[Senate Hearing 113-343]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 113-343
 
                  THE ROLE OF SOCIAL SECURITY, DEFINED 
               BENEFITS, AND PRIVATE RETIREMENT ACCOUNTS 
                  IN THE FACE OF THE RETIREMENT CRISIS 

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

                                HEARING

                               before the

                   SUBCOMMITTEE ON SOCIAL SECURITY, 
                      PENSIONS, AND FAMILY POLICY

                                 of the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           DECEMBER 18, 2013

                               __________

                                     

            Printed for the use of the Committee on Finance

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                          COMMITTEE ON FINANCE

                     MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West         ORRIN G. HATCH, Utah
Virginia                             CHUCK GRASSLEY, Iowa
RON WYDEN, Oregon                    MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York         PAT ROBERTS, Kansas
DEBBIE STABENOW, Michigan            MICHAEL B. ENZI, Wyoming
MARIA CANTWELL, Washington           JOHN CORNYN, Texas
BILL NELSON, Florida                 JOHN THUNE, South Dakota
ROBERT MENENDEZ, New Jersey          RICHARD BURR, North Carolina
THOMAS R. CARPER, Delaware           JOHNNY ISAKSON, Georgia
BENJAMIN L. CARDIN, Maryland         ROB PORTMAN, Ohio
SHERROD BROWN, Ohio                  PATRICK J. TOOMEY, Pennsylvania
MICHAEL F. BENNET, Colorado
ROBERT P. CASEY, Jr., Pennsylvania

                      Amber Cottle, Staff Director

               Chris Campbell, Republican Staff Director

                                 ______

      Subcommittee on Social Security, Pensions, and Family Policy

                     SHERROD BROWN, Ohio, Chairman

JOHN D. ROCKEFELLER IV, West         PATRICK J. TOOMEY, Pennsylvania
Virginia                             MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York         JOHNNY ISAKSON, Georgia
BILL NELSON, Florida                 ROB PORTMAN, Ohio
BENJAMIN L. CARDIN, Maryland

                                  (ii)



                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Brown, Hon. Sherrod, a U.S. Senator from Ohio, chairman, 
  Subcommittee on Social Security, Pensions, and Family Policy, 
  Committee on Finance...........................................     1
Toomey, Hon. Patrick J., a U.S. Senator from Pennsylvania........     4
Isakson, Hon. Johnny, a U.S. Senator from Georgia................     5

                               WITNESSES

Romasco, Rob G., president, AARP, Washington, DC.................     6
Biggs, Andrew G., resident scholar, American Enterprise 
  Institute, Washington, DC......................................     8
Baker, Dean, co-director, Center for Economic and Policy 
  Research, Washington, DC.......................................    10
Sweeney, John F., executive vice president, Fidelity Investments, 
  Boston, MA.....................................................    12

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baker, Dean:
    Testimony....................................................    10
    Prepared statement...........................................    41
    Responses to questions from subcommittee members.............    48
Biggs, Andrew G.:
    Testimony....................................................     8
    Prepared statement...........................................    51
    Responses to questions from subcommittee members.............    57
Brown, Hon. Sherrod:
    Opening statement............................................     1
    Prepared statement...........................................    61
Isakson, Hon. Johnny:
    Opening statement............................................     5
Rockefeller, Hon. John D., IV:
    Prepared statement...........................................    64
Romasco, Rob G.:
    Testimony....................................................     6
    Prepared statement...........................................    65
    Responses to questions from subcommittee members.............    74
Sweeney, John F.:
    Testimony....................................................    12
    Prepared statement...........................................    81
    Responses to questions from subcommittee members.............    93
Toomey, Hon. Patrick J.:
    Opening statement............................................     4

                             Communications

The American Council of Life Insurers (posted to committee 
  website)
The American Council of Life Insurers et al......................    99
Brown, Virjeana Marie............................................   103
Employee Benefit Research Institute (EBRI).......................   107
Employee-Owned S Corporations of America (ESCA)..................   117
The ESOP Association.............................................   120
National Conference on Public Employee Retirement Systems 
  (NCPERS).......................................................   122
National Conference of State Social Security Administrators 
  (NCSSSA).......................................................   127
Ohio Public Employees Retirement System (OPERS)..................   133
School Employees Retirement System of Ohio (SERS)................   135
State Teachers Retirement System of Ohio (STRS)..................   137


                  THE ROLE OF SOCIAL SECURITY, DEFINED
                    BENEFITS, AND PRIVATE RETIREMENT
                      ACCOUNTS IN THE FACE OF THE
                           RETIREMENT CRISIS

                              ----------                              


                      WEDNESDAY, DECEMBER 18, 2013

                           U.S. Senate,    
               Subcommittee on Social Security,    
                       Pensions, and Family Policy,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:05 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. 
Sherrod Brown (chairman of the subcommittee) presiding.
    Present: Senators Wyden, Nelson, Cardin, Casey, Isakson, 
and Toomey.

 OPENING STATEMENT OF HON. SHERROD BROWN, A U.S. SENATOR FROM 
OHIO, CHAIRMAN, SUBCOMMITTEE ON SOCIAL SECURITY, PENSIONS, AND 
              FAMILY POLICY, COMMITTEE ON FINANCE

    Senator Brown. The Subcommittee on Social Security, 
Pensions, and Family Policy will come to order. Welcome to 
Ranking Member Senator Toomey, and to Senator Isakson too. I 
think others will join us.
    This is likely the first of a series of hearings that 
Senator Toomey and I would like to do on the issues of 
retirement security, Social Security, and all that it relates 
to, and I appreciate his cooperation, as I do Senator Hatch's 
and Chairman Baucus's cooperation.
    I will begin, of course, with an opening statement, turn it 
over to Senator Toomey for his, and Senator Isakson and other 
members who come are certainly welcome to do the same.
    Retirement security in America, as we know from reading the 
histories of FDR and other stories from the New Deal on, has 
virtually always been thought of as a 3-legged stool: Social 
Security, 
employer-provided pensions, and personal savings and 
investment.
    The first leg of the stool, Social Security, guarantees a 
modest, but stable income during retirement years, but it is 
not just for retirement security. Social Security provides 
basic financial security in the face of unexpected tragedy. 
Social Security provides a vital safety net to the disabled, 
the orphaned, widows, and widowers, something traditional 
retirement plans often are unable to provide.
    The other two legs of this 3-legged stool--personal savings 
and pension plans--build upon the bedrock of Social Security 
and allow families to maintain the standard of living or 
approach the standard of living they enjoyed while they were 
working. It protects seniors, but also allows families to use 
their resources to buy homes, to start families, and to pay for 
education.
    Without retirement savings, aging parents become dependent 
on their working-age children, preventing those children from 
saving for their own retirement, perpetuating the cycle of 
economic distress for far too many families in those retirement 
years.
    So, for far too many workers, we have seen Social Security 
as the only leg left standing on the 3-legged stool. The 
percentage of workers covered by traditional defined benefit 
plans--those where you pay in and you get a defined benefit, 
likely for the rest of your life--has been declining steadily 
over the past 35 years. There are now only some 30,000 private 
sector defined pension benefit plans, down from over 100,000 
less than 30 years ago.
    From 1979 to 2011, the proportion of private workers with 
retirement plans covered by defined benefit pension plans fell 
from 62 percent to 7 percent. At the same time, the percentage 
participating in defined contribution plans, much more common 
now, which inherently hold more challenges for the beneficiary 
and perhaps others, increased from 16 percent to 66 percent.
    Only half of America's defined contribution plans have 
auto-
enrollment. At a time when we are told that we are in charge of 
our retirement futures, only one-quarter of American workers 
have automatic access to a defined contribution plan. About 
half the U.S. workforce today is covered by an employer-
sponsored retirement plan, meaning that half of Americans, 
obviously, are not participating in any employer-sponsored 
plan.
    Working families are increasingly squeezed from every 
angle. Wages are stagnant. Home values have declined in far too 
many cases. Tuition costs for children are increasing at the 
time we begin to care for our aging parents. Close to two-
thirds of families overall, middle-class and low-income 
families, rely on Social Security for a majority of their 
retirement income.
    Workers aged 50 to 64 are increasingly unprepared for 
retirement. The vast majority of economic gains in the last 25 
to 30 years have gone to those at the very top of the income 
distribution in this country, also, obviously, affecting 
savings and retirement.
    Middle-class workers have not shared in the economic gains, 
by and large, or seen increased income associated with 
increased productivity and higher corporate profits, meaning 
costs go up, but the ability to save has declined. The picture 
gets bleaker when considering racial disparities in wealth. The 
median wealth of white households is 20 times that of black 
households, 18 times that of Hispanic households--the highest 
ratios since the government began publishing this data a 
quarter-century ago.
    These factors are why most Americans have saved only a 
fraction of what they need for retirement. Workers approaching 
retirement age have an average savings of less than $27,000. 
One-third of Americans leading up to Social Security retirement 
age, one-third of Americans 45 to 64, have nothing, zero, saved 
for retirement at all. The numbers are only slightly better for 
workers with a retirement plan. In 2010, 75 percent of 
Americans nearing retirement age had less than $30,000 in their 
IRAs or in their retirement accounts or 401(k)s.
    These facts illustrate how great the need is for, in my 
mind, maintaining and expanding Social Security, the only 
source of guaranteed lifetime benefits on which most retirees 
can rely. Social insurance--and this is social insurance, as 
are unemployment insurance and Medicare--with social insurance, 
you pay in, you get benefits out. Social insurance does not 
just provide much-needed financial support, it ensures that 
hardworking middle-class people can retire with dignity.
    For a majority of recipients, these modest benefits provide 
over half their income, lifting over 22 million Americans out 
of poverty. As I said earlier, one-third of retirees, Social 
Security beneficiaries, rely on Social Security--close to one-
third--for essentially their entire income. The program is not 
only retirement insurance, it is family income insurance. One-
third of benefits go to children and widows and the disabled. 
One in 10 children today lives with a grandparent.
    Rather than asking how we should scale back the program, we 
should be asking ourselves how we can strengthen it. That seems 
too often to be the debate on the talk shows: how we can scale 
back the program and save money for budget reasons, not the 
debate which I think it should be of, how do we deal with the 
whole issue of security, financial security, retirement 
security for people? That means not reducing benefits or 
raising the retirement age.
    Maintaining or expanding Social Security is the single most 
effective thing we can do to prevent poverty and economic ruin 
for millions of senior citizens while promoting economic 
mobility for their children and grandchildren so that their 
responsibilities and burden do not increase to the degree that 
makes it so difficult for them.
    The budget debate creates a vacuum that does not take into 
account the economic impact of Social Security benefits. A 
number of you, primarily Mr. Biggs and AARP, have written on 
that. So your comments will be interesting to hear.
    Social Security benefit cuts would decrease our 10-year 
deficit, but such cuts, I do not think, consider the impact on 
seniors, their families which support them, and current middle- 
and low-income workers. It is not a simple budgetary issue. It 
is a macroeconomic issue. Shifting the cost from the Federal 
budget does not resolve the problems in our retirement and 
savings programs.
    Social Security reforms should be considered as part of the 
Finance Committee's examination of the burgeoning retirement 
crisis. I see this hearing as an important first step.
    [The prepared statement of Senator Brown appears in the 
appendix.]
    Senator Brown. I want to yield to my Ranking Member, 
Senator Toomey. I appreciate his cooperation. I think we will 
learn a lot from today's hearing, and I look forward to your 
contribution.

