Five months prior to a near-catastrophic standoff in Congress over the debt ceiling, a bill was signed into law that raised the cost of private retirement savings accounts to $282 billion annually. This bill, known as Secure 2.0, was hailed as a bipartisan success in a time of deeply divided politics. However, this victory for average Americans also increased wealth disparities and the federal deficit, much to the delight of the financial services industry. The bill expanded tax-advantaged retirement savings beyond its original goal of aiding the middle class, allowing wealthy taxpayers to protect up to $452,500 per year in tax-advantaged accounts and save up to $203,600 on their taxes.
The success of Secure 2.0 and previous bills was largely attributed to a partnership between Senators Ben Cardin and Rob Portman, joined by Representative Richard Neal, and supported by a well-funded industry lobbying team. This partnership turned what could have been a controversial tax break for higher-income taxpayers into a staple of the American Dream. However, experts are concerned about how easily Congress grants tax breaks for retirement savings that primarily benefit the wealthy, while considering programs like Social Security and Medicare as budgetary burdens.
The retirement industry has significantly increased its lobbying efforts and campaign contributions to lawmakers in recent years, leading to the passage of legislation that largely benefits the top earners. Critics argue that tax-advantaged savings disproportionately favor the wealthy and undermine equity across wealth, income, and racial lines. While defenders of the system claim that 401(k)s provide essential financial security for the middle class, data from various sources suggests that the effectiveness of these accounts is questionable for many Americans.
In conclusion, the passage of bills like Secure 2.0 has raised concerns about the influence of the retirement industry on Congress and the impact of tax-advantaged savings on wealth distribution and financial security for different income groups. Elder poverty rates in the United States are among the highest compared to 30 other similarly developed countries, ranking better only than Costa Rica, Croatia, Lithuania, Bulgaria, Latvia, South Korea, and Estonia. This disparity highlights the need for more accessible retirement plans, as millions of private sector workers lack access to such programs. The cost of retirement tax expenditures is expected to nearly double in four years, raising concerns about the sustainability of current systems.
Despite rhetoric from both parties praising tax-advantaged savings, critics argue that the current system primarily benefits high earners. The recent expansion of private retirement savings comes at a time when Social Security is facing insolvency in 2034. Lawmakers are working to address this issue while also expanding tax-advantaged savings to provide more options for retirement planning.
While some legislators defend the expansion of retirement savings as essential, others acknowledge the need to do more to help lower-income retirees. Highly technical changes to federal tax laws, such as those seen in the Portman-Cardin bill of 2021, can have a significant impact on tax collection and benefits for different demographic groups. Lobbying efforts from various interest groups further complicate the landscape of retirement planning and tax policy in the United States. There has been minimal advocacy for low-income taxpayers, while there has been significant lobbying from individuals in the financial services industry who benefit from retirement plans. What is the plan to help people save more for retirement? Portman and Cardin introduced a bill that includes a $5,000 catch-up contribution, particularly beneficial for women returning to the workforce after raising children. The bill also includes a tax credit for low-income savers. Despite these efforts, data showed that the bottom quintile of earners were not benefiting much from these provisions. Lawmakers expressed skepticism about the effectiveness of tax-advantaged retirement accounts for average Americans. However, Portman, Cardin, and Neal continued to pass provisions to increase contribution limits and remove legal impediments for certain retirement plans. The Secure 1.0 and Secure 2.0 bills provided more tax incentives and increased contribution limits for retirement accounts. The industry associations, with powerful lobbyists, have played a significant role in influencing retirement legislation over the years. Despite efforts to help average Americans save for retirement, the influence of industry lobbyists often prevails in shaping these policies. During the writing process, they would consult him for edits on bill drafts and use his language as the basis for provisions that would later become law, despite his clients having significant financial stakes. Michael Doran, who worked at the Treasury Department, praised Mason and another partner at Davis & Harman for their ability to translate the desires of the American Benefits Council into statutory language and advocate for them on Capitol Hill.
Doran recalled how Mason would edit bills sent to him by committee staff members, with some accusing their counterparts of blindly incorporating Mason’s changes without reviewing them. Both Mason and Brian Graff, successful financial services lobbyists, have played crucial roles in shaping legislation related to retirement savings options.
The lobbyists and industry officials have openly acknowledged their influence, with some taking credit for provisions that benefited their clients. Lobbying groups like the American Benefits Council and the Edward Jones Company hired Mason’s firm to advocate for specific issues such as catch-up provisions and rollover options for retirement savings.
Sweetnam, a retirement counsel, noted how different lobbying groups collaborated and complemented each other to push for changes in retirement legislation. The efforts of these lobbyists led to significant increases in annual contribution limits for 401(k)s and IRAs, benefiting millions of taxpayers.
