In case you missed it, POLITICO came out with a lengthy “special report” last weekend under the headline, “‘The 401(k) industry owns Congress’: How lawmakers quietly passed a $300 billion windfall to the wealthy.”
The 6800-word report authored by Benjamin Guggenheim (the result of a yearlong POLITICO investigation) goes into painstaking detail to portray lawmakers on Capitol Hill as being heavily influenced by lobbying efforts—and campaign donations—from a handful of retirement industry organizations, including (but not limited to) the American Retirement Association, the American Benefits Council, the Investment Company Institute, and the Insured Retirement Institute.
“Part of the reason the industry wins is its lobbyists’ technical expertise,” the report states, going on to mention that “two of the most successful lobbyists are graduates of the Joint Committee on Taxation,” naming Kent Mason, whose firm Davis & Harman lobbies for the American Benefits Council, and ARA CEO Brian Graff.
“Together, Mason and Graff’s institutional knowledge of retirement policy dwarfs that of many staffers who craft and write the legislation,” POLITICO writes.
Beyond the relatively recent SECURE Act and SECURE 2.0 legislation, the report looks all the way back to the 1980s and 90s, calling retirement reform a rare issue that brought a divided Washington together but provided solutions that have increased wealth disparities and the federal deficit.
“They appealed to core beliefs in both parties—free enterprise for Republicans, economic security for Democrats—to enact what is arguably the most costly series of non-Defense bills in recent decades,” the report states.
In terms of lawmakers, the report focuses primarily on a well-known trio that have been lauded as “Champions of Federal Retirement Security” by IRI for their decades-long efforts to pass retirement reform legislation: Sens. Ben Cardin (D-MD), who is retiring from the Senate at the end of his term in 2024, and Rob Portman (R-OH), who in 2022 decided to retire from the Senate rather than seek another term, and Rep. Richard Neal (D-MA), former House Ways and Means Committee Chair.
“Backed by one of the most highly skilled and lavishly funded industry lobbying teams, and greased by campaign contributions, Portman, Cardin and Neal turned what could have been a deeply controversial giveback to higher-income taxpayers into a staple of the American Dream.”
POLITICO Special Report
“Backed by one of the most highly skilled and lavishly funded industry lobbying teams, and greased by campaign contributions, Portman, Cardin and Neal turned what could have been a deeply controversial giveback to higher-income taxpayers into a staple of the American Dream,” POLITICO writes.
The gist of the report is indignation at “how easily Congress acquiesces to tax breaks for retirement savings that disproportionately help the wealthy while treating the benefits relied upon by most retirees—Social Security and Medicare—as budget-busters ripe for reform.”
The quote in the report’s headline—”The 401(k) industry owns Congress,” is from Daniel Hemel, a professor and tax law scholar based at NYU School of Law. “Either lawmakers were trying to pull a fast one on the American people or lobbyists were trying to pull a fast one on Congress. I don’t know which story is better. I don’t know which one I should want to believe.”
According to former administration officials, Capitol Hill aides and other people who work on retirement legislation interviewed by POLITICO, retirement industry lobbyists “initiated many, if not most, of the policies that became law.” It cites the SECURE Act and SECURE 2.0 as prime examples.
Generally, the report says lawmakers celebrate reform efforts such as these for helping build retirement security for Americans, but notes many are questioning their effectiveness, saying the benefits are weighted heavily toward wealthier investors while lower-income Americans receive little to no benefit. And the report states the cost of retirement tax expenditures to the government is expected to nearly double in just four years from $369 billion in 2023 to $659 billion in 2027.
These are the types of arguments leading some high-profile academics to question whether the tax advantages of 401(k)s should exist at all. A January proposal by Andrew Biggs and Alicia Munnell in a brief from the Center for Retirement Research at Boston College created a stir in the workplace retirement market when they suggested repealing the tax exemption for employer‐sponsored retirement plans and IRAs and using that new revenue to address the majority of Social Security’s long‐term funding gap.
“However, any changes would have to get past the gauntlet of industry groups, who have shown they’ll spend huge sums to block policies detrimental to their interests,” POLITICO writes.
