[Senate Hearing 114-869]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 114-869
 
                           BRIDGING THE GAP:
                            HOW PREPARED ARE
                       AMERICANS FOR RETIREMENT?

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

                                HEARING

                               BEFORE THE

                       SPECIAL COMMITTEE ON AGING

                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS


                             FIRST SESSION

                               __________

                             WASHINGTON, DC

                               __________

                             MARCH 12, 2015

                               __________

                           Serial No. 114-02

         Printed for the use of the Special Committee on Aging
         
         
         
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        Available via the World Wide Web: http://www.govinfo.gov
        
        
        
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              U.S. GOVERNMENT PUBLISHING OFFICE 
 49-532 PDF          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
                              ----------                              
               Priscilla Hanley, 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....     2

                           PANEL OF WITNESSES

Jean Chatzky, Financial Journalist and Financial Editor, NBC's 
  ``Today Show''.................................................     4
Alicia H. Munnell, Ph.D., Director, Center for Retirement 
  Research, Boston College.......................................     6
Michal Grinstein-Weiss, Ph.D., Associate Professor, George Warren 
  Brown School of Social Work, Washington University, St. Louis, 
  Associate Director, Center for Social Development, and 
  Nonresident Senior Fellow, Brookings Institution...............     8
Rob Carmichael, Senior Vice Information President, Human 
  Resources, Training, Technology, and Facilities, Maine Savings 
  Federal Credit Union...........................................    10

                                APPENDIX
                      Prepared Witness Statements

Jean Chatzky, Financial Journalist and Financial Editor, NBC's 
  ``Today Show''.................................................    33
Alicia H. Munnell, Ph.D., Director, Center for Retirement 
  Research, Boston College.......................................    40
Michal Grinstein-Weiss, Ph.D., Associate Professor, George Warren 
  Brown School of Social Work, Washington University, St. Louis, 
  Associate Director, Center for Social Development, and 
  Nonresident Senior Fellow, Brookings Institution...............    52
Rob Carmichael, Senior Vice Information President, Human 
  Resources, Training, Technology, and Facilities, Maine Savings 
  Federal Credit Union...........................................    66

                        Questions for the Record

Jean Chatzky, Financial Journalist and Financial Editor, NBC's 
  ``Today Show''.................................................    73


                           BRIDGING THE GAP:

                            HOW PREPARED ARE

                       AMERICANS FOR RETIREMENT?

                              ----------                              


                        THURSDAY, MARCH 12, 2015

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:31 a.m., Room 
562, Dirksen Senate Office Building, Hon. Susan M. Collins, 
Chairman of the Committee, presiding.
    Present: Senators Collins, Scott, Tillis, McCaskill, Casey, 
Whitehouse, Blumenthal, Donnelly, Warren, and Kaine.

                 OPENING STATEMENT OF SENATOR 
                   SUSAN M. COLLINS, CHAIRMAN

    The Chairman. The hearing will come to order. Good morning.
    Today, I am convening the first in what will be a series of 
hearings on retirement security, one of the priority issues 
that our Committee will examine this session. My hope is that 
today's hearing will enable us to set the stage for our future 
work by helping us to better understand the scope of the 
retirement security problem, the factors that have contributed 
to its rise, and the practical ideas we should consider to 
address the growing gap in what Americans are saving for their 
retirement and what we will actually need for our retirement 
years.
    The issue of retirement security is of great importance not 
only to those who are in or nearing retirement, but also to all 
Americans who hope to enjoy their retirement years without 
fearing that they will run out of money and fall into poverty.
    In our work on this issue last Congress, I was shocked to 
learn that there was an estimated $6.6 trillion gap between the 
savings that American households need to maintain their 
standard of living in retirement and what they have actually 
saved. One of our distinguished panelists this morning will 
tell us that this estimate has been revised upward to an 
incredible $7.7 trillion today. That enormous gap speaks to the 
fact that we need a much greater public awareness of this 
problem and congressional attention to it, as well.
    Already, far too many American seniors struggle to get by 
and have real reason to fear that they will outlive their 
savings. Nationally, one in four retired Americans has no 
source of income beyond Social Security. In my State of Maine, 
the number is one in three. Nearly half of single retirees rely 
on that vital program for 90 percent of their retirement 
income.
    Bear in mind that Social Security provides an average 
benefit of less than $16,000 per year. It is hard to imagine 
stretching those dollars far enough to pay the bills. 
Certainly, a comfortable retirement is out of question for many 
seniors with that limited income.
    According to a recent survey conducted by PBS, 92 percent 
of respondents believe that there is a retirement crisis in our 
country, and they are right. I would like to direct your 
attention to this chart. It indicates that American workers 30 
and older are increasingly unprepared for retirement. In fact, 
it is shocking to know that half of Americans have saved 
nothing for retirement, and only one out of two workers has 
access to a retirement plan.
    There are many reasons for the decline in retirement 
security facing American seniors, including the factors I have 
just mentioned, rising health care costs, higher debt levels, 
the need for expensive long-term care, and most important, the 
simple fact that Americans are living much longer than we did 
in the past. The shift from employer-based defined benefit 
plans, or pensions, to defined contribution plans, like 
401(k)'s, has also played a role.
    Another contributing factor is that employees of small 
businesses are much less likely to participate in an employer-
based retirement plan. According to a GAO study, more than half 
of the 42 million Americans who work for businesses with fewer 
than 100 employees lack access to a work-based plan to help 
them save for retirement. Cost and complexity are among the 
reasons that plans are not more widely offered by small 
businesses.
    I believe that making it easier for smaller businesses to 
provide access to retirement plans for their workers would make 
a significant difference in the financial security for many 
Americans. That is why I have authored legislation called the 
Retirement Security Act with former Aging Committee Chairman 
Bill Nelson to reduce the cost and complexity of retirement 
plans, especially for our smaller businesses, and to encourage 
individuals to save more for their own retirement.
    We have a superb panel of witnesses today. I want to 
welcome Rob Carmichael, the Human Resources Manager for Maine 
Savings Federal Credit Union in Hampden, Maine.
    It is also my pleasure to welcome Jean Chatzky to today's 
hearing. As a well known author, columnist, and financial 
editor of NBC's ``Today Show,'' Jean has shown a great deal of 
insight into this crucial topic, and we are also so privileged 
to have two outstanding professors with us who are experts in 
this field. I thank all of our witnesses for agreeing to appear 
before us today.
    I view this hearing as a wake-up call for Americans saving 
for their retirement, or better yet, not saving for their 
retirement, as well as for Congress, which needs to attend to 
the public policy issues involved.
    I am very pleased now to turn to our Ranking Member, 
Senator McCaskill, for her opening comments.

