What will Biden do for retirees?
Medicare, Social Security and saving will be on the agenda
The political landscape in Washington, D.C. was remade dramatically this month with the inauguration of Joe Biden and unified Democratic control of Congress. What will that mean for retirees in terms of federal policy and legislation?
I don’t expect retirement to be at the top of the new administration’s agenda. There are too many other huge issues to deal with - starting with the pandemic, and moving from there to the economy, racial justice and climate change - just to name a few of the big ones. And frankly, from the perspective of older Americans who face greater risks from COVID19, a successful fight against virus is the best achievement we could hope for from President Biden right now, anyway.
But some retirement issues likely will be addressed between now and the mid-term elections in 2022. Considering the narrow Democratic majorities in the House and Senate, the issues most likely to be addressed are those where bipartisan consensus is possible.
That starts with the Medicare Hospital Insurance Trust Fund. This is the most urgent retirement issue facing the new administration.
The HI trust Fund is the component of Medicare that pays for hospital care, funded mainly through a 2.9% payroll tax split between workers and employers. The hospital fund always has a projected insolvency date, as it balances payroll tax receipts against hospital costs. The insolvency date fluctuates a great deal--since 1970, it has been as close as two years away or as far as 28 years into the future.
The Congressional Budget Office projects that the fund will be drained in 2024. Before the pandemic, Medicare's trustees projected that the fund would be exhausted in 2026, but the job losses stemming from the pandemic have reduced tax receipts.
If the fund becomes insolvent, Medicare would be able to meet only 90% of its payment obligations. In the past, HI trust fund shortgalls have been addressed through reductions to health care provider payments, or higher payroll taxes. If the economy remains weak, this shortfall probably will be addressed by cutting provider payments, not tax hikes. Or, Congress could find a new source of funds - for example, general government revenue. All of Medicare’s other components are funded through a combination of general revenue and enrollee premiums.
One way or the other, I think this issue will be resolved sometime before the mid-terms.
Retirement saving is another possible area for near-term action. The President would like to see creation of a national automatic IRA for people who work for firms that don’t offer their own retirement plans. This idea was proposed by the Obama administration, but Republicans and the business community fought hard against it. Many companies in the financial services industry have since come around to the idea, and experiments in a number of states are showing promising results. I suspect there could be enough bipartisan support to get something done.
On the regulatory side, the Biden administration likely will revisit the fiduciary requirements for advice on rollovers from workplace retirement plans to IRAs. The Obama-era fiduciary rule was overturned in 2018 by the 5th Circuit Court of Appeals, and Trump's Labor Department recently finalized its own rule that takes effect in February.
Odds have improved for reform of multiemployer pension plans. These are traditional defined benefit plans that were created under collective bargaining agreements; they are jointly funded by groups of employers. More than one million workers face the risk that their retirement benefits could be slashed owing to a meltdown of some of these funds.
Congress has been working on ways to protect the benefits promised to pensioners, but the two political parties have very different views on the solutions. Democrats favor a package of low-interest loans to prop up the funds, while Republicans want to boost insurance premiums paid by employers, add new premiums paid by plan participants, and force more-conservative accounting assumptions.
Those views haven’t changed, but at least Democrats can decide to move legislation forward for debate and negotiation. Legislation was introduced on the first full day of the Biden administration in the House.
Health insurance expansion seems possible. President Biden has called for expansion of coverage by adding a public option to the Affordable Care Act and by reducing the Medicare eligibility age to 60. His proposed $1.9 trillion stimulus includes a provision that would expand ACA subsidies aimed at keeping policies affordable.
Social Security is everyone’s favorite reform punching bag - politicians just love talking about its solvency problems. And there is a problem to be addressed: absent action, the combined retirement and disability trust funds will be drained in 2034.
Biden proposed a detailed set of reforms as a candidate. But I don’t think the time is right for Social Security reform, for two reasons.
The best solutions may not be politically available. The trust fund problem should be addressed with well-calibrated tax increases, not benefit cuts. But the narrow political divide in Congress right now likely would force a compromise involving cuts.
The Social Security problem may seem urgent, but the closer we get to 2034 odds grow that the problem will be addressed through higher revenue. This is just math: Any benefit cuts almost certainly would not be applied retroactively to current beneficiaries; that means cuts could only apply to new beneficiaries. That wouldn't give Social Security the financial boost sufficient to repair its finances in the same way that an immediate injection of new revenue would.
Waiting does have a downside - it would only increase already-high public worry about Social Security’s health.
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