It wasn’t all that long ago that women who stayed home to raise their children could not save for retirement. By law. Women’s retirement security largely depended on their husbands planning and abilities. Thankfully, that is changing. But, not as quickly as you might think.
Initially, IRAs didn’t offer women’s retirement security
IRAs were originally set up to offer an additional savings option for workers. Moms and homemakers simply weren’t considered “workers”.
In a small way, I wanted to pay tribute to a few of the women who worked behind the scenes. For more than 20 years, a few women pushed the envelope for women’s retirement security. They made it equitable for at-home moms and homemakers (including, at-home dads!) to save in IRAs. It was critical to find a way to save for the retirement that would one day be knocking at each woman’s door.
I had an opportunity to have this article published in the esteemed publication, Retirement Weekly. It is a MarketWatch premium newsletter published by Dow Jones & Co. The interviewees, Ellen and Judy, were wonderful to spend time with me. Most noteworthy, they willingly shared their roles and their history-making contributions. You can read the full article as it appeared in the March 31, 2017 edition of Retirement Weekly.
The article below is for your reading pleasure, or you can link directly to the Retirement Weekly article online. Retirement Weekly is a subscription-based newsletter. It is chocked full of timely retirement information and current topics that impact retirement savings and plans. There is something for everyone and at every stage in the retirement cycle. You can find the free-trial and subscription information here.
Take a read and do let me know what you think!
(Reprinted with permission from Retirement Weekly ©2017)
Women Make History For Women’s Retirement Security
By Marcia Mantell
March is Women’s History Month. We honor women who have put it all on the line. To those who took great and small risks to move a new or “radical” idea forward. Or, who have been the first to accomplish that which others said could not be done.
Taking the time to remember and recognize these trail blazers in our history is important. You know their names: Susan B. Anthony, Sally Ride, Eleanor Roosevelt, to name a few. But what about other women? Many have plotted and planned and worked late into the night for women’s retirement security. Have you given some thought as to how and why women can now save for retirement on an equitable basis? Or, how you get to take your money with you when you move from job to job? Women’s retirement security options weren’t always what they are today.
Turns out, there is a relatively unheralded situation in the financial services industry. One that has been making all the difference to millions of women for several decades. It’s that women have been running the retirement divisions in many of the country’s largest financial firms. Coupled with several Congresswomen, women are making history to improve women’s retirement security.
Joining forces in the Senate
In 1994, there were seven women in the U.S. Senate. These women came into Washington with ideas, priorities, and interests. But not necessarily with a focus on women’s issues. So it’s particularly interesting that five women senators banded together. They proposed legislation that would correct an injustice in the IRA laws. This could not possibly have been the most pressing issue facing our nation back in 1994. However, these leading ladies of the Senate, both democrats and republicans, became champions for homemakers’ retirement security.
Two senators were key in the fight: Kay Bailey Hutchinson (R-TX) and Barbara Mikulski (D-MD). These women led the effort to change IRA rules. Homemakers and at-home moms could not save the same amount in an IRA that their working spouses could. Neither could at-home dads. Specifically, they were fighting to raise the IRA contribution limit. They proposed an increase from only $250 per year to the prevailing limit of $2,000. The higher limit was enjoyed only by those who were working outside the home.
Furthermore, if both spouses worked outside the home, they could have a combined contribution of $4,000 vs. only $2,250 for single-earner couples. That means 78% higher savings opportunity for dual-income couples. And, the long term growth of these investments for future retirement was exponentially better for dual-income couples.
Seeing into the future drove policy change
These Senators understood other factors that were also undermining women’s retirement security. They were among the early voices noting that women:
- tended to live longer than men, and often by many years;
- held lower wage jobs that translated to fewer dollars going to retirement savings;
- more often than not stayed home for all or a part of their career to raise children and to run the home front; and,
- typically became the caregivers for aging parents and relatives.
Sound familiar? These continue to be the realities women face today.
