Keeping track of the news out of Washington is a challenge. Unfortunately, many of actions Congress has taken in recent months seem almost designed to make America's retirement crisis even worse. From threatening draconian cuts to Medicaid -- which millions of seniors rely on to cover long-term care costs -- to stopping states from helping boost residents' retirement savings, lawmakers have been busily considering all the wrong reforms to Americans' retirement system.
Let's take a look at some of the legislation that has passed or that is currently under consideration which could interfere with your ability to fund a secure retirement.
1. Big cuts to Medicaid
The Republicans came into office with promises to repeal the Affordable Care Act, but every effort at repeal has included severe cuts to the Medicaid program. Two prior versions of Trumpcare, neither of which was able to muster enough votes for passage, contained billions of dollars in Medicaid cuts. The latest attempt to replace Obamacare, introduced by Senators Lindsey Graham and Bill Cassidy, also changes Medicaid funding in a way that would result in far less federal support for the program.
Since 30% of Medicaid budget goes toward long-term care, drastic cuts to the program could leave some seniors struggling to find ways to pay for nursing homes or home health aides. Even if Graham-Cassidy does not pass, the attempts to change Medicaid's funding formula are likely to continue.
2. Changing the rules for retirement accounts
Lawmakers aren't just considering changes to Medicaid -- tax breaks for retirement investing could be on the chopping block too. As part of efforts to eliminate tax deductions to fund tax cuts, lawmakers are considering legislation that would charge taxes on money invested in a 401(k) up front, instead of allowing pre-tax contributions.
The idea of ending the up-front tax break for 401(k) investing comes from a 2014 tax plan put forth by Rep. Dave Camp. Unfortunately, by taking away this tax savings, lawmakers would reduce the incentive for investing and potentially make it harder for cash-strapped Americans to prepare for retirement.
3. Stopping states from helping you save for retirement
If the federal government won't help you to save by giving you a tax break on your investments, at least your state might be willing to pitch in to make retirement funding easier -- right? Unfortunately, the federal government has now made it more difficult for local states to help their residents save.
Under President Obama, the Department of Labor made a rule exempting certain state-run accounts -- which are similar to IRAs-- from the Employee Retirement Income Security Act (ERISA). ERISA's strict requirements for retirement plans made it more difficult for states to create plans for their residents, but the Obama-era rule removed obstacles, paving the way for state-run programs that enroll workers without employment-based retirement accounts into state-sponsored plans.
Seven states already moved to enact plans for their workers, including New York, California and Maryland. However, Congress passed, and President Trump signed, a resolution blocking Obama's DOL rule, once again imposing barriers that impede state efforts to provide help in achieving retirement security.
4. Changing the rules for Social Security
Without easy ways to save for retirement, you'll need to rely on Social Security even more. Unfortunately, even this program may not be safe as Congress has repeatedly considered proposals to change Social Security.
Under President Obama, lawmakers floated a compromise to change to a "chained-CPI" formula to calculate whether Social Security beneficiaries would get an annual raise or not. Currently, a metric called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to determine whether to increase annual Social Security benefits. Lawmakers considered changing to Chained CPI instead, which is a different pricing index that calculates cost-of-goods based on the assumption that people switch to cheaper options when any particular commodity goes up in value.
Because chained CPI assumes, for example, that you'll switch to pork if the price of beef rises, chained CPI typically does not show costs-of-living rising as much as CPI-W does when goods become more expensive. The result: A switch to this formula would be a de facto cut in Social Security benefits, as benefits would no longer keep pace with actual increases in the cost of living. While the proposed change to chained CPI did not materialize, this idea is likely to make a resurgence when lawmakers turn their attention to "stabilizing" the cash-strapped Social Security program.
Lawmakers could also accelerate any financial problems faced by Social Security if proposals to end the dedicated Social Security payroll tax gain traction. While Social Security currently receives funding from a 12.4% payroll tax -- half of which is paid for by employers -- a lobbyist with close ties to the Trump administration is proposing the elimination of this funding source. Cutting off Social Security's separate stream of funding, however, could have detrimental effects on the program's long-term prospects.
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