[Senate Hearing 114-842]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 114-842
 
                     SECURING AMERICA'S RETIREMENT
                    FUTURE: EXAMINING THE BIPARTISAN
                    POLICY CENTER'S RECOMMENDATIONS
                            TO BOOST SAVINGS

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

                                HEARING

                               BEFORE THE

                       SPECIAL COMMITTEE ON AGING

                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS


                             SECOND SESSION

                               __________

                             WASHINGTON, DC

                               __________

                           SEPTEMBER 7, 2016

                               __________

                           Serial No. 114-27

         Printed for the use of the Special Committee on Aging
         
         
         
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
         
         


        Available via the World Wide Web: http://www.govinfo.gov
        
        
        
        
                           ______                       


             U.S. GOVERNMENT PUBLISHING OFFICE 
47-694PDF           WASHINGTON : 2022         
 
 
        
                       SPECIAL COMMITTEE ON AGING

                   SUSAN M. COLLINS, Maine, Chairman

ORRIN G. HATCH, Utah                 CLAIRE McCASKILL, Missouri
MARK KIRK, Illinois                  BILL NELSON, Florida
JEFF FLAKE, Arizona                  ROBERT P. CASEY, JR., Pennsylvania
TIM SCOTT, South Carolina            SHELDON WHITEHOUSE, Rhode Island
BOB CORKER, Tennessee                KIRSTEN E. GILLIBRAND, New York
DEAN HELLER, Nevada                  RICHARD BLUMENTHAL, Connecticut
TOM COTTON, Arkansas                 JOE DONNELLY, Indiana
DAVID PERDUE, Georgia                ELIZABETH WARREN, Massachusetts
THOM TILLIS, North Carolina          TIM KAINE, Virginia
BEN SASSE, Nebraska
                              ----------                              
                  Kevin Kelly, Majority Staff Director
                 Derron Parks, Minority Staff Director
                 
                         C  O  N  T  E  N  T  S

                              ----------                              

                                                                   Page

Opening Statement of Senator Susan M. Collins, Chairman..........     1
Opening Statement of Senator Claire McCaskill, Ranking Member....     3

                           PANEL OF WITNESSES

Hon. Kent Conrad, Former United States Senator from the State of 
  North Dakota, and Co-Chair, Bipartisan Policy Center, 
  Commission on Retirement Security and Personal Savings, 
  Washington, D.C................................................     4
Hon. James B. Lockhart III, Co-Chair, Bipartisan Policy Center 
  Commission on Retirement Security and Personal Savings, 
  Washington, D.C................................................     7

                                APPENDIX
                      Prepared Witness Statements

Hon. Kent Conrad, Former United States Senator from the State of 
  North Dakota, and Co-Chair, and Hon. James B. Lockhart III, Co-
  Chair, Bipartisan Policy Center, Commission on Retirement 
  Security and Personal Savings, Washington, D.C.................    33

                       Statements for the Record

The Bipartisan Report: Commission on Retirement Security and 
  Personal Savings...............................................    47


                     SECURING AMERICA'S RETIREMENT

                    FUTURE: EXAMINING THE BIPARTISAN

                    POLICY CENTER'S RECOMMENDATIONS

                            TO BOOST SAVINGS

                              ----------                              


                      WEDNESDAY, SEPTEMBER 7, 2016

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:32 p.m., Room 
562, Dirksen Senate Office Building, Hon. Susan M. Collins, 
Chairman of the Committee, presiding.
    Present: Senators Collins, Heller, Scott, Cotton, Tillis, 
Sasse, McCaskill, Nelson, Casey, Whitehouse, Gillibrand, 
Blumenthal, Warren, and Kaine.

                 OPENING STATEMENT OF SENATOR 
                   SUSAN M. COLLINS, CHAIRMAN

    The Chairman. Good afternoon. The hearing will come to 
order.
    One of the focuses of the Senate Aging Committee during 
this past Congress has been on the retirement security crisis, 
an issue that the Bipartisan Policy Center has examined in 
depth. According to a recent Gallup poll, 60 percent of 
Americans are worried that they will not have enough money for 
retirement. They are right to be concerned. According to the 
Center for Retirement Research, there is an estimated $7.7 
trillion gap between what Americans have saved for retirement 
and what they will actually need. That figure is simply 
astonishing and a call for action.
    There are many reasons we face such a staggering gap, 
including rising health care costs, the need for expensive 
long-term care, the lingering consequences of the financial 
crisis on home values, and most of all, the fact that we are 
living longer. The shift away from employer-based defined 
benefit plans or pensions to defined contribution plans, such 
as 401(k)'s, has also played an important role.
    Americans need to increase our personal savings so that we 
can better weather financial emergencies without raiding our 
retirement accounts. Yet a survey by the Federal Reserve found 
that nearly half of individuals do not have enough savings to 
cover an emergency expense of $400. That is not even enough to 
buy tires for your car.
    As a result, employees too often withdraw from their 
retirement accounts to pay for unexpected expenses. This so-
called leakage increases the likelihood that they will not have 
adequate savings to ensure a comfortable retirement. In some 
cases, seniors may legitimately fear outliving their savings 
and living in poverty, or they may fear that they will have to 
work full time until they literally die.
    In our Committee's last retirement hearing, we learned that 
there are many innovative services and online applications 
being developed by the private sector to help people save more 
money, but it is clear that the Congress and the administration 
must also do more to help address the looming retirement 
crisis.
    That is one reason why, along with Senator Nelson and 
Senator McCaskill, I have introduced the Retirement Security 
Act to make it easier and less expensive for small businesses 
to establish retirement plans as well as to encourage 
individuals to save more for retirement. I was very pleased in 
reading the Bipartisan Policy Center's report to notice that 
some of the recommendations parallel those that are included in 
our bipartisan bill. We know that when full-time employees have 
access to retirement plans, approximately 80 percent 
contribute. Clearly, therefore, increasing access is a vital 
part of ensuring retirement security, and that means making 
plans more affordable to small businesses.
    Congress must also focus on challenges with the Social 
Security program. It is projected to have alarming shortfalls 
in coming years. The Social Security Administration's most 
recent report noted that 64 percent of seniors receive at least 
half of their retirement income from Social Security. Many 
seniors in my State rely almost solely on Social Security to 
cover their monthly expenses, despite the fact that the average 
annual benefit is only about $16,000 a year, and our young 
people question whether Social Security will even be there to 
help them when their generation retires.
    I am very pleased this afternoon that we are joined by the 
two very knowledgeable co-chairs of the Bipartisan Policy 
Center's Commission on Retirement Security and Personal 
Savings: former Senator Kent Conrad, a former Chairman of the 
Senate Budget Committee and a treasured colleague of many of us 
who are here today; and James Lockhart, who previously was the 
Director of the Federal Housing Finance Agency, the Deputy 
Commissioner of the Social Security Administration, and the 
Executive Director of the Pension Benefit Guaranty Corporation. 
They will testify on the findings and recommendations of the 
commission's recent report, ``Securing our Financial Future.'' 
This report covers many important topics affecting retirement 
security, such as Social Security, personal savings, lifetime 
income, and access to workplace retirement plans.
    While my colleagues and I on this Committee may not agree 
with every single one of the commission's ideas, I commend them 
for taking the time to put together a thoughtful, 
comprehensive, and extraordinarily valuable report. The fact is 
that Congress cannot continue to shy away from tackling these 
critical issues given the scope of the problem and the impact 
on an increasing number of Americans. Neither party has a 
monopoly on good ideas to address this crisis. What the center 
has done is to bring together both sides in a comprehensive 
report. One of my personal hopes and goals is that we can make 
progress toward the goal of ensuring that those who work for 
decades do not end up spending their retirement years in 
poverty.
    I look forward to the testimony of our two witnesses. We 
are very pleased to have you here, and I am now pleased to call 
upon the Ranking Member.

