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




 
                 INDIVIDUAL RETIREMENT ACCOUNTS (IRA's)
                        IN THE RETIREMENT SYSTEM

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

                                HEARING

                               before the

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 26, 2008

                               __________

                           Serial No. 110-90

                               __________

         Printed for the use of the Committee on Ways and Means





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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio          THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL, JR., New Jersey       JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

             Janice Mays, Chief Counsel and Staff Director

                  Brett Loper, Minority Staff Director

                                 ______

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                RICHARD E. NEAL, Massachusetts, Chairman

LLOYD DOGGETT, Texas                 PHIL ENGLISH, Pennsylvania
MIKE THOMPSON, California            THOMAS M. REYNOLDS, New York
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
ALLYSON Y. SCHWARTZ, Pennsylvania    JOHN LINDER, Georgia
JIM McDERMOTT, Washington            PAUL RYAN, Wisconsin
RAHM EMANUEL, Illinois
EARL BLUMENAUER, Oregon

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               Page______

Advisory of June 18, 2008 announcing the hearing.................     2

                               WITNESSES

The Honorable Ron Kind, a Representative from the State of 
  Wisconsin......................................................     6
The Honorable Kenny C. Hulshof, a Representative from the State 
  of Missouri....................................................     9
Barbara Bovbjerg, Director, Education, Workforce and Income 
  Security Issues, U.S. Government Accountability Office.........    14
W. Thomas Reeder, Benefits Tax Counsel, Office of Tax Policy, 
  U.S. Department of the Treasury................................    59
Bradford Campbell, Assistant Secretary of Labor, Employee 
  Benefits Security Administration, U.S. Department of Labor.....    49

                                 ______

Leo Estrada Ph.D., Professor of Urban Planning, University of 
  California, on behalf of AARP..................................    80
J. Mark Iwry, Nonresident Senior Fellow, The Brookings 
  Institution; Principal, The Retirement Security Project and 
  Research Professor, Georgetown University......................    93
Dallas Salisbury, President and Chief Executive Officer, Employee 
  Benefit Research Institute (EBRI)..............................   117
Ross Eisenbrey, Vice President, Economic Policy Institute........   123
Randolf Hardock, Davis & Harman, on behalf of The Savings 
  Coalition of America...........................................   133

                       SUBMISSIONS FOR THE RECORD

American Council of Life Insurers, Statement.....................   155
Andrea Levere, Letter............................................   156
Massachusetts Mutual Life Insurance Company, Statement...........   160
The Workplace Savings Working Group, Statement...................   161


                 INDIVIDUAL RETIREMENT ACCOUNTS (IRA's)
                        IN THE RETIREMENT SYSTEM

                              ----------                              


                        THURSDAY, JUNE 26, 2008

             U.S. House of Representatives,
                       Committee on Ways and Means,
                   Subcommittee on Select Revenue Measures,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:05 a.m., in 
room 1100, Longworth House Office Building, the Honorable 
Richard E. Neal [Chairman of the Subcommittee] presiding.
    [The advisory of the hearing follows:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                                CONTACT: (202) 225-5522
FOR IMMEDIATE RELEASE
June 19, 2008
SRM-10

                       Neal Announces Hearing on

                 Individual Retirement Accounts (IRAs)

                and their role in our retirement system

    House Ways and Means Select Revenue Measures Subcommittee Chairman 
Richard E. Neal (D-MA) announced today that the Subcommittee on Select 
Revenue Measures will hold a hearing on the role of Individual 
Retirement Accounts (IRAs) in our retirement system. The hearing will 
take place on Thursday, June 26, 2008, in the main Committee hearing 
room, 1100 Longworth House Office Building, beginning at 10:00 a.m.
      
    Oral testimony at this hearing will be limited to invited witnesses 
only. However, any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.
      

FOCUS OF THE HEARING:

      
    The hearing will focus on the recently issued report by the 
Government Accountability Office (GAO), entitled Individual Retirement 
Accounts, Government Actions Could Encourage More Employers to Offer 
IRAs to Employees, June 2008; the role of IRAs in our retirement 
system; and legislative proposals for automatic IRA enrollment.
      

BACKGROUND:

      
    More than 30 years ago, Congress created IRAs to provide workers 
not covered by a pension plan with an option to save for retirement. 
The need for workers to preserve their retirement savings when they 
change employment was the basis for further Congressional action 
utilizing IRAs in a worker's ability to roll over savings from an 
employer-sponsored plan. This rollover option accounts for the majority 
of assets held in IRAs.
      
    In addition, Congress has used IRAs as an incentive for small 
employers to provide retirement plans for their workers. In 1978, the 
Simplified Employee Pension (SEP) was created. Under a SEP, an employer 
with 25 or fewer eligible employees can establish an IRA for each 
eligible employee. Salary reduction contributions are made to the IRA 
on the employee's behalf. Another option for small employers is the 
Savings Incentive Match Plan for Employees (SIMPLE), created in 1996. 
Under a SIMPLE, employers with 100 or fewer employees can establish an 
IRA for each eligible employee. The employee makes elective deferrals 
to the IRA and the employer makes certain matching contributions. There 
is also the payroll deduction program which allows the employer to make 
payroll deductions which are contributed to an IRA established by the 
employee. These various types of IRAs are in addition to traditional 
IRAs and Roth IRAs. Traditional IRAs allow eligible individuals to make 
tax-deductible contributions to the account, and investment earnings 
accumulate on a tax-deferred basis. Certain income limits apply and 
distributions are taxable. The Roth IRA allows eligible individuals to 
make after-tax contributions with generally tax-free investment 
earnings. Certain income limits apply and distributions are tax-free.
      
    In announcing the hearing, Chairman Neal stated, ``I have always 
been a strong advocate for creating retirement savings opportunities 
for every American. That is why I have introduced legislation, along 
with several co-sponsors, to create automatic payroll deposit IRAs for 
workers who do not have access to employer-sponsored pension plans. The 
bill would require employers to automatically enroll employees in a 
payroll deduction IRA unless the employee opts out. Our proposal could 
raise the national savings rate by nearly $8 billion annually. This 
hearing will explore these ideas along with other issues related to 
IRAs.''
      

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    Chairman NEAL. Let me call this meeting to order. I hope 
that our guests would take their seats. I want to welcome 
everyone to this hearing on the role of Individual Retirement 
Accounts, or IRAs, by the Subcommittee on Select Revenue 
Measures.
    By way of introduction, I think that my bipartisan 
credentials on this issue have been pretty sound. I incurred, 
as a young Member of this Committee many years ago--let's put 
it this way. I increased my name recognition with Chairman 
Rostenkowski in my push to expand IRA limits. At that time, his 
argument was fairly simple, and it's still something we need to 
be mindful of, making sure that the basis of the IRA is not 
just to allow wealthy people to save more.
    At the same time, I worked with the former Chairman of this 
Committee, before he was the Chairman, to expand IRA limits. We 
had a great deal of success back in the mid-1990s.
    You have all probably heard of the three-legged stool meant 
to prop up retirees in their golden years. That is Social 
Security, pensions, and savings. Today we will be discussing 
personal savings, and why the national savings rate continues 
to decline. As you can see from the slide I hope will be 
displayed as I speak, our personal savings rate has declined 
over the decades to a paltry one-half of 1 percent since 2005.
    IRAs have existed for decades now with the hopes that those 
without employer plans would save on their own. Yet, we are 
still faced with under-utilization by the intended targets. GAO 
recently projected that 37 percent of all workers will retire 
with 0 plan savings. That of young and low income workers, 63 
percent will have no plan savings at retirement.
    Clearly, we must do more to foster personal savings. We 
must begin to think more creatively, and use innovation to 
capture this group of workers who are not saving. One of the 
vehicles is the auto-IRA, which Mr. English and I have 
sponsored here in the House. I really think that this could get 
done next year.
    With 75 million workers with no access to a workplace 
retirement plan, and only 10 percent of these workers saving on 
their own, clearly the current incentives are not working. 
Today's hearing will explore these issues and other ideas to 
reach out to those who should be saving more.
    As George Foreman observed--and I quote--``The question 
isn't at what age I want to retire, it's at what income.'' If 
only we all had this same observation in our twenties, we 
wouldn't be fighting so hard to save in our fifties.
    With that, I recognize my friend, Mr. English, for his 
opening statement.
    Mr. ENGLISH. Thank you, Mr. Chairman. Mr. Chairman, I find 
myself entirely in agreement with the thrust of your remarks. I 
want to express my gratitude to you for having this hearing, 
and creating an opportunity to build toward an expansion of 
IRAs, and potentially the addition of the auto-IRA, which I 
have been privileged to join you in sponsoring in the House of 
Representatives
    The issue of improving our retirement savings system is one 
that certainly lends itself to bipartisanship. It is 
particularly important to me, as co-Chairman of the 
Congressional Savings and Ownership Caucus. Clearly, we need to 
do more to encourage all Americans to save for retirement. We 
need to work together to find creative solutions.
    The U.S. retirement savings system has been described by 
many, as well as yourself, Mr. Chairman, as that three-legged 
stool, with Social Security, employer-based retirement plans, 
and personal savings constituting each of those legs.
    The first leg, Social Security, covers workers on a near 
universal basis. But the benefits of the program are limited by 
statute. The system itself faces significant financial 
challenges over future decades, due to changes in demographics.
    The second leg, employer-based retirement savings plans, 
includes both traditional defined benefit pension plans, and 
more recently established defined contribution arrangements, 
such as the now-familiar 401(k) plan. Such employer-based plans 
are estimated to cover only about one-half of the workforce. 
Although three-quarters of the workers whose employers 
currently offer such a plan do participate in it, an estimated 
75 million American workers are employed by businesses, 
typically small businesses, which do not offer such a plan.
    The third leg of the retirement stool is personal savings. 
Unfortunately, the personal savings rate, which averaged about 
9 percent during the 1960s, 1970s, and 1980s, now has been on 
steady decline for a generation. Alarmingly, the personal 
savings rate has been less than one percent in every quarter 
since 2005. This constitutes a quiet crisis that is a core 
challenge to the competitiveness of our economy.
    Congress has enacted numerous tax incentives over the past 
several decades designed to encourage retirement savings, both 
through employer-based plans, and through individually owned 
savings plans. This hearing will focus on one such set of 
retirement savings vehicles: in particular, IRAs.
    IRAs were first created in their traditional form in 1974, 
and they have been expanded repeatedly since. As we're going to 
hear from our witnesses today, these savings vehicles play a 
significant role in the U.S. retirement system. More assets are 
held in IRAs than any other type of retirement savings 
arrangement, including 401(k) plans.
    Due to ongoing concerns regarding the retirement savings 
patters of Americans, especially among low and middle-income 
individuals, I have been excited to pursue proposals to expand 
IRAs, particularly, Mr. Chairman, your proposal to create an 
automatic IRA. Building on the success of similar initiatives, 
I believe this tool has the potential to fundamentally expand 
savings opportunities for millions of Americans, and generate 
billions of dollars in new savings.
    Mr. Chairman, I look forward to hearing from the 
distinguished panels that you have arranged for this morning, 
and I am hopeful that their testimony will help us develop 
creative solutions--and I hope also, a groundswell of support 
in the House for the initiative you have outlined. Thank you 
very much.
    Chairman NEAL. Thank you, Mr. English. Consistent with that 
principle of the distinguished, we have two Members of the 
Committee, Mr. Kind and Mr. Hulshof, and together they will 
advocate for legislation modifying SIMPLE plans.
    On our second panel, we will hear from government 
witnesses, starting with Mrs. Barbara Bovbjerg, the Director of 
Education, Workforce, and Income Security Issues at the GAO. 
Next, we will hear from Mr. Tom Reeder, the Benefits Tax 
Counsel in the Office of Tax Policy at the Treasury Department. 
Then we will hear from Mr. Bradford Campbell, the Assistant 
Secretary in the Employee Benefits Security Administration at 
the Labor Department.
    Our third panel will allow us to welcome a number of 
witnesses from the private sector, beginning with Dr. Leo 
Estrada, a board member of AARP, and a Professor of Urban 
Planning at UCLA. We also will welcome Mark Iwry, who is a 
fellow at the Brookings, a Professor at Georgetown, and a 
Principal at the Retirement Security Project, but still finds 
time to share his thoughts this morning with the congress.
    Next we will hear from Mr. Dallas Salisbury, the President 
and CEO of the Employee Benefit Research Institute. We also 
welcome Ross Eisenbrey, Vice President for the Economic Policy 
Institute. Finally, we will welcome Randy Hardock of Davis & 
Harman, who will be testifying on behalf of The Savings 
Coalition of America, whom, I might point out, I worked with 
back in the early and mid-1990s.
    Without objection, any other Members wishing to insert 
statements as part of the record may do so. All written 
statements written by the witnesses will be inserted into the 
record, as well.
    I recognize Mr. Kind.

   STATEMENT OF THE HONORABLE RON KIND, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF WISCONSIN

    Mr. KIND. Thank you, Mr. Chairman, and Ranking Member 
English, Members of the Committee. It's kind of fun to be on 
this side of the table, isn't it Kenny, for a change?
    But we really appreciate the opportunity to testify today. 
I think both you and Mr. English teed up the issue very, very 
well. I couldn't be more supportive of the proposal of 
automatic IRA legislation that you have introduced.
    I think one of the best things we did with pension and 
reform legislation a few years back was call for automatic 
enrollment of 401(k)s, because we all know one of the greatest 
obstacles to increase individual savings in this country is, 
quite frankly, inertia, just getting people to do something. 
So, automatic enrollment, I think, would be a tremendously 
helpful and beneficial step to try to increase the individual 
savings rate.
    But you have both highlighted what the problem is. We have 
an effective zero percent on an individual savings rate right 
now in the country. You couple that with the bad savings on the 
public ledger side of things, too, and all three legs of the 
retirement savings stool is in great jeopardy today.
    We know we have some long-term fiscal challenges dealing 
with the solvency of social security. We have had a dramatic 
decline in defined pension plans throughout the country, from 
roughly 65 percent from 1979 to a little bit under 10 percent 
today. We are not doing enough, I feel, to encourage and 
incentivize greater individual savings opportunities for 
employees throughout the country.
    But as Mr. Hulshof and I were looking into this, there was 
a real glaring hole out there that we felt needed to be 
addressed, and that was the savings options or opportunities 
for employees in small businesses. Because today there just 
isn't a lot of participation along these lines, even though 
back in 1996--as this Committee is well aware--with the 
creation of SIMPLE 401(k)s and SIMPLE IRAs, it was meant to get 
at this pool of workers to make it easier for them to set up 
their own savings.
    Now, here we are, 12 years later, there really hasn't been 
any reform or changes or modifications based on what we have 
learned. We have learned a lot during that time: the fact that 
there aren't that many plans still being offered, because in 
most instances for small employers, it's either too 
complicated, too costly, or there is--it's a somewhat risky 
endeavor. That was the impetus behind the legislation that we 
have introduced, H.R. 5160, or The Small Business Add Value for 
Employees Act, the SAVE Act. I thank Mr. English for being one 
of the original cosponsors on the legislation, as well.
    With your insistence, Mr. Chairman, what's helpful is the 
recent GAO report that came out this month. The recommendations 
that they're making is very consistent with many of the 
proposals that we're offering in this legislation, to try to 
increase and incentive the opportunities for employers to offer 
IRA savings opportunities for more employees, because the 
numbers are very stark.
    Today we know that only 14 percent of small businesses 
offer a 401(k) plan; 63 percent of small businesses throughout 
the country offer no savings option at all to their employees. 
That's roughly 71 million workers in small businesses that 
don't have a plan that they can participate in, even if they 
wanted to. That's a lot of people who are being left behind, 
and perhaps the most vulnerable population that we have, when 
it comes to retirement security and needs.
    But let me just quickly and briefly summarize what the 
legislation would try to address, both the complexity, the 
cost, and some of the risky endeavors that small employers are 
facing.
    We are trying to increase flexibility for employers under 
the legislation, and it would remove the requirement that 
SIMPLE IRA plans operate only on a calendar ear basis. 
Authorizing small businessowners to make mid-year changes to 
their SIMPLE plans ensures that businessowners need not wait 
until the beginning of the year to move to a new retirement 
plan.
    The SAVE Act also would change outdated SIMPLE IRA rules 
that unnecessarily restrict an employer's ability to contribute 
to the employee savings. Under current law, the employer is not 
permitted to match more than three percent of the employee's 
salary, and make more than 2 percent non-elective contribution 
to workers' accounts. The SAVE Act would remove this 
restriction, and allow employers to make additional 
contributions to all participants' accounts.
    We are also trying to increase incentives for employers to 
just offer more SIMPLE IRAs to their employees. The Act would 
make a number of important reforms with this goal.
    First, it would create a new automatic IRA option under the 
Internal Revenue Code. Although we still leave it discretionary 
with the employer, whether they want to have an automatic 
enrollment--and I think that's something we can have a further 
conversation about, as far as modifying the legislation that 
we're offering--automatic IRAs would provide a relatively 
simple and cost-effective way to increase retirement security 
for those 71 million employees who sometimes aren't taking 
steps in order to increase their own savings.
    Also, the SAVE Act would increase the small employer 
pension plan startup cost credit for small businessowners to 50 
percent of the startup cost. This, again, is consistent with 
some of the findings of that GAO report that just came out this 
month.
    It would also allow a one-time $25 tax credit for every new 
employee who is enrolled in the savings program.
    Finally, it increases incentives for employees to 
participate in SIMPLE IRA plans, and would update the annual 
contribution limits. Employees covered under the 401(k) plans 
today are permitted to save up to $15,500, annually. But small 
business employees can only save $10,500 annually, under a 
SIMPLE IRA. We're just bringing that to parity, and we see no 
reason why there is a distinction or discrimination with SIMPLE 
IRAs, given the contribution limits of 401(k)s.
    So, we think, you know, this legislation, if we can move it 
forward in a bipartisan fashion, I think addresses the 
interests and the concerns that you, Mr. Chairman, and Mr. 
English, and others on the Committee are trying to get at 
through this hearing and through important legislation that you 
have addressed.
    We are trying to reach those 71 million or so employees in 
small businesses that don't have an opportunity to save, while 
addressing some of the concerns and feedback that we were 
getting from small business employers throughout the country--
cost, complexity, some of the risks involved--through the 
incentives that we have built into this legislation.
    So, thank you again for the opportunity to testify today. 
We look forward to working with you and others on the Committee 
to move forward on this. Thank you.
    [The prepared statement of the Honorable Mr. Kind follows:]

                 Statement of The Honorable Ron Kind, 
              a Representative from the State of Wisconsin

    Chairman Neal, Ranking Member English and other Members of the 
Subcommittee, thank you for the opportunity to testify today.
    As a first term Member of the House Ways and Means Committee, I 
decided early on to focus much of my work on issues and concerns 
relating to small businesses. I did this for the simple fact that my 
district has a large number small businesses. In fact, Wisconsin as a 
whole has 447,000 small businesses which employ a higher than national 
average of 54 percent of the workforce.
    Earlier this year I held several small business forums in my 
district where I continuously heard that retirement and savings issues 
were a top concern. As I dug into the issue I discovered that the 
majority of small businesses don't offer any retirement savings plans 
to employees because it is often a complicated, costly, and a somewhat 
risky endeavor.
    Small business owners often wear multiple hats and simply do not 
have enough time and resources to devote to administering a complicated 
financial product. According to a survey of small businesses conducted 
by Harris Interactive, only 14 percent of small businesses offer a 
401(k) plan and 63 percent do not offer any form of retirement benefits 
at all.
    That is why I, along with my friend and colleague Rep. Kenny 
Hulshof, introduced H.R. 5160, the Small Businesses Add Value for 
Employees (SAVE) Act of 2008, to make several enhancements to the 
existing SIMPLE IRA and SIMPLE 401(k) retirement plans. These changes 
are supported by many in the small business community and the 
retirement industry in general as common sense approaches to encourage 
small business owners to offer savings plans to their employees.
    As you may know, SIMPLE IRA and SIMPLE 401(k) plans were created in 
1996 to address the need for an easy way to administer savings plans 
for small businesses of 100 employees or less. Since 1996, thousands of 
small businesses have taken advantage of the new plans, with almost 2 
million workers now covered by a SIMPLE IRA.
    Very little modifications have been made to the SIMPLE IRA since it 
was first created. On one hand, this is a good thing since we do not 
want to discourage small employers by constantly tinkering with the 
mechanics of the program, making it more costly to administer. On the 
other hand, after over ten years of operation, I do think the SIMPLE 
IRA is ready for some modernization.
    The SAVE Act would help accomplish this goal by helping minimize 
the barriers to small business retirement plan sponsorship through a 
number of important changes:
    To increase flexibility for employers, H.R. 5160 would remove the 
requirement that SIMPLE IRA plans operate only on a calendar year 
basis. Authorizing small business owners to make mid-year changes to 
their SIMPLE plans ensures that business owners need not wait until the 
beginning of the year to move to a new retirement plan.
    The SAVE Act also would change outdated SIMPLE IRA rules that 
unnecessarily restrict an employer's ability to contribute to their 
employees' savings. Under current law, an employer is not permitted to 
match more than 3 percent of the employees salary or make more than a 2 
percent nonelective contribution to workers' accounts. H.R. 5160 would 
remove this restriction and allow employers to make additional 
contributions to all participants' accounts.
    To increase incentives for employers to offer SIMPLE IRAs, the SAVE 
Act would make a number of important reforms. First, the SAVE Act would 
create a new Automatic IRA option under the Internal Revenue Code. 
Automatic IRAs would provide a relatively simple and cost-effective way 
to increase retirement security for the estimated 71 million workers 
whose employers do not sponsor plans. The Automatic IRA option would be 
voluntary on the part of the small business owner, but would require 
participating owners to automatically enroll employees in the plan.

      Second, the SAVE Act would increase the Small Employer 
Pension Plan Start-up Cost Credit for small business owners to 50 
percent of the start-up costs for new SIMPLE IRA plans and would allow 
for a one-time $25 tax credit for every new employee who is enrolled in 
the savings program.

    Lastly, to increase incentives for employees to participate in 
SIMPLE IRA plans, the SAVE Act would update annual contribution limits. 
Currently, although employees covered under a 401(k) plan are permitted 
to save up to $15,500 annually, a small business worker can save only 
up to $10,500 annually in a SIMPLE IRA. I see no reason to continue a 
policy that discriminates against small business owners, particularly 
at a time when we are trying to encourage Americans to increase their 
personal savings.
    In conclusion, Chairman Neal, I greatly appreciate the opportunity 
to testify today and to highlight this important legislation to improve 
the rules that govern SIMPLE retirement plans. Larger pools of savings 
will have positive benefits for economic growth. By encouraging 
savings, the amount of capital available for investment will increase, 
which is a primary source of job creation and worker productivity. I 
look forward to working with you and the other Members of the 
subcommittee to see these and other important reforms enacted.

                                 

    Chairman NEAL. Thank you, Mr. Kind.
    Mr. Hulshof.