Finally taking action for women
In the early 1970s, lawmakers acknowledged women’s retirement security was going to be an issue in America. Among the early champions for women’s retirement security was Nancy Kassenbaum (R.KS). While in office, she supported a variety of women’s issues from the time she won her Senate seat in 1978.
You can image it takes an incredible amount of stamina to push a bill uphill in Washington. And, initial efforts do not always win enough votes. Hutchinson and Mikulski took the helm of the Homemaker IRA bill in 1993. But, it took another four years before it passed. After 20 years of debate, there was enough political appetite to take action on the women’s retirement security issue. Finally, leaders described the situation as inequitable and unfair. And something had to be done.
Interestingly, you’ll have to look in an unsuspecting place to find the Homemaker IRA bill. It’s buried in the middle of the Small Business Job Protection Act of 1996. There sits Section 1427, Homemakers Eligible for Full IRA Deduction. We owe our thanks to the early efforts of women who were elected to Congress and raised their voices in support of women’s issues.
Homemaker IRAs: history of contribution limits
By way of history, IRAs were introduced in 1974 as tax deductible savings vehicles for American workers. Homemakers were not considered “workers” and therefore could not save for their own retirement. In marked contrast, the working spouse could contribute 80% more than his at-home wife.
Homemaker’s IRA Contribution Worker’s IRA Contribution
| 1974-1976 | $0 | 1974-1981 | $1,500 | |
| 1977-1996 | $250 | 1982-1996 | $2,000 | |
| 1997-2001 | $2,000 | 1997-2001 | $2,000 | |
| 2002-2004 | $3,000 | 2002-2004 | $3,000 | |
| 2005-2007 | $4,000 | 2005-2007 | $4,000 | |
| 2008-2012 | $5,000 | 2008-2012 | $5,000 | |
| 2013-present | $5,500 | 2013present | $5,500 |
Beginning in 1997, 20 years after the launch of IRAs, at-home spouses could finally start to save for retirement in a meaningful way.
Help from financial service companies
Behind the scenes of any legislative action is a flurry of activity in the associated industries. In the case of retirement legislation, an interesting sub-group formed over the years. The majority of retirement businessmen in financial services were, in fact, women. In an industry dominated by men, women represent a fascinating piece of history. As a result, much retirement advocacy has come from women in executive and middle management positions .
One notable example happened during the push for the Homemaker IRA in the mid-1990s. At Fidelity Investments, in a department of ten marketing professionals, 8 of the 10 were women. The leading proponent for the Homemaker IRA was a female executive vice president. Further, the senior management team of the consumer division was run by a majority of women. Most noteworthy, they were highly influential and successful leading a major arm of the company.
Looking for trends and new markets
Ellen Feinsand, president and founder of D & G Consulting in the Boston area and former executive at Fidelity in the 1990s, recalled that period. She was instrumental in pushing for the Homemaker IRA. It was on the front burner. “Fidelity was always a forward thinking company,” she comments. “A key part of our job in the Retirement Product Marketing group was to look for trends and find new markets. Saving for retirement was a relatively new phenomenon for most people. Remember, at the time, companies were shutting down their defined benefit pensions and moving into the self-directed 401(k) era.”
As a result, this team of women looked for untapped market opportunities. They built business cases to justify why to pursue them or not. The IRA looked solid from a business view. And it also had additional momentum behind it. Feinsand mentions that “the case for the homemaker IRA was largely about leveling an unfair playing field.”
Righting a wrong is the right thing to do
Many of the women working with her were young mothers. As long as they were earning an income, they could contribute to an IRA. But, it was not lost on them that if they stayed home with their children, they would lose valuable retirement savings opportunities. That was not okay. “In addition to being a good business opportunity, the Homemaker IRA would help close a major gap in women’s retirement security. Their ability to retire with enough money. It was both a social justice issue and a business prospect. We were all in,” remarked Feinsand.
