[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
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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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