[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
                   THE IMPACT OF THE FINANCIAL CRISIS
                    ON WORKERS' RETIREMENT SECURITY

=======================================================================


                             FIELD HEARING

                               before the

                              COMMITTEE ON
                          EDUCATION AND LABOR

                     U.S. House of Representatives

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

          HEARING HELD IN SAN FRANCISCO, CA, OCTOBER 22, 2008

                               __________

                           Serial No. 110-114

                               __________

      Printed for the use of the Committee on Education and Labor


                       Available on the Internet:
      http://www.gpoaccess.gov/congress/house/education/index.html




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                    COMMITTEE ON EDUCATION AND LABOR

                  GEORGE MILLER, California, Chairman

Dale E. Kildee, Michigan, Vice       Howard P. ``Buck'' McKeon, 
    Chairman                             California,
Donald M. Payne, New Jersey            Senior Republican Member
Robert E. Andrews, New Jersey        Thomas E. Petri, Wisconsin
Robert C. ``Bobby'' Scott, Virginia  Peter Hoekstra, Michigan
Lynn C. Woolsey, California          Michael N. Castle, Delaware
Ruben Hinojosa, Texas                Mark E. Souder, Indiana
Carolyn McCarthy, New York           Vernon J. Ehlers, Michigan
John F. Tierney, Massachusetts       Judy Biggert, Illinois
Dennis J. Kucinich, Ohio             Todd Russell Platts, Pennsylvania
David Wu, Oregon                     Ric Keller, Florida
Rush D. Holt, New Jersey             Joe Wilson, South Carolina
Susan A. Davis, California           John Kline, Minnesota
Danny K. Davis, Illinois             Cathy McMorris Rodgers, Washington
Raul M. Grijalva, Arizona            Kenny Marchant, Texas
Timothy H. Bishop, New York          Tom Price, Georgia
Linda T. Sanchez, California         Luis G. Fortuno, Puerto Rico
John P. Sarbanes, Maryland           Charles W. Boustany, Jr., 
Joe Sestak, Pennsylvania                 Louisiana
David Loebsack, Iowa                 Virginia Foxx, North Carolina
Mazie Hirono, Hawaii                 John R. ``Randy'' Kuhl, Jr., New 
Jason Altmire, Pennsylvania              York
John A. Yarmuth, Kentucky            Rob Bishop, Utah
Phil Hare, Illinois                  David Davis, Tennessee
Yvette D. Clarke, New York           Timothy Walberg, Michigan
Joe Courtney, Connecticut            [Vacancy]
Carol Shea-Porter, New Hampshire

                     Mark Zuckerman, Staff Director
                Sally Stroup, Republican Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on October 22, 2008.................................     1

Statement of Members:
    McKeon, Hon. Howard P. ``Buck,'' Senior Republican Member, 
      Committee on Education and Labor, prepared statement of....    49
    Miller, Hon. George, Chairman, Committee on Education and 
      Labor......................................................     1
        Prepared statement of....................................     3

Statement of Witnesses:
    Benartzi, Dr. Shlomo, professor and co-chair, Decision Making 
      Group, University of California Los Angeles Anderson School 
      of Management..............................................    24
        Prepared statement of....................................    26
    Carroll, Steve, retiree......................................     8
        Prepared statement of....................................    10
    Davis, Mark A., principal, Kravitz Davis Sansone, Inc........    17
        Prepared statement of....................................    19
    Hacker, Jacob S., Ph.D., professor, University of California 
      Berkeley...................................................    11
        Prepared statement of....................................    12
    Joyce, Thomas F. ``Tif,'' Joyce Financial Management.........    22
        Prepared statement of....................................    23
    Quan, Roberta Tim, retired elementary school educator........     7
        Prepared statement of....................................     8

   THE IMPACT OF THE FINANCIAL CRISIS ON WORKERS' RETIREMENT SECURITY

                              ----------                              


                      Wednesday, October 22, 2008

                     U.S. House of Representatives

                    Committee on Education and Labor

                             Washington, DC

                              ----------                              

    The Committee met, pursuant to call, at 10:00 a.m., in room 
250 of Legislative Chamber, San Francisco Board of Supervisors, 
1 Dr. Carlton B. Goodlett Place, San Francisco, California, 
Hon. George Miller [chairman of the committee] presiding.
    Present: Representatives Miller and Woolsey.
    Staff Present: Rachel Racusen, Communications Director; 
Meredith Regine, Junior Legislative Associate, Labor; Michele 
Varnhagen, Director of Labor Policy; Alexa Marrero, Minority 
Communications Director; and Jim Paretti, Minority Workforce 
Policy Counsel.
    Chairman Miller. The Committee will come to order. And a 
quorum being present, the hearing of the Committee will cone to 
order.
    And I am going to recognize myself in a moment for an 
opening statement, as soon as I get it together here.
    And I want to begin by thanking the City of San Francisco 
and the Board of Supervisors for making this chamber available 
for this hearing. And I want to thank all of the witnesses for 
agreeing to appear today. And I certainly want to thank my 
colleague from the north base Sonoma County, Congresswoman 
Woolsey for joining us on this hearing that I think is terribly 
important in terms of the financial future of America's 
families and workers.
    And I will at this point recognize myself for the purposes 
of making an opening statement.
    Today this Committee is holding our second hearing to 
examine how the current financial crisis is affecting 
retirement savings, one of the many issues creating enormous 
anxiety for Americans in our ailing economy. We started this 
investigation last week as part of a series of hearings the 
House is conducting to investigate the causes of the financial 
crisis and what additional steps are needed to protect 
homeowners, workers, families and retirees.
    What we heard confirmed that while this crisis may have 
started on Wall Street, it's main street that stands to suffer 
the most. Peter Orszag, the Director of the Congressional 
Budget Office, told us that American workers have lost more 
than $2 trillion in retirement savings over the last 15 months, 
an astonishing lost that could lead workers to delay their 
retirement, change their situation with respect to their 
families, their spouses and others.
    Yesterday the Center on Retirement Research found that 
almost $4 trillion has now been lost retirement savings; $2 
trillion in 401(k)s and IRAs and $2 trillion in defined benefit 
plans. So we see that the situation is worsening on a week-by-
week basis and, again with devastating impact on so many people 
who have already retired or those who are close to retirement.
    And clearly the experts that we heard from last week, and 
we will hear some of it again this morning, that those workers 
who are the closest to retirement could suffer the most from 
this financial tsunami.
    A survey released last week by AARP found that one in five 
middle-aged workers stopped contributing to their retirements 
plans in the last year because they had trouble making ends 
meet. One in three workers has considered delaying retirement.
    A new poll by Washington Post ABC News also captured this 
growing strain on older workers. More than 60 percent of 
respondents aged 50 to 64 were not confident that they would be 
able to save enough money to carry them through the retirement, 
a steep drop in confidence that cuts across America of all 
income brackets.
    Overall, less than half of all respondents said they will 
be able to save enough for a secure retirement. But while the 
housing and financial crises are intensifying, retirement 
security, we also know that workers' retirement savings have 
been declining for some time. Rising unemployment, stagnating 
wages and benefits, and a shift away from more traditional 
defined-benefit pension plans have been making it much harder 
for workers to save for retirement while juggling other 
expenses.
    Now the number of investors taking loans on their 401(k) 
accounts is increasing. And hardship withdrawals are also 
increasing. T. Rowe Price estimates that 14 percent increase in 
the hardship withdrawals just in the first eight months of 
2008. And, all the signs point toward an increased frequency of 
401(k) loans and hardship withdrawals in the coming year.
    Even more troubling is that just this week our Committee 
obtained preliminary estimates showing that the Pension 
Benefits Guaranty Corporation, the government agency that 
insures private sector pension plans, lost at least $3 billion 
in equities in this last fiscal year. This dramatic loss 
represents a swing of more than $6 billion from the previous 
year. It is likely that the agency's losses will be 
substantially worse once the numbers from September are 
reported.
    These estimates raise serious questions about a 
controversial new investment policy that the agency recently 
approved that shifts assets from fixed income securities into 
more risky securities like real estate.
    At this time of severe economic uncertainty, it's crucial 
that this agency be a responsible steward of these funds which 
pay pensions to workers whose retirement plans have already 
been terminated. They already have received up to a 50 percent 
hit in their retirement benefits as part of the PBGC program 
and now to see that program launch investment in risky 
securities raises some very, very serious questions. We will be 
hearing from the Director of the PBGC, Mr. Millard on Friday in 
our hearing in Washington, D.C.
    More than ever before there is an urgent need to help 
Americans strengthen their retirement savings. Taxpayers 
subsidize 401(k) plans by $80 billion annually. For a taxpayer 
investment of this size, we must ensure that the structure of 
401(k)s adequately protects the nest eggs of participating 
workers. At a minimum, we know that a much greater transparency 
and disclosure in 401(k) investment policies are needed to 
protect workers from hidden fees that could be eating deeply 
into their retirement accounts. And with seniors poised to 
suffer the most from the current economic turmoil, we must 
suspend the unfair tax penalty for seniors who don't take the 
minimum withdrawal from their depleted retirement accounts, 
like 401(k)s.
    Last week Representative Rob Andrews of New Jersey and I 
called upon Secretary Paulson to immediately suspend this 
unfair penalty during this economic crisis. We will also push 
to enact legislation based upon a bill Representative Andrews 
recently introduced so that the seniors who have seen their 
current retirement saving evaporate don't get penalized for 
trying to build that savings back up.
    Today our Committee will hear additional ideas about what 
we can do to strengthen and protect America's 401(k) pension 
plans and other retirement plans. We will also hear from 
Roberta Quan and Steve Carroll, two retires who are grappling 
with the significant losses in their retirement savings. And 
I'd like to thank them for sharing their personal stories, and 
all of our witnesses again for joining us today.
    As other committees' have revealed, many of the Wall Street 
titans responsible for this crisis have still escaped with 
their plush perks, their lavish spa trips, their golden 
parachutes intact and that is an outrage and it's outraging the 
American people, and it's driving them to anger. For too long 
the Bush Administration anything goes economic policy allowed 
Wall Street to go unchecked. As we look at what we can do to 
rebuilt workers' retirement savings and our nation's economy, 
the Democratic Congress will continue to conduct the much 
needed oversight on behalf of the American people and the 
security of our financial institutions. Being able to retire 
after a lifetime of hard work has always been the core tenet of 
the American dream. We cannot allow that promise of a secure 
retirement for workers to become a casualty of the financial 
crisis.
    And, again, I want to thank all of you for participating in 
this hearing in San Francisco today. And with that, I would 
like to recognize my colleague Lynn Woolsey for whatever 
opening statement she may have.
    Congressman Woolsey?
    [The statement of Mr. Miller follows:]

          Prepared Statement of Hon. George Miller, Chairman,
                    Committee on Education and Labor

    Good morning.
    Today this Committee is holding our second hearing to examine how 
the current financial crisis is affecting retirement savings--one of 
the many issues creating enormous anxiety for Americans in our ailing 
economy.
    We started this investigation last week, as part of a series of 
hearings the House is conducting to investigate the causes of the 
financial crisis, and what additional steps are needed to protect 
homeowners, workers, and families.
    What we heard confirmed that while this crisis may have started on 
Wall Street, it's Main Street that stands to suffer the most.
    Peter Orszag, the director of the Congressional Budget Office, told 
us that American workers have lost more than $2 trillion in retirement 
savings over the last fifteen months--an astonishing loss that could 
lead workers to delay their retirement. Yesterday, the Center on 
Retirement Research found that $4 trillion in retirement savings has 
been lost. Over the last year, $2 trillion in 401(k)s and IRAs and $2 
trillion in defined benefit plans has been lost.
    Several experts also told us that workers closest to retirement 
could suffer the most from this financial tsunami.
    A survey released last week by the AARP found that one in five 
middle-aged workers stopped contributing to their retirement plans in 
the last year because they had trouble making ends meet. One in three 
workers has considered delaying retirement.
    A new poll by the Washington Post/ABC News also captured this 
growing strain on older workers.
    More than 60 percent of respondents ages 50 to 64 were not 
confident that they'd be able to save enough money to carry them 
through retirement--a steep drop in confidence that cuts across 
Americans from all income brackets.
    Overall, less than half of all respondents said they will be able 
to save enough for a secure retirement.
    But while the housing and financial crises are intensifying 
retirement insecurity, we also know that workers' retirement savings 
have been declining for quite some time.
    Rising unemployment, stagnating wages and benefits, and a shift 
away from more traditional defined-benefit pension plans have been 
making it much harder for workers to save for retirement while juggling 
other expenses.
    Now, the number of investors taking loans on their 401(k) accounts 
is increasing. And hardship withdrawals are also increasing.
    T. Rowe Price estimates a 14 percent increase in hardship 
withdrawals just in the first eight months of 2008.
    And, all the signs point to an increased frequency of 401(k) loans 
and hardship withdrawals in the coming year.
    Even more troubling, just this week, our Committee obtained 
preliminary estimates showing that the Pension Benefits Guaranty 
Corporation--the government agency that insures private sector pension 
plans--lost at least $3 billion in equities in the last fiscal year.
    This dramatic loss represents a swing of more than $6 billion from 
the previous year. It's likely that the agency's losses will be 
substantially worse once numbers from September are reported.
    These estimates raise serious questions about a controversial new 
investment policy that the agency recently approved that shifts assets 
from fixed-income securities into more risky securities like real 
estate.
    At this time of severe economic uncertainty, it's crucial that this 
agency be a responsible steward of these funds which pay pensions to 
workers whose plans have been terminated. The PBGC needs to be 
accountable to the millions of Americans who count on the agency to 
protect their retirement.
    More than ever before, there is an urgent need to help Americans 
strengthen their retirement savings.
    Taxpayers subsidize 401(k) plans by $80 billion dollars annually. 
For a taxpayer investment of this size, we must ensure that the 
structure of 401(k)s adequately protects the nest eggs of participating 
workers.
    At a minimum, we know that much greater transparency and 
disclosures in 401(k) investment policies are needed, to protect 
workers from ``hidden'' fees that could be eating deeply into their 
retirement accounts.
    And with seniors poised to suffer the most from the current 
economic turmoil, we must suspend an unfair tax penalty for seniors who 
don't take a minimum withdrawal from their depleted retirement 
accounts, like 401(k)s.
    Last week, Rep. Andrews and I called on Secretary Paulson to 
immediately suspend this unfair penalty.
    We'll also push to enact legislation based on a bill Rep. Andrews 
recently introduced, so that seniors who have seen their retirement 
savings evaporate don't get penalized for trying to build those savings 
back up.
    Today our Committee will hear additional ideas about what we can do 
to strengthen and protect Americans' 401(k)s, pensions, and other 
retirement plans. We will also hear from Roberta Quan and Steve 
Carroll--two retirees who are grappling with significant losses to 
their retirement savings. I'd like to thank them for sharing their 
personal stories and all of our witnesses for joining us.
    As other committees' hearings have revealed, many of the Wall 
Street titans responsible for this crisis have still escaped with their 
plush perks, lavish spa trips and golden parachutes intact. This is an 
outrage.
    For too long, the Bush administration anything goes economic policy 
allowed Wall Street to go unchecked.
    As we look at how we can rebuild workers' retirement savings and 
our nation's economy, the Democratic Congress will continue to conduct 
this much-needed oversight on behalf of the American people.
    Being able to save for retirement after a lifetime of hard work has 
always been a core tenet of the American Dream. We can't allow the 
promise of a secure retirement for workers to become a casualty of the 
financial crisis.
    Thank you.
                                 ______
                                 
    Ms. Woolsey. Thank you, Chairman Miller. And thank you for 
holding this hearing on the problem of retirement security 
during this financial crisis and in the United States in 
general.
    I look forward, as you do, to hearing from our witnesses. 
And I agree with Chairman Miller that when we look for 
solutions to this mess we need to include solutions for those 
who are retired now and who are about to retire. These people 
are really hurting. They're being hit with higher prices for 
basic needs such as food and health care. And even before the 
catastrophic decline in the market, seniors were dipping into 
other resources to make ends meet.
    The fact is that from 2001 to 2006 American aged 63 and 
older took $300 billion out of their home equity. Sadly some of 
them have lost their homes or in danger of losing their homes.
    I, too, support the idea that we suspend the tax penalty 
for those who do not take a minimum withdrawal from their 
retirement accounts, but we need to do more, much more. We need 
to protect this population, nearly 40 percent of whom are 
likely to outlive their savings. And for those who have a 
sufficient time to salvage their retirement savings, we must 
develop better ways to help people save for that retirement.
    But I hope when we explore solutions today we dig deep. We 
look at the roots at the problem. Because the fact of the 
matter is, and Dr. Hacker actually has written about this, we 
have shifted economic risks from government and from employers 
to individual workers. An as Chairman Miller has noted, 
traditional pension plans are virtually disappearing.
    In 1980 60 percent of workers were covered by defined 
benefit plans and 17 percent on defined contribution plans such 
as 401(k). Now just the opposite in true. In 2004 only 11 
percent of workers had traditional pension plans while 60 
percent had defined contribution plans as their only retirement 
program.
    We need to make big changes in this country. I look forward 
to hearing our witnesses.
    This is a rude awakening. The very idea that the United 
States retirement system is at risk leads us to the need to 
examine exactly the whats and the whys, and you're going to 
help us with that today. Because we're going to take your 
expertise and your experience and we're going to go back to 
Washington with it. It's our responsibility. And with your help 
we will ensure that retires and their savings are safe and 
available when they need it the most, which actually is now. So 
I look forward to hearing from you.
    Thank you very much.
    Thank you, George.
    Chairman Miller. And I am going to begin by introducing 
Roberta Quan, who is retired as a teacher after 25 years in the 
Richmond Unified School District in Richmond, California.
    Ms. Quan received her BA from U.C. Berkeley an is a valiant 
member of our community in West County and just had great 
service in the Richmond School District.
    Ms. Woolsey is going to introduce our next witness, Mr. 
Steve Carroll.
    Ms. Woolsey. Thank you, Chairman Miller.
    I am pleased to introduce Steve Carroll. Steve currently 
lives in Santa Rosa in my Congressional District. He is 
originally from Montana, but has lived in California for nearly 
40 years. He's a very active person in our community. In fact, 
Steve was an employee in my office in my District offices, but 
he has retired from being a free lance writer. And he is one of 
the many retirees who have been adversely effected by the 
severe downturn in the market.
    Steve and his partner have a real story to tell us today, 
and Steve will be the one telling it.
    And we welcome you, Steve. Thank you for being here. Thank 
you for coming to my office and calling your situation to our 
attention because you have a real good story, well a sad story 
to tell us.
    Thank you.
    Chairman Miller. Thank you very much. Again, welcome, 
Steve.
    Dr. Jacob Hacker is a political science professor at U.C. 
Berkeley. Mr. Hacker is a fellow with the New America 
Foundation and is the author of the Great Risk Shift, ``The 
Assault on American Jobs, Families, Health Care and Retirement 
and How You Can Fight Back.''
    Mr. Hacker has a BA from Harvard University and a Ph.D. 
from Yale University.
    Mr. Mark Davis is a partner in Kravitz Davis Sansone, an 
investment firm in Los Angeles and has worked with defined 
contribution industry for 17 years.
    Mr. Davis has a BA from Amherst College and a master of 
fine arts from the University of Minnesota.
    Mr. Tif Joyce is the President of Joyce Financial 
Management and provides financial planning and investment 
services for his clients.
    Shlomo Benartzi is a professor and co-chair of The Decision 
Group at UCLA Anderson School of Management. Professor Benartzi 
is a leading authority on behavioral finance with special 
interest in consumer finance and participant behavior in 
defined contribution plans.
    Professor Benartzi received a BA from the Tel Aviv 
University and his MA and Ph.D from Cornell University.
    And I think that covers everybody.
    Welcome again.
    We have clock, apparently, that when you begin speaking we 
will turn on. A buzzer will go off. That will tell you you have 
about a minute left on a five minute segment for your opening 
statements. We will give some leeway on that. We are usually a 
little strict in Washington, but out here we'll give you some 
more leeway. So you wrap up in the way that you are most 
comfortable with but recognizing that time is a running.
    Ms. Quan, we are going to begin with you. Thank you again 
so much for joining us. I know that it is not easy to tell 
personal stories in public forums, but I think what you are 
going through many other retirees and people near their 
retirement age are struggling with all of the time. And so 
thank you again so much. And you are recognized for five 
minutes.

