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With stunning ambition, it touches Americans of every age. But it completely ignores two major problems.

Both the US Senate and House of Representatives have passed a budget resolution that provides a blueprint for a $3.5 trillion dollar spending bill. That’s the easy part. Now they’re drafting details that must gather enough votes to pass in both houses.

This bill targets healthcare, family services, employee savings, and environmental programs. If passed in its current form, it could have a considerable impact on your retirement, so it pays to know what’s coming.

How does reconciliation work?

The Congressional Budget Act of 1974 provides an updated framework for how the US Congress can establish an annual budget and fund it. The process starts with a detailed request from the President, and from that, the Budget Committees in the House and Senate work out the details, draft the resolutions and pass them. When passed, the government has the authority to direct funds to the various programs and government branches.

It’s not uncommon for this process to run late or break down completely. Further, unexpected circumstances may arise that need funding outside of the standard budget process. In cases like these, other provisions allow the government to request and allocate funds.

One of the alternate provisions outlined in the Budget Act is “reconciliation.” A reconciliation bill can include multiple resolutions that directly affect the federal budget. It’s designed to fast-track high-priority fiscal legislation but is limited to a narrow scope of actions. Anything outside of these strict boundaries must be pursued through standard funding procedures. The reconciliation process can only be used to:

• Increase or decrease spending
• Increase or decrease revenues (taxes)
• Modify the public debt limit

Because of the urgency and priority of a reconciliation bill, it only needs a simple majority (51 votes) in the Senate rather than the typical 60 percent margin required for the annual budget. Different rules in the House already require only a simple majority.

Proposed elements of the bill

While the framework has been approved in both chambers, the details are still being hashed out and remain sketchy. The following elements of the reconciliation package should be considered as “goals,” and the final version that emerges will almost certainly look different.

Proposed retirement-related goals:

1. Lower the eligibility for Medicare from age 65 to 60
2. Add dental, vision, and hearing benefits to Medicare
3. Lower the cost of prescription drugs by allowing Medicare to negotiate prices
4. Automatic enrollment of employees in retirement programs (who can then opt-out if desired). This applies only to companies in business for 2 years with 5 or more employees. Tax credits will offset administrative costs.
5. Create a new federal health program for those who live in states that didn’t expand Medicare under the Affordable Care Act. (about a dozen states)
6. For two years only, limit Affordable Care Act subsidies to 8.5% of recipients income, and expand subsidies to more Americans
7. Expand the SAVERS credit (up to $1,000 tax credit for low-income savers) making credits refundable so if you’re eligible but don’t owe taxes, you will be paid directly. 
8. Invest $400 billion in community-based services to help seniors, the disabled, and home care workers
9. Promotion of health equity, particularly through investments in maternal, behavioral, and racial health measures
10. Limit retirement account contributions for high-income earners (over $400,000 income) with retirement account balances over $10 million
11. Increase minimum required distribution for high-income earners with similar account balances

“[It] will be the most consequential piece of legislation for working people, the elderly, the children, the sick and the poor since [Franklin Roosevelt] and the New Deal of the 1930s.” 

-Bernie Sanders

Other proposed goals:

1. Improve aging Veterans Administration hospitals
2. Create and invest in programs to support job training and workforce skills development
3. Creation of Civilian Climate Corporations to employ young people in new land and water conservation jobs
4. Universal Pre-K program for 3- and 4-year-olds: A $200 billion program in partnership with states (states would pay half of the cost)
5. Subsidized childcare for working families: Low- and middle-income working families will pay no more than 7% of their income on child care for children under age 5
6. Increase pay for child care workers to $15 an hour
7. Tuition-free community college for two years (states would be expected to shoulder 25% of the cost)
8. An increase in Pell Grant awards and higher investments in historically Black colleges and universities
9. Guaranteed 12 weeks parental and medical leave 
10. Extension of the child tax credit enacted as part of the COVID relief legislation. Qualifying families receive a tax credit, half of which is paid directly to the families monthly, the other half applied to year-end taxes.
11. Investments to help reduce carbon emissions and ramp up use of emissions-free sources by the US power grid
12. Rebates for clean energy efficiencies in homes, manufacturing, and transportation. Fees would be scaled in over time for heavy polluters.
13. Investments in forestry programs and agriculture to protect crops and reduce the impact of drought and wildfires
14. Increased financial support for affordable housing programs
15. Improvements to Native American infrastructure

What’s missing for retirees?

This reconciliation bill is extremely ambitious and addresses a multitude of retirement-related programs. Unfortunately, there are two glaring retirement holes that still need to be patched. Both are urgent. 

Social Security trust fund insolvency. For decades, the US Social Security Administration has been running a surplus (collecting more than is spent). Recently though, the demographic profile of workers and retirees has tipped and now less money is collected than needed for obligations. The surplus is covering the shortfall for now but is expected to run dry in 2034. If nothing is done, benefits will be reduced by as much as 30%. 

There are several solutions, but all are politically distasteful. Therefore action to resolve the problem continues to slip and the closer we get to the insolvency date, the more difficult and expensive the solution becomes. 

Multi-employer pension insolvency is a similar problem with underfunded private pension plans. While these are private plans from corporations, there is a strong interdependency with the federal government, and action needs to be taken to shore up the funds so retirees are not left out in the cold. Grants, loans, and tax law changes have been proposed, but like the SSA trust fund issue, this is another political minefield. 

Will the reconciliation bill pass?

The political climate on this matter is highly charged and volatile. Because of this, it’s unlikely to pass in its current form. Unlike its sister legislation (the bipartisan infrastructure bill), this legislation is supported only by the Democrats. Since they control both congressional chambers, if they’re able to find common ground within their caucus, some form of it will pass. 

Regardless of which side of the fence you’re on, a bill of this magnitude will have an overwhelming impact on the face of social services, the environment, healthcare, and retirement for decades to come. 

Remember though, we will always be personally responsible for our own retirement. Social Security is intended to supplement our retirement needs, not provide for them all. Even if this bill passes, you’ll still need to save a significant sum of money to fund your life after work. 

No matter the outcome, be wise and live below your means so you can enjoy an amazing retirement free from financial worries.