Congress recently passed the SECURE Act, which made substantial changes to many of the existing regulations governing qualified retirement savings plans.
Presumptive Democratic presidential nominee Joe Biden has offered several proposals to change the manner in which current worker retirement plans, including Social Security, are structured. Specifically, the Biden plan would implement changes to the existing law by revising existing provisions to benefit lower income workers.
Biden’s first proposal makes the bedrock promise of maintaining Social Security benefits for existing retirees and for those nearing retirement. Biden pledges to prevent cuts in benefits to retirees and would take steps to insure the Social Security Trust Fund remains solvent.
Biden’s plan also guarantees benefits for the most financially distressed and vulnerable older Americans, including, widows, lifetime workers with low monthly benefits, and destitute old-age beneficiaries who have exhausted their other savings. Biden would automatically provide higher Social Security benefits for the oldest Americans in order to prevent them from falling into poverty.
The plan “will provide the oldest beneficiaries — those who have been receiving retirement benefits for at least 20 years — with a higher monthly check to help protect retirees from the pain of dwindling retirement savings.”
Toward this end, the Biden plan would seek a minimum benefit for lifetime workers so that no one who has paid into the system for decades would spend their retirement years indigent. Biden would amend the existing minimum Social Security benefit so that those who have worked for 30 years will receive a benefit equal to 125% of the poverty level
Biden’s proposals for qualified retirement savings vehicles is geared primarily towards insuring that lower-income workers can avail themselves of the same tax compounding advantages that existing 401(k) plan participants have enjoyed for decades.
Biden’s plan is based on his belief that the existing retirement savings tax advantages disproportionately favor those individuals in higher tax brackets. His website contends that existing tax-advantages for IRAs and 401(k) plans, because of contribution deductibility, are not equally distributed across the income scale.
Biden’s proposal thus seeks to equalize the benefits of defined contribution plans for middle and lower-income workers. Biden’s website claims that the current retirement savings system provides, “upper-income families with a much stronger tax break for saving and a limited benefit for middle-class and other workers with lower earnings.”
In response, the plan would provide lower-income workers with a tax break when they set aside money for retirement.
Although the recently enacted SECURE Act made it much easier for small businesses to offer employees 401(k) plans, Biden would provide additional tax incentives for small businesses to defray the costs of administration.
Biden’s website doesn’t state whether his tax incentives would exceed or complement those currently offered under the SECURE Act. His retirement plan would go a step further that existing law by providing all workers without a pension or 401(k) defined contribution plan, access to what he calls an “automatic 401(k) retirement savings plan.”
Biden’s plan also would attempt to level the retirement savings plan benefits to include caregivers who would like to save for their retirement. Under existing law, caregivers are ineligible to participate in the tax advantages of qualified retirement plans, because they receive no wages for their work. Biden’s proposal would permit caregivers to make a “catch-up” contribution for what would be newly-authorized qualified retirement savings account.
An additional aspect of Biden’s retirement proposals would protect older Americans who wish to continue working past retirement age. Biden would expand the earned income tax credit (EITC) to older workers.
Under current law, EITC is not available to workers once they turn 65, placing them at a distinct disadvantage relative to younger workers. Biden would rescind the age cap for these benefits so that low-income workers would be afforded financial assistance.
The Bernie Sanders effect
Vermont Sen. Bernie Sanders is no longer a candidate, but he has closed ranks with the presumptive nominee in the name of defeating President Trump in November.
In exchange for his support, it’s very likely that some aspects of Sanders’ former campaign platform will appear in an eventual Biden offering to voters.
Like Biden, Sanders views the existing Social Security retirement system as inviolate and its preservation is one of his core retirement savings proposals.
Sanders web site unequivocally states, “Let’s be clear: Social Security is not ‘going broke.’ Social Security has a $2.9 trillion surplus and can pay every benefit owed to every eligible American for the next 16 years.”
Not only does Sanders want to protect Social Security, he wants to expand the system by ensuring that it remains solvent. Towards this end, Sanders would lift the cap on the amount of income subject to withholding taxes, which is currently $132,900 per year.
Sanders also would expand benefits across the board. Seniors with incomes of less than $16,000 per year would receive a $1,300 annual benefit increase. His proposal would also increase the minimum benefit paid to low-income workers upon retirement.
Finally, Sanders would increase existing cost-of-living adjustments to address the rising costs of prescription drugs and health care. His proposal would link the benefit increases to a newly created Consumer Price Index for the Elderly.
Sanders has no plans for amending current qualified retirement plan savings provisions. Rather, his retirement savings proposals are geared towards defined benefit or pension plans. The thrust of Sander’s proposals is to protect and expand pension benefits for public and private employees.
Sanders also would eliminate the recent changes in the law that allowed cuts to benefits to retirees with multiple defined benefit plans, calling the revisions “absolutely unacceptable.”
Sanders pension protection proposals would seek a moratorium via executive order that reverses prior cuts made to workers’ pension plans. As president, Sanders would pursue legislation prohibiting any future pension cuts.
Sanders proposed funding these provisions “by closing egregious loopholes that allow the wealthiest Americans in this country to avoid paying their fair share of taxes.”