[Senate Hearing 115-19]
[From the U.S. Government Publishing Office]





                                                         S. Hrg. 115-19


     THE CURRENT STATE OF RETIREMENT SECURITY IN THE UNITED STATES

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

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                            ECONOMIC POLICY

                                 of the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                                   ON

    EXAMINING THE STATE OF RETIREMENT SECURITY IN THE UNITED STATES

                               __________

                             APRIL 5, 2017

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
BOB CORKER, Tennessee                JACK REED, Rhode Island
PATRICK J. TOOMEY, Pennsylvania      ROBERT MENENDEZ, New Jersey
DEAN HELLER, Nevada                  JON TESTER, Montana
TIM SCOTT, South Carolina            MARK R. WARNER, Virginia
BEN SASSE, Nebraska                  ELIZABETH WARREN, Massachusetts
TOM COTTON, Arkansas                 HEIDI HEITKAMP, North Dakota
MIKE ROUNDS, South Dakota            JOE DONNELLY, Indiana
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada

                     Gregg Richard, Staff Director
                 Mark Powden, Democratic Staff Director
                       Dawn Ratliff, Chief Clerk
                     Cameron Ricker, Hearing Clerk
                      Shelvin Simmons, IT Director
                          Jim Crowell, Editor

                                 ______

                    Subcommittee on Economic Policy

                     TOM COTTON, Arkansas, Chairman

        HEIDI HEITKAMP, North Dakota, Ranking Democratic Member

PATRICK J. TOOMEY, Pennsylvania      ROBERT MENENDEZ, New Jersey
DAVID PERDUE, Georgia                ELIZABETH WARREN, Massachusetts
THOM TILLIS, North Carolina          JOE DONNELLY, Indiana
JOHN KENNEDY, Louisiana

                Brian Colas, Subcommittee Staff Director

         Craig Ratliff, Democratic Subcommittee Staff Director

                                  (ii)






















                            C O N T E N T S

                              ----------                              

                        WEDNESDAY, APRIL 5, 2017

                                                                   Page

Opening statement of Chairman Cotton.............................     1

Opening statements, comments, or prepared statements of:
    Senator Heitkamp.............................................     2

                               WITNESSES

Kent Conrad, former Senator from the State of North Dakota, and 
  Co-Chair, Bipartisan Policy Center's Commission on Retirement 
  Security and Personal Savings..................................     4
    Prepared statement...........................................    24
Walter Russell Mead, Distinguished Scholar in American Strategy, 
  Hudson Institute, and Chace Professor of Foreign Affairs, Bard 
  College........................................................     7
    Prepared statement...........................................    34

              Additional Material Supplied for the Record

Bipartisan Policy Center's June 2016 report, ``Securing Our 
  Financial Future: Report of the Commission on Retirement 
  Security and Personal Savings,'' submitted by former Senator 
  Kent Conrad....................................................    42
Illustrations presented by Senator Heitkamp during hearing.......   190
Prepared statement of J. Spencer Williams, President & CEO, 
  Retirement Clearinghouse, LLC..................................   193
Prepared statement of the American Council of Life Insurers......   223
Prepared statement of Catherine Weatherford, President & CEO, 
  Insured Retirement Institute...................................   228
Prepared statement of the Save Our Savings Coalition.............   240
Prepared statement of the Strengthen Social Security Coalition...   242

                                 (iii)
 
     THE CURRENT STATE OF RETIREMENT SECURITY IN THE UNITED STATES

                              ----------                              


                        WEDNESDAY, APRIL 5, 2017

      U.S. Senate, Subcommittee on Economic Policy,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Subcommittee met at 3:08 p.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Tom Cotton, Chairman of the 
Subcommittee, presiding.

            OPENING STATEMENT OF CHAIRMAN TOM COTTON

    Chairman Cotton. The hearing will come to order.
    I want to welcome you all to today's hearing. As you know, 
this is the first hearing of the Subcommittee on Economic 
Policy in the 115th Congress. I look forward to working with 
our Ranking Member, Senator Heitkamp, and all of our Members as 
we use this Committee to highlight the needs of working 
families and what Congress can do to help them.
    In my own State, more than half of Arkansans are living 
paycheck to paycheck. But perhaps it might be more accurate to 
say many are living on the edge. About one in five do not have 
enough savings to pay for a routine visit from an electrician, 
which would cost only $100.
    It is even worse for more significant expenses. The vast 
majority, about three in four, could not afford 6 months of 
unemployment. The numbers look similar in other States. In 
other words, most Americans are making just enough to get by 
and nowhere near enough to get ahead.
    It is precisely because of this that a growing number of 
Americans are looking increasingly vulnerable as they reach 
their retirement years, which is the subject of our hearing 
today.
    It is hard to overstate just how alarming the situation is. 
Three basic items--housing, transportation, and food--make up 
63 percent of the average household budget, and these things 
are getting more expensive, not less. They are eating up more 
of the family budget, even more than they did 20 years ago. It 
does not take an economist to figure out that if you are 
spending more money just to keep the lights on, you have got 
less to set aside for retirement. And that is exactly what we 
see today.
    The number that sums it all up for me is this one: The 
typical American aged 55 to 62 has only about $14,500 in 
savings. That is it. And this is at a time when Social Security 
is sinking further and further into the red.
    But it is even worse than that. At the very moment that 
people are seeing their expenses go up, they are also seeing 
their retirement plan options go down. In 1979, at least a 
third of our workers had defined benefit plans. Today it is 
only 14 percent.
    You might say to move from defined benefit to defined 
contribution plans was inevitable. Overseas competition has 
increased, and companies were feeling the pressure to become 
more efficient. And that is fair.
    But today fewer workers have access to any retirement plans 
at all, defined benefit or 401(k). And then, even if you do 
have a 401(k), you still may not be saving enough to retire in 
comfort and security.
    These are the facts. They call out for a rethinking of how 
to achieve retirement security in America. We have to rethink 
how Americans can save and plan for retirement if we hope to 
maintain the kind of lifestyle to which so many Americans have 
grown accustomed over the years.
    Luckily, we have two distinguished witnesses to help us 
think through how to tackle this problem. Our goal today is not 
to solve the problem, but to answer a few basic questions. How 
many Americans are prepared for retirement? What is holding 
them back? And what can Congress do to make it easier for 
working families to save?
    First, we will hear from former Senator Kent Conrad, of 
North Dakota, now a Senior Fellow at the Bipartisan Policy 
Center, where he co-chaired a Commission on Retirement Security 
and Personal savings. Senator Conrad has done excellent data-
driven work on the state of retirement security in the United 
States, and we are fortunate to have him here.
    Next we will hear from my good friend, Walter Russell Mead, 
Distinguished Scholar in American Strategy, the Hudson 
Institute, Chace Professor of Foreign Affairs and Humanities at 
Bard College, and Editor-at-Large of the American Interest. 
Professor Mead has been studying the change in the American 
workforce over time and its ramifications for many years. 
Professor Mead has testified many times about foreign policy 
before Congress, and we are happy to welcome him to the Banking 
Committee now to discuss economic policy.
    I want to thank you both for taking the time to join us 
today. I look forward to hearing your testimony, but first, 
Senator Heitkamp.

              STATEMENT OF SENATOR HEIDI HEITKAMP

    Senator Heitkamp. Thank you, Chairman Cotton, and thank you 
for being such a great partner in putting together this hearing 
on such a critical and important topic. Our hearing today is 
our first Banking Subcommittee hearing this Congress, and I am 
very pleased that we are starting off exploring the issue of 
retirement security.
    You know, I wake up every morning thinking about the men 
and women in rural America, especially in North Dakota, who 
play hard, play by the rules, and try to earn an honest living 
and save for retirement--in fact, their golden years. The 
working class is the backbone of our country, and they should 
not have to fear about their retirement future.
    Unfortunately, the trends we are seeing suggest that 
retirement security is far more uncertain today than it was 
even 20 years ago. Only 22 percent of workers are very 
confident that they will have enough money in retirement, 
according to the Employee Benefit Research Institute, and 64 
percent say they know they are behind in where they should be 
in their savings.
    In fact, somewhere between 60 and 70 percent of all working 
Americans have access to a workplace retirement account or a 
401(k). That leaves about 30 million full-time workers without 
access to a workplace-sponsored plan. And among those who do 
have access to a 401(k), a recent Census Bureau study 
determined that up to two-thirds--let us repeat that again: Of 
those that do have access, up to two-thirds do not put away 
nearly enough to cover the cost of retirement. This should not 
come as a surprise given the fact that about half of all adults 
in our country would be unable to come up with $400 to pay for 
an emergency expense. They would have to borrow that money or 
sell a possession.
    In my home State of North Dakota, about 41 percent of all 
private sector employees--that is roughly 112,000 workers--work 
for an employer who does not offer a retirement plan. These are 
the truck drivers, the sales clerks, and the farm workers that 
are working very hard to make ends meet, put their kids through 
college, cover healthcare costs, and provide a better life for 
their children, thinking they will just put off that decision 
of their retirement
security until tomorrow.
    We owe it to these men and women to strengthen our 
retirement system. There is certainly no silver bullet, but we 
need to think creatively to educate workers and expand access 
to retirement vehicles so more workers can afford to save and 
take advantage of the substantial benefits a sponsored 
retirement plan can offer.
    We also need to protect the men and women who still have 
access to a defined benefit plan or a pension as we transition 
to this new model. This means standing up against cuts to 
private pension plans, like Central States Pension Fund, whose 
members would economically be devastated if they lose access to 
the pension benefits that they bargained for and that they 
earned.
    As we dive into these issues, I look forward to hearing the 
testimony of today's brilliant witnesses--I said that just as a 
moment of suck-up, ``brilliant witnesses''--Senator Kent 
Conrad, my mentor and great friend, who has spent a lifetime 
working to help the men and women of this country, and 
particularly the men and women of North Dakota, achieve 
economic success. And I am interested to explore some of the 
proposals he has put together as part of his work as co-chair 
of the Commission on Retirement Security and Personal Savings.
    I am also very eager and grateful for Mr. Mead's testimony 
and Mr. Mead's appearance. He has me doing some rethinking of 
fundamental ideas that I have had about what we need to do with 
pensions. There is no doubt that the new economy where work is 
taking place in a series of one-off gigs presents challenges in 
the retirement space. And we have to develop a model that is 
realistic for today's economic model, especially at a time when 
we are really uncertain about what the future of work will look 
like.
    So I want to thank both of you for, number one, your 
enormous work that you have done in the past for our country, 
in the case of both of you, and the thinking that you have done 
about the future of the people of the United States of America 
and how we can improve the economic outlook for them.
    And so, Mr. Chairman, with that, I look forward to the 
testimony.
    Chairman Cotton. Thank you, Senator Heitkamp.
    Both of our witnesses' written statements will be entered 
into the record, as will a written statement from the American 
Council on Life Insurers.
    We will start with Senator Conrad. Senator Conrad, welcome 
back. I am sure you are thrilled to be back.
    [Laughter.]
    Senator Heitkamp. I keep trying to get him to trade places 
with me. He is not buying it.

  STATEMENT OF KENT CONRAD, FORMER SENATOR FROM THE STATE OF 
    NORTH DAKOTA, AND CO-CHAIR, BIPARTISAN POLICY CENTER'S 
     COMMISSION ON RETIREMENT SECURITY AND PERSONAL SAVINGS

