A Time of Crisis. A Time to Solve Our Big Problems?

Art by Pete Ryan

In addition to the physical and emotional suffering caused by the COVID-19 disease, the coronavirus pandemic has already taken a significant toll on many American workers and retirees—particularly those working in the hospitality, retail, manufacturing and food service industries and those doing gig work or employed by smaller independent businesses.

Federal and state government statistics show millions of people—across industries and geographies—have already lost their jobs outright or been furloughed as a result of the COVID-19 outbreak. Some relief will be provided to these people through the recently enacted Coronavirus Aid, Relief and Economic Security (CARES) Act, but it is clear that further government action is needed, sources agree.

Ross Bremen, a partner in NEPC’s defined contribution (DC) practice, says the political leadership in Washington has proven that significant bipartisan cooperation remains possible in America today. Like other sources, he is encouraged by that and wonders whether the feat can be repeated in 2020. In addition to the pandemic, there are certainly other major challenges to solve, for example the Social Security Trust Fund shortfall or the union pension funding crisis.

Social Security ‘Now Seems Solvable’

“The passage of the CARES Act is a really big deal, both because of what is contained in the legislation and because of what it represents—in absolute dollar terms it is the largest stimulus package we have ever seen,” Bremen observes. “The law addresses a huge range of issues. For our industry in particular, we have seen some similar regional natural disaster relief provided by the federal government in past circumstances, but the relief levels in the CARES Act are unprecedented in scope and are provided nationally.”

Katherine Roy, chief retirement strategist at J.P. Morgan, says the size of the CARES Act—approximately $2 trillion—makes her hopeful that Congress could find a path to shore up Social Security. As Roy observes, it would have been hard to imagine even a few months ago that Congress could pass a law that includes two-thirds as much in spending as is currently held in the entire asset reserves of Social Security’s main Old-Age and Survivors Insurance and Disability Insurance (OASI and DI) Trust Funds, which stand at approximately $2.9 trillion.

“The Social Security question has become even more interesting with the passage of the CARES Act,” Roy says. “If you look at the funding gap and the payroll levers we can pull to shore that up, and then compare these with the scope and scale of the CARES Act, that makes us hopeful.”

As a financial planner, Roy says she is a huge fan of Social Security, and she wants to see the program made fully healthy for the 21st century.

“It is still the foundation of retirement income in the United States. It is an incredibly valuable resource that keeps things going, especially at a time like this,” Roy notes. “Social Security beneficiaries are among those still getting a ‘paycheck’ and keeping the economy moving.”

Bremen and Roy note that Congress, whether intentionally or unwittingly, gave Social Security an important favor by not including a payroll tax holiday in the CARES Act. Such a tax holiday was included in the stimulus response passed in the wake of the Great Recession of 2008, Roy notes, damaging the effective funded status of the retirement income program.

“The closer and closer we get to the trust fund depletion date, the more pressing the need to act will become,” Roy adds. “Unfortunately, based on the economic downturn caused by the coronavirus pandemic, I expect we will see the depletion date move closer based on all of this.”

Ric Edelman, the chairman and co-founder of Edelman Financial Services as well as a vocal Social Security reform advocate, says now is the time to address the program’s financial stability—“before it is too late.” He advocates for a new framework to build upon Social Security’s foundation, called the Trust Fund for America (TFA). The TFA would essentially be funded by a one-time, $7,000 contribution made on behalf of all babies born in the U.S. for the next 35 years.

Edelman stresses that any “real solution” will likely have to come from a blue-ribbon panel appointed by the president and backed by bipartisan congressional action, but he believes a simple approach such as the TFA could garner enough support to actually start building momentum toward a more comprehensive solution.

Building on the CARES Act

Paul Richman, chief government and political affairs officer at the Insured Retirement Institute (IRI), also says the passage of the CARES Act is a major milestone in terms of congressional cooperation. He says he believes the law’s passage can offer a framework for lawmakers to approach other major issues.

“Our lobbying efforts have by no means ceased now that the CARES Act has become law,” Richman says. “In the near term, we are continuing to push for bipartisan and common sense measures that have already been introduced but have fallen short of passage, such as some core elements of the so-called Portman-Cardin Bill or in Congressman Richard Neal’s bill.”

Richman says the IRI is particularly focused on five provisions taken from these bills, which include: 

• Increasing the required minimum distribution (RMD) age to 75;
• Eliminating barriers to allow greater use of lifetime income products, especially qualified longevity annuity contracts that are not subject to RMDs; 
• Allowing early catch-up retirement plan contributions for those affected by COVID-19;
• Expanding retirement saving opportunities for nonprofit organization employees by making them eligible to join open multiple employer plans (MEPS) or pooled employer plans (PEPs); and
• Clarifying and expanding the startup tax credit to incentivize small businesses to join MEPs/PEPs.

“Our plan seeks to address the market disruptions and its effect on workers who are living longer and are close to retirement,” Richman says. “It is also meant to help improve the long-term finances of U.S. workers as they eventually come out of this remarkably challenging period.”

While Richman doubts that Congress will act on Social Security this year as part of its COVID-19 response, he is also hopeful the momentum created by the CARES Act and its successor legislation could make solving the Social Security problem appear much easier—both in the eyes of lawmakers and in the eyes of the voting public.

“Social Security is arguably more important right now than it ever has been,” Richman says. “Pensions are quickly disappearing, especially for younger workers and those changing jobs. So we are looking at a future retirement system that is more or less entirely defined by Social Security and defined contribution [DC] plans. We also know that each source individually is not going to be enough to survive on. For that reason, we at the IRI are looking at the proposals on Social Security and weighing what might be the best approach.”

Without endorsing it outright, Richman points to the proposal recently put forward by Representative John Larson, D-Connecticut, in the Social Security 2100 Act. In a nutshell, the bill increases various Old Age, Survivors, and Disability Insurance benefits and related taxes. The bill increases the primary insurance amount (e.g., the amount a Social Security beneficiary receives if the beneficiary begins receiving benefits at normal retirement age) by increasing the percentage of the beneficiary’s average indexed monthly earnings used to calculate the amount.

“We haven’t taken a formal position on that bill but it is interesting and it shows the kind of thinking that is going to be needed to solve Social Security’s shortfall,” Richman says. “I should say, we are hoping to engage on this issue sooner rather than later. It’s going to be an incredibly important part of solving retirement security for the Americans over the long term.”