Smucker set to take more senior role on influential committee

U.S. Rep. Lloyd Smucker, entering his fourth term on Jan. 3, is working with a Democratic congress woman from Alabama and a bipartisan pair of U.S. senators to create a new retirement account option for low-income workers. Smucker, who’s poised to take on a more senior role on the influential Ways and Means Committee thanks to the Republican takeover of the House in last month’s elections, said he views the legislation as part of his commitment to helping Americans build wealth and save for retirement. He spoke with LNP | LancasterOnline about the bill.

The transcript below has been edited for length and clarity.

You’ve linked up with a Democrat from Alabama (Rep. Terri Sewell) to introduce legislation in the House that would create a new type of retirement account for some American workers. Where did this idea come from?

I’ve always been working on policies that help low-income individuals be successful and achieve their American dream. I’ve done a lot of work on retirement policy; much of that has been on a bipartisan basis. We did Secure 2.0, which we believe will be passed before the end of this year to make it easier for employers to provide retirement programs, like a simple IRA or a 401(k). (The legislation was included in the omnibus spending bill passed by Congress this week. It had not reached Biden’s desk as of Sunday, though he is expected to sign it. Despite championing the legislation, Smucker voted against the spending bill to which it was attached.)

But we noticed that a lot of working individuals, particularly those earning less than average income, barely save for retirement. In fact, the median retirement account balance among working individuals earning less than $50,000 per year is zero. More people than not have no retirement savings whatsoever; almost 60% have no retirement savings whatsoever.

From the perspective of helping people prepare for retirement, we realized a long time ago the importance of providing incentives for people to be able to care for themselves during retirement. We have Social Security, which is sort of an anti-poverty measure that was never intended to allow someone to be able to live comfortably, or at least not at a level compared to their earnings while they were working.

Over the years, we provided a lot of incentives for people to put away money for retirement – IRAs and employer programs like 401(k)s. The total price of that comes in the form of tax deductions, or pre-tax dollars, and amounts to about $260 billion per year. Most of that goes to high income earners. In fact, 84% of those tax benefits go to households in the top two income quintiles. Only 6% of the benefit goes in the bottom two quintiles. (In this case, a quintile is 20% of U.S. preretirement households.)

The bill we’ve written is designed to help address that; it would be open to any employee who is not able to participate in an employer-sponsored plan. And that’s a lot of people. It might be someone who has multiple part-time jobs where the employers do not provide retirement plans, or it might be someone like an Uber driver or other types of independent contractors. It’s for anyone who doesn’t have access to an employer plan, and anyone earning less than about $50,000 per year.

It would design a program similar to the Thrift Savings Plan, which is the federal retirement plan benefit for all federal employees.

We’ve been working with a number of different outside groups. And there’s been a lot of discussion on this for the past year. There’s been a sort of a working group with outside parties and other co-sponsors of the bill – a bipartisan, bicameral working group. We’re calling this a wealth-building initiative. We want more people to be able to participate in building their wealth to prepare for retirement.

Would this be a mandatory program, or something that eligible workers would opt into?

In the Secure 2.0 legislation, we’re working toward shifting the employer-sponsored programs to “auto-enrolled” – that means unless you opt out of the program, your employer would automatically add you and begin deducting money and adding to your account with the federal match.

Our bill uses a refundable tax credit, which means that whether you owe taxes or not, at the end of the year, this money would be coming to you. But unlike other tax credits, this would be put into your retirement plan. As an incentive, there’s a 1% match that the federal government will put in, even if you don’t put anything into it. And then for every dollar that the employee would put into the plan, there’d be an additional match up to 3% of an employee’s total income, or a total of 4%. Tax credits would be phased out for employees whose income rises above the median income for American workers (about $55,640 in 2022, according to the Bureau of Labor Statistics).

Can a worker who is not retired access the funds in these accounts?

Any part of the federal match can’t be taken out of the account for any reason until retirement. Any money that a worker contributes of their own could be withdrawn with a penalty, just like how IRAs or 401(k)s work now. But the federal dollars would in no circumstance be available until retirement.

How is the federal match paid for?

That hasn’t been decided yet. We think it’s about a $40 billion price tag. There’s been a lot of different ideas and a lot of discussion on this. There are a number of ways we could use to help pay for that. We expect to have that question answered by the time the bill gets passed; for now, we’ve offered a first iteration of the proposal to get support from outside a broader group co-sponsoring and talking about it.

