[Senate Hearing 116-395]
[From the U.S. Government Publishing Office]
S. Hrg. 116-395
CHALLENGES IN THE RETIREMENT SYSTEM
=======================================================================
HEARING
before the
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
MAY 14, 2019
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Finance
______
U.S. GOVERNMENT PUBLISHING OFFICE
42-872-PDF WASHINGTON : 2021
COMMITTEE ON FINANCE
CHUCK GRASSLEY, Iowa, Chairman
MIKE CRAPO, Idaho RON WYDEN, Oregon
PAT ROBERTS, Kansas DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming MARIA CANTWELL, Washington
JOHN CORNYN, Texas ROBERT MENENDEZ, New Jersey
JOHN THUNE, South Dakota THOMAS R. CARPER, Delaware
RICHARD BURR, North Carolina BENJAMIN L. CARDIN, Maryland
JOHNNY ISAKSON, Georgia SHERROD BROWN, Ohio
ROB PORTMAN, Ohio MICHAEL F. BENNET, Colorado
PATRICK J. TOOMEY, Pennsylvania ROBERT P. CASEY, Jr., Pennsylvania
TIM SCOTT, South Carolina MARK R. WARNER, Virginia
BILL CASSIDY, Louisiana SHELDON WHITEHOUSE, Rhode Island
JAMES LANKFORD, Oklahoma MAGGIE HASSAN, New Hampshire
STEVE DAINES, Montana CATHERINE CORTEZ MASTO, Nevada
TODD YOUNG, Indiana
Kolan Davis, Staff Director and Chief Counsel
Joshua Sheinkman, Democratic Staff Director
(ii)
C O N T E N T S
----------
OPENING STATEMENTS
Page
Grassley, Hon. Chuck, a U.S. Senator from Iowa, chairman,
Committee on Finance........................................... 1
Wyden, Hon. Ron, a U.S. Senator from Oregon...................... 2
WITNESSES
Tibbetts, Joni, vice president, retirement and income solutions,
The Principal Financial Group, Des Moines, IA.................. 5
Read, Hon. Tobias, Oregon State Treasurer, Salem, OR............. 6
Ruff, Joan, board chair, AARP, Washington, DC.................... 8
Dudley, Lynn D., senior vice president, global retirement and
compensation policy, American Benefits Council, Washington, DC. 10
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Dudley, Lynn D.:
Testimony.................................................... 10
Prepared statement........................................... 41
Responses to questions from committee members................ 48
Grassley, Hon. Chuck:
Opening statement............................................ 1
Prepared statement........................................... 53
Read, Hon. Tobias:
Testimony.................................................... 6
Prepared statement........................................... 54
Responses to questions from committee members................ 58
Ruff, Joan:
Testimony.................................................... 8
Prepared statement........................................... 66
Responses to questions from committee members................ 72
Tibbetts, Joni:
Testimony.................................................... 5
Prepared statement........................................... 76
Responses to questions from committee members................ 82
Wyden, Hon. Ron:
Opening statement............................................ 2
Prepared statement........................................... 87
Communications
American Council of Life Insurers................................ 89
Aon.............................................................. 94
Center for Fiscal Equity......................................... 96
Church Alliance.................................................. 101
ERISA Industry Committee (ERIC).................................. 103
LaBagh, Thomas and Barbara....................................... 105
(iii)
CHALLENGES IN THE RETIREMENT SYSTEM
----------
TUESDAY, MAY 14, 2019
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:16
a.m., in room SD-215, Dirksen Senate Office Building, Hon.
Chuck Grassley (chairman of the committee) presiding.
Present: Senators Roberts, Enzi, Thune, Isakson, Portman,
Scott, Lankford, Daines, Wyden, Stabenow, Cantwell, Carper,
Cardin, Brown, Warner, Whitehouse, Hassan, and Cortez Masto.
Also present: Republican staff: Jeffrey Wrase, Deputy Staff
Director and Chief Economist; Chris Allen, Senior Advisor for
Benefits and Exempt Organizations; and Mark Warren, Chief Tax
Counsel. Democratic staff: Joshua Sheinkman, Staff Director;
Drew Crouch, Senior Tax and ERISA Counsel; Mike Evans, General
Counsel; Tom Klouda, Senior Domestic Policy Advisor; and
Tiffany Smith, Chief Tax Counsel.
OPENING STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR FROM
IOWA, CHAIRMAN, COMMITTEE ON FINANCE
The Chairman. Good morning. Today the committee will
continue its work on retirement security and the various
challenges facing the U.S. retirement system. We welcome all
guests, and particularly our witnesses who had to work so hard
to get prepared for this testimony. I look forward to hearing
your thoughts as witnesses and ideas on ways to improve the
U.S. retirement system.
Last month, Senator Wyden and I introduced the Retirement
Enhancement and Savings Act, which typically goes by the
nickname of RESA. This bill is an update package of important
reforms to the retirement tax rules which was developed in
advance by the committee over the last two Congresses. Passage
of RESA remains a top priority for Senator Wyden and me.
Its centerpiece expansion of open multiple employer plans,
or MEPs for short, and other common-sense changes would make it
more feasible for businesses of all sizes to offer retirement
plans by harnessing economies of scale and reducing unnecessary
burdens on employers. I hope that the House will send its
version of RESA over to us at some point this month. And I will
continue to work closely with Senator Wyden and other committee
members to reconcile the differences and get this important
bill to the President.
Now, for the purpose of this meeting, there is still work
to be done. And there certainly are gaps to fill in the
retirement system. Our focus today will be exploring all of
those issues. What more can we do to improve coverage in the
existing system? How can we encourage more people to save? What
approaches should we take to help workers plan, save, and--
critically--live in retirement?
The workplace retirement system is the primary way American
workers save for retirement, whether through a defined benefit
pension plan or an employer-sponsored defined contribution
program. While defined benefit plans remain an important part
of the overall retirement system, defined contribution plans,
401(k) plans, and similar programs are now the primary means
for private-sector workers to save.
It is clear that there are gaps in the system and we need
to work on improvements to the system, but it is not generally
clear that there is a retirement savings crisis. Hence, the
purpose of this hearing is to bring attention to that.
Let's look at the numbers. At the end of 2018, $27 trillion
dollars has been set aside for retirement funds, including over
$5 trillion in private-sector defined contribution plans.
Workers with access to retirement plans have reached 66 percent
of the private sector, with over 75 percent of the workers with
access to plans actually making contributions towards their
retirement. Since 1984, the number of 401(k) plans has grown
from 17,000 plans to just over half a million plans, covering
over 60 million active participants. By any measure, the growth
of these plans and the dollars saved are a success.
But getting back to the purpose of this hearing, we need to
do more to encourage and facilitate retirement savings. As the
economy grows, our retirement system needs to keep pace, with
greater access for employees and independent workers and
efforts to make sure retirees enjoy a financially sound
retirement.
So, while this hearing is a continuation of the committee's
work in this area, it marks the start of our work on the next
round of retirement savings reforms. We have several members on
the committee who have put forth very good ideas for next
steps. And our panel today will share their views on those and
other proposals to strengthen the system.
[The prepared statement of Chairman Grassley appears in the
appendix.]
The Chairman. Senator Wyden?
OPENING STATEMENT OF HON. RON WYDEN,
A U.S. SENATOR FROM OREGON
Senator Wyden. Thank you very much, Mr. Chairman.
And first of all, Mr. Chairman, I want to make it clear
that I very much share your views with respect to the
Retirement Enhancement and Savings Act. Colleagues, I think it
is the view of Chairman Grassley and I that this important bill
should have become law eons ago. And I just look forward to
working with you and all our colleagues, Mr. Chairman, to make
it law.
And I am going to begin my remarks today with a quick word
on Social Security, the foundation of retirement in America.
According to the most recent trustees report, Social Security
can pay full benefits until 2035. After that, retirees would be
hit with a 20-percent cut. That means that a 50-year-old worker
who has paid into Social Security out of every paycheck faces
the prospect of not receiving the full benefits that he or she
has earned.
I want to be blunt about this this morning. As long as I
have anything to say about it, that cut is not going to happen.
Not going to happen, full stop. The Congress has solved fiscal
challenges bigger than this one, and it is going to have to do
it again. Furthermore, let us understand that no program has
done more for Americans' economic well-being and stability than
Social Security. The Congress must not do anything to undermine
that foundation. Social Security is not a piggy bank for
lawmakers to smash when they are looking for money for other
priorities. Instead, it is critical to protect Social Security
for all workers for generations to come.
Now, to examining other areas where retirement needs
strengthening--and again, Chairman Grassley is correct in
saying that we have good ideas coming in from both sides of the
aisle. Across the country, more than 100 million Americans have
no pension and no savings in a retirement plan. A dignified
retirement is simply out of reach for many working Americans.
There are a variety of ways, however, this committee can
play a leading role in changing that. First, the committee
worked on a bipartisan basis to put together the Retirement
Enhancement and Savings Act. The bill is all about making it
easier, particularly for small employers, to offer retirement
plans to their employees, give those small businesses an
opportunity to band together, offer a common retirement plan.
It is a simpler and more cost-effective way of helping more
Americans from sea to shining sea to save.
It ought to be easier for older Americans to save, and this
is something that I have felt strongly about since I was co-
director of the Oregon Gray Panthers. I just think it is absurd
to cut somebody off from saving just because they crossed an
arbitrary age limit. In my judgment, changing this part of IRA
law is a no-brainer.
The chairman and I worked with our previous chairman,
Chairman Hatch, to include this. I think it is a critically
important part of the bill. Let me give you an example of what
I am talking about. There are a lot of older working-class
folks who cannot yet retire and want to keep saving. With so
many families dealing with the consequences of the opioid
epidemic--something I hear a lot of members on this committee
talking about--I think of working grandparents who are
supporting youngsters and want to keep saving. They ought to
have that opportunity. That is going to be made possible by
this retirement bill, and we need to get it across the finish
line.
In addition to RESA, there are other ideas to discuss.
Yesterday I introduced the Retirement Parity for Student Loans
Act. It is based on a simple proposition. Somebody who is
paying off student loans should not be denied the opportunity
to save for retirement. The bill would allow employers to make
matching payments into a retirement plan while the employee
makes a student loan payment.
The bottom line is, whether you are paying off loans or
building up a nest egg, you are making the right financial
choices. You ought to be rewarded for it with an opportunity
for more savings.
Next, I want to close by saying we really want to welcome
our State Treasurer, Tobias Read. He is one of the innovative
thinkers in this whole area, with Oregon leading the Nation
with the new auto-enrolled IRA program for people who do not
have access to a retirement plan at work. Mr. Read has been a
pioneer in this. The program is called OregonSaves. It went
Statewide in 2018, and hundreds of thousands of people in my
home State are going to be able to save under the program when
it is fully up and running. I think we ought to be looking at
what Mr. Read is going to tell us today towards expanding the
program nationally.
Finally, we need to act--and this is something the chairman
and I and many members have talked about--on multiemployer
pensions. It has been a concern to many Senators on both sides
of the aisle. And there are 150 of these pension plans that
face insolvency in the next decade or two. Upwards of a million
Americans who could be literally thrown off the financial
cliff--worked hard, paid into their plans--face a crisis
through no fault of their own. And the Congress cannot sit on
the sidelines as those Americans, the ones who are walking on
an economic tightrope with multiemployer pensions, are
wondering whether they are going to fall into poverty.
Thank you to all our witnesses. Mr. Chairman, I look
forward to working with you.
The Chairman. Yes.
[The prepared statement of Senator Wyden appears in the
appendix.]
The Chairman. To introduce our witnesses, I am going to
start with a constituent of mine, Ms. Joni Tibbetts, vice
president of product management, retirement income solutions at
The Principal Financial Group. Ms. Tibbetts has been with The
Principal Financial Group since 1987. She has had several roles
within the retirement division, including input on Federal and
State legislative policy issues, product development, and
encouraging new retirement plans to expand coverage. She earned
her business degree from the University of Iowa and has
completed product development education through the Wharton
School of Executive Development.
In addition to what Senator Wyden had said about Mr. Read,
he was elected State Treasurer in 2016. In 2006, he was elected
to the Oregon House of Representatives, became speaker pro
tempore, and held several key committee chairmanships. And
Senator Wyden has already referred to his sponsorship of the
Oregon retirement savings plan. Mr. Read is originally from
Missoula, MT and has earned a bachelor's degree from Willamette
University and his MBA from the Michael G. Foster School of
Business, University of Washington.
Ms. Joan Ruff serves as chair of the American Association
of Retired Persons. After more than 10 years as a tax attorney,
she joined William M. Mercer, Inc. where she consulted on
employee benefits and compensation. From there, she held
executive positions at Zurich Financial Services and went on to
chair the AARP's audit and finance committee. Ms. Ruff holds a
juris doctor degree, University of Kansas; MBA, Rockhurst
University; master of law taxation, New York University; and a
bachelor's degree in journalism, University of Kansas.
Finally, Ms. Lynn Dudley, senior vice president of global
retirement and compensation policy for the American Benefits
Council. Ms. Dudley directs the Council's advocacy efforts
regarding retirement and compensation policy, defined benefit
and defined contribution plans, and executive and non-qualified
deferred compensation. She also coordinates the Council's
outreach efforts in the international arena, including the
Council's Benefits Passport informational series. Prior to
joining the Council, she was a legal consultant for SunGard
Employee Benefit Systems in Birmingham, AL. After earning her
undergraduate degree at Vanderbilt University, Lynn received
her LLM in taxation from the University of Florida in 1983 and
law degree from Cumberland School of Law, Stanford University,
1982.
Thank you all for joining us. To start out, we will go from
left to right.
STATEMENT OF JONI TIBBETTS, VICE PRESIDENT, RETIREMENT AND
INCOME SOLUTIONS, THE PRINCIPAL FINANCIAL GROUP, DES MOINES, IA
Ms. Tibbetts. Well, good morning. And thank you, Chairman
Grassley, Ranking Member Wyden, and members of the committee. I
want to thank you for the invitation to speak at today's
hearing and also your work in seeking to enact important
improvements to the retirement system.
My name is Joni Tibbetts, and I am a vice president of
retirement and income solutions at Principal Financial Group.
We are based in Des Moines in the chairman's home State of
Iowa. I am pleased to offer insights based on Principal's more
than 75 years in the retirement industry--our experience with
small to medium-sized employers and their employees. We
currently provide retirement services to more than 45,500 plan
sponsors of all sizes, as well as their 5.9 million participant
employees.
At Principal, we care about understanding the needs of our
clients and employees through such activities like client
councils, focus groups, real-time feedback, and data
collection. This information informs our innovation efforts as
we seek to better connect and engage with our clients. We are
tremendously proud of the innovation through online and digital
enrollment, as well as our financial tools that we recently
introduced. These options have driven considerably improved
outcomes for our participants. Examples include: the average
contribution rate for newly eligible employees is nearly 8
percent, and 29 percent of newly eligible employees defer more
than 10 percent. For existing plans, their participants who
transition to Principal, nearly one in four opt to save more
than 10 percent. And finally, when you look at participants who
have visited our website, the average contribution is 50-
percent higher than those who choose not to engage online.
In many respects, our Nation's defined contribution system
has been a great achievement. But it has been nearly 15 years
since the Pension Protection Act of 2006. And we need a system
that keeps up with the changes in innovation, technology,
workforce, and consumer needs. The retirement system should
offer a range of solutions that are competitive in the
marketplace as well as sensitive to the challenges of small
employers. The Retirement Enhancement and Savings Act is a
tremendous first step. We offer our enthusiastic and full
support for both the work that the House and Senate have done
on RESA.
There are three provisions of RESA that we believe are
critical to achieve meaningful participant outcomes. The first
is expanding coverage, RESA's two-prong approach addressing the
coverage gap for small employers. The first is to offer
meaningful tax credits to small employers who set up a plan,
and secondly RESA helps reduce the burden of establishing and
administering a plan by expanding opportunities for small
employers to join open multiple employer plans.
RESA's lifetime income provisions give fiduciaries greater
confidence in adopting guaranteed income solutions. They
establish realistic obligations to follow when selecting an
annuity provider and also ensure participants who have
purchased guaranteed income in their retirement plan that they
are not penalized when such products cease to be offered. RESA
also drives adequate savings levels. Only 19 percent of plans
between $1 and $10 million in assets use automatic features.
RESA creates a start-up tax credit and eliminates the auto-
escalation cap. Both provisions can drive small employers to
adopt a plan and implement these plan design features that are
beneficial to participants.
There is an opportunity for retirement law to catch up with
developments of innovation that have occurred in the
marketplace. As the committee looks beyond RESA, additional
policy recommendations we believe would be meaningful to
American savers include, first, removing barriers to the
adoption of best practices, including automatic plan design for
small employers; second, expanding RESA's multiple employer
plans provision to 403(b) plans; third, as Senator Wyden talked
about, recognizing that workers are burdened by student loan
debt; and finally, re-evaluating the administrative
requirements in the era of open MEPs and automatic features.
I would be happy to discuss any of these in further detail
during questioning. Again, I want to thank all of you for the
opportunity to testify about the importance of success in our
private retirement system. Principal Financial Group
appreciates the effort and sincerity with which Chairman
Grassley, Ranking Member Wyden, and members of the Senate
Finance Committee have undertaken this. I look forward to your
questions. Thank you.
The Chairman. Thank you.
[The prepared statement of Ms. Tibbetts appears in the
appendix.]
The Chairman. Now, Treasurer Read.
STATEMENT OF HON. TOBIAS READ,
OREGON STATE TREASURER, SALEM, OR
Mr. Read. Thank you, Chairman Grassley, Senator Wyden, and
members of the committee. Thank you for the opportunity to
address the committee on the topic of retirement security. My
name is Tobias Read, and I have the honor of serving as Oregon
State Treasurer. As Treasurer, I am focused on promoting the
financial security of all Oregonians.
In 2015, as a State representative, I sponsored the
legislation that created the Oregon retirement savings program
now known as OregonSaves. The Oregon State Treasury is tasked
with implementing OregonSaves. That is the reason I am here to
testify before you today.
Oregon created the first in the Nation State-based auto-IRA
program in response to the growing retirement savings crisis.
The National Institute for Retirement Security estimates the
gap between what is saved for retirement and what is actually
needed for retirement is at least $6.8 trillion. At the same
time, more than a third of the private-sector workforce in the
United States lacks access to a retirement savings plan at
work.
In Oregon alone, there were approximately 1 million
private-
sector workers without such access. And we know from research
by the AARP that people are 15 times more likely to save for
retirement when they have the option to do so at work. That is
why I think everyone should be happy to see the efforts of
Oregon and other States to expand savings options to more
people. It is a smart approach that will help more workers at
every income level and their families. Empowering more people
to invest in their own futures is vital to the financial well-
being of individuals, families, and of course governments at
every level. And already, tens of thousands of Oregon workers
are saving. We have eclipsed $19 million in savings in less
than 2 years. And the program's total assets are increasing
exponentially, adding more than $2.2 million every month, and
that rate continues to accelerate. And here is some more great
news: most of those Oregonians are first-time savers.
OregonSaves is a public-private partnership that gives
workers the opportunity to save for retirement through payroll
deduction. Their savings are deposited into their own
individual retirement accounts. Those IRAs are owned by the
worker and not tied to the job, ensuring that what a worker
saves will always be their money and under their control.
Oregon businesses that do not offer a retirement savings
option are required to facilitate the program for their
workers. Many employers see the benefits of OregonSaves and are
not waiting. Employers of any size can enroll at any time ahead
of the deadlines that our program requires, and nearly 2,000
have already chosen to do so. The program is also open for
voluntary enrollment by individuals, including the self-
employed and those workers whose employers do not facilitate
OregonSaves. Hundreds of people have already self-enrolled
since we brought that option online late last year. The program
has seen strong participation in line with our projections,
with about three out of every four people choosing to remain in
the program and save.
But beyond the numbers, what I love to hear are the stories
of the savers like Genevieve, who works for a small nonprofit.
Genevieve told us that, ``OregonSaves is the easiest retirement
program I have ever participated in. It has removed a lot of
the stress of having to choose from a long list of decisions
that feel overwhelming. Saving for retirement should be easy
and painless.''
I am also excited by the enthusiasm we are seeing from
local business owners. Josh Allison, who is an owner of a
brewery on the north Oregon coast told us, ``OregonSaves allows
me to offer a retirement plan to my employees, which I would
have a difficult time providing on my own. As a small family-
owned business, it gives me the tools to recruit and retain
good employees. It also gives my employees the ability to work
for our company as a career. It is a win-win for all parties
involved.''
From the beginning, I was very aware that the success of
OregonSaves relied heavily on our relationship with employers.
We constructed the program to limit the obligation of the
employer as much as possible and are constantly considering
ways to reduce the time employers spend facilitating the
program.
We have been working closely with some of the Nation's
largest payroll service providers to discuss how best to
integrate payroll processes, reducing further the amount of
time employers need to spend on the program. For employers that
handle their payroll functions without the help of a payroll
service provider, the time to facilitate OregonSaves adds 10 to
15 minutes each month.
The public overwhelmingly supports the program. Employers
say it is easy to sign up workers. And, based on a recent
public survey, the level of support has actually increased in
the first year. Today an astounding 82 percent of people
support OregonSaves.
OregonSaves is already increasing the long-term financial
stability of thousands of Oregonians, and we are just getting
started. Thank you, Mr. Chairman. Thank you, committee members.
The Chairman. Thank you, Mr. Read.
[The prepared statement of Mr. Read appears in the
appendix.]
The Chairman. Now, Ms. Ruff.
STATEMENT OF JOAN RUFF, BOARD CHAIR,
AARP, WASHINGTON, DC
Ms. Ruff. Thank you; good morning. On behalf of AARP's
nearly 38 million members and all Americans age 50 and over,
thank you, Chairman Grassley, Ranking Member Wyden, and members
of the Finance Committee, for this opportunity to testify today
on the state of retirement security of American workers and
their families.
Since 1983, there has been more than a 70-percent decrease
in defined benefit pensions offered to workers. Today, half of
all employees are in jobs that offer no plan of any kind, and
most of the rest are in a 401(k) or similar type of plan.
Diminishing pensions and inadequate retirement savings, coupled
with longer life expectancies and higher health-care costs,
endanger the dream of a secure retirement for millions of
Americans, leaving them increasingly dependent on Social
Security alone. While it is true that Social Security keeps
millions of older Americans out of poverty, its average monthly
benefit is very modest: $1,565 for a retired man and $1,244 for
a retired woman.
And while the importance of Social Security cannot be
overstated, given such modest benefit amounts, the retirement
security of many Americans could be strengthened if we
meaningfully improve their retirement savings. Our first goal
should be to provide a workplace retirement plan for the 51
million Americans who lack one now. To help address the
significant coverage gap, AARP has recently focused on State-
level Work and Save programs, which are providing payroll
deduction savings options to underserved populations, such as
workers of color and much of the contingent workforce. Workers
are 15 times more likely to save for retirement if they have a
convenient way to save at work. These retirement programs, like
529 college savings plans, are operated through public-private
partnerships.
Nationwide, roughly one-third of all States have pursued
laws to address the retirement gap in their States. And the
programs are succeeding, as we have already heard from Oregon's
Treasurer Read. AARP has also long supported automatic IRA
legislation which, like the State programs, relies on payroll
deduction to encourage greater retirement savings. We believe
that State programs and Federal legislation working together
can most effectively offer Americans affordable and appropriate
retirement investments. We also believe Federal legislation and
regulations regarding retirement security should allow States
to continue to enact and implement savings programs while
expanding opportunities for those who still lack coverage.
Federal policies should also extend coverage to the 27
million part-time workers, two-thirds of whom are women, and
most of whom lack coverage. This is especially important for
older workers and caregivers, who often work less than full-
time due to caregiving responsibilities. We also strongly
encourage you to improve the Saver's Tax Credit. The most
beneficial changes would be to make the credit refundable, to
increase the income thresholds, and to restructure the credit
into a match so that more of the tax credit's target population
can benefit from it and build greater savings. Preserving
existing protections is as important as expanding coverage and
increasing savings.
ERISA clearly states that anyone exercising discretion over
employee benefit plans must do so as a fiduciary. Yet, efforts
to establish more lenient standards are frequently discussed.
AARP urges relevant agencies, including the Securities and
Exchange Commission and the Department of Labor, to continue
protecting investors preparing for retirement. We welcome
congressional efforts to hold hearings and ensure that
financial advisors carry out their fiduciary duties for
millions of retirement savers.
Those who have accumulated assets face the challenge of how
to draw down on these resources and not run out of money. AARP
supports efforts to prevent lump-sum cash-outs and to ensure
adequate lifetime income. AARP also strongly encourages you to
maintain default paper delivery of retirement plan disclosures,
especially given strong consumer preferences for paper delivery
of important financial documents across all age groups.
Finally, we urge you to find a fair solution for the
millions of workers and retirees who count on multiemployer
pensions for their retirement security. We commend Senators
Portman and Brown who, along with several other members of
Congress, have focused their attention on this issue.
Again, on behalf of AARP, we thank you, Chairman Grassley
and Ranking Member Wyden, for inviting us to share our views on
how to improve the retirement savings of Americans and their
families. And we stand ready to work with you as the committee
moves forward. Thank you.
The Chairman. Thank you, Ms. Ruff.
[The prepared statement of Ms. Ruff appears in the
appendix.]
The Chairman. Now, Ms. Dudley.
STATEMENT OF LYNN D. DUDLEY, SENIOR VICE PRESIDENT, GLOBAL
RETIREMENT AND COMPENSATION POLICY, AMERICAN BENEFITS COUNCIL,
WASHINGTON, DC
Ms. Dudley. Chairman Grassley, Ranking Member Wyden, and
other members of the committee, thank you for holding the
hearing today and for your continued leadership on retirement
policy.
The qualified employer-sponsored retirement system is
strong and has many features that make it valuable. Without it,
retirement would be far less secure for many millions of
people. That does not mean that we cannot do better.
The Council supports the passage of the Retirement
Enhancement and Savings Act. RESA reflects extensive bipartisan
efforts to build consensus proposals, and these proposals have
withstood the test of time. On its most broad level, RESA is
important because it sends a message that Congress recognizes
the enormous value of a robust employer-provided retirement
plan system, and it builds on that system.
