[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]




 
                       FULL COMMITTEE HEARING ON
                      DROP IN RETIREMENT SAVINGS:
                  THE CHALLENGES SMALL BUSINESSES FACE
    FUNDING AND MAINTAINING RETIREMENT PLANS IN A STRUGGLING ECONOMY

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

                                HEARING

                               before the


                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                           FEBRUARY 25, 2009

                               __________

                               [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 111-006
Available via the GPO Website: http://www.access.gpo.gov/congress/house



                     U.S. GOVERNMENT PRINTING OFFICE
47-526 PDF                 WASHINGTON DC:  2009
---------------------------------------------------------------------
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092104 Mail: Stop IDCC, Washington, DC 20402ï¿½090001


                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman

                          DENNIS MOORE, Kansas

                      HEATH SHULER, North Carolina

                     KATHY DAHLKEMPER, Pennsylvania

                         KURT SCHRADER, Oregon

                        ANN KIRKPATRICK, Arizona

                          GLENN NYE, Virginia

                         MICHAEL MICHAUD, Maine

                         MELISSA BEAN, Illinois

                         DAN LIPINSKI, Illinois

                      JASON ALTMIRE, Pennsylvania

                        YVETTE CLARKE, New York

                        BRAD ELLSWORTH, Indiana

                        JOE SESTAK, Pennsylvania

                         BOBBY BRIGHT, Alabama

                        PARKER GRIFFITH, Alabama

                      DEBORAH HALVORSON, Illinois

                  SAM GRAVES, Missouri, Ranking Member

                      ROSCOE G. BARTLETT, Maryland

                         W. TODD AKIN, Missouri

                            STEVE KING, Iowa

                     LYNN A. WESTMORELAND, Georgia

                          LOUIE GOHMERT, Texas

                         MARY FALLIN, Oklahoma

                         VERN BUCHANAN, Florida

                      BLAINE LUETKEMEYER, Missouri

                         AARON SCHOCK, Illinois

                      GLENN THOMPSON, Pennsylvania

                         MIKE COFFMAN, Colorado

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

                  Karen Haas, Minority Staff Director

        .........................................................

                                  (ii)

  
?

                         STANDING SUBCOMMITTEES

                                 ______

               Subcommittee on Contracting and Technology

                     GLENN NYE, Virginia, Chairman


YVETTE CLARKE, New York              AARON SCHOCK, Illinois, Ranking
BRAD ELLSWORTH, Indiana              ROSCOE BARTLETT, Maryland
KURT SCHRADER, Oregon                TODD AKIN, Missouri
DEBORAH HALVORSON, Illinois          MARY FALLIN, Oklahoma
MELISSA BEAN, Illinois               GLENN THOMPSON, Pennsylvania
JOE SESTAK, Pennsylvania
PARKER GRIFFITH, Alabama

                                 ______

                    Subcommittee on Finance and Tax

                    KURT SCHRADER, Oregon, Chairman


DENNIS MOORE, Kansas                 VERN BUCHANAN, Florida, Ranking
ANN KIRKPATRICK, Arizona             STEVE KING, Iowa
MELISSA BEAN, Illinois               TODD AKIN, Missouri
JOE SESTAK, Pennsylvania             BLAINE LUETKEMEYER, Missouri
DEBORAH HALVORSON, Illinois          MIKE COFFMAN, Colorado
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, Pennsylvania, Chairman


HEATH SHULER, North Carolina         MARY FALLIN, Oklahoma, Ranking
BRAD ELLSWORTH, Indiana              LOUIE GOHMERT, Texas
PARKER GRIFFITH, Alabama

                                 (iii)

  
?

               Subcommittee on Regulations and Healthcare

               KATHY DAHLKEMPER, Pennsylvania, Chairwoman


DAN LIPINSKI, Illinois               LYNN WESTMORELAND, Georgia, 
PARKER GRIFFITH, Alabama             Ranking
MELISSA BEAN, Illinois               STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania          VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             GLENN THOMPSON, Pennsylvania
BOBBY BRIGHT, Alabama                MIKE COFFMAN, Colorado

                                 ______

     Subcommittee on Rural Development, Entrepreneurship and Trade

                  HEATH SHULER, Pennsylvania, Chairman


MICHAEL MICHAUD, Maine               BLAINE LUETKEMEYER, Missouri, 
BOBBY BRIGHT, Alabama                Ranking
KATHY DAHLKEMPER, Pennsylvania       STEVE KING, Iowa
ANN KIRKPATRICK, Arizona             AARON SCHOCK, Illinois
YVETTE CLARKE, New York              GLENN THOMPSON, Pennsylvania

                                  (iv)

  
?

                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Graves, Hon. Sam.................................................     2

                               WITNESSES

Dobrow. Mr. Stephen, CEO, Primark Benefits, Burlingame, CA. On 
  behalf of the American Society of Pension Professionals & 
  Actuaries......................................................     3
Speer, Mr. Jason, Quality Float Works Inc., Schaumburg, IL. On 
  behalf of the U.S. Chamber of Commerce.........................     6
Keeler, Mr. Andrew, Everhart Financial Group, Dubling, OH. On 
  behalf of Financial Planning Association.......................     8
Collinson, Ms. Catherine, President, Transamerica Center for 
  Retirement Studies.............................................    10
Ferrigno, Mr. Edward, Vice President Washington Affairs, Profit 
  Sharing/401(k) Council of America..............................    12

                                APPENDIX


Prepared Statements:
Dobrow. Mr. Stephen, CEO, Primark Benefits, Burlingame, CA. On 
  behalf of the American Society of Pension Professionals & 
  Actuaries......................................................    29
Speer, Mr. Jason, Quality Float Works Inc., Schaumburg, IL. On 
  behalf of the U.S. Chamber of Commerce.........................    35
Keeler, Mr. Andrew, Everhart Financial Group, Dubling, OH. On 
  behalf of Financial Planning Association.......................    43
Collinson, Ms. Catherine, President, Transamerica Center for 
  Retirement Studies.............................................    52
Ferrigno, Mr. Edward, Vice President Washington Affairs, Profit 
  Sharing/401(k) Council of America..............................    59

Statements for the Record:
American Benefits Council........................................    67

                                  (v)

  


                       FULL COMMITTEE HEARING ON
                      DROP IN RETIREMENT SAVINGS:
THE CHALLENGES SMALL BUSINESSES FACE FUNDING AND MAINTAINING RETIREMENT
                     PLANS IN A STRUGGLING ECONOMY

                              ----------                              


                      Wednesday, February 25, 2009

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 1:00 p.m., in Room 
2360, Rayburn House Office Building, Hon. Nydia M. Velazquez 
[Chair of the Committee] presiding.
    Present: Representatives Velazquez, Moore, Dahlkemper, 
Schrader, Bean, Clarke, Sestak, Bright, Halvorson, Graves, 
Buchanan, Luetkemeyer, Schock, Thompson, and Coffman.
    Chairwoman Velazquez. I call this hearing of the Committee 
to order.
    If we have learned anything from the current financial 
crisis, it is that for better or worse, Main Street's economy 
is tied to the markets on Wall Street. As a result, the recent 
decline in the stock market has touched every corner of our 
lives and the fallout is everywhere. But while much has been 
made over indicators like tightened credit and reduced consumer 
spending, there are other troubling consequences. One of the 
most overlooked effects of the stock market slide has been the 
impact on small business retirement plans. It has been 
estimated that in the last 18 months, over $2 trillion in 
retirement savings has been lost from retirement plans, 
primarily due to the stock market's decline. Just in the last 
year, 401(k) account balances for workers between 35 and 65 
have shed over 20 percent of their value.
    For small businesses and their employees, these problems 
are compounded. Unlike Wall Street executives, small firms do 
not have golden parachutes to fall back on. For many of these 
men and women, pensions and 401(k) plans are their only form of 
savings. So when the volatility in the stock market impacts 
their accounts, entrepreneurs are hit particularly hard. As the 
economic downturn hits retirement funds, small businesses that 
provide these benefits are finding it even harder to stay 
afloat. Employers that try to do the right thing and offer a 
secure retirement to their workers are being hit the hardest. 
For example, when the value of pensions drop, many small 
business owners still find themselves on the hook for paying 
out benefits.
    With credit almost impossible to access, consumer spending 
near an all-time low, and sales devastated, small firms simply 
lack the revenue to fund retirement plans. In some cases, this 
means entrepreneurs do not have the ability to meet their legal 
obligations. In other instances, small businesses are scaling 
back or ending their contributions. Overall, too many small 
businesses are finding that continuing to fund their retirement 
plans would put their entire business in jeopardy.
    In today's hearing we will explore ways to help small 
businesses that have offered retirement plans but are now in a 
difficult position because of poor decisions made on Wall 
Street.
    One way to assist small business owners might be to cap the 
amount of losses that they are responsible for paying during 
market downturns. This could help keep solvent many firms with 
defined benefit plans. Another approach would allow small firms 
to look further ahead for pension values when calculating how 
much they must pay into employees' retirements.
    Other proposals would encourage small employers to offer 
retirement plans by making it easier to borrow against them 
during difficult economic periods.
    These and other ideas merit further discussion. But while a 
number of approaches can be taken, one thing is clear: We must 
act soon to help small businesses struggling with retirement 
fund obligations.
    A secure retirement has long been part of the American 
social contract. Now, too many small employers are suffering 
for simply trying to live up to their side of the bargain.
    Chairwoman Velazquez. I welcome our witnesses and now I 
yield to Mr. Graves for an opening statement.
    Mr. Graves. Thank you Madam Chair. And I want to thank you 
for calling this hearing to examine the difficulty that small 
businesses are having in maintaining and offering retirement 
plans in the current economic climate. America's economy is 
suffering a very difficult downturn. Right now consumer 
confidence is declining, the housing slump endures, layoffs 
continue, well-known enterprises are closing their doors or 
declaring bankruptcy, and credit simply is not flowing to the 
small firms as quickly as we had hoped.
    Saving for retirement has always been a challenge for 
Americans. In 2008 the Employee Benefit Research Institute 
reported that almost half of workers who are saving for 
retirement said they had less than $25,000 in total savings and 
investments, excluding the value of their home and defined 
benefit plans. That number is probably lower today. And that is 
the savings level for workers who report that they save. Many 
simply do not or cannot.
    According to the Small Business Administration, small 
companies represent over 99 percent of all employers. Yet a 
National Federation of Independent Business Survey reports that 
just 30 percent of small firms offer pension plans. These 
companies face numerous barriers to offering retirement savings 
such as the cost and complexity of administering a plan. As the 
workforce ages, retirement savings is becoming even more 
important.
    In the current economic climate, the financial performance 
of pension and retirement savings plans has been uneven, and 
many employees and business owners are concerned. Increasingly, 
large and small companies are mindful of how these plans affect 
their earnings and their balance sheet. Some believe that plans 
have over-relied on investments in the stock market. Given the 
recent performance in the market, individuals and business 
owners are concerned about the viability of their retirement 
investments.
    We have a very distinguished panel of witnesses today here, 
and I look forward to hearing all of your thoughts and 
appreciate you all coming in for this hearing.
    Thank you Madam Chair. I yield back.
    Chairwoman Velazquez. Thank you Mr. Graves.
    Chairwoman Velazquez. I welcome Mr. Stephen L. Dobrow. He 
is the President of Primark Benefits located in San Francisco, 
California. Mr. Dobrow entered the retirement field over 30 
years ago and has led Primark Benefits since 1990. Primark 
Benefits provides consultant, administration and actuarial 
services for qualified retirement plans. He is testifying on 
behalf of the American Society of Pension Professionals and 
Actuaries. He represents career retirement plan professionals.
    Welcome and you have 5 minutes to make your testimony.

