Donald Trump has been president for a few weeks now. During the campaign, we speculated on what his presidency might mean for your retirement. Now that he is actually in office, we are beginning to see the signs of his approach to retirement security.
As we’ve discussed in previous blog posts, President Trump has made some controversial Cabinet nominations. When it comes to retirement security for public employees, the selections of Betsy DeVos for Education Secretary and Andrew Puzder for Labor Secretary are particularly concerning. These nominations continue a troubling trend of Trump surrounding himself with advisors who are hostile to public pensions.
It’s not just Cabinet nominations that are cause for worry though. The new administration has signaled that it intends to weaken or revisit the fiduciary rule that requires financial advisors to give retirement and investment advice that is in the best interests of their clients. One of the major failings of 401(k) plans is that individual workers must make their own investment decisions. Since very few workers are investment professionals, they often rely on financial advisors to recommend appropriate investments for their 401(k) accounts- that is, if they even bother to make a decision about their 401(k) investment. When financial advisors are not held to the fiduciary standard, they are free to recommend investment products that carry high fees and may deliver poor returns. The Obama White House estimated that American working families lose $17 billion a year due to conflicts of interest from financial advisors. Weakening or abandoning the fiduciary rule would harm the retirement security of many working families.
The Trump administration has also signaled a willingness to work with the Republican-controlled Congress to go after the benefits and workplace protections of federal employees. Utah Rep. Jason Chaffetz, the chairman of the House Oversight and Government Reform Committee, seems particularly eager to eliminate the defined benefit pension plan for federal employees. Currently, federal workers participate in what is called the “three-legged stool” of retirement: Social Security; a defined benefit pension plan; and a 401(k)-style defined contribution plan. This three part system was created during the Reagan administration and is regarded as a highly successful retirement plan. Removing the defined benefit component of this system would knock one of the legs out of the stool and make retirement security more wobbly for federal employees. It would also be a pointless and unnecessary move. The only reason for abandoning the federal pension plan would be to make federal employment less desirable.
Finally, some Republican members of Congress have introduced resolutions to disapprove of Obama administration regulatory decisions that enabled states to establish state-facilitated retirement plans for private sector workers. It’s well-known that American working families are facing a retirement security crisis. Over half of all workers don’t have access to a workplace retirement plan. In attempt to address this, seven states so far have adopted some form of state-facilitated retirement plan. In states like Illinois, Oregon, and California, these are known as Secure Choice plans. They require employers to either offer a retirement plan or automatically enroll their employees in a state-sponsored IRA program. The Obama administration ruled that these plans are not subject to the provisions of a federal law that governs private-sector retirement plans, which allowed the states to move forward with establishing these programs. If these Congressional resolutions were approved, they would remove these “safe harbor” provisions and make it much more difficult for states to sponsor retirement savings plans for private sector workers. Working families need access to retirement plans and Congress should not meddle in the hard work of these states in establishing these plans. Additionally, another two dozen states are considering adopting similar programs and these resolutions could stop that movement.
So far the Trump administration has not attacked pensions for teachers, firefighters, and other public employees, but there are worrying signs. The most serious threat may come from attacks on the pensions of federal employees, but it is too early to say for sure. With numerous attacks on public pensions in various states, it’s worthwhile to keep an eye on the Trump administration and Congress and look out for any threats there.