Graff’s American Retirement Association and Mason continued to play pivotal roles in shaping subsequent retirement packages, like Secure 1.0 and Secure 2.0. Other industry players, such as the Insured Retirement Institute and the Investment Company Institute, also saw their priorities reflected in the bills, with provisions they had long advocated for being included in the final legislation.
Overall, the lobbying efforts of these groups have had a substantial impact on retirement policy, with various industry stakeholders successfully influencing lawmakers to enact changes that benefit their clients. The Portman staff member congratulated the group on the passage of Secure 2.0 and thanked the lobbyist for their assistance, expressing gratitude for their help in putting the initiative together. Despite efforts by retirement lawyers to advocate for low-income savers, they felt they were often outnumbered.
Phyllis Borzi, a former Labor Department official, described how she and other former officials acted as a “think tank in exile” to advise on reforms benefiting low-income savers. However, their proposed provisions were reportedly vetoed by the business community through House Democrats on the Ways and Means Committee, a claim denied by committee chair Neal.
Campaign contributions from industry groups like the American Benefits Council, Insured Retirement Institute, and Investment Company Institute increased significantly in recent years, particularly to lawmakers supportive of their priorities. These donations often coincided with key legislative decisions, such as blocking the Labor Department’s fiduciary rule.
The industry’s influence extended to hosting fundraisers for lawmakers and holding events to promote retirement security. Campaign finance records show that firms representing these groups made substantial contributions to campaigns, with significant donations going to key legislators during critical election cycles.
Overall, the industry’s political spending has surged, with PAC contributions and employee donations multiplying several times compared to previous cycles. Lawmakers like Neal and Portman received substantial support from industry PACs and executives during key election periods, highlighting the close relationship between the retirement industry and political decision-making. Ted Strickland was outmatched by Portman in the election, with member companies of the American Benefits Council contributing significant funds to Portman’s campaign. Despite Strickland’s defeat, some members of Congress have acknowledged the influence of industry groups in shaping retirement legislation. Elizabeth Warren highlighted the intertwining of money and power in politics, emphasizing the challenges faced by lawmakers in navigating complex legislative packages. Industry lobbyists, armed with data and technical expertise, play a key role in shaping retirement policies and influencing decision-makers on Capitol Hill. The power of industry marketing is evident in how certain provisions, such as catch-up contributions, are portrayed to the public. The success of the retirement industry in Congress has led to increased costs to the federal budget, raising questions about the sustainability and fairness of the current retirement system. Despite criticisms, advocates argue that recent legislation, such as Secure 2.0, has expanded access to retirement plans and benefits certain groups, such as low-income taxpayers, through initiatives like the saver’s credit.
Notably, Munnell and Andrew Biggs, a retirement scholar at the conservative American Enterprise Institute, have suggested repealing the entire system of tax-advantaged savings accounts to strengthen the Social Security system.
“I don’t think they increase savings in a meaningful way,” Munnell said. “In my view, in terms of getting the 401(k) system to work, we’ve kind of done everything that can be done in terms of making it work better.”
Other tax policy experts have proposed cutting contribution limits to levels reached by the majority of Americans.
However, any changes would need to overcome opposition from industry groups, who are willing to spend large sums to prevent policies that could harm their interests.
“We’re urging [lawmakers] not to alter the current law,” said the IRI’s Richman. “In our discussions with members of Congress, we emphasize how [tax-deferred treatment of retirement savings] promotes saving.”
Meanwhile, a bipartisan group of lawmakers is introducing a new government savings system administered by the Treasury Department for workers without access to private plans. The bill would also provide a government match of up to 4 percent for low-income workers who contribute to such accounts.
House Ways and Means committee member Lloyd Smucker (R-Pa.), who sponsored the bill with six Republicans and three Democrats, noted that provisions like catch-ups in Secure 2.0 do not benefit low-income taxpayers at all.
“Definitely not,” Smucker said. “Most of them have no retirement savings at all.”
Finance committee member Thom Tillis (R-N.C.), a co-sponsor of the Senate version, stated that such provisions are “not something that the vast majority of the American people can even consider.”
Lobbyists are vehemently opposing the legislation, viewing it as a threat to the private system of tax-advantaged plans — with the ARA and the ICI spending $1.6 million and $5.1 million respectively in 2023 on provisions related to the bill. Davis & Harman was paid $210,000 by the American Benefits Council in 2023 to lobby on bills involving the proposal.
At an April, 2023, retirement industry “summit” in San Diego, the ARA’s Graff warned the audience about the potential threat of a new government alternative to private plans. According to an article by an ARA subsidiary, Graff mentioned the ongoing coverage gap where 60 million people have no retirement savings at all as a driving force behind the proposal.
After more than a quarter-century of expanding private retirement legislation aimed at addressing this issue, the number of people without retirement savings has hardly changed.
“At some point, people in Washington, D.C. are going to grow tired of this systemic coverage gap and they’re going to start pushing for some type of federal intervention,” Graff said. “We need to make it clear that a federally run retirement system will never be acceptable.”