 STATEMENT OF THE HONORABLE KENNY C. HULSHOF, A REPRESENTATIVE 
             IN CONGRESS FROM THE STATE OF MISSOURI

    Mr. HULSHOF. Thank you, Mr. Chairman. As you made your 
opening statement, you referenced a former Chairman of this 
Committee, Mr. Rostenkowski. Note, as he gazes down upon us, 
the trace of a smile on his portrait. I'm sure he was 
recognizing the wisdom that you had regarding IRAs at an early 
time on this Committee. I am certain that that's why he has 
such a pleasant expression.
    Chairman NEAL. I also will assure you he still remembers--
--
    [Laughter.]
    Mr. HULSHOF. You and I, Mr. Chairman, have had the 
opportunity to respectfully discuss, perhaps debate, in a 
number of arenas. I remember in the Rayburn hearing room on 
Social Security we talked about the challenges of solvency, and 
the timing, and the eminence of those. I think you have 
adequately touched on that, as has my friend, Ron.
    The first baby boomer began to retire on January 1 of this 
year. If tradition holds, one out of every 2 senior citizens at 
the age of 62 will opt out for early retirement. So, whether 
that number continues to hold, or whether they continue to stay 
strong in the work force, we don't know. But, obviously, time 
is of the essence, as we look at what can we do for this arena 
of retirement.
    Now, I think we should also highlight the fact that this 
Committee has distinguished itself over the course of years of 
working in a bipartisan way to address the pension challenges. 
Our former colleague, Mr. Portman from Ohio, our former 
colleague, Mr. Cardin--now in the other body--from the State of 
Maryland did some tremendous work in the whole areas of 
pension, especially as we began to move the discussion away 
from defined benefits to defined contributions.
    So, this Committee has a great record, I think, as far as 
helping prepare for those golden years. I am not sure that 
Kind-Hulshof will roll off the tongue, or be as significant as 
Portman and Cardin, but nonetheless, we're here because we 
think that we are on the right track.
    In fact, as--we had these discussions before the GAO report 
really came out, and we saw that we were at least on the same 
page in many of these important aspects as far as providing 
some updates to the SIMPLE plans, and I think Ron has touched 
on them fairly significantly.
    If I were to summarize what we hope to accomplish by the 
SAVE Act, it would simply be flexibility and portability. As 
Ron talked about, the flexibility for small businesses, you 
know, some of these are--in fact, I'm not quite sure even--that 
there were these obstacles in place, but we have seen now--and 
as Ron pointed out, but as I would also cite--that in a 2005 
publication of the Investment Company Institute's perspective, 
the number of SIMPLE IRA plans had been growing at an average 
of about 25 percent per year between 1998 and 2003. But we want 
to expand those opportunities, and providing flexibility for 
small businesses is a way to do that.
    On the other end of it, though, for the employee, 
portability. You know, again, we are such a mobile work force, 
that having the opportunity, then, to have universal 
portability by allowing rollover assets into other qualified 
plans I think is another feature of our bill that should enjoy 
some pretty strong support.
    You know, our Nation, Mr. Chairman, was built on the backs 
of able and willing entrepreneurs who, with a little faith and 
a lot of ingenuity, started businesses in the hopes of 
achieving the American dream. These small businesses have been 
enormously successful, and of course, drive our National 
economy to the greatest degree. They have to surpass numerous 
hurdles to making those businesses survive and grow.
    Of course, attracting the most talented, bright workers to 
participate in that American dream, attracting those employees 
is crucial to their growth, and offering the employer-sponsored 
retirement plans such as a SIMPLE IRA or 401(k) certainly helps 
that goal.
    So, I would like to thank my friend from the State of 
Wisconsin for his willingness to yet again reach across the 
aisle, and for us to have the opportunity to work together. 
Thank you, Mr. Chairman, for giving us this opportunity for a 
hearing to highlight some of the things that we think would 
move us forward, as far as providing more flexibility and 
portability in the pension arena.
    [The prepared statement of the Honorable Mr. Hulshof 
follows:]

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    Chairman NEAL. Thank you both for your very sound 
testimony. Are there questions of our two panelists?
    The gentleman from California, Mr. Thompson, is recognized.
    Mr. THOMPSON. Thank you, Mr. Chairman. I don't have a 
question, I just want to thank both of you for being here 
today. This is an extremely important issue for all of our 
constituents in all of our districts. We need to do everything 
we can to make sure that people are prepared and have the 
retirement--the financial retirement--security they need in 
order to live a gainful life during those retirement years. So, 
thank you very much.
    Chairman NEAL. We thank you both for your testimony.
    Mr. THOMPSON. Thank you, Mr. Chairman.
    Chairman NEAL. Could we have the next panel? Ms. Bovbjerg, 
are you ready to proceed?
    Ms. BOVBJERG. Yes, Sir, I am. Thank you.
    Chairman NEAL. Please.

 STATEMENT OF BARBARA BOVBJERG, DIRECTOR, EDUCATION, WORKFORCE 
  AND INCOME SECURITY ISSUES, U.S. GOVERNMENT ACCOUNTABILITY 
                             OFFICE

    Ms. BOVBJERG. Mr. Chairman, Members of the Subcommittee, I 
am really pleased to be here today to speak about Individual 
Retirement Accounts, and their role in retirement saving.
    Congress created IRAs in 1974 to help build and preserve 
retirement savings, and over time, has developed a variety of 
these accounts, including the traditional IRAs, Roth IRAs, and 
several types of workplace-based IRAs, such as SIMPLE IRAs, 
SEPs, and payroll deduction IRAs.
    My testimony today focuses on: the role of IRAs in 
retirement saving; the prevalence of workplace-based IRAs and 
the barriers that limit access to them; and finally, the ways 
that government agencies can help. My statement is based upon a 
report we issued recently for Ways and Means on this topic.
    First, let me speak on the role of IRAs. Although intended 
to generate, as well as preserve retirement savings, IRAs today 
gain most of their assets from transfers--we call them 
rollovers--from other retirement accounts, such as 401(k)'s. 
Between 1998 and 2004, over 80 percent of funds flowing into 
IRAs came from other accounts. This means IRAs are an effective 
and important means to preserve retirement assets already 
saved, but play a significantly smaller role in building such 
savings.
    Also, IRA ownership is limited, and is skewed toward 
households with relatively high earnings levels and educational 
attainment. In other words, people who have resources are more 
likely to have IRAs than people who do not.
    Those who own IRAs are more likely to have traditional 
IRAs, set up by individuals on a tax-deferred basis. A smaller, 
but growing, number of people hold Roth IRAs, in which 
individuals make aftertax contributions, but take tax-free 
distributions in the future.
    I would like to turn now to IRAs offered through the 
workplace. To address the issue of low retirement plan 
sponsorship among small employers, Congress created SEP and 
SIMPLE employer-sponsored IRAs. Labor also issued a regulation 
under which an employer could, without being considered a plan 
sponsor under ERISA, maintain a payroll deduction program for 
workers to contribute to IRAs.
    Individuals are thought to be more likely to save for 
retirement if payroll deduction and other workplace 
arrangements are available to make saving easy and routine, and 
the limited regulation of these types of IRAs is designed to 
encourage employers to offer them.
    But such arrangements for workers appear to be relatively 
rare, although there are little data available. According to 
Labor data, only about eight percent of workers in small firms 
have SIMPLE IRAs. Only about 2 percent of them have SEP IRAs. 
Data are not available at all for payroll deduction IRAs.
    In interviews we conducted, experts pointed to a range of 
possible barriers, including: administrative cost, especially 
for small employers who don't have automated payroll systems; a 
lack of incentive for employers; a perceived lack of 
flexibility in promoting such plans to employees; and simply a 
lack of awareness of these arrangements.
    This leads me to my third point: how government can help. 
Clearly, Federal agencies have much to do to better publicize 
these options, and support the very small employers who need 
help to administer payroll deduction arrangements. They also 
need better aggregate data on use of such options, and what 
employers need.
    We have made recommendations to Labor and IRS to develop 
more regular and informative data collection that we believe 
will lead to better targeting of these programs to assure 
higher employer participation. If the government is successful 
in encouraging a higher employer take-up of these options--
which we believe will result in higher retirement saving--it 
will be important to develop an oversight strategy that 
balances the inducement of limited regulation against the need 
to assure that contributions are going to the IRAs set up to 
receive them.
    This is why we have recommended that Congress consider 
assigning authority over payroll deduction IRAs, where 
currently there is no clear regulatory jurisdiction. This will 
be especially important if other policy changes are adopted, 
such as the auto-IRA proposals that are under consideration.
    In conclusion, the IRA is an excellent and well-used means 
to preserve retirement assets that have already been saved. But 
it is under-utilized as a means to build saving. It's 
particularly disappointing that payroll deduction IRAs, which 
require so little of employers, are so seldom offered. 
Government can and should do more to encourage and oversee 
these savings arrangements to help all Americans better prepare 
for their retirement future.
    That concludes my statement. I hope I can submit my written 
statement for the record, and I await your questions.
    [The prepared statement of Ms. Bovbjerg follows:]

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    Chairman NEAL. You certainly can.
    Mr. Campbell.

   STATEMENT OF BRADFORD P. CAMPBELL, ASSISTANT SECRETARY OF 
    LABOR, EMPLOYEE BENEFITS SECURITY ADMINISTRATION, U.S. 
                      DEPARTMENT OF LABOR

    Mr. CAMPBELL Thank you, Mr. Chairman. Chairman Neal, 
Ranking Member English, and the other Members of the 
Subcommittee, I very much appreciate the opportunity to come 
here today to discuss the Department's efforts to promote and 
also protect the interests of workers in employer-sponsored 
IRAs.
    My name is Bradford Campbell, I am the Assistant Secretary 
of Labor for the Employee Benefit Security Administration. Our 
mission is to protect the retirement security of--the security 
of retirement health and other employer-provided benefits in 
the private sector. We are committed to promoting policies that 
encourage retirement savings, and protect employer-sponsored 
benefits.
    Employers today can choose from an array of retirement plan 
designs that were created by Congress to make it easier for 
Americans to save. IRAs are an important vehicle among these 
options that may encourage small employers, in particular, to 
provide retirement programs for their workers. Employer-
sponsored IRAs, such as SEPs and SIMPLEs are employee benefit 
plans under ERISA that were designed specifically to address 
these concerns of small businesses.
    The Department has jurisdiction over employer-sponsored 
IRAs, and is responsible for their oversight and for their 
compliance with ERISA's fiduciary standards. In our oversight 
role, we employ a comprehensive, integrated approach which 
encompasses programs for: compliance assistance; interpretative 
guidance; prohibited transaction exemptions; education and 
outreach to small businesses, as well as workers; enforcement 
and participant assistance directly to workers who have 
questions about their plans.
    By contrast, payroll deduction IRAs are not employer-
sponsored plans subject to ERISA, but are individually owned 
IRAs that merely make use of an employer's payroll process to 
withhold and forward contributions to the individual's IRA. Our 
guidance that we issued helps employers ensure that their 
payroll deduction arrangements are not ERISA plans, and 
therefore, do not carry with them the associated reporting 
burdens, and so forth, as Congress intended. But, as with other 
individual IRAs, the IRS oversees and enforces the law with 
respect to payroll deduction IRAs.
    The Department believes that this current oversight 
structure for IRA retirement programs is appropriate, and we 
would oppose changes in current law that would shift to the 
Department the oversight of retirement programs that are not 
employer-sponsored, such as payroll deduction IRAs.
    We have devoted significant resources to assisting small 
employers in choosing a retirement program through 
comprehensive education and outreach and regulatory programs. 
These initiatives include publications that we have developed, 
in consultation with the IRS. I have a few of them here today: 
``Choosing a Retirement Solution for your Small Business'' is 
one; ``SEP Retirement Plans for Small Businesses;'' ``Simple 
IRA Plans for Small Businesses;'' and also a ``Payroll 
Deduction IRAs for Small Businesses,'' which helps employers 
know how to structure these arrangements.
    We have also recently issued a DVD which goes through the 
real-life experiences of several small employers, as they 
evaluated their operations and decided which of these plans to 
choose. We have partnered with the American Institute of 
Certified Public Accountants, as well as the Chamber of 
Commerce and some other organizations, to help us reach out to 
small businesses to work with them and their service providers 
to make plans more available.
    We also have a very active participant assistance program 
that helps individuals with their benefits questions and 
problems. Our benefits advisors provide information, but they 
also seek informal resolution of complaints. If appropriate, 
they refer those complaints on for investigation.
    Since October of 2006, our benefits advisors have resolved 
183 complaints involving missing contributions to SIMPLE and 
SEP IRAs and, through informal dispute resolution, recovered 
just over $1 million on behalf of about 1,000 workers.
    In addition, these complaints resulted in 157 cases 
referred for investigation.
    Now, we match our enforcement--or our outreach and our 
assistance with very strong enforcement and oversight. Overall, 
EBSA, which, in our mission of protecting all employer-provided 
benefits, has been reporting results in recent years that are 
nearly double those of the previous years. Last year we had 
about 1.5 billion in civil results, and about 115 criminal 
indictments resulting from our investigations. Since 2001, that 
has been approximately 11 billion in civil results, and over 
800 criminal indictments.
    With respect to SIMPLE and SEP IRAs, in the past 3 fiscal 
years we have had enforcement results of about 1.2 million. 
Most of those violations involved the failure to forward 
contributions, or failure timely forward contributions to the 
IRA.
    Given the size of the employer-sponsored plan and IRA 
universe, we believe that our integrated approach is effective, 
very effective, in providing compliance assistance, 
interpretative guidance, and strong enforcement. We work 
closely with the IRS and the Treasury Department to conduct 
enforcement, as well as to reach out to employers.
    So, thank you for the opportunity to testify today. We are 
committed to promoting retirement programs, and to helping 
employers understand the options that Congress has provided for 
them, and ensuring the security of savings under our 
jurisdiction. Thank you.
    [The prepared statement of Mr. Campbell follows:]

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    Chairman NEAL. Thank you, Mr. CAMPBELL
    Mr. Reeder.

STATEMENT OF W. THOMAS REEDER, BENEFITS TAX COUNSEL, OFFICE OF 
          TAX POLICY, U.S. DEPARTMENT OF THE TREASURY

    Mr. REEDER. Chairman Neal, Ranking Member English, and 
Members of the Committee, thank you for the opportunity to 
appear today to testify on IRAs and their vital role in 
generating and maintaining retirement savings of American 
workers and their beneficiaries.
    The IRA has been an important retirement savings tool since 
1975. IRAs are now available to all Americans with compensation 
income. Certain tax preferences of IRAs, however, are dependent 
on the individual's level of income, and whether the individual 
is covered by an employer-sponsored retirement plan.
    As more fully described in my written testimony, there are 
several types of IRAs, including two special IRAs that can be 
sponsored by employers. IRAs are particularly valuable to those 
individuals who do not have access to other employer-sponsored 
savings plans, and also operate as a portable entity into which 
employees can combine and efficiently manage the retirement 
savings they have accumulated over their working careers.
    The Administration remains committed to educating employers 
about all their retirement plan options. Although the large 
employers typically sponsor workplace retirement savings 
programs, such as 401(k)'s, 403(b)'s, 457 plans, many employers 
lack the knowledge or the resources to adopt and maintain these 
plans.
    Along with the Department of Labor, the Treasury Department 
and the IRS have taken significant steps to publicize the 
advantages of employer-sponsored IRA-based savings programs, 
and to educate employers and individuals on the ease of setting 
them up.
    For example, the IRS has developed a model plan document 
for SIMPLE IRAs and SEPs, and has created a number of 
publications and online resources, many in cooperation with the 
Department of Labor, as Mr. Campbell has just testified.
    The Administration has long been concerned that the rules 
of employer retirement savings plans are unreasonably 
complicated. This complexity imposes substantial compliance, 
administrative and enforcement costs on employers, 
participants, and the government, and hence, the taxpayers in 
general.
    Moreover, because employer sponsorship of a retirement plan 
is voluntary, this complexity discourages many employers, and 
especially small employers, from offering a plan at all. 
Complexity is commonly cited as a reason the coverage rate of 
employer-sponsored plans has not grown above 50 percent 
overall, and has remained below 25 percent among employees of 
smaller firms.
    To address the hurdles employers face in trying to 
establish savings plans for their employees, the 
Administration's budget includes a proposal for an employer 
retirement savings account, or ERSA, to combine the various 
types of employer-sponsored savings plans to a single type of 
plan with simplified administrative rules for small employers.
    The Administration has also proposed a significant 
simplification of individual IRAs to create just two types of 
IRAs with extremely simple distribution rules: one that can be 
used for any purpose at all; and the other would be just for 
retirement. Of course, the Administration will be open to other 
proposals that decrease the complexity or administrative burden 
on small employers who want to provide savings opportunities 
for their employees.
    While the Treasury Department and the IRS have been 
promoting employer-sponsored retirement savings programs, and 
developing new ideas to make plan sponsorship even easier, we 
are concerned about the prospect of imposing mandatory 
requirements that could affect the ability of an employer, 
particularly a small employer, to run its business efficiently, 
and compete effectively in its marketplace. Operating a 
business already involves a significant amount of investment. 
Adding yet another burden could have an adverse effect, 
particularly on small employers, which are so essential to the 
success of our economy.
    Moreover, mandating a particular benefit on small 
employers, particularly to the extent such benefits impose a 
significant cost on the employer, could affect the employer's 
decision to offer other employee benefits that may be more 
relevant to the employer's work force, particularly health 
coverage.
    In conclusion, we should not lose sight of the fact that 
the IRA generally is not as powerful a retirement savings tool 
as other tax-qualified retirement plans, such as the 401(k), 
the 403(b), other defined contribution plans and defined 
benefit plans. This is primarily because the restriction on 
pre-retirement distributions in such other plans avoids much of 
the pre-retirement leakage that occurs in IRAs. We should not 
encourage the adoption of IRA programs by employers that are 
willing and able to adopt plans that are a better deal for 
their employees.
    Mr. Chairman and Members of the Committee, thank you for 
the opportunity to testify, and I look forward to answering any 
questions.
    [The prepared statement of Mr. Reeder follows:]