I would like to mention two provisions that highlight the
policy importance of RESA. The first is a proposal that
provides non-
discrimination testing reform so that employers can continue to
accrue benefits for older, longer-service participants in
defined benefit pension plans when the plan has been modified
for future participants. Each year that this issue is not
addressed, hundreds of thousands of additional employees are at
risk of losing their benefits.
The second proposal would expand to open multiple employer
plans. RESA does this by eliminating two rules that currently
impede employers who want to join MEPs, a rule requiring a
nexus between employers, as well as a rule that penalizes
compliant employers for others' mistakes. This is a tremendous
chance to improve access for many, including gig workers. We
should not let that slip by.
I would like to recognize the important step that, Ranking
Member Wyden, you have taken by addressing the barrier that
student debt has on many participants. The Retirement Parity
for Student Loans Act helps employers help their employees
build retirement savings while the employee is paying down
debt. Essentially, this works by allowing matching
contributions based on student loan payments. This proposal has
been included in the Retirement Security and Savings Act as
well. We urge Congress to complete its work on RESA and turn to
the next generation legislation this year.
Why should Congress do that? Because it will lead to a more
secure retirement for millions of Americans. Senators Portman
and Cardin--two longtime champions of good, solid retirement
policy--have, with the input of many on the committee, been
hard at work at this.
The Retirement Savings and Security Act was introduced
yesterday and includes many proposals that would further
improve the system, expand coverage, increase savings rates,
and solve problems encountered in the system.
Here are just a few of the proposals. The bill would direct
the agencies with responsibilities over retirement plans to
consolidate duplicative notices and make recommendations to
Congress on ways to simplify, standardize, and improve
disclosure requirements. The bill also eliminates unneeded
notices to employees not participating in the plan and focuses
instead on getting those folks in the plan. These changes will
make it easier for participants to better understand the
information they are receiving from the plan and to engage with
that plan and participate.
The bill would allow inadvertent plan violations to be
self-
corrected under the IRS's compliance resolution system without
submission to the IRS. This will reduce burdens on the
government and make it easier for employers who catch errors to
quickly resolve them. This will lead to better results for
participants.
The bill would eliminate indexation of the PBGC's variable-
rate premium. The VRP, as it is known, is already automatically
adjusted to take into account the size of the plan's under-
funding. Without eliminating the current double system of
indexation, companies could eventually owe 100, 200, 300
percent of their underfunding just as premiums. This could lead
to dire business consequences.
We continue to support congressional efforts to help
participants keep track of their retirement benefits and solve
the challenges posed by missing and unresponsive participants.
We also support continued efforts to allow greater use of
technology so that participants can take full advantage of the
plan and achieve better outcomes.
The last point I would like to make is that the employer-
sponsored retirement system thrives on the uniformity that
Federal law provides with respect to qualified plans,
particularly as it applies to employers offering retirement
benefits in multiple States. And we are encouraged by your
continued commitment to this system. Thank you.
[The prepared statement of Ms. Dudley appears in the
appendix.]
The Chairman. Yes. For the benefit of everybody on the
committee, we are going to keep the meeting going during the
votes we have. Senator Portman is voting now, and then he is
going to come back and chair. Then I will go vote on the two
votes and come back. So we will keep it going, and we will take
members in the order that they are on the list.
My first question is to all of you. RESA has advanced the
ball considerably towards strengthening retirement savings, but
there are still gaps and more that needs to be done. From each
of your perspectives, what is the next top priority--and that
is a single thing I want you to point out--that the committee
should consider that will help strengthen our retirement system
and help ensure Americans are saving for a secure retirement?
Let's start with you, Ms. Tibbetts.
Ms. Tibbetts. Well, thank you, Chairman Grassley. As
Principal is the number one provider for plans less than $10
million in assets, we really continually listen to our small
plan providers in terms of what works for them and not. And two
of the things that we consistently hear are cost and some of
the administrative burdens. So, as we look beyond RESA, we are
most excited about automatic safe harbors that are workable for
small employers.
The Chairman. Okay. Mr. Read?
Mr. Read. Mr. Chairman, thank you for the question. I have
been very pleased with the experience we have had in Oregon
with automatic enrollment and the power of turning inertia into
an ally. So I would commend that to the committee's attention.
The Chairman. Ms. Ruff, you gave us three in your opening
statement. Do you have another one you want to add?
Ms. Ruff. Let me say, again, the priority is coverage.
Twenty-seven million part-time workers do not have access. And
I think that is incredibly important to our members.
The Chairman. Okay, and Ms. Dudley?
Ms. Dudley. I would just add to what the others have said,
that reducing administrative burdens and removing barriers to
savings are key to getting people a secure retirement.
The Chairman. Okay, and I thank you.
Now for Ms. Tibbetts about open multiple employer plans--
there is analysis of these plans indicating that the proposed
reforms would not significantly improve the number of small
business plans offering a retirement plan. As you stated, your
company has spent a lot of time evaluating the proposals. Would
you share your views with us on open MEP proposals, and whether
they would improve plan access for small employers?
Ms. Tibbetts. Yes. Thank you, Chairman Grassley and members
of the committee. As I mentioned, again, Principal has a lot of
experience in working with small to medium-sized employers, and
we listen to our clients. What our small employers talk about
most is, again, the burdens of setting up multiple employer
plans, as well as the fact that many small employers wear
multiple hats. There is a cabinet company in Grimes, IA that
has an owner-employee who provides all of the product
development.
They create the cabinets. They work with citizens in Iowa
in terms of what cabinets that they want, both residentially
and in their small businesses. And his wife, who is also an
owner-
employee, wears multiple hats. And what she does is all of the
accounting, all of the ordering, all of the payroll, and she is
also required to take on the burden of setting up a plan.
So what we are most excited about in the open multiple
employer plans is the opportunity for these small employers to
be able to join an open multiple employer plan. And these plans
are already established. So the wife of that cabinet worker
only has to join this plan, and their administrative burdens
are significantly reduced.
The Chairman. For Ms. Dudley, the majority of RESA and the
House version called the SECURE Act are a shared core of
provisions, including open MEPs and provisions to encourage
retirement. I am concerned about one provision that the House
added to its bill relating to part-time employees.
I think that it is important to look at ways to bring part-
time workers into the system, but I have heard concerns from
employers about potential burden and compliance costs. I
understand that you are familiar with this proposal. Can you
share with us the views of your members about the effects it
would have on their businesses, and whether there are any
alternatives we should consider that would expand coverage to
part-time employees?
And when you are done, I will go to Senator Wyden.
Ms. Dudley. Okay, great.
The part-time proposal is an idea that has been around for
a long time. You would have to be part-time consistently over a
period of several years.
Our employers--our plan sponsor members--they have had some
administrative concerns in the past over this, but they are
very comfortable with the idea that going forward, we need to
give access to people who are working part-time, especially
over a consistent period, as more people do have part-time jobs
for longer periods of time.
So we are comfortable with the approach taken in the SECURE
Act with respect to part-time employees, but there are other
things that you can do as well. There are things like automatic
enrollment, making it easier for people to participate as soon
as they do reach those threshold hours.
You can also create opportunities like open MEPs, and
things where part-time employees can participate. There are
other things you can do, but overall I think that we support
the package. And we support getting the work done on RESA. So
we would be comfortable with it.
The Chairman. Okay. Senator Wyden?
Senator Wyden. Thank you very much, Mr. Chairman.
Thank you all. I will tell you that the best hearings
around here are the ones where Oregon is trailblazing, and
everybody can stay tuned for our victory tonight over Golden
State. [Laughter.]
And here is what I want to just go over with you, Treasurer
Read, because I think you have addressed a lot of the key
points. So we have 1.8 million people of working age--something
like 1 million of them have not had access to retirement plans.
And basically, for a lot of those people in the past, it has
kind of been bureaucratic water torture trying to figure all of
this out. You have to choose between dozens of providers. You
are crunching numbers on overhead fees and commissions. You
have to wade through all these complex investment strategies.
You all have basically junked all of that with OregonSaves.
And as far as I can tell, there have not been any hiccups.
The employers are reacting well. The workers are reacting
well. But I gather--and it is in an important document; I guess
it was submitted--you have offered up a couple of suggestions
for how the Federal Government could help Oregon with
OregonSaves and other State-based similar kinds of programs.
And if you could, maybe do a capsulized summary of what
things are about here that can make the Federal Government a
better partner for States that are trailblazing.
Mr. Read. Thank you, Senator. I appreciate your reminder to
watch the game tonight. I am with you in rooting for it. My
only disappointment is we will be on a plane. So we will miss
the first half.
Senator Wyden. The Tall Guy's Caucus will discuss it later.
Mr. Read. Thank you. I appreciate that.
We are very excited to play the role of a laboratory of
democracy and share our lessons. I think we worked really hard
to make our program as light a touch as possible for employers
and as simple and straightforward for savers as possible. We
are continuing to innovate in that approach and iterate to make
it even better.
I think the largest part for us is continuing to partner
with the Federal Government as you consider the options that
are already under discussion here, making it possible for
States that have already taken important first steps--Oregon,
Illinois, California, Maryland, Connecticut, and others--to
continue to pursue the solutions that make most sense for their
constituents and citizens.
One specific thing that I think would be very interesting
would be the possibility of reducing the minimum age for IRAs.
We think about the young person who might be starting their
career at 16 and not able to participate until they reach 18.
We would sure like the idea of getting them in the habit of
saving from the beginning of their career. So I think there are
a number of things that could be helpful, but those would be
good starts.
Senator Wyden. If you want to add anything for the record,
we are happy to have it.
Mr. Read. Thank you.
Senator Wyden. But I will tell you, I am particularly
attracted to the idea of getting younger people to save more.
And again, there is support on both sides of the aisle for
these kinds of ideas.
Obviously, they focus on personal responsibility. But what
I like the most is, you begin to build a savings culture at the
earliest possible time. So I have the suggestions you have for
a 5500 database. That is a very wonky kind of concept, and we
can get more for the record on it. But let us really try to
promote the fact we want to get more young people saving.
Mr. Read. Absolutely.
Senator Wyden. Let me ask you a question, if I could, Ms.
Ruff. I think we have some retirees in the house, and they all
feel like they are headed for a financial cliff with this
multiemployer pension situation. What are the consequences of
Congress letting this go by the boards once more? I mean, it
just looks to me like this has been the longest-running battle
since the Trojan War. I have had Senators on both sides of the
aisle talk about--what are the consequences if Congress just
lets this continue to kind of drift off into the ether?
Ms. Ruff. What we hear from our members who are
participating in multiemployer pension plans is they are very
concerned because of the funding situation. So we do encourage
and urge that Congress does come up with a workable solution.
We know that many of the participants already have had benefit
cuts.
And as you pointed out, those who are already retired do
not have an easy way to make up those funds, neither the time
nor the resources to do it. So we encourage you to work that
through.
Senator Wyden. Thank you very much.
Senator Portman [presiding]. Senator Stabenow?
Senator Stabenow. Thank you, Mr. Chairman. And thank you to
all of you for being here.
There has been a lot of energy, work around this over
several years. And I thank our acting chairman for his work.
And I know that he and Senator Brown understand--from Ohio--
what all of this means as well as we do in Michigan.
But I want to step back for a moment before asking a
question, because I truly in my lifetime cannot believe that we
are having a discussion about folks who are losing or will lose
a pension they paid into all their life. And I appreciate all
of your input.
We do need to look forward on new things that we can do
together. But we also have millions of people who followed the
rules, a generation of people who paid into a pension,
sometimes they did not--they decided they would not get as much
with that coming out of their paycheck in order to be able to
have that pension.
That was the promise that was made in our country. And I
cannot believe, frankly, that we are not here on fire,
concerned about making sure that all of them have their
pension. And so it is important, I think, to just go back to
sort of the hair on fire moment in the United States, which was
the Great Recession in 2008, when Congress stepped up to bail
out the banks because of what that meant. But the folks who
lost money in that system, the pension system, there is just
not that same sense of having to step up and do something about
it.
We know that, at that time, the OECD estimated that U.S.
pensions lost 26 percent of their money in 2008. Where is the
hair on fire moment to make sure middle-class families are able
to have what they were promised? And we look at the 401(k)s
alone and IRAs alone during that time lost $2.4 trillion--
trillion dollars.
And thank heaven Social Security was not privatized and put
it into the Wall Street system at that time, or who knows what
would be happening to people.
So I know that none of you have caused this, but I want to
take this moment to say there has to be a different sense of
urgency here. When we look at the fact that, although
multiemployer pension plans have been historically successful,
and I believe can continue to be, we know there are serious
problems.
In fact, in 2012 close to 500 plans covering almost 5
million people were under 40-percent funded; 80 percent is
considered adequately funded. We know, we are being told that
many of these are going to run out of money. Real people,
people out building the roads and building buildings and
involved in all kinds of important work across our country will
lose their pension if we do not act with some sense of urgency.
The pension guaranty fund projects that approximately 110
plans, covering 1.3 million people, are going to become
insolvent in the next 20 years. And that does not count all the
other ripple effects.
So I just want to bring it back--while we are talking about
the future, which is important, it is important to look at how
we structure things for the future. There are a group of folks
right now watching the hearing, and hearing about this, going,
what the heck here? I am not going to get the pension that I
paid into my whole life in America? How did that happen?
So I would like to ask, Ms. Ruff, just talk about, for a
moment, your members who are in that kind of a situation right
now.
Ms. Ruff. Thank you for the opportunity to talk about that.
Yes, our members' retirement security is one of their top
issues. It is retirement security not only for themselves, but
for their children and their grandchildren. So that does take
in the future as well as where we are today.
And to that, we listen to their concerns. Will my pension
be available? What is happening to my Social Security, as well
as my 401(k) plans? To that, we do have a lot of educational
and financial advice. But again, at this point, some of that
needed to take place earlier on.
Senator Stabenow. And let me just say, I assume you have
members who are not going to have the standard of living in
retirement that they expected. Is that a fair statement?
Ms. Ruff. That is a fair statement--that is a fair
statement. And that is a great concern of theirs. It is a great
concern of ours, which is why we do want to work with Congress
to really help that gap.
Senator Stabenow. And I assume that your members just
followed the rules all their lives. They worked hard and paid
into a pension and had every belief that, in our country, that
pension would be there for them.
Is that also a fair statement?
Ms. Ruff. That is a fair statement. And they were
encouraged to do so by employers and government.
Senator Stabenow. Mr. Chairman, I think we need a great
sense of urgency about this. Thank you.
Senator Portman. Agreed. Thanks for your work on it.
Senator Enzi?
Senator Enzi. Thank you, Mr. Chairman. I want to thank all
the members of the panel for their information, both what they
said and what is in their testimony.
Mr. Read, I appreciate that Oregon has a fund that actually
has resources in it that are growing at $2.2 million a year.
Did I hear that correctly?
Mr. Read. You did, Senator.
Senator Enzi. Wow; good. I hope other States will pick up
on that. I am trying to figure out how to get the Federal
Government to pick up on that. For private companies, we do
expect them to invest money that will result in enough funds to
pay the retirement they promised.
As Senator Wyden mentioned, there are 150 multiemployer
plans that are in trouble within a decade. We do have
requirements for private-sector businesses to invest money to
pay that retirement. Some of those funds have done badly, but
the Federal Government is in worse shape.
We do not have an investment fund for military retirees. We
do not have an investment fund for Federal retirees. We do not
have an investment fund for postal workers. There is supposed
to be, but it is not there. And we do not have any real
investment fund for Social Security. At least it has some
income from those currently working who, as a result, expect to
get Social Security when they are old enough. So I do not know
how we are going to be able to do any bailouts, considering the
scope that we have to cover.
Ms. Tibbetts, I recently gave a floor speech on the health
of the Social Security program, given the latest trustees
report that says the combined funds are slated to become
depleted in 2035. That means just 16 years time, when 46-year-
olds first become eligible for retirement benefits and, at that
time, they are anticipating we may be able to pay 80 percent of
the scheduled benefits.
Does your organization have a rule of thumb, I mean
anecdotally, about how much your client should expect to fund
their retirement from their own retirement resources versus
Social Security?
Ms. Tibbetts. Yes; thank you, Senator Enzi, for that
question.
And this is something that, again, Principal continues to
look at. One of the things that we have is a lot of innovative
tools to be able to provide to plan participants so, as they
are planning and saving for retirement, they can see how much
income will be replaced by Social Security, as well as their
savings into the retirement plan, spouse's income, and other
sources.
So we find that participants, when educated through these
tools, are better able to make decisions to be able to prepare
for retirement. We have planners who are called My Virtual
Coach. And we do find when participants go back and do a check-
up to see how much of their incomes can be replaced by Social
Security and also look at their retirement plan, they have
better wellness scores. And what I mean by a wellness score is
how successful they are in terms of being able to replace that
pre-retirement income.
And being able to provide these tools is really the factor
from an educational perspective to help the participants as
they plan, understanding what Social Security is going to be
able to provide, what other savings vehicles provide, and what
is replaced through their retirement plan.
Senator Enzi. Thank you. Ms. Dudley, reducing retirement
plan leakage and making sure Americans have retirement security
are longstanding priorities of mine. The latest bipartisan RESA
legislation includes a compromise provision placing some
boundaries around the use of plan loans initiated by means of
credit cards.
I am aware the GAO published a report May 1, 2019,
concluding that retirement plan leakage remains a problem. Does
the American Benefits Council have any recommendations for
addressing retirement leakage, or does it have observations
with respect to plan loans initiated by credit cards and the
success of recipients paying back those credit cards?
Ms. Dudley. I am happy to answer that. The American
Benefits Council continues to be concerned about leakage. It is
a real problem. It most often happens with respect to plan
loans when the person leaves their job and they have not paid
their loan off. And that is why we were very supportive of the
work that you did and your leadership to give people more time
to pay off their loans, even after they leave their job. And we
continue to look for ways to address leakage, and we support
RESA and the limitation on the use of the credit cards in terms
of plan loans.
Another thing that I would like to point out that companies
are doing along the lines of what has been talked about
relating to financial well-being, companies are looking for
ways to better educate their employees about the impact of
loans, including pop-up statements when they are applying for a
loan so that they can understand actually what that will mean
in terms of having less money in their account earning interest
and earning benefits for the future.
So there are things that we are looking at, just even
outside policy changes, that would help employees. We continue,
though, to be concerned and look for ways to give people more
time to rectify plan loans, to put limits so that people do not
use credit cards for unnecessary purchases or purchases that
are very small. It could be very easy to use them to just buy
things at the store, versus something that you really need them
for.
Senator Enzi. Thank you. Thank you, Mr. Chairman.
Senator Portman. Thank you, Senator. Thanks for your work
on these issues over the years.
I am really excited about this hearing. As all of you know,
I am convinced that we can do so much better on our retirement
policies in this country. And the title of the hearing is
``Challenges in the Retirement System.'' So I know that today
we are focused more on the defined contribution plans, and
specifically on private savings. But I will say we have some
other challenges that are big, the biggest of all, of course,
Social Security, in 2035, only being able to pay 80 percent of
the benefit. That cannot happen.
Defined benefit plans--we have a huge issue with
multiemployer plans. And the answer to the question posed
earlier by Senator Wyden, unfortunately, is in 5\1/2\ years, I
think PBGC goes under, maybe even sooner. And that is the
Pension Benefit Guaranty Corporation. For those listening, that
is the Federal program that guarantees these defined benefit
plans, not just multiemployer plans, but all the defined
benefit plans. That is a big deal. And so we have to fix that.
And the leading plans that are in the most trouble right
now are the Mine Workers Plan and then the Teamsters Plan,
which is the Central States Plan. Those going under would cause
the PBGC to go under. There is no question about it, based on
the analysis that we have seen.
So we have a subcommittee on this issue, on retirement
security. We plan to get back to holding hearings on that.
Remember at the end of the year, we had the select committee
looking at it. We came close but did not quite get there. We
have to get there now, and we have to ensure that does not
happen.
And again, it would be terrible for the beneficiaries--90-
percent cut if it did go under. But it is also terrible for the
economy, for small businesses and others. So we are going to
work on all that. We have 44,000 participants in Central States
in Ohio alone, and it is an issue that Senator Brown, myself,
and others are focused on.
Today we are focused more, again, on the defined
contribution side, and we have this opportunity with RESA. I
think it is an important first step. I think we ought to move
forward with RESA as we passed it. And I hope we can do that.
One thing that is in RESA that is also very urgent--in
fact, the most urgent thing of all I suppose we could talk
about today--is this pension non-discrimination provision that
Senator Cardin and I introduced. It is now part of RESA. The
bottom line is, about 430,000 individuals--these are
individuals who have a defined benefit plan--are at risk of
losing their future benefits by the end of this year. Not many
people are focused on it, but boy, it is important, and it is
mostly older workers. And RESA does address that issue.
So I do not know, Ms. Dudley, maybe you want to talk about
it for a second. This passed out of the Finance Committee, as I
recall, back at the end of 2016.
Ms. Dudley. Right.
Senator Portman. And since that time, since 2016, some of
these workers now have their retirement at risk already. Why
don't you talk a little about that, and what should be done
about it.
Ms. Dudley. Thank you so much for that opportunity.
This provision or this issue comes about because a plan
makes a change for future participants. And so the people who
remain in the plan over time become older and longer-service.
And so then they violate non-discrimination rules. And what the
proposal would do would be to provide relief so that companies
can continue to provide benefits to those people who are
grandfathered in the plan.
Senator Portman. Which is what they are doing now, rather
than freeze the plan.
Ms. Dudley. Rather than freeze the plan and stop providing
benefits. So that is how people could lose benefits--and have
lost benefits.
In 2014, we actually did a survey to estimate what the
impact could be. And at the time, it was hundreds of thousands
of employees, potentially millions of employees or in the
millions, and over time that has borne fruit. People have lost
their benefits. Because of these rules, they are not allowed to
accrue any further benefits for these older, longer-service
workers.
And if we do not do it by the end of this year, it is a
potential--as you said, another 430,000 employees could lose
their benefits. And beyond that, every year that we do not fix
this--every year--it is hundreds of thousands more people who
could lose their benefits. And because people are getting older
and they have longer service, more companies are impacted. So
it is an urgent situation.
Senator Portman. Another reason for us to move forward with
RESA. In the meantime, Senator Cardin and I have also
introduced other legislation that was talked about today. And I
appreciate the comments from all the witnesses about it. But
this is a broader retirement package.
So we are all for RESA. We want to get it done. We think we
need to go beyond RESA, as the chairman talked about, and build
on that foundation. And we have four principal objectives in
this plan. It is addressing, I think, the major concerns we now
have on our private retirement side. One is to allow people who
save too little to set aside more for their retirement.
For instance, we have a new catch-up contribution for those
over 60. And that comes because the latest data we have is that
48 percent, about half of baby boomers, my generation, have no
retirement nest egg at all--so no private savings at all.
And so we have to give people a chance to save a little
more, as one example. We also help small businesses to offer
these 401(k)s. We talked a little about that earlier. We talked
about the importance of getting RESA passed. This goes beyond
RESA to provide an even more generous tax credit to small
businesses.
Why? Because when you look at the data, about 68 percent of
people who work have access to a plan. For small businesses, it
is about 40 percent. And among part-time workers, as Ms. Ruff
will tell you, it is even worse. So we have to get more of
these small businesses engaged. So we have a number of
provisions to do that.
We also have something to expand retirement savings for
low-
income individuals. If you look at the data on who is saving
and who is not, lower-income individuals make sense. They do
not have the disposable income, are not saving for retirement
nearly as much as they have to and should. So we have expansion
of what is called the Saver's Credit to do that.
And then finally, to provide more certainty and flexibility
for people in retirement, a lot of you know about the minimum
required distribution rules. For instance when you are 70\1/2\,
you have to take your money out of your retirement account.
That was put in place at a time when our longevity tables were
a lot different. Now people are living longer.
I just talked to someone this morning who is 70\1/2\ and
still working, and he did not know we had this provision. He is
very excited about it because he does not want to start taking
his money out of retirement. He is still working. And my dad
was in that situation, and a lot of people are.
We also say if you have under $100,000 in your retirement
plan, your 401(k), you do not have to minimally distribute
anything. If you have more than that, we are going to change
the age of 70\1/2\ to 75.
So there are some things like that. We also encourage
longer-term lifetime savings, rather than just taking a lump
sum, which we think is also responsive to a specific problem we
have right now in our retirement system, which is people living
longer.
So again, I want to thank everybody for working with us on
that. Everybody at the table has been involved in some way.
There is one thing that I know Senator Wyden is very
interested in, which is this student loan issue. That is part
of our bill too. And I think that is really important. It was
talked about earlier. I know Ms. Tibbetts and others, Mr. Read
and others, are supportive of that. I think it is really
important.
On the part-time workers, Ms. Ruff, can you talk just
briefly about that, why that is so important, and talk about
why AARP so strongly supports that provision?
Ms. Ruff. Thank you very much. Part-time workers--there are
about 27 million part-time workers. And many of them, the
majority of them, are women. And women generally are the lower-
wage earners as well. The result is, when they do not have a
chance to save for retirement, they do not have the retirement
resources when the time comes to retire. And at this point, 58
percent is the amount of the retirement income that most women
have compared with men. They also have longer life spans.
A lot of that comes because of lower wages and caregiving.
AARP is very concerned about caregiving, the financial and the
emotional cost of caregiving. And that is one of the reasons
that we look at it from the financial and retirement security
standpoint.
Senator Portman. Well, thank you.
And the number I have is that only 22 percent of part-time
workers participate in a plan now.
Ms. Ruff. Right.
Senator Portman. So an enormous opportunity here. And just
to broaden the eligibility of 401(k)s to include long-term
part-time workers would make a big difference in terms of those
retirement savings numbers we talked about earlier.
I have so many other questions. We have 50 different
provisions in this bill. And again, many of you have been
involved in those. We thank you for that, and we want to work
with you on getting RESA done, but also expanding what we are
talking about here.
And it is the backstop for so many people, Social Security,
absolutely essential--it is the safety net. Got to have it.
But it is tough to live on Social Security alone; for a lot
of people, impossible. So you need to have that private
retirement savings as well. And although we have made some
progress--back in 2001, by the way, Senator Grassley was
chairman of this committee when the Portman-Cardin bill--the
first bill passed. And he is the one who shepherded it through
the Finance Committee.
So he has lots of experience in working on retirement
policy himself over the years.
Senator Enzi, do you have a follow-up question? Then we are
going to go to Senator Whitehouse.