   STATEMENT OF STEPHEN DOBROW, QPA, APA, CPC, CEO, PRIMARK 
BENEFITS, BURLINGAME, CALIFORNIA; ON BEHALF OF AMERICAN SOCIETY 
         OF PENSION PROFESSIONALS AND ACTUARIES (ASPPA)

    Mr. Dobrow. Chairwoman Velazquez and Ranking Member Graves, 
the American Society of Pension Professionals and Actuaries, 
ASPPA, appreciates this opportunity to testify before you today 
on the challenges small businesses face in funding and 
maintaining their retirement plans in a struggling economy.
    I am Stephen L. Dobrow, the current President of ASPPA, and 
president of Primark Benefits, a San Francisco-based employee 
benefits firm that provides administration and actuarial 
services for retirement plans.
    ASPPA is a national organization of more than 6,500 
retirement professionals of all disciplines, who provide 
services for qualified retirement plans covering millions of 
American workers. ASPPA members are united by a common 
dedication to the private retirement plan system, with a 
particular focus on the issues faced by small- to medium-sized 
employers.
    The current economic crisis is weighing heavily on the 
heart of the American economy, our small businesses. Many small 
companies are struggling to stay afloat as sales drop off. And 
it is harder to come by loans. Many small businesses sponsor a 
retirement plan and want to continue to do so. However, plan 
sponsors are facing unprecedented pressures because of the 
current economic conditions.
    I would like to focus today on two important areas where 
relief is critically needed: defined benefit pension plan 
funding relief; and 401(k) safe harbor plan relief. If the 
relief is not provided, many employers will be forced to freeze 
or terminate their retirement plans.
    In a defined benefit plan, the employer takes on all the 
investment risks and contributes whatever it takes to pay for 
promised benefits. Employers that have been willing to take on 
this risk are now being slammed by the market downturn and 
desperately need your help.
    As a real-life example I want to tell you about one of my 
defined benefit clients, a fruit importer with 15 employees. 
Because of how pension plan rules work, as well as a drop in 
the market value of the plan's assets, the minimum contribution 
rose from $177,000 in 2008 to $474,000 in 2009. There is no way 
that this employer can afford the nearly $300,000 increase. 
Profits are down because of the economy. The sponsor cannot go 
to a bank to borrow the money in this financial environment. 
They may be forced to pay an excise tax this year because of 
the inability to contribute the increased amount, and plan 
termination will likely result unless adequate relief is 
offered.
    There are a variety of proposals for providing funding 
relief. The ideal solution would be to provide options to 
sponsors. These options would include basing the current year's 
contribution upon the amount paid in the prior year, better use 
of a tool called "asset smoothing," and allowing for interest-
only payments on the investment losses. The employer I 
described earlier would receive substantial funding relief from 
either the lookback or the interest-only approaches.
    In general, 401(k) plans must satisfy a certain amount of 
discrimination requirements. Under the popular 3 percent 401(k) 
safe harbor plan design, an employer commits before the year 
begins to contributing 3 percent of compensation to all 
eligible employees. Treasury regulations do not permit an 
employer to change his or her mind once making the commitment, 
except by terminating the plan.
    One of my clients, Cyclonix, a Silicon Valley company with 
60 employees that does branding and trade show work, last year 
they contributed $69,000 to their safe harbor plan for 2009 and 
became obligated to contribute about $72,000 to the plan. They 
contacted us last month to discuss their options because their 
financial picture had changed, and they no longer could afford 
all of the required contribution. And unfortunately under the 
current rules, none of the options are good. They are now 
considering terminating their 401(k) plan or possibly laying 
off some employees.
    To help Cyclonix and other small businesses maintain their 
401(k) plans, ASPPA has asked the IRS to promptly issue 
guidance to permitting employers to suspend safe harbor 
contributions prospectively while still protecting the rights 
of employees. Further, a new safe harbor should be created that 
allows employers to adopt a wait-and-see attitude in meeting 
the safe harbor.
    Small employers are the heart of the American economy. As a 
small business owner who provides services to other small 
business owners, I can tell you that we want to do the right 
thing by our employees. We just need your help. We are not 
looking for a bailout, only for a life jacket to keep our heads 
above water during these troubled times. Regulatory relief for 
safe harbor 401(k)s and funding relief for pension plans are 
straightforward ways to help small businesses meet cash demands 
without resorting to plan termination and, in some cases, 
dumping liability on the PBGC or laying off more workers.
    Thank you for the opportunity to speak to you today.
    Chairwoman Velazquez. Thank you Mr. Dobrow.
    [The statement of Mr. Dobrow is included in the appendix at 
page 29.]
    Chairwoman Velazquez. And now the Chair recognizes the 
Gentlelady from Illinois, Ms. Bean, for the purpose of 
introducing the next witness.
    Ms. Bean. Thank you, Madam Chairwoman. First of all, let me 
thank all of our witnesses who are here to testify and share 
your experiences and your subject matter expertise on this 
important issue of trying to make sure that our small 
businesses can maintain their pension coverage. I am delighted 
to welcome our next witness, Jason Speer, whom I know 
personally and have had the pleasure of working with and 
visiting his business. He is the vice president and general 
manager of Quality Float Works based in Schaumburg, Illinois, 
in the beautiful Eighth District that I am honored to 
represent.
    Quality Float Works is a manufacturing company with 24 
employees that produces premier metal float balls. He is 
testifying today on behalf of the U.S. Chamber of Commerce, the 
world's largest business federation, representing 3 million 
businesses as well as State and local chambers and industry 
associations.
    Today Quality Float Works exports to such international 
locations as Belgium, Canada, China, Germany, Indonesia, 
Ireland, Mexico, Singapore, Vietnam and throughout the U. K. 
This international growth is one of the reasons why Quality 
Float Works was recently named one of the fastest growing 
companies in America.
    By harnessing his passion for manufacturing, Jason has 
turned a virtually unknown family business on the verge of 
financial collapse into an industry leader. He has also shared 
his experiences with other businesses in my Eighth District. I 
often invite various parts of the Federal Government to talk 
about their programs, and I have had the Commerce Department 
come out and talk about the gold key program and the value of 
trade and exports to small businesses. And Jason was kind 
enough to back that up, because when government says we are 
here to help, businesses don't always believe it. But when we 
have other businesses who have participated in these programs 
successfully and can share that, they really establish a model. 
So I thank you for encouraging others to follow your lead.
    Thank you for participating today. And I am glad to welcome 
you to Washington.
    Mr. Graves. Madam Chair, may I ask what a metal float ball 
is?
    Mr. Speer. They are hollow metal balls, you see them on top 
of flagpoles, weather vanes, kind of like a toilet float; also 
for industrial uses, a wide range of different applications.
    Chairwoman Velazquez. The gentleman is recognized for 5 
minutes.