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    Chairman NEAL. Thank you, Mr. Reeder. Ms. Bovbjerg, you 
have offered a very interesting chart on page 13, which shows 
how easy payroll deduction IRAs are for employers: no 
reporting, no matching, et cetera. But still, usage is very 
limited.
    Do you think if there were credits to offset some of the 
administrative costs, we might see greater participation by 
employers?
    Ms. BOVBJERG. One would hope so, since we heard so much 
about administrative costs when we were interviewing various 
stakeholders in this system.
    But, at the same time, one of the things we heard was that, 
despite all the effort that, clearly, the Department of Labor 
has made, to make these types of arrangements known to small 
employers, many say that they don't know about them, that it's 
not well publicized. So, anything that you were to do on the 
tax incentive side would certainly have to be very well 
publicized at the same time.
    Chairman NEAL. You cite a study showing that automatic 
enrollment in a 401(k) plan increased participation by new 
hires from 57 percent to 86 percent in 1 year. The increase was 
especially dramatic among young and low-income workers. I read 
recently that TSP has decided to auto-enroll in the same way.
    Does it seem that the evidence from auto-401(k)'s show some 
need for an opt-out system, rather than opt-in? If we really 
want to induce more savings, is that the path we should travel?
    Ms. BOVBJERG. Well, it's certainly encouraging that the 
initial information on auto-enrollment in 401(k)'s suggests 
that the idea that everyone had in creating this system appears 
to be right, that inertia can work for you in encouraging 
saving, rather than discouraging saving. That might be 
something that could work with workplace-based IRAs, as well.
    Chairman NEAL. Okay. Mr. English?
    Mr. ENGLISH. Thank you, Mr. Chairman. Mr. Reeder, may I ask 
specifically, one of the topics that we are exploring today is 
obviously the concept of the automatic IRA.
    Can you generalize and share with us Treasury's view of 
this initiative and this device?
    Mr. REEDER. Yes, Mr. English. The automatic enrollment, as 
has already been pointed out by other testimony, is a very 
effective tool in getting people who wouldn't ordinarily save 
to save. The Administration is committed to making auto-
enrollment programs work.
    The Pension Protection Act greatly improved the ability for 
employers to provide auto-enrollment. We believe that auto-
enrollment, even in the context of an IRA, would greatly 
increase savings among employees, particularly low-income 
employees.
    Mr. ENGLISH. Mr. Campbell, what is the view of the 
Department of Labor of the prospect of an automatic IRA device?
    Mr. CAMPBELL Well, as has been alluded to, in the context 
of 401(k)'s and other plans, automatic enrollment has proved to 
be very effective. The Department of Labor, as well as 
Treasury, have been very active in implementing regulations to 
facilitate that, and to make that known to employers, and 
advertise it. I think there is no reason that concept wouldn't 
work for IRAs, as well.
    One distinction I think, though, is in the context of 
401(k)'s, there is an employer who is selecting the providers 
of the investment options that workers are defaulted into when 
they don't give investment direction. Then, from the proposals 
I have seen so far, it is not clear to me how that issue would 
be addressed in some of the automatic IRA proposals.
    Mr. ENGLISH. I guess, in a related point, in your view, 
studying the two proposals before the Committee, how would you 
anticipate automatic IRAs would be administrated? Could they be 
administered without an excessive burden? Do you see any 
particular challenges in their Administration?
    Mr. CAMPBELL Well, obviously, the goal would be to make a 
program like that not present an excessive burden.
    I do think the issue I just mentioned is one of the crucial 
ones. In the context of a 401(k) or other plan, there is always 
someone out there who is responsible for the selection of 
investments, who is looking at the appropriateness, at the 
fees, and carrying out their fiduciary duties and assessing 
those factors in the interest of the workers.
    If the intention in an automatic IRA is that the employer 
not be sponsoring a plan, it's not clear to me who then would 
fulfill that function, and how that would function in practice.
    Mr. ENGLISH. Mr. Reeder, from the standpoint of the 
Treasury, do you see any special challenges in administrating 
automatic IRAs?
    Mr. Reeder. Other than the one Mr. Campbell pointed out, we 
don't see any special challenges.
    Mr. ENGLISH. Thank you, Mr. Chairman.
    Chairman NEAL. Thank you, Mr. English. The gentleman from 
Washington, Mr. McDermott, will inquire.
    Mr. MCDERMOTT. Thank you, Mr. Chairman. I've been in 
Congress 20 years, so I fly back and forth on the same airline 
every Friday and Monday. I have gotten to know the United 
employees quite well.
    I had a discussion with one of them the other day about the 
pension system that we have created for him by our laws, which 
allow companies to go into bankruptcy and strip out their 
pension benefits, and then throw people into the pension 
guaranty fund. This gentleman has worked for United Airlines as 
a flight attendant for 22\1/2\ years, and he is going to 
receive $272 a month when he retires.
    Now, I--what I am struggling with is how do we make a 
better system. It used to be that you went to work for a 
company like United, and you came out with a defined benefit--
you knew what you were going to get when you got to your senior 
years, and you--we've changed all that by allowing the 
bankruptcy laws to be applied in the way they have.
    How does this system of forced enrollment in a 401(k), how 
does that make it better for them? Explain how he will be 
guaranteed at the end of his working career, if he started 22 
years ago putting money into this, how does he guarantee that 
he has a better deal now?
    Mr. CAMPBELL Is that addressed to me, Sir?
    Mr. MCDERMOTT. Any one of you.
    Mr. CAMPBELL The--one of the virtues--obviously, all the 
different sorts of retirement plans and pension plans that are 
available have different strengths and weaknesses, which is one 
of, I believe, the benefits of our system, in that employers 
and workers are able to, together, select the plans that make 
the most sense for their particular situation.
    One of the benefits of a 401(k) plan is portability. The 
contributions that have been made to the plan are the property 
of the worker from their inception, and can be rolled over and 
transferred from job to job. In an increasingly mobile work 
force, where fewer employees are choosing to work for the same 
employer for 20 or 30 years, that's a valuable benefit.
    That is not at all to denigrate the importance of defined 
benefit plans, which is part of the reason the Administration 
urged Congress to pass the Pension Protection Act, to improve 
that system, improve its solvency, and protect the benefits of 
the workers that they've been promised.
    Mr. MCDERMOTT. Is this system--education has always had the 
kind of--sort of you put your money in, and you can carry it 
from one university to another.
    The question is how do you give the worker the ability to 
understand the costs in the system, and--the average person 
doesn't spend their life, if they're a professional, sitting 
around, figuring out what the 401(k) fees are, and where 
they're hidden, and all that sort of thing. What clarification 
do we need to make it possible for them to know what they're 
actually buying into, and what they're going to get?
    Mr. CAMPBELL Well, the Labor Department currently has two 
regulations that we are in the processing of proposing that 
address both of those concerns.
    The first is building on the investment advice provisions 
in the Pension Protection Act that make it easier for workers 
to get access to professional investment advice to help them 
make those decisions.
    The second deals with disclosures to workers about both the 
fees, the past history, the performance, the nature of the 
investments in their plans in a very concise and useful way. 
So, that, rather than getting 20 or 30 pages of legal 
gobbledegook in a prospectus that is not read, the workers 
would instead get a very concise comparative document, or a 
chart that would let them get the basic information at a glance 
of what the options are in their plans, and make comparative 
judgements about them.
    We anticipate issuing those proposed regulations in the 
near future. They are currently pending at the Office of 
Management and Budget under review, pursuant to the executive 
order.
    Mr. MCDERMOTT. How do you guarantee the worker that some 
plan manager is not going to be doing what we've been seeing in 
Wall Street recently?
    Mr. CAMPBELL Well, the Pension Protection Act provided a 
number of safeguards to ensure that the investment advice is 
impartial, and not tainted. Essentially, it either has to be 
provided on a level fee basis, in which the person providing 
the advice gets paid the same, regardless of the options the 
worker picks to invest in.
    Alternatively, advice will be provided through an unbiased 
computer model that would have been certified not to give 
biased outcomes.
    Mr. MCDERMOTT. But the worker----
    Mr. CAMPBELL So, I that the congress has addressed that.
    Mr. MCDERMOTT. But we just saw on television this last week 
people who, as the companies were going downhill at 100 miles 
an hour, were still recommending that people buy those stocks, 
right? How do you stop that? How do you protect the worker on 
United Airlines from that kind of investment scheme?
    Mr. CAMPBELL Well, again, I think the intent that Congress 
has in passing the PPA, and that the Administration had in the 
investment advice provisions, is that workers will benefit from 
better information. There may well be analysts in the universe 
of picking stocks who advise this, that, or the other.
    But the basic information about investing: the importance 
of diversification, the importance of investing in a way 
appropriate for your age, so that you're not holding 100 
percent equities, or 80 percent employer stock when you're 10 
years from retirement, that type of information will be 
extremely valuable to workers, and is the kind of information 
investment advice will make available.
    Mr. MCDERMOTT. Thank you, Mr. Chairman.
    Chairman NEAL. Thank you, Mr. McDermott. The gentleman from 
Connecticut, Mr. Larson, to inquire.
    Mr. LARSON. Thank you, Mr. Chairman, and let me say from 
the outset I am an unabashed cosponsor of the Neal-English 
automatic IRA.
    I have some questions and concerns, though, with respect to 
those that are not able to receive the benefit. I would like to 
ask all the panelists, but I will start with Mr. Reeder. This 
question has a couple of parts to it.
    What, in your estimation, are the income classes for those 
who can benefit from IRAs? Who does this leave out? Is there a 
way, and what would be a way to--for government to help bridge 
this gap?
    I believe that a saver's credit can be that bridge, but I 
am interested in what the panelists have to say. We will start 
with you, Mr. Reeder.
    Mr. REEDER. As I pointed out in my testimony, the current 
tax preferences are dependant upon people's income, and whether 
or not they're covered by a employer-based retirement plan.
    So, if they're not in an employer-based retirement plan, 
any taxpayer can gain the tax preference. I believe you're 
referring to people who aren't taxpayers.
    Mr. LARSON. Exactly.
    Mr. REEDER. Therefore, a tax preference is of no use to 
them.
    Mr. LARSON. So, for example, people in the $30,000 to 
$50,000 range, can, in fact, because of--end up with no income 
tax liability, in essence, are the people most in need of 
savings, but in fact, it seems as though our system is geared 
toward providing those that don't need the savings to getting 
the savings.
    Is there a way that you could see for government to bridge 
that gap, to help out the $30,000 to $50,000 person in this 
area?
    Mr. REEDER. I think a lot of the people in that $30,000 to 
$50,000 gap are taxpayers, and they can avail themselves of the 
saver's credit, which is available. But I think you're 
referring to those people in that range that are not taxpayers. 
The bulk of those folks are already getting a very large much 
larger portion of their income in retirement through social 
security.
    So, there is a forced savings program in place already, in 
the form of social security for the----
    Mr. LARSON. With the country at, for the first time since 
the Depression, at negative savings, should the government be 
involved in providing incentives to assist people in that range 
group?
    I am all in favor of the automatic IRA. I think that that's 
a great step forward. But I think that there is still a gap.
    Mr. Campbell, what does the Labor Department think?
    Mr. CAMPBELL One of the benefits of a payroll deduction 
IRA, for example, even if you ignore the question of whether 
there is a particular tax benefit to an individual, it is still 
a very convenient and easy way to save. One of the things I 
think studies have generally shown is that the easier it is to 
save, the less additional effort an individual has to make, the 
more likely they are to do so.
    So, even if there is not a tax incentive for a lower income 
worker by virtue of a lack of tax liability, they still may be 
very effective in having these simplified programs as options--
--
    Mr. LARSON. What about a government-incentivized saver's 
credit?
    Mr. CAMPBELL Well, I really do think I should probably 
defer to the Treasury Department on tax credit issues.
    Mr. LARSON. Mr. Reeder, what about a government-
incentivized saver's credit?
    Mr. REEDER. Well, the saver's credit that exists, we're 
very much in favor of. We're a little bit concerned about 
making it refundable. We are constantly concerned about 
complexity of Administration and potential fraud that is 
available any time you have a refundable credit. But that is 
something that should be studied.
    Mr. LARSON. Isn't it something like 59 million people that 
are eligible, but only about a fifth of them participate?
    Mr. REEDER. I'm not particularly familiar with that 
particular ratio, but that sounds reasonable. That sounds like 
it's logical.
    Mr. LARSON. Ms. Bovbjerg?
    Ms. BOVBJERG. The saver credit--I'm aware that there are 
some statistics that it's not used to the extent that it could 
be. Making it refundable could entice more people into saving. 
I would like to see some analysis of how effective that would 
be, and how much it might cost, and I'm glad to hear that maybe 
that is being done.
    I think, though, that, as Mr. Campbell says, the inertia of 
having something that is more automatic would be a huge factor 
for people. It would be interesting to see how much of the 
problem that might address.
    Mr. LARSON. Mr. Reeder, you said that there were a lot of--
you were concerned about the fraud, abuse, and administrative 
costs.
    Could you amplify on that at all? I see my time is up, 
but----
    Mr. REEDER. Well, I am not an expert in the Administration 
of all the credits at Treasury, but I do know that there are 
some issues, especially, for instance, with the earned income 
tax credit, which is refundable.
    Mr. LARSON. Thank you, Mr. Chairman.
    Chairman NEAL. Thank you, Mr. Larson. The gentlelady from 
Pennsylvania, Ms. Schwartz, is recognized to inquire.
    Ms. SCHWARTZ. Thank you, Mr. Chairman. I too want to 
express my support, enthusiastic support, for Mr. Neal's 
legislation. I think the experience that we have seen already 
with opting out, rather than opting in--you've mentioned about 
the--getting people to--the inertia work in their direction, 
which is to encourage savings, is really important for all of 
us.
    I think just--well, this afternoon, we will be passing a 
resolution to encourage Americans to save. Mr. Johnson and I 
did that. Having some tangible ability to do that, as we 
suggest in--with the IRAs, automatic IRAs, is really a good 
thing. So,--and I--so, like I say, I have been very supportive 
of doing more to encourage Americans to save, recognizing what 
we're up to.
    One of my questions, and one that I wanted to raise with 
you, is something--is whether we could use the IRAs in a way 
that also addresses a slightly different problem.
    I know there are some exceptions, or ways you can withdraw 
early from IRAs now, so it's a little different than what we've 
been talking about, but I wanted your opinion about something 
I've been thinking about, and that is that early retirees, 
basically those who are 59-and-a-half, may find themselves, 
particularly as we are moving ahead, unable to afford health 
insurance. It's really the largest group, as I understand it, 
of those Americans who don't have insurance, who are over 55, 
before they get Medicare.
    I think that, particularly if they don't have health 
benefits that they can afford or extend beyond employment, if 
they choose to retire early, over 55, there is 5\1/2\-year 
potential gap of when they're going to find it very difficult 
to pay for health insurance, private health insurance.
    So, my question is kind of an open-ended one, is what do 
you think about using potential--using tax law to allow people 
to withdraw from their IRA for the express purpose of paying 
for health insurance if they have chosen to retire early, for 
those five-and-a-half years? Can we make some exceptions in the 
ability to withdraw?
    This is not withdrawing early, but to be able to use--say, 
not have to have them pay tax. So, it's treated sort of the 
same way that, if they were employed, they wouldn't have to pay 
taxes on their health benefit. This would sort of apply the 
same principle, but to the IRA, which they could then withdraw 
without penalty at age 59\1/2\.
    So, sort of an open-ended question as to what you think 
about that. My thinking here is not only is health coverage a 
huge issue for many Americans, but particularly for those 
before Medicare in those early retirement years, but you know, 
it's also a way that people might want to say, ``I don't want 
to save, because I'm afraid I might have certain kinds of 
expenses.''
    So, we have made some exceptions around education and 
health premiums if you're unemployed or buying a first home. 
So, given the concern we have about 47 million Americans, many 
of whom are in this age category, what do you think about that? 
I don't know if you haven't thought about it, but if you have, 
it's just sort of a concept?
    Again, that would encourage people to think about using 
IRAs because they would know that they would be able to have 
the ability to use it for yet one more purpose.
    Mr. REEDER. I don't know that any of us are in the position 
to give you a definitive answer, because this is one of the 
first times we have heard about it. But being from Treasury, I 
think I will start off the answers.
    We, at Treasury, have long been concerned about the 
increasing erosion of retirement savings. When IRAs were first 
created, they were established solely for retirement. Now, not 
a year goes by when something doesn't come up to tap into those 
retirement savings, all of them good reasons, very valid 
reasons.
    What you are proposing is a kind of a super-preference, 
because it would give to the distribution tax exemption, so it 
would be tax-free going in and tax-free going out. There is 
already a very limited area where that occurs, and that's with 
the HSAs. I think if you did that with IRAs, you may actually 
encourage people to tap their retirement savings who might not 
already be inclined to tap their retirement savings. They may 
have other assets that they could use to pay that insurance, 
but instead would use the retirement savings because it would 
be tax-free.
    Also, a question whether or not it's equitable to give 
somebody who has an IRA that super-tax preference over somebody 
who doesn't have the IRA, who couldn't have the tax-free----
    Ms. SCHWARTZ. But now with HSAs, for example, we get tax 
preferences for HSAs, and there are many people who don't have 
access to HSAs. You know, there are people who don't get health 
benefits through their employer. We give quite a bit of health 
preference--preferences to employers and employees who get 
benefits through their employer--through their workplace. If 
you're an individual, that's a different concern.
    So, there are--there is a significance tax preference. 
Anyway I know it's a new idea----
    Mr. REEDER. I understand.
    Ms. SCHWARTZ [continuing]. But I just wanted to--I just was 
interested in whether that--it was something we might be able 
to consider as we consider encouraging people to save for 
retirement.
    Again, some of the things that I think prevent people is 
that they worry about expenses coming up that they won't be 
able to handle that are pretty immediate. Even in this case, 
particularly someone who might have not started an IRA a long 
time ago--I mean, I don't think the 25-year-olds are thinking 
about this, but someone who is 45 might be thinking of this, 
who might say, ``Well, I could do an IRA, but what happens to 
me, you know, when I'm 59\1/2\ and I'm going to retire early?''
    So, if you have some thoughts about it--I think my time is 
up--but if you have some thoughts about it going forward, I 
certainly would appreciate maybe your thinking about that, or 
we could be in touch with you about this. Because again, these 
are both important issues for us, both retirement savings and, 
of course, health coverage for Americans, particularly those 
who are in early retirement, pre-Medicare.
    So, I think with that, maybe this is a chat I should have 
with the Chairman at some point, as well. But I will. So, thank 
you very much.
    Chairman NEAL. We thank the gentlelady. The gentleman from 
New York, Mr. Crowley, is recognized to inquire.
    Mr. CROWLEY. Thank you, Mr. Chairman. If I could, for Ms. 
Bovbjerg as well as Mr. Reeder, my question pertains to the 
benefits in the Tax Code for encouraging retirement savings. 
The government estimates show that the Treasury--$110 billion 
in revenue in an effort to encourage savings. That was in 2007. 
But the data shows that those who are receiving--who are saving 
in IRAs are--tend to be better educated and higher wage earners 
than the average American.
    The question I have--and not necessarily in a way to 
disparage the system, it's just more a sense of feel from you 
all--do you think that these tax subsidies are encouraging 
savings, or are they simply rewarding people for actions that 
they would otherwise--they would take normally anyway, in terms 
of savings?
    If you think these benefits are helping to encourage 
savings, how can we expand these benefits to capture more 
Americans in the system?
    Ms. BOVBJERG. Well, you're bringing up the flip side of the 
point that someone raised earlier, which is a tax incentive is 
a bigger incentive for someone who is in a much higher tax 
bracket than----
    Mr. CROWLEY. Right.
    Ms. BOVBJERG [continuing]. It is for someone who is not 
paying very much tax. This is an issue that, actually, comes up 
all the time in the pension area, and it is something that Ways 
and Means has asked GAO to look at, the distributional effects 
of the tax preferences and pensions.
    Mr. CROWLEY. Mr. Reeder?
    Mr. REEDER. I think the behavioral economists--of which I 
am definitely not--would agree that the incentives do produce 
new savings. But I also think they would agree that some of the 
savings is savings that would occur anyway. So I think the 
answer is, a little bit of both.
    Mr. Larson was focusing largely on how to refocus that tax 
preference so that it does create retirement savings that 
wouldn't have ordinarily occurred. I don't have the silver 
bullet for that answer, and there may be some things you can't 
do with the Tax Code. But I think most people here think you 
can do most anything with the Tax Code.
    [Laughter.]
    Mr. CROWLEY. Ms. Bovbjerg, in your report you mention that 
there are some barriers that exist that discourage employers 
from offering payroll deduction IRAs, and you include in that 
lack of flexibility, cost to employers, limited incentives to 
employers to offer the plans, and generally a lack of 
awareness.
    Could you walk us through how a small business--one in the 
range of 12 or so workers--would try to access a payroll 
deduction IRA for their employees, and do that in a real-world 
context, as well as perceived barriers, and suggest ways that 
we can help break down those barriers?
    Ms. BOVBJERG. I am quite sure I could not do justice to the 
plight of the small businessperson in managing such a thing.
    But the first thing is you would have to know about it. 
Apparently, many of them don't know that this is an option. 
They have fears that if they do offer this to their employees, 
and they identify a provider and then tell the employees about 
it, that suddenly they will be a fiduciary under ERISA, that 
they will be a plan sponsor.
    Now, we know that that is not the case, that it is not 
true, Labor has put safe harbor guidance out there. But if I'm 
the small businessowner, I have to be able to understand that 
guidance. It probably would also help if my employees asked me 
if I would do it.
    But I think that it can represent a burden to people to 
find out about these things. If they do their payroll by hand, 
it's another thing that they have to deal with, to employ the 
payroll deduction and send it off to whoever is holding the 
IRA. It could be burdensome.
    But there are a lot of small businesses who do have 
electronic payroll. There are probably not as many for 
employers with fewer than 12 employees than for those with 50. 
But there are those with electronic payroll who still are not 
doing this.
    So, when we made recommendations to Labor and IRS, we were 
really thinking it's not that Labor's doing something poorly, 
or doing something bad, it's just that it's pretty clear when 
you go out there that Labor is not doing enough to incentivize 
these employers.
    Mr. CROWLEY. Thank you. Mr. Reeder, finally, the saver's 
credit that was created in 2001 was billed as being a tool to 
help taxpayers earning less than $50,000--a credit for 
depositing money in their 401(k) accounts.
    How many people have enrolled in that program? My concern 
is that it does not appear to be working as intended for 
several reasons. One, low-income folks don't have the means to 
save as others do, simply because they're living paycheck-to-
paycheck.
    Secondly, this is a non-refundable tax credit. Many of 
these people have very small, if any, income tax liability.
    Does the Administration think we should expand this credit 
to be a refundable credit?
    Mr. REEDER. I am not in a position to say that we are for 
or against making it refundable, but I have expressed concerns 
about administratability, and it would have to be evaluated in 
terms of the revenue involved in the entire portion of the 
bill.
    But I agree with you, that it doesn't encourage everyone to 
save. There are some people who just do not think they have the 
means to save.
    Mr. CROWLEY. How many actually--if you could, Mr. 
Chairman--if I could just further inquire--how many people have 
actually enrolled in this program?
    Mr. REEDER. It's about 5.3 million people.
    Mr. CROWLEY. Generally, of what age are those individuals?
    Mr. REEDER. I don't have the age breakdown with me. I don't 
even have a speculation. But I could definitely provide that 
data. I think we have an age breakdown, I'm not positive.
    Mr. CROWLEY. We would be interested in that, I think, how 
many people are borrowing from their parents in order to make 
access to that enrollment. So, I would appreciate that, thank 
you. Thank you, Mr. Chairman.
    Chairman NEAL. We thank the gentleman, and the gentleman 
from Wisconsin, Mr. Kind, to inquire.
    Mr. KIND. Thank you, Mr. Chairman. Thank you, again, for 
holding this very important hearing today. I thank the 
panelists for your testimony.
    Mr. Campbell, real quick, Mr. Hulshof and I certainly would 
appreciate any Administration feedback that you might have with 
the SAVE Act that we had previously introduced and was 
testifying about today.
    Ms. Bovbjerg, we appreciate the GAO update of the study and 
report that you just released this month on increasing savings 
opportunities for more employees.
    Perhaps I should have read it a little more closely, but 
were you offering some recommendations--and you testified 
previously about the need to do more education outreach with 
small businesses throughout the country, about the availability 
of what already exists, but did GAO offer any recommendations, 
or policy guidelines on how we can best accomplish that at all?
    Ms. BOVBJERG. It's difficult for Labor, because they are 
already doing a lot. We felt that, for example, in the guidance 
they could be more specific about what would make you into a 
title 1 ERISA employer, and what does not, you know, what 
exactly constitutes the safe harbor.
    It's difficult to reach out when you don't always know who 
is eligible to do this. I mean, one of the frustrations that we 
found is there are no data on payroll deduction IRAs. We 
thought that anything that could be done to learn more about 
these, learn more about what it costs small employers to do it, 
you know, what are really the fears out there, and how we can 
learn more about how many are out there. We thought that the 
Bureau of Labor Statistics, for example, could add some 
questions to their national compensation survey that would 
help.
    I mean, these are also things that could be done in the 
context of some of the policy changes that have been suggested 
here today, in your bill, or in the Neal-English bill. 
Oversight, as well, would be important. Those were the 
recommendations that we made.
    Mr. KIND. Right. Well, the more that we've researched the 
topic, too, I think there is a very real concern about any 
fiduciary obligation that small businessowners would have by 
offering these types of plans. We were trying to clarify that 
more, and make it more explicit in the legislation, that--so 
that's not an additional burden that might prevent them from 
offering these plans for their employees.
    But you know, staying with you--and, if Mr. Campbell and 
Mr. Reeder, if you want to chime in on this, as well--but we 
were trying to thread the needle a little bit as far as the 
automatic enrollment in IRA under our legislation. We allow the 
automatic enrollment, but we still allow the discretion of the 
small businessowner, whether they want to participate in the 
automatic sign-up, or the automatic--therefore, not mandating 
it upon them.
    Because the concern, obviously, that we share is that if 
you have too many strict mandates on small businesses, they're 
just going to walk away from it anyway, and not offer it to 
their employees.
    Does that seem to you to strike the right balance, having 
an automatic enrollment, but still leaving it up to the 
discretion of the small business employer, of whether or not to 
have that feature applied at the plan that they're offering?
    Ms. BOVBJERG. Well, you would have to make sure that people 
know that this is out there. I think we would have to do more, 
because otherwise it's not really clear that you would have 
that many employers participating.
    On the other hand, it's difficult to measure any increase 
that might result, since we don't know how many are out there 
now.
    Mr. KIND. Right. Mr. Campbell, any thoughts?
    Mr. CAMPBELL. Well, I would say, conceptually, that is very 
similar to what Congress did in the PPA with respect to 
automatic enrollment in 401(k) plans. It's now very clear that 
this is a feature that plans may adopt, but it's not required 
that plans adopt it.
    I guess my concern, as I had expressed earlier, is the 
question of, when it comes to automatic enrollment: who is 
making decisions about the appropriateness of the default 
investments when workers aren't providing elections, who is 
assessing the reasonableness of those fees, is the employer a 
fiduciary for those purposes or not? That's a question that 
didn't arise in the 401(k) context, because it's very clear 
they are fiduciaries, and do have that responsibility.
    Mr. KIND. All right. That's a good point. Mr. Reeder?
    Mr. REEDER. Bearing that particular problem in mind, I 
think your approach does strike the right balance. We too are 
concerned about the mandates on small employers, and the 
likelihood of that affecting other benefits that employers may 
offer, and also whether or not the employer is willing to adopt 
a more flexible 401(k) plan. If you force them into an IRA, it 
may detract from their desire to go into a more sophisticated 
plan.
    Mr. KIND. Right. Thank you all. Thank you, Mr. Chairman.
    Chairman NEAL. I thank the gentleman. The gentleman from 
North Dakota, Mr. Pomeroy, is recognized to inquire.
    Mr. POMEROY. Thank you, Mr. Chairman. I want to begin by 
commending you on this hearing. I think the hearing is very 
important in a couple of respects.
    First, it clearly establishes that Ways and Means is going 
to be vigorous in its assertion of jurisdiction relative to 
retirement plans. They are rooted in the Tax Code, this is 
squarely in our ballpark. We don't intend to defer to another 
Committee. This is what we're going to do. Thank you for your 
leadership as Subcommittee Chairman.
    Secondly, I really--I think that the panel has been 
terrific, and I am very delighted with the engaged 
participation of the Members.
    As we look at what's ahead of us as a country, getting 
people prepared for lifelong income in retirement, and the 
retirement savings dimension of that puzzle, is extremely 
important. I think we're probably a little belated in really 
putting this in central focus, but it's pretty clear from this 
morning that's exactly where it is now, and that's terrific. 
Better late than never, and I think this is terrific.
    I am all for the goal of improving savings. Workplace-based 
savings vehicles have been the most effective means of 
promoting savings for retirement, in my view. In North Dakota, 
we've got about 4 out of 10 workers that have that opportunity. 
So, ways that we expand it? I'm very interested in looking at 
all possibilities.
    I do share the concern that Treasury represented, that we 
don't want to advance something by way of a default IRA 
administered at the employer level, thinking we're reaching the 
roughly half nationally that don't have workplace savings, only 
to find that we're somehow eroding 401(k) sponsorship by plans. 
I think we've got to pay very close attention to the interplay 
of trying to extend reach without somehow disincenting what we 
have already achieved in the voluntary employer participation. 
So, we will have to be careful on that one.
    I want to now turn to issues of retirement savings, and 
things that we're hearing. One of the things we're hearing is--
I remember last decade, people my age, the Baby Boomers, 
talking about early retirement, suddenly retiring in the 
fifties, pretty broad-spread aspiration. 401(k) balances rising 
appreciably, everyone pretty happy.
    How that has changed. We now see that basically the Dow, at 
the beginning of the decade, was $10,500 to--now it's about 
$11,800, a 10 percent increase over the last 8 years. The 
account balances haven't grown like people thought. Wages have 
stagnated, prices have increased. People have actually gone 
into their IRAs--their 401(k)s, borrowed against them.
    In any event, there is much less anticipation of what's 
happening there, which means, I think, there is now a widely 
spread view that we're going to be working a few years longer 
than we might have wanted or thought we would have to.
    The data from GAO, Ms. Bovbjerg, has been particularly 
telling, in terms of asset accumulation, especially focused on 
the baby boom cohort. I don't know if you're familiar, off the 
top, with it or not, but I will quote some of the findings 
released a year ago in a GAO study.
    The--of $7.6 trillion in financial assets held by baby 
boomers, the top 50 percent owned 97 percent; the bottom 50 
percent owned 3 percent. It's staggering. The bottom 50 percent 
of baby boomers owned 3 percent of the wealth held across that 
cohort, with about a third having no wealth whatsoever. I think 
that this speaks to, in part, earnings capability--or earnings 
levels that really are not providing the opportunity to save.
    I have been very pleased with the saver's credit enhancing 
the incentive to modest earning levels. While I think it would 
be better extended on a refundable basis, the reality is if 
your income is so low there is no tax liability, the 
opportunity we're going to enlist people even with the saver's 
credit extended on a refundable basis, in my opinion, is less 
than people might expect.
    What does--Barbara, based on your familiarity with these 
studies, do you have observations about wealth distribution 
across the cohort that you could expand upon?
    Ms. BOVBJERG. Well, I know the report that you mention. 
It's one that uses the term ``Baby Boom Generation'' in the 
title, I think, and we were asked to look at the issue of 
whether, when boomers retired--because it's such a large 
generation, and each year the birth cohort grew so quickly--
when boomers retired, would there be a market meltdown in the 
stock market.
    The short answer in this report was, ``Good news: No, there 
won't be a market meltdown, because retiree behavior is such 
that people continue to buy and sell stock in their retirement, 
they wouldn't just sell it all at once.''
    The bad news was that hardly anyone in the boomer 
generation had assets, and the figures that you mentioned were 
very surprising to us. We found that there was a significant 
portion of that cohort whose greatest financial asset was their 
vehicle. Boomers are not--speaking as one, I can say this--are 
not young people any more. I'm sorry.
    Ms. TUBBS JONES. Speak for yourself.
    Ms. BOVBJERG. Well, I'm on that front edge.
    Chairman NEAL. Let's not try that again.
    [Laughter.]
    Ms. BOVBJERG. But the younger boomers were born in 1964. 
They're already in their forties. They needed, in this 
retirement income world that we're facing, they really needed 
to have started saving before this, and they have a lot of 
catching up to do.
    We did another report on defined contribution plans that 
included IRAs, by the way, because we had difficulty separating 
them from 401(k)'s, and we found that the average balances, 
even if you project out into the future, into the 1991 birth 
cohort, were not really going to be substantial. There will be 
people who will have significant balances, who will certainly 
have the resources for a secure retirement. But there will be a 
significant percentage who will not have anything from defined 
contribution plans. They're going to essentially be living on 
Social Security.
    So, the concern about how to help people save and how to 
help assure a secure retirement for people, particularly in the 
lower earner categories, is really urgent and crucial.
    Mr. POMEROY. Thank you. Thank you, Mr. Chairman.
    Chairman NEAL. I thank the gentleman. The gentlelady from 
Ohio.
    Ms. TUBBS JONES. Thank you, Mr. Chairman.
    Chairman NEAL. You're recognized to inquire.
    Ms. TUBBS JONES. Ranking Member. I am in the baby boomer 
session. I'm a 49'er and I think I'm still young and active. 
We're still in this, and we're going to be in it for a while.
    But all kidding aside, this is an area that is very 
important to me. I don't serve on this Subcommittee any more. I 
used to serve on the Subcommittee, and moved on to health 
Subcommittee. But retirement security is a big deal for me, and 
I think that I want to celebrate my colleagues for offering 
this proposal. I have not signed on yet, but I am taking a 
close look at it.
    There are lots of things that we have to do. Just as we are 
in the midst of a real issue in the housing foreclosure area 
because people were not well educated in the process--most of 
them, there are some who did it, not knowing what the possible 
consequences are. There are people in America who are still not 
well educated on retirement security.
    I want to contemplate that we should determine how our 
Committee could give some incentives to young folks to start 
very early in the retirement security piece, even if it were 
part of--and I'm jumping into the education and the workforce 
Committee for a moment, but required course work for young 
people to graduate from high school, to require them to 
understand this process. But in the interim, while the people 
who are already out of high school like us, that just graduated 
about 10 years ago, we need to work on incentivizing them, as 
well as incentivizing employers and others to encourage 
retirement security.
    See, when I speak, the bells go off, things start ringing, 
and everything. So, I'm going to stop, just for a moment, for 
the bells to stop ringing. They stopped. This is my pager going 
off on me.
    But what I am curious about--and when I was outside in the 
anteroom, I heard someone speaking about United Airlines 
employees. Who was that? Anybody?
    Mr. POMEROY. Mr. McDermott.
    Ms. TUBBS JONES. Oh, Mr. McDermott. The reason it's of 
importance to me is my father was a United Airlines employee, 
my brother-in-law and my sister were all United Airlines 
employees, and I watched the concern that happened with that 
company, as well as with all the steel companies and all the 
rest, about how do we handle that retirement issue.
    But as we're talking about IRAs, we tend to be now talking 
about people who choose to invest or put money into an 
individual retirement account. I think that we're going to have 
to spend some time really, really incentivizing employers to 
have this discussion, just like we incentivize them to have 
money to do training for their workers. Small manufacturing 
shops have the opportunity to get money to train their workers. 
We ought to figure out how we can include the whole discussion 
about financial literacy, as well as investment for the future.
    I really don't have a lot of questions. Since the bells are 
going off, I know people are looking at me, ``All right, shut 
up, Stephanie, we've got to move on,'' but I just come to this 
Committee--I know you're not saying that, Earl, you're my good 
friend, okay--but I come to the Committee to express my concern 
on this issue, to celebrate the work of my colleagues, and to 
let you know that, from my perspective, from my office, I'm 
ready to go to work to help workers across this country plan 
for retirement.
    One of the things that I have done in a totally different 
area was to incentivize workers who receive lump sum benefits 
to purchase an annuity so that that money lasts over time. 
Because we all know when you get a lump sum, it seems like a 
whole lot of money that day. But if you spend it off, over time 
there is none left when you retire.
    I thank you, Mr. Chairman, for giving me a chance to sit in 
with you guys today and be a part. Thank you very much.
    Chairman NEAL. Thank the gentlelady for her thoughtful 
commentary. Let me thank our panelists for their very 
thoughtful testimony today, as well.
    I would like to advise the third panel that we now have 
three votes on the House floor. So, the Committee would stand 
in recess for approximately 20 minutes. At that moment in time 
we would reconvene. I want to thank the panelists, again, for 
their help.
    [Recess.]
    Chairman NEAL. We thank the panelists as we reconvene. I 
would like to begin by recognizing Mr. Estrada.