Senator Enzi. Yes. Mr. Read, can you tell us a little bit
more about how you encourage people to sign up for this and
what kind of numbers you talk about with them as needing for
their retirement, or do you do that?
Mr. Read. Mr. Chairman, Senator Enzi, we have set it up
such that it is an opt-out provision. So the employers in
Oregon who do not offer a retirement savings plan to their
employees are obligated to facilitate OregonSaves. And what
that means is that they say to their employees, ``Unless you
tell me otherwise, 5 percent of your wages are going to go into
your IRA.''
Now, the employee retains the ability to change that to any
number, including zero, and some do. But for the most part,
about three out of every four people stay in the program and
save. Our average withholding rate has actually settled a
little bit above that to about 5.5 percent.
We also have an auto-escalation feature that on January 1st
of the subsequent year, unless a person opts out, increases
that rate 1 percent each year up to a total of 10 percent. So
we have had one of those so far, where people move to 6
percent, and about 90 percent of those people stayed at 6
percent, some portion stayed at 5, and actually a few people
increased beyond 6 as well.
So we are really trying to make it as easy as possible for
people to do what is in their own interest. It is also worth
noting how we have set it up to be very simple. There are only
three funding options: again, a standard path; if a saver does
not tell us something else, their first $1,000 goes into a
capital preservation fund that is focused on low risk and
retention. And then everything after that goes into a target
date fund based on the person's age.
All of this creates, I think, an atmosphere that really
gives people a positive feeling. I am always reminded of a guy
named Bud at the Mt. Ashland ski area who talks about how he
never knew how to get started, how to take on retirement, that
it seemed intimidating and a long way off.
He described his experience with OregonSaves. Now he says
every time he looks at his statement, he smiles. He feels like
it is piling up and like he is getting ahead. And I think that
is something we are all excited about here, and I assume
amongst members as well: giving people the chance to be in
control of their own financial future.
Senator Enzi. Quick easy question: is there a required
match by the employer?
Mr. Read. Mr. Chairman, Senator, there cannot be because it
is an IRA. It is a Roth IRA. So no employer match is possible.
Senator Enzi. Thank you.
Ms. Dudley. Could I add something to your point on that?
The American Benefits Council has a center on State
initiatives, the State Law Project. And we have reached out and
worked with Oregon and others on their rules, one, to be a
resource on what works at the Federal level in the qualified
plan system. And we continue to work with them to address all
the issues that might come up, so that plans can operate side-
by-side, both those federally qualified plans and State-
operated plans. And one point that was raised earlier is the
possibility of a 5500 database so that if you have a qualified
plan, that is recognized by the States. And we support that
effort and look forward to continuing to work on a system that
allows a thousand flowers to bloom.
Senator Enzi. Thank you.
Senator Portman. Okay, I had said earlier Senator
Whitehouse may be next. He was the lonely participant here. Now
we have others, unfortunately, who have come in, Senator
Whitehouse--fortunate for them.
Senator Roberts?
Senator Roberts. I beg your indulgence.
Senator Portman. You are next anyway.
Senator Roberts. Oh, I am next anyway; all right.
I want to thank the chairman and our ranking member. And to
our panel of witnesses: thank you for coming.
Retirement security is a tremendously important topic. Here
we have at least one example where there is a great deal of
bipartisan support, especially with the RESA Act, which passed
in 2016--and I voted for it then and support it now. We ought
to find a way to get this done.
One proposal I believe will help improve the retirement
picture for Americans, which Senator Cardin and I have
introduced for the last three Congresses, is the Promotion and
Expansion of Private Employees Ownership Act. Industry
estimates the number of employee stock ownership plans at more
than 6,500, with more than 14 million of those folks who
actually participate.
Our bill would encourage the formation of S corporation
employee stock ownership plans, of which we are both big
believers, by adding a tax incentive already available to C
corporation ESOPs and creating an office at the Treasury
Department to provide technical assistance to the S ESOPs.
Given the track record that ESOPs have of creating wealth
for their participants, do you think increasing the number of
ESOPs would be at least one way to help American workers grow
their retirement savings?
Ms. Dudley. Absolutely. I am a firm believer that employer
stock can be beneficial to employees, not only in helping them
engage in the plan and build retirement savings, but also it
gives them a stake in the employer and allows them to grow with
the employer. So I think it is a very useful tool. And with the
right parameters around it, I think it works very, very well
for employees.
And Congress has a long history of encouraging those
programs for employees.
Senator Roberts. I thank you for that. I am going to submit
my additional questions for the record. I apologize to the rest
of the witnesses, in that Senator Roberts apparently has not
voted in the second vote. So I think I, perhaps, ought to
terminate my comments. Thank you all for coming. I know it is a
tremendous demand on your schedule, but we appreciate it.
Senator Portman. I thank you.
The Chairman. Senator Cardin?
Senator Cardin. Thank you. Thank you very much, Mr.
Chairman.
Before Senator Roberts leaves, let me say what a pleasure
it is to work with him on ESOP proposals. It absolutely
provides retirement security. It is an important part of the
tools available.
I want to thank all the witnesses. Mr. Chairman, I just
note the harmony among the witnesses. There is not a lot of
disagreement on what we need to do. It starts with preserving
the tools we currently have available and building upon that,
making it easier for companies to establish plans.
Because of the complexities today, it is difficult to
expand eligibility--and we talked about that in the part-time
and in the multi-employer world--to provide greater incentives,
particularly for lower-wage workers so that it is worthwhile
for them to put money away for their retirement. And we talked
about how that can be done with employer matches or the Saver's
Credit, and expanding the Saver's Credit.
And we must deal with the realities that we were moving
from a defined benefit world--we have moved from a defined
benefit world--to a defined contribution world, so that there
are now greater risks of retirees outliving their retirement
income. And we have to look at lifetime income flows, how we
can strengthen them, and look at the required minimum
distribution rules in order to relax those in order to make it
easier for people to have money as they live longer and longer
lives without the defined benefit world to cover their lifetime
income needs.
So I just make that observation. But it starts, Mr.
Chairman, with passing the legislation that you and Senator
Wyden have filed on RESA. We have to get that done. It should
have been done--as Senator Wyden said--a long time ago.
Ms. Dudley, you mentioned in your opening comments the
frozen plans that are included in the RESA bill that Senator
Portman and I worked on, and the urgency. I just really want to
underscore that again.
You mentioned the fact that thousands of workers may be
losing benefits or have already lost benefits. Just talk a
little bit about the urgency of getting this done immediately,
that every week, every month, we are losing people who had plan
coverage who can no longer be covered because of our
discrimination rules.
Ms. Dudley. Absolutely; glad to speak to that as often as I
need to. I worked on this for many years. It is a real problem.
People are losing their benefits.
And it is because the rules work in a quirky way and
employers have just tried to protect older, longer-service
workers by leaving them in a plan. When they change the plan
for the future, they are no longer able to accrue those
benefits without running afoul of these rules.
So each day that passes, an employer sits down and makes a
decision about what they are going to do for the future. And
they are constantly running this non-discrimination test. And
when they see that they are going to fail it, then they make
plans to shut down that plan and no longer accrue those
benefits.
So over the years, it builds--it is hundreds of thousands
of employees. And if we do not fix it by the end of this year,
it is another 430,000 employees who potentially could lose
their benefits.
And it is something where we need to--the urgency is that
companies have to plan for the end of the year, and they have
to tell people what is going to happen and if they are not
going to accrue any more benefits.
And here is the piece about this that really bothers me.
These are older, longer-service workers. And these are the
years that matter most for their benefits in this type of plan.
The end of your career is most important. And they lose those
benefits.
Senator Cardin. I wanted to give you extra time to explain
that, because, Mr. Chairman, I just really want to underscore
the point that we have to get the RESA bill done.
A lot of us have improvements that we would like to see in
the system. I am very proud that--I know Senator Portman has
already mentioned the bill the two of us have filed. I want to
get that done. But to me, the first priority is get RESA across
the finish line as soon as possible, because that has already
been worked out.
And then I hope, Mr. Chairman, we will have a chance to
mark up additional legislation that you were talking about that
many of us have had suggestions on. I know Senator Portman has
already mentioned a lot of the provisions that are included in
the bill that we filed today, but they build on what we have
already done that has worked. You simplify the system; as you
pointed out, that has worked, automatic enrollment has worked,
encouragement for lifetime income sources.
We know that. We have to deal with that since we are in a
defined contribution world. And the refundable Saver's Credit--
some of you have talked about that. To me, that is an extremely
important point for lower-wage workers if we are going to be
able to get them to start early enough for retirement savings.
I thank the chairman for holding this hearing.
The Chairman. Senator Warner?
Senator Warner. Thank you, Mr. Chairman. Let me add my
comments to Senator Cardin's that we need to pass RESA, and I
appreciate the good work that you and Senator Wyden are doing.
I would hope, as we pass RESA, one of the things that we would
take up shortly thereafter, though, is a bill that I have with
Senator Brown and Senator Casey, the American Miners Act.
Ms. Dudley is talking about folks losing benefits. We are
about to have thousands and thousands of miners lose benefits
if we do not back up the UMWA contract and the 1974 Pension
Plan. PBGC is not here today to go into those details, but just
in my State 7,000 miners lose those benefits. My hope would be
we would be able to move to that as well. And I know you would
have great support from Senator Casey and Senator Brown on
that.
I want to move to a variation of where we head from here.
One of the things I have been working on the last couple years
is the changing nature of the work force. The percentage of
people who are going to go work for the same job the way my dad
did for 38 years is dramatically declining, literally to the
point now where close to 40 percent of our workforce is in some
level of contingency. They are part-time, gig, or independent
contractors. And I think we need to recognize this changing
workforce needs to have the notion of retirement benefits as
part of their life.
Let me start with Ms. Ruff, Ms. Dudley, but if others want
to add in. You know I have been working on an idea that would
actually set up a universal account that would be granted at
birth that I think would actually be that fallback for the
third of the workforce that, even under today's rule, has no
retirement at all.
Obviously a lot of details on how we do not disrupt folks
who are already in existing accounts, but how would you--
starting with Ms. Dudley, does that notion of a fallback
account issued at birth, low maintenance costs, how we make
sure you have enough economic incentives so that there would be
actually a take-up rate--general comments on that. We will
start with Ms. Ruff, Ms. Dudley, and then if the others want to
go in.
Ms. Ruff. Okay; thank you very much. You are quite right,
the workforce is changing. We have gig economies. We have
people coming in and out. And our plans are not set up for
that. And we need to make sure that changes happen.
To my knowledge, AARP does not have a policy on the type of
account that you are talking about. However, we do know that
retirement security starts early. And so certainly, there are
levers that we should be looking at, and I think that is one
that should be looked at.
Senator Warner. Ms. Dudley?
Ms. Dudley. I would just add that the Council is very pro
savings, and we think all different types of savings are a good
thing. And we believe also that savings needs to start early.
And we want to continue to try to work together so that there
is a seamlessness between any savings account and your
employer-provided retirement account so that people can track
what they have accumulated so that they can use it
appropriately over their lives so that they can continue to
build towards a secure retirement.
And I would just add too that open MEPs, the changes that
RESA has on open MEPs, this is very critical for the evolving
economy. Those can be adapted very easily to help gig workers,
to help part-time employees. The work that you all have done,
and the leadership that you all have shown on that issue, is
enormously important and fits very well with the work that you
are doing.
Senator Warner. Well I would, again, commend the chairman
and the ranking member for moving forward on this. But I really
think the notion of portability----
Ms. Dudley. Yes.
Senator Warner [continuing]. The ability to aggregate
together from different income sources--candidly, even avoiding
some of the worker classification issues, just making sure
every dollar you make, some portion is set aside for
retirement. Mr. Treasurer, do you want to add something on
this?
Mr. Read. Mr. Chairman, Senator Warner, I think you are
right. And I am aware of some of your work on the changing
nature of work, and I appreciate that. I think this notion of
portability, that is the key of it. And that is something that
has really been positive about OregonSaves. As people move from
employer to employer, they continue to be able to participate.
And in fact, we have a number of people who are simultaneously
working for multiple employers and contributing now.
I think the notion of automatic enrollment early on is
essential. And I think the work that many on this committee
have done about the refundability of the Saver's Credit, and a
particular emphasis on lower-income folks, getting them started
at an early age would be----
Senator Warner. And that is why I think the idea, at
least--potentially at birth. And making sure you get the
incentives aligned so that there would be actual interest from
the private sector, others to take care of the administrative
burden. And how we minimize that administrative burden is
something terribly important.
Mr. Read. I would say, Senator Warner, we may have seen
examples of that to follow in a college savings context as
well.
Senator Warner. Yes. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Warner.
Now, Senator Carper.
Senator Carper. Thanks.
To Oregon Treasurer Mr. Read--Read is a famous name in
Delaware, something to do with the Declaration of Independence,
maybe even the Constitution. We welcome you.
I tell people I am a recovering Governor. I am also a
recovering State Treasurer and was privileged to be Treasurer
of Delaware when we had the worst credit rating in the country.
We went to work on that and tried to do something about it. We
had a great Governor, Pete Du Pont, a Republican. He did a
wonderful job, and I hope I helped a little bit as Treasurer.
We had a pension fund that was not funded at all, and
within 10 years, it was fully vested. We had a deferred
compensation program for State employees. It was a mess, and we
worked hard to straighten that out, and finally, now I think it
is pretty good. So I sat in your shoes, in your seat, and wish
you well.
Have you met our new State Treasurer in Delaware who
succeeded Ken Simpler? Have you met her?
Mr. Read. I have, Mr. Chairman, Mr. Senator.
Senator Carper. I urged her to find some good role models
out there, so maybe as she takes the reins, you could be one of
those.
Mr. Read. Happy to help.
Senator Carper. That would be great.
This would be a question for Ms. Ruff and Mr. Read. First
of all, thank you all for being here. Thank you for helping us
with this. It is a great challenge, but an opportunity too.
Nearly half of American workers, I am told, do not have
access to retirement plans through their workplaces, as you
have alluded to. A few of you mentioned in your written
testimonies that workers are, I think, 15 times more likely to
save if there is an option to do so at work.
I am pleased to see that the State of Oregon and AARP are
leading the way in setting up State-facilitated automatic IRA
programs to help more workers save for retirement. We have
found with the Thrift Savings Plan that we have here in DC, and
in the Federal Government across the country, that when people
go to work, go on payroll, if they immediately become members
of the Thrift Savings Plan, there is about a 75-percent
likelihood they will continue to be members. If they do not
sign up automatically, it is about 25 percent. So it is a huge
difference. There is a lot to be said about inertia, and I
think that tells a pretty interesting story.
But, Mr. Read and Ms. Ruff, I know you talked about this a
little bit, but could you each expand on the top one or two
ways that Congress--I know you talked about this a little bit.
We have votes going off. We have other hearings going on. So we
are in and out of here. I apologize, but could you each expand
on the top one or two ways that Congress can make it easier for
States to set up and implement automatic IRA programs?
Ms. Ruff, would you go first?
Ms. Ruff. Yes. Again, I appreciate the chance to talk about
Work and Save. It has been a very important issue to AARP.
And we have had from the beginning in this country a
combination Federal and State system. What we need is for the
Federal Government to recognize Work and Save and make sure
that there is an encouragement of Work and Save, and that the
rules do not go contrary to Work and Save, and that Congress
does not come in and say they want to do away with Work and
Save, because right now we know, in Oregon, it is working very
well. And we are working with other States that are in the
process with their legislators at implementing or enacting Work
and Save programs so they can work side-by-side very easily.
Senator Carper. All right.
Ms. Dudley. And could I just add something to that?
Senator Carper. Yes, you may.
Ms. Dudley. The uniformity of the Federal law, it really
allows employers that have qualified plans and operate in
multiple States to do that, and to treat people equally. So we
do really want to continue to work with everyone so that the
systems operate and coexist comfortably next to each other.
Senator Carper. All right. Thank you. Mr. Treasurer?
Mr. Read. Mr. Chairman, Senator Carper, I would agree with
both of those statements. We are really focused on making it as
easy as possible for employers and employees----
Senator Carper. Again, my question is, what are one or two
things that Congress can do to really help, please?
Mr. Read. Sure, Senator Carper. I would say allowing States
to innovate and do what works for their constituents. I
mentioned earlier the creation and improvement of the 5500
database that allows us more easily to presumptively exempt an
employer because they provide a plan on their own. We have a
number of mechanisms that I think would improve that.
And I mentioned earlier, reducing the minimum age for
participation in an IRA so that someone starting their career
would get on the right path from the start.
Senator Carper. Good. And for the whole panel, in addition
to automatic enrollment and automatic escalation of
contributions, do any of you have recommendations for other
behavioral tools that could be effective to encourage people to
save more for retirement? Anyone who has something to offer on
that, please.
Ms. Dudley. Well, I have one----
Senator Carper. Please.
Ms. Dudley [continuing]. Which is automatic re-enrollment.
And it is really visiting--it is automatic enrollment. But you
revisit it every year, or 2 years, or 3 years. I think even if
you revisit every few years, and you come back and sweep people
through and apply the automatic enrollment, that can be really
helpful, particularly in the case of small employers, because
they tend to lose a little bit of track. They are busy, you
know, doing their business. And that really helps them sweep up
people into the plan as they go.
Ms. Tibbetts. Yes, and I would agree with Lynn, as
Principal is a member of American Benefits Council. I think the
importance of the sweep also has consumer protections, in that
it has an opt-out. So you give the benefit of being able to
sweep them back into target date or other funds to have more of
an asset allocation balance, but there certainly is that
protection of opt-out features.
Senator Carper. Great. Thank you all very much.
Important subject; we are delighted that you are here.
Thank you.
The Chairman. Senator Lankford?
Senator Lankford. Thank you. Thank you, all of you, for
your time.
I want to go back to what Senator Carper was saying, and
what Senator Warner was also talking about with the opt-outs
and the statement you made about re-enrollment as well. Tell me
mechanically how that would work for an employee, for a re-
enrollment proposal?
Ms. Dudley. I will start, and then everybody can chime in.
So automatic enrollment, when you come to work, you are filling
out your paperwork for your job. And you automatically are put
into the retirement plan, and you have some help. There are
default investments, but you can opt out as to the enrollment
of--if you do not want to be in the plan, you can opt out as to
the percentage.
Senator Lankford. But the assumption is, you are in?
Ms. Dudley. You are assumed you are in. You are assumed you
are in at a particular rate, typically 3 percent, hopefully
with the changes in the law, a higher percentage. And you will
either choose an investment or default into an investment,
usually an age-
appropriate target date fund.
Let us say you opt out, then the system, the computer
system that most employers are using, will put a little flag
next to you so that in whatever period of time, whether it is
every year, 2 years, 3 years, your name will come back up and
you are automatically enrolled in the plan. And you will get
information that that is happening, and then you can opt out.
Senator Lankford. Right. So it just comes back at you again
2 years, 3 years later.
Ms. Dudley. Yes. Yes.
Senator Lankford. What would you suggest as the right time?
Is that an annual, or is that an every 2 or 3 years?
Ms. Dudley. Well, I think 3 years. You know, you can do it
sooner than that, but if you do it at least every few years, I
think that--you have to think that there is an administrative
issue to that too, so being practical about the time makes
sense to me.
Senator Lankford. Right.
Ms. Tibbetts. And I may add on to what Lynn said. We do see
with our plan sponsors that about every 3 years is kind of a
best practice there. And I do think it is important to note
that with default rates of either 3 or 6 percent, you do not
see a difference in opt-out rates.
Ms. Dudley. Right.
Ms. Tibbetts. The opt-out rate for a 3-percent default is
11.3 percent, and the 6-percent default is 11.4. And it is also
important to note that there is not a difference in opt-out
rates for high-
income workers versus low-income workers.
Ms. Dudley. Right.
Senator Lankford. Everyone knows that they should do it. It
is just a matter of someone helping me actually do it.
Ms. Dudley. Exactly.
Ms. Tibbetts. Exactly.
Senator Lankford. It becomes the biggest issue.
Ms. Dudley. And automatic escalation helps, so that when
you get raises, you automatically go to a higher percentage
of----
Senator Lankford. It is not just your percentage goes with
you? Your percentage actually changes as well?
Ms. Dudley. Right, and lifting the current cap on that is
helpful too.
Senator Lankford. Mr. Treasurer, let me ask you a question.
You mentioned State innovation and allowing more State
innovation. Do you have an example that you look at, either
from your own State or from other States, to say this is
something that should be allowed or encouraged, or something
that is not allowed currently that should be?
Mr. Read. Mr. Chairman, Senator Lankford, thank you for the
question. I think you know we fit our program into the IRA
structure because of the Federal restrictions. I think there is
a lot to learn from the experience that the college savings
plans went through.
We hear a number, as Senator Enzi asked earlier, of
questions about whether an employer could match. I can imagine
the scenario years from now where you and your colleagues have
recognized the power of this and made it possible for employers
to participate in some way.
Those kinds of further reductions, I think, in barriers and
the kind of synchronization across the entire country could be
very positive.
Senator Lankford. One of the great challenges we face is
the portability issue, where you have four different retirement
funds in the last five employers you had, and trying to be able
to track all those, how to combine, how to go through the
paperwork. What is the best solution to help solve that?
Mr. Read. Mr. Chairman, Senator Lankford, I think part of
what we are doing is an answer to that that allows people to
take their retirement from job to job. This is an IRA. It is
owned by the employee, by the saver. And so they get to take it
with them. It is under their control. No one else has any claim
on it. They control it, and it can go and grow with them
throughout their careers.
Senator Lankford. Are there other changes or other
proposals you would have on portability?
Ms. Dudley. Well, the one thing that I would mention is,
portability is hugely important. And educating people on how to
track their benefits----
Senator Lankford. There are a lot of people who say, ``I am
not going to opt-in because I am only going to be here a year
or two, so I am not going to really do this. And it is too hard
to be able to just shift the proposal over, and I want to leave
it.''
Ms. Dudley. Right, and making it automatic, helping people
make that automatic, that it can roll forward and roll to their
next employer, that is something that the private sector has
been working on that is very useful.
Developing a database so that people can easily track and
find their benefits is something that we are supportive of and
working on as well.
Senator Lankford. Good. Thank you.
The Chairman. Senator Hassan?
Senator Hassan. Thank you, Mr. Chairman. I want to thank
you and the ranking member for holding this hearing, and I want
to thank all of our witnesses for being here today.
I would like to start by echoing something Senator Wyden
said at the opening of the hearing. There are three pillars in
retirement savings: Social Security, employer-sponsored plans,
and personal assets. And while it is not the focus of this
hearing, it is going to continue to be critical that Congress
address this first pillar and work to protect and strengthen
the long-term viability of Social Security.
I wanted to start just by acknowledging that we have heard
from a number of my colleagues today about this impending
retirement bill that has come over from the House, and you have
answered the particular questions I had about it. I just wanted
to say that I am looking forward to continuing to work on it.
Senator Collins and I had introduced the Retirement
Security Act, and many of the provisions in RESA that is coming
over include the provisions that are in our Retirement Security
Act, which would make it easier for small businesses to offer
retirement plans, enable more businesses to join multiple
employer plans, provide tax incentives to businesses that start
plans that offer auto-enrollment, and reduce administrative
burdens. So, all the things that you have talked about today in
your testimony are very helpful as we do this work.
I wanted to follow up, if I could, on the topic that
Senator Warner raised and Senator Lankford was just trying to
get at, which is, again, we have had a lot of discussion about
portable retirement benefits. I have joined Senators Collins
and Casey to request a Government Accountability Office study
on this topic, because we know as workers move from company to
company more frequently than they did in the past, you can see
how easy it is for employees to have small retirement balances
at several companies, especially if they are not aware of their
options.
You have all addressed the importance of portability given
the gig economy, but I really want to drill down a little bit
on whether there are additional fixes that we can put in place
to make it easier to truly consolidate those small retirement
plans that exist. I know we might look forward to a portable
plan like what you have in Oregon, but what can we do to really
help employees now who have multiple accounts from different
employers? And we can maybe start with Ms. Dudley and just move
right down the table.
Ms. Dudley. Great. Well, one of the things that you can do
is make it easier for employees who leave their company to roll
their money with them----
Senator Hassan. Okay.
Ms. Dudley [continuing]. To take them to the next employer
and combine them. Many, many employers except transfers from
other plans. Making that easy and seamless from the
participants' perspective--and there are tools that are being
developed in the private sector to facilitate that. And now
that we have technology more in the workplace, it is easier to
use that technology to help transfer that money. So that would
be the number one thing to do for people.
Senator Hassan. Okay. Thank you.
Does anybody else want to add? Ms. Ruff?
Ms. Ruff. Yes. I do think that Senator Daines has a bill
that talks of a lost-and-found so that people can, in fact,
know and find their accounts.
Underpinning all of this that we have not spent that much
time talking about is education, because if you understand the
ramifications for opting out, you are going to be less likely
to opt out and to understand the need to stay in long-term. So
I would say education is incredibly important.
Senator Hassan. Thank you. And just----
Ms. Tibbetts. Yes, I concur with Ms. Ruff on the education
aspect. One of the things that we do at Principal as we are
working with plan sponsors is talk about the auto features and
the importance of putting those in plans.
ASPA has done a study that we bring up to plan sponsors,
and it talks about what are the three factors that have the
biggest influence on a person's retirement income. And so, as
we ask the question, it is savings rates, it is allocation, and
it is individual investment accounts.
And most people go right immediately to, it has to be the
individual investment, when 74 percent of retirement savings is
attributed to those savings rates. So that is why I think it is
critically important to not have participants think that, I am
only going to be here for a couple years, so I must opt out. So
in addition to the plan sponsors, we talk about this with
education with the participants.
Senator Hassan. Okay. Thank you.
I am just going to mention one other topic. And I will
follow up with a question for the record to you, Ms. Ruff,
about this, because there is a huge gender gap in retirement
savings. And I know AARP has done a fair amount of work on
this.
Reports really show that, on average, women aged 55 and
older see lower earnings than the same age men and have fewer
years in the paid workforce because they are more likely to
take time out as caregivers. So I would love to follow up with
you about things we can do to really close that retirement gap.
Ms. Ruff. Terrific. There are many things that we are
looking at. And focusing on the different levers, and
caregiving being a huge issue, if we can in fact make progress
on that area, we are going to make progress on the other areas.
