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‘THE 401(K) INDUSTRY OWNS CONGRESS’: HOW LAWMAKERS QUIETLY PASSED
A $300 BILLION WINDFALL TO THE WEALTHY  
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Benjamin Guggnheim
April 13, 2024
Politico
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_ Greased by lobbying and campaign cash, tax breaks for retirement
savings are one thing Congress agrees on. But they also blow out the
deficit and add to income inequality. _

, Illustrations by Audrey Malo for POLITICO

 

Five months before Congress faced a near-catastrophic standoff over
the debt ceiling, with Republicans demanding restrictions to food and
Medicaid programs to rein in spending, a bill that raised the cost of
private retirement savings accounts to $282 billion per year was
quietly signed into law.

In this era of deeply divided politics, the 2022 bill known as Secure
2.0 was hailed as a bipartisan success — a victory for average
Americans. It had sailed through the House by a whopping 414-5 vote.
It followed four other major bills passed between 1996 and 2019 that
dramatically expanded taxpayer savings – all equally lauded as
bipartisan victories.

But that rare issue that brought a divided Washington together also
increased wealth disparities and the federal deficit. And the victory
was most strongly applauded by the burgeoning financial services
industry, for whom tax-advantaged retirement savings has transformed a
$7 trillion retirement market in 1995 to a $38.4 trillion behemoth in
2023.

Tax-advantaged savings has become a staple of the American retirement
system, with 60 million savers squirreling away $6.6 trillion in their
401(k)s, alone. But a yearlong POLITICO investigation found that
Secure 2.0 and its predecessor bills have expanded the system well
beyond its goal of helping the middle class. Today, wealthy taxpayers
can protect up to $452,500 per year in tax-advantaged accounts in a
single year, saving up to $203,600 on their taxes. And they can keep
their money in tax-advantaged accounts far longer.

More striking is how these victories were achieved: A quarter-century
partnership between two senators — Democrat Ben Cardin of Maryland
and Republican Rob Portman of Ohio — joined more recently by the
former House Ways and Means Committee Chair Richard Neal (D-Mass.).
Backed by one of the most highly skilled and lavishly funded industry
lobbying teams, and greased by campaign contributions, Portman, Cardin
and Neal turned what could have been a deeply controversial giveback
to higher-income taxpayers into a staple of the American Dream.

Their success offers an intriguing roadmap for how even the most
divided Congresses can coalesce around a single issue. It includes the
passionate advocacy of two quietly well-liked senators and a
representative whose life story — having grown up orphaned, on
Social Security — refuted any suggestion of bias toward the wealthy.
They appealed to core beliefs in both parties — free enterprise for
Republicans, economic security for Democrats – to enact what is
arguably the most costly series of non-Defense bills in recent
decades.

Indeed, that success now vexes many retirement experts, alarmed by how
easily Congress acquiesces to tax breaks for retirement savings that
disproportionately help the wealthy while treating the benefits relied
upon by most retirees — Social Security and Medicare — as
budget-busters ripe for reform.

“The 401(k) industry owns Congress,” said Daniel Hemel, a
professor and tax law scholar based at NYU School of Law. “Either
lawmakers were trying to pull a fast one on the American people or
lobbyists were trying to pull a fast one on Congress. I don’t know
which story is better. I don’t know which one I should want to
believe.”

METHODOLOGY: POLITICO’s data analysis compiled aggregate PAC and
employee contributions from the member companies of each respective
association. POLITICO filtered employee contributions by manually
removing job titles unrelated to executive and lobbying roles. The
Investment Company Institute and Insured Retirement Institute share
many companies in common, but not all. The American Benefits Council
represents many financial institutions also represented by the other
two trades, as well as large companies that sponsor retirement plans
that also lobby Congress on a host of other issues.

_Sean McMinn and Jessica Piper contributed to this analysis._

As assets in retirement accounts have exploded since the mid-1990s, so
has the amount of money spent by the retirement industry on lobbying
and campaign contributions to key members of both parties. A POLITICO
data analysis shows that top retirement industry lobbying groups have
increased their PAC spending to lawmakers between six to eight times
since the early 2000s, with the PACs and executives of member
companies of one industry juggernaut providing $98.6 million to
lawmakers in the 2022 election cycle leading up to Secure 2.0.

Meanwhile, former administration officials, Capitol Hill aides and
other people who work on retirement legislation, some of whom were
granted anonymity to discuss the legislative process, told POLITICO
that the industry initiated many, if not most, of the policies that
became law. They described a closed-door system in which congressional
aides — many of whom would later go on to work in the industry —
collaborated openly and regularly sought advice from former colleagues
employed by financial service companies and groups.

Secure 2.0 and its 2019 predecessor, Secure 1.0, were prime examples.
Retirement trade associations succeeded in enacting multiple proposals
they claimed to originate and had pushed for years.