                 OPENING STATEMENT OF SENATOR 
                CLAIRE McCASKILL, RANKING MEMBER

    Senator McCaskill. Thank you so much, Chairman Collins. I 
take great pride in the bipartisan spirit this Committee has 
historically forged, as well as the bipartisan spirit with 
which the two of us have worked to lead the Committee of this 
Congress. On a variety of issues, we have worked across the 
aisle to develop common-sense solutions to the problems that 
plague our Nation's seniors, so it makes perfect sense to come 
together today to highlight both the bipartisan work we have 
been doing in the field of retirement security but, 
importantly, to listen to the recommendations of a bipartisan 
commission focused on solving the retirement security crisis, 
and, unfortunately, too many Americans do not realize that it 
is, in fact, a crisis.
    The Bipartisan Policy Center empaneled this Commission on 
Retirement Security and Personal Savings in 2014, and its 19-
member panel spent 2 years examining ways to help Americans 
save for retirement before releasing its findings this summer. 
The report, which we will dig into today, is impressive in both 
its breadth and its scope. It examines everything from the 
barriers facing access to retirement plans by both employers 
and employees, to more technical issues such as the ways to 
ease employee portability between accounts as they move jobs, 
and while I do not agree with every recommendation--I suspect 
Chairman Collins might feel the same way--the whole point of 
this report and this hearing is to prompt a bipartisan 
conversation where we can, in fact, find common ground, and, 
indeed, a number of options discussed in the report are already 
featured in bipartisan legislation that Senator Collins and I 
have introduced this Congress.
    At past hearings we have learned that Americans of all 
income levels will save if they are given the opportunity to do 
so, and one of the noteworthy goals of the BPC's report is to 
provide a savings option for all workers. One recommendation 
focuses on a national minimum coverage standard. Another 
recommendation, multiple employer plans, is a key feature of 
the Retirement Security Act of 2015, which Senators Collins and 
Nelson cosponsored along with me. These plans allow small 
businesses to pool together to create one plan, allowing a 
third party to handle the paperwork and lend expertise to 
business owners who are likely not well versed on the ins and 
outs of 401(k) plans and which options are appropriate for 
their workers.
    Although the BPC report focuses exclusively on ways to 
ensure Americans have ways to put money aside and not outlive 
their savings, this Committee has also done a lot of bipartisan 
work on ensuring Americans are not defrauded out of their life 
savings in or near retirement, so I would be remiss if I did 
not trumpet the bipartisan Senior$afe Act, authored by Chairman 
Collins, that nine of our Committee members and nine other 
Senators have signed on to. This important legislation gives 
financial institutions immunity if they report in good faith 
instances of suspected fraud to the proper authorities, so long 
as they train their workers to spot potential financial fraud. 
A version of this legislation has already passed the House, and 
we are hopeful the Senate will take action on our bill so we 
can protect the hard-earned savings of our seniors.
    I am eager to hear from our panelists to get a better sense 
of all the options they considered and how they reached 
consensus on the final report, and I want to take this 
opportunity to welcome my friend Senator Conrad back to the 
Senate. I know you have a deep understanding of how difficult 
it is to move any legislation, even bipartisan legislation, 
forward in today's Congress. I watched as a new Senator your 
work as a Democrat on fiscal accountability. You, in fact, were 
a deficit hawk among Democrats, which is not always an easy 
thing to be in this Congress. I admired your work, and I have 
many days found myself trying to emulate it. We miss you. We 
are glad you are back here today, so I want to solicit your 
advice here on how we can actually get some of these 
recommendations moving in both chambers. It would be terrific 
to see the hard work of this commission rewarded by the work of 
Congress to come together and find common ground to protect 
seniors as we move into an era where no senior will have enough 
in Social Security to ensure their comfortable retirement.
    Thank you both.
    The Chairman. Thank you very much for that excellent 
statement.
    Senator Nelson mentioned that he is only able to be here 
briefly. He is a former Chair of this Committee who served with 
Senator Conrad, so I want to give him an opportunity to say a 
few words if he would like to do so.
    Senator Nelson. Just that I am so happy that the bipartisan 
nature of this Committee continues, and I will do what most 
Senators do not do. I will shut up.
    The Chairman. Thank you for your comments, and you 
certainly established the tone when you were the Chairman.
    I would like to give my Republican colleagues also a 
chance, if they have any brief opening comments that they would 
like to make.
    [No response.]
    The Chairman. Everybody is being so cooperative today.
    Senator Conrad, we will begin the testimony with you. I am 
delighted that you are able to be here today. Thank you.

          STATEMENT OF HON. KENT CONRAD, FORMER UNITED

         STATES SENATOR FROM THE STATE OF NORTH DAKOTA,

            AND CO-CHAIR, BIPARTISAN POLICY CENTER,

               COMMISSION ON RETIREMENT SECURITY

             AND PERSONAL SAVINGS, WASHINGTON, D.C.

    Senator Conrad. Thank you, Chairman Collins, so much for 
that warm introduction; Senator McCaskill, the Ranking Member, 
thank you as well. It is very good to see you both and good to 
be back on a matter that really matters.
    Senator Sasse, I did not have a chance to serve with you. 
Good to see you. Senator Heller, I did have a chance to serve 
with you, and Senator Scott, very good to see you. Senator 
Nelson, you went through many of the budget wars with me as a 
great ally, and, Senator Gillibrand, so good to be back with 
you.
    We took on this task, this challenge, on behalf of the 
Bipartisan Policy Center because we were convinced that this is 
a real challenge for the country and that maybe, just maybe, we 
could push the ball a little way down the field.
    You know, what is so striking is a statement that you 
started with, Senator Collins, about how the American people 
view this. Overwhelmingly, they say this is their biggest 
concern--their retirement security, and, overwhelmingly, they 
want us to act. They want us to do something.
    One of the things that was so striking to me as this 
commission began its work was a study by the Federal Reserve 
that said 46 percent of the American people would have a hard 
time coming up with $400 for an emergency car repair. Wow. 
Forty-six percent of the American people would have a hard time 
coming up with $400 for an emergency car repair.
    In addition, we all know that Social Security is going to 
have to be dealt with, or we are going to face by 2034 at the 
latest--many of us believe it will be earlier than that---an 
across-the-board 23-percent cut. That is where we are headed. 
It is as clear as can be, but it does not have to be that way. 
We could do something about it, and that is why Jim and I 
agreed to help lead this effort by the Bipartisan Policy 
Center. You will remember that the Bipartisan Policy Center was 
started by four Senate Majority Leaders, two Democrats, two 
Republicans: Senator Dole, Senator Baker, Senator Daschle, 
Senator Mitchell, and we agreed to sign on with 17 other brave 
souls, a commission of 19, former Senators, former Congressmen, 
former Governors, former business leaders, and the academic 
experts in the field, as well as the true public trustees of 
Social Security--a Democrat and a Republican, and at the end of 
the day, we were able to get 18 of the 19 to agree on the 
recommendations we bring to you today.
    Those deliberations were not easy. They were contentious. 
The life of the commission was supposed to be 1 year. It took 
us 2, but at the end of the day, we were able to reach an 
agreement.
    We think this would make a big difference for the American 
people and their retirement security. Part of our confidence 
comes from the analysis that was done by the Urban Institute of 
our proposals. As you can see in this chart, once our 
recommendations are fully phased in, middle-class retirement 
savings would be increased by 50 percent over what they would 
otherwise be.
    Let me just repeat that. Retirement savings would be 
increased by 50 percent, according to the Urban Institute, if 
all of our proposals taken together were adopted, so how do we 
accomplish this? It starts by expanding access to workplace 
retirement savings plans. As this next chart shows, less than 
half of the private sector workers are currently participating 
in a workplace retirement plan. Now, this is a major 
opportunity for us. This is something we could do on a 
bipartisan basis. We could make a real difference in how many 
people participate at their place of work, and we know if they 
do participate, they continue to contribute, they continue to 
save.
    This chart shows one-third do not have access to a 
retirement savings plan at all. To address these gaps, we 
created a new structure we call ``Retirement Security Plans,'' 
because what we heard from small business people over and over 
was, ``Hey, I would like to create a plan, I would like to 
offer a plan, but it is too expensive, it is too complicated, 
and there is too much legal risk.'' We said, ``Okay. We will 
take all of that away. You will not have legal liability. You 
will not have administrative obligations. The one thing you 
will have to do is payroll deduction, and you are already doing 
that for taxes, so that should not be too heavy a lift.''
    These structures would allow employers with less than 500 
employees to band together and form well-run, low-cost plans 
that reduce administrative expenses and are run by third-party 
administrators. Employers would be freed of their fiduciary 
burden while an oversight board would ensure consumer 
protections and responsible behavior from the plan 
administrators.
    Our report also includes policies to encourage employers 
that are not already doing so to automatically enroll their 
employees, and the leaders of this Committee know full well the 
stats on that just jump off the page. You know, there is 
something about inertia, isn't there, in human nature? We have 
a hard time starting, but once we get started, we are pretty 
good at sticking to it.
    As another option for employers, we also propose reforms to 
improve the administration's myRA program, which allows 
individuals to enroll in low-cost retirement savings accounts 
administered by the Treasury.
    Once these new and enhanced types of plans have been 
available, we then recommend the establishment of a national 
minimum coverage standard. That applies to businesses with at 
least 50 employees, and we would ask them to then pick a 
Retirement Security Plan. They could do a 401(k), they could do 
defined benefit, defined coverage--whatever they wanted, but if 
you have more than 50 employees, you would be expected to offer 
one of them to your employees, and our commissioners concluded 
that was not unreasonable after you have made it so much easier 
for employers to set up these plans.
    To encourage younger savers, we propose a new Starter 
Saver's Match, $500 to match their savings for people 18 to 35 
with below $25,000 of income for an individual, $50,000 for a 
couple.
    We also believe employers should be able to automatically 
enroll their employees into two accounts--one for short-term 
needs, another for long-term savings, and, finally, we 
recommend the creation of a Retirement Security Clearinghouse 
to ease the process of consolidating retirement plans. Let me 
just say, after leaving the Senate, one of the things I did was 
turn some attention to our own financial situation, my wife's 
and mine, and what I found was I have got accounts here, a 
drib-drab over here, you know, a little account over there. 
Most Americans face the same thing, and it would be a 
tremendous advantage if we were able to consolidate these 
plans.
    At this point I would like to turn it over to my co-chair, 
Jim Lockhart, who has a deep background and experience in these 
areas. He was an outstanding co-chairman. Jim Lockhart.
    The Chairman. Thank you.
    Mr. Lockhart.

