[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
BANKING ON RETIREMENT SECURITY:
A GUARANTEED RATE OF RETURN
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
FINANCIAL INSTITUTIONS AND CONSUMER CREDIT
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
JUNE 23, 2005
__________
Printed for the use of the Committee on Financial Services
Serial No. 109-41
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WASHINGTON : 2006
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair DARLENE HOOLEY, Oregon
RON PAUL, Texas JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio BRAD SHERMAN, California
JIM RYUN, Kansas GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio BARBARA LEE, California
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts
Carolina HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut JOSEPH CROWLEY, New York
VITO FOSSELLA, New York WM. LACY CLAY, Missouri
GARY G. MILLER, California STEVE ISRAEL, New York
PATRICK J. TIBERI, Ohio CAROLYN McCARTHY, New York
MARK R. KENNEDY, Minnesota JOE BACA, California
TOM FEENEY, Florida JIM MATHESON, Utah
JEB HENSARLING, Texas STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida DAVID SCOTT, Georgia
J. GRESHAM BARRETT, South Carolina ARTUR DAVIS, Alabama
KATHERINE HARRIS, Florida AL GREEN, Texas
RICK RENZI, Arizona EMANUEL CLEAVER, Missouri
JIM GERLACH, Pennsylvania MELISSA L. BEAN, Illinois
STEVAN PEARCE, New Mexico DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas GWEN MOORE, Wisconsin,
TOM PRICE, Georgia
MICHAEL G. FITZPATRICK, BERNARD SANDERS, Vermont
Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
CAMPBELL, JOHN, California
Robert U. Foster, III, Staff Director
Subcommittee on Financial Institutions and Consumer Credit
SPENCER BACHUS, Alabama, Chairman
WALTER B. JONES, Jr., North BERNARD SANDERS, Vermont
Carolina, Vice Chairman CAROLYN B. MALONEY, New York
RICHARD H. BAKER, Louisiana MELVIN L. WATT, North Carolina
MICHAEL N. CASTLE, Delaware GARY L. ACKERMAN, New York
EDWARD R. ROYCE, California BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma GREGORY W. MEEKS, New York
SUE W. KELLY, New York LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas DENNIS MOORE, Kansas
PAUL E. GILLMOR, Ohio PAUL E. KANJORSKI, Pennsylvania
JIM RYUN, Kansas MAXINE WATERS, California
STEVEN C. LaTOURETTE, Ohio DARLENE HOOLEY, Oregon
JUDY BIGGERT, Illinois JULIA CARSON, Indiana
VITO FOSSELLA, New York HAROLD E. FORD, Jr., Tennessee
GARY G. MILLER, California RUBEN HINOJOSA, Texas
PATRICK J. TIBERI, Ohio JOSEPH CROWLEY, New York
TOM FEENEY, Florida STEVE ISRAEL, New York
JEB HENSARLING, Texas CAROLYN McCARTHY, New York
SCOTT GARRETT, New Jersey JOE BACA, California
GINNY BROWN-WAITE, Florida AL GREEN, Texas
J. GRESHAM BARRETT, South Carolina GWEN MOORE, Wisconsin
RICK RENZI, Arizona WM. LACY CLAY, Missouri
STEVAN PEARCE, New Mexico JIM MATHESON, Utah
RANDY NEUGEBAUER, Texas BARNEY FRANK, Massachusetts
TOM PRICE, Georgia
PATRICK T. McHENRY, North Carolina
MICHAEL G. OXLEY, Ohio
C O N T E N T S
----------
Page
Hearing held on:
June 23, 2005................................................ 1
Appendix:
June 23, 2005................................................ 41
WITNESSES
Thursday, June 23, 2005
Brock, David O., President and CEO, Community Educators Credit
Union (FL), on behalf of Credit Union National Association..... 17
Brown, Michael J., President and CEO, Harbor Federal Savings Bank
(FL), on behalf of America's Community Bankers................. 14
Furman, Dr. Jason, Non-Resident Senior Fellow, Center of Budget
and Policy Priorities, Wagner Graduate School of Public
Service, New York University................................... 20
Gornto, Rick, President, First Financial Benefits, Inc. (TX)..... 19
Roberts, J. Lamar, President and CEO, First National Bank of
Pasco (FL), on behalf of Independent Community Bankers of
America........................................................ 15
APPENDIX
Prepared statements:
Bachus, Hon. Spencer......................................... 42
Clay, Hon. Wm. Lacy.......................................... 46
Sessions, Hon. Pete.......................................... 47
Brock, David O............................................... 51
Brown, Michael J............................................. 56
Furman, Jason................................................ 60
Gornto, Rick................................................. 64
Roberts, J. Lamar............................................ 66
BANKING ON RETIREMENT SECURITY:
A GUARANTEED RATE OF RETURN
----------
Thursday, June 23, 2005
House of Representatives,
Subcommittee on Financial Institutions
and Consumer Credit,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:08 a.m., in
Room 2128, Rayburn House Office Building, Hon. Spencer Bachus
[chairman of the subcommittee] presiding.
Present: Representatives Bachus, Biggert, Tiberi, Feeney,
Hensarling, Pearce, Neugebauer, Pryce, McHenry, Sanders,
Maloney, Moore of Kansas, Frank, Crowley, Baca, Green, Moore of
Wisconsin and Clay.
Also present: Representative Sessions.
Chairman Bachus. Good morning. The Subcommittee on
Financial Institutions and Consumer Credit will come to order.
Today's hearing is on banking on retirement security, a
guaranteed rate of return. And at this time I am going to
recognize Mr. Feeney, a Member from Florida, for an opening
statement.
Mr. Feeney. Thank you very much, Mr. Chairman, and thank
you for having these hearings that will provide important
discussions about some options for long-term retirement savings
for Americans.
Mr. Chairman, we have got a number of distinguished guests
here today. I have read all of the testimony and appreciate all
of our witnesses. We have got a number of Floridians here
today. I will be introducing one of those when he speaks in a
moment or two.
I did want to recognize a longtime friend going back 12
years now, Mike Brown, from the American Community Bankers. It
has been great to work with him in my capacity in Tallahassee.
It is great to see him visiting Washington. And when I get a
chance, I will be introducing Mr. Roberts for his testimony.
Mr. Chairman, one of the goals of the House Financial
Services Committee is to bring to light the importance of
retirement savings. This has become more important than ever
because we have all heard about the situation that Social
Security is in and the long-term challenges or crises,
depending on the way you prefer to describe it.
Today Social Security is collecting more money than it
needs to pay benefits, but by the year 2017 or so, it will
start running a deficit, collecting less in taxes than it pays
in benefits, and that deficit will get worse every year.
Already 78 percent of families pay more in payroll taxes than
in income taxes. There are fewer workers per retiree today than
ever before, and that ratio gets worse as we go along. When
Social Security started, we had some 42 workers paying into the
system for every beneficiary. By the year 2030, the ratio will
be two people paying for the benefits of every retiree.
Americans need to know they have no legal right to any part
of the money they have paid into Social Security. In the 1960
Supreme Court case Fleming v. Nestor, the Supreme Court decided
that Americans have absolutely no ownership rights to the money
that they have paid into Social Security. The Government has
absolutely no contractual obligation to pay any set level of
Social Security benefits.
Yesterday, certain members of the Republican Conference
introduced a proposal which would move us toward some real
reform by allowing Social Security surplus, instead of being
spent every year by Congress, to be put into personal
retirement accounts. I think that both as a practical matter
and politically, hopefully we will lose some of the
obstructionism and allow the Social Security surplus to be used
for what it was always intended to be used for; that is,
individual retirement savings for future seniors.
Personal accounts would provide ownership of one's
retirement savings. Some argue that personal accounts are very
risky. They point to things like Enron, which there is no
proposal by any Member of Congress to suggest that people ought
to be able to put all of their retirement savings in any stock,
let alone their own company's stock.
Having said that, completely avoiding all risk is difficult
and actually has the guaranteed problem of underperforming
inflation. So one thing we know is that if you avoid all
investment risk, you will be worse off as inflation eats into
your long-term retirement savings. Most investors are aware
that you must take some risk to achieve higher returns, and
that, over the long term, riskier investments have provided
much higher rates of return.
But individual investors also need to know that there are
some very conservative choices that they can make as part of
any retirement portfolio. As has been mentioned, some 15
Members have joined me in proposing, in a letter to Chairman
Thomas, that we have what has been referred to as a community
bank option that would be included in any personal savings
account, and that is what we are here to discuss today.
Mr. Chairman, I again thank you. I look forward to hearing
from our witnesses not just in terms of what opportunities that
they provide to their current investors, but how maybe they can
solve the long-term retirement challenges that face Americans.
Chairman Bachus. Thank you, Mr. Feeney.
Mr. Frank.
Mr. Frank. Thank you, Mr. Chairman. And I am glad to be
with our friends in the independent bankers, community bankers,
and credit union communities, who do a great deal. And let me
say at the outset there was a statement in the credit union
testimony which had noted that CUNA has taken no position on
whether or not there should be private accounts, but that if
there are, there would be equity among financial institutions.
And I very much agree with that.
Let me give you an analogy. I think this latest proposal
that we should spend countless tens of billions of dollars to
send people to Mars is the height of foolishness. But if we
were to send people to Mars, I would certainly want no
discrimination against those who could be sent. So I have a
similar approach here. I don't think much of the idea, but I
certainly agree that if we were to do this, I would be for full
equity for the smaller institutions, and I will--in the
questioning, I think this does get to a point where I have
agreed which is that we should be raising deposit insurance. I
think we would agree that doing this without raising the
deposit insurance limit would be a problem there, and this
shows what I think is the inequity of current law, which
reinforces the economic problems that smaller banks face by the
inadequate level, it seems to me, of deposit insurance.
But I then do want to talk--the gentleman from Florida
mentioned this newest proposal, and I am struck. There was a
recent proposal that said individuals should now be given
ownership in their share of the surplus, and they can put that
in a private account.
First, up until recently, I had understood the President to
be pooh-poohing the notion that there was a real surplus. I
mean, the President had said when he went to, I think, West
Virginia, well, this is just paper in here. So first--and here
is what has happened. First people really denigrated the notion
that there was a tangible Social Security surplus as a way to
argue that we need to reduce benefits. In fact, if Social
Security, as we know, is credited with its current surplus, and
with the surplus that will build up until 2018, and with the
interest that should be accruing on that, then Social Security
is fully funded until sometime in the 2040's.
We have been told by people, well, wait a minute, that the
surplus isn't really there. It has been spent, the President
said, in a variety of ways. So now what we see is a kind of a
reversal of position. We have apparently gone on the part of
some from a denial that there was this surplus that we could
use to an assertion that there is a surplus. But it is
apparently now not to be used to pay the benefits, and that is
what puzzles me. If we fully credit the surplus that is there
and that will grow for 13 years, and the interest on it, we do
not have a problem fully funding existing Social Security
benefits until sometime in 2041. That doesn't mean we shouldn't
consider what we should be doing. It doesn't seem to me to be a
short-term crisis.
But, in fact, what we are now told is, oh, no, there is
this surplus, but instead of using it to fully fund the
benefits, let us put it into private accounts, and then that
coerces you into reducing the benefits.
So I have a great deal of difficulty understanding how that
pivot came about, and as I said, if there is a surplus, then we
should use it for funding the benefits.
Now, it is true that there is, according to the courts, no
legal ownership in that surplus, but it is a matter of public
policy. We can, in fact, take action to make sure that that
surplus is used to fully fund benefits. And again, I want to
stress what we have here is a kind of a double game going on,
on the one hand a denigration of the reality of surplus, to
argue, I think inaccurately, that there is a crisis and that we
don't have enough money to pay the benefits. But having made
that argument, people then turn to say, yeah, there is a
surplus, but we are not going to use it, and this is the issue.
Instead of using the surplus as it was intended to be used, to
pay the legally mandated level of benefits, people say, no, let
us take that and put it into private accounts, thereby creating
precisely the problem that would exist if did you that with
fully funding the benefits.
So it just does seem to me--people have said, well, what is
your proposal for Social Security? And let me just say, this
recognition that there is a surplus is part of it. The problem,
of course, is that this surplus has been used to pay for tax
cuts, it has been used to pay for the war in Iraq, and it has
been used to pay for a lot of other things. And this reinforces
to me what is the short-term answer, even the intermediate-term
answer to Social Security to the President and to the Majority.