The legislation increased the amount of money the top 16 percent of
retirement account contributors could use to grow their capital tax
free. And it enabled wealthy Americans to shield all their savings in
tax-advantaged accounts well into their 70s, providing a boon for
asset managers and insurance companies that collect fees based on the
money growing in those accounts.

Tax-advantaged savings sounds “like motherhood and apple pie,”
said Steve Rosenthal of the left-leaning Tax Policy Center, but in
fact is “corrosive to our tax base and to equity across wealth,
income, and racial grounds.”

Defenders of the system argue that 401(k)s provide middle-class
Americans with a critical additional layer of financial security, when
coupled with Social Security. Secure 2.0 also included a new kind of
government match program, called the saver’s credit, for the
lowest-income savers — which provides a retirement savings match of
up to $1,000 for people with very low incomes.

However, a slew of other data, from retirement research centers,
consulting firms, the Federal Reserve and other government entities,
has called into question the fundamental effectiveness of the 401(k)
system for large segments of the population.

In particular, Federal Reserve data shows that the median account
balance of the lowest-income savers has in fact dropped since the
beginning of the retirement reform project in 1996. And according to
the Organization for Economic Cooperation and Development, a global
economic think tank, the U.S. has some of the highest rates of elder
poverty, far behind 30 similarly developed countries and better off
only than Costa Rica, Croatia, Lithuania, Bulgaria, Latvia, South
Korea and Estonia.

“It does not work for a wide variety of people,” David John of
AARP, who previously worked as a senior researcher at the conservative
Heritage Foundation, said of the current retirement system.

Underscoring the need to make retirement plans available to more
people, John pointed to AARP studies indicating that 57 million
private sector workers don’t have access to any retirement program
at work, while only 47 percent of Black employees and 36 percent of
Hispanic employees have access to an employer-provided retirement
plan.

Meanwhile, according to one estimate by the Joint Committee on
Taxation — which is used by lawmakers to evaluate tax proposals and
assesses the immediate loss to the government’s bottom line — the
cost of retirement tax expenditures to the government is expected to
nearly double in just four years from $369 billion in 2023 to $659
billion in 2027.

The statistics fly in the face of rhetoric from advocates in both
parties. Republicans celebrate the private-sector nature of
tax-advantaged savings, in which workers make their own investment
decisions, while Democrats hail the economic boost and enhanced
retirement security for American families.

“We made it easier for Main Street businesses to offer retirement
plans to their workers by easing administrative burdens, cutting down
on unnecessary and often costly paperwork,” said former GOP tax
writer and Texas Rep. Kevin Brady .

Neal, who is now ranking member for Ways and Means, put it this way:
“I think it is important to highlight that U.S. defined contribution
plans have created a unique reservoir of capital in the innovation
economy. That means that workers’ retirement assets are directly
tying middle class workers to our national innovation economy. That
certainly is a win-win for all of us.”

But Alicia Munnell, a former Federal Reserve economist who now directs
the Center for Retirement Research at Boston College, says flatly,
“I am persuaded that these are bills designed for the high-earners
and stuff for middle- and low-earners gets put in along the way to
make the legislation less shameful.”

The latest expansion of private retirement savings comes at a time
when Social Security, which the majority of American seniors rely on
to cover basic living expenses, faces insolvency in 2034. Secure 2.0
sailed through Congress shortly before lawmakers convened working
groups to try to fix Social Security’s $119 billion cash shortfall,
which amounted to less than half of a single year’s worth of tax
benefits for retirement savings that mostly go to higher earners.

Neal says the expansion of tax-advantaged savings is essential at a
time when Social Security is facing calls for reform and companies
have pulled back from defined-benefit pension plans. He himself relied
on Social Security after losing both of his parents and moving in with
other relatives.

“I get the critique, but legislating’s really hard. And I am not
aware of anything other than sort of an academic exercise that says
that, all of a sudden, we can go back to a defined benefit. Because if
there were, I’d be the first one to champion it,” Neal said.

“This idea that this was a legislative effort to reward wealthy
people is simply not founded and untrue,” Neal added.

Cardin acknowledged that more must be done to help lower-income
retirees.

“Sen. Portman and I, along with many of our colleagues, worked to
find reasonable solutions to help increase access, encourage increased
savings, and expand access to retirement plans for working
families,” Cardin said in a statement. “Importantly, we must do
more to address the existing wealth disparities in our country to be
able to adequately ensure … that all Americans have the opportunity
for a secure and stable retirement.”

Portman cited how he learned from his father’s small business the
importance of incentives for starting retirement plans.

“There are guys who I’ve known my whole life and over my age, who
have built up a nice nest egg for retirement because of these defined
contribution plans,” Portman said. “And so I’ve seen it work and
I know how it works. And so my goal was when I got to Congress to try
to expand it.”

However, a Portman-Cardin bill from 2021 is illustrative of how highly
technical changes, receiving little scrutiny, can influence federal
tax collection.