            STATEMENT OF HON. JAMES B. LOCKHART III,

              CO-CHAIR, BIPARTISAN POLICY CENTER,

             COMMISSION ON RETIREMENT SECURITY AND

               PERSONAL SAVINGS, WASHINGTON, D.C.

    Mr. Lockhart. Thank you, Senator, and good afternoon, 
Chairman Collins----
    The Chairman. Mr. Lockhart, I think your mic is not on.
    Mr. Lockhart. Yes. Thank you.
    The Chairman. Thank you.
    Mr. Lockhart. Good afternoon, Chairman Collins and Ranking 
Member McCaskill and members of the Committee. I want to echo 
Senator Conrad in thanking you for giving us the opportunity to 
discuss the recommendations of our Retirement Commission. I 
have had the privilege of running four Government agencies 
which had dedicated civil servants working to support the 
American dream of a secure retirement and also homeownership. I 
am afraid that dream is slipping away from too many Americans. 
That is why I was so pleased to join Senator Conrad on this 
important bipartisan commission.
    He covered how we would expand access to savings, but that 
is just a part of the retirement security puzzle. Once workers 
reach retirement, they face the daunting prospect of making 
their savings last for the rest of their lives. The Employee 
Benefit Research Institute projects that four in ten Generation 
X-ers will run short of money in retirement.
    Our recommendations would encourage retirement plan 
sponsors to offer the participants better options to turn their 
savings into a monthly stream of income. We would facilitate 
automatic purchase of annuities over time. We would encourage 
plans to utilize an active-choice framework, which requires 
savers to make a decision how to withdraw their money at 
retirement, and also to offer information and tools designed to 
help workers claim Social Security benefits later, thus 
providing them with much higher income in retirement.
    It is not just retirement savings that contributes to 
retirement security. For many workers, their home is their 
largest asset. They are house rich, cash poor. U.S. households 
own more than $12.5 trillion in home equity, almost as much as 
the $14 trillion in retirement savings. To discourage the use 
of home equity for pre-retirement consumption, we recommend 
removing the deduction for interest on second mortgages and 
other lines of credit that reduce home equity.
    We also encourage the use of Government-insured reverse 
mortgages, including a low-dollar reverse mortgage pool, 
allowing retirees to tap into a smaller portion of their home 
equity.
    Another part of the solution is to improve the financial 
capability of Americans to manage their personal finances. We 
recommend expanding personal financial education in both K-12, 
higher education, on-the-job. We also stress the importance of 
just-in-time interventions at the moment the individuals are 
making major financial decisions, such as buying a house, 
getting a mortgage, deciding to retire, withdrawing savings, 
claiming Social Security benefits.
    While not specifically tackled in our report, we want to 
commend the Committee for its bipartisan efforts in the area of 
the Senior$afe Act, which aims to protect seniors from 
financial fraud and exploitation. That is a very important 
issue for older Americans.
    Finally, no discussion of retirement security would be 
complete without addressing Social Security. It is the 
foundation of most Americans' retirement. Scheduled Social 
Security benefits are by themselves inadequate for too many 
Americans. As this chart shows, our plan to strengthen Social 
Security would reduce poverty among older Americans by one-
third from today's levels within 20 years, lifting well over 1 
million people out of poverty. Our proposal would increase the 
progressivity of Social Security's benefit formula and also, 
importantly, introduce a basic minimum benefit, which would 
supplement the standard Social Security benefit for the most 
vulnerable.
    We also enhance the Social Security survivors benefit. 
Under current law, household benefits can be reduced by one-
half when one of the spouses dies. We recommend that the 
surviving spouse would keep his or her full benefits plus 
three-quarters of the deceased spouse's benefits, thus 
improving living standards dramatically among widows and 
widowers.
    Social Security continues to serve as the essential safety 
net for American workers, but it has financial troubles, and 
that really is putting retirement at risk. It is a crisis. The 
program's trustees project that the Old Age and Survivors 
Insurance Trust Fund will be exhausted by 2035, resulting in an 
across-the-board 23-percent cut in benefits. CBO's more 
pessimistic insolvency date is 2029, just 13 years from now. 
Waiting to address this shortfall only perpetuates the 
uncertainty for American workers and increases future costs. 
Our recommendations would close the program's shortfall. Steve 
Goss, Social Security's Chief Actuary, concluded it would 
achieve what is called ``sustainable solvency,'' meaning Social 
Security could pay benefits without interruption for 75 years 
and beyond. We do this with a very balanced mix of benefit 
savings and revenue increases, including modestly increasing 
the payroll tax over time, raising the amount of income subject 
to Social Security taxes, very gradually raising the retirement 
age, and using a more accurate measure for annual cost-of-
living adjustments.
    This package shows that the program's solvency challenge 
can really be addressed in a thoughtful way, but asks more from 
the higher-income Americans who can afford while substantially 
increasing benefits for lower-income Americans.
    As the Senator said, reaching consensus was a very 
difficult process, and no one got everything they wanted, 
including the two of us, but we believe these recommendations 
will garner broad bipartisan support and improve retirement 
security for all Americans.
    We thank the Committee for exploring these important issues 
and look forward to your questions.
    The Chairman. Thank you very much for your excellent 
testimony.
    Senator Conrad, you know better than most of the witnesses 
who come before our Committee how difficult it is to get major 
legislation passed, particularly in the difficult political 
climate in which we seem to find ourselves these days. If you 
were to prioritize the recommendations of your commission, are 
there certain areas where you believe we should move forward 
more quickly than others? Or do you see it as a whole that 
should be done as a package?
    Senator Conrad. We very much see it as a package. That is 
the way it was negotiated, and this was a difficult negotiation 
to get 18 of the 19 to agree representing all points on the 
political spectrum. The discussions were intense. They were 
continuous. They were in-depth, and it was understood that it 
had to be a package deal. If you start to pull it apart, you 
start to lose the strength of the package.
    One of the things that one finds is when you put the Social 
Security provisions together with the improvements in private 
sector saving, you have a double whammy. One feeds on the 
other, and you lift all boats. Everybody is better off than 
what is payable under current Social Security benefits--
everyone--even though we have asked those of us who have been 
most fortunate to have a little bit less of an increase than we 
were expecting, but if we are going to make this whole system 
solvent, it is going to take everybody to give a little bit, 
but if you start to separate it out, you lose the strength of 
the entire program.
    The Chairman. Mr. Lockhart, before the hearing, we talked 
briefly about the recommendation to increase the minimum 
benefit and that that would help lift people out of poverty. At 
the same time we recognize the financial challenges that the 
Social Security system is facing.
    There are other provisions in the Social Security law that 
hurt people, and I believe your report does deal with them. I 
am referring specifically to the windfall elimination provision 
and the Government pension offset. I represent a State where 
the State retirement system does not have a Social Security 
component, and what I have found over the years are so many 
retired schoolteachers whose spouse worked in the private 
sector, and when the spouse dies, we end up having this very 
adverse impact on the financial security of the remaining 
spouse, often an older woman, and I have seen retired 
schoolteachers have to go back to work in their 70's after 
their husbands have died or their wives have died. This also 
affects firefighters and police officers in my State.
    Could you comment on reforms that the commission has 
recommended to try to ease what I think is a really unfair 
provision of the law where the individuals who have worked in 
the private sector have paid into the system and have earned 
their benefits and yet the surviving spouse does not receive 
them?
    Mr. Lockhart. It is a very controversial topic, both the 
windfall elimination and the Government pension offset. Ten 
years ago, I had to come here and testify why it worked when 
really it probably does not work, to be perfectly honest. It is 
very rough justice. There is certainly a core reason for it, 
that the way Social Security works, if you have relatively low 
income over your lifetime, you get a much bigger benefit than 
if you had worked in Social Security all your life, and so that 
was the core why it was put in. It does not really work very 
well, and at this point there is a lot more data out there that 
can make it work better, that we can actually track people's 
income in Social Security, but also out of Social Security, and 
so what we are proposing actually is to use the whole data of 
the work and be able to do a calculation of the windfall that 
way, and so that there will not be a windfall, and, in fact, 
what we will produce is an equitable or much more equitable for 
people that work outside of Social Security, and you know, many 
States are like yours that have that issue, and, you know, I 
think what we have proposed here really works for many people, 
and when you put on top of that what we have done on the basis 
minimum benefit, we have also changed, esoterically, the bend 
points to make the lowest bend point higher and a higher income 
amount, instead of 90 percent, 95 percent, so what we have done 
is actually pushed a lot of the lower-income people up and out 
of poverty. The minimum benefit will apply to about 10 percent 
of the workers as they retire, so the combination I think 
really should be helpful, as well as what we have done on the 
spousal benefit.
    The Chairman. Thank you both.
    Senator McCaskill?
    Senator McCaskill. I did notice that one of your 
recommendations was to facilitate the use of reverse mortgages. 
I have been involved in investigating reverse mortgages since I 
came to the Senate and found an awful lot of predatory 
practices and abuse in this space, including us helping halt 
evictions of 12,000 people from their homes where, unbeknownst 