Long term, we think it would be a net gain because it would create more economic activity when people enrolled in the plans retire. More wealth is created, and when account holders retire they will be spending their money, paying taxes and growing the economy. And then, more importantly, more people will find themselves less reliant on federal programs in their retirement years.

What if a company that employs a lot of workers who make less than the salary cap in this bill already offers a retirement plan? Would this bill be an incentive for those companies to drop their own plans in favor of the federal one to be created by this bill?

We have talked a lot about this. We fully understand that potential. That’s not the intention here, that’s not what we want to see. There would be safeguards in the bill to avoid that. (Editor’s note: Smucker’s office followed up with additional details. For example, companies would be prohibited from discontinuing a retirement plan for some employees while maintaining one for others. The tax benefits employers can obtain by offering their own plans are significantly more valuable than what would remain if a company shifted all employees to the new plans.)

Would the new plan be administered by the existing Thrift Savings Plan? Or would a new governance body be created?

It’d be a new governance body, and it’d be private, like the TSP. The government will contract with a private group or groups to manage the plans.

Have outside economists helped shape the bill?

Yes. One individual that we’ve been working with is Kevin Hassett, an economist who’s advised Republicans on the Ways and Means Committee on issues like this. And there’s Teresa Ghilarducci, an economist more in tune with Democrats. They’ve written about how a plan like ours could have tremendous benefits for workers and, in the long run, help the economy and reduce the federal deficit. The bill is truly bringing people together from different perspectives in a bipartisan way to try to find solutions here that work.

What’s been the response in Congress and among private-sector players?

We’ve seen a lot of interest. We’ve been talking to every member of Ways and Means. I’ve met with the Republican members, while Congress-woman Sewell has been talking to folks on her side of the aisle. I plan to introduce the bill at the beginning of next session with the same partners in the House and Senate that joined this year. We have fairly high hopes that this is a bill that we can get done in the next session. We still have work to do, but a lot of work has already gone into it so far.

Speaking of the Ways and Means Committee, are you going to move into a new role in January when Republicans take over the House majority?

Well, I will be 10th in seniority. I don’t know how often it is that you’re appointed to a committee and then two years later you’re halfway up the dais. I’m one of the liaisons to the Budget Committee, and I chose to do that instead of sitting on one of the other subcommittees because I think those are some of the really important issues going forward.

I sit on the trade subcommittee and the worker and family support subcommittee, and each of those have areas of policy that I really want to work on. I’m also running for the chairmanship of the Budget Committee, which is decided by the Republican leadership and about a dozen or so representatives from regions across the country. They are the ones that choose who the committee chairs will be, and we expect that to take place in the first or second week of January.

Let’s end on an open-ended question: As you look ahead to the next two years with a Republican majority in the Ways and Means and Budget committees, what is the challenge or problem you hope to resolve?

I look at our $32 trillion in debt. We’re at about $24 trillion if you consider debt held by the public and not the government, which is about $1 trillion more than the total annual GDP of our country. But that’s projected to rise to about 184% of total GDP in the next 30 years by the Congressional Budget Office. I think it is unsustainable, and will result in some economic calamity, probably a sovereign debt crisis.

It’s fair to say we’re holding more debt because the world relies on the American dollar. But we also know that at some point that will no longer hold true. And we have plenty of examples in history of countries that have spent too much, have not had the proper fiscal controls, have printed money. And we’ve seen complete disasters, like Venezuela as a very recent one. And then we’ve also seen countries like Japan that have had decades of economic decline because of their fiscal policies.

I really want us to be the Congress that begins to change that trajectory. It would require some tough decisions. But those decisions are attainable, the solutions are attainable. I think there’s a growing awareness among both Republicans and Democrats that our debt and the trajectory it’s on is a big threat to our future and the American dream, the idea that every generation can do better than the generation before it, and so on. Left unaddressed, it could lead to a century of American decline.

I think the process here is broken. We’re spending far more money than we have, structurally. We have to make changes. So my goal is for this Congress to be the one that starts to change that trajectory. If we do that, we can avert a sovereign debt crisis, which will occur when people and our creditors no longer believe that we can make good on our debt. But if we start moving in the right direction, we can avert that. We can do what happened after World War II when debt exceeded GDP. It took 30 years, but by the mid-1970s we were back down to about 20% debt to GDP. My goal is to move us in the right direction in that way.

Thank you for your time, congressman.

Thank you, bye now.