         OPENING STATEMENT OF HON. PATRICK J. TOOMEY, 
                A U.S. SENATOR FROM PENNSYLVANIA

    Senator Toomey. Thank you very much, Chairman Brown. I 
appreciate your having this hearing.
    This is, there is no question, an extremely important 
topic. We all agree on the importance of addressing retirement 
security. As you pointed out, Mr. Chairman, Americans rely 
generally on three main vehicles for financial security in 
retirement. There are the private savings that often come in 
the form of tax-deferred accounts. There are employer pensions, 
which, as you pointed out, are increasingly defined 
contribution plans. And there is the Social Security program.
    In my view, the government policy should focus on 
protecting all three of these pillars of retirement security. 
There are a couple of ways we can approach this. One would be 
to recognize the strengths of the current retirement system and 
preserve what works. But the other thing we need to do is 
acknowledge the hard truths about reforms that are going to be 
necessary to protect programs that seniors depend on.
    I think it is generally good to adopt the approach of, 
first, do no harm. One of the advantages of our current system 
is the diversity of saving options, whether it is 401(k)s or 
IRAs, pre-tax accounts, Roth-style accounts. The range of 
options gives taxpayers greater flexibility, more choices, and 
more opportunities to accumulate savings that will help them in 
their retirements.
    I think we ought to defend and encourage these provisions 
that help people to save. Some have suggested that we ought to 
reduce the amount that Americans can save in tax-deferred 
accounts. I think that is a bad idea. It would tend to diminish 
savings. And, while that would have adverse consequences for 
individuals attempting to save and provide for their own 
retirement, I think it would also be counterproductive from an 
economic point of view.
    The most important long-term driver of economic growth is 
the investment of accumulated capital--and it has to be 
accumulated before it can be invested. And so encouraging that 
savings over time maximizes economic growth.
    A second point I would make is that we have to make sure 
that Social Security is going to be there for future 
generations. It is an extremely important program. You have 
talked about this; we all know this. For decades, it has 
provided seniors with a guaranteed source of income and kept 
millions of Americans out of poverty.
    But the fact is the program, in its current form, is not 
solid. It has gone into a cash-flow deficit position since 
2010. Benefits paid routinely exceed payroll taxes paid into 
the system by very large sums, which are only projected to 
grow. And I know people often like to invoke the assets in the 
trust fund, but, as we will probably get into in this 
discussion, there are no assets backing up anything in the 
trust fund.
    This is a filing cabinet with certificates that have no 
real assets to back them up and, therefore, the trust funds to 
which we routinely refer do nothing to enhance or enable the 
Federal Government to honor the commitment it has made. And so 
we should not be under the illusion that that somehow makes 
things okay.
    The challenges facing Social Security are not a partisan 
observation. I want to quote briefly, Mr. Chairman, from the 
Social Security Trustees' report of this year, 2013, in which 
they state, and I quote: ``Both the Social Security and 
Medicare programs face substantial financing shortfalls that 
require legislative corrections. It is important to grasp that 
the amount of time remaining to enact a financing solution is 
far less than the amount of time projected before final 
depletion of Social Security's combined trust funds. If 
lawmakers take action sooner rather than later, more options 
and more time will be available to phase in changes so that the 
public has adequate time to prepare. Earlier action will also 
help elected officials minimize adverse impacts on vulnerable 
populations, including lower-income workers and people already 
dependent on program benefits.''
    So the final point I would make is that tax increases do 
not solve this problem, and it would be a mistake to go down 
that road. Actuaries have even analyzed the proposal that some 
have suggested: that we completely lift the cap on income that 
is subject to the payroll tax. Of course, that is a radical 
idea to change the program fundamentally and, in the process, 
to sever the link between taxes paid in and benefits received.
    But even if that radical step were taken, it would only 
provide temporary relief. The cash flow deficits would return 
in just 11 years.
    So again, Mr. Chairman, I thank you very much for agreeing 
to do this hearing. I am looking forward to hearing from our 
witnesses and having a discussion.
    Senator Brown. Thank you for your comments.
    Senator Casey?
    Senator Casey. Mr. Chairman, I will move right to the 
witnesses.
    Senator Brown. Senator Isakson?

           OPENING STATEMENT OF HON. JOHNNY ISAKSON, 
                  A U.S. SENATOR FROM GEORGIA

    Senator Isakson. I just want to thank the chairman for 
calling this hearing. There is probably no more important 
subject for us to be talking about. Everybody talks about the 
housing bubble and all the bubbles we have had. The big bubble 
coming is the pension bubble and the retirement security bubble 
for America.
    My hometown of Atlanta, GA, the capital city of the State 
of Georgia, just finally faced up to the music and reformed 
their pension fund to try to make it actuarially sound for its 
beneficiaries in the future by reforming benefits, reforming 
contributions that go into the plan. But they finally faced the 
music.
    I want to associate myself with what Senator Toomey said. 
We have to face the music too. We have to preserve those 
entitlements for which people have paid. In fact, most people 
in America who have paid taxes have paid more for their 
retirement security than they have income taxes. They paid it 
under the payroll tax, and they deserve the protection, and 
they deserve a Congress that is looking into the future, not 
just for them, but for their children and grandchildren.
    As policymakers, we have to be willing to make some very 
difficult decisions, but make them in the context of our 
obligation to the people we represent. So this hearing, as 
called, is most appropriate. The solutions are not easy, but 
Senator Toomey's comments about preserving the tax benefits and 
incentives of government policy to direct people toward more 
private savings are absolutely essential, because people have 
to become more dependent upon themselves and less dependent 
upon government. But we need to incentivize that contribution 
process so it is easier and easier for them to accumulate 
benefits over time and accumulate capital over time.
    I look forward to participating in the hearing today and 
appreciate your calling it.
    Senator Brown. Thank you, Senator Isakson.
    Let me introduce the witnesses, and then we will begin the 
testimony.
    The first witness is Rob Romasco, president of AARP, who 
came to AARP after a distinguished career in the private sector 
and has written and spoken extensively on the wide-ranging 
impact of Social Security on our economy. Thank you for joining 
us, Mr. Romasco.
    Andrew Biggs is resident scholar at the American Enterprise 
Institute. He has devoted his career to researching retirement 
savings and pensions issues and has served as the Principal 
Deputy Commissioner of the Social Security Administration. 
Welcome, Mr. Biggs.
    Dean Baker is the co-director of the Center for Economic 
and Policy Research. He has published extensively on these 
issues and on the tax treatment of retirement benefits. He is 
one of the foremost experts in the field. His research is 
regularly cited in major media outlets. Mr. Baker, welcome.
    And finally, John Sweeney is executive vice president of 
Fidelity. He is responsible for portfolio advisory services, 
where Fidelity has developed some of the best research 
available on America's retirement security. Thank you, Mr. 
Sweeney, for joining us.
    Your written statements will be entered into the record. We 
appreciate you limiting your oral testimony to the allotted 5 
minutes so we will have ample time for questions.
    Mr. Romasco, please begin.

                 STATEMENT OF ROB G. ROMASCO, 
                PRESIDENT, AARP, WASHINGTON, DC

    Mr. Romasco. Chairman Brown, Ranking Member Toomey, Senator 
Casey, Senator Isakson, on behalf of AARP's more than 37 
million members, we thank you for holding this hearing on 
Social Security's role as one of the Nation's most important 
family protection programs. My name is Rob Romasco. I am a 
member of AARP's all-volunteer board of directors, and I am 
honored to serve as AARP's president.
    When we think about Social Security, we tend to picture 
retired people, and they are indeed the majority of those 
receiving benefits. That alone is a critical, important 
function. But Social Security is far more. It protects working 
men and women throughout their lives from the risks that can 
lead to the loss of livelihood, such as from death or 
disability. We may not think of Social Security as a family 
income protection program, but that is exactly what it is.
    Picture this. More than 4 million Social Security 
recipients are children. In fact, Social Security pays more 
benefits to children than any other government program. Social 
Security coverage also protects more than 9 in 10 younger 
workers against the risks of death and disability, something 
that one in three workers will face before they retire.
    Social Security is an insurance policy with benefits worth 
hundreds of thousands of dollars. Social Security is critically 
important for millions of children who live with their 
grandparents. Without these benefits, many grand-families would 
sink into poverty. It is disaster relief that is there for 
families when catastrophe strikes. Less than 3 weeks after the 
September 11 terrorist attack, the Social Security 
Administration sent the first checks to survivors of workers 
killed in New York, Virginia, and Pennsylvania. Today, eligible 
children and surviving spouses of people killed and disabled in 
the attacks are still receiving monthly benefits.
    Picture for a moment, you are a 33-year-old mother of one, 
with a baby on the way, who learns her husband was just killed 
in an accident at work. Imagine that you have no idea how you 
are going to feed your family. Now, imagine the relief of 
discovering a program that will help you support your children 
until they become adults. That is a blessing--Social Security--
and that family was mine.
    My dad died before I was born. My mom worked incredibly 
hard as a seamstress. But Social Security benefits, survivor 
benefits, were a big help in putting food on the table, clothes 
on our backs, and a roof over our head. So, yes, Social 
Security is a genuine lifeline for families, for every 
generation. It is a lifeline embraced by the young as well as 
their elders.
    As I travel across the country, people of all ages, 
especially those over 50, express their passionate commitment 
to leaving the world a better place for their children and 
grandchildren. As I visit college campuses, students talk about 
making sure their parents and grandparents are secure and 
independent. Social Security, the young and old understand, is 
a vital part of the intergenerational compact.
    We hear sometimes that the young and old are rival armies 
in the struggle for finite resources. That is not what I see. I 
see family members who depend on each other. I see Americans at 
different stages in life's journey, older people helping 
younger people. Later, the caregivers become the cared for. One 
day, the young will need the retirement protections of Social 
Security every bit as much as seniors do today, and perhaps 
even more.
    Social Security is one of the pillars of retirement 
security--that 3-legged stool Senator Brown talked about--we 
could once depend upon, along with the employer-provided 
pensions and personal savings. Unfortunately, Social Security 
is the sole remaining dependable leg.
    Traditional defined employee-based pensions have gone the 
way of the floppy disk. Retirement savings have shrunk. Real 
wages for most Americans are stagnant or going down. Health 
care costs have soared. No wonder more than 1 in 3 working 
households from 21 to 64 years of age has no retirement 
savings. Half the workforce has no employer-provided retirement 
plan. For those who do, the amount in their 401(k)s would pay 
them a retirement benefit of less than $80 a month for life.
    Financial security for many Americans is in jeopardy. 
Unless we reverse the current trends of stagnant wages and no 
pensions, Social Security will be even more important and, in 
many cases, the only source of retirement income for our 
families and our loved ones.
    We have to make sure Social Security is strengthened as a 
critical source of income they can rely upon. We also must help 
the American public understand that Social Security is not just 
a critical piece of retirement security, but also a powerful 
engine in our economy. State and local economies, businesses, 
and workers benefit from every Social Security dollar paid out.
    At AARP, we just did a report, which I would respectfully 
request be included in the record, that found each $1 paid to 
beneficiaries generates nearly $2 in spending by individuals 
and businesses, adding about $1.4 trillion in total economic 
output in the year 2012. This output generates tax revenues for 
the State, local, and Federal governments exceeding $220 
billion.
    The discussion the Nation needs to have about Social 
Security and retirement is more than about deficit numbers. It 
is about family protection and community support. It is about 
real families trying to make ends meet and afford the 
necessities of life. It is about children making sure their 
parents and grandparents can live with dignity and 
independently. It is about our parents not wanting to be a 
burden on their children. It is about my sister and me having 
enough to survive as children so we could change the 
trajectories of our lives and make a meaningful contribution.
    Social Security belongs to the people who worked hard all 
their lives and contributed from every paycheck, the people who 
were promised that it would be there for them and their 
families. It is a critical part of protecting our families 
throughout our working lives. It belongs to the children and 
grandchildren whose lives have been touched by misfortune. It 
protects all our families today and in future generations. We 
are all in this together.
    Thank you very much.
    [The prepared statement of Mr. Romasco appears in the 
appendix.]
    Senator Brown. Thank you, Mr. Romasco.
    Mr. Biggs?

   STATEMENT OF ANDREW G. BIGGS, RESIDENT SCHOLAR, AMERICAN 
              ENTERPRISE INSTITUTE, WASHINGTON, DC

    Mr. Biggs. Thank you very much, Chairman Brown, Ranking 
Member Toomey, members of the committee. Thank you for the 
opportunity to testify today with regard to Social Security, 
pensions, and the retirement security of the American people.
    I wish to make three main points. First, Social Security's 
benefits are more adequate, but its financing less healthy than 
many suspect. Financial advisors generally recommend that 
retirees have an income equal to 70 to 80 percent of their pre-
retirement earnings. The typical new retiree today receives a 
Social Security benefit equal to around 69 percent of their 
earnings immediately preceding retirement. Does this mean that 
retirees are living high on the hog from Social Security? Of 
course not. And there are many low-
income retirees who clearly receive inadequate benefits from 
the program.
    But it is not clear that Social Security's benefits are all 
together too stingy. Yes, some European countries pay higher 
pension benefits than we do, but, if you look at countries with 
similar political and economic cultures to our own, say, the 
U.K., Canada, Australia, or New Zealand, their pension plans 
offer replacement rates that are pretty close to what Social 
Security pays.
    But Social Security's finances are weaker than commonly 
understood. To make the program sustainably solvent without 
reducing benefits would demand an immediate and permanent 29-
percent tax increase. If these tax increases are delayed, they 
only grow larger.
    Some have been willing to propose such tax increases, in 
particular by eliminating the $113,000 ceiling on which payroll 
taxes are levied. This seems like a tempting and an easy 
solution to the Social Security problems. But let me point out 
several downsides. First, eliminating the so-called tax max 
would raise the top tax rate on earned income from around 43 
percent today to about 55 percent. Add State income taxes, and 
the top tax rate generally rises above 60 percent and, in some 
States, closer to 70 percent. Eliminating the so-called tax max 
would effectively tap out high earners before we fix the larger 
financial problems facing Medicare and Medicaid.
    Also, current proposals to eliminate the tax max also would 
increase benefits. As a result, they would fix only around half 
the 75-year shortfall and extend solvency by around 16 years. 
Furthermore, in an international context, our tax max is not 
unusually low. In the U.S., payroll taxes are applied up to 
around 3 times the average wage. In the average OECD country, 
payroll taxes are capped at around twice the average wage.
    The principal risk to retirement security today is Social 
Security's insolvency. I believe that talk of raising Social 
Security benefits before solvency is restored is irresponsible.
    Second, some look with dismay at how defined contribution 
plans have supplanted traditional defined benefit plans over 
the past several decades, but participation in a traditional DB 
pension does not mean you will receive benefits from one. While 
long-term employees do very well from DB pensions, only around 
1 in 10 individuals participating in DB systems actually ends 
up collecting benefits from them.
    For instance, the average employee today changes jobs every 
4.6 years. Such an employee would not even vest in a 
traditional defined benefit plan. And even employees who do 
vest often do not receive much. Despite our nostalgia for DB 
plans, I would wager that if DB pensions were the only plans 
available today, retirement security in the U.S. would be 
considerably worsened.
    Finally, while DB pensions do have important advantages 
over DC pensions, which I outline in my written testimony, many 
of these advantages can be transferred to DC programs. For 
instance, consider a defined contribution pension plan which 
had automatic enrollment at a healthy contribution rate, 
invested in a life cycle portfolio which automatically shifted 
from stocks to bonds over time, with investments composed of 
low-cost index funds, and that at least partially annuitized 
benefits at retirement.
    Such a plan would address most of the concerns raised about 
retirement security today with very limited downsides for 
individuals and no risk to the taxpayer. Moreover, nearly all 
of this will be allowable under current law.
    Retirement policy has massive ramifications for individual 
retirement security, the Federal budget, and the broader 
American economy. We need policies that encourage Americans to 
work and to save and to delay retirement. Such policies will 
enhance individual retirement security, as well as boost the 
economy, which is the ultimate source of retirement income for 
all of us.
    Thank you for your consideration.
    [The prepared statement of Mr. Biggs appears in the 
appendix.]
    Senator Brown. Thank you very much, Mr. Biggs.
    Mr. Baker?