The retirement arena in Congress has been dominated by two members of
the Senate Finance Committee, Ben Cardin (left) and Rob Portman, who
retired in 2023. | Tom Williams/CQ Roll Call via AP

Lobbyists for a coalition of six groups succeeded in getting changes
into a 2021 Portman-Cardin bill governing IRS oversight of private
retirement plans. Fact sheets provided to POLITICO — which a Hill
staffer said the lobbyists distributed to advocate for their proposal
— sold the changes as fixes that would help elderly Americans, such
as retired government and factory workers, who had inadvertently put
too much in their retirement accounts and could face penalties from
the IRS.

But the lobbyists were also targeting benefits for a different
demographic. The head of the coalition, according to his biography,
specializes in tax planning for “ultra-high-net-worth clients.”
The coalition also included an advocacy group that has previously been
tied to the Koch network — and which engaged in a massive lobbying
campaign against efforts to restructure Puerto Rico’s debt that was
owned by hedge fund managers in 2015.

Tax lawyers who reviewed the statutory changes said they would in fact
make it far more difficult for the IRS to penalize supersized
retirement accounts where owners avoided millions of dollars in taxes.

“The lobby power of these groups is tremendous,” said Rep. Lloyd
Doggett (D-Texas), a member of the tax-writing House Ways and Means
Committee. “There has been little lobby effort for [low-income
taxpayers] and plenty of lobbying from those people in the financial
services industry that benefit from those retirement plans.”

‘COMMON SENSE FROM THE HEARTLAND’

It wasn’t always that way.

In the two decades following the Employee Retirement Income Security
Act of 1974 — the landmark legislation that introduced the standards
that govern private sector retirement plans — both Republicans and
Democrats were keenly sensitive to how tax-advantaged retirement
accounts could erode the nation’s tax base and provide a windfall
for wealthy people.

The Tax Reform Act of 1986 — a key part of President Ronald
Reagan’s fiscal legacy — slashed tax rates and eliminated income
taxes completely for an estimated six million low-income Americans. It
did so, in part, by substantially lowering the amount of contributions
that could be made to 401(k)s and placing greater restrictions on
deductions for individual retirement accounts.

In remarks on the Senate floor in June of 1986, then-Republican
Majority Leader Bob Dole (R-Kan.) touted the “revolutionary
legislation” and implored colleagues to consider “common sense
from the heartland” propounded by a Kansas newspaper that rejected
the notion that limiting deductions for private savings would hurt the
middle class.

The passage of the law, as memorialized in the book _Showdown at
Gucci Gulch_, was an unlikely triumph over special interests that had
had a stranglehold over the tax committees — and especially so in
the case of retirement accounts, since the restrictions came in spite
of lawmakers knowing that top beneficiaries were a source of campaign
contributions.

The current retirement system, in which taxpayers can put hundreds of
thousands of dollars a year into tax-advantaged accounts, started to
develop in the 1990s, as the stock market boomed and the workforce
became more mobile.

The Tax Reform Act of 1986 — a key part of President Ronald
Reagan’s fiscal legacy — substantially lowered the amount of
contributions that could be made to 401(k)s and placed greater
restrictions on deductions for individual retirement accounts. | Bob
Daugherty/AP

Investors were excited to see money accumulate in retirement plans
they controlled, Munnell recalled. Meanwhile, employers with
defined-benefit plans — which guarantee a monthly payment to
retirees — were eager to get them off their books.

“It was a subject of cocktail-party conversation,” Munnell
remembered. “Everybody thought they were a brilliant investor and
doing so much better than the sponsors of defined benefits could
do.”

The 1994 elections, which saw Republicans sweep the House with a
promise of tax cuts, cleared the way for two junior members of the
Ways and Means Committee, Cardin and Portman, to propose legislation
to let taxpayers put away more income. At the time, the U.S. had the
lowest savings rate in the industrialized world and advocates claimed
that simplifying the pension system would encourage small businesses
to provide more benefits.

“I think we need to do all we can to encourage private savings in
this country for retirement,” Portman said in May of 1996. The
American people “understand that Social Security is at risk and we
need to encourage private savings so it will be there, particularly
when the Baby Boom generation begins to retire.”

Besides creating a new kind of retirement plan geared toward small
businesses, the first Portman-Cardin package repealed a rule
coordinating how much individuals could put into both defined-benefit
plans and 401(k)s — a change of enormous consequence that allowed
wealthy taxpayers to max out both plans at once.

Suddenly, as a result of the repeal, a person who had fully funded
their 401(k)s could also put over $79,000 into their defined benefit
plans — up from less than $20,000.

The bill was a tremendous success for the junior lawmakers, and one
year later the chair of the Senate Finance Committee, William Roth
(R-Del.), proposed legislation creating an additional option. The
so-called Roth IRA would reverse the structure of the traditional
individual retirement account, from one that made the taxpayer pay
taxes on their savings when they withdrew from their accounts to one
that made them pay up front but withdraw from their accounts tax-free.

A big appeal of the Roth IRA was that it looked like it would raise
revenue, since Congress only scores items in a 10-year window.