This surplus in Social Security that has been used for tax
cuts, that has been used for the war in Iraq, that has been
used for other programs, put the money back. If we put the
money back, Social Security benefits can be fully paid until
sometime in 2041 or 2042. That gives us years to decide what
other adjustments we should make, and that would be the answer.
But I do want to close by agreeing that if we are, in fact,
going to go private accounts, which I think would be a very
grave error, that I certainly do not want to see discrimination
against small financial institutions. I have been worried, let
me just say in closing. When I came on this committee, it was
called the Banking Committee. In Massachusetts, in our
legislature, the equivalent committee is called the committee
on banks and banking. And somebody said, do you ever think they
will change the name back here like to the committee on banks?
And I said, well, I am afraid by the time we get to that, it
will be called the committee on ``the'' bank, because there may
only be one in America. Maybe there will be one in Germany,
maybe there will be one in Japan. I don't think anybody wants
to see that.
I think the smaller institutions, the credit unions, and
the community banks play a very important function. They are
often preferred by consumers, not just individual consumers,
but smaller business people, and so I certainly would not want
to see anything done that would further the already unfortunate
set of disadvantages they face.
Chairman Bachus. I thank Mr. Frank and assure him that if
we make a list for folks going to Mars, that we will actually
give preference to the Democratic side.
Mr. Frank. I thank you. But, Mr. Chairman, let me just say,
only if we have reinstated proxy voting by that time.
Chairman Bachus. Without objection, the gentleman from
Texas, Mr. Sessions, will be permitted to participate in
today's hearing. And I had already--Mr. Franks graciously
consented. So, Mr. Sessions, I would like to recognize you. And
I would like to also recognize the work that you and
Congressman Feeney did in requesting this hearing and also in
introducing H.R. 209 expressing the sense of the House of
Representatives that any plan to reform Social Security and, I
guess, include personal accounts would include the Social
Security option. So at this time I am going to recognize you
for an opening statement.
Mr. Sessions. Thank you, Mr. Chairman. I have missed my
years of--when I originally was here some 10 years ago, the
service over here was a lot of fun, and I see that the humor
has not stopped. And I appreciate and respect that, as well as
the way it was accepted by the gentleman from Massachusetts in
the spirit of fun.
Mr. Chairman, I appreciate the opportunity to address the
House Committee on Financial Services on the important issue of
retirement security. I would also like to take this opportunity
to thank you for your leadership vision that you have
demonstrated on this issue for the American people.
As Congress examines its options for providing long-term
solvency of Social Security, I believe that there is one
essential element that must be a part of comprehensive reform,
and it is what we call the banking option. The banking option
would allow workers to put part of their Social Security
benefits in a product similar to a federally insured
certificate of deposit, a CD, and to receive what is known as a
guaranteed rate of return.
I must say that much of what this hearing is about today,
about safety and soundness that exists in the marketplace
today, avenues by which people who need to make sure that they
have regular rate of return, as well as the security involved,
is important.
I would also note to this committee, to this subcommittee,
that today railroad, coal, fire, police, and teachers include
those other workers across the United States that have their
own private accounts that include many of these same options.
Perhaps more importantly, the banking option would give
risk-averse workers the opportunity to own a safe personal
account that would guarantee a set rate of return greater than
what is offered by Social Security, and one that is just as
safe as any money in the bank.
While studying measures that can serve as components of the
comprehensive Social Security reform, I believe that Congress
should pay particular attention to measures that have already
been created and implemented in what we call field laboratories
at the local level throughout America. Fortunately, one such
laboratory for studying the real-world effects of the banking
option already exists in Galveston County, Texas. It really is
the birthplace of the banking model.
Over 20 years ago, county employees in Galveston voted
overwhelmingly to create an alternative to the Social Security
system that gives retirees control of their own money at
virtually no risk to the beneficiary. The results have been
extraordinary, and Galveston County employees have average
annual returns of 6.5 percent. Even today with our historically
low interest rates, workers in Galveston still receive returns
of 3.75 percent on their investment, which is far better than
the Social Security rate of 1.8 to 2 percent.
Giving workers this expanded choice is an important option
for reforming Social Security because it provides workers with
the same or better benefits as our Social Security system does.
The other important aspect of this plan is that as workers
get closer to retirement age and more vulnerable to potential
swings in investments rates of return, the banking option
allows them to move their assets into a conservative investment
vehicle that protects their principal from a potential market
downturn.
There is nothing new about giving Americans the ability to
put their money into an account with guaranteed returns. There
is no more risk than what is already inherent in the current
Social Security system, and that is why I have introduced,
along with my dear friend Congressman Tom Feeney and
Congressman Paul Gillmor, H.Con.Res. 209, which the Chairman
spoke about. This legislation simply expresses the sense of
Congress that any Social Security reform legislation should
include this banking option. And I believe that, listening to
our witnesses here today, we can begin to further explore how
this option can be implemented and successful for so many
Americans.
Mr. Chairman, thank you for the opportunity to be with you
today, and I yield back my time.
Chairman Bachus. Thank you, Mr. Sessions.
I now recognize the Ranking Member, Mr. Sanders.
Mr. Sanders. Thank you very much, Mr. Chairman. I look
forward to hearing from our panelists.
Let me just be very brief. There is a saying in Vermont,
and, I suspect, all over the country, that if it ain't broke,
don't fix it. The truth of the matter is that despite all that
we hear from the White House, Social Security is not broke in
either a literal or a figurative sense.
Depending on the study that you look at, Social Security
could pay out every benefit owed to every eligible American
from between 36 and 47 years. That ain't broke. And that is
under conservative projections of economic growth. And with
modest reforms, modest reforms, not overhauling the whole
system, not destroying the whole system, Social Security will
be there for our kids and our great-grandchildren.
I think it would be very foolish to dismantle what might
likely be the most successful antipoverty program in the
history of the world, one that has helped not only retirees,
but has also helped millions of disabled people, millions of
women and orphans who have lost breadwinners live with dignity.
So I think we have a good system which needs modest
changes, and what I object most to in this debate, it is not
people who have different ideas than me. I think it is good to
debate the ideas. I object to the fear-mongering that is coming
from the White House, telling young people that Social Security
is not going to be there when, in fact, that is simply not the
case.
Mr. Chairman let us take a look at the Galveston plan.
First, Mr. Chairman, let us ask the question does the Galveston
plan earn a higher rate of return than Social Security? The
answer is no, it does not. According to the Wharton School of
Business, in 14 out of 16 years since the creation of the
Galveston plan, Social Security actually earned the same or
higher rates of return than Galveston's.
Second, will privatizing Social Security lead to higher
taxes? Yes, if the Galveston plan is our model. Payroll taxes
for the Galveston plan total 13.9 percent compared to 12.4
percent under Social Security.
Third, what would happen to the 45 million current
recipients of Social Security if we adopted the Galveston plan?
That is a question we must answer, Mr. Chairman, because you
see the 5,000 municipal employees covered by the Galveston
plan, unlike the Social Security System, do not make any
contributions to support current retirees. That means that if
we adopted a Galveston-like plan, no one would be paying the
$500 billion annual cost of benefits for the Nation's 45
million current Social Security beneficiaries. That would be a
disaster.
Fourth, do people receive higher benefits under the
Galveston plan than under Social Security? No. According to a
study done by the Social Security Administration, the
Galveston's plan ``offers a lower initial ongoing benefit than
Social Security for single workers with low earnings and for
married workers at the low, middle and high earning level.
After 20 years, all of Galveston's benefits are lower relative
to Social Security's.''
And according to the GAO, ``Low wage earners retiring today
generally would have qualified for higher retirement incomes
had they been under Social Security. Many median wage earners,
while initially receiving higher benefits under the Galveston
plan, would have eventually received larger benefits under
Social Security because Social Security's benefits are indexed
for inflation.''
Mr. Chairman, if you are still not convinced that replacing
Social Security with the Galveston plan would be a disaster,
listen to Galveston's own municipal employees. Here is what
Evelyn Robinson, who was the Galveston district court clerk for
13 years before retirement in 2004, had to say about this plan:
``I didn't come out ahead. My chief deputy did not come out
ahead. My bookkeeper did not come out ahead. I personally don't
know anyone who has retired who came out ahead.''
So, Mr. Chairman, I look forward to hearing the testimony,
and thank you for calling this hearing.
Chairman Bachus. Thank you, Mr. Sanders.
Mr. Hensarling.
Mr. Hensarling. Thank you, Mr. Chairman, and thank you for
holding this hearing. And I especially want to thank and
congratulate my colleagues, Mr. Sessions and Mr. Feeney, for
their leadership on this issue and helping us explore yet
another option of what we can do to save Social Security for
future generations.
I would respectfully disagree with my colleague from
Vermont. I recently became a father 3 years ago, so I have a 3-
year-old daughter and a 21-month-old son, and if we don't do
something about Social Security now, they are going to receive
a negative rate of return. I do not believe that is fair. That
is inherently unfair to future generations, and I think
something needs to be done.
As my colleague from Florida pointed out, you can't escape
demographics. We have increased number of retirees who are
living longer. We have fewer workers supporting them. And
something is going to have to happen in our system. And if we
decide to do absolutely nothing, I can tell you what is going
to happen. We all know what is written in the current law, and
that is in 2042--and maybe I am not going to be here, but I
expect my children will be. And in 2042 there is going to be a
massive benefit cut of almost one-third. And I don't know how
people feel in other parts of the Nation, but when I talk to
people in my congressional district back in Texas, I have yet
to find anybody who wants to embrace a benefit cut in Social
Security of almost one-third, nor do they think that is fair
for future generations.
Additionally, if we don't do that, we have the option of
raising taxes. We can raise payroll taxes 42 percent. I have
yet to find anybody again in my congressional district who
wants to see payroll taxes raised 42 percent.
Well, indeed there is another option, and that is trying to
help Social Security become an asset-based system with real
assets that workers own, can manage, that the government can
still guarantee, not unlike what our Federal deposit insurance
is all about. And that is the option that we need to explore as
a Nation, and so that is why I have embraced personal accounts.
Now, we are going to hear a lot of talk today about how
risky it is to allow individual Americans the freedom to manage
their own personal accounts. Well, I would like to point out
how risky the current system is. Congress, over the history of
Social Security, has raided that system to surplus 57 different
times. And as the Ranking Minority Member has pointed out, they
have spent it on all kinds of things that are not related to
retirement security. To me that sounds pretty risky.
There have been at least 20 tax increases, and every time
taxes increase, your rate of return goes down. And that is why
my grandparents, who were born in roughly 1900, when they were
alive received about a 12 percent rate of return on their
Social Security, and my children will receive a negative rate
of return. Part of it has to do with the tax increases.
There have been benefit cuts. I believe, Mr. Chairman, that
there is plenty of risk of leaving our money in the hands of
Washington, and so that is why we need to explore personal
accounts and particularly the guaranteed rate of return that is
federally insured that could be offered by our community banks
and our credit unions.
Mr. Sanders. Will the gentleman yield briefly for just 1
second, just for a minute. Just for the record. I respect his
point of view. I would categorically disagree with many of the
assertions made by my friend from Texas, not the least of which
the suggestion that the alternative is privatizing or doing
nothing. There is lot that we can do without destroying Social
Security. It is not doing nothing, it is making modest changes
to keep a very successful program going. Thank you.
Mr. Hensarling. Well, we look forward to the Democrat plan
then, Mr. Sanders.
Chairman Bachus. Thank you, Mr. Hensarling.
Mrs. Maloney.
Mr. Frank. If the gentlewoman would yield. We do have a
plan: Put the money back. Put the money back in Social Security
that it was credited with, and then we have until 2041 to work
on it. So if Social Security gets the money it is legally
entitled to, that surplus that is being discussed, that is our
plan is to put the money back.
Chairman Bachus. Okay. I think all time has expired on
that. And when this--yes, we will recognize Mrs. Maloney. Now,
are there members on either side--Mr. Green, do you wish to
make an opening statement?
Mr. Green. If the Chair will deem it appropriate, I will
waive it.
Chairman Bachus. If you want to, we will have somebody on
this side. Otherwise when Ms. Maloney is through--well,
actually we do. Mr. McHenry and Mr. Green after that.
