This is why Washington is broke but politicians aren't
BackgroundOn the surface, changing IRS rules to delay required minimum distributions from 70 1/2 to 72 years old looks like a major win for older taxpayers. In fact, the SECURE Bill making it's way through Congress with bipartisan sponsorship would do this along with a few other attractive changes:
- Repeals the maximum age of worker contributions to company sponsored retirement plans
- Make it easier for small business owners to cooperatively offer retirement plan benefits to their workers
- Require companies to open eligibility to non-seasonal, part time workers
These features of the bill are net savings for workers, so what's there to not like?
Lobbyist Step In
Currently, workers can comfortably contribute to their company retirement plans with the knowledge that their money is going into an account that is well-protected from financial thievery. IRS "safe harbor" rules require company plan sponsors to meet stringent rules that help keep costs in line and junk out of these retirement accounts. This is why you don't see annuity products in 401k plans. Insurance company products are notoriously expensive for consumers which, conversely, makes them very lucrative for insurance companies. Insurance companies know how to use their profits to buy influence in Washington. Purists call it lobbying, I call it what it is - bribery.
Congressman Richard Neal (D-Mass), who co-sponsored the SECURE act, receives thousands of dollars from the insurance industry. In this bill those corporate donors are getting what they paid for from Neal. The SECURE ACT grants IRS safe harbor status to annuity products so they can be used to pilfer your retirement accounts through unnecessarily high fees and commissions.
To make matters worse, an appealing amendment from Rep. Kevin Brady would have allowed home school families to tap into 529 education accounts to pay for education related expenses. This measure made it out of committee but was stripped out of the final bill before a vote. Who would be against this?
The Bull Elephant in the Room
Here's where things get ironically interesting. Rep. Neal (who obviously feels zero compunction from taking money from insurance companies in exchange for favorable language in legislation that he drafted and co-sponsored) smugly invoked an arcane IRS regulation, to demand 6 years of Donald Trumps tax returns. Neal sent this letter on April 3rd the DAY AFTER his SECURE ACT passed in the house with bipartisan support. That tells us everything we need to know.
This bill has merit for many taxpayers. Sadly, the eventual costs to worker's retirement plans from allowing annuity salesmen in don't offset these benefits. Another bill is working it's way through the US Senate. Let's hope it's better than this.