               STATEMENT OF ROBERTA QUAN, RETIREE

    Ms. Quan. Okay. My name is Robert Tim Quan from San Pablo, 
California. I am 74 years old. I retired as an elementary 
school educator from the Richmond School system in the East 
Bay. It was a rewarding career having instructed over 700 
children in a span of 25 years.
    In the era of the 1960s my husband John was employed at the 
Lawrence Berkeley Laboratory. With our combined income, we were 
able to save almost an entire salary. Classically, expenses 
were for home mortgage, auto loans, utilities, health care, 
food and clothing and a university education for our son. The 
cost of living was most reasonable at this time. Thus, planning 
for our future retirement, each month funds were payroll 
deducted into a 403(b) plan, similar to a 401.
    Throughout the years, we looked forward to a reasonable 
retirement with the accumulating nest egg. Typically, 
retirement activities would include travel plans, lunch with 
friends, time spent with our granddaughter and perhaps a health 
club membership. At 70\1/2\ I began taking the Required Minimum 
Distribution from my 403(b) in the sum of about $550 per month. 
All appeared well.
    Those best laid plans did not occur due to several life-
altering factors in the last several years.
    Factor number one: In the year 2000, John was diagnosed 
with Alzheimer's. I was his caregiver for six years. As he 
entered the severe stage, I could no longer handle the 24/7 
regimen. John was placed in a residential care home two years 
ago. The expenses ran $6,000 a month, that breaks down to $200 
a day. Recently I transferred him to a facility costing $3800 a 
month, down to $127 a day. One of his Alzheimer's medications 
runs $1100 for a three months supply. A recent bout with 
pneumonia resulted in a week's hospitalization for John. An 
unexpected and unbudgeted expense.
    Factor number two: Within the last few years have sky-
rocketed. A litany of cost increases: That is home, health, 
auto premiums, fuel costs, utility bills, food bills, property 
tax, etcetera. The cost of living was out of sight but the 
income remained modest. Overwhelmingly, the only alternative is 
to pare down expenses to the bare-bone wherever possible.
    Factor number three: The recent unstable financial crisis 
is having a devastating effect on my life. As of the current 
July/September report on my 403(b) account has sustained a loss 
of $38,000. I do not look forward to the next quarterly report. 
My situation is in shambles with expenses exceeding income. A 
lifetime of savings in catastrophic decline is most 
demoralizing.
    The bottom line is that I am retired and unable to re-earn 
those lost funds and now faced with the insecurity of outliving 
my rapidly declining 403(b) account. And that is worrisome for 
John and my future. The word ``fear'' looms on the horizon.
    I thank you for the opportunity to voice my concerns. It is 
my hope that concrete action will be initiated to rectify this 
economic crisis as soon as possible. We have reached critical 
mass.
    Thank you very much.
    [The prepared statement of Roberta Quan follows:]

                Prepared Statement of Roberta Tim Quan,
                   Retired Elementary School Educator

    My name is Roberta Tim Quan from San Pablo, California. I am 74 
years old. I retired as an elementary school educator from the Richmond 
School system in the East Bay. It was a rewarding career having 
instructed over 700 children in a span of 25 years.
    In the era of the 1960's, my husband John, was employed at the 
Lawrence Berkeley Laboratory. With our combined income, we were able to 
save almost an entire salary. Classically, expenses were for home 
mortgages, auto loans, utilities, health care, food and clothing, and a 
university education for our son. The cost of living was most 
reasonable at this time. Thus, planning for our future retirement, each 
month funds were payroll deducted into a 403(b) plan.
    Throughout the years, we looked forward to a reasonable retirement 
with the accumulating nest egg. Typically, retirement activities would 
include travel plans, lunch with friends, time spent with our 
granddaughter, and perhaps a health club membership. At age 70\1/2\, I 
began taking the Required Minimum Distribution from my 403(b) plan in 
the sum of about $550 per month. All appeared well.
    Those best laid plans did not occur due to several life-altering 
factors in the last several years. In 2000, John was diagnosed with 
Alzheimer's. I was his care giver for six years. As he entered the 
severe stage, I could no longer handle the 24/7 regimen. John was 
placed in a residential care home two years ago. The expenses ran 
$6,000/mo. * * * that breaks down to $200/day. Recently I transferred 
him to a facility costing $3,800/mo down to $127/day. One of his 
Alzheimer's medications runs $1,100 for a 3 month's supply. A recent 
bout with pneumonia resulted in a week's hospitalization for John. An 
unexpected and unbudgeted expense.
    Within the last few years, expenses have sky-rocketed. A litany of 
cost increases; i.e., health, home and auto premiums, fuel costs, 
utility bills, food bills, property taxes, etc. The cost of living was 
out of sight but the income remains modest. Overwhelmingly, the only 
alternative was to pare down expenses to the bare-bone where ever 
possible.
    The recent unstable financial crisis is having a devastating effect 
on my life. As of the current July-September report, my 403(b) account 
has sustained a loss of $38,000. I do not look forward to the next 
quarterly report. My situation is in shambles with expenses exceeding 
income. A life-time of savings in catastrophic decline is demoralizing.
    The bottom line is that I am retired and unable to re-earn the lost 
funds. I am now faced with the insecurity of outliving my rapidly 
diminishing 403(b) account. And that is worrisome for John and my 
future. The word ``fear'' looms on the horizon.
    I thank you for the opportunity to voice my concerns. It is my hope 
that concrete action will be initiated to rectify this economic crisis 
as soon as possible. We have reached critical mass.
                                 ______
                                 
    Chairman Miller. Thank you very much.
    Mr. Carroll.

              STATEMENT OF STEVE CARROLL, RETIREE

    Mr. Carroll. Thank you, Chairman Miller and Congresswoman 
Woolsey for providing this hearing. It is reassuring to me that 
you are determined to develop legislative relief to all of the 
citizens who have trusted our institutions who have operated 
strictly within the rules government and financial institution 
set for us, and who now find our much anticipated ``golden 
years'' rapidly morphing into years of ash and tears all 
through no fault or misdeeds of our own. My story is 
straightforward.
    Chuck Maisel, who is here today, and I formed a partnership 
as self-employed expository writers of educational exhibits and 
museums in 1972. In short, we planned the visitor's experience 
for each project. Over the years as we were self-employed we 
had to plan our future and retirement extra carefully. Over the 
years we bought home offices together and developed a mutually 
beneficial long range economic security plan. We paid cash for 
everything where possible, including our homes and vehicles. We 
strictly avoided credit card interest fees by paying each 
account in full each month.
    We selected Kaiser Health Plan for wholly reliable health 
insurance coverage for life for both of us. And we invested 
earned income in IRAs since 1974. Financial advisors urged us 
to put our IRAs in mutual stock funds. We followed that advice 
and have been under whelmed by the mutual funds performance.
    Just before retirement in 2005 we sold our mortgage-free 
home of many years for a very good profit and we purchased a 
smaller, much less expensive home. Being quite conservative in 
money management, we declined advice from two financial 
advisors who urged us to buy stock. We did not want to gamble 
security for riches. So we placed the remaining profits wholly 
in AA and AAA rated bonds. Additionally, we contracted a 45 
year 6.5 mortgage on our retirement home secured by our 
retirement investments.
    With careful budgeting we could live on the interest of our 
prudently purchased bonds through our golden years. At the time 
we developed this plan we were told that in case of bankruptcy 
of any of the bond insurers we would receive reimbursement for 
our bonds from the remaining assets before stockholders were 
paid.
    Chuck turned 70 in 1997 so he had to begin selling his IRA 
stock. I will reach 70 in 2011. Today we have the option of 
converting the IRAs into money market funds, but the net loss 
would be damaging and Chuck would have to pay taxes on the 
amount of any sales, well so would I. Working in concert with 
our financial advisor we decided to leave the IRAs as they were 
until the stock market rose again. In the interim we would 
coast nicely on the interest from our bonds.
    On Monday September 10th our investment broker at Morgan 
Stanley advised us that if we sold our Washington Mutual WaMu 
bonds, they were going down but we could sell them and save 45 
percent of our investment. But in light of the Treasury's 
recent history, WaMu would be shored up, we assumed, like 
Freddie and Fannie, Bear Stearns and AIG. IF we held on to the 
bonds, the worst that could happen was that WaMu would declare 
bankruptcy, in which we as bondholders would be reimbursed 
after first tier debt holders were compensated. So we 
``prudently'' hunkered down.
    Wham. The FDIC seized WaMu and its assets of over $300 
billion including, I suppose, our $100,000. The FDIC then sold 
these assets to JP Morgan Chase for just $1.9 billion. What a 
deal for Morgan Chase. We bondholders are left with zero, and 
who knows who will get the $1.9 billion. As the happy cats at 
JP Morgan trot down the road with our money, we seem to be left 
empty-handed thanks entirely to the FDIC's amazing action.
    Now Chuck and I, like millions of other citizens face ugly 
circumstances for our future. Excuse me. WE hope that we will 
receive interest payments from other bonds unless the FDIC 
pulls another midnight raid. But even so, our budget has been 
severely depleted for life. We still have IRAs, but as they are 
in mutual stock funds they are so far down in value that 
selling any of them right now, as the requires of Chuck's, the 
loss is an enormous percentage of our investment. We urge you 
to develop relief from the sell-and tax rules that destroy the 
security that IRAs were meant to create.
    Finally, of course, we hope that WaMu bondholders can 
recoup some of our losses through future market relief 
legislation that Congress may craft so that our home which was 
bought by the rules and with great prudence does not home in 
the depressed market competing with those of subprime borrowers 
and speculative flippers while we search for the new space 
under an overpass.
    Thank you for hearing our remarks. I would be happy to take 
any questions.
    [The prepared statement of Steve Carroll follows:]

              Prepared Statement of Steve Carroll, Retiree

    Thank you Chairman Miller and Congresswoman Woolsey for providing 
this hearing. It is reassuring to me that you are determined to develop 
legislative relief to all of us citizens who have trusted our 
institutions--who have operated strictly within the rules government 
and financial institutions set for us--and who now find our much 
anticipated ``golden years'' rapidly morphing into years of ash and 
tears--all through no fault or misdeeds of our own. My story is 
straightforward and will be short.
    In 1972 Chuck Maisel, who is here today, and I formed a partnership 
as expository writers. Although we have written in myriad formats our 
specialty grew to become the verbal content of educational exhibits and 
museums. In short we planned the visitors' experience for each project. 
Over the years we bought home offices together and developed a mutually 
satisfactory long-range economic security plan: We paid cash for 
everything where possible including our home and vehicles. We strictly 
avoided credit-card interest fees by paying each account in full each 
month. We selected Kaiser Health Plan for wholly reliable health 
insurance coverage for life for both of us. And we invested earned 
income in IRA's since 1974. Financial advisors urged us to put our IRAs 
in mutual stock funds. We followed that advice but have been under-
whelmed by the mutual funds performance/risk ratio.
    Just before retirement, in 2005 we sold our mortgage-free home of 
many years for a very good profit and we purchased a smaller, much less 
expensive home. Being quite conservative in money management, we 
declined advice from two financial advisors who urged us to buy stock. 
We didn't want to gamble security for riches so we placed the remaining 
profits wholly in AA and AAA rated bonds. The bonds are ``laddered'' to 
reach maturity regularly at various times. Additionally, we contracted 
a forty-year, 6.5% mortgage on our retirement home--from which we 
planed to be carried out in a hearse and a scholarship we have funded 
at Sonoma State University would inherit both the house and the our 
residual investment. The home loan is secured by our retirement 
investments. With careful budgeting, we could live on the interest of 
our prudently purchased bonds through our ``golden years. At the time 
we developed this plan, we were told that, in case of the bankruptcy of 
any of the bond issuers, we would receive reimbursements for our bonds 
from the remaining assets before stockholders and our bonds had AA and 
AAA ratings.
    In the interim Chuck turned 70 in 1997, so he had to begin selling 
his IRA stock. I will reach 70 in 2011. At this time we have the option 
of converting the IRAs into money market funds, but the net loss would 
be horrendous and he would have to pay taxes on the amount of sale. 
Working in concert with our financial advisor, we decided to leave the 
IRAs as they were until the stock market rose again. In the interim, we 
would coast nicely on the interest from our bonds.
    On Monday, September 22nd our investment broker at Morgan Stanley 
called to advise us that if we sold our Washington Mutual (WaMu) bonds 
we would lose 45% of our investment. But, in light of the US Treasury's 
recent history, WaMu would be shored up like Bear Stearns, AIG, Freddy 
and Fannie. If we held on to our bonds, the worst that could happen was 
that WaMu would declare bankruptcy, in which case we, as bondholders 
(unsecured senior debt holders), would be reimbursed after first tier 
debt holders were compensated. We ``prudently'' hunkered down.
    Wham! The FDIC seized WaMu, sold its assets of over $300 billion 
including, I suppose, our $100,000 and left us with nothing after the 
assets were sucked out of WaMu. FDIC then sold those assets to JP 
Morgan Chase for $1.9 billion. What a deal for Morgan Chase!! We 
bondholders are left with zero, and who knows who will get the $1.9 
billion? As the ``thin cats'' at J.P. Morgan trot down the road with 
our money, we seem to be left empty-handed thanks to the FDIC's 
precipitate action.
    Chuck and I, like millions of other citizens, face ugly 
circumstances for our future. We hope we still will receive interest 
payments from our other bonds--unless FDIC pulls another midnight raid. 
But even so, our monthly budget has been severely depleted for life. We 
still have our IRAs. But, as they are in mutual stock funds they are so 
far down in value that selling any of them right now, as the law 
requires of Chuck, the loss is an enormous percentage of the 
investment--and then he will be taxed on the total income from the sale 
to boot! We urge you to develop relief from the sell-and tax rules that 
destroy the security IRAs were to create.
    Finally, of course, we hope that WaMu bondholders can recoup some 
of our losses in future market relief legislation so that our home, 
which was bought by the rules and with great prudence, does not end up 
on this depressed market competing with those of sub-prime borrowers 
and speculative flippers while we search for living space under an 
overpass.
    Thank you for hearing my remarks. I will answer any questions I 
can.
                                 ______
                                 
    Chairman Miller. Thank you very much. Thank you for telling 
us the difficult circumstances you find yourself in.
    Dr. Hacker?

  STATEMENT OF DR. JACOB S. HACKER, PROFESSOR, UNIVERSITY OF 
                      CALIFORNIA BERKELEY

    Mr. Hacker. Chairman Miller and Congresswoman Woolsey. I 
appreciate the opportunity to appear before you today to 
discuss ways of expanding retirement security.
    Now as we have seen, the current financial market crisis 
has cast in stark relief the market risks that workers bear in 
the their 401(k)s. But what I want to emphasize today is that 
market risks are not the only risks transferred onto workers by 
401(k). And for this reason fixing 401(k)s will require more or 
smarter investments. It will require rebuilding our embattled 
private pension system full cloth.
    In essence, we have moved from the traditional three legged 
stool of retirement security, Social Security, guaranteed 
private pensions and private savings to a two legged stool: 
Social Security and private savings----
    Chairman Miller. Jacob, if I could interrupt. I think you 
are going to have to pull the mike closer to you.
    Mr. Hacker. Social Security and private savings, both 
inside and outside 401(k)s. And we all know how wobbly a two 
legged stool is.
    The move to 401(k)s has meant a massive shift of risk onto 
workers and their families. Unlike traditional guaranteed 
pensions, 401(k)s leave all participation and investment 
decisions to workers. So many choose not to participate or 
contribute inadequately. 401(k)s are not federally insured or 
adequately regulated to protect against poor asset allocations 
or mismanagement. And they provide no inherent protections 
against living longer than expected. Indeed, some futures of 
401(k)s, namely the ability to borrow against their assets and 
the distribution of their balances as lump sump sum payments 
that must be rolled over into new accounts when workers lose or 
change jobs exacerbate the risk that workers will prematurely 
use retirement savings leaving an adequate income in 
retirement.
    Now while current market risk are hitting those in or near 
retirement hardest, as we have learned today, perversely the 
risks that I am talking about are borne most heavily by younger 
and less highly paid workers, the very workers who are most in 
need of protection for the future.
    We spend more than $135 billion to subsidize IRAs and 
401(k)s through the tax code, yet fully 70 percent of these 
existing tax subsidies accrue to the richest 20 percent of the 
population.
    Now you may have heard that the average account balance in 
a 401(k) is around $60,000, yet roughly three-quarters of 
account holders have less than this average. The median or 
typical account balance is less than $20,000. And all these 
figures include only those who have 401(k)s when only half of 
workers have access to a plan at work and only around a third 
contribute to one.
    All of this suggests that our private system is failing to 
address the most fundamental risk of all, the risk or retiring 
without adequate income. Indeed, according to researchers at 
Boston College the share of working age households at risk of 
being financially unprepared for retirement at age 65 has 
jumped from 31 percent in 1983 to more than 43 percent in 2006. 
Younger Americans and lower income Americans are by far the 
most likely to be at risk.
    So 401(k)s require a comprehensive makeover, not small 
touch-ups. They need to be made universally available to 
workers, not just to those who employers who deign to provide 
them. Workers should receive progressive federal matches of 
their contributions. That is larger matches for less affluent 
workers with employers free to supplement those matches.
    The default investment option under 401(k)s should be a 
diversified portfolio that grows more conservative as workers 
age. And retiring workers should be encouraged or even required 
to convert their 401(k) balances into an annuity, a regular 
payment for the remainder of their life.
    Our framework of private risk sharing for retirement 
security has broken down. And the only way to rebuild it is to 
place it on a new and stronger foundation.
    Thank you.
    [The prepared statement of Jacob Hacker follows:]