Mrs. Maloney. Thank you very much, Chairman Bachus. And I
welcome my friends from the community bankers and the credit
unions, and Dr. Furman from New York University, which is in
the district that I represent, and is an economist who has
written extensively and published on this topic.
But I must say I am puzzled today by the timing of this
hearing. By all accounts I truly believe this privatization
movement is not going to go anywhere because the more the
American people learn about it, the less they like it. And once
the American people understand four simple points about the
President's proposal, then they understand that it makes no
difference whether the private accounts are in a bank or with a
broker. It is absolutely a losing proposition for them. And
these four points I would like to briefly explain.
Number one, the plan is not voluntary and will result in
large benefit cuts because the President's plan will change the
calculation of benefits from wage indexing to price indexing,
and that will have a result of cutting guaranteed benefits
possibly by more than 25 percent, even for the middle-class
workers, even for those who choose not to invest in private
accounts. And nothing about the bank option that we are
considering today changes that fact. And the President has
endorsed a substantial benefit cut for the middle class called
progressive indexing because the benefit cuts are less for
lower-income workers than for middle-class and higher-income
workers.
Under this sliding-scale benefit formula, benefits would
fall behind the standard of living for almost all workers. For
example, once fully phased in, a worker who has earned $37,000
per year would have a 28 percent benefit cut. A worker who has
earned $58,000 a year would have a 42 percent benefit cut. A
worker who has earned $90,000 a year would have a 49 percent
benefit cut. Benefits would be cut for all workers whose annual
earnings are more than $20,000 a year.
Number two, in addition to being a substantial benefit cut
for almost all workers, including the middle class, the
Administration's proposal would, over time, lead to a flat
benefit amount, the so-called ``clawback'' provision. Some call
it a tax; some call it a clawback. Whatever you want to call
it. If you take money away from someone, I call it a tax. And
at retirement, retirees who choose a private account would have
to pay back the amount that they would have had, both principal
and interest, had the money stayed in a trust fund. And under
the bank option, by all predictions, the amount they have to
pay back will be possibly up to 100 percent or more of the
amount in their private account. They could possibly lose
money.
Number three, the vast majority of retirees would not be
able to pass funds from their private accounts on to their
children. An essential feature of the President's plan which is
not affected by the bank option is that, at retirement you will
be required to turn over the amount in your private account
that is left after the privatization account in an insurance
company to purchase an annuity which will give you a monthly
income. Reliable, nonpartisan estimates indicate that this
would leave little or nothing to be passed on to someone's
children. So only those who died before they retired and had
money left after the clawback would have assets to pass on.
And number four, the money is not yours to invest as you
see fit. In response to criticisms that the main beneficiaries
of the private accounts would be money managers, the
Administration made clear that the investment would be limited
to a few large funds. Most recently the Administration has
indicated that to prevent very risky investing that could dump
unlucky retirees in the taxpayers' lap, it would require
retirees to invest in life cycle accounts, an option in which
the accountholder has no control at all over the funds in their
account. And these problems of benefiting the money managers
and moral hazard are equally pressing with the bank option and
compel the same result. And these four points have persuaded
many Americans that privatization is a bad idea, whether the
private accounts are in the hands of a broker or a bank.
Thank you, and I look forward to your testimony.
Chairman Bachus. Thank you.
Mr. McHenry.
Mr. McHenry. Thank you, Mr. Chairman. I will make this
brief.
We are the Financial Services Committee. We have oversight
over the markets. We have oversight over banks and insurance.
We have oversight over Wall Street. This is a wonderful
opportunity to discuss the investment opportunities that
Americans can have when we have personal retirement accounts,
and we are trying to get the full range of options on the
table. Those on the other side of the aisle, I think, are
arguing that we shouldn't do anything, that the marketplace is
bad and dangerous and a horrible place for Americans to even
look to. So their arguments, I think, are that we shouldn't
even have this hearing today because markets are innately
dangerous and bad.
And I think our perspective on this side of the aisle, and
what Congressman Feeney--his proposal is that we should
actually have a full range of financial opportunities and
options for all Americans for their personal retirement
accounts, if and when we do proceed to personal retirement
accounts; that markets could actually produce benefits for
every American of all walks of life--rich, poor, black, white--
all walks of life. And so I think it is a healthy thing that we
discuss some options in that regard.
And I think we need to look at experiences of those that
have had personal retirement accounts, much like Galveston,
Texas, and under all press reports that I have read about
Galveston, Texas, that all beneficiaries receive twice as much
as they would, with their personal retirement accounts, twice
as much as they would have under the current Social Security
plan.
So I think we need to look at all options. I think a
wonderful federally insured manner of investing is with
actually FDIC-insured banks. I think it is a wonderful
opportunity for us to discuss this, and I think it is very
appropriate that this is the week we are doing it, after the
Ways and Means Committee leaders put forward their proposal to
actually have personal retirement accounts that use the Social
Security surplus that we have for the next 12 years, the Social
Security surplus to actually start funding these personal
retirement accounts and actually inject this capital into the
marketplace, rather than having Washington, D.C., politicians
spend it on pork barrel projects. So I think it is a very
positive thing.
I am looking forward to the testimony that the gentlemen
here have to present to us, and thank you, Mr. Chairman, for
hosting this meeting.
Chairman Bachus. I thank you.
Mr. Green.
Mr. Green. Thank you, Mr. Chairman, and thank you, Mr.
Ranking Member. I, too, look forward to hearing from the
outstanding panelists that we have assembled today.
Mr. Chairman and friends, when I left my district to come
to Congress, one of the promises that I made was that I would
do all that I could as a Member of Congress to protect Social
Security. And my constituents made it conspicuously clear to me
that for many of them, Social Security is not supplemental
income; for many of them it is the only income they have, they
have absolutely nothing but Social Security. And for too many
of them, that is not enough. They don't want me to use my one
precious vote to gamble with Social Security.
Why are we discussing at great length Social Security as
opposed to Medicare? Medicare as projected will face its
depletion around 2020, whereas Social Security is looking at
2041, and with some tweaking we can go a lot longer. My
suspicion is this, friends: There is a surplus in Social
Security. We are talking about trillions of dollars in Social
Security that, when invested, will benefit somebody, bankers,
credit unions, stock market, stock brokers. We are talking
about Social Security because we have got a surplus. The house
is on fire; that is Medicaid. We need to adjust the flame on
the stove; that is Social Security.
Rather than fight the house fire, we are finding ourselves
trying adjust the flame on the stove. I contend that is because
there is money to be invested. And I am just going to appeal to
you to understand that I can't go back and tell my people that
I voted to gamble with their future.
I thank you. I yield back the remainder of my time, Mr.
Chairman.
Chairman Bachus. I thank the gentleman from Texas.
That concludes our opening statements. All members are
welcome to submit their written opening statements, and I will
do so, submit mine for the record, and also associate myself
with the remarks of Mr. Hensarling, Mr. Feeney, Mr. Sessions
and Mr. McHenry.
At this time we will recognize our panel of witnesses. Mr.
Mike Brown is the president and CEO of Harbor Federal Savings
Bank and is representing the America's Community Bankers. Mr.
Brown is a native of Missouri, moved to Florida in 1972; is
that right? He has held several positions with thrifts and
community banks, and now is president and CEO of Harbor
Federal. He is active in his community with the regional
hospital--I am just summarizing--the theater, the Sunrise
Theater, and he has just completed a 2-year appointment on the
Thrift Institutions Advisory Council to the Federal Reserve
Board of Governors, and was a co-chair of Governor Bush's
campaign in your home county. We welcome you.
At this time I am going to recognize Mr. Feeney to
introduce Mr. Roberts.
Mr. Feeney. Thank you, Mr. Chairman.
I think it is appropriate that Florida has three witnesses
today, Mr. Brock, Mr. Brown, and Mr. Roberts. Among other
things, Florida, while I was a State legislator, took a defined
benefit plan that was running deficits, some years as much as
$14 billion, for our State workers and State retirees. We have
moved it into an optional defined contribution plan. Nobody is
forced to move, but we will never again, for those people that
have their own defined contribution accounts, have an unfunded
liability. These people will be guaranteed that they have a
healthy retirement.
So it is great to have three Floridians here today. Mr.
Roberts is an at-large director of the Independent Community
Bankers of America, which is the Nation's largest banking trade
association and the only national association that exclusively
serves community banks. The president of First National Bank of
Pasco County, Mr. Roberts is a respected leader throughout the
banking industry. In addition to serving on ICBA's executive
committee, he represents Florida on ICBA's board of directors
and serves as a member of the association's Federal legislation
committee. He has previously served as president of the Florida
Bankers Association. Mr. Roberts has been a director and
instructor for the Florida School of Banking, chairman of the
Independent Bankers Bank of Florida, and chairman of the
Florida Banker Insurance Trust.
Active in civic affairs, Mr. Roberts has served in
volunteer leadership positions for the housing authority, two
chambers of commerce, a Habitat for Humanity affiliate, and a
Rotary Club. He has been named citizen of the year for Zephyr
Hills, Florida, and business leader of the year for Dade City,
Florida.
My office has had the pleasure of working closely with Mr.
Roberts on many matters important to the banking community and
to Florida itself. Considering his vast knowledge of community
banking, I believe that he will be able to offer us much today
in his testimony, and I am grateful for the opportunity to
introduce him.
Chairman Bachus. I thank you, Mr. Feeney, and that was a
very good introduction.
So at this time I am going to introduce Mr. David Brock,
president and CEO of Community Educators Credit Union in
Florida. Representing CUNA, the Credit Union National
Association. The fascinating thing about your institution is
that it was started in 1953 by a group of 10 teachers, and now
has 6 traditional branches and 9 branches in elementary and
secondary schools. And from that modest start to the end of
2004 it has $220 million in deposits, $186 million in loans.
That is quite impressive.
Mr. Brock is very active in his community. He serves on the
Brevard County Foundation, which is the public schools in
Brevard County; the Rolling Readers Space Coast, which is a
program for disadvantaged children; and the United Way, as well
as other organizations. He and Mr. Brown are both active in
several other community organizations. So we welcome you to our
committee.
And at this time I would like to introduce Mr. Sessions to
introduce Mr. Gornto.
Mr. Sessions. Yes, Mr. Chairman. Thank you so very much.
Mr. Chairman, it is a great pleasure for me to introduce a
person who will be providing testimony today, Richard Gornto,
who is president of the First Financial Benefits, Incorporated
of Houston, Texas. It is important to note that Mr. Gornto is
the plan designer of the so-called Galveston Plan, and has
continued to successfully manage this plan and several other
county plans for the past 25 years. It would be my hope and
expectation that Mr. Gornto would be able to debunk any myths
that may have been presented today in the opening phase of this
hearing as Mr. Gornto would be considered an expert on all
aspects of return, rate of return, as well as feedback about
that plan.
It is important to note that during this period of time he
is past president, board chairman of Houston Society of
Certified Financial Planners, trustee of Alvin Community
College, board member of Child Advocates of Houston, board
member of Alvin National Bank, past president and current board
member of the Nolan Ryan Foundation and past board chairman of
HCA Clear Lake Regional Hospital.
Mr. Gornto came to Washington as a result of this important
hearing, and I appreciate him taking time out of his schedule.
Thank you, Chairman.
Chairman Bachus. I appreciate that.
And at this time it is my pleasure to recognize the
gentlelady from New York.
Mrs. Maloney. I thank the Chairman for allowing me this
opportunity to introduce Dr. Jason Furman, and he is a
nonresident senior fellow, Center on Budget and Policy
Priorities, and visiting scholar from the New York University
Wagner Graduate School of Public Service, which happens to be
in the district that I am honored to represent this outstanding
university. Previously Dr. Furman served as Special Assistant
to the President for Economic Policy in the Clinton
Administration.
Dr. Furman has been a visiting lecturer at both Colombia
and Yale Universities. In addition, Dr. Furman served as a
staff economist at the Council of Economic Advisers and senior
economic advisor to the chief economist of the World Bank.
Dr. Furman received his Ph.D. In economics from Harvard
University, and he is widely quoted in newspapers and other
written documents on the subject that is before us today. We
thank you for joining us today, Dr. Furman.
Thank you.
Chairman Bachus. Thank you, Mrs. Maloney, and we welcome
you, Dr. Furman.
At this time we will recognize our panel of witnesses, and
we will start with Mr. Brown and go to his left and conclude
with Dr. Furman. So at this time, Mr. Brown, you are
recognized.
