Addressing the ‘retirement crisis’

Idaho Sen. Mike Crapo expects Congress to take action on several related bills this year to address what he calls a looming “retirement crisis” in America.

The Senate Finance Committee approved one of the bills last week.

Among other provisions, the Enhancing American Retirement Now, or EARN, Act gives small businesses greater incentives to offer retirement plans in the first place, and gives people greater flexibility in managing the funds.

Crapo, the ranking Republican on the committee, said about a third of private sector workers don’t have access to a company retirement plan, and only about half participate in such plans.

“People need better access,” he said. “There also needs to be some education and incentives so they’ll actually participate, and the plans need to be simple, effective and adequate.”

Crapo cited survey results indicating that nearly a quarter of all Americans have less than $5,000 saved for retirement, and 15% don’t have anything set aside.

Social Security retirement benefits are a major source of income for many retirees.

However, the most recent report from the Social Security Administration indicates the retirement trust will run out of money by 2035. After that, incoming revenues will only cover about 80% of scheduled benefits.

A 2021 study found that about 37% of men and 42% of women rely on those benefits for more than half of their retirement income. That includes 12% and 15%, respectively, who rely on them for more than 90% of their income.

The average Social Security payment is currently about $1,555 per month.

“The reason (the EARN Act) is so important is because Social Security isn’t adequate for almost any family these days,” Crapo said. “It’s helpful, but it isn’t adequate to provide a full safety net. That’s why we did this bill. We really do have a retirement crisis looming.”

Crapo and Senate Finance Chairman Ron Wyden, D-Ore., agreed last year that retirement legislation would be one of the committee’s top priorities during this session of Congress.

They created multiple working groups, allowing senators in both parties to work on a variety of proposals for inclusion in the legislation. More than 70 were ultimately added to the final bill.

For example, Crapo highlighted one provision that expands “catch-up” contributions, as well as a second that allows retirement accounts more time for tax-deferred growth.

Currently, people with a 401k or regular IRA account have to start taking money out of the tax-deferred accounts beginning at age 72. The withdrawals, called the “required minimum distribution,” increase over time and are taxed as income.

“But a lot of people who get to retirement don’t want to start tapping those benefits right away,” Crapo said. “So we increased the required minimum distribution age from 72 to 75.”

The EARN Act also expands the “catch-up” contributions people can make to their 401k account from $6,500 per year for those 50 and older to $10,000 for those ages 60 to 63.

The intent is to encourage people to put more money into savings as they get closer to retirement, and when they’re at their peak earning capacity.

In response to a cynical question, Crapo said the EARN Act isn’t a red flag that Congress has abandoned efforts to fix the Social Security system.

“That isn’t the motivation,” he said. “We do need to fix Social Security, and we are working on that. We haven’t put it aside. But even if we do fix it so it’s fully funded for the next 75 years, it’s still not adequate for most people’s retirement. So we need to address other retirement options.”

The Senate Finance Committee unanimously approved the EARN Act last week. It will now be combined with a second retirement bill that passed out of the Senate Health, Education, Labor and Pensions Committee earlier this month.

The House also passed its retirement reform bill, dubbed Secure 2.0, in May. It has to be reconciled with the Senate legislation, after which both chambers will vote on a final version. Crapo expects that to happen before the end of the year.

“That’s the goal,” he said. “I don’t think the Senate disagrees with anything that was in the House bill, and I don’t think there’s much disagreement on the House side with the things we added. The biggest debate may be about what other ideas can we include.”

Spence may be contacted at bspence@lmtribune.com or (208) 791-9168.