Senator Hassan. Thank you very much. Thank you all for your
testimony today.
Thank you, Mr. Chairman.
Senator Wyden [presiding]. Thank you, Senator Hassan.
Senator Brown?
Senator Brown. Thank you, Senator Wyden.
Thank you all for joining us today. First and foremost, I
want to reiterate my commitment to finding a solution on
multiemployer pensions. Ms. Ruff, I appreciate the comments you
made earlier about it. It is not the focus of today's hearing,
but this committee has an absolute responsibility to do that.
No discussion of retirement security is complete without a
recognition of the workers who spent their lives doing the
back-
breaking work--iron workers, construction workers, mine
workers, truck drivers, bakers--about honoring the dignity of
their work. They have followed the rules. They are at the risk
now, as we know, of seeing their pension plans totally collapse
if Congress does not act.
They are not asking for a handout. They are just asking for
what they have already earned through the process of collective
bargaining, giving up money today, giving up money at the table
for future retirement security, something we should want
everybody in this country to do if they have that opportunity.
I know that--and I have spoken with both Senator Wyden and
the chairman about working in a bipartisan committee with
Senator Portman and me to make this happen before the end of
the year. So thanks for your interest.
I want to turn to the idea of the gig economy. The future
of work should be one that is good for workers in honoring the
dignity of work: good wages, good working conditions, good
benefits, childcare, all the things that go with that. Part of
that is having access to retirement accounts, as we know.
I have worked with Senator Crapo and others to allow
independent contractors, which most of these gig economy
workers are, to join open multiple employer plans, open MEPS.
That way they would at least have some access and portability.
But I think a lot of the so-called ``gig economy workers'' are
classified as independent contractors when they should not be.
And we know that violates the spirit of the law over the years.
We know access to employer-provided savings is a key indicator
of workers' retirement security.
So my question of the panel is--and if you can, do as close
to ``yes'' or ``no'' on these questions--is a traditional
employer more likely than an independent contractor to have the
benefit of an employer match to help accelerate the tax-
deferred savings growth? Start at this end; Ms. Dudley?
Ms. Dudley. Yes, I would say that they are more likely to
have a match from the employer, though their compensation is
different than a traditional worker. So they may be getting
that made up in compensation. So each individual situation, you
have to look at that.
Senator Brown. Ms. Ruff?
Ms. Ruff. Yes, you do receive benefits as an employee that
you have to pay for yourself if you are an independent
contractor.
Senator Brown. Right. Mr. Read?
Mr. Read. Mr. Chairman, Senator, OregonSaves is a Roth IRA.
So there cannot be any employer contributions.
Senator Brown. Ms. Tibbetts?
Ms. Tibbetts. Yes. We agree with Ms. Dudley and Ms. Ruff
that we do see traditional workers generally having matching
contributions. And as they indicated, independent contractors
are usually paying for that by themselves.
Senator Brown. And as the hearing has transpired in the
last couple of hours, much of it has been about sort of
tinkering with the tax system. Underlying the issue, in part,
is wages. So let me--if you would answer this ``yes'' or
``no''--it is sort of a self-evident question. If workers were
paid higher wages, it is likely they would have more money to
put away.
Ms. Dudley. Sure.
Ms. Ruff. It is true.
Mr. Read. Yes.
Ms. Tibbetts. Yes.
Senator Brown. Thank you. If workers are members of a
union, are they more likely to have better access to retirement
savings?
Ms. Dudley. Well, I think that they have--most unions have
plans, and so they do have access. But I think for the American
Benefits Council members, all of the members sponsor retirement
plans. So I would think that they all have plans, but I think
there are lots of employers that do not have plans.
Senator Brown. Would union plans generally mean more money
for the union membership, generally mean more money, Ms. Ruff,
for the employee's retirement?
Ms. Ruff. Would you repeat that again?
Senator Brown. Would union membership generally mean more
money for employee retirement?
Ms. Ruff. Well, certainly the unions have the bargaining
capacity. And traditionally unions have had better retirement
plans. As it is now, more and more companies--and to your
point--are taking on and recognizing what they need to be
competitive, particularly in today's very tight labor market.
Senator Brown. Mr. Read?
Mr. Read. Mr. Chairman, Senator Brown, I think your point
is right. In fact, in the passage of OregonSaves, a big part of
our discussion was the members of the SEIU, who are home care
workers, therefore, independent contractors. So there is a
close tie there.
Senator Brown. Thank you. Ms. Tibbetts?
Ms. Tibbetts. Yes, and we agree with the comments made by
the panel. I think it is important to know that benefits are an
important differentiator when employees are looking at which
employer to work for. So whether it is small, large, or union,
it is a critical factor.
Senator Brown. Thank you.
Let me do one more question of the sitting chairman's home
State Treasurer, if I could ask the question. I am sure Senator
Wyden will give me an extra 30 seconds. As a result----
Senator Wyden. As fond as I am of Senator Brown, if it can
be 30, because I promised----
Senator Brown. I will put it in writing.
Senator Wyden. No, no. Go 30 seconds.
Senator Brown. Based on your experience, Mr. Read, with the
program in your State, do you think we need a national auto-
enrollment plan? And it seems that such a plan needs to be
portable, low-cost, and feature auto-enrollment and auto-
escalation. Do you agree?
Mr. Read. Mr. Chairman, Senator Brown, I do. I think a
national program, particularly with auto-enrollment, could have
great potential. I hope that, as you consider that, you will
make the appropriate provisions for those of us who have
already started so we can continue our good work in partnership
with you.
Senator Brown. Okay. Thank you. Thanks.
Senator Wyden. I thank my friend.
Senator Daines?
Senator Daines. Thank you, Mr. Chairman.
About 10 days ago our youngest child, Caroline, just
graduated from Montana State University. So we officially now
have four children who will be on their own health care, and on
their own cell phone plan. [Laughter.]
So I am a proud dad and a proud Bobcat. But with all that
celebration as parents, it is also a reminder how truly quickly
time marches on. Like any graduation, it makes you think about
their future. It is a moment to pause about the future of our
country.
But I am pretty sure this year's college graduates are not
spending a lot of time focused on their retirement plan. They
are fresh out of school. They are ready to take on the world
with all-night study sessions now in the rearview mirror. And
the thought of retirement, let alone Social Security, or a Roth
plan, or a 401(k), perhaps is not always the first thing on
their mind while they are looking for that first job.
In fact, when asked, the polls indicate that most of them
do not think they will be seeing their full Social Security
benefits when they retire. And I think all of us on this
committee agree that we have to do a lot better for our
children and grandchildren.
We must remind them the future is real. I think the older
we get, the more we realize that. And it does get here before
you know it. Montana has the sixth oldest population when we
look at a per capita basis in our country. It is also critical
that we in Congress work in a truly bipartisan way to protect
Social Security for our current, as well as future,
generations.
In addition to protecting Social Security, we must also
promote personal savings, employer-sponsored savings plans, as
they are also incredibly important to ensuring there is
financial security during retirement. And I applaud the good
bipartisan work done by this committee to bolster these
practices so our kids and other Montanans will have a
sufficient retirement income.
Ms. Dudley, first I want to thank you for highlighting my
bipartisan bill I have with Senator Warren to address these so-
called ``orphaned savings accounts.'' Some may wonder how do a
Republican from Montana and a Democrat from Massachusetts come
together. Well, we do.
Ms. Dudley. Right.
Senator Daines. I look forward to continuing to work with
my colleague from Massachusetts on this important issue.
I mentioned my daughter Caroline's recent college
graduation. For Montanans who are just entering the workforce,
what actions do you recommend they take now to make sure they
have sufficient retirement income in their future?
Ms. Dudley. One of the things that I think is so important
for young people coming out of school is to recognize that the
dollar that they save now is so much more valuable than the
dollar they save when they are my age.
Senator Daines. You are sounding like me. [Laughter.]
Ms. Dudley. Well, I have children and grandchildren. But it
is so much more important that they start early. And
oftentimes, it is not so much how much are they going to earn
on that dollar over the years--they are going to earn a lot as
the market goes forward over time--it is the fact that they are
putting the money in. And it is not so much how much in the
beginning--though the more the better--it is that they are
started.
Because what we find is that when young people start, they
stay with it. They like it. People who are in employer-based
plans really like them, and they do better than those people
who are not.
Senator Daines. Thank you; good advice.
Ms. Tibbetts, in your testimony you noted that there is
still a significant portion of the working population that
lacks access to workplace retirement plans, particularly among
small employers. As a U.S. Senator from Montana, where we have
a lot of small employers, that reality is very concerning to
me. Could you speak for a moment about how the reforms in the
Retirement Enhancement and Savings Act would help increase
access to retirement plans among these smaller employers in
rural States like Montana?
Ms. Tibbetts. Yes. Thank you so much for that question.
Principal is so excited about RESA. And we hope the committee
passes this and it comes into fruition for small employers.
As we think about access, employees who work for small
employers, 58 percent of them do not have employer-sponsored
plans to be able to participate in. So I think the number one
thing that RESA does is provide coverage opportunities for more
of those small employers to be able to adopt plans.
We are excited about the small employer tax credit that
helps offset some of those administrative costs and then
increasing that tax credit for plans that include auto
features, and then secondly, the open multiple employer plans.
As I talked about earlier, when you think about that
cabinet worker who lives in Grimes, IA having the ability to
already join a plan that is in existence, it is easier, when
you are wearing multiple hats from that company and your
workers have access, to be able to save for retirement.
Senator Daines. You know, having--and I will wrap up here.
Having spent 28 years of my career in the private sector in
small, medium, and larger businesses, growing businesses,
particularly when you have 50-year record low levels of
unemployment in this country, to be able to attract and then,
importantly, retain the workforce as a small employer is so
important. Because they do not have great big HR departments,
compliance departments, when you have open headcount to fill,
you have to be consumed with that and taking care of a backlog
of work. It is a nice problem to have, but it is still a big
problem.
And I can see this is another remedy, perhaps, to help in
that area.
Ms. Tibbetts. Yes. We could not agree more, Senator Daines.
Thank you for those comments.
Senator Daines. Thank you.
Senator Wyden. I thank my friend from Montana.
Senator Whitehouse?
Senator Whitehouse. Thank you, Mr. Chairman. Thank you to
the panel for being here.
We obviously see the problem of small and medium-sized
businesses trying to figure out how to manage a retirement
savings plan. And the result of that difficulty is that 90
percent do not, which means that small business States like
Rhode Island are often left with very little retirement
savings.
We also have the lesson I believe that the 401(k) plans
that opt in versus opt out, just as a simple default switch,
can make a very, very big difference and help people out. And
for the record, I see the heads all nodding, just to be clear
about that.
I wanted to ask Ms. Ruff first, you kind of mentioned my
Auto IRA bill in your testimony. I appreciate that. If you
would like to, describe what it is about it that you like. And
in the context of us doing something, what are the key features
you would want to see in any bill that this committee would
report for AARP to support that measure?
Ms. Ruff. For Federal auto-IRA it is very important that
people have the ability easily to enter into the IRA and that
their investments have fiduciary standards around them, very
much like what a Work and Save type of program would be. And
the important thing is that the two can, in fact, work
together.
Senator Whitehouse. Portability?
Ms. Ruff. Portability.
Senator Whitehouse. A default to opt in, rather than opt
out?
Ms. Ruff. Yes; certainly, the ability to opt out. And
certainly the education for people to understand what their
plan is and what they do with it if they move somewhere else.
Senator Whitehouse. To Ms. Dudley's point about people
knowing how valuable today's dollar is----
Ms. Ruff. Exactly. And life expectancy, another important
area, that we are all going to be living longer and therefore,
it is more and more important.
Senator Whitehouse. Forever?
Ms. Ruff. Well, maybe you. [Laughter.]
But it is more and more important. Yes, it is more and more
important that people save early.
Senator Whitehouse. Treasurer Read, you have had the
experience of actually doing this at the State level, and I
would like to ask you, in your plan, what does a small employer
have to do?
Mr. Read. Mr. Chairman, Senator Whitehouse, as little as
possible. In fact, we have made it even easier for small
employers. Initially, our design had the employer providing
notice to employees and asking them whether they want to opt
out. We have changed that, and in fact our record keeper,
Ascensus, now does that.
So essentially, all that the employer has to do is provide
the employee information to Ascensus and then facilitate as
they do with any of their other withholdings over time.
Senator Whitehouse. It is just--once they have set up the
withholding and they know what their employee wants, which they
do not have to do, it gets disclosed to them. They are done.
Mr. Read. That is right.
Senator Whitehouse. What has the response been from the
small business community?
Mr. Read. Generally positive. In fact, I was thinking of
that when Senator Daines was asking his question. There are a
lot of small employers who very much like this, and you know,
they are focused on running their business. There is one in my
mind who runs an iconic sandwich shop who says, ``I do not have
an HR department. I have sandwiches to make.'' And they view it
as a very positive thing.
I mentioned in my opening testimony the brewer on the north
Oregon coast who says, ``This allows me to hire people who can
work here as a career, and allows me to retain them.'' So it
has been very positive.
Senator Whitehouse. Good. And if we are looking at Federal
legislation in this space, what would you like us to do about
State programs like yours? Carve them out? Let them continue?
Would you just as soon have this off your hands and have this
turn into a Federal program? What is your take on how we should
handle OregonSaves if we get around to doing a Federal Bill?
Mr. Read. Mr. Chairman, Senator Whitehouse, I appreciate
the question. I feel very good about where we are going, and I
think we have provided a service--if it is not too presumptuous
to say it--in asking and answering some of these questions.
Senator Whitehouse. So you would like to keep at it.
Mr. Read. I would like to keep at it, and I would like to--
--
Senator Whitehouse. And as a State official, do you think
there is some value to leaving space for other States to try to
step up and do the same thing if they are interested in doing
that?
Mr. Read. Yes I do, Senator. And I would appreciate when
the Senate takes this on to have that conversation about how
our particular version would interact with the Federal program.
Senator Whitehouse. Great. Well, I thank you for the good
example that you are setting. I am sure you said so, but I was
elsewhere earlier. What has happened to your savings rate as a
result of doing this, even in the small amount of time you have
had?
Mr. Read. Well, we have--there are a number of ways to
answer that, Mr. Chairman, Senator Whitehouse. In less than 2
years, we have accumulated over $19 million in savings. It is
about 35,000 accounts. That number is growing at about $2.2
million each month, and it is a rate that continues to
accelerate, because we are only about halfway through our
rollout at this point.
Senator Whitehouse. And you have one private-sector
provider that contracts with you to provide this service, as
opposed to having it be a competitive market?
Mr. Read. That is mostly right. We have one provider that
does the record-keeping function and another that manages the
money.
Senator Whitehouse. Got it.
Ms. Dudley. Can I add one thought?
Senator Whitehouse. Sure.
Ms. Dudley. On the whole concept of coverage--and I really
appreciate the work that Oregon has done at the State level and
the work that has been done here on a bipartisan basis to
strengthen the qualified employer plan system. And I think
that, as we look at coverage, there are going to be places
where a Federal system would be more helpful to some people
than the State system. And I think you all would agree that
there is not a reason why all of these different approaches
cannot exist together.
So I think that is something that we would like to continue
talking with you about: how to make it seamless for people.
Senator Whitehouse. In the same way that an individual gets
to opt out of the program, you could have a State able to opt
out if it was happier with its own program, for instance.
Ms. Dudley. Possibly. Yes, that is possibly--I mean, I
think that is fair.
Senator Whitehouse. I am over my time. So, let me yield
back to the chairman. Thank you.
Senator Wyden. I thank my friend.
And I think there is only one question I want to get at
before we wrap up. And I am going to pose this to you, Ms.
Dudley, and then we will take--the chairman has some important
procedural matters that we have to convey to you before we wrap
up.
Let us talk about these students who come out of school and
they are just up to their eyeballs in debt. I mean thousands
and thousands and thousands.
Ms. Dudley. Yes, tens of thousands.
Senator Wyden. Tens of thousands. Thank you.
And they get that first big job, and they are incredibly
excited. Maybe they are the first generation to get out of
college. And the employer has a really good 401(k) matching
program, a matching contribution program. So the employer is
going to put up a good chunk of money. The student has to
figure out where their share is going to come from.
We have had students come to us and say, ``This is
heartbreaking. You know, we finally got that good job after all
those years, but we owe so much money, we do not want to miss
out on saving. We do not want to miss out on building that nest
egg for the future.''
So what we proposed in our bill is essentially that the
amount they have to repay for their student loan, the amount
they repay on a regular basis, would count towards their
contribution for the 401(k) matching.
My sense is that this would be of enormous value right now
with so many young people being up against this dilemma. I
would be interested in your thoughts in terms of what your
member companies are telling you about this situation, because
that is really how it comes down in terms of my world.
I mean, I have town hall meetings in every Oregon county
every year. And people just tell me that the student loan debt
is just like a boulder on their back, and it ripples through
their lives in so many ways. And at a minimum, we ought to
figure out a way to let them start saving after they get hired
for that first great job.
Ms. Dudley. Right. I think you are absolutely right.
Employers, students, and young graduates are excited about the
idea of being able to participate in a plan and also pay down
their debt. I think employers recognize that this has become a
barrier, student loans have become a barrier to people
participating in many plans. Not every employer sees that
problem, but many, many do. And they want to find a way to help
them not leave money on the table.
One of the things that we always try to do when we are
educating employees about participating in the plan is
explaining to them the value of a matching contribution and the
importance of contributing so that you get the match.
So what is happening to these employees, these young
employees who have student debt, is they are not participating.
So they are not getting their own contributions, and they are
losing out on the match. And these are the years when the
dollar counts the most and so, by participating early, you earn
the most. And so, by participating early, you earn the most
money for retirement.
So your bill should address this by allowing those
employers to go ahead and recognize that people are paying down
debt, and get that matching contribution in the plan, and get
these people enrolled in the plan. So you may have a graduate
who cannot do very much; maybe they are paying their loan down
and so they cannot fully get the match. But they are able--they
are in the system. They are in the system early, because when
you get in early, you stay in the system.
Senator Wyden. Great. And just for the record, if we
could--for you, Ms. Ruff, you all have done some interesting
work on the Saver's Credit, and because we said we were going
to wrap up, if you could just furnish us, for the record, any
suggestions you might have to improve the Saver's Credit.
Because of time, we are not going to be able to get into it,
but if you could just furnish that in writing, that would be
very helpful.
Ms. Ruff. Certainly.
Senator Wyden. On behalf of the chairman, I want to thank
all of our witnesses. You all have been very patient, and we
appreciate your testimony. We appreciate your being here and
sharing your views on the policy, the direction the Finance
Committee--on a bipartisan basis--wants to take to improve the
retirement system.
For all the members and staff--I believe we do not have any
members who are coming. Any members who have written questions
for the record should submit them by close of business on
Tuesday, May 28th.
Both the chairman and I share your view about getting the
RESA bill passed immediately. If we had had our way, it would
have been done yesterday. And so we appreciate your comments on
that, and to indulge--I believe that the chairman will not
object to it, but given the evening, before we adjourn, I would
like to just say, ``Go Blazers.''
Mr. Read. Rip City. [Laughter.]
[Whereupon, at 12:23 p.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Lynn D. Dudley, Senior Vice President, Global
Retirement and Compensation Policy, American Benefits Council
The American Benefits Council (the ``Council'') thanks Chairman
Grassley, Ranking Member Wyden, and all members of the Finance
Committee for holding this hearing regarding challenges in the
retirement system and for the longstanding bipartisan leadership of
this committee in enhancing retirement security.
We very much appreciate the opportunity to testify. The private
retirement system has helped millions of Americans achieve retirement
security. Even so, the system can be improved and strengthened, and
there are numerous existing bipartisan proposals--several of which are
discussed below--that we believe can help achieve that result.
The Council is a public policy organization representing
principally Fortune 500 companies and other organizations that assist
employers of all sizes in providing benefits to employees. The
Council's members either sponsor directly or provide services to
retirement and health plans covering more than 100 million Americans.
strong support for bipartisan retirement solutions
In a November 2018 election day poll \1\ conducted by Public
Opinion Strategies, nearly eight in 10 American voters (78 percent)
showed a strong preference for bipartisan solutions to our retirement
policy challenges, saying that compromise and cooperation would most
improve their ability to save for a secure retirement.
---------------------------------------------------------------------------
\1\ https://www.americanbenefitscouncil.org/pub/bceef8fb-efa1-ab7f-
17a8-4483226a5129.
For many years, retirement policy legislation has enjoyed a proud
tradition of bipartisan leadership and support. That is how Congress
has achieved so many improvements and enhancements to the private
retirement system in the past, and we believe that bipartisanship is
---------------------------------------------------------------------------
likewise the path to future success.
There are many retirement policy proposals that have been
introduced and that are worthy of discussion. A number of retirement
provisions now pending in Congress, several of which are discussed
below, deserve immediate consideration and we strongly recommend their
enactment as soon as possible.
The retirement provisions referenced above are largely based on:
The Retirement Enhancement and Savings Act of 2019 (S. 972)
introduced by Chairman Grassley and Ranking Member Wyden (``RESA'');
The Retirement Security and Savings Act of 2019 (S. ) (the
``Portman/Cardin bill'');
The Retirement Parity for Student Loans Act (S. ) (the
``Wyden student loan bill'');
The Retirement Security Act of 2019 (S. 321) (the ``Collins/
Hassan bill'');
The Setting Every Community Up for Retirement Enhancement Act
of 2019 (H.R. 1994) (the ``SECURE Act''); and
The Retirement Plan Simplification and Enhancement Act (H.R.
4524) (the ``Neal bill'').
These bills include many bipartisan, bicameral proposals that are
very important to improving personal financial security. In fact, RESA
earned unanimous approval in the Senate Finance Committee in 2016 and
continues to enjoy broad bipartisan support in the Senate today.
Similarly, in April, the SECURE Act passed out of the Ways and Means
Committee by a voice vote. These two bills are well vetted, broadly
supported by both parties, and endorsed by a wide range of
stakeholders. We support prompt passage of these bills. The bills have
differences that will require blending of different proposals, but we
strongly believe that this is a step that can be taken in a bipartisan
bicameral fashion, consistent with a long tradition in the retirement
area. We urge Congress to continue to work together on a bipartisan,
bicameral basis to finalize compromise legislation as soon as possible.
For example, as discussed below, hundreds of thousands of employees may
find their future pension benefits eliminated if RESA/SECURE is not
enacted in the very near future.
We are also very supportive of the next generation of retirement
reform, most prominently contained in the Portman/Cardin bill and the
Neal simplification bill. These bills contain critical additional
reforms that, together with RESA/SECURE, can further usher in a new era
of retirement security. In light of the shortfall in retirement savings
discussed below, we cannot afford to wait to help tomorrow's retirees.
critical role served by the private retirement system
In October of 2018, the American Benefits Institute, the education
and research affiliate of the Council, published a paper entitled the
``American Benefits Legacy, the Unique Value of Employer Sponsorship.''
Before discussing the excellent legislative proposals contained in the
above bills, we wanted to take this opportunity to share with you the
important findings of that paper. These findings strongly support the
purpose of the bills, which is to further strengthen a private
retirement system that is working well but can still be improved.
In the late 1990s, the Employee Benefit Research Institute
(``EBRI''), developed a model to simulate retirement income adequacy.
The model provides summary Retirement Readiness Ratings (``RRR'') that
simulate the proportion of households projected to have adequate
resources in retirement.
The model shows that employer-sponsored plans result in a 28.7
percent increase in the number of low-income households achieving
retirement security. While the importance of employer-sponsored
retirement benefits to low-income households will not come as a
surprise, what is most illuminating is the extent to which middle-
income groups rely on retirement savings plans through their employer.
Comparing the Retirement Readiness Ratings with and without employer-
sponsored retirement benefits shows that the percent increase in the
number of households that are saved from retirement income inadequacy
is 52.3 percent for the second income quartile and 18.6 percent for the
third income quartile.
Equally telling is the total dollar value of the benefits that are
projected to be provided by employer plans and their role in covering
the difference between public benefits and the financial needs of
retirees. This is illustrated by EBRI's projections of ``Retirement
Savings Shortfalls,'' which calculates the aggregate value of projected
financial deficits in retirement for all U.S. households between the
ages of 35 and 64. This measurement is somewhat different than the
Readiness Ratings because it also includes the anticipated needs to
finance long-term care.
The savings shortfall measures the present value of the additional
(after-tax) amount each household would need at age 65 to eliminate
their expected retirement income deficits. While this shortfall is a
relatively small proportion of the total value of all of the resources
households are projected to have available to meet their retirement
needs, it provides a useful indication of the overall value of the gap
that will need to be addressed and the role of employer-sponsored
benefits in filling this gap. The aggregate deficit number with the
current employer-sponsored retirement benefits is estimated to be $4.13
trillion. When the simulation was done assuming that there were no
employer-sponsored retirement benefits and individuals were to behave
in the manner observed for those without access to these plans, the
aggregate deficit would jump to $7.05 trillion, an increase of 71
percent.
In addition, in furtherance of our support for retirement security,
the Council has recently joined a new campaign called ``Funding Our
Future,'' an alliance of organizations working to make a secure
retirement possible for all Americans. The campaign now consists of
over 40 organizations--representing consumers, employers, industry, and
a variety of other perspectives--all pushing to educate the general
public about the challenges of retirement security and how we can
overcome them, both individually and collectively through improved
public policy. The campaign has three pillars: (1) Making it easier to
save at all ages, particularly at the workplace; (2) Helping people
transform their savings into retirement income; and (3) Saving Social
Security. Advancing policy within each of these pillars will help
improve retirement security for millions of Americans.
key bipartisan proposals for improving retirement security
Below we highlight a number of proposals related to improving the
retirement security of American workers that we most strongly encourage
the committee to support.
Relief for Participants in Closed Defined Benefit Pension Plans
As the environment for sponsoring traditional defined benefit
pension plans has become more challenging, many companies have found
themselves reluctantly compelled to modify their plans so that new
employees hired after a certain date are not eligible to participate.
However, under current law, companies that seek to protect older,
longer-service employees by continuing to accrue benefits for them
until they retire are generally precluded from doing so by the clearly
unintended impact of the so-called ``nondiscrimination rules.'' With
every year that passes, tens of thousands or possibly hundreds of
thousands more participants lose benefits by reason of the adverse
effects of the current rules.
The Council urges strong support for nondiscrimination testing
reform that would allow employers to continue to accrue benefits for
older, longer-service participants in defined benefit pension plans.