    Mr. Conrad. Well, thank you, Chairman Cotton, Ranking 
Member Heitkamp, Senator Kennedy. Good to see you as well, sir.
    Senator Kennedy. Good to see you, too.
    Mr. Conrad. Chairman Cotton, if you will permit me just a 
moment of personal reflection, Senator Heitkamp succeeded me as 
tax commissioner when I came to the United States Senate. She 
succeeded me in the U.S. Senate when I went into retirement. 
And I am so delighted to see her on that side of the dais.
    And, Senator Cotton, my daughter I think went to college 
with you and tells me that you are very smart. And I have a 
very smart daughter, so when she says that, I listen.
    So thank you very much for this opportunity to talk about 
retirement security. For the last 2 years, as the Chairman 
mentioned, I have been running a commission, along with Jim 
Lockhart, now the co-chair of Wilbur Ross, who helped run 
Social Security during the Bush administration. We were the co-
chairs of this Commission on Retirement Security. And the 
numbers that both of you used are exactly what we found. I 
brought this slide. This is from a Gallup poll of last year, 
and they asked the American people what were their biggest 
financial worries. And number one, was not having enough money 
for retirement. Fully 64 percent of the American people said 
they were worried about not having enough money for retirement. 
The Urban Institute reported to our commission that the median 
retirement assets of the age group 62 to 69 is $30,000. We have 
got a problem.
    Senator Heitkamp, you talked about the Federal Reserve 
study that showed 46 percent of the American people would have 
a hard time coming up with $400 for an emergency car repair. So 
we have got issues, and one of the biggest is access to 
retirement plans at work. Both of you mentioned this in your 
opening statements, and this slide shows the gap between access 
and participation. Access and participation. As you can see, 
about half the country is participating in a retirement plan at 
work, but fully half the country is not. Thirty-four percent do 
not have access, 17 percent have access but do not contribute. 
So to me there is a big opportunity here, and our commission 
really fastened on this opportunity.
    Just a word about the commission. Nineteen members, as I 
indicated, co-chaired by Jim Lockhart, diverse backgrounds, 
former Governors, Senators, Congressmen, Republicans, and 
Democrats. We had thought leaders, business leaders. We had 
both public trustees of Social Security, both the Republican 
and the Democrat. So this was a very diverse commission.
    At the end we had 18 of the 19 agree to the recommendations 
of the commission, so after 2 years of discussion and study, we 
were able to achieve agreement.
    And we had the Chief Actuary of Social Security say if our 
recommendations were adopted, Social Security would be solvent 
for 75 years and beyond.
    The top-line results of our work were this: that if our 
commission recommendations were adopted, we would improve 
retirement savings by 50 percent for middle-class Americans 
once all policies are phased in; and that implementing those 
recommendations would also reduce old-age poverty by one-third 
from today's levels by 2035. I think those are significant 
accomplishments.
    We started with this whole question of retirement plans at 
work, and we advocated creating a new vehicle, something we 
called ``Retirement Security Plans.'' When we talked to small 
business, they told us, ``Look, we would like to offer plans, 
but it is too expensive. There is too much administrative 
burden.'' I come from a small-business family, as Senator 
Heitkamp knows well, and I found that to be absolutely true. 
The administrative burden for small businesses, the cost, the 
liability, just prevents them from doing something many of them 
would like to do.
    So we said let us cut away all the chaff. Let us make it 
easy for companies with up to 500 employees to offer Retirement 
Security Plans by having third parties administer them and take 
on the financial responsibility. The only thing the employer is 
asked to do is make payroll deductions and transfers. That is 
the only thing they have to do.
    We suggest, after that has been in place for several years, 
that then we would recommend establishing a national minimum 
coverage standard for all businesses with 50 or more workers.
    Now, this is controversial, and we understood it is 
controversial, asking businesses to take this on. But the 
finding of the commission--and, again, this is on a totally 
bipartisan basis--was if we are going to simplify it to the 
point all they have got to do, all the employer has to do is 
make a payroll deduction and transfer, it is not unreasonable 
then to ask businesses with 50 or more employees to offer some 
kind of plan. They can choose which kind of plan. They can 
choose these retirement plans that we have constructed, or they 
can offer something else.
    We also allowed employers to automatically enroll employees 
into multiple savings accounts so they could save for 
retirement and also have a rainy-day fund, because one of the 
things we found is--kind of surprising to me, frankly, but we 
found that people are
saying to us, ``Look, yeah, I have got a retirement fund, but I 
have got to go to that because I do not have any other savings 
account because it is not offered.'' And you go to the employer 
and ask why it is not offered, and there are all kinds of legal 
problems constructing multiple accounts. We take away the legal 
chaff that prevents employers from offering multiple accounts.
    We also incentivized retirement savings for young workers. 
I will just touch on the Saver's Match, a refundable credit of 
up to $500 per individual or $1,000 for a couple, to encourage 
younger workers, those 18 to 35, with lower wages to start 
savings. The income limit for an individual is $30,000, for a 
couple it is $60,000. But if they put away $1, it is matched up 
to $500, age 18 to 35, with up to $30,000 of income for an 
individual, $60,000 for a couple.
    We also facilitated the establishment of a Retirement 
Security Clearinghouse to improve portability. Many 
individuals, when they go from job to job--and we are in an 
economy where people go from job to job--they leave accounts 
behind. In fact, the Government Accountability Office reported 
that over the course of a decade, 25 million Americans changed 
jobs and left at least one account behind.
    Now, for those of you who serve in this body, I can attest 
to the fact that when I left here, I had multiple accounts, 
and, you know, it is hard to put them together. And managing 
dribs and drabs here and there is a challenge. So it makes a 
lot of sense to create these clearinghouse functions to allow 
people to unite their
accounts.
    We also encourage plan sponsors in general to integrate 
easy-to-use, sophisticated, lifetime income features. One of 
the things, if you talk to financial advisers, they will tell 
you is a lot of people do a pretty good job in the accumulation 
phase, but they are really flummoxed when it comes to 
converting those financial assets into income. In fact, I was 
just with a financial adviser in Florida who told me he just 
had a multi-millionaire come to him and say, ``You know, I was 
great at accumulating money. I have no idea how to turn it into 
lifetime income.'' And this is somebody from one of the most 
prestigious financial firms in America. If anybody does not 
think this is a problem for people, the testimony before our 
commission indicated it really does create an issue for people.
    We also encouraged plan sponsors to do this through 
automatic purchases of annuities over time, so-called 
laddering, because as you know, the value of annuities is so 
dependent on interest rates, and you do not want to get locked 
in when interest rates are low. So we think to provide an 
ability to ladder these investments to make them over time so 
you are not taking on too much interest risk at any one time 
makes a great deal of sense.
    Finally, we think it would be wise to accurately reflect 
retirement tax policy changes in the budget process. As a 
former Budget Committee Chairman, I know how these things look 
from a scoring perspective. Most of the costs of tax-deferred 
accounts occur within the 10-year budget window. The costs of 
Roth accounts occur outside the 10-year window. So there is a 
tremendous incentive for policymakers to take advantage of that 
budget window in terms of their tax policy. I would just alert 
colleagues that could lead us down a road that we already have 
serious problems with, and that is the budget outlook for the 
United States.
    Let me just close there and say it is an honor to be joined 
by a professor and a scholar and an author of the repute of Mr. 
Mead. Thank you.
    Chairman Cotton. Thank you.
    Professor Mead.

  STATEMENT OF WALTER RUSSELL MEAD, DISTINGUISHED SCHOLAR IN 
  AMERICAN STRATEGY, HUDSON INSTITUTE, AND CHACE PROFESSOR OF 
                     FOREIGN AFFAIRS, BARD
                            COLLEGE

