Federal Issues Report

By Federal Issues Chair Tim Gella

 

HOUSE BILL SECURE 2.0-- On March 29, the House of Representatives voted 414-5 in favor of the Securing a Strong Retirement Act of 2022 (SECURE Act 2.0). If passed by the Senate, and then signed into law by President Joe Biden, the act could represent a massive economic policy shift regarding retirement savings and investment.

 

This retirement savings legislation expands on the original SECURE Act and includes provisions to boost the required minimum distribution (RMD) age from 72 to 75 over time, broaden automatic enrollment in retirement plans, and enhance 403(b) plans.

 

The original Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed into law by former President Donald Trump in December 2019. This legislation altered the existing retirement savings plan system in terms of RMD, contributions to traditional IRAs, 529 plan uses for student loans, and making annuities easier for 401(k) plan administrators to offer.

 

The SECURE Act 2.0 expands on all of these provisions, including increasing the RMD age further to 73 in 2022, to 74 in 2029, and to 75 in 2032.  It also requires 401(k) and 403(b) plans to automatically enroll participants when they become eligible, though employees may opt out of this coverage.

 

WINDFALL ELIMINATION PROVISION --Affecting a small percentage of Social Security beneficiaries, the Windfall Elimination Provision (WEP) is a modified benefit formula that can reduce the size of your Social Security retirement or disability benefit if you receive a pension from a job in which your employer hadn’t withheld Social Security taxes from your salary.

 

Typical jobs that fall under this type of non-covered pension scenario are in state or local government agencies that do not participate in FICA payroll-tax withholding — or an employer in another country. Teachers are one of the most common groups to be impacted by this rule, but it often impacts other public sector workers like firefighters, police officers and numerous other state, county and municipal employees.

 

Congress approved the Windfall Elimination Provision in 1983 as part of a larger package of Social Security reforms (including an increase in the full retirement age). The intent was to remove an unintended advantage — and overgenerous payments — to workers who have earnings not covered by Social Security and who receive non-covered work pensions (typically from government employment), but who also did some “covered” work in jobs that paid into Social Security.

 

This provision can affect you if you earn a retirement or disability pension from an employer who didn’t withhold Social Security taxes and if you qualify for Social Security retirement or disability benefits from work in other jobs for which you did pay taxes. The Windfall Elimination Provision could apply if you reached age 62 after 1985 or if you developed a qualifying disability after 1985.

 

The WEP cannot cut your Social Security payment by more than half of the amount of your monthly pension — and it cannot zero out your retirement benefit. For those filing at full retirement age, this reduction is capped at a monthly reduction of $512 for 2022.

 

And if you have more than 20 years of substantial covered earnings (where you paid Social Security tax), the impact of the WEP begins to diminish. At 30 years of substantial covered earnings, the WEP does not apply.

 

According to the Congressional Research Service, about 2.0 million people, or 3% of Social Security beneficiaries, are affected by the provisions as of Dec. 2021. Of those affected, most are retired state and local government workers covered by alternative staff-retirement programs. Many retired permanent civilian federal employees hired before January 1, 1984, who are covered by the Civil Service Retirement System (CSRS), are also affected.

 

The WEP has come under scrutiny by opponents who feel the formula is an inaccurate method of determining the actual windfall of individual cases. Critics contend that the WEP disproportionately reduces benefits for lower-earning families and significantly reduces benefits that workers have included in their retirement plans.

 

There are currently several bills before Congress that would either change how the WEP affects Social Security based on past earnings (from both covered and non-covered employment) or eliminate it entirely, but lawmakers have yet to budge on changing the provision since its inception.

 

DONALD TRUMP has long had a simple philosophy when it comes to legal matters: Sue, sue, sue.

USA Today review in 2016 showed that Trump had been involved in more than 4,000 lawsuits over the prior 30 years, a stunning testament to his litigiousness.

 

In the White House, Trump just kept suing (or threatening to sue). For example:

"Trump sued John Bolton to stop the the publication of a book about the former national security adviser's time in the White House. (He lost.) He threatened to sue CNN because a poll showed him trailing Joe Biden by 14 points. He threatened to sue The New York Times after the newspaper published an article detailing allegations by two women that Trump had inappropriately touched them. He threatened to sue if members of his campaign were not allowed into satellite election offices in Philadelphia. He threatened to sue special counsel Robert Mueller."

 

Trump often uses litigation as a way to influence public opinion. It's a way of showing that he's always on offense, and muddying the waters surrounding public perception about him and his business.

While that strategy has worked for Trump over these many years, it may well be hitting a roadblock in the civil case being brought against him by New York Attorney General Letitia James.

 

What happened Monday in New York. A judge ruled that Trump was in civil contempt for his refusal to comply with a subpoena for documents related to the investigation into whether his company made misleading or fraudulent financial statements. (The judge said Trump would be fined $10,000 a day until he complies.)

 

While Trump's legal team said that they will appeal the ruling -- because, of course -- the decision does make clear the limits of the former President's use of the legal system to confuse and stall.

 

Trump's legal problems are one of the biggest threats to his running again for president in 2024. And it looks like they aren't going away.