Lawmakers likewise proclaimed that they paid for the bulk of Secure
2.0 by “Rothifying” accounts, requiring that certain contributions
be made on a Roth basis. According to a Democratic Hill aide who was
intimately involved in the 1997 Roth bill and was granted anonymity to
speak about legislative processes, the well-honed Washington budget
gimmick originated on K Street as a “way to play budget games and
make the numbers work.”

By the start of George W. Bush’s presidency, retirement account
savings were starting to explode, with IRAs growing 79 percent to $2.6
trillion, and defined contribution plans growing 40 percent to $2.8
trillion between 1996 and 2001. But Portman and Cardin followed up by
proposing a further package that would eventually be merged into the
Bush tax cuts.

The legislation was a nexus between the demands of business owners,
asset managers and unions. Among them was a so-called catch-up
contribution, which allowed taxpayers over 50 to put $5,000 more into
their employer plans every year.

The legislation increased contribution limits for 401(k)s and more
than doubled the amount individuals could put in IRAs. It also relaxed
something called the “top-heavy rules,” which prevented retirement
plans from primarily benefiting small business owners at the expense
of employees. Meanwhile, in a concession to union leaders, the
legislation exempted retirement plans under collective bargaining
agreements from rules that bar annual benefits from exceeding a
worker’s salary.

“Only about half of American workers have any kind of pension at
all,” said Portman on the House floor in July of 1999. “How can
people save more for retirement? We have got a plan to do that.”

Portman said the $5,000 catch-up contribution “will be particularly
good for women who have been out of the workforce raising kids and
then come back into the workforce and want to build up a nest egg for
their retirement.”

Cardin backed him up: “It is a well-balanced approach. Sure, one
might want to pick at one provision and say, does this not help one
special group? All of the provisions help all of our workers.”

The bill also saw the birth of a tax credit for low-income savers. The
so-called saver’s credit was maxed out at a government match of
$1,000 but research found that few ended up claiming the credit
because those who qualified owed little to no tax to begin with.

After these changes, assets in IRAs and defined contribution plans
accelerated sharply, growing by 72 percent in just six years. But
Federal Reserve data was showing that the bottom quintile of earners
was getting close to nothing of the action.

Between 1995 and 2007, the percentage of the lowest-income savers with
retirement accounts grew only slightly from 8.9 percent to 10.7
percent. Meanwhile, the median account balances for the lowest-income
savers dropped from $19,350 to $9,300. By contrast, the median
balances for highest-income savers more than doubled.

Some lawmakers began expressing skepticism about whether
tax-advantaged retirement accounts were helping average Americans.

Former Rep. Robert Matsui of California, a senior Democrat on the
House Ways and Means committee, read a letter by a retirement-law
professor on the House floor in June of 2002: “Many of the bill’s
provisions were so technically complex that their unlikely impact
could only be determined by pension experts. Thus, many in Congress
uncritically accepted the lofty expectations of Representatives
Portman and Cardin (and industry lobbyists).”

But that did not stop Portman and Cardin from, in 2006, passing
provisions that made permanent the higher contribution limits. The law
also removed legal impediments to “cash balance plans,” which
allow wealthy taxpayers to shield hundreds of thousands of dollars a
year.

Rep. Richard Neal, who spearheaded two of the most recent retirement
packages, says the expansion of tax-advantaged savings is essential at
a time when companies have pulled back from defined-benefit pension
plans. | Francis Chung/POLITICO

Still, it would be more than a decade, until the start of the Trump
administration, that Portman, Cardin and Neal would be able to advance
retirement packages with the same kind of sprawling tax breaks.

Secure 1.0, passed in 2019, eliminated the age limit to contribute to
IRAs — a provision that added to the government’s red ink but had
little impact on lower-income Americans who need to begin withdrawing
from their accounts as soon as they reach retirement age.

Then came Secure 2.0, passed under the Biden administration. It
provided some tax incentives for small businesses to start retirement
plans, expanded the government matching program for low-income savers
and made student loan payments eligible for retirement “matches”
by an employer. But the cost of the tax breaks for low-earners was
still smaller than the provisions that benefited higher-earners,
according to Munnell’s analysis.

Secure 2.0 dramatically raised the catch-up contribution people in
their early 60s could put into their retirement accounts — an
increase available only to taxpayers already maxing out the limits on
their plans, which in 2023 was $30,000 a year, or $73,500 with a
generous employer match. Together with Secure 1.0, it also increased
the age at which taxpayers have to begin withdrawing from their
accounts from 70 and a half to 75, allowing wealthy people to shield
their savings from taxation for longer.

Portman, Cardin and Neal presented the bill as a way of helping the
average American. “It is estimated that up to 50 percent of the
individuals in America who go to work every single day do not have
enrollment in a qualified retirement plan,” Neal said upon the
introduction of Secure 2.0.

It was a variant of the same statistic lawmakers had been citing to
promote sweeping retirement packages for a quarter century.