    Mr. Mead. Well, Chairman Cotton and Ranking Member 
Heitkamp, thank you so much for inviting me here today. It 
really is an honor to be asked to appear at this Subcommittee 
and a privilege to sit next to Senator Conrad, who is one of 
the leading lights in this whole field in the country and whose 
commission I think has done ground-breaking work that we can 
all learn from. So thank you.
    I would also just like to commend the Members of the 
Subcommittee for setting an example. This is the kind of issue 
the American people need for their Congress to be working on, 
and this spirit of bipartisan amity and pragmatism that you are 
bringing to this process is an example of the way America can 
solve its problems. Both of you are people who have roots, deep 
roots in the lives of ordinary America. You do not come from 
fancy backgrounds. And unlike some people who come from Middle 
America and then go on to the fancy lifestyles, you have 
maintained your commitment to the issues that matter to 
ordinary people. So this is a good place, and you are doing 
good work, and I just want to thank you both for that.
    When I look at retirement and the real crisis that we are 
in, I inevitably see this--maybe it is because I am a historian 
and try to think in these terms--in the context of sweeping 
changes that are not just affecting retirement but are 
affecting every other part of our society. And we are now in 
the middle of, perhaps in the early stages of a transformation 
of human life that is as profound and as far-reaching as the 
Industrial Revolution was. And if you think about how the 
Industrial Revolution in 100 years changed the nature of the 
family, of the state, of religion, of the economy, of the way 
people earned a living, of the ideas that people used to 
understand the world, it really was a revolution.
    We are in the middle of one now, and more to the point, we 
are in the most difficult part of that transition where the old 
system no longer works as well as it used to, but we have not 
quite figured out where the new system is going or how it will 
work. And many of the Americans, I think, today who are coming 
up to retirement without a clear path forward are people who 
have been caught in this transformation. That is, if you went 
back to the 1950s and 1960s, most people then thought that 
defined benefit pensions were going to become a universal 
feature in the workforce. And, in fact, starting in the 1970s, 
for a whole variety of reasons, the change went the other 
direction, and defined benefit pensions began to disappear. And 
many of the companies that had made these
commitments went out of business, which created another set of 
problems.
    We then tried to improvise to some degree with programs 
like the 401(k), IRAs, ways of trying to substitute for this 
system. But, clearly, as we look at some of the statistics on 
lack of availability and lack of participation that Senator 
Conrad has drawn our attention to, the new improvised system 
was not adequate. And we now have a couple of generations of 
people who have been going through life without the kind of 
solid pension and retirement set of policies and institutions 
that people really need in a society as complicated as ours. So 
I think we have the challenge of helping these bridge 
generations manage the reality that they are approaching 
retirement with very, very small retirement savings.
    And at the same time, if we talk to Millennials and younger 
people, there is a sense that the institutions we do have do 
not work very well for them. If you have a part-time job and 
you work for Uber some of the time and you rent out an extra 
room in your apartment on Airbnb, you sort of do all of these 
things, none of that is really connected to a retirement or 
savings program.
    Our system is focused on the employer as the nexus, because 
in former times these large, stable corporate employers were 
the places where Government could intervene. They in a sense 
collected taxes for the sake of the Government, and they 
administered benefits and other programs on behalf of the 
Government.
    Some companies are still able to do that, and still do it 
very well, but in more and more cases, particularly younger 
workers simply do not fall under the umbrella of this kind of 
system.
    So, without wanting to take more of the Committee's time, I 
would just like to underline the reality that our retirement 
system, like our entire society, is in a time of upheaval and 
unpredictable change. Yet retirement of all the aspects of a 
person's lifecycle is the one that is most affected when we are 
not able to plan long term or think long term. So this 
Committee's decision to make retirement a focus of its work in 
this year I think, again, is commendable and vital, and I wish 
you every possible success in what you do.
    Thank you.
    Chairman Cotton. Thank you, Professor Mead.
    In your opening statement as well as your written 
testimony, Professor Mead, you described the shift from the 
agricultural economic model of the 18th and 19th century, what 
you call ``the green model,'' into the industrial model, 
especially the post-war model, what you call ``the blue 
model,'' and the stresses that model is beginning to see. What 
happened to stress the blue model, a model that seemed to work 
so well in the immediate post-war period?
    Mr. Mead. That is a very good question, Senator.
    Chairman Cotton. Would you press your microphone, please?
    Mr. Mead. That is a good question, Senator. And I think 
what happened was that the nature of the world economy and 
technology began to change so that, you know, before World War 
II, for many years, as the Industrial Revolution was taking 
place, we did not understand, our ancestors did not understand 
that industrial economy very well. We would have financial 
panics and crashes, depressions, and people did not feel they 
had a reading on what caused these or how to prevent them. The 
industrialization created huge new problems. In an agrarian 
society, if there is a banking depression, people simply eat 
what they grow on the farm. But if you are in an industrialized 
city and there is some kind of banking depression and work 
ends, you have millions of people with nothing to eat, no work 
to do, no ability to heat their houses.
    By the end, I think, of World War II, at least in this 
country, we had a pretty good sense of how to use the wealth 
that the industrial economy creates in order to address the 
problems that it causes. We had a system of large national 
champion firms. We had, you know, the three car companies, the 
big seven oil companies, the one phone company. And these 
pretty heavily regulated monopolies and oligopolies could 
give--you know, when you had one phone company in the United 
States, they could give somebody a job for life. Or when you 
had only the Big Three auto companies making cars for the 
American market without a lot of competition, again, GM, Ford, 
Chrysler could offer stable opportunity, could work with 
unions.
    So after the 1960s, as Germany and Japan and other 
countries began to recover from the devastation of World War 
II, you had a more competitive economic environment. As the 
financial system escaped the very, very tight, rather 
unrealistic post-war constraints, and you began to get 
international banking and offshore banking, interest rates 
became more volatile. In the 1970s, we had the oil price 
shocks; inflation rates went up. A massive inflation rate is 
devastating to a company that is trying to operate a large 
guaranteed benefit pension program.
    So you had all kinds of new stress coming onto the system. 
In order to respond, companies had to become much more nimble, 
much more competitive. They could not say, ``Well, we are not 
making much off of that factory, but it has really been a part 
of our company for many years, and that city is an important 
part of who we are.'' They were under much tighter pressure.
    And at the same time, particularly as countries like China 
and Japan came back into the market, you had a competition from 
low-wage labor. You had automation. You had the development of 
these global assembly chains. And so there was increasing 
pressure on wages and salaries in the United States. The pace 
of technological change increased, so we see today a company 
like--oh, now I am trying to think of them, the video--
Blockbuster Video that you used to rent the tapes from. It rose 
and fell in a very short period of time. Companies were no 
longer able to provide lifetime employment. All of this means 
defined benefit pension plans do not work as well and are not 
offered as widely.
    So the system has come under stress. Wages have come under 
stress. And I suppose we should add that costs in certain 
areas--health care and education--however, continued to go up. 
So the basic needs of a middle-class family are getting more 
expensive, but their ability to buy these goods is not 
increasing over time. All of this stresses the retirement 
system in many, many ways.
    Chairman Cotton. Can the blue model be resurrected or 
preserved? Or should we focus on transitioning to what the next 
model will be?
    Mr. Mead. My own sense is that you could not stop the 
Industrial Revolution in its tracks, and you cannot stop this 
transformation in its tracks either.
    I would also say that for all the disruption and pain that 
the transition causes, the Information Revolution, like the 
Industrial Revolution, is going to enrich us. Since we are in 
the presence of a flood, not the presence of a drought, you 
know, we cannot manage the immense new capabilities. We like to 
romanticize factory jobs today, and I certainly do not want to 
take anyone's job away or do anything but honor people who work 
hard. But do we really think that in an economy where 38 
percent of the population is doing repetitive labor on an 
assembly line 8 hours a day for 40 years of their life, is that 
the highest possible use of human creativity?
    So I actually think this transition, which is a difficult 
transition, is one that opens the door to a much better life 
for people, just as in the end the Industrial Revolution, 
despite all of the commotion and upheaval that it caused, 
brought people to a much higher level of living.
    Chairman Cotton. Senator Heitkamp.
    Senator Heitkamp. Thank you, Mr. Chairman.
    I want to follow-up on all of that. You know, there has 
been a series of reports about automation and about the future 
of work. What does the future of labor look like? One report is 
saying we are going to lose 47 percent of all of our jobs in 
the next 20 years. I do not know if that is an exaggeration. I 
think sometimes people write these reports so you can get a big 
headline and get more attention to the report. But I will tell 
you I think things are changing dramatically, as the professor 
has outlined.
    The question is: Without knowing the future of work and the 
future of labor--and this is for both of you--can we really 
design a retirement plan today that will address these 
concerns? And how nimble do we have to be as we are going 
through this transition? Let us start with you, Senator Conrad.
    Mr. Conrad. You know, I listened with great interest to 
Professor Mead's description of what has happened, and I 
thought he was spot on. If you had to reduce it to a word, I 
would reduce it to ``globalization.'' But it is really more 
than that because it is this remarkable technological 
revolution that we are going through. You and I have talked 
about these long-term challenges. What is going to happen to 
all the truck drivers of America when we have self-driving 
vehicles? And this is not so far away. What are we going to do 
to a whole series of other jobs that Professor Mead describes, 
repetitive, in some cases back-breaking, difficult jobs that 
people have that are being replaced by technology?
    I do not know if you have seen the video of a new Tesla 
plant. Five minutes, watch what happens there, how few people 
are involved in the process of building a Tesla automobile.
    So things are changing very rapidly, and it presents us 
with a requirement to change how we envision retirement as 
well. That is one reason we came to this idea of having 
Retirement Security Plans to make it much, much easier for 
those employers who want to offer them, who are small business, 
because small business is going to continue to be one of the 
chief job creators in our economy, make it infinitely easier 
for them to offer plans.
    I know from a business family, I remember these discussions 
in our own family about offering retirement plans. And people 
wanted to do it, but the administrative hassle and the 
financial burden were just too great. I mean, it was not so 
much the money that was involved. It was the liability that was 
involved.
    So, look, I think we are going to have to be much fleeter 
in terms of our ability to react to these fundamental changes 
in the economy, both here and across the globe.
    Senator Heitkamp. Professor Mead?
    Mr. Mead. Well, your concerns are spot on, Senator. When I 
think about the jobs of the future, I do say sometimes, you 
know, in the 1850s, when well over 50 percent of the workforce 
earned its living farming, and you had said, well, now, suppose 
in 100 years only 2 percent of the workforce will be in 
farming, the question would be: What on Earth are all those 
people going to do? And no one would have guessed, for example, 
that there would have been a factory that made fuzzy dice that 
hung down from car windows and that people would be making a 
living in such a factory.
    So there are ways in which we cannot imagine the future, 
but I can think of things today--we are rich in goods as a 
society. Any ancient king or emperor could only dream of the 
stuff that even the average American family has today; but in 
services not so much.
    For example, my father lives in a retirement center not far 
from here. Suppose there was somebody there who said to me, 
``If you will pay me X amount a month, I will make sure your 
father's computer is always working, he is always able to use 
his email. And if there is some kind of issue with the printer 
or something, we will be there to help him.'' There are lots of 
services. We are seeing some of these proliferate. Certainly, 
when I was a kid, only the Rockefellers had wedding planners. 
You know, now that is a real profession, and it enhances the 
quality of life, and people make a pretty good living helping 
others celebrate these high moments in their lives.
    Senator Heitkamp. If we look at kind of the need to have a 
much more nimble retirement system--I am going to have Craig 
just put up a chart because I love--I do this with high school 
kids and college kids that I visit with. I say, ``What did 
Albert Einstein say was the greatest invention of the 20th 
century? Compound interest.''
    And so we put together a chart that shows what happens if 
people invest early and then stop investing compared to people 
who delay that decision to later in life, and what does that 
result in? And you can see that early investment makes all the 
difference in the world if we could just get people to do it, 
if we could just get people to make those investments.
    But as they are struggling in this transition period of 
time--you know, am I going to start my own small business? Am I 
going to augment my salary or the work that I do with Airbnb or 
with Uber? And what does that mean in terms of my retirement 
and what are the economic challenges I have today? And this is 
the challenge that we have as a country because one thing that 
we have not talked about, which is this lack of savings, this 
lack of retirement security, is not going to go without a cost 
on the public fisc. You know, whether it is earlier involvement 
of Medicaid dollars for assistance and whether it is food 
assistance, whether it is Section 8 housing, whatever that is, 
we are going to pay the price for the lack of retirement 
security in this country.
    And so I think what I am grasping with is I do not know 
what the future, 20 years from now, the work world looks like, 
so it is hard to design a retirement system around the 
workplace. And I think, Professor, that is exactly what you are 
telling us in your testimony, I think.
    Mr. Mead. That is right. And this is why I was trying to 
imagine this kind of one-stop account where you would set up a 
specially designated account, and if you are working for Uber 
and you are working for Airbnb and so on, this money goes into 
that account, the financial institution does whatever 
withholding and so on, but also it is at that point of that 
account where the retirement programs can set in, where there 
can be the point of--you move it away from the employer, which 
is no longer the center of that person's economic life, and you 
move it to the person in a sense.
    Senator Heitkamp. But that person has to be literate.
    Mr. Mead. Again, when we went from an agrarian society to 
an industrial society, people had to get smarter. It is 
actually harder to live in a city full of immigrants who are 
different from you than to live in the country where everyone 
is related to you and you know all the customs. And our school 
system actually changed dramatically as a part of this shift. 
So, yes, as individuals, as a society, we have to raise our 
game so that we are producing young people who have the 
financial literacy, entrepreneurial spirit, all of these 
elements that can help them to flourish in this new kind of 
complex environment that is coming into existence around us.
    Chairman Cotton. For the record, I think the Ranking Member 
and I would agree that it is not only easier to live in the 
country but more enjoyable as well.
    [Laughter.]
    Chairman Cotton. Senator Tillis.
    Senator Tillis. Thank you, Mr. Chair. Thank you both for 
being here.
    First, I want to underscore what has been talked about. I 
come from the technology sector and spent a lot of time, most 
of my time in the private sector, and these discussions about 
how do we stem the tide of technological innovation and make 
sure that the current job base exists really ignores the fact 
that we work in a globally competitive economy, and that is the 
surefire way to have us go to second or third or fourth in 
terms of economic performance and prosperity if we do not 
recognize that near-peer economies understand it, embrace it, 
and have to deal with it. And there are unknowns, but every 
time we have had these unknowns, we have found a way to move 
from the agrarian to the industrial, and we will move through 
the Information Age. The real question with respect to the 
topic before us today is how do we also help better ensure that 
people are creating some amount of wealth that help them as 
they get further into their lives.
    I actually made my first contribution into Social Security 
in 1972 at the age of 12, $33 that year. One thing for 
everybody who has not done it, you really need to go on the 
Social Security
Administration website and see where you are today. And I have 
not missed a year of contribution since then.
    I think a part of what we have to do when we talk about 
Social Security is be realistic about the reality, the lack of 
indexing and the lack of foresight. I am not faulting anybody. 
It is just the reality of the system today. We do not have a 
sustainable system. And not unlike the defined benefit plans 
that are out there with certain States, our State has a 
relatively solid--I am from North Carolina--a relatively solid 
plan. But as Speaker of the House, I was really urging 
consideration of transition to a defined contribution plan so 
that we could make sure that the variables that we do not know 
about would not put those savings plans at risk, and I think 
other States would be well advised to do that.
    And, Senator Heitkamp, I could not agree more in terms of 
financial literacy. A part of what we have to do is see this 
multifaceted challenge. And one of the things that the States 
need to do is make sure that they have curriculums that are 
educating people at a very early age. We now have financial 
literacy, something I did when I was back in the legislature, 
in school at the appropriate time, and I think the workplace 
needs financial literacy. I do it in my office. We have an 
annual meeting where I tell these people what boneheads they 
are if they are not maxing out the Thrift Savings Plan that 
they have. I apologize to all of you who may not have maxed 
out, but it is because of that miracle of compounding.
    My daughter just went into nursing, and I told her, ``You 
are about to get a major increase in compensation from school. 
Set a different baseline for how much disposable income you 
have, and you will see exactly what Senator Heitkamp has said 
happens over a brief period of time.'' So financial literacy is 
also important.
    Now I want to get down to some of the policies that could 
affect--that are right before us. The fiduciary rule probably 
will get delayed, but we need to determine whether or not it is 
going to be implemented. In your opinion, does that help or 
hurt the people who have limited capacity to put into plans and 
also limited capacity to pay for advice for those plans? 
Professor Mead, we will start with you.
    Mr. Mead. Well, Senator, thank you, and as someone who 
spent many happy years as a kid in North Carolina, I am glad to 
see the State is so well represented, and it is a time when all 
true North Carolinians are very excited about the recent NCAA 
championship.
    Senator Tillis. Really, did we win a championship this 
week?
    [Laughter.]
    Senator Tillis. It happens so frequently, it is hard to 
keep up.
    Mr. Mead. But, you know, when I think about this, I 
actually think that one of the problems we have in a way is 
that the current system, people have scattered plans, small 
balances. There the costs sometimes of the fiduciary rule would 
make it very difficult for them to operate, the cost structure 
would be so high.
    Senator Tillis. They would have an ``eeny, meeny, miny, 
moe'' strategy for portfolio allocation.
    Mr. Mead. You know, the thing to think about is, again, the 
lifetime accounts that build significant balances where also 
both for the financial institution that is issuing the account 
and maintaining it, it is a more profitable approach.
    Senator Tillis. I do believe that going to a worker-centric 
versus workplace-centric model where things can move around 
makes a lot of sense. It has a lot more prospects for 
longevity.
    As a matter of fact, I chair the Personnel Committee in 
Senate Armed Services, and that is why we are moving toward 
different pension options within Armed Services, allowing those 
who want the pension plan as it currently stands to move in 
that direction, but allowing others to be able to opt in to a 
401(k) type of a model that I think makes sense.
    My time has gone over, but, Senator Conrad, do you have 
anything to add on the fiduciary rule or what has been 
discussed?
    Mr. Conrad. Well, let me just say our Commission did not 
deal with the fiduciary rule. I would say personally I would 
not go to a company advising me on wealth management that did 
not have it because I think whoever is advising me ought to 
have as their highest responsibility to be giving me advice 
that is in my interest. And I am very concerned about people 
giving advice that is in their interest and it is not revealed 
to the person they are giving advice to.
    Now, with that said, Professor Mead makes a very important 
distinction here. You have got lots of people, as I indicated 
in my opening remarks, who have very little money. In fact, you 
know, when I talk about people with $30,000, 62 to 69, as being 
the median retirement savings, one-quarter of those people have 
nothing. Have nothing. So we may need a system that takes 
account of people's different circumstances in terms of what 
rules apply.
    Senator Tillis. Thank you.
    Thank you, Mr. Chair.
    Chairman Cotton. Senator Warren.
    Senator Warren. Thank you, Mr. Chairman. Thank you for 
holding this hearing today, and Ranking Member Heitkamp.
    As we have all been discussing, we know there is a 
retirement crisis in this country, that across the board wages 
are flat, fixed costs are going up, people cannot save for 
retirement, pensions are disappearing, and that means more 
reliance than ever on Social Security. For almost two-thirds of 
seniors, Social Security makes up the majority of their income 
in retirement, and for 22 million Americans, Social Security is 
literally the only thing standing between them and poverty.
    When a parent dies or is incapacitated, grandparents often 
step up, and this can create a huge additional burden on the 
family for people who are already struggling because of the 
financial crisis. In these cases, Social Security is a double 
lifeline for both the grandparents and for the kids. Today 
about 98 percent of children in America are eligible for 
survivors' benefits when a working parent dies.
    So I want to ask you about this, Senator Conrad. You are 
the principal author of the Bipartisan Policy Center's report 
on retirement security, and in the report, you propose several 
expansions of Social Security for low-income seniors. But you 
also propose expanding Social Security survivors' benefits, 
something not many people have talked about from this report. 
Can you tell us a little bit about the survivors' program--how 
it currently works and what your proposed expansion would 
entail?
    Mr. Conrad. Well, if we remember our history, until 1981 we 
had a survivors' benefit in Social Security for kids who stayed 
in college until they were 22. If they were in an approved 
college, they would continue to get benefits. This also applied 
to those who qualified for disability. And this made a major 
difference to thousands, tens of thousands of kids who were 
survivors, tens of thousands of people who had a disability, 
that they were able, if they stayed in school, to get an 
additional Social Security income. However modest it was, it 
made a big difference.
    In the work of this commission, we agreed on a bipartisan 
basis--and, again, 18 of the 19 commissioners agreed with the 
recommendations--that we ought to reestablish this benefit for 
survivors and those affected by disability.
    You know, if we think about the transition Professor Mead 
has been talking about, quite rightly, others from the dais, we 
are going through this dramatic economic change. We have got to 
be sensitive to that. And, you know, I think about when we were 
growing up, high school was a minimum requirement. Right? If 
you did not graduate from high school, your prospects probably 
were not very good. I have to say now we look at society, if 
you do not have a college education, your prospects are not 
very good. In fact, I have just been talking to some young 
people who did not finish college. They cannot get a job 
interview, even for things they are actually qualified for, 
because they do not have that certificate. So I think this is 
something we have got to adjust to.
    Senator Warren. I very much appreciate that, and I want to 
be mindful of the time, but I understand, Senator Conrad, you 
were actually a beneficiary of this program?
    Mr. Conrad. Well, I was. And, you know, when I was going to 
school, I remember getting that check, and I tell you, it made 
a world of difference. I was going to school out in California, 
and I remember very distinctly that green check that would 
arrive once a month and really made it possible for me to be in 
college and complete school.
    Senator Warren. And you think about overcoming the loss of 
a parent is devastating for any child, but loss of the income 
and savings should not also destroy a family's financial 
security and a child's chance to go to college.
    This is a problem that is going to get worse in the years 
to come. Last year, for the first time since 1993, life 
expectancy in America decreased. And there are a number of 
reasons for that, but one is that tens of thousands of 
Americans are dying of opioid overdoses every year. And many of 
the victims of these overdoses leave children behind, and often 
grandparents are the ones who step in to help.
    So let me just ask one more question here. Senator Conrad, 
it seems to me that given this decline in life expectancy and 
the increase in deaths from opioid overdoses, shoring up the 
survivors' program may be more important than ever. Do you 
agree?
    Mr. Conrad. Well, I do, and I made that argument to the 
commission, and others on the commission made some of the 
points that you are making now. It was very interesting. And, 
again, one of the things that was most interesting was how 
bipartisan this particular discussion was in the commission. 
Some of the most prominent Republicans on the commission felt 
strongly we ought to restore this benefit. And I was very 
pleased that we agreed to do so.
    Senator Warren. I am pleased that you did as well and glad 