                 OPENING STATEMENT OF SENATOR 
                CLAIRE McCASKILL, RANKING MEMBER

    Senator McCaskill. Thank you, Chairman Collins.
    Thank you all for being here. We appreciate it very much. 
Retirement security is obviously a top priority of this 
Committee and the Chairman has assembled a great panel to have 
the first of what I hope will be many conversations on this 
topic in this Congress.
    Many of us recall an era when it was common for workers to 
have a secure, guaranteed pension plan waiting for them at 
their retirement. This is no longer the case. We live in a 
401(k) world, one that requires American workers to make more 
financial decisions and assume more risk in deciding how much 
money to invest and how to invest it.
    Due to many challenges, many Americans have not been able 
to save the necessary funds for retirement. This is a crisis 
that is real in our country right now. Despite the development 
of tax-favored retirement accounts and other incentives, many 
individuals, especially lower-and middle-income Americans, are 
not saving. In my home State of Missouri, only 45 percent of 
the private sector workers are participating in an employer-
sponsored retirement plan, and my State is not an anomaly.
    Lower-income households are simply not putting any money 
away for retirement. The National Institute on Retirement 
Security released a study today finding, as has been mentioned, 
that nearly 40 million American households--45 percent of the 
population--have not put away a single penny in a retirement 
account. The difference between the households that save and 
those who do not? It is income, pure and simple. Those who save 
bring in almost 2.5 times more annually than those who do not.
    There are significant racial disparities in savings, as 
well. The Urban Institute just released a study showing that 
white families had over $100,000 more in average liquid 
retirement savings than African American and Hispanic families, 
a figure that has quadrupled--let me say that again, a figure 
that has quadrupled--in the last quarter-century.
    This is not to say that low-and middle-income families are 
incapable of saving. Far from it. I am pleased to welcome 
Washington University professor Michal Grinstein-Weiss today to 
share the findings of her research showing that when presented 
with opportunities, low-and middle-income Americans can and 
will put away money to save for their retirement. I will let 
her detail what she has seen, but suffice it to say that her 
charge to us is to provide those opportunities and the 
infrastructure for people to easily put money away at their 
place of work.
    Most economists will tell you that it is far easier to get 
people to save money for retirement through a payroll deduction 
at work instead of requiring them to open up an IRA, especially 
when they face the dizzying number of choices that are on the 
marketplace.
    The problem is that many low-income workers face a real 
structural barrier to saving. They work seasonal jobs, or are 
in and out of the workforce before they can invest, or they 
work for employers who have neither the time nor the resources 
or the desire to offer a retirement plan.
    It is with this in mind that I am supporting Senator 
Collins' and Senator Nelson's Retirement Security Act of 2015. 
This bill is designed, in part, to create more work-based 
savings opportunities for Americans who too often do not have 
an option at work, those working in small businesses.
    According to the Government Accountability Office, of the 
one-third of American workers employed by a business with fewer 
than 100 workers, only about a quarter of those have access to 
a retirement plan. This bill would aim to change that by 
allowing small businesses to pool together and create what are 
known as multiple-employer plans, which can be run by a third 
party that can handle the administrative tasks a small business 
owner has neither the time, resources, or expertise to do.
    This is a bipartisan solution, one that has been included 
in a variety of retirement bills in recent years and one that 
should become law in the near future.
    Once again, thank you to Senator Collins and to all of our 
witnesses here today for taking the time to be here. We look 
forward to listening to your testimony and having an 
opportunity to ask questions.
    Thank you, Madam Chairman.
    The Chairman. Thank you very much, Senator, for an 
excellent statement.
    I think the panel should be impressed with the number of 
Senators who are here today. It shows they are very eager to 
listen to your testimony, so I will do very brief introductions 
so that we can begin.
    First, we will be hearing from Jean Chatzky, whom, as I 
mentioned in my opening statement, is a noted financial 
journalist and the Financial Editor for NBC's ``Today Show.''
    Next, we will hear from Alicia Munnell, the Director of the 
Center for Retirement Research at Boston College. Given all of 
the snow that Boston has had this weekend, I can imagine you 
had to tunnel your way out to get here.
    Our next witness has already been introduced by Senator 
McCaskill, but just let me add a thank you to Dr. Weiss for 
being here today, and finally, as I mentioned in my opening 
statement, Rob Carmichael, the Senior Vice President of Human 
Resources and Training at the Maine Savings Federal Credit 
Union will give us the real life perspective of an employer who 
is trying to help employees save for their retirement.
    We will start with you, Ms. Chatzky.

             STATEMENT OF JEAN CHATZKY, FINANCIAL 
     JOURNALIST AND FINANCIAL EDITOR, NBC'S ``TODAY SHOW''

    Ms. Chatzky. Thank you so much, Chairman Collins, Ranking 
Member McCaskill, members of the Committee. Thank you for 
inviting me to testify today before the Special Committee on 
Aging and for shining a light on this key issue of retirement 
security.
    According to the Federal Reserve Survey of Consumer 
Finances, a typical working family in the pre-retirement years 
has about $104,000 in retirement savings. For more than half, 
that will not be enough to maintain their standard of living 
throughout retirement. This is something consumers seem to 
understand. Survey after survey shows Americans fear running 
out of money in retirement.
    How likely is that outcome, really? That depends on who you 
ask. The Employee Benefits Research Institute's examination of 
employees who retired at 65 and lived to be 100 found 83 
percent of those in the lowest earning quartile of households 
and half in the second-lowest earning quartile would fall 
short. Data from the Survey of Consumer Finances analyzed by 
Morningstar tells a somewhat different story.
    We have all heard that retirees will spend 70 to 80 percent 
of their pre-retirement income in retirement. That rule of 
thumb is not bearing out in real life. People in their mid-40's 
to mid-50's spend the most, and as someone with one child in 
college and one on the way, I can totally see why that is true, 
but then spending declines as, typically, the kids leave the 
nest, you downsize, ditch the extra car, until medical needs 
drive expenses up again toward the end of life. Bottom line: 
Real replacement rates vary from under 54 percent to over 87 
percent.
    Average earners whose pre-retirement income is between 
$50,000 and $60,000 annually are actually faring better than 
anticipated. Their spending is not growing much in retirement, 
and Social Security covers a significant chunk. Higher earners 
turn out to be in greater trouble. Social Security covers far 
less of their monthly and most have not saved enough to cover 
the rest.
    As I only have a few minutes, I do not want to dwell on one 
probable cause, the switch from defined benefit to defined 
contribution plans. There are other issues where greater 
understanding can bring improved solutions. Among them, 
longevity. Americans need to understand that when the Social 
Security Administration says a 65-year-old man will live, on 
average, to 84, they may be the above-average ones who will 
surpass that.
    The cost of health care. Telling a 65-year-old couple they 
need a quarter-million dollars just for health care is simply 
too daunting. It may help, as EBRI suggests, to look at health 
care as two separate buckets in which the stable recurring 
costs average under $2,000 a year.
    Changes in the American lifestyle. Getting married and 
having children later brings college and retirement 
uncomfortably close, and the fact that more adults are 
supporting both grown children and older parents puts 
retirement savings on the back burner, and debt. According to 
the CFPB, older consumers are carrying more debt than ever. 
Most troubling is the huge increase in mortgage debt. 
Homeowners with a mortgage spend a median $1,250 a month on 
housing, three times that those without spend.
    Solving this problem is clearly going to require a 
multifaceted approach. Americans, of course, need to save more 
for their own retirements, and behavioral finance advances, 
including auto-enrollment and auto-escalation, have proven to 
be powerful tools, but we can do more.
    Although the average 401(k) deferral rate is six or seven 
percent, the most common deferral rate is three percent because 
that is where employees are auto-enrolled. We need a 
governmental recommendation to start at six percent or higher.
    We need an easy way for individuals without work-based 
retirement plans to automatically fund retirement accounts, and 
I believe should look beyond paycheck deductions. An app called 
SavedPlus allows consumers to automatically transfer a 
percentage of the money they spend to savings and retirement 
accounts at 3,500 banks. Average users, many of whom have 
figured out that this is a back-door way to fund their IRAs, 
are saving $4,000 a year.
    We need to make it easier for small businesses to offer 
retirement plans to their retirees. As a small business owner 
myself, I see how the Collins-Nelson retirement security bill 
will make both plan administration and matching contributions 
more affordable.
    We need to make paycheck deductions available to fund 
emergency cushions, as well. A lack of emergency savings is one 
reason for the 401(k) leakage that results in balances that are 
20 percent smaller at retirement than they need to be.
    We need increased Social Security education. Three-quarters 
of Americans tap their benefits at age 62, and by doing so, 
they lose out on hundreds of thousands of dollars in lifetime 
payouts, and we need transparency when it comes to annuities 
and other tools that purport to make your money last, and when 
it comes to investment commissions and fees. Whether that comes 
as part of the new fiduciary rule from the Labor Department or 
from another source, consumers need to see the toll investment 
costs can make. The difference in final account balances can, 
again, be hundreds of thousands of dollars.
    I could go on, but my time is more than up. Again, I want 
to thank the Committee for inviting me to be here today.
    The Chairman. Thank you very much.
    Dr. Munnell.