‘A DAVID VERSUS GOLIATH SITUATION’

The rise of tax-advantaged savings is intertwined with that of
powerful industry associations which spend tens of millions of dollars
on campaign contributions and lobbying every year.

“The influence on retirement legislation of public interest and
worker representatives versus industry’s influence is typically a
David versus Goliath situation — but here Goliath generally wins,”
said one person involved in retirement legislation who was granted
anonymity to speak about the process.

Part of the reason the industry wins is its lobbyists’ technical
expertise. Two of the most successful lobbyists are graduates of the
Joint Committee on Taxation: Kent Mason, whose firm Davis & Harman
lobbies for the American Benefits Council, an association of financial
institutions and large companies offering retirement plans; and Brian
Graff, who is CEO of the American Retirement Association. It
represents more than 30,000 pension professionals, including
actuaries, financial advisers and attorneys.

Both groups expanded along with tax-advantaged savings: In 1999, the
American Benefits Council reported spending $120,000 on lobbying. By
2022 it was up to $1.3 million. Likewise, according to documents Graff
shared on LinkedIn, revenues of the American Retirement Association
grew from $1.7 million in 1996 to $23.8 million in 2022.

Together, Mason and Graff’s institutional knowledge of retirement
policy dwarfs that of many staffers who craft and write the
legislation. People involved with multiple bills say staffers
regularly relied on Mason’s advice. They would reach out to him
during the writing process to solicit edits on bill drafts and use his
language as the starting point for provisions that would eventually
become law — notwithstanding that his clients had billions of
dollars on the line.

“They hear what the members [of the American Benefits Council] want
and they’re able to translate it into statutory language, and then
they’re able to take it up to the Hill and explain it to Hill staff,
explain why this is good for the American retirement system, good for
the American worker,” Michael Doran, who served two stints at the
Office of Tax Policy at the Treasury Department, said of Mason and
another prominent partner at Davis & Harman.

While at Treasury during the George W. Bush administration, Doran
interacted with Mason and said he was deeply involved in crafting
legislation.

“They would put it in the fax machine and send it over to Kent, and
then Kent would edit it and send it back to them,” Doran recalls of
the tax and labor committee staff members who wrote the bills.
“Someone from the Democratic side would say to somebody on the
Republican side, ‘Oh, you just got that from Kent Mason. You just
stuck it in without even reading it.’”

Two of the most successful financial services lobbyists are Kent Mason
(left) and Brian Graff, shown above in 2011 and 2005 respectively. |
Andrew Harrer/Bloomberg via Getty Images; Roger L. Wollenberg/UPI via
Alamy

Mason, who declined to be interviewed, said in a statement: “Like
countless others, we provide input to Members of Congress and their
staffs. The Members and staffs collect input from many sources and
make policy decisions on the legislation and then draft it.”

Graff’s spokesperson said of his own involvement: “Brian’s
nonpartisan Hill experience and 25-plus years as the CEO of a national
organization of retirement plan professionals makes him a
knowledgeable resource for members and staff in both parties who are
advancing legislation to expand retirement savings options for all
Americans.”

Lobbyists and industry officials don’t downplay their influence:
Many have openly taken credit for provisions benefiting their clients.

At a 1998 House Ways and Means hearing, the head of the American
Benefits Council said that provisions developed by the council had
formed the basis of the first Portman-Cardin collaboration and that
its ideas were in the bill that would be incorporated into the Bush
tax cuts: “We are gratified that many of our more recent proposals
for improving the retirement system were embraced by Representatives
Portman and Cardin,” the lobbyist said.

They included the “catch-up” provision and allowing taxpayers to
roll over retirement savings into different types of plans to prolong
their benefits. In 2000, Mason’s firm received $140,000 from the
American Benefits Council and $100,000 from the Edward Jones Company
for his lobbying on catch-up and other issues.

Bill Sweetnam, who was head retirement counsel on the Senate Finance
Committee at the time, noted that the different lobbying groups
sometimes worked together but also complemented each other: The
American Benefits Council concentrated on 401(k)s — its bailiwick
— while banking groups pushed for expansion of IRAs.

“The IRA stuff would be much more the investment companies and the
banks because those were the guys who sold the IRAs, so they were
pushing to get the IRA limits up,” Sweetnam said.

Both lobbies were highly successful: The legislation ended up
increasing limits on annual 401(k) contributions from 25 percent to
100 percent of a taxpayer’s salary, at a maximum of $40,000, while
also more than doubling the amount taxpayers could put in their IRAs.

For its part, Graff’s American Retirement Association also pushed to
raise limits on 401(k) contributions. The 2001 legislation increased
the limits and enacted many other changes advocated by Graff’s
group.

Graff and Mason continued to be key players in the latest iterations
of the retirement packages, Secure 1.0 and Secure 2.0.