        Prepared Statement of Jacob S. Hacker, Ph.D., Professor,
                   University of California Berkeley

    Thank you Chairman Miller and members of the House Committee on 
Education and Labor for the opportunity to share with you my views on 
the current financial crisis and the future of our nation's embattled 
framework for providing retirement security.
    My name is Jacob Hacker, and I am a professor of political science 
and co-director of the Center for Health, Economic, and Family Security 
at the University of California at Berkeley. I have devoted much my 
career to studying America's distinctive public-private system for 
providing economic security, including retirement security.
    Without mincing words, that retirement security is in peril. 
Increasingly, Americans find themselves on a shaky financial tightrope, 
without an adequate safety net if they lose their footing. A major 
cause of this precariousness is what I call the ``great risk shift.'' 
\1\ Over the last generation, we have witnessed a massive transfer of 
economic risk from broad structures of insurance, whether sponsored by 
the corporate sector or by government, onto the fragile balance sheets 
of American families.
    Retirement security is perhaps the clearest example of this shift. 
A generation ago, if a worker had been offered a retirement plan by his 
or her employer, it would have been a traditional guaranteed pension 
that looked much like Social Security. Today, those workers who are 
lucky enough to receive a pension--and roughly half the workforce 
continues to lack a pension at their job--are almost universally 
enrolled in individual account plans like 401(k)s, in which returns are 
neither predictable nor guaranteed.
    The current financial crisis has cast in stark relief the financial 
market risks that workers face in their 401(k) plans. But market risks 
are not the only risks transferred to workers by 401(k)s. And fixing 
401(k)s will require more than simply encouraging greater savings and 
more diversified investments. It will require rethinking and rebuilding 
the private pension system to fit the needs of a transformed American 
economy.
    In my remarks, I would like to review some of the major evidence 
that Americans planning for retirement are at increased economic risk. 
After laying out the problem, I call for bold action to restore a 
measure of shared risk in private retirement planning. My remarks are 
divided into five parts, each encapsulating a simple core point:
    1. Our traditional tripartite framework of retirement security 
(government, employers, individuals) has broken down as employers have 
backed away from guaranteed retirement benefits.
    2. This breakdown has resulted in a private pension system that 
works extremely poorly for lower- and middle-income Americans.
    3. The main way in which this system works poorly is with regard to 
protecting Americans against the major risks they face in planning for 
retirement.
    4. Because it takes so long for retirement pension systems to 
mature, the problems we see in our system today represent only the tip 
of the iceberg.
    5. Restoring a measure of shared risk will require fundamental 
reform of the 401(k) system, not simply the encouragement of more or 
smarter investments.
1. America's Distinctive--and Endangered--Retirement Security System
    America's framework for providing retirement security was 
historically referred to as a ``three-legged stool'': Social Security, 
private pensions, and personal savings. Each leg was supposed to carry 
an important part of the weight of securing workers' retirement. For 
lower-income workers, Social Security was far and away the most 
important leg of the stool. But for middle- and higher-income workers, 
tax-favored private pensions were assumed to be vital for achieving a 
secure retirement--especially after the Employee Retirement Security 
Act of 1974 put in place rules designed to ensure that defined-benefit 
pension plans would be properly run, broadly distributed, and secure.
    The problem is tnhat this unique employment-based system is coming 
undone, and in the process risk is shifting back onto workers and their 
families. As recently as twenty-five years ago, more than 80 percent of 
large and medium-sized firms offered a defined-benefit plan; today, 
less than a third do, and the share continues to fall.\2\ Companies are 
rapidly ``freezing'' their defined-benefit plans (that is, preventing 
new workers from joining the plan), and shifting them over to 
alternative forms (such as the so-called cash-balance plan) that are 
more like 401(k)s. For workers fortunate enough to receive a pension, 
401(k) plans have become the default source of private retirement 
protection.
    401(k) plans are not ``pensions'' as that term has been 
traditionally understood: a fixed benefit in retirement. They are 
essentially private investment accounts sponsored by employers. As a 
result, they greatly increase the degree of risk and responsibility 
placed on individual workers in retirement planning. Traditional 
defined-benefit plans are generally mandatory and paid for largely by 
employers (in lieu of cash wages). They thus represent a form of forced 
savings. Defined-benefit plans are also insured by the federal 
government and heavily regulated to protect participants against 
mismanagement. Perhaps most important, their fixed benefits protect 
workers against the risk of market downturns and the possibility of 
living longer than expected (so-called longevity risk).
    None of this is true of defined-contribution plans. Participation 
is voluntary, and many workers choose not to participate or contribute 
inadequate sums.\3\ Plans are not adequately regulated to protect 
against poor asset allocations or corporate or personal mismanagement. 
The federal government does not insure defined-contribution plans. And 
defined-contribution accounts provide no inherent protection against 
market or longevity risks. Indeed, some features of defined-
contribution plans--namely, the ability to borrow against their assets, 
and the distribution of their accumulated savings as lump-sum payments 
that must be rolled over into new accounts when workers lose or change 
jobs--exacerbate the risk that workers will prematurely use retirement 
savings, leaving inadequate income upon retirement. And, perversely, 
this risk falls most heavily on younger and less highly paid workers, 
the very workers most in need of protection.
    As private risk protections have eroded, in sum, workers and their 
families have been forced to bear a greater burden.\4\
    Rather than enjoying the protections of pension plans that pool 
risk broadly, Americans are increasingly facing retirement risks on 
their own. This transformation has at once made retirement savings less 
equal and more risky.
2. Unequal Retirement
    Today, the three-legged stool of retirement security is wobbly for 
all but the well off. Social Security still provides a guaranteed 
foundation of retirement security for low- and middle-income workers. 
But private pensions no longer provide the risk protections they once 
did, and private retirement savings are virtually nonexistent among 
less affluent workers.\5\
    The incentives for higher-income Americans to save have ballooned 
with the expansion of tax-favored investment vehicles like 401(k)s. Yet 
most Americans receive modest benefits from these costly tax breaks. 
According to a 2000 analysis, ``Treasury data show that two-thirds of 
the existing tax subsidies for retirement saving (including both 
private pensions and IRAs) accrue to the top 20 percent of the 
population. Only 12 percent of these tax subsidies accrue to the bottom 
60 percent of the population.'' \6\
    These skewed incentives are reflected in 401(k) account balances. 
It is often claimed that the ``average'' American has tens of thousands 
of dollars in a 401(k), but in fact roughly three-quarters of account 
holders have less than the widely cited average of $60,000. The median 
among account-holders is less than $20,000.\7\ And all these figures 
include only those who have 401(k)s, when only half of workers have 
access to a defined-contribution pension plan, and only around a third 
contribute to one. Overall, around 70 percent of defined-contribution 
pension and IRA assets are held by the richest fifth of Americans.\8\
    Even those who do contribute adequately tend to make common 
investing errors, like putting their money in low-yield bonds, 
neglecting to rebalance their accounts periodically, and over-investing 
in their own company's stock. As Professor Bernatzi points out in his 
testimony, these errors reflect well-understood biases in retirement 
planning that are deeply ingrained in the human psyche. Studies 
suggest, for instance, that simply automatically enrolling workers in 
401(k)s, rather than requiring that they opt in, doubles initial 
participation in 401(k) plans, increasing it to nearly 90 percent.\9\ 
Because of how they are subsidized and structured, 401(k)s are almost 
tailor-made to produce insufficient retirement savings for ordinary 
workers--and, indeed, this is one reason they are relatively 
inexpensive for employers to run.
    Much ink has been spilled comparing the returns of 401(k)s and old-
style pensions (according to a study of returns between 1985 and 2001, 
defined-benefit pension plans have actually won, earnings returns that 
exceed those of their upstart competitors by about 1 percent a 
year).\10\ But the central issue for retirement security is not the 
return, but the risk. Retirement wealth has not only failed to rise for 
millions of families; it has also grown more risky, as the nation has 
shifted more of the responsibility for retirement planning from 
employers and government onto workers and their families.
3. Risky Retirement
    The private retirement fortunes of all but today's oldest workers 
are dependent on the fate of 401(k)s. And this means, in turn, that 
these private retirement fortunes are dependent on the future of 
financial markets. As the recent gyrations of the stock market starkly 
reveal, financial markets provide an inherently risky basis for 
retirement planning.
    To be sure, there is nothing that requires that 401(k)s be invested 
in stocks. Workers are free to buy bonds or a conservative mix of 
stocks and bonds, and indeed a significant share of workers invest 
their 401(k)s too conservatively for their age (not surprisingly, these 
tend to be lower-income workers).\11\ Still, stocks do deliver a higher 
overall return. The problem is that this return comes with higher risk, 
and 401(k)s place all of this higher risk on workers, offering little 
of the investment guidance and none of the protections against economic 
loss that are inherent in defined-benefit pensions.
    The risks posed by 401(k)s go beyond investment risks to encompass 
nearly all of the managerial and savings responsibilities imposed on 
workers. Consider one of the most distinctive features of defined-
contribution plans: the ability of workers to take their pension as a 
``lump sum'' (that is, in the form of cash) when they leave an 
employer. As a means of protecting retirement wealth, this is of 
considerable benefit to workers who change jobs frequently--but only if 
they save the money. Unfortunately, ``most people who receive [lump sum 
distributions] do not roll over the funds into qualified accounts,'' 
such as IRAs and other 401(k)s--despite the fact that they must pay 
taxes on all their benefits, as well as a penalty of 10 percent if they 
are younger than 55.\12\
    A clue to the source of this seemingly irrational behavior is 
provided by research on what affects workers' use of lump sum 
distributions. Workers who are laid off are 47 percent less likely to 
roll over their distributions. Workers who move to get a new job are 50 
percent less likely. And workers who leave work to care for a family 
member are 77 percent less likely. ``Overall,'' as one economist 
concludes, ``the evidence suggests that pension assets have been used 
to buffer economic shocks to the household.'' \13\
    Finally, it is not so easy to turn a retirement account into a 
lifetime guaranteed income of the sort that Social Security and 
defined-benefit pensions provide. To protect oneself against this risk 
requires purchasing an annuity. Yet most people do not use their 401(k) 
accounts to buy an annuity--in part because of inherent weaknesses of 
the annuity market, in panrt because their balances are too small to 
make the transaction worthwhile, and in part because they discount the 
possibility that they will outlive their assets.
4. The Fallout
    The true effects of the 401(k) revolution on income in retirement 
have yet to be seen. We will only know them with certainty when today's 
younger workers start retiring. But the signs are already troubling. 
Among Americans aged 64 to 74 in 2005 (that is, born between 1931 and 
1941), nearly a third lost 50 percent or more of their financial wealth 
between 1992 and 2002--a rate of wealth depletion that will soon leave 
them confronting a complete exhaustion of their assets, a much-reduced 
standard of living, or both. The rate of wealth depletion was even 
higher among those who reported they were in poor health.\14\
    At the same time, debt is a rapidly growing among families with 
heads older than 55. Between 1992 and 2004, the median debt level among 
older families with debt rose from $14,498 to $32,000 (in 2004 
dollars), with the largest percentage increase occurring among the 
oldest of the aged (75 or over). The share of older families with debt 
also rose substantially--from 53.8 percent to 60.6 percent--and, again, 
most the increase was due to the growing problem of indebtedness among 
the oldest elderly.\15\
    These results suggest that while much attention has been paid to 
the accumulation of assets for retirement, far less has been devoted to 
the issue of how Americans manage their assets in retirement. Defined-
benefit plans and Social Security ensure that workers receive a 
relatively stable income as long as they live. There are no such 
guarantees when it comes to IRAs and 401(k) plans, and every reason to 
think that many retirees will exhaust their accounts well before they 
die.\16\
    A more complete--and even more worrisome--picture of how risky 
retirement has become for Americans is provided by the ``Retirement 
Risk Index,'' a comprehensive measure of retirement security 
exhaustively prepared by researchers at Boston College and first 
released in 2006. According to the index, the share of working-age 
households that are at risk of being financially unprepared for 
retirement at age sixty-five has jumped from 31 percent in 1983 to more 
than 43 percent in 2006. Younger Americans, who have borne the brunt of 
the transformation of retirement protections, are far more likely to be 
at risk than older Americans. Roughly half of those born from the mid-
1960s through the early 1970s are at risk of being financially 
unprepared, compared with around 35 percent of those born in the decade 
after World War II.\17\ The least financially prepared are low-income 
Americans--in every age group.
5. Restoring Retirement Security
    The promise of private pensions at their heyday was a secure 
retirement income that, when coupled with Social Security, would allow 
older Americans to spend their retired years in relative comfort. That 
promise is now in grave doubt. But reforms to our pension system could 
make private retirement accounts work better as a source of secure 
retirement income for ordinary workers and their families.
    In the context of the financial market crisis and increased private 
risk-bearing, securing our one guaranteed system of retirement 
security, Social Security, is all the more essential. But even with a 
secure Social Security system, today's workers will need other sources 
of income in retirement. 401(k)s as they are presently constituted are 
not the solution. Too few workers are offered them, enroll in them, or 
put adequate sums in them--a reflection of perverse incentives built 
into their very structure. Instead, we should create a universal 401(k) 
that is available to all workers, whether or not their employer offers 
a traditional retirement plan. Employers would be encouraged to match 
employer contributions to these plans, and indeed government could 
provide special tax breaks to employers that offered better matches to 
lower-wage workers.
    Since universal 401(k)s would offered to all workers, there would 
cease to be any problem with lump-sum payments when workers lost or 
changed jobs. All benefits would remain in the same account throughout 
a workers' life. As with 401(k)s today, this money could only be 
withdrawn before retirement with a steep penalty. Unlike the present 
system, however, 401(k)s would be governed by the same rules that now 
protect traditional pension plans against excessive investment in 
company stock. Moreover, I believe that the default investment option 
under 401(k)s should be a low-cost index fund with a mix of stocks and 
bonds that automatically shifts over time as workers age to limit 
market risk as workers approach retirement.
    After my criticism of 401(k)s, it may come as surprise that I think 
Universal 401(k)s are the best route forward. But the difference 
between universal 401(k)s with strong incentives for contributions and 
the present system are profound. What is more, I would recommend one 
dramatic additional change that would fundamentally improve 401(k)s, 
transforming them into a source of guaranteed retirement income: Under 
this proposal, 401(k) accounts would be converted into a lifetime 
guaranteed income at retirement--unless workers specifically requested 
otherwise and could show they had sufficient assets to weather market 
risk. These new annuities could be provided by private firms under 
strict federal rules or directly by the federal government. 
Interestingly, this proposal is not so different from an idea that was 
seriously considered by the developers of the Social Security Act in 
1935, who argued that the post office should sell low-cost annuities to 
those who needed them. In essence, universal 401(k)s along these lines 
would bring back something close to a guaranteed private pension.
    To help workers' plan ahead, moreover, 401(k) balances should be 
reported to account holders not simply as a cash sum, but also a 
monthly benefit amount that workers would receive when they retired if 
they had average life expectancy--just as Social Security benefits are 
reported.
    The reforms that we need should be bold, swift, and guided by a 
commitment to shared fate. Today, when our fates are often joined more 
in fear than hope, it is sometimes hard to remember how much we all 
have in common when it comes to our economic hopes and values. Indeed, 
we are more linked than ever, because the great risk shift has 
increasingly reached into the lives of all Americans. What recent 
market events remind us of is that, in a very real sense, all of us are 
in this together. Reforms to our embattled framework of retirement 
security should reflect that.
    Again, thank you Chairman Miller and members of the committee for 
the opportunity to share my views.
                                endnotes
    \1\ Jacob S. Hacker, The Great Risk Shift: The New Economic 
Insecurity and the Decline of the American Dream, rev. and exp. 
ed.m(New York: Oxford University Press, 2008).
    \2\ John H. Langbein, ``Understanding the Death of the Private 
Pension Plan in the United States,'' unpublished manuscript, Yale Law 
School, April 2006.
    \3\ Alicia H. Munnell and Annika Sunden, ``401(k) Plans Are Still 
Coming Up Short,'' Center for Retirement Research Issues in Brief 
Number 43b, Boston College, March 2006, available online at www.bc.edu/
centers/crr/issues/ib--43b.pdf.
    \4\ Incidentally, none of these effects was foreseen or intended. 
When Congress added Section 401(k) to the tax code in 1978 to resolve 
some longstanding disputes over profit-sharing plans offered by 
employers, no mention was made of the change, except a brief note in 
the congressional report on the 1978 legislation indicating that the 
effects would be ``negligible.'' Joint Committee on Taxation, General 
Explanation of the Revenue Act of 1978, 95th Congress, Joint Committee 
Print (1979), 84.
    \5\ According to a recent analysis of families with earnings 
between two and six times the federal poverty level ($40,000 to 
$120,000 for a family of four) and headed by working-age adults, more 
than half of middle-class families have no net financial assets 
whatsoever excluding home equity, and nearly four in five middle-class 
families do not have sufficient non-housing assets to cover three 
quarters of essential living expenses for even three months should 
their income disappear. Essential living expenses include food, 
housing, clothing, transportation, health care, personal care, 
education, personal insurance and pensions. Jennifer Wheary, Thomas M. 
Shapiro and Tamara Draut, By a Thread: The New Experience of America's 
Middle Class (New York: Demos, November 2007), available online at 
http://www.demos.org/pubs/BaT112807.pdf.
    \6\ Peter Orszag and Jonathan Orszag, ``Would Raising IRA 
Contribution Limits Bolster Retirement Security For Lower--and Middle-
income Families or Is There a Better Way?'' Center on Budget and Policy 
Priorities, Washington, D.C., May 2000, available online at 
www.cbpp.org/4-12-00tax.htm
    \7\ Employee Benefit Research Institute, ``401(k) Plan Asset 
Allocation: Account Balances, and Loan Activity in 2006,'' EBRI Issue 
Brief No. 308 (August 2007, available online at www.ebri.org/briefs/
pdf/EBRI--IB--08-20073.pdf.
    \8\ Peter Orszag, ``Progressivity and Savings: Fixing the Nation's 
Upside-Down Incentives for Savings,'' Testimony before the House 
Committee on Education and the Workforce February 25, 2004, available 
online at http://www.brookings.edu/views/testimony/orszag/20040225.pdf.
    \9\ Brigitte C. Madrian and Dennis F. Shea, ``The Power of 
Suggestion: Inertia in 401(k) Participation and Savings Behavior,'' The 
Quarterly Journal of Economics, Vol. 116, No. 4 (2006), 1159.
    \10\ Alicia H. Munnell and Annika Sunden, Coming Up Short: The 
Challenge of 401(k) Plans (Washington, D.C.: The Brookings Institution, 
2004), 75-77.
    \11\ Munnell and Sunden, Coming Up Short, chap. 4.
    \12\ Leonard E. Burman, Norma B. Coe, William G. Gale, ``What 
Happens When You Show Them the Money: Lump Sum Distributions, 
Retirement Income Security and Public Policy,'' Prepared for Second 
Annual Joint Conference for the Retirement Research Consortium (2000), 
available online at http://www.bc.edu/centers/crr/papers/SV-
2%20Burman%20Coe%20 Gale.pdf.
    \13\ Gary Engelhardt, ``Reasons for Job Change and the Disposition 
of Pre-Retirement Lump Sum Pension Distributions,'' Unpublished, 
available online at http://www-cpr.maxwell.syr.edu/faculty/engelhardt/
econletters.pdf.
    \14\ Craig Copeland, ``Changes in Wealth for Americans Reaching or 
Just Past Normal Retirement Age,'' Employee Benefits Research Institute 
Issue Brief No. 277 (2005), 18.
    \15\ Employee Benefit Research Institute (EBRI), Debt of the 
Elderly and Near Elderly, 1992-2004 (Washington, D.C.: EBRI, September 
2006), available online at www.ebri.org/pdf/notespdf/EBRI--Notes--09-
20061.pdf.
    \16\ Jeffrey R. Brown, ``How Should We Insure Longevity Risk in 
Pensions and Social Security,'' Center for Retirement Research, An 
Issue in Brief 4 (August 2000), available online at http://www.bc.edu/
centers/crr/issues/ib--4.pdf.
    \17\ Alicia H. Munnell, Francesca Golub-Sass, and Anthony Webb, 
What Moves the National Retirement Risk Index? A Look Back and An 
Update (Boston: Boston College Center for Retirement Research, January 
2007), available online at http://crr.bc.edu/images/stories/Briefs/ib--
57a.pdf.
                                 ______
                                 
    Chairman Miller. Thank you very much.
    Mr. Davis? And, again, if you'll pull the mike.