       STATEMENT OF ALICIA H. MUNNELL, PH.D., DIRECTOR, 
         CENTER FOR RETIREMENT RESEARCH, BOSTON COLLEGE

    Dr. Munnell. Thank you, Chairman Collins, Ranking Member 
McCaskill, and members of the Committee. Thank you so much for 
the opportunity to testify today about Americans' retirement 
preparedness.
    I would like to submit my written testimony for the record 
and briefly summarize my arguments.
    Let me try to demonstrate we have a problem with my 
favorite chart. It appears as Chart Number 1 in the written 
testimony and it looks like this. The data come directly from 
the Federal Reserve's Triennial Survey of Consumer Finances, so 
there are no assumptions involved or anything like that. The 
chart shows the ratio of wealth to income at each age for each 
survey since 1983, and do not try to distinguish between the 
lines. The whole point of the chart is all the lines lie on top 
of each other. That is, the chart shows that people who are 
saving in 2013 are saving the same proportion of their--their 
wealth-to-income is the same as those saving in 1983.
    With this stability, you might ask, what is the problem? 
The problem is that many things have changed since 1983 and 
each one of those developments should have led to people to 
save more, so let me just tick off those changes.
    One is increase in life expectancy, that Chairman Collins 
referred to. If life expectancy is going up, people should have 
saved more because they have to support themselves for a longer 
period of time.
    The second is the shift from defined benefit plans to 
401(k) plans. I am not getting into a discussion of whether one 
is good or one is bad, but the assets in 401(k) plans are 
included in the Social Security--the Federal Reserve's measure 
of wealth, where the accruals under the DB plan were not 
included, so if you go to one system where the accumulations 
are measured to one where they are not, you would think that 
wealth would go up.
    Third, Social Security replacement rates, benefits as a 
percent of pre-retirement earnings, are going down as the full 
retirement age goes up, and so you would have thought that 
people would have accumulated more on their own.
    Fourth, health care costs are high and rising, so you would 
think people would be saving more relative to their earnings to 
cover these end-of-life expenses.
    Finally, real interest rates are low, and so to get any 
stream of income, you need to have a bigger pile in the future 
than you had in the past, so given how much the world has 
changes, the fact that the ratio of wealth to income by age is 
constant signals a big problem, and then the question is, how 
big is the problem?
    The center that I direct puts out something called the 
National Retirement Risk Index. This index compares projected 
replacement rates, benefits as a percent of pre-retirement 
earnings for today's working families, with target replacement 
rates that would allow people to smooth their consumption over 
their lifetime. The index shows that about half of today's 
working households would not be able to maintain their pre-
retirement standard of living once they stopped working. This 
index is also the base for the $7.7 trillion number that 
Chairman Collins referred to.
    Why do we have a problem today when things were pretty good 
20 years ago? The reasons are twofold. We need more retirement 
income than we did then, and the traditional sources of 
retirement income are providing less.
    On the need side, the drivers are the things that I was 
talking about, longer life expectancies coupled with continued 
pretty early retirement ages, rising health care costs, and low 
interest rates.
    On the income side, as I mentioned, Social Security will 
provide less relative to pre-retirement income because of the 
rise in the full retirement age. In addition, higher Medicare 
premiums and the taxation of Social Security benefits will lead 
to less net Social Security income.
    Second, the private pension system is not working well. The 
typical working household approaching retirement has $111,000 
in their combined 401(k)-IRA account. That may sound like a lot 
of money to some people, but it only will produce about $400 a 
month. The thing I really want to emphasize is that those with 
coverage are the lucky ones. I mean, half the private sector 
workforce does not have anything at a given moment in time.
    Finally, people do not save on their own. The only way they 
save is through payroll deduction, so they are not saving on 
the side, so what do we need to do? We need a new two-part 
strategy that involves working longer and saving more. The 
working longer part requires an educational program to convince 
people they get their highest benefits from Social Security at 
70 and they should postpone claiming as long as they can.
    The saving more part requires four changes. One, fix Social 
Security so it remains the backbone of the retirement system. 
Make 401(k) plans automatic, less leaky, and cheaper so that 
people save more. Cover those who currently do not have an 
employer-sponsored plan, and help people think about the equity 
in their home as something they can use in retirement. These 
changes are all doable within our current retirement system.
    In short, we have a really big problem, but we also have 
the tools to fix it. Thank you.
    The Chairman. Thank you very much for your excellent 
testimony.
    Dr. Weiss.

          STATEMENT OF MICHAL GRINSTEIN-WEISS, PH.D.,

            ASSOCIATE PROFESSOR, GEORGE WARREN BROWN

               SCHOOL OF SOCIAL WORK, WASHINGTON

           UNIVERSITY, ST. LOUIS, ASSOCIATE DIRECTOR,

         CENTER FOR SOCIAL DEVELOPMENT, AND NONRESIDENT

              SENIOR FELLOW, BROOKINGS INSTITUTION

    Dr. Grinstein-Weiss. Thank you. Chairman Collins, Ranking 
Member McCaskill, and members of the Committee, thank you very 
much for the invitation to appear before you today. I am 
honored and delighted to be here.
    My testimony is focused on saving barriers and 
opportunities for low-and moderate-income households. I will 
briefly describe three barriers and offer four recommendations 
that aim at improving saving rates.
    What we have learned from our research is that everyone, 
even those with very little incomes, want and can save when 
provided structured opportunities to do so, but there are many 
barriers that keep low-and moderate-income households from 
saving.
    First, saving is highly supported by institutional 
structures, such as workplace retirement saving programs, but 
low-and moderate-income households have less access to 
employers that offer retirement savings.
    Second, asset-based policies in the U.S. provide tax 
subsidies for investments such as home ownership, education, 
and retirement accounts. However, over 90 percent of these 
subsidies go to households with income over $50,000 a year, the 
top half of the income distribution.
    Third, there are few safe and affordable savings products 
available for low-and moderate-income households.
    Given these barriers, I offer four recommendations that 
will enable more Americans to save and prepare for retirement.
    My first recommendation is to automate healthy financial 
choices. In our complex financial environment, we need to make 
saving as automatic as possible using opt-out and default 
techniques to streamline the process and reduce the complexity 
of saving behaviors. If people do not want to save, they can 
opt out.
    For example, in Maine, by switching from an opt-in to an 
opt-out program, the take-up rate for the 529 college savings 
program increased from 40 percent participation to 100 percent 
participation rate. Another example related to retirement is 
the new Illinois Secure Choice Program. It provides automatic 
enrollment for employees of small businesses to open Roth IRAs 
with a three percent default contribution. Similarly, the 
Retirement Security Act of 2015 also has the potential to use 
automation and defaults to increase saving for retirement among 
employees of small businesses.
    My second recommendation is to use golden moment to create 
savings opportunities. I define golden moment as decisions 
junctures during which important financial decisions are made. 
Tax time is one of the best examples of golden moments. With 
seventy-five percent of filers receiving a tax refund, tax time 
is a unique opportunity for saving interventions for, and many 
low-income households, tax refund is the largest lump sum they 
received all year.
    Using insights from behavioral economics, I launched the 
Refund to Saving Initiative in collaboration with Intuit, the 
makers of the TurboTax, and Duke University. In two years, we 
intervened with over a million low-income households and we 
have demonstrated by using simple changes to the tax software, 
we significantly increased the number of people who saved part 
of their refund and the amount they saved.
    Starting a new job is another example of a golden moment. 
Employees make retirement security decisions and they have a 
major impact on their retirement security. This golden moment 
should be structured to be opt-out enrollment.
    My third recommendation is to build unrestricted emergency 
savings. Financial shocks severely affect the financial 
stability of low-and moderate-income households and their 
ability to save. In my research, we found that two out of three 
low-income households experience at least one emergency, such 
as period of unemployment, major car repair, a trip to the 
hospital in the span of six months. To cope with these 
emergencies, households are often withdrawing from retirement 
account, use alternative financial services, and skipping 
paying bills. I recommend that policymakers develop flexible 
savings accounts that do not penalize households when they use 
the fund for emergencies.
    The Treasury's myRA is an example of this type of savings 
account. It is flexible, simple, and affordable, and it is 
designed for low-and moderate-income households who do not have 
a retirement account, and savings can be used for emergencies 
without penalty.
    Last, I recommend that policymakers should facilitate 
saving opportunities early in life. Both aging and saving are 
livelong processes. Therefore, saving should start as early as 
possible. My colleagues at the Center for Social Development 
have built a body of evidence demonstrating the positive impact 
of starting early for financial success. In a large-scale 
experiment in Oklahoma, they found that providing newborns with 
529 college savings improved mothers' mental health and led to 
better social and emotional development at age four.
    Based on this body of work, we recommend that policies 
should focus on creating long-term asset building programs. 
These programs should start early, ideally at birth, enroll 
participants automatically, build on existing infrastructures, 
and be universal and progressive. Several States have already 
established this type of early universal opt-out program for 
college savings, including Maine and Nevada.
    To conclude, I want to highlight again that despite many 
barriers for savings, we have learned that Americans of all 
incomes can save if provided the right institutional mechanism 
to do so, and saving can be increased using the available 
economics techniques.
    Thank you very much.
    The Chairman. Thank you for your testimony.
    Mr. Carmichael, welcome.

