The EARN Act is a giveaway to the rich

Last Wednesday, all 28 members of the Senate Finance Committee voted unanimously to advance The Enhancing American Retirement Now (EARN) Act. This is the Senate version of the retirement savings bill, SECURE 2.0, that the House voted to pass back in March.

For decades now, lawmakers from both parties have proudly joined forces to pass retirement savings legislation that ostensibly makes it easier for workers to save for their golden years. That’s been their stated goal. The reality, however, is that many of their reforms have not done anything meaningful to help low and middle class Americans save for retirement. Instead, they have showered most of their benefits on wealthy people like us.

As it stands today, there is an enormous retirement savings gap in America. The rich are far more likely to have private retirement savings than the rest of the country. According to federal survey data, out of the country’s wealthiest 10% of households, 91% have at least one supplemental retirement savings account on top of Social Security benefits, compared to just 31% of the least wealthy 50% of households. (Shockingly, about half of all households in America have no supplemental retirement savings whatsoever.) And of those that do have savings, the rich still win, as they have far more money stashed in their accounts. The wealthiest 10% of households have an average of $861,300 in retirement savings, while the bottom 50% have an average of just $6,900.

In effect, this means that any legislation that further subsidizes private retirement savings without coming up with novel ways for low-income earners to build retirement accounts disproportionately helps the rich – not to mention the Wall Street management firms employed by them that get bigger fees from bigger savings. Unfortunately, the EARN Act that the Senate Finance Committee just advanced is no exception here, as most of its provisions are a boon to the wealthy.

One provision in the EARN Act raises the age at which taxpayers must start to make withdrawals, and therefore pay taxes, from their retirement savings accounts from 72 to 75. You would think that allowing for three additional years of tax-free growth would help average households save more. But in reality, most Americans start living off their retirement savings well before age 75 because they need them to cover basic living expenses. In the end, raising the age for “required minimum distributions” only really benefits wealthy families who can afford to wait to take out money from their retirement savings. With this provision, they get three more years of freedom from tax liabilities that most Americans won’t.

Another provision in the Act lifts the cap on “catch-up” 401(k) contributions. Currently, the annual contribution limit for tax-favored 401(k) accounts is $20,500, but people over 50 are allowed to contribute an additional $6,500 a year as they edge their way closer to retirement. The EARN Act would increase that $6,500 to $10,000 for 60-, 61-, 62-, and 63- year-olds. Again, this may seem like it could help average families who maybe didn’t have as much money earlier in life to save for retirement. But the reality is that this only benefits the wealthy and well-off, as they are the only ones who can actually afford to make catch-up contributions. According to a Vanguard survey, only 15% of their account holders made catch-up contributions; among this 15%, over half made more than $150,000 a year.

To be fair, the EARN Act does include a few provisions that specifically target benefits to workers. Most notably, it reforms the Saver’s Credit to further subsidize retirement savings for low- and middle-income households. Beginning in 2027, the Saver’s Credit would give these households a 50% match from the government on any retirement savings contributions that they make up to $2,000.

This reform to the Saver’s Credit would surely give some boost to working families facing retirement insecurity. But unfortunately, an additional $1,000 a year isn’t all that meaningful of a difference and certainly nowhere near the level of help that they need. Furthermore, many workers can’t afford to contribute to their retirement accounts at all to take advantage of the Credit in the first place. Nearly two-thirds of Americans live paycheck to paycheck. They’re too busy covering the costs of their immediate necessities – which have been rising lately due to record-breaking inflation – to concern themselves with saving for the future and retirement.

For these reasons, the EARN Act is not what America needs right now to help workers save for retirement. Congress should be doing more to help ordinary Americans, not high-earners, save for a comfortable, well-deserved retirement, but this is not the way to do it. If they were smart, the Senate Finance Committee – particularly the Democrats on the Committee that are scared about their midterm prospects – should start over and create a retirement bill that isn’t a giveaway to the rich.

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