STATEMENT OF MICHAEL J. BROWN, SR., PRESIDENT AND CEO, HARBOR
FEDERAL SAVINGS BANK (FL), REPRESENTING AMERICA'S COMMUNITY
BANKERS
Mr. Brown. Thank you.
Chairman Bachus, Ranking Member Sanders and members of the
subcommittee, I am Michael Brown, Sr., president and CEO of
Harbor Federal Savings Bank. Harbor Federal is a $2.9 billion
publicly traded community financial institution serving the
eastern coast of Florida in Fort Pierce. I am testifying on
behalf of the American Community Bankers, where I have served
as a member of the board of directors and continue to serve on
several committees.
Thank you for this opportunity to testify on the role of
community banks in retirement security and the importance of
bank deposits and other investment options in creating a
solvent retirement system for America's working men and women.
Let me commend the hard work that Congressman Tom Feeney
and Congressman Pete Sessions have done on this issue. They and
their staffs have been working tirelessly to ensure that
working families have a full range of options as part of any
Social Security reform.
ACB believes that allowing workers the choice of investing
at least part of their Social Security taxes in personal
accounts would create a more solvent system. We have been
working for some time on this with Members of Congress and the
Administration to make certain that workers have a full range
of options for investing in Social Security personal accounts.
Any Social Security reform should give workers the choice
of relying on the products their community banks offer for
their personal retirement accounts in addition to those
investment options available on Wall Street. We call it the
community bank option. Workers should have the option of
seeking advice on their personal accounts from knowledgeable
people they already know and trust, their hometown community
banker. Community banks already offer a variety of federally
insured retirement investments, including FDIC-insured
individual retirement accounts and certificates of deposits.
Workers of all ages would benefit from the community bank
option. For example, some who seek greater return than the
Social Security program currently provides may be wary of
investing all of the retirement funds in equities and other
retirement products that carry a higher risk. For these
workers, a long-term federally insured deposit account from a
community bank would be the most appropriate investment for all
or part of the funds made available by Social Security reform.
In addition, workers nearing retirement are traditionally
advised to reduce their allocation in equity investments to
reduce the risk. ACB believes that FDIC-insured accounts would
benefit those older workers not only as a place to invest new
funds, but also as a safe place in which to roll over funds
from riskier personal account products.
For more than 70 years, FDIC insurance has given millions
of American families the confidence that the money they save in
federally insured banks will be where they need it when they
need it. Allowing FDIC-insured accounts for community banks as
an option under Social Security reform would encourage workers
to choose the personal account option, and it would increase
support for reform.
Today the shift from defined benefit plans into IRA and
401(k)-type savings has made individuals responsible for
managing their own assets. Retirement accounts often exceed the
current $100,000 coverage limit provided by Federal deposit
insurance. A substantial increase in FDIC coverage for
retirement accounts would strengthen the viability of the
insured deposit account option. Past assessments on federally
insured banks cover the cost of today's deposit insurance.
Deposits in FDIC insurance accounts return money to the local
communities where workers live. Community banks invest these
funds in their communities through loans to local businesses,
mortgage loans to families, education loans to students and in
many other ways. If the community bank option is adopted, it
could result in reduced rates to borrowers and greater economic
growth.
ACB strongly believes that the community bank option should
be available for workers choosing personal Social Security
accounts. It will increase their choices, reduce their risk and
help grow their communities. Thank you for giving us this
opportunity to present our views.
Chairman Bachus. Thank you.
[The prepared statement of Mr. Brown can be found on page
56 of the appendix.]
Chairman Bachus. Mr. Roberts.
STATEMENT OF J. LAMAR ROBERTS, PRESIDENT AND CEO, FIRST
NATIONAL BANK OF PASCO (FL), REPRESENTING INDEPENDENT COMMUNITY
BANKERS OF AMERICA
Mr. Roberts. Mr. Chairman, Ranking Minority Member Frank
and members of the committee, my name is Lamar Roberts, and I
am president and CEO of the First National Bank of Pasco, a
$105 million community bank in Dade City, Florida. I am also a
member of the ICBA's executive committee and board of
directors. I am pleased to appear today on behalf of the ICBA
and its nearly 5,000 members to testify on ways the community
banking industry can contribute to the retirement savings and
Social Security reform debate.
Today too many Americans are simply not saving enough for
retirement. There is a genuine recognition that the low U.S.
savings rate combined with the swell of baby-boomer retirees
and the associated stress on the current Social Security system
simply cannot be ignored. The ICBA supports bipartisan efforts
to strengthen Social Security and retirement savings and the
opportunity for new individual savings account contributions
for community bank customers. Community banks have always
served an essential role in the U.S. economy as a steady and
trusted place for consumers to save for life's events, such as
retirement.
Notably, ICBA would like to thank Representatives Feeney
and Sessions for introducing House Resolution 209. This
resolution conveys an important message by the House of
Representatives that any plan to reform Social Security should
also include what we call a community bank option. Bank CD's
are an attractive and safe product for the retirement savings
needs of Americans, especially as savers look to reduce risk as
they get closer to retirement. Bank CD's can provide both a
reasonable rate of return and preserve the saver's principal.
Involving the Nation's community banks in the retirement
savings debate is critical. That is because the savings in
local community banks support community investment and job
creation throughout main street America. We are greatly
encouraged that lawmakers are generally considering the full
range of personal investment options in the Social Security
reform debate rather than just a limited selection of stock and
bond investments.
The bottom line is that savings reform must make sense,
both on Wall Street and main street. Should enhanced personal
savings accounts emerge as a bipartisan remedy to improve
retirement savings, the structure of such accounts does demand
close attention so that all segments of our Nation can
participate in both the savings and associated investment
opportunities.
Allowing a community bank savings option is also very
important to support local economic vitality. Ample personal
savings is vital not only to meet the retirement needs, but
also to provide the economic lifeblood for our communities as
banks leverage private savings to meet the borrowing needs of
individuals, small businesses and farms.
Individuals always need to diversify their savings to help
mitigate unwanted risk. As the timeless saying goes, don't put
all your eggs in one basket. When it comes to nest eggs, this
lesson is paramount. It only stands to reason that a broad
array of savings options and financial service providers should
be considered in the Social Security reform debate so assets
are not unevenly concentrated. The dispersion of our Nation's
assets and wealth helps preserve the safety, soundness and
stability of our entire financial and economic system. Without
solid savings flowing into our local communities, economic
prospects are diminished.
Other important retirement savings issues also deserve
attention, and I would like to highlight just a couple. First,
ICBA supports the initiative for new retirement savings
accounts proposed by the Administration and in Congress.
Second, the ICBA-backed Communities First Act introduced by
Representative Jim Ryun contains a provision that would allow
consumers to defer recognition of interest income on long-term
CDs and reduce the top tax rate.
In conclusion, ICBA appreciates the opportunity to testify
on this important issue. Community banks are a safe and
effective place for Americans to save for retirement. Should
new or expanded personal accounts be part of any bipartisan
retirement security reform, ICBA urges that community banks
have the ability to serve their customers' saving needs with a
CD, RSA or similar safe bank product option. We believe having
diversity of savings products and risk options can only better
serve America's retirement needs. Thank you.
Chairman Bachus. Thank you.
[The prepared statement of Mr. Roberts can be found on page
66 of the appendix.]
Chairman Bachus. Mr. Brock.
STATEMENT OF DAVID O. BROCK, PRESIDENT/CEO, COMMUNITY EDUCATORS
CREDIT UNION (FL), REPRESENTING CREDIT UNION NATIONAL
ASSOCIATION
Mr. Brock. Chairman Bachus, Congressman Feeney and members
of the subcommittee, I am David Brock. I am the president and
chief executive officer of Community Educators Credit Union in
Rockledge, Florida. I am here today on behalf of the Credit
Union National Association, and I appreciate this opportunity
to provide CUNA's views this morning on the topic of Banking on
Retirement Security: A Guaranteed Rate of Return.
CUNA is the largest credit union trade association,
representing approximately 90 percent of our Nation's nearly
9,300 credit unions and their 86 million members. You have
asked us to comment on Representatives Feeney and Sessions'
proposal to give workers the option to invest part of their
Social Security into a federally insured certificate of deposit
offered by a credit union, community bank or savings
association.
First, I should clarify that CUNA has taken no formal
position on whether any plan to fix Social Security should
include private accounts.
However, if legislative changes allow workers to direct
part of their payroll taxes into individual accounts, we
believe it makes sense to include all financial institutions as
one option for participants.
Sound personal financial planning dictates that retirement
funds for those nearing retirement be distributed in part in
lower-risk safe liquid investments. Financial institutions
offer such accounts. In fact, at year end 2004, financial
institutions controlled a total of $270 billion in individual
retirement account deposits. It is difficult to project the
potential effect of allowing consumers to invest Social
Security funds in financial institutions savings accounts such
as certificate accounts, and because such accounts would
provide a relatively low, albeit safe return on the investment,
it is likely that it would be used more by those approaching
retirement than by younger workers.
This certainly would be consistent with the savings trends
and IRA's at my credit union, where IRA savings are
significantly concentrated in those in higher age categories.
In either case, however, an increase on the order of 10 percent
of current IRA balances might serve as a conservative estimate
of the increase in savings through a CD option.
In this case, financial institutions would experience a $27
billion increase in savings, and credit unions would garner an
estimated total of roughly $5 billion based on their current 18
percent share of the depository institution IRA market. An
increase of this magnitude could have an obvious impact on the
economy and the communities in which workers live. They would
become more financially independent and be more likely to have
sufficient funds to spend on goods in their retirement, thus
stimulating the economy and providing or maintaining
employment.
Social Security plays a critical role in the lives of 48
million beneficiaries and 159 million covered workers and their
families. The widely-acknowledged challenges facing the Social
Security system are compounded by the fact that U.S. consumers
generally save very little and specifically put very little
aside in private retirement accounts.
The U.S. personal savings rate has been on a declining path
for roughly 2 decades. In the 1975 to 1984 period, personal
savings as a percent of personal disposable income averaged
nearly 10 percent, but fell to an average of 7 percent over the
1985 to 1994 period and to an average of less than 3 percent in
the 1995 to 2004 period. The personal savings rate at the end
of April 2005 was just over .4 of 1 percent, near its historic
low.
Moreover, a recent Brookings Institution policy brief found
that only about half of workers participate in an employer-
based pension plan in any given year, and participation rates
in individual retirement accounts are substantially lower.
Further, many households approach retirement with meager
defined contribution balances. Financial institutions can help
close this gap, and credit unions in particular are uniquely
positioned to assist consumers in doing so. Credit unions,
which pay very favorable interest rates on savings accounts
provide a wide variety of savings product alternatives to their
members.
At year end 2004, credit unions had $575 billion in savings
accounts. Of this total, 22 percent was held in share
certificate accounts; 18 percent was held in money market
deposit accounts; and 8 percent was an individual retirement
accounts and the remainder in other short-term liquid accounts.
As not-for-profit, member-owned financial cooperatives,
credit unions have a long history of serving as trusted
financial advisors and in providing their 86 million members
with financial education materials, including those that stress
the need for savings and retirement planning. These
characteristics are reflected in the fact that, while credit
unions have a 12 percent share of household savings held in
depository institutions, they account for an approximate 18
percent share of IRA balances held in depository institutions.
In summary, we believe that any legislative change allowing
workers to direct part of their payroll taxes into individual
accounts should include financial institution savings accounts
as one option for participants. Financial institutions have
extensive experience in providing retirement-related accounts,
and financial institution accounts provide a level of liquidity
and safety that is not available through other sources.
Thank you.
[The prepared statement of Mr. Brock can be found on page
51 of the appendix.]
STATEMENT OF RICK GORNTO, PRESIDENT, FIRST FINANCIAL BENEFITS,
INC. (TX)
Mr. Gornto. Good morning, Mr. Chairman and members of the
committee, in particular Mr. Sessions' office, I would like to
thank you for inviting me to this hearing and allowing me to
speak to you today about this very important topic of Social
Security reform.
My name is Rick Gornto, and I am president of First
Financial Benefits, Inc., a retirement planning design and
administrative firm in Houston, Texas. The reason I am here
today is to talk to you about the Galveston plan, which, by the
way, is alive and well after 25 years, which could be used as a
model, and to review with you how this plan was designed and
how it has performed during the last 25 years in several
counties and cities in south Texas.