   STATEMENT OF LEOBARDO ESTRADA, PH.D., PROFESSOR OF URBAN 
     PLANNING, UNIVERSITY OF CALIFORNIA, ON BEHALF OF AARP

    Mr. ESTRADA. Thank you very much, Mr. Chairman. My name is 
Leo Estrada, and I am a member of the board of directors of 
AARP, and I am here today to testify on their behalf and our 40 
million members who are representative of the nation, as a 
whole. Just like the rest of the nation, they are feeling the 
impact of the high cost of food and energy, and are being 
forced to make difficult economic decisions with dire long-term 
consequences.
    As increased costs continue, a quarter of all baby boomers 
are pulling money out of their retirement savings early to pay 
for everyday expenses, like health care and food. For many 
segments of the population, the news is even worse. A third of 
Hispanics are no longer saving for retirement, and 26 percent 
are prematurely raiding their nest eggs to pay for everyday 
needs. Half of all women have no pensions, and 44.3 percent of 
African Americans aged 65 and older receive all of their income 
from Social Security payments, alone.
    Certainly this economy is hitting us all, and efforts like 
the recently passed stimulus checks are helpful. But we must 
look beyond the near term. We are thankful for the Committee's 
vision in examining long-term solutions to the financial crisis 
our Nation currently faces.
    The idea that retirement finances consist of a pension, 
personal savings, and social security is dying out. Defined 
pensions are fewer and further between, and personal savings 
very often consists of equity in a home. AARP believes that all 
workers need access to a retirement plan, in addition to social 
security. Yet this is a far cry from where we are today.
    In fact, millions of Americans go to work every day and 
never get the chance to save for their retirement. Many are our 
members, and many are children and grandchildren of our 
members. According to the IRS, an estimated 79 million U.S. 
workers are not participating in a retirement plan in their 
workplace. Many of these workers are employed by businesses 
that do not even offer a retirement plan.
    The lack of access to a workplace-based retirement savings 
plan is particularly acute for employees of small businesses. 
Only 44 percent of the employees who work in firms with less 
than 100 employees have access to an employee retirement plan. 
Employers currently can make payroll deduction IRAs available 
to their workers, but clearly, very few do.
    The data also shows that about 10 percent of people 
eligible to contribute to an IRA actually make contributions in 
any given year. As a result, a significant segment of the U.S. 
work force does not save systematically for retirement.
    Mr. Chairman, we must address this lack of workplace 
savings option now, or future retirees will face greater 
economic instability, and put more strain on already taxed 
government programs.
    One innovative common-sense idea that can help combat 
retirement insecurity is the automatic IRA. It would make a 
huge difference to over 50 million workers and their families. 
We are very pleased, Mr. Chairman, that you and the ranking 
Member of the Subcommittee, Mr. English, have introduced H.R. 
2167, The Automatic IRA Act of 2007. We also appreciate the 
cosponsorship of other Subcommittee Members. The bipartisan 
support for this initiative is a positive development for our 
future retirement security.
    Your legislation proposes an ambitious but practical 
mechanism to expand retirement savings for millions of workers. 
This approach involves no employer contributions, no employer 
compliance with a qualified plan--ERISA requirements, and no 
employer liability or responsibility for selecting a provider 
or opening IRAs for employees.
    AARP has been reaching out to small businessowners to find 
out how they view this legislation for some time, and the 
response has been very positive. Small businessowners recognize 
the need to help their employees save for retirement.
    For example, Mr. Gary Kousan of Allentown, Pennsylvania 
reflects the views of many small businessowners. When we asked 
him to comment on why it was important to help his 15 employees 
save and plan for a secure retirement, he said--and I quote--
''Because I didn't do it myself. My son works for me now, and 
if I had started saving when I was his age, I would be in a 
much better position. I understand how important it is,'' he 
said, ``the auto-IRA is so convenient. As long as my employees 
can opt out, it's a great system. It is difficult in a business 
this size to offer any significant perks, and auto-IRA allows 
me to offer my employees something.''
    According to the AARP survey, 84 percent of our members and 
76 percent of Americans age 50 and older would like to have a 
workplace IRA.
    I will leave you with this final statistic. In a recent 
study on how the current economic downturn is affecting people, 
74 percent said their elected officials are not doing enough to 
help those being squeezed by the current economy.
    We have listened to the people who are struggling to have a 
secure retirement. Their problem is clear, and the automatic 
IRA is a first step to the solution.
    In conclusion, automatic IRAs create the potential help for 
finally filling the gaps in retirement savings coverage in the 
United States. Automatic IRAs will be particularly beneficial 
to many low-wage workers who do not currently have access to an 
employer-sponsored retirement plan.
    Thank you, Mr. Chairman, and Members of the Subcommittee. I 
would be happy to answer any questions you might have.
    [The prepared statement of Mr. Estrada follows:]

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    Chairman NEAL. Thank you, Mr. Estrada.
    Now I would like to recognize Mr. Iwry.

   STATEMENT OF J. MARK IWRY, NONRESIDENT SENIOR FELLOW, THE 
   BROOKINGS INSTITUTION; PRINCIPAL, THE RETIREMENT SECURITY 
     PROJECT AND RESEARCH PROFESSOR, GEORGETOWN UNIVERSITY

    Mr. IWRY. Chairman Neal, Ranking Member English, other 
Members of the Subcommittee, I am Mark Iwry, with the Brookings 
Institution. My written statement has been submitted jointly 
with my colleague, David John, a senior fellow with the 
Heritage Foundation. We are both also principals of the 
Retirement Security Project, a non-partisan partnership of 
Georgetown University and Brookings, supported by the Pew 
Charitable Trust. The two of us would be appearing here 
together, but for the fact that Mr. John is in the United 
Kingdom, counseling with officials there on very similar 
issues.
    He and I would first like to express our appreciation to 
you, Mr. Neal, and you, Mr. English, for your leadership in 
introducing this bipartisan automatic IRA legislation which 
embodies our joint proposal, as well as to Mr. Emanuel, Mr. 
McDermott, Mr. Larson, Ms. Schwartz, and Mr. Blumenauer, as 
well as other Members of the House and the Senate, for 
cosponsoring your legislation.
    As you know, the automatic IRA is intended to create a 
breakthrough in pension coverage, to break that 50 percent 
barrier that's been keeping half of the American work force 
from having access to easy ways to save at the workplace, and 
to do that by staking out common ground that transcends 
partisan and ideological differences.
    The auto-IRA approach, as you know, is simple. It would 
give the 75 million American workers who have no employer-
sponsored retirement plan the chance, through automatic 
enrollment, to save, to build wealth by using their employer's 
payroll system to send their own pay to their own IRA.
    This would be done by combining three familiar building 
blocks from our current system, which we know work effectively: 
number one, saving through payroll deductions in the workplace, 
similar to the 401(k) mechanism; number two, automatic 
enrollment into payroll-based saving, which Congress strongly 
encouraged in the Pension Protection Act of 2006 in its 401(k) 
auto-enrollment provisions, and which is sweeping the 401(k) 
market; and third, IRAs, which are well established and 
portable.
    IRAs make sense in a market-led proposal such as this. They 
have a $5,000 maximum annual contribution level, which is high 
enough to meet the needs of most Americans--$6,000 if you're 
age 50 or older--but it's low enough to avoid competing with 
401(k) plans, which allow the individual to contribute $15,500, 
$5,000 more if you're age 50 or older, and, combining with 
individual and employer contributions, $46,000 a year, compared 
to the $5,000 in an IRA.
    Specifically, here is how the automatic IRA would work. A 
new employee gets a standard notice, perhaps part of the IRS 
form W-4, telling the employee about the option to contribute 
to an IRA through the employer's payroll system, telling them 
they're automatically enrolled at 3 percent of pay in a default 
investment that would probably be something like a low-cost, 
life-cycle, highly diversified fund, and telling them that they 
can opt out if they wish to, or opt for a higher or lower level 
of saving, consistent with the IRA rules.
    An employer then simply forwards the money, whatever the 
employee elected, to an IRA provided by a financial 
institution. The employer does not contribute anything, does 
not make any outlay, does not comply with plan qualification 
rules, does not have to comply with ERISA, does not choose the 
investments, doesn't have to do anything other than keep track 
of what employees elected and pass on the money.
    If the employer wants to avoid choosing a particular IRA 
provider, that's the employer's option. It can choose a 
provider that it prefers, does business with, et cetera, that 
marketed it, or it can say, ``I don't want any part of that,'' 
and opt for a fall-back entity that would guarantee everyone 
has access to IRAs, even if their employer is not marketed by 
any IRA trustee or custodian. That would probably be a 
consortium or pool of private financial institutions, by 
contract.
    The bill would call on employers that are not willing to 
sponsor any kind of plan--any 401(k) or other plan--that have 
more than 10 employees, that have been in business for more 
than 2 years to do this, to act simply as a conduit for the 
employee's money into the employee's IRA. Even though those 
employers would not make any contributions, they would get a 
small temporary tax credit that would even be available to 
employers who are not required to provide the payroll deduction 
as an incentive.
    Mr. Chairman, Mr. English, this would all dovetail nicely 
with the saver's credit--and I would be happy to address that 
in Q&A--and would work very well for people, even who are not 
in the work force, by encouraging them, through automatic 
debit, to save more in IRAs. Thank you.
    [The prepared statement of Mr. Iwry follows:]

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    Chairman NEAL. Thank you for your testimony.
    Mr. Salisbury.

 STATEMENT OF DALLAS SALISBURY, PRESIDENT AND CHIEF EXECUTIVE 
      OFFICER, EMPLOYEE BENEFIT RESEARCH INSTITUTE (EBRI)

    Mr. SALISBURY. Chairman Neal, Ranking Member English, and 
Members of the Committee, it's a pleasure to be here. I thank 
you for the invitation. I am Dallas Salisbury, president of the 
Employee Benefit Research Institute, and Chairman of the 
American Savings Education Council.
    Since beginning our work at EBRI in 1978, we have published 
317 issue briefs. The very first was on the topic of universal 
IRAs and deductible employee contributions. Personally, my 
first testimony on IRAs was before the Senate Finance Committee 
in 1981. They have developed since that time with IRAs now 
representing about 27 percent of total retirement system 
assets, total assets in that system approaching about $18 
trillion.
    Employment-based defined contribution plans represent about 
26 percent of assets, private ERISA-defined benefit plans about 
17 percent, and public sector-defined benefit plans about 30 
percent of those aggregate assets.
    For 2005, the most recent year for which data is publicly 
available: about 10 percent of all taxpayers put money into an 
IRA, either directly or through a rollover; 5.3 million made 
deductible contributions totaling about $16 billion; Roth IRAs, 
6.7 million taxpayers, about $18.6 billion; 2.5 percent of 
taxpayers rolled over funds totaling $231.5 billion in that 
year; and a total of $140 billion was withdrawn in IRAs during 
that year, to be spent on we're not sure what.
    This compares to 14 percent of taxpayers who are active 
participants in ERISA-defined benefit plans to which $94 
billion was contributed, and 35 percent of taxpayers who were 
active participants in ERISA-defined contribution plans into 
which $228 billion was contributed. Total benefit payments from 
those programs, both annuity and lump sums, totaled $333 
billion, of which $215 billion was rolled over into Individual 
Retirement Accounts, thus underlining a point that Congressman 
Pomeroy was making in his earlier testimony: the critical role 
that employment-based programs make in the system, and the 
tenderness of making changes in other areas that might threaten 
those programs.
    The GAO report points out the lack of success in 
encouraging IRA-based plan development among small employers. 
EBRI small employer surveys have found a lack of perceived 
employees demand for retirement plans, and higher pay and 
health insurance always are deemed to be more important by both 
small employers and their workers. Our value of benefits 
surveys have consistently found that over 85 percent of 
employees, when asked what they would like first, say health 
insurance. Only about 7 percent say a defined contribution 
savings opportunity.
    All of these trends affect a second point, which is that 
over 42 percent of the work force still works for an employer 
that does not use automated payroll. EBRI has not surveyed 
employer attitudes toward automatic IRAs, per se, but did 
surveys on individual Social Security account proposals. We 
found overall opposition among small employers, if they were 
being required to set up any arrangement with any financial 
institution.
    Overwhelmingly, interestingly, they were in support of 
proposals that would allow them to send additional retirement 
contributions as part of payroll taxes to the government, 
suggesting there would be ways to structure universal or 
automatic IRAs that would be acceptable if the ideological 
issues could be overcome.
    EBRI research on the administrative issues and individual 
Social Security accounts reinforces the fact that automatic IRA 
designs are possible, but they would take unique approaches not 
contained in current legislation in order to minimize 
administrative cost. Every test or handle included in these 
proposals adds complexity which small employers in our surveys 
find troubling. That is not to say it should not be done, but 
it does suggest a hurdle.
    As GAO points out, there is a great deal we do not know 
about IRAs, as a result of limited data availability. Since 
1995, the Employee Benefit Research Institute has built a 
database on 401(k) data, and effective this year we will begin 
adding detailed IRA data to that database. It would be helpful 
if the IRS would make more detailed data available on an 
ongoing basis so the public on both IRAs and 401(k)s to help us 
analyze proposals such as these.
    I thank the Committee again for the invitation to testify, 
and would be pleased to respond to any questions.
    [The prepared statement of Mr. Salisbury follows:]
 Statement of Dallas Salisbury, President and Chief Executive Officer, 
               Employee Benefit Research Institute (EBRI)
    Chairman Neal and members of the Subcommittee on Select Revenue 
Measures, thank you for your invitation to testify today on the role of 
individual retirement accounts, or IRAs, in our retirement system. I am 
Dallas Salisbury, president and CEO of the Employee Benefit Research 
Institute.
    Since beginning our work in 1978, the Employee Benefit Research 
Institute has published 317 EBRI Issue Briefs.' The very 
first was on the subject of ``Universal IRAs and Deductible Employee 
Contributions.'' Since that time we have published data on IRAs on an 
ongoing basis. Chapter 15 of the EBRI Databook on Employee Benefits is 
on IRA participation and Chapter 16 is on IRA Assets.\1\
---------------------------------------------------------------------------
    \1\ EBRI Databook of Employee Benefits, Chapter 15, Individual 
Retirement Account--Participation http://www.ebri.org/pdf/publications/
books/databook/DB.Chapter%2015.pdf and EBRI Databook of Employee 
Benefits, Chapter 16, Individual Retirement Accounts and Keogh Assets 
http://www.ebri.org/pdf/publications/books/databook/DB.Chapter%2016.pdf
---------------------------------------------------------------------------
    Twenty-three percent of workers ages 21-64 owned an IRA at the end 
of 2005, an increase from 15.9 percent in 1996.\2\ We know IRA 
ownership increases with family income and age: Among workers with 
annual family income of $10,000-$19,999, 8.3 percent owned an IRA, 
compared to 35.1 percent of those with family income above $75,000. We 
also know education is a more striking indicator: 2.7 percent of those 
without a high school diploma have an IRA, compared to 46.5 percent of 
those with a graduate degree.
---------------------------------------------------------------------------
    \2\ Craig Copeland, ``Ownership of Individual Retirement Accounts 
(IRAs) and 401(k)-Type Plans.'' EBRI Notes, no. 5 (Employee Benefit 
Research Institute, May 2008): 2-12.
---------------------------------------------------------------------------
    IRAs have become the largest single vehicle for retirement assets 
in the United States. Assets have continuously grown in IRAs as a 
function of new contributions (about $49 billion in the most recent 
year for which data are available), but the asset growth is mostly due 
to rollover distributions from both employment-based defined benefit 
(pension) and defined contribution retirement plans such as 401(k)s 
(more than $210 billion, according to the latest data).\3\ As a result, 
total IRA assets now exceed the assets in private-sector employment-
based defined contribution plans: IRA assets reached $4.75 trillion at 
year-end 2007, compared with $3.49 trillion in private-sector defined 
contribution plans.\4\ The Internal Revenue Service (IRS) reports that 
7.9 million taxpayers age 65 or older withdrew money from an IRA in 
2004, amounting to $76.8 billion.\5\
---------------------------------------------------------------------------
    \3\ Victoria L. Bryant, ``Accumulation and Distribution of 
Individual Retirement Arrangements, 2004,'' SOI Bulletin (Spring 2008): 
90-101.
    \4\ Board of Governors of the Federal Reserve, Flow of Funds 
Accounts of the United States: Flows and Outstandings: First Quarter 
2008. June 5, 2008
    \5\ Bryant, op cited.
---------------------------------------------------------------------------
    Since IRAs have been increasingly important to Americans' 
retirement security, EBRI has focused a lot of its research on IRAs. 
For a 2001 NASI conference, EBRI simulated the projected increase in 
the IRAs importance in retirement wealth.\6\ At that time, we estimated 
an increase from 28 percent of retirement wealth for males born in 1936 
to 40 percent for males born in 1964. Females were estimated to have an 
increase from 18 percent to 32 percent for the same birth cohorts. 
Since that time, the increased importance of 401(k) plans, and the 
likely plan design modifications that are likely to result from the 
passage of the Pension Protection Act (PPA) in 2006 will undoubtedly 
result in an even larger percentage of retirement wealth contained in 
IRAs.\7\
---------------------------------------------------------------------------
    \6\ Jack VanDerhei and Craig Copeland, (2002). The Future of 
Retirement Income: The Changing Face of Private Retirement Plans (pp. 
121-147). National Academy of Social Insurance: The Future of Social 
Insurance: Incremental Action or Fundamental Reform.
    \7\ Jack VanDerhei and Craig Copeland, The Impact of PPA on 
Retirement Income for 401(k) Participants, EBRI Issue Brief, No. 318, 
June 2008
---------------------------------------------------------------------------
    The values accumulated in IRAs would likely be even greater if all 
monies contributed and/or rolled over to these accounts were not 
available for pre-retirement withdrawals. Simulations from the EBRI/ICI 
401(k) Accumulation Projection Model in 2002 showed that the income 
replacement rates that could be expected from a combination of 401(k) 
account balances and IRA rollovers that resulted from 401(k) 
contributions would increase between 11 and 18 percentage points 
(depending on salary level) if pre-retirement withdrawals were never 
taken from IRA balances.\8\
---------------------------------------------------------------------------
    \8\ Sarah Holden and Jack VanDerhei, Can 401(k) Accumulations 
Generate Significant Income for Future Retirees? EBRI Issue Brief and 
ICI Perspective, October 2002. This is a first-order approximation and 
does not take into account changes in participant behavior that might 
occur as a result of changing the pre-retirement access to this money.
---------------------------------------------------------------------------
    At the request of this Committee, the General Accountability Office 
undertook a review of individual retirement accounts that was published 
this month. The staff of the Employee Benefit Research Institute was 
pleased to cooperate with the GAO in their research.
    The GAO report does a good job of setting out the current data on 
IRAs.
    The report also points out the lack of success in encouraging plan 
development among small employers due to lack of resources, unsteady 
revenues, and lack of knowledge and/or misconceptions in how plans 
operate.
    Small employer surveys undertaken by EBRI in the past also pointed 
out the lack of employee demand for the retirement plans, where higher 
pay and/or health insurance was deemed to be more important in the view 
of employers.\9\ EBRI Value of Benefits surveys over the past 25 years 
have consistently found that workers put health insurance first,\10\ 
and our most recent EBRI Health Confidence Surveys have found that over 
a third of workers have reduced their retirement savings due to rising 
health care costs.\11\ All of these trends affect plans with payroll 
deduction in general, and programs like non-employer-based IRAs (where 
automatic deductions have not been arranged).
---------------------------------------------------------------------------
    \9\ Employee Benefit Research Institute, Small Employer Retirement 
Survey Results. http://www.ebri.org/surveys/sers/.
    \10\ The latest Value of Benefits Survey results can be found in 
Rachael Christensen, ``Value of Benefits Constant in a Changing World: 
Findings from the 2001 EBRI/MGA Value of Benefits Survey.'' EBRI Notes, 
no. 3 (Employee Benefit Research Institute, March 2003): 1-3.
    \11\ Employee Benefit Research Institute, Health Confidence Survey 
Results www.ebri.org/surveys/hcs/
---------------------------------------------------------------------------
    The GAO has pointed out the lack of information on the use of 
payroll deduction IRAs (or those that allow a direct debit from a 
savings or checking account). GAO does not discuss this topic on IRAs, 
but the data is lacking regardless. This is another manner to get 
workers' dollars into an IRA before the individual can spend it.
    The GAO report suggests tax credits to employers (on p. 29) to 
increase the adoption of payroll deduction IRAs. Congress will need to 
consider the fact that tax credits to employers for starting these 
plans have proven to be ineffective. The EBRI Small Employer Surveys 
found that small employers do not understand the tax laws surrounding 
plans.
    EBRI Small Employer Surveys also have found overall opposition to 
proposals that small employers be required to set up arrangements with 
financial institutions. However, there is support among small employers 
for sending additional retirement contributions as part of their 
existing payroll tax deposits and letting the government deal with all 
of the administrative issues.
    This suggests that proposals like those discussed in the GAO report 
for ``automatic IRAs'' for some segment of the population (most 
proposals would not apply to about 25 million workers in very small 
firms) would need to be carefully designed in order to prove 
successful. In fact, research conducted by EBRI on the administrative 
issues in individual Social Security accounts\12\ suggests ways in 
which an ``automatic IRA'' could be made available to all workers, were 
accessibility and accumulation the primary objectives. It could be done 
with lower administrative expense and lower business burden than 
proposals that are more limited in their scope, but rely on payroll 
deduction. This is the case because of the significant portion of the 
workforce that is not paid through automated and linked payroll 
systems.
---------------------------------------------------------------------------
    \12\ Kelly Olsen and Dallas Salisbury, ``Individual Social Security 
Accounts: Issues in Assessing Administrative Feasibility and Costs,'' 
EBRI Issue Brief no. 203, November 1998 (http://www.ebri.org/pdf/
briefspdf/1198ib.pdf); and ``Individual Social Security Accounts: 
Administrative Issues,'' EBRI Issue Brief no. 236, September 2001 
(http://www.ebri.org/pdf/briefspdf/0901ib.pdf) (Washington, DC: 
Employee Benefit Research Institute).
---------------------------------------------------------------------------
    Working through our American Savings Education Council and our 
ChoosetoSave.org programs, and based upon our 18 years of Retirement 
Confidence Surveys, EBRI has found that individuals need to become 
convinced of the need to save for the future before they will (a) do 
it, and (b) preserve the funds upon job change. While $214.9 billion 
was rolled into IRAs in 2004, most workers that receive distributions 
of less than $20,000 do not roll over their entire distributions, and 
cash out at least some portion of their retirement savings.\13\
---------------------------------------------------------------------------
    \13\ Craig Copeland, ``Lump Sum Distributions.'' EBRI Notes, no. 12 
(Employee Benefit Research Institute, December 2005): 7-17.
---------------------------------------------------------------------------
    As GAO points out, there is a great deal we do not know about IRAs 
as a result of limited data reporting. Since 1995, EBRI has been 
working with the Investment Company Institute and administrative firms 
to build a large database on 401(k) plans that has begun to allow many 
questions to be answered about the role of those plans in our 
retirement system. This year we are starting to build a companion 
database of IRA data that will begin to fill many of the gaps in 
information identified by the GAO report.
    As GAO notes, the IRS does collect a significant amount of IRA 
information. Were that information more widely available in a timely 
fashion, it would be of great assistance to both the public and the 
private sectors. For example, the Census Bureau's Current Population 
Survey reports that very few of those over age 55 and 65 report income 
from IRAs, Keoghs or 401(k) plans. Yet, the IRS tax records recorded 
$140 billion in payments out of IRAs alone in 2004. The Federal 
Reserve's Survey of Consumer Finance, and the HHS Health and Retirement 
Survey, also under-report income from these programs, when it is 
possible to compare individual self-response with ``administrative'' 
records like tax returns. A major issue for the nation revolves around 
the financial status of those near or in retirement, and the 
availability of IRS administrative records could make a significant 
contribution to policy-making. We hope that the IRA administrative 
records database being developed by EBRI will do so as well.
    As the GAO report underlines, the primary role of IRAs in our 
retirement system today is to provide a tax-deferred account for the 
retirement assets of those who have left an employer-sponsored defined 
benefit (pension) or defined contribution (401(k)-type) plan. Rollovers 
amounted to $214.9 billion in 2004, compared to $48.7 billion in 
contributions.
    The goal that ERISA set for IRAs in 1974 as a way for all of those 
outside of an employer based plan to save for retirement has not been 
realized. This underlines the central role played by both Social 
Security and employer-sponsored plans in Americans' future retirement 
security.
    I thank the Committee again for the invitation to testify.
Bibliography: EBRI Issue Briefs on IRAs