to try to highlight your good work on this. My view is we 
should be talking about expanding Social Security across the 
board. But we also ought to be able to agree that it is long 
past time to expand survivors' benefits to age 22. Children who 
have lost their parents need to have a chance to be able to 
build a future for themselves without destroying the finances 
of their surviving parent or of their grandparents and others 
who step in to take care of them.
    So thank you very much for your work. Thank you for the 
report on this, and thank you, Mr. Chairman.
    Chairman Cotton. Thank you, Senator Warren.
    Senator Conrad, how many workers today participate in a 
defined benefit plan? Do you have that handy?
    Mr. Conrad. I do not. We all know what is happening to 
defined benefit plans. I mean, in large measure, what we see is 
a decline in defined benefit, a dramatic rise in defined 
contribution. I have actually got that chart--did not bring it 
with me--but would be happy to provide it to the Committee. But 
these trends are very, very clear.
    Chairman Cotton. So do you think there is anything that we 
can do as a matter of policy to reverse that trend, or is it a 
function of changes in the economy like we have been discussing 
with you and Professor Mead and we simply need to make defined 
contribution plans work better for all Americans?
    Mr. Conrad. I wish I could look you in the eye and say, you 
know, if we just had the will, we could reverse this, and we 
could go back to a time when defined benefit plans were on the 
increase. I do not think that is in the cards. I think because 
of the things we have previously discussed, these fundamental 
changes in the economy here and globally, that it is just not a 
realistic prospect.
    What is realistic is to deal with these changes in a way 
that does expand access, that does expand the opportunity for 
people to participate in a retirement plan at work. What is a 
possibility, as we were talking about Social Security, is to 
make Social Security solvent for the long term. And, yes, we 
can have some expansions while we do that, but it will require 
hard choices.
    Chairman Cotton. Professor Mead, do you agree with that, 
that defined benefit plans are going to continue to decline in 
their usage in America?
    Mr. Mead. I think they will, and this is in part because of 
the choices that workers are making. That is, one of the 
disadvantages of a defined benefit plan is often it is stacked 
in such a way that it strongly rewards seniority and longevity 
of service. So, you know, one of the tragic things for someone 
who has been working for 18 years and is 2 years short of a 
pension, if that factory closes, they suffer an immense loss.
    But, also, let us look at the part of the economy where 
defined contribution plans are still common, which would be 
Government work, and especially in the State and local sectors. 
We see, first of all, in many States and cities these plans are 
in a state of real financial disrepair and are causing serious 
risks to the well-being of communities. I think the city of 
Chicago is trying to keep its schools open while it pays what 
it needs to pay on its pension plan.
    And at the same time, if you are a public employee and you 
want after 10 years--you do not want to teach middle school 
anymore after 10 years, and you want to move on, you take a hit 
in the pension with a defined benefit program. So it locks 
people into life choices.
    Now, the good thing about defined benefit programs is they 
did provide a certain kind of security and stability to income. 
And as I say, we have failed as a society to replace the 
defined benefit program with defined contribution programs that 
accomplish the same objectives as well. And so our focus has to 
be, I think, on making defined contribution plans work better, 
make it easier for employers to offer them, find ways even 
perhaps for the case, say, of low-income workers, a Government 
match of some kind of contribution can also be possible. Again, 
thanks the miracle of compound interest, if the Government is 
going to have to support a low-income person in old age, it is 
actually better to do that on the basis of long-term 
contributions to retirement plans. It is cheaper to the 
taxpayer that way.
    Mr. Conrad. Can I just make a quick point----
    Chairman Cotton. Senator Conrad.
    Mr. Conrad.----on the point that Mr. Mead made? Because I 
think it is so important. On defined benefit plans, if you look 
at the chart that I discussed looking at defined benefit in 
terms of firms offering, that is in decline. You know, at one 
point it was growing rapidly back in the 1950s. Defined 
contributions now are rising dramatically. But if you look at 
defined benefit plans in terms of individuals covered, you see 
a very different pattern between firms offering and individuals 
covered, because what Professor Mead just talked about was a 
very real thing that we have not sort of talked enough about; 
that is, yes, companies offered them, but all too often, when 
somebody got to the point of being qualified, they lost their 
job.
    And so there is a gap between firms offering and 
individuals covered with respect to defined benefit plans, and 
that was true long before these recent trends.
    Chairman Cotton. You both, as you talk about what future 
retirement models would look like, have proposals in your 
written statements, but also you have said it today, Senator 
Conrad, you have talked about Retirement Security Plans which 
would have two elements: one, retirement savings, and, two, 
short-term savings, especially for smaller businesses. And, 
Professor Mead, you have spoken about American Mobility 
Accounts, which would also include what you call Supplemental 
Retirement Accounts and Human Capital Accounts. As you have 
listened to each other here today, do those two concepts strike 
you as similar or close to
identical?
    Mr. Mead. I think we are both looking at the same sets of 
problems, and there is a lot of parallels in the way we are 
thinking. I think both sets of proposals are identifying the 
need to move toward a more worker-centered approach. I would 
guess we have not discussed it, but I think we are both 
concerned that there is kind of a multiplicity of 401(k), four-
oh this, five-oh that. After a while, the average not only, you 
know, person but the average supervisor, the average business 
just looks at this and says, ``I cannot do this. This is too 
complicated.''
    So the issues that we are looking at are universality, 
flexibility, and individual-centric. Then I think, again, 
given, as we have all been saying in this hearing, that we 
cannot really predict what the economy of 20 years will look 
like, what jobs will look like in 20 years, we need an 
architecture that is open to change because we do not want to 
put the next generation in a straitjacket that does not fit. 
And I think when you put all those things together, you end up 
with--there is actually not that wide of a range of approaches 
that would cover these bases.
    Chairman Cotton. Go ahead, Senator.
    Mr. Conrad. I would just say our Retirement Security Plans 
and our Retirement Security Clearinghouses are responding to 
the underlying dynamic that Professor Mead has done such a good 
job in describing. You know, we got a circumstance in which 
people just do not go to the same job for most of their careers 
and have a pension. Those days are changing, and we need to 
respond to this new dynamic, this new reality.
    Chairman Cotton. And you both have spoken about the 
administrative challenges that multiple accounts can cause, 
especially small accounts of different types, and you are 
speaking there not only of the individual who is trying to save 
but also of the business that is trying to sell cars or sell 
farm equipment or sell clothing, and it is not in its core 
competency, and your concept in these accounts would be to get 
that out of the hands of those businesses and into some kind of 
third-party organization, whether it is a financial institution 
or an administrator, somewhere where it is in their core 
competency to manage those accounts.
    Mr. Conrad. I think you have described it very well. You 
know, here we have a circumstance where we have got 25 million 
orphaned accounts. You know, what sense does this make? It does 
not make any sense for the business who has got the orphaned 
accounts. It does not make any sense for the employee who has 
got maybe a string of orphaned accounts, which makes it very 
hard to manage, very hard to keep track of. In some cases, they 
completely forget that they have got them. I mean, we found 
that in the work of the commission.
    Chairman Cotton. Senator Heitkamp?
    Senator Heitkamp. I think the component of all this--and it 
is like you can lead a horse to water, but can you get it to 
drink? And there are a couple complexities that we have not 
talked about, one of which is choice. There has been a number 
of sociological studies that say if you give people too many 
choices, they will make no choice because it is overwhelming.
    The other problem that I think is that we keep saying, 
well, if this account or this, you know, opportunity performs 
the way it has in the past, this is where you will end up, and 
there is no certainty to that. So there is not this idea that 
if I do this, then I am guaranteed that that is what it is 
going to look like when I am age 65 or age 70, right?
    So people have this insecurity, and they say, ``Live today. 
I probably will not live long enough,'' or, you know, ``I am 
not going to ever retire,'' which really is very problematic.
    And so I want to talk about another vehicle that we have 
not spent a lot of time talking about and get your reaction to 
it, and that is low-cost guaranteed annuities. When we look at 
the defined benefit plans, it is that you knew that at the end 
of your work life there would be a guaranteed set sum that 
would come every month, that you could count on, that was 
predictable, that was taken care of. And my question to both of 
you is: Do you believe that annuities--not annuities with big 
front-end loads--you know, a product that reflects Senator 
Conrad's statement that it should be fiduciary to them, it 
should be for me, do you believe that annuities can fill the 
gap for retirees looking to access some kind of guaranteed 
minimum income in the years going forward.
    Mr. Conrad. I would just say in this whole area of lifetime 
income options, there is a tremendous opportunity here, and 
there are lots of models. If you look around the world at what 
other places are doing, lots of interesting ideas about how you 
can give people lifetime income options and give them a choice 
to make. You know, we talk about just-in-time choices. When 
people are about to make those decisions, to get advice to them 
at the critical moment that they have a decision to make. We 
talk about capability. We talk about people having the basic 
information. Well, hard to get them taught in high school to 
prepare for what is to come 30 years from now. But when they 
are at the moment of choice, getting them help in making those 
decisions makes a lot of sense and is affordable.
    Senator Heitkamp. But, Senator Conrad, if we look at--if 
your choice is, you know, here is this high-yield fund, it has 
got more risk, or this or that, you know, all of a sudden 
people go, ``I do not know enough to make that choice. I am not 
going to decide that. I would rather have that money today to 
pay off the bills that I have rather than risking that that 
will not ever come in the future.''
    Professor Mead, what do you think about some kind of 
product that would guarantee monthly income at a low cost?
    Mr. Mead. Well, I think that it has a place in retirement 
planning, and I think you are right that simplifying options is 
important.
    I think there are other elements of this sort of, you know, 
hesitation about saving and investing, and I agree with you 
that this is an important barrier, because we see that there 
are these products that people are not--you know, there are 
plans that they are not participating in, even though they have 
the option.
    One thing that I think is worth looking at is the Singapore 
approach to this where there is an account which you can use--
you know, it is sort of you have to have an account, but you 
can use it for different things, including some are really 
annuity-type products. But you can also use it toward a 
downpayment or even part of the principal payment of housing.
    Senator Heitkamp. So, Professor Mead, is this structured as 
a mandate or is this structured as an option in Singapore?
    Mr. Mead. In Singapore, it is a mandate that you must have 
this----
    Senator Heitkamp. Like everything else in Singapore.
    Mr. Mead. Exactly. And you must smile, yes.
    [Laughter.]
    Senator Heitkamp. And not spit on the sidewalk.
    Mr. Mead. Please do not. Do not scratch cars with keys 
either, I am told.
    But, you know, they have a homeownership rate now of about 
90 percent in Singapore because if you can--you have to put 
this money away, but you can put it in different purposes. 
People do have some freedom. So this is----
    Senator Heitkamp. So it would include things that build 
wealth for the family.
    Mr. Mead. Exactly, and so the system is you have to 
maintain a certain balance in your account before you can do 
certain discretionary things, but you can count property value 
against that core amount.
    So I think we can actually be--we can think much more 
flexibly about what we do. We are fortunate now. When the 
United States started Social Security, there were some similar 
examples, but it was a pretty simple menu of choices that 
existed. Today a number of countries around the world have 
tried very different approaches. So I think we might as well 
benefit from the experience.
    Senator Heitkamp. I just want to say I think this is 
something that everybody needs--to check ideology at the door, 
you know, all of this stuff, and look with very clear vision at 
what is going to happen in the next 20 years as we transition 
away from defined benefit plans to a society that is not saving 
for retirement, and we need to look at what works, not what 
fits within an ideology. And that is a critical component. But 
we need to understand the human dynamic of choice and why it is 
difficult for people to see value in making a choice of saving 
for retirement.
    But I look forward to learning more about the Singapore 
plan and more about your reaction to Senator Conrad's report. I 
think it sounds like there is some merging of ideas here, and 
then how can we effectuate that either working with the private 
sector to develop products or looking at--we do it typically 
through tax incentives, but also taking a look at how we can 
make this a social norm that we are saving for retirement and 
not necessarily an anomaly, which we are beginning to see that 
it is.
    Chairman Cotton. Senator Toomey.
    Senator Toomey. Mr. Chairman, Senator Heitkamp, thank you 
very much for doing this hearing. I appreciate it.
    Senator Conrad, it is good to see you again, and, Professor 
Mead, thank you for joining us.
    I apologize I was late. I was the presiding officer. I am 
not going to ask any questions at this time, but I do look 
forward to reading the testimony of the witnesses and looking 
at the discussion that you had.
    Chairman Cotton. Thank you, Senator Toomey.
    And he replaced me, which is why I was late initially to 
the Committee. I was the presiding officer. As Senator Conrad 
remembers from his days as a junior Senator, it is very much a 
duty and not an honor.
    [Laughter.]
    Chairman Cotton. Professor Mead, we talked a lot about a 
lifetime of savings and how Americans save because it is so 
important, as Senator Heitkamp pointed out, that you save from 
the beginning of your life, even small amounts, to take 
advantage of the miracles of compound interest.
    But then there is how you live at or near retirement. One 
point you have written about is the payroll tax on elderly 
Americans who are still working. Could you elaborate on your 
thinking there?
    Mr. Mead. Well, I think, again, work is becoming, you 
know--more and more of our workforce have jobs now that you do 
not really need to leave at 65, and many people do not want to. 
The work I do teaching is work I enjoy. And while I am able to, 
I hope I can continue. But if I were a bricklayer or, you know, 
doing hard physical labor, I would need to be able to retire at 
a certain point.
    So as we think about how our system works and how we can 
make the system work for everyone, it does seem that, first of 
all, it is in our interest that people defer taking out of the 
system. Those who enjoy working and want to work continue to 
work and are able to do so, we should say, yes, go ahead. We do 
not need a one-size-fits-all approach to this. So if you have 
someone who has paid up to Social Security and they want to 
continue working, maybe you take the payroll tax off their 
shoulders at the end. In the same way, I have suggested we now 
require mandatory withdrawals from IRAs and other tax-deferred 
investments to start, I believe, at 70 \1/2\ years, why not, if 
someone is still working, let them postpone that, let their 
assets grow a bit?
    So I think there are very much--we penalize people who are 
continuing to work while drawing Social Security benefits by 
withholding some of their benefit. Again, we should be looking 
at a system that allows Americans in very different 
circumstances with very different sort of needs to be able to 
design their own lives without penalty, and where their choices 
actually help strengthen the system, we should be blessing and 
encouraging and incentivizing those choices.
    Chairman Cotton. Senator Conrad?
    Mr. Conrad. Could I just say, I am very happy to hear 
Professor Mead talk about these ideas. We tried to include some 
of these ideas in our Social Security reform package, to 
actually provide incentives in the system for people to 
continue to work. You know, the way the Social Security system 
works now, once you get your PIA, the primary insurance amount, 
established, it is done by looking at 40 years or 37 years of 
work--35 years of work, what we say is do it year by year, so 
those additional years add to somebody's Social Security 
payment.
    We did a whole series of things in our Social Security 
reform not to discourage people from working, but to encourage 
them to continue working if they are able to do so. That makes 
great economic sense for the system. It makes great economic 
sense for the individual.
    Chairman Cotton. Professor Mead, one final question about 
living in retirement. You wrote in your statement and you have
written elsewhere about the possibility of retirement overseas 
and the lower-cost options that some Americans who are looking 
for warmer climes might have. Could you elaborate on those 
ideas?
    Mr. Mead. I am happy to do that, Senator. We should 
remember that no matter what we do, there are Americans who are
approaching retirement with inadequate savings, and we cannot 
change that, much as we would like to.
    What I think we can do is think about ways where even--we 
could help them stretch their dollars a bit, and it is 
certainly true that in many countries living costs are lower 
than in the United States. Originally, one of the reasons that 
many people retired to States like Florida and Arizona was that 
costs were lower there than they were in the States where they 
were. So today someone could just stay on the plane a couple of 
hours south of Miami and retire there.
    One of the obstacles to this--and, by the way, many 
Americans are already doing this in countries like Costa Rica. 
Also, many immigrants who come here, work hard, retire 
basically with Social Security, can go back to the country 
where they came from where that retirement income stretches 
farther. But one of the problems is that you cannot use your 
Medicare insurance for most things outside the United States.
    Now, since healthcare costs are often much lower outside 
the United States than in it, some kind of system that allows 
American citizens to access their Medicare benefits for 
treatment in approved hospitals and facilities overseas would 
simply give a lot more Americans more choice in retirement and 
might provide some options that would help these bridge 
generations who have grown up after the old system began to 
fail but before we as a society have gotten a new system that 
works for them, they still have choices. No one has to do it. I 
suppose it is the opposite of what people used to say happened 
in the far North, that you would put the old folks out on the 
ice floes. Maybe we can send the old folks to tropical beaches. 
That seems a bit more humane.
    But, in any case, I think this is about--we need to think 
creatively about giving people choices as they try to have a 
good retirement when not all the circumstances are favorable.
    Mr. Conrad. Mr. Chairman, could I just say that we would 
welcome people from higher-cost jurisdictions to retire in 
North
Dakota?
    [Laughter.]
    Mr. Conrad. Perhaps you would welcome them in Arkansas as 
well. You know, it is amazing, the difference in cost between 
these more urban areas and the more rural areas that we have 
grown up in, and, really, a Social Security dollar goes a lot 
farther in North Dakota than in the more urban places on the 
east and west coasts. I am sure that is true of your home State 
as well.
    Chairman Cotton. Given the realities of the brutal winters 
in North Dakota, we would be happy to welcome North Dakotans 
who do not want to go all the way to Costa Rica to the Ozark or 
Ouachita Mountains. It is very affordable.
    Senator Heitkamp. And then when the mosquitoes get you in 
Arkansas, we will welcome you back to North Dakota.
    [Laughter.]
    Chairman Cotton. Senator Heitkamp.
    Senator Heitkamp. I want to just ask a question. You guys 
have just been--you know, just thought-provoking testimony and 
really quite an enjoyable hour and a half. I think both Senator 
Cotton and I are deadly serious about this topic.
    I want just a couple of pieces of advice from both of you 
on if you were sitting not where you are sitting but sitting 
back on this side of the dais. What would be your next steps? 
And we will start with you, Senator Conrad.
    Mr. Conrad. Well, organize and educate are always my two 
notions of how you get something done around here. I think 
there is just a tremendous opportunity here, and I really 
applaud the two of you for doing this in a bipartisan way, 
because as I learned, very little happens around here unless it 
is done in a bipartisan way. Even less is sustainable unless it 
is done in a bipartisan way. And these are issues that really 
should not be partisan. There is no reason that it should be 
partisan to expand opportunities for people to participate in 
retirement plans at work. There is no reason that it should be 
partisan to change the incentive systems that we have in Social 
Security to encourage people to work longer. You know, there is 
nothing partisan about it.
    So I would say those would be my observations.
    Senator Heitkamp. Professor Mead?
    Mr. Mead. Well, I would second that, and I would add to it. 
I would try to remind my colleagues, if I were in your 
situation, that we see a lot of lack of trust today between so-
called elites and the folks in the grass roots. One of the 
reasons that that is the case is because of the failures of 
national systems like the retirement system. People do not 
expect the Government to guarantee them affluence, but they do 
expect to have a system that, if they play by the rules and do 
their part, it brings them to a decent result. And the sense 
that somehow something as fundamentally important to the lives 
of the American people as our retirement system, we have not 
yet put the kind of effort and diligence into constructing and 
repairing that system, is a message from Washington to the 
folks out there that we do not care.
    So I would urge you to impress the importance of this issue 
on your colleagues as a concrete kind of governance issue that 
can help rebuild the faith of the American people in our 
democratic system, and that is really something that we need to 
do.
    Senator Heitkamp. OK.
    Chairman Cotton. Gentlemen, thank you both for your 
appearance here today and your work on this important issue. 
Thank you both to your organizations and your teams. We 
appreciate the hard work they do. We know that those statements 
do not write themselves, and the spread sheet models are not 
created by themselves. So we appreciate very much also the 
Bipartisan Policy Center, the Hudson Institute, and the 
American Interest. We thank you again for your testimony.
    This hearing is adjourned.
    [Whereupon, at 4:31 p.m., the hearing was adjourned.]
    [Prepared statements and additional material supplied for 
the record follow:]
                   PREPARED STATEMENT OF KENT CONRAD
Former Senator from the State of North Dakota, and Co-Chair, Bipartisan 
 Policy Center's Commission on Retirement Security and Personal Savings
                             April 5, 2017
    Good afternoon, Chairman Cotton, Ranking Member Heitkamp, and 
Members of the Subcommittee. Thank you for inviting me here to discuss 
the state of retirement security in America.
    Millions of Americans are financially unprepared for their 
retirement. Too many lack adequate savings, having set aside money at 
insufficient levels. Even those who do accumulate sufficient savings 
for retirement run the risk of outliving those funds, and others are 
forced to raid their retirement accounts early due to a shortage of 
short-term, emergency savings. Compounding these challenges is the fact 
that Americans often lack the financial capability to take actions that 
are in their own best interests. Meanwhile, the Social Security 
system--the bedrock of retirement security in America--is facing a 
serious shortfall, with its trust funds set to be exhausted by 2035.
    The lack of retirement savings is eye-opening. According to 
research from the Urban Institute's DYNASIM model, the median amount of 
retirement assets held by Americans aged 62-69 stood at just $32,000 in 
2015. More than one-quarter of households in this group had zero in 
retirement savings.\1\ But this problem is not limited to older 
Americans. Research from the Employee Benefits Research Institute 
(EBRI) has found that more than four in 10 Gen-Xers are projected to 
run short of money in retirement.\2\
---------------------------------------------------------------------------
    \1\ The Urban Institute. 2016. DYNASIM3.
    \2\ VanDerhei, Jack. 2014. ``What Causes EBRI Retirement Readiness 
Ratings to Vary: Results from the 2014 Retirement Security Projection 
Model.'' Employee Benefit Research Institute Issue Brief, no. 396. Pp. 
6-19. http://www.ebri.org/pdf/briefspdf/EBRI_IB_396_Feb14.
RRRs2.pdf.
---------------------------------------------------------------------------
    Part of this problem can be attributed to a lack of access and 
contributions to employer-sponsored retirement plans. Modeling from 
EBRI has found that 31 percent of civilian workers lack access to an 
employer-sponsored retirement plan. Among those with access, many 
choose not to contribute. In total, just over half of civilian workers 
contribute to an employer sponsored-plan.\3\
---------------------------------------------------------------------------
    \3\ EBRI, Policy Forum #79. Basic Facts: Retirement, December 15, 
2016.
---------------------------------------------------------------------------
    Given these disturbing statistics, it is little wonder that 
Americans are concerned about their retirement. A 2016 Gallup poll 
found that 64 percent of Americans are either very worried or 
moderately worried about not having enough money for retirement, making 
it their top financial concern in the survey.\4\ A recent study by the 
Federal Reserve found that around half of adults say they would be 
unable to come up with even $400 in an emergency without borrowing or 
selling possessions.\5\
---------------------------------------------------------------------------
    \4\ McCarthy, Justin. 2016. ``Americans' Financial Worries Edge Up 
in 2016.'' Gallup. http://www.gallup.com/poll/191174/americans-
financial-worriesedge-2016.aspx.
    \5\ Federal Reserve. ``Report on the Economic Well-Being of U.S. 
Households in 2015.'' May 2016. P. 1. http://www.federalreserve.gov/
2015-report-economic-well-being-us-households-201
605.pdf.
---------------------------------------------------------------------------
    The Bipartisan Policy Center's Commission on Retirement Security 
and Personal Savings, which I had the privilege of co-chairing with the 
Honorable James B. Lockhart III, former Principal Deputy Commissioner 
of the Social Security Administration, identified six key challenges 
associated with retirement security in America today:

  1)  Too few workers participate in a workplace retirement savings 
        plan. As described previously, just around half of private-
        sector workers contribute to an employer-sponsored retirement 
        plan. One primary cause of this lack of access is that some 
        businesses find it too expensive and complex to sponsor either 
        a traditional ``defined benefit'' pension or a 401(k)-style 
        ``defined contribution'' plan. Small businesses, in particular, 
        are often unprepared to take on what can be large 
        administrative, financial, and fiduciary burdens. In a recent 
        survey by the Pew Charitable Trusts, 59 percent of small- to 
        medium-sized businesses not offering a plan attributed that 
        decision to either the associated expense or the firm's 
        resource constraints.\6\ As a consequence, 53 percent of 
        workers at businesses with fewer than 50 employees do not have 
        access to a plan, compared to only 10 percent among companies 
        with more than 500 employees. Simply put, workers without these 
        plans are less likely to enjoy
        retirement security. According to projections from EBRI, 56 
        percent of those without ongoing access to a DC retirement plan 
        will run short of money in retirement.\7\
---------------------------------------------------------------------------
    \6\ The Pew Charitable Trusts. ``Small Business Views on retirement 
Savings Plans.'' January 2017. http://www.pewtrusts.org/en/research-
and-analysis/issue-briefs/2017/01/small-business
-views-on-retirement-savings-plans.
    \7\ This result is for Gen-Xers (born between 1965 and 1974) who 
are in the second income quartile (i.e., between the 25th percentile 
and the median of the income distribution). For more information, 
please refer to: VanDerhei, Jack. ``What Causes EBRI Retirement 
Readiness Ratings to Vary.'' Employee Benefits Research Institute. 
Issue Brief #396. February 2014. P. 7. https://www.ebri.org/pdf/
briefspdf/EBRI_IB_396_Feb14.RRRs2.pdf.