“The 401(k) industry owns Congress,” said Daniel Hemel, a
professor and tax law scholar based at NYU School of Law. | Francis
Chung/POLITICO

But there were other players in the mix: They included the Insured
Retirement Institute, which represents the insurance supply chain from
brokers to marketing firms; the American Council of Life Insurers, an
approximately 280 member association of life insurance companies; and
the Investment Company Institute, a sprawling association representing
investment funds.

All saw their priorities reflected in the bills.

The American Council of Life Insurers gained a proposal it had long
spearheaded to exempt companies from doing independent reviews of many
insurers offering retirement products in employer plans.

Similarly, 14 provisions that the Insured Retirement Institute had
been advocating for made it into Secure 2.0 — including, according
to the institute’s lobbyist Paul Richman, two insurance-related
provisions that the association conceived and developed. Richman said
other retirement industry groups had put forward the other provisions.

But, Richman said, “All 14 were ones we had a hand in.”

The Investment Company Institute scored a provision allowing
retirement plan providers to pool different plans together, which
industry groups said would enable providers to slash administrative
costs.

Another major priority for the institute was the provision allowing
taxpayers to shield their savings until 75. The institute shared an
email with POLITICO showing a staff member for Portman congratulating
the group on Secure 2.0’s passage and thanking the group’s
lobbyist for their assistance.

“Thank you again for all your help when we first put this
together!” the staffer wrote.

Meanwhile, retirement lawyers who saw themselves as battling for the
low-income saver said they were continually outgunned.

Phyllis Borzi, a former top employee benefits official at the Labor
Department, said she and other former Labor officials operated as a
“think tank in exile” on Secure 2.0, where they provided advice to
staffers on reforms to help low-income savers.

However, Borzi said she was informed by a congressional staffer and
several consumer advocates that provisions the group was proposing had
been vetoed by the business community through Democrats on the House
Ways and Means Committee.

Neal, the committee’s then-chair, said he knew nothing about any
industry vetoes.

“It’s a separate conversation from me. Nobody said anything to
me,” Neal said when asked about Borzi’s experience. “I gave the
staff, in this instance here, considerable latitude. They’re really
smart people.”

SPREADING AROUND CAMPAIGN CASH

In the recent years, as opportunities for increased campaign
contributions became enshrined in law, the American Benefits Council,
the Insured Retirement Institute and the Investment Company Institute
significantly ramped up their donations to the campaign coffers of
lawmakers who proved receptive to their agendas.

In March of 2014, when the American Benefits Council convened at the
Sandpearl Resort in Clearwater, Florida, it staged a PAC fundraising
breakfast for Georgia Sen. Johnny Isakson, then a senior member of the
Senate Finance Committee and Committee on Health, Education and
Pensions.

According to an invitation for the fundraiser, representatives of the
council’s member companies’ PACs were suggested to contribute
$1,000 to attend or $2,000 to co-host. A POLITICO data analysis shows
that Isakson received at least $294,966 in contributions from PACs and
executives of current member companies of the council for the 2016
campaign cycle, Isakson’s last reelection bid.

One of the main topics that weekend was a fiduciary rule — which
would later be promulgated by the Labor Department and fiercely
contested by industry groups — that would require investment
advisers to give advice in the best interest of their clients and not
their firms, according to Borzi, who also attended as a guest of the
council. Isakson, as a member of the HELP committee, would have
purview over fiduciary standards set by the Labor department and spoke
about them in his speech to the council, Borzi recalled.

Fast forward to June 2017 and Isakson spearheaded legislation to block
the Labor Department’s fiduciary rule on the eve of its
implementation.

In the accompanying memo for members, the American Benefits Council
laid out how it had made significant strides in promoting its policy
priorities, hosting and attending more PAC events for lawmakers — 25
since the beginning of 2013 — than ever before.

“The Council’s PAC also substantially leveraged its ability to
help elect or reelect candidates who support the employer-sponsored
benefits system, by co-hosting and recruiting attendees for numerous
additional fundraising events at which, in the aggregate, hundreds of
thousands of dollars were raised,” the memo reads.

Sen. Johnny Isakson (R-Ga.) is shown above in May 2014 two months
after American Benefits Council staged a PAC fundraising breakfast for
him. | Robb D. Cohen/Invision/AP

Davis & Harman — Mason’s firm, which represents the council —
also holds fundraisers for lawmakers at its office, according to
campaign finance records.

FEC records show that Portman’s campaign made 10 separate
disbursements for room rental and reception expenses to Davis & Harman
between 2009 and 2019. Neal’s campaign similarly made six
disbursements, and Cardin’s campaign made two.

The industry also holds parties for lawmakers and Hill staff, such as
a reception hosted by the Insured Retirement Institute before the 2022
Congressional Baseball Game attended by Neal and award ceremonies for
lawmakers who are dubbed champions of retirement security.

A fundraiser invitation for Neal, held by Davis & Harman, is shown. |
American Benefits Council

Meanwhile, the number of campaign contributions to lawmakers has
exploded, according to a POLITICO data analysis.