Copeland, Craig. ``Individual Account Retirement Plans: An Analysis of the 
2004 Survey of Consumer Finances.'' EBRI Issue Brief, no. 293 (Employee 
Benefit Research Institute), May 2006.

___. ``Individual Account Retirement Plans: An Analysis of the 2001 Survey 
of Consumer Finances.'' EBRI Issue Brief, no. 259 (Employee Benefit 
Research Institute), July 2003.

___. ``Retirement Plan Participation and Features, and the Standard of 
Living of Americans 55 or Older.'' EBRI Issue Brief, no. 248 (Employee 
Benefit Research Institute), August 2002.

___. ``Retirement Plan Participation and Retirees' Perception of Their 
Standard of Living.'' EBRI Issue Brief, no. 289 (Employee Benefit Research 
Institute), January 2006.

Copeland, Craig, and Jack VanDerhei. ``Personal Account Retirement Plans: 
An Analysis of the Survey of Consumer Finances.'' EBRI Issue Brief, no. 223 
(Employee Benefit Research Institute), July 2000.

EBRI Staff. ``Employment-Based Retirement Income Benefits: Analysis of the 
April 1993 Current Population Survey.'' EBRI Issue Brief, no. 153 (Employee 
Benefit Research Institute), September 1994.

___. ``Universal IRAs and Deductible Employee Contributions.'' EBRI Issue 
Brief, no. 1 (Employee Benefit Research Institute), January 1982.

Holden, Sarah, and Jack VanDerhei. ``The Influence of Automatic Enrollment, 
Catch-Up, and IRA Contributions on 401(k) Accumulations at Retirement.'' 
EBRI Issue Brief, no. 283 (Employee Benefit Research Institute), July 2005.

Korczyk, Sophie. ``Individual Savings for Retirement: A Closer Look.'' EBRI 
Issue Brief, no. 16 (Employee Benefit Research Institute), March 1983.

Salisbury, Dallas. ``Individual Retirement Accounts: Characteristics and 
Policy Implications.'' EBRI Issue Brief, no. 32 (Employee Benefit Research 
Institute), July 1984.

___. ``Individual Saving for Retirement--The 401(k) and IRA Experiences.'' 
EBRI Issue Brief, no. 95 (Employee Benefit Research Institute), October 
1989.

Scott, Jason S., and John B. Shoven. ``Lump-Sum Distributions: Fulfilling 
the Portability Promise or Eroding Retirement Security?'' EBRI Issue Brief, 
no. 178 (Employee Benefit Research Institute), October 1996.

Seliger, M. ``Retirement Income and Individual Retirement Accounts.'' EBRI 
Issue Brief, no. 52 (Employee Benefit Research Institute), March 1986.

Yakoboski, Paul. ``Large Plan Lump Sums: Rollovers and Cashouts.'' EBRI 
Issue Brief, no. 188 (Employee Benefit Research Institute), August 1997.

___. ``Retirement Program Lump-Sum Distributions: Hundreds of Billions in 
Hidden Pension Income.'' EBRI Issue Brief, no. 146 (Employee Benefit 
Research Institute), February 1994.

Bibliography: EBRI Notes on IRAs

Copeland, Craig, ``The Number of Individual Account Retirement Plans Owned 
by American Families.'' EBRI Notes, vol. 29, no. 6 (Employee Benefit 
Research Institute, June 2008).

    Copeland, Craig, ``Ownership of Individual Retirement Accounts 
(IRAs) and 401(k)-Type Plans'' EBRI Notes, vol. 29, no. 5 (Employee 
Benefit Research Institute, May 2008).

Copeland, Craig, ``Total Individual Account Retirement Plan Assets, by 
Demographics, 2004'' EBRI Notes, vol. 29, no. 3 (Employee Benefit Research 
Institute, March 2008).

Copeland, Craig, ``IRA Assets and Contributions, 2006'' EBRI Notes, vol. 
28, no. 12 (Employee Benefit Research Institute, December 2007).

Copeland, Craig, ``401(k)-Type Plans and Individual Retirement Accounts 
(IRAs)'' EBRI Notes, vol. 28, no. 10 (Employee Benefit Research Institute, 
October 2007).

Copeland, Craig, ``IRA Assets, Contributions, and Market Share'' EBRI 
Notes, vol. 28, no. 1 (Employee Benefit Research Institute, January 2007).

Copeland, Craig, ``IRA and Keogh Assets and Contributions'' EBRI Notes, 
vol. 27, no. 1 (Employee Benefit Research Institute, January 2006).

Copeland, Craig, ``401(k)-Type Plan and IRA Ownership'' EBRI Notes, vol. 
26, no. 1 (Employee Benefit Research Institute, January 2005).

Copeland, Craig, ``IRA and Keogh Assets and Contributions'' EBRI Notes, 
vol. 25, no. 8 (Employee Benefit Research Institute, August 2004).

Copeland, Craig, ``IRA and Keogh Assets'' EBRI Notes, vol. 25, no. 2 
(Employee Benefit Research Institute, February 2004).

Copeland, Craig, ``IRA Assets and Characteristics of IRA Owners'' EBRI 
Notes, vol. 23, no. 12 (Employee Benefit Research Institute, December 
2002).

Copeland, Craig, ``Lump-Sum Distributions: An Update'' EBRI Notes, vol. 23, 
no. 7 (Employee Benefit Research Institute, July 2002).

Copeland, Craig, ``Characteristics of Individual Retirement Account 
Owners'' EBRI Notes, vol. 22, no. 6 (Employee Benefit Research Institute, 
June 2001).

Copeland, Craig, ``IRA Assets Continue to Grow'' EBRI Notes, vol. 22, no. 1 
(Employee Benefit Research Institute, January 2001).

Copeland, Craig, ``Asset Allocation: IRAs and 401(k)-Type Plans'' EBRI 
Notes, vol. 21, no. 10 (Employee Benefit Research Institute, October 2000).

Copeland, Craig, ``IRA Assets Total More Than $2 Trillion'' EBRI Notes, 
vol. 21, no. 5 (Employee Benefit Research Institute, May 2000).

Copeland, Craig, ``Lump-Sum Distributions Total $87.2 Billion in 1995'' 
EBRI Notes, vol. 20, no. 10 (Employee Benefit Research Institute, October 
1999).

Sabelhaus, John, ``Projecting IRA Balances and Withdrawals'' EBRI Notes, 
vol. 20, no. 5 (Employee Benefit Research Institute, May 1999).

Yakoboski, Paul, ``IRAs: Benchmarking for the Post-TRA '97 World'' EBRI 
Notes, vol. 19, no. 12 (Employee Benefit Research Institute, December 
1998).

Fronstin, Paul, ``IRA Assets Grew by 23 Percent During 1997'' EBRI Notes, 
vol. 19, no. 12 (Employee Benefit Research Institute, December 1998).

Fronstin, Paul, ``IRA and Keogh Assets Grew by 16 Percent During 1996'' 
EBRI Notes, vol. 18, no. 12 (Employee Benefit Research Institute, December 
1997).

Yakoboski, Paul and Bill Pierron, ``IRAs: It's a Whole New Ballgame'' EBRI 
Notes, vol. 18, no. 9 (Employee Benefit Research Institute, September 
1997).

Yakoboski, Paul, ``IRA and Keogh Assets Grew by 16 Percent During 1996'' 
EBRI Notes, vol. 17, no. 12 (Employee Benefit Research Institute, December 
1996).

Fronstin, Paul, ``IRA and Keogh Assets Grew by 6 Percent During 1994'' EBRI 
Notes, vol. 16, no. 11 (Employee Benefit Research Institute, November 
1995).

Murray, Kathy Stokes and Paul Yakoboski, ``Congress Considers IRA 
Expansion'' EBRI Notes, vol. 16, no. 4 (Employee Benefit Research 
Institute, April 1995).

Yakoboski, Paul, ``IRA Eligibility and Usage'' EBRI Notes, vol. 16, no. 4 
(Employee Benefit Research Institute, April 1995).

Fronstin, Paul and Celia Silverman, ``IRA and Keogh Assets Grew 19 Percent 
During 1993'' EBRI Notes, vol. 15, no. 10 (Employee Benefit Research 
Institute, October 1994).

Silverman, Celia, ``IRA and Keogh Assets Reach $773 Billion at Year-End 
1992'' EBRI Notes, vol. 14, no. 11 (Employee Benefit Research Institute, 
November 1993).

Yakoboski, Paul, ``New Evidence on Lump-Sum Distributions and Rollover 
Activity'' EBRI Notes, vol. 14, no. 7 (Employee Benefit Research Institute, 
July 1993).

Silverman, Celia, ``IRA and Keogh Assets Show Increased Growth in 1991'' 
EBRI Notes, vol. 13, no. 7 (Employee Benefit Research Institute, July 
1992).

Jones, Nora Super, ``IRA Proposals and Their Potential Impact on Retirement 
Savings'' EBRI Notes, vol. 13, no. 3 (Employee Benefit Research Institute, 
March 1992).

Silverman, Celia, ``IRA and Keogh Asset Continue to Grow during First Half 
of 1991'' EBRI Notes, vol. 13, no. 2 (Employee Benefit Research Institute, 
February 1992).

Foley, Jill, ``IRA and Keogh Assets Grow More Slowly in 1990'' EBRI Notes, 
vol. 12, no. 6 (Employee Benefit Research Institute, June 1991).

Piacentini, Joe, ``IRA Deduction Eligibility Falls under TRA '86'' EBRI 
Notes, vol. 12, no. 5 (Employee Benefit Research Institute, May 1991).

Foley, Jill, ``IRA and Keogh Assets Continue to Grow'' EBRI Notes, vol. 11, 
no. 7 (Employee Benefit Research Institute, July 1990).

Davis, Jennifer, ``IRA and Keogh Assets Grow during First Half of 1989'' 
EBRI Notes, vol. 11, no. 1 (Employee Benefit Research Institute, January 
1990).

Davis, Jennifer, ``IRA/Keogh Assets Top $400 Billion'' EBRI Notes, vol. 10, 
no. 7 (Employee Benefit Research Institute, July 1989).

``IRA, Keogh Asset Growth Slows'' EBRI Notes, vol. 9, no. 12 (Employee 
Benefit Research Institute, December 1988).

``IRA/Keogh Asset Growth Slows in 1987'' EBRI Notes, vol. 9, no. 6 
(Employee Benefit Research Institute, June 1988).

``IRA, Keogh Assets Top $350 Billion'' EBRI Notes, vol. 8, no. 11 (Employee 
Benefit Research Institute, November 1987).

``IRA Assets Reach $262 Billion; Keogh Assets Nearly $42 Billion'' EBRI 
Notes, vol. 8, no. 6 (Employee Benefit Research Institute, June 1987).

``IRA, Keogh Assets Jump $70 Billion; Future Growth May Slow Because of Tax 
Reform'' EBRI Notes, vol. 7, no. 10 (Employee Benefit Research Institute, 
October 1986).

``Value of IRAs under Senate Tax Reform'' EBRI Notes, vol. 7, no. 6 
(Employee Benefit Research Institute, June 1986).

``1985 Year-End IRA and Keogh Assets'' EBRI Notes, vol. 7, no. 4 (Employee 
Benefit Research Institute, April 1986).

``Medical IRAs'' EBRI Notes, vol. 7, no. 1 (Employee Benefit Research 
Institute, January 1986).

``IRA/Keogh Assets Surpass $200 Billion'' EBRI Notes, vol. 6, no. 5 
(Employee Benefit Research Institute, September 1985).

``IRA and Keogh Assets Top $120 Billion'' EBRI Notes, vol. 5, no. 6 
(Employee Benefit Research Institute, November 1984).

``IRA and Keogh Assets Continue Rising in 1983'' EBRI Notes, vol. 5, no. 2 
(Employee Benefit Research Institute, March 1984).

``Major Growth in IRAs Reported'' EBRI Notes, vol. 5, no. 3 (Employee 
Benefit Research Institute, May 1983).

``Surveys Show That Individual Retirement Accounts (IRAs) Are Popular'' 
EBRI Notes, vol. 4, no. 2 (Employee Benefit Research Institute, March 
1983).

``IRA Assets Show Significant Growth'' EBRI Notes, vol. 3, no. 3 (Employee 
Benefit Research Institute, May 1982).

                                 

    Chairman NEAL. Thank you.
    Mr. Eisenbrey.

 STATEMENT OF ROSS EISENBREY, VICE PRESIDENT, ECONOMIC POLICY 
                           INSTITUTE

    Mr. EISENBREY. Thank you, Mr. Neal. It's a pleasure to be 
here, and an honor.
    Proposals like the automatic IRA cannot hurt. The problem 
is that they probably won't help much, either. This is because 
such proposals don't make 401(k)'s or IRAs a better deal for 
ordinary workers. They make it physically easier for them to 
put money into an account, but not financially easier.
    The shift from traditional pensions which are truly 
automatic, in the sense that they automatically create 
retirement savings, to IRAs, 401(k)'s, and other individual 
savings accounts that require workers to shoulder most or all 
of the cost and risk, has left most workers with less 
retirement security. It is not enough simply to argue that the 
shift from traditional pensions to individual accounts is a 
reflection of market forces. The tax incentives Congress 
provides for retirement accounts are not a result of market 
forces. They are a political decision, and they constitute an 
enormous subsidy from the Federal Government that has done 
almost nothing to increase retirement savings.
    There are three big problems with these tax incentives, 
which automatic IRAs would not change: first, only households 
that owe income tax are eligible for the subsidies, the size of 
which also depends on a household's tax bracket; second, even 
if the value of the tax deduction per dollar saved didn't vary 
by income level, high-income households have more disposable 
income to set aside, so subsidies would still 
disproportionately benefit them; and finally, the incentive 
effect is weak, or non-existent, since there is no way to 
ensure that these tax incentives encourage new saving.
    The present value of tax expenditures for 401(k) and IRA 
contributions in 2007 amounted to nearly $135 billion. Roughly 
70 percent of these subsidies go to the top 20 percent of the 
income distribution, and almost half go to the top 10 percent. 
The average worker gets little help from this $135 billion, due 
to an upside down incentive structure that gives a wealthy 
family in a 35 percent tax bracket a tax break 3.5 times more 
valuable than a family in a 10 percent tax bracket, even if 
each family contributes the same dollar amount to a tax-favored 
account.
    In other words, those who need the help least to save get 
the most help. Thus, it is not surprising that only 3 out of 10 
households received a tax break for contributing to a defined 
contribution plan or IRA in 2004. Congress, starting with this 
Committee, has tilted the subsidy table toward the better off, 
and told most Americans, ``You're on your own.''
    These tax breaks are not just unfair, they're ineffective, 
because they mostly cause wealthy households to shift savings 
to tax-favored accounts, rather than increasing overall 
savings. Thus, the paradox: the taxpayers are giving up more 
and more revenue to promote retirement savings while retirement 
security declines, along with the national savings rate. Tax 
incentives ought to do more than lower the taxes paid by 
wealthy households. They ought to help all workers save for 
retirement.
    The implicit assumption behind the auto-IRA approach is 
that the problem lies with the worker, not with the retirement 
options she faces. But even in the best case scenario, a 
participant who contributes regularly and does not touch her 
savings until retirement, high fees may erode a quarter or more 
of her nest egg, compared to savings pooled in a cost-efficient 
pension fund.
    These problems are compounded by the problem that 
individual investors feel torn between low fixed returns and 
gambling with their nest egg. Finally, even a worker who saves 
steadily and has good luck with investments may outlive her 
savings.
    So, these problems require the kind of creativity that you 
called for in your opening statement, Mr. Neal. I think we need 
to think outside the box that we have been in, and we would 
like to propose--and I have brought, and would like to offer 
for the record, a plan called The Guaranteed Retirement 
Account. Could I submit that for the record?
    Chairman NEAL. You certainly can.
    Mr. EISENBREY. Thank you.
    [The information follows:]

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    Mr. EISENBREY. It is a plan that was produced for the 
Economic Policy Institute by Teresa Ghilarducci, a retirement 
expert. It's a hybrid that combines the best features of 
defined benefit and defined contribution plans, including 
steady and predictable employer and employee contributions, low 
administrative costs, 100 percent portability, and guaranteed 
lifetime benefits.
    The GRA plan would deliver Federal subsidies to the 
families who really need them, while insuring participants 
against financial and longevity risk. It starts by converting 
tax expenditures for defined contribution plans into 
refundable, flat tax credits. A tax policy center analysis of 
the GRA plan found that this, by itself, would make 58 percent 
of taxpayers better off, and only 16 percent of mostly high-
income taxpayers worse off.
    Unlike auto-IRA plans that focus on increasing voluntary 
contributions, the GRA plan squarely addresses the issue of 
adequacy through mandatory contributions, efficiency gains, and 
plugging cash-outs and other leaks.
    Workers not enrolled in an equivalent or better pension 
plan would be enrolled in a GRA account, contributions equal to 
5 percent of earnings, up to the Social Security earnings cap, 
could be deducted, along with payroll taxes, and credited to 
individual accounts, though the funds would be pooled and 
invested together.
    I see I am over my limit. I will stop. But we would love to 
present this plan in greater detail.
    [The prepared statement of Mr. Eisenbrey follows:]