This provision is included in RESA and the SECURE Act, and was also
included in Neal/Tiberi (H.R. 1962) and Cardin/Portman (S. 852) bills
from last Congress.
Each year that this issue is not addressed, hundreds of thousands
of additional employees are at risk of losing benefits. The Council
reached out to two national consulting firms earlier this year. The
consulting firms concluded that if this issue is not fixed in the near
future--year-end is too late--at least 430,000 participants could lose
future benefits as of January 1, 2020.
Reducing Barriers to Saving Through Student Loan Repayment Programs
The burden of student loan debt serves as an unfortunate barrier to
saving for retirement. Given the benefit of compound interest, putting
money away early in one's career--especially through an employer-
provided plan with matching contributions and low fees--can have a
powerful effect on one's retirement savings account balance at
retirement age. But student debt prevents many individuals in their 20s
and 30s from saving optimally for retirement.
Many employers are interested in helping employees save for
retirement despite student tuition or debt obligations and are
considering a variety of innovative approaches to do so. We urge
Congress to support these programs with policies that embrace
innovation.
For example, the Council supports proposals that would make it
easier for employers to provide matching contributions to 401(k)
retirement plans based on an employee's student loan payments. Such a
provision is included in the Wyden student loan bill; the Wyden
proposal is also included in the Portman/Cardin bill. Measures such as
this that would leverage the tax laws and behavioral economics would go
a long way toward reducing barriers to retirement savings for younger
workers in particular. Just like saving early, enacting supportive
policy as soon as possible will have a positive effect on retirement
outcomes.
We are supportive of other proposals to give employers greater
flexibility in helping their employees with student loan debt. For
example, Senators Warner and Thune, and 20 other Senators, have
sponsored a bill (S. 460) that would permit employers to pay down
student loans for their employees without triggering taxable income for
their employees, up to an annual limit of $5,250 on the total of such
repayments and other educational assistance.
Self-Correction Procedures
Plan sponsors should generally be permitted to self-correct
inadvertent plan violations under the IRS's Employee Plans Compliance
Resolution System (``EPCRS'') without a submission to the IRS or a fee
payable to the IRS. Under a proposal included in the Portman/Cardin
bill, all inadvertent plan violations could be self-
corrected under EPCRS without a submission or fee to the IRS, provided
that this rule would not apply if the IRS discovers the violation on
audit and the employer has not at that point taken actions that
demonstrate a commitment to correct the violation. The bill, which we
strongly support, would also make improvements to the self-correction
process that would make self-correction a more reliable and effective
process. The Neal bill, which we also strongly support, similarly
includes a provision that would expand the use and availability of
EPCRS.
Open MEP Reforms
Policymakers are constantly searching for ways to improve
retirement plan coverage, and Council members believe that the best way
to do so is to build on the employer-based system. Open multiple
employer plans (``MEPs''), which enjoy bipartisan support in Congress,
present a significant opportunity to do so.
We urge the committee to support legislation that would eliminate
the punitive ``one bad apple rule'' (under which compliant employers in
a MEP are penalized for violations by other participating employers)
and permit open MEPs by eliminating the ``nexus'' requirement (under
which all participating employers must share a pre-existing
relationship or common business purpose). Facilitating the use of MEPs
will create greater economies of scale, thereby reducing the cost of
plan participation and broadening coverage for many, including the
independent and contingent workforce. This proposal is included in
RESA, the SECURE Act, and the Collins/Hassan bill.
We would like to briefly note three key issues regarding the MEP
proposals:
Clarify that gig workers can participate in MEPs. Until a court
case in late March, it was clear, under more than 30 years of
Department of Labor authorities, that gig workers and other independent
contractors without employees could participate in a MEP under certain
circumstances, and would similarly be able to participate in an open
MEP under the legislation. The court case called that into question,
which jeopardizes some current MEPs and undermines a key objective of
the open MEP legislation. We urge RESA and the SECURE Act to address
this issue by clarifying that gig workers can participate in MEPs, as
has been the longstanding rule.
Clarify that small businesses that join a MEP are eligible for
the new plan start-up credit. RESA and the SECURE Act increase the cap
on the tax credit available to small employers that start a plan from
$500 to $5,000. Under present law, it is unclear if a small employer
joining an existing MEP is eligible for the credit. The issue is that
the credit is only available for the first 3 years of a plan's
existence. So if the MEP has been in existence for 3 years, the credit
may be unavailable to a small employer that joins the MEP. If the MEP
had been in existence for a year, for example, when the employer joins,
then the credit may only be available for 2 years.
Concern. The concern is that the advantage of a
MEP is that it can produce lower costs for participating
employers. If small employers' net costs in the first 3 years
are materially higher under a MEP than under a single employer
plan, due to the fact that the credit is not available with
respect to the MEP, that could reduce interest in joining a
MEP.
RESA addresses the concern. RESA addresses this
concern very effectively by clarifying that small employers
without a plan may claim the credit if they join an existing
MEP.
Provide the same MEP advantages to charities, churches, and
public educational institutions. Currently, the MEP provisions in RESA
and the SECURE Act do not cover 403(b) plans, which are widely used by
charities, churches, and public educational organizations (the only
entities permitted to maintain such plans). We support expansion of the
MEP provisions to cover 403(b) plans, so that these entities can enjoy
the same new economies of scale being made available to taxable
employers.
Improving Required Retirement Plan Reports and Disclosures
Under current law, employer-sponsored retirement plans and IRAs are
required to provide a variety of reports and disclosures to
participants at various times or upon the occurrence of specified
events. The Council believes there is a significant opportunity to
improve both the content and the timing of required disclosures in a
manner that provides for more effective and meaningful communications
to participants and account owners, while also decreasing
administrative costs for plans and IRAs. We support bipartisan
proposals to take such steps, such as proposals included in both the
Portman/Cardin bill and the Neal bill. Those proposals (1) would direct
the Treasury Department, the Department of Labor (``DOL''), and the
PBGC to review the reporting and disclosure requirements and make
recommendations to Congress to consolidate, simplify, standardize, and
improve these participant communications, and (2) would direct Treasury
and DOL to consolidate certain overlapping notices.
A related issue that we urge the committee to consider is one that
affects those plan participants who are not enrolled in the plan but
who nevertheless are considered participants if they are eligible to
enroll in the plan. Under current law, even non-enrolled participants
are required to receive the same reports and disclosures as
participants who are enrolled in the plan. Because these non-enrolled
participants are likely receiving plan communications that do not
relate to them, the Council strongly supports the proposal in the
Portman/Cardin bill under which non-enrolled participants would not be
required to receive the unnecessary notices that they receive under
current law. Instead, such participants would receive an annual
reminder of their eligibility to participate in the plan.
Stop Indexing the PBGC Variable Rate Premium for Single-Employer Plans
A bipartisan proposal aimed at addressing concerns over PBGC
premiums, which are a factor in causing employers to terminate or
engage in pension plan de-risking activities, is included in the
Portman/Cardin bill. Today, single-employer defined benefit plans pay
both a per-participant flat-rate premium and a variable-rate premium to
the PBGC each plan year. Both types of premiums are currently indexed.
But indexing the variable-rate premium does not make sense because the
variable-rate premium is calculated based on the plan's unfunded vested
benefits, an amount that is inherently indexed. As a result, indexing
the variable-rate premium will eventually lead to companies owing 100
percent, 200 percent, or even more of their underfunding to the PBGC.
The Portman/Cardin bill would address this by eliminating the indexing
of the variable-rate premium and freezing such rate at the 2018 premium
level ($38 per $1,000 of unfunded vested benefits).
Correcting the Mortality Tables Used by Defined Benefit Plans, and
Other Funding Issues
A number of factors have led many employers in recent years to
terminate or freeze their defined benefit pension plans. Not least
among these factors are increasing PBGC premiums and uncertain plan
funding obligations, which can fluctuate depending on interest rates
and other factors that are often outside of the plan sponsor's control,
such as the mortality table that must be used for purposes of
calculating a plan's funding obligations. The Treasury Department is
required to update the mortality table that defined benefit plans must
use for this purpose at least every 10 years. The most recent mortality
table update was included in regulations that were published in October
2017.
The Treasury Department issued new mortality tables for pension
plans in 2017, increasing plan sponsor costs by an estimated over $36
billion over 10 years. These regulations were flawed in two respects.
First, the 2018 tables relied on assumptions developed by the Society
of Actuaries (``SOA''), which SOA has since acknowledged overstate
pension obligations. In addition, the regulations used a higher rate of
future mortality improvement in the new mortality tables than the rate
used by the Social Security Administration (``SSA'') or any other
regulatory organization. The Council supports the Portman/Cardin bill
provisions to correct both flaws: (1) correcting the incorrect 2018
tables, and (2) prohibiting the regulations from assuming future
mortality improvements at any age that are greater than 0.78 percent
(i.e., the weighted average used by the SSA).
We also want to emphasize that while many employers have been able
to fund up their defined benefit plans, many other employers have faced
significant challenges in that respect. Due to the declining
helpfulness of the pension smoothing provisions and sustained low
interest rates, some single-employer pension plans face sharp increases
in minimum funding contributions over the next several years. These
spikes are in many cases expected to be followed by much smaller
minimum funding contributions in subsequent years. Nonetheless, the
significant increases in funding contributions will create substantial
hardship for some companies that would otherwise be on solid footing to
support their pensioners if modest relief were provided. The Council
encourages the committee to consider options that provide flexibility
to single-employer plans sponsors facing funding obligations that are
disproportionately large compared to the size of the employer's
business.
Permitting Higher Catch-Up Contributions for Individuals Age 60 and
Older
Even though most Americans understand the benefit of saving for
retirement throughout their working years, younger workers in
particular often face competing financial priorities, such as buying a
home, paying off student loans, and raising a family. These expenses
can make it challenging for many workers to prioritize saving for
retirement until their 40s, 50s, or even 60s. In 2019, most employees
are generally limited to making elective deferrals of $19,000 to a
401(k), 403(b), or governmental 457(b) plan ($13,000 with respect to
SIMPLE IRAs and SIMPLE 401(k)s). But individuals age 50 and older may
make a ``catch-up'' contribution of an additional $6,000 ($3,000 for
SIMPLEs). To give workers nearing retirement age an even greater
ability to better prepare for retirement, the Council supports the
provision in the Portman/Cardin bill that would increase the catch-up
contribution for participants age 60 or older to $10,000 ($5,000 for
SIMPLEs).
Increasing the Age at Which RMDs Must Begin
Under current law, plan participants and IRA account owners must
generally begin withdrawing ``required minimum distributions,'' or
``RMDs,'' at age 70\1/2\. As a result, the RMD rules require many
individuals to withdraw funds from their retirement accounts before the
time when those funds are needed. The Council believes it is important
that retirees be allowed to retain their savings in retirement accounts
as long as possible to help protect against the risk of retirees
depleting their retirement savings during their lifetime. We therefore
urge the committee to support bipartisan proposals such as those in the
Portman/Cardin bill, the SECURE Act, and the Neal bill and that would
increase the age at which participants and IRA account owners must
begin taking RMDs.
Reforming the Rules Regarding Inadvertent Overpayments to Participants
The complexity of administering a retirement plan can result in a
plan incorrectly calculating benefit payments for a participant,
especially in a defined benefit plan. Sometimes these errors result in
an overpayment being made to a participant. IRS correction procedures
in some cases require plans to seek to recoup from participants a
discovered overpayment, sometimes months or even years after the
overpayment was made to the participant. This often causes significant
distress for participants--many of whom were retirees--who had no idea
that the plan incorrectly calculated their benefits. Further
complicating matters, in many cases an overpayment was rolled over to
an IRA or another plan because the participant believed that such
amount was eligible for rollover treatment when in reality it was not.
Although recent changes to the IRS's Employee Plans Compliance
Resolution System (``EPCRS'') have established that in some
circumstances a plan sponsor may correct for an overpayment without
seeking recoupment from the participant, the Council's members believe
that additional steps to protect retirees should be taken.
Expansion of Electronic Disclosure of Plan Communications
Under current law, there are multiple regulatory standards
governing the circumstances under which an employee may be provided
with a retirement plan statement, notice, or disclosure in an
electronic format. There is longstanding, bipartisan interest in
modernizing the delivery rules for these disclosures.
The Council has long supported updating the means of fulfilling
disclosure requirements. Our long-term public policy strategic plan, A
2020 Vision: Flexibility and the Future of Employee Benefits,\2\
includes recommendations to advance the use of technology in delivering
benefits information while ensuring appropriate protections for
participants.
---------------------------------------------------------------------------
\2\ https://www.americanbenefitscouncil.org/pub/?id=e6154447-f3da-
eaee-a09e-fbcc312a0e91.
Consistent with these recommendations would be bipartisan
legislation that gives employers the option to provide required notices
and statements in an electronic format while providing participants
with appropriate protections and the right to receive paper copies of
notices at no charge. Participants would also be provided an annual
written notice of the availability of paper notices. One such proposal,
the Receiving Electronic Statements to Improve Retiree Earnings Act,
was introduced on a bipartisan basis in the Senate in 2018 (S. 3795)
(by Senators Brown, Enzi, Peters, Portman, Isakson, and Jones) and in
the House in 2017 (H.R. 4610).
Missing Participants
Our members devote a great deal of effort and financial resources
to sponsoring retirement plans and to searching for those who have
unclaimed benefits. We wholeheartedly share the goal of reuniting plan
participants with their retirement benefits.
In this regard, we welcomed the introduction by Senators Warren and
Daines of the Retirement Savings Lost and Found Act of 2018. This
legislation would establish a set of rules, for the first time, that a
plan administrator should follow when a participant or beneficiary is
missing or unresponsive. The Council believes strongly in the need for
comprehensive guidance on plan fiduciary responsibilities with respect
to unresponsive and missing participants. The safe harbor provisions in
the bill with respect to required minimum distributions and fiduciary
obligations are a very important step forward.
Collectively, the provisions of the Retirement Savings Lost and
Found Act could make important progress in addressing the problem
created when individuals lose track of their retirement benefits at the
time they change jobs, and the former employer is not able to locate
the person. The creation of a consistent approach for fiduciaries is
much needed and greatly appreciated.
We look forward to continuing to work with Congress on these issues
as we collect additional input from our members. Their extensive
experience with missing and lost participants provides a valuable
resource for policymakers, including input with respect to strategies
to improve consistency among agencies with regulatory authority for
missing and unresponsive participants.
PBGC Insurance Premiums for CSEC Plans
One key bipartisan, bicameral proposal included in RESA and the
SECURE Act (as well as the bipartisan Rightsizing Pension Premiums Act
of 2017 (H.R. 3596)) would conform the PBGC premiums for pension plans
that serve multiple charities or cooperatives (``CSECs'') to the
funding rules that were put in place for such plans by Congress in
2014. CSEC plans have different funding rules than single-employer
plans because they pose very little risk that the plans will not be
able to pay benefits as promised. That same reasoning is applicable to
PBGC premium levels, which should be lower for CSEC plans because CSEC
plans pose far less risk than is reflected in the PBGC premiums they
currently pay.
New ``Secure Deferral Arrangement'' Automatic Enrollment Safe Harbor
A significant retirement policy success in recent years has been
encouraging plan sponsors to automatically enroll their employees in a
retirement plan at a default contribution rate, and then to
periodically increase that rate over time. But as successful as these
automatic enrollment and automatic escalation features have been to
date, policymakers are now looking at options to continue building on
their success.
Under the existing automatic enrollment safe harbor, plans are
generally deemed as meeting certain nondiscrimination testing rules if
certain criteria are met, including that employees are automatically
enrolled at a contribution rate of at least three percent of
compensation in the first year, and such rate must increase by at least
1 percent a year until the contribution rate is at least 6 percent (but
not greater than 10 percent) by the fourth year.
The Council encourages the committee to consider proposals that
would build upon the existing safe harbor by adding a new automatic
enrollment safe harbor for ``secure deferral arrangements.'' A secure
deferral arrangement would, among other features, provide for a higher
default contribution rate in the first year (i.e., at least six but not
greater than 10 percent) and would remove that 10 percent cap on
default deferrals after the first year. Such proposals have been
included in the Portman/Cardin bill, the Collins/Hassan bill, and the
Neal bill.
Remove Limitations on Subsidies Resulting From Accumulation of
Retirement Assets
Effective retirement saving can improve overall health and
financial well-being. Individuals and families should not be penalized
for preparing for retirement. The Council urges the committee to
support legislation that would exclude current retirement plan assets
and future retirement plan benefits from eligibility calculations for
State and Federal housing and food subsidies.
Along these same lines, the Council supports efforts to allow
employers to deposit any employer contributions that would otherwise be
made on behalf of special needs employees to the employee's section
529A (ABLE) account instead of the company's 401(k) plan. Special needs
employees frequently choose not to participate in a 401(k) plan, or
they must withdraw funds with corresponding taxes and penalties,
because the funds accumulated in the plan can imperil their eligibility
for much-needed means-tested benefits that they would otherwise be
qualified to receive. Under the proposed solution, the employee would
have to opt into the ABLE account, if offered by the plan sponsor. The
employer contribution would be subject to the same deduction rules
currently applicable to 401(k) employer contributions and the employee
would be taxed on the contribution made to the account. The amounts
would be subject to the section 529A rules once contributed.
Resolution of the Multiemployer Pension Plan Crisis
It is well known that the multiemployer pension plan system is in
crisis. The PBGC, in its 2018 Annual Report, projects that, absent
changes, the multiemployer program is likely to be insolvent by 2026.
The Council supports efforts to develop a path forward, such as the
efforts that were undertaken last year by the select committee
established by the Bipartisan Budget Act of 2018. We believe that
arriving at a bipartisan, bicameral solution will maximize the chance
of a much-needed sustainable solution that will enhance retirement
security and renew confidence in the multiemployer system without
inadvertently imposing enormous costs on plan sponsors who are
contributing to the plans.
In addition, the Council has been heartened by extensive informal
discussions that indicate that Congress is not looking to raise funds
for the multiemployer plan system from the single-employer plan system.
A bipartisan solution to the multiemployer plan crisis is vital. But
using assets from the single-employer plan system is not the answer.
The programs are entirely separate and operate under distinctly
different rules.
The companies that continue to support the single-employer system
are under enormous pressure due to greater funding requirements and
numerous increases in premiums (many of which were enacted as a source
of revenue for unrelated spending). Greater premium increases or
otherwise financing the multiemployer system through the single-
employer system would only accelerate the rate at which single-employer
sponsors exit the system, exacerbating a decline in companies
participating in the PBGC's single-employer insurance program and
thereby worsening the PBGC's problems.
We continue to urge that single-employer premium levels be
decreased for all
single-employer plans. The dramatic increases in PBGC premiums for
single-
employer plans have been, and continue to be, a key driver in company
decisions to reduce exposure to uncontrolled costs through de-risking
activities, including exiting the defined benefit plan system
altogether. A reduction in future PBGC premiums would have a
significant beneficial impact on preserving the remaining plans in the
defined benefit pension universe.
A Consistent Federal Framework
I want to close by emphasizing one key point. The fundamental basis
for an effective private retirement system is the ability to rely on
the single set of national rules applicable to designing and operating
retirement plans, especially for companies that operate in more than
one State. These rules can be found in section 514 of the Employee
Retirement Income Security Act (ERISA). There is no greater threat to
the health of the private retirement system than a possible erosion of
this principle of current law. We urge Congress to work with us to
support and enforce the Federal nature of the rules governing qualified
retirement plans.
The ability to save for retirement is a critically important part
of Americans' sense of economic security. Employer-provided retirement
plans are a uniquely positive influence on one's financial well-being
in retirement. Public policy should therefore encourage participation
and adequate savings in these plans whenever possible.
We thank the committee for holding this hearing, for inviting me to
testify, and for a long history of dedicated bipartisan work on
protecting and enhancing the private retirement system. We look forward
to continuing to work with this committee on this critical endeavor.
______
Questions Submitted for the Record to Lynn D. Dudley
Questions Submitted by Hon. Tim Scott
Question. To what extent do you see cash-outs and leakage as
threatening retirement security in the long term, and are there other
steps we can take to build upon auto-portability?
Answer. As today's workforce becomes increasingly mobile, the cash-
outs and leakage that sometimes occur in connection with a job change
are becoming a more significant factor in workers' ability to
accumulate sufficient retirement savings throughout their working
years. The Council believes that taking steps to reduce cash-outs and
leakage would have a meaningful impact on helping a sizeable portion of
the workforce save more toward a secure retirement.
One important way to help address unnecessary cash-outs and leakage
is through the development of ``auto portability'' programs and
features, which, as described by Senator Scott, are intended to help
ensure that retirement plan assets follow a terminating employee to his
or her new employer. Auto portability is a very good step in addressing
these issues, and, in this regard, we applaud the Department of Labor
for considering some of the legal questions raised by such programs
through the issuance of Advisory Opinion 2018-01A and a proposed
prohibited transaction exemption regarding auto portability.\1\
---------------------------------------------------------------------------
\1\ In the interest of full disclosure, the Retirement
Clearinghouse, to which the Advisory Opinion and proposed exemption are
directed, is currently a member of the Council but did not determine
the final contents of this submission.
Question. Beyond improving our educational system to ensure that
financial literacy receives much more emphasis, what tools, resources,
and programs are out there that might assist folks in planning for
their financial well-being in the long term, and--more importantly--how
---------------------------------------------------------------------------
can we connect workers to these programs?
Answer. Many of the Council's member employers engage in efforts to
provide financial education and support programs for their employees.
These financial well-being programs, which often include assistance
with budgeting and basic financial skills, can help employees get the
full value out of the retirement plans offered by their employers by
removing or reducing some of the barriers to saving for retirement.
Employer-provided financial well-being programs not only support
employees in planning for the long-term, but they also provide value in
increasing employees' overall personal financial security, improving
health and reducing stress, and increasing worker productivity.
In conjunction with the drafting of the Council's ``American
Benefits Legacy,'' a report on the unique value of employer
sponsorship, Council members revealed a wide range of innovative
practices being implemented by employers through financial well-being
programs that are producing measurable and impressive results. For
example, one large member company combined targeted and personalized
communications with the implementation of a simplified enrollment
process for the employer's 401(k) plan. The result was an increase in
the company's 401(k) plan participation rate (from an already high 87
percent in 2012 to a remarkable 92 percent in 2017), as well as an
increase in the percent of participants who were maximizing the
matching contribution (from 31 percent to 58 percent over 5 years).
Other member companies have seen similar positive results by providing,
for example, access to investment advisors and targeted education
delivered both on-site and through webinars.
Employer-provided financial well-being programs have already
demonstrated positive results, and employers' ongoing efforts to
further innovate and refine these programs will only increase their
ability to assist employees in planning for their current and future
financial needs. To that end, the Council has the following policy
suggestions that we believe will help employers continue to make
strides with respect to developing such programs:
1. Protect the ability of employers and providers to innovate
in the workplace. ERISA preemption is a critical component for
employers who have operations in multiple States and want to
provide programs on a national basis.
2. Make it easier to use technology to provide information in
the workplace and to use new technology as it becomes
available.
3. Allow people to make up savings they may have missed.
4. Consider options to facilitate information from Medicare
and Social Security to help individuals think about their
retirement income more holistically. This is especially
important due to the interrelationship between health-care risk
and financial security, especially in retirement.
5. Provide fiduciary safe harbors and allow for innovation
with respect to lifetime income products that are practical,
affordable, explainable, and portable. Understanding--let alone
managing--longevity risk is challenging to even the most
sophisticated of savers and retirees, which makes the
availability of products that are well-designed to accomplish
this task even more important.
______
Questions Submitted by Hon. Maria Cantwell
Question. How does a guaranteed lifetime income option help protect
people from outliving their savings?
Answer. A guaranteed lifetime income option helps protect people
from outliving their savings by providing a stream of income payments
that are guaranteed to continue through retirement. Guaranteed lifetime
income options are one of many tools that participants have to manage
their income throughout their retirement and the associated longevity
risk.
A recent informal survey of the Council's members revealed that
only 13 of 93 respondents (14 percent) offer a lifetime income solution
in connection with their defined contribution plan. Nearly 60 percent
of those plan sponsors that do not offer a lifetime income solution
indicated that they do not do so because of potential fiduciary
liability. In a voluntary system, plan sponsors need assurance that
they are not taking on more potential liability than is necessary,
especially when considering adding a new option for which employee
demand is low. Nevertheless, we encourage Congress to help pave the way
for plan sponsors to increase the availability of lifetime income
options in retirement plans--which, in turn, may lead to greater
participant demand--by providing: (1) more fiduciary protection for
offering lifetime income within a target date fund; (2) an improved
safe harbor for the selection of an annuity provider, such as the
proposal included in the Retirement Enhancement and Savings Act of 2019
(S. 972) introduced by Chairman Grassley and Ranking Member Wyden
(``RESA'') and the House-passed Setting Every Community Up for
Retirement Enhancement Act of 2019 (H.R. 1994) (the ``SECURE Act'');
and (3) more clarity regarding how to provide qualifying longevity
annuity contracts (``QLACs'') within a plan.
Question. Do you believe Congress should provide more direction
regarding the composition of a model plan? If so, what recommendations
would you make?
Answer. Due to the complexity of the laws that govern the design of
retirement plans and their administration, the provision of models
(e.g., model or standard language) that employers may use can be
helpful in certain contexts, such as in providing specific language
that would satisfy a discrete plan or disclosure requirement. However,
the Council cautions that the availability of a model could stifle
innovation and inadvertently limit savings when used in a broader
context, such as with a model plan design or composition.
Whenever the government provides a model (or, similarly, a safe
harbor) that serves to reduce plan sponsor liability and uncertainty,
employers have repeatedly demonstrated that their behavior will
generally converge around that model (or safe harbor). Although this
may not be cause for concern in some instances, when it involves
matters such as the design or composition of a retirement plan, we are
concerned that the very real risks in providing a model outweigh the
benefits. The private retirement system has been successful precisely
because employers have not been required (or felt obligated) to follow
one common approach in determining the retirement benefits provided to
their employees. We therefore encourage Congress to preserve both the
actual and perceived ability of employers to innovate and tailor their
retirement plans to the particular needs and desires of their
respective workforces.
Question. What partnerships exist to make sure that there is
adequate technology and support to ensure that we eliminate this
ongoing problem related to the leakage and lost accounts that result
when workers change jobs?
