The Democrats’ Retirement Debacle—and Ted Cruz’s Last-Minute Save

The House resoundingly passed a retirement bill that could be dangerous for workers. It’s been blocked in the Senate because of an unrelated perk Cruz wants to give to homeschooling families.

House Democratic leaders are frustrated. They thought America would thrill to the bills they’re passing that have no chance of making it into law so long as Republicans control the Senate, and Donald Trump the White House. Why they thought that is beyond my comprehension—minority-party agendas hardly ever drive political discussion—but they’re desperate to turn attention to a policy agenda rather than oversight of the president (another mistake, in my view).

“I’m spending a lot of time on the issues that my district sent me here to work on,” Representative Ben McAdams, a Blue Dog from Utah, told The Washington Post. “But it doesn’t break through. People understand controversy more than they understand retirement reform, you know?”

McAdams should hope that people don’t start to understand retirement reform, because then they’d know that the House, by an overwhelming 417-3 margin, passed a retirement reform bill last month that potentially exposes millions of workers to unscrupulous salespeople peddling high-cost annuities through their 401(k) plans. There’s evidence to suggest that the bill is the reason that Ways and Means Committee Chair Richard Neal has slow-walked oversight of the Trump administration, including collection of the president’s tax returns. If Neal plays relatively nice with the White House, Trump might sign his bill, which helps out the annuity providers that are among Neal’s biggest donors.

The scheme is going awry in the Senate, however, mostly held up by a tiny provision championed by Ted Cruz to let families pay for homeschooling in tax-sheltered 529 accounts. Like the Tea Party blocking Social Security cuts because there was a modest tax increase attached, the public might dodge a bullet aimed straight at their retirement accounts, because Ted Cruz wants to incentivize homeschooling.

The bill is called the Setting Every Community Up for Retirement Enhancement Act, or the SECURE Act for short. It’s a grab bag of policies dealing with retirement accounts and taxes, many of them relatively inoffensive. It increases the age at which retirees must take money out of retirement accounts from 70 ½ to 72. It would allow people to withdraw money from retirement plans penalty free in the event of a birth of a child or adoption. It would reverse a Trump tax law provision that imposed unexpected taxes on military families receiving survivors’ benefits. And there are lower payment burdens for charities and cooperatives, which comprises a weirdly designed giveaway to the Boy Scouts of America.

But the major provision concerns annuities. Financial interests have been wanting to tap into the trillions of dollars sloshing around in 401(k) plans for years. Section 204 of the SECURE Act offers administrators who manage 401(k) plans a safe harbor from litigation if they give workers the choice of an annuity that ends up going out of business or ripping off workers. The lack of a safe harbor is the primary reason annuities aren’t offered in 401(k) plans currently. There is such a safe harbor with 403(b) plans, used for teachers and employees at nonprofits. Consumer advocates believe those to be a nightmare.

Annuities provide lifetime income to workers who pay into them, with monthly payments kicking in after retirement. It’s not a bad option for someone who wants the security of a fixed income rather than assets that swing up and down with the stock market. But some annuities are variable-income products with opaque terms that confuse buyers into purchasing them and don’t pay off as promised. Experts are concerned that the bill as written doesn’t have protections for workers to prevent their money from being tied up in low-quality annuities.

Neal had been working with Republicans and the annuities industry for years to craft this provision; many annuities providers are among Neal’s corporate donors. And even if you think there are safeguards to prevent the worst-case scenario, calling this a “retirement security” bill is a severe misnomer. It’s nothing like expanding Social Security, which is proposed in a bill that has over 200 co-sponsors and has engendered excitement within the Democratic base. Unfortunately, according to two sources, Speaker Nancy Pelosi has said she’s opposed to bringing it to the floor for a vote. She’s mostly reading the caucus dynamics; Blue Dog Democrats, led by Representative Stephanie Murphy, have choked on paying for increased benefits by removing the payroll tax cap on people making over $132,900, deeming it a tax on the middle class (which is a bit of a stretch).

Despite the near-unanimous support for the SECURE Act, the Senate has not moved forward, perhaps saving House Democrats from themselves. At issue is a provision initially promoted by Representative Kevin Brady, the former chair of the Ways and Means Committee, which would allow 529 accounts, normally used to pay for college tuition or expenses, to go toward homeschooling costs. Teachers unions opposed the measure, as it could entice families to pull away from public schools. It got stripped out of the House version after passing in committee.

That didn’t sit well with some Senate Republicans. Ted Cruz in particular is a champion of homeschooling, which has become one of conservatism’s pet causes. The bill has reportedly been held up for that reason. As Democrats have called the Cruz amendment “a backdoor assault on the public K-12 education system,” it’s hard to see a way forward.

Other reports suggest Senate resistance to a separate part of the SECURE Act, involving a reduction in the amounts some newspapers would need to fund their retirement programs. Tens of thousands of current and former employees would be affected by this underfunding. In a letter to Senate Finance Committee Chair Chuck Grassley, five former reporters and editors of the Minneapolis Star Tribune wrote that newspaper pension funds would see a shortfall of millions of dollars, and that the measure “would provide an incentive for other industries to seek a similar break.” Under the provision, the IRS would not even have to identify what newspaper owners might benefit. “We believe it’s particularly wrong for Congress to approve special-interest legislation when the special interest is kept secret from the public,” the former employees wrote.

The delay is not only causing a revisit of the community newspaper carve-out and other measures, it’s forcing a rethink about the entire proposal. The activist group CREDO Mobile has gotten over 80,000 signatures on a petition against the SECURE Act, calling it “a massive giveaway to Wall Street that would allow companies to defraud retirees.” The petition calls attention to the annuity provision in particular and calls for its removal.

Not many bills get more than 400 House votes in support and then stall—and in this case, that’s a blessing. The SECURE Act is not only the kind of watered-down fluff that does nothing of political value, but at least part of it also looks to be bad policy. For Democrats, fighting the noise machine that is Trump with a weak and even harmful agenda won’t cut it.

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