to them, their spouse had not put their name on a reverse 
mortgage, their spouse had died, and then, of course, under the 
terms of the mortgage, they were being kicked out of their 
homes.
    Do you feel comfortable that we have done enough cleanup in 
this space that the reverse mortgage practices that are out 
there now are tailored to the right type of individual? One of 
the things in this hearing room that we discovered was that 
there were companies creating boiler rooms of salesmen that 
were taught to sell a reverse mortgage and an annuity in the 
same sitting. Now, there is a special place in hell for someone 
who does that, but, nonetheless, that was the practice we 
discovered, so was the commission comfortable about the current 
regulatory environment for reverse mortgages and whether or not 
they are an appropriate and affordable tool for seniors?
    Mr. Lockhart. You are right, Senator McCaskill. There were 
a lot of abuses, and, you know, I was the Commissioner 
overseeing Fannie and Freddie, and Fannie was actually one of 
the biggest buyers of them, and you know, pre-crisis, there 
were a lot of abuses in all sorts of mortgages, including 
subprime and other ones. FHA, the Federal Housing Authority--
really basically all reverse mortgages today are coming through 
them, or virtually all of them--has really cleaned up the 
rules. They now require significant underwriting. They require 
that the individual be counseled. They make the amount of the 
lump sum be much smaller than originally. They are really 
pushing much more lines of credit that would support people to 
be able to pay their taxes and insurance going forward, and 
certainly the spousal issue has also been addressed.
    It is a tough issue, but I think for many people it is 
better than some of the other alternatives, certainly, you 
know, trying to borrow money at 30 percent or whatever they 
might have to.
    Senator McCaskill. Correct. Right.
    Mr. Lockhart. The advantage here is they can borrow the 
money and not have to pay it until they move out or they pass 
away, and even if they borrow more than the house is worth, 
they can stay in the house as long as they keep making the 
payments on the taxes and insurance and keeping up the house, 
so it has a controversial history. There is just no doubt about 
it, and there were a lot of abuses. I have been talking over 
the last year or so with a lot of the companies that actually 
do provide reverse mortgages. I have even made calls to, you 
know, sort of pretend I wanted one, and from what I see, it is 
much cleaner, and I think partly because of your efforts.
    Senator McCaskill. Let us talk a minute--I do not have much 
time left, but I wanted to talk a minute about 401(k) excessive 
fee litigation. You know, we have got some of these very large 
companies that run these plans--and let me just give one 
example--where they might offer 20 options for large cap, and 
somebody spreads around large cap over 20 options. They are not 
really getting actively managed. They are really getting an 
index fund, but they are paying for actively managed. Who 
should be in charge of due diligence? Because you cannot expect 
all these employees to be figuring out whether or not excessive 
fees are being charged or whether these things have been set up 
in ways that is really causing significant leakage in their 
savings because no one is minding the store and the folks that 
are selling these products have got an inside track into two or 
three people in corporate offices.
    Mr. Lockhart. Yes, that is a big issue. I have actually 
been a pension trustee in, I think, two major corporations, and 
that is the job of the corporate pension trustee, is to make 
sure that there are not excessive fees and looking to make sure 
that there is a broad but not overly broad range of 
alternatives.
    Senator McCaskill. Are they looking at 401(k)'s, too, or 
just pension funds?
    Mr. Lockhart. 401(k)'s too.
    Senator McCaskill. Okay.
    Mr. Lockhart. They are supposed to. I mean, I cannot 
guarantee--I mean, actually one of the things I did is actually 
had a small business and set up a 401(k), and one of the things 
I like about the recommendations the Senator talked about, when 
you have a small business and you set up a 401(k), it is really 
incredibly expensive.
    Senator McCaskill. Right.
    Mr. Lockhart. Certainly we help choose what--a variety, and 
certainly we have offered index options. You know, in fact, I 
am still a member of the Federal Savings Plan, which I think 
has a really good set of options there, very few but all 
indexed.
    Senator Conrad. You know, if I could just add on this point 
just very quickly, this Retirement Security Plan structure that 
we have suggested I think would go a long way toward dealing 
with these issues. First of all, certainly with respect to 
small employers, this would relieve them of so much of the 
aggravation, the administrative headaches, the legal liability, 
but it would turn it over to third parties who would have a 
fiduciary responsibility. They would have to be certified to 
offer these plans. We think that would clean out a lot of the 
abuse that currently exists.
    What you have said, Senator McCaskill, is exactly correct. 
We had literally hundreds of people and groups come before this 
commission. We listened intently for all sides on how we could 
fix these challenges, and you are quite right to describe some 
of these as ``predatory.''
    Senator McCaskill. Thank you.
    The Chairman. Thank you.
    Senator Scott?
    Senator Scott. Thank you, Madam Chairwoman. Thank you both 
for being here for such an important conversation on issues 
that are impacting so many of our seniors and, frankly, folks 
in their 20's and 30's who do not appreciate financial literacy 
as an important part of the ingredient for not bankrupting the 
country in the next generation. We have started in high schools 
in South Carolina helping Visa and the NFL reach high school 
seniors and juniors with financial literacy football, so 
providing disks and an opportunity to play in an engaging game 
like Madden Football where they answer financial questions so 
as to improve their financial literacy so that hopefully 1 day 
down the road we do not have this conversation 30 or 40 years 
from now about the same thing.
    I have a couple of questions on that topic of financial 
literacy. You guys have covered this in your report, but 
perhaps a little more illumination.
    Too often too many of our seniors are using their 
retirement funds as a savings account, and my question is: How 
do we strengthen the penalties perhaps, the 10-percent penalty 
for a withdrawal before the appropriate time, and/or provide 
better education on the ramifications? Said definitely, as you 
all know, if you withdraw those funds early you have a 10-
percent penalty and ordinary income. The average person 
realizes that when they are filing their taxes, unless the tax 
is taken out at the front end. This would be a great 
opportunity for us to help people understand and appreciate the 
difference between savings and retirement funds.
    Senator Conrad. First of all, if I could say, I watched 
your Poverty Conference on television, and I thought it was 
outstanding.
    Senator Scott. Thank you.
    Senator Conrad. That was a real contribution. That was 
really thoughtful stuff.
    What we have done is we recommend harmonizing withdrawal 
rules for 401(k)'s and IRAs. As you know, there is quite a 
disparity now between the two, and what we have found in terms 
of reports to the commission is tremendous leakage from the 
retirement system because of those differences, and frankly, it 
is confusing to people. You know, you have got one set of rules 
for 401(k)'s. You have got another whole set of rules for IRAs, 
very different, and we wrestled through this with some of the 
best academic experts in the country on these issues, and we 
concluded that they should be harmonized. That would go a long 
way toward eliminating confusion and hopefully encouraging 
people, because there would be consequences.
    Senator Scott. Two questions, 2 minutes. Thank you for my 
generous allotment of time. We all get 5 minutes, but the 
question is, number one, I think the number is 60 percent of 
folks being hired today will work for employers who have fewer 
than 20 employees, so there seems to be an opportunity for 
micro targeting. I would love to hear a little bit about that.
    The second question is completely different. On long-term 
care, having been in the financial services industry for about 
25 years and the insurance business for a little longer, long-
term care seems to be a necessary part of any recipe for 
preserving that Golden Egg. A response to how we integrate the 
long-term----
    Senator Conrad. I would just very quickly say I am on the 
board of Genworth Financial, which is the biggest long-term 
provider in the country.
    Senator Scott. Long-term care, yes.
    Senator Conrad. Which meant I was conflicted, and I told 
the commission, and I told BPC before I took on this job. I 
cannot be part of any recommendations on long-term care because 
I am conflicted. I am on the board of the biggest company in 
long-term care, so they agreed to set up a separate task force 
on long-term care, so that is not part of our recommendations, 
and I wish it could have been, but it would have been 
inappropriate----
    Senator Scott. For you.
    Senator Conrad [continuing]. given my role in the private 
sector.
    Mr. Lockhart. On the smaller company, I think that is a 
very important issue. What we are hoping with our Retirement 
Security Plan is to encourage them to adopt 401(k)'s because 
the ERISA liability is removed from them, and it is basically 
just transferring the individual's money to this hopefully very 
well run and very well vetted plan, so I think that will help. 
We stopped at 50 for sort of the mandate, if I can use that 
word----
    Senator Scott. I see.
    Mr. Lockhart [continuing]. just because there were a lot of 
people that felt that some of them did not really have the 
payroll system to do that and some of the other problems, but 
over time, if it works, I would hope that we could move it down 
further and further so that--you know, in some countries at 
this point around the world it is mandatory, and it seems to be 
working.
    Senator Scott. Thank you very much.
    Thank you, Madam Chairwoman.
    The Chairman. Thank you.
    Senator Gillibrand?
    Senator Gillibrand. Thank you, Madam Chairwoman and Madam 
Ranking Member. I am very grateful for this hearing because I 
hear from seniors every day how worried they are about their 
future, and they have so many pressures, as Senator McCaskill 
pointed out. They are targeted, they are subject to fraud, and 
retirement savings is just a huge issue, and so thank you for 
your hard work on this, and thank you for holding the hearing.
    In your report you mentioned that financial insecurity is 
not just a problem that low-income individuals face and that 