  2)  Many Americans lack the income or resources to save for short-
        term needs, forcing them to raid their retirement accounts for 
        unexpected expenses. Usually called ``leakage,'' preretirement 
        withdrawals occur when savers withdraw their DC plan or IRA 
        assets before retirement. Research suggests that between 1 and 
        1.5 percent of 401(k)-plan and IRA assets are lost to leakage 
        each year.\8\,\9\ Individuals who pull savings out early tend 
        to withdraw a high percentage of their retirement assets, 
        averaging around 20 percent.\10\,\11\ Leakage can not only lead 
        to high fees and penalties, but it also directly translates to 
        a reduction in retirement assets.
---------------------------------------------------------------------------
    \8\ Munnell, Alicia and Anthony Webb. 2015. ``The Impact of 
Leakages From 401(k)s and IRAs.'' The Center for Retirement Research at 
Boston College. P. 1. http://crr.bc.edu/wp-content/ uploads/2015/02/
wp_2015-2.pdf.
    \9\ Butrica, Barbara A., Sheila R. Zedlewski, and Philip Issa. 
2010. ``Understanding Early Withdrawals from Retirement Accounts.'' The 
Urban Institute. P. 23. http://www.urban.org/sites/default/files/
alfresco/publication-pdfs/412107-Understanding-Early-Withdrawals-from-
Retirement-Accounts.pdf.
    \10\ Ibid.
    \11\ Argento, Robert, Victoria Bryant, and John Sabelhaus. 2015. 
``Early Withdrawals from Retirement Accounts During the Great 
Recession.'' Contemporary Economic Policy. Vol. 33. No. 1. (January). 
P. 14. http://onlinelibrary.wiley.com/doi/10.1111/coep.12064/epdf.

  3)  Americans are living longer and are increasingly at risk of 
        outliving their savings, but despite rising life expectancy, 
        the average retirement age has stagnated. Between 1962 and 
        1996, the average retirement age among men actually declined 
        from 65 to 63. Though the average retirement age increased for 
        women--along with workforce participation--it remains 
        relatively low, at 62 in 2013.\12\ To make matters worse, most 
        Social Security beneficiaries claim their benefits well before 
        the full retirement age (FRA). In 2014, roughly three-fourths 
        of individuals claiming Old-Age and Survivors Insurance (OASI) 
        benefits did so at an age below the FRA.\13\ Early claimers in 
        2016 saw their monthly payment reduced by up to 25 percent from 
        what it would have been if they claimed at the current FRA of 
        66. A diminished stream of income from Social Security 
        compounds the problem of having fewer years in the workforce to 
        save for retirement. This is especially concerning for the 
        large number of older Americans who depend on Social Security 
        for the overwhelming majority of their income.
---------------------------------------------------------------------------
    \12\ Munnell, Alicia H. 2015. ``The Average Retirement Age--An 
Update. Center for Retirement Research at Boston College.'' Pp. 3-4. 
http://crr.bc.edu/briefs/the-average-retirement-age-an-update/.
    \13\ Social Security Administration. 2015. Annual Statistical 
Supplement, 2015. Table 6. B5.1. https://www.ssa.gov/policy/docs/
statcomps/supplement/2015/6b.html.

  4)  Home equity is an under-utilized source of retirement savings. 
        For many retirees, home equity represents a significant portion 
        of their assets. Americans own more than $13.3 trillion in home 
        equity--a sum that rivals the $14.9 trillion that Americans 
        hold in retirement savings.\14\,\15\ Just like retirement 
        savings, housing assets are built slowly over most people's 
        working life, making home equity a crucial stock of wealth for 
        many older Americans. Unfortunately, the past several decades 
        have seen increasing indebtedness among older Americans--driven 
        by increases in mortgage debt--which poses a unique threat to 
        retirement security. The share of older households holding any 
        form of housing-related debt has more than doubled since 1989, 
        from 15 to 32
        percent.\16\ Federal tax policy worsens this problem by 
        promoting mortgage debt. Mortgage interest payments are usually 
        deductible for taxpayers who itemize. Ultimately, holding 
        mortgage debt in retirement limits retirees' ability to tap 
        home equity and is among the many considerations that Americans 
        need to understand as they make decisions about their own 
        savings and retirement.
---------------------------------------------------------------------------
    \14\ See, Board of Governors of the Federal Reserve System. 
Financial Accounts of the United States: Fourth Quarter 2016. P. 138. 
March 9, 2017. http://www.federalreserve.gov/releases/z1/Current/
z1.pdf. Home equity is equal to total household real estate less total 
home mortgages, as calculated by the Board of Governors of the Federal 
Reserve System.
    \15\ See, Investment Company Institute. 2016. Report: The U.S. 
Retirement Market, Fourth Quarter 2016 (xls). Table 1. March 22, 2017. 
https://www.ici.org/research/stats/retirement. Retirement savings 
include assets in DC plans and IRAs.
    \16\ Board of Governors of the Federal Reserve System. 2014. 2013 
Survey of Consumer Finances. http://www.federalreserve.gov/econresdata/
scf/scfindex.htm. Housing-related debt is defined as debt secured by 
one's primary residence.