Answer. The public-private partnership that exists between Congress
and the private retirement sector is critical to facilitating the
development and implementation of solutions to the problem of lost
retirement accounts and retirement savings leakage. In this regard,
providing for the portability of lifetime income products is an
important part of any such solution. Plan sponsors and service
providers depend on the ability to work with lawmakers to both (1)
ensure that lifetime income portability solutions are permissible under
Federal law, and (2) reduce the barriers, including undue liability,
that may discourage employers from making such solutions available to
plan participants.
Enacting the lifetime income investment portability provision that
is included in both RESA and the SECURE Act would take significant
strides in allowing for and encouraging the use of lifetime income
portability solutions. Under RESA and the SECURE Act, participants in
qualified defined contribution plans, 403(b) plans, and governmental
457(b) plans would be allowed to take a distribution of a lifetime
income investment without regard to any of the code's withdrawal
restrictions if the lifetime income investment is no longer authorized
to be held under the plan. The distribution must be made via a direct
rollover to an IRA or other retirement plan or, in the case of an
annuity contract, through direct distribution to the individual. We
encourage Congress to enact this provision as soon as possible in order
to help address one aspect of the barriers to ensuring that retirees
have adequate income for life.
Question. I've worked on policies to ensure lifetime income
portability and annuity selection safe harbors. Why are these
provisions important?
Answer. Employer-sponsored retirement plans are an enormously
important tool for helping people prepare for retirement. Employers are
the leading impetus in designing programs that achieve demonstrated
results in improving savings and enhancing the personal financial
security of their employees. That being said, employers have to be
responsive to employee demands when designing plan benefits, including
lifetime income options, and such options must be practical,
affordable, explainable, and adaptable in order to work.
With respect to lifetime income options in particular, employers
must weigh the benefits of offering an option for which few employees
have expressed an interest with the burdensome constraints and/or
relatively high potential fiduciary liability that may accompany such
an offering. This is why providing for lifetime income portability and
an annuity selection safe harbor is important. The safe harbor in
particular would reduce the unnecessary risk and potential liability
that employers often cite as the primary reason behind decisions not to
offer an annuity option within a defined contribution plan. We
encourage Congress to enact both the lifetime income portability and
annuity selection safe harbor provisions contained in RESA and the
SECURE Act, which would reduce the risks associated with providing such
plan options while preserving the flexibility that employers need to
continue innovating in this regard.
Question. How would providing an estimate of the monthly income
distribution from their retirement savings on the individual's annual
benefit statement help working people gauge their progress toward
reaching the goal of a safe and secure retirement?
Answer. Providing an estimate of the monthly income that could be
generated from an individual's retirement savings is an important way
to help inform workers about their potential income in retirement so
that they can determine if they need to save more to achieve retirement
security. In addition, employers are the leading innovators in
developing ways to educate employees on important aspects of saving for
retirement, including estimated income in retirement, and providing the
tools that are necessary to help ensure that an employee's retirement
plan may be carried out. It is critical that employers are allowed the
flexibility to continue to innovate in this regard.
Questions Submitted by Hon. Michael F. Bennet
Question. What are your views on a 401(k) or 401(k)-like product
that is detached from a specific employer?
Answer. The Council agrees with Senator Bennet's observation that
the way Americans plan for retirement must adapt as the workforce
changes, including the frequency at which individuals change jobs these
days and the growth in the ``gig'' economy. We believe that open
multiple employer plans (``MEPs''), which enjoy bipartisan support in
Congress, present a significant opportunity to improve retirement plan
coverage in light of these changes in the workforce, and that they can
do so by building on the already successful employer-based system. We
therefore urge Congress to enact the open MEP provision that has been
included in a number of bills including RESA and the SECURE Act.
With respect to a 401(k)-like product that would be detached from a
specific employer, the Council has concerns that such an approach would
miss out on the benefit of the employer-led innovation that has made
the existing private retirement system as successful as it is.
Employers would have no incentive--or ability--to develop valuable new
offerings or plan features with respect to a plan that is detached from
the employer. Before giving further consideration to such an idea,
which would be a substantial departure from the current retirement
system, we strongly encourage Congress to enact the open MEP provision
and allow time to evaluate the progress that open MEPs can make in
expanding retirement plan coverage for the modern workforce.
We further believe that the combination of open MEPs and auto
portability can usher in a new era of enhanced portability while still
preserving employer flexibility and innovation.
Question. Besides addressing the multiemployer pension crisis and
passing RESA, what do you think are the most important steps we can
take to increase retirement security for working Americans?
Answer. Beyond addressing multiemployer plans and passing RESA or
the SECURE Act, the Council believes that enacting the next generation
of retirement reform, most prominently contained in the Retirement
Security and Savings Act of 2019 (S. 1431) (the ``Portman/Cardin
bill'') and the Retirement Plan Simplification and Enhancement Act
(H.R. 4524) (the ``Neal bill''), will be important in further
increasing retirement security for Americans. These bills contain
critical additional reforms that, together with RESA and the SECURE
Act, will usher in a new era of retirement security in part by
protecting and encouraging employers' ability to be flexible and
innovative when it comes to helping their employees save for
retirement.
Two examples of these important additional reforms are: (1)
proposals that would make it easier for employers to provide matching
contributions to 401(k) retirement plans based on an employee's student
loan payments (as contained in Senator Wyden's Retirement Parity for
Student Loans Act (S. 1428), as well as the Portman/Cardin bill); and
(2) a new automatic enrollment safe harbor that would provide in part
for higher initial default contribution rates than the automatic
enrollment safe harbor that is available today. This latter proposal in
included in the Portman/Cardin bill, the Neal bill, and the Retirement
Security Act of 2019 (S. 321) introduced by Senators Collins and Hassan
(the ``Collins/Hassan bill'').
Question Submitted by Hon. Maggie Hassan
Question. What are the best company practices when it comes to
informing employees, especially young employees, about the matches and
benefits offered to them? And what else can Congress do to help ensure
that young people are investing in their retirement at the earliest
opportunity and are not leaving match money on the table?
Answer. Many Council members engage in efforts to provide financial
education and support programs for their employees. These financial
well-being programs are often designed to help employees understand the
retirement plans and benefits available to them, but in many cases they
also address topics as diverse as budgeting and basic financial skills.
Employers are at the forefront of innovation in the development of
financial well-being programs, and our members have shared with us some
very impressive and measurable successes.
For example, one Fortune 500 company assessed its employees'
behavior and perceptions with respect to the company's retirement
savings programs, and used the results of that assessment to deploy
educational modules in a targeted fashion through webinars and on-site
seminars tailored to its workforce. The company then tracked the
behavior of several hundred employees who participated in a webinar or
on-site seminar. Sixteen percent of those who participated in a webinar
increased their elective deferrals from an average of 10 percent of
earnings to 14.3 percent. Similarly, 12 percent who participated in an
on-site seminar increased their savings rate in the employer's
retirement plan from an average of 8.7 percent to 11.4 percent. Other
Council members have found success in pairing financial well-being
programs with technology, such as a simplified ``Easy Enroll'' program
that offers new hires a ``three-click'' enrollment process with respect
to the retirement plan that places them in a pre-established framework
of a high default savings rate, automatic annual increases in the
salary deferral rate, and investment in low-cost, age-appropriate
target date funds.
Congress has an important role to play in helping to ensure that
younger workers invest in their retirement at the earliest opportunity.
At a minimum, Congress should take care so as not to take any action
that would hinder employers' flexibility in developing innovative
financial well-being programs, including the integration of technology
with such programs. But beyond that, in order for financial education
to have an impact on retirement savings, it must be coupled with
action. To that end, legislative proposals such as the new ``secure
deferral arrangement'' automatic enrollment safe harbor, which is
included in the Collins/Hassan bill, the Portman/Cardin bill, and the
Neal bill, are especially important in encouraging employers to adopt
automatic enrollment and automatic escalation at higher default levels
that will better start younger workers on a path to future retirement
security. We believe that secure deferral arrangements and similar
proposals, when combined with financial well-being programs that
educate employees about the importance of saving for retirement at a
sufficiently high deferral rate, will be especially meaningful in
ensuring that young people begin saving at their earliest opportunity
and take advantage of all the benefits their employers offer.
______
Prepared Statement of Hon. Chuck Grassley,
a U.S. Senator From Iowa
Good morning. Today the committee will continue its work on
retirement security and the challenges facing the U.S. retirement
system.
I want to welcome our witnesses this morning. I look forward to
hearing your thoughts and ideas on ways to improve the United States
retirement system.
Last month, Senator Wyden and I introduced the Retirement
Enhancement and Savings Act of 2019--which typically goes by the
nickname of RESA. This bill is an update package of important reforms
to the retirement tax rules which was developed and advanced by the
committee over the last two Congresses.
Passage of RESA remains a top priority for me. Its centerpiece
expansion of open MEPs and other common-sense changes would make it
more feasible for businesses of all sizes to offer retirement plans by
harnessing economies of scale and reducing unnecessary administrative
burdens on employers.
I'm hoping that the House will send its version of RESA over to us
at some point this month. And I'll continue to work closely with
Senator Wyden and other committee members to reconcile the differences
and get this important bill to the President.
But there is still work to be done and gaps to fill in the
retirement system. Our focus today will be to explore those issues.
What more can we do now to increase coverage in the existing system,
how we can encourage more people to save, and what approaches should we
take to help workers plan, save, and--critically--live in retirement?
The workplace retirement system is the primary way American workers
save for retirement, whether through a defined benefit pension plan or
an employer-
sponsored defined contribution program. And while defined benefit plans
remain an important part of our overall retirement system, defined
contribution plans--401(k) plans and similar programs--are now the
primary means for private-sector workers to save.
While it's clear that there are gaps in the system and we need to
work on improvements to the system, it's not generally clear that there
is a ``retirement savings crisis.''
Let's look at the numbers. At the end of 2018, $27 trillion has
been set aside in retirement funds, including over $5 trillion in
private-sector defined contribution plans.
Workers with access to a retirement plan has reached 66 percent in
the private sector, with over 75 percent of workers with access to
plans actually making contributions toward their retirement.
Since 1984, the number of 401(k) plans has grown from 17,000 plans
to just over a half-million plans, covering over 60 million active
participants.
By any measure, the growth in these plans and the dollars saved are
a success. But we need to do more to encourage and facilitate
retirement savings. As the economy grows, our retirement system needs
to keep pace, with greater access for employees and independent workers
and efforts to make sure retirees enjoy a financially sound retirement.
So, while this hearing is a continuation of the committees work in
this area, it marks the start of our work on the next round of
retirement savings reforms. We have several members on the committee
who have put forward good ideas for next steps, and our panel today
will share their views on those and other proposals to strengthen our
retirement system.
______
Prepared Statement of Hon. Tobias Read,
Oregon State Treasurer
introduction
Chairman Grassley, Ranking Member Wyden, and members of the
committee, thank you for the opportunity to address the committee on
the topic of retirement security.
My name is Tobias Read, and I have the honor of serving as Oregon's
State Treasurer. At the Oregon State Treasury, we focus on promoting
the financial security of all Oregonians. We manage a $100 billion
investment portfolio, issue the State's bonds, serve as the central
bank for State agencies and local governments, and administer savings
programs for individuals and families.
Before I was elected State Treasurer, I served in the State
legislature. In 2015, I co-sponsored the legislation that led to the
creation of the Oregon Retirement Savings Program, also known as
OregonSaves. The Oregon State Treasury is tasked with implementing
OregonSaves, and my experience with OregonSaves is why I am here to
testify before you today.
We created the first-in-the-nation OregonSaves program in response
to our Nation's retirement savings crisis. According to the National
Institute for Retirement Security, the gap between what's saved and
what's needed is estimated to be at least $6.8 trillion nationally.\1\
At the same time, more than half of the private-sector workforce in the
United States lacks access to an employer-sponsored retirement savings
plan at work. In Oregon alone, with a working age population of 1.8
million, there were an estimated 1 million private-sector workers
without such access. And that matters, because research by the AARP
shows that workers are 15-times more likely to save if there is an
option to do so at work.\2\
---------------------------------------------------------------------------
\1\ https://www.nirsonline.org/wp-content/uploads/2017/06/
retirementsavingscrisis_final.pdf.
\2\ https://www.aarp.org/content/dam/aarp/ppi/2017-01/
Retirement%20Access%20Race%20
Ethnicity.pdf.
That's why everyone should be happy to see the efforts of Oregon
and other States to expand savings options to more people. Empowering
more people to invest in their own futures is vital to the financial
---------------------------------------------------------------------------
well-being of individuals and families alike.
The program is working. I am pleased to report that OregonSaves is
already a success, and it is still just getting started. Tens of
thousands of people are already participating and most of these
Oregonians had never saved before. We have eclipsed $18 million in
savings by the first waves of participants. That number increases by
more than $2.2 million a month and is accelerating.
what is oregonsaves?
OregonSaves is an easy, automatic way for Oregonians to save for
retirement at work. Workers at an employer that does not offer a
qualified retirement plan can automatically enroll and start saving
into their own personal IRA. OregonSaves is also a public-private
partnership. The program is overseen by the State and managed by a
private program administrator with extensive experience in the
financial services industry, similar to how 529 plans are structured.
Oregon employers that do not offer a retirement savings option are
required to offer OregonSaves to their workers. Participating workers
contribute to their IRA with every paycheck, and those IRAs are tied to
the worker and not the job, ensuring that what a worker saves is
portable and will always be their money and under their control.
Workers can opt out if they want, but most are staying in--about three
of every four eligible workers.
Based on early demographic data, two-thirds of workers age 35-44
choose to participate in OregonSaves when they work at a facilitating
employer.\3\ This means OregonSaves is laying a foundation for a long-
term culture shift, in which saving early and throughout your career
becomes the norm.
---------------------------------------------------------------------------
\3\ http://crr.bc.edu/wp-content/uploads/2018/12/IB_18-22.pdf.
But beyond the numbers, I love to hear the stories of the savers,
like Genevieve from the non-profit Merit NW in Salem. Genevieve told us
that OregonSaves is ``the easiest retirement program I have ever
participated in. It has removed a lot of the stress of having to choose
from a long list of decisions that feel overwhelming. Saving for
---------------------------------------------------------------------------
retirement should be easy and painless.''
I'm also excited to see enthusiasm from businesses. Signing up
workers is quick and easy. As Josh Allison, owner of Reach Break
Brewing in Astoria told us, ``OregonSaves allows me to offer a
retirement plan to my employees, which I would have a difficult time
providing on my own. As a small family-owned business, it gives me the
tools to recruit and retain good employees. It also gives my employees
the ability to work for our company as a career. It's a win-win for all
parties involved.''
how does it work?
OregonSaves launched in a pilot phase in July 2017 and began
operating statewide at the beginning of 2018. The program fills an
important gap by expanding access to workers who have traditionally
been unable to contribute to workplace retirement accounts. Workers,
such as hair stylists or those in construction, generally work for
themselves or for small businesses that lack employer-sponsored plans.
For these workers, making long-term financial plans--including for
retirement--often takes a back seat.
The program is currently registering employers with more than 10
workers. The statewide rollout will continue in waves through 2020,
which is the timeline for small firms with four or fewer workers.
However, many employers see the benefits of OregonSaves and aren't
waiting to register. Employers of any size can enroll at any time ahead
of their registration date, and nearly 2,000 have already chosen to do
so.
The program is also open for voluntary enrollment by individuals,
including the self-employed, gig economy workers, and those whose
employers do not facilitate OregonSaves. Over 250 individuals have
self-enrolled since we made that option available late last year.
OregonSaves is adding approximately 1,800 workers per week and the
program now has more than 78,000 workers enrolled. We anticipate a
similar volume of workers to enter the program over the next few years,
as small businesses join the program in the final waves. The estimated
total of eligible workers could be as large as 400,000-500,000.\4\
---------------------------------------------------------------------------
\4\ https://www.oregon.gov/retire/SiteAssets/Pages/Newsroom/
ORSP%20Market%20Analysis%
2013JULY2016.pdf.
The participation rate of eligible workers has remained steady at
around 72 percent, consistent with the market research analysis
completed in 2016,\5\ which estimated opt-out rates of 20 to 30
percent. And, there is potential for opt-out rates to drop over time:
data from the United Kingdom's NEST program, a similar defined
contribution workplace retirement plan with automatic enrollment, show
the opt-out rate dropped by almost 50 percent over time.\6\
---------------------------------------------------------------------------
\5\ https://www.oregon.gov/retire/SiteAssets/Pages/Newsroom/
ORSP%20Market%20Analysis%
2013JULY2016.pdf.
\6\ http://www.nestinsight.org.uk/wp-content/uploads/2018/06/How-
the-UK-Saves.pdf.
Workers automatically enrolled in OregonSaves utilize a standard
set of options designed to reduce the stress and decision paralysis
often ascribed to individuals enrolling in retirement savings plans.
The standard savings rate and account type for OregonSaves is 5 percent
of gross pay into a Roth IRA. Other States (CA, IL) initially set their
standard savings rate at 3 percent, for fear that a higher initial
percentage would reduce participation in the program. Our results show
the higher percentage has not affected participation. The average
savings rate is currently around 5.5 percent, and workers are
contributing an average of $117 per month. Both CalSavers and Illinois
Secure Choice chose to increase their standard savings rate to 5
---------------------------------------------------------------------------
percent based on our results.
We chose a Roth IRA as the standard account type because workers
can withdraw their contributions at any time without penalty. This is
an important design feature for new savers, many of whom lack emergency
savings to weather financial shocks such as car repairs or medical
bills.
Additional standard design features include depositing the first
$1,000 saved into a capital preservation fund. This serves a dual
purpose: first, it keeps our participants away from market volatility
in the early months when they are new to the program. Second, it
ensures that if a worker is automatically enrolled and decides soon
thereafter to withdraw from the program, they can quickly access all
contributed funds. Contributions above $1,000 automatically flow into a
target date fund based on the participant's estimated retirement age.
Finally, the standard design includes an automatic escalation of 1
percent on January 1st of each year until the contribution rate reaches
10 percent. Almost 10,000 OregonSaves participants had their first
auto-escalation on January 1, 2019 and we are happy to report that 90
percent of participants who auto-escalated made no changes to their
contribution rates. In fact, 48 participants used the reminder as an
opportunity to increase their savings rate even further.
Preliminary analysis of participant data by the Center for
Retirement Research at Boston College shows that 83 percent of workers
who have not opted out are sticking to the default. This is similar to
worker behavior in 401(k) plans.\7\ Participants can go online or call
at any time to make changes to their contribution rate, type of
investment, account type (Roth or Traditional IRA), or auto-escalation
details. And many do. The OregonSaves call center gets approximately
3,600 calls per month from participants seeking to interact with their
accounts.
---------------------------------------------------------------------------
\7\ http://www.nber.org/2018rrc/slides1/1.2a%20-
%20Belbase.pdf#page=13.
---------------------------------------------------------------------------
employer facilitation
From the beginning, Treasury was aware that the success of the
OregonSaves program relied heavily on our relationship with employers
throughout the State. We constructed the program to limit the
requirements on employers as much as possible and are constantly
considering ways to decrease the time employers spend facilitating the
program. Employer interaction with the program includes the steps
outlined below.
First, registration or exemption. All Oregon employers receive
notices from the OregonSaves program in the months leading up to their
registration date. For employers that already offer a qualified
retirement plan, these notices simply prompt them to go online and
certify themselves as exempt. In practice, we have seen a small number
of employers use these program notices as a prompt to set up their own
qualified retirement plan instead of facilitating OregonSaves. We see
this as an exciting development, both for workers, who will have access
to better benefits, and for private industry.
In addition to the self-exemption process, we have determined two
other ways to certify that an employer is exempt. If an employer files
a Federal form 5500 and our staff is able to positively match the
business on the form 5500 with the Oregon business, we will send a
notice of presumed exemption from the program. Additionally, Treasury
has a bill currently before the Oregon Legislature (Senate Bill 165),
which would add a checkbox on a required annual business filing with
the Oregon Department of Revenue. If the bill passes, employers
offering a qualified retirement plan could check the box on the form
and the Department of Revenue would transfer data to Treasury to exempt
the employer from the program.
Employers that do not offer a qualified retirement plan go online
to register. Registration involves verifying basic employer information
and affirming the employer does not currently offer a plan. Once
registered, the employer is prompted to provide basic information about
each worker so OregonSaves can contact individuals to set up their
accounts or obtain opt-out forms. Employers can either upload an excel
spreadsheet onto the program platform or enter this data manually. Most
employers tell us this process takes approximately 30 minutes to an
hour, depending on the number of workers and the method used for
upload.
Beginning 30 days following worker enrollment, employers begin
transferring contribution amounts to the individual IRAs. Employers
using a payroll service provide instructions to their payroll provider
to initiate these transfers. Employers without a payroll service handle
these transfers as they would any other deduction from an employee's
pay. Employers and payroll providers tell us this adds 10-15 minutes to
their payroll each pay period.
program changes for employers
Our original program rules gave employers the ability to make
programmatic changes to individual worker accounts and asked employers
to distribute program materials to workers. We have since shifted all
responsibility for making changes and distributing materials to our
third-party program administrator. In so doing, we are reducing the
amount of time employers spend facilitating the program and ensuring
the information reaching workers is provided in a timely and efficient
manner.
We have also been working together with Illinois Secure Choice and
CalSavers to collaborate with the Nation's largest payroll providers.
At a meeting in Chicago last month, over a dozen payroll providers sent
representatives to discuss how best to integrate payroll services with
the State programs. It is our hope that by laying this groundwork
early, payroll providers and third-party provider platforms will
automate communication this year, further reducing the employer's role
and in some cases eliminating their responsibilities entirely.
ensuring worker access to oregonsaves
Our goal is to ensure every Oregonian access to a retirement
savings option at work. Oregon law requires all employers that do not
offer a qualified retirement plan to facilitate OregonSaves, but does
not include a mechanism to investigate compliance. The Oregon
Legislature is set to vote on Senate Bill 164, which would allow our
Bureau of Labor and Industries to investigate employer compliance.
Treasury worked with employer and stakeholder groups to draft and amend
this bill. The goal is to ensure all Oregon workers have access to the
program without placing an undue burden on small employers around the
State.
At a recent House Business and Labor committee hearing,
representatives of the business community spoke about the process of
creating program rules for employers, and this proposed compliance
mechanism. A lobbyist representing several employer groups in Oregon,
said ``the Treasurer's office has been incredible in the implementation
of this program . . . they have tirelessly worked with us throughout
the rules process to ensure this is easy to implement. My clients are
excited about it, their employees are excited about it. It's not what I
thought I would have been telling you 2 years ago or 3 years ago.''
The OregonSaves call center gets approximately 1,250 calls per
month from employers with questions about the program and their role as
a facilitating employer. The OregonSaves team has provided over 330
one-on-one training sessions to employers to assist in program set-up
and provides informational sessions across the State to employer groups
of varying sizes.
public support
The public overwhelmingly supports OregonSaves. Employers say it is
easy to sign up workers, and based on a recent public survey by DHM,\8\
the level of support has actually increased in the first year. That
poll found an astounding 82 percent of people support OregonSaves.
---------------------------------------------------------------------------
\8\ https://www.aarp.org/content/dam/aarp/research/
surveys_statistics/econ/2018/oregon-retirement-savings-
oregonsaves.doi.10.26419-2Fres.00248.001.pdf.
They know it is the right approach, and that it will improve
savings, making Oregon stronger, today and in the long run. Or as John,
an employee at Provoking Hope in McMinnville told us, ``I'm 30 and now
just thinking about my future. For the first time in my life, I'm
thinking ahead. Where I'm at today is a 180 [degree] turn--I never even
had a bank account before. I'm grateful these types of programs are
available to get people on the right track.''
no fees for employers; reducing fees for workers
Facilitating OregonSaves is fee-free for employers. Program costs
are covered by fees on the IRA account assets. The all-in fee for
workers is capped at 1.05 percent of assets per year. This level will
likely drop once the program is fully implemented and assets continue
to grow. According to the 2016 feasibility study,\9\ it is estimated
that fees could drop down to 30 to 50 basis points after start-up costs
are repaid. In fact, investment fund fee reductions are already a
reality. In September 2018, State Street Global Advisors, OregonSaves'
investment manager, announced lower investment fund fees for the
OregonSaves Target Retirement Funds (from 13 to 9 basis points), which
is the standard investment option for participants, as well as for the
OregonSaves Growth Fund (from 6 to 2 basis points), reducing the all-in
fees for workers invested in those options accordingly.
---------------------------------------------------------------------------
\9\ https://www.oregon.gov/retire/SiteAssets/Pages/Newsroom/
ORSP%20Feasibility%20Study
%208_11_2016.pdf.
---------------------------------------------------------------------------
federal law and interaction with state programs
OregonSaves and the other State-based auto-IRA programs are
constantly seeking better ways to serve employers and program
participants. We believe the following changes at the Federal level
would help achieve our program goals of reduced burden on employers and
a better product for our participants:
(1) Creating a robust 5500 database. As previously mentioned,
we currently use Form 5500 data to presume employers exempt
from the program. While helpful, that data is not as robust as
we originally anticipated. Our match rate was approximately
11.5 percent when comparing our data with the Form 5500
filings. Upon further research, we believe part of the issue is
that subsidiary companies are not listed in a way that can be
easily searched and retrieved. If a more robust database
existed, OregonSaves and the other State programs could more
easily exempt employers that offer a qualified retirement plan,
meaning we can reduce the administrative burden on exempt
employers and focus our efforts and resources on those
businesses who need to facilitate.
(2) Allowing minors to use OregonSaves. Under the age of
majority (18 or 21, depending on the State) an IRA is a
custodial account that a custodian (typically a parent) holds
on behalf of a minor child. The account is transitioned into
the child's name at the age of majority. We recommend changing
this requirement and allowing minors as young as 16 to open
their own accounts and hold the money in their own names. This
would allow State-based programs to auto-enroll minors working
at facilitating employers and get young workers in the habit of
saving early in their working lives.
(3) Exemption from future Federal legislation. When
considering Federal legislation that would overlap or create
national-level retirement savings programs, we would ask for an
exemption to allow State-based programs to continue where they
already exist.
conclusion
OregonSaves is already succeeding and achieving the goal of
improved access to retirement savings. Workers and businesses across
Oregon express strong support and agree about the need for the program.