            STATEMENT OF ROB CARMICHAEL, SENIOR VICE

            INFORMATION PRESIDENT, HUMAN RESOURCES,

             TRAINING, TECHNOLOGY, AND FACILITIES,

               MAINE SAVINGS FEDERAL CREDIT UNION

    Mr. Carmichael. Good morning, Chairman Collins, Ranking 
Member McCaskill, members of the Committee. Thank you for this 
opportunity to talk with you about the financial security and 
how Maine Savings is helping our employees prepare financially 
for retirement.
    Maine Savings is the second largest credit union in Maine, 
with $300 million in assets, serving 27,000 members. Our 94 
employees, including 27 who have been with the company over 15 
years, are committed to fulfilling the essence of our tag line, 
which is, ``We treat you like you own the place because you 
do.''
    We have low turnover because of our strong corporate 
culture, service philosophy, and a benefits package that 
enables us to compete successfully for the most talented 
employees.
    Like other Americans, our employees struggle with the cost 
of energy, health care, and for the younger generation, the 
burden of significant school-owned debt. Some still struggle 
with significant credit card debt. For many, preparing for 
retirement can become lost in the fog of their current 
financial challenges. Nevertheless, our company has taken 
several steps to assist our employees and credit union members 
with their financial management and education.
    In 2012, Maine Savings created a financial planning 
structure with a certified fund specialist who is available to 
employees and members free of charge. This person is the 
financial advisor for our 401(k) plan and meets with eligible 
employees to provide financial and retirement advice. We began 
offering our 401(k) in 1993.
    Our plan allows pre-tax deferrals and includes a safe 
harbor with additional matching contributions. We match 50 
percent of employee deferrals up to six percent of their salary 
and also provide a discretionary contribution of three percent 
to all eligible participants.
    We have made good progress. We have a ways to go, but we 
have made good progress increasing our 401(k) participation 
rate. We encourage employees to start contributing as soon as 
they are eligible to do so. Our goal is to have all employees 
contribute at least the six percent salary match limit so they 
may take full advantage of our company matching contribution. 
Currently, we have an 87 percent participation rate in our 
401(k).
    Although it has only been in place for one year, our plan's 
automatic deferral provision has already had a positive impact 
on the plan. This provision automatically defers three percent 
of an employee's salary once they become eligible to 
participate. Despite having the ability to opt out, six of the 
eight employees who were automatically enrolled last year 
continue to defer into their 401(k).
    Although our generous health insurance plan may be the most 
important benefit to the majority of our employees, our very 
competitive retirement savings approach is a close second. In 
fact, 93 percent of our employees responded favorably when 
asked about the value of our 401(k).
    The average deferral percentage for those enrolled in our 
401(k) is currently at 6.4 percent. Surprisingly, those who do 
not defer any salary are some of our longer-tenured employees 
rather than new entry-level employees at the low end of the pay 
scale. In fact, most of these entry-level employees are 
deferring close to six percent of their salary.
    Why do not all of our employees contribution to their 
401(k)? My general sense is that they are merely trying to make 
ends meet and they are unable to put money aside for something 
not seen as an immediate need. The idea of retirement is still 
a distant concept in the day-to-day financial priorities.
    Why do not more small businesses offer 401(k) or comparable 
retirement plans to their employees? Well, there are costs to 
provide a retirement plan like a 401(k), which can be 
problematic for small business employers. These costs include 
third-party administrative fees, the cost of a deferral match 
if the employer wishes to provide one, and the regulatory 
environment is complicated and too cumbersome for many small 
businesses to administer without a third-party administrator 
and/or outside advisor, and they can face difficulty getting 
this help due to the costs and liability for an advisor to 
execute the fiduciary responsibilities. There is a clear need 
for a streamlined and simplified 401(k) plan process for small 
businesses.
    I urge this Committee to find ways to make 401(k) plan 
solutions available to more small businesses that may not have 
the resources that we do. I understand Chairman Collins has 
introduced legislation with Senator Nelson to provide important 
incentives for small businesses to offer retirement plans for 
their employees, which strikes me as a step in the right 
direction.
    I want to thank you again for this opportunity to testify 
before you today.
    The Chairman. Thank you very much for your excellent 
testimony.
    We will now do five minute rounds of questions, and after 
Senator McCaskill's questions, we are going to go by the order 
of arrival, alternating back and forth, although it looks like 
there is not a lot of alternating to do right now on my side of 
the aisle. I am sure there will be as members return.
    Ms. Chatzky, let me start with you. You mentioned in your 
written testimony that three-quarters of Americans start taking 
their Social Security benefits as soon as they qualify, at age 
62, a point that Professor Munnell made, as well. Now, 
certainly there can be many legitimate reasons to retire early, 
particularly for people who are in physically demanding jobs. 
If it is three-quarters, it goes way beyond the group of those 
who are in physically demanding jobs or may have health issues 
that compel them to retire at age 62. You point out that this 
amounts to a cumulative average loss of $323,000 for couples 
compared to what they would get if they waited until age 70.
    What do you think that we should be doing to make sure that 
Americans who are nearing retirement age stay in the workforce 
if they are able to do so?
    Ms. Chatzky. I think the call for greater education is dire 
where Social Security is concerned. There are, and these are 
statistics that I got from a company called Social Security 
Solutions, which ran those numbers that you referred to. There 
are 7,000 different permutations in the ways that people can 
tap Social Security, and people need to understand exactly what 
they are missing out on in dollar terms when they start the 
clock too early and that they are making a decision that is 
irrevocable.
    We know, again, from behavioral finance, and Dr. Weiss, I 
am sure, could talk about this endlessly, that human beings 
hate to lose money much more than we appreciate gaining an 
equal amount. Making it clear just how much people are losing 
in actual dollar terms would, I imagine, go a great distance to 
helping people just push their election to start the clock down 
the road.
    The Chairman. Professor Munnell, do you believe that if, 
when people go to the Social Security Office at age 62, they 
were given a printout that shows their average life expectancy 
and how much more they would get--showing the income stream, if 
you will--from age 62 retirement versus 65 or 66 and age 70, do 
you think that would influence people's decisions?
    Dr. Munnell. I do think the information put out from Social 
Security is confusing. I think the focus on the full retirement 
age, which is now 66, makes people think that is the time they 
get the highest benefits, where, in point of fact, that is not. 
Age 70 is. I think just the very simple fact needs to get out 
there that if you want your highest Social Security benefit, 
wait. If you have some money to support yourself in the 
interim, use that. Wait until you get the maximum benefit at 
70, because Social Security provides such terrific income. It 
is inflation indexed and it lasts as long as you live. If you 
have a base of that, you are in pretty good shape.
    The Chairman. I agree, and this is something I have been 
trying to get the Social Security Office to do for some time.
    Mr. Carmichael, my final question for this round is for 
you. I was very interested to learn of your credit union's 
decision to move to automatic enrollment and the large take-up 
that you are having. I was surprised to learn that older 
workers were less likely to participate than younger workers. 
In some ways, it is encouraging that younger workers know, but 
that particularly surprised me because are not your younger 
workers likely to have lower salaries or wages?
    Mr. Carmichael. That surprised me, as well, Senator, and I 
do not know if it is because maybe, in some respects, they are 
getting more education or more knowledge. Some of them are more 
knowledgeable, maybe, than some that have been already around 
in the workplace and have not had that education or financial 
education in their high school or college years.
    I think some of them also end up with financial 
difficulties at certain points in their lives and are unable to 
make that a priority, an immediate priority, like some of the 
other things that they are dealing with.
    We also feel that this automatic deferral piece is just the 
start, the level we start at is at three percent, and I think 
there are opportunities to improve that with all of our folks 
by maybe escalating that or making the default rate at a six 
percent level and seeing if we will have success in those 
areas.
    The Chairman. Thank you. Thank you all.
    Senator McCaskill.
    Senator McCaskill. Thank you so much.
    I am intrigued by your golden moment, Dr. Weiss. I have got 
children that are 24, 26, and 28, and I am constantly amazed 
at--they are all very bright. Two of them are college 
graduates. The other one will be soon. All of them have done 
very well in terms of higher education. Their financial 
literacy is terrible. I mean, they do not know anything.
    It is ridiculous. You know, young people do not understand 
what the tax refund is. In fact, most Americans, I would bet, 
do not understand what the tax refund is. They do not get the 
connection of when they go to work and fill out that form, how 
that relates to their tax--they do not realize that--they think 
that is some bonus they are getting. They do not realize they 
just let the government hold their money for a year, that is 
really their earnings that has been over-withheld.
    When they fill out that form, could it not be as simple as 
adjusting the form where you tell your employer how many 
deductions you are going to have and what the withholding 
should be? Could it not be that simple, that at that moment of 
employment, there is some kind of basic explanation, and could 
that not be the moment of check-off for savings as opposed--you 
know, it is harder once you get that check, and if you think 
that check is coming.