actually 57 percent of individuals are not prepared for a 
financial shock. Have you studied the total investments that 
have been withdrawn from long-term saving vehicles as a result 
of needing to address unforeseen personal or family medical 
emergencies?
    Senator Conrad. Yes, one of the things--you know, we had 
some of the real academic experts in the country on this 
commission, people who have spent a lifetime studying these 
issues, and leakage is a huge problem. Probably our most 
controversial recommendation is to no longer allow the tax 
deduction for second mortgage or for vehicles that reduce home 
equity.
    Senator Gillibrand. Right.
    Senator Conrad. For that reason. I mean, if we are going to 
provide tax incentives for people to have retirement savings, 
then it should not be used as a piggy bank to pay for other 
things. That was the conclusion of our commission.
    Now, let me just say I do think it is the most 
controversial thing we recommended here, and there are lots of 
controversial things, but I think this is the most, and we had 
lots of debate about this, and we were convinced that you have 
got to do something about leakage. At the same time you are 
doing something to secure Social Security's future and to 
modernize it and to provide greater opportunity for savings 
accounts at work, which is probably our biggest opportunity, we 
have also got to pay attention to this leakage question.
    Senator Gillibrand. One of the things that I have been 
studying is the effect on paid leave in our economics for our 
seniors. Specifically, the absence of paid leave is really 
burdening seniors for two reasons: one, when their daughters 
have a child and they do not have paid leave, it is 
grandmothers who take care of that child; and, two, when 
parents get sick and their children have no paid leave to care 
for them, no one is by their side when they are most at need 
and most at risk, so they are bearing this burden on two sides, 
with young children and when their own needs cannot be met.
    Have you had a chance to study this at all? Because we are 
the only industrialized country in the world that does not have 
paid leave, which is shocking, and only 13 percent of Americans 
actually have access to paid leave, so have you looked at this 
problem in terms of the burden on our seniors and how it 
affects their retirement?
    Senator Conrad. You know, we did have discussions. One of 
the things on this commission, because of its makeup and the 
diversity of views on this commission, and the extraordinary 
difficulty of coming together on Social Security, which we 
thought was the single most important thing we could do, we 
focused on those things we thought we could reach agreement on.
    Senator Gillibrand. The other way it affects seniors----
    Senator Conrad. You make very good points, by the way.
    Senator Gillibrand. Which I would love you to study, 
because the third way is the loss of income in retirement 
because there is no paid leave. They have gotten--I should 
quantify that number. A woman is going to lose about $320,000 
in her lifetime in pay and retirement and a man loses $280,000 
in pay and retirement because we do not have paid leave, and 
those are just facts compared to the rest of industrialized 
nations.
    Senator Conrad. You know, we met with a Congressman on the 
Ways and Means Committee this morning, and we were on a subject 
related to this. You really see it with our elderly people who 
do not have options or options are closing in on them.
    Senator Gillibrand. Yes.
    Senator Conrad. You know, there is a societal cost that is 
sort of hidden, isn't there?
    Senator Gillibrand. Yes.
    Senator Conrad. What happens is those people, if the 
children are not able to care for them, they are going into 
institutions, but where is that being paid for? Overwhelmingly, 
it is being paid for out of Medicaid accounts.
    Senator Gillibrand. Right.
    Senator Conrad. There is every kind of scheme known to man 
to get people qualified for Medicaid coverage, even people who, 
frankly, could pay for their own care.
    Senator Gillibrand. Yes. Well, thank you, Madam Chairwoman, 
and thank you to our esteemed panelists. Thank you.
    The Chairman. Thank you.
    Senator Tillis?
    Senator Tillis. Thank you, Madam Chair. Thank you both for 
being here, and I want to welcome Senator Kaine.
    Senator Kaine, when you came in the room, I felt an 
increased sense of security. I appreciate you being here.
    The Chairman. I felt it showed just how important this 
hearing is.
    Senator Tillis. That is exactly right.
    Senator Conrad, I know that back in the days of Simpson-
Bowles you were very concerned with the deficit situation and 
that you embraced a lot of the recommendations in the 
particular, which was, I think, subtitled, ``Moment of Truth.'' 
The one section in there where there seems to be some 
similarities to the recommendations you are making here are 
some of the reforms around Social Security.
    Senator Conrad. Yes, sir.
    Senator Tillis. That report was issued, I think, in 
December 2010. We have not made any progress whatsoever there, 
and now these recommendations are a part of a bigger and, I 
understand, a carefully crafted compromise that needs to come 
together, but in your experience--you were in the Senate longer 
than I was. In your experience with large, complex initiatives 
like this, how would you go about--I mean, how do we go about 
getting everyone to accept the portion that they like when 
there is probably an equal or greater portion that they may not 
like? Just if you could map that out for me. I am stipulating a 
lot of the ideas are good. I think we have got to figure out 
how to fix Social Security so that we can fulfill our promise 
to seniors. That is a good recommendation, fundamentally what 
Simpson-Bowles was attempting to do, so tell me just a little 
bit more about that, and then hopefully I will have time to ask 
you a question about the cost to businesses in the 
implementation of the Retirement Security Plans.
    Senator Conrad. Organize and educate I think are the two 
keys to getting anything big through Congress, and just through 
this commission. It took a tremendous educational effort to get 
both sides--and it is not just two sides, of course. On a 19-
member commission, you have many different points of view. This 
was a very balanced commission politically and philosophically, 
so you really had to debate things through, and the consequence 
of failure has to be made clear. I think that was the single 
most effective thing at convincing members to come together, 
was to help them understand what is going to happen here to 
people they care about. Whether they are taxpayers or they are 
beneficiaries, what is going to happen if we fail to get this 
job done? There is going to be a 23-percent cut across the 
board by 2034. Many of us think it is going to be earlier than 
that, and more serious than that, it is going to be a 
continuing loss of confidence in our Government's ability to 
get anything done.
    I personally believe if we were able to do something like 
this, I think confidence in our elected leaders, confidence in 
our institutions of Government would be dramatically enhanced.
    Senator Tillis. I think a lot of the recommendations make 
sense. I am just concerned with the striking similarities 
between this commission's recommendations and what was in 
Simpson-Bowles. The only thing that has changed over the last 6 
years was the 50-percent increase in our national debt, and the 
same numbers that you quoted were actually in the Simpson--I 
went back and dusted it off this morning in preparation for the 
meeting--were quoted in December 2010, so I hope that we can 
get to work, and I understand that this is a problem that is 
well documented, and I think we all know the solution. We need 
to have the courage to act on it so we can fulfill the promises 
that we have made to our seniors.
    The last question that I have--and I have a lot--relates to 
the Retirement Security Plan. I know you are talking about 50 
employers or more. A business with 50 employees generally has a 
person sitting on top who is the CEO, the marketing director, 
the H.R. director, the benefits administrator. They are all one 
person, and I know you said that the Retirement Security 
Plans--and this is for either of you--have greatly simplified 
the engagement of small businesses, but how does that 
underlying cost--I mean, how do we ultimately pay for it? How 
does the underlying cost of the program--if you consolidate it 
and come up with some sort of shared service model, I can see 
where you reduce the cost, but at the end of the day, there is 
some underlying cost. Can you tell me a little bit about how 
that gets implemented?
    Senator Conrad. Yes. Let me just say, you know, I come from 
a small business family. My family was in the printing and 
newspaper business of 130 employees. They offered retirement 
plans, and it was tough for them to do. It was costly. There 
was considerable administrative burden. You are exactly right 
in describing how most of these size companies--and ours was a 
little bigger than the kinds we are talking about now, but, 
nonetheless, it was a significant administrative burden, and of 
course, you had liability.
    What we have done is really removed employers with 500 or 
fewer employees from all of that headache. It is given to 
third-party conveyors, and the cost is really insignificant, 
because all you have got to do as the employer is choose the 
plan and make the payroll deduction, and you are already doing 
that for tax purposes.
    Now, we give 4 years for that to be in place to really take 
root before we have any requirement, and that requirement only 
applies to people with 50 or more employees, so if they choose 
the Retirement Security Plans, their cost is really negligible.
    Senator Tillis. Thank you.
    Thank you, Madam Chair.
    Senator Conrad. Which we--I will tell you, that was 
absolutely key to convincing members of this commission to have 
any kind of requirement.
    The Chairman. Thank you very much.
    Senator Whitehouse?
    Senator Whitehouse. Thank you, Chairman. Let me welcome 
both of the witnesses, but particularly my former colleague and 
Chairman, Kent Conrad. I am thrilled to have you back, sir, and 
I am delighted to see that you are still wielding charts.
    Senator McCaskill. The chart master.
    Senator Whitehouse. The chart master has returned.
    The work that you and the commission have done is tedious, 
complicated, and important, and that is the area of work where 
I think Congress is perhaps least effective, so I really think 
you have done a very significant public service by taking this 
on. I think the goal that you have sought to achieve, which is 
to pull the various elements that can comprise a retirement 
package for people more together and make it more harmonious 
and to reduce the general administrative load associated with 
those efforts, is really commendable.