Consequently, the female led team at Fidelity conducted research, provided analysis and testified on Capitol Hill. They articulated the situation that current laws were failing millions of women who were home raising families and supporting pro-family and pro-children values. Seeing the comprehensive analysis from the financial industry helped lawmakers push the Homemaker IRA into law.
In many other large financial firms, women were also at the helm. In this one small but powerful pocket of the U.S. financial system, women have been making forward progress and influencing positive advancement on behalf of other women for decades.
A funny thing happened
As the burden to save enough for retirement was increasingly on the shoulders of consumers, a funny thing started to happen. More and more people began saving for their future. They were saving in employer sponsored plans such as 401(k)s and 403(b)s in record amounts.
At the same time, workers became more mobile. They changed jobs five, six, seven or more times throughout their careers. In 1992, legislation was passed that greatly reduced the ability for workers to “grab and go” with their retirement savings. Instead, they needed to roll over their retirement savings into an IRA to avoid mandatory tax withholding and a stiff penalty. Ellen Feinsand led the development of the new Rollover IRA program at Fidelity. This was another a major operational undertaking for the retirement business unit.
However, many workers found this process burdensome and difficult to manage. They wanted to move their money directly from their former employer to their new employer and keep all their retirement money in one account. There were no regulations that allowed retirement assets to move that directly.
One woman finds the solution to a thorny tax problem
Enter Judy Tarpley, cofounder of PenServ Plan Services in Greenville, Texas. Now retired herself, Tarpley was a singular force to be reckoned with in the IRA business. First of all, she was a master of the Employee Retirement Income Security Act (ERISA). This is the law that governs IRAs and of all the associated regulations. Secondly, she trained retirement industry workers on everything they needed to know about IRAs. Tens of thousands of phone representatives, branch representatives, business people, and lawyers attended Tarpley’s week-long retirement training sessions. The amount of information she knew and could explain was second to none.
Lastly, in her role of “IRA guru,” Tarpley was called upon by the IRS to consult with them over thorny problems. One particular issue was the tax reporting of plan money and IRA assets. “The IRS called me in to their Washington office. They asked if I could come up with some ideas for how to allow a direct rollover from an IRA to a new employer’s qualified plan,” Tarpley recalls. “Back then, there was no guidance that would enable a worker to go backwards from IRA to 401(k). It looked to the IRS as if a person was taking an early withdrawal from his or her IRA which would have serious tax penalties.”
Always know the details in the law
This is the story of how one woman from a small town in Texas made a difference. She made it possible for all of us—women and men—to take our retirement savings with us from job to job. Remember, it was not that long ago that IRA owners were limited in how they could manage their savings. Tarpley’s expertise was critical in two areas. First, she had to know the details of the laws governing IRAs and employer plans. Secondly, she needed in-depth knowledge of tax reporting requirements. This combination allowed her to come up with the solution for moving money without unintended tax consequences.
Tarpley was a “go-to-gal” for the retirement taxation division at the IRS. She commented, “The lead person at the IRS told me that I saved them hundreds of thousands of man hours with the option I figured out. I felt very good about that. Maybe I did play a part in helping workers have an easier way to save for their retirement.”
Women at the ready for retirement
It’s a daunting task to save for retirement. The laws are wildly complicated. The penalties for missing a step are steep, and the idea of needing to amass a million dollars or more for your golden years can seem impossible. Know that behind the scenes, history is being made every day. From the very beginning, when IRAs came with no provision for an at-home mom to save for her retirement, women have been working tirelessly on behalf of all women. It’s not fast to amend or make new laws. It’s certainly not easy or glamorous. It is, however, the right thing to help the sisterhood have every possible avenue available to build women’s retirement security.
Whether it’s a Senator, a team of unknown businesswomen on the 20th floor of some office building, or a lady who won the “Mrs. Hunt County, Texas” pageant before becoming an IRA icon and IRS problemsolver, there are many, many women working to improve the retirement system. For all of us.
Thank you, ladies.
