[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
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Kevin Kelly, Majority Staff Director
Derron Parks, Minority Staff Director
C O N T E N T S
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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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