The POLITICO report said the expansion of the tax-advantaged retirement savings industry “has transformed a $7 trillion retirement market in 1995 to a $38.4 trillion behemoth in 2023.”
The report’s analysis also found that top retirement industry lobbying groups have increased their PAC spending to lawmakers between six to eight times since the early 2000s, with the PACs and executives of member companies of one industry juggernaut [The American Benefits Council] providing $98.6 million to lawmakers in the 2022 election cycle leading up to Secure 2.0.
“The lobby power of these groups is tremendous. There has been little lobby effort for [low-income taxpayers] and plenty of lobbying from those people in the financial services industry that benefit from those retirement plans,” Rep. Lloyd Doggett (D-TX), a member of the House Ways and Means Committee, is quoted as saying.
The report goes on to say lobbyists are currently working to oppose the “Retirement Savings for Americans Act,” reintroduced late last year by a bipartisan group of lawmakers. The bill would establish a new program that gives eligible workers access to portable, tax-advantaged retirement savings accounts. If passed, the RSAA would allow the federal government to match contributions for low- and middle-income workers, with the match beginning to phase out at median income.
That’s a significant point of contention for the ARA, which has likened the proposal to a giant multiple employer plan run by the Treasury Department, and warned that if it were to pass, it would amount to unfair competition that could upend the entire private retirement plan system.
Hence the lobbying effort against it. POLITICO claims ARA and ICI spent $1.6 million and $5.1 million respectively in 2023 on provisions that prominently list the bill—a claim that ICI says is misleading.
“ICI has not spent $5 million to oppose a federal retirement plan bill. The $5 million figure—which has been stable for years, includes all government affairs staff salaries, contracts with outside lobbying firms, and totals all our lobbying efforts,” ICI Director of Public Affairs Melissa Barosy told 401(k) Specialist. “Actually, in our Q4 2023 LDA report we listed 42 separate bills and issues.”
Meanwhile, another powerful lobbying group—AARP—has come out in favor of the Retirement Savings for Americans Act, saying it was doing so because it sees the need to make retirement plans available for more lower-income workers. An AARP study is cited in the POLITICO report indicating that 57 million private sector workers don’t have access to any retirement program at work, while only 47% of Black employees and 36% of Hispanic employees have access to an employer-provided retirement plan.
Reform-minded lawmakers defend process
Some of the champions of retirement reform efforts contacted for the POLITICO report defended their efforts. From the report:
“We made it easier for Main Street businesses to offer retirement plans to their workers by easing administrative burdens, cutting down on unnecessary and often costly paperwork,” said former GOP tax writer and Texas Rep. Kevin Brady.
Neal, who is now ranking member for Ways and Means, put it this way: “I think it is important to highlight that U.S. defined contribution plans have created a unique reservoir of capital in the innovation economy. That means that workers’ retirement assets are directly tying middle class workers to our national innovation economy. That certainly is a win-win for all of us…”
Neal says the expansion of tax-advantaged savings is essential at a time when Social Security is facing calls for reform and companies have pulled back from defined-benefit pension plans…
“I get the critique, but legislating’s really hard. And I am not aware of anything other than sort of an academic exercise that says that, all of a sudden, we can go back to a defined benefit. Because if there were, I’d be the first one to champion it,” Neal said.
“This idea that this was a legislative effort to reward wealthy people is simply not founded and untrue,” Neal added.
Cardin acknowledged that more must be done to help lower-income retirees.
“Sen. Portman and I, along with many of our colleagues, worked to find reasonable solutions to help increase access, encourage increased savings, and expand access to retirement plans for working families,” Cardin said in a statement. “Importantly, we must do more to address the existing wealth disparities in our country to be able to adequately ensure … that all Americans have the opportunity for a secure and stable retirement.”
This is just a small sampling of the information included in the special report, which can be read in its entirety here.
EDITOR’S NOTE: This article has been updated to include a comment from ICI in response to POLITICO’s claim about its lobbying spend.
SEE ALSO:
• AARP Endorses ‘Retirement Savings for Americans Act’ Opposed by ARA
• CITs in 403(b)s Clears Another Hurdle
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.