 STATEMENT OF MARK DAVIS, PERTNER, KRAVITZ DAVIS SANSONE, INC.

    Mr. Davis. Good morning, Mr. Chairman and Congressman 
Woolsey. Thank you for the opportunity to speak with you today. 
My name is Mark A. Davis and I am a principal in a Kravitz 
Davis Sansone, a registered investment advisor that is part of 
the Kravitz organization. We serve only qualified plans, their 
sponsors and participants. We administer more than a thousand 
plans, mostly of smaller employers, and we serve as fiduciary 
advisor or investment manager on more than 180 plans of all 
sizes. We also provide employee meeting and investment 
education services primarily to smaller companies. I am an 
independent investment advisor, and in that capacity I do not 
receive any compensation without the contractual approval of 
plan sponsors. In most cases I am paid by the plan sponsor or 
the plan at the direction of the sponsor.
    I want to start by adding my voice to those that have 
expressed appreciation for the hard work done by this Committee 
on retirement security issues, particularly in regards to the 
fee disclosure. As we sit here today in the third week of a new 
calendar quarter, American workers are beginning to receive 
their retirement plan statements for the period ending 
September 30th. It is unfortunate that millions of those plan 
participants will be receiving statements that do not disclose 
the fees that are being charged, all the more disturbing in the 
current performance environment. The sunshine of better 
disclosure is badly needed. Thank you for your continued 
efforts.
    The private retirement system, flaws and all, has been a 
huge success in helping Americans build real wealth for 
retirement and to pass that wealth on to future generations. 
Everyday we see Americans who are benefitting from the savings 
discipline that these plans impose. Even with the market 
turmoil my team tells me that for every person raising concerns 
about their balances, there are many others vocal in their 
determination to stay with the program to build their 
retirement nest eggs.
    On Friday of last week I met with three different groups of 
employees at a manufacturing in Texas. The first two meetings 
were for shift workers, one group coming on, one group going 
off most of whom spoke Spanish as their primary language. While 
clearly concerned with the economy, these men were unified in 
their enthusiasm for their 401(k) plan and the profit sharing 
contributions their employer provides. I have served this plant 
since 2000 and I have come to have a warm relationship with 
many of these gentlemen, despite the language and cultural 
divide that separates us. They have the experience now to know 
that we got through the last downturn and we will get this one, 
too. For these workers the plan is a highly valuable means of 
saving for retirement and of sharing in the success of their 
company. For many, it is their first and only means of saving 
and building a stake in the system.
    Some more examples of what we are seeing and experiencing 
today. Last week a company whose education services are 
provided by a large financial institution received a call from 
an irate participant accusing them of having taken $10,000 out 
of his account. This participant simply did not understand that 
the value of his retirement account could go down.
    A 52 year old employee of a Texas retailer told me he 
couldn't stand the volatility in his plan anymore and he wanted 
to take what was left of his money out to ``pay off his house'' 
so his family would have somewhere to live when he got fired. I 
did the best I could to give him the pros and cons of such a 
move, but in the end he was determined to find a way to get at 
the money even though he'd have to pay a 10 percent penalty tax 
on top of income tax.
    I also spent time on the phone with an attorney who was 
irate that his ability to trade his account had been limited by 
his financial institution vendor, a practice put in place in 
2004 in response to regulatory pressures stemming from the 
mutual fund trading scandals.
    Make no mistake, investment sophistication has no 
correlation to the color of the collar. Many blue collar 
Americans are no more at sea than many of their white collar 
counterparts. There is a huge need to educate all Americans 
from their earliest years, and that education cannot be left to 
the private sector.
    Plan sponsors are faced with unique challenges that are 
evolving even as we sit here today. Recent volatility has 
forced several plans we serve to put much needed changes on 
hold. Making plan level investment changes has been made much 
more difficult and needlessly complex by the inconsistent 
enforcement of short term redemption fee policy as I alluded to 
a while ago. Every mutual fund company and financial 
institution has its own rules and they are not enforced 
consistently.
    Many plan sponsors in the small planner area of the 
marketplace use a annuity products from insurance companies as 
the primary vehicle for their retirement plan. While these 
produced when used properly offer an excellent means of 
providing a retirement benefit program, often they come with a 
catch. The only alternative made available for the most risk 
adverse participants are ``guaranteed accounts'' which 
consisted of investments in the general account of the 
sponsoring insurance company and limitations on withdrawing 
from these accounts and sponsors are extreme.
    It is our understanding that the event of a liquidation of 
an insurer these accounts would have only marginal preference 
over others. We have seen plans with 60 to 70 percent of their 
assets invested in these vehicles. On an absolute basis the 
returns may look good this year, but no one would argue that 
investing 60 to 70 percent of a plan's assets in a bond of any 
one insurer would be prudent. It is critically important that 
just as participants need to diversity their investments, plan 
sponsors need to offer diversified investment choices. As far 
as I know, the Department of Labor has not focused on this 
issue.
    I would like to close with some thoughts regarding the 
current state of the private sector investment education. 
Throughout the decade of the '90s as defined benefit plans gave 
way to DC plans we shifted the burden for funding and investing 
from sponsors to participants with no corresponding shift of 
education. It is critical that the Departments of Labor and 
Education be urged to work together from kindergartners to 12th 
grade should be taught basic financial principles as a means of 
getting ready for the future generations of Americans hungry 
for and prepared to handle the retirement plans their future 
employers will offer.
    Thank you for your time.
    [The prepared statement of Mark Davis follows:]

            Prepared Statement of Mark A. Davis, Principal,
                      Kravitz Davis Sansone, Inc.

    Good morning Mr. Chairman and members of the Committee. Thank you 
for the opportunity to speak with you today. My name is Mark A. Davis 
and I am a principal in Kravitz Davis Sansone, Inc. a registered 
investment advisor that is part of the Kravitz organization. Kravitz is 
the largest independent pension design, consulting and management firm 
headquartered in California. All we do is service qualified plans, 
their sponsors and participants. Kravitz administers more than 1,000 
plans, mostly of smaller employers, and we serve as fiduciary advisor 
or investment manager on more than 180 plans of all sizes. We also have 
a team that spends a great deal of time providing employee meeting and 
investment education services primarily to smaller companies. I am an 
independent investment advisor, and in that capacity I do not receive 
any compensation without the contractual approval of plan sponsors--in 
most cases I am paid by the plan sponsor or the plan at the direction 
of the sponsor.
    I want to start by adding my voice to those that have expressed 
appreciation to the hard work done by this Committee on retirement 
security issues, particularly in regards to fee disclosure. As we sit 
here today in the third week of a new calendar quarter, American 
workers are beginning to receive their retirement plan statements for 
the period ending September 30. It is unfortunate that millions of 
those plan participants will be receiving statements that do not 
disclose the fees that they are being charged. It is all the more 
disturbing in the current performance environment--participants pay 
those same hidden fees regardless of market losses. The sunshine of 
better disclosure is badly needed--and thank you for your continued 
efforts.
    The private retirement system, flaws and all, has been a huge 
success in helping Americans build real wealth for retirement and to 
pass that wealth on to future generations. This includes not just 
401(k) plans but also 403(b) and 457 plans as well that are used in the 
public sector. Every day we see Americans who are benefiting from the 
savings discipline that these plans impose. Even with the market 
turmoil my team tells me that for every person raising concerns about 
their balances there are many others vocal in their determination to 
stay with the program in order to maximize their long-term 
opportunities to build their retirement nest-eggs. On Friday of last 
week I met with three different groups of employees at a manufacturing 
firm in Texas. The first two meetings were for shift workers, one group 
coming on and one group going off, most of whom spoke Spanish as their 
primary language. While clearly concerned with the economy, these men 
were unified in their enthusiasm for their 401(k) plan and the Profit 
Sharing come to have a warm relationship with many of these gentlemen, 
despite the language and cultural divide that separates us. They now 
have the experience to know that we got through the last downturn and 
we will get through this one too. For these workers the plan is a 
highly valuable means of saving for retirement and of sharing in the 
success of their company. For many it is their first and only means of 
saving and building a stake in the system.
    It is exciting to note how different the services participants have 
available to them during this downturn are. When the last bubble burst 
and the market fell from 2000 to 2002 we did not have as many tools to 
help as we do now. Very few plans had the chance to use diversified 
tools like target maturity funds. Automatic enrollment and Qualified 
Default Investment Alternative protocols were not yet prevalent. Advice 
and managed account tools had very little market penetration. During 
those years people in my profession did the hard work of comforting and 
educating employees, encouraging them to ``stay the course'' and keep 
contributing, assuring them that some day the market would actually go 
up again. Those participants saw significant and real gains during the 
bull market run from 2003 through 2007. While this recovery, whenever 
it comes, won't happen in the same way or on the same timeline, long 
term it will have the same effect.
    Let me give you some more examples of what we are seeing and 
experiencing today. My associates and I have met or communicated by 
phone or email with scores of participants in the past few weeks.
    You have heard statistics concerning the increase in applications 
for loans as well as hardship and other in-service distributions. Our 
team that processes loans and withdrawals for the clients we serve, who 
are again, primarily small businesses, has seen a moderate increase in 
the number of loans requested over the last year and a significant 
increase in requests for hardship withdrawals during that same period.
    Last week a company whose education services are provided by a 
large financial institution received a call from an irate participant 
accusing them of having ``taken $10,000 out of his account''. My client 
explained that the drop was due to market losses and made it clear that 
the participant was not experiencing anything that was unique to him. 
This participant simply did not understand that the value of his 
retirement account could go down.
    A 52 year old employee of a Texas retailer told me he couldn't 
stand the volatility in his plan anymore and he wanted to take what was 
left of his money out to ``pay off his house'' so his family would have 
somewhere to live when he got fired. I did the best I could to give him 
the pro's and con's of such a move, but in the end he was determined to 
find a way to get at the money even though he would have to pay a 10 
percent penalty tax on top of income tax.
    I spent time on the phone with an attorney who was irate that his 
ability to trade his account had been limited by his financial 
institution vendor, a practice put in place in earlier this decade.
    There are times when the business of conducting employee education 
meetings is truly rewarding. Helping people to understand and maximize 
their opportunities for retirement savings success is a mission for 
many of us in the field. For most working Americans, the closest they 
will ever get to professional investment advice are the encounters they 
have with investment educators, either independents, like us, or 
employees of their primary retirement services vendors. There are also 
times when it can be very challenging counseling participants, 
particularly older ones, who have experienced sometimes significant 
investment losses. But make no mistake. Investment sophistication has 
no correlation to the color of the collar. Many blue-collar Americans 
are no more at sea than many of their white-collar counterparts. There 
is a huge need to educate all Americans, from their early years, on the 
basics of financial education, from retirement savings to mortgage 
rates. That education cannot be left to the private sector.
    Automatic enrollment has also spawned a new and potentially culture 
changing waive of co-opted participation among employee and people 
groups that have been unintentionally ``carved out'' by prior positive 
enrollment protocols. Unfortunately many of these new automatic 
enrollment programs have just been put in place in this year. The 
result is that many first time participants have been brought into the 
system and invested in diversified portfolios, most frequently age 
based target maturity funds, and have experienced unprecedented 
downdrafts in the last few months. Some of these people feel distraught 
committed long enough for them to benefit from the long term return of 
market stability and success. More education is called for.
    Plan sponsors are faced with unique challenges that are evolving 
even as we sit here today. The recent volatility has forced several 
plans we serve to put much needed changes on hold as Human Resources 
staffs have balked at making changes that might scare employees. Making 
plan level investment menu changes has also been made much more 
difficult and needlessly complex by the inconsistent enforcement of 
short-term redemption fee policies resulting from the trading scandals 
earlier this decade. Every mutual fund company and financial 
institution has its own rules and they are not enforced consistently. 
Both sponsors and participants are intimidated and confused by the 
inconsistencies.
    Many plan sponsors, particularly in the small plan area of the 
marketplace, use annuity products from insurance companies as the 
vehicle for their retirement plans. These products generally offer a 
broad array of investment choices, managed by multiple, diverse 
investment managers, from which the sponsor can select an investment 
menu to offer participants. They have evolved greatly over the years 
and when used properly can offer an excellent means for providing a 
retirement benefit program. Often, though, they come with a ``catch''. 
The only alternative some of these products make available for the most 
risk averse participants are quote ``guaranteed'' accounts. In many if 
not most cases we have seen these consist of investments in the General 
Accounts of the sponsoring these accounts is severely constrained in 
return for the perceived value of the ``guarantee''. It is our 
understanding that, in the event of a failure of an insurer, these 
accounts would have only marginal preference over other creditors in 
the event of insolvency of the insurer.
    We have seen plans with 60-70% of their assets invested in such 
vehicles. While on an absolute return basis they may look good this 
year, no one would argue that investing 6070% of a plan's assets in a 
bond of that one insurer, or the stock of that one insurer, or any one 
company for that matter, would be prudent. Yet that is exactly what 
many plans are doing. We know from brutal experience that most 
participants who use these investments have no idea of the risks to 
which they are truly exposed. They believe the word ``guarantee''. In 
these days of volatility, much money is pouring in to these accounts at 
the exact time that many insurers are under the most extreme pressure. 
It is critically important that just as participants need to diversify 
their investments, plan sponsors need to offer diversified investment 
choices. As far as I know, the Department of Labor has not focused on 
this.
    If I may I would like to take a moment to offer you my thoughts 
regarding the current status of investment education in the retirement 
system. When I began my career in 1991, I joined the ``Employee 
Communications'' department of a major financial services firm. Within 
a year the department's name, and function, was radically changed. Over 
night we became the ``Investment Education'' department as that became 
a sales investments that we offered, under the name and restrictions of 
``guidance'' not ``investment advice''. Throughout the decade of the 
1990's, as defined benefit plans gave way to defined contribution plans 
as a society we shifted the burden for retirement funding and investing 
from sponsors to participants. We did so without any corresponding 
emphasis on education. We relied on the private sector to provide 
educational services. The private sector cannot be blamed for doing 
what is in its own best interests, creating better future clients for 
itself. It is not in the financial interest of most vendors to spend 
much time educating the great bulk of American participants, most of 
whom will never be future clients for most of those firms.
    We have seen this all too clearly with several clients. One client, 
whose business involves a large number of non-highly compensated 
employees who do physical labor, has a high percentage of employees for 
whom English is not their primary language. Our client offers a very 
generous employee matching contribution which very few of their non-
highly compensated employees were taking good advantage of. When the 
client changed vendors and added an automatic enrollment protocol, they 
met with participants in one on one sessions in the language of their 
choice, and were able to get employees to truly embrace the program. In 
retrospect many of the employees had not really understood the plan and 
felt it wasn't for them. The pictures and images in all of the 
enrollment materials used by their prior vendor depicted employees and 
smiling retirees who were not culturally representative of the broader 
range of our client's employees.
Excellent benefit for all employees
    I want to strongly encourage future efforts at cooperation between 
the Departments of Labor and Education. If Americans are to be given 
the responsibility to manage their own retirement investments as a 
means of lessening the liability of both employers and society, then 
students from Kindergarten through 12th grade should be taught basic 
financial principles as a means of getting ready. We still teach 
Trigonometry, but most Americans graduate high school without knowing 
the importance of savings, or how credit cards, car loans, and 
mortgages work. Proper long term education, across cultural lines, will 
make future generations of Americans hungry for and prepared to handle 
the retirement plans their future employers will offer.
    The current volatility, and the damage it has done, cannot be 
undone in the near term. Steps like a temporary repeal of minimum 
required distribution rules may help to alleviate some of the worst 
pain. You may also want to consider temporarily encouraging all plans 
to offer hardship withdrawal provisions to prevent foreclosure and 
eviction. Other steps that encourage more diversified stable value 
investing and discourage the use of general account products for ERISA 
assets will also help. If this Committee can help to clarify and make 
more consistent the rules that govern short term redemption fees and 
transaction limitations that will remove a major cause of unnecessary 
plan complexity. Most importantly if you can charge the Departments of 
Labor and Education to work together to better educate future American 
workers some of
    Thank you for your time. I will be pleased to answer any questions 
that I can.
                                 ______
                                 
    Chairman Miller. Mr. Joyce?

