Bob’s Journal for 3/25/21

The SECURE Act 2.0 is on the way

In December 2019, Congress shocked many people by passing the Setting Every Community Up For Retirement Enhancement (SECURE) Act quickly and by a wide margin.

There were a lot of positive provisions in the SECURE Act that were designed to make it easier for people to save for retirement and less expensive for small businesses to provide retirement plans.

But to pay for all the benefits, the SECURE Act eliminated the Stretch IRA. Now, most inherited IRAs and 401(k)s have to be fully distributed and taxed within 10 years after the original owner passes away.

The same congressional leaders who initiated the SECURE Act are back with the SECURE Act 2.0, known officially as the Securing a Strong Retirement Act (SSRA). The bill was proposed in Congress last October and is due to be proposed in the new session of Congress.

There’s a lot of good in the SSRA.

Required minimum distributions would be delayed to age 75, and RMDs would apply only to accounts with balances exceeding $100,000.

The “catch-up” additional IRA and 401(k) contribution limits for those older than age 50 would be indexed for inflation. An additional catch-up contribution amount beginning at age 60 would be allowed.

The amount of an IRA that could be invested in a qualified longevity annuity contract (QLAC) would be increased.

The annual limit for qualified charitable distributions (QCDs) would be increased to $130,000.

There are a lot of other provisions intended to increase retirement savings in the SSRA.

But these tax breaks would reduce government tax revenue, and the rules require Congress to find an offsetting way to pay for the tax breaks.

As in the SECURE Act, the SSRA has no provisions designed to raise the revenue. With the SECURE Act, congressional leaders waited until late in the legislative process to insert the end of the Stretch IRA as a revenue raiser. The law was rolled through Congress without committee hearings or other hallmarks of the legislative process.

I expect the same approach will be taken with the SSRA. One or more of the adverse changes to retirement savings or estate planning that have been discussed in recent years will be inserted into SSRA late in the process to avoid lobbying and public outcry.

I’ll be watching the progress closely so that I can alert you as quickly as possible to potential changes and the actions you can take to protect your retirement finances.

Free COBRA Coverage in Latest Stimulus Law

One of the many provisions in the American Rescue Act, the recently enacted $1.9 trillion law, provides free COBRA coverage to many workers who lost their jobs or had their hours reduced.

An employee who leaves an employer has the option to continue receiving medical benefits under the former employer’s plan for up to 18 months through a program known as COBRA. The departing employee has to pay the full amount of the premiums, including the employer’s share, plus an administrative fee.

Under the new law, the federal government will pay these COBRA premiums for workers who lost employer coverage because they lost their jobs or had their hours reduced.

You don’t qualify if you are eligible for Medicare or other coverage, such as by obtaining a new job. Anyone who voluntarily left a job isn’t eligible for the subsidy.

The government will pay the premiums from April 1, 2021, through September 30, 2021, by reimbursing employers.

The subsidy applies to people who lost their coverage before April 1 if they continue to have COBRA coverage after April 1. But it won’t reimburse premiums incurred before April 1.

Eligible individuals should receive notices from their former employers explaining the subsidies and any actions the individuals need to take. The government subsidizes only the premiums, not any copayments, deductibles, coinsurance and the like.

If you lost your job before April 1 and didn’t elect COBRA coverage, a new election period is created for 60 days beginning April 1.

Is electing COBRA coverage a good idea because of this subsidy? Maybe not. The government health insurance marketplace is open with expanded subsidies for many people. Compare what’s available to you at www.healthcare.gov before deciding.

Social Security Scams are Growing

The latest round of scams involving Social Security is so bad that major retailers joined with the Social Security Administration (SSA) to combat them.

CVS, Walmart and Home Depot are among the major retailers who participated in the second annual “Slam the Scam” day sponsored by SSA.

The retailers took actions that included announcements over the in-store speaker systems, warnings on screens visible to customers, and messages through their websites and social media platforms.

The telephone and email scams are so prevalent that I receive several of the recorded phone calls most weeks and the occasional email.

The general approach is for the telephone call or email to state that there is something wrong with the recipient’s Social Security number or account and that the number is suspended. The recipient is urged to respond to have the suspension lifted or other curative action taken.