 STATEMENT OF DEAN BAKER, CO-DIRECTOR, CENTER FOR ECONOMIC AND 
                POLICY RESEARCH, WASHINGTON, DC

    Mr. Baker. Thank you very much, Chairman Brown, Ranking 
Member Toomey, for inviting me to speak here today.
    I want to make three main points in my testimony, first 
off, emphasizing the comments Chairman Brown had made at the 
beginning that Social Security is the main source of income for 
most retirees, particularly moderate-income retirees; secondly, 
that it is projected to become an even more important source of 
income in the decades ahead, primarily as a result of the 
disappearance of defined benefit pension plans, inadequate 
replacement of 401(k)s, and also stagnant wages. Third, I want 
to comment briefly on proposals to change the indexation 
formula for Social Security. I would argue that switching to 
the elderly consumer price index is very much in keeping with 
the original intent of Congress, and I would argue the opposite 
with the chained consumer price index. That is basically a way 
to cut the program.
    Before I do that, I just want to quickly make a couple of 
comments. Ranking Member Toomey had said that Social Security 
was cash-flow negative. I would like to point out that, in 
fact, that is not the case. A portion of the cash flow is 
interest on the bonds held by the trust fund. That is under the 
law. A business that had interest income would not be 
considered cash-flow negative if that put it into positive 
territory.
    Another point that I just want to make quickly is in terms 
of the size of the tax increases. I think it is important to 
realize two points. One is the extent to which the shortfall 
facing Social Security is attributable to the upward 
redistribution of income over the last 3 decades. Ninety 
percent of wage income was covered by the cap after the 
Greenspan Commission set it in 1983. Because of a large upward 
redistribution of income, we now cover less than 83 percent of 
wage income. If it had covered 90 percent of wage income over 
this whole period, that would have cut the projected shortfall 
by more than 40 percent.
    In the same vein, when we talk about the size of the tax 
increases, it is important to keep in mind some reference. We 
have seen stagnant wages over the last 3 decades for most 
workers. If workers' wages grew at the same rate as projected 
average wage growth--in other words, all workers shared equally 
in wage growth--the tax increases needed to make the fund fully 
solvent would be about 5 percent of projected wage growth over 
the next 3 decades. And you are welcome to decide whether that 
is big or small, but I think it is important to understand the 
context.
    Returning to the points I had wanted to make, Chairman 
Brown very well laid out the basic argument about how important 
Social Security is for most retirees. It covers 36 percent of 
income for people over age 65, and 52.2 percent of non-wage 
income. It provides 90 percent or more of the income for 35 
percent of seniors and 45 percent of unmarried seniors.
    One of the facts about seniors I think is very striking is 
that the poverty rate, the supplemental poverty rate, which 
most people view as the better measure for seniors, is now 14.8 
percent. That compares to 15.5 percent for the adult population 
as a whole. The story there is that Social Security has been 
effective in lifting huge numbers of seniors above poverty. So 
their poverty rate is basically the same as the adult 
population, which is very different from the story we saw 
before we had Social Security.
    The second point I wanted to make is the importance of 
Social Security for middle-income people, a population that is 
projected to rise hugely over the next 2 decades. If we look at 
the current generation of retirees, Social Security accounts 
for 34.2 percent of their total income. That is projected to 
rise to 37 percent for workers who hit 67 between the years 
2033 and 2042. The rise is more dramatic if you look at non-
wage income. It goes from 41.9 percent to 48.6 percent. If you 
look at non-wage, non-rental income--we have imputed housing 
income in that--the rise is from 46.4 percent to 54.8 percent.
    This just illustrates the fact that, because of the 
collapse of defined benefit pensions, Social Security is 
projected to be a much more important source of income in the 
decades ahead, something that I think we all have to be very 
aware of.
    The last point I want to make is in reference to the 
elderly consumer price index. If you go back to the decision to 
index Social Security to the cost of living, presumably 
Congress did that in 1975 with the intention of ensuring that 
seniors could preserve their standard of living. The elderly 
index is intended to track the standard of living--the prices 
paid by the elderly. It has consistently risen two-tenths to 
three-tenths of a percentage point more rapidly than the 
overall CPI, primarily because of the more rapid growth in 
health care costs.
    By contrast, if we look at the proposal to switch the 
indexation to the chained consumer price index, there is 
literally no evidence--no one claims that that is a more 
accurate measure of the cost of living as seen by the elderly. 
There are features of that that are desirable, such as picking 
up substitution, but it is looking at substitution for the 
population as a whole, not for the elderly.
    If the intention of Congress is to have an index that 
accurately tracks the consumption patterns of the elderly, it 
can instruct the Bureau of Labor Statistics to set one up. And 
frankly, I do not know whether that would show a higher 
measured rate of inflation or a lower measured rate of 
inflation. What I can say is, it would show a more accurate 
one.
    Thank you.
    [The prepared statement of Mr. Baker appears in the 
appendix.]
    Senator Brown. Thank you, Mr. Baker.
    Mr. Sweeney?