 STATEMENT OF TIF JOYCE, PRESIDENT, JOYCE FINANCIAL MANAGEMENT

    Mr. Joyce. Thank you, Mr. Chairman, for this opportunity to 
speak to you today. And I look forward to your questions.
    My name is ``Tif'' Joyce. And I have the good fortune to 
have been born and raised in the bay area and have lived my 
entire life here in Northern California.
    For more than 20 years I have been working as a certified 
financial planner. And eight years ago my wife Judy and I 
started Joyce Financial Management. We are a small business 
with just one employee specializing in retirement planning and 
fee-based asset management for individual families and some 
small businesses. Only a handful of our plans could be 
considered by wealthy by today's standards. And about 40 
percent of them are already retired.
    We believe it is important to educate people that market 
ups and down are normal, and we emphasize finding out the 
clients' true risk tolerance before they got through a market 
decline. Then afterwards we encourage them to buy ``on sale,'' 
as it were which is how they can learn that you can use risk to 
your advantage.
    Our clients are weathering this storm because they have 
reasonable expectations, age appropriate diversification, and 
we continually stay in touch to support them.
    I am not an expert in macro-economics or public policy, but 
I do hope to offer you some ``real world'' perspective from 
Main Street consumers and their advisors.
    First, after they calm down, people view the recent turmoil 
as the latest in an ongoing string of challenges that must be 
overcome. We need to fix our problems because we have no 
choice.
    At times like this, both investors and government alike 
need to be concerned about overreaction and trying to create 
permanent solutions for temporary problems.
    If you ask most voters what they think of a new national 
defined benefit plan, I strongly believe they would say please 
fix Social Security first.
    On October 7th, a witness testified before this Committee 
stating that our nation's pain and chronic anxiety is caused by 
the corrosive effects of 401(k) plans. I suggest to you it has 
much more to do with 9/11, gasoline prices and war.
    People understand that life is not always fair and they do 
not expect government to legislate certainty. Let us also keep 
in mind that huge numbers of people have successfully used 
retirement plans as exactly as they were originally intended to 
be used.
    Second, please do not give up on the idea of educating 
people about money, as has been suggested to you. Now more than 
ever we need to be a nation of informed consumers. People want 
government to help, but more importantly they aspire to be 
independent and self-reliant. But how can you realize the 
American dream without at least some financial know how? 
Unfortunately mere disclosure of information is not education. 
If it were, then schools would only need libraries, and they 
could fire all the teachers.
    In our homes, schools, businesses, in our entire culture we 
desperately need to promote the daily application of good 
financial habits.
    Ultimately, I believe that good can come from this 
financial crisis.
    Thank you again, and I look forward to your questions.
    [The prepared statement of Tif Joyce follows:]

    Prepared Statement of Thomas F. ``Tif'' Joyce, Joyce Financial 
                               Management

    October 22, 2008 Thank you, Mr. Chairman and committee members, for 
the opportunity to speak to you today and I look forward to your 
questions.
    My name is (Thomas F.) ``Tif'' Joyce. I have had the good fortune 
to have been born and raised in the bay area and have lived my entire 
life here in Northern California. For more than 20 years I have been 
working as a Certified Financial Planner, and 8 years ago, my wife Judy 
and I started Joyce Financial Management.
    We are a small business with just one employee, specializing in 
retirement planning and fee-based asset management for individuals, 
families and some small businesses. Only a handful of our clients could 
be considered wealthy by today's standards, and about 40% of them are 
already retired.
    It's important to educate people that market ups and downs are 
normal, and we emphasize finding out our clients' true risk tolerance 
before they go through a market decline. Then we encourage them to buy 
``on sale,'' which is how they learn that you can use risk to your 
advantage. Our clients are weathering this storm because they have 
reasonable expectations, age-appropriate diversification, and we 
continually stay in touch to support them.
    I am not an expert in macro-economics or public policy, but I do 
hope to offer your some ``real world'' perspective from Main Street 
consumers and their advisors.
     First, after they calm down, people view the recent 
financial turmoil as the latest in an ongoing string of challenges that 
must be overcome. We need to fix our problems because we have no 
choice.
    At times like this, both investors and government alike need to be 
concerned about overreaction and trying to create permanent solutions 
for temporary problems.
    If you ask most voters what they think of ``a new national defined 
benefit plan'' I strongly believe they would say, ``Please fix Social 
Security first.''
    On October 7th, a witness testified before this committee stating 
that our nation's pain and chronic financial anxiety is caused by the 
corrosive effects of 401k plans. I suggest to you it has much more to 
do with 9/11, gasoline prices and war.
    People understand that life is not always fair and they don't 
expect government to legislate certainty. Let's also keep in mind that 
huge numbers of people have successfully used retirement plans exactly 
as they were intended to be used.
     Second, please do not give up on educating people about 
money!
    Now, more than ever we need to be a nation of informed consumers. 
People want the government to help, but more importantly, they aspire 
to be independent and self reliant.
    But, how can they realize the ``American Dream'' without at least 
some financial ``know-how?'' Unfortunately, mere disclosure of 
information is not education. If it were, then schools would only need 
libraries, and they could fire all the teachers!
    In our homes, schools, businesses--in our entire culture--we 
desperately need to promote the daily application of good financial 
habits.
     Ultimately, I believe that good can come from this 
financial crisis. Thank you, again, and I look forward to your 
questions.
                                 ______
                                 
    Chairman Miller. Thank you.
    Dr. Benartzi?

STATEMENT OF DR. SHLOMO BENARTZI, PROFESSOR AND CO-CHAIR OF THE 
  DECISION MAKING GROUP, UNIVERSITY OF CALIFORNIA LOS ANGELES 
                 ANDERSON SCHOOL OF MANAGEMENT

    Mr. Benartzi. Thank you. Thank you for the opportunity to 
share with you my thoughts.
    I have been studying participant behavior in retirement 
plans I think since the day I arrived in the U.S., so that is 
about 20 years ago. And I am delighted to share with you my 
concerns and my thoughts for what could be done.
    Let me start by highlighting a couple of behavioral 
principles that I think could actually make people lose a lot 
of money and lose their retirement security, especially in the 
current environment.
    The first behavioral tendency we know we lot of plan 
participants and individuals in general have is what we call 
buy high, sell low. It is a very unfortunate pattern, but we 
have seen over probably the last 20 years or so that plan 
participants have this, unfortunately I will call it talent or 
ability to predict the market. The only problem they tend to 
buy at the peak and they tend to get scared at the bottom. And 
they actually do identify the bottom, they just sell at the 
bottom. It is such a strong pattern that there are actually 
companies out there selling information on what plan 
participants do to hedge funds who do the exact opposite. So 
that is a big concern that participants would sell at the 
bottom.
    The second behavioral tendency that I think that we should 
be aware of is what we call myopic loss aversion. And that 
fancy term is really about the obsession that people have with 
short term losses. Even when they have 40 years until 
retirement, they really often focus on short term results and 
particular losses. They might actually sell at the bottom and 
then go into a cash account for the next ten years. That would 
not create the right long term growth that a lot of people 
need.
    And the last behavioral tendency I want to touch on has to 
do with excessive extrapolation, a term that you could view as 
chasing performance. People look at the last few years. If 
stocks have done well, then they would buy a lot of them. If 
they have done poorly for a couple of years, they will sell 
them. This is particularly a problem in the case of company 
stock where people put all of their retirement saving in one 
stock, not only one stock the stock of the company they work 
for. As we learned from Enron and more recently from a lot of 
financial institutions chasing performance, buying into a 
company stock after a couple of years if it went up, which 
happened to a lot of financial institutions in '05 and '06, 
could have devastating--devastating results of losing your jobs 
and retirement savings at the same time.
    I do not want to scare to everyone and say that everything 
will go wrong. The recent behavioral tendency that actually 
works the other way, which is inertia. That people tend to do 
nothing about their retirement savings. Typically it is a bad 
thing. They do not join the plan. They do not start saving. 
They forget to adjust their investments all the time. But in 
the case of the current environment there is a good chance that 
inertia and doing nothing would actually prevent people from 
bailing out at the wrong time.
    So these are kind of the behavioral principles that I see 
at play now that could possibly help people's financial 
security. What can we do about these?
    I want to highlight a couple of simple proposals, most of 
them have the flavor of not forcing companies to do anything 
different but highlighting best practices. So my idea is that 
Congress could help a lot by really shedding light on what we 
consider to be the right way to design retirement plans without 
necessarily mandating things.
    We have seen with the Pension Protection Act where I think 
Congress did a wonderful job that merely endorsing automatic 
enrollment into retirement plan could have a huge difference on 
plan sponsors adopting these techniques without necessarily 
forcing anything.
    So three areas of improvement:
    Number one, participant information. We have a tendency in 
our reports to focus on short term results. We have quarterly 
reports. For some reason a lot of plan providers, mutual fund 
companies believe that that means we have to highlight the last 
quarter on the first page. Well, I understand the law. The law 
says you have to provide that information, but nobody said that 
we cannot start a report, a quarterly statement with long term 
results. And having the short term, the myopic focus on short 
term losses be on page 7. These are long term retirement plans, 
we have to focus on long term results.
    Mere endorsement of the fact that we could have different 
quarterly statements that highlight first longer term results 
potentially converted to retirement income projections could 
make a difference. In the current environment nobody would 
provide long term projections. No mutual fund company would 
take the risk of making assumptions about what your saving 
pattern means in terms of your projected retirement income. If 
we just allowed that endorsement, what would be the quarterly 
statements at the end of December this year? Very simple. They 
would show most people a decline of maybe two percent in their 
projected retirement income 40 years down the road. Because 
they still have many years to save.
    Instead we provide statements that say well you had $8,000 
last quarter and now you only have 5, and people do, they get 
scared. They do not know how to interpret, how to put these 
numbers in perspective.
    I am going to skip my comments on company stock because I 
am running out of time and just touch a bit on the other end of 
the spectrum, that is retirement income.
    As other people have commented, retirement plans are really 
there to provide retirement income. And the defined 
contribution plans are not doing a good job there. In a sense 
the Pension Protection Act has done a great job on getting 
people starting to save, having been ways they are saving all 
the time, but have remained silent on what is an appropriate 
retirement income solution. Without any guidance from Congress 
on best practices, employers will not offer retirement income 
solutions. They will not take the legal risk.
    What does it mean for Americans? It means when they join a 
company they will start saving automatically, their saving 
rates will go up and then as soon as they retire, they will get 
the lump sum from the employer and be left on their own. If 
that happened in October of last year, it would mean that today 
they would have half the assets they had last year.
    I think mere endorsement of what is an appropriate 
retirement income solution would make a huge difference, 
especially in the current environment.
    About a year ago I think annuity products looked safe. 
Nowadays as we have seen a lot of insurance companies 
mishandling how they handle risk, I think there are big 
concerns what is an appropriate retirement income solution. And 
I believe that if we put them together so 401(k) plans would be 
more holistic, it is not just about the accumulation stage, it 
is a life long plan combining how you save for retirement and 
how you draw down your assets. Some blessing from Congress on 
best practices would go a long way without forcing or creating 
any burden on employers.
    Thank you very much.
    [The prepared statement of Shlomo Benartzi follows:]

 Prepared Statement of Dr. Shlomo Benartzi, Professor and Co-Chair of 
    the Decision Making Group, University of California Los Angeles 
                     Anderson School of Management

    Thank you Chairman Miller and members of the House Committee on 
Education and Labor for the opportunity to share with you my views on 
behavioral finance, the market crisis and retirement savings.
    My name is Shlomo Benartzi. I am a Professor and co-chair of the 
Behavioral Decision Making Group at the Anderson School of Management 
at UCLA. I am also co-founder of the Behavioral Finance Forum (BeFi). I 
have spent the last 15 years researching participant behavior in 401(k) 
plans, with a particular focus on using behavioral economics to 
increase retirement savings and retirement security. Some of you might 
be familiar with the automatic savings increase program Richard Thaler 
of the University of Chicago and I designed about a decade ago, which 
we dubbed Save More Tomorrow (or SMarT).
    Let me begin my testimony by outlining the behavioral principles 
that guide retirement savers and how these behavioral tendencies could 
undermine the retirement security of 401(k) participants in the current 
environment. To keep this report brief, let me focus on just three 
behavioral principles that could weaken retirement security.
1. Buy High, Sell Low
    Individuals have a tendency to buy at the peak, and then panic when 
markets drop and sell at the bottom. We saw this happen with the 
Internet bubble when individuals bought a lot of technology stocks at 
the end of 1999 and the beginning of 2000 right before the market 
crashed. We also saw individuals pulling money out of the stock market 
in 2002 right before the market started to go up. There is a real 
concern that individuals will repeat the same mistake during this 
market crisis and sell at the bottom and perhaps even stop contributing 
to their retirement plan.
2. Myopic Loss Aversion
    The term ``myopic loss aversion'' refers to the tendency of 
individuals to focus on short-term losses, even if they have 20 or 30 
years until retirement. The myopic focus on short-term losses could 
result in individuals chasing safety and placing all their retirement 
savings in cash. And, we know that a portfolio invested 100 percent in 
cash is unlikely to provide the long-term growth that many individuals 
need to fund their retirement. The unusual market volatility we have 
experienced over the past few weeks and months could magnify the degree 
of myopia and loss aversion individuals display.
3. Excessive Extrapolation
    Individual investors tend to place too much weight on past 
performance. For example, many buy stock funds after they see a few 
years of positive returns. Similarly, the propensity of employees to 
invest in company stock is highly correlated with the past performance 
of company stock. I suspect that a lot of employees who were chasing 
performance and invested heavily in company stock a couple of years ago 
have recently suffered major losses. This probably includes many 
employees of financial institutions who invested in company stock and 
lost their savings and jobs at the same time. Interestingly, 
preliminary data on recent activity in 401(k) plans indicates that the 
average participant moved money into company stock in September and 
early October, probably misjudging the risk of company stock.
    The three behavioral principles outlined above highlight the risk 
of individuals mismanaging their retirement savings, especially in the 
current economic environment. And, I do believe some retirement savers 
will panic and bail out of the stock market at the wrong time. I also 
believe, however, that inertia is extremely powerful and a lot of 
individuals are likely to procrastinate and never take any action. In 
the current environment, sticking to one's long-term plans and avoiding 
impulsive actions might actually be the best decision, even if it is 
caused by inertia and procrastination.
    Having highlighted ``behavioral obstacles'' that tend to undermine 
the retirement security of many people, the real question is what can 
be done to help employees better plan for retirement? I believe 
Congress has already made significant contributions to the retirement 
security of Americans with the Pension Protection Act. In particular, 
automatic enrollment and automatic increases made saving for retirement 
a lot easier for many Americans. Similarly, clarifying what constitutes 
a Qualified Default Investment Alternative made plan sponsors more 
comfortable choosing balanced portfolios on behalf of their plan 
participants, rather than playing it safe with the most conservative 
option. However, our system should be improved to help individuals 
better plan for retirement. Below I list three key areas that I believe 
could be improved.
            1. Participant Information
    Highlight Long-Term Performance on First Page of Statements: 
Defined contribution plans are required to provide quarterly 
statements. Unfortunately, a lot of plan providers interpret that 
requirement as having to highlight the most recent quarter's 
performance on the first page of the statement. Since individuals are 
already obsessed with short-term performance, why not use the quarterly 
statements as an opportunity to promote long-term thinking? In 
particular, I propose that the statements display longer-term results 
on the first page, then provide the recent quarter numbers on the 
second (or last) page. While this might be permissible under the 
current law, an endorsement of the idea might be all that is needed to 
get plan providers to design more sensible participant communications.
    Provide Retirement Income Projections on Statements: I argue that 
most individuals are ill-equipped to analyze rates of return. The goal 
of a retirement plan is to provide retirement income, so why not 
translate account balances, deferral rates and investment elections 
into projected retirement income? Such projections would not be exact, 
but they would certainly be more informative for the average plan 
participant. And, they would dampen the effects of volatile financial 
markets, as they would incorporate both existing balances and future 
contributions. For example, someone who just experienced a 40 percent 
decline in his/her account balance might notice just a 10 percent 
decline in his projected retirement income once future contributions 
are taken into account. Again, an endorsement might be all that is 
needed to get plan providers to add income projections to quarterly 
statements.
            2. Company Stock
    Stop the Preferential Treatment of Company Stock: Company stock 
enjoys special treatment under ERISA, exempting it from the 
diversification requirement. It is the only investment option offered 
to plan participants that is undiversified. I believe, however, that 
all investments offered to plan participants should be well-
diversified, that is, comply with ERISA's diversification requirement. 
I would like to clarify that I am not proposing to disallow company 
stock in defined contribution plans. I am just proposing that company 
stock pass the same fiduciary standards other investments must pass. Of 
course, if company stock is inherently undiversified and will fail 
basic fiduciary standards, then plan sponsors will voluntarily stop 
offering it. I view that as a good thing. We saw thousands of Enron 
employees lose their jobs and retirement savings simultaneously, and I 
predict the current crisis will result in many more employees losing 
their retirement savings due to concentrated positions in company 
stock.
    Endorse Gradual Diversification Programs: Many plan sponsors are 
concerned about the financial security of employees investing in 
company stock. However, they do not know what to do about it. If they 
tell employees to diversify and sell the stock, then employees might 
wrongly believe that the company is in trouble. And, if they offer 
employees the option to gradually trim down their company stock 
exposure, they could possibly be liable for selling the stock at the 
wrong time. Professor Richard Thaler and I promote the idea of offering 
employees the option to gradually sell their stock holdings, perhaps 
keeping a modest amount of say five percent of their savings in company 
stock. We dubbed our proposed program, ``Sell More Tomorrow.'' 
Endorsing some type of a gradual diversification program could make 
plan sponsors more comfortable addressing the company stock problem 
before it is too late.
            3. Retirement Income Solutions
    a. Define ``Qualified Retirement Income Solutions'': The Pension 
Protection Act has shed light on best practices for the accumulation 
stage. In particular, it endorsed automatically enrolling employees 
into retirement savings plans and automatically escalating their 
deferral rates over time. We are already seeing that the mere 
endorsement of these best practices by Congress resulted in many plan 
sponsors adopting the proposed changes.
    Unfortunately, the Pension Protection Act did not spell out best 
practices for the decumulation phase. In particular, it did not provide 
any guidance on what would constitute appropriate retirement income 
solutions for employees getting ready to retire. As a result, the vast 
majority of plan sponsors are totally confused about: (a) whether or 
not making retirement income solutions available to retiring employees 
is part of their duties and responsibilities, and (b) what type of 
retirement income solutions would be prudent to offer. Given that, it 
is not surprising that most plan sponsors do not offer any retirement 
income solution through the plan. Retirees are given a lump sum of cash 
and sent out into their golden years searching for a solution on their 
own. As we all know, most individuals are ill-equipped to handle such a 
complicated financial decision.
    I encourage regulators and legislators to shed light on best 
practices for the decumulation stage. Again, I believe an endorsement 
would encourage the industry--both plan sponsors and providers--to 
create and offer competitive retirement income solutions.
    The current financial crisis also highlights the need to rethink 
the type of retirement income solutions that would be prudent. For 
example, is an immediate annuity that pays monthly income for life 
prudent, given that insurance companies have recently failed to 
properly manage risks? I do not necessarily have the answers, but I do 
know that without guidance from regulators and legislators, plan 
sponsors will not offer any retirement income solutions. And, I do know 
that retiring employees are ill-equipped to set a sensible drawdown 
program on their own, especially in the current volatile environment.
    b. Evaluate Longevity Bonds: Both defined benefit and defined 
contribution plans face longevity risk, that is, the risk that people 
will live much longer than was anticipated, leading to the possibility 
that plan assets will run out. Note that insurance companies do not 
presently have the financial instruments available to them to manage 
systematic increases in longevity where most people end up living 
longer than reserved for. Systematic longevity risk is simply too large 
for insurance companies to handle. Furthermore, it is not diversifiable 
internationally, as medical advances in say the US will end up 
increasing longevity in all countries sooner or later.
    The government could help facilitate the creation of a market for 
hedging systematic longevity risk by issuing longevity bonds. These are 
bonds that pay more if people live longer and vice versa, and are 
similar in concept to TIPS (which allow the private sector hedge 
another systematic risk, namely inflation risk). Not only would 
longevity bonds enable retirement plans to better manage longevity 
risk, they would, more importantly, enable insurance companies to 
better price and guarantee lifetime income streams. This is because 
longevity bonds would help to establish the market price of longevity 
risk, in the same way that TIPS help to establish the inflation risk 
premium. I must admit I am not an expert on launching new markets, but 
there are experts who have studied these issues extensively. I think 
establishing a committee to evaluate the merits of longevity bonds is 
appropriate. Professors David Blake and Robert Shiller would be superb 
candidates to serve on such a committee.
    In summary, improving participant information, addressing the 
company stock problem and incorporating retirement income solutions 
into defined contribution plans could enhance the retirement security 
of millions of people. And, some of the changes I propose could also 
address behavioral obstacles such as myopic loss aversion and excessive 
extrapolation.
    Keeping in mind the regulatory burden employers already face by 
offering a retirement plan, my proposals focus on endorsing better 
practices without necessarily forcing or requiring plan sponsors and 
plan providers to implement new or expensive options. To the extent 
that the proposed changes make sense, I believe mere endorsement by 
regulators and legislators might be sufficient to make a difference.
    Again, thank you Chairman Miller and members of the committee for 
the opportunity to share my views.
                                 ______
                                 
