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‘The 401(k) Industry Owns Congress’: How Lawmakers Quietly Passed a $300 Billion Windfall to the Wealthy

Greased by lobbying and campaign cash, tax breaks for retirement savings are one thing Congress agrees on. But they also blow out the deficit and add to income inequality.

Illustrations by Audrey Malo for POLITICO

Five months before Congress faced a near-catastrophic standoff over the debt ceiling, with Republicans demanding restrictions to food and Medicaid programs to rein in spending, a bill that raised the cost of private retirement savings accounts to $282 billion per year was quietly signed into law.

In this era of deeply divided politics, the 2022 bill known as Secure 2.0 was hailed as a bipartisan success — a victory for average Americans. It had sailed through the House by a whopping 414-5 vote. It followed four other major bills passed between 1996 and 2019 that dramatically expanded taxpayer savings – all equally lauded as bipartisan victories.

But that rare issue that brought a divided Washington together also increased wealth disparities and the federal deficit. And the victory was most strongly applauded by the burgeoning financial services industry, for whom tax-advantaged retirement savings has transformed a $7 trillion retirement market in 1995 to a $38.4 trillion behemoth in 2023.

Tax-advantaged savings has become a staple of the American retirement system, with 60 million savers squirreling away $6.6 trillion in their 401(k)s, alone. But a yearlong POLITICO investigation found that Secure 2.0 and its predecessor bills have expanded the system well beyond its goal of helping the middle class. Today, wealthy taxpayers can protect up to $452,500 per year in tax-advantaged accounts in a single year, saving up to $203,600 on their taxes. And they can keep their money in tax-advantaged accounts far longer.

More striking is how these victories were achieved: A quarter-century partnership between two senators — Democrat Ben Cardin of Maryland and Republican Rob Portman of Ohio — joined more recently by the former House Ways and Means Committee Chair Richard Neal (D-Mass.). Backed by one of the most highly skilled and lavishly funded industry lobbying teams, and greased by campaign contributions, Portman, Cardin and Neal turned what could have been a deeply controversial giveback to higher-income taxpayers into a staple of the American Dream.

Their success offers an intriguing roadmap for how even the most divided Congresses can coalesce around a single issue. It includes the passionate advocacy of two quietly well-liked senators and a representative whose life story — having grown up orphaned, on Social Security — refuted any suggestion of bias toward the wealthy. They appealed to core beliefs in both parties — free enterprise for Republicans, economic security for Democrats – to enact what is arguably the most costly series of non-Defense bills in recent decades.

Indeed, that success now vexes many retirement experts, alarmed by how easily Congress acquiesces to tax breaks for retirement savings that disproportionately help the wealthy while treating the benefits relied upon by most retirees — Social Security and Medicare — as budget-busters ripe for reform.

“The 401(k) industry owns Congress,” said Daniel Hemel, a professor and tax law scholar based at NYU School of Law. “Either lawmakers were trying to pull a fast one on the American people or lobbyists were trying to pull a fast one on Congress. I don’t know which story is better. I don’t know which one I should want to believe.”