Taylor Tepper, Forbes Staff
Aug. 20, 2020
Retirement policy during President Donald Trump’s first term was one of the less spirited aspects of his presidency. A second term would likely bring much of the same.
Before the current crisis, Americans had become steadily more optimistic during President Trump’s first term they would enjoy a comfortable retirement. Confidence in retirement prospects had risen 9 percentage points to 69% in early 2020, according to the nonpartisan Employee Benefit Research Institute. Even Americans without a retirement plan, such as a 401(k) , grew more sanguine over Trump’s first term thanks to the halo effect of an improving economy and rising wages .
But the financial destruction wrought by Covid-19 has reversed those trends, at least for the moment. Millions are out of work, and the risk they won’t be able to maintain their standard of living in retirement has increased.
Unlike his rival for the presidency, President Trump isn’t campaigning on major initiatives to reform Social Security or renovate retirement plans anytime soon, says Andrew Biggs, a research fellow at the conservative-leaning think tank AEI.
Instead, he’s hoping an eventual economic recovery, the seeds planted in his first term and more limited legislation will buoy the retirement prospects of Americans once again.
President Trump’s Stance on Social Security
President Trump stood out during the 2016 Republican primary by vowing not to cut Social Security or Medicare and Medicaid. Despite some squishiness here and there, he hasn’t proposed changing or limiting this core federal retirement program.
Meanwhile, the Social Security trustees estimate that the program’s reserves will run dry in 2035 , at which time retirees could see benefit reductions unless Congress appropriates more revenue or raises payroll taxes. While former Vice President Joe Biden has proposed a slew of changes to bolster Social Security , President Trump has largely steered clear of the issue altogether.
“I haven't seen anything discussed on Social Security reform,” says Biggs. “The president has argued against any Social Security benefit cuts, but hasn't waded into how Social Security's long-term funding should be secured.”
In response to the coronavirus economic fallout, Trump signed an executive order deferring the employee portion of payroll taxes. Social Security advocacy groups, many members of Congress (mostly Democrats, but some Republicans, too), and even the U.S. Chamber of Commerce have come out against the proposal. Among other complications, a payroll tax holiday would further jeopardize Social Security's long-term finances. Employers, who are highly uncertain about the rules, may not implement the policy.
Nevertheless, somebody in the White House will need to start working with Congress to fix Social Security, said director of the Center for Retirement Research at Boston College Alicia Munnell. But she doubted it would be this administration.
“To do serious business, we need a serious atmosphere,” she said.
Incremental Reforms from the SECURE Act
The most significant retirement-related legislation that passed during President Trump’s first term was the bipartisan Setting Every Community Up for Retirement (or SECURE) Act. The law included several improvements for retirement:
- Raised the age at which you must start taking required minimum distributions (RMDs) from your tax-advantaged retirement plan from 71½ to 72.
- Removed age restrictions on who could contribute to IRAs.
- Reduced red tape so small businesses could band together to offer retirement plans and save on costs.
- Offered a tax credit for small businesses that auto-enroll employees in their retirement plan.
- Made it easier for 401(k) plans to offer annuities .
While these reforms made it incrementally easier to save for retirement, none fundamentally shifted the landscape. For instance, Munnell supports comprehensive auto-enrollment policies similar to OregonSaves , a public retirement savings program run by the State of Oregon for private workers who lack access to a retirement savings plan through their employer.
President Trump signed the bill into law at the end of 2019, so it may be a while before something else comes down the pike.
“I haven't seen anything major proposed on retirement, which isn't surprising given that the SECURE Act passed in 2019 and it may make sense to see how that phases in before proposing next steps,” says Biggs.
The most immediate move would likely be regulatory. The Department of Labor is already looking into if, and how, so-called environmental, social, and governance (ESG) investment philosophies and private equity funds should be allowed into retirement plans.
One possible place for compromise is the Credit for Caring Act . The bill, which is sponsored by Senator Joni Ernst (R-IA) and has the support of several Democrats, including Senator Elizabeth Warren (D-MA), would provide up to $3,000 in nonrefundable tax credits to those providing long-term care to loved ones. Biden is proposing a similar, if not more generous, credit, although he’ll raise taxes to offset the cost.
Interest in Sidecar Accounts and Universal Savings Accounts
More ambitious retirement ideas, so-called “ sidecar” accounts and universal savings accounts , have peaked the interest of some in the Trump administration.
Sidecar accounts already have some bipartisan support in Congress. Employers would provide these short-term, pre-tax savings vehicles—similar to 401(k)s—but employees would be able to access their money immediately without penalty, rather than having to wait until they turn 59½. In a bill sponsored by Doug Jones (D-AL) and supported by Republicans, you could save up to $10,000 annually, adjusted for inflation.
Unnamed members of the White House have supported universal savings accounts, which would function similar to sidecar accounts but would theoretically be available to all Americans , regardless of employment status. The details had yet to be ironed out when the coronavirus struck.
The major benefit would be increased flexibility.
“Workers could save without fear of having their money locked up,” says Rachel Greszlera of the conservative Heritage Foundation. “It’s a way to save in an account with whatever purpose is best for you.”
While not exactly a retirement vehicle, universal savings accounts could help people who end up raiding their 401(k) to pay off bills, an issue known as leakage.
“If people had the choice between withdrawing from a retirement account with a penalty and withdrawing from a USA without one, they would have an incentive to choose the latter,” notes the Tax Foundation . “People could withdraw from their USAs to cover short-term expenses, leaving their retirement savings alone to grow over time.”
Should such accounts be adopted, though, they’d likely face questions similar to those for 401(k)s: how do you get enough people to sign up and actually use it?
The Final Word
While Trump has steered away from Social Security cuts, he hasn’t laid out an agenda to solidify this essential retirement program. Moreover, any legislation that’s passed to improve retirement security would likely need to be bipartisan and limited in nature to be acceptable to both Congress and the White House. That could result in real improvements to the nation’s retirement system, but likely nothing to change the lot of those facing retirement with little-to-no savings.
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