    Chairman Miller. Thank you very much for your testimony. 
Thank you to all of you.
    I would like to come back to Dr. Benartzi's points here in 
a minute. But first, Ms. Quan, you are now withdrawing from 
your 401(k) plan because you are over 70 so you are having to 
withdraw an amount each month?
    Ms. Quan. That is correct.
    Chairman Miller. Is your mike on?
    Ms. Quan. Yes, I think it is.
    Chairman Miller It is like your in a classroom. Speak up 
now.
    Ms. Quan. Speak up, right.
    Yes, I am withdrawing. It is 403(b) which is similar.
    Chairman Miller. Right.
    Ms. Quan. Right. And to the tune of about $550 per month.
    Chairman Miller. That is a mandatory withdrawal 
requirement, is that correct?
    And, Mr. Carroll, you are getting ready to fall under that 
law. Mr. Maisel is already drawing, is that correct?
    Mr. Carroll. That is correct, Congressman.
    Chairman Miller. We have proposed, myself and some other 
members of Congress have proposed that we not require that 
during this down turn. Obviously as people need, they are going 
to continue to do. They do not have an option. But if they do 
not, does that make sense to the rest of the panel. I mean, I 
have assumed we would do it for a time limited period of time. 
There is other policy reasons why you are asking them to 
withdraw; I do not know the wisdom of that over the long run or 
not. Feel free to comment on it if you want, but I would just 
be interested in that. Because I understand that we have the 
Secretary of Treasury, and I think others, both Presidential 
candidates I think have asked the Secretary of Treasury to do 
this. He can it by waiving the current requirements, I 
understand it.
    Dr. Hacker?
    Mr. Hacker. Yes. I mean, the public policy reason for 
having these required withdrawals is that the tax breaks for 
pensions are justified by virtue of the fact that they are 
providing retirement income and not simply a form of the estate 
planning. However, for a short term it seems to make a lot of 
sense to forgo that requirement.
    We should not pretend that that is a serious long term 
solution and we should try to address the underlying problem, 
which is that many people do not have a diversified enough 
portfolio when they reach retirement.
    Chairman Miller. We are going to come back. We are going to 
come back to that question that has been raised.
    Mr. Davis? Microphone.
    Mr. Davis. I would agree. I think a temporary release on 
the minimum required distributions would be helpful. While I 
would no means would advocate the encouragement of workers 
taking near term withdrawals, either loans or withdrawals from 
plants, there are many plants in America that do not allow a 
hardship withdrawal feature that have employees working for 
them today who are being foreclosed on and have no means of 
accessing their money in service. While long term it is a bad 
idea, if that were happening to me and my home, I would access 
to those funds in a more immediate basis.
    Chairman Miller. Mr. Joyce?
    Mr. Joyce. I think it is a good idea simply because more 
choice is better. The person that has the most choices usually 
wins. And they can decide if it works for them or not. But 
having the choice is wonderful.
    Chairman Miller. You see it a short term policy also?
    Mr. Joyce. Yes.
    Chairman Miller. Yes. Okay.
    Dr. Benartzi?
    Mr. Benartzi. If I understanding correctly, the idea is not 
to force people to take the minimum withdrawal at age 70+. I 
think that is a very good idea. I also want to highlight that--
--
    Chairman Miller. You think it is very what?
    Mr. Benartzi. I think it is a very good idea.
    Chairman Miller. Oh.
    Mr. Benartzi. But I also think not only in the short run, I 
think some adjustments are needed in the long run. Example: If 
you expect to live ten years you have $100,000 in your account, 
the minimum withdrawals would force you to take out $10,000 a 
year. What happens if you live longer than ten years? You have 
no money left.
    So these formulas make people, in a sense, spend too much. 
These minimum withdrawals when you compare them to other 
countries are encouraging and forcing Americans to draw too 
much money so if they end up living a bit longer than expected, 
they depleted their assets because they were forced to take 
money out.
    So there is a short term fix that I think is necessary, but 
I think also there is a long term fix that is necessary. Other 
countries, for example, only require 70 percent of the amount 
we force people to take out.
    Chairman Miller. Thank you.
    Mr. Hacker, you suggested an extreme makeover of 401(k)s. 
If you want to reiterate what you were suggesting, that's fine. 
And then I would like to get comments from the other three 
gentlemen, if I might. I wrote some of it down, but if you want 
to go back through what your headline suggestions are with 
respect to that?
    Mr. Hacker. Well let me just clarify my motives for 
suggesting that we need to have fundamental reform of 401(k)s. 
As I said, we used to have a system in which you had a 
guaranteed private pension leg of the three legged stool of 
retirement security. We no longer have that and so the basic 
motive in the proposals I have put forth which could be taken 
together or looked at individually is that we try to come up 
with something that looks more like a guaranteed private 
pension for workers in addition to the private savings that 
they may have both in their home equity and an individual 
private savings outside of their home. Our current 401(k) plans 
do not generally fit that bill. So what are the shortcomings 
that need to be addressed?
    Well, as I said one is that many workers do not have access 
to a 401(k) so we should think about how could we make 
available 401(k)s to more workers. I like the idea of a 
universal 401(k) plan that is something like the existing 
individual retirement account. That employers should feel free 
to contribute to them, even perhaps sponsor them, but they 
should be available to all workers.
    The second and third problems are that these plans do not 
have high rates of participation, as Professor Benartzi pointed 
out.
    And the third problem is that they do not provide generally 
a strong guarantee of retirement income.
    So increase participation and to increase participation in 
more guaranteed forms of retirement income, I think that there 
should be some kind of default enrollment and default 
investment option.
    I would also argue that for lower income workers some kind 
of progressive federal match would be very useful, as I 
mentioned. That is that the government would actually help 
match contributions for middle and lower income workers who 
right now contribute very little to 401(k)s.
    And finally, thinking about how we could move to a system 
that gave people assurances of retirement income for the 
remainder of their retired life is essential. There are a lot 
of ideas out there for how to do it. But what's important, I 
think, is that we move to a system where as Professor Benartzi 
mentioned, people see these 401(k)s in terms of the expected 
retirement income that they will provide.
    So I have argued that, for example, we should be presenting 
peoples 401(k) balances not in terms of the aggregate amount, 
but in terms of the retirement income that they will provide 
over the course of an average retired life.
    I have also argued that we should consider the idea of 
making available some kind of baseline or even government 
direct loan product, directly provided product, for 
annuitization of 401(k) balances at retirement. That is for 
converting from an aggregate amount into a fixed stream of 
income for the retired worker's life. And that this should be 
very strongly encouraged and perhaps even mandatory for people 
who do not have adequate wealth to be able to secure their 
retirement for the remainder of their life.
    Chairman Miller. Mr. Davis?
    Mr. Davis. I would agree with almost all of what the Doctor 
said. A couple of things I would like to challenge just for 
your sake.
    The presumed death of defined benefit plans. While one 
format certainly has gone away, a lot of what the Congress was 
able to introduce with PPA and the endorsement of hybrid plans 
we're seeing have a real impact on the smaller employer level 
cash balance plans and those sorts which incentivize employers 
to contribute fully a 100 percent more on behalf of their 
employees than they do in the absence of those plans. A lot 
more can be done to encourage that, I think.
    I also think the automatic IRA and that sort of a notion is 
an excellent one that would be relatively easy to do and it's 
certainly important for that huge portion of the American 
workforce that has no other access to retirement programs and 
desperately needs one.
    My biggest thing would be to encourage with the shift of 
liability to shift to the education. As I say, if this 
Committee could encourage Departments of Labor and Education to 
teach Americans from kindergarten through 12th grade about car 
loans and mortgages and retirement savings plans and those 
kinds of things, people would have a context into which to put 
the market events that we're seeing today.
    I also would like to say that there are vendors in the 
marketplace that are starting to do that retirement income 
presentation that Dr. Benartzi and Dr. Hacker are talking to. 
It would be great to see that encouraged because at the end of 
the day that is what we are trying to buy, units of retirement 
security at some future date.
    Chairman Miller. Mr. Joyce?
    Mr. Joyce. Of course a lot of great ideas. I think the 
problem that a lot of consumers would have is that a lot of 
money is already been taken out of my paycheck and put into 
Social Security and I have no control over that whatsoever. And 
they sort of view that already as what we would call the 
defined benefit plan.
    What I have found is that people when they do save, not 
everybody does this well, but they want to have the opportunity 
to manage their own money. And if that gets taken away from 
them, how can they learn how to do it properly?
    And the idea that well where more money is going to be 
taken away that I cannot control. So the idea of mandated 
annuitization I think I just really, really oppose that. I 
think most financial advisors when we study the journals and so 
forth say you should not have more than about a quarter of your 
assets annuitized because you cannot control that anymore. That 
is the main.
    Chairman Miller. Thank you.
    Dr. Benartzi?
    Mr. Benartzi. I think people who do have advisors will, 
hopefully, get some type of a retirement income solution. I am 
more concerned about people who do not have that much money, 
that most advisors would not take them as clients because the 
economics work. They do not currently have a good solution when 
it comes to figuring out how to convert their savings to some 
guarantees.
    401(k) plans right now do not offer any of these solutions. 
Plan sponsors are afraid to even offer an annuity. What if it 
is an AIG annuity, for example. So plan sponsors do not offer 
it. A lot of individuals do not have the resources to afford to 
experts to advise them. We need to integrate some solutions, 
rather it is mandatory, whether it is endorsement I do not 
think that really is the key as much as making something 
available.
    I do want to just touch briefly about defined contribution 
and the system totally failing and collapsing and we need to go 
back to another system.
    A lot of people out there view the current crisis as an 
indication that 401(k) plans have failed. And I tend to 
disagree. I think as you are going to see at the end of the 
year the funding situation of defined benefit plans and the 
number of employers who cannot make their contributions to the 
plans, both systems have problems. I think what we have to do 
really is think how to make the best out of the defined 
contribution plans. Congress has done a tremendous job on the 
accumulation. I think now it is time for phase B, integrating 
it with a retirement income solution so it is really a holistic 
approach to planning. Not just saving, planning for retirement.
    Chairman Miller. Thank you.
    I am going to recognize Congresswoman Woolsey. But I think 
Dr. Hacker you wanted to comment on something that was said 
here.
    Mr. Hacker. I simply wanted to clarify that although I 
raised the possibility of requiring annuitization for those who 
do not have sufficient retirement wealth to be able to have a 
sufficient retirement income for the remainder of life 
otherwise, that I actually am not advocating mandatory 
contributions to 401(k) plans or reformed 401(k) plans. I do 
think that it would make sense for the Federal Government to 
offer direct subsidies for lower income workers to help them 
save. And I do think that we should move towards to having a 
default investment plan within 401(k)s that would minimize 
insofar as possible market risk while maximizing the potential 
return given that minimization.
    So that is the way in which I wanted to clarify my remarks. 
And I only would say that I did not mention one additional 
benefit, which I think is a really big issue right now, is that 
since workers do move from jobs that have 401(k)s to ones that 
don't, they often are very much attempted especially during 
periods of economic distress to spend the lump sum payments 
they receive. Having some kind of universal system with an 
automatic rollover would mean that the money that leaks out of 
retirement savings because of that lump sum payment practice 
and the failure of people to rollover those funds would be 
eliminated.
    Chairman Miller. Ms. Woolsey?
    Ms. Woolsey. Dr. Hacker, I am going to ask you a question 
later because I want to say mandated annuitization, I want to 
say that word. I like that. So leave it there.
    Okay, gentlemen, one, two, three and four. I agree with yo 
totally. Education and informed consumerism is the most 
important. Very important. You tell us what these two, Ms. Quan 
and Mr. Carroll, could have done, should have done that would 
have changed the outcome of what is happening in their senior 
years right now or what the Federal Government could have or 
should have, or their investment advisors. I mean these are 
informed people. They did what they were supposed to do. What 
went wrong?
    Let's start with you Dr. Benartzi.
    Mr. Benartzi. Thank you.
    I think it really highlights the problem that if you do not 
have a lot of money, it is typically very difficult to find 
very good advice. And I think would/could have done. I mean, I 
think they have really done their best. They saved for 
retirement. They have done much better than 70 percent of the 
people and it still did not work.
    So I think it really goes back to the facts that the 
government has to step and help employers think about the 
decumulation, the retirement income solutions. Other countries, 
for example the UK, when people retire, there are two different 
solutions that have been blessed and even mandated. You do not 
have to annuitize all your money. You only have to do a 
fraction of it. There is another alternative. If you do not 
want to annuitize, you could actually have a systematic plan 
how much you can withdraw each month, where you would invest 
it. But whether it is the right system or not, it does not 
really matter. The government stepped in and said these are 
reasonable solutions for people so that they do not run out of 
money too quickly.
    Professor Blake from London has a very nice analogy of our 
retirement system and it compare 401(k) plans to planes as in 
airplanes. And it says with the Pension Protection Act we kind 
of put people in their seats and tell them do not worry and we 
take off. That is like automatically enrolling in a retirement 
plan. Then we cross the ocean. The plane changes altitudes, 
goes left, goes right, go around all the storms. It is very 
much like we are doing with the Pension Protection Act where we 
pick well diversified portfolios, like retirement funds for 
people. And now we have reached Japan. We crossed the ocean, we 
need to land. We need to start decumulating, descending, taking 
assets down. We forgot how to do it. The plane is going to 
crash.
    And I think what we are seeing now with a lot of people who 
retired in '07 and who are retiring now there was a total 
disconnect between saving for retirement and how do you handle 
it, what do you do with it when you retire. We really have to 
step into that as soon as possible.
    Plan sponsors I talk to and as well as plan providers are 
eager--eager to help employees solve this problem, but are very 
afraid to do anything without any guidance from the Congress.
    Ms. Woolsey. Mr. Joyce?
    Mr. Joyce. This reminds me a bit about the people that 
there is plenty of blame to go around, but the problem with the 
subprime mortgages, people that took on mortgages that they 
really did not have a prayer of being able to pay it back. And 
what happened was I think that people looked at the most rosy 
scenario possible. And if everything went perfectly, it would 
have been fine. But what we do in financial planning is we ask 
everybody okay, what happens if a severe disability comes along 
and we look at what is going to happen to you. And with your 
setup do you have a prayer of overcoming it with your money and 
your insurance or whatever.
    We do the same thing with lousy markets. This is, I think, 
the tenth bear market for the U.S. stock market in 50 years. So 
it is not unusual, unfortunately, but you can take advantage of 
them. But you have to look at bad case scenarios as well.
    And I agree with Dr. Benartzi that the trick is, is you 
have to look at your consumption and your resources. And if you 
are not a track to end up with a whole bunch of money, what I 
would sort of refer to as the Powell doctrine, the financial 
version of it, do absolutely everything you can to live within 
your means and then your nest egg has to be really big. And 
that is really the answer. And if you do not test these 
problems sort of on paper, if we don't, forgive me kill people, 
you know get them to die off, we just get them disabled, 
divorced, these things have to be looked at in advance. So we 
refer to this process as the lifeboat drill.
    Ms. Woolsey. Mr. Davis?
    Mr. Davis. I think I would want start by in my situation I 
am not a personal financial planner and I would not want to 
presume to able to prescribe solutions.
    And my heart goes out to you. You represent a lot of 
people. And I think it is important to acknowledge that. The 
nightmare for all of us is running out of money before we run 
out of life. And many of us are headed on that track at the 
moment.
    I would say at this point I would agree with Dr. Benartzi 
on two things. Education for retirement cannot start at age 65. 
It has to start much, much earlier in preparation for that.
    Number two, the system we have where the private 
marketplace is responsible for educating employees, most 
vendors do the employee education for the plans to whom they 
vend services, most of those vendors are in the interest of 
finding new clients for themselves. That is the private market 
system. I want the CEO with the company so I will service the 
manufacturing for employees. Cannot blame him for that; that is 
the system. Unfortunately, that is not healthy for any of us 
that it be constructed that way, but we cannot leave the 
education and preparation of private sector workers to private 
sector motives. There is a incongruous and a dissidence there.
    Mr. Hacker. I think it is an excellent question because 
from what we've heard it sounds as if there was not that much 
that could have been done by these two fine people. And that 
the risks that they are facing are risks that really are faced 
by even those retirees who have done the right things in the 
past. And that is why I think it is important that we shift the 
focus a bit from asking did individuals do the right thing to 
the larger question of how can we structure this system so that 
it creates the greatest chance that people will reach 
retirement with adequate savings to be able to retire 
comfortably.
    IT seems to me that one thing that we have not talked much 
about that needs to be emphasized that this really reenforces 
the idea that we do need to have a strong basic foundation of 
retirement income in the form of Social Security. And I think 
that we should make sure that Social Security is that strong 
foundation going forward because these risks do happen and 
people need to be able to know that they have at least that 
basic form of protection.
    The other larger picture I want to bring in his health 
care. Because again and again in these stories we hear that 
people who have retired have under estimated the amount they 
will need for health care. They have family members who get 
sick or they themselves get sick. Sometimes people would like 
to work past retirement, but all of the research suggests that 
people who retire early or who have retired before they wished 
do, many of them do so because they have unexpected health 
problems.
    So we need to get a grip on the problem of health care 
spending, particularly for older Americans. It is hard to 
believe given that older Americans are the one group that is 
protected by a universal national system, Medicare, but older 
Americans are actually spending much more of their income on 
health care than they were before Medicare was passed. And that 
is in part because we have failed for the most part to keep 
Medicare up to date with changing medical needs and practices 
and also because, and I think this is the more important issue, 
we failed to come up with a way to effectively rein in health 
care costs. So I have proposed ideas for how we might better 
control costs and expand coverage. But I think that we 
shouldn't forget that that's a big part of this story.
    Lastly, I think we should recognize that we will need to 
have some kind of protections that are supplemental to Social 
Security for all Americans who face large unexpected expenses 
or major drops in their income. I put forth an idea that I call 
universal insurance, which is basically a stop loss income 
protection program for Americans. And I would be happy to talk 
about it more. But the point is that once we start to see these 
situations that we recognize that this is just not a retirement 
problem, it's an economic security problem and that is why I 
think that if there is a silver lining in this cloud of market 
risk and retirement losses, it is that we might start to have a 
larger conversation about how we ensure that people have that 
basic financial foundation of security that allows them to 
reach for and achieve the American dream.
    Ms. Woolsey. Thank you.
    Mrs. Quan, Mr. Carroll, would you like to respond to what 
you have heard?
    Ms. Quan. I seem to have a problem with this required 
minimum distribution in that it is set at 70+. Why did they set 
it there? Because it is ind of one size fits all. Some people 
may not be ready for it, to take out that amount. Other people 
might, might not.
    Now I personally do not have Social Security because we 
have our own teacher's plan system. So when I look at our own 
system compared to Social Security, I am not sure which one 
would be more beneficial to me.
    The same thing with my husband. He has PERS. He does not 
get Social Security. So we kind of fall outside of that realm.
    Ms. Woolsey. Mr. Carroll?
    Mr. Carroll. I am always amazed by the idea that those of 
us who are facing retirement want to go out and play with our 
money in a free market. To me I would like to walk into a bank, 
give them my money say invest it, do what you want, pay me a 
decent rate of interest on it and we would work on that kind of 
partnership. And I would know how much I was going to get and 
when I would get it.
    That is the goal that we set was having that kind of return 
on our investment. Instead we found that market forces, or 
whatever, playing fast an louse with our money have deprived us 
of that revenue stream.
    So I love the ideas of--the education thing is really good, 
but the idea of protecting people's investment more carefully 
has a great deal of appeal.
    Ms. Woolsey. Thank you.
    Chairman Miller. Thank you.
    You know, it seems to me that we are talking about 401(k) 
plans that were originally designed to increase national 
savings. And then they started to morph into retirement plan so 
you had some set rules that were there that made sense if this 
was just sort of discretionary savings. And then as we saw 
employers look at this vehicle and decide that they could off-
load some of their responsibility for defined benefit plan, 
they could convince the employers you can really do this. You 
can handle the free market system. And we haven't quite caught 
up with now that this is in fact a very important third leg of 
the stool or an even more important second leg of a two legged 
stool that is a little wobbly, as Dr. Hacker pointed out.
    And at the same time you had a financial services industry 
that saw this as a bonanza if they could just go out and 
collect market share. It's like putting people out on their own 
in health care. The early HMOs really weren't delivering health 
care. They were trying to gather market share so they could 
sell it to a health provider. They were just trying to gather 
people and they were cutting prices, giving glasses, hearing 
aids, whatever it is was to get those people in. And if they 
collected them, they had something of value to sell. Many of 
them turned out to be real estate companies in the meantime.
    And so the American savor/retiree has not been very well 
served at this. I am always interested at the last date in 
which you contribute to your 401(k) the full page ads by 
Fidelity, T. Rowe Price, Merrill Lynch, all of the people that 
were in the game, come with us this is what you offer you. And 
that is about the most education, the most intense presentation 
of the need to save and to contribute to your 401(k) that is 
there.
    Now we have two individuals here, both well educated, made 
really very prudent choices about how they were going to use 
credit while they were working, how they were going to ladder 
their bonds so that they could weather the ups and downs on 
pricing and interest rates, how they were going to save to do 
this and then in comes this recent financial crisis. And they 
both have a defined--excuse me. Well, Ms. Quan, you have a 
defined benefit plan from the school district. Mr. Carroll, you 
do not have. This is the total of your retirement savings with 
Social Security, correct.
    Mr. Carroll. And ladder bonds.
    Chairman Miller. God bless them. And ladder bonds, most 
available to most Americans. But anyway.
    So are really at a point here. We have gone through the 
Pension Protection Act and that made some changes that were 
good, the enrollment proposals and other provisions of that 
law. But we still do not have this in shape as a retirement 
plan and we have not let the American people understand that 
under current policy, a lot of people relying on them having 
this retirement plan and being successful, even if it is public 
expenditures for the elders. Because if they are not 
successful, we know they are not going to go away. They can 
show up in a number of different settings. They can show up off 
of Medicare and onto Medicaid; they can show up in a lot of 
different ways. They can show up in food pantries, a lot of 
other places that we are starting to see now.
    I am a little troubled about, and witnesses at the previous 
hearing were a little troubled about the idea that education 
will solve this problem. I am a big fan of education. Obviously 
been on this Committee for 34 years and excited about the 
problems that education have solved. But this looks a little 
bit like Altria Corporation--do they still have tobacco? Yes. 
They have an education plan about what smoking can do to you, 
but they have a massive marketing plan about smoking.
    And so I see these financial service firms. They offer 
education, but then they have this massive marketing program. 
And if you look just before in the last several months or last 
year, you had the proposals of guaranteed retirement income. 
Then when you looked at it, they were investing in the bonds of 
the insurance companies. I think that you point out, Dr. 
Benartzi, as we found out in this crisis there is nothing 
guaranteed about this stalwart of Wall Street, this huge 
international firm.
    And so if you are educating, you say ``guarantee'' is a 
good word. This is a big firm. This looks like a wise choice, 
except it was a setup. And it was setup by the people who had 
more knowledge than you had.
    So a lot of people unknowingly, in a sense they are victims 
of the setup that is being put in front of them. The 
overselling of the accomplishments of what can be done here.
    And then, of course, finally the idea that--and this is a 
very strong tenant of this program. That I can do better with 
my money than the government can do or the government can tell 
me to do, or the government can suggest I can do I can do this. 
What they were really telling people was that you had to beat 
the street. And 75 percent of the most educated, most talented 
managers cannot beat the street, but you can. You can. I mean 
that is confidence in the American public and it is optimistic. 
It just does not turn out to be true because this other class 
of people who went to school to learn how to beat the street, 
75 percent of them cannot do it.
    You know, it is not by accident that many of these retirees 
and many of these savers find themselves in this situation. 
Because this was a plan. This was the plan to liberate funds 
that might go into defined benefit either because companies 
could not afford it or did not want to do, what have you, and 
then to spread them out on the street and we will go after 
those individuals and try to bring them into our financial 
service firms. Fortunately, some businesses got financial 
planners to try to give better advice to the participants. And 
it is interesting the complaints of that industry about what 
they are not told, what they cannot decipher, what is 
misrepresented to them as they try to do this.
    So we got a game here that is not on the level with respect 
to the savers/retirees. And, you know, with this Committee 
about people me to quickly declare am I against 401(k)s, is 
this the end of it, what have you I try to say I am not trying 
to speak in conclusions, but I think we are a point where this 
requires a wholesale re-examination of what we did not do right 
in the beginning, what we have not done right 25 years later 
and what we need for the future. And otherwise this plan is not 
going to work, mean if we continue on.
    What I find interesting about this one and what was 
troubling, and it is not to frighten people, is yes we have 
through ten of these downturns. And we have not been through 
ten of these downturns where multiple sectors of the economy 
you have such dramatic failings. And so when the tech bubble 
burst a lot of people still had a lot of equity in their homes. 
Now a lot of people, and I am convinced older people, one of 
the disasters in my District in Richmond is older people who 
had their homes paid for but their kids or some suede shoe 
person came along and convinced what they really needed was a 
home equity loan. They did not know what the hell they were 
going to do with the money, but they took the loan. Now all of 
a sudden what they thought was their last asset is on the 
auction block.
    And so this to me seems a little bit different than 1987. 
This seems a little different than the housing turndown in the 
'80s. This seems a little different than the tech boom. Because 
of a sudden other aspects: Credit is being withdrawn from these 
retirees. The interest rates are being raised for these 
retirees. Their home equities, in many instances, have 
dramatically diminished or they're simply gone. They're upside 
down, in some cases because of how they used that.
    So I think that maybe we are at a time where fiddling at 