Kevin, the Chief Content Officer at Statehood Media in Bend, summed up
the need for this program when he said, ``the Oregon Retirement Savings
Plan reminds us that now, more than ever, we need to find easy and
convenient ways to fund our retirement. . . . For me, it makes
recruiting to Oregon easier. For the country, this is a step forward in
national security.''
The success of OregonSaves will have long-term positive
implications for the savers and for Oregon. Thousands of Oregonians
will save significant amounts of money for years to come as OregonSaves
is phased in statewide. Every person is different and their retirement
needs will vary, but OregonSaves and the ability to save is already
improving our business climate, and is already increasing the long-term
financial stability of thousands of Oregonians.
And we are just getting started.
______
Questions Submitted for the Record to Hon. Tobias Read
Questions Submitted by Hon. Chuck Grassley
Question. It is my understanding from your testimony at the
hearings that employers joining the Oregon plan will not incur any cost
to maintain the accounts for the employees. If the employer does not
pick up the tab, then is the employee paying for this retirement
account and/or will the State pick up some of the cost? If the
participant pays for their own account, how does the State determine an
appropriate fee for service?
Answer. There are no fees for employers. The OregonSaves program is
entirely funded by an all-in fee on participants' assets under
management, similar to how 529 plans are funded. The Oregon Retirement
Savings Board oversees the program and takes many factors into
consideration when determining fees, including the startup and ongoing
costs of program administration and the costs of the underlying
investments offered. Currently, the all-in fee is capped by
administrative rule at 1.05 percent of assets. The actual fee incurred
currently ranges from 92 basis points to 103 basis points, depending on
which funds savers are invested in. The Board expects to lower fees
over time as assets under management increase, we repay startup costs,
and the program reaches economies of scale. The Pew Charitable Trusts
recently performed an analysis of the cost of programs like OregonSaves
versus other types of plans, which provides helpful context on program
fees: https://www.pewtrusts.org/en/research-and-analysis/articles/2018/
02/26/are-auto-ira-plans-a-good-deal-for-savers.
Question. Our understanding of the Oregon program is that funds set
aside by participants are pooled and invested in the standard
``Investment Option'' with a nominal account or ``unit'' associated
with each individual participant. For simplicity purposes, the program
offers a limited number of investment options. What are the plan's
targeted per participant rates of return for the different investment
options offered under the program?
Answer. OregonSaves was designed with simplicity in mind. Our goal
has been to reduce as many common barriers to saving as possible.
That's why the program uses automatic enrollment into an individually
owned Roth IRA. Research shows that automatic enrollment increases
participation rates substantially. Saving becomes the standard. For
those who automatically enroll, the program has a standard investment
path. The first $1,000 is invested in a conservative capital
preservation fund. This helps ensure that participants do not
experience an immediate loss in value if the beginning of their saving
coincides with a market downturn. It also provides a liquid reserve of
sorts that savers can access if they should have a budgetary emergency.
Many of our savers are low-to-medium income and may not have other
savings available for emergencies. Contributions after the first $1,000
are invested in a target date fund based on the savers' age and
estimated date of retirement. Target date funds automatically rebalance
investments over time, becoming more conservative as workers near
retirement.
OregonSaves participants can remain on the standard investment
path, or they can opt to invest in any of the funds offered through the
program. The program provides three basic types of funds that range
from conservative to aggressive, to accommodate savers with differing
risk tolerances. In addition to the capital preservation fund and the
suite of 12 target date funds, the program also includes a growth fund,
which is an S&P500 index fund. These investment options provide savers
with a meaningful range of choices, while keeping the program simple
and easy to understand. Offering too many investment options can lead
to decision paralysis for investors, especially if they are new to
investing.
As Genevieve Sheridan, an employee at Merit NW, a nonprofit in
Salem, OR, says, ``This is the easiest retirement program I have ever
participated in. It has removed a lot of the stress of having to choose
from a long list of decisions that feel overwhelming. Saving for
retirement should be easy and painless.''
As with any form of investing, returns will depend on market
conditions. There is no guaranteed rate of return. We provide historic
investment performance information for savers on our website at https:/
/saver.oregonsaves.com/home/savers/investments.html.
Question. Are these State-run plans designed to provide retirement
readiness? For private-sector plans, participation and savings rate are
two of the main factors towards retirement readiness. State-run plans
have addressed participation via auto enrollment into the program and
an IRA established in the employees' name. For savings rate, the State
program carries restrictions to contributions as the limits are aligned
with the IRA limits (e.g., $5,500 for 2019). If contribution limits in
these State programs are substantially less than 401(k) plan limits,
how can employees save enough to retire in a State-run program?
Answer. Any one solution on its own isn't going to solve the
retirement savings crisis in America. The fact is that many of us will
need to rely on multiple sources of income during retirement, including
but not limited to Social Security, employer-sponsored retirement
plans, and Individual Retirement Accounts.
OregonSaves is designed to get more people in the habit of saving
by making saving as easy as possible. The program has a standard
savings rate of 5 percent of gross pay to encourage people to start
saving at a rate that is high enough to make a real impact on their
long-term savings without being so high that it discourages them from
participating. The program also includes automatic escalation of
contributions, increasing savers' rates by 1 percent per year until
they reach 10 percent of gross pay. On average, savers are currently
saving about 5.56 percent of their gross pay, a higher percentage than
the standard. That works out to about $110 saved on average per month
or about $1,320 per year. While that's below the annual contribution
limits for IRAs, it's worth noting that this is money that wasn't
previously being saved for retirement. And this is a significant amount
of money for the people that OregonSaves serves, who are mostly low- to
medium-income. It's a great start, and we expect people to save an even
larger amount as their contribution rates automatically increase each
year. After the first escalation of contributions occurred on January
1, 2019, 90 percent of savers kept their rates at the new, higher rate.
Even saving small amounts through programs like OregonSaves can
make a difference in the long run by allowing savers to delay taking
Social Security by months or even years. Pew estimates that
``participants in auto-IRA accounts could see Social Security benefit
increases of nearly 7 percent to slightly more than 8 percent for each
year they use their account savings to delay claiming these
benefits.''\1\
---------------------------------------------------------------------------
\1\ https://www.pewtrusts.org/en/research-and-analysis/issue-
briefs/2018/03/auto-iras-could-help-retirees-boost-social-security-
payments.
And it's important to note that we view OregonSaves as something
that can align well with the variety of other savings plans that exist.
We know of a number of employers who have been prompted to set up their
own 401(k) plan due to the establishment of OregonSaves. Even though
this means they are not participating in OregonSaves, we view this as a
positive outcome since it increases access to workplace-based
---------------------------------------------------------------------------
retirement savings.
Question. According to plan documents, the Oregon Retirement
Savings Board is responsible for investing the funds contributed to
participant accounts, and has outsourced the investment management of
these funds to State Street Global Advisors. Please provide the
investment policy of the Board and the criteria used in selecting the
outside fund manager.
Answer. The Oregon Retirement Savings Board spent considerable time
and effort developing an investment policy to guide the selection of
investments for the program and ensure that the investments offered
aligned with the goals of the program and the needs of its
participants. A copy of the investment policy is available online at:
https://www.oregon.gov/retire/SiteAssets/Pages/Rules/3a-1%20-%20Oregon
Saves%20Investment%20Policy%20Statement%20-%20Counsel%20Edits%20-%2020
17.6.22%20-%20CLEAN.pdf.
Using the policy as a guide, the Board decided to offer three types
of investment options that range in risk exposure: a capital
preservation fund, a suite of target date funds, and a growth fund. For
each type of investment, the Board used an open, competitive process to
review available options, taking into consideration factors such as
cost, historic performance, and comparison to benchmarks. The Board
then selected the investment manager for each investment type.
Documents related to the selection process can be found online on the
Board's website at: https://www.oregon.gov/retire/Pages/Meetings.aspx.
Question. The investment options under the plan appear from
offering documents to be low-cost index funds. The participant fees for
investment into these funds are about 1 percent. What level of these
fees goes to the investment manager and what are the fee amounts going
to the State? How do these fees compare to low-minimum Roth-IRA options
offered in commercial markets?
Answer. OregonSaves is funded by an all-in fee on savers' assets
under management. The all-in fee covers all aspects of the program,
including the State's expenses, the cost of the program administrator,
and the cost of the underlying investment options. The fee is about 1
percent of assets under management and can be broken down as follows:
15 basis points for the State.
75 basis points for the program administrator.
2-12 basis points for the investment manager, depending on
the fund.\2\
---------------------------------------------------------------------------
\2\ OregonSaves offers three different types of investment options:
a conservative capital preservation fund, a suite of target date funds,
and a growth fund.
It's worth noting that OregonSaves differs from other Roth IRA
options, because the program is facilitated through the workplace.
Having the option to save automatically at work is extremely important.
Research from the AARP shows that individuals are 15 times more likely
to save if they have a way to do so at work.\3\ Since OregonSaves was
the first program of this kind to launch, it took significant resources
to develop a system that allows employers to facilitate the program for
their employees, including the development of employer, payroll
provider, and employee portals. For this reason, it would make sense to
compare the cost of OregonSaves to the cost of other workplace savings
options. The Pew Charitable Trusts recently performed an analysis of
the cost of programs like OregonSaves as compared with other types of
plans, which can be found here: https://www.pewtrusts.org/en/research-
and-analysis/articles/2018/02/26/are-auto-ira-plans-a-good-deal-for-
savers.
---------------------------------------------------------------------------
\3\ https://www.aarp.org/ppi/info-2017/Access-to-Workplace-
Retirement-Plans-by-Race-and-Ethnicity.html.
The Board expects to lower fees over time as assets under
management increase, we repay startup costs, and the program reaches
economies of scale. In fact, the expense ratios for the target date
funds have already decreased from 13 basis points to 9 basis points,
and the expense ratio for the growth fund decreased from 6 basis points
---------------------------------------------------------------------------
to 2 basis points.
______
Questions Submitted by Hon. Tim Scott
Question. In South Carolina, we have a large--and growing--
population of retirees, as well as a dynamic, diverse workforce--where
retirement security is a high priority.
Now, one hurdle to ensuring a successful and stable retirement, in
the past, has been a lack of portability as folks transition from one
job to the next. Of the 14.8 million workers who change jobs each year,
6 million cash out of their retirement plans. This has been
particularly difficult for some African American employees, who have a
401(k) cash-out rate of 63 percent.
For this reason, I have been strongly supportive of the private
sector's efforts to address cash-outs and, in particular, the
development of auto-portability, which would allow a person's
retirement savings to move with them when they change jobs. I worked
closely with Secretary Acosta and the Department of Labor on guidance
to facilitate auto-portability, and it has the potential to help
millions of families. Now, we just need to implement the system, and
I'm hopeful we can move forward with that as efficiently as possible.
To what extent do you see cash-outs and leakage as threatening
retirement security in the long term, and are there other steps we can
take to build upon auto-portability?
Answer. One of the defining features of OregonSaves is that
accounts are portable. Each saver has their own, individual account
that goes with them throughout their career, from one job to the next.
By the time the program is fully rolled out, tens of thousands of
employers in Oregon will facilitate OregonSaves. Workers who move from
one facilitating employer to another don't need to do anything to keep
saving. They can automatically reenroll and continue to save with each
paycheck into their account at their new employer. Even if a worker is
no longer employed by a facilitating employer, they can continue to
contribute to OregonSaves through their bank account. Cash-outs tend to
occur when employees leave their job and no longer contribute to the
employer-sponsored plan. With OregonSaves, you can keep contributing
regardless of where you are in your career, and that continuity of
saving can help workers' retirement security over the long term.
In recent decades, we've seen what I see as an exciting shift
towards greater flexibility, control, and stability in retirement
savings. Total retirement savings have risen from 48 percent of total
employee wages in 1975 to a staggering 337 percent of wages in 2017.\4\
And in 2016, the Survey of Consumer Finances found that three-quarters
of Americans over 65 reported retirement income that was at least
enough to maintain their standard of living--up 14 percentage points
since 1992.\5\
---------------------------------------------------------------------------
\4\ https://www.napa-net.org/news-info/daily-news/13-things-you-
probably-didn%E2%80%99t-know-about-retirement-savings.
\5\ https://www.federalreserve.gov/econres/scfindex.htm.
That being said, financial literacy remains a barrier to effective
retirement savings for too many Americans. A 2018 report from the Board
of Governors of the Federal Reserve System found that three-fifths of
non-retired adults with self-directed plans reported having little or
no comfort managing their investments.\6\ On a five-question assessment
on basic finance, the average number of correct answers was just
2.8.\7\ In these circumstances, cash-outs when an employee moves from
one employer to another make sense. The process for rolling over
retirement accounts is confusing and time-intensive, and transitioning
workers already have enough to think about when changing jobs. We need
to ensure there are simple and easy ways to keep money already saved in
the system and earmarked for retirement during these periods of
transition. Auto-portability is a great first step at addressing this
issue.
---------------------------------------------------------------------------
\6\ https://www.federalreserve.gov/publications/2018-economic-well-
being-of-us-households-in-2017-retirement.htm.
\7\ Ibid.
Question. Clearly one piece of this puzzle is improving our
educational system to ensure that financial literacy receives much more
emphasis. Beyond that, however, what tools, resources, and programs are
out there that might assist folks in planning for their financial well-
being in the long term, and--more importantly--how can we connect
---------------------------------------------------------------------------
workers to these programs?
Answer. Improving financial literacy is an important priority and
one of our biggest challenges. The current system is not working for
many Oregonians, leaving them without the right opportunities, tools,
and financial education resources they need to address the real,
ongoing economic challenges they face today.
Oregon families face rising consumer debt and student loan debt,
limited retirement savings, limited personal savings, more financial
product choices without more financial know-how, and the overuse of
payday, check cashing, and title loans. These issues have serious
impacts for families and on the State, our economy, and the social
service system. And even with more income and opportunity, Oregonians
will not have better financial outcomes without the right tools and
financial education.
State agencies and their partners in Oregon already perform a
significant amount of financial education and outreach, but without the
benefit of coordination that would increase their efficiency, reach,
and impact. Currently, there is no single entity in Oregon that is
responsible for coordinating financial education efforts. If State
government and private entities worked together to provide better
access to meaningful financial information and resources, we would
better empower Oregonians to improve their financial literacy and their
lives.
Agencies and their partners agree that better coordination and
support of their efforts is the key to improving financial literacy in
Oregon. In 2015, as part of the creation of OregonSaves, the Oregon
Legislature requested the Oregon State Treasury provide a series of
recommendations to improve financial literacy in the State. After a
series of working groups and discussions with Oregon's experts from the
public and private sectors, Oregon State Treasury came up with the
following recommendations:
1. Assign responsibility for the coordination of statewide
financial education efforts to a single entity.
2. Connect Oregonians to current resources by creating a more
comprehensive network or clearinghouse of information for the
public.
3. Provide support for current programs through cross
promotion and public/private partnerships as well as provide
more funding for financial education providers with a track
record of success.
4. Improve curriculum-based financial education by making
financial literacy an essential skill required to graduate high
school and by better aligning adult and K-12 financial
education programs.
For a full list of the recommendations, please see page 8 of the
2016 OregonSaves annual report to the Oregon Legislature at: https://
www.oregon.gov/retire/SiteAssets/Pages/Newsroom/
Oregon%20Retirement%20Savings%20Plan%20Decem
ber%202016%20Status%20Report%20to%20the%20Legislative%20Assembly.pdf.
More recent scholarship also suggests that a special focus of
financial literacy efforts should be on getting the right information
to the right people at the right time. Studies of financial literacy
retention are not encouraging, suggesting that a more focused approach
on delivering relevant information and tools, when they are likely to
be useful, would be more effective.
Questions Submitted by Hon. Maria Cantwell
Question. The States are leading the way by creating new and
innovative ways to expand retirement savings options. Oregon has
enacted an ``auto-IRA'' system that allows workers to save through
their employer's retirement savings plans or use the State program if
an employer does not offer a plan. Many States have followed your lead
and your model. In Washington, we chose a different model--a
``marketplace'' model, which lets small businesses and individuals shop
around for the retirement savings plan that best meets their needs. New
Jersey uses this model too.
What changes could Congress make to Federal law that would aid in
the implementation of State-based auto-IRA programs?
Answer. OregonSaves and the other State-based auto-IRA programs are
constantly seeking better ways to serve employers and program
participants. We believe the following changes at the Federal level
would help achieve our program goals of reduced burden on employers and
a better product for our participants:
(1) Creating a robust 5500 database. We use Form 5500 data to
presume employers exempt from the program. While helpful, that
data is not as robust as we originally anticipated. Our match
rate was approximately 11.5 percent when comparing our data
with the Form 5500 filings. Upon further research, we believe
part of the issue is that subsidiary companies are not listed
in a way that can be easily searched and retrieved. If a more
robust database existed, OregonSaves and the other State
programs could more easily exempt employers that offer a
qualified retirement plan, meaning we can reduce the
administrative burden on exempt employers and focus our efforts
and resources on those businesses who are required to
facilitate.
(2) Allowing minors to use OregonSaves. Under the age of
majority (18 or 21, depending on the State) an IRA is a
custodial account that a custodian (typically a parent) holds
on behalf of a minor child. The account is transitioned into
the child's name at the age of majority. We recommend changing
this requirement and allowing minors as young as 16 (or
whatever age allows them to work for compensation) to open
their own accounts and hold the money in their own names. This
would allow State-based programs to auto-enroll minors working
at facilitating employers and get young workers in the habit of
saving early in their working lives.
(3) Exemption from future Federal legislation. When
considering Federal legislation that would overlap or create
national-level retirement savings programs, we would ask for an
exemption to allow State-based programs to continue where they
already exist.
(4) Remove retirement account savings from the asset
limitations for SSI. In 2018, we passed legislation in Oregon
to remove retirement account savings from the State-level asset
limitations for the Temporary Assistance for Needy Families
(TANF) program. By allowing Oregonians to keep the money they
have already saved in their retirement accounts, even when they
fall on hard times and require assistance, we are telling them
that they do not have to choose poverty now or poverty later.
The State can help these families weather a job loss, injury,
or other major life event, without forcing that family to give
up long-term financial security in retirement. We would ask
Congress to consider doing the same for the asset limitations
for Supplemental Security Income (SSI). Individual Development
Accounts (IDAs) and ABLE account balances are already exempt
from the $2,000 individual asset limit for SSI. Removing
retirement accounts from the asset limit would empower
individuals to think long-term and save for their own
retirement security.
Question. What are the key concerns of employers and how have you
addressed those concerns?
Answer. Employers always have a lot on their plates, and we have
tried to keep that in mind throughout the process of designing and
implementing the program. In the end, we want the program to be a
benefit to employers as well as savers. OregonSaves can provide
business owners with an easy way to save their own money for
retirement, and an easy and no-fee way to provide an important benefit
to their workers. As Josh Allison of Reach Break Brewing in Astoria
puts it, ``OregonSaves allows me to offer a retirement plan to my
employees, which I would have a difficult time providing on my own. As
a small family-owned business, it gives me the tools to recruit and
retain good employees. It also gives my employees the ability to work
for our company as a career. It's a win-win for all parties involved.''
It's also worth noting that research shows that employees are more
productive when they have less financial-related stress.\8\
---------------------------------------------------------------------------
\8\ https://www.fidelity.com/about-fidelity/institutional-
investment-management/research-finds
-the-top-two-sources-of-stress-for-american-worker.
Employer concerns have been largely centered on the time and
resources necessary to facilitate the program. With that backdrop,
OregonSaves has been intentionally designed to limit the employers'
role as much as possible. The State of Oregon takes on most
responsibilities for administering the program, including fiduciary
responsibility. The employer only handles those steps in the process
the State cannot: providing employee information and making payroll
deductions for those that enroll. We are constantly looking for ways to
decrease the employer's role. For instance, employers were initially
responsible for distributing information about the program to
employees, but we were able to take on that task ourselves. We are also
working with payroll providers to better integrate our systems, so
information can automatically pass from one system to another, further
reducing the obligations of employers related to payroll deductions for
---------------------------------------------------------------------------
the program.
Since the beginning, we have engaged the employer and business
community to gather their input and feedback. We included employers in
our initial program design workgroups and employer representatives have
been on our rulemaking advisory groups. Before launching the program,
we conducted two pilots with volunteer employers to help us ensure the
program worked as well as possible. We continue to solicit feedback
from employers on a regular basis and use that information to plan
improvements and changes to the program and system. In fact, we are now
working with the Pew Charitable Trusts to survey all facilitating
employers to learn more about their user experiences. All of this
engagement has been critical to the success of the program. It has
allowed us to continually reduce our ask of employers, which in turn
allows them to spend more time running their businesses.
At a recent Oregon House Business and Labor committee hearing, one
representative of several employer groups in Oregon testified to this,
saying, ``the Treasurer's office has been incredible in the
implementation of this program they have tirelessly worked with us
throughout the rules process to ensure this is easy to implement. My
clients are excited about it, their employees are excited about it.
It's not what I thought I would have been telling you 2 years ago or 3
years ago.''
Question. Too many people underestimate how much money they will
need to save in order to comfortably retire. Individuals need a better
understanding of the lifetime value of their current level of savings
in their 401(k) plan. Understanding of the value of the total assets
saved for retirement and how much those savings will translate to on a
monthly basis will help to improve individual retirement savings
levels. By helping workers better gauge how much they will need to
retire, individuals will be better prepared for retirement and be able
to make more educated decisions about their savings and investments.
How would providing an estimate of the monthly income distribution
from their retirement savings on the individual's annual benefit
statement help working people gauge their progress toward reaching the
goal of a safe and secure retirement?
Answer. People benefit from tools that help them gauge their
potential income in retirement. Such tools can help individuals
estimate the future value of dollars saved, as well as how much of
their current income their savings will replace during retirement. With
this information in hand, workers can make informed decisions about how
much to save and potentially course correct if it looks like they are
falling behind.
For the OregonSaves program, we've developed a retirement
calculator that allows participants to see what saving a specific
percentage of their pay could mean in terms of dollars saved by the
time they retire. It can be hard for workers to see how the standard 5-
percent contribution adds up over time, taking into account the power
of compound interest. A next step for us is to expand that tool to
provide a more holistic view of savers' progress toward retirement
security.
While there are many online tools for consumers to estimate
retirement income, the best allow consumers to factor in all sources of
income, including Social Security payments, pension benefits, defined
contribution plan balances, and IRA savings. It's even better when the
tools are tied to actual accounts and benefits, allowing for retirement
income estimates based on actual savings and benefits earned by the
individual. We will continue to look for ways to supplement our tools
and work with others.
Questions Submitted by Hon. Michael F. Bennet
Question. As you know, retirement can be daunting for many
Americans who have not had an opportunity to save. We have an
obligation to make it easier for people to save for retirement, and
automatic enrollment IRAs are a good step in that direction.
What have you learned about the best way to design such a program
to maximize uptake and economic security in retirement for workers?
Answer. The State of Oregon created OregonSaves with two basic
design principles in mind: ease and simplicity, and our success is due
to the fact that these principles have been applied to every aspect of
the program. Saving needs to be as easy as possible--both for employees
to save and for employers to facilitate that savings. Features like
automatic enrollment and auto-escalation of contributions take into
account human nature and remove the inertia standing in the way of
getting started and saving more. People know they need to save. People
want to save. And they will, if we lower the barriers and make saving
the norm for all workers.
Most employers want to offer retirement benefits. Like employees,
they want it to be easy, so we need to limit the time and effort
involved as much as possible, especially if we are asking them to take
on administrative efforts as a requirement of doing business. When
designing programs like OregonSaves, it is critical to engage the
business community at every stage. Through their input and feedback, we
can help make sure the program aligns with the way they do business and
work towards ever better integration with their systems and processes.
We've learned important things and made improvements to OregonSaves as
a direct result of employer engagement.
One way to maintain ease for both workers and savers is to keep the
program simple. We started the program with a standard path of savings
options for savers. The majority of savers continue to use the standard
path. But we know one size doesn't fit all, so we've also provided
savers with a range of other options from which to choose. They can
change their savings rate anywhere from 0 to 100 percent of their pay.
They can choose from a small but meaningful range of investment
options. They can switch from a Roth IRA to a Traditional IRA. And if
we hear requests from savers for more or different options, we have the
flexibility to add those to the program over time. If we had tried to
add all of the bells and whistles to start, it would have made it
harder to develop and roll out the program, and the extra added
features might not have aligned with actual customer demand. By keeping
it simple to start, we make the program easier to implement, and now
our actual users can inform future enhancements and updates.
Question. What can we do at the Federal level to facilitate more of
these types of efforts in the States?
Answer. In addition to the Federal level recommendations proposed
in the written testimony, in Oregon we are closely following efforts at
the Federal level to craft and create a national version of
OregonSaves. We believe every American should have to opportunity to
save through their employer and support the efforts in Congress to
create a national auto-IRA program. If a national program comes to
fruition, we would support a carve out from the national program for
States that have already launched auto-IRA programs, as well as States
that choose to launch their own auto-IRA program at a later date. We
believe that State-level programs allow for a nimble response to
specific regional challenges and that States should be allowed to take
on the administration of such a program, should they choose to do so,
as long as they meet the minimum requirements of the national program.
Question. As the American workforce changes, the way we plan for
retirement has to adapt as well. Often, people are working for multiple
companies at once, or frequently changing employers throughout their
careers. Unique work situations require us to think more creatively
about how we can help people save.
One idea would be to create a 401(k) or 401(k)-like product that is
detached from a specific employer. This would allow employees to
maintain the same account as they go between employers, and allow those
employers to match their contributions and follow other best practices,
like auto-enrollment and auto-escalation, while applying the same
protections that they receive in an employer-based 401(k).
What are your views on this idea?
Answer. Portability of retirement accounts would benefit people by
encouraging more people to save and to keep saving throughout their
careers. Some people may work for the same company for their entire
career, but most of us will change employers at some point. We may
decide to start our own business. Or we might work in the gig economy,
where we don't have access to employer-provided benefits. As the nature
of work changes over time, it would help to have retirement savings
options available for workers that adapt to those changes.