    You know, like--I will not tell which child, because it 
will embarrass them, but they said, ``Well, I do not understand 
why I am not getting a check this year.'' I go, ``You did not 
work last year.'' ``You were in school full-time.'' That check 
is supposed to come every--no, no, that has nothing to do with 
the government giving you a check.
    What can we do? Could we just do something that simple, 
just a literacy education at the moment of employment?
    Dr. Grinstein-Weiss. I totally agree. I think a simplified 
way that sometimes I talk about golden moment, that are so 
special, and it is because the money is yours, but not quite in 
your hands, right. That is the tax refund that you refer to. It 
is before they are getting their money. That is when they need 
to make a decision. I think there are many changes to the 
process that we can streamline it, that we can use default and 
automation, and I think that is what we have--and now we are 
going by the evidence from the Refund to Saving Initiative that 
by simplifying and intervention in, you know, the process when 
people are filing their taxes online, that is when you can do 
it.
    I think one step in the right direction is the Form 8888 
that allows people to split part of the refund into saving and 
getting part of it, the direct deposit to their checking 
account, part of it directly deposited into savings. Still, the 
take-up rate is kind of low and maybe being able to use more 
automatic ways and defaulting people into larger, you know, 
splitting or larger savings will be the moment of intervention 
with the tax.
    Still related to the whole issue of, you know, young people 
do not understand. I think some of our work is also related to 
that, is starting early. Another golden moment that I did not 
get to talk about is entering kindergarten, and there are 
interventions in States around the country, like Nevada, that 
are now using that golden moment to sign people into a 529 
savings account. Now, when everyone in a State have a 529 
savings account, that is when you incorporate into school 
financial education. That is when you can teach people better 
and prepare them for this future and, you know, start teaching 
them at kindergarten. Use the example of a savings account for 
everyone. Talk about compound interest. Talk about savings. 
Talk about taxes and refunds. I think that is another golden 
moment.
    Senator McCaskill. Have any of you--and I do not have much 
time left, but have any of you given thought to, or has there 
been research that you could share with us to requiring--I 
tried to think of what a golden moment would be when young 
people have to learn something, and I think of the driver's 
exam, where they have to take the written test about the rules 
of the road. Has anybody done research or looked at whether or 
not before you get your driver's license, you should have to 
show some kind of basic financial literacy?
    Ms. Chatzky. I have looked at this and talked to several--
it is a State by State thing, which makes it complicated. It 
would have to go through motor vehicles in every single State, 
but I totally agree with you, and not only is this a great 
time, because any of us who have had 16-year-olds in the house 
know that they will do anything to get that learner's permit--
--
    Senator McCaskill. Anything.
    Ms. Chatzky. You could bring the auto insurers along, 
because auto insurers price based on credit ratings and credit 
scores, and if we can show an increase in financial literacy, 
perhaps that would be a reason for premiums for teenage drivers 
to be able to be discounted.
    Senator McCaskill. Oh, what a good idea.
    Ms. Chatzky [continuing]. I think there is a really great 
opportunity here, and if anybody knows the motor vehicle folks 
in their State, I am your gal.
    Senator McCaskill. Great. Thank you all.
    The Chairman. Senator Scott.
    Senator Scott. Thank you, Chairwoman. I appreciate you 
bringing this issue up before us.
    This is an incredibly important issue, and Ms. Chatzky, I 
look forward to taking you up on that challenge. As a former 
AllState Agency owner, I will tell you that the opportunity to 
fuse financial literacy into automobile insurance would be 
something that I think every single company would love to have 
an opportunity to have that conversation, because the narrative 
is so important for America's future.
    We think of this as specifically an issue for those who are 
aging, but, frankly, we are going to have to figure out, in 
order to save our entitlement programs on the large scale, is 
how to make financial literacy available and necessary for a 
20-year-old. I was thinking about Senator McCaskill's kids, and 
if we had--they are 24, 26, and 28, is that right, Senator?
    Senator McCaskill. Yes.
    Senator Scott. Yes. If you are a 20-year-old and you start 
saving $250 a month with a six percent return that Mr. 
Carmichael has been talking about, by the time you are 65 years 
old, you have about $300,000 on hand. If you start at 30 years 
old, you only have $300,000 on hand. If you take the golden 
moment at four years old, you have $1.7 million on hand. The 
opportunity to solve the problem is in our hands and it is not 
that expensive unless you wait until you are nearly 50 years 
old. Then, you cannot get there unless you take an equity 
position in the marketplace, whether it is using your home or 
trying to figure out how to buy enough stocks and look for a 
strong appreciation. You just--it is very hard to digest a 
large number.
    I would ask a couple questions. One, specifically, Ms. 
Grinstein-Weiss, about your golden moments. I will tell you 
that figuring out how to create a compulsory system of using 
your--I am not even sure what that thing you get after April 
15th is called, someone said a tax refund? I am not sure what 
that is, but I would like to have that conversation about how 
many deductions I need to get one. I have not seen one in 
several decades.
    I will say that there is a golden moment. I wonder if there 
is an opportunity that when you see your amount of your return, 
could you put it into MyIRA. Just make that connection happen, 
so that the average person, before they get the money in their 
hands, actually just goes ahead and sends it off.
    Dr. Grinstein-Weiss. This is exactly the research we are 
doing now with the Treasury Department.
    Senator Scott. Yes.
    Dr. Grinstein-Weiss. This is in collaboration with Intuit 
and Treasury Department. We are testing if we can use this 
golden moment of tax time to get more people to sign up to the 
MyIRA that is developed by Treasury. We are doing some 
experiments this year to see how we can increase take-up rates, 
how much interest it will be, and how to streamline the 
process. Hopefully, next year we can implement that.
    Senator Scott. To anyone on the panel, I would like to ask 
this question, because when I was still in the business of 
trying to educate folks from the financial service industry's 
perspective, two of the major risks that we have in life is, 
one, you die too soon. The other one is you live too long, and 
most folks are unprepared for both.
    My grandfather now, thank God, is 94 years old and has been 
retired for as long as he either worked or was a young fellow, 
according to him. I wonder how we start creating the narrative 
for folks today to understand that life expectancy has changed. 
One of the reasons why defined benefit programs are evaporating 
is because of the length of life, which is a good thing. We 
ought not to see that as a bad thing. The reality of it is the 
defined benefit programs started eight decades ago, we were 
looking at three to four years in retirement. Now, you are 15 
to 20 years in retirement.
    How do we create the narrative going forward that we can 
help someone who is in their 40's or 50's understand the 
necessity and create the sense of urgency which seems to be 
lacking? As much as the ability to save, it is a sense of 
urgency to save that seems to be more problematic, from my 
perspective.
    Mr. Carmichael. I am not so sure about the 40 or 50, but 
thinking about the younger adults that are just getting out of 
high school or graduating from college, we are such consumers 
now. Everybody has a cell phone. They have a cell phone bill. 
They have a cable bill. They buy $4 or $5 coffees every day, 
and somehow, the financial education and creating an awareness 
that what they are spending for the consumer behavior needs to 
somehow be set aside for retirement and create that awareness 
that there is a need to start early.
    You know, the old saying, ``Pay yourself first''----
    Senator Scott. Yes.
    Mr. Carmichael [continuing]. is probably the simplest adage 
when it comes to saving for retirement, and somehow, creating 
that urgency for people to set aside some of the other things 
and set aside just a little bit each month will go a long way.
    Senator Scott. Prioritization.
    Mr. Carmichael. The earlier, the better, obviously.
    Senator Scott. Yes. Dr. Munnell.
    Dr. Munnell. May I make a comment? I think it well and good 
to try to incent people to do things, but it is very hard to 
accomplish a goal that way. I mean, people will save when they 
have automatic mechanisms already in place and they are kind of 
put into a system where it happens to them.
    I think that--I cannot be against education. I mean, that 
would be not sensible.
    Senator Scott. Yes.
    Dr. Munnell. I really do think that it has limited ability 
to solve this problem. We need systems in place where we put 
people in. We put them in at reasonable levels of contribution. 
We increase their contributions over time. We make sure they 
cannot get the money out. We make sure fees are low, and then 
they will have something for retirement.
    Senator Scott. As opposed to an incentive-based system, you 
would say a mandatory system that one can opt out----
    Dr. Munnell. Yes.
    Senator Scott [continuing]. but one should be already----
    Dr. Munnell. Yes.
    Senator Scott [continuing]. seen by default of being in 
that system.
    Dr. Munnell. Yes.
    Senator Scott. I will close, because my time is up, and 
thank you for your generous leniency over there, Chairwoman.
    Have you, Ms. Chatzky, heard of the book, I think it is 
called--by Henry Clason, The Richest Man in Babylon----
    Ms. Chatzky. Mm-hmm.
    Senator Scott [continuing]. which I think really does 
create the best narrative that kids would dive into, because it 
is a story about saving ten percent, investing ten percent, and 
sharing ten percent with those who are less fortunate, some 
kind of model that would actually be a part of the education 
and then positioning ourselves, as Dr. Munnell has discussed, 
having that--you have got to have an opt-out system, not an 
opt-in system.
    Ms. Chatzky. I agree. I think education and starting it as 
early as possible is incredibly important. I am working now on 
a publication with the folks at Time for Kids that is going to 
two million fourth and fifth and sixth grade school children, 