  5)  Many Americans lack financial capability. Financial capability is 
        defined as the knowledge, ability, and opportunity of all 
        individuals to manage their personal finances. It is more 
        important now than ever, as workers are increasingly 
        responsible for their own retirement security. Unfortunately, 
        too many Americans struggle in this area. A 2014 study found 
        that 23 percent of Millennials and 19 percent of Gen-Xers spend 
        more than they earn, and only about one-third of each group has 
        set up a rainy-day fund.\17\ In addition, Americans fare poorly 
        on assessments of financial literacy.
---------------------------------------------------------------------------
    \17\ Mottola, Gary R. 2014. ``The Financial Capability of Young 
Adults--A Generational View.'' FINRA Investor Education Foundation. 
http://www.usfinancialcapability.org/downloads/
FinancialCapabilityofYoungAdults.pdf.

  6)  Social Security is facing a significant financial shortfall and 
        needs modernization. Social Security is the foundation upon 
        which Americans across the economic spectrum build their 
        retirement. While the program continues to serve as an 
        essential safety net for nearly all American workers, its 
        financial troubles put that position at risk. Under current 
        projections by the program's trustees, the OASI Trust Fund--
        which pays benefits to older Americans, their dependents, and 
        their survivors--is projected to be exhausted by 2035.\18\ At 
        that point, beneficiaries would face an across-the-board 
        benefit cut of 23 percent.\19\ While that may seem far off, 
        Social Security is already paying out more in annual benefits 
        than it collects in taxes. Waiting to address this shortfall 
        increases uncertainty for beneficiaries and makes the policy 
        fixes more difficult.
---------------------------------------------------------------------------
    \18\ The Congressional Budget Office expects the OASI Trust Fund to 
be exhausted in 2029--six years sooner than the projection of the 
trustees.
    \19\ Committee on Ways and Means. 2016. ``The 2016 Annual Report of 
the Board of Trustees of the Federal Old-Age and Survivors Insurance 
and Federal Disability Insurance Trust Funds.'' U.S. House of 
Representatives. 114th Congress. H. Rep. 114-145, P. 6. https://
www.ssa.gov/OACT/TR/2016/tr2016.pdf.

    Though these challenges are indeed daunting, our commission put 
forth a comprehensive package of recommendations to improve retirement 
security for all Americans, focusing on the six broad challenges 
described above.
    To expand access and make it easier for individuals to save for 
retirement, we propose several solutions. Generally, our strategy is to 
reduce the burden on small businesses and simplify the process of 
providing retirement benefits to employees, incentivize enrollment in 
workplace retirement savings plans, and create a national minimum-
coverage standard that would require all businesses with at least 50 
employees to offer their workers some form of workplace retirement 
savings option. Our modeling shows that such changes would increase 
savings among middle class Americans by 50 percent once fully phased 
in.
    Enhancing retirement saving opportunities is critical, but planning 
for retirement should never be considered in a vacuum. Retirement 
security is inextricably linked to everyday financial security 
decisions during one's working years. Americans need to increase their 
personal savings so that they are better positioned to handle 
emergencies and major expenses, and when appropriate, purchase 
insurance against the vicissitudes of life. Insufficient short-term 
savings can lead workers to draw down their retirement accounts, 
incurring taxes and (often) penalties. This ``leakage'' of retirement 
savings--while it might address an immediate financial squeeze--
jeopardizes many Americans' long-term retirement security. To address 
this issue, we recommend allowing employees to be automatically 
enrolled in multiple savings
accounts--a standard checking account for short-term savings and a tax-
preferred retirement account. We would also reform the regulations 
surrounding retirement
accounts to further deter preretirement withdrawals.
    Once workers reach retirement, they face the daunting prospect of 
making their savings last for the rest of their lives. With Americans 
increasingly living into their 80s and 90s, this challenge has only 
become more difficult. By clearing regulatory barriers to lifetime-
income options for retirees and encouraging Americans to claim Social 
Security benefits later to maximize their incomes, our recommendations 
would ensure that fewer retirees outlive their savings.
    To diversify Americans' options for retirement income, our 
proposals would make home equity more readily available for retirement 
needs. We discourage the use of home equity for preretirement 
consumption by removing the deduction for interest on second mortgages 
and other lines of credit that reduce home equity before retirement. We 
also recommend expanding awareness of Federal Housing Administration 
(FHA)-insured reverse mortgages and establishing a low-dollar reverse-
mortgage pool, allowing retirees to tap into a smaller portion of their 
home equity without incurring the large fees that accompany larger 
loans.\20\
---------------------------------------------------------------------------
    \20\ Please see page 69 of our report for our full recommendations 
on facilitating the use of home equity for retirement consumption.
---------------------------------------------------------------------------
    Increased use of IRAs, 401(k)s, and other defined-contribution 
accounts means that today's workers have more responsibility for 
managing their personal finances than previous generations. To improve 
Americans' financial knowledge and better equip them to manage their 
own finances, we recommend expanding personal financial education at 
all ages and stress the importance of ``just-in-time'' interventions, 
in which individuals are provided with important information at the 
moment that they are making major financial decisions.
    Finally, no discussion of retirement policy would be complete 
without addressing the significant challenges that face Social 
Security. Our package would avoid the 23 percent cut that is set to 
take effect and give Americans certainty about what to expect in 
benefits from the program as they prepare for retirement. The Chief 
Actuary of Social Security found that our plan would achieve 
``sustainable solvency,'' meaning that the program's reserves would be 
increasing even after 75 years. We achieved this outcome through a 
balanced package of revenue increases and benefit savings. Our policies 
include gradually increasing the payroll-tax rate, raising the amount 
of income subject to Social Security taxes, very gradually raising the 
full retirement age, and using a more-accurate measure of inflation for 
Social Security's annual cost-of-living adjustments. But what I am most 
proud of is the enhancements that we were also able to make for the 
most vulnerable beneficiaries, including surviving spouses and low-
income workers. These groups would see dramatic
increases in benefits, which is why the Urban Institute found that our 
package would reduce elderly poverty by 30 percent in just 20 
years.\21\
---------------------------------------------------------------------------
    \21\ Please see page 78 of our report for our full recommendations 
on strengthening Social Security's finances and modernizing the 
program.
---------------------------------------------------------------------------
    To achieve agreement, the commission voted on these recommendations 
as a package, not as individual policies. My fellow commissioners and I 
continue to believe that, taken as a whole, these policies represent 
the most comprehensive, bipartisan proposal to reform U.S. retirement 
policy for the benefit of all Americans.
    Based on the interests of this Committee, there are a few policies 
I would like to highlight that might be particularly ripe for near-term 
action:

    Establish simplified Retirement Security Plans for small 
businesses. To expand access and make it easier for individuals to save 
for retirement, the commission recommends creating new Retirement 
Security Plans that would dramatically simplify the process of offering 
automatic enrollment plans for small businesses.\22\ These plans would 
allow employers with fewer than 500 workers to band together and form 
well-run, low-cost retirement plans that defuse administrative 
expenses. Responsibility for operating and overseeing these plans would 
fall to a third-party administrator that would be certified by a new 
oversight board designed to protect consumers from bad actors. A 
similar proposal (entitled ``pooled plans'') was included in the 
Retirement Enhancement and Savings Act of 2016, which was unanimously 
reported out of the Senate Finance Committee on a bipartisan basis.
---------------------------------------------------------------------------
    \22\ Please see page 39 of our report for more information about 
Retirement Security Plans.
---------------------------------------------------------------------------
    Allow employers to enroll employees in multiple savings accounts. 
To help ensure that retirement savings last until retirement, we 
believe that employers should be able to automatically enroll their 
employees into two accounts--one meant for retirement savings, another 
for short-term savings. By building up these rainy-day savings, 
individuals might be less likely to raid their retirement savings in 
the event of an unexpected emergency.
    Incentivize retirement savings for young workers. To help build a 
culture of savings and improve the financial resilience of American 
families, we propose a new Starter Saver's Match, which would replace 
the existing Saver's Credit for individuals under the age of 35. The 
current Saver's Credit reduces the income-tax burden for lower-income 
individuals who contribute to retirement accounts, but the credit is 
not refundable, meaning that individuals with no income tax liability 
cannot benefit from it. The Starter Saver's Match would instead be a 
refundable credit of up to $500 deposited directly into the claimant's 
retirement account. This change would better encourage younger workers 
with lower wages (those who are least likely to save on their own) to 
start saving for retirement. It would also maximize the Government's 
``bang-for-the-buck'' by allowing the invested match more years to 
grow.\23\
---------------------------------------------------------------------------
    \23\ Please see page 53 of our report for more information about 
our Starter Saver's Match.
---------------------------------------------------------------------------
    Facilitate the establishment of a Retirement Security Clearinghouse 
to improve portability. Many savers face the problem of having several 
retirement accounts scattered among their previous employers. For this 
reason, we recommend the creation of a Retirement Security 
Clearinghouse to ease the process of consolidating accounts.
    Encourage plan sponsors to integrate easy-to-use, sophisticated 
lifetime-income features. Including lifetime-income options can be a 
complex endeavor that entails concerns about fiduciary liability; in 
addition, businesses often have to invest significant time and 
resources to develop lifetime-income features. We recommend providing 
limited protection for fiduciary liability, modifying regulations, and 
giving additional guidance to plan sponsors that wish to incorporate 
lifetime-income options within a DC plan.\24\ These developments could 
have a similar effect for lifetime-income solutions as the Pension 
Protection Act of 2006 had for retirement plan auto-features. Removing 
barriers to auto-enrollment and auto-escalation, as well as providing 
limited protection from fiduciary liability for the use of qualified 
default investment alternatives, increased substantially the number of 
plan sponsors that implemented auto-features. The lifetime-income field 
is ripe for comparable changes.
---------------------------------------------------------------------------
    \24\ Please see page 61 of our report for our full recommendations 
on Lifetime-Income Options.
---------------------------------------------------------------------------
    Accurately reflect retirement tax policy changes in the budget 
process. Last but certainly not least is an issue that I know well from 
my years chairing the Senate Budget Committee. As tax reform 
discussions progress, the tax treatment of retirement savings accounts 
appears to be on the table. In particular, some have proposed moving 
all traditional tax-deferred retirement plans (such as 401(k)s and 
IRAs) to an after-tax Roth system in order to create ``budget savings'' 
in the 10-year window. However, the current scoring system 
significantly overstates the costs of tax-deferred accounts and 
understates the cost of Roth accounts. We recommend changing the 
scoring of these tax provisions to a system that would score both types 
of accounts on an equal basis.\25\ I would encourage caution among 
policymakers when considering dramatic changes to retirement policy for 
tax policy purposes. Hundreds of billions of dollars are saved in these 
retirement accounts every year and the tax incentives play a 
significant role in this system. While debating the merits and 
structure of retirement tax preferences is certainly appropriate, 
hastily overhauling them without due consideration for the impact on 
American savers could serve to worsen the retirement security 
predicament about which we are all concerned.
---------------------------------------------------------------------------
    \25\ Please see page 51 of our report for more information about 
our recommendation on changing congressional budget-estimation rules 
for retirement tax expenditures.
---------------------------------------------------------------------------
Conclusion
    I am encouraged that the issues of savings and retirement security 
have attracted bipartisan interest among not only members of Congress, 
but also business leaders, the media, the Administration, and the 
States, as well as from candidates seeking public office. I hope that 
the work of our commission can inform these efforts and can contribute 
to meaningful action by individuals, businesses, and governments to 
improve the economic well-being of all Americans.
    Thank you for inviting me to be here today, and I look forward to 
answering your questions.


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                                 ______
                                 