the margins is not going to serve the American people who we 
know need to save more, we know that it needs to be in a more 
secure form, we would like to offer them the choices to do 
that. And if in fact this is going to be continued to be a part 
of a retirement program for the nation. Right now we are 
telling everybody that is what it is. But it is in pretty sad 
shape in terms of going forward as a national shape.
    And I appreciate some of your comments, but I want to turn 
to Dr. Benartzi. Because I know you have a time problem, 
Doctor, if you would like to comment.
    I would also like to call attention to what you suggested 
about the fiduciary relationships of corporate stock of the 
employees in those plans. We have treated it as a horror story. 
We have not treated it as a matter of accountability and 
responsibility. And I just want to call attention to that part 
of your testimony. But I would like to recognize you.
    Mr. Benartzi. I think you just raised an excellent point. 
If we are going to do quick fixes to the system, it is not 
going to work. We have to rethink the underlying ingredients of 
our defined contribution system and maybe our entire retirement 
system. And I think this is perfect time to do it. Quick fixes 
will not do the job.
    And then with respect to company stock, we are the only 
company around the globe that allows people to make such 
extreme bets. And I think there is a very quick fix that will 
solve the problem. And that is company stock right now is 
offered because of a provision in the ERISA that says it is the 
only investment you can offer the plan participants that is not 
diversified. Any other investments that you offer has to pass 
what you call the diversification test. This is the only 
investment that has a special treatment.
    And I think it is time to make all investments pass basic 
fiduciary sensible tests including the diversification test. 
And if we just make that, I do not think any employer would 
make undiversified investments all company stock available.
    Now that is very different from abolishing company stock or 
mandating that employers cannot offer it. I would not go there. 
My proposal is just have it pass a sensible test. And if 
employers would say it does not pass the test and they do not 
offer it, I view it actually as good news.
    I also want to go back to my idea of just having Congress 
endorse sensible solutions without mandating things. In the 
case of company stock a lot of very large companies come talk 
to me. And they say we want to have employees sell company 
stock. And they tell these plan sponsors, and they did it 
actually before the market crashed, and they told them great 
job. Why do you not just have them sell it. And they say well 
what if the price goes up after we sell it? And I say then they 
sue you. And they say, oh, great.
    So I think some endorsement from Congress about the fact 
that gradual selling of plans were you actually encourage or 
somehow help employees to diverse the very extreme locations. 
This is not to say that they should not have five percent in 
company stock. That is not going to devastating. But some 
endorsement that employers can comfortable make employees put 
for a small diversified without having to worry that they will 
be sued the next day I think would go a very long way, a very 
very long way.
    Chairman Miller. You know it is an interesting argument 
because in some instances I think under the new rules you can 
be locked into company stock for three years. I find that 
interesting when we read in the New York Times yesterday or the 
day before of the CEOs that were selling stock because of 
margin calls and these people are locked in here and the CEO, 
in fact, is driving the price of the stock down by the margin 
calls, some of which have been disclosed timely and some of 
which aren't disposed, apparently, quite as timely as they 
should be. But here again is this poor American saver locked 
into that stock and just as they were at Enron, that stock is 
torpedoing toward the ground here and they can't get out. You 
know, we all want prudent investors to stay for the long run, 
but the long run appears to be about two days here as these 
margins calls are coming due in some of these very large 
companies.
    And so, you know, people thought at one time well this 
three year lock-in, there's some prudent to that and it is 
stability and all the rest of it. No, it can be cataclysmic 
because we find this extraordinary number of employees that 
have 90 percent of their retirement in the company stock of 
which they work for. Now that violates all of the tenants of 
diversification and risk taking and everything else. But there 
they are. And now they are locked in at a time when there is 
freedom of movement. And in that case it is not a question of 
whether that stock goes up after they sell it, it is whether 
they can get out to retrieve whatever value is remaining.
    Mr. Benartzi. So I think we have too many people in jails 
in the U.S., but there are definitely some people who are not 
in jail that should be there.
    Chairman Miller. Well, we are working on that.
    Mr. Benartzi. I want to thank you, Chairman, Committee 
members. I have to run, but thank you very much.
    Chairman Miller. Thank you. I hope that we can continue to 
call upon you.
    Mr. Benartzi. Please.
    Chairman Miller. I think you have raised some very 
important points for us----
    Mr. Benartzi. Anytime.
    Chairman Miller [continuing]. Going forward. Thank you for 
donating your time to come and join us.
    Mr. Benartzi. Thank you.
    Chairman Miller. Dr. Hacker, you wanted to comment.
    Mr. Hacker. Well, I just wanted to bring us back to the 
point you made about how this has not been a transformation of 
our retirement security system that has been very well thought 
through. And it is also worth noting that the pension system 
has always been one that has heavily reflected employer's 
interests. But it just so happened that in the old world of 
traditional guaranteed pensions, employer's interests and 
worker's interest often coincided. It was not coincidental that 
that was the case because unions were much more powerful when 
defined benefit pensions were created. And they demanded 
pensions that met the needs of workers to share risk privately. 
Now we have moved to a system that has meant that we basically 
have a private pension tier in the form of 401(k)s that does 
not do a very good job of protecting people against risk. And 
this was not well thought out by Congress.
    I note in my work that when Congress created Section 401(k) 
of the tax code in 1978, the only record of the potential 
effect of the law in the Congressional Record is a small note 
in the Committee report that says that this piece of 
legislation would have ``negligible effects.'' I point out in 
my book that this may have been the least prescient prediction 
by Congress, which is saying a lot.
    This was then transferred into what was we now know as a 
401(k) plan in 1981 by the Reagan IRS. And very quickly 
employers rushed to expand 401(k) plans either in lieu of or on 
top of traditional defined benefit pensions. In the process 
their contributions to pensions dropped dramatically from about 
4 percent at their peak in the 1970s to 2.5 percent of payroll.
    It is the case that employer contributions to pensions come 
out of worker's paycheck, but they are mandatory contributions 
in a sense, and so they force workers save. So we have moved 
toward a system in which workers are on the hook with regard to 
risk. And it is also their responsibility to save. And we just 
have not over the ensuing years thought seriously about how we 
could improve the system. Instead, we have expanded the 
opportunities for saving in 401(k) plans and we have done small 
fixes. But we have not had a comprehensive examination of this 
system.
    It seems to me that education is vital, but not sufficient. 
And I will just close my remarks here by just mentioning three 
things that I think we need to consider seriously.
    One is, as I have noted, we need to think about ways to 
make 401(k)s better risk protectors for workers. Better at 
sharing risk among workers that they face in planning for 
retirement. We are not going back to the world of defined 
benefit pensions, but as I have noted, elements of defined 
benefit pensions could be incorporated into 401(k)s.
    Chairman Miller. Could I stop you?
    Mr. Hacker. Yes, of course.
    Chairman Miller. And ask Mr. Davis to join this discussion. 
Mr. Joyce, you are welcome to or not. But you also mentioned 
this point of sort of the morphing that has taken place within 
defined benefits with hybrid plans and cash balances.
    Mr. Davis. Correct. I think there is an opportunity here. 
One form of defined benefit as we have known it seems to be 
gone, and we cannot bring that back. But there are new hybrid 
forms, PPA codifying the existence of cash balance. I am sure 
there are other more creative ways of designing that kind of 
thing to try to encourage the private system to fund its 
workers' retirement.
    It is abundantly clear that the----
    Chairman Miller. I would tend to believe by your remarks 
that you thought in fact was happening.
    Mr. Davis. It is happening right now with cash balance 
plans.
    Chairman Miller. It is right now?
    Mr. Davis. Absolutely right. Cash balance plans, though, in 
their current rush to adoption, there are a lot of them being 
adopted today are generally being adopted by smaller employers 
for tax structuring reasons. It works quite well to the 
advantage of the employees of those particular plans, but I am 
sure there are things that could be built on that----
    Chairman Miller. But are they rushing to do it to escape 
other liability or this is in fact to create a better 
retirement plan for the workers?
    Mr. Davis. I think the primary motivator is tax 
consideration at this time. But the secondary motivator, and 
the rich one, inclines that we serviced it to get more money 
into people's hands for retirement. It is not perfect yet, but 
I just do not want to dismiss it. I am sure there are far 
better brains than mine that could give you good counsel as to 
how to pursue that. I just hate to see the presumption of the 
death of defined benefit built hard coded into what we do. 
There are ways that companies could do a better job of that.
    Chairman Miller. Should that be addressed at the same time?
    Mr. Davis. Yes.
    Chairman Miller. Dr.----
    Mr. Hacker. Well, just to complete my comments. And I did 
not mention before that another sign that Congress had not 
considered this fully is that they authorized 401(k)s just a 
few years after they had comprehensively reformed traditional 
defined benefit pensions without putting in place any rules for 
the most part for defined contribution plans like the 401(k) 
that would soon emerge. So, in a sense, we have not had this 
debate that we had over traditional defined benefit pensions.
    So I mentioned that we should try to think about how to 
make them better forms of private risk sharing. But I would 
also echo something that has been said already: That we need to 
separate out the profit sharing plan part of 401(k)s. Right now 
companies are encouraged to match contributions with company 
stock. That makes no sense. We have vehicles for doing that in 
the form of profit sharing plan. We should at the very least 
adopt the same rules for these 401(k)s that we do for defined 
benefit pensions that limit the amount that can be in company 
stocks.
    And then finally, and this is just to focus us again on the 
bigger picture, one of the fears I have about 401(k)s is they 
have become an all purpose safety net for many workers who 
borrow against them or use their lump sum payments to deal with 
present needs. Let us address those present needs while 
restructuring 401(k)s to make them better sources of retirement 
income.
    Chairman Miller. Present needs, you mean because of a 
health emergency or----
    Mr. Hacker. Absolutely. A health emergency, the need to 
deal with lost income because of a lay-off. We see this again 
and again. And notice what happens with the 401(k) now. You 
lose your job. You lose your job and suddenly you are presented 
with a check, a large check from your former employer, perhaps, 
that is your 401(k) balance. Now I ask you how many people in 
that situation would be able to resist the temptation to use 
that check to be able to finance their current consumption.
    In fact, the research I cite in my testimony suggests that 
there is very strong evidence that people spend their lump sum 
balance precisely when they face health problems, lay-offs or 
family emergencies that require that they spend money. I think 
we should try to deal with those needs outside of the 401(k) 
system and make the 401(k) system a better source of a secure 
retirement income.
    Chairman Miller. Mr. Joyce?
    Mr. Joyce. Two comments. When we use the word ``risk'' 
there's more than one type. And what we are experiencing now is 
somebody referred to as the wake-up call from hell recently 
about what we call market risk and credit risk. So we talk 
about guarantees and so forth, and there's a major wake-up call 
as who is doing the guaranteeing here. And we can see once 
again we learn the same things over and over through history 
that if you have too much money guaranteed by one spot, we have 
learned that you got to be really careful about that. You got 
to spread that out.
    When I started off as a financial planner, we were in 
inflationary times and really defined benefit plans were looked 
upon as almost kind of stone age things because what they were 
bad at, what they weren't good at was keeping up with 
inflation. So like a bank they can guarantee that they're going 
to get a dollar back to you, but what they can't guarantee to 
you is what that dollar is going to buy you. And that can get 
lost right now because the focus is on these other types of 
risk.
    So the menu of risks is really gigantic.
    If I could just offer one thing. My belief is that client 
behavior is the critical issue in terms of whether or not 
somebody is successful. Somebody that can't save money or won't 
save money, I mean it's tough. I would hate to have your job. 
But there are people that can and do. And with a little bit of 
guidance they can go a long way. But about the industry in 
returns and so forth, what they tend to do is Mr. Financial 
Genius will get you 12 percent a year and Mr. Market has gotten 
you 10 percent a year. And Mr. Mutual Fund has gotten you eight 
percent a year, the difference being fees and so forth. But Mr. 
Investor has only been getting two. And why? Because of their 
behavior Dr. Benartzi talked about. They tend to identify the 
highs and lows, but people have a very bad record in terms of 
that.
    The other thing is if you are basing your retirement plan 
either on your advisor or you being the second coming of Warren 
Buffet, then God help you. What we try to tell people is you 
are probably just going to do okay with your investments and 
forget about trying to beat the street. I mean, that is 
probably not possible.
    So behavior is really the issue. Are people controlling 
their spending, choosing their spending, are they thinking 
ahead in terms of horrible case scenarios? And are you 
withdrawing a reasonable amount of money from your nest egg?
    One other thing is that people when you are younger the 
things that make you a successful investor like dollar cost 
averaging and so forth often those are the things i the 
retirement that are some of the worse things for you. So there 
is a very different dynamic. The math is very different, if you 
well, in the accumulation phase as opposed to the distribution 
phase. And there is very tricky stuff to learn there.
    Chairman Miller. Ms. Woolsey?
    Ms. Woolsey. Well, while I was sitting here I could not 
help but kind of gloat what indeed would have happened if we 
had privatized Social Security? That would be gone, too, with 
this market. So Social Security, of course, cannot be a 
person's full retirement but it has to be a safe and it has to 
be a solid base that can be counted on. And everything else we 
are talking about needs to be safe and secure so that people 
can add to their Social Security retirement benefits.
    When we talked about investing and having employees 
investing in the company they work for, Enron was the perfect 
example. And from that point on, I mean and before then, our 
Chairman has been pounding on our Committee and it is has been 
hard because we have not been in the majority all the last two 
years on this really, that we have to have reputable, 
accountable counselors at these companies that tell people the 
straight scoop. But, you know, employees are loyal. They work 
for a company for a reason. They love their company because 
they have to go there everyday, they had better like it. And 
they are pretty willing to let their employer help them decide 
what to do with their money. And it was Enron that showed us 
that the executives were not loyal, the CEO was not loyal. The 
human resources person should have been sitting out in front of 
the door of that CEO and saying look what is happening to our 
employees, Would not, did not, could not because of fear of 
loss of jobs, but they are lost anyway.
    So we have a lot of work to do. But what I would like to 
know again from Ms. Quan and from Mr. Carroll when we talk 
about scenarios, I think you are in that right now. What does 
it make you feel like when we talk that way like you could have 
done something about it when the person that has got a $100,000 
has so little, if any, control over what is going on when it is 
the big corporate investors that are running the show?
    I mean, I think right now what they are doing is they drive 
the market down at the end of the day, they buy, buy and then 
start selling, selling off. You know, people are making money 
on this program or this scenario of what is going on.
    What does that make you feel like?
    Ms. Quan. I probably am a representative of a lot of my 
friends. You know, we have been talking about this, of course, 
for the last--since the crisis. And they are all in the same 
boat as I am. But the things we are talking about are 401 
failure, right? So there is that failure. Now what are they 
supposed to do next? Who can they trust? Which plan can they 
respect? So there is much confusion at this point in time, you 
know, and everybody concludes put it in a brown paper bag and 
kick it under the bed, as a joke. But what are we supposed to 
do at this point in time. Because, you know, I trusted the 
system and obviously it did not work. So, as I said, my 
contemporaries feel the same way. And even with my $38,000 
loss, I have friends that lost even more. So it is very 
frightening.
    Mr. Carroll. Thank you for the question. My theory is that 
to protect the social contract between individuals and their 
government, we definitely have to have government regulation. 
The idea that I would know enough about Washington Mutual's so 
called investment and toxic mortgages, that I would know 
whether that was a good investment or not, or even that my 
investment counselor would know it is just nuts. None of us 
know that kind of thing. The only way to protect people like 
myself, to protect all of us is to make those kinds of 
investments very, very different to occur if they are going to 
happen at all.
    I can tell you all kinds of things about the Roman Empire. 
I cannot tell you anything about mortgage investments. And I 
need somebody, I need a system that if I play by the rules, as 
I did, and I do all the things that we are supposed to do that 
I can trust the system to honor that social contract and live 
up to it.
    Ms. Woolsey. And Mr. Chairman, these two wonderful examples 
of having actually been involved in long term planning. I mean 
a lot of what we heard and from Dr. Benartzi was you got to 
look long term. They looked long term. They worked it and 
played by the rules. And we have to do something.
    Mr. Joyce. May I ask Steve and Roberta some questions?
    I am curious when before you retired, especially at work 
you were a teacher, and did they have STRS people come talk to 
you or did you ever engage in what we call formal retirement 
planning where you actually look at your budget and projected 
and so forth?
    Ms. Quan. Yes, they did come and talk to us. And I was 
fortunate, as you know my husband with the Alzheimer's----
    Mr. Joyce. Yes.
    Ms. Quan [continuing]. It was very fortunate that I took up 
the long term care insurance.
    Mr. Joyce. Great.
    Ms. Quan. So that saved my bacon at this point in time.
    Mr. Joyce. Yes.
    Ms. Quan. But as for pension, we have our own pension you 
know, and you do not necessarily have to come and talk to us, 
but when you retire you have many choices. And it is difficult 
to know as a layperson which choice is best.
    Mr. Joyce. Yes.
    Ms. Quan. You know, you could take it lump sum, you could 
do it month-by-month, whatever.
    Mr. Joyce. Yes.
    Ms. Quan. So we made our choice, and you cannot retrack it 
once you make your choice.
    Mr. Joyce. Yes.
    And, Steve, what proportion of your assets were with WaMu 
and was the idea that well they are AAA? I mean did you have 
way too much in one company and obviously looking in 
retrospect?
    Mr. Carroll. No. I think we very judiciously divided things 
up. The thing is a $100,000 is a lot of money to lose overnight 
unless you're Warren Buffet or----
    Mr. Joyce. Yes. Yes. Bill Gates.
    Mr. Carroll [continuing]. Enron or those kind of things. 
Fortunately for us we have some fall back positions. But I am 
not sure--we are not confident of anything now because what we 
were sure of, the reality was exactly the opposite of what we 
anticipated. So are any of our investments safe? We have not a 
clue, and I do not know anybody who can. When I talk to people 
they say well we are in new territory now. We are in new 
territory. We have never seen this before. And it is true, this 
is new territory and we have not seen this since 1929. But I 
think there are better ways to guarantee the basic economic 
well-being of Americans than we have now. And, again, I think 
regulation is a huge part of it.
    Mr. Joyce. Yes. If it is any consolation, even 
sophisticated professional financial advisors struggle with 
trying to figure things out. And I was on a conference call 
yesterday with people like myself all around the country and 
there was just unbelievable complaints about a particular 
financial vehicle with a very famous well known highly regarded 
company for the most part that there was some fine print in 
there that was just unbelievable. And this person was extremely 
experienced. So it is hard and we really hate to hear about 
what is happening to you.
    Chairman Miller. Mr. Davis?
    Mr. Davis. Just two things I wanted to comment. One 
cultural, and I think this is again something the Committee 
could do using the bully pulpit that you've begun to use so 
well.
    We have made it common practice in this country to run down 
Social Security. And the presumption among American workers, I 
hear it all day every day, is ah there will be no Social 
Security, it will not be there when I get there, blah, blah, 
blah. What does that cause people to do? It causes them to take 
undue risk, more risk in their investment portfolio than they 
might otherwise take because there truly is a presumption of 
I'm on my own, that will never there. We as a society if we can 
pump up the fact that this is a generational promise from one 
generation to the next and add value to that, whether we need 
to add funds to it, that's another conversation. But certainly 
the legitimacy and the strength of that program American 
workers need to be reminded of it. And I see that every day.
    Number two, I need to sound somewhat of an alarm maybe two 
weeks later than it needed to be, but Dr. Benartzi talked about 
that the only investment in ERISA that is not diversified is 
employer stock. Not true. As I said in my comments, they are 
probably the most used investment in American that people think 
is the safest, is the ``guaranteed'' account offered through 
insurance products. That is guaranteed only if that insurance 
company is still there when you go to cash in your guarantee. 
It in a single nondiversified investment in one financial 
institution, probably the largest used among investors in 
America today, and particularly those who think they are the 
safest. The potential exposure there will make what we are 
talking about today like nothing.
    Chairman Miller. And I think that the situation we find 
ourselves in is that that guarantee for a generation of 
Americans meant something. Because you are talking about brand 
names.
    Mr. Davis. Correct.
    Chairman Miller. That they have come to trust. Little did 
they realize that those very brand names under a different 
generation of management was engaging in some of the most 
remarkably reckless behavior that we have seen in financial 
institutions in the history of this country. So now all of a 
sudden you do not trust the name brands. You do not trust the 
name advisors. Where do you go? This is what I am hearing.
    You know, I agree, there was a presumption and it is still 
probably true that Social Security will not be there for you 
when you need it. What I am hearing now is thank God we did not 
privatize Social Security because they do not know what they 
would have done or whether they would have doubled down on a 
market that was rigged.
    And, you know, I do not know when it became an ethic of the 
banking community that they would make liar loans. I grew up in 
a generation where the banker was the prudent person in the 
community that told you ``George, you cannot afford that house. 
You cannot afford that car. You are going to have save more if 
you want that car because I am going to only loan you this much 
money, or you are going to have to have a bigger down payment 
if you want that house because we will only loan you this much 
money.'' They were the governor, they were the regulator, Well, 
they all became river boat gamblers. I mean they all learned 
from the telecommunications companies that the money is in fees 
and commissions. It is not in doing business. It is charging a 
little tiny fee a billion times a day and then you can make 
real money, and it is invisible.
    So what did we find out in California? That almost half of 
the subprime loans could have as easily been prime loans but 
the commissions are making subprime loans and the interest 
rates were higher, and that is what you wanted to market when 
you were securitizing them. So the banker became your enemy.
    Merrill Lynch became your enemy. CitiCorp became your 
enemy. WaMu was the hottest thing going for the last three 
years. That is why people were buying bonds and totting it 
because it went out and captured this huge market share and 
these huge amounts of deposits. But then they went to Los Vegas 
with the deposits. We thought they were like real bankers: You 
take it in here and you loan it out here to people who can pay 
it back. Liar loans. And this is what we are building people's 
retirement security on top of these institutions? I mean, these 
are the people when we were trying to get transparency in fees 
in the pension bill last year, these are the people who set the 
lobbyists loose. These are the people who are ready discussing 
they are not going to cut back on their lobbying at all because 
they need this game to stay in play. But this game is not set 
up to the benefit of the American worker.
    You know, we all recognize that there are people who have 
successfully negotiated and been able to utilize, and in fact 
two people here their 401(k)s, they have taken a very serious 
hit because of the way the system has been rigged. But, in 
fact, they are fairly successful at doing this.
    I have nieces and nephews who have done very well in blue 
collar jobs saving for this. I have not talked to them yet what 
hit they have taken because they have really worked hard to 
save. I mean, they worked hard to save because they had tough 
jobs. You know, you would like to retire.
    All of this has changed. And I think this Committee has a 
very important role. I think the Congress has a critical role 
in redefining the rules of this game if we are going to keep 
playing on this table. You know, we have had suggestions that 
we ought to get rid of this plan, move to a different plan, we 
have had a number of proposals for universal 401(k)s. Jacob, 
you have worked on some and others have. I think we have to 
examine all those. Because to me retirement savings is sort of 
the old idea if you can handle the worst, you can handle the 
best. And right now these plans are not set up to handle the 
worst.
    And we all understand there are cycles. But we assume the 
cycles were based upon sort of normal economic activity and 
risk taking. Here we have an induced cycle, you know in a hyper 
cycle because of that reckless behavior by the people that we 
grew up believing we were supposed to trust. That is gone. And 
I do not know. I mean, I know the conversations you are having, 
because I am having them with people at every event I go to in 
my District, Ms. Quan. These are what your friends and retired 
teachers and my retired teacher's sister is talking about, you 
know it is all the same mix here. But I can imagine what you 
are hearing from your clients in a sense of do I go left or do 
I go right? Where do I go right now? Because, again, they 
invested in what we thought were financial icons of a new 
globalized economy. And it just didn't turn out to be the case.
    That does not mean that we are going to disband our efforts 
to encourage people to save. But I think what we want on the 
Committee is we want certainly a more efficient use of the tax 
dollars to subsidize this behavior and a way that we can get 
appropriate risk and reward in place, and that includes a 
secure retirement. So it all has to be sort of proportionate. 
And we know that Congress is really good at these delicate 
maneuvers like that. It's sort the Goldilocks. We're very good 
at the Goldilocks solutions in these big complex problems. But 
there is a great deal of urgency because if people are 
paralyzed and they are not making those contributions, they are 
paralyzed and they are not opening those 401(k) plans, if they 
are paralyzed and they are taking money out, all of that works 
against them down the road. But I am not in a position to 
advise them whether they are right or wrong. Because they are 
looking into a situation which none of them experienced.
    We always go back to the Great Depression. But that is sort 
of the last time we saw something as widespread and as 
devastating as this.
    I would like to ask that we could continue to work with 
you. This is a very, very high priority for this Committee in 
the remainder of this Congress, but certainly going forward in 
the new Congress. Because this has to be repaired. It is 
critical for all of America's families, it is just that simple 
whether they are retired, near retirement, young, old or 
otherwise. This system has to be repaired and right now it is 
not serving them well.
    And I thank you very, very much for your testimony.
    Do you have any further questions?
    Ms. Woolsey. No, thank you.
    Chairman Miller. Thank you very much for taking your time 
to join us this morning. We are trying to build a diverse and 
critical record of what we should be contemplating going 
forward in this Committee. Thank you.
    For the members of the Committee, if there are members who 
want to make statements for the record or add to the record of 
the Committee, the record will remain open for 14 days so that 
that can be done.
    If there are members of the public who have seen this on 
CSPAN or streaming from the Education Labor Committee of the 
House of Representative, we welcome public comments and they 
can forward those to the House Education Labor Committee.
    Thank you very much, and with that the Committee will stand 
adjourned.
    [The statement of Mr. McKeon follows:]

