With Republicans in full control of Congress, expect efforts to cut
Social Security and Medicare benefits. And more
Republican-controlled statehouses mean more efforts to curtail state
and local workers' pension plans. One positive note: Congress and
the White House could find common ground on some promising ideas to
encourage retirement saving.
Here are five policy areas to watch that could affect your
The midterm results boost the odds that Social Security cuts will be
in the mix if the brinkmanship over the federal debt ceiling or
Social Security does need reform. Its retirement trust fund will be
exhausted in 2034, when revenue from payroll taxes would cover just
77 percent of benefits. Meanwhile, the disability program will be
able to pay full benefits only through 2016. If Congress doesn't
act, 9 million disabled people will see their benefits cut by 20
Republicans have advocated higher retirement ages, less generous
cost-of-living increases and means-testing of benefits. Some
Democrats have fought for expansion of benefits and revenue for the
program but havenít been backed by President Obama or congressional
How deeply could benefits be slashed? If previous conservative
proposals are any guide, anywhere from 15 percent to 20 percent,
with young people taking the biggest hit.
The GOP has pushed Medicare reform plans that would "voucherize" the
program, replacing defined benefits with a set amount of cash that
beneficiaries could use to shop for coverage in a Medicare exchange.
That would raise premiums for seniors in traditional Medicare by 50
percent in 2020 over current projections, according to the
Congressional Budget Office.
AFFORDABLE CARE ACT
The ACA isnít a retirement program, but it has helped older
Americans by beefing up Medicare benefits covering older people who
had trouble obtaining insurance and were too young for Medicare.
This year the rate of uninsured 50- to 64-year-old Americans fell
from 14 percent to 11 percent, according to the Commonwealth Fund.
The percentage would be smaller if the U.S. Supreme Court hadnít
given states an opt-out option on Medicaid - it has been expanded in
only 27 states and the District of Columbia. Meanwhile,
congressional Republicans continue to threaten funding, and the ACA
faces a new Supreme Court threat. If the court rules that tax
subsidies on marketplace premiums canít be offered on the federal
exchange, exchange insurance marketplaces will be on life support in
all but 13 states with their own exchanges.
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Republicans will control 31 governorsí offices and 30 state
legislatures, the most since the 1920s. That means we can expect the
attack on public sector pension benefits to accelerate.
The National Association of State Retirement Administrators and the
Center for State & Local Government Excellence reviewed pension
reforms by 29 states this year and found reductions in annual
benefits ranged from 1.2 percent (Pennsylvania) to 20 percent
(Alabama); the average across all states was 7.5 percent.
A grand bargain on the federal budget could limit pre-tax
contributions to 401(k) accounts, an idea floated regularly in tax
reform discussions. And ideas aimed at helping lower-income
households save for retirement could gain ground. The Obama
Administration has asked Congress to create a national automatic IRA
option and is rolling out a limited version called the MyRA.
Meanwhile, Senator Marco Rubio (R-Florida) has called for a
government-sponsored 401(k)-style account for Americans who donít
have a plan at work. He would like to open up the federal Thrift
Savings Plan to private-sector workers. That's attractive because
the TSP boasts low costs, a short and easy-to-understand set of
investment choices and options to convert savings into an annuity
stream at retirement.
Another idea I like: the "baby Roth." The planís architect projects
that an initial contribution of $500 to an infantís Roth IRA, with
subsequent annual contributions of $250, would grow to $131,800 at
age 65, versus $35,300 for an account started at age 25.
Itís disappointing that few candidates campaigned on ideas that
would help the middle class build retirement security. Democrats
could have boasted about how the ACA is helping older Americans. And
polls show that expanding Social Security and keeping Medicare
strong are winning issues across partisan divides and demographic
(The opinions expressed here are those of the author, a columnist
(Editing by Douglas Royalty)
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