PACs and employees of companies belonging to the American Benefits
Council gave $98.6 million for the 2022 cycle to lawmakers’ campaign
and leadership PACs, right before Secure 2.0 was enacted.

PAC spending by those companies increased 7.8 times compared to the
2002 cycle, according to POLITICO’s analysis.

IRI, representing insurance firms, and ICI, representing asset
managers, similarly multiplied their donations. During the 2022 cycle,
the associations forked over through company PACs and employee
contributions $16.5 million and $13.9 million, respectively. PAC
contributions of IRI and ICI’s current member companies increased
7.6 times and 6.3 times as compared to 2002.

Other PACs belonging to associations that advocated for provisions in
Secure 2.0 — such as the Securities Industry and Financial Markets
Association — also lavished hundreds of thousands of dollars on
lawmakers’ campaigns in the 2022 cycle.

Many times the industry dollars arrived at critical junctures.

During the 2019-20 cycle, Neal’s campaign received $760,350 from
member company PACs and executives of the American Benefits Council,
when the powerful tax writer was fending off a primary challenge from
the left. That accounted for around 17 percent of his total campaign
contributions, according to a POLITICO analysis of FEC records.

During that cycle, Neal’s campaign received $173,250 from PACs and
employees of companies of the ICI and $223,450 from members of the
IRI. Fidelity in Boston and MassMutual in Neal’s hometown of
Springfield have been significant contributors, with Fidelity chair
Abigail Johnson providing $5,800 to Neal’s campaign in 2022.

Portman similarly found the support of the retirement industry to be
critical during a pivotal Senate election in 2016 against former Ohio
Democratic Gov. Ted Strickland.

Member companies of the American Benefits Council through employees
and their PACs rustled up $433,725 for Portman’s campaign, according
to a POLITICO analysis. $198,650 from ICI members and $152,350 from
IRI members helped shore up Portman’s war chest.

Portman crushed Strickland by double digits.

AN OPEN SECRET

Some members of Congress’ tax writing committees readily acknowledge
the dominance of industry groups.

“I don’t think we were all aboard on the Democratic side,” Rep.
Bill Pascrell (D-N.J.), a member of the committee who voted for Secure
2.0, told _Tax Notes_, suggesting lawmakers let asset managers have
too much say.

“The people are close to the financial institutions in New York,
from Schumer down,” he said, referring to Senate Majority Leader
Chuck Schumer.

Senate Finance Committee member Elizabeth Warren (D-Mass.) said,
“This story is all about money and power. And then money begets
power. And then power begets more money.”

She also voted for the bill.

One reason for the lack of pushback is that retirement bills become
sprawling legislative packages. Lawmakers focus on their favored
policies and not the big picture. Warren, for instance, lauded the
inclusion in Secure 2.0 of her own bill creating a database where
people could find retirement accounts they had forgotten about.

Michele Varnhagen, who was labor policy director for the House
Committee on Education and Labor, put it this way: “[Secure 2.0] had
so many provisions. A provision often had to be seriously heinous to
be able to say, ‘No, I’m going to walk away from bill support if
you don’t take that out of the bill.’”

Borzi, however, said she advised retirement groups not to sign onto a
package if “there are 99 things that are horrible and one thing that
you like.”

But members of Congress made that difficult.

They “make it clear, although in a subtle manner, that the
legislative process is always fluid and if you don’t write a general
letter of support, your provision may not ultimately make it into the
final package,” Borzi said.

Then-Senate Minority Leader Chuck Schumer attends a press conference
to discuss a proposal for raising the 401(k) pre-tax contribution
limits, on Oct. 31, 2017, in Washington. | Drew Angerer/Getty Images

Another challenge is the onslaught of data from industry players that
paint a far sunnier picture than the Federal Reserve data.

“The retirement system has been very successful in our view, and as
these policies come up, ICI leverages our research folks and our legal
folks to talk to policy makers,” said Peter Gunas, a lobbyist for
ICI.

For those writing the bills, an ex-Hill staffer armed with both
compelling data and technical expertise is hard to turn away.

“You would get a lot of calls from people on the Hill,” said
Sweetnam, who after working for Roth’s office and a stint at
Treasury became a retirement lobbyist for Groom Law Group. “A lot of
times, you have an understanding of how the legislation was crafted
before. That’s really helpful. It’s helpful for a staffer to be
able to talk to somebody who was involved in drafting the original
bill.”

Varnhagen recalls that, as a junior Democratic staffer, she found it
difficult to determine whether an ex-staffer turned lobbyist was
offering friendly advice or doing their clients’ bidding. Newer
staff don’t always research the lobbyists’ conflicts, she said.

“Investment firms don’t say that they’re lobbying for the firm.
They say they’re lobbying for their account holders, for the
millions of people that have money invested,” Varnhagen said.

The power of industry marketing may be most apparent in how catch-up
contributions have been sold. Portman, Cardin and industry groups have
insisted that catch-ups are geared for women who reenter the
workforce. But a Hill staffer who wrote the catch-up language in the
2001 bill, granted anonymity to speak about the process, said that was
merely a “talking point” to bring Republican women on board.