In 1980, I was asked by Don Kebodeaux, my business partner,
County Judge Ray Holbrook, and County Attorney Bill Decker of
Galveston County to see if I could design a privatized
substitute for Social Security.
During the ensuing 9 months, the plan was developed and
presented to the Galveston employees and county commissioners
who voted overwhelmingly to adopt the plan, which by the way
was after a 2-month debate with the Social Security
Administration in 11 various meetings where we debated in front
of hundreds, in effect thousands, of employees.
At the end of the day, 72 percent voted to opt out of
Social Security. The primary design features of the plan are as
follows: Design a plan that mirrors Social Security benefits,
retirement, survivorship and disability benefit, design the
plan to have equal or greater benefits with equal or less cost
than Social Security. Design the plan to have fixed costs over
a long period of time. Design the plan with more flexibility
than both Social Security and their current State retirement
plan, which is the Texas county and district retirement system.
Design the plan to have guaranteed returns on investments. That
is, take no risks; don't want to lose the money. Allow for
hardship withdrawals in the event of medical emergencies during
the term of the lifetime. They wanted this because they wanted
that flexibility. Allow for lump sum withdrawals at retirement.
Do not include a cost-of-living adjustment and design the plan
that has private accounts and private ownership of these plan
assets. Design the plan that the employees can leave to their
estate and design the plan that has built in tax efficiencies.
These plan features were drafted, and all but the hardship
withdrawal option exist today, primarily because of Evelyn
Robinson, who borrowed out most of her funds to pay for a
medical illness for her husband prior to her retirement. That
is why she got lower benefits. She forgot to talk about that up
there.
This plan has been very successful in meeting its intended
goals, and there have been hundreds of people who have used
these benefits for their personal retirement income replacement
and their estates. The plan has discovered a diverse range of
people at different levels as well as both union and nonunion
employees. The plan investment performance has been excellent
as well.
During the past 25 years, the plan has provided returns
from 15 percent to 3.75 percent during the term of the 25
years. The guaranteed rates that have been paid have always
been higher than the general prevailing interest rates in the
economy, so the plan has always been very competitive when
compared with other fixed return investments including Social
Security.
It is my intention that this plan, with a few
modifications, could be used as a national plan. It is a plan
that is based on asset-building rather than pay-as-you-go;
personal ownership rather than no ownership; and guaranteed
returns on your investment rather than no assurance that you
will get the return that was promised.
Today, there are 7 million government workers in America.
There are 30 countries throughout the world that adopted Social
Security pay-as-you-go-type plans and opted for asset-building
plans. My view of several of these types of plans that I have
reviewed show me that they will all outperform their various
Social Security systems on an investment-return basis.
They have all recognized the same thing that we are seeing
today: It is better out there than it is in here. They
understand that a pay-as-you-go system cannot survive when the
next 25 years in America--and listen to this statistic--there
is a 200 percent increase in plan beneficiaries and a 10
percent increase in workers.
That is a 20-to-1 ratio of people taking out than people
putting in. Unless the government can change the current
demographic trend than no short-term salvos can fix--like
increasing payroll taxes, extending target traffic retirement
age or cutting the benefits to any reasonable level--it can't
be fixed. That vote won't float.
If we try to throw millions at a system over the next 25 to
35 to 40 years, our children will eventually look up and
realize that their fathers and mothers have left them holding
the proverbial bag. If we are going to throw money anywhere,
then let us throw it at a system that will survive and thrive
like Galveston, Brazoria, and Matagorda Counties and so many
others have done throughout the country and throughout the
world.
Thank you for having me here today, and let us please get
together to make something happen for all of us.
[The prepared statement of Mr. Gornto can be found on page
64 of the appendix.]
Chairman Bachus. Thank you, Mr. Gornto.
Now, Mr. Furman.
STATEMENT OF JASON FURMAN, NONRESIDENT SENIOR FELLOW, CENTER OF
BUDGET AND POLICY PRIORITIES, WAGNER GRADUATE SCHOOL OF PUBLIC
SERVICE, NEW YORK UNIVERSITY
Mr. Furman. Thank you, Mr. Chairman, Mrs. Maloney, for the
kind introduction to the committee and the opportunity to
address you today.
The question of whether to establish individual accounts in
Social Security is a contentious one.
I want to begin my testimony by making a few points that
virtually all policy analysts and economists, whether they
support accounts or oppose them, would agree with. I then want
to go on why I believe that replacing a portion of Social
Security with private accounts would be a bad idea, and that,
instead, we should be focused on strengthening Social Security
while at the same time helping moderate-income families save,
invest, and accumulate wealth through IRA's, 401(k)'s and other
vehicles outside of Social Security.
My first point is that if accounts are established, they
should not include a bank option. No individual account
proposal scored by the Social Security Act raised in the last
several years includes a bank option. Account proposals all
include a Treasury bond option. This is the safest security
there is, although guaranteed to lose money under individual
accounts proposals like the President's, as I will explain
later.
There is no financial reason to supplement this with an
additional bank option. Bank accounts, including CD's, provide
a higher agree of liquidity in exchange for a lower rate of
return. This liquidity is largely valueless in the context of a
retirement account.
More importantly, the additional monitoring and enforcement
costs associated with a bank option would be prohibitively
expensive compared to the current design of Social Security
proposals. Every plan I am aware of, including the President's,
is organized through a central administrative authority that
collects contributions, manages investments, and maintains
records.
This administrative structure limits choices and services
and provides lower costs, although even these costs are 10
times higher than the costs of administering the current Social
Security system.
Establishing a bank option would entail setting up
decentralized accounts like existing IRA's. The losses in terms
of economies of scale and higher administrative costs could
easily eat up 30 or 40 percent of the final account balances.
Second, Galveston does not provide a model that is relevant
for nationwide Social Security reform. The Galveston plan bears
little resemblance to individual accounts. The county invests
pension funds in the market. Workers do not have accounts. They
do not have any control over investment decisions.
Participation in the Galveston plan is mandatory, and the
contributions are set at 13.9 percent of payroll.
So if your idea is to raise payroll taxes, require people
to be part of the system, and then have the government invest
the money, Galveston is your model.
According to the Social Security Administration and GAO,
Galveston generally provides lower benefits for its
beneficiaries. It doesn't provide protections for spouses,
inflation and many of the important features of Social
Security. But regardless of whether Galveston provides higher
benefits or lower benefits, it is still irrelevant for thinking
about the problem that we have as a Nation.
The several thousand municipal employees in the Galveston
plan do not make any contributions to support current Social
Security beneficiaries. If the United States as a whole adopted
a Galveston-like plan, there would be no one left to pay the
$500 billion annual cost of benefits for the Nation's 45
million current Social Security beneficiaries. The United
States as a whole cannot free ride in the same way that
government employees in one relatively small county can.
Third, there is no such thing as a higher guaranteed rate
of return. The basic principle of financial markets is that you
only get higher returns as compensation for taking greater
risks. As Nobel Prize winner Gary Becker explained, ``There are
no freebies from such investments''--he is talking about
individual accounts--``since the higher return on stocks is
related to the greater risks and other trade-offs between
stocks and different assets.''
Social Security benefits are not subject to any market
risk. In fact, Social Security provides critical insurance
against becoming disabled, dying, or outliving one's savings.
No financial instruments provide this range of benefits, and if
they did, they would be extremely expensive.
Even more fundamentally, as Greg Mankiw, former chairman of
President Bush's Council of Economic Advisors, explained--this
is a quote from President Bush's former top economic advisor--
``Admittedly, some of Bush's arguments are off the mark. When
he compares the 2 percent real return a worker now gets from
Social Security with a 6 percent real return offered by
portfolio of stocks and bonds, he neglects to mention that the
Social Security fund still owes a huge amount to those now or
soon to be retired. This liability--the overhang from giving
earlier generations more than they put into the system--doesn't
disappear with privatization.''
Virtually every policy analyst and economist, whether they
support or oppose accounts, would agree with my statements
about the bank option, Galveston, and rate of return. I would,
however, like to make one additional point. In my judgment, the
risks associated with a proposal like the President's or the
House Republican proposal yesterday are unjustifiable. The
President's proposal would not increase the return to Social
Security. For many beneficiaries, it would lower it. Under the
President's accounts, you need to get a real rate of return of
3 percent above inflation--that is 5.8 percent of the total
annual return--just to break even from one of the two benefit
cuts he is proposing. By way of comparison, CD's currently have
a 3.5 percent rate of return. That is a sure-fire way to lose
money under the President's proposal.
As Robert Shiller noted, financial economists found, even
with a sounder investment strategy, you lose money the majority
of the time. In conclusion, investing in risk plays an
important role in wealth creation and retirement security, but
they should play that role in a separate part of the retirement
system, not replace the retirement security provided by Social
Security.
Thank you and I look forward to the committee's questions.
[The prepared statement of Mr. Furman can be found on page
60 of the appendix.]
Chairman Bachus. Thank you.
I am going to ask for the committee's indulgence. We are
going to have a vote in about 30 minutes, if not sooner. What
we will try to do is we will recognize each member for 5
minutes. If they are in the process of asking a question or
answering a question, we will conclude that with the answer.
But there won't be any additional questions past the 5 minutes.
If I can ask unanimous consent for that.
At this time, the lady from Illinois is recognized.
Mrs. Biggert. Thank you, Mr. Chairman.
And thank you to the panel for all of your expertise that
you bring today and talking about this issue.
It is nice to have, I think, a debate that is not, let us
say, spirited one way--that we are able to discuss this issue
calmly. And I think that we need a lot more of this, because
certainly the Social Security plan that we are going to have
really needs to be a bipartisan plan. And we are going to have
to reach some accommodation at some point, and it is a critical
time that we really need to be looking at this.
So I have just a couple of questions, first, for Mr. Brown.
Many of the community banks are offering some type of limited
retirement savings products such as the IRA's. What type of
outreach in financial education do you provide to help
encourage your customers to invest in these products and save?
Mr. Brown. Well, it is something we have been doing for
years. Quite frankly, it is a product that often sells itself
because we do find that people clearly want to invest in their
retirement. The IRA has been a wonderful vehicle.
We do a lot of mailings, particularly at tax time or the
time people are thinking about that year end. We do, in many
cases, community outreach where we go to communities where we
would also try to promote housing for people who are not
necessarily sophisticated investors and try to talk about those
things also.
But it is an ongoing year-after-year type of thing to get
people thinking about their retirement benefits. One of the
things that I think would be--there is a similarity between
what we are proposing today or discussing today and the IRA.
That is, the beauties of compounding are amazing.
When you continue to put money in on a regular basis, it
compounds and builds. It is amazing how much some people have
put aside in their IRA account, and we would encourage that the
public has a choice of both of those.
Mrs. Biggert. I think you mentioned that savings, and
almost all of the panel did, that savings is down, that we are
finding that people are not putting aside the money, but they
are also, particularly the young people, are not putting moneys
into accounts. Is there any way to reach the younger people?
Mr. Brown. Well, my own judgment is, and I am sure this is
controversial, but I don't think, quite frankly, the general
public understands Social Security, and, quite frankly, I don't
think there is a broad confidence in it, particularly the
younger people, and they are not counting on it.
My sense of it is that younger workers would be glad to
reach out to something of this nature, because they really
don't think that there is going to be anything there for them,
and that is sad.
Mrs. Biggert. I think it has been said many times that they
think they will see a UFO before they see their Social
Security.
Mr. Brown. Well, it is--I think there are issues with it,
there are problems with it, and we need to deal with it.
People, and actually having something with community banks,
I think, would be very valuable, because it is interesting, as
getting close to Social Security age myself, I get a mailing
once a year now to tell me what I will have. But quite frankly,
it is--it just doesn't seem very real. It is very remote.
But I think if someone can go into their bank, and they
could check what they have in that account, it would really
give them a sense of finishing something. Quite frankly, it
probably would increase savings in general.
Mrs. Biggert. Thank you.
Mr. Gornto, I think the proponents of personal accounts are
really concerned about the risk. Certainly, the plan that has
been talked most about is, it starts for those under age 55 and
below, and the other people would be still in the traditional
plan. Has anyone, besides the one woman that you mentioned who
used her money for the hospitalization or whatever, lost money
in this?
Mr. Gornto. No, ma'am. Nobody has ever lost a penny in the
account. In fact, we have had, it seems, a great deal of press
in the last couple of years, and the reporters have tried to
ferret out unhappy people, people who have had problems. They,
as you know, they have a way of being able to do this very
well. Evelyn was the only one that they could find.