         Prepared Statement of Hon. Howard P. ``Buck'' McKeon,
       Senior Republican Member, Committee on Education and Labor

    Turmoil in the U.S. and global financial markets has impacted all 
aspects of American life, but for many workers and retirees, the most 
pressing concern remains the health of their retirement savings. 
Today's hearing is an important opportunity to evaluate the issue of 
retirement security in the context of the current market downturn as 
well as more broadly, through the lens of long-term market 
fluctuations.
    Although the stock market--a common barometer of consumer 
confidence and market health--has been trending downward for the past 
year, it is the volatility of the past several weeks that has truly 
shaken investors and savers. Uncertainty arising from the credit crunch 
and global banking shifts has brought both upward and downward market 
spikes of historic proportions.
    The market also reacts to the signals sent by policymakers, so 
another fitting question to ask today might be: what is the impact of 
congressional action on workers' retirement security? We've seen how 
the markets react to congressional votes, hearings, and even a few 
words uttered in haste. What is said here today--by both the witnesses 
and by Members of Congress--will impact the market, a reality of which 
we must be mindful. Congress should not be undermining public 
confidence; to do so could further erode an already fragile market.
    American families are hurting. Nest eggs have grown smaller, 
defined-benefit pensions have become less solvent, and workers nearing 
retirement have begun to reevaluate whether they can truly afford to 
stop working. No one underestimates the seriousness of the current 
market situation.
    However, the difficult reality we face today is merely a snapshot 
in the long-term retirement strategy employed by individuals, 
employers, and policymakers. When the market was at its peak and 
workers reaped the benefits of consistent double-digit increases in 
their retirement portfolios year after year, no one would have advised 
that low-risk, low-return investment options be eliminated. Similarly, 
despite the market losses we see today, it would be unwise to abandon 
the retirement savings vehicles now available to workers in favor of a 
one-size-fits-all government mandate that would cement individual 
losses and prevent future market gains.
    In the midst of what many see as a short-term retirement security 
crisis, now is exactly the wrong time to consider a radical shift in 
how Americans plan and save for retirement. Instead, we should look 
carefully, thoughtfully, and cooperatively at long-term strategies that 
will benefit workers by averting unnecessary risk while maintaining 
freedom and flexibility.
                                 ______
                                 
    [Whereupon, at 11:35 a.m., the Committee was adjourned.]

                                 
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