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Does the Omnibus contain the seeds of Social Security privatization? [1]
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Date: 2022-12-24
The 4000-page long Omnibus bill that funds the government for the next year or so has a lot of hair hidden in it. One section, outlined in the Washington Post, makes a number of changes to retirement plans. Each of the seven basic changes has its winners and losers. Some progressive groups object, for instance, to raising the age for required withdrawals from a 401(k) from 72 to 73, and 75 in ten years. That supposedly benefits the rich. But a lot of people have such savings and work past 72, so it just seems realistic to me.
Other clauses benefit lower-income workers.
For workers earning less than $71,000 per year, the federal government would provide a 50 percent match up to $2,000 in employee cash contributions, meaning the government would provide a maximum of $1,000. That cash would be deposited directly into the retirement accounts.
So if you are a lower-middle-income worker who can put aside $2000, you get some federal cash aid, which replaces a tax credit that the lowest-income workers couldn’t take advantage of. Of course they need to have the money to contribute.
Other terms make it possible to borrow up to $1000 from your 401(k) for emergencies, without penalty, and they also allow generous employers to consider student loan payments as a basis for their contributions to retirement plans.
But there’s an elephant, and by that I mean the red-state kind, in the room:
Starting in 2025, most businesses would be required to automatically enroll employees in 401(k) plans. Employees would contribute 3 to 10 percent of their wages. Each year, the contribution would increase by 1 percent until it reaches at least 10 percent, though not more than 15 percent. Businesses with 10 or fewer employees and businesses that have been open for less than three years would be exempt, along with church and government plans.
There is an exception in parentheses, “unless the participant specifically elects not to have such contributions made or to have such contributions made at a different percentage”. That is, for a business to have a 401(k) at all, it must be changed from “opt-in” to “opt-out”. Experience shows that most people go with the default, not the opt-in or opt-out, without strong motivation. So by 2033 most workers at companies over 10 employees will be paying 10% off the top into their 401(k).
In other words, they will be giving more money to Wall Street to gamble with than they pay to Social Security itself. Of course Social Security has an employer contribution; this doesn’t require one.
This seems to me like a huge giveaway to the robber barons of Wall Street who want to take over all retirement plans, sorry grandpa that your plan went bust and you can’t buy food or pay rent any more. And we’ve seen examples of 401(k) plans that were corrupt, like only investing in the employer’s stock, which then tanked. I think this part of the new law should have gotten more attention.
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https://www.dailykos.com/stories/2022/12/24/2143677/-Does-the-Omnibus-contain-the-seeds-of-Social-Security-privatization
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