     STATEMENT OF JASON SPEER, QUALITY FLOAT WORKS, INC., 
SCHAUMBURG, ILLINOIS; ON BEHALF OF THE U.S. CHAMBER OF COMMERCE

    Mr. Speer. Thank you, Chairwoman Velazquez and Ranking 
Member Graves and members of the Committee for this opportunity 
to appear before you today to discuss challenges facing small 
business in a struggling economy. My name is Jason Speer, vice 
president and general manager of Quality Float Works 
Incorporated based in Schaumburg, Illinois.
    I am pleased to be able to testify today on behalf of the 
U.S. Chamber of Commerce where I am a member of its Small 
Business Council. The Chamber is the world's largest business 
federation, representing more than 3 million businesses and 
organizations of every size, sector and region. Over 96 percent 
of the Chamber members are small businesses with fewer than 100 
employees.
    Quality Float Works is a family-owned and -operated company 
that manufactures premier metal float balls. We are globally 
engaged and have grown our sales in the international 
marketplace. Quality Float Works has 24 employees and did 
approximately $2.7 million in revenue for 2008. We offer 
employees a 401(k) plan and provide up to a 4 percent match. 
The Quality Float Works plan enables employees to choose funds, 
change contribution rates at any time and work with an adviser 
to seek guidance. We encourage all employees to participate, as 
they are like family, and we want them to be prepared for their 
retirement.
    I am the administrator of the plan, and in that capacity it 
is my responsibility to assist with enrollment, ensure that 
contributions are transferred to the facilitator, and direct 
questions to the appropriate person.
    We are all aware of the current economic situation. The 
equities markets have fallen an average between 30 and 50 
percent, and this decline is reflected both in defined benefit 
plan balances and the accounts of participants in 401(k) plans. 
For Quality Float Works specifically, we are facing slowing 
sales due to the economic climate even though our company is 
diversified.
    Quality Float Works has weathered many ups and downs in the 
past 94 years, and recent additions for our product line led 
record sales in 2008. However, due to the recent global 
economic crisis, we predict that 2009 will be a difficult year 
and we are unsure of how our sales will be in 2009, and will 
potentially look at reducing expenses if sales decrease.
    In that context, the challenges facing small business can 
be particularly challenging. Quality Float Works established 
its 401(k) plan in 2005. Prior to that we had an IRA, and we 
stopped that in 2001 after another similar decrease in sales. 
When we started the 401(k) plan, 12 employees enrolled. In 
2008, five stopped participating, due to concerns about the 
market, and several others have expressed similar concern in 
recent months. If too many participants drop out of the plan, 
we risk not meeting our minimum contribution requirements that 
are required in the contract with our facilitator. Thus, even 
though we would like to continue to maintain our 401(k) plan, 
we may be not able to do so if our employees do not stay in the 
plan.
    In addition, due to the financial crisis, small business 
plan sponsors are acutely aware of administrative costs. One 
result of participant concern is that there is an increase in 
demand for distributions, both hardship withdrawals and loans. 
Moreover, participants may increase their request to make 
changes to their investments. These events increase 
administrative costs unexpectedly and take a significant toll 
on small businesses already experiencing financial strain.
    In December, Congress passed the Worker Retiree Employer 
Recovery Act of 2008 which includes important changes for 
retirement plans. We very much appreciate the work that 
Congress did on this bill. However, there are some issues that 
require additional attention. The law did not change 2008 
distributions; therefore, beneficiaries who turn 70-1/2 in 2008 
still have to take delayed distributions by April 1, 2009. 
However, there are still some exceptions to the suspension of 
the RMD rules that participants and plan sponsors may not be 
fully aware of. For small business owners, communicating these 
issues and ensuring that plan participants understand these 
issues can be challenging. Many employees do not understand the 
changes to the rules and look to me as the plan administrator 
for advice. Thus, additional clarification of the changes to 
the rules would help plan sponsors administrate these rules 
effectively.
    Moreover, defined benefit plans need additional help. Their 
support show that the pension funding ratios have fallen 
significantly over past 3 months and it is unlikely that these 
markets will recover in the immediate future. Without further 
legislative action, these unexpected funding requirements will 
continue to require that companies choose between funding their 
pension plans and laying off workers, closing plants and 
postponing capital investments. This will result in increased 
unemployment and slower economic recovery.
    Finally, I believe it is important to highlight one 
specific recommendation. The current challenges highlight how 
small businesses continue to often need additional 
consideration. To this end, the Chamber is encouraging Congress 
to consider adding a small business representative to the ERISA 
Advisory Council. The challenges facing small business plan 
sponsors in the current economic downturn are substantial. In 
the current economic environment it is more important than ever 
that Congress focus on encouraging the implementation and 
maintenance of retirement plans by small businesses.
    I thank you on behalf of myself and the Chamber for the 
opportunity to testify today and look forward to any questions 
you might have.
    Chairwoman Velazquez. Thank you Mr. Speer.
    [The statement of Mr. Speer is included in the appendix at 
page 35.]
    Chairwoman Velazquez. Our next witness is Mr. Andrew 
Keeler. He is a partner and founding firm member of Everhart 
Financial Group. Everhart Financial Group helps individuals 
with personal financial planning, investments and mortgages and 
also serves mid- to large-sized corporations with flexible 
customized retirement, 401(k) and profit sharing plans. He is 
testifying on behalf of Financial Planning Association. FPA is 
an organization that helps practitioners succeed as financial 
planners. Welcome.

  STATEMENT OF ANDREW KEELER, CFP, EVERHART FINANCIAL GROUP, 
 DUBLIN, OHIO; ON BEHALF OF THE FINANCIAL PLANNING ASSOCIATION 
                             (FPA)

    Mr. Keeler. Thank you, Chairwoman Velazquez, Ranking Member 
Graves, and other Members of the Committee for inviting me to 
talk to you about the challenges facing small businesses trying 
to provide retirement plans for their employees during these 
difficult economic times. I am Andy Keeler, a certified 
financial planner practitioner and partner with the Everhart 
Financial Group in Dublin, Ohio. I am honored to be here today 
on behalf of the Financial Planning Association to address your 
concerns about how the current economic environment is 
affecting employees of small businesses' ability to save for 
retirement and, more importantly, how it is affecting their 
ability to achieve a positive financial outcome with respect to 
retirement.
    Our firm assists its corporate clients in establishing and 
maintaining customized retirement plan solutions. The most 
critical part of this process is face-to-face meetings where we 
learn more about the participants as individuals and their 
needs and expectations, and hoping those participants 
understand the importance of saving for retirement and the 
determinants of wealth.
    As you might imagine, the largest determinant of wealth is 
the amount of money that is being saved by or for a retirement 
plan participant. Savings rates are the key factor followed by 
market performance and security selection. As you all are well 
aware, this country has seen a major shift of responsibility 
for retirement planning from the employer to the employee. Yet 
we as a society have neglected to explain to America's workers 
how this shift of roles and responsibilities affects their 
retirement income down the road.
    Under the traditional defined benefit plan, retirees would 
receive around 60 percent of pre-retirement income until death. 
Worries about the stock market were nonexistent. Participants 
didn't see a retirement plan balance or dollar value, nor were 
they beat over the head with negative financial news. All the 
participant had to do is simply count on a monthly income 
stream in retirement. To finance this retirement liability, 
employers had to contribute roughly 25 to 30 percent of the 
employee's income into the defined benefit trust each and every 
year.
    As employers faded out the defined benefit plan and 
implemented the defined contribution plan, we failed to inform 
employees that they would need to receive annual additions of 
between 25 and 30 percent of their income each year for the 
next 30 years. Today, we are finding that employees either 
choose to save nothing or they contribute up to the employer 
match, which is often between 3 and 6 percent of pay. We find 
that the lower the match, the lower the contribution rate for 
the employee.
    Not only are participants not saving enough, but they must 
direct their own investments and make their own investment 
decisions. This is a responsibility that the average American 
is ill-prepared to do, or do well. Most people, once properly 
informed and educated, understand that over long periods of 
time, the stock market has historically provided the greatest 
return.
    However, now we are faced with the worst bear market since 
the Great Depression and employees are losing faith in our 
securities markets and questioning the fundamental premise of 
investing over the long term. I often hear participants say, "I 
can't afford to lose everything," or "Should I stop 
contributing to the plan until the market goes back up?"
    While most lay people are initially willing to take risk 
over long periods. When they actually see losses on their 
statements, their risk tolerance will shift and they will look 
for more conservative options; options that reduce the chance 
of a positive financial outcome. In addition, we have employees 
that are laying off their workforce. No paycheck means no 
savings.
    Obviously, at the heart of the recession are businesses big 
and small that are having a hard time staying in business. The 
401(k) match is the first thing to go. If eliminating the match 
is not enough, a more drastic measure is to terminate the plan. 
Start-up fees, ongoing record keeping fees and administrative 
fees can be easy targets for a CFO looking to cut cost in 
difficult times. One incentive would be to enhance the current 
tax credit that is being used to offset the start-up cost and 
the cost of educating employees about the plan. This credit 
should be broadened to include any employer with less than 500 
employees and it should also be broadened to offset employer 
contributions to a retirement plan. The credit would work like 
the current tax credit for low-income and middle-income 
consumers, which is detailed in my written testimony.
    The best way to help participants from making poor 
financial decisions is to improve financial literacy for 
consumers, as we heard from the President yesterday. Public 
service announcements could cover a lot of ground towards this 
end. The Financial Planning Association and numerous 
independent non-profits can offer stimulating and compelling 
research that reinforces the value of saving and investing 
prudently.
    FPA, for example, maintains a partnership with Junior 
Achievement in which personal financial literacy is taught to 
students by certified financial practitioners. But that is not 
enough. According to the Jump Start Coalition, a national 
financial literacy group, only three States require at least a 
one-semester course dedicated to personal finance while another 
17 allow it to be integrated into another curriculum, usually 
math.
    Madam Chairman, Ranking Member Graves, ladies and 
gentlemen, we are at a very important time in which Americans 
are losing faith in the financial system and frustration is 
building. Retirement assets have shrunk by roughly 40 percent 
with the paper losses in the trillions of dollars. The 
investing public is questioning the value of saving for 
retirement. There have been many times over the past 200 years 
that Americans came together and rallied for a common cause. 
Sense of entitlement, jealousy and resentment often take the 
back seat when times get rough or a situation is approached 
properly. This is our problem. Participants may surprise you. 
If they are made aware of the problem and armed with the 
knowledge to make sound financial decisions, we will be 
impressed by the outcome.
    I am happy to respond to any questions.
    Chairwoman Velazquez. Thank you Mr. Keeler.
    [The statement of Mr. Keeler is included in the appendix at 
page 43.]
    Chairwoman Velazquez. Our next witness is Ms. Catherine 
Collinson, senior vice president of strategic planning in 
Transamerica Retirement Services in Los Angeles, California. In 
this post she is responsible for developing and implementing 
short- and long-term strategic business plans. The Transamerica 
Center for Retirement Studies conducts studies of retirement 
trends and issues facing the American workforce. Welcome. You 
have 5 minutes.

  STATEMENT OF CATHERINE COLLINSON, PRESIDENT, TRANSAMERICA, 
     CENTER FOR RETIREMENT STUDIES, LOS ANGELES, CALIFORNIA

    Ms. Collinson. Thank you for this opportunity. Again, my 
name is Catherine Collinson and today I am actually testifying 
in the capacity of the Transamerica Center for Retirement 
Studies, and I am very pleased to share with you some of our 
recent research.
    Employer-sponsored retirement plans in small business play 
a critical role in facilitating savings for American workers. 
The Transamerica Center for Retirement Studies just completed 
the tenth annual Transamerica retirement survey of 3,466 full-
time and part-time workers across the country, over half of 
whom work for companies employing between 10 and 499 persons. 
That is what we are calling small business.
    The survey found that 76 percent of workers who have access 
to workplace defined contribution retirement plans participate 
in them. Equally significant, workers who are offered a 
company-sponsored retirement plan are more likely to save for 
retirement outside of work--67 percent--than those who are not 
offered a plan--52 percent.
    Regarding retirement planning coverage and small business, 
75 percent of full-time workers are offered a plan by their 
employers compared to only 24 percent of part-time workers. 
Because only 9 percent of the workers surveyed indicated that 
they are offered a company-funded defined benefit plan, this 
testimony will focus on defined contribution plans.
    The economic downturn has already started taking its toll 
on small business. Among the worker survey respondents, the 
survey found that their employers had implemented the following 
measures over the last 12 months: layoffs or downsizing, 32 
percent; frozen salaries, 20 percent; eliminated bonuses, 18 
percent; reduced or eliminated non-retirement benefits, 9 
percent; and reduced or eliminated retirement benefits, 10 
percent.
    Of those indicating that their retirement benefits had been 
reduced or eliminated, these were their responses. Company 
match on 401(k) or similar was reduced or eliminated, 72 
percent. 401(k) or similar plan was discontinued, 14 percent. 
Pension plan was frozen or discontinued, 20 percent.
    Fifty-six percent of the workers surveyed say they are less 
confident in their ability to achieve a financially secure 
retirement than they were 12 months ago and 29 percent expect 
to work longer and retire at an older age. Forty percent of the 
respondents indicated they plan to work past the age of 70, 
including 17 percent who do not plan to retire. Yet despite 
this gloomy outlook, workers are staying committed and 
continuing to save in their company's retirement plans.
    Ninety percent of workers still value a 401(k) plan as an 
important benefit. Participation at 76 percent and median 
salary contribution rate, 7 percent, remain stable. Even more 
compelling, 18 percent indicated they have increased their 
contributions over the last 12 months. Eleven percent have said 
they have taken a loan and only 4 percent have taken a hardship 
withdrawal.
    The survey also found opportunities for improvement, as 
evidenced by the 69 percent of workers who agree they don't 
know as much as they should about retirement investing.
    And now for recommendations:
    First, preserving and improving upon the existing system. 
While defined contribution plans are proving to be a highly 
effective solution, the system is not without risk. More work 
can be done to help workers navigate through this economic 
downturn and equip them with tools to do so, including access 
to affordable financial advice.
    Second, funding and maintaining retirement plans in the 
struggling economy. A key to avoiding any potential further 
reductions in benefits will be to help alleviate the cost to 
the employer. Possible solutions include tax credit for small 
business employers who sponsor and make employer contributions 
to a plan, and further simplification of nondiscrimination in 
testing worlds.
    In addition, plan coverage rates could be increased by the 
following: additional tax incentives and safe harbors to 
encourage plan sponsors to expand coverage to part-time 
employees; increase the amount available and number of years 
for the current start-up tax credit for small businesses to 
establish a plan; and for small businesses in which a stand-
alone plan is not feasible, enable and provide incentives to 
join a multiple employer or group plan. Lastly, increasing 
savings of low- to middle-income workers.
    The Transamerica survey found that 40 percent of low- to 
middle-income workers reported less than $5,000 in total 
household savings. The savers' credit offers a meaningful 
incentive for them to save. However, only 18 percent are aware 
of it. Recommendations include adding it to the 1040 easy form 
and/or ensuring that online free file programs are designed to 
catch the savers' credit if they are unaware. The IRS should 
promote it, as well as consider increasing the eligible income 
limits and making it refundable.
    Thank you for this opportunity.
    Chairwoman Velazquez. Thank you, Ms. Collinson.
    [The statement of Ms. Collinson is included in the appendix 
at page 52.]
    Chairwoman Velazquez. And now I recognize Mr. Edward 
Ferrigno. He is the vice president of Washington Affairs for 
the Profit Sharing/401k Council of America. Mr. Ferrigno has 
extensive experience in human resource management and 
government relations. The Profit Sharing/401(k) Council of 
America is an association of businesses which believe in the 
success of profit sharing, 401(k) and related savings and 
incentive programs. Welcome.

   STATEMENT OF EDWARD FERRIGNO, VICE PRESIDENT, WASHINGTON 
        AFFAIRS PROFIT SHARING/401(K) COUNCIL OF AMERICA

    Mr. Ferrigno. Thank you, Chairwoman Velazquez, Ranking 
Member Graves and members of the Committee for the opportunity 
to appear before you today. The Committee has asked how the 
economic crisis affects small business retirement plans. My 
initial response is the same as for large businesses, only 
worse. After some thought, I identified two special ways in 
which a small business retirement plan is impacted differently 
than a large plan.
    But first I would like to address the market crisis. 401(k) 
plan participants working in partnership with employers can 
successfully manage normal market risks and cycles and 
accumulate ample assets for retirement; however, they cannot 
succeed without sufficient and transparent capital markets. The 
drop in 401(k) account balances was not caused by a defective 
401(k) system or by ignorant participants. These plans are 
caught in the same financial crisis that has paralyzed business 
and financial organizations throughout the world. We urge the 
Committee and Congress to direct their efforts to ensure a 
similar market collapse never occurs again.
    Contrary to several published reports, real current data 
indicates that 401(k) participants are remaining resolute. They 
are not stopping contributions or increasing loan activity. And 
I certainly recognize Mr. Speer's situation. Hardship 
withdrawals have increased slightly, but the percentage of 
participants taking the hardship distribution remains well 
below 2 percent.
    The cost-benefit analysis for micro-plans changes in an 
economic downturn. In very small business, the owner's personal 
financial situation is a major factor in deciding to offer a 
plan to employees. For the benefit of personally saving in a 
tax-qualified plan, the owner must be willing to pay the 
expenses of offering a retirement plan to employees. This 
equation changes in an economic downturn. The benefit of a tax 
deferral is diminished by the owner's reduced income from the 
business.
    On the cost side, plan service providers might increase 
their fees because plan assets that drive asset-based fees are 
lower, and participating activities resulting from the market 
collapse is increasing. The owner may decide to terminate or 
not offer a plan and contribute to an IRA. Another option is a 
low-cost variable annuity with no contribution limits, in which 
investment earnings are deferred the same as if in a qualified 
plan. These products are available for as little as 25 basis 
points over normal investment fees. If the owner has no current 
tax liability, this option is probably significantly more 
attractive than offering a plan.
    Second, the top-heavy rules are more onerous in an economic 
downturn. They provide that if 60 percent of a plan's assets 
are in the accounts of the highly compensated or key employees, 
the company must contribute 3 percent of pay for full-time 
employees over the age of 21 with 1 year of service. As you 
know, this onerous rule affects only small plans because there 
is virtually no turnover of highly compensated employees, and 
turnover among young employees is high. This is exacerbated 
during an economic downturn. The top-heavy rules should be 
repealed.
    And to build on Mr. Dobrow's testimony, a 401(k) safe 
harbor plan is not subject to the top-heavy rules. If we fix, 
if we provide relief for the safe harbor plans, some are going 
to go from the pot to the frying pan because they are going to 
be top-heavy.
    As Congress considers fee disclosure and other reforms, it 
is critical that small plan issues be represented. Small 
businesses do not have the resources of a large business to 
meet their duties under ERISA. For example, small businesses 
rely on service providers to tell them about plan fees. However 
under ERISA, they, not the service provider, have the 
responsibility to ensure that plan fees are reasonable. PSCA 
supports legislation that shifts the burden from plan sponsors 
to try to determine plan fees to service providers being 
required to furnish this information.
    Many small businesses prefer reviewing costs in an 
aggregate or bundled manner. As long as they are fully informed 
of the services being provided, they can compare and evaluate 
whether the overall fees are reasonable, without being required 
to analyze each fee on an itemized basis.
    Finally, legislation should preserve this option.
    In the 110th Congress legislation was introduced to create 
mandatory payroll IRAs in which a business of 10 or more 
employees that doesn't offer a retirement plan must offer a 
payroll IRA plan. Employees age 18 or older must be 
automatically enrolled at 3 percent of comp. A small credit is 
intended to offset employer cost. President Obama supported 
this proposal during his candidacy, and I expect it to be 
included in the budget tomorrow.
    Because a default investment is required, the plans are 
subject to ERISA. The default investment must be prudently 
selected and fees must be reasonable. This duty normally 
entails significant cost, time and liability exposure to plan 
sponsors. Last year's legislation includes a TSP-type board as 
an alternative to managed investment. PSCA is concerned about 
any mandatory benefit program. Additionally, the potential for 
significant costs for small businesses when they can least 
afford them has to be considered when this proposal is 
reintroduced. Thank you.
    Chairwoman Velazquez. Thank you.
    [The statement of Mr. Ferrigno is included in the appendix 
at page 59.]
    Ms. Velazquez. And the House is taking a vote so the 
Committee stands in recess until the next 20 minutes at least.
    [Recess.]
    Chairwoman Velazquez. I would like to address my first 
question to Mr. Speer. You mentioned that employees had 
recently dropped out of the company's retirement plan, which 
threatens your ability to continue offering your plan. In your 
view, is fear of losing money in the market your employees' 
number one concern, or are there other factors making them pull 
back?
    Mr. Speer. Based on my experience and speaking with 
employees, I think it is a combination. Some employees have 
been fearful of seeing their money just disappear and keep 
dwindling, and one or two employees have had some hardship 
issues with housing and such, that they just needed the extra 
money that was taken out of their paycheck.
    Chairwoman Velazquez. Thank you.
    Mr. Dobrow, given the state the market, you suggest 
allowing employees to suspend or delay safe harbor 
contributions. This makes sense if such contributions force 
employers to drop their plans or, even worse, go out of 
business. However, all employers do not need this type of 
relief.
    Is there a way to fix this while also ensuring unscrupulous 
employers do not abuse the system?
    Mr. Dobrow. Absolutely, because what would happen is that 
after you suspend the safe harbor, then the regular rules 
apply, and the regular nondiscrimination rules prevent abuse 
and prevent everything from going awry. So we are just saying 
that instead of waiting until December 31st to end the safe 
harbor, let's end the safe harbor as of March 31st or whatever 
notice period is available.
    Chairwoman Velazquez. Do you want to comment, Mr. Ferrigno?
    Mr. Ferrigno. I agree that there won't be an opportunity 
for abuse at all. And I did mention it in my oral testimony 
that for some plans they would then be subject to the top-heavy 
rules which would require the 3 percent nonelective. That is 
the problem that they are trying to get out from under with the 
safe harbor.
    Chairwoman Velazquez. Mr. Keeler, you mentioned that many 
employees are simply not saving enough for retirement-- we all 
know that--and the severe dip in stock values that made this 
problem worse now. So, first, how can we get more workers 
thinking about the importance of adequate savings; and, two, 
how can we make it easier for small businesses to offer 
retirement plans?
    Mr. Keeler. I think the first way is educating the 
employees how the old model worked, the model that their 
parents or grandparents were accustomed to, whereby they worked 
for a company for 30 years, they retired from that company, had 
60 percent of their income replaced by the pension, another 20 
percent replaced by Social Security. Their parents didn't need 
to save. Their parents, because they didn't need to save, it 
didn't matter what the stock market did. They could put their 
money in a jar in the backyard or in the freezer, for all it 
mattered, because any wealth that their parents accumulated 
would have been passed to future generations. It wasn't needed 
for retirement because they relied on Social Security and 
pensions.
    No one has gone to the investment public participants now 
and said, the game has changed, and if you can still rely on 
Social Security for that 20 percent, if you needed 70 to 80 
percent, how are you going to fund that liability? Your 
employer is only going to kick in 3 to 6 percent. How much do 
you need to save over the next 30 years if you stay employed 
that long to make the math work? And my numbers show somewhere 
around 19 to 25 percent is what most people should be saving 
for a 30-year period.
    So educating employees that, you know--what happens when an 
employee starts working at 25, the first question they will ask 
is, Is there an employer match? Yes, it is 3 percent. Okay, 
well I am going to put in at least 3 percent. Well, is that 
enough? They don't know that it is not enough. So I would say 
that is the first part.
    As far as relief for employers contributing more, as I laid 
out in my written testimony, there could be some sort of credit 
for employer contributions. There is a credit for start-up 
costs. There is a credit for costs of educating employees. That 
could be broadened or increased and it could also be broadened 
to include a credit against employer contributions, whether it 
is profit sharing, match, some sort of tax credit, dollar-for-
dollar tax credit. If there is not money in the budget to allow 
that now, and then it could be something that is phased in over 
time, or it could be a situation where those credits build, you 
know, on the tax return, those credits build and the employer 
can take the credits down the road.
    Chairwoman Velazquez. Thanks.
    Ms. Collinson, individuals are trying to avoid pulling out 
funds to rebound from record losses. Would you be in favor of 
suspending distribution for accounts that have been 
particularly hard hit? Can you discuss how this could keep 
Americans from jeopardizing their long-term retirement 
security?
    Ms. Collinson. Yes. Many Americans may face the very 
difficult decision of taking a loan or a hardship withdrawal 
from their plan. One area of particular concern is when a 
participant has taken a loan and they fully intend to repay 
that loan in 5 years, and then they lose their job. And many 
plans require that loan be repaid in full, within a certain 
period of time, or it simply becomes a taxable event. Well, 
chances are if that participant had the funds in the first 
place, they wouldn't have taken out the loan.
    So especially for individuals who find themselves in a job 
loss situation, it is worthy of consideration to give them some 
relief, at least on the penalties, on the 10 percent penalties.
    Chairwoman Velazquez. Thank you.
    Mr. Dobrow, you mentioned widening the 10 percent corridor 
to help companies during the market downturn. However, there is 
concern that this could lead companies to sharply undervalue 
their pension liabilities.
    First, how far would you widen the corridor? And more 
importantly, how can you ensure that companies will not 
undervalue their plans?
    Mr. Dobrow. Well, the proposal so far has been to basically 
temporarily change the corridor to a 20 percent corridor 
instead of a 10 percent corridor. And the thing behind it here 
is that if you have a 30-year time horizon for your assets, why 
do we need to pay close attention to valuating them on only a 
12-month basis? And so this smoothing stuff spreads it out over 
a number of years.
    And the thing about actuarial science is what relief you 
get granted today, you have to pay for later. And so what 
happens is in the rules, it makes sure that future 
contributions are higher to make up for the contributions that 
don't come in now. And by allowing this smoothing to occur, I 
think the plan won't freeze and won't terminate.
    Chairwoman Velazquez. So can you talk to us about the 
consequences of when a plan is deemed under-funded?
    Mr. Dobrow. Well, when a plan gets underfunded, there are 
lots of things that kick in that aren't necessarily good. First 
of all, if it is very underfunded, participants cannot receive 
receive lump sum distributions. Secondly, the benefits freeze 
at some point when the benefit becomes underfunded.
    Chairwoman Velazquez. Thank you.
    I recognize the Ranking Member now.
    Mr. Graves. Thank you, Madam Chair. A question for Mr. 
Dobrow. You mentioned smoothing assets in your testimony. Could 
you expand on that just a little bit?
    Mr. Dobrow. Okay. As I said before, you know, if you are 
looking for a 30-year time horizon on having enough money in 
there for folks who retire, it is kind of artificial that we 
decide on a 12-month basis that we are going to value those 
assets. And bear markets occur and assets fluctuate in value. 
They go up, they go down. If you recognize all of the losses 
all at once, it doesn't give you any anticipation that the 
assets are ever going to come back, which is a normal part of 
the economic ebb and flow. And so by widening out the amount of 
time you are looking at those assets, you get to take into 
account some of the flow, instead of all ebb.
    Mr. Graves. I never heard the term "asset smoothing" 
before.
    Mr. Dobrow. It is an actuarial kind of term to determine--
you know, to not recognize all of the gains or all the losses 
all at once.
    Chairwoman Velazquez. Mr. Schrader.
    Mr. Schrader. Thank you, Madam Chair. I am a small 
businessman. I have been doing that for about 30 years. And the 
underlying tone of the panel has been that our goal is to 
provide for our own and our employees' retirement fully and 
completely, in addition to Social Security, with whatever plan 
our firm or business has. I guess I have never assumed that as 
a small business person. To me that has always been totally 
unaffordable.
    I am a veterinarian. I have a small small business. To me, 
given the current debacle that has gone on in our market and 
the--in my opinion, and I would be curious about yours--the 
extreme unlikelihood we will ever see a 14,000 Dow in our 
lifetime, there will be a permanent correction as a result of 
this debacle. But I am a small businessman, I want to attract 
employees. I am going to go with the defined contribution plan 
and put in as little or as much as I think I can afford to do 
for myself and my employees, just to make my business grow, and 
go. And if they want to put a little more money aside or if I 
want to put a little more money aside, I will have to do it 
differently.
    That is real small business thinking here. That is not 
grandiose. It is not like I am trying to save the world. I am 
just trying to get by and help myself and my employees out. 
Convince me that I should do differently is what I am asking.
    Mr. Ferrigno. I don't think you should do anything 
different. Indeed, a little bit different perspective on Mr. 
Keeler's statement that he recommend people saving 19 percent 
of pay. We would scare away at least half of our workers if we 
told them that they had to save 19 percent of their pay.
    The good news is the Congressional Research Service says if 
you save 10 percent pay for 30 years, you are going to have 53 
percent income replacement. And bear in mind that 10 percent 
will include an employer match, which frequently is 3 percent 
of pay. For the median-income replacement, Social Security 
today is 42 percent of income. So if we are shooting for 70 to 
80 percent replacement rate, then the burden for the 401(k) 
plan for the median worker is in the 30 to 40 percent.
    Mr. Schrader. I just don't think that is very real.
    Mr. Ferrigno. It is. We just had testimony here which is 
consistent with what we know, that the average worker defers 6 
or 7 percent of pay. And there is ample, ample evidence that 
level, particularly when accompanied by an employer match is 
exceedingly likely to occur, is going to produce retirement 
assets adequate for retirement.
    Mr. Schrader. Other comments?
    Mr. Dobrow. I have about 700 clients just like you, people 
who come to me late in their career and say, I have this number 
of employees who I really want to take care of and I haven't 
saved any money for my retirement, and you know, our system 
works really well; we are providing coverage, because when you 
get the retirement plan for your retirement, you are going to 
scoop in all of your employees at the same time, and it has 
been working. We are getting more and more employees getting 
benefits from their employer, because it benefits everybody 
overall, and taking advantage of the tax break. And if we 
didn't have this kind of thing, we would not have coverage of 
employees. And I can show you a plan designed for your business 
that would be attractive.
    Chairwoman Velazquez. Mr. Coffman.
    Mr. Coffman. Thank you, Madam Chairwoman. First of all, if 
a small business has a defined benefit plan, and that firm is 
dissolved, then what happens to the assets of the defined 
benefit plan as to the employees that were covered under the 
plan?
    Mr. Dobrow. I can take that one. A company is not allowed 
to dissolve until its defined benefit plan is taken care of. 
And what usually happens in the real world of small business is 
that all the employees get paid out 100 percent of their 
benefit, and the owner gets then their benefit if there is 
money left for them.
    Now in some distressed situations, the plan might be turned 
over to the Pension Benefit Guaranty Corporation, PBGC. But we 
don't see that very often in the small business environment. 
Mostly it is larger employers that do that.
    So what happens is the employees get the money and get to 
roll it into their new employer's plan, get to roll it in a IRA 
or, in some cases, actually take the money and spend it, and we 
call that leakage. But we think that part of it is well taken 
care of.
    Mr. Coffman. The following question to you. Let's say you 
have 20 employees in a small business, and it is a defined 
benefit plan. Do they, in and of themselves, form that 
investment pool? Or do you throw them in with a bigger defined 
benefit pool? How is that done? Because it seems like 20 
employees, maybe you can tell me what the actual rate of return 
would be and what the asset allocation would be in terms of 
equities versus fixed income, because that seems like a pretty 
perilous path for a small business.
    Mr. Dobrow. Because small businesses are unique, all the 
plans are unique. And virtually every small business person has 
a financial adviser they are relying on. Defined benefit plans 
are invested in the pool, and the pool has certain aspects to 
it under ERISA that make it be conservative. And what I tell my 
client is, please invest this money conservatively with your 
adviser and make sure that it doesn't take too much risk, 
because in any given year you really don't want to lose money. 
In a normal market, that works great. You also don't want to 
get high spikes, a lot of volatility. If you get too much it 
will cut down your contribution. So being conservative is the 
perfect answer.
    Mr. Coffman. Equity versus fixed income, what is 
allocation?
    Mr. Dobrow. The smart ones were 30 to 40 percent in 
equities leading up to this, and we see a lot of people have 80 
percent.
    Mr. Coffman. It seems that it is not a good deal for 
employees because they come in and then the employer tells 
them, we have this great plan here. We are going to give you a 
lesser salary because we have this wonderful plan. But, of 
course, now then we go down the road, then they are in a 
distressed situation, so they have underfunded the plan, and 
then if it goes into this guaranteed pool, they get pennies on 
the dollar. So I just fail to see why that is a rational 
decision for a small business.
    Mr. Dobrow. First of all, it is just the really highly paid 
people that get pennies on the dollar, because the normal rank-
and-file worker gets 100 percent guarantee.
    Secondly, they are always paid out first. And I know when I 
am doing my distributions to terminate participants and giving 
them a check which sometimes is Hundreds of thousands of 
dollars, they say this is more money than I have ever seen in 
my whole life; thank you so much.
    Mr. Coffman. What is 100 percent? Give me an income 
scenario.
    Mr. Dobrow. It is about $49,000 a year and PBGC sets that 
every year.
    Mr. Coffman. So $49,000, and below they are going to get 
100 percent of what they were promised in their defined pension 
plan?
    Mr. Dobrow. That is the maximum benefit they would get, so 
they might be making more than that.
    Mr. Coffman. I think it is a bad bet for small business, 
and certainly I do believe this Committee ought to look at 
incentives for a defined contribution and how to make sure that 
they are appropriate, so that those plans are retained.
    Thank you, Madam Chairwoman, I yield the balance of my 
time.
    Chairwoman Velazquez. Ms. Clarke.
    Ms. Clarke. Thank you, Madam Chairwoman, and to Ranking 
Member Graves, thank you both for holding this very timely and 
important hearing today. I want to also thank all of our 
witnesses for testifying before this Committee.
    I would just like to raise a few questions with the panel 
and I would like to start with Ms. Collinson. Federal law 
mandates a 5 percent government wide procurement goal for 
women-owned small businesses. However, just 3.3 percent of 
Federal contract dollars went to women-owned firms in fiscal 
year 2005. In addition, only 34 out of 81 Federal departments, 
agencies and commissions recorded by the FPDS met or exceeded 
the goal in fiscal year 2005.
    Increasing procurement from 3 to 5 percent may help to fund 
retirement benefits. How can procurement for women-owned 
businesses be improved?
    Ms. Collinson. I am going to have to defer. That is really 
beyond my expertise. However, I will say the Transamerica 
Center for Retirement Studies has done extensive research on 
women, and women planning and saving for retirement. And a lot 
of the data and trends is very unsettling in that there 
continues to be a wide gap in both real retirement confidence 
as well as actual retirement savings between men and women in 
the workplace.
    Ms. Clarke. It would seem to me that certainly, a lot of it 
has to do with some of the inequities in terms of how the 
businesses are built and the access to the growth and 
development and expansion of business. So I guess that is 
something we would have to look further into, Madam Chair.
    To Mr. Keeler, women-owned businesses invest billions on 
benefits for their employees. Health benefits comprise a larger 
share of benefit expenditures, with 2004 spending estimated at 
about $38 billion. Estimated spending on retirement benefits, 
life insurance and disability insurance comprise more than $16 
billion, for a total of $54 billion in benefit expenditures. 
These benefits are some of the first to be cut in economic 
downturn.
    What options do these firms have to fund employee benefits 
at a time when the stock market has declined by over 30 percent 
in the last year and sales have dropped considerably.
    Mr. Keeler. Well, I think your assessment is accurate. A 
lot of money spent on benefits, the first benefit to go is 
usually the 401(k). Health benefits are the last to go because 
they are the ones that employers use to attract and retain 
employees. So I can't really speak to what kind of relief could 
be given to that, and I don't know that relief needs to be 
given. I think obviously there is a major problem with the 
health care system overall. But that is a topic for another 
day.
    With respect to relief for retirement plan costs, as I 
said, there could be credits that would offer tax credits to 
employers based on the amount of money that is contributed. 
Whether it is a profit sharing contribution or an employer 
match, the employer would receive a tax credit. In addition to 
that, broadening or increasing the tax credit for start-up 
fees, plan start-up fees, ongoing maintenance fees for the 
first, say, 3 to 5 years, I think now it is 3 years, and the 
costs for educating participants, again, you have probably 
picked up already.
    I think there needs to be an emphasis on education because 
in general, the investing public lacks the knowledge that they 
need to make smart financial decisions. And whether 
guaranteeing a positive financial outcome is the employer's 
responsibility or not, giving the employee the fighting chance 
to have a positive financial outcome and have the retirement 
income that they need starts with educating and helping them 
understand how to invest, where to invest, when to invest, how 
much to invest and so on.
    Ms. Clarke. Well, thank you very much. I yield back the 
balance of my time, Madam Chairwoman.
    Chairwoman Velazquez. Mr. Thompson.
    Mr. Thompson. Thank you, Madam Chairwoman. The first 
question I will just throw out to the whole panel regarding the 
savers' credit, I know when the IRS drafted that it was very 
confusing. So my question is of your opinions on what the 
status is it actually being used? And, what can be done to 
encourage more use of that?
    Ms. Collinson. I would like to respond to that. First of 
all, the Transamerica Center for Retirement Studies commends 
the IRS for making changes to better promote the savers' 
credit. When it was first implemented, it was legislated and 
everybody on the Hill called it the savers' credit. Yet when 
the tax forms were printed, it was referred to by a number of 
different names including things like the credit for qualified 
retirement savings contributions, sort of rather a complicated 
version, and it was not real consistently described through the 
forms and publications. And looking at the income eligibility 
requirements, individuals who are likely to qualify for the 
savers' credit are also likely to complete the 1040 EZ form.
    Well, since the 401(k) contribution comes out pretax 
dollars, the 1040 EZ wasn't even contemplating that question. 
So the IRS, while they did not add it to the form itself, they 
at least added it to the instructions, so that if somebody read 
the instructions and knew that they contributed to a retirement 
plan, then they would know to use a different form in order to 
claim the credit. So that goes a long way.
    However, given our survey reports, only 18 percent are 
aware of it. There is a big risk that there are 401(k) savers--
in fact, 50 percent of our survey respondents in that income 
demographic said they participate in the plan--there are a 
large number of survey respondents and savers who may very well 
qualify for the credit, they just don't know about it. And then 
there is also the issue that, given that it is not refundable, 
those without a tax liability obviously don't receive it right 
now. So more can be done.
    Mr. Ferrigno. If I can just comment, PSCA was very 
instrumental in drafting the savers' credit and it is not by 
accident that there is no obligation whatsoever for the 
employer to administer that. We promoted heavily to our 
organization with our members who are plan sponsors.
    Ms. Collinson mentioned the fact that it is not refundable, 
and you could, if you wanted to, go even one more. At some 
point there are people who cannot afford to substitute 
consumption for savings. The savers' credit even could exceed 
the contribution it has made and actually replace the cash that 
is saved. It is a matter of what you want to do and how much of 
a tool you want it to be. But the fact that it is not 
refundable is certainly a problem.
    Mr. Thompson. Well, Mr. Ferrigno, while I have your 
attention, I have a question specifically for you, please. Some 
have encouraged mandatory payroll deductions for IRAs. I still 
have some concerns about this, since there will likely be 
administrative or, frankly, other burdens; and that mandatory 
IRAs could dissuade employers from offering benefits as a part 
of their package for attracting and retaining experienced 
employees, specifically such as health insurance. What are your 
views on that?
    Mr. Ferrigno. First, the issue would mean that through 
payroll that it is mandatory, and so in a world where employee 
benefits are voluntary, it is disturbing for us that they are 
talking about a mandate to provide a benefit. There is 
definitely an element of substitution and, frankly, poor 
substitution.
    One thing we know is that when a small plan adopts a plan, 
they are terrific champions. They have higher-than-normal 
participation rates because the owner has personal contact with 
all the participants. That would not exist in a mandatory 
program where basically there would be a form. Actually this 
would be a default,, but you wouldn't have the support of the 
business owner; it would be something that would be forced on 
them.
    And, again, what is looming out there that isn't talked 
about nearly enough is it is being portrayed as having minimal 
or no impact on the small plan that is going to be required to 
offer this. And as I mentioned in my oral testimony, if you 
look at the legislation as introduced last year, these are 
ERISA plans, and so there has to be a fiduciary that has to 
select a default investment and has to determine that the fees 
are reasonable. It can't be the IRA; the IRA provider cannot do 
that. That is not allowed under ERISA.
    So I urge this Committee when this issue is raised--and 
again I think it is going to be in the budget tomorrow-- to 
take a look at it from the small business perspective.
    Mr. Thompson. Thank you sir. Thank you, Madam Chair.
    Chairwoman Velazquez. Sure. Mrs. Dahlkemper.
    Mrs. Dahlkemper. Thank you, Madam Chairwoman.
    Mr. Keeler, currently the ERISA rules limit the amount of 
pre-funding a plan can undertake. Someone suggested increasing 
or removing the limits so employers can save as much as they 
can during the good years.
    What are the concerns with allowing businesses to make 
these larger contributions? And do you believe that pre-funding 
would ease some of the challenges caused during downturns in 
the economy such as we are experiencing right now.
    Mr. Keeler. Are you speaking about defined contribution 
plans--
    Mrs. Dahlkemper. Yes.
    Mr. Keeler.--or defined benefit? Allowing employees to put 
more than, say, 25 percent of covered payroll in, I don't see 
any reason to limit it to 25 percent. So I don't see a 
disadvantage to that. I think it would be a good thing. I don't 
know how many employers, especially right now, would do that or 
could afford to do that. But by all means, I think it is a 
great, great idea.
    Mrs. Dahlkemper. During the good times--obviously these are 
not those times--but as we look forward to the future. Would 
anyone else like to comment?
    Mr. Dobrow. I would. The Pension Protection Act for defined 
benefit plans actually allows you to pre-fund a little bit more 
than you would before, and it has had a great effect. The only 
downside I see to allowing defined contribution plans to do it 
is the loss of revenue.
    Mrs. Dahlkemper. Okay, thank you. I yield back my time now.
    Chairwoman Velazquez. Mrs. Halvorson.
    Mrs. Halvorson. Thank you, Madam Chairwoman.
    I am going to start with Mr. Speer, basically because we 
are both fellow Illinoisans, and then if anybody else would 
like to touch this one. My husband and I have two small 
businesses and many people in my district are all small 
business. And because of the economic downturn, they are 
finding it very difficult to borrow and meet the capital needs 
of the business expenses of their costs. So one of the 
proposals that has been put forward to us and to a lot of other 
people are to use the funds from their SEP IRAs.
    Now can you tell me, in your view, what are some of the 
potential downsides of doing this?
    And Mr. Speer, if you would like to start, and if anybody 
else would like to talk about that.
    Mr. Speer. Sure. I can just give you my personal views on 
that. Again I am not an expert on this, but, you know, we being 
a small business try to encourage people to save money long 
term and you never want people to take their money out for the 
short term. So we try to do our best, we treat our employees 
like family, like most small businesses do, and try to do 
whatever we can to have them think, to educate them for the 
long term. And so I would probably try and discourage our 
employees from taking out short term and think long term.
    Mrs. Halvorson. Not so much employees we are talking-- my 
husband and I own the business, we have to make ends meet, we 
have to make payroll. And if the banks are not loaning there 
has to be a way. And when somebody says, well, you can borrow 
against this--and that might be some people's only way to do 
it--you can say you need to save or discourage it, but there 
has to be something.
    Mr. Speer. I would agree with that, when people come to 
desperate measures there are certain things that are happening 
now and people might result in desperate actions. But it is 
hard to dissuade people from doing that.
    Mrs. Halvorson. Anybody else want to answer that?
    Mr. Ferrigno. My only caution is that the IRS might be 
interested in these transactions. There are limits on what you 
can do and what you can't do. And I am not an expert.
    Mrs. Halvorson. Why are accountants suggesting it then?
    You can't always trust your accountant? Okay.
    Mr. Ferrigno. I am not a tax attorney.
    Mr. Keeler. I would just comment that most defined 
contribution plans, not simple IRAs or SEP IRAs, could have 
them in provision and it would be perfectly legal for you or 
your husband to take a loan. Plan costs have come down a lot in 
the last 5 to 10 years, so for a small business with 5 or 10 
employees to have a 401(k) plan, it wouldn't be cost 
prohibitive in any way, shape, or form. You simply check a box 
saying you want to have a loan provision, and you are able to 
borrow against that balance, up to 50 percent of the balance in 
the account.
    Now, there are other types of plans where loans to owners 
are prohibited, and for good reason, you know; there could be 
fraudulent activities, and the Department of Labor doesn't want 
to allow any employer to be able to access employee funds in a 
pooled retirement account. But in the case of a modern-day 
401(k), you would be allowed to do that.
    Mrs. Halvorson. Lucky for us we don't have to. But a lot of 
the other employers that come to us, they are like, what do we 
do? We can't even get another loan, the banks aren't loaning. 
So it is a huge concern. And so when that is brought up to 
them, they are trying to figure out ways to figure out what is 
going to be in their best interest.
    Mr. Dobrow. I will give you my business card. I think I can 
take care of that for you.
    Mrs. Halvorson. I got it. Thank you.
    Chairwoman Velazquez. Mr. Sestak.
    Mr. Sestak. Thank you, Madam Chairwoman. I am sorry I 
wasn't here earlier. If you answered these, I apologize.
    I will ask you three quick questions. In the tough 
environment we are in, would it help us to go back to the pre-
PPA corridor of 80--I think it was 80 to 120 percent of market 
value--rather than the present 90 to 110 to do that now? Would 
that help?
    Mr. Dobrow. Yes, it would help. You know, that is one of 
the proposals that has been offered forth.
    Mr. Sestak. And I guess you had it in your testimony. I am 
sorry I missed. Before, when you evaluated your interest rate, 
you used to be able to do it--I think it was corporate bonds if 
I am not mistaken--over 30 years. We might not even want to 
change that to this three-segment type. Should we go back, at 
least temporarily, to the old pre-PPA era, straight valuation?
    Mr. Dobrow. A lot of compromises get made. I think that a 
lot of people were happy with the three-segment rates. And I am 
not sure that changing them backward would be all that great an 
idea.
    Mr. Sestak. Because of the compromises?
    Mr. Dobrow. The Treasury and what they are trying to 
accomplish.
    Mr. Sestak. How about amortizing unfunded liabilities? It 
used to be 3 years. Would you extend that at this time?
    Mr. Dobrow. We are asking for a temporary, like 1 or 2 
years, just the interest on it for 2 years and then amortize it 
over 7. That would give the asset some time to probably come 
back a little bit and help make it less onerous.
    Mr. Sestak. I don't know if this is yours or not, and I 
apologize for popping in here late. Some 401s are supposed to 
take care of investor risk. I am not sure they do. I think that 
is a little challenge, but I don't think we do longevity risk 
very well, which is annuities. Should we move towards that 
almost as a "you must opt out" type of an approach to take care 
of the longevity risk?
    Mr. Ferrigno. Recently I think that way. But first of all, 
as far as managing investment risk in almost any 401(k) plan in 
America, if you want to, you can invest in a government 
securities bond or a stable value product or a money market 
fund.
    Mr. Sestak. Should we make it mandatory that everybody 
offers an index fund, for example?
    Mr. Ferrigno. No, no; 75 percent of the plans that are 
surveyed do offer an index fund. I think that a plan sponsor 
has to consider an index fund. But when we get into mandating 
various planned investments it is a very slippery slope.
    Mr. Sestak. Slippery towards what?
    Mr. Ferrigno. Well, there is talk about socially targeted 
investments. In State government plans there are politically 
directed investments. So we have some concern in that area.
    On the subject of annuities, and I was present yesterday at 
Ed and Labor, you have to understand that 20 percent of 401(k)-
type plans offer an annuity option. Nobody selects it. Nobody 
selects it. There is no demand for it. And in a defined benefit 
plan, some defined benefit plans let you have a lump sum 
distribution. A defaulted defined benefit plan is an annuity 
payout. About half of the defined benefit plans offer a lump 
sum. In order to get that lump sum you have to, if you are 
married, you have to get a waiver of the joint annuity. You 
have to go and find a notary and waive your right to get a lump 
sum. Ninety to 95 percent of folks do that.
    So the bottom line is there is no demand for annuity 
product at retirement because what you are saying is, I haven't 
even retired yet, I am going to retire, and you want me to make 
a decision now about what to do with my money for the rest of 
my life. What we have found is that after people are retired 
for a period of time, they do consider annuities. You have to 
remember the role of Social Security, that Social Security 
provides more than half of the income for most retirees. That 
is in the form of an annuity. So maybe they are making the 
rationale decision--
    Mr. Sestak. Would it help--if I could ask one last 
question--would it help people make a rational decision, if we 
can, to post trading activity; how many transaction costs, how 
many transactions there are each year in your 401 or your 
mutual fund?
    Mr. Ferrigno. Yes. There is a debate about that and plan 
sponsors are responsible for reviewing fees. Transaction costs 
are a fee. And we had taken a public position that transaction 
costs should be provided.
    Mr. Sestak. Should be provided also.
    Mr. Ferrigno. Yes, that is our position. And they can be 
very material.
    Chairwoman Velazquez.. Mr. Moore.
    Mr. Moore. Thank you. I would like to pose a question to 
anybody on the panel who cares to respond. I would like to ask 
a question about the state of our Nation's retirement system, 
the need to consider more comprehensive proposals for reform. 
Data shows that many members of the baby-boom generation don't 
have sufficient resources to maintain their standard of living 
in retirement, a situation that has been made worse by the 
decline in housing values and economic downturn recently in the 
past year.
    Now, the lack of retirement plan coverage is an issue for 
small business owners and employees. Not only do small 
businesses often not have the resources available to offer 
retirement plans, but the movement towards low-cost defined 
contribution retirement plans has increased the volatility of 
plan assets, as they are invested heavily in equities.
    What types of comprehensive reform efforts are needed to 
help ensure that a larger number of people have safe and stable 
ways to save for retirement? For example, a gentleman by the 
name of Dean Baker, an economist for the Center for Economic 
and Policy Resources, suggests the creation of a voluntary 
federally run pension program that would offer participants a 
modest but guaranteed rate of return.
    Any thoughts about that or other plans?
    Mr. Keeler. I would just say, to expand on a key issue that 
you have pointed out and Mr. Coffman pointed out before he 
left, I think the emphasis needs to be on defined contribution 
plans more so than defined benefit plans, because defined 
contributions are more prevalent.
    Possibly differing from Mr. Ferrigno's testimony, I find 
that about only 56 percent of people participate in a 401(k) 
plan. That is nationwide; 56 percent participate and only 15 to 
20 percent of small businesses have 401(k).
    So, to your point regarding--was it Mr. Dean's testimony 
earlier this morning--there is a broad, very broad problem. Is 
it a small business owner's responsibility to guarantee a 
positive financial outcome for every employee that they have? 
Probably not. It is not feasible to do that. But, again, when 
the statistics may say that Social Security provides 50 percent 
of people's retirement benefits and that if somebody saves 6 to 
7 percent and the employer matches 3 they get 10 percent they 
are going to be fine,.
    I am seeing a lot of people that are 55 that have 35- to 
$50,000 saved for retirement. The statistics show, if you want 
to talk statistics, the average account balance of people in 
their fifties is about $50,000. That is not enough to provide a 
positive financial outcome. So we can look at who is saving and 
who isn't and what the statistics are, but I am seeing on the 
ground that the numbers don't add up.
    How the government steps in to mandate a plan or provide a 
plan that people can opt into, again, I come back to education. 
Everybody wants a silver bullet. They think that if Social 
Security is reformed, that they are going to be fine in 
retirement. Social Security was never intended to be the only 
means of retirement income. There is a three-legged stool most 
of you probably learned about back in home economics class: 
savings, pensions, and Social Security. Well, Social Security 
is at risk. Savings is at an all-time low. The stock market we 
are, you know, down 40 percent. People are questioning the 
validity of long-term savings. So I don't know what needs to be 
done, but something needs to be done.
    Ms. Collinson.. I would like to add to his response. Our 
research at the Transamerica Center for Retirement Studies has 
found that--corroborates everything that we have heard. Baby 
boomers aren't saving enough and haven't saved enough and are 
now facing a real crisis. But our research has also found that 
there are a lot of things baby boomers can and should be doing 
for themselves in order to help better their situation in terms 
of learning more about saving and investing, actually 
calculating a retirement savings goal versus guessing at the 
amount which nearly half say they have guessed. Very few have a 
written plan. They don't know how they are going to bridge 
their savings gap. And the common solution is a very large 
percentage plan to work beyond the age of 70. Well, reality is 
sometimes life dictates otherwise. Something could force 
somebody out of the workforce.
    So as we think about ways to help the baby boomers, I think 
it is really important to think of ways that we can help them 
help themselves. Because by the time you reach 50 years old, no 
two situations are alike. People have different facts and 
circumstances, expenses, families, commitments, levels of 
savings. So to help educate people and get them the advice that 
they need or at least access to advice so that they can make 
informed decisions and put together a more rational plan.
    Chairwoman Velazquez. Would the gentleman yield?
    Mr. Moore. Certainly.
    Chairwoman Velazquez. Ms. Collinson, at what point, how can 
we address the issue of educating people, young people, at what 
level? Whose responsibility? Because it is just amazing that 
they go to college, graduate, and still don't know the value of 
saving and thinking ahead of terms of retirement.
    Ms. Collinson. Well, one of our research questions which I 
found really interesting and compelling, we are still sorting 
through the data, but directionally there is a real high level 
of interest in terms of what the government can do, and that is 
to start Americans early in terms of educating about financial 
literacy, and that could be junior high school. You know, first 
and foremost, we want kids to graduate from high school with 
basic math skills so that they can balance a checkbook or 
understand compounding investments or compounding interest. 
However, starting early financial literacy in schools can help 
prepare kids. And where we are at right now in terms of 
education, the extent to which parents are helping their kids 
with their homework, there could be some residual benefit for 
grown-ups as well.
    Mr. Keeler. About 2 years ago, a college professor asked me 
to fill in for one of his undergraduate classes, and it was the 
second day of class. And he warned me, he said most of the 
students haven't gotten their textbooks yet. They had a reading 
assignment but most of them don't have their text, so they 
won't have read it. We have some jocks in there, they will fall 
asleep. So I am warning you up front.
    So I go in and I covered the two or three chapters that 
they were supposed to have read. Then I just started covering 
stuff that I thought was important, like what is a mutual fund? 
How do you choose between a mutual fund? And why would you buy 
a house instead of renting an apartment? How do you buy a 
house? Why would you do it? And I can tell you, there weren't 
any jocks sleeping. They were all, they were hanging on every 
word I was saying to them. They were soaking it up like 
sponges. And at the end, this doctoral candidate said to me, 
Mr. Keeler, I have been in school almost my whole life and no 
one has ever taught me this stuff. Why am I just now learning 
this? And I am not even learning it out of a textbook. I am 
learning it because you are ad-libbing and shooting from the 
hip because you didn't want to pace the class and go through 
the chapters.
    FPA and a lot of other nonprofits are already geared to try 
to provide this kind of literacy. There is a program called 
Junior Achievement, where financial planners go out to schools 
and teach this kind of thing. It just needs to be mandated. As 
I shared in my oral testimony, only three States require at 
least one semester course dedicated to personal finance. And in 
another 17, it is integrated into math. So it is kind of lost 
in the process.
    So I think that is where it starts. And even public service 
announcements or TV ads that show modern-day plan participants, 
not kids in high school, why you don't try to time the market, 
statistical data that shows market timing doesn't work, that 
shows that if you are not in the market every day you are not 
going to have a fighting chance to get market returns, and that 
you are just shooting yourself in the foot.
    Mr. Ferrigno. We are having a big problem in that we are 
making value judgments about the 401(k) system based on 60-
year-olds. The first 401(k)s came in around the mid-eighties 
but were relatively unheard of until the nineties, and they 
took off in the mid-nineties. So we are judging the system 
based on the experience of someone that may, if they are lucky, 
have had probably 10 years in the plan. There is data 
available, a huge database about half the 401(k) participants 
in the country, and they looked at people who have been in the 
plan since between 1999 and 2006. They found that people in 
their sixties that had been with an employer for 30 years but 
hadn't been in the plan for 30 years averaged $193,000 in their 
final balance. So it is a great concern to me.
    And you referenced Mr. Baker, that judgments are being made 
on a system without saying what is it going to do when it is 
mature? And the good news is that these people did have this 
opportunity, because the bottom line is the defined benefit 
system provided benefits to very, very few people.
    So your question about what can we do, what we have seen in 
the system, which is terrific, is by design 401(k) plans are 
very flexible and the government has cooperated in that. And by 
turning things around in the marketplace, we came back with 
automatic enrollment, we came up with target date funds, we 
made advances in education and advice. So what we need from the 
government is to be the referee, but let us play the game.
    Chairwoman Velazquez. Thank you. Mr. Graves.
    Mr. Graves. Just a point of clarification. You mentioned, 
Mr. Ferrigno, you mentioned the average person. What, 6 or 7 
percent; is that what you said?
    Mr. Ferrigno. Yes.
    Mr. Graves. And you mentioned 19 percent would be optimum.
    Does that include the employer?
    Mr. Ferrigno. No. The 6 or 7 percent does not include--that 
is a good range of what we are getting for deferral. And the 
most common employee match is 50 percent of the first 6, is 3 
percent going on in there. And what I cited was government work 
from the Congressional Research Service that says if you do 
contribute that level, you are going to have very adequate 
income replacement. We have to fix this market crisis. We can't 
do anything if the markets don't work.
    Chairwoman Velazquez. I would like to ask a question, to 
all the members at least, any of you who might want to answer; 
but, in light of the Committee here, focusing on providing some 
type of retirement relief, given the current economic 
conditions and the fact that so many workers reaching 
retirement age have suffered staggering losses in their 
investment accounts, would you be in favor of raising the 
required minimum distribution age from 70-1/2 as a way to 
provide temporary relief for these workers?
    Mr. Keeler. I would. And I commend Congress for doing that 
for 2009. I think it is pretty likely that it should be done 
again for 2010. But, by all means, I think it should be raised. 
I don't think it should be a requirement. Let's face it, based 
on what I am saying, a lot of people need that money anyway, 
because they have they haven't sufficiently saved for 
retirement. So whether it is required or not, they have 
probably been taking it since they were 65. But for those that 
are fortunate enough to be in a position where they don't need 
to, they shouldn't be forced to, especially in a down market.
    Mr. Ferrigno. These are tax policies. They should be 
repealed permanently.
    Mr. Dobrow. We agree.
    Chairwoman Velazquez. And given that older workers have 
been more adversely affected than younger ones, should we 
consider allowing older workers, ones over 55, the ability to 
make larger catch-up contributions?
    Mr. Ferrigno. Absolutely.
    Mr. Keeler. Sure. Why not?
    Chairwoman Velazquez. If there is anything in your data--
and I would like to ask this question to Ms. Collinson-- 
indicating older workers will make those larger contributions, 
given the decreased confidence in the financial market?
    Ms. Collinson. What I can share from our data is there is 
an opportunity to further increase awareness of catch-up 
contributions of what we have right now. Many of the workers 
surveyed indicated they do have the opportunity through their 
company-sponsored plan. And I believe about 25 percent, I would 
have to recheck the number, are taking advantage. And those who 
aren't we asked why, and it is, by and large, because right now 
they can't afford to.
    Chairwoman Velazquez. Okay. Well, let me take this 
opportunity to thank all of you. This is a very important 
issue. And we are going to continue to look at any regulatory 
relief in ways of distribution and contribution that could be 
made by the IRS administratively, talk to them and see what can 
be done. And also, we are going to be having discussions with 
the Committee on Ed and Labor regarding some of the issues and 
concerns that you have raised.
    I ask unanimous consent that members will have 5 days to 
submit a statement and supporting materials for the Record. 
Without objection, so ordered. This hearing is now adjourned.
    [Whereupon, at 3:00 p.m., the committee was adjourned.]

    [GRAPHIC] [TIFF OMITTED] T7526.001
    
    [GRAPHIC] [TIFF OMITTED] T7526.002
    
    [GRAPHIC] [TIFF OMITTED] T7526.003
    
    [GRAPHIC] [TIFF OMITTED] T7526.004
    
    [GRAPHIC] [TIFF OMITTED] T7526.005
    
    [GRAPHIC] [TIFF OMITTED] T7526.006
    
    [GRAPHIC] [TIFF OMITTED] T7526.007
    
    [GRAPHIC] [TIFF OMITTED] T7526.008
    
    [GRAPHIC] [TIFF OMITTED] T7526.009
    
    [GRAPHIC] [TIFF OMITTED] T7526.010
    
    [GRAPHIC] [TIFF OMITTED] T7526.011
    
    [GRAPHIC] [TIFF OMITTED] T7526.012
    
    [GRAPHIC] [TIFF OMITTED] T7526.013
    
    [GRAPHIC] [TIFF OMITTED] T7526.014
    
    [GRAPHIC] [TIFF OMITTED] T7526.015
    
    [GRAPHIC] [TIFF OMITTED] T7526.016
    
    [GRAPHIC] [TIFF OMITTED] T7526.017
    
    [GRAPHIC] [TIFF OMITTED] T7526.018
    
    [GRAPHIC] [TIFF OMITTED] T7526.019
    
    [GRAPHIC] [TIFF OMITTED] T7526.020
    
    [GRAPHIC] [TIFF OMITTED] T7526.021
    
    [GRAPHIC] [TIFF OMITTED] T7526.022
    
    [GRAPHIC] [TIFF OMITTED] T7526.023
    
    [GRAPHIC] [TIFF OMITTED] T7526.024
    
    [GRAPHIC] [TIFF OMITTED] T7526.025
    
    [GRAPHIC] [TIFF OMITTED] T7526.026
    
    [GRAPHIC] [TIFF OMITTED] T7526.027
    
    [GRAPHIC] [TIFF OMITTED] T7526.028
    
    [GRAPHIC] [TIFF OMITTED] T7526.029
    
    [GRAPHIC] [TIFF OMITTED] T7526.030
    
    [GRAPHIC] [TIFF OMITTED] T7526.031
    
    [GRAPHIC] [TIFF OMITTED] T7526.032
    
    [GRAPHIC] [TIFF OMITTED] T7526.033
    
    [GRAPHIC] [TIFF OMITTED] T7526.034
    
    [GRAPHIC] [TIFF OMITTED] T7526.035
    
    [GRAPHIC] [TIFF OMITTED] T7526.036
    
    [GRAPHIC] [TIFF OMITTED] T7526.037
    
    [GRAPHIC] [TIFF OMITTED] T7526.038
    
    [GRAPHIC] [TIFF OMITTED] T7526.039
    
    [GRAPHIC] [TIFF OMITTED] T7526.040
    
    [GRAPHIC] [TIFF OMITTED] T7526.041
    
    [GRAPHIC] [TIFF OMITTED] T7526.042
    
    [GRAPHIC] [TIFF OMITTED] T7526.043
    
    [GRAPHIC] [TIFF OMITTED] T7526.044
    
    [GRAPHIC] [TIFF OMITTED] T7526.045
    
    [GRAPHIC] [TIFF OMITTED] T7526.046
    
    [GRAPHIC] [TIFF OMITTED] T7526.047
    
    [GRAPHIC] [TIFF OMITTED] T7526.048
    
    [GRAPHIC] [TIFF OMITTED] T7526.049
    
    [GRAPHIC] [TIFF OMITTED] T7526.050
    
    [GRAPHIC] [TIFF OMITTED] T7526.051
    
    [GRAPHIC] [TIFF OMITTED] T7526.052
    
    [GRAPHIC] [TIFF OMITTED] T7526.053
    
    [GRAPHIC] [TIFF OMITTED] T7526.054
    
    [GRAPHIC] [TIFF OMITTED] T7526.055
    
    [GRAPHIC] [TIFF OMITTED] T7526.056
    
    [GRAPHIC] [TIFF OMITTED] T7526.057
    
    [GRAPHIC] [TIFF OMITTED] T7526.058
    
                                 