               PREPARED STATEMENT OF WALTER RUSSELL MEAD
 Distinguished Scholar in American Strategy, the Hudson Institute and 
            Chace Professor of Foreign Affairs, Bard College
                             April 5, 2017
    Good afternoon, Mr. Chairman, Ranking Member Heitkamp, and Members 
of the Subcommittee:
    It is an honor to be invited to testify before this Subcommittee 
and its distinguished Members. Moreover, it is a privilege to testify 
alongside former-Senator Kent Conrad. I congratulate the Subcommittee 
on its interest in creating a sustainable and viable retirement system 
for the 21st century.
    My testimony today is divided into three parts. In the first, I 
look at the history of Federal policy with respect to the economic 
security of the American people, how that policy changed in response to 
changing economic conditions, and how our current set of retirement 
programs and policies emerged from these changes. In the second 
section, I draw the Subcommittee's attention to the ways in which the 
economic changes our country is currently undergoing are deep enough 
and pervasive enough to require fresh thinking about economic and 
retirement policy. Finally, I offer some suggestions that I hope will 
assist the Subcommittee's distinguished Members as they work to craft 
novel retirement security policies for an approaching economic order 
while preserving programs like Social Security that remain essential to 
the economic security of older Americans.
The American Dream & Government
    Many believe that the Federal Government's promotion of the 
economic security of the American middle class is a relatively recent 
development, dating back to Franklin Roosevelt and the New Deal. This 
is far from the truth. From the revolutionary period to the present 
day, American presidents and congresses have worked to develop policies 
and laws that promote the American Dream--to help the American people 
build dignified and secure lives through hard work. Our understanding 
of the American Dream has changed over the centuries, and successive 
generations have changed the methods by which they seek to promote the 
common welfare, but the prosperity and the security of the American 
people has remained at the center of national policy from the time of 
George Washington into the 21st century.
    For much of our history, the majority of the American people earned 
their living in agriculture. In the 18th century, farmers comprised 
approximately 90 percent of the American labor force. Only in the 20th 
century did the percentage of agricultural workers fall significantly 
below 50 percent of the labor force. For both American citizens and the 
immigrants drawn to our shores, the American Dream at this time meant a 
freehold family farm; elected officials understood that the opportunity 
to own a farm was what constituents most wanted, and they made it their 
business to ensure that Federal policies supported that goal.
    Politicians also understood that the independence and security of 
family farming was the foundation of the American political system. 
Political theorists like Thomas Jefferson believed that independent 
free farmers made the American democratic system possible. Freed from 
the servile dependency that characterized so much of peasant 
agriculture in Europe, and trained in the habits of responsibility and 
hard work by the requirements of property owning, American farmers 
could be safely entrusted with the choice of elected officials. Federal 
support for the independence and prosperity of farmers was not just in 
the country's economic interest; such support strengthened the 
foundations of American society in line with Jefferson's belief that 
``Agriculture . . . is our wisest pursuit, because it will in the end 
contribute most to real wealth, good morals, and happiness.''
    Indeed, the Land Ordinance of 1785 and the Northwest Ordinance of 
1787, both of which were adopted by Congress before the Constitution 
was signed, already envisioned a future of independent, yeoman farmers 
in early America. These ordinances helped create a system that 
organized the sale of Federal land west of the Appalachians to private 
citizens, and remain a basis of the Public Land Survey System and the 
Bureau of Land Management that we know today.
    The Federal Government continued to promote the establishment of 
the family farm throughout the 19th century with a full range of 
economic, diplomatic, and even military policies. President Jefferson's 
Louisiana Purchase opened up over 800,000 square miles of land for 
Americans to settle. The 1862 Homestead Act gave away millions of acres 
of land to settlers who were willing to brave the treacherous westward 
journey and settle in the interior.\1\ The early diplomatic emphasis on 
gaining free access to the Port of New Orleans for western farmers, 
like the later promotion of railroads to open up the vast western 
territories, was designed to ensure that farmers in the remote American 
interior were able to sell their goods on world markets. The 
establishment of land grant colleges at the end of the 19th century 
sought to both train young farmers and to conduct important research 
into new farming methods. Taken together, these policies, among others, 
formed what might be called the ``Green Model''--a coordinated 
Government effort to provide Americans, who lacked opportunities to own 
large tracks of farmland on the coast, with the ability to seize the 
19th century American Dream if they moved to the interior.
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    \1\ It is important to note that, although the Homestead Act 
essentially provided free land to settlers, the westward journey 
inflicted heavy physical, emotional, and fiscal costs on settlers. It 
would be incorrect to view the Homestead Act as a handout.
---------------------------------------------------------------------------
    By promoting land ownership at low cost and encouraging 
agricultural education, the Green Model sought to deliver for Americans 
the unique financial and societal security that a family farm could 
provide. Besides the revenue and sustenance from working the land, 
family farming helped Americans accumulate wealth. Additionally, family 
farms provided for retirement. Grown children could continue tending 
the land while taking care of their elderly parents, or the family farm 
could be rented or sold, providing an income for farmers who could no 
longer work the land for themselves.
    The security provided by the family farm began to erode in the late 
19th century. As more settlers took advantage of Green Model land 
policies, the remaining unsettled land became ever more marginal. At 
the same time, a more competitive, large-scale, and capital-intensive 
farming model emerged, which gradually made family farming riskier and 
less rewarding. The share of farmers in the labor force declined from 
approximately 64 percent in 1850 to 27 percent in 1920.
    As the American economy shifted away from American agriculture and 
toward factories and mines, Americans experienced growing inequality 
and uncertainty between 1865 and 1900. Following the Civil War, 
portions of American society clung to the Green Model way of life even 
as the rural economy fell behind the manufacturing economy of the great 
cities.
    Farmers lobbied for Federal assistance to achieve `parity' with 
urban workers, but the relative decline of the agricultural economy 
continued. While pro-farm policies aimed to preserve Jefferson's 
idyllic vision of a Nation of yeoman farmers, these policies were no 
match for larger economic trends that were recasting American society 
as well as the economy.\2\ It became increasingly clear that the Green 
Model could no longer serve as the ordering principle for Federal 
policy, but the dynamics of the new economy were not well understood 
and its full wealth creating potential had not yet been realized.
---------------------------------------------------------------------------
    \2\ It is worth noting that a disproportionate number of policies 
seek to aid American farmers today despite the fact that less than 2 
percent of the American labor force works in agriculture. One can argue 
that these policies harken back to Jefferson's vision of America and 
the Green Model.
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    As the twentieth century witnessed a clear transition from an 
agricultural to an industrial era, a new version of the American Dream 
appeared and a corresponding Federal policy model began to take shape. 
Teddy Roosevelt capitalized on widespread calls for reform and ushered 
in a new kind of politics. Past presidents made history by opening new 
land for settlement; Theodore Roosevelt made history by protecting 
Federal lands from settlement and establishing our system of national 
parks. Franklin Roosevelt's New Deal policies further advanced the 
evolution of a new system tailored to an urban society with a 
manufacturing economy.
    The process of transition was a slow one, with many setbacks and 
upheavals, but by the 1950s, a new and stable social system had 
emerged. Americans had learned to manage the forces of industrialism, 
to regulate the power of finance, and to use the vast resources which 
an industrial society creates to address the unprecedented social 
problems that the rise of the modern city and the modern factory system 
brought into being. In post-World War Two America, both blue-collar and 
white-collar workers increasingly had stable, lifetime jobs in a 
growing economy. Within this new economy, high school graduates were 
essentially guaranteed lifetime employment in a job that, at a minimum, 
provided a comfortable, lower middle-class lifestyle. Likewise, college 
graduates could expect an equally secure future with an even greater 
standard of living.
    The new economy led to a new American Dream. Americans no longer 
dreamed of owning a family farm, rather they dreamed of owning a 
suburban home accompanied by a consumer lifestyle. To ensure that 
Americans willing to work for it could have that dream come true, the 
United States Government created a novel policy system during the 1950s 
and 1960s--a set of policies and practices sometimes called the ``Blue 
Model.'' New transportation measures, like the Federal Aid Highway Act 
of 1956, aimed to link cities and employment centers with cheap, 
suburban housing, so that geography would not prevent Americans from 
achieving the new American Dream. Likewise, 30-year mortgages with low 
interest rates allowed lower- and middle-class Americans to own 
suburban homes and accumulate wealth. Tax advantages for the municipal 
bond market allowed American cities and towns to build the 
infrastructure the new suburbanites wanted at an affordable cost.
    The United States Government demonstrated its commitment to 
promoting opportunities for working Americans. While Blue Model 
policies differed significantly from those of the Green Model, both 
models aimed at the same goal--to provide as many Americans as possible 
with the opportunity to realize the American Dream in accordance with 
the economic and societal conditions of the time. Neither model sought 
to accomplish this goal through `handouts' or guaranteed outcomes. 
Rather, they provided Americans with the ability to accumulate wealth 
through hard work.
    Sadly, both the Green Model and the Blue Model developed policies 
to the exclusion or even the detriment of American minorities and 
particularly African Americans. American slavery and the share-cropping 
era under Jim Crow meant that free black farmers were virtually absent 
from the independent yeoman-farmer vision of Jefferson and his 19th 
century successors. In the 20th century, red lining prevented many 
African Americans from attaining the financial security and 
independence of home ownership, while New Deal programs often excluded 
domestic workers, wait-staff and farm-hands--occupations that were 
disproportionately held by minorities or women. Nonetheless, for a 
large majority of Americans, these policies contributed to the enormous 
growth of economic prosperity of 19th and 20th century America.
    Retirement policy was one of the areas in which policy had to 
change in response to new conditions. Factory jobs did not provide the 
same kind of economic security that farm ownership did. Especially in 
the early years of the factory system, and again during the Depression, 
many ordinary working people lacked the ability to save for retirement, 
but the factory system was unforgiving.
    Like the Green Model, the Blue Model began to fail over time. As 
foreign manufacturers recovered from the devastation of World War II, 
German and Japanese companies challenged complacent American firms.
    In this new and often more challenging environment, companies had 
to become more flexible. Industry became more competitive, private-
sector managers shed bureaucratic habits of thought, and defining 
characteristics of the economy, like lifetime employment and defined 
benefit pensions, began to disappear. Additionally, the combination of 
low-wage competition from the developing world and automation in 
advanced country manufacturing began to cut into manufacturing 
employment in the United States. The process of change started in the 
1970s; in subsequent decades it became clear that the global economy, 
and the American economy with it, were caught up in a process of 
transformation as dramatic and far reaching as the industrial 
revolution itself.
A New Economic Revolution
    Americans today are caught up in a whirlwind of change, and most 
basic assumptions on which our social policy are based are coming under 
challenge. Old jobs and old industries are disappearing, and new ones 
are sometimes frustratingly slow to emerge. Wages for many workers have 
stagnated as well paid jobs, especially in manufacturing, become 
scarcer. The percentage of nonfarm workers in manufacturing has 
declined from a World War II-high of approximately 38 percent to 
approximately 8.6 percent in 2016, and many clerical jobs have also 
disappeared.
    New technology and competition also have pushed out, and will 
continue to push out, many legacy 20th century employers and the jobs 
and job security they provide. For example, nearly 88 percent of the 
employers featured on the 1955 Fortune 500 list did not make the 2014 
Fortune 500 list. The rise and fall of companies like Blockbuster 
highlight the pace and intensity of change in the 21st century economy.
    In addition to the decline of stable companies and the lifetime 
assurance of stable employment that they brought, the traits that 
define jobs today vary significantly from the traits that defined mid-
20th century jobs. Workers today are no longer guaranteed long careers 
with a single employer or within a single industry, nor do many of them 
want to be confined by a lifetime job, and the percentage of the labor 
force employed by the same company for 20 years or more continues to 
decline.
    Workers today, especially millennial workers, are more likely to 
``job hop'' than past generations. According to the employment-based, 
social networking website LinkedIn, ``the number of companies people 
worked for in the 5 years after they graduated [from college] nearly 
doubled'' from 1.6 jobs in 1986 to 2.85 jobs in 2010. Polling data has 
also shown that millennials view job hopping more favorably than other 
generations. Gallup found that 60 percent of millennials are open to a 
new job opportunity (as compared to 45 percent of nonmillennials) and 
that millennials are the ``least engaged generation in the workplace.''
    The advent of the technologically facilitated gig economy also has 
added to the high level of ``churn'' in the workplace today. The 
McKinsey Global Institute estimates that between 20 and 30 percent of 
working-age Americans currently participate in the gig economy. As apps 
and websites like Uber, Lyft, Airbnb, TaskRabbit, Ebay, and Etsy have 
become commonplace in our society, there has been a growing acceptance 
of gig jobs. Indeed, out of the 68 million independent workers in the 
United States, McKinsey estimates that 72 percent of them chose to be 
independent workers. As technology continues to engrain gig work into 
the ethos of American workers--especially younger workers--I believe 
that gig work will contribute to an increased restlessness in the 
future workplace and could well become a defining characteristic of the 
information era.
    The structural employment changes that have taken place in the 
information era have coincided with important societal changes. 
Americans have a dramatically different concept of retirement than 
previous generations. American living standards and life expectancy 
have increased. (In 1935, American average life expectancy was 61 
years; by 2016 it had risen to 78.) Now, Americans need enough 
retirement income to facilitate an active lifestyle defined by travel 
and leisure. Historically, many people saved to avoid poverty in old 
age; Americans want more out of their later years--but neither as 
individuals nor as a society are we making the choices that can sustain 
these expectations.
    At the same time that Americans expect to spend more years, and 
more active years, in retirement, they are increasingly delaying their 
entry into the world of work. In 1900, many Americans went to work 
after eight or even fewer years of formal schooling; more and more 
young Americans today spend 16 or more years in education before they 
begin their life's work. In 1935, many Americans entered the workforce 
at 15, stopped working at 60, and died soon thereafter. Today, many 
don't enter the workforce until they are almost 30, retire between 65 
and 70, and live for 15 to 25 years longer. In 1935, Americans spent 
almost 75 percent of their lives in the workforce; today, we are only 
in the labor force for about 50 percent of our lifespan, but the income 
from those years must support the costs of child-raising and the costs 
of a long retirement. As a people, our savings patterns do not reflect 
these realities.
    In the long run, this pattern cannot be sustained. We must either 
save more, work longer, or consume less in retirement. Yet even as we 
contemplate this uncomfortable reality, many Americans feel their 
choices are constrained. Stagnant or falling wages make it harder for 
many families to save. The costs of college continue to rise, and 
`degree inflation' means that more students must spend more years in 
school--during which time their parents, instead of saving to fund 
their own retirement, must struggle to support their children in 
school. Rising healthcare costs
continue to press on family budgets. As employers shift insurance costs 
onto the workforce, and as more gig workers and self-employed people 
buy insurance in the individual markets, Americans often have a harder 
time setting money aside for old age.
    Two-hundred-fifty years of American history tells us that the 
Federal Government cannot and will not remain indifferent to the 
difficulties of the American middle class. But in both agrarian and 
industrial America, the Government found ways to give an assist to 
hardworking Americans seeking to build stable and prosperous lives, 
rather than providing handouts and creating dependencies. Providing a 
policy framework so that young people could clear the land and start a 
farm is very different from creating a lifetime income entitlement; 
supporting the development of a financial system and transportation 
network so that young families could buy their own homes is very 
different from offering each citizen a housing voucher.
    The question for retirement policymakers in this time of transition 
isn't, or shouldn't be, how to give Americans a retirement that they 
can't afford. It is how to set up a system that makes it possible for 
hardworking Americans to build the kind of future they want through 
their own efforts.
A New Vision for Retirement
    Today, we are caught between an old system that is getting less 
effective and a new one that is still developing. This is not, of 
course, just true for the retirement system; it is true of the economy 
and society at large. But the retirement crisis is rapidly becoming one 
of the most serious and damaging consequences of the decay of American 
social order, and the outdated assumptions on which the retirement 
system relies make matters worse. To put it simply: Our three-legged 
retirement system--public savings (i.e., Social Security), employer-
provided retirement plans (e.g., pensions)--and private savings and 
investments--are failing Americans.
    It is important to remember that Social Security was never intended 
to serve as the only source of retirement income for older Americans. 
Social Security payments were to be supplemented by employer pensions 
and from individual savings and investments. While Social Security 
faces some financial challenges, the real problem we see today is that 
the other two legs of the system are in much worse shape. Increasing 
numbers of American workers face a future in which Social Security is 
their only significant source of income in retirement; this places a 
burden on Social Security, and on the Federal treasury, that will be 
difficult to bear.
    In the Blue Model era, the idea was that for more and more workers, 
employer-provided pensions would supplement Social Security. From the 
1930s to the 1960s, the percentage of workers covered by employer-
provided pensions tied to length of service tended to rise. This system 
fit the needs of a workforce that looked to stable, long-term 
employment from big business and stable nonprofit employers like 
hospitals and State and local governments. But as the economy began to 
change, the private pension system came under increased stress. The 
percentage of workers covered by employer plans began to decline, and 
the plans themselves tended to become less generous and less secure.
    At the same time, the third leg of the stool, personal savings and 
investments, is also under stress. Stagnating wages and the rising 
costs of raising children make it hard for families to save. As 
Americans delay starting families and raising children until later in 
life, parents are older when their children start college, and there 
are fewer `empty-nest' years in which parents, free at last from the 
financial responsibility of raising their children, are able to focus 
on funding their own retirements.
    Policymakers have, of course, been aware of these problems, and the 
last few decades have seen a number of initiatives, like the rise of 
401(k) programs and the IRA system, to strengthen private pensions and 
personal savings. Thanks to these programs, a significant number of 
Americans have more assets for retirement than would otherwise be the 
case. But those programs have not lived up to the hopes that were 
placed in them. Only 58 percent of workers today, for example, have 
access to employer-based retirement plans. Of that 58 percent, fewer 
than half participate in these plans. At the same time, only 10 percent 
of workers contribute to private savings plans like IRAs, which were 
meant to help augment employer-provided retirement plans and Social 
Security.
    As a result, we now face a retirement problem that is both serious 
and complex. More and more Americans are approaching retirement age 
without having the savings needed for the kind of retirement they want. 
Moreover, the millennial generation is currently set on a dangerous 
course that would make this generation even less well prepared for 
retirement than their parents and grandparents.
    Clearly, our programs for employer-based retirement systems and for 
encouraging private savings have not accomplished what we hoped they 
would do. We must think more deeply and act more decisively to create a 
system that will work in the new economy taking shape around us. The 
paradigm is shifting and we must shift with it. Just as policy made at 
the end of the 19th century could not fully account for the needs of 
the 20th century economy, our new policy model will have to adapt to 
the profound changes we now face.
    While these failures owe something to larger social challenges 
(hard pressed families are less likely to set money aside for future 
needs even if such savings are tax-advantaged), there are some ways in 
which our retirement programs don't align well with the emerging new 
economy. In particular, the link between the employer and the 
individual was at the center of Blue Model era social policy. Firms 
were expected to provide defined benefit pension plans and promote 
personal savings, even as firms were expected to handle health care, 
tax collection, and a variety of other social missions.
    With the end of lifetime employment and the shift to a job hopping 
and gig economy--to say nothing of the decreased stability of many 
larger firms in an era of global competition and rapid technological 
change--the employer is losing the capacity to act as the intermediary 
between the individual worker and Government, while simultaneously 
being the locus for Government mandates, tax collection, and social 
policy. For retirement policy especially, the focus needs to be on the 
individual rather than the employer. Employees will have many employers 
over the course of a career and, often, many income streams at the same 
time. The same person may simultaneously be a full-time employee in one 
job, a part-timer in another, while moonlighting as an Uber driver, 
renting out a spare bedroom to travelers, or selling goods on eBay. 
Such a worker still needs to think about retirement, and still has 
taxes to pay, but there is no single employer who plays a role in this 
person's life comparable to that of, say, General Motors in the heyday 
of the old industrial
system.
    Small businesses and the self-employed are particularly poorly 
served by the current system. These businesses and workers often do not 
have the time or resources needed to scour the marketplace to find the 
savings plans best suited to their needs. Nor do employers have the 
capacity or resources for the complex and often expensive work needed 
to comply with various Government mandates about how retirement plans 
work. This has created a perverse economic reality, in which saving for 
retirement has become a perceived benefit of working for a large 
corporation that is less attainable for small businesses and the 
independently employed.
    At the same time, we need to understand that the retirement crisis 
is part of a larger problem of savings. Young workers may not be 
focused on retirement savings because more urgent needs preoccupy them: 
student loan repayment, savings for a down payment, healthcare costs, 
and so forth. We cannot look at retirement savings in isolation from 
the other economic challenges facing Americans today.
    What I propose below is intended to stimulate new thought on the 
Committee and elsewhere as a new generation of Americans rethinks the 
foundations of our social contract and economic system. After looking 
at what a new approach to retirement and related issues might look 
like, I also offer some suggestions about how we can help members of 
the `bridge generations,' people caught up in the transition from the 
old system to a new one, cope with the challenge of retirement given 
the financial issues they face.
    There are, I believe, two basic things we need to do: first, to 
begin shifting the tax collection onus and the retirement savings 
apparatus from employers to private-sector financial institutions. At 
the same time, we need to blend retirement savings with other forms of 
savings, so that Americans have multiple, clear-cut avenues toward 
wealth accumulation in the information era. The creation of a flexible 
and multifaceted retirement savings system that better aligns with our 
current and near-term economic conditions and can adapt to the unknown 
economic conditions of the future will be critical to the 21st century 
success of the United States.
    One way to move toward this goal would be to offer every American 
citizen and Green Card holder the ability to open an account known as 
an ``American Mobility Account'' (AMA).\3\ These `one-stop-shop' 
accounts would be managed and administered with a financial 
institution, in which employers or independent workers would deposit 
gross, pre-tax income. Financial institutions would collect and 
withhold the variety of different taxes that businesses and contractors 
are currently required to withhold, thereby shifting the tax collection 
onus from employers and the self-employed to third-party financial 
institutions. In addition to managing tax collection and withholding, 
financial institutions would be able to provide a variety of 
Government-regulated and tax-advantaged financial options within AMAs 
that promote retirement savings and human capital formation.
---------------------------------------------------------------------------
    \3\ ``American Mobility Account'' and the other, subsequent account 
names are merely descriptive placeholders. Ideally, these programs 
would be swept into a simpler package, as the proliferation of programs 
with complicated names, rules, and eligibility requirements itself 
becomes a disincentive for individuals to participate.
---------------------------------------------------------------------------
    With the introduction of AMAs, our tax regime would be better able 
to accommodate the increasing amount of gig work and job-hopping that I 
believe will take place in the future. Since all earned income would be 
deposited into one AMA, an individual could earn income from a variety 
of different employers, and have a streamlined accounting process. For 
example, instead of multiple employers filing a collection of W-2 and 
1099 forms on behalf of an employee working several gigs, the financial 
institution would be responsible for compiling all streams of earned 
income and filing a single reporting form on behalf of the worker.
    This system would benefit employers, workers, and Government. On 
the employer end, AMAs would largely shift the accounting and 
compliance burdens from employers to financial institutions: an 
important change that would be particularly beneficial for small 
businesses, the self-employed, and startups. Additionally, AMAs would 
help workers comply with tax laws and simplify the task of tax 
preparation while ensuring that they receive all benefits and credits 
to which they are entitled. Finally, Federal, State, and local 
governments would benefit from the increased transparency and 
accountability that AMAs would provide them. As part-time work and 
multiple sources of income proliferate (e.g., combined income from Uber 
driving, eBay sales, Airbnb rentals, etc.), tax collection will become 
more difficult and less fair without reforms along these lines.
    The ability to better accommodate self-employed workers who may 
play a defining role in the 21st century innovation economy is another 
benefit of an AMA-centered system. In many ways, our current retirement 
system hinders self-employment since self-employed workers have to pay 
the regressive Self-Employment Tax of 15.3 percent, which covers both 
the employee- and employer-end of the payroll taxes levied against 
traditional businesses and their employees. While this high tax rate 
discourages many individuals from pursuing self-employment 
opportunities, it incentivizes others to avoid taxes altogether. Making 
AMAs cheap and easy to understand for the self-employed population, 
enabling the holders of these accounts to benefit from various tax 
savings and other programs, and increasing penalties for those who pay 
self-employed individuals outside of the financial system will improve 
tax collection and reduce monitoring and enforcement costs for the 
Government. (Such accounts will also make it easier for the self-
employed and gig workers to demonstrate their creditworthiness by 
documenting their income, an important consideration for promoting home 
ownership).
    Additionally, to promote retirement savings, a Supplemental 
Retirement Account (SRA) would be embedded within an AMA. A certain 
percentage of an AMA-holder's monthly income would be deposited 
automatically into the SRA. The deposited income could only go toward 
saving for retirement, with all SRA holdings initially defaulted into a 
Roth IRA savings plan. AMA-holders would be able to opt out of their 
monthly SRA deposits, change to a different retirement savings plan 
with different tax preferences (e.g., a traditional IRA), or further 
diversify their SRA holdings into several different savings plans.
    An SRA would solve the issue of workers lacking access to employer-
supported retirement plans. Moreover, employers could be given tax 
incentives to encourage contributing toward employee SRAs, thereby 
addressing some of the major issues with current individual retirement 
savings accounts. Further, SRAs would reduce costs for employers since 
they will no longer need to maintain retirement plans of their own, 
thereby leveling the competitive playing field for small businesses and 
startups. Means-tested Government programs to promote retirement 
savings for low-income workers could also be more effectively and 
transparently administered through the use of these accounts.
    Finally, AMAs would promote human capital formation to augment the 
financial security provided by retirement savings. For example, much 
like an SRA, a worker could choose to deposit a certain percentage of 
his or her paycheck into an embedded Human Capital Account (HCA). In 
turn, individuals could spend HCA monies on certain items deemed 
important to enhancing individual financial security (e.g., job 
training, professional licensing, college education, etc.) in a tax-
free or tax-preferred fashion up to a lifetime maximum limit.
    The formation of human capital will be vital to growing wealth in 
the future. Giving Americans the opportunity to use savings to take the 
future version of today's coding class, for example, will be imperative 
to both their success and to the success of the Nation, and is in line 
with past social policies like the creation of land grant colleges 
during the Green Model years. Following the example of the very 
successful Singaporean Central Provident Fund, the accounts can also 
contribute to wealth creation. Through its public social security 
scheme, which allows Singaporeans to finance the purchase of homes with 
retirement savings, the Singaporean government has increased home 
ownership to 90 percent. A simple homeownership savings account option 
would encourage financially sustainable homeownership and wealth 
accumulation in the United States. During the housing bubble, well-
intentioned lawmakers and officials tried to promote better access to 
home ownership by relaxing the criteria needed to qualify for a 
mortgage. It would be much better policy to encourage home ownership by 
helping more people to qualify legitimately under existing, prudential 
rules.
    In sum, the introduction of AMAs would better fit the current and 
future direction of our 21st century economy. The transition would not 
happen overnight, and a variety of regulatory mechanisms and changes 
would need to be put into place to make sure that this plan would 
benefit all Americans in a fair and transparent way. Finally, there 
would need to be incentives to encourage the adoption of AMAs among 
employers, workers, and financial institutions, as an outright mandate 
would be too disruptive in the near-term.
Reducing the Costs of Retirement
    While the introduction of AMAs would help transition the United 
States from an outdated, employer-based system and increase saving for 
retirement, the reform is primarily geared toward younger and future 
generations of workers. In order to enhance retirement security for 
Americans, policymakers must enact reforms that help older generations 
of workers successfully retire during the transition.
    On the front end, we should allow workers later in their careers to 
accelerate their savings. It is human nature to postpone thinking about 
retirement, and, in any case, younger people often have more immediate 
needs, whether this involves paying off student loans, buying a home, 
or caring for their children. Older workers often have more 
discretionary income, fewer calls on their resources, and a greater 
focus on the need to save for retirement. Government policy should aim 
at creating more tax deferred savings opportunities for these people. 
It is good social policy to encourage savings, and greater savings 
equate to retirees being better prepared to handle retirement costs. 
Current policy allows older workers to accelerate their contributions 
to retirement plans; those allowances should increase.
    Many seniors today are not only physically capable of working 
longer, but they also want to work longer as they find work fulfilling 
and intellectually stimulating. Advances in medicine and in technology, 
such as driverless cars and enhanced telework capabilities, will make 
it easier for older generations of Americans to continue to work well 
into old age. To encourage more capable seniors to work longer, the 
Government should eliminate the Social Security Payroll Tax for seniors 
and delay the age requirement (generally 70 \1/2\-years old) that 
triggers mandatory withdrawals from retirement savings plans. To 
increase the attractiveness of tax deferred savings plans to lower 
income Americans--those who have the hardest time saving for retirement 
and most need the financial security that those savings provide--income 
from tax-deferred investments below a certain (low) threshold should 
also be tax free.
    Government could also enhance the menu of retirement options 
available to seniors who cannot or do not want to work longer. 
Promoting retirement abroad, where income that can barely cover a 
trailer home in Florida can equate to a luxury condominium in Costa 
Rica or Mexico, is an easy way to give seniors comfortable retirements. 
Today, Medicare does not cover health care received abroad, except for 
in an extraordinarily limited set of circumstances. This lack of 
healthcare coverage is a major barrier to retiring abroad. Though 
health care and prescription drugs can be far cheaper in Latin America 
and the Caribbean (LAC), serious illness is a financial issue anywhere, 
and, as younger and active retirees become older and more frail, they 
often have to return to the United States to obtain better services, 
which hinders permanent and/or semipermanent retirement abroad.
    Helping seniors move to countries where costs are low could reduce 
Medicare costs and give seniors more choices during the transition from 
the Blue Model retirement system to a new retirement system. To that 
end, the Federal Government should smooth the path for seniors looking 
to retire abroad. Congress should pass legislation to allow Medicare to 
cover eligible seniors using certified, inspected, and qualified 
providers. Medicare payments should be lower to these providers, 
reflecting different cost levels.
Conclusion
    Much as they did during the transition from the Green era to the 
Blue era, Americans find themselves at an important, historical 
inflection point. Like the Industrial Revolution, the Information 
Revolution has disrupted the economy in unpredictable, complex, and 
far-reaching ways. Not all of the changes to come can be predicted or 
understood today, but there is an immediate need to craft policies to 
account for those changes we can discern before the consequences of the 
failures of the current system become unbearable. Adopting a system of 
retirement policies that shifts the burden of taxation and collection 
from employers to financial institutions while protecting the 
retirement security of those caught in the gap would do much to promote 
the emergence of a dynamic new form of the classic American Dream in 
the 21st century.

              Additional Material Supplied for the Record
              
              
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