Evelyn, from--I mean, she just simply took out 35 percent
of her money 5 years prior to retirement under the hardship
option to provide for a heart bypass surgery for her husband,
and when she retired, she wanted to know where her money was.
She had used it for current dollars rather than future dollars.
Hardship withdrawal was something that was supposed to be a
benefit of this plan. Because we got so much bad press on it,
and she made such a problem with it, we finally terminated that
option. They no longer can have hardship options.
Mrs. Biggert. Thank you, I see my time has expired. I yield
back.
Chairman Bachus. Thank you.
Mrs. Maloney.
Mrs. Maloney. Thank you. I thank all the gentlemen for
their testimony.
Dr. Furman, is there anything in the bank option that
solves or lessons the clawback problem? Mr. Greenspan testified
before this committee that the private accounts do absolutely
nothing for solvency. Could you comment more on that?
I have read the Shiller study that you referenced, and it
seems to prove private accounts are a bad idea. And can you
comment further and elaborate further?
Mr. Furman. Sure, I would be happy to comment on all three
of those issues. I think it is generally acknowledged now--and
the President himself has acknowledged--that individual
accounts do nothing to help restore solvency to Social
Security. That is especially the case if you did something like
the bank option. You are taking moneys that right now are
invested, in effect, in Treasury and just investing them with
higher administrative costs through another system that would
require thousands or tens of thousands of government employees
to oversee the circulation of money that isn't doing anything
for the system. In terms of the risks you face, the President's
plan is what I call offset. Others have called it a
privatization tax or a clawback.
What it says is, if your benefit, if your account does not
grow more than 3 percent above inflation, that is about 5.8
percent per year, you will lose money. A CD right now, you get
a 3.5 percent return. If you put your money in the CD under the
President's plan, it is like borrowing at 5.8 percent and
investing at 3.5 percent. That is just one of the dumbest
things you could imagine someone doing with their money. Giving
someone the option to do something that stupid with their money
to me does not seem to be good public policy.
Finally, there are smarter things you can do with your
money. Professor Shiller looked at them. If you do invest your
money wisely, you don't lose money. One hundred percent of the
time, you only lose it somewhere between 32 and 71 percent of
the time, depending on the particular assumptions that you use.
Mrs. Maloney. Could you comment on the fact that the plan
is not voluntary and will result--some economists have
written--- in large benefit costs because it will change the
calculation of benefits from wage indexes to price indexing?
Could you elaborate and explain more?
Mr. Furman. Sure, the President's proposal has two benefit
reductions. One is a sliding scale benefit reduction. Some have
called it progressive price indexing. That would apply to
everyone, mandatory, across the board, and would result in
benefit reductions for middle-class families of between 28 and
40 percent reduction in their replacement rates by 75 years.
In addition, there are private accounts, and people who do
those, get a second benefit reduction on top of the first one
that applies to everyone.
Mrs. Maloney. Could you explain how that benefit works in
the private--how they cut it back?
Mr. Furman. The first benefit reduction or the second one?
Mrs. Maloney. Both of them.
Mr. Furman. For the first one, right now, Social Security
benefits are done according to a formula that grows with wages.
That ensures that your benefit replaces a constant fraction of
your income. You need about 70 percent of your pre-retirement
income in retirement to have a dignified retirement.
Social Security provides about half of that, 35 percent of
your preretirement income, provided that 20 years ago. It is
going to provide that about 20 years from now. That formula
would change, and that benefit would be eroded over time, just
grow with prices. You would have basically a 1950 standard of
living going forward if we had had it in place before.
The second benefit reduction says that, for every dollar
you put in your account, your Social Security benefits are
reduced by $1 plus inflation plus 3 percent interest. That
accumulates to be about $150,000 worth of benefit reductions at
retirement.
Mrs. Maloney. The vast majority of retirees would not be
able to pass funds from their private accounts on to their
children, according to many economists, yet the President
continues to say this is a benefit of that plan.
Could you elaborate further on that aspect of it?
Mr. Furman. Right. For example, if your husband dies and
has an account, you inherit his account, but you also inherit
the entire benefit reduction that he agreed to of the account.
So when he set up his account, he agreed to something like a
$150,000 benefit reduction. You get his account, you better
hope that it has more than $150,000, because you are going to
get his benefit reduction regardless of how much is in your
account.
Mrs. Maloney. Could you comment on the inability of
individuals to invest their money as they see fit in these
private accounts and estimates about how much these private
accounts will cost to set up? I have seen everything from $5
trillion to $10 trillion. Could you elaborate on the cost to
the Federal deficit and the growth of the deficit in that
respect?
Chairman Bachus. Dr. Furman, if you could be sort of short
on that?
Mr. Furman. Okay. The most optimistic estimate of that is
30 basis points as a cost which is about 10 times higher than
Social Security's administrative costs now. There are a range
of other estimates that are much higher than that, and the
range is on government employees required are at the low end of
the Social Security Administration, 7,700 to 50,000 or more new
government employees required.
Chairman Bachus. Thank you.
Mr. Feeney.
Mrs. Maloney. Thank you very much.
Mr. Feeney. Thank you, Mr. Chairman.
Mr. Gornto, I want to turn first to your plan. We have
consensus among actuaries that, give or take a couple hundred
billion, over the next 75 years, there is a $2 trillion
unfunded liability in what we have promised out in Social
Security. Any American who thinks that there is money sitting
in Ft. Knox for his or her retirement has been fooled. Whether
it was Congress or the trustees, they have been fooled and
misled.
I want to know, under the Galveston plan, what your
unfunded liability is? To what extent have you lied to people
about what assets they will have when they retire up until now?
Mr. Gornto. Well, there is no lying, and there is no
unfunded liability.
Mr. Feeney. Mr. Roberts, one of the concerns that I think
is a legitimate one about personal ownership accounts is that,
to the extent any proposal would start with very small
ownership accounts, say $500 or $1,000 or even $1,500, a lot of
large Wall Street investors have suggested that there is not a
lot of incentive for big investors to take those sort of
smaller startup accounts and that there is not enough money to
make it worth their while to manage those accounts. That is one
of the problems, if you don't get a significant size account to
start with.
But with respect to community bankers, is it a huge problem
for you? Is there a huge transactional cost? Is there a large
fee associated with coming in and buying a $500 or $1,000 CD-
type instrument?
Mr. Roberts. There is a cost, but it is not unreasonable.
With computers, with technology the way it is now, it can
easily be handled. It can be made profitable. We accumulate
funds from a lot of different people, all the way up from
children with smaller accounts where we are trying to teach to
save to those who can only put a small amount away. When you
accumulate all this, you get the millions that we have to
invest back in our community in the loans. It is an ongoing
expense that we can easily handle and pay them a reasonable
market rate and make a reasonable return for the bank.
Mr. Feeney. One of the suggestions that Dr. Furman had is
that T-bills provide a traditionally better return than CD-type
instruments because they tend to be more liquid and more
flexible. But to the extent that I know to a moral certainty
that my--I am not eligible to withdraw money from a personal
savings account till I am ready to retire, it seems to me that
the banks may be able to offer enhanced rates of return because
there would be no liquidity or flexibility that you have in the
traditional CD offerings; is that right?
Mr. Roberts. Yes, to some extent. I think I take exception,
if I understand your question correctly, I think if you look at
the CD rates and you look at the Treasury bill, the Treasury
bill rates, you will find, they are very similar. So I don't
think you will find one more so than the other, and I don't
think that you will find one safer than the other. The U.S.
Treasury, of course, has the full faith and credit of the
government behind it. So does the FDIC insurance.
Mr. Feeney. As we talk about that insurance and the safety
and solvency of the banking community since Glass-Steigel,
many, many decades ago, as I stated earlier, all actuaries tell
us we have about a $2 trillion unfunded liability in Social
Security.
By the way, it gets worse after 75 years, the situation
goes on to an infinite obligation that we cannot pay for. When
was the last time there was a significant failure within a
401(k) or an IRA in CD-type instruments that are held by
investors to pay those investors money that they were owed in a
401(k), CD or an IRA-CD, or have there have been significant
bank failures to meet their obligation, like we are going to be
unable to meet our obligations?
Mr. Roberts. Not to my knowledge.
Mr. Feeney. Mr. Brown, you did a wonderful job talking
about, not just the benefits to the investors, but--and banks,
but to communities themselves, there are a lot of things that
community banks do.
Do you want to elaborate just briefly--because we do have
votes coming up--on the kinds of services you provide in the
community with the money that you will hold in a CD?
Mr. Brown. Well, with--we are a bank that serves 7 counties
in Florida, and we have 37 offices. One of the things that we
think sets ourselves apart and, quite frankly, seems to be in
common between the four presenters, is that we do reach out and
deal with individuals. We certainly make loans to businesses.
But the prime business that we do is we make home loans. We
make home improvement loans, things of that nature.
We find that we deal with all ranges of financial ranges of
people's wealth. But, primarily, we are focusing on home loans.
Candidly, I think it is readily accepted, as the more money we
have to lend, quite frankly, the better rates we are able to
give for home loans and home improvement loans.
Even if it doesn't change the rate, it would change the
availability. I mean, it is a function of where we are doing
our best to lend as much as we can in the community, and we do
reach out. And we do try to touch everyone in the markets. Just
the other day, we had a function where we were helping with a
number of our Latin immigrants as far as helping them, as far
as opening accounts.
In many cases, community banks are actually teaching people
how to bank who are coming to this country, who are new to this
country. That is something, certainly, that money--if we did
have personal accounts--some could go to Wall Street. But
community banks do something a little different than is done in
Wall Street, and the customers that come in our door cover
every spectrum of the wage scale.
But, quite frankly, a lot of our growth is coming from the
low- to moderate-income people who are learning how to save and
who have goals to save for a home. Quite frankly, most of them
haven't yet started saving for retirement, so I think that is
something that should be done.
Mr. Hensarling. [presiding] The time of the gentleman has
expired.
The gentleman from Texas, Mr. Green, is recognized for 5
minutes.
Mr. Green. Thank you, Mr. Chairman, and thank you, members
of the panel. I appreciate greatly your comments. I support
banks, community banks, credit unions. I am a member of a
credit union, have several bank accounts, probably more than I
need.
Mr. Brown. No.
Mr. Green. But I do have them. I do have a concern that I
would like to sort of back into, if I may. Some incident
occurred that caused Social Security to come into being.
Something happened. Some folks tend to believe that it may have
had something to do with 1929 and something that occurred then.
Is it a fair statement, Mr. Brown, that something that
happened in 1929 had something to do with the establishment of
Social Security?
Mr. Brown. Well, obviously, we all know what happened in
1929. I do think that we--you know, I am not a historian, but I
gather it was determined that we needed to set a safety net for
peoples of all ages.
Mr. Green. Exactly, a safety net.
Mr. Brown. If I may--
Mr. Green. If I may, you have given me the magic words,
safety net. Let me ask you this, do you think that the people
who established Social Security were persons who understood
that they had the bank option, the credit union option, the
option of the stock market? My suspicion is that they were
reasonably intelligent, and they knew that they had these
options. But for some reason, they did not buy into these
options at that time.
Mr. Brown, if you could make it brief, because I would
like--I want to respect you.
Mr. Brown. I suspect that they didn't choose that at the
time, but those were different times. We had different
demographics at the time. We weren't living as long. The whole
world has changed since then. I think we need to change with
it. But Social Security is right--
Mr. Green. If I may now, because I was yielding to you, but
the concept of a safety net, which is what you used, is still
one that we are grappling with today. That is the one we are
still grappling with.
Now, prior to 1929, good times were here. Folk were having
a big time in the country. We didn't plan for the stock market
to crash. We don't plan for these types of events. But,
unfortunately, with the best of intentions, they sometimes
occur. When they happen, we want Social Security.
The question comes, for Mr. Furman, if we should have
another event, maybe--let us hope that it is not comparable to
what happened in 1929--we are all invested in banks and credit
unions, as I am, I have money in banks and credit unions, how
is that going to impact us, as opposed to what we have right
now with the Treasury?
Mr. Furman. The Social Security benefit at least doesn't
change with the stock market. It is based on your income and
replaces a constant fraction of your income. It is the only
investment that most people, in effect, have that has that
feature. Everything else is subject to market risk in one form
or another.