    I have two questions that I would like to ask. One is 
that--I am the lead sponsor of the Automatic IRA Act, which is 
very like the program that you have recommended. I would like 
to ask first if--it does not have to be now, but a question for 
the record. If you have any comments or recommendations for 
improvements of our bill, I would love to take those.
    Senator Whitehouse. My question for you here is more on the 
political side. This has not been an issue that to this point 
has achieved a lot of bipartisan support, and you obviously had 
a broad array of voices on the commission, and you mentioned 
the dozens, if not hundreds, of other entities that you reached 
out to for input. Any advice to us on people or institutions 
that might vouch for this notion on the other side of the aisle 
to develop it into a more bipartisan idea?
    Senator Conrad. Well, we spent a lot of time with every 
constituency group, and I can tell you, the business community 
were very favorably disposed toward the conclusions of this 
commission, and I mean large businesses, small businesses. You 
know, the toughest sell by far is to the small business 
community.
    Senator Whitehouse. Yes.
    Senator Conrad. When we went in great detail with them over 
how to structure these Retirement Security Plans, we had many 
of them say to us, ``Okay. If you are going to do that, if you 
are really going to relieve me of the administrative burden, if 
you are going to really relieve me of the liability, if you are 
going to really relieve me of the cost other than the payroll 
transfer''----
    Senator Whitehouse. Yes.
    Senator Conrad. We do not require a match. There is no 
match required by them. They could do it, but they do not have 
to. They said, ``If you are really going to do that, okay, then 
we have a different view.'' That is what allowed us to convince 
people you could have a requirement--and, again, it is for 
employers with more than 50. There is no requirement for 
anybody with fewer than 50, although we are hopeful over time, 
as this proves out, that you would migrate down. That is what 
it took. I mean, you have really got to persuade them.
    Senator Whitehouse. Yes.
    Senator Conrad. No kidding, I mean, these people feel----
    Senator Whitehouse. It has not taken hold yet here in the 
Senate in any way, so keep pushing.
    Senator Conrad. Can I just say, you know, we have now met 
with a lot of Senators and House Members, one on one and in 
small groups, and I have been--I tell you, I sense there is a 
feeling here that we have got to get some of these things done 
that are hanging out there.
    Senator Whitehouse. One last quick question. I have got 45 
seconds as I count down here. When you encourage certain types 
of retirement investments with tax deferral and you have a 
graduated tax system, you are paying through the tax incentive 
more to the wealthy person who pays a higher tax rate through 
that incentive than you are to the lower-income person with a 
lower tax rate. Should we be adjusting for that?
    Senator Conrad. Let me just say, you know, my individual 
view may be one thing. The commission view was what is included 
in this report.
    Senator Whitehouse. Got it.
    Mr. Lockhart. I think we are adjusting in a different way. 
By getting many more of those low-income people into savings 
plans, that is helpful to them and to the American economy, and 
that is one of the important things for both sides, is to get 
savings in America up, and these kinds of plans will do that 
and help grow our economy, which will lift all boats.
    Senator Conrad. Also, if I could just take a moment to say 
this to you, Senator Whitehouse, to me it was incredibly 
important that we not only made Social Security solvent, but we 
lifted the bottom 20 percent dramatically, so they have a 25-
percent increase over the scheduled benefits. They have a 60-
percent increase over what is payable, and we dealt with that 
surviving spouse in a way that is transformational. 
Transformational. Instead of just getting the higher of the two 
benefits, they get to keep their own benefit plus three-
quarters of their deceased spouse's. This combination lifts a 
million people out of poverty.
    Senator Whitehouse. Madam Chair, thank you very much. This 
has been one in a series of really superb hearings that this 
Committee has held under your and Senator McCaskill's 
leadership, and I appreciate it very much.
    The Chairman. Thank you very much.
    Senator Warren?
    Senator Warren. Thank you, Madam Chair, and let me also say 
thank you for having this hearing. It is just powerfully 
important. You and Senator McCaskill are taking us in very 
important directions here.
    I want to go to this question about Social Security, 
because of rising costs everywhere and flat wages, it is harder 
than ever for Americans to save for retirement, and that means 
as a result that Social Security is now the principal lifeline 
for retirees. Two-thirds of seniors depend on it for the 
majority of their income. For 15 million seniors, Social 
Security is all that stands between them and poverty. I am so 
glad when we get a chance to talk about the Bipartisan Policy 
Center's new retirement proposal. I do not agree with 
everything in it, but it is worth noting that it reflects an 
emerging bipartisan consensus that we have got to expand Social 
Security benefits at least in some places.
    I want to underline that expanding Social Security is not 
just some far-left position, that there are benefit expansions 
in your bipartisan proposal and in a new bill introduced by 
House Republicans who also champion Social Security reform. 
Granted, mixed with things that I do not agree with, but, 
still, this is a very big change.
    Senator Conrad, could you just walk us through your 
proposed progressive benefit structure, which is the largest 
expansion in your report?
    Senator Conrad. You know, there are really three places 
where there are dramatic changes here. One is changing the bend 
points, and rather than bore you with the details, if you would 
go to page 89 of our report, it lays out how we recommend 
changing the bend points. The bottom line is it makes the 
system more progressive. It lifts the bottom. It asks those of 
us at the top to take a little less of an increase than we 
might have expected.
    Second, we create a basic minimum benefit that will apply 
to about 10 percent of Social Security. It will reduce 
dependence on SSI, which we all know has got very serious 
problems, and it is all paid for, and it is paid for in a 
progressive way, because it is balanced. It is about 53 percent 
revenue, about 47 percent benefit savings, but those are really 
the key elements that we have brought to your attention.
    Senator Warren. All right, so changing the shape of how 
people get paid out so it comes up at the bottom----
    Senator Conrad. Yes, and quite a bit.
    Senator Warren. Quite a bit, and then boosting benefits for 
those who, even with their Social Security, are below the 
poverty line.
    Senator Conrad. Exactly.
    Senator Warren. So you are pulling that up.
    Senator Conrad. Yes.
    Senator Warren. Superb. In addition to expanding benefits 
for retired Americans, I think you also have in here expanding 
benefits for college-age children of deceased beneficiaries. 
Could you just say a word about how that works?
    Senator Conrad. That I like to call the ``Conrad 
provision.''
    Senator Warren. All right.
    Mr. Lockhart. We all call it that.
    Senator Warren. We will not give it a name. Let us get it 
through.
    Senator Conrad. It is really not the Conrad provision. It 
is a commission recommendation. I was somebody that lost my 
parents when I was young. I was the beneficiary of what used to 
exist, and I will never forget as long as I live going to my 
mailbox at Stanford University and having a check from the 
Federal Government because I was a survivor. It made all the 
difference in the world to my ability to get a world-class 
education. I had forgotten that, so we do restore a benefit 
that was taken away in the last Social Security set of reforms. 
I thought it was unfortunate then. I think it would make just a 
huge difference for those who have lost a parent or have lost 
parents to get that little bit of extra income that could help 
them get through college with less debt.
    Senator Warren. Well, I am very strongly in favor of that, 
and I appreciate your remembering where you came from and 
getting that into the proposal. I think it is really important.
    You know, Social Security is not going to be the answer to 
all of our retirement problems, but a strong Social Security 
system that is guaranteed to be in place for generations to 
come is how we make sure that people who have worked hard will 
be able to retire with dignity. In the midst of a growing 
retirement crisis, the one thing that Republicans and Democrats 
should be able to agree on is that we need to expand, not cut, 
Social Security benefits for those who need it most, and I am 
very grateful to be able to see this report and to have this 
hearing.
    Thank you, Madam Chair.
    The Chairman. Thank you very much.
    It is a great delight to welcome back to Washington today 
Senator Kaine.
    Senator Kaine. Thank you, Madam Chair, and I very much 
appreciate this hearing that you and Senator McCaskill have 
called, and it is, as Senator Whitehouse mentioned, one of the 
series of hearings that we have had where we touch upon these 
issues of the long-term prosperity of our seniors, and I want 
to ask about a couple of the points that you have mentioned, 
Senator Conrad, and I also have to thank you for training so 
much of my staff so well. I have been a great beneficiary of 
Senator Conrad's training of wonderful staffers, especially my 
legislative director, Mary Naylor, and I applaud you and thank 
you.
    Senator Conrad. Well, you got a terrific one with her.
    Senator Kaine. I sure do. I sure do.
    Talk about the scope of this. You talk about it as a 
leakage challenge. We have got the Social Security issues, and 
then we have the issues of personal savings. One of the thing 
you talk about--and we have grappled with this on the Committee 
before--is how do you create more of a culture of savings, its 
incentives, its strategies, but talk about this issue, whether 
it is home equity or others. What do we see in terms of people 
saving money and then letting that go during their life? 
Getting people to save is one thing, but helping them hold on 
to savings they have so they can use them as they age is really 
important. What is the magnitude of this challenge?
    Mr. Lockhart. Well, one of the things we have done is we 
have suggested that corporations can actually easily set up 
non-retirement savings accounts for people as a way to prevent 
leakage, because they go to that account before they go to 
their retirement account.
    Another important thing we have done--and to start people 
saving is the important thing. We have automatic enrollment in 
our Retirement Security Plans. We also have, if you save in a 
