President Trump just resurrected a barrier to setting up retirement accounts for the large share of American workers who don’t have them.
A third of Americans in the private sector don’t have access to any kind of retirement account. That stands in stark contrast with public sector workers, 90 percent of whom have access to a retirement plan. It’s those who make the least, and who will most need help saving up for a comfortable old age, who are least likely to have a retirement plan at work. People of color are also less likely than white people to be enrolled in 401(k)s.
In response to this looming problem, state and local governments have started setting up auto-IRA savings accounts for private sector workers. Unless a worker opted out, he would get automatically enrolled in such an account, allowing him to save some of his money for retirement.
But there was a question as to whether these accounts ran afoul of federal law. So in August of last year, President Obama finalized a rule that cleared the way for the establishment of these plans and clarified that they wouldn’t conflict with strict rules that apply to pension and retirement plans. That allowed cities and states to move forward.
Under the Congressional Review Act, Congress recently voted to undo Obama’s protections for cities and counties that set up these accounts. On Thursday, Trump put his signature on it, making it official. A rollback of the protection for state plans could follow, although a number of states are pushing back.
It’s not the first action Trump has taken that could make retirement more precarious. In February, he issued an executive order instructing the Department of Labor to consider revising or rescinding the so-called fiduciary duty rule, which requires retirement advisers to act in their clients’ best interests rather than steering clients into products that enrich themselves. Then, earlier this month, the DOL officially delayed the rule, which was supposed to go into effect in April, by 60 days.
While there are a number of steps the administration would have to take to get rid of the rule altogether, Trump’s actions indicate that he’s interested in changing, if not repealing, it. Americans lose an estimated $17 billion a year to the conflicted advice that’s still permissible without the rule in effect.
Trump also promised to protect Social Security on the campaign trail, which provides the majority of cash income for 61 percent of elderly beneficiaries. But Republicans are now considering eliminating the payroll tax that funds Social Security as part of their tax overhaul, putting its entire funding structure into question, while Trump’s budget chief hopes to convince him to reform the program.
Americans can little afford to have their retirements become even more risky. About a third of working age people have less than $1,000 saved in a retirement account; there’s a $6.6 trillion gap between what Americans should have saved up compared to what they actually have stored away.