The scammers have two goals. One is for the recipient to give them key personal information, such as their Social Security number, birth date and perhaps bank account information. The other goal is to obtain money. The recipient often is told that a fee is charged to lift the number suspension and the fee must be paid through gift cards available at major retailers.

The SSA doesn’t suspend someone’s Social Security number. If there is a problem with someone’s account, the SSA won’t notify them by email or a telephone call. The person will receive an old-fashioned first-class letter from SSA.

The best way to monitor your Social Security number and account is to open a “my Social Security” account with SSA at www.socialsecurity.gov. Check the account periodically to be sure no one else applied for benefits in your name, had your benefits redirected to another bank account, or took other actions.

The Data

New unemployment claims declined by 97,000 to 684,000 in the latest week. That’s the first time new claims have been below 700,000 during the pandemic period.

Continuing claims declined by 89,000 to 4.58 million.

The total number of Americans claiming some form of unemployment benefits increased by 733,862 to just below 19 million.

Existing home sales declined by 6.6% in February from January’s level. But February’s sales were 9.9% higher than 12 months earlier.

Though lower than January’s sales, February’s sales were the highest for a February since 2006 and the second highest February sales on record.

A major factor in declining sales is the low inventory of homes for sale. February’s inventory was the same as January’s but was 29.5% lower than 12 months earlier. Some economists say the official inventory number includes homes that are under contract and not really on the market. They estimate the real inventory is closer to 50% lower than 12 months ago.

New home sales in February were 18.2% lower than January’s sales but 8.2% higher than 12 months ago.

Also, sales for the three previous months were revised significantly higher, and the sales growth rate of the last nine months is the highest since 2006.

The Producer Price Index (PPI) rose 0.5% in February, following a 1.3% increase in January. Over 12 months, the PPI is up 2.8%.

But after excluding food and energy, the PPI rose only 0.2% in February after a 1.2% increase in January. Over 12 months, the measure is up 2.5%.

Consumer Sentiment in early March, as measured by the University of Michigan, rose to 83.0 from 76.8 at the end of February.

This is the highest level in a year and well above expectations. Both the current conditions and expectations segments of the index increased significantly.

The Richmond Fed Manufacturing Index increased to 17 in March from 14 in February.

Durable Goods Orders decreased by 1.1% in February, which compares to a 3.5% increase in January. Excluding transportation, orders decreased 0.9% in February following a 1.6% rise in January.

Core capital goods orders, which are considered a good measure of business investment, decreased 0.8% in February after increasing 0.6% in January.

The services sector continues to improve while the manufacturing sector holds steady at a strong rate of growth, according to the mid-month PMI Composite Flash Index for March.

First, the numbers for the end of February were revised higher from the initial report. The composite index was increased to 59.5 from 58.8. Manufacturing was revised slightly higher to 58.6 from 58.5. Services was revised significantly higher to 59.8 from 58.9.

In the mid-March numbers, the composite was down slightly to 59.1 from February’s revised 59.5. But the manufacturing sector number increased to 59.0 and the services sector number climbed to 60.0.

The composite was at a two-month low, though the manufacturing segment was at a two-month high and the services segment was at an 80-month high.

The PMI didn’t explain how both sectors can be higher while the composite is lower, other than that the index was adjusted for seasonal factors.

The survey also found that there were supply problems and inflation pressures across the economy.

The third estimate of gross domestic product (GDP) for the fourth quarter of 2020 showed a small improvement. The estimate said GDP increased at an annual rate of 4.3% in the quarter, compared to 4.1% in the previous estimate.

The Markets

The S&P 500 lost 2.13% for the week ended with Wednesday’s close. The Dow Jones Industrial Average declined 1.82%. The Russell 2000 fell 8.73%. The All-Country World Index (excluding U.S. stocks) retreated 3.22%. Emerging market equities dropped 5.03%.

Long-term treasuries gained 2.17% for the week. Investment-grade bonds rose 0.53%. Treasury Inflation-Protected Securities (TIPS) added 0.43%. High-yield bonds gained 0.14%.

On the currency front, the U.S. dollar increased 1.30%.

Energy-based commodities fell 3.63%. Broader-based commodities lost 2.54%. Gold declined 0.72%.

Bob’s News & Updates

My latest book is Where’s My Money: Secrets to Getting the Most out of Your Social Security. It tells you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on amazon.com or Regnery.com.

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