According to a 2023 report, men are 42 percent more likely than women
to make catch-up contributions, with only those making $150,000 or
more making significant use of the provision. Nevertheless, lawmakers
have pushed those catch-up provisions for decades as ways to, in the
words of the original bill, “enhance fairness for women.”

HAVES AND HAVE NOTS

The success of the retirement industry and its advocates in Congress
has put a sinkhole in the federal budget at a time when entitlements
are under threat. While the cost to the Treasury for tax-advantaged
retirement savings was $81 billion in 1995, it has since swelled to
over $369 billion in 2023 and, in the wake of Secure 1.0 and 2.0, is
expected to nearly double to $659 billion in 2027.

Defenders point out that Secure 2.0 expanded auto-enrollment of
employees in new retirement plans, which studies show should boost
participation by minority groups in 401(k)s.

Neal’s spokesperson, Dylan Peachey, noted that Neal has been working
for decades to expand automatic enrollment and that Democrats scored
an expansion of the saver’s credit, which would effectively operate
as a direct government matching contribution, up to $1,000, for
low-income taxpayers.

Congress shouldn’t “let perfect be the enemy of the good,”
Peachey said.

For many advocates, the saver’s credit is what made Secure 2.0 worth
enacting at all. However, a Senate Finance Committee spokesperson said
that the credit in Secure 2.0 was reduced from $30 billion to $9
billion, because that was all Democrats could get in bipartisan
negotiations.

The lack of proportionality in retirement bills — combined with
relatively low uptake of the savers credit — has caused some experts
to question the fundamental efficacy of the 401(k) system. Notably,
Munnell and Andrew Biggs, a retirement scholar at the conservative
American Enterprise Institute, have proposed repealing the entire
system of tax-advantaged savings accounts to shore up the Social
Security system.

“I don’t think they increase savings in a meaningful way,”
Munnell said. “In my view, in terms of getting the 401(k) system to
work, we’ve kind of done everything that can be done in terms of
making it work better.”

President Joe Biden signs the bipartisan year-end omnibus, which
included the Securing a Strong Retirement Act 2.0, on Dec. 29, 2022,
in Christiansted, St. Croix. | Erin Scott/The White House

Other tax policy experts have suggested simply cutting the
contribution limits to levels reasonably attained by the vast majority
of Americans.

However, any changes would have to get past the gauntlet of industry
groups, who have shown they’ll spend huge sums to block policies
detrimental to their interests.

“We’re encouraging [lawmakers] to not touch the current law,”
said the IRI’s Richman. “In all our discussions with members of
Congress, we remind them about how [tax-deferred treatment of
retirement savings] helps people save and encourages people to
save.”

Meanwhile, a bipartisan group of lawmakers is proposing a new
government savings system run by the Treasury Department for workers
who don’t have access to private plans. The bill would also offer a
government match of up to 4 percent to low-income workers who put
savings in such accounts.

House Ways and Means committee member Lloyd Smucker (R-Pa.), who
sponsored the bill alongside six Republicans and three Democrats,
acknowledged that provisions from Secure 2.0 like catch-ups do not
reach low-income taxpayers at all.

“Definitely not,” Smucker said. “Most of them have no retirement
savings at all.”

Finance committee member Thom Tillis (R-N.C.), who is a co-sponsor of
the Senate version of the bill, said such provisions are “not
something that the vast majority of the American people are even
blessed to be able to contemplate.”

Lobbyists are fiercely working to oppose the legislation, which they
see as an existential threat to the private system of tax-advantaged
plans — with the ARA and the ICI spending $1.6 million and $5.1
million respectively in 2023 on provisions that prominently list the
bill. Davis & Harman was likewise paid $210,000 by the American
Benefits Council in 2023 to lobby on bills that include the proposal.

At an April, 2023, retirement industry “summit” in San Diego, the
ARA’s Graff alerted the large audience to the threat of a new
government alternative to private plans. According to an article by an
ARA subsidiary on the event, Graff said one of the arguments driving
the proposal was the ongoing coverage gap where 60 million people have
no retirement savings at all.

Indeed, after more than a quarter-century of expansion of private
retirement legislation aimed specifically at solving this problem, the
number has barely budged.

“At some point, people in Washington, D.C. are going to grow tired
of this systemic coverage gap and they’re going to start pushing for
some type of federal intervention,” Graff said. “We need to make
clear that a federally run retirement system will never be
acceptable.”

_BENJAMIN GUGGENHEIM is a reporter at POLITICO._

_POLITICO is the global authority on the intersection of politics,
policy, and power. It is the most robust news operation and
information service in the world specializing in politics and policy,
which informs the most influential audience in the world with insight,
edge, and authority. Founded in 2007, POLITICO has grown to a team of
700 working across North America, more than half of whom are editorial
staff._

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