Greased by lobbying and campaign cash, tax breaks for retirement savings are one thing Congress agrees on. But they also blow out the deficit and add to income inequality.
Five months before Congress faced a near-catastrophic standoff over the debt ceiling, with Republicans demanding restrictions to food and Medicaid programs to rein in spending, a bill that raised the cost of private retirement savings accounts to $282 billion per year was quietly signed into law.
More striking is how these victories were achieved: A quarter-century partnership between two senators — Democrat Ben Cardin of Maryland and Republican Rob Portman of Ohio — joined more recently by the former House Ways and Means Committee Chair Richard Neal .
Meanwhile, former administration officials, Capitol Hill aides and other people who work on retirement legislation, some of whom were granted anonymity to discuss the legislative process, told POLITICO that the industry initiated many, if not most, of the policies that became law.
Defenders of the system argue that 401s provide middle-class Americans with a critical additional layer of financial security, when coupled with Social Security. Secure 2.0 also included a new kind of government match program, called the saver’s credit, for the lowest-income savers — which provides a retirement savings match of up to $1,000 for people with very low incomes.
Underscoring the need to make retirement plans available to more people, John pointed to AARP studies indicating that 57 million private sector workers don’t have access to any retirement program at work, while only 47 percent of Black employees and 36 percent of Hispanic employees have access to an employer-provided retirement plan.
Neal, who is now ranking member for Ways and Means, put it this way: “I think it is important to highlight that U.S. defined contribution plans have created a unique reservoir of capital in the innovation economy. That means that workers’ retirement assets are directly tying middle class workers to our national innovation economy. That certainly is a win-win for all of us.”
“I get the critique, but legislating’s really hard. And I am not aware of anything other than sort of an academic exercise that says that, all of a sudden, we can go back to a defined benefit. Because if there were, I’d be the first one to champion it,” Neal said. However, a Portman-Cardin bill from 2021 is illustrative of how highly technical changes, receiving little scrutiny, can influence federal tax collection.
Tax lawyers who reviewed the statutory changes said they would in fact make it far more difficult for the IRS to penalize supersized retirement accounts where owners avoided millions of dollars in taxes. The current retirement system, in which taxpayers can put hundreds of thousands of dollars a year into tax-advantaged accounts, started to develop in the 1990s, as the stock market boomed and the workforce became more mobile.
The 1994 elections, which saw Republicans sweep the House with a promise of tax cuts, cleared the way for two junior members of the Ways and Means Committee, Cardin and Portman, to propose legislation to let taxpayers put away more income. At the time, the U.S. had the lowest savings rate in the industrialized world and advocates claimed that simplifying the pension system would encourage small businesses to provide more benefits.
The bill was a tremendous success for the junior lawmakers, and one year later the chair of the Senate Finance Committee, William Roth , proposed legislation creating an additional option. The so-called Roth IRA would reverse the structure of the traditional individual retirement account, from one that made the taxpayer pay taxes on their savings when they withdrew from their accounts to one that made them pay up front but withdraw from their accounts tax-free.
The legislation was a nexus between the demands of business owners, asset managers and unions. Among them was a so-called catch-up contribution, which allowed taxpayers over 50 to put $5,000 more into their employer plans every year. Cardin backed him up: “It is a well-balanced approach. Sure, one might want to pick at one provision and say, does this not help one special group? All of the provisions help all of our workers.”
Some lawmakers began expressing skepticism about whether tax-advantaged retirement accounts were helping average Americans. Still, it would be more than a decade, until the start of the Trump administration, that Portman, Cardin and Neal would be able to advance retirement packages with the same kind of sprawling tax breaks.
Portman, Cardin and Neal presented the bill as a way of helping the average American. “It is estimated that up to 50 percent of the individuals in America who go to work every single day do not have enrollment in a qualified retirement plan,” Neal said upon the introduction of Secure 2.0. Both groups expanded along with tax-advantaged savings: In 1999, the American Benefits Council reported spending $120,000 on lobbying. By 2022 it was up to $1.3 million. Likewise, according to documents Graff shared on LinkedIn, revenues of the American Retirement Association grew from $1.7 million in 1996 to $23.8 million in 2022.
Two of the most successful financial services lobbyists are Kent Mason and Brian Graff, shown above in 2011 and 2005 respectively. | Andrew Harrer/Bloomberg via Getty Images; Roger L. Wollenberg/UPI via Alamy At a 1998 House Ways and Means hearing, the head of the American Benefits Council said that provisions developed by the council had formed the basis of the first Portman-Cardin collaboration and that its ideas were in the bill that would be incorporated into the Bush tax cuts: “We are gratified that many of our more recent proposals for improving the retirement system were embraced by Representatives Portman and Cardin,” the lobbyist said.
Both lobbies were highly successful: The legislation ended up increasing limits on annual 401 contributions from 25 percent to 100 percent of a taxpayer’s salary, at a maximum of $40,000, while also more than doubling the amount taxpayers could put in their IRAs. But there were other players in the mix: They included the Insured Retirement Institute, which represents the insurance supply chain from brokers to marketing firms; the American Council of Life Insurers, an approximately 280 member association of life insurance companies; and the Investment Company Institute, a sprawling association representing investment funds.
However, Borzi said she was informed by a congressional staffer and several consumer advocates that provisions the group was proposing had been vetoed by the business community through Democrats on the House Ways and Means Committee.“It’s a separate conversation from me. Nobody said anything to me,” Neal said when asked about Borzi’s experience. “I gave the staff, in this instance here, considerable latitude. They’re really smart people.
Fast forward to June 2017 and Isakson spearheaded legislation to block the Labor Department’s fiduciary rule on the eve of its implementation. Davis & Harman — Mason’s firm, which represents the council — also holds fundraisers for lawmakers at its office, according to campaign finance records. PAC spending by those companies increased 7.8 times compared to the 2002 cycle, according to POLITICO’s analysis.
Portman similarly found the support of the retirement industry to be critical during a pivotal Senate election in 2016 against former Ohio Democratic Gov. Ted Strickland. Michele Varnhagen, who was labor policy director for the House Committee on Education and Labor, put it this way: “ had so many provisions. A provision often had to be seriously heinous to be able to say, ‘No, I’m going to walk away from bill support if you don’t take that out of the bill.’”
“The retirement system has been very successful in our view, and as these policies come up, ICI leverages our research folks and our legal folks to talk to policy makers,” said Peter Gunas, a lobbyist for ICI. “Investment firms don’t say that they’re lobbying for the firm. They say they’re lobbying for their account holders, for the millions of people that have money invested,” Varnhagen said.
Neal’s spokesperson, Dylan Peachey, noted that Neal has been working for decades to expand automatic enrollment and that Democrats scored an expansion of the saver’s credit, which would effectively operate as a direct government matching contribution, up to $1,000, for low-income taxpayers.For many advocates, the saver’s credit is what made Secure 2.0 worth enacting at all. However, a Senate Finance Committee spokesperson said that the credit in Secure 2.
Other tax policy experts have suggested simply cutting the contribution limits to levels reasonably attained by the vast majority of Americans.
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