retirement plan, something called a ``Savings Starter Plan'' 
for lower-income people 19 to 35, where we give them--or the 
Government would match $500 a year, getting people starting, 
getting that culture starting, and also, very much a part of 
our plan is the whole financial literacy capability, getting 
people to understand in school and on the job getting training, 
every time they are making a major financial decision, getting 
some information. Information today is so easy to obtain on the 
Internet that, you know, it is there, people can get it, and 
what we have to do is encourage people to go out and reach out 
and get it, but from our standpoint, we have tried to build in 
not just retirement savings but personal savings, and to start 
building that savings culture, as you said, Senator, is 
critical.
    Senator Kaine. I was interested, when I looked at the 
report, that it was a report about retirement security, but you 
talk about K-12 education in the report and needing to start 
that education early. In Virginia, there is a mandatory 
financial literacy curriculum in our K-12 schools. Now, usually 
when something is mandated, it is immediately thus extremely 
unpopular, and students do not like it, and school systems do 
not like it either. This has actually turned out not to be 
true. It is a mandated curriculum. It has been in place within 
the last 10 years, and it is often one of the most popular 
courses in high school because students immediately see--in 
other classes, they are grappling with the connection between 
the subject matter and their lives. This is a course that they 
immediately get, and I have visited classrooms where these 
financial literacy classes are under way, and instead of this 
mandated State course, ``Oh, we have to do this,'' the level of 
excitement that the students have about it is really palpable.
    I do not know what the research would show about, you know, 
does the education of a student in high school about these 
literacy concepts have a lasting consequence in their life in 
terms of promoting savings or other important financial 
literacy goals, but at least in terms of the way it is being 
received by our young people, it is very strong.
    Are you aware of any research on this topic?
    Mr. Lockhart. There is really mixed research at the moment. 
You know, some people would say it does not help that much. I 
think the key thing is it has to be reinforced. You get it in 
K-12, but then on the job, as you are looking at setting up a 
401(k), investing in retirement savings, or when you are taking 
out a mortgage counseling. You know, I was very much involved 
in Fannie and Freddie, and part of the thing that I think was 
missing before the great crisis was a lot of counseling to 
people when they were making these major financial decisions, 
and so it has to start early, but I think it has to be 
reinforced as they go along.
    Senator Kaine. I have 45 seconds left, and I am really 
interested in the parameters of this debate that you had about 
the deductibility of interest on second mortgages. Obviously, 
that is an issue that has its own significant consequence, but 
to connect it to the retirement savings issue was creative 
work, and I gather from what you said, Senator, it was one of 
the hardest pieces to wrestle to a recommendation, but if you 
would just share a little bit about the thinking on that, that 
would be great.
    Senator Conrad. Well, it is sort of where you began the 
questioning about leakage. The conclusion of this commission 
was if we are going to have tax-advantaged vehicles to 
encourage people to save for retirement, then the savings ought 
to be for retirement, not for some other consumption, and that 
is how we basically reached conclusion on that recommendation.
    I would say to you, as I looked at this, I saw Social 
Security as the bedrock. That is the foundation, we have got to 
secure its future, and we did.
    Then we need to take advantage of the big opportunity that 
exists here, which is to dramatically expand the offerings of 
individual savings at work, because what we know from human 
nature is if you auto-enroll, if you put them in a program, 85 
percent will continue, even if they have the full right to opt 
out. People who thought they could not save will save, and so 
that has got to be a fundamental building block, and then, of 
course, the Saver's Credit that Jim mentioned, and addressing 
these leakage issues so retirement savings really stay in 
retirement accounts.
    Again, so many times it is inertia. People go from one job 
to another. When they leave the job, they cash out of the 
retirement, and then the money is gone. We all know how that 
works, you know, the utility bill, a car payment, a kid is 
sick, got a sore throat, pretty soon the money is gone.
    Senator Kaine. Thank you very much, both of you.
    The Chairman. Thank you very much, Senator Kaine. I want to 
thank you also for bring much needed media attention to this 
important hearing, or maybe, Senator Casey, they have all 
arrived to hear your questioning. Senator Casey, you are up.
    Senator Casey. Your assumption is correct.
    Your assumption in the first instance is correct.
    Madam Chair, thank you, and I want to thank Ranking Member 
McCaskill as well for this hearing. It is a great set of 
difficult issues, and I want to thank the two witnesses. I am 
sorry I missed your testimony, but I will incorporate by 
reference all of the accolades to both of you, in particular 
Senator Conrad. We miss him a lot, and we do miss those charts 
because Senators need charts to learn, and we need that kind of 
help, so we are grateful for what Senator Conrad brought to 
this body, the Senate, and also what he brought to the 
Democratic Caucus, constantly reminding us of our obligations, 
and that is probably the most significant task of a public 
official, is reminding himself or herself what their 
obligations are, and you are doing that again with this report, 
so I am grateful.
    I will just focus on one issue: the interplay or the 
connection between the pay gap that women suffer and the impact 
on retirement security. We had a recent report in Pennsylvania 
that women in our State, in Pennsylvania, earned 79.2 cents on 
the dollar, which is similar, I know, to a lot of States that 
have done this research. It is prevalent across age groups and, 
of course, leads to a lifetime earnings gap, which in our State 
is about half a million bucks per person, meaning per woman, 
and that wage gap has implications for them, obviously, and 
their families, but I think it has implications for all of us.
    I know you had a myriad, a long list of issues to tackle 
and to examine, and I know in your testimony, looking at, I 
guess, the last page of your testimony, the chart that is 
entitled ``Disposable Income for Americans Aged 62 and Older,'' 
up through 2065, and then you have the graph indicating in the 
quintiles the impact over time that it has, but were you able 
to examine or can you outline for us the impact of that 
systemic wage gap on retirement savings overall, but retirement 
security writ large.
    Mr. Lockhart. It is an issue. There is no doubt about it. 
We were able in our modeling to do male and female, so we have 
those numbers, and we can certainly help provide you with that, 
but we built in even more progressivity into Social Security so 
it does really help the lower-income, which in some cases are 
more women than men, so that there is more of that built into 
what we are proposing, but it cannot make up overall for the 
wage gap, so from our standpoint, you know, it is an issue that 
is beyond the commission, obviously. It is an issue that, you 
know, over time hopefully that gap will close, and part of the 
issue is, of course, that women often take care of children and 
are out of the workforce from time to time, and that does also 
have an impact overall, but from our standpoint, what we have 
done is the two things that I mentioned: we made it more 
progressive, but we have also helped the benefits for widows--
and widowers, but it is mainly widows as women live longer, and 
we have given an extra boost on that as well.
    Senator Casey. Senator Conrad?
    Senator Conrad. Senator Casey, good to see you. The 
surviving spouse provisions are especially important with 
regard to offsetting some of the unfairness that exists 
elsewhere. It really is a very dramatic change we are 
recommending. Instead of the surviving spouse simply getting 
the highest of the two benefits, they get their own benefit 
plus three-quarters of the deceased spouse's. The modeling 
shows that makes a really very dramatic difference, and you 
know, both men and women obviously can be survivors, but 
typically it is women, and one of the things that is happening 
is people are outliving their savings, so the longevity issue 
becomes especially important, and that is why we thought this 
proposal was, I thought, really one of the most important we 
made.
    Senator Casey. I appreciate it. Thanks very much.
    The Chairman. Thank you very much.
    Senator Blumenthal?
    Senator Blumenthal. Thank you, Madam Chairwoman, and thank 
you both for being here. A great, I think bipartisan, team, and 
at least one of you from Connecticut, and I am very proud to 
welcome you to the Nation's capital. You have seen a lot of the 
Nation's capital over the course of your years, but I am very 
honored to be at this hearing with you.
    I have introduced a bill with Congressman Larson called the 
``Social Security 2100 Act'' that would not only keep Social 
Security strong but actually, in my view, enhance and 
strengthen it. This bill would improve benefits with a modest 
across-the-board benefit increase, a more accurate cost-of-
living formula, and a tax cut for more than 10 million 
beneficiaries. It pays for these changes primarily by altering 
the current cap on income subject to payroll taxes, a concept 
familiar to you, but it removes that cap for any wages an 
individual earns above $400,000, so it leaves--in effect treats 
differently the income up to $400,000.
    At a time when Americans are feeling a lot less secure 
about their retirement, I join in the strong feeling that we 
must, in effect, bolster and strengthen the program and would 
be very interested in your comments on that concept, the 
concept of the Social Security 2100 Act, and also how the 
Federal Government can support small employers in educating 
workers about existing Government programs that are 
specifically designed for people who do not have a Retirement 
Savings Plan provided through their work. I know you have given 
a lot of thought to this issue. What can the Government do to, 
in effect, bring more awareness to Government programs like the 
Saver's Credit or myRA?
    Senator Conrad. Well, I would say this: We did have a 
chance to look at what you and the Congressman have offered, 
and we think that makes a significant contribution to this 
discussion and debate, and we appreciate that.