 Statement of Ross Eisenbrey, Vice President, Economic Policy Institute

    Chairman Neal, Ranking Member English, and distinguished members of 
the Subcommittee, I appreciate the opportunity to appear before you 
today to discuss ways to expand retirement security. The opinions I 
will express are my own and not necessarily those of the Economic 
Policy Institute.
    Before I begin, I would like to clarify that the issues I plan to 
address are relevant to all types of individual savings accounts, not 
just IRAs. The distinction between IRAs and defined-contribution plans 
is often immaterial, because most funds in IRAs were rolled over from 
defined-contribution plans, and some IRAs, like SIMPLE IRAs, are very 
similar to defined-contribution plans.
    In recent years, the focus of retirement experts and policymakers 
has been on proposals to increase retirement savings through payroll 
deductions into savings accounts like IRAs or 401(k)s. The latest such 
proposal is the Automatic IRA Act, which has been introduced with 
bipartisan support in both houses of Congress.
    These proposals are designed to overcome behavioral obstacles to 
participating and contributing to retirement accounts--by, for example, 
requiring workers to opt out of a plan rather than opting in. The 
Automatic IRA Act, for example, would require any employer with more 
than 10 employees who does not have a retirement plan to offer 
automatic deduction to an IRA.
    The consensus is that this approach cannot hurt. The problem is 
that it will not help much either. This is because these proposals do 
not make 401(k)s or IRAs a better deal for ordinary workers, they just 
make it easier for them to put money into an account.
    These proposals are a distraction from the real problem, which is 
that most workers have not been well served by the shift from 
traditional pensions, which are truly automatic, to IRAs, 401(k)s and 
other individual savings accounts that not only require workers to sign 
up for an account, but also shoulder most or all of the cost and the 
risk.
    One might argue that the shift from traditional pensions to 
individual accounts is simply a reflection of market forces. But tax 
incentives for savings accounts represent an enormous subsidy from the 
Federal Government, with little to show for it.
    There are three big problems with these supposed incentives, which 
Automatic IRAs would do little to change. First, only households that 
owe income tax are eligible for the subsidies, the size of which also 
depends on the household's tax bracket.\1\ Even if that were not the 
case, high-income households have more disposable income to set aside, 
so subsidies would still disproportionately benefit them. Finally, the 
incentive effect is weak or non-existent, since there is no way to 
ensure that tax incentives encourage new saving.
---------------------------------------------------------------------------
    \1\ The Saver's Credit is designed to address this problem, but 
most people with incomes low enough to qualify cannot take advantage of 
it because they do not owe income tax and the credit is non-refundable 
(William G. Gale, J. Mark Iwry, and Peter R. Orszag, ``Making the Tax 
System Work for Low-Income Savers: The Saver's Credit,'' Urban-
Brookings Tax Policy Center Issues and Options, July 2005).
---------------------------------------------------------------------------
    The present value of tax expenditures for 401(k) and IRA 
contributions in 2007 amounted to nearly $135 billion.\2\ According to 
the Urban-Brookings Tax Policy Center, roughly 70% of these subsidies 
go to those in the top 20% of the income distribution, and almost half 
go to the top 10%.\3\
---------------------------------------------------------------------------
    \2\ Office of Management and Budget, Analytical Perspectives, FY 
2009 Budget, Table 19-4.
    \3\ Leonard E. Burman, William G. Gale, Matthew Hall, and Peter R. 
Orszag, ``Distributional Effects of Defined Contribution Plans and 
Individual Retirement Accounts,'' Urban-Brookings Tax Policy Center, 
2004.
---------------------------------------------------------------------------
    These tax breaks are not just unfair, they are ineffective, because 
they mostly cause wealthy households to shift savings to tax-favored 
accounts rather than increase overall savings--thus the paradox that 
taxpayers are giving up more and more revenue to promote retirement 
savings while retirement security declines.
    Tax incentives are supposed to do more than lower the taxes paid by 
wealthy households. They are supposed to help workers save for 
retirement. Yet enrollment in employer-based retirement plans has 
remained stagnant at around 50% of full-time workers. Due to inadequate 
contributions, cash-outs and other leakages, Federal Reserve data show 
that the median 401(k) and IRA account balance of workers approaching 
retirement was $60,000 in 2004, not even enough to buy a $400 per month 
annuity.\4\
---------------------------------------------------------------------------
    \4\ Survey of Consumer Finances, as cited in Alicia H. Munnell and 
Annika Sunden, ``401(K) Plans Are Still Coming Up Short,'' Center for 
Retirement Research Issue Brief, March 2006.
---------------------------------------------------------------------------
    The implicit assumption behind the ``Auto IRA'' (and ``Auto 
401(k)'') approach is that the problem lies with the worker, not with 
the retirement options she faces. But even in the best-case scenario--a 
participant who contributes regularly and does not touch the savings 
until retirement--high fees may erode a quarter or more of her nest egg 
compared to savings pooled in a cost-efficient pension fund.
    Meanwhile, the worker is likely to be getting little help from the 
Federal Government, due to an upside-down incentive structure that 
gives a wealthy family in a 35% tax bracket a tax break three and a 
half times more valuable than a family in a 10% tax bracket, even if 
each family contributes the same dollar amount to a tax-favored 
account. In other words, those who need the least help saving get the 
most. Thus it is not surprising that only about three out of ten 
households received a tax break for contributing to a defined 
contribution plan or IRA in 2004.\5\
---------------------------------------------------------------------------
    \5\ Burman et al., 2004.
---------------------------------------------------------------------------
    These problems are compounded by the problem that individual 
investors feel they must choose between low, fixed returns and gambling 
with their nest egg. Retirement experts often bemoan the tendency of 
many 401(k) participants to invest in money market funds, but it is 
hard to argue against conservative investments when you consider that 
bear markets can last for a decade or longer. Other people, of course, 
take the opposite approach, investing all their retirement savings in 
risky stocks in a desperate attempt to catch up. In contrast, 
traditional pension funds invest in diversified portfolios and pool the 
savings of people who retire at different times, smoothing investment 
returns across generations.
    Incidentally, the decision-making problem is not limited to those 
with little formal education. Los Angeles Times reporter Peter Gosselin 
found several Nobel Prize-winning economists willing to admit that they 
could not decide how to allocate their retirement savings.\6\
---------------------------------------------------------------------------
    \6\ Peter G. Gosselin, ``Experts Are at a Loss on Investing,'' Los 
Angeles Times, May 11, 2005.
---------------------------------------------------------------------------
    Finally, even a worker who saves steadily and has good luck with 
investments may outlive his or her savings. Theoretically, individuals 
can insure themselves against longevity risk by purchasing life 
annuities, but an adverse selection problem makes annuities expensive 
on the individual market, and people are often stymied by the 
difficulty of choosing among investment products.
    Some of these problems can and should be fixed. Congress has begun 
to address the issue of hidden 401(k) fees, for example. But there are 
inherent advantages to traditional pensions, because pooling allows 
employers or the government to insure workers against most financial 
and longevity risks while taking advantage of economies of scale. Thus, 
the shift from traditional pensions to individual accounts has 
increased administrative costs while saddling workers with risk that 
would be easy to insure against in a group plan.
    In other words, closing the retirement gap is not simply a question 
of increasing contributions, but also ensuring that benefits are 
broadly shared and retirement savings and income are secure.
    We need a whole new approach. We need to replace IRAs and 401(k)s 
with something better. And though traditional pensions work well for 
large, stable employers, others are not in a position to take on long-
term pension liabilities.
    Last year, the Economic Policy Institute asked retirement expert 
Teresa Ghilarducci--who unfortunately could not be here today--to come 
up with a replacement for the current system of individual accounts. 
The resulting Guaranteed Retirement Account plan \7\ is a hybrid that 
combines the best features of defined-benefit and defined-contribution 
plans, including steady and predictable employer and employee 
contributions, low administrative costs, and guaranteed lifetime 
benefits.
---------------------------------------------------------------------------
    \7\ Teresa Ghilarducci, ``Guaranteed Retirement Accounts: Toward 
retirement income security,'' EPI Briefing Paper, November 20, 2007. 
http://www.sharedprosperity.org/bp204/bp204.pdf
---------------------------------------------------------------------------
    The GRA plan would reapportion Federal subsidies, which now 
disproportionately go to high-income families, while insuring 
participants against financial and longevity risk. It would start by 
converting tax expenditures for defined-contribution plans and IRAs 
into flat refundable credits. A Tax Policy Center analysis of the GRA 
plan found that this by itself would make 58% of taxpayers better off 
and only 16% of taxpayers worse off, most of them in the top income 
quintile. And unlike high-income households, low- and middle-income 
households would not fully offset this increase in savings with dis-
saving in other forms.
    Unlike ``Auto IRA'' and ``Auto 401(k)'' plans that focus on 
increasing voluntary contributions to savings accounts, the GRA plan 
squarely addresses the issue of adequacy through mandatory 
contributions, efficiency gains, and plugging cash-outs and other 
leaks. Like ``pay or play'' healthcare plans, the plan calls for all 
workers not enrolled in an equivalent or better pension plan to enroll 
in a Guaranteed Retirement Account. Contributions equal to 5% of 
earnings up to the Social Security earnings cap would be deducted along 
with payroll taxes and credited to individual accounts, though the 
funds would be pooled and invested together.
    The cost of these contributions would be split equally between 
employers and employees. However, employee contributions would be 
offset in whole or in part through an inflation-indexed $600 refundable 
tax credit that would take the place of tax breaks for defined-
contribution accounts and IRAs.
    GRA accounts would be administered by the Social Security 
Administration, and the funds managed by the Thrift Savings Plan or 
similar body, which in turn would outsource investment functions to an 
outside provider. Though the funds would be invested in financial 
markets, participants would earn a fixed 3% rate of return adjusted for 
inflation and guaranteed by the Federal Government. If the trustees 
determined that actual investment returns were consistently higher than 
3% over a number of years, the surplus would be distributed to 
participants, though a balancing fund would be maintained to ride out 
periods of low returns.
    Workers would be able to track the dollar value of their 
accumulations, the same as with 401(k)s and IRAs. However, account 
balances would be converted to inflation-indexed annuities upon 
retirement to ensure that workers would not outlive their savings.
    The result is that participants would be guaranteed a secure 
retirement after a lifetime of contributions. A prototypical worker 
could expect a benefit equal to roughly 25% of pre-retirement income 
after 40 years. Since Social Security provides such a worker with a 
benefit equal to roughly 45% of pre-retirement income at age 65, the 
total replacement rate would be approximately 70% of pre-retirement 
income, which is considered the minimum necessary to avoid a drop in 
living standards upon retirement.
    The GRA plan gives workers what they want--a simple, fair and 
effective way to save for retirement. According to the Rockefeller 
Foundation's American Worker Survey, Americans are equally concerned 
about having access to health care and pension benefits, and they are 
about three times more likely to want a job that guarantees health 
coverage and a pension rather than one that pays more.
    Americans are seeking financial security after flirting with day 
trading, stock options, and house flipping. Quasi-free market solutions 
relying on inequitable and ineffective tax breaks have lost much of 
their appeal. Instead of tax breaks for a lucky few, the government 
would be telling all workers, ``we'll throw in the first $600, and the 
rest is up to you and your employer.''
    Admittedly, Americans remain leery of government solutions and 
convinced that retirement is unaffordable. The GRA plan addresses these 
concerns through advance funding, shared employer-employee 
contributions, and a revenue-neutral reallocation of government 
subsidies. Thus, it is important to emphasize that the GRA plan would 
not increase the Federal deficit and would reinforce the link between 
work and retirement benefits, encouraging people to work longer.
    Current economic conditions highlight the need for a new plan. In 
contrast to Social Security and defined benefit pension plans, 
individual accounts like 401(k)s and IRAs are not insulated from the 
effects of economic downturns, since asset markets tend to move pro-
cyclically. In a recession, participants are often forced to delay 
retirement, which has a spillover effect on unemployed workers as 
vacancies shrink. A recession is also likely to reduce contributions 
and increase leakages, and some fund managers have already reported an 
increase in hardship withdrawals and loans.
    The role of housing as a conduit to savings and financial security 
has eroded as the housing market has slumped and homes have been 
transformed into speculative investments or collateral for loans. Even 
ignoring the immediate problems associated with sub-prime loans and 
foreclosures, two long-term trends--increased mobility and home equity 
withdrawals--point to a greater need for more leak-proof and secure 
savings vehicle than housing, which represented nearly 40 percent of 
total assets held by households, according to the last Survey of 
Consumer Finances conducted by the Federal Reserve. (That figure may, 
of course, be somewhat lower today.)
    I would like to say that if Automatic IRAs are the answer, you are 
asking the wrong question. The question should not be, ``how can we 
make a bad system a little better,'' but rather, ``how can we make sure 
Americans have adequate and secure retirement incomes after a lifetime 
of work?'' The answer, I think, is the Guaranteed Retirement Account 
plan.
    Before I conclude, I should add that one of our state affiliates--
the Economic Opportunity Institute in Washington State--has come up 
with an Automatic IRA plan that would be administered by a state 
agency.\8\ The Institute has worked closely with Mark Iwry and other 
architects of the Automatic IRA approach.
---------------------------------------------------------------------------
    \8\ Information about Universal Voluntary Retirement Accounts is 
available at the EOI website at http://www.eoionline.org/
washington_voluntary_accounts/voluntary_accounts.html
---------------------------------------------------------------------------
    However, the Washington State plan would do more to protect workers 
than the current Federal legislation. Besides expanding coverage, the 
plan would keep costs down by, among other things, using an existing 
administrative structure, pooling funds to take advantage of economies 
of scale, and negotiating fees with providers.
    The plan is a step in the right direction, but because it is 
designed to work within the existing Federal framework, it cannot 
correct the failures of this system, such as the fact that IRAs 
currently function more as tax shelters for the wealthy than retirement 
vehicles for the rest of us.

                                 

    Chairman NEAL. I am delighted to accept it.
    Mr. EISENBREY. Thank you.
    Chairman NEAL. Mr. Hardock?

STATEMENT OF RANDOLF HARDOCK, DAVIS & HARMAN, ON BEHALF OF THE 
                  SAVINGS COALITION OF AMERICA

    Mr. HARDOCK. Thank you, Chairman NEAL. I am pleased to be 
here today on behalf of the Savings Coalition of America, a 
non-profit organization that promotes efforts to increase 
personal savings.
    For many years, the Savings Coalition has been a strong 
advocate for improving and expanding IRAs. Chairman Neal, over 
the years, you have been doing that, doing a great job at that 
also. So, we urge you to continue those efforts to further 
improve IRA access.
    The GAO earlier today expressed concern that many Americans 
who didn't have retirement plans at work are not saving enough 
for retirement. We agree completely. We need to reach more 
people by getting more employers to provide access to IRAs 
through payroll deduction mechanisms that have been proven 
effective in the 401(k), 403(b), and 457 plan models.
    The best way to succeed in encouraging more small 
businesses to provide IRA opportunities for their workers is to 
give them understandable, low-cost, low-risk alternatives. The 
creation of the SIMPLE IRA was a major step in that direction. 
The use of the SIMPLE IRA continues to grow.
    Just yesterday, the Investment Company Institute released 
data that showed that 2.2 million individuals participated in 
over 500,000 SIMPLE IRA mutual fund plans in 2007. The 
important statistic there is the continuous and steady growth 
in the adoption of SIMPLE IRAs since 1998, with a 10-percent 
increase in participation just last year.
    So, the growth of SIMPLE IRAs has been something that is 
actually pretty impressive, but there is still much, much more 
to be done, as the other witnesses have said. We need to find 
ways to give people access to retirement saving in the 
workplace. Our members say that the reasons that doesn't 
happen--while there are many, there are four major reasons: 
cost, potential employer liability, the absence of incentives 
for small business decisionmakers, and the lack of employer 
education.
    We suggest four changes that we believe would enhance the 
availability of IRAs in the workplace. First, we need to give 
employers comfort that they will not be exposed to costs, 
administrative burdens, and potential liability if they set up 
an IRA savings program at work. Many employers simply will not 
establish payroll deduction IRAs if they even think they could 
become subject to the full range of rules and regulations under 
ERISA.
    The Labor Department has published helpful safe harbor 
comfort for employers, and we believe that needs to be expanded 
to clarify that employers can actively promote the idea of IRA 
savings in the workplace.
    Employers should also be allowed to automatically default 
employees into a payroll deduction contribution, unless the 
employee affirmatively elects not to do so. Chairman Neal, Mr. 
English, your legislation to promote those kinds of defaults is 
something we hope to work with you further on.
    The second major change we recommend is making SIMPLE IRAs 
even simpler, as proposed by Representative Kind, along with 
Representative Hulshof and Representative English in H.R. 5160.
    Changes that would improve SIMPLE IRAs include: allowing 
small employers to move mid-year from a SIMPLE IRA to another 
kind of retirement plan; eliminating the restrictions on 
rollovers from SIMPLE IRAs into other retirement plans; and 
conforming the unique complex penalty tax provisions on 
premature distributions from SIMPLE IRAs to the same rules that 
apply across the board.
    The third type of change that we recommend involves 
creating incentives for small business decisionmakers. Right 
now, small business employers have no tax incentives to make 
IRAs available to their employees. Representative Kind's bill, 
your bill, Mr. Neal, would encourage employers with a startup 
credit for new plans, and would allow small, one-time tax 
credits for each employee that actually signs up.
    We also note that the complex IRA income eligibility limits 
discourage IRA participation across the board. They have for 
years. Without those complex limits, we would see increased 
savings among all income classes, and we would see many more 
small businesses deciding to set up IRAs for their employees.
    Finally, we have to do a better job of educating small 
employers. We believe the IRS and the Small Business 
Administration can provide better information and education to 
small employers about providing IRA savings alternatives. At 
the same time, the IRS should be providing additional 
information on the availability and advantages of the saver's 
credit.
    In sum, we can get more employers to offer IRA savings 
opportunities to workers with simple, low-cost, low-risk 
alternatives like those I have described. Enhanced retirement 
savings incentives like these are the most effective 
investments we can make, as a nation. Thank you.
    [The prepared statement of Mr. Hardock follows:]