    STATEMENT OF JOHN F. SWEENEY, EXECUTIVE VICE PRESIDENT, 
                FIDELITY INVESTMENTS, BOSTON, MA

    Mr. Sweeney. Chairman Brown, Ranking Member Toomey, 
Senators Isakson and Casey, thank you for having us speak to 
you today on this very important topic. My name is John 
Sweeney. I am an executive vice president at Fidelity 
Investments. I am responsible for the retirement and investment 
strategies that we develop for the investors that we serve.
    We have the privilege of helping more than 23 million 
Americans save for retirement through their workplace and 
personal savings retirement accounts, such as 401(k)s and IRAs. 
And like you, we want to help Americans feel more confident, 
make clear financial decisions, and achieve better results for 
their families when it comes to retirement.
    At Fidelity, we are passionate about sharing our expertise 
and our insights with our customers. Every day, working 
Americans ask us how to divide their family's paycheck in order 
to meet multiple financial obligations, including paying down a 
mortgage, saving for their children's college, possibly caring 
for an aging parent. One goal which is common to all of our 
customers is being ready for retirement. This includes the 
young investors enrolling in a workplace savings plan or an 
older couple nearing 65 and asking if they have saved enough to 
contemplate retirement.
    These investors need help navigating the multiple accounts 
and investment choices available to them at all stages of life. 
We believe that the private retirement system is working well 
for those who utilize it as designed. However, many people are 
not saving enough to ensure that they will have a comfortable 
retirement, and young investors face an especially difficult 
road ahead. At the highest level, Americans need to save more, 
and we need to incent them to do that, and we need to provide 
the help that they are seeking in order to make it easier to 
achieve retirement security.
    As you know, workplace savings plans have become one of the 
primary ways that most working Americans save for retirement. 
And for those who enroll early in their careers, save as much 
as possible, increase their savings as they earn more, and stay 
the course when markets get volatile, the results are generally 
good.
    In fact, our latest data shows that for people who have 
been continuously saving for 10 years, the average balance in a 
401(k) has reached more than $223,000, up from approximately 
$53,000 a decade ago, representing a more than 15-percent 
annual increase. That said, we still have work to do to ensure 
that as many people as possible are prepared for retirement.
    We surveyed several thousand American households to 
understand how prepared people were to cover basic expenses 
like housing, food, and health care in retirement, and the 
results, in aggregate, were sobering. We found that 55 percent 
of American workers were in fair or poor condition and were not 
on track to cover their essential expenses in retirement. We 
coded these people red and yellow in our retirement 
preparedness measure, which you will see on page 7 of our 
written testimony, as well as on the chart to my right.
    On the other hand, a third of the households we surveyed 
are on track to cover 95 percent of essential expenses. We have 
given these people a green score, and, for these people, the 
system is working well. And, while baby boomers, as an age 
cohort, are generally doing well, Generation Y workers face 
more significant challenges. With longer life expectancies and 
fewer pensions available to them, Gen Y investors will need to 
save more on their own and anticipate working longer in order 
to live a comfortable retirement.
    That is why we believe that we need to encourage higher 
levels of savings now. We know, especially with younger 
investors, that the most powerful way to improve readiness is 
to save more, even if only a small amount. Our research shows 
that for a 25-year-old earning $40,000 a year, increasing 
savings just 1 percent a year can mean up to $300 per month 
more in income in retirement.
    We applaud the employers who have adopted auto-enrollment 
and auto-increase programs and provide a generous company 
match. These firms are leaders in helping their employees get 
on the path to retirement security.
    Policymakers should consider doubling the default savings 
rate from 3 percent to 6 percent. While our research shows that 
people need to save 10 to 15 percent of their salary annually 
in order to retire securely, by starting at 6 percent with an 
auto-escalation feature, you can get a young saver on track to 
a successful retirement within a few short years. Taking this 
step now would mean a world of difference for younger 
generations in particular.
    Finally, we need to continue to find ways to provide 
investors with more guidance and education, not less. At 
Fidelity, people come to us to help navigate some of the most 
complex, difficult decisions of their lives, and the demand for 
education and guidance is up dramatically since the financial 
crisis.
    We take seriously our obligation to simplify that 
complexity and to do everything in our power to help them. The 
earlier, the better. Our data shows that workers who engage in 
a retirement planning session either online or on the phone 
increase the amount they save by an average of 5 to 6 percent. 
We take great pride in offering these resources to anyone.
    We would encourage this committee to work with the 
administration to ensure that people can continue to have 
access to the kinds of resources they need to make good, 
responsible decisions for themselves and their families. We 
recognize there are major challenges to solving these issues, 
but, with your partnership, we can work together to increase 
the savings rates in the workplace and help more Americans be 
better prepared for retirement and meet the challenges that lie 
ahead.
    So, thank you for the opportunity to appear today, and I am 
pleased to take your questions.
    [The prepared statement of Mr. Sweeney appears in the 
appendix.]
    Senator Brown. Thank you, Mr. Sweeney.
    Mr. Romasco, you suggested that some see efforts to enhance 
or increase Social Security in a variety of different ways as a 
war between the generations. Why are they wrong?
    Mr. Romasco. I think the issue is, that is a false premise. 
Basically, it says we have a finite pot of resources, they are 
limited to these, and we have to fight over them.
    The issue is, we all age. When you are 20 and you enter the 
workforce, you have, hopefully, a long life in retirement and 
so forth. And, if you look at the intergenerational activity, 
you are concerned about your life and your family and your 
parents and your grandparents, and vice versa.
    So the notion is not one of intergenerational conflict. It 
should be intergenerational solidarity. If we look at the data, 
that data does not indicate the transfer of wealth from old to 
young. It is kind of different. It is from bottom to top. We 
have seen the most massive wealth redistribution in this 
country over the last 30 years.
    So it is a false premise. We are all in this together. We 
care for our children. Our children do not want our parents to 
be burdened, and we, as grandparents and parents, do not want 
our children to be burdened. So, when you look at the 
intergenerational dynamics of families, of protecting them as 
workers, we have an idea based on social insurance. We are all 
in this together, we all contribute, and we take the benefits 
appropriately.
    But they are designed to protect us all through the journey 
of life.
    Senator Brown. Thank you.
    Mr. Biggs, I want to put a series of questions to you and 
then--I will just ask three or four questions--if you would 
answer them sort of together, and then each of you take a shot 
at that, if you would like to.
    Just give us your general thoughts on, are current Social 
Security levels adequate? Should we enhance Social Security, 
and, if so, how should we do it? And, if you believe that we 
should modernize Social Security, what is your definition of 
modernizing the system?
    Mr. Biggs, give us sort of your general thoughts about 
those three questions, and then each of you respond also, 
please.
    Mr. Biggs. Well, as I note in my testimony, I believe that 
Social Security benefits are, on average, more adequate than 
many people think. The talking point you hear, which comes from 
Social Security itself, says, well, financial advisors 
recommend you need to replace 70 percent to 80 percent of your 
retirement income. Social Security offers the average retiree 
40 percent.
    The problem is, those measurements are measured in 
different ways. Financial advisors measure benefits for 
replacement rates relative to final earnings. Social Security 
measures them relative to the wage-indexed average of your 
highest 35 earnings--do not worry how that is measured, but 
they are just apples and oranges.
    If you measure Social Security benefits the way financial 
advisors would, relative to the earnings right before 
retirement, Social Security benefits, on average, are not, 
clearly, inadequate.
    At the same time, the big problem for folks at the low end 
is not that Social Security benefits are not adequate, on 
average, or that Social Security benefits are not progressive 
enough. The problem is that there is an enormous variation in 
the replacement rates that people receive even if they have the 
same lifetime incomes and the same contributions to the 
program.
    For example, if you take a husband and wife, a couple, the 
benefit they can get can vary based on whether they split the 
earnings evenly between the husband and wife or whether the 
husband earns it all and the wife does not, even if they have 
the exact same lifetime earnings. Likewise, if you have two 
individuals with the same total lifetime earnings, and one fits 
them into 35 years, but the other has a longer career, over 45 
years, they will have the same lifetime earnings, but they will 
get a very different benefit.
    For low-income people, Social Security is a risky benefit, 
not in the sense of market risk, but it is an uncertain 
benefit, highly uncertain. You have enormous variation in the 
benefits they receive. If we simply reduce that variation and 
give a better-targeted, more uniform benefit, which is 
something I have written about fairly extensively, you could 
reduce poverty in old age, you could provide a much more 
reliable social insurance program, and you could do it at the 
same price that we are currently paying.
    The problem with Social Security is, as a social insurance 
program, it is like a housing insurance policy that may or may 
not pay off if your house burns down. You cannot be assured of 
having a high replacement rate if you are a low-income person.
    So I think we need a simpler, better-targeted program, one 
that is a better social insurance policy for people on the 
bottom end, but, to be frank, tells middle- and high-income 
people they have to save more.
    People know--and Dean's testimony will point to this--that 
Social Security is an important component of income even for 
middle-income and even high-income people in the United States. 
Some people will say, well, that shows how important Social 
Security is. What that tells me is we have a lot of people who 
could, should, and would be saving more, but they are not 
because they are getting Social Security benefits instead.
    Low-income people need a better Social Security program, 
but higher-income folks really do need to save more on their 
own.
    Senator Brown. Mr. Baker, your thoughts on those questions?
    Mr. Baker. A couple of points. I would say, certainly for 
low-
income to moderate-income people, I think Social Security is 
inadequate. And sort of the good part of that story is, it is 
easy to make a very big difference for low- and moderate-income 
people with some reforms that do not add a lot to the cost.
    Some women's groups put together a program some years back 
that called for, among other things, making the surviving 
spousal benefit 75 percent of the combined benefit. A lot of 
the poorest elderly are surviving spouses, most often women, 
obviously, in their 80s and 90s and older years. It is a 
relatively low-cost proposal. You could cap that at the average 
wage so it does not add a big expense.
    Also, raising the bottom tier from 90 percent to 100 
percent, you could take that back so that higher-income 
beneficiaries do not benefit from that. Again, that would limit 
the cost and increase the payback of the benefits on the order 
of 11 percent for lower-income people. So I think there are 
some things we could do at very low cost.
    Now, I think I am agreeing here with Andrew a little bit. I 
do think it is important to make it easier for people to save, 
and I think that it is unfortunate that so many workers, 
basically, have lost defined benefit pension plans, and many 
workers do not work at places that have defined contribution 
plans, or, if they do, they do not stay there long enough.
    There have been a number of proposals, and I think some of 
them have enjoyed bipartisan support, to set up some sort of 
system, like the Thrift Savings Plan, that would be open to 
everyone, an affordable system, a low-cost system. The 
administrative costs, of course, make a very big difference. 
Mr. Sweeney's outfit does have very low costs. Many do not. 
Those low costs make a very big difference in someone's ability 
to accumulate wealth for retirement.
    So, if everyone had the option to have a certain amount 
deducted--and you could have that as a default contribution you 
could opt out of--and put into a Thrift Savings-type plan with 
low administrative costs, take that wherever they went, 
automatic annuitization, again, opt out of that, but that would 
be the default, I think that could make a big difference for 
middle-income retirees and how much they are able to save.
    Senator Brown. Mr. Sweeney, your thoughts on that?
    Mr. Sweeney. Chairman Brown, the way we think about Social 
Security is, it solves two issues: one, longevity, and two, it 
provides a floor of predictable income for people who are 
entering retirement.
    So, when we do retirement planning with customers who are 
contemplating the ability to enter retirement, we ask them to 
figure out their expenses, and really what we are trying to do 
is cover those essential expenses--food, shelter, medical 
care--with as predictable a stream of income as possible. 
Social Security provides one of those predictable streams of 
income.
    The other thing, though, that we do counsel them is, if you 
can continue to work longer, the benefit you will receive on an 
annual basis increases approximately 8 percent a year. So that 
is one of the tradeoffs.
    We ask people who have accumulated some wealth to think 
about spending down their current personal wealth before they 
tap into Social Security in order to receive a higher annual 
payment from Social Security if they can defer the time they 
begin taking it.
    Senator Brown. Thank you.
    Senator Toomey?
    Senator Toomey. Thanks, Mr. Chairman.
    I want to delve into the solvency issue facing Social 
Security. And Mr. Baker objected to my characterizing the 
program as being cash-flow negative, and, of course, 
technically, he is exactly correct, because we have what I 
consider a series of accounting devices that obfuscate the 
reality of this program.
    One of them is the interest income that is a certificate 
that the Treasury hands over to the Social Security 
Administration, which is promptly filed in a filing cabinet and 
has no more real assets behind it than any of the certificates 
in that filing cabinet.
    So, when we look at this, we could look narrowly at what we 
deem to be assets in the Social Security Trust Fund, and I 
think we would miss the more essential point, which is this: 
what is the ability of the Federal Government to honor the 
commitments that it has made to current retirees and future 
retirees in the Social Security program?
    Mr. Biggs, I am wondering if you would agree with my 
characterization that, for the purpose of evaluating that 
question--the ability of the Federal Government, as a whole, to 
actually honor its commitments--what matters is the cash flow 
that is coming in through the payroll taxes and the benefits 
that are being paid out, and intra-governmental transfers of 
certificates do not have any material impact at all on that 
fundamental ability.
    Do you agree with that, Mr. Biggs?
    Mr. Biggs. Sure. I mean, here is maybe one way to think 
about it. Imagine if we had no Social Security Trust Fund at 
all. If that were the case, then back a couple of years ago 
when Social Security started running negative cash flow, we 
would face the choice of either raising taxes, issuing more 
debt, or cutting benefits. So those would be the three choices 
we would face.
    When you do have a trust fund, you have essentially the 
three same choices. The trust fund biases you in one direction. 
As long as you have a positive trust fund balance, the default 
position of the Federal Government is, well, we are either 
going to raise taxes or borrow so we can pay full benefits. 
Once the trust fund runs out, the default position of the 
Federal Government is, well, we are going to cut benefits back 
to whatever level we can pay with payroll taxes. So the trust 
fund has a legal significance, and it pushes your policy in one 
direction or the other, but the choices you face--the resources 
you have available, where you have to get them from--those are 
the same whether you have a trust fund or do not have a trust 
fund.
    Senator Toomey. So is it fair to say that, economically, 
there are no real assets backing up the certificates in the 
trust fund and the existence of the trust fund does not have 
any impact whatsoever on the overall ability of the Federal 
Government to honor its commitments?