underwritten by the PwC Foundation, and it is a monthly 
publication that is being distributed through the schools, but 
I also agree. It will only go so far----
    Senator Scott. So far.
    Ms. Chatzky [continuing]. and the best weapon we have is 
form design. I once heard Dan Ariely, who is a famous author, 
Predictably Irrational, say you should tell your kids that they 
should all grow up to be form designers----because that is the 
next hot profession.
    Senator Scott. Well, we will be contacting you about that 
auto insurance----
    Ms. Chatzky. I hope so.
    Senator Scott. Thank you. We will, indeed.
    Ms. Chatzky. I hope so.
    Senator Scott. Thank you all for your leniency on time.
    The Chairman. Thank you.
    Senator Warren.
    Senator Warren. Thank you, Madam Chair.
    Last week, the most e-mailed article from the New York 
Times was a piece on how Americans are not saving nearly enough 
for retirement, and the article began with the startling 
numbers about how little Americans have put away for their 
retirement, that a third of those on the edge of retirement 
have no retirement savings and another third have less than a 
year's income put away.
    Then the article took an unexpected turn. It said, and I 
quote, ``The standard prescription is that Americans should put 
more money aside. This recommendation glosses over a critical 
driver of unpreparedness. Wall Street is bleeding savers dry.''
    What the author meant was that the money Americans manage 
to scrape together and invest for their retirement is being 
eaten away by high fees, commissions, kickbacks that advisers 
and brokers on Wall Street get for selling lousy retirement 
products.
    Dr. Munnell, you are the Director of the Center for 
Retirement Research at Boston College. Can you explain how 
Americans' ability to retire comfortably and securely became 
dependent on the ability to navigate the stock market?
    Dr. Munnell. We have had this shift from old-fashion 
defined benefit plans, where the employer did all the work, to 
roll your own retirement plans that we have to make all the 
decisions. We are there picking our investments and we do not 
pick very smart investments. People in 401(k) plans, I know, 
are paying too much in fees. I think, and I am almost sure, 
that they are paying much too much in IRAs, where more of the 
money has gone.
    Nothing I have read has persuaded me that you get a better 
product by paying higher fees for your financial instrument, 
and if I had my way, I would have investments in 401(k)'s and 
IRAs that are--where they receive favorable tax provisions 
limited to low-fee index funds.
    Senator Warren. So, let me----
    Dr. Munnell. There are too many actively--would you like 
to, Senator----
    Senator Warren. No, no. I was just going to say, good. I 
just want to followup----
    Dr. Munnell. Thank you.
    Senator Warren [continuing]. because I want to direct this, 
because one consequence of the shift from defined benefit 
pensions to 401(k)'s and IRAs was that Americans had to rely on 
investment advisors and broker-dealers who can legally take 
kickbacks for selling Americans lousy products.
    Dr. Munnell, I want to get another part of this. Employers 
have had to make sure that when they invest their employees' 
pension dollars, those investments are in the best interests of 
the employees. Why is it that retirement advisors and broker-
dealers who serve clients directly rather than through an 
employer can peddle lousy products that line their own products 
while they drain the savings of the clients?
    Dr. Munnell. The real issue is that IRAs were not covered 
by the fiduciary rule when ERISA was passed, and so they--
suitability is the standard, which is a lower standard, and 
there is an incentive to provide people with products where the 
fees are the highest. I support the effort of the Labor 
Department to try to get a fiduciary standard for broker-
dealers, and I hope it comes through. There is a fiduciary 
standard administration for 401(k)'s, and when you look at the 
array of investments in 401(k)'s, there are a lot of high-fee--
--
    Senator Warren. Right.
    Dr. Munnell [continuing]. products there, as well, where--I 
mean, I think--I am shocked that there are still so many 
actively managed funds in these plans costing people a big 
percent of their pile at retirement.
    Senator Warren. Let us just stay focused on this question 
about cost. Ms. Chatzky, you have spent your career helping 
thousands of Americans make better decisions about their 
finances, and I imagine you have heard a lot of stories from 
families who have lost money because of bad investment advice.
    One thing that you have recommended many times in your 
books and articles is that families looking for retirement 
advise should seek out a fee-only investment advisor who is 
bound by law to offer advice that is in the best interests of 
the client. Why do you recommend this kind of advisor?
    Ms. Chatzky. I would like to actually split the question 
into two pieces.
    Senator Warren. Sure.
    Ms. Chatzky. The ``bound by law'' to offer best interest--
the information that is in the best interest of the client, in 
other words, an across-the-board fiduciary standard, I believe, 
is something that every investor deserves. Everyone deserves 
unbiased, unconflicted financial advice.
    The books in which I wrote the across-the-board 
recommendation for a fee-only advisor go back several years, 
and although I believe that there are tremendous advantages to 
fee-only advisors, I think we need to look at the way that the 
fee-only industry has evolved and ask the question whether it 
is, in fact, best for all investors.
    Fee-only advisors now in many cases take a percentage of 
assets under management, a one percent, typically, fee of 
assets under management. If my grandmother has a portfolio with 
a ladder of bonds in it and all she requires is that when a 
bond matures, an advisor gives her a recommendation to replace 
one of those bonds, I actually think that that one percent is 
too great a fee to be taking and that she would probably be 
better served by just paying a commission.
    Senator Warren. Well----
    Ms. Chatzky. What I think, though, is that we are lacking 
the Schumer box here. We need some transparent, across-the-
board way to simply compare dollars to dollars. What am I 
buying and what am I getting for that money? Unfortunately, 
whether you pay a fee for your advisor, whether you pay a 
commission, not all advice is good advice.
    Senator Warren. It is a very interesting point, because 
what I am hearing you say, in effect, is there is no easy way 
out of the problem that we have created, and that is the 
potential conflict that is there from advisors who take care of 
themselves rather than taking care of their clients.
    You know, my view on this is there are a lot of good 
investment advisors out there and they really do put the 
interests of their clients at--first and foremost. The problem 
is, they have to compete with the advisors who do not do that, 
who put their own interests first. The only way we fix that is 
if we change the rule and say that all of the investment 
advisors have to put the clients' best interest first, and I 
think that is just critical that we talk about the retirement 
gaps here.
    Thank you, Madam Chairman.
    The Chairman. Thank you.
    Senator Kaine.
    Senator Kaine. Thank you, Madam Chairwoman, and thank you 
to the witnesses.
    I apologize. I was at an Armed Services hearing and I 
missed much of your opening comments, so at the risk of being 
redundant, let me ask you a couple of questions that you may 
have already had directed your way.
    I have three kids, 25, 22, and 19, and so I am kind of 
interested in this age group and savings. To what degree is the 
significant amount of student loan debt an obstacle for young 
people? You know, in terms of looking at the statistics of how 
young people save, can you correlate savings behavior with 
student loan debt in terms of people starting later or saving 
less at this critical moment when they are forming the habits 
that may last for a long time?
    Dr. Munnell. I think student loan debt is a really big 
problem for young adults, and there are a lot of hurdles that 
you need to cross before you get to the retirement saving as 
your primary concern, and one is getting a job that gets up to 
sort of the median. That was hurt by the financial crisis, 
although the economy has improved.
    The other is dealing with this enormous student debt that 
you have to. The other is sort of getting married and getting a 
house and all those things, and all those things are happening 
later. I am very concerned about this up and coming generation 
in terms of their getting started in the retirement saving. As 
we know, Einstein was right. Compound interest is a very 
important factor. The earlier you start, the better off you 
are.
    Senator Kaine. Mm-hmm. Please.
    Ms. Chatzky. One thing that we are seeing when it comes to 
the Millennials is that they actually are saving at greater 
rates than other generations, and I think that that is--and I 
would be happy to track down the survey that I am citing 
without knowing exactly who I am citing and get it to you 
following the hearing. It is thought that that is a response to 
having gone through the recession and seeing the struggles that 
their parents and their older siblings went through.
    Senator Kaine. Mm-hmm. Dr. Grinstein-Weiss.
    Dr. Grinstein-Weiss. I would just quickly add, in our 
survey that we did with 20,000 low-income households, a lot of 
them students, because we did it during the tax time, we found 
student debt to be a major barrier to saving. People with 
higher student debt are less likely to save part of their 
refund and less likely--and saving lower amounts. Definitely, 
we have empirical evidence showing this increasing student debt 
is a barrier to savings amount low-and moderate-income 
households.
    Senator Kaine. Let me ask one other question. One of my 
favorite books is a book by the former Washington Post reporter 
T.R. Reid called The Healing of America, where he was in the 
International Bureau of the Washington Post and moved all 
around the world, and he wrote about the health care systems of 
all these different nations. He has a chronic shoulder problem 
and he talked about being treated under different nations. The 
book was a really good comparison of the way different nations 
do health care and it was written prior to the passage of the 
ACA. I do not think it has been updated since.
    It makes me wonder, has someone written that book about 
this issue? How do different nations deal with the retirement 
question? Obviously, the political systems are different. 
Social safety nets are different.
    I see the statistics that you have cited about sort of 
American trends, people less prepared for savings than they 
might have been in the past. We are living longer. That is a 
good thing, but that creates its own challenges. I would just 