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    Chairman NEAL. Thank you. I thank all of the panelists.
    Mr. Estrada, you testified about the interactive effect of 
auto-IRAs and the saver's credit. It's come up a number of 
times in this panel's presentation. Can you explain how this 
would work?
    Are there suggestions that you might have for improvement?
    Mr. ESTRADA. Yes, Mr. Chairman. I'm sure Mr. Iwry would 
have something to say, as well.
    I think the first thing is we all understand the under-
utilization of the saver's credit. In fact, it occurs because 
it's most appropriate for people of lower income, of lower 
earnings. Therefore, what happens is that we don't--those are 
the very individuals who are not saving.
    So, the interaction between these two is that the automatic 
IRA would provide a savings that would take place, and then 
that savings would now become part of the abilities to take 
advantage of the saver's credit. So, these two would then 
increase the number of people using the saver's credit, and I 
think, most importantly, give us a whole new group of savers 
that need to be those that can take advantage of this program.
    Chairman NEAL. Any other panelists? Mr. Iwry?
    Mr. IWRY. Mr. Chairman, I would entirely agree, and add 
that the Emanuel Ramstad bill to expand the saver's credit 
would do even more to provide incentives to save for the people 
who really need those incentives the most, essentially beefing 
up the saver's credit by making it refundable, by making it 
depositable to the account in which the person saves, such as 
the automatic IRA, so that the credit is actually saved, 
automatically, and by simplifying it and extending it to more 
of the middle class.
    Those are attributes that the proposed saver's credit had 
when it was first proposed by the Treasury Department, but were 
cut down in the legislative process. So, that would further 
enhance both savings and 401(k)'s to which it would apply, and 
the appeal of the automatic IRA.
    Chairman NEAL. Let me follow up with you, Mr. Iwry. We have 
heard some concern that IRAs should not displace 401(k) plans, 
which are more effective retirement vehicles. But you also 
argue that auto-IRA programs might actually spur growth in 
these other employer-provided plans. Can you explain your 
graduation theory?
    Mr. IWRY. Absolutely, Mr. Chairman. Your bill really has, 
in a sense, two goals: one direct, and one indirect. The direct 
goal is to use automatic payroll deposit to IRAs to extend 
retirement savings to tens of millions of people who don't have 
it now.
    But the indirect goal is to actually encourage employers to 
adopt 401(k)'s, SIMPLEs, other plans that involve employer 
contributions. It is designed to bring employers into the 
system who are currently not willing to adopt any of those 
plans, either at the beginning, when an employer realizes that 
it would be offering payroll deposit to its employees for the 
first time, to give them the opportunity to save on a tax-
favored basis, or after a year or two of experience with that.
    There is every reason to expect that a significant number 
of employers would realize that jumping up, stepping up to a 
401(k) or stepping up to a SIMPLE IRA would be easy and to 
their advantage, that their employees like tax-favored saving, 
that the employees value the employer's role in making that 
available, and that recruitment and retention of valuable 
employees is enhanced by the sponsorship of a plan.
    That is why a number of the entities, people who market 
plans to small employers, have found the automatic IRA to be a 
very promising way to actually expand 401(k) formation.
    Chairman NEAL. Mr. English?
    Mr. ENGLISH. Thank you, Mr. Chairman. Mr. Iwry, I wonder if 
you could respond to the point raised by Assistant Secretary 
Campbell in his testimony, which I believe you may have been 
here to overhear, making the--raising the concern that under an 
auto-IRA model, it isn't necessarily clear who would protect 
employees from excessive fees, potentially dangerous investment 
decisions, or other challenges.
    How would this concern be best addressed, and how can we 
work, legislatively, to ensure that workers are protected in 
these types of plans?
    Mr. IWRY. That is a very appropriate and important issue, 
of course. There are a number of ways in which the bill already 
takes steps toward that.
    Number one, an employer is required to remit employee 
contributions to the IRAs, just as an employer is required to 
remit income tax withholding, or other payroll taxes to the 
appropriate Federal tax deposit institution. The IRS would have 
authority to impose penalties, under the tax system, if 
employers did not remit employees' withholdings.
    So, there is a mechanism there. Of course, one would expect 
that employers would comply, and that these penalties are not 
intended to be imposed, but just as a deterrent, and as 
something to give employees the comfort that I think you're 
alluding to, that there is an enforcement compliance mechanism.
    With respect to the investment, there would be a default 
investment similar to the QDIAs, the qualified default 
investment alternatives, that Brad Campbell and his 
predecessor, Ann Combs, oversaw in the Department of Labor 
regulations. They have had a huge impact on the market in the 
401(k) world.
    Those kinds of default investments that are essentially 
standardized, asset allocated, have proven to be very popular, 
both with employers and employees. The bill contemplates that a 
similar approach would be taken, that there would be a 
prescribed kind of default investment, flexible enough so 
different financial institutions could provide them, but 
sufficiently uniform that we would have the comfort that they 
are reflective of good policy.
    Mr. ENGLISH. Thank you. Mr. Hardock, you mentioned that one 
barrier preventing more employers from offering IRAs is that 
many Americans are not eligible to contribute to IRAs under 
current law, and that eligibility rules sometimes can be 
complicated.
    Could you provide us with more details as to how 
eligibility, in your view, should be expanded, or made simpler?
    Mr. HARDOCK. I think it's very important, and the Savings 
Coalition has long supported universal IRA availability, that 
every American should have the same access to the IRA and the 
tax advantages of the IRA.
    If you look at the current contribution limits on 
deductible IRAs, they phase out for single individuals between 
$53,000 and $63,000; for married couples, $85,000 to $105,000. 
But if you want a spousal IRA, the phase-out is--kicks in at 
$159,000, and starts to phase out over a $10,000 range.
    The Roth IRA limits are different for single, for couple. 
There are marriage penalties in some of those limit phase-outs. 
There are not marriage penalties in others. The list goes on, 
on how complex it is for people to determine where they're 
going to be during a year when they may not even know what 
their income is, and it makes it very hard to make that IRA 
decision.
    Mr. ENGLISH. That's an excellent point. Mr. Chairman, I 
think this is something that, over time, I think the 
Subcommittee could play a particularly useful role in focusing 
on.
    Mr. Hardock, one of the barriers you're bringing up, and 
you have mentioned, is that the contribution limits to IRAs 
under current law are, I gather in your view, relatively low. 
The advantages of IRAs are sometimes outweighed by the hassle 
and cost.
    You know, what else could be done to correct this 
situation?
    Mr. HARDOCK. Well, I think the key ingredient, particularly 
in the employer setting, if we want employers to do it, is to 
find ways to keep the employer costs down to offer this 
alternative. Mr. Iwry just talked about the importance of 
keeping the costs down for the individuals also within the IRA 
context. That means the rules on IRAs could be simplified, so 
there is less paperwork, less----
    Mr. ENGLISH. Sure.
    Mr. HARDOCK [continuing]. That the financial institution 
might have to provide, so they could even provide those 
cheaper. Those are the kinds of cost issues, ultimately, that 
this comes down to for individuals and employers.
    Mr. ENGLISH. Where do you view--I mean, at what level do 
you think the contribution limits to IRAs should be adjusted 
to?
    Mr. HARDOCK. Now, those are difficult revenue decisions. I 
think----
    Mr. ENGLISH. Let's take it out of the revenue view. I am 
looking at it more--what would be the levels at which it would 
maximize the benefit, from a savings standpoint?
    Mr. HARDOCK. Well, from a savings standpoint, I think 
unlimited IRA contributions----
    Mr. ENGLISH. Okay.
    Mr. HARDOCK [continuing]. Would maximize the savings. But 
many investments----
    Mr. ENGLISH. But are there some other policy issues that, 
apart from just the question of revenue, that maybe could set--
you know, give us guidance here?
    Mr. HARDOCK. I think that many have argued that the IRA 
limits for people who don't have access to employer plans may 
not be adequate, and that those people maybe could use a little 
more annual savings, if somehow you don't have access to an 
employment-based plan. The IRA limits might not be enough. 
Those could be increased somewhat, I think, going forward.
    But in the end, it really does come down to how much it's 
going to cost. You know, there is the tension there.
    Mr. ENGLISH. Yes.
    Mr. HARDOCK. That's why they are where they are now.
    Mr. ENGLISH. Now, Mr. Eisenbrey, you have offered us what I 
think is the familiar critique from the left of IRAs. But would 
you not concede that IRAs have been an extremely successful 
savings vehicle for the middle class, and made a significant 
contribution to at least current pools of retirement savings?
    Mr. EISENBREY. No, I guess I am sorry, I can't agree, Mr. 
English. The----
    Mr. ENGLISH. So, you feel they primarily benefit more 
affluent people?
    Mr. EISENBREY. They absolutely have. And----
    Mr. ENGLISH. With the contribution levels?
    Mr. EISENBREY. You know, when you look at--you just have to 
look at this in terms of, you know, return on investment. Back 
when, you know, we passed ERISA, and when you created the IRA, 
the amount of savings by the average American, you know, was--
the savings rate for all Americans was about nine percent.
    Mr. ENGLISH. Mr. Eisenbrey, that was----
    Mr. EISENBREY. It's now zero.
    Mr. ENGLISH. There are a whole variety of factors that have 
kicked in to the decline of savings rates.
    Mr. EISENBREY. Absolutely.
    Mr. ENGLISH. I think it's really very hard to focus on IRA 
tax policy as having driven it. What--I guess what income range 
would you say defines the middle class?
    Mr. EISENBREY. Well, you can define it--Members of Congress 
often define it up to, you know, people earning $250,000 a 
year. But the median income in the United----
    Mr. ENGLISH. Do you define it that way?
    Mr. EISENBREY. No, the median income in the United States 
is less than $40,000 a year.
    Mr. ENGLISH. Yes.
    Mr. EISENBREY. Half of all Americans in the work force are 
making less than $40,000. So, when your policy concentrates on 
raising the limits for people who can put away $20,000 a year 
or more into tax-favored accounts, you are----
    Mr. ENGLISH. But what about those----
    Mr. EISENBREY. You are leaving half of the work force 
completely behind.
    Mr. ENGLISH. But what about those who have incomes that 
vary, and will be in situations in 1 year to kick in $20,000, 
but not in year 2, 3, and 4. What about the----
    Mr. EISENBREY. That's a minority, it's a very small 
minority of people who ever have the ability to put away 
$20,000 a year into a retirement account. Half----
    Mr. ENGLISH. That's true, except that there are some people 
who are--who have a large realization, or will, through sales, 
achieve a--you know, a bulge in their income. You don't think 
there should be a tax incentive for them to set aside money?
    Mr. EISENBREY. I think that our policy has focused so much 
on people who are in the top 20 percent of income, that we have 
completely lost sight of the fact that, as other witnesses have 
said, half of the work force has no employer-provided pension 
at all. A third of people will retire----
    Mr. ENGLISH. So, you still----
    Mr. EISENBREY [continuing]. With only Social Security.
    Mr. ENGLISH. You still haven't given me the income 
parameters for the middle class, in your view.
    Mr. EISENBREY. Well, you--if you wanted to take the middle 
third of the income distribution, and say that was the middle, 
I--if you took the middle 80 percent of the income 
distribution, the middle class would end at about $130,000 of 
income in a year.
    Mr. ENGLISH. So, you would say----
    Mr. EISENBREY. That's the middle 80 percent, just, you 
know, taking the top 10 and the bottom 10, saying they're not 
middle class, everyone else is. You know, you would not be 
focusing on people who could put $20,000 or more away a year 
into their retirement account.
    Mr. ENGLISH. Well, I have a feeling that probably ideology 
has crept in here, so I'm going to turn this back to you, Mr. 
Chairman.
    Chairman NEAL. But I think that you did raise a good point, 
Mr. Hardock responded, Mr. Eisenbrey responded, and I think the 
other panelists might have some interest in responding to the 
suggestion that Mr. Hardock offered, and that was that we ought 
to just take off any income guideline on the ability to 
contribute to an IRA.
    Mr. Salisbury, you seemed pretty anxious earlier to speak 
to that issue.
    Mr. SALISBURY. Oh. The comment I was going to make is that 
the--Randy was mentioning the issue of universal. If you go 
back to the 1980s, when they were still universal, even though 
at lower contribution limits, is the complexity created within 
the system drove the percentage of individual taxpayers 
contributing to these programs from what was a high of 16.7 
percent of taxpayers down to last year, the last year we have 
data, 3.8 percent of taxpayers, because of the absence of 
selling, the absence of clarity.
    So, I mean, you get the irony. If the government wanted to 
have the revenue loss be the same, except that it would be the 
same, then you would get far more individuals contributing to 
IRAs, most particularly low-income individuals, if you lowered 
the limit of what could go in, but let anybody put it in, so 
that, in essence, there would be a far more aggressive 
approach.
    So, I think it's really a matter of what the objective of 
the policy is, and who it wants to be targeted at. There are 
ways, clearly, to have more people create IRAs, more people put 
money into IRAs. But like all retirement plans, very few 
individuals decide to do this on their own. Few employers 
decide to do it on their own. It's a question of the level of 
sales effort made by the society, and by the institutions. We 
have the social experiment, so to speak, 1981 to 1986, and we 
know the power of universality, even at lower contribution 
rates, if one wants to balance the revenue loss.
    Mr. HARDOCK. Mr. Neal, may I just add something?
    Chairman NEAL. You sure can.
    Mr. HARDOCK. As Mr. English said, we let politics creep 
into this. I think Mr. Hulshof said it earlier. These issues 
have historically been bipartisan.
    Chairman NEAL. Yes.
    Mr. HARDOCK. The issue of how progressive your Tax Code is 
can be dealt with in a lot of other contexts, and it's a 
difficult issue. If you can keep that out of the pension/
retirement debate, and keep this on the lines of how do we get 
more people to save, then the data that Dallas just showed, the 
40 percent decline in IRA contributions by those who continued 
to be eligible after the 1986 Act went after effect, we can get 
more savings and you can get your progressivity somewhere else, 
if that's what you want.
    But if you do it through the system, you get a hugely 
complex maze of phase-outs and nobody knows where they are, and 
what you get is paralysis.
    Mr. EISENBREY. I think Randy would agree with me, though, 
that the most important incentive is a financial incentive. If 
you give a much smaller financial incentive to a low-income 
person to save, that person is going to save less.
    So, if you gave the same--and it has to be through a 
refundable credit, as Mark Iwry was saying. But if you don't 
give a low-income person the same incentive, and you know, 
financial incentive, they won't be able to save as much.
    Mr. HARDOCK. The saver's credit was a huge step forward in 
that direction, and I think there is that incentive part of it. 
There is also the water cooler effect part of it, which I think 
gets lost when economists talk. There is a buzz that develops. 
That is what I think the auto-IRA is trying to do, and other 
things, also.
    Chairman NEAL. Why don't we recognize Mr. Iwry?
    Mr. IWRY. Mr. Chairman, the first rule here, of course, 
should be first do no harm. In thinking about the appropriate 
level of IRA contributions, the related rules relating to the 
ability to contribute to an IRA, the most important 
consideration I would suggest is that we do nothing to threaten 
the employer plan system, that we do everything we can to 
protect the 401(k)'s, the other retirement plans we've got, the 
incentive to adopt those, including the SIMPLE plan, which I 
might note Randy Hardock and I originated with our proposals 
when we were working together at Treasury and Congress then 
enacted.
    The rules for IRAs, therefore, have to be part of the 
ecology, if you will, of the whole retirement system, set at a 
level that gets universal participation through your kind of 
proposal, the automatic IRA, but not at a level that would 
detract from the incentive to sponsor an actual employer plan. 
Your bill is attuned to that sensitivity, so that it would 
actually enhance that incentive, and make it more thinkable for 
employers to take that step up and adopt a SIMPLE or a 401(k), 
in addition to or after adopting an automatic IRA.
    Chairman NEAL. Thank you. The gentleman from North Dakota, 
Mr. Pomeroy, is recognized to inquire.
    Mr. POMEROY. I thank the chair. Again, just to echo 
comments I made earlier about how much I am enjoying this 
hearing, I commend each of you for your very thoughtful 
questions and leadership in the course of this morning.
    Let's--I think that the data, just the data alone, is 
empirical. Regardless of which way your politics takes you in 
terms of its interpretation, conclusions you draw from it, it's 
important that we master the data here. Let's start by 
understanding what has been happening in the retirement savings 
world. So, let's start with both defined benefit pensions and 
defined contribution plans sponsored in the workplace, and 
let's look at this decade, what is happening.
    My belief is that we have had some decline. Dallas, 
perhaps, as the keeper of the data, do you want to speak to 
that?
    Mr. SALISBURY. Congressman, we have seen a substantial 
decline in proportion of individuals in defined benefit plans. 
That has gone from about 28 percent of--with active 
participation, about 17.2 percent.
    We have seen very dramatic increases in defined 
contribution plans at the workplace, both in participation and 
assets, and we have seen a relatively flat process vis a vis 
Individual Retirement Accounts. The 3.7, 3.8 percent 
contributing to a deductible IRA has been relatively constant. 
We have seen a growth in the number of individuals contributing 
to Roth IRAs. That's now up to about 3 percent of taxpayers.
    In relative terms, as I noted, the percentage of taxpayers 
in defined contribution plans on an annual basis contributing 
on a deductible and/or Roth basis is about six times the number 
that are contributing to Individual Retirement Accounts.
    Mr. POMEROY. But is that defined contribution number 
holding steady? The way I was interpreting current population 
survey data was that there had been, actually, an increase--a 
decrease there, also.
    Mr. SALISBURY. It has--it flattened in the last 3 years, 
and is slightly now declining, as it appears that the sales 
efforts have apparently reached a saturation point. Now that 
automatic enrollment is being put in place, we are likely to 
see, with data in the next two to 3 years, an increase in the 
number of active participants, as a result of the defaults that 
were contained in the Pension Protection Act. Number of plans 
has actually slightly declined.
    Mr. POMEROY. Is there hope for saving the defined benefit 
portion of the marketplace?
    Mr. SALISBURY. Very frankly, very little reason to think 
that that will occur. Most of the new plan formation of defined 
benefit plans has been so-called hybrid, or cash balance plans. 
They now represent in excess of 30 percent of plans.
    We are seeing some creation of hybrids by relatively small 
businesses that are using them because of the more advantageous 
deductibility limits than they would have under a defined 
contribution plan.
    We are seeing a rapid pace of even the nation's very 
largest private employers making announcements, including one 
that came out of Boeing Company yesterday, that they are 
moving--where they have the ability to move their workers from 
defined benefit to defined contribution, they are doing it. 
Boeing has just announced that earlier this year. Northrop 
Grumman announced that.
    A small firm that's been in the news lately, Fannie Mae, 
announced that within the last month. They will--Fannie Mae 
will, interestingly, be retaining its unfunded defined benefit 
plan for its highest paid executives, even though it will be 
eliminating it for all other employees.
    Mr. POMEROY. Very interesting. Very pathetic, I might say.
    Mr. Eisenbrey, what do you think the--what is the 
circumstance for the worker, as they move from having a defined 
benefit plan to a defined contribution option, only?
    Mr. EISENBREY. Well, they are clearly worse off. I mean, 
they end up with an employer making less of a contribution, by 
and large. They end up with more risk. They end up having to 
make decisions that they're not prepared to make about 
investments.
    I am sure you read the story a few years ago by Peter 
Gosselin in the LA Times, talking to Nobel Prize winners in 
economics about their ability to make investment decisions, and 
many of them admitted that they, you know, weren't doing a very 
good job, and had trouble doing it. It's not something that the 
average person is prepared to do, to make, you know, wise 
investment decisions for the rest of his life.
    Mr. POMEROY. Yes. I haven't seen the proposal that you 
advanced today. Do you--is this--do we just have to accept 
that, of the 20 million that still have defined benefit plans, 
that that is going to be a vanishing protection for them?
    Mr. EISENBREY. Well, our proposal helps in the sense that 
by--it takes away the incentive for employers to provide a 
401(k), which has led--it's the 401(k), the existence of it, 
that has moved, you know, so many employers out of the defined 
pension, defined benefit world. I mean----
    Mr. POMEROY. Well, the broader----
    Mr. EISENBREY. If we hadn't created the 401(k)----
    Mr. POMEROY. We have had a decade of----
    Mr. EISENBREY [continuing]. We would have way more 
traditional defined benefit pension plans.
    Mr. POMEROY. But we have had a decade, though, of even 
looking at wages alone, where middle class earnings have 
stalled out. The productivity gains that our economy has made 
have been deposited disproportionately at the highest 
elevations of income, and we have greater income disparity than 
ever before.
    Mr. EISENBREY. That's true.
    Mr. POMEROY. So, I mean, I believe that--I don't blame 
401(k)'s for the demise of defined benefit plans. I believe 
that we have got, basically, an economic trend that I believe 
has been facilitated by the policies of this Administration 
that has exasperated income disparity by promoting the 
interests of the--those at the top earning brackets, and doing 
very little for those medium and below.
    Mr. EISENBREY. Well, I think that that's true, but it's a 
30-year or a 35-year trend. It isn't just something that began 
with the Bush Administration. I have to say that this goes back 
as far back as the Carter Administration, that we started 
seeing that gap between productivity and wage----
    Mr. POMEROY. I will accept that part. I want to get Mr. 
Iwry in here with his perspective, as a former Treasury 
official. What is your view of the marketplace, and what can be 
done?
    Aside from your proposal to get the broader IRA 
opportunities out there, what can be--is there something we can 
do to shore up pensions and basically enhance retirement 
savings prospects?
    Mr. IWRY. Yes, Mr. Pomeroy. There are a number of things, 
one of which is to build on the work that you have done in the 
past, and that we have worked on together when I was at 
Treasury, to expand the saver's credit, to have a refundable 
credit that reaches more of the middle class, that even, 
ideally, might be deposited into the accounts in which people 
save, or at least they might have the option to do that.
    I also salute your championing of defined benefit plans in 
an era where that's becoming an increasingly lonely exercise. 
One glimmer of hope I would offer there is that I think one of 
the cardinal virtues of the defined benefit plan that you're 
more sensitive to than virtually anyone in Congress, I think, 
is, of course, the lifetime guaranteed income, and the 
conversion to cash balance plans, which has its--which, once 
done in a way that protects older workers, so that it's not 
unfair to them, and not too harsh a change, is at least 
something that preserves the defined benefit plan in some form.
    That conversion also has a downside, which as you know, is 
to take the traditional defined benefit annuity-oriented plan, 
and convert it to the lump sum plan. The cash balance plan is 
the lump sum plan.
    But it does not have to be. The fact that the benefit is 
framed as an account balance, and is almost invariably paid out 
in the vast majority of cases as a lump sum, largely because of 
the framing and the encouragement to do that, is something that 
I believe we can work with. There are a few cash balance 
sponsors that don't pay lump sums. Very few. There are more who 
could, potentially, encourage annuitization, rather than 
encouraging lump sums across the board, the way they do now.
    So, what I am suggesting is that, apart from trying to 
revive the dying patient, we can at least do an organ 
transplant from the traditional defined benefit into the hybrid 
and the 401(k) space.
    Mr. POMEROY. Yes, on the 401(k) space--this will be my 
final question, Mr. Chairman, I appreciate your letting me go 
on here for a minute--the--is there something we can do to get 
the 401(k) nest egg annuitized, to provide--can we make defined 
contribution plans act like defined benefit plans?
    Mr. IWRY. Absolutely, Mr. Pomeroy, and that's been the 
strategy that I think, really, Treasury started promoting 10 
years ago, when automatic enrollment was first defined and 
approved and promoted, almost 10 years ago to this day, in 
Treasury rulings.
    The strategy is now playing out in the market. As we see, 
there is a kind of a de-beatification of the 401(k), which has 
not, however, yet reached the pay-out phase. We have de-
beatified enrollment through auto-enrollment, we have de-
beatified investments through the QDIAs, default investments, 
and the market is now--the industry is now, I think, exhibiting 
an extraordinary degree of creativity and innovation in 
developing products designed to annuitize part of that account 
balance in the 401(k).
    I would very much look forward to working with you and you, 
Mr. Chairman, and other Members of this Subcommittee and the 
Committee. I know there are others on this panel and in this 
room who would share that interest, to try to de-beatify that 
pay-out phase as well, and at least encourage lifetime 
guaranteed income.
    Mr. POMEROY. We are on the same page on that one. Thank you 
very much. Thank you, Mr. Chairman.
    Chairman NEAL. Thank you, Mr. Pomeroy. I want to thank the 
panelists. This was most helpful. As you know, there was a 
pretty good turnout here at one point, and a lot of Members of 
the Subcommittee were here. Most importantly, I think, to 
determine the level of interest, there were a lot of Members 
who are not on the Subcommittee who showed today. I would 
predict flatly that next year this is going to be one of the 
most important avenues of debate in the congress.
    So, I thank you all for your participation. Without any 
additional comments, the hearing is adjourned.
    [Whereupon, at 1:11 p.m., the hearing was adjourned.]
    [Submissions for the Record follow:]

                                 

    The American Council of Life Insurers (ACLI) appreciates the 
opportunity to provide our views to the Committee on Ways and Means, 
Select Revenue Measures Subcommittee, in connection with the 
Subcommittee's hearing on Individual Retirement Accounts (IRAs) and 
their role in our retirement system. We welcome the interest of 
Subcommittee Chairman Neal, Ranking Member English and other Members of 
the Committee on this important topic. In addition, we also want to 
thank Chairman Neal and Congressman Kind for their interest in this 
issue by introducing bills which address retirement plan coverage. ACLI 
supports efforts to increase retirement savings coverage.
    During the past several decades, Congress has taken the laudable 
steps of increasing and improving incentives for employment-based 
retirement savings plans. 401(k) type plans provide a convenient and 
successful means by which workers can save. To date, over $2 trillion 
has been set aside in these plans for retirement. However, more needs 
to be done.
    It is estimated that approximately 75 million workers lack access 
to a workplace savings plan. We are appreciative of those members of 
Congress who have recently sought to focus the public's attention on 
this issue and, in particular, applaud the several Members of this 
Committee who have introduced legislation seeking to increase workplace 
savings opportunities. It is in this same spirit of increasing 
retirement savings coverage that the American Council of Life Insurers 
(ACLI) submits this statement with respect to proposals to increase 
workplace savings coverage and, thus, retirement security.
    The ACLI represents 353 member companies accounting for 94 percent 
of the life insurance industry's total assets in the United States. Our 
member companies are among the country's leaders in providing 
retirement and financial security to American workers, providing a wide 
variety of products including annuities and pension products such as 
401(k), 403(b), 457 plans, and Individual Retirement Accounts (IRAs).
    In seeking a solution to the problem stated above, clear empirical 
evidence has shown that workers best save for their retirement in 
employer sponsored retirement plans. Also, new automatic enrollment 
features have shown remarkable success in getting workers to save. We 
believe retirement savings solutions should focus on workplace savings 
and leverage the success of automatic enrollment. As Congress moves 
forward in assessing proposals to expand workplace savings coverage, we 
would urge that the following principles be considered.

      Solutions Should Leverage/Enhance Existing Retirement 
Plan Framework--Efforts to enhance coverage should lead to more 
coverage without encouraging a reduction in benefits to existing 
workers, i.e., done in a way to ensure 401(k) plan sponsors keep their 
plans in place. Congress and the States role should be to ensure that 
the laws support and encourage additional coverage, not to compete in 
or replace the competitive market place of retirement plan products and 
services.
      Expand Automatic Contributions Arrangements to Include 
IRAs--Employers without a retirement savings plan should be permitted 
and encouraged to automatically enroll employees into an IRA. 
Automatically enrolling employees in a savings plan has been shown to 
dramatically increase participation rates. ``Auto-IRA'' sponsors should 
receive the same level of fiduciary protection and state wage law 
preemption offered to employers sponsoring eligible automatic 
contribution arrangements.
      Private Market Place Positioned to Support Coverage 
Expansion--The private sector is fully capable of providing a diverse 
mix of IRA and 401(k) investment products and services at market 
competitive prices. Employers will find a wide array of products to 
suit employee needs.
      Incentives for Lifetime Income to Ensure a Secure 
Retirement--We believe that auto-IRA, 401(k) and other employer-based 
savings arrangements should include incentives for plans to include and 
participants to elect guaranteed lifetime income payments.
      Encourage Auto-IRA, Auto-401(k) with Small Employer Tax 
Credit for Plan Start-Up Cost--Small employers that provide payroll 
deduction IRAs should be eligible for a start up cost credit to offset 
the employer's initial plan formation and Administration expenses.
      Enhance Saver's Credit--We support enhancements to the 
saver's credit that would lead to greater savings in IRAs, 401(k), 
403(b) and 457(b) plans, e.g., permit the credit to be deposited 
directly as additional savings to an employee's retirement plan.
      Auto-IRA Withdrawal Rules Should Align with 401(k) 
Rules--To ensure employees have adequate savings at retirement, auto-
IRA withdrawal rules should be at least as stringent as the 401(k) 
rules, i.e., severance from employment, death, disability, 59\1/2\, 
hardship.
      Encourage Financial Education Opportunities--Coverage 
solutions should encourage employer support of access to and the use of 
financial education and planning tools to assist workers in balancing 
the monetary demands of today with future retirement needs.

    Again, we applaud members of Congress for raising the profile of 
this important issue and the leadership they have provided on the 
subject. The ACLI looks forward to working with policymakers to bring 
workplace savings to all Americans.