    Mr. Biggs. Exactly. The trust fund is a commitment to pay. 
It is not money that enables you to pay.
    Senator Toomey. Right.
    Mr. Biggs. The trust fund does not make it any easier for 
taxpayers to finance Social Security. It just says that the 
taxpayer has promised to finance Social Security.
    Senator Toomey. And this interest income, which I would 
view as an accounting device, is that not rather akin to my 
taking $1,000 out of my savings account, moving it to my 
checking account and saying, oh, I have another $1,000 of 
income? There is nothing real there.
    I think it is important that we focus on this, because I 
think we are kidding ourselves if we think that somehow 
everything is fine for several decades because we have this 
nominal trust fund that we treat as though it were real assets, 
and it is fundamentally not.
    I want to ask another question, because you made a very 
interesting series of points about how defined contribution 
plans could have the advantages that we often associate with 
defined benefit plans. I think people sometimes mistakenly 
think of or even characterize defined contribution plans as 
being very risky, and they think of the person who takes their 
accumulated life savings and invests in Enron the day before it 
all goes to nothing.
    But life cycle investing and at least partial annuitization 
eliminate that risk. Could you explain in particular what the 
life cycle investment profile is all about and how that works?
    Mr. Biggs. Well, you get these life cycle--some people call 
them lifestyle--funds. They are available in the Thrift Savings 
Plan today. They are available in a number of 401(k) plans. And 
they try to tackle the problem that a lot of people do not pay 
very much attention to their investments. People do not 
reallocate their investments as they get older. They do not 
think about how their different investments fared.
    So these are plans that automatically shift you from stocks 
when you are young to bonds as you get older. The idea is that, 
when you are younger, you can afford to bear a little bit more 
investment risk. When you are older, you want something that is 
more predictable. And it does this automatically over time. If 
you have this allocation working, as the TSP does, using low-
cost index funds, it is a simple and low-cost solution to a 
problem.
    I think, just more broadly, when people think about DB 
versus DC plans, the thing they think about is, who bears the 
market risk? I think that is actually the less important thing 
to focus on. But the difference of being automatically 
enrolled, the difference in the contribution rates or the 
saving rates, the difference in terms of annuitization, those 
are, by far, the more important differences to me, and those 
are things we can do today through DC plans and, to a certain 
degree, we already are doing today.
    DC plans clearly have problems. I do not deny that. But 
they are problems that could be fixed. DB plans, again, if you 
look at the State and local sector, have problems that I think, 
in a lot of ways, are much, much more difficult to fix.
    Senator Toomey. Thanks very much. I see my time has 
expired. Thanks, Mr. Chairman.
    Senator Brown. Sure.
    Senator Isakson?
    Senator Isakson. In 1983, when Reagan and O'Neill, Tip 
O'Neill, changed the Social Security rules, I was 39 years old, 
and they passed a new rule that said if you were born after 
1943, your eligibility went from age 65 to age 66. Well, I was 
born in 1944, so I was the first generation of Americans to 
lose a year of my Social Security eligibility. And it is going 
to age 67 here in a few years.
    There are a lot of people proposing looking into the out-
years and pushing eligibility out in the out-years for our 
children and grandchildren. What would be your position on 
that, Mr. Romasco?
    Mr. Romasco. Well, I think what we have advocated and have 
been strenuously advocating for over a year is, let us take 
this conversation out of the deficit discussion and have a 
retirement discussion. And among the possibilities is raising 
the age, along with a series of others. But we have to look at 
the financial issue, the circumstantial issue, as well as sort 
of the value issue.
    I think there are challenges with raising the age, and I 
think one of the challenges is, clearly, it is going to become 
very difficult to ask a coal miner to go down in that mine when 
he is 68 or 69 or 70 or a waitress who has been on her feet for 
30 years.
    So I think there are issues with it, and I think that 
should be part of that larger conversation about Social 
Security's role in the broader retirement system. We have heard 
a lot of suggestions here that are worthy of consideration, but 
the important thing is, let us have Social Security as part of 
our retirement system conversation, not a deficit conversation.
    Senator Isakson. Mr. Biggs, what do you think about raising 
the age? Just briefly.
    Mr. Biggs. Well, Mr. Romasco cited a coal miner or somebody 
like that. Go back to 1950 when we had a highly industrialized 
economy. You had coal miners and farmers and factory workers. 
The average age of initial Social Security claiming then was 
68. Today, when your biggest on-the-job risk is carpal tunnel 
syndrome from your mouse or something like that, it is 63.
    In a proposal I did for AEI a few months ago, I did not 
propose raising the retirement age. But I think the idea that 
we cannot have a higher retirement age, I think it just flies 
in the face of the fact that people did, in fact, retire later 
in the past, and today's jobs are less physically demanding 
than they were in the past.
    So it is not something I say has to happen, but I think it 
is something that people should at least be open to.
    Senator Isakson. Mr. Baker?
    Mr. Baker. Well, just a couple of points. First off, there 
has been a growing gap in life expectancy. So people often 
point to the fact that we are living longer, and that is true, 
but it is not quite the same for everyone. So, 
disproportionately, the gains in life expectancy have gone to 
those in the top quintile, not to those in the bottom half of 
the income distribution. So the idea that they will enjoy a 
longer retirement is not necessarily true.
    The other point is, following on Andrew's, we actually did 
an analysis of this, looking at Labor Department 
classifications, and we found that close to half of workers and 
close to 60 percent of workers in the bottom quintile were at 
jobs that were classified by the Labor Department as physically 
demanding. So these are people working as custodians, working 
as waitresses, being on their feet pretty much 8 hours a day.
    So the idea that we are all just worried about carpal 
tunnel syndrome with our mouse, I think that is just not true. 
So I would be very hesitant to raise the retirement age.
    Senator Isakson. Mr. Sweeney?
    Mr. Sweeney. Senator Isakson, we actually tried to quantify 
in our survey how impactful delaying retirement was. We found 
that if workers delayed retirement from 65 to age 70, they saw 
a 12-point improvement in what we characterized as their 
retirement preparedness measure. When we saw folks who worked 
part-time--that was working 1 day less a week for each of those 
5 years past age 65--we saw a 7-point improvement in their 
scores. So it is a choice that people can make.
    The other thing I would say about the types of work that 
people do is, we are going to have seven different jobs during 
the course of our working tenure, and so those jobs may not all 
be the same types of jobs. We just need to consider what type 
of work people want to do.
    People want to work longer. Today's 65-year-olds are more 
healthy and more active than our parents' generation. So I 
think that is going to be a trend that workers are going to 
want to continue to pursue.
    Senator Isakson. One of the things that I think is probably 
the single biggest problem we have to figure a way to overcome 
is the lack of investor sophistication and knowledge of the 
average American in terms of saving for their retirement in the 
first place.
    I know at Fidelity, you deal with that probably every day. 
When they come in at age 55, saying, ``Well, I think I want to 
retire in 10 years, can you help me get ready,'' if they had 
done that 25 years earlier, it would have been a lot easier 
question.
    I have a resolution--I think Senator Toomey has signed onto 
it and some of the others--to really promote the tax benefits 
of retirement savings and government programs that incentivize 
people to save. Are there things that you all can recommend 
that we should be doing? Because, in the end, the easing of the 
pressure on the government is going to be when individuals are 
capable of taking better care of themselves because they are 
better educated on the compounding of interest and retirement 
security in the first place.
    Mr. Sweeney. Exactly right. The younger we can get an 
employee engaged in saving at a high level, correctly 
allocated, and understanding that they should continue to save 
even when markets get volatile, the more likely we are going to 
be successful in the future, and people are going to be better 
prepared to enter retirement.
    Some of the comments that Mr. Biggs made about auto-
enrollment--we have seen that to be very successful. Seventy-
five percent of the plans that we administer offer auto-
enrollment, but we need to have more employers make that a 
mandatory option.
    The other feature that is advantageous is what we call 
auto-
escalation. So today people default in at a 3-percent 
enrollment rate; 3 percent of their salary gets deferred to 
their 401(k). We think that number should be doubled to 6 
percent.
    The real target is a number between 10 and 15 percent, 
which includes the employee contributions, plus a match, where 
available, from the employer. We want the auto-escalation so 
that people, over a very short period of time, get to that 
target savings rate of 10 to 15 percent.
    Senator Brown. Senator Casey?
    Senator Casey. Mr. Chairman, thank you very much. And I 
want to thank Senator Brown for calling the hearing and for the 
work that he and Senator Toomey did to bring this hearing 
about.
    I want to start with Mr. Romasco. And I had a couple of 
questions prepared, but your opening statement, the way you 
personalized it sometimes, is the kind of testimony that we do 
not hear too often in this room.
    I want you to, if you could--and I know your answer 
probably is dependent upon some bit of extrapolation maybe, but 
if you could project to the present that scenario that you 
described that your mom was facing. How do you compare what 
your mom was facing in terms of the dependency on Social 
Security and the effectiveness of it with what a 33-year-old 
mother would face today who loses her husband and has one child 
and one on the way? Are you able to do that?
    Mr. Romasco. Well, it is hard to do that, but I can tell 
you that if we look at the circumstances, if that were 
happening today, I suspect she would have twice as much 
difficulty finding a job, keeping a job, and paying the rent. 
It was a three-decker house in a working class suburb of 
Boston, part of Boston, and the forces, the economic forces in 
the late 1940s and early 1950s, were not lavish, but they are 
more severe now. Health care costs have increased. The 
utilities--all the costs have increased tremendously. So I 
would suspect it would be even more challenging, particularly 
given what has happened with wages over time. So I am just 
projecting that.
    And the difference of having some level of security, to 
know that we can pay the rent, we can put food on the table, 
makes an enormous difference in the way the family unit stays 
together. And I did not realize it, frankly, until I started to 
look into it. I always assumed my life was fine. I did not sit 
at the table with my mom and do the bills. But I had a sense of 
security, and I knew that I had a vague notion that a check was 
coming and she was not pulling her hair out every night. She 
was working hard. I suspect that would be significantly 
different.
    Remember, 20 percent of us in this country are doing okay, 
especially in this zip code. One percent of us are doing really 
okay. But most members tell me, ``Rob, I'm just trying to get 
to Friday.'' I am really worried about all Americans, 
particularly the 80 percent of us who are just trying to get to 
Friday.
    Senator Casey. And I do not think there is any question 
that you do not need to have a degree in economics or a lot of 
advanced learning to look at the data on what has happened to 
the middle class over the last 4 years, the last 10 years, or 
the last 45. It is just stunning, the hammer blows that the 
middle class has endured--and the folks who are just below the 
middle class.
    You talked about, in your testimony, the idea that Social 
Security has become the primary source of retirement income, 
and you also point out that 78 million Americans do not have 
access to a workplace retirement plan. That is a really 
stunning number.
    We can debate how that has happened, but what would you 
hope that the Congress would do in just say the next 2 years or 
so, if we had an opportunity to make changes? Because I think 
all of us in either party, as much as we debate and might have 
disagreements, I think we all have a pretty serious obligation 
to get this right.
    I just want to get your thoughts on what you hope we would 
do.
    Mr. Romasco. Well, the first thing is, let us make sure we 
do not conflate this conversation with the deficit 
conversation. Let us have a separate conversation. This is a 
real challenge, the retirement challenge. Social Security plays 
a huge role in that.
    But I think we have heard a lot of suggestions about how to 
look at work and savings as part of the 3-legged stool. How do 
we restore that, those two legs, and not decimate or weaken 
Social Security? Remember, Social Security is about adequacy, 
as well as solvency, and I thought we heard a number of 
suggestions today that should be part of that conversation that 
can strengthen the savings dimension of that and encourage 
that.
    But at the same time, let us not look at Social Security as 
a piggy bank to solve the deficit. Let us have a separate 
conversation about that, and then ask the fundamental question, 
what kind of country do we want? What can we afford, and what 
are we willing to pay for?
    Senator Casey. Mr. Chairman, I know the red light is on, 
but, because we are in a smaller hearing, I am asking your 
indulgence.
    Maybe we could just do a lightning round with the remaining 
witnesses on what you would hope we would do in the next 2 
years. We will not allow you to have much time, but you can 
encapsulate what you hope we would do.
    Mr. Biggs. Well, I agree that we would want to think about 
Social Security reform in a comprehensive way, in a far-
reaching way. It is not simply about solvency.
    Too often, the problem is that Republicans think that 
Social Security is doing fine, except we do not want to raise 
taxes. Democrats think Social Security is doing just fine, 
except we do not want to cut benefits.
    The problem, but also the opportunity, is that Social 
Security is doing a lot of things not very well. If you make it 
do those things better, you can get a more efficient and more 
effective system.
    A second quick point. Although I think you want to look 
comprehensively at Social Security, if you look at it in 
isolation of the rest of the budget, you are going to miss 
something. The question I would pose is: would you fix Social 
Security differently if we did not have huge deficits in 
Medicare and Medicaid? I think, pretty obviously, the answer to 
that is ``yes.'' You would be more open to revenues perhaps 
than you would be if you did not have the Medicare problem.
    So you have to think about all of this stuff together. You 
have to say, how do we make these things fit? Social Security 
seems to be something where we can ask middle- and upper-class 
people to do more to save on their own. In Medicare, it is a 
lot harder to do that. You cannot tell somebody to go pay for 
their own health care benefits, because it is an insurance 
program.
    So we have to think about this in an integrated way as 
well.
    Senator Casey. Mr. Baker?
    Mr. Baker. I guess I would say a couple of things. First 
off, something that is defensible that could be done quickly is 
raising benefits for those at the bottom. I think you could 
make a very big difference in the income of a lot of retirees 
today or new retirees, raising those benefits at a relatively 
low cost.
    In terms of how we think about the longer-range story, I 
think it is not just the budget. I would say it is the economy. 
Again, I was making this point earlier. Much of the shortfall 
that we are looking at in Social Security is because of the 
upward redistribution of wage income. That is a tragedy, and 
one aspect of that is, Social Security faces a more difficult 
situation. On the other hand, the good side of that is, that is 
money for people who would not otherwise have it and 
desperately need it.
    So I think we have to hope for better economic outcomes. 
That is where my focus is. It is not just the budget. It is the 
economy. And also, getting back to the issues Andrew raises, 
Medicare and Medicaid, we have had a sharp slowdown in health 
care costs. That is really, really important. It is amazing how 
little that seems to be appreciated, because that has made more 
differences in deficit projections than I think anything 
Congress is likely to do in the next few years.
    So let us hope that continues. I do not know whether it 
will or whether it will not, but that certainly affects the 
environment of how we think about Social Security or the 
government's liabilities in the long term.
    Senator Casey. Mr. Sweeney?
    Mr. Sweeney. Senator Casey, there are two things that I 
would suggest. One is, increasing financial education and 