    What we were trying to do, in this commission the charge to 
us was have a bipartisan group come together to reach a 
conclusion that we could all put hands on and bless. That is a 
difficult thing to do, and so there are places where we have 
similarities. I think the place where we have the most 
similarity is we lift the bottom end very dramatically. The 
bottom 20 percent of earners get a 35-percent increase over 
what is scheduled, a more than 60-percent increase over what is 
payable. Second, as we have discussed, those who are the 
surviving spouse do not just get one of the two higher benefits 
Social Security check. They get their own benefit plus three-
quarters of the deceased spouse's, so those are two places 
where I would say we are in harmony.
    In terms of the pay-for, we do increase the amount subject 
to tax, from $118,000 to $195,000. We also increase the payroll 
tax very modestly, from the current combined rate of 12.4 
percent to 13.4 percent over 10 years. Over 10 years, so that 
is a tenth of a percentage point a year.
    Other places where we probably diverge is we increase the 
age, although modestly--2 years--in the next 48 years. Two 
years in the next 48 years. That is a modest increase, but it 
recognizes the demographic changes that are occurring. A woman 
who is 90 years old today has a 31-percent chance to live--or 
65 years today has a 31-percent change to live to be 90. I 
mean, we have got to deal with these demographic realities, and 
certainly your plan comes at it in a somewhat different way, 
but this was something that could achieve a bipartisan 
consensus.
    Mr. Lockhart. Our plan has many of the same elements that 
you do, but you know, some are, I think, more gradual and less, 
and really, I think as the Senator said, we have done a lot on 
the lower income in this plan, and I think that is incredibly 
important, so I would encourage you to go through it and would 
love to talk to you about it.
    Senator Blumenthal. Well, we should talk about it, and I 
recognize and applaud the focus on the lower end. The basic 
concept of removing the cap above $400,000 is essentially to 
benefit the middle class, those people between $118,000 and 
$400,000, and recognize that many of them really are having a 
hard time making ends meet now. Even though it may seem like a 
lot of money in today's economy, it is not, so I think I would 
enjoy continuing the discussion and the conversation. Thank 
you.
    Senator Conrad. Can I say to you, this was discussed at 
some great length on the Commission.
    Senator Blumenthal. I am sure,
    Senator Conrad. We call it the ``donut.'' I can say it 
appealed to some of us more than it appealed to others, as you 
can imagine.
    Senator Blumenthal. Thank you.
    Thank you, Madam Chairwoman.
    The Chairman. Thank you.
    I just have two brief questions, one for each of you, that 
I would like to get on the record.
    Mr. Lockhart, I know that you are a former Deputy 
Administrator of the Social Security Administration, so I want 
to direct this question to you. A future hearing that we have 
coming up examines the enormous difference in the benefit level 
if you delay claiming your Social Security benefits, and your 
report deals with that issue.
    When at previous hearings I have brought this up to the 
Social Security Administration and I suggest to them just give 
a printout when people come in to apply for their benefits that 
would show them what they get at age 62, at age 65 or 66, at 
age 70, where you have the maximum benefit, they are very 
resistant to that. They claim that what I am asking them to do 
is advice, and they cannot give advice.
    What are your thoughts on what Social Security's role 
should be? I am hoping you are going to give me something 
really good that I can go back to them with.
    Mr. Lockhart. Well, I disagree with that approach that you 
just said, and----
    The Chairman. With Social Security's?
    Mr. Lockhart. Is using today. I mean, it is disconcerting. 
I was telling the Senator earlier today that they made a big 
deal when the first Baby Boomer reached 62 and retired, applied 
for retirement. That is exactly the wrong message to give. 
People should wait. Employers should not be--and I think we say 
it in our report. Employers should have tools that help people 
understand that it is better to wait to apply for Social 
Security. Obviously, some people need to, but there are a lot 
of people that really prematurely apply, and the message has 
not gotten across as well as it should, but you know, from 
start to finish, it is almost a 70-percent difference for some 
people between retiring at 62 versus 70.
    I have seen a report recently that a lot of people can work 
longer now because many of the jobs are--you know, in the old 
days it was working in steel mills and coal mines and stuff 
like that that really took it out of your body, and at age 62 
you needed to retire, so many jobs these days are not like 
that, and people can work longer. I think it is better for 
their health. I think it is better for society, and so I would 
hope Social Security can do a much better job ``counseling.'' I 
will use that word.
    The Chairman. I would, too, and I do not think it is that 
hard for them to produce the printout that would show----
    Mr. Lockhart. It is very easy.
    The Chairman. Exactly, and I think if people saw it in 
black and white and realized the tremendous difference, that if 
they are physically fit and able to work, they might well make 
a different decision, and they would have a far more 
comfortable retirement in many cases.
    Mr. Lockhart. Yes, it is one of the most important things, 
actually. If you can delay taking it, even taking money out of 
your IRA might be the right decision and wait until 70 to get 
Social Security, because that is the only annuity that you can 
really get that grows with inflation and lasts your whole 
lifetime.
    Senator Conrad. You know, if you think about--if you would 
wait from 66 to 70, that is an additional 32 percent.
    The Chairman. That is amazing.
    Senator Conrad. Eight percent a year. I love your idea. I 
love your idea.
    The Chairman. Thank you.
    Senator Conrad. People are smart. People are smart, and if 
you just share with them the basic information, a lot of people 
will make a good decision.
    The Chairman. I completely agree with you, and that is why 
I have been frustrated to have this pushback on what I think is 
a really common-sense idea that would help people make the 
right decision for them, and in some cases, retiring early is 
good for them because of health issues, but in other cases, it 
surely is not.
    Senator Conrad, you have a great chart that shows that 34 
percent of workers do not even have access to a workforce-based 
retirement plan, and you talked about various ways of 
encouraging employers, small businesses, to offer it, and I am 
one of those who is extremely sensitive, as you are, to putting 
burdens on small businesses, but one thing we could do--which I 
believe you recommend but I want to make sure--and is in the 
bill that Senator McCaskill and Senator Nelson and I have is to 
no longer require a nexus among the small businesses. In other 
words, it is not lumber dealers grouping together or----
    Senator McCaskill. Car dealers.
    The Chairman. Or car dealers, perfect example, but rather, 
you could have a mixture of small businesses come together. 
Could you comment on how multiple employer plans could be--the 
rules could be liberalized in order to encourage more small 
businesses to offer plans?
    Senator Conrad. You know, we took lots of testimony, lots 
of input. One of the most important recommendations we have 
come with mirrors what you have suggested in your legislation, 
and I think in truth we borrowed from your legislation, so 
thank you for that.
    The Chairman. I am glad you did.
    Senator Conrad. It is really very important. You know, what 
so make stakeholders told us is you have got to broaden this 
thing out. You know, we should not all be siloed. We have got 
car manufacturers here, car dealers here, you know, insurance 
companies over here, hospitals over here. Give them the 
opportunity to go together to get the benefit of size to reduce 
costs. It is sort of a no-brainer.
    The Chairman. Thank you very much.
    Senator McCaskill?
    Senator McCaskill. I do not have any other questions.
    The Chairman. Thank you.
    Senator Blumenthal?
    Senator Blumenthal. Just my thanks for all the hard work 
you put into this area. I am often perplexed that more 
attention is not going to this vitally important topic. It is 
not in the Presidential debates. It is not front and center in 
the public square, but it should be because it has such a 
profound effect on the financial health of our American 
citizens, and so thank you for having this hearing.
    Senator Conrad. You know, if I could just say on that what 
we found is a lot of people are actually frightened.
    Senator McCaskill. Yes.
    Senator Conrad. You know, they are scared, and it makes 
them freeze. They do not talk about it. They do not talk about 
it in some cases to their own families. Ever since I started 
this, it has been amazing in my own family how many people have 
come to me and said, you know, ``Here is my situation.'' I have 
had family members come and show me their investments. I have 
been really quite amazed. Never talked about it before, but 
they have come to me and said, ``You are working on this. What 
do you think? Am I in a good situation, or not so good?'' 
People are a little frightened, so we have got to help them 
talk about this and make decisions.
    Senator Blumenthal. Thank you.
    The Chairman. This is an issue where I think the public is 
ahead of the policymakers, and I want to thank both of you for 
your testimony, for continuing your public service as you have 
worked with the Bipartisan Policy Center to produce this very 
valuable report.
    I also have to acknowledge Bill Hoagland, who I see in the 
audience, because I know that he was invaluable, along with the 
rest of your staff, and I want to thank our staff also for 
working so hard on this hearing. We very much appreciate your 
presenting your findings and recommendations to us.
    Committee members will have until Friday, September 16th, 
to submit any additional questions to you for the record, and 
again, I want to thank you for your excellent testimony and 
thank the Ranking Member and all the Committee members who are 
here today. We had wonderful participation, which I think shows 
great interest in your report.
    This hearing is now adjourned.
    [Whereupon, at 4:07 p.m., the Committee was adjourned.]


      
      
      
      
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                                APPENDIX

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                      Prepared Witness Statements

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                       Statements for the Record

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