Mr. Green. If the market performs poorly, and we have what
is the equivalent of a crash, what do we have?
Mr. Furman. Well, bank deposits are insured, so you are not
going to lose your bank deposit. But they are not guaranteed to
keep up with inflation. They are not guaranteed to replace a
certain fraction of your income. They don't provide insurance
against living a longer life than you expect to. They don't
have any of the features that make Social Security so
attractive as one part of a person's retirement planning.
Mr. Green. I will just conclude with this, because I would
like others to have their time. It does cause me great
consternation. I am willing to listen to what everybody has to
say and hope to visit with some of you individually.
But it does cause me great consternation to know that we
are about to make what I consider a very significant change, if
we do this, and that that change is going to put a lot of what
we consider our safety net at risk.
I yield back the remainder of my time, Mr. Chairman.
Mr. Hensarling. The gentleman yields back.
The gentleman from Texas, Mr. Sessions, is recognized for 5
minutes.
Mr. Sessions. Thank you, Mr. Chairman.
Mr. Gornto, I would like to go directly to you. We are on
votes, and I will leave here in just a moment. There was some
discussion about costs associated with running these funds that
you--and I would like for you to confine your comments to the
Galveston model. Can you talk to us about the cost, the
management cost, the cost to run these models?
Mr. Gornto. Yes. Our costs have been less than 1 percent
for the past 25 years. Simply that.
Mr. Sessions. 1 percent.
Mr. Gornto. Less than 1 percent, 90 basis points.
Mr. Sessions. There was just a discussion about length of
time that Mr. Green talked about, you know, when you retire and
how long you can keep these in. Is there any requirement or
rules related to when a person can take their money out, must
take their money out? Or could a person leave them in as long
as they wanted?
Mr. Gornto. In the Galveston plan, you have several
options. You have separation of service options, if you will.
In other words, when somebody separates from service, they can
take the funds with them at that time. They can roll them to
another plan that they would go to. They can leave them in the
plan until retirement.
Our retirement--our normal retirement age is in
correspondence or coincides with the county and district
retirement plan so that they get full benefits, so that certain
of the plans, like the paid-up insurance after their
retirement, you know, after their retirement age occurs if they
go to full retirement. But with respect to the retirement
dollars themselves, they have separation of service
availability at any time.
That was designed that way, on a local level with that
flexibility, because they did have a Texas county and district
retirement plan. Had that not been there, we would have limited
those options to receipt at retirement age only. They can
retire under a variety of different mechanisms, if they are age
60, with 8 years, or if they are 30 years of service or if they
have a, you know, years of service and age, work together, they
can retire under any one of those three options.
Mr. Sessions. Generally speaking, from a person who was on
or went into the system, when it was formed, and they get out.
In other words, they retire, generally, how much money,
assuming they had not taken money out, just as an average, how
much money does a person, quote, cash out with?
Mr. Furman. We have had a variety of people who, right now,
are currently being--been in the system for 25 years. Now,
granted, a career, a working career is 35 to 40 years. If a
person goes to work at age 20 or 22 and works till age 65 under
Social Security, that is a 40-plus year life span. So we don't
have 40 years in our plan yet.
We have 25 years. But in the 25 years that we have been in
place, we have people with $300,000 and $400,000 in their
account who will receive $300,000 and $400,000 in their
accounts either in weigh payouts or in lump sum distributions
at this time.
Those using that same trending that we are going, even at
the lower rate of interest rate, they will end up with
substantially more than that in another 15 years when we have a
full 4-year, you know, look see at the timeframes.
Mr. Sessions. Mr. Gornto, thank you so much for taking your
time to be with us today. I will tell you that you have had an
opportunity to hear from the members on this side some
agreement, some disagreement about what we are attempting to
do.
I think what you have done by presenting this Galveston
model plan, the banking option, will allow members of this
committee, the subcommittee and this committee, as well as our
general body, to make wiser decisions about the inclusion of
this with whatever we do.
I want to thank you so much for taking your time to be with
us today.
Mr. Chairman, I am going to go vote. I yield back my time.
Mr. Hensarling. The gentleman yields back.
The gentlelady from Wisconsin, Ms. Moore, is recognized for
5 minutes. Ms. Moore.
Ms. Moore of Wisconsin. Thank you, Mr. Chairman.
And I want to thank this panel for coming. I can see that
there is broad agreement among all the speakers, that, indeed,
one of the sort of hidden problems with these proposals,
wherever you stand on private accounts, is that we don't have
enough savings, and those savings aren't available, quite
frankly, to invest, and I think that is a breakthrough, at
least for me, in terms of trying to understand where the major
disagreements lie.
I can--I guess the question that I would have, first of
all, is for Mr. Brock. In your written testimony, you talked
about, if the bank option were available, this would
immediately bring $27 million into financial institutions, and
ultimately into the economy for lending.
I want you to talk about that, and then also I would like
you to mention the fees and the servicing fees and so forth
that banks would garner as well.
Mr. Brock. Well, the assumption is, you know, that if this
option were available, that we would increase our rate balances
by 10 percent. That would create the $27 billion. The credit
unions, you know, our structure--you know, the costs are
distributed across all the products, and it is really hard to
determine exactly what kind of fees would have to be charged on
that kind of an account, because it would be built into the
rate. I would assume that these kinds of accounts would be no
more expensive to operate than any other kind of deposit or
certificate account that we have.
Ms. Moore of Wisconsin. Okay. Well, I guess the next
question would be for Dr. Furman. I was very interested in your
testimony, because you have really talked about the security of
Social Security, and the only way--very informative testimony--
about the only way to get a higher rate of return is to take
that risk. You have made a great argument for having accounts
outside of Social Security and maintaining Social Security.
So I guess I wanted to give you an opportunity to elaborate
on that, because we are constantly bombarded with information
about the ownership society and how people ought to take charge
and so on. I guess I just want you to close the loop that some
of us may have in our minds about the difference in ownership
society or the example of Galveston, Texas, where the claim is
that no one has been harmed and that everyone has been doing
great.
Mr. Furman. I am all in favor of an ownership society, I
think it is a great concept but what we really need to do is
follow through on it. So let me give you one example. The
saver's credit. It is the only tax incentive we have right now
for low- and moderate-income families to help encourage them to
save. It is not perfect. It needs to be improved in a number of
ways, for lowest-income families, but it expires in 2006.
It is the only part of the tax cuts that are expiring in
the next decade that the President has not proposed to renew.
The only tax incentive we have for moderate-income families, he
would like to end after the year 2006. That is a good way to
encourage wealth, along with helping families opt into--you
know, automatically enroll in 401(k)'s. Low-income families get
very low rate of return from their savings, because if they
save a lot, they lose their Medicaid. They lose a lot of other
benefits. We should raise those asset limits so those families
aren't penalized for saving.
Finally, if you carve out a portion of Social Security, you
have to give up your Social Security to get an account, you are
not any wealthier because of that. What is genuine wealth
creation is real savings and new savings.
Ms. Moore of Wisconsin. In addition to the progressive
indexing proposal, which was not part of the proposal
yesterday--but it is still on the table, according to the
President--where low-income people would not have to, would not
lose any benefits, but your testimony seems to be that
everybody is going to lose with some kind of carve-out. So
could you explain to us how that would not be the case with low
income?
Mr. Furman. Under progressive price indexing, people who
make under $20,000 a year, retirees, get their benefits
reduced. People who make less than $20,000 a year, according to
a White House study, a substantial number of them get their
benefits reduced if they are getting survivors benefits,
disability benefits, or benefits through a spouse. Low-income
families can also see their benefits reduced. It doesn't
protect anyone.
Ms. Moore of Wisconsin. My time has expired--because I
wanted to ask Mr. Gornto something about Galveston, Texas.
Chairman Bachus. I will indulge you, because it doesn't
look like a long line behind you.
Ms. Moore of Wisconsin. Indulge me.
Chairman Bachus. Ms. Moore, you may miss your vote on the
floor, I am not sure.
Ms. Moore of Wisconsin. Oh, I can't do that. All right.
Just very quickly. I am very impressed with what is being done
in Galveston, Texas, but I see that the contributors have to
make more than the 12.4 percent payroll tax to participate in
this program, and then there is no portability. Do you have any
examples of people who decided that they don't want to work for
these three counties? They wanted to walk--you know, they have
to move to Milwaukee, Wisconsin? What happens to their
benefits?
Mr. Furman. On the contrary, it is fully portable to 401(k)
rollovers or IRA rollovers. In addition to that, the extra
amount that Galveston is putting in is not arequirement. The
12.26 percent of 6.13 percent, which is the 1981 Social
Security level, is still in place. The additional amount they
are putting in was a voluntary amount they would put in because
they had extra budget. It wasn't a requirement for cost.
That has been a real misunderstanding. They keep, you know,
talking about the comparison. But the only requirement has
been--and the employees are still paying in 6.13 percent, which
was the 1981 level. The employer is just putting in a little
extra, and it is fully portable.
Ms. Moore of Wisconsin. Well, thank you very much. I don't
want to miss my vote. I absolutely am going to read all of your
testimony. Thank you for coming.
Chairman Bachus. Thank you, Ms. Moore.
Dr. Furman, do you believe that we do have a crisis in
Social Security?
Mr. Furman. I don't think the terminology matters a lot. We
certainly have a problem or a challenge. You can call it a
crisis if you want.
Chairman Bachus. We should move as quickly as possible to
address the problems with Social Security?
Mr. Furman. The most important thing is to not do any harm.
But if we are doing a proposal that is constructive in moving
forward, doing that sooner rather than later would certainly be
better.
Chairman Bachus. What would be your proposal for a
constructive plan to reform and strengthen Social Security? I
mean, specifically?
Mr. Furman. We have--the benefits we have promised are $4
trillion larger than the taxes we are scheduled to collect over
the next 75 years. Whether you have accounts or don't have
accounts, you need to reduce benefits by $4 trillion or raise
revenues in some form by $4 trillion. I would like to do some
balance combination of both of those. I think that progressive
revenue sources have a very important role to play like raising
the cap on taxable earnings from the level of today.
Chairman Bachus. So you would lower benefits and raise
taxes?
Mr. Furman. Or some combination of the two of those. There
is no other way to solve the problem. I don't know of any.
Chairman Bachus. Now, you were Senator Kerry's advisor
during the campaign?
Mr. Furman. Correct.
Chairman Bachus. Was that your advice to him?
Mr. Furman. I don't think that political campaigns are the
right place to undertake Social Security reform.
Chairman Bachus. Okay. What did you advise him, I mean,
publicly?
Mr. Furman. I advised him on a number of issues, but one
thing that was very important, I think Social Security is a
very small part of our long-term fiscal challenges.
If you look at the tax cuts that were passed over the past
couple of years, they cost about 3 times more than the Social
Security deficit. The Social Security deficit is $4 trillion.
That is pretty large. Tax cuts are about $12 trillion. The
prescription drug benefit is about $9 trillion. So if you think
about our overall fiscal problems and how we could address
them, I recommended to him and I would recommend to you, is the
most important thing that any of us can do.
Chairman Bachus. You know, the Wharton School of Business
and others have said that those tax cuts created 3 million
jobs. Would you concur with that conclusion?
Mr. Furman. Job growth since the recovery began in, I
believe, November 2001 has been among the slowest of any job
growth recoveries. In fact, we have only just now had more
private-sector jobs than we had in January 2001 when President
Bush became President. So in my view, the tax cut is
successful. Tax cuts should have been done, but there should
have been more up-front stimulus and less long-term cost.
Chairman Bachus. So you don't disagree with the tax cuts.
You think it should have been more sooner?
Mr. Furman. I think it should have been more bang for your
buck, not tax cuts with long-term costs that didn't encourage
consumption economic stimulus.
Chairman Bachus. Well, more sooner would have actually made
the tax cuts more expensive than they are, would they not?
Mr. Furman. I actually think we could have done about the
same magnitude. We did about $200 billion sooner. So I
shouldn't have said more sooner.
Chairman Bachus. If we create personal accounts, would the
proposal that we are discussing today be a viable vehicle?
Mr. Furman. As you may have noticed from the hearing, I
don't think that personal accounts are the greatest idea. That
being said, as I look at the proposals by a range of people,
the President, Senator Hagel, Congressman Shaw, Bob Posen,
every single one of those proposals doesn't have anything like
a bank option. The problems of the bank option are not the
costs of the bank managing the money. I think, sure, it can do
that reasonably well.