love your observations. If that book has not been written, what 
are your own observations about the way we treat sort of 
retirement and retirement security versus how other kind of 
industrialized nations treat the issue.
    Dr. Munnell. There is no amusing and interesting book on 
international comparisons of retirement systems, but if you 
really want to just know what is going on, the OECD puts out an 
enormous amount of information on--we are pretty stingy in what 
we do. Our social insurance system has one of the lowest 
replacement rates of any other country in the world. People 
ask, if you go to travel, how come you designed the 401(k) 
system the way you did? It is very peculiar. Then you try to 
explain to them that we did not really have a national policy 
to substitute one to the other. It just sort of happened. They 
are sort of baffled when they look at us.
    Senator Kaine. Other thoughts?
    Dr. Grinstein-Weiss. I just will bring a quick example. 
Some of you might have noticed that my accent is not 
necessarily a Missourian one and it is more from Israel, and I 
will just bring the example of my own country, that a few years 
ago passed a mandatory pension plan. Everyone must contribute. 
Every employer must contribute to a pension plan automatically. 
Even if you are hiring someone to clean your house, you need to 
give them--to contribute to the pension plan. It is mandatory. 
It is across the State and country and it is automatic, so I 
think that is the direction I would recommend.
    Senator Kaine. Great. Thank you, and thanks, Madam 
Chairman.
    The Chairman. Thank you.
    Senator Tillis, welcome.
    Senator Tillis. Thank you, Madam Chair. I am sorry I had to 
come and go. I have got competing Committee meetings. This is a 
very important subject, and thank you for being here to 
testify.
    Ms. Chatzky, you talked a little bit in your opening 
comment--and I apologize if you already covered this--but, the 
SavedPlus app. Can you talk a little bit about that and its 
value?
    Ms. Chatzky. Sure. It is a free mobile app available for 
iPhone and Android and it allows you to pick a percentage of 
the money that you spend and have that money diverted into a 
savings or retirement account. It is kind of like the old Keep 
the Change credit card, but on steroids. It has been successful 
because people spend mindlessly, as we all know. Whether you 
are buying your $5 cup of coffee or whether you are making a 
much larger purchase, it is an effective way for people who set 
the contribution percentage high enough to actually sock away a 
good deal of money. Most importantly, it is mindless.
    Senator Tillis. What demographics are generally benefiting 
from it?
    Ms. Chatzky. You know, I would have to talk to the 
developers and see. I cited it because I was very taken by the 
fact that people were actually saving so much money, that the 
average amount being saved every year is $4,000, which is 
enormous, and that people have figured out that if they do not 
have a retirement plan at work, this is a really easy way to 
fund almost a full IRA contribution.
    I would be happy to look into that and get you some 
additional statistics. I think, like many apps, it is probably 
largely Millennial-based. That would be my guess.
    Senator Tillis. I am going to download the app today.
    Ms. Chatzky. Yes. It is.
    Senator Tillis. I am not a Millennial, but there is still 
hope. The other question I had relates---I served in the 
legislature in North Carolina before I came here and we made a 
lot of progress on financial literacy in high school and in 
junior high school. How much of this do you think, or how much 
emphasis do you think we should place on financial literacy, 
and are there any particularly noteworthy best practices out 
there that we should build on?
    Dr. Munnell. Let me start, because I am sort of the anti-
literacy guy here. I think that it is hard to argue against 
education, but I see the studies sort of not that persuasive in 
terms of being able to, on a large scale, change behavior. My 
sense of things is that you need systems and they need to be 
automatic and easy to understand and cheap and effective, and 
you need to get people in those systems and have the money 
coming out on a regular basis, and that is the only way you are 
going to get real, substantial amounts of saving. I am the 
negative guy, and so I will let the others speak.
    Senator Tillis. Well, I think it is largely a function of--
I mean, you are reacting to the reality of human behavior, 
because, clearly, if you are presented the information that are 
through financial literacy regimes and people then discipline 
themselves, they benefit from it. I tend to agree with you. It 
is not a singular solution to the problem, but, hopefully, we 
do capture some people's imagination and they do the things 
that benefit them best long-term.
    Dr. Weiss.
    Dr. Grinstein-Weiss. I just wanted to add that what we have 
learned from the financial literacy field is, like, the one 
thing that is important is not just to teach, it is, again, 
almost like the golden moment. It is in teachable moment. If 
you open an account for every kindergartner and incorporate it 
to school, I think there is growing evidence now that that can 
be successful. Integrating financial literacy, while the 
example is in the teachable moment that you are using your 
account for saving and demonstrating that as you go through 
school, I think that is where we can have wins.
    Senator Tillis. The----
    Mr. Carmichael. If I could----
    Senator Tillis. I am sorry.
    Mr. Carmichael. If I could just add to that, the credit 
union movement in Maine Savings is part of--the program has 
created a Financial Fitness Fair concept where we are rolling 
out in various parts of the State, in the chapters, fitness 
scenarios with students who will come in and go through a 
budget process and be limited to certain aspects, given a 
profession, an education, have to go through this game and 
learn about how difficult it is to budget, particularly for 
just their basic expenses, but also if they want to save some.
    That is--as you said, it has got to be a comprehensive 
approach. I agree that the education is not just--is one part 
of it. It has got to be a systems approach to solving this 
thing. It is one of the things that we are doing in Maine, and 
in Maine Savings, we are also doing a Financial Fitness program 
with grade school kids.
    Senator Tillis. Thank you. Thank you, Madam Chair.
    The Chairman. Thank you.
    Senator Casey.
    Senator Casey. Thank you, Madam Chair.
    I want to thank the panel for your testimony and for 
bringing your ideas here. I was in and out, so I missed parts 
of the testimony and a number of the questions, but I am 
grateful.
    I wanted to start with Dr. Munnell. You cited in your 
testimony--I am looking at page four--highlighting this move 
away from defined benefit contribution plans, and you say, and 
I am quoting from the third full paragraph, ``This shift,'' 
meaning shift from defined benefit to 401(k), ``This shift 
means that the employee rather than the employer makes all the 
decisions and bears all the risks.''
    In light of that reality--and it is a terribly unfortunate 
reality for so many people--in light of that, how do you think 
we can better incentivize workers through public policy or 
otherwise--and often, I would hope, we can do so through the 
tax code, that is one of the ways to incentivize folks--but, to 
incentivize them to better manage those assets in light of what 
is a greater responsibility.
    Dr. Munnell. I am delighted to respond. The people with 
401(k)'s are actually the lucky ones. At any moment in the 
private sector, half of the people have nothing.
    Senator Casey. Mm-hmm.
    Dr. Munnell. We are focusing on the lucky ones----
    Senator Casey. Right.
    Dr. Munnell [continuing]. and then they have a lot of 
choices to make and a lot of areas to make mistakes. I think we 
could make the 401(k) system work a lot better. If I were in 
charge, I would make it--if you want to be a 401(k), you have 
to have automatic enrollment and you have to have automatic 
increases in the default contribution rate.
    I think I would also--I do not know what I would do about 
fees, but it just makes me crazy that so many people in 
401(k)'s are investing in actively managed funds with high fees 
and there is no economic data that shows that you get anything 
better for that.
    I am also very concerned of leakages out of 401(k) fees. I 
would not want--I mean, out of 401(k) plans. I would not say 
nothing, because the accessibility is actually an encouragement 
to participate and contribute, so I would want some access. The 
fact that people can cash out when they change jobs and the 
hardships are really--so, allow some very predictable events, 
like education and things like that. I think we could make our 
whole 401(k) system work better and we should do it.
    Senator Casey. I wanted to ask a question for the panel. We 
had a hearing in this Committee last year about the so-called 
sandwich generation, that concept that we all understand, but 
the numbers are staggering in terms of the number of Americans 
over, I guess it is over the age of 50, that have two competing 
or corresponding obligations, to those who raised them, to take 
care of a loved one--usually a parent, at least one parent, 
often their mom, as you know---or having to expend dollars and 
time and real effort raising children or dealing with the new 
reality of young people moving back home. The squeeze that 
makes up that sandwich.
    I guess I would ask the whole panel, in light of some of 
these retirement security issues you discussed, and in light of 
that reality of the kind of double-pressure people live with as 
members of a so-called sandwich generation, what do you think 
we ought to be doing to better alleviate some of that stress 
and some of that insecurity? Anything that you want to offer on 
that? We will go left to right.
    Ms. Chatzky. I guess I am left. There are tools in the form 
of what is sometimes called longevity insurance or a longevity 
annuity that can be used to essentially protect you should you 
live to age 85 or beyond. Convincing people that this is 
something that they may want to invest in is hard, because you 
are essentially betting against yourself, that if you die, you 
get nothing for making this payment.
    I do think, having worked in personal finance magazines for 
15-plus years, we spend so much time talking to people about 
the fact that they need to accumulate, accumulate, accumulate, 
and not nearly enough time talking to people about how they 
take what they have accumulated and make it last. That needs to 
be the next phase of the conversation, and the financial 
institutions are way ahead of us. They are already rolling out 
a lot of tools, some good, some not so good. We need to really 
get with the program and focus that conversation.
    Senator Casey. I am out of time, but if our remaining 
