Following our first President’s death in 1799, George Washington’s February 22nd birthday became a perennial day of remembrance for Americans. However, it would take another 172 years before the holiday became popularly known as Presidents’ Day. In 1971, it was moved to the third Monday in February under the Uniform Monday Holiday Act, an attempt to create more three-day weekends for the nation’s workers. While several states still have individual holidays honoring the birthdays of Washington, Abraham Lincoln, and other figures, Presidents’ Day is now popularly viewed as a day to celebrate all U.S. presidents, past and present.
This year, as we celebrate Presidents’ Day, it’s good for us to take a moment for a quick shout-out to five former presidents who share one very important contribution. Each signed legislation into law that has not only changed how and when we retire, but in some cases, enabled generations of Americans to retire with dignity who otherwise would not have had the financial means or supports to do so, beginning with the 32nd U.S. President, Franklin D. Roosevelt.
Franklin D. Roosevelt – Social Security Act (1935)
FDR signed The Social Security Act into law on August 14, 1935, establishing two types of provisions for financial security for older Americans: (1) Federal aid to the States to enable them to provide cash pensions to their needy seniors, and (2) a system of Federal benefits for retired workers. The first measure was designed to provide immediate assistance to destitute individuals. The second was a preventive measure intended to reduce the extent of future dependency among the nation’s aging citizens and to assure workers that their years of employment entitled them to a “life income”.
In 1935, the minimum monthly benefit was $10, and the maximum was $85. Today, the average monthly Social Security payment to retired workers is $1,461 and the maximum for someone retiring in 2019 at full retirement age is$2,687 per month, according to the Social Security Administration (SSA). The SSA notes that Americans with average earnings can expect their Social Security retirement benefits to replace only about 40% of their pre-retirement income, and a smaller percentage for higher-wage earners. To access a personalized estimate of your future benefits based on your earnings, view your latest statement at my Social Security.
Lyndon B. Johnson – Medicare (1965)
Topping the 36th President’s legislative agenda in 1965 was Medicare, a federally funded insurance program to provide low-cost medical and hospital care for America’s elderly under Social Security. At that time, half of the country’s population over age 65 had no medical insurance, and a third of those over 65 lived in poverty, unable to afford proper medical care.
Today, Medicare continues to cover a portion of healthcare costs in retirement for U.S. citizens age 65 and over, but it does not cover all costs, including prescription drugs (you must purchase a separate Medicare Part D prescription drug plan or a Medicare Advantage Plan, Part C, that offers drug coverage); co-payments for doctors’ office and emergency room visits; most dental, hearing and vision services; and long-term care, including assisted living, home health aides, and nursing home care. For more about what Medicare does and does not cover, visit Medicare.gov.
Gerald Rudolph Ford, Jr – ERISA (1974)
The 38th President chose Labor Day to sign the Employee Retirement Income Security Act of 1974 (ERISA) into law, stating, “Under this law, the men and women of our labor force will have much more clearly defined rights to pension funds and greater assurances that retirement dollars will be there when they are needed. Employees will also be given greater tax incentives to provide for their own retirement if a company plan is unavailable.”
In a nutshell, ERISA is the federal law established to provide retirement plan participants the important protections they enjoy today. ERISA sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans. Further, it requires plans to provide participants with plan information including important disclosures about plan features and funding; sets minimum standards for participation, vesting, benefit accrual and funding; provides fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a grievance and appeals process for participants to get benefits from their plans; gives participants the right to sue for benefits and breaches of fiduciary duty; and, if a defined benefit plan is terminated, guarantees payment of certain benefits through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation (PBGC).
James Earl Carter, Jr. – Revenue Act of 1978
The Revenue Act of 1978, which included a provision under Section 401(k) of the tax code, was signed into law by the 39th President of the United States. However, while the legislation Carter signed paved the way for the modern 401(k) retirement plan, he is not considered the father of the 401(k). Rather, that title is generally accorded to Ted Benna, an employee benefits consultant who saw the law as an opportunity for employers to create tax-advantaged savings accounts for their employees.
Section 401(k) went into effect on January 1, 1980, giving employees a tax-free way to defer compensation from bonuses or stock options. In 1981, the IRS issued rules allowing employees to contribute to their 401(k) plans through salary deductions, which jump-started the widespread roll-out of 401(k) plans in the early 1980s, at a time when many companies were freezing or no longer offering more traditional defined benefit pension plans to employees.
Today, 401(k) plans are the most common employer-sponsored retirement plans. The American Benefits Council reports that of the 648,252 defined contribution retirement plans in the U.S. today, 546,896 are 401(k) plans, covering more than 97 million total participants.
William Jefferson Clinton – Taxpayer Relief Act of 1997
In August 1997, Bill Clinton, the 42nd President, signed H.R. 2014, the ‘‘Taxpayer Relief Act of 1997”, into law. The Roth IRA, considered by many today to be a cornerstone of retirement planning, was established under H.R. 2014. The provision was spearheaded by its namesake, Senator William Roth of Delaware, then chairman of the Senate Finance Committee. Roth sought a more flexible version of the traditional individual retirement account (IRA), and successfully lobbied to have the new Roth IRA added to the Taxpayer Relief Act.
The Roth IRA offers the ability to invest after-tax dollars, but withdraw money tax free after the age of 59½. In addition, Roth holdings are not subject to required minimum distributions (RMDs) during the account holder’s lifetime, as is the case with traditional IRAs.
(In 2006, the Economic Growth and Tax Relief Reconciliation Act of 2001 opened the door for Roth 401(k) contributions, which are also made on an after-tax basis and may be withdrawn tax-free after age 59 ½.) By 2016, nearly 22 million households owned Roth IRA accounts, with Roth assets totaling roughly $660 billion.
While none of the five Presidents cited here were strangers to victory, defeat or controversy, during his time in the Oval Office—and each had his critics, detractors and stalwart supporters— it’s important to step back every once in a while, to remember achievements that go beyond partisan politics . No matter how popular, unpopular, or controversial the legislation these men signed into law was at the time, each of these important Acts of Congress continue to help Americans prepare for the life they desire in retirement. And that’s certainly worth a shout-out on President’s Day.