                                 

Dear Chairman Neal,

    CFED writes to thank you for sponsoring the Hearing on IRAs in the 
Retirement System on Thursday, June 26th. CFED is a nonprofit 
organization that works to expand economic opportunity by helping 
Americans start and grow their own businesses, go to college, own a 
home and save for their futures. We greatly appreciate the discussion 
of automatic enrollment and other key legislative proposals that help 
individuals connect to the financial mainstream, save and invest toward 
asset-accumulation, and achieve financial self reliance.
    This letter outlines Federal wealth building policies and their 
inequitable impact, demonstrates the successes of programs and policies 
that enable low income families to build wealth, and suggests 
legislative improvements.
    Dating back at least as far as Lincoln's time, the United States 
has provided incentives to its citizens to accumulate savings and build 
financial assets. From the Homestead Act through modern retirement 
incentives, the Federal Government has crafted various types of 
policies to assist households in their goal to become more financially 
self-reliant. This is, generally speaking, a good thing. Financial 
assets provide stability for families, help them plan for the future, 
and enable them to weather tough times. Providing incentives for people 
to build nest eggs strengthens the economy and fortifies the fabric of 
society.
    Given these societal benefits, one would assume the nation would be 
best served by spreading the benefits of such policies as broadly as 
possible. In fact, on the grounds of both equity and effectiveness, a 
strong case can be made that those with the fewest resources to begin 
with should be offered the greatest assistance and strongest incentives 
to save. Those with low wages and few intergenerational resources are 
those who struggle most, yet have the most to gain, by building a sound 
and secure nest egg. Public policy could ensure they are able to do 
this effectively.
    One recent effective public policy victory has been the passage of 
the Pension Protection Act in 2006 [P.L. 109-280]. One of the Act's 
components clarified businesses' ability to automatically enroll their 
employees into retirement plans. According to the U.S. Department of 
Labor, the PPA ``removed impediments to employers adopting automatic 
enrollment, including employer fears about legal liability for market 
fluctuations and the applicability of state wage withholding laws.'' 
Now, nearly half of large firms are implementing automatic enrollment. 
In fact, 40% of those firms implementing auto enrollment adopted the 
practice over the past two years.
    We are supportive of the expansion of--and technical corrections 
to--employer-sponsored retirement savings plans. We have learned that 
effective strategies for improving savings make it easier to save. As 
opposed to traditional plans where employees must actively opt-in to a 
system, employers who adopt Auto Enrollment mechanisms enroll all 
employees into a 401(k) at a set percentage of their income. Employees 
who do not wish to participate can either change the terms of the plan 
or opt-out entirely. Through Automatic Enrollment, the savings 
incentive comes not only from counteracting employee inertia, but also 
through the provision of employer-matching funds. Retirement adequacy 
is aided by savings incentives from the employer in matches, and the 
Federal Government through tax benefits.
    Automatic Enrollment boosts savings participation and wealth 
building, especially among groups which have historically had low 
savings and participation rates. For example, Auto Enrollment helps 
low-income workers save for retirement. Employees earning less than 
$30,000 and hired under automatic enrollment have a participation rate 
of 77% versus a participation rate of 25% for employees at the same 
income level hired under voluntary enrollment. Auto Enrollment also 
helps address the personal savings crisis by reducing the number of 
`zero savers' and counters inertia among renters and young people. Auto 
Enrollment helps people start saving at a younger age: 81% of employees 
younger than 25 are plan participants under automatic enrollment, 
versus 30% under voluntary enrollment.
    However, unlike Auto Enrollment which seeks to equitably target all 
workers covered by an employer based plan, many policy initiatives 
intended to build wealth and accumulate assets do not reach all 
individuals. In our paper, Return on Investment, CFED finds that the 
U.S. devotes an enormous level of resources to asset-building 
incentives. These policies cost at least $367 billion at the Federal 
level in Fiscal Year 2005. Yet, the biggest beneficiaries of this 
largesse are those households who need the least help in saving and 
investing. A disproportionate share of these incentives goes to very 
high-income households, at double the rate of what they pay into the 
system.
    Meanwhile, low-income families who could use the most help, and 
even solidly middle-income families, receive a very low level of 
benefits from these policies. Analyzing the largest of these policies, 
our study found that more than 45% of the benefits went to households 
with incomes over $1 million. These households received an average 
benefit of $169,150. By contrast, the bottom 60% of the population 
shared among them not quite 3% of the benefits of these policies, or 
about $3 apiece. The disparity between asset building incentives 
provided through tax policy and discretionary policy is profound: for 
every $1 provided in discretionary programs, $582 is provided through 
revenue foregone in the Tax Code.
    The goals of existing policies are good ones: to encourage the kind 
of individual behavior that helps households and supports society. But 
how can these goals best be implemented?
    The goal of homeownership policy, for instance, is grounded in a 
widely shared belief that homeownership has positive personal and 
social benefits, and that it is worth a national investment (in the 
form of direct spending and tax breaks) to help more households own 
homes. Likewise, the goal of retirement policy is grounded in an 
understanding that families need to supplement income and Social 
Security with targeted savings, and that it is worth a national 
investment (in the form of tax breaks) to help more families do so.
    One would consequently think, to maximize impact, these policies 
would be most targeted to those who do not already own homes, or are 
not already saving for retirement. Surprisingly, the reverse is true: 
the bulk of the benefits of policies encouraging homeownership go to 
those who already own homes. The lion's share of these benefits go to 
the top wage earners, but nearly all (94.7%) of the top 10 percent of 
taxpayers already own their homes. By contrast, only four in 10 earners 
in the bottom 20 percent own their homes. Yet they receive little 
benefit from Federal incentives. Wouldn't tools better aimed at lower- 
and middle-income earners be more effective in attaining the social 
goal of helping more families own homes?
    Likewise, if society has a goal of encouraging families to open and 
add to retirement accounts, one would imagine that the primary target 
would be those with the lowest levels of account ownership, and the 
lowest levels of capitalization. Yet we know that the benefits of these 
policies go disproportionately to higher-wage households. Only 10 
percent of the bottom fifth in income earnings has accounts, with a 
median retirement savings value of only $5,000, compared with 88 
percent and $182,700 for the top 10 percent. Policies meant to 
encourage this kind of saving could be more effectively targeted to the 
segments of the population that have the most growth potential.
    There are a number of ways wealth building approaches could be 
reframed: Lower income caps, for instance, could be implemented on some 
policies, or a limit could be placed on the maximum benefit that any 
household could enjoy. Savings could then be reallocated to policies 
explained later in our comment letter that more explicitly target those 
who currently receive little benefit.
    One particular area that deserves analysis is the role of tax 
expenditures. While direct outlays are subject to annual review through 
the appropriations process, tax expenditures often escape scrutiny and 
endure with little debate. Some experts, including a former IRS 
Commissioner and a Director of the Congressional Budget Office, have 
assailed the form of most of these tax expenditures--as deductions 
rather than refundable tax credits--as inherently inefficient. Because 
of the structure of many of these tax breaks, many families receive no 
benefit whatsoever, a fact that would be largely addressed by caps and 
conversions to refundable credits. Technically simple and budget-
neutral fixes such as these could go far toward improving the 
effectiveness--and equity--of these policies.
    Asset building policies, generally, promote good goals that help 
families and society. The price tag, however, is high enough that 
attention needs to be paid to what we are getting for our money. We 
believe that good policies can be improved to help more and more 
American families become financially secure.
    As you noted, Chairman Neal, families in the greatest need of 
asset-building incentives benefit the least from policies such as Tax 
Code provisions intended to help generate wealth and promote savings. 
The good news is that we know that policies that directly target low-
income families' opportunities for wealth building are effective. While 
these programs aim to help families build intermediate wealth (home, 
education, business), the lessons are also appropriate for retirement 
accounts; especially as IRAs are able to be used for homeownership and 
education without requiring payback or penalty.
    The U.S. Department of Health and Human Services Office of 
Community Services recently released two major studies on the ability 
of matched savings accounts to help low-income working families save, 
buy homes, pursue post-secondary education and start businesses. The 
Assets for Independence (AFI) program's Seventh Annual Report to 
Congress finds that Individual Development Accounts (IDAs) are 
successful at encouraging savings, building assets and moving low-
income families into the financial mainstream. IDAs are matched savings 
accounts that help low income families save for an asset which could be 
a home, a small business, or post-secondary education and training.
    In addition, a five-year program Evaluation found significant 
differences between AFI participants in comparison to similar non-AFI 
participants. Individuals and families who participated in an AFI 
project were 35 percent more likely to become homeowners, 84 percent 
more likely to become business owners and nearly twice as likely to 
pursue post-secondary education or training.
    Since 1999, AFI has provided funds to more than 390 IDA programs. 
The key findings from the Report to Congress find:

      More than 53,000 families have used IDAs and received 
money management training;
      Participants have saved more than $38 million in their 
IDAs;
      More than 14,500 have used their savings to purchase any 
of the three allowed long-term economic assets;
      AFI participants saved an average of $873, which 
represents a 15% increase since 2005 ($756) and a 47% increase since 
2003 ($592);
      IDA participants deposited $36.8 million in earned income 
into IDAs;
      Including match funds, AFI participants used $49.2 
million to purchase economic assets;
      76% of IDA participants are female, 44% are African-
American, 27% are Caucasian. Since 2002, Hispanic participation 
increased from 12% to 18%;
      Prior to enrolling in AFI, 52% of participants did not 
have a savings account and 91% had never used direct deposit; and
      The savings rate for AFI participants is 1.6% of annual 
income--compared with.5% for the national personal savings rate.

    In addition to the AFI Report, the most recent IDA statistics from 
the Office of Refuge Resettlement(ORR) find:

      19,065 IDA accounts opened with ORR funds;
      Nearly 16,000 assets were purchased, resulting in more 
than 2,700 new homeowners, more than 1,400 educational purchases and 
more than 1,100 small business start-ups; and
      Including match funds, ORR participants used $68 million 
to purchase assets.

    Based on the data from AFI, ORR and CFED's 2007 IDA Program Survey:

      There are now 73,000 IDA participants;
      43% (31,500) of account holders have made an asset 
purchase;
      27% (8,400) of asset purchases were for homes;
      19% (6,000) of asset purchases were for education; and
      17% (5,200) of asset purchases were for small business 
capitalization.
      There were also 11,700 purchases (37%) that were made by 
accountholders who participate in programs that allow IDA savings for 
other purchases, including cars, home repair, and computers or 
transferring an IDA to a spouse or dependent. These programs are useful 
for refugees, foster care youth, and others seeking to integrate into 
America's financial system for the first time.

    Relatively simple shifts in public policy could make the proven 
benefits of incentives such as Individual Development Accounts 
available to a greater percentage of households. This in turn could 
make savings more effective and feasible for those who are living 
paycheck-to-paycheck.
    We recommend that the Subcommittee on Select Revenue Matters take 
action soon to expand savings and wealth building opportunities for 
American families. We recommend the following legislative actions to 
ensure that the infrastructure for wealth building exists and that the 
incentives reach those families who currently do not save or whom hold 
insufficient savings:

          Infrastructure: Policies should take advantage of 
        opportunities to save and build wealth by using payroll 
        deductions provided by employers, adding asset-building 
        programs to services provided by nonprofits, and taking 
        advantage of tax time when people are focused on their 
        finances.

          1. Support Automatic Enrollment in Individual Retirement 
        Accounts: IRAs can be utilized as a tool for helping low income 
        people advance assets. Yet, these savings mechanisms could be 
        more effective through the implementation of the bipartisan 
        Automatic IRA Act of 2007 (S. 1141/H.R. 2167). This act would 
        extend payroll-based retirement savings opportunities to the 
        vast majority of the 75 million employees currently without 
        access to a retirement plan. Employers who do not sponsor a 
        retirement plan would enable direct-deposit payroll deductions 
        to an IRA and receive temporary tax credits to offset 
        administrative costs. The law affects all employers in business 
        for more than two years and with more than ten employees. In 
        addition to retirement, IRAs, which can benefit from the 
        Saver's Credit, can be accessed without penalty or payback for 
        higher education and homeownership expenses.

          2. Align intermediate uses within 401(k) and IRAs: We would 
        like to see the Committee align rules for withdrawals from 
        retirement accounts for education and homeownership, thus 
        increasing 401(k) flexibility for intermediate savings goals. 
        Currently, IRA funds can be utilized for educational attainment 
        in the year that classes are taken. Also, up to $10,000 in an 
        IRA account can be used for first-time home ownership. These 
        intermediate uses are only available as loans from 401(k)s. The 
        law should align homeownership and education uses with 
        retirement regulations so that the IRA rules apply to 401(k), 
        403(b) and other employer provided accounts. The $10,000 
        lifetime limit for IRA homeownership withdrawals should be 
        doubled due to the higher price of homeownership. This simple 
        change would encourage more aggressive participant savings as 
        employees would be able to save for an intermediate and a long 
        term goal at the same time in a proven accessible mechanism.

          3. Expand Roth IRAs for Youth. The law should permit adults 
        to use a portion of their Roth IRA allocation to open accounts 
        for minor children. Current law requires a child have earned 
        income at least equal to the amount of the deposit to an IRA. 
        Permitting flexibility would enable to adults to start and fund 
        accounts for children in their lives (nieces, nephews, cousins, 
        grandchildren, godchildren, etc.)

          Incentives: The mortgage interest and property tax deduction 
        and 401(k) and IRA tax benefits are some of the Federal 
        incentives that explicitly reward asset-building behavior. 
        Federal policies provide subsidies to encourage certain kinds 
        of savings and investment and these should be expanded to reach 
        low-income and moderate-income families. In addition, 
        incentives can help ensure that the modest savings achieved by 
        low-income and moderate-income families are adequate for 
        downpayment and retirement security.

          4. Expand the impact of the Saver's Credit: The bipartisan 
        Retirement Savings for Working Americans Act (H.R. 2724) would 
        provide a 50% match to households earning less than $30,000 for 
        an individual or $60,0000 for joint filers who save up to 
        $2,000 in a retirement or 529 college savings account or 
        Coverdell. The match would be provided through the IRS Form 
        8888 directly to the retirement account instead of through a 
        tax deduction.

          5. Enact the Savings for Working Families Act: The bipartisan 
        and bicameral Savings for Working Families Act (S. 871/ 
        H.R.1514) ensures that our nation's savings and ownership 
        policies assist working-poor families by enabling them to save, 
        build wealth, and enter the financial mainstream through the 
        use of a financial product tailored to their needs: Individual 
        Development Accounts. IDAs add an asset component to income 
        assistance and enable families to purchase an intermediate 
        asset (home, college, or business) to help them become 
        financially self-reliant. SWFA would provide a tax credit to 
        financial institutions that match the savings of 900,000 low-
        income savers.

          6. Reauthorize and Improve the Assets for Independence (AFI) 
        program. AFI is a $25 million IDA program that has been nearly 
        fully funded every year by Congress and has also been 
        recommended for near full funding by President Bush in his 
        annual budgets. However, its reauthorization has expired. The 
        program needs to be reauthorized and improved with technical 
        changes to ensure that the program works better for IDA 
        programs and their clients. Recommended changes include 
        simplifying interest calculations and asset purchase processes, 
        expanding resources for financial education, ensuring broader 
        participation in rural areas, permitting people with 
        disabilities to participate with SSI, and permitting greater 
        flexibility on eligibility criteria.

          7. Enact Children's Savings Accounts. More than a third of 
        the 4 million American children born each year--and more than 
        half of minority children--are born into families that lack 
        enough savings to weather emergencies or to effectively invest 
        in their children's futures. To ensure that all children are 
        encouraged to increase and retain assets, The America Saving 
        for Personal Investment, Retirement and Education (ASPIRE) Act 
        of 2007 (H.R. 3740) endows an account with a one-time, $500 
        government contribution. Households whose income is at or below 
        50% of the national median income would be eligible for a 
        supplemental initial contribution of $500. As household income 
        approaches 100% of the national median income, the KIDS Account 
        would receive a lesser, evenly pro-rated contribution. 
        Investments of up to $2,000 per year can be added to the 
        account. The income earned on the account is tax free. Children 
        living in families whose household income is at or below 100% 
        of the national median income will receive a dollar-for-dollar 
        match on private contributions up to $500 until the child 
        reaches age 18. The match for private contributions will begin 
        to phase out for households whose income is between 100% and 
        120% of national median income. Once the child reaches age 18, 
        withdrawals can be made for post-secondary education. After the 
        child reaches age 25, withdrawals can be made for homeownership 
        and retirement. The bill also calls for financial education 
        programs for families. ASPIRE encourages savings, promotes 
        financial literacy, and expands opportunities by establishing a 
        KIDS Account for every child born in the United States.

    CFED encourages the Committee to analyze asset-building policies 
and promote those that have positive impact and proven effectiveness. 
CFED applauds your leadership to focus attention on Federal policies 
and corporate and individual action to promote asset building and 
retirement security.

Sincerely,

Andrea Levere

President

                                 

    Massachusetts Mutual Life Insurance Company (``MassMutual'') is a 
mutual life insurance company that was organized in 1851 in 
Springfield, Massachusetts. MassMutual is a member of the MassMutual 
Financial Group, which is a global, growth-oriented, diversified 
financial services organization with total assets under management in 
excess of $500 billion as of end year 2007. Our family of companies 
serves the needs of over eight million clients by providing a broad-
based portfolio of financial products and services, including: life 
insurance, annuities, disability income insurance, long-term care, 
retirement planning products, mutual funds, money management, and other 
financial products and services.
    MassMutual, through its Retirement Services division, has provided 
retirement plan services for over half a century. Retirement Services 
provides a wide range of services to all segments of the retirement 
plan universe, including more than 4,800 defined benefit and defined 
contribution plans with more than one million participants. MassMutual, 
through its OppenheimerFunds subsidiary, has been satisfying the 
investment and retirement needs of investors for nearly 50 years and 
remains one of the largest and most respected names in the mutual fund 
industry. OppenheimerFunds 401(k) s and IRAs have access to more than 
60 Oppenheimer mutual funds that represent a broad spectrum of 
investment styles and asset classes. According to Pension & Investments 
(May 26, 2008), MassMutual Financial Group is the 14th largest manager 
of defined contribution plan assets with more than $64 billion of 
assets under management.
    MassMutual commends Chairman Neal and the Subcommittee for its 
efforts to examine ways to improve pension coverage for all Americans. 
Pension plans and other retirement savings vehicles have over $5.882 
trillion in assets. While the assets in private sector defined 
contribution plans at $3.49 trillion are now larger than those in 
private-sector defined benefit plans, IRAs have now become the single 
largest source of retirement assets in the United States at $4.75 
trillion. Since they were created in 1974, as part of the Employee 
Retirement Income Security Act of 1974 (ERISA), IRAs have served three 
principle functions. The first is to offer a retirement savings vehicle 
for individuals not covered by an employer sponsored retirement plan. 
The second is to provide portability to individuals changing jobs by 
allowing them to transfer, or rollover, plan assets from their former 
employers' retirement plan into an IRA. Finally, IRAs may be used as a 
simple employer sponsored retirement vehicle. In 1978, Congress created 
the Simplified Employee Pension Plan, or SEP IRA, that is an employer 
sponsored IRA. In 1986, Congress created the Savings Incentive Match 
Plan for Employees IRA, or SIMPLE-IRA, as a new form of simple defined 
contribution plan specifically targeted for small business. Since 1974, 
employers have been able to offer a payroll deduction IRAs. While 
MassMutual offers a variety of retirement plans and IRAs, in our 
experience, relatively few employers offer payroll deduction IRAs to 
their employees.
    Notwithstanding the obvious successes of private sector retirement 
plans and IRAs, approximately 75 million workers, or about half of the 
private sector workforce, do not have access to an employer sponsored 
retirement plan. Most of these workers are employed by small 
businesses. While the reasons for this gap in coverage by small 
business are complex and multifold, the challenge it represents is 
significant and deserves additional consideration by Congress. One 
recent proposal is to create a payroll deduction IRA with automatic 
enrollment features similar to those now available in 401(k) plans. 
MassMutual applauds the Subcommittee for looking at this issue and, in 
particular, commends Chairman Neal for sponsoring H.R. 2167, ``The 
Automatic IRA Act.'' For employees who are financially able to save for 
retirement, automatic enrollment will increase coverage rates, as has 
been demonstrated with auto-enrollment 401(k) plans.
    MassMutual believes that one of the ways to increase coverage in 
private sector retirement plans is to offer employers simple low cost, 
low risk options, targeting small employers, and to remove a number of 
regulatory burdens that exist under current law. We believe that 
legislative changes can make it easier and more attractive for 
employees not participating in employer-sponsored retirement plans to 
contribute to an IRA offered through small employers. In seeking to 
improve the coverage for all Americans, it is important to keep the 
incentives in place for the employer sponsored system. We have concerns 
that if automatic IRA programs become widely used and are widely 
accepted as a low cost, low risk simple means of providing for 
retirement, some employers who currently sponsor more generous 401(k) 
type programs may terminate their plan and substitute an automatic IRA. 
More study is needed to be certain that an automatic IRA program does 
not have the unintended consequence of encouraging employers who 
currently sponsor plans to opt out of an employer sponsored qualified 
plan and substitute an automatic IRA because it is a less expensive 
alternative. Finally, 401(k) plan pre-retirement withdrawals are more 
restrictive than IRA withdrawals. Further study is needed to determine 
if this leads to excessive ``leakage'' of retirement plan assets.
    We applaud the members this Subcommittee for its historic 
leadership on retirement issues. Moreover, we thank the Subcommittee 
for taking time to consider what can be done to increase the retirement 
coverage for all Americans. We look forward to working with the 
Subcommittee as it further considers the coverage issue.

                                 

Dear Representative Neal and Representative English:

    Thank you for holding a hearing on the role of individual 
retirement accounts in our retirement system. Long-term financial 
security is a cornerstone of the American dream. Yet today, this dream 
is at risk. According to the 2008 Retirement Confidence Survey, 
Americans' confidence in their ability to afford a comfortable 
retirement has dropped to its lowest level in seven years.
    Several factors have contributed to this crisis. First, traditional 
pensions have been disappearing: less than 20 percent of the private 
sector workforce is currently covered by a traditional guaranteed 
pension plan, and this number is declining rapidly. The current 
personal savings rate is at its lowest level since the Great 
Depression. Of course there is Social Security, but that program was 
designed to provide a floor of income--it was never intended to be the 
sole source of income for people who have retired.
    Seventy five million workers, about half of today's workforce, 
don't have a retirement plan at work--no pension, no 401(k), and no 
profit-sharing plan. In fact, certain groups are less likely to have 
access to workplace savings than others. For example, Hispanic and 
African-American workers are significantly less likely than white 
workers to have an employer that offers a workplace retirement plan.
    Even among the minority of American workers who are saving for 
retirement, most are not saving enough to maintain their standard of 
living. According to the 2008 Retirement Confidence Survey, one-third 
of workers who have saved for retirement report having less than 
$25,000 in savings, excluding the value of their home and any defined 
benefit plans.
    Our groups believe that Americans need to have the tools and the 
opportunity to achieve life-long financial security. We need to make 
saving simple and effective for all Americans. All of us deserve the 
peace of mind to know that even if we don't have a pension plan at 
work, there is a simple and easy way to put aside money for retirement 
through payroll deduction.
    This hearing is an important first step. We need Congress to pass 
H.R. 2167, the Automatic IRA Act of 2007. The auto-IRA is a simple, low 
cost way to provide employees with something of their own--a real 
retirement savings tool. In exchange for offering the auto-IRA, 
employers will receive a tax credit that will help cover the cost of 
administering the plan The bill will help small businesses to be more 
competitive with many large and medium size companies in recruiting and 
retaining employees since many already offer their employees retirement 
saving tools.
    With an auto-IRA, there are two simple choices for workers to 
make--how much do they want to contribute to retirement and what kind 
of retirement account they would like to have. Of course, workers could 
choose not to participate. The auto-IRA also allows workers to invest 
in accounts and take that account with them if they change jobs.
    Currently, too many Americans have little hope of having enough 
money set aside for a secure retirement. For these people, retirement 
is a source of major insecurity. Congress can help by passing H.R. 
2167, the Automatic IRA Act of 2007 and provide access to workplace 
retirement savings for millions who currently are not covered. Thank 
you for your efforts on this issue.

Sincerely,

AARP

Business and Professional Women

Consumers Union

National Council of La Raza

Women's Institute for a Secure Retirement (WISER)

                                 
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