guidance; so, making the ability to help people make quick 
decisions and make complex decisions simple, that is the first 
thing.
    The second thing I would say is, from a behavioral 
decision-
making standpoint, the auto features that were discussed 
earlier are actually very beneficial, improving upon those, 
because they are proven to work when used effectively. Auto-
enrollment, auto-
escalation of contributing at higher levels, and then the 
default enrollment in target-date funds--all three features 
have been shown to yield very strong results.
    Senator Casey. Thanks very much, Mr. Chairman.
    Senator Brown. Senator Wyden?
    Senator Wyden. Thank you, Senator Brown. I commend you for 
scheduling a very important hearing on a topic that really gets 
short shrift, and I commend you for it.
    Gentlemen, I am struck by how many folks come up and 
describe accounts that invariably get into the question of 
their pension melting away. They are talking about hopes and 
dreams that they had had for years essentially evaporating 
because their pension is not going to be there. Of course, 
there are a lot of pieces to this puzzle, and the recession is 
a factor, the aging workforce is a factor. Certainly, it is 
hard to follow how some of the changes at the State level 
affect private pensions. There are a host of issues that go 
into this mix.
    But I am also struck by some of the reports that some in 
the private sector--businesses and those in the retirement 
industry--seem to be doing some wheeling and dealing with 
pension funds. We recently came across the work of a Wall 
Street Journal reporter, Ellen Schultz, who apparently has done 
a fair amount of writing on this. She says--and she is not 
talking about all the businesses and all the people in the 
retirement industry, but she is saying that there are some who 
have taken billions of dollars from pension funds to finance 
downsizings and have sold the assets in merger deals.
    They have talked about how there are loopholes in 
discrimination rules that permit pension plans to be capped to 
pay, in effect, for executive payment arrangements, executive 
parachutes, things of that nature. They talk about the 
exploitation of new accounting rules which create an incentive 
to cut benefits, and cut benefits even when there was a pretty 
good argument that the pension had enough money.
    And I was struck by this account, and clearly this 
reporter, a distinguished reporter, is not saying this is every 
business or everyone in the retirement industry. But I would be 
interested--and we can start with you, Mr. Baker, and you, Mr. 
Biggs, because you all have been in the field--how serious is 
this problem of the siphoning of dollars from pension funds to 
finance downsizing, the kind of wheeling and dealing that Ms. 
Schultz describes in really specific kinds of instances.
    Is this a serious part of this, and, if so, what kind of 
enforcement efforts could be put in place to deal with this, 
because this really looks to me like it is way over the line 
and, if not looting of private pension funds, certainly is 
pretty serious financial misconduct that should not be 
tolerated?
    Let's start with you, Mr. Baker, and then you, Mr. Biggs. 
How serious a problem are these issues?
    Mr. Baker?
    Mr. Baker. Well, I do think it is a very serious problem. 
Just to be clear, I do not think that that explains much of the 
issue in terms of workers facing inadequate retirement, in 
large part, just because there are not that many workers who 
still have defined benefit pensions. But you certainly have a 
number of instances, which she documents, where certainly 
people are violating the intent of the law; whether they are 
violating the letter of the law, I cannot really speak to. But 
clearly, the intent of the law is that, once money is in a 
pension, it is supposed to stay in a pension. It is used for 
those workers' retirement. And she gives several accounts of 
ways in which major companies were able to effectively pull 
money out of those pensions in order to finance a merger or 
finance downsizing, whatever you want to say. And that should 
not happen.
    So that requires greater policing, greater scrutiny, and 
probably greater penalties so that, when you can determine that 
someone has, in fact, violated the law, that it is not just a 
slap on the wrist. So, you want to play a game and see if you 
can get away with it? Well, you might risk some time in jail. I 
think that would make people more reluctant to do so.
    Senator Wyden. Let us have your colleague get into this. 
Mr. Biggs?
    Mr. Biggs. One of the problems with defined benefit 
pensions, which I did not mention in my testimony, is it is 
very easy for a plan sponsor to not do the right thing. It is 
easy to promise benefits, but nobody wants to pay for them. 
That is true in the corporate sector, and it is true in the 
State and local sector.
    Defined benefit plans are very complex. They require a 
whole range of assumptions regarding what is going to go on in 
the future to determine what you have to pay today. It is very 
easy to avoid doing the right thing. A defined contribution 
plan is much more transparent. If your employer says, ``I am 
going to put X amount into your 401(k) this year,'' they either 
put X in or they do not put X in. The monitoring is much 
easier.
    That does not say there are not similar problems in 
401(k)s. There was a recent case, I believe it was 
International Paper, where they were accused of essentially 
funneling employee contributions into a fund of their own stock 
that charged them too much. That sort of thing can happen, and 
I think it should be punished. But by and large, I think it is 
not a major explanatory factor in problems we have in 
retirement security today, for the reasons Dean mentioned.
    Senator Wyden. Let us do this. And I asked it the way I did 
because this, to me, really is not what is useful about what 
Senator Brown and Senator Casey are trying to do. This is the 
kind of fact-finding effort that we ought to be doing more of.
    Ms. Schultz is an award-winning journalist. She is not 
saying that this is going on at every company plan or every 
part of the retirement industry, but suffice it to say, if you 
have the kind of documented examples here and you do not have 
enforcement against those kinds of instances, that certainly is 
an invitation to others to try to skirt the rules.
    Mr. Baker, have you or any of those who have been 
advocating for workers done some writing on suggestions with 
respect to penalties and consumer protections for workers that 
ought to be put in place?
    Mr. Baker. I have not written directly on this particular 
issue, but I can say that I would imagine others have. I just 
have to say I am not familiar with it. But I do have to say I 
kind of look at this as part of a sort of malfeasance, I think, 
in many cases, probably criminal actions that were taken as 
part of the financial crisis, and, as we know, almost no one 
has gone to jail in connection with that. And I do think that 
raises a serious issue.
    It is not, one, just a punishment. We might want that, but 
more importantly, the question of incentives for people who 
think that they could violate the law and, at very worst, their 
company faces a modest fine, are not discouraging that 
behavior. And we seem to understand that in other contexts. I 
do not quite understand why we do not apply that financially.
    Senator Wyden. I am way over my time. Senator Brown, thank 
you. I would be open to suggestions from either of you two and 
from other panel members, because it struck me as an important 
set of issues that ought to be part of this debate.
    You go to a conference, you go to some academic setting, 
and people talk to you about the recession, they talk to you 
about the aging workforce. Then you see people at a town hall 
meeting and they talk about their pension melting away and they 
have questions about how that happened, and I think we ought to 
be looking at some of those issues.
    Thank you, Senator Brown. I thank you for your good work.
    Senator Brown. Thank you, Senator Wyden.
    Senator Nelson?
    Senator Nelson. Mr. Chairman, there is nothing better at 
focusing the mind than when you realize that you are facing a 
situation, and a lot of Americans do not face the fact of 
retirement until they are way on down the road.
    The question is: are we going to have enough money in 
retirement? Have we saved enough? Several of us are sponsoring 
the Lifetime Income Disclosure Act, and it is a way of showing 
people what their savings would look like in retirement as a 
way to get them to save more money today for retirement.
    So I want to ask Mr. Sweeney, can you explain the 
innovative tools that Fidelity has in order to show your 
clients what their savings will look like at retirement and 
what else you think you need from the government to get people 
thinking about this so that they can adequately plan for 
retirement?
    Mr. Sweeney. Thank you, Senator Nelson. I would say two 
things. We develop a lot of tools that we make available to 
customers who work with Fidelity, but also to the general 
public. They can go in and they can assess their holdings with 
Fidelity. We also allow them to aggregate holdings that are 
kept at other firms.
    We think that is important, because oftentimes we find two 
halves of a couple come in, one may have a plan that is record-
kept at a Fidelity platform, one may have a plan that is 
record-kept at another firm, but both halves of a couple are 
gearing towards a common retirement, and they want to be able 
to see how their combined balances can be used to achieve those 
very goals.
    We recently conducted what we call the retirement 
preparedness measure and calculated the readiness of people to 
do exactly what you say: take the accumulated assets and 
translate that into an income stream that will generate 
lifetime income.
    So that is an important disclosure. We are doing a lot to 
try to educate investors. They come to us with complex 
problems. Our job is to try to simplify those problems. But I 
think that the most critical factor is increasing savings 
rates, particularly for young investors.
    As they live longer, as they are less covered under 
pensions in the future, we think that they are going to have to 
save more on their own. So the more we can do to get them to 
save, and the more we can help people with comprehensive 
education, the more we are going to have an America that is 
better prepared for retirement in the future.
    Senator Nelson. What are the savings rates of America 
compared to other industrialized countries?
    Mr. Sweeney. We look across the globe, and we look at 
different retirement systems. So, for example, Australia has a 
mandated retirement system which people are forced to put into 
a private retirement system of their choice. The thing that is 
perhaps masked is, they also have higher debt rates. We are not 
sure there is a causation there, but there seems to be some 
correlation.
    So, when we look across the globe, we think that there is 
an opportunity for people at all income levels to take some 
money aside and save. It is a very difficult decision for a 
young worker who is trying to put money in their first 401(k), 
and they say, ``How could I possibly save 10 percent?'' The 
comment I give back to them is, I say, ``If I offered you your 
same job at 90 cents on the dollar, would you still take the 
job?'' They say, ``Well, yes, I would figure out how to buy a 
less expensive apartment, drive my car a little bit longer. I 
would make some tradeoffs.'' But they would figure out how to 
live on 90 cents on the dollar. So that is really the decision 
we are asking each investor to make.
    Senator Nelson. And your particular tools, other than 
aggregating all of their savings so they have a comprehensive 
view, what do they basically do? You take their composite 
savings and then project at their retirement age how much that 
is going to give them each year for the actuarial length of 
their life? Is that what it is?
    Mr. Sweeney. We have several different tools. I can 
simplify them into accumulation-oriented tools and 
distribution-oriented tools. We have planning tools, and then 
we have investment tools.
    So, if you think at the simplest level about accumulation, 
I want to make sure I am saving enough so that I have 
accumulated a nest egg, so when I reach retirement age, I am 
able to translate that into an income stream. Clearly, for a 
25-year-old or a 45-year-old, they are much more focused on 
accumulation. That is the dialogue we have with them.
    For a 65-year-old, it is much more about managing expenses. 
So we start with the expense hurdle that each retiree has to 
clear and look at the accumulated benefits that they have, 
either through their DC, their defined benefit program, or 
Social Security, and we say, how can you clear your monthly 
hurdle each month? But we do want to plan well beyond the 
actuarial life stage for retirees.
    We find that one quarter of all couples will live into 
their early 90s, so planning to 87 is planning for a quarter of 
our population to fail.
    Senator Nelson. Let me just take a pure hypothetical: a 
person who is retiring at age 65 who has a salary in the range 
of $150,000. See if you can interpolate this for me. What 
basically is the nest egg of savings that they need to take 
them into their average situation of lifetime expectancy?
    Mr. Sweeney. We look at starting with an accumulated nest 
egg of about 8 to 10 times their salary. So somebody making 
$150,000 at age 65, you would want them to be somewhere in the 
range of $1.25 to $1.5 million. It is a pretty substantial 
number.
    Senator Nelson. And then that would pay out both principal 
plus interest over that actuarial life.
    Mr. Sweeney. Correct. But what we find is that, for 
customers at the higher earning levels, those hurdles that they 
need to clear when they get to retirement are not as high for 
those people, for a couple of reasons. First, we assume that 
people at those higher income levels--and we see this--are 
actually saving.
    So, if I am saving 10 to 15 percent of my salary before I 
retire, automatically, I only need to clear a hurdle that is 85 
cents on that dollar, because I no longer need to save for 
retirement. If I paid off my mortgage, that is, again, another 
big nut that you do not have to clear when you get to 
retirement. So you can begin to see what we call income 
replacement rates close to retirement ranging between 68 cents 
on the dollar for wealthier people up to ranges in the 90s for 
people who are at lower income levels.
    Senator Nelson. Thank you very much. You directly answered 
what I wanted to find out. Thank you.
    Thank you, Mr. Chairman.
    Senator Brown. That is the purpose of the hearing, Senator 
Nelson.
    Senator Nelson. Thank you. Well, we have a lot of witnesses 
in front of us who do not answer.
    Senator Brown. I understand that. This is very good panel. 
Thank you, Senator Nelson. And we will do a second round of 
questions, Senator Casey.
    I appreciated Senator Casey's comments, Mr. Romasco, about 
your personal story. I would like to kind of bring back the 
issue of retirement age and paint a picture of a couple of 
stories that are not as personal for me as they were for you, 
Mr. Romasco, but people whom I have gotten to know.
    One was my neighbor--10 years ago, in a working-class city 
on Lake Erie, in Lorain, OH--who lived next door. I was then in 
my late 40s, early 50s. He was about my age. He had been a 
carpenter since he was 18, a non-union carpenter. So his 
retirement was not as organized and lucrative--lucrative is the 
wrong word--but not as generous as it would have been had he 
been a union carpenter.
    But nonetheless, he had worked for 30 years, and there were 
a lot of things he could no longer do. I mean, he had trouble 
lifting things. He had worked outside. If you live on Lake 
Erie, it is pretty cold working outside on construction 
projects. He was doing pretty well with his income, but his 
body was breaking down.
    The second story is, I was in Youngstown at a town hall. A 
woman put her hand up. She struck me as someone--she said, ``I 
have worked all my life. Now I am working two jobs. I am 63 
years old.'' And then she said, ``I've just got to live another 
year and a half so I can get health care.''
    I mean, imagine someone thinking in their life that their 
goal--she had no insurance, and I do not think she had been 
insured much of her life. Her goal was to be able to live long 
enough to get health care, not live long enough to see a 
grandchild, not live long enough to complete something, some 
hobby or workplace success or something, but just to get health 
insurance. I mean, I think when we think about retirement age, 
I think we need to think in terms of personalizing it in that 
sense.
    But here is what I want to ask about. We know about the gap 
in life expectancy for those two people I mentioned--I, 
obviously, do not know about their personal life expectancy nor 
do they, but on the average, they will not live nearly as long 
as those of us who dress this way and have jobs like we have 
will live, on the average. We know that.
    We know that those same people, those two people, what they 
represent are much less likely than the seven of us to have, 
not just the leg on the stool of Social Security, but also have 
some other kind of private pension, private or public pension, 
and some significant savings.
    And we also know a third thing, and that is the increase in 
jobs in this country, the growth in jobs, is mostly in low-
income areas. It is fast food workers, it is health care 
workers, people who often do not have insurance. They will have 
health care, fortunately, now, because of the ACA, most of 
them, but they also are unlikely to save. They are unlikely to 
have any kind of employer pension, or, if they do, it will not 
be particularly lucrative.
    So with all of that, we are seeing people like Simpson-
