s not a discrepancy or disparity there” by age or ethnic group, said Rep. Diana Harshbarger, R-Tenn. Provisions in Secure 2.0 would improve the system, she said.

An expansion of automatic plan features would help people save, said Rep. Donald Norcross, D-N.J.

“History has shown us that once an employee gets their money in a paycheck it is so much harder for them to save in a retirement account,” Norcross said.

Participation in a 401(k) jumps from about 50% to 80% after automatic enrollment is implemented, Certner said.

“Most employees, when the join up, are not thinking about retirement,” he said. “And it’s good for the system to be putting them in the right direction.”