One of the defining features of OregonSaves is that accounts are
portable. Each saver has their own, individual retirement account that
moves with them throughout their career, from one job to the next. By
the time the program is fully rolled out, the majority of employers in
Oregon will facilitate OregonSaves. People who move from one
facilitating employer to another don't need to do anything to keep
saving. They can automatically reenroll and continue to save with each
paycheck into that same account at their new employer. Even if a person
no longer works for a facilitating employer, they can continue to
contribute to OregonSaves through their bank account. With OregonSaves,
you can keep contributing regardless of where you are in your career,
and that continuity of saving can help workers' retirement security
over the long term.
Other retirement products could be designed the same way. We would
certainly like to give OregonSaves participants access to the higher
contribution limits associated with a 401(k), and a number of
OregonSaves facilitating employers have expressed a desire to match
employee contributions. That said, we would be interested to learn more
about the details of a portable 401(k) product and the fiduciary
responsibility of the employer in this model, and we would want to
maintain the ability of individual States to operate their own programs
that meet the requirements of a national plan.
Question. Besides addressing the multiemployer pension crisis and
passing RESA, what do you think are the most important steps we can
take to increase retirement security for working Americans?
Answer. For people to have increased retirement security, they need
access to easy savings options, improved financial literacy to help
them make informed choices about their personal finances, and good
paying jobs so that they can afford to save.
State programs like OregonSaves help increase access to retirement
savings options by ensuring that every worker has a way to save easily
and automatically through their paycheck. It would be great if people
in all States had that option.
We also want to make sure people have the financial knowledge to
manage their money wisely. OregonSaves has allowed us to talk with
hundreds of thousands of workers about retirement, giving retirement
security a public spotlight it does not usually receive. We have also
used the program's roll out to connect workers and employers with
organizations that specialize in financial education and assistance.
The more we can do to make financial literacy a priority, the better.
Research shows that most people can afford to save more for
retirement than they are now, but there are still many that can't
afford to save.\9\ Not having enough money to save is the number one
reason people provide for opting out of OregonSaves. Public policy that
promotes more and better economic opportunity for people is critical to
ensuring that workers can take advantage of the improvements in
retirement savings access that programs like OregonSaves create.
---------------------------------------------------------------------------
\9\ https://www.ebri.org/content/the-2015-retirement-confidence-
survey-having-a-retirement-savings-plan-a-key-factor-in-americans-
retirement-confidence-5513.
______
Prepared Statement of Joan Ruff, Board Chair, AARP
On behalf of our nearly 38 million members, and all Americans age
50 and over, AARP thanks Chairman Grassley, Ranking Member Wyden, and
members of the Finance Committee for the opportunity to testify today
on the significant issues surrounding the current and future state of
retirement security of American workers and their families. AARP has
members in every State and American territory, including 368,939
members in Iowa and 506,555 members in Oregon. AARP is committed to
expanding retirement savings so that all Americans and their families
have adequate income for retirement through Social Security, pensions
and private savings, and we have worked throughout our history to
develop and improve our retirement system.
the retirement income gap
The gap between the financial assets Americans will need to
maintain their standard of living in retirement and what they actually
have--or are on track to acquire--strongly suggests that the retirement
security of millions of Americans will increasingly depend on Social
Security. For more than half a century, a secure retirement in the
United States centered on reliable income from three sources, the so-
called ``three legged stool'' of retirement--employer-provided defined-
benefit pension plans, personal savings, and Social Security. Together,
these sources of income offered a stable financial future.
Unfortunately, diminishing pensions and inadequate retirement savings--
coupled with longer life expectancies and higher health costs--
endangers the dream of a secure retirement for millions of Americans,
and requires Social Security to play an even greater role in the lives
of older Americans.
Defined-benefit (DB) pension plans once dominated the employment
landscape. In 1983, roughly 60 percent of workers with an employer-
sponsored retirement plan had a DB pension plan; by 2016, however, just
17 percent of workers with a workplace retirement plan had a DB
pension.\1\ At the same time that fewer workers have been offered a
pension with guaranteed lifetime income, more workers have been offered
defined contribution (DC) plans--such as 401(k) plans--to save for
their retirement. In 1983, only 12 percent of workers offered a
workplace retirement plan were exclusively offered a DC plan, but by
2016, 73 percent of workers offered a workplace retirement plan were
only offered a DC plan.
---------------------------------------------------------------------------
\1\ Center for Retirement Research (2018), ``Workers With Pension
Coverage by Type of Plan, 1983, 1998, and 2016,'' http://crr.bc.edu/wp-
content/uploads/2015/10/figure-16.pdf.
The switch from DB to DC plans has important implications for
retirement security. First, employees now assume the responsibility of
determining if and how much to save, and managing their retirement
funds, even if they have little or no investment experience. Second, it
is quite possible to outlive the savings in a DC plan because account
balances may run out due to the uncertainty life expectancy. Third,
despite the increased use of DC plans, financial experts generally
agree the income they generate may not fully compensate for the loss of
employer-provided DB pensions.\2\
---------------------------------------------------------------------------
\2\ Center for Retirement Research (2015), ``Investment Returns:
Defined Benefit vs. Defined Contribution Plans,'' https://crr.bc.edu/
wp-content/uploads/2015/12/IB_15-211.pdf.
Making matters worse, workers who only have access to a workplace
savings plan are not saving enough to significantly contribute to a
secure retirement. For middle-income households ages 55-64 with a DC
plan or Individual Retirement Account (IRA), the median balance is
roughly $100,000, not nearly enough to ensure a secure retirement,
especially given that the average number of retirement years has
increased markedly from 12 in the 1960s to almost 20
today.\3\,\4\ It is no wonder that surveys persistently show
that Americans do not feel financially prepared to retire. A recent
Center for Financial Services Innovation poll, funded in part by AARP,
found that only 18 percent of respondents felt very confident they
could meet their long-term financial goals, including retirement.\5\
---------------------------------------------------------------------------
\3\ Center for Retirement Research (2018), ``401(k)/IRA Balances
for Median Working Household with a 401(k)/IRA Age 55-64, By Income
Quintile, 2016,'' http://crr.bc.edu/wp-content/uploads/2015/10/Table-
17.pdf.
\4\ Center for Retirement Research (2018), ``Average Years in
Retirement, 1962-2050,'' http://crr.bc.edu/wp-content/uploads/2015/10/
figure-10.pdf.
\5\ Thea Garon, Andrew Dunn, Katy Golvala, and Eric Wilson (2018),
``U.S. Financial Health Pulse: 2018 Baseline Survey Results,'' Center
for Financial Services Innovation, https://s3.amazonaws.com/cfsi-
innovation-files-2018/wp-content/uploads/2019/02/25191008/Pulse-2018-
Baseline-Survey-Results.pdf.
Of course, access to a workplace retirement plan is better than
none at all. Remarkably, just over half of all workers in the United
States are in jobs with no retirement plan. These workers are more
likely to work part-time or in a small business, and be less educated
and lower-paid.\6\ Overall, the share of the workforce covered by
retirement plans is 51 percent as of 2013, a percentage that has
remained largely unchanged over the past three decades.\7\ While these
workers still could contribute to an IRA to save for their future, few
actually do. For example, only about one worker in 20 with earnings of
$30,000 to $50,000 a year and no access to a payroll deduction plan
contributes to an IRA consistently.\8\
---------------------------------------------------------------------------
\6\ Center for Retirement Research (n.d.), ``Pension Participation
of All Workers, By Type of Plan, 1989-2016,'' http://crr.bc.edu/wp-
content/uploads/2015/10/Pension-coverage.pdf.
\7\ Craig Copeland (2014), ``Employment-Based Retirement Plan
Participation: Geographic Differences and Trends, 2013,'' Employee
Benefit Research Institute (EBRI), Issue Brief 405, p. 27, Washington,
DC, https://www.ebri.org/pdf/briefspdf/EBRI_IB_405_Oct14.RetPart.pdf.
\8\ Employee Benefit Research Institute (2006), unpublished
estimates of the 2004 Survey of Income and Program Participation Wave 7
Topical Module.
---------------------------------------------------------------------------
social security's critical role as an income source for millions of
americans
As a result of the diminishing presence of DB pensions and the
uncertainty and volatility of personal retirement accounts and private
assets, even those lucky enough to have access to a workplace
retirement plan are more likely than ever to find that Social Security
is the only guaranteed income stream they will not outlive during their
retirement. Unsurprisingly, in an AARP poll conducted last year,
respondents across three generations overwhelmingly said Social
Security is very important to their retirement security: 64 percent of
Millennials, 79 percent of Gen-X respondents, and a full 90 percent of
Baby Boomers agreed with that view.
Social Security is the only lifetime, inflation-protected,
guaranteed source of retirement income that most Americans will have.
It is the foundation of retirement security that keeps millions of
older Americans out of poverty and allows them to live independently.
Social Security was first conceived as a way to protect older Americans
from spending their final years in poverty. The program has evolved
over its more than 80 years to protect against a variety of risks,
including the death of a spouse or parent, and a disability that
prevents an individual from participating in the labor force. Most
Americans do not see Social Security as lifetime insurance against a
wide range of risks, but rather see it as a source of retirement income
that they have invested in via payroll taxes during their working
lives. It is an earned benefit, but it is not structured like a savings
account or a 401(k) plan. Social Security benefits are calculated
through a formula that helps protect the most vulnerable members of our
society. This progressive benefit formula ensures that those with low
lifetime earnings receive proportionately larger annual benefits. About
half of those 65 and older depend on Social Security for the majority
of their retirement income, and roughly one quarter of those 65 and
older rely on the program for all or nearly all of their income in
retirement.
Social Security plays a crucial role in the financial security of
millions of Americans. It has proven to be the most effective policy
for reducing poverty among older people, particularly for women and
racial and ethnic groups who are more likely to have had lower wages
and less likely to have pensions. Without Social Security, nearly four
in ten Americans 65 and older would live below poverty; that number
drops to one in ten after Social Security lifts more than 15 million
older Americans above the poverty line. Nearly one in four women ages
65 and older live in families that receive at least 90 percent of their
income from Social Security. The reliance in minority communities is
even more pronounced; nearly 38 percent of African American women in
families receiving benefits rely on Social Security for almost all of
their income, and more than 31 percent of older Hispanic women do the
same.
Social Security is clearly the cornerstone of American financial
security in retirement. It is extremely important to AARP's members
that it will provide adequate benefits not only for them, but also for
their children and grandchildren. While the Social Security Trustees
have made clear--and AARP will continue to emphasize--that Social
Security has enough funding to pay 100 percent of benefits until 2035,
it is also true that unless Congress acts, benefits could be reduced by
20 percent beginning in 2035 and through the remainder of the century.
A cut this deep would result in severe hardships for millions of people
across the country, especially considering the high level of reliance
on what are modest benefits now. It is critical to remember that the
average monthly check for a retired male worker is $1,565; and for a
retired female worker, it is even less, only $1,244. While the
importance of Social Security to the 63 million Americans who receive
its benefits cannot be diminished, it is also true that given such
modest benefits, the retirement security of many Americans could be
strengthened if we meaningfully improve opportunities to accumulate
retirement savings.
the future of retirement savings
For decades, Congress has enacted laws with the aim of making
retirement saving easier. Congress has created many different types of
plans for employers to offer their workers, including IRAs, SIMPLEs,
and Simplified Employee Pensions (SEPs). Congress has also authorized a
number of automatic features--including automatic enrollment, automatic
deferral amounts, automatic escalation, and automatic default
investments--to help workers who do not make affirmative decisions to
begin saving for their retirement. Such automatic features and payroll
deductions have resulted in significant higher savings. Among new
hires, participation rates nearly double to 93 percent under automatic
enrollment, compared with 47 percent under voluntary enrollment. Over
time, 8 in 10 participants increase their contribution rates, either
automatically or on their own, while three-quarters of participants
remain exclusively invested in the default investment fund.\9\
Furthermore, plans with automatic enrollment had an 87 percent
participation rate as of the end of the second quarter, whereas plans
without automatic enrollment had a participation rate of 52 percent. At
the end of 2017, 87 percent of Millennials in plans with automatic
enrollment were participating in the plans, whereas 41 percent of
Millennials in plans without this feature were participating. Since
2008, the average savings rate among employees automatically enrolled
has risen from 4 percent to 6.7 percent, and 63 percent of
automatically enrolled participants in the past 10 years have increased
their savings rate.\10\
---------------------------------------------------------------------------
\9\ https://nam05.safelinks.protection.outlook.com/
?url=https%3A%2F%2Finstitutional.van
guard.com%2Fiam%2Fpdf%2FCIRAE.pdf&data=02%7C01%7C%7C34dd87bd990145d2
669
c08d6d3fd5585%7Ca395e38b4b754e4493499a37de460a33%7C0%7C0%7C6369294823404
29841&
amp;sdata=SuhVz6d8Xc9OYzTEKINqQe817YWi0gH8zpEYW3XgEZM%3D&reserved=0
(February 2018).
\10\ Fidelity data--August 2018 from: https://
nam05.safelinks.protection.outlook.com/?url=https
%3A%2F%2Fwww.planadviser.com%2Fautomatic-enrollment-helping-
participants-increase-retirement-
savings%2F&data=02%7C01%7C%7C34dd87bd990145d2669c08d6d3fd5585%7Ca395
e38b4b754e4493499a37de460a33%7C0%7C0%7C636929482340429841&sdata=FQXZ
s0EL
y8txGgDLlfREGecvdvjKIpmFighaFYer8rA%3D&reserved=0.
However, these automatic savings features can only help workers
whose employers offer a workplace retirement plan, and as noted
earlier, 51 percent of the workforce lacks retirement coverage.
Expanding coverage for the tens of millions of workers without coverage
continues to be a high priority for AARP.
I. State Work and Save Programs
To help address the coverage gap, AARP is focused on passing State-
level Work and Save programs, which are intended to provide access to
payroll deduction retirement savings options for all workers. State
Work and Save programs are providing critical access to large,
currently underserved populations, such as workers of color and much of
the contingent workforce, including gig workers. Such access is
essential to addressing the retirement income gap because workers are
15 times more likely to save for retirement by having a way to save at
work. Participation rates in traditional retirement plans have not
budged in decades, but Work and Save programs are leading a change for
the better.
These programs generally operate much like a 529 college savings
plan for retirement and are operated through public-private
partnerships. Notably, while employers facilitate payroll deductions,
the retirement programs are not operated or overseen by employers.
Rather, employers are afforded access to a simple, retirement program
to offer their workers, which only requires employers to disseminate
information packets to their workers and facilitate payroll deductions,
which they must already do to remit taxes. Worker participation is easy
and contributions are automatic; however, worker participation is
voluntary, as they always retain the option to opt out of the program.
Workers choose if they want to participate, how much they want to
contribute, and the way in which they invest their money. When a worker
changes jobs, their accounts are portable and can be taken with them.
Work and Save programs are designed to be self-sustaining and
participant-funded, and workers benefits are based on what they pay
into the program plus investment experience. States play the role of
aggregating smaller employers who otherwise would have to sponsor, pay
for and manage a retirement plan, including choosing the investments
and providers and incurring fiduciary responsibility.
Work and Save programs can ultimately save U.S. taxpayer dollars as
well. By affording workers access to a simple way to save for
retirement, fewer households will need to rely on social services,
ultimately foregoing costly expenditures by the government. The U.S.
would save an estimated $33 billion on public assistance programs
between 2018 and 2032 if lower-income retirees save enough to increase
their retirement income by $1,000 more per year.
Nationwide, roughly one-third of all States have pursued laws to
address the retirement gap in their States. Oregon was the first State
and is furthest along in implementing this approach, with their launch
of OregonSaves in 2017. Oregon's automatic IRA program has had great
success. As of May 1, 2019, 4,331 employers have registered to
facilitate OregonSaves for their workers and 78,467 employees (72
percent of those eligible) have enrolled in the program. Employees
contribute, on average, about $100 per month, and assets in the program
now exceed $18.4 million. Other States that have enacted such programs,
such as Illinois, Connecticut, and California, continue to rollout and
implement their own retirement programs.
Progress in the other States continues as well. This year,
Colorado, Idaho, Indiana, New Mexico, and Pennsylvania voted to
formally study State retirement programs. In March 2019, New Jersey
Governor Phil Murphy signed into law the New Jersey Secure Choice
Savings Program, an automatic IRA program. Related legislation has also
been filed in Iowa, Kansas, Maine, Minnesota, Missouri, Montana,
Nevada, North Carolina, Oklahoma, Oregon, Rhode Island, South Carolina,
Texas, and Wisconsin.
II. Policies to Encourage Greater Retirement Savings
In addition to our State work, Federal policies that further
encourage automatic payroll deduction savings for workers who lack
retirement coverage should be enacted. AARP has supported various
efforts--at both the Federal and State levels--to ensure individuals
nationwide have access to an Automatic IRA system, including
legislation introduced by Senator Whitehouse. Such proposals rely on
payroll deduction to encourage greater retirement savings, and as noted
earlier, is a proven method of increasing coverage and participation.
AARP supports both Federal and State legislation. We believe State
programs work in tandem with Federal legislation in order to be most
effective at offering more Americans affordable and appropriate
retirement investments. AARP has underscored this to Congress and the
administration and have noted that Federal legislation and regulations
regarding retirement security should continue to allow for State
enactment and implementation of these programs.
Federal policies should also be enacted to extend coverage to the
27 million part-time workers who generally are not covered by
retirement savings plans. This is especially important for older
workers and caregivers who often shift from full-time to part-time work
or return to the workforce less than full-time due to caregiving
responsibilities. Moreover, women are far more likely to work part-time
than men--two-thirds of part-time workers are women.\11\ AARP supports
Senators Portman's and Cardin's Retirement Savings and Security Act and
Senator Murray's Women's Pension Protection Act which both offer
coverage to part-time workers after 2 years of employment, and we
strongly encourage you to act on this provision soon.
---------------------------------------------------------------------------
\11\ Bureau of Labor Statistics, Labor Force Statistics from the
Current Population Survey, Household Data Annual Averages, Table 8:
Employed and unemployed full- and part-time workers by age, sex, race,
and Hispanic or Latino ethnicity (Jan. 18, 2019), available at https://
www.bls.gov/cps/cpsaat08.htm.
In addition to extending coverage to more workers, Congress should
also act to encourage greater savings for those who participate in
savings plans. While defined benefit plans are generally designed to
provide adequate retirement benefits to long service employees, defined
contribution plans--like 401(k) plans--do not always lead to adequate
retirement savings. The 2006 Pension Protection Act permitted employers
to enroll employees automatically at a three percent contribution
level, but this has proven too low. AARP supports increasing the
automatic level between 5 and 6 percent, provided individuals always
have the ability to select a different level. This change has been
included in the Retirement Enhancement and Savings Act, which AARP
supported in the last Congress, and which the Finance Committee has
---------------------------------------------------------------------------
previously voted out unanimously.
AARP is especially supportive of initiatives to improve the Saver's
Tax Credit, such as the proposal in Senators Portman's and Cardin's
Retirement Savings and Security Act. In 2001, Congress created the
Saver's Credit, a tax credit available to low- and moderate-income
taxpayers who contribute to a retirement savings plan. Unfortunately,
the Saver's Credit is woefully underutilized. From 2006 through 2014,
between 3.25 percent and 5.33 percent of eligible filers claimed the
credit, and the average value of the credit ranged from $156 to $174
over this time period. A series of changes--some small and others more
substantial--would enable more of the tax credit's target population to
benefit from the Saver's Credit and build significant retirement
resources. The most beneficial changes would be to make the credit
refundable, increase the income thresholds, and to restructure the
credit into a match similar to the matching contribution some employers
offer in their retirement savings plans. In addition, simplifying the
tax-filing requirements to give low- and moderate-income individuals
overall greater ease of use would help to better balance the tax
incentives for retirement across income levels.
III. Protecting Retirement Income
For the millions of Americans who do have access to a workplace
savings plan and have started to save for their retirement, Congress
can do more to protect their hard-earned nest egg. All tax-preferred
retirement savings must be prudently invested, with reasonable fees and
without conflicts of interest. While ERISA is clear that any person who
exercises discretion over employee benefit plan assets must do so in a
fiduciary capacity, efforts to establish more lenient standards are
frequently discussed. AARP continues to urge the Securities and
Exchange Commission (SEC), as well as other relevant agencies like the
Department of Labor, to maintain its mission of protecting investors
preparing for retirement. A strong fiduciary standard should be based
on the core principle that when providing personalized investment
advice to customers, financial professionals must always act in the
best interests of those customers. That fiduciary standard should be
uniform for all financial professionals advising investors and
retirees, and should apply to all types of accounts in order to rectify
the existing confusion among investors in the marketplace as a result
of standards that are not uniform. We welcome and encourage
congressional efforts to hold hearings and ensure that financial
advisers carry out their fiduciary duties to millions of retirement
savers. These rules are especially important when workers terminate
employment, and help protect workers from transferring their ERISA
protected savings to often less prudent individual retirement
investments.
Congress should also discourage pre-retirement cash-outs of
retirement funds and instead encourage lifetime income streams,
including periodic withdrawals and fixed lifetime annuities at
retirement age. Too many workers cash out their savings when they
change jobs or experience financial emergencies, which, while helpful
in the present, creates significant risk for diminished financial
security in the future. Most defined contribution plans do not offer
adequate lifetime income options such as fixed annuities or periodic
payment options. AARP looks forward to working with the committee and
other groups to encourage asset preservation and to improve
distribution and spend-down options that meet workers' needs. Towards
that end, in addition to supporting the Retirement Enhancement and
Savings Act, AARP also supports several other bills that build on
ERISA's foundation of participant protections, including Senators
Warren's and Daines's Retirement Savings Lost and Found Act, which will
help workers to locate retirement accounts sponsored by former
employers.
AARP has been strongly supportive of efforts to educate and better
inform workers about their retirement savings plans. ERISA and the tax
code require many disclosures to workers about the actions they need to
take and the benefits they are earning. Employers already may
automatically provide electronic disclosures to workers who typically
work with computers, but most plan participants prefer paper delivery
of retirement information. An AARP-commissioned national survey of over
1,000 retirement plan participants found an overwhelming preference for
receiving retirement documents in paper format rather than in
electronic, with 66 percent of respondents ages 25-49 and 84 percent of
those 50-plus preferring paper document delivery. Similarly, Epsilon's
2012 Channel Preferences Survey found that paper mail was the top
delivery choice and 73 percent of respondents stated that they do not
open all emails. In addition, millions of individuals simply do not use
computers or do not have reliable broadband access. Moreover, as of
2017, the Pew Research Center found that a third of individuals age 65
and older do not use the Internet, only half have broadband at home,
and only approximately 40 percent own a smartphone. Among all adults, a
third do not have high-speed Internet at home and 13 percent only own a
smartphone. Disadvantaged populations have even less access--
approximately only half of rural Americans, African Americans, and
Americans with a high school degree or less have broadband Internet at
home.
With such discrepancies in access, it is crucial that important
material be distributed in paper form and that electronic disclosure
not become the default method of delivery. AARP supports default paper
delivery of disclosures and supports the availability of electronic
disclosures when a participant chooses to opt into it. AARP has a long
record of communicating our goal of making benefit communications
shorter, simpler, clearer and timelier, while retaining default paper
disclosure to relevant agencies, including the Department of Labor and
the Securities and Exchange Commission. Equally, we stand ready to work
with you to retain hard-won investor rights to written documents that
they need not only to make informed decisions today, but which may be
important to ensure benefit accuracy for 50 or more years.
Finally, AARP urges the committee to finish its work as soon as
possible to find a fair solution for the millions of workers and
retirees counting on multiemployer pensions for their retirement
security. We commend Senators Portman and Brown who, along with several
other members of Congress, have focused their attention on this issue.
While most of these multiemployer pension plans are well funded, there
are at least 100 plans that do not have enough contributing employers
to pay out full, earned retiree pensions. Many retirees have already
experienced significant benefit reductions, and over one million
retirees and their families are at risk of losing substantial needed
retirement income. We strongly urge action that best protects the
earned benefits of current retirees, who have no other options for
financial security. AARP has supported legislation which would provide
loans or transfer some unfunded liabilities to the PBGC, while a
comprehensive legislative solution is worked out.
AARP would again like to thank Chairman Grassley and Ranking Member
Wyden for recognizing the need to address the challenges of a secure
retirement and for the opportunity to share our policy priorities to
improve the retirement savings of Americans and their families. We
stand ready to work with you as the committee moves forward.
______
Questions Submitted for the Record to Joan Ruff
Questions Submitted by Hon. Tim Scott
Question. In South Carolina, we have a large--and growing--
population of retirees, as well as a dynamic, diverse workforce--where
retirement security is a high priority.
Now, one hurdle to ensuring a successful and stable retirement, in
the past, has been a lack of portability as folks transition from one
job to the next. Of the 14.8 million workers who change jobs each year,
6 million cash out of their retirement plans. This has been
particularly difficult for some African American employees, who have a
401(k) cash-out rate of 63 percent.
For this reason, I have been strongly supportive of the private
sector's efforts to address cash-outs and, in particular, the
development of auto-portability, which would allow a person's
retirement savings to move with them when they change jobs. I worked
closely with Secretary Acosta and the Department of Labor on guidance
to facilitate auto-portability, and it has the potential to help
millions of families. Now, we just need to implement the system, and
I'm hopeful we can move forward with that as efficiently as possible.
To what extent do you see cash-outs and leakage as threatening
retirement security in the long term, and are there other steps we can
take to build upon auto-portability?
Answer. Withdrawing accumulated retirement benefits upon changing
jobs or at retirement can significantly harm workers' retirement
security. Many workers may cash out funds because it is the easiest,
least complicated, and often most tempting option. While some workers
also do not repay loans or hardship withdrawals taken during their
working careers, this is a small percent of the under-savings problem.
AARP strongly supports greater efforts to enable participant directed
automatic portability between retirement accounts when workers change
jobs or retire. The easiest scenario is where the same firm manages the
old and new accounts and both have similar investments and fees. It is
not quite as easy if the firms, investments and fees vary
significantly. Some employers are willing to accept roll-overs from
other employer plans. At a minimum, the financial services industry
could agree to a uniform roll-over form which would greatly simplify
and standardize the process. In addition, creating a national
retirement account database, as proposed by Senators Warren and Daines,
would help insure that participants and firms can keep track of all
accounts and maximize earned retirement savings.
Work and Save programs at the State level are generally portable--
allowing workers to take their retirement savings with them when they
leave a job. Ensuring that portability and preventing cash-outs is
crucial to the long-term retirement security of savers.
Question. In recent decades, we've seen what I see