Efforts to spur Americans to save more for retirement have been a bipartisan project for the past several years. But Republican support for the latest push is now at risk, after Democrats unveiled their own more ambitious plans for inclusion in a partisan budget package they are aiming to ram through in the coming weeks.
The top Republican on the House Ways and Means Committee, Kevin Brady of Texas, said last week that he’s watching what ends up in Democrats’ multitrillion-dollar reconciliation package and reevaluating a popular bill he co-authored with Chairman Richard E. Neal, D-Mass.
“We’re reconsidering our support,” Brady said. “Going to wait until the reconciliation is over, take a look at what pieces are left in there of value and then have that conversation first among Ways and Means Republicans and then with the chairman.”
The retirement bill that Ways and Means approved earlier this year is a follow-up to a bipartisan 2019 law, which, among other provisions, made it easier for small businesses to band together to offer pooled workforce savings plans and for workplace plans to offer annuity or “lifetime income” options to employees — essentially, insurance contracts that pay out regular distributions in retirement. It also gave freelance and “gig” workers access to 401(k)-style accounts.
Ways and Means unanimously approved the new Neal-Brady bill in May. Among other things, that bill would raise the minimum age for required retirement plan distributions from 72 to 75, an acknowledgment that Americans are living and working longer; require all but the smallest businesses with existing 401(k)-type plans to automatically enroll their employees unless they opt out; and provide tax credits to startup firms to offer workplace savings plans.
It would further loosen rules governing annuity options for retirement plans by allowing smaller annual benefit increases that rise over time and letting variable annuities, which make payouts that can rise or fall based on market performance, offer lower-cost exchange-traded funds, or ETFs.
Then Neal this month unveiled his reconciliation bill recommendations, including his longtime priority to tax employers that fail to offer workers opt-out retirement savings plans — eclipsing the Neal-Brady bill auto-enrollment provision that took a much lighter touch. Neal’s new bill would also enhance tax credits for low-income retirement account holders, meant to be a government-paid match for their savings.
The reconciliation proposal would require employers that don’t already have retirement plans to provide workers with auto-enrolling savings accounts, such as 401(k)s or Individual Retirement Accounts, or face an excise tax equal to $10 per day per worker, capped at $500,000 annually. Employers of five or fewer people, businesses less than 2 years old, governments and churches would be exempt.
Workers in new auto-enrolled plans with vested balances of at least $200,000 would have the option of taking at least half of their distributions in the form of an annuity, further opening the door to those insurance products becoming a feature in workplace savings plans.
The Insured Retirement Institute, which represents major insurers like Equitable, Nationwide and Prudential and money managers like BlackRock that offer annuities, is among the groups backing Neal’s reconciliation bill.
In a letter to Neal this month, the IRI wrote that giving workers a lifelong income option as part of their 401(k) or similar plans would provide retirement security akin to a traditional pension plan. Pensions provide retirees with a set amount of benefits, while 401(k) values are based on the amount put in and market performance.
Insurers are Neal’s top lifetime campaign contributors, according to the Center for Responsive Politics, with MassMutual employees being Neal’s No. 1 lifetime donor. MassMutual is based in Neal’s district in Springfield, Mass., where he was once mayor.
Republicans singled out the annuity piece of Neal’s auto-IRA plan, offering an amendment during the markup of the measure to scrap it. The amendment’s author, Rep. Tom Rice of South Carolina, said the requirement is a “massive giveaway to the insurance industry at the expense of thousands of small businesses.”
Republicans generally opposed the auto-enrollment measure, saying it would be burdensome on small businesses that comply and costly for those that don’t. The National Federation of Independent Business put the provision at the top of their list of concerns with the House reconciliation bill in a letter to lawmakers Friday, arguing it would violate President Joe Biden’s pledge not to raise taxes on business owners making under $400,000.
Kevin Kuhlman, NFIB’s vice president of federal government relations, wrote that the auto-enrollment mandate could cause small businesses to “make difficult decisions that may include cutting employee benefits elsewhere, reducing employee hours or total number of employees, or increasing the price of their products or services.”
Ways and Means approved the retirement portions of the reconciliation bill on a 22-20 vote, with all but two Democrats’ votes and no Republican backing. Florida Democrat Stephanie Murphy voted against all of the panel’s recommendations for the reconciliation bill out of concern about the overall package, while Wisconsin Democrat Ron Kind objected only to the retirement provisions.
Kind, who’s retiring after this Congress, said he voted against the measure because small businesses should be incentivized to offer employees retirement accounts rather than mandated to do so.
“I think this is something, too, that could’ve been worked into [the Neal-Brady bill] — keep it bipartisan, keep it moving forward,” Kind said last week. “There wasn’t much controversy behind that, but this was [the] chairman’s discretion. This is a bill he’s been working on for a number of years, and he knew I had some misgivings about it.”
Republicans questioned during the markup where the move left bipartisan efforts, and Neal repeated in response that his bill with Brady would pass by the end of the year. While there are “an awful lot of good things” in the bipartisan bill, Brady said the move to pass some pieces with Democrats alone is troubling.
“I think the chairman’s sincere about trying to find a bipartisan path forward, but provisions in reconciliation supersede much of the [Neal-Brady bill], and in effect almost renders it obsolete in many cases,” he said.
Neal last week said the bipartisan bill will “pass easily” without needing any edits. “It came out of the committee unanimously, and I’d be stunned if it didn’t leave the floor of the House almost unanimously,” he said.
The bipartisan bill and reconciliation measure would both address auto-enrollment, the low-income saver’s credit and a tax benefit for small businesses launching new retirement plans. The Neal-Brady bill generally has a lighter touch on employer requirements and a more robust tax credit to help new firms offer workplace savings plans.
The Neal-Brady bill also includes dozens of other provisions that the reconciliation bill doesn’t address, including more catch-up contributions for retirement account holders in their 60s. That provision would help workers with mandatory retirement ages, such as airline pilots living in Ways and Means Rep. Drew Ferguson’s district.
Ferguson, a Georgia Republican, introduced stand-alone legislation on the topic earlier this year. His district includes Peachtree City, a community near Delta Air Lines’ hub at Atlanta’s Hartsfield-Jackson airport.
A group that lobbies for pilots, the NetJets Association of Shared Aircraft Pilots, disclosed weighing in to support the Neal-Brady measure. And the Air Line Pilots Association, which bills itself as the largest pilots union in the world, reported lobbying for Ferguson’s stand-alone bill.
The bipartisan Ways and Means bill would also allow employers to match workers’ student loan payments with retirement plan contributions, create a tax credit for military spouses to get earlier access to savings plans and establish a program to locate unclaimed pensions.
The Neal-Brady bill, if bipartisan support collapses, also includes offsets that Neal could draw on as Democrats decide on ways to raise revenue to cover the cost of the reconciliation bill. Democrats have said the bill will be fully paid for, even as they look to add expensive relief from a $10,000 cap on state and local tax deductions to the package.
The bipartisan bill’s offsets would divert more retirement contributions into after-tax Roth accounts, meaning the revenue is collected sooner and in some cases at higher tax rates, and permit certain account holders to take out money early based on financial hardship, triggering income tax on those distributions.
The bipartisan bill’s offsets fully cover its $27.2 billion in new retirement incentives, according to the Joint Committee on Taxation. The reconciliation bill’s auto-enrollment and low-income saver’s credit provisions would cost another $46.8 billion.
Lindsey McPherson contributed to this report.