It is that needed to take 100 million different accounts
and keep track of each one of them separately. In something
like the President's proposal, all the money goes into the
Government, and then the Government looks, how many people
wanted to invest in the stock market, adds up to 50 billion.
They hand Barclays $50 billion, and they invest it in the stock
market. Here you hand this group $5,000, that group $15,000,
and then you need a monitoring and enforcement structure to
make sure people didn't withdraw it earlier and break the other
rules.
That is why every one of those have rejected it. In fact, I
testified to Senator Hagel's committee last week, and he was
very strenuous that, no, no, this is government centralized
management of the money to keep down costs. Every time I said,
you know, it might have a higher cost, he said it is not going
to have a higher cost because we are not going to do it that
way.
Chairman Bachus. Well, you are talking about 20,000, 30,000
different accounts, some investing 20, some investing 30 in
different funds. Isn't that what the Federal workers do today
through the Thrift Savings Account?
Mr. Furman. No, it is not. First of all, there is one
employer, the TSP. And the country as a whole, there are
millions of employers. There are a lot of administrative
complications that you have that you don't have with the TSP.
But the TSP, assuming that you have a TSP, the TSP
administrator doesn't have your own personal account with your
name on it keeping track of the moneys.
They just take all the money. They figure out how many
people wanted to invest in the stock market, including
potentially you. They take all of that together, and they hand
it to Barclays, and they invest it collectively.
Chairman Bachus. Actually, they don't hand it--there are
different funds, T-bills.
Mr. Furman. No, no, most of them are invested by Barclays,
one by the Treasury, the G Fund. But the administrative
complications of a decentralized system is something we see in
Chile and the U.K. Studies have found it eats up about 40
percent of your retirement balance. I have been on a lot of
panels.
Chairman Bachus. I am not--generally, it doesn't really.
Understand, I am more interested, you know, in the Federal
employees. As a Federal employee, whether you are a Congressman
or a postman or an air traffic controller, the yield has been,
the return on investment has been--the worst you could have
done if you had made all the worst decisions on which funds
would have been 3.9 percent. The best would have been 11
percent. In my case, it is about 8 percent. I thought I was
doing fairly conservatively. But how does that compare with the
rate of return on Social Security?
Mr. Furman. There are, you know, as I tried to explain in
my testimony, there are three problems with comparing the rate
of return in Social Security and the rate of return in the
private market. One, Social Security--the private market has
risks associated with it, market risks. Number two, the private
market doesn't provide insurance services. Then, the most
important thing is, if we could--
Chairman Bachus. I think what we have done there is we have
broken out the disability insurance. I think every proposal has
taken the pension or the retirement component, and they have
broken out the disability insurance and preserved that.
Mr. Furman. Almost all of them, you are correct, take out
the disability. Some of them don't take out the survivors'.
Chairman Bachus. Let us just say, and I think we would
agree, that one that did not break out the disability and the
President proposes breaking out the disability--
Mr. Furman. He did. But, unfortunately, not the survivors',
but we don't need to get hung up on that. The most important
economic issue is one that I tried to explain through the words
of Greg Mankiw when quoting him.
If we could all take our money out, we are getting about a
1.5 percent rate of return above inflation and Social Security
right now. If we could all take our payroll tax out, our 12.4
percent out, and put it in bonds, we could do a little bit
better than that. The problem is, we are still spending $500
billion a year on the current senior citizens. Where is their
money going to come from?
Chairman Bachus. What about a phase in?
Mr. Furman. Well, what would happen, during the course of
that phase in, you would have to--I would have my money getting
a higher return on the account, but then I would be paying
higher income taxes to support the current retirees.
Chairman Bachus. I think the people who get a greater
return wouldn't mind paying income tax on that return. It would
actually be when they paid it--
Mr. Furman. There is a mathematical theorem, and it is
associated with a number of economists. Olivia Mitchell, who is
a member of the President's Social Security Commission,
supports reform and supports private accounts.
They have proven that how you did that transition, no
matter how you phased it in, the cost of that transition was
exactly equal to the difference in the rate of return between
Social Security on the market right now, so that once you
factored that transition cost in, no matter how you phased it
in or out--if--and this is a member of the President's
Commission that explained it--you can't get a higher rate of
return.
Chairman Bachus. Thank you, Dr. Furman, I do appreciate
your candor.
Mr. Gornto, they teach you in law school, never ask a
question you don't know the answer to. But this Evelyn that we
talked about earlier--
Mr. Gornto. This what?
Chairman Bachus. Evelyn, the lady.
Mr. Gornto. Oh, yes, Evelyn.
Chairman Bachus. Did she express regret that the money was
spent on her husband's open heart surgery?
Mr. Gornto. I don't think so.
Chairman Bachus. Okay. So she actually doesn't--she agrees
that was pretty good?
Mr. Gornto. She agrees that that was--
Chairman Bachus. I would agree with her. Particularly, if
they are still married.
Mr. Pearce.
Mr. Pearce. I can't follow that. I may have to go to the
House.
Mr. Gornto, you are described in, I think, Mr. Furman's
testimony as free riders in your Galveston system. Free rider
indicates, it hints at someone who gets on the train and goes
to their destination and then gets off without paying.
Do you all draw--in terms of Social Security, that would
indicate you all are drawing Social Security benefits without
paying into the system. Do you all do that?
Mr. Gornto. I am sorry. I am not quite sure I understand
your question.
Mr. Pearce. Do you all, are you free riders on the Social
Security system? The accusation has been made by the gentleman
sitting to your left.
Mr. Gornto. Are we free riders?
Mr. Pearce. In Social Security. Do you draw benefits
without paying into the system?
Mr. Gornto. The--
Mr. Pearce. Do you draw Social Security benefits?
Mr. Gornto. Yeah, the Galveston County employees when they
terminated the contract in 1980 accrued a benefit up to that
point. Whatever they paid in they accrued, and that benefit has
stayed with the benefit they have gotten from us.
Mr. Pearce. So you get Social Security benefits.
Mr. Gornto. Whatever had accrued to 1980 or any other type
of job they would have, yes, sir.
Mr. Pearce. Okay. It is also stated that Social Security is
paying greater benefits than in your plan. You are saying that
you had hoped to draw equal or greater benefits to Social
Security. Are you succeeding in that?
MR. Gornto. Yes. I have a chart that shows--
Mr. Pearce. Mr. Chairman, with a unanimous consent I would
like to get that chart as a part of the record.
MR. Gornto. I think I gave it to you.
Mr. Pearce. Okay. Fine. Mr. Furman, you alleged exactly the
opposite. Did you bring your chart showing where the benefits
are not as great?
Mr. Furman. I have my chart and it is from the Social
Security Administration.
Mr. Pearce. Okay. But it shows that actually the benefits
are less than in the Galveston plan.
Mr. Furman. Correct.
Mr. Pearce. Mr. Chairman, if we could get that put into the
record.
Mr. Furman, you indicate that the cost on the
administration can be 30 to 40 percent of the final account
balance. When I look at my costs for the TSP, and that is what
the President has said he visualizes, a TSP type program. I
look at my costs and they are .001. Now that is 1/300th of your
estimate. You range--actually I round off, it is .0006 of my
actual cost, and that makes your estimate 500 percent
overinflated.
Can you submit the documentation by which you say that our
costs are going to be 500 percent greater under TSP under
Social Security of the President's plan?
Mr. Furman. Sir, would you let me explain briefly?
Mr. Pearce. No, I just want you to submit your
documentation. I think it bears the scrutiny. You have made a
pretty strong claim and I would like to see that documentation.
Mr. Furman. Okay. It is not the TSP that would. It is the
bank option. But I will submit it to you.
Mr. Pearce. I understand. Mr. Gornto, you said that you
provide survivor benefits. Can you provide documentation that
you actually do that?
Mr. Gornto. Yes.
Mr. Pearce. You said the Galveston plan has survivor
benefits. And again Mr. Furman claims that it doesn't.
Mr. Gornto. We can prove that.
Mr. Pearce. Mr. Furman is shaking his head.
Mr. Furman. I said it doesn't have spousal benefits for
dependent spouses while you are alive. That is different from
survivor's benefits.
Mr. Gornto. I disagree. It has them.
Mr. Pearce. All right. I see that. Okay. Would any of you
tell me what we do with our Social Security surpluses right
now? We have surpluses at the current point. What do we do with
those surpluses? How do we invest them? Anyone?
Mr. Furman. Special issue treasury bond.
Mr. Pearce. Special issue treasury bonds. And what are the
rates of return on those special interest treasury bonds?
Mr. Furman. Long term projection is for 3 percent rate of
return, above inflation about 5.8 percent.
Mr. Pearce. If I go down and buy a long-term bond today I
can get--
Mr. Furman. I think it is less than that today.
Mr. Pearce. It is somewhere down on the floor at 4 percent.
Are we buying long-term bonds for Social Security or are we
buying short-term bonds? I have the information that we are
actually buying short-term bonds because we are not allowed to
buy the longer term bonds.
Mr. Furman. We buy bonds that are a special issue. They
have the same rate of return as a maturity of 4 years and up
average--from 4 to 30-year bonds to average return.
Mr. Pearce. So on the--let me switch over and I will ask
the question. Mr. Furman, I walked in on the discussion about
the tax cuts and what should have been on tax cuts. Does the
size of our government spending as a percent of our overall
economy rise to the level of concern for you?
Mr. Furman. I am concerned that we have seen one of the
largest expansions in government.
Mr. Pearce. Not size, that is relative. In other words,
when we cut taxes the idea is we depress down the size of
government?
Mr. Furman. I see that that theory works. We have actually
seen a huge expansion in government spending.
Mr. Pearce. I mean we went from 25 percent to 23 percent.
Now, the relationship is that as you move beyond 25 percent
your economy stagnates and becomes very immobile. As you lower
the percent it has greater vitality and growth. And if you
want, the way that that has played out, you could look at the
Irish miracle, where they have a tax rate of 10 percent, the
government spending lowered and their economy jumped
significantly. You could also scoot over to New Zealand where
they cut the size of government significantly, and they
graduated it up, the scale of industrialized economies and then
if you come to current day Germany, at 52 percent, we are again
at 23 percent. They haven't created a new job in 10 years.
Now, your basic assumption that we should have left the tax
rates up would encourage us to be higher--in the higher
percentage of government projects. And if we look at the other
side of the aisle's recommendation on spending, we could easily
find ourselves way up in the 30 to 40 percent range if we delay
the solution of Social Security right now, solution, use the
high estimates, $3 trillion averaged out over 10 years, $300
billion. The low end is a trillion dollars. Average that out
over 10 years you get 100 billion.
If we do like you are recommending and do nothing, the
estimates are $11 trillion to solve the problem 75 years from
now. And divide that by 10 and you get one trillion per year
solution cost with a $2.5 trillion budget.
I don't see how we can keep our economy vital; that is, the
percent of government spending as a total percent of the
economy. I don't see how we can get where we need to be as far
as a vital economy. If you have any comments on that.
Mr. Chairman, I see my time has elapsed and I will let him
close.
Chairman Bachus. I would appreciate that, Mr. Pearce. We
are going to conclude our testimony at this time. Before I do,
I want to thank the panelists for their testimony and I also
want to thank Mr. Sessions and Mr. Feeney's staff who were very
effective in putting this hearing together as well as Marisol
Garibay, who is here on Mr. Oxley's staff, who coordinated this
entire hearing and did an excellent job. I would like to
commend you, Ms. Garibay.
We do appreciate your testimony. I think the thing that we
all agree with on both sides of the aisle is that we do have,
whether we call it a crisis or a critical juncture in Social
Security, there needs to be reform, overhaul, whatever we want
to call it. And every year that goes by we don't do it, it
costs almost a trillion dollars a year, which is a staggering
amount. And we have our baby boomers facing us 3 years down the
road. And so we appreciate your testimony.
Without objection, all written statements will be made a
part of the record, and the Chair notes that some members may
have additional questions for this panel which they may wish to
submit in writing.
Without objection, the hearing record will remain open for
30 days for members to submit written questions to the
witnesses and to place their responses in the record. This
hearing is adjourned.
[Whereupon, at 12:14 p.m., the subcommittee was adjourned.]
A P P E N D I X
June 23, 2005
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