Bowles saying, raise the retirement age. We are seeing all the 
serious people in Washington on the talk shows say we should 
raise the retirement age.
    Talk that through, not just your position on retirement 
age--you have pretty much made that point--but what do we do 
about people who are retiring, people who are low-income, who 
do not live as long, people who do not draw as much Social 
Security, and people who live longer and have had more 
comfortable lives in terms of dollars who are living longer and 
getting higher Social Security?
    How do we deal with this in light of low-income workers 
generally?
    Mr. Romasco, do you want to start with that?
    Mr. Romasco. Well I think, first of all, we have to 
understand what the reality is. When you have corporate 
executives arguing to raise retirement age to 70 and their 
average retirement benefit personally is $14.5 million apiece, 
they should go to Lake Erie, they should go to Toledo, and they 
should talk to these people and say, as I say to the audiences, 
all those who want to live on $14,500 a year, raise your hand, 
which is the average Social Security benefit.
    I do not get a lot of takers for that. So we need to ground 
people in what the reality is--not just the math, but the 
reality. And we have to be aware of averages. I think that is 
so important. I think you have sort of parsed the numbers 
correctly, which is the average this and the average that.
    Well, Dean made the comment, and Andrew is well-aware of 
this: there is a very uneven situation going on here, where, if 
you are white, well-educated, and affluent, you are going to 
live longer and benefit more, but, if you do not happen to have 
those tools and those basic situations, you are going to be 
challenged.
    As I said before, younger workers have a 1 in 3 chance of 
encountering disability or not reaching retirement age because 
of some problem, and that proportion goes up in communities of 
color, and that is significant. So let us get the reality and 
the data out there.
    The second thing is, I think we heard suggestions--as part 
of this conversation we are trying to have about retirement, 
not about deficit, but retirement--of strengthening the system 
at the low end. We ought to look at that in terms of the 
adequacy issue.
    The third thing is, there is no doubt we can all do a 
better job of saving. And one of the challenges is utilizing 
the mechanisms that people in Mr. Sweeney's business have and 
some of the suggestions that Andrew made to encourage saving 
and, at the same time, building on that foundational piece, 
which is Social Security. It is the foundational piece, and, if 
we weaken that or limit that, I think we have to face the 
reality of what is going on: stagnant wages, pensions 
disappearing, and savings under challenge.
    I mean, think about what we just heard with Senator Nelson 
and Mr. Sweeney. Well, the average income in this country is 
$50,000. So, using Mr. Sweeney's 8 times, that means people 
have to have $400,000 in order to take care of themselves 
lifetime.
    What is the reality of that? The reality is a vast number 
of Americans are not even close. Some are, and good luck to 
them, and congratulations to them.
    Senator Brown. Do others on the panel want to respond to 
that?
    Mr. Baker. Yes. A couple of points. First off, I think the 
point you made about the Affordable Care Act is a hugely 
important one that has not gotten enough attention. There are 
going to be a lot of people like this woman who are 63, in bad 
health, who are struggling to go to work every day, who now 
will be able to get health care insurance, and that is going to 
make a huge, huge difference in their life, which I think I am 
happy for. I appreciate that Congress voted the Affordable Care 
Act in for that reason.
    The other point is that there are these huge differences; 
people are, obviously, in different circumstances. Those of us 
in our suits with desk jobs, yes, we could work until 70. Many 
of us will; many of us will want to. It is a very, very 
different world for most of the workforce.
    And one of the things I was struck by, if you read the 
Bowles-Simpson proposal to raise the retirement age, they 
actually say we should carve out certain occupations and not 
raise it for them, which I have to say I got kind of a kick out 
of, because that was actually the thing that Greece was 
ridiculed for when they had this huge deficit, because everyone 
jumped on the bandwagon. Apparently, if you were a hairdresser 
in Greece, you could retire at age 50, and the rationale was, 
they work with dangerous chemicals.
    I have no idea about the truth of that, but that is the 
sort of thing that Bowles and Simpson were proposing. That gets 
you into a nightmare story that I think we do not want to deal 
with, but it does show at least that they recognized the 
problem, and I give them credit for it. But it was not a very 
good way to deal with it.
    Senator Brown. Anyone else?
    Mr. Biggs. Sure, just quickly. I think this goes back to 
the example that Senator Nelson and Mr. Sweeney had and the 
comment that you made that, well, somebody making $50,000, they 
need 8 times their annual income in savings. How are they going 
to get that?
    The fact is, they do not need 8 times their annual income 
in savings, because they are getting Social Security. Social 
Security is a much bigger part of their retirement than it will 
be for somebody making $150,000 per year.
    Retirement planning is really complicated. It depends on 
what your income level is, how many kids you have had, are you 
single, are you married. It is very easy to take these rules of 
thumb and misapply them. I cannot tell you, off the top of my 
head, how much savings somebody making $50,000 a year should 
have. It is not 8 times their annual income, I will tell you 
that for certain.
    Just a second point which goes back to, I think, the 
problem you raised of the retirement age. Back in the early 
1960s, we lowered the retirement age from age 65 to 62 for 
precisely the reasons you pointed out. We have laborers, we 
have people with physically demanding jobs. They cannot make it 
to 65.
    For those folks, I agree with you: 62 is fine. The problem 
is, it was not just those folks who retired at 62. It was 
everybody who retired at 62. What do we do then? One idea to 
encourage people to work longer is, I propose eliminating the 
Social Security payroll tax for workers aged 62 and over. There 
are technical reasons why you want to do it, but the point is 
to give people sort of a carrot, as well as a stick.
    Senator Brown. Excuse me for interrupting, but let me ask 
you another question about that, Mr. Biggs. That would mean 
that their monthly check would not grow. I mean, I understand 
the difference of 63 now and 66, and you get more if you retire 
at 66, if you wait. But the reason a 70-year-old gets more is 
because they have paid in those 4 years.
    Mr. Biggs. That is actually untrue.
    Senator Brown. That is not true? Why do they get more?
    Mr. Biggs. I did a study a few years ago looking at a 62-
year-old who chooses to delay retirement for a year and pay an 
extra year of taxes. For each additional $1 of taxes a new 
retiree pays in, they get about 2 cents back in additional 
benefits.
    Senator Brown. Well, do not do it between 62 and 65 or 63 
and 66, because it has gone up. Do it so there is no penalty 
involved. Is that the case? If you retire at 66 versus retire 
at 70 and you are paying into Social Security those 4 extra 
years because you are working, as Mr. Sweeney suggests, does 
that mean your retirement does not go up because you paid more 
in?
    Mr. Biggs. Your retirement benefit goes up solely because 
you delay claiming the benefit. It goes up almost nothing 
because of the additional taxes you pay. The sort of marginal 
return is essentially zero, and that is because--two reasons.
    One, Social Security is based on your highest 35 years of 
earnings. So the 36th year is unlikely to raise your benefits 
by much or anything.
    Second, most women continue to get a spousal benefit. So, 
if they work longer, they are not getting anything in exchange 
for their own taxes. They are getting something based on their 
husband. So if they work longer, they essentially get nothing.
    I was shocked when we actually ran these numbers, but when 
you work through the benefit formula, it is clear why it 
happens.
    So the fairest thing for people in that age range actually 
is to eliminate the payroll tax, but it is also something which 
the academic research indicates would have a really big 
response in terms of labor supply, because these are folks who 
can work a little bit longer if you really make it worth their 
while, and it might help somebody who had a physically 
demanding job.
    They may say, ``Look, I don't really want to be a Wal-Mart 
greeter,'' or something like that, but if you eliminate that 
payroll tax, it becomes a little bit more attractive. They can 
stay in the workforce a little bit longer.
    So it is trying to use the carrot, as well as the stick on 
this end. I understand that some people need to retire early, 
but a lot of people can and should retire later, and the 
question is, how do we encourage that?
    Senator Brown. Thank you.
    Mr. Sweeney, do you want to comment or not?
    Mr. Sweeney. Senator Brown, an example. I think about 
expenses, and that is really the primary basis on which we look 
at retirement plans.
    So I think of an example I saw with a client in California. 
He had just retired from the University Medical System at age 
62, and he came in and talked with a representative about his 
options, and he still had 15 years left on his mortgage.
    And he said, ``I'd like to take some of my assets and pay 
down my living expenses for the next 3 years, until I can take 
Social Security at 65.'' The representative said, ``Sir, you 
know, this is going to be really challenging. You are drawing 
down a significant portion of your assets to live on them for 3 
years, and that is going to put the tail end of your retirement 
plan at risk. When you are in your 80s, you may run out of 
money.''
    And it was a challenging conversation to have with him, but 
he had already decided to retire. If we could have that 
conversation with people before they actually choose to retire, 
if he could have worked for another 3 years and been in a very 
good place, he could have downsized his home, paid off his 
mortgage, made other choices about spending, which would have 
made his retirement much more successful.
    Senator Brown. Thank you.
    Senator Casey?
    Senator Casey. Thanks very much.
    I was looking at, Mr. Baker, your testimony on page 2 and 
the really startling numbers on a couple of segments of the 
population. We look at the unemployment rates monthly or look 
at poverty rates, but the data you have here indicates that, 
for senior non-married women, the poverty rate is 16.3 percent 
by the official measure, with another 11 percent near-poor. So, 
if you add poverty and the near-poor, it is, I guess, 27.3 
percent. For the next category, African-American seniors, if 
you do the same addition, it is 28 percent. Then I think the 
same calculation, poverty and near-poor, for Hispanic seniors 
is about the same, 28.2 percent.
    They are just startling numbers, and I think another 
reminder as to why Social Security is so important for folks 
across the board.
    Is there anything you want to say about that? I just was 
pointing that out.
    Mr. Baker. I appreciate you bringing that up, and this gets 
to the point I was making earlier about how increasing benefits 
for those at the bottom can make a very big difference. So I 
was suggesting if you were to raise benefits for people at the 
bottom 10 to 15 percent, that makes a huge difference in their 
standard of living.
    These are people just struggling to get by. The cost for 
raising their benefits is very, very low. So even though, 
obviously, I know the long-term projections for Social 
Security, debt is affected very little by raising those 
benefits for those at the bottom.
    Senator Casey. I know, Mr. Biggs, you indicated on page 2 
of your testimony, and I am quoting, ``Benefits for low earners 
probably should be enhanced,'' unquote. So you are----
    Mr. Biggs. I have argued for a more far-reaching reform, 
similar to what you have in New Zealand or the U.K., where 
every retiree receives a flat benefit at the poverty level. So 
the idea is, you take poverty among seniors, which today is 9 
percent, down to 0 percent. On top of that, though, if you want 
a benefit above poverty, we need to sign people up for 
employer-sponsored plans or IRAs or something along those 
lines.
    Social Security--I am not going to say it does not cut 
poverty. Clearly, it does. Is it the most effective, efficient 
way to reduce poverty? No. We could give every senior in 
America a poverty-level retirement benefit for half of what we 
spend on Social Security.
    We can do better, but it is not just by saying we need 
across-the-board increases in benefits. It is saying, who is 
being poorly served? Why are some people not receiving the 
benefits they should? It comes about because of the complexity 
of the benefit formula.
    It bases your benefits on your lifetime earnings, but a lot 
of things other than your lifetime earnings. Lifetime earnings 
are not the most important determinant of your benefits. Other 
factors are actually more important than that.
    So it is not a well-targeted benefit. It is a risky benefit 
for low-income people.
    Senator Casey. Mr. Romasco, I wanted to commend you for 
doing calculations for our States. On page 8 you say, and I am 
quoting, ``In Pennsylvania, Social Security benefits supported 
470,442 jobs, $70.9 billion in output, and $4 billion in State 
and local tax revenues,'' unquote.
    That is very helpful, for us to have that information, and 
your calculations will be used at another time. We are grateful 
for that, because sometimes it is difficult for people, and 
sometimes difficult for elected officials too, to clearly 
articulate the benefits in a 
broader-based way. We try to use bang-for-the-buck calculations 
all the time because it is one way to talk about these issues. 
So we appreciate that.
    I know we are nearing the end, Mr. Sweeney, so I am not 
going to go through too many questions for you, other than to 
point out for the record--Senator Brown may not know this, but 
Mr. Sweeney went to the greatest undergraduate institution in 
the world, Holy Cross. I wanted to leave him----
    Senator Brown. With a name like Sweeney, that is shocking. 
[Laughter.]
    Senator Casey. I have four daughters, Mr. Sweeney, and I am 
just realizing, with your chart, when you indicate Generation Y 
was born 1978 to 1990, I realize that our oldest daughter is in 
Generation Y, and the next three, I guess, are millennials.
    The chart you have on Gen Y tells a lot about--you have a 
lot of red there, meaning their potential or their likelihood 
of saving is not very high up on the scale. So, what would you 
say to both the Gen Ys and even the younger folks, the 
millennials; what advice do you have for them----
    Mr. Sweeney. That finding was actually surprising.
    Senator Casey [continuing]. So I can tell my daughters?
    Mr. Sweeney. Please. I will be happy to talk with them as 
well, if that is helpful.
    I would say two things. We were surprised to find that Gen 
Y was so red because they had so much more time to correct the 
trajectory that they were on.
    Two things. The goal post----
    Senator Casey. Explain red again, just so----
    Mr. Sweeney. It meant that they were not on track to cover 
their essential expenses in retirement.
    There are two big drivers. They are not saving enough, but 
the second big driver is that their goal post has been moved 
further down the field than today's generation of boomers. And 
by that, I mean that they are not going to be covered by 
defined benefit plans to the degree that today's retirees are 
covered. So they are going to have to save more on their own. 
And, as we think about people living longer, your daughters 
will live longer than your parents, and so the time frame over 
which they need to cover their own retirement expenses is going 
to be longer.
    So those are the two biggest predictors and factors that we 
need to make sure that Gen Y and millennials really understand 
today so they start saving early with that first paycheck. We 
want them to be putting 15 percent in, if they can.
    Senator Casey. Great. Thank you very much.
    Senator Brown. Thank you, Senator Casey.
    A couple of more questions. If Senator Casey has another 
round, he can do it. Otherwise, we will wrap up.
    A number of you have seen or you know these general 
statistics that last year, a Pew poll asked respondents, asked 
young people, if there will be enough money to provide Social 
Security and Medicare benefits at their current levels. Forty-
one percent of those 18 to 29 answered ``likely;'' 36 percent 
of 30- to 49-year-olds answered ``likely.''
    You have heard, too, for some years, and I think I have 
heard this for literally a number of decades, the line that--I 
do not know if this was actually a survey or somebody just 
thought it was clever--young people feel more likely that they 
are going to meet Elvis Presley than that they are going to 
draw Social Security. Not particularly funny, I do not think.
    But reassure us, Mr. Baker, that that is not going to be 
the case.
    Mr. Baker. Well, I could give you two answers. I could tell 
you the one I often give to young people. I have spoken at many 
colleges around the country and ask that question, do you think 
you will get Social Security, and no one raises their hand. And 
then I say, ``Well, so at some point, we are going to stop 
paying benefits,'' and they are all kind of nodding their 
heads.
    So I say, ``Okay. So let's pick a year, 2030 or whatever,'' 
and I say, ``Okay. Will we still have Congress?'' ``Yes.'' 
