Retirement policy wasn’t on the ballot in last week's
midterm elections. But the new political landscape could threaten the
retirement security of middle-class households. With Republicans in full
control of Congress, expect efforts to cut Social Security and Medicare
benefits. And more Republican-controlled statehouses mean more efforts to
curtail state and local workers' pension plans. One positive note: Congress and
the White House could find common ground on some promising ideas to encourage
retirement saving. Here are five policy areas to watch that could affect your
The midterm results boost the odds that Social Security cuts
will be in the mix if the brinkmanship over the federal debt ceiling or budget
Social Security does need reform. Its retirement trust fund
will be exhausted in 2034, when revenue from payroll taxes would cover just 77
percent of benefits. Meanwhile, the disability program will be able to pay full
benefits only through 2016. If Congress doesn't act, 9 million disabled people
will see their benefits cut by 20 percent.
Republicans have advocated higher retirement ages, less
generous cost-of-living increases and means-testing of benefits. Some Democrats
have fought for expansion of benefits and revenue for the program but haven’t
been backed by President Obama or congressional party leaders.
The GOP has pushed Medicare reform plans that would
"voucherize" the program, replacing defined benefits with a set
amount of cash that beneficiaries could use to shop for coverage in a Medicare
exchange. That would raise premiums for seniors in traditional Medicare by 50
percent in 2020 over current projections, according to the Congressional Budget
AFFORDABLE CARE ACT
The ACA isn’t a retirement program, but it has helped older
Americans by beefing up Medicare benefits covering older people who had trouble
obtaining insurance and were too young for Medicare. This year the rate of
uninsured 50- to 64-year-old Americans fell from 14 percent to 11 percent,
according to the Commonwealth Fund.
The percentage would be smaller if the U.S. Supreme Court
hadn’t given states an opt-out option on Medicaid - it has been expanded in
only 27 states and the District of Columbia. Meanwhile, congressional
Republicans continue to threaten funding, and the ACA faces a new Supreme Court
threat. If the court rules that tax subsidies on marketplace premiums can’t be
offered on the federal exchange, exchange insurance marketplaces will be on
life support in all but 13 states with their own exchanges.
Republicans will control 31 governors’ offices and 30 state
legislatures, the most since the 1920s. That means we can expect the attack on
public sector pension benefits to accelerate. The National Association of State Retirement Administrators
and the Center for State & Local Government Excellence reviewed pension
reforms by 29 states this year and found reductions in annual benefits.
A grand bargain on the federal budget could limit pre-tax
contributions to 401(k) accounts, an idea floated regularly in tax reform
discussions. And ideas aimed at helping lower-income households save for
retirement could gain ground. The Obama Administration has asked Congress to
create a national automatic IRA option and is rolling out a limited version called
Meanwhile, Senator Marco Rubio (R-Florida) has called for a
government-sponsored 401(k)-style account for Americans who don’t have a plan
at work. He would like to open up the federal Thrift Savings Plan to
private-sector workers. That's attractive because the TSP boasts low costs, a
short and easy-to-understand set of investment choices and options to convert
savings into an annuity stream at retirement.
It’s disappointing that few candidates campaigned on ideas
that would help the middle class build retirement security. Democrats could
have boasted about how the ACA is helping older Americans. And polls show that
expanding Social Security and keeping Medicare strong are winning issues across
partisan divides and demographic groups.
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