witnesses can do fifteen seconds each or submit something in 
writing. Maybe I will start with Dr. Weiss.
    Dr. Grinstein-Weiss. Sure. I will just be brief. Two 
things. One is start early, so we do not just get to this, 
like, sandwich moment when, you know, you do it all the time, 
gradually, and you are more prepared and at that time you can 
do less of that, of the saving. Emergency saving, so if you are 
in this crisis, that you will take care of your parent, and yet 
you have somewhere that you can draw money from without 
penalties and not going through this vicious cycle. The 
financial services, et cetera, et cetera.
    Senator Casey. Mr. Carmichael is----
    Dr. Munnell. I think it is like the airplane. Put on your 
own mask first and then put the mask on for your children. I 
think it is very important for the 50-generation to make sure 
that they have got adequate savings for themselves and they 
will not be putting pressure on their children when they get 
older.
    Senator Casey. Mr. Carmichael.
    Mr. Carmichael. I really cannot add much more, other than I 
would just say, again, preparing for the eState, preparing so 
that your children are not burdened by issues that are not 
taken care of while you are alive.
    Senator Casey. Thanks very much. Thanks, Madam Chair.
    The Chairman. Thank you.
    Senator Whitehouse.
    Senator Whitehouse. Thank you, Madam Chair, and thank you 
for your terrific leadership in this Committee on a whole lot 
of aging-related issues, like advance care and so forth. This 
is, I think, a really terrific hearing.
    I would like to make a point and a pitch. The point is that 
the income inequality that we have seen that now goes back to 
the American Gilded Age has had a tough effect on Social 
Security, because as more and more of the Nation's income moves 
up and out of the first $118,000 range and more into the hands 
of the people who are making, you know, ten, twenty, thirty 
million dollars a year, that means it moves out of the range 
that contributes to Social Security. If we simply had kept 
1980's-level income equality from now to the present, we would 
have a far, far stronger Social Security system. To a very 
significant degree, the problems in Social Security are the 
problems of income inequality and of the fact that we do not 
require Social Security contributions on income above, right 
now, $118,000. I think as we talk about this, this is an 
important point to make.
    The pitch that I want to make is for a piece of legislation 
that I have that is called the Auto IRA Bill. A lot of you have 
spoken about the importance of automatic enrollment. There are 
a lot of studies that show that people's decisions, even if 
they are completely free to decide one way or the other, are 
very influenced by what the default proposition is. What my 
bill would do is to make the default proposition for 
particularly small businesses that do not offer a retirement 
plan or package, that they can, with very little administrative 
overhead, set aside some of the employee's wages into their 
auto IRA. All the evidence is that just changing the default--
if somebody does not want to do it, fine, they do not have to 
do it, they just say no--but, just changing the default will 
make a big difference and will contribute significantly to 
these contributions, and that, in turn, makes a big difference, 
because the sooner you start, the more the magic of compounding 
works in your direction.
    I would just--let me start with Ms. Chatzky, if you would 
not mind commenting on the merits of that theory, if you are 
not familiar with the legislation in any way, and then go on 
down.
    Ms. Chatzky. I think it sounds terrific. I do not think you 
will hear any dissent coming through from this panel. You are 
preaching to the choir, so to speak.
    Senator Whitehouse. Right.
    Ms. Chatzky. Part of the issue is also that we know saving 
money is not fun for people, right. We are asking them to delay 
gratification. Having money saved actually is fun. It makes 
people feel independent and free and powerful. Unfortunately, 
too few people ever get to that point, so this would put them 
there.
    Senator Whitehouse. Thank you.
    Dr. Munnell.
    Dr. Munnell. I, too, am part of the choir. I strongly 
support auto IRAs. As you know, there are a lot of State 
initiatives to try to do this, since it is not happening at the 
Federal level, and, actually, the city of New York is even 
trying to do it for their own. It has to be automatic, as you 
say.
    Senator Whitehouse. Yes.
    Dr. Munnell. If you change the default, it makes all the 
difference in the world. You have a higher likelihood--even 
though most of these are lower-wage people, the ones who are 
not covered by a plan--you still increase the likelihood of 
people doing it. I think it is essential. We cannot have half 
the workers covered and half not covered. It is not a 
reasonable thing, especially because people go in and out of 
401(k) coverage, and this would give them something when they 
were not in, so yes.
    Senator Whitehouse. Yes. It would allow it to follow 
people----
    Dr. Munnell. Yes.
    Senator Whitehouse [continuing]. which is important----
    Dr. Munnell. Yes.
    Senator Whitehouse [continuing]. so that it is lasting 
through your career, because people move about much more than 
they used to.
    Dr. Munnell. Yes.
    Dr. Grinstein-Weiss. Like everyone, I totally agree, 
totally supporting this. This is some of the recommendations. 
We have many empirical evidence around the country that 
automatic really makes a difference, from a 40 percent 
participation in savings program to 100 percent participation 
in Maine, the 529 college saving plan.
    Just to add, from, you know, additional example, results 
with low-income households from the Refund to Saving 
Initiative, we tried two available economics techniques to 
increase savings and participation. One was giving messages 
saying, oh, you should save for the kids, you should save for 
retirement, things like that. It was not as successful as just 
defaulting them----
    Senator Whitehouse. Nothing works better than the default.
    Dr. Grinstein-Weiss [continuing]. to a specific amount. 
When we told people, you need to save 75 percent of your 
refund, that is basically what they save. When we tell them, 
you need to save 25 percent of the refund, that is what they 
save. People are really responding to the default and like 
choices to be made for them.
    Senator Whitehouse. Mr. Carmichael, you are last in my last 
six seconds.
    Mr. Carmichael. I totally agree, and I think, going back to 
what I said earlier about looking at the percentage of our 
default and increasing that will go a long way toward 
encouraging more savings and keeping more savings.
    Senator Whitehouse. Madam Chair, let me just reemphasize 
that this is not big government forcing anybody's hand. This is 
not a mandate. This is nothing like that. It just changes the 
default proposition. If you do not want to do this, you do not 
have to, but you make the decision to say no rather than making 
the decision to say yes. Either way, you are making the 
decision, but people make better decisions when the default is 
the one that is in their interest.
    Thank you.
    The Chairman. Thank you very much. I am very interested in 
what you just said, because I have been looking at considering 
introducing legislation that has an automatic in, opt-in, for 
disability insurance, because that is another big issue for our 
country, and where people could opt-out. Obviously, nothing 
would force the employer to offer it, but we do find with all 
these programs that if it is an automatic enrollment, most 
people stay in and they are better for it.
    Dr. Weiss mentioned in Maine, and I am proud of the fact 
that we, due to the generosity of a foundation in Maine, have 
for the 529 program every new baby who is born is set up with 
that account, and their parents start adding to it because it. 
It never would have happened if it were not automatic. I think 
it is a very interesting idea.
    I very much appreciate the excellent ideas and testimony 
that has come forth today.
    I did want to clarify on the fee issue that the Department 
of Labor has finalized its rules requiring fee disclosure to 
401(k) plan participants, and most of them will receive two 
annual fee disclosure notices. I think transparency in that 
area is really the key, so that people can compare and so that 
they can figure out what the fees are. The Department of Labor 
has moved in that direction.
    The other point that I want to make is one that two of our 
witnesses hit on, and that is that the Social Security 
Administration keeps referring to age 66 as full retirement 
age. That implies to people that that is the age at which you 
get the highest benefit amount, the full retirement amount, 
when, in fact, it is age 70. I really think we have got to get 
the Social Security Administration to change that. It is so 
misleading to people, and that is something they could change 
overnight, but perhaps it is going to require legislation to 
get them to do so.
    Senator McCaskill, do you have any final comments or words 
of wisdom for us? Thank you.
    Senator McCaskill. I have already heard from my children.
    The Chairman. I was just going to say--I was going to 
suggest that Senator Scott's book be sent to each of your 
children, but I thought it might only get you in further 
trouble, and just one final comment, also. There is a 
discrepancy on being able to take the tax credit for 
contributions to retirement accounts. You can take it if you 
file the long form. If you file the short form, which a lower-
income person is much more likely to file, you cannot take the 
credit, and that is something that the bill that Senator 
Nelson, Senator McCaskill, and I are working on, would correct, 
and I think that would help, as well.
    Obviously, there are a lot of ideas out there and I very 
much appreciate everyone being here. You were an excellent 
panel. Thank you for your time.
    I also want to thank the staff on both sides of the aisle 
for working cooperatively and so well on this hearing. I want 
to take this opportunity to welcome Derron Parks, Senator 
McCaskill's Staff Director, to the Committee staff, so thank 
you.
    Senator McCaskill. Great.
    The Chairman. We are glad to have you, as well.
    The hearing record will remain open until Friday, March 
20th, for the submission of any additional materials or 
questions or surveys that either the panel or the members of 
the Committee wish to have included.
    This hearing is now adjourned.
    [Whereupon, at 12:02 p.m., the Committee was adjourned.]


      
      
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                                APPENDIX

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                      Prepared Witness Statements

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                        Questions for the Record

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