``Will we still have the military? Will we still have roads?'' 
And then I say, ``Okay. And retirees are going to be twice as 
large as a percent of the population, the voting population, as 
they are today. Do you think members of Congress are going to 
vote to cut Social Security, get rid of Social Security?'' And 
most of them are convinced ``no.''
    But in terms of the data, the shortfalls--it is easy to 
make these sound very large, and it is kind of a game that 
certainly a lot of people in Washington play, where they talk 
about tens of trillions, hundreds of trillions. The reality 
here is that these shortfalls are not very large relative to 
the size of the economy. So the projected shortfall in Social 
Security: we are talking about a shortfall of around 1 
percentage point of GDP--hardly trivial. But on the other hand, 
when we fought the wars in Iraq and Afghanistan, we increased 
military spending by 1.6 percentage points of GDP. I will not 
say that had no impact, but it did not wreck our economy, and 
we have a much longer time frame to adjust to this.
    With health care, we do face very large costs, but that is 
basically because our health care system is broken. We spend 
more than twice as much per person, on average, as people in 
Germany, France, Canada, whomever you want to throw into that 
mix.
    There, the real key is the question of fixing our health 
care system, and, if we do not fix that, whether or not we have 
Medicare and Medicaid--we could eliminate the government health 
care programs--we have a nightmare on our hands.
    If we do fix our health care system, then the costs are 
easily manageable, and, again, the very good news there has 
been that there has been a sharp slowing of costs over the last 
5 years. I do not have a crystal ball. I do not know if that 
will continue. But if that does continue, then health care is 
going to be very much a manageable problem.
    So, again, we can make these sound like scary numbers. If 
we express these shortfalls as a share of income, again, it 
does not make them trivial, but these are expenses we have 
dealt with in many other contexts.
    Senator Brown. Thank you for that.
    Let me ask a question of all four of you, and we will wrap 
up with that.
    You have all testified only about the challenges. You have 
found areas of agreement. You certainly disagreed on some 
things, but I think you have laid out the challenges of the 
issues and the options pretty well.
    Just give me a couple of minutes each. Senator Casey asked 
the question, sort of the lightning round he said. This is sort 
of a lightning round squared maybe, on sort of short-term, what 
do we do now?
    But would you paint for us--take a couple of minutes each 
or no more than that, if you can, on what a retirement system 
in this country should look like 5 years from now, what you 
would like us to work toward, painting that picture of what the 
retirement system should look like.
    Mr. Sweeney, why don't you start, and we will go across 
that way?
    Mr. Sweeney. Great. Thank you, Senator. I would say two 
things. This education and guidance issue is of paramount 
importance. People come to us, and they have one paycheck, and 
they have multiple needs, and they say, ``I need help.''
    We have proposals in front of us that say we might limit 
the amount of guidance and advice that we provide based on the 
type of account that they are working with. We need to make 
sure that we take a client-oriented view to that and say, ``How 
can I help you, as an individual, as a worker, solve the 
multiple needs that you have?''
    The second thing would be that we think that these default 
enrollment and auto-enrollment features are incredibly 
successful, and we want to do more of those. We want to build 
on the strength of the Pension Protection Act and essentially 
create another round of that, which will put people in the 
right products, help them stay invested in equities in the 
downturn, in the volatility.
    We have seen that people who have stayed the course through 
the downturn in 2008 and 2009 actually are in much better shape 
than those who panicked and pulled out. So the more we can help 
people understand that their time frame over which they are 
investing is fairly long, and the more we can do to get them 
enrolled, save at a high rate, and be well-invested, the more 
successful our American workers are going to be.
    Senator Brown. Thank you.
    Mr. Baker?
    Mr. Baker. Well, I guess a couple points. First, as I was 
saying, with Social Security, I think we can take some steps to 
enhance it, particularly for low- and moderate-income workers. 
It can make a very, very big difference to a lot of people at 
relatively low cost.
    The other point that I was making is, I think we can set up 
a system of portable, universal accounts, voluntary, but with a 
strong, say, default contribution, the key point being here 
that people can carry these place to place. They would have 
very limited options, very low cost.
    There has been bipartisan support for this, by the way, in 
a number of States. Washington State, California, came close to 
passing these on several occasions, but they were stopped by 
the recession really.
    So I think something like that would be very good, 
basically, as the supplemental retirement vehicle for middle- 
and upper middle-income people.
    One final point. I think it does not get appreciated that, 
when people talk about future generations, we see huge 
fluctuations in asset prices that will dwarf the impact of the 
deficit and debt on future generations. So when housing prices 
fell by 30 percent, that was really bad news for everyone who 
owned a house. On the other hand, it is great news for your 
kids.
    It is the same story with the stock market that people 
should appreciate. So on the one hand, as someone who is 
invested in 401(k)s, great, I am happy to see the market go up. 
What that is going to mean is that anyone investing tomorrow 
could expect lower returns.
    And just a very, very simple story. Traditionally, if we 
had historic price-to-earnings ratios, you can count on roughly 
a 7-percent real return in the stock market. Given price-to-
earnings ratios today, you can count on roughly 5 percent. That 
is over the long term. That means if I were to put $1,000 in 
the market today and keep it there for 40 years, the 7-percent 
return would get me $16,000, and the 5-percent return would get 
me $8,000.
    So people who are worried about generational equity, they 
should be looking at the stock markets--bad news for that.
    Senator Brown. Mr. Biggs?
    Mr. Biggs. I would agree with Dean and John about really 
starting with enhancing the savings done by folks through their 
retirement plans. The auto-enrollment, auto-escalation, life 
cycle funds, the sorts of things we talked about today, those 
are the simplest and easiest ways to ensure that people will 
have adequate retirement savings.
    We have done the research. We know a lot more about what 
goes into retirement saving today than we did 10 or 20 years 
ago. That would solve, I really think, the vast majority of the 
problems we face. If people just saved as they should, it is 
not just better for them, but it makes life easier for Social 
Security, because Social Security does not then have to worry 
about paying a big benefit to somebody making $150,000 per 
year. So I think that is really the first thing that is 
actually achievable today, because there really is bipartisan 
agreement on how to do that.
    In terms of Social Security itself, I think we need a more 
robust safety net on the bottom. Dean and I may differ a little 
bit about exactly how you do that, but I think we agree that it 
should be a better safety net, that a country as rich as ours 
should not be allowing so many folks to retire into poverty.
    I think it would be a simpler system, and I think we need 
to make middle- and high-income folks rely on themselves a 
little bit more for their retirement savings, because the 
challenges in Medicare and Medicaid are still out there.
    Senator Brown. Thank you, Mr. Biggs.
    Mr. Romasco?
    Mr. Romasco. Well, I think what we have seen this morning 
is a broad set of ideas that deal with the retirement issue, 
and I think it is in that context that we have to change the 
conversation, as these hearings are designed to do. Let us look 
at it in that context.
    Let us look at Social Security. People need to understand 
Social Security in all its dimensions--the income-protection 
piece as well as the retirement piece--and I think that is a 
first step, because, unless we sort of clarify that, people 
will still have misconceptions about what it is, what it is 
not; it is solvent, it is not broke, those kinds of issues. We 
have to clarify Social Security.
    Secondly, we have to ask the right questions. It is not 
about solvency only. It is about adequacy and solvency.
    And third, we have to look at the other two legs of the 
stool, and I have heard a lot of suggestions this morning that 
we support in terms of helping people save more and make that 
personal responsibility piece as robust as possible.
    But until we have come to a place where we put the 
conversation separately--we look at retirement as a whole, we 
understand the value of Social Security, the low-income piece, 
the adequacy piece, and the social insurance aspect of, we are 
all in this together throughout our working lives--I think we 
are going to be dealing with a lot of, shall I say, unnecessary 
noise.
    So the clarification of that and the support of the other 
two legs of the stool in terms of the reforms, of some of the 
suggestions we have heard, in that context, we can have a good 
conversation, and I have a lot of confidence we will come to a 
good resolution.
    Senator Brown. Senator Cardin?
    Senator Cardin. First, let me apologize for not being at 
the hearing. I was chairing the hearing of the Subcommittee on 
East Asia and the Pacific of the Senate Foreign Relations 
Committee. One of the challenges of the United States Senate is 
that they put you on a lot of committees that have a lot of 
hearings.
    So I really regret it, because I think this hearing is 
very, very important, and I thank Senator Brown for convening 
this hearing on the importance of not just Social Security, but 
private savings on retirement, which is critical.
    Then-Congressman Portman and I worked on these issues when 
we were in the House, and it was interesting that, during the 
most robust time of our economic growth, American savings 
ratios were incredibly low, in fact negative, for many years 
when we had a growing economy. And at that time, we were told, 
do not worry about it, because people were saving for their 
retirement through the equities in their homes, and we saw what 
happened to that.
    So I just really wanted to come by to thank the witnesses 
and to thank the chairman. It is critically important that we 
not only preserve, but strengthen Social Security. It is the 
only guaranteed lifetime inflation-proof annuity that people 
cannot outlive, and they do not have to check to see how the 
stock market is doing to know what their retirement benefits 
will be.
    It is critically important that we preserve that, but it is 
also important that we improve incentives for retirement 
savings. It starts with doing no harm to the tools that are 
currently available and building on that. The saver's credit 
has worked. Six million Americans have taken advantage of the 
saver's credit. We can strengthen that.
    And, as has been pointed out by the dialogue that has taken 
place this morning, there has been discussion about how middle-
income and lower-income working families can do better in their 
retirement. There is no question that we need to do that. We 
found that the way to do this is to make it easier for people 
to save for their retirement, that the tax incentives are 
important, but you need to put something else on the table, and 
that is why employer-sponsored plans are important.
    Where I work, we have that. It is called the Thrift Savings 
Plan, and Federal employees take advantage of that because they 
do not want to leave money on the table. And the saver's credit 
is money on the table, and 6 million Americans have taken 
advantage of that because they do not want to lose the money 
that is on the table. That helps them to save.
    But I would mention two factors that are important to 
strengthen these tools, and one is, Americans make a lot of 
decisions by inaction. We have found that automatic enrollment 
programs work, and not only do people get involved in the 
programs, but also the default investment options, which are 
sensitive usually to their age, provide for the rebalance, 
which people do not do on their own on their private savings 
plans.
    The second point is, if we were constructing the incentives 
for private savings and retirement today, I think we would have 
done a better job putting incentives in for lifetime income 
options rather than the ease of taking money out of retirement 
plans today. To me, those are the two areas that we really 
should be looking at as priorities for improvements to our 
current incentives.
    I have a minute and 21 seconds remaining on my first round, 
and I still have four more rounds after this. [Laughter.] So, 
if any of you would like to respond, I would be glad to listen 
to your response.
    Mr. Sweeney. I would be happy to take that, Senator.
    When you talk about income for life--clearly, we talked 
about longer life expectancies that people need to plan for. 
Social Security provides a great lifetime income benefit.
    We try to use Social Security and model out the cash flows 
that one might get from that as a core foundation upon which 
people need to build from their personal and employer-sponsored 
retirement plans.
    With the concept of private annuities or insurance company-
sponsored annuities, we find that about 14 percent of Americans 
have an annuity. The challenge is that people have to write you 
a fairly large check in exchange for an uncertain stream of 
cash flows. So, while people who own annuities find great 
benefit in them----
    Senator Cardin. I would just point out that annuities are 
one form of lifetime income. There are other ways of doing 
lifetime income in addition to just private annuities.
    But I guess my point is, it is easy to take retirement 
money and use it for other purposes today without penalty. I am 
all for having different types of savings incentives for 
college, for medical emergencies, but retirement is retirement, 
and I think we should have an easier way to protect retirement 
income for retirement income flow through a person's life.
    And people have outlived their savings so many times today 
because they say, ``Look, I am going to live to be 80,'' and 
all of a sudden, at 90, they are still active and they do not 
have income, and there should have been greater concentration 
on lifetime income rather than allowing them to take out the 
money because we had an economic recession or they wanted to 
buy a home or their grandchild needed money for school. There 
are other ways to deal with those needs.
    Mr. Biggs, you looked like you were agreeing with me. So I 
will let you get the last word. [Laughter.]
    Mr. Biggs. We have tax incentives in place to encourage 
retirement saving. I tend to think they are pretty weak, in the 
sense that you have a tax deferral, not a tax deduction. In 
theory, you could end up paying more taxes by virtue of saving 
in an IRA or a 401(k). I think making that more robust might 
make sense.
    I think the saver's credit is a good idea, but I also think 
having more incentives to encourage annuitization makes sense. 
I think there is probably never an area where economists are 
more divided from the public than on annuities. The economic 
theory says you should essentially annuitize all of your wealth 
at retirement. That is the most efficient way of allocating 
your retirement income.
    Almost no individual in the general public will willingly 
annuitize. Very few people want to annuitize their 401(k)s. In 
defined benefit plans, if you give them the option of a lump 
sum, they will take it and walk away. It is just a human-nature 
kind of thing. The joke is, an annuity turns you from a 
millionaire into somebody getting a $50,000 income per year, 
and nobody likes it.
    But I think tax incentives or something along those lines, 
or defaults to encourage annuitization, really could make 
sense. I think once people have them, they will be happy with 
them, but the initial decision to do it is such a high hurdle 
to get over.
    Senator Cardin. Thank you. I really came back to listen to 
the chairman's closing comments. [Laughter.]
    Senator Brown. Yes, you did. Thank you, Senator Cardin. Few 
in the Senate know retirement security issues as Ben Cardin 
does. So I am thrilled that he is here.
    Thank you all for testifying. Some members of this 
subcommittee or the full committee may have written questions 
for you. If you would get answers back to us in the next week, 
I would appreciate it.
    I think the hearing was a success in many ways, because the 
debate should be about the issue of how to achieve retirement 
security. Mr. Romasco kind of started with that. I think that 
is particularly important.
    These are not budget issues in the same way that they are 
issues of debate on how we actually do this, especially for 
low-income workers. And all four of you seem to--when Mr. Baker 
and Mr. Biggs agree, that is consensus. That means that Senator 
Toomey and I can agree. So all kinds of things can happen.
    But thank you so much. Special thanks to all four of you, 
to Senator Cardin, and Senators Toomey, Isakson, Casey, Nelson, 
and Wyden, and to Gideon, Elaina, and Jennifer on my staff. I 
am really appreciative.
    This subcommittee is adjourned.
    [Whereupon, at 12 p.m., the hearing was concluded.]



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