Unsecure

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This article originally appeared in City Journal and is reprinted here with permission.

The omnibus spending bill puts our retirement system on an even less sustainable basis.

Any $1.7 trillion spending bill passed just before the Christmas holiday is bound to have some wastefulness and policies with unintended consequences. But as a retirement economist, I find the changes to the retirement system, called Secure 2.0, to be the most offensive.

The bill does have some good things. It increases retirement-account participation by making it more attractive for small employers to offer benefits; the administrative costs for small plans can make it too expensive for many businesses. The bill will also give part-time employees access to their workplace 401(k) plans. It also requires automatic enrollment in plans, a practice shown to increase participation.

But the bill’s provision to delay the age when retirees must take money out of the accounts is galling. Beginning at age 72 (the bill increases it to 73 next year), retirees must take Required Minimum Drawdowns (RMDs) each year and pay taxes on the withdrawal. Pre-tax accounts like 401(k)s or 403(b)s are tax deferred, and RMDs are how the government ensures that people eventually pay that tax, especially wealthier people, who often have other forms of savings that fund their retirement. Secure 2.0 increases the age at which retirees must start taking RMDs to 75 over the next decade, after it has already been inching up over the years.