President Donald Trump being sworn in on January 20, 2017.
The Social Security Fairness Act has passed the House and is now awaiting approval from the Senate, which would impact millions of retirees. Lawmakers are already thinking through new ways to further increase access to retirement savings and coverage with another retirement bill, SECURE 3.0. Also, there’s a high probability, according to many financial industry experts, that President Trump will extend the 2017 Tax Cuts and Jobs Act that is set to expire at the end of 2025, which will boost retirement savings.
We talked to Romi Savova, founder and CEO of fintech retirement firm PensionBee, which is transforming how people, especially underserved Americans, manage their retirement savings and tackling issues like 401k zombie accounts – inactive accounts often forgotten or lost when changing jobs.
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With over $6 billion in assets under management, PensionBee is on a growth trajectory to reach over $20 billion by 2034. It now covers more than 85% of the addressable global defined contribution market.
Savova recently expanded the business into the US and has been consulting the US government on a variety of retirement policies, including SECURE 3.0 data gathering.
Q: How will the Social Security Fairness Act affect retirees?
A: The Social Security Fairness Act is widely supported across both parties, as it would eliminate the Windfall Elimination Provision and the Government Pension Offset. These provisions effectively reduced the level of Social Security certain workers, including those who receive other generous pension payments, are entitled to. Proponents of the bill argue that these reductions are unfair, as the affected individuals contributed to Social Security funding during their working years. Opponents of the bill argue that affected individuals are already receiving abundant retirement funds.
Ultimately those who were previously affected by the Windfall Elimination Provision or the Government Pension Offset, will receive higher retirement benefits through Social Security.
However, it is also well known that further strains on Social Security threaten its overall reliability for future retirees, especially in an environment of tax cuts that will require benefit reductions in federal spending. With a total cost of $190 billion over the next 10 years, according to the Congressional Budget Office, there are concerns that future retirees will bear the consequences.
Q: What is SECURE 3.0 and how will impact retirement savings?
A: SECURE 3.0 is a rumored bill that could improve retirement security for millions of Americans. SECURE 3.0 could make rollovers simpler and easier for consumers, could introduce default investments in Individual Retirement Accounts and could generally extend coverage for more Americans. Following the election, the timing of SECURE 3.0 is unclear, but retirement security is of paramount importance to many employers and consumers and so there will be watchful eyes on progress in this area.
Q: Will the DOL’s new lost & found database help with 401(k) zombie accounts?
A: The DOL’s new lost & found database is set to launch by the end of the year, but there are likely to be several impediments to coverage. The database is being constructed on a voluntary basis, meaning that recordkeepers and ultimately plan sponsors will need to approve the submission of zombie account data to the DOL.
Related: 401(k)s under a Trump presidency: Could new policies usher in a new era in retirement plans?
The database is also only expected to cover adults over the age of 65 at the point of launch, meaning many younger workers who could benefit from the database will be left out for now. Over time the DOL’s database has the potential to grow coverage and consumer support as well as legislative support will be a key driver of this.
Q: How can employers help underserved Americans manage their retirement accounts?
A: There are multiple studies that show individuals who receive employer-provided programs and financial education are more likely to have a higher amount of retirement savings.
Employers can also think about the financial well-being of former employees. Many employers force out former employee accounts to a Safe Harbor IRA in order to avoid administering small balances. Employers have a responsibility to choose appropriate and supportive Safe Harbor IRA destinations. There are some exploitative Safe Harbor IRA providers who gradually erode small accounts through excessive fees, which employers should beware of.
Q: What policies or trends lie ahead for 2025 that will have an impact on retirement savings?
A: The Tax Cuts and Jobs Act (TCJA) of 2017, a hallmark of Trump’s first term, is set to expire in 2025. If extended, retirees may benefit from lower income tax rates, which could increase disposable income and savings potential. However, if the TCJA sunsets, taxes on retirement account withdrawals, such as from 401(k)s and traditional IRAs, may rise.
Trump’s previous administration also emphasized corporate tax cuts, which boosted the stock market. For retirees invested in 401(k)s or IRAs tied to equities, such policies could lead to portfolio growth.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
