How Biden Impacted Retirement in 2022
Although retirement plans, including Social Security, have relatively unchanging general structures, the specific details of these programs typically change on a year-to-year basis.
The Social Security Administration and the IRS usually make annual changes to these plans, but the powers-that-be in the White House also can make sweeping changes at any time. In 2022, the Biden Administration unveiled two major changes for retirement plans in America, in addition to implicitly endorsing the more regular changes made by the SSA and the IRS.
Change in ESG Rules for Plan Sponsors
ESG investing has become increasingly popular in recent years as investors have begun looking for more socially conscious investing options. ESG investing takes into account environmental, social and governance factors when selecting investments, with companies failing to meet one or more of these screens dropping out of the pool of available options.
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In 2022, the Biden Administration reversed regulations implemented by the Trump Administration in 2020 regarding the ability of retirement plan sponsors to incorporate ESG factors into selecting available investment options for their employees.
Specifically, the new rules allow businesses to “include the economic effects of climate change and other ESG considerations” when picking investment options, according to Lisa Gomez, assistant secretary of labor for the Employee Benefits Security Administration.
In addition to opening up ESG investment options for workers participating in retirement plans, the new rules also allow plan sponsors to choose ESG funds as the default options for workers automatically enrolled in plans.
Pension Protection for Union Workers and Retirees
More than 350,000 workers and retirees participating in the Central States Pension Fund were looking at a reduction in their benefits, but the Biden Administration stepped in to prevent that from occurring. On Dec. 8, the Biden Administration announced that $36 billion would be set aside to shore up the pension fund, which otherwise was slated to cut participant payments by up to 60%.
With the infusion, the Central States Pension Fund, which primarily serves Teamster workers and retirees, will be able to make full payments through 2051.
Social Security COLA
The massive 2023 Social Security cost-of-living adjustment (COLA) wasn’t directly authorized by the Biden Administration. However, the federal government, via the Social Security Administration, was responsible for the increase.
The idea behind the annual COLA is that retirees drawing Social Security benefits shouldn’t be left behind due to the increasing costs of everyday items. To keep payments in line, the SSA reviews inflation data every October to see how much it has changed over the prior year. Based on this information, the SSA announces the size of the COLA for the following year.
For 2023, the COLA will be a significant 8.7%, the largest increase in over 40 years. This should help retirees manage costs during the current inflationary environment, particularly since the Consumer Price Index — a widely used gauge of inflation — has been trending downward since June, sitting at 7.1% as of November.
For those who like to dig deeper into statistics, it’s important to note that, while the CPI is the most quoted inflationary gauge, the SSA actually uses the CPI-W — or the Consumer Price Index for Urban Wage Earners and Clerical Workers — to set the COLA.
Increase in IRA and 401(k) Contribution Limits
As with the Social Security COLA, the Biden Administration doesn’t directly set IRA and 401(k) contribution limits. However, acting on behalf of the federal government as a whole, the IRS does determine these limits.
For 2023, the IRA contribution limit rises modestly, to $6,500 from 2022’s $6,000. Savers 50 or older can kick in an additional $1,000 per year, raising the annual limit to $7,500.
Workers contributing to 401(k) plans also will see increases in their contribution limits for 2023, to $22,500 from $20,500 in 2022. Those ages 50 and up are allowed a significant catchup contribution of $7,500, bringing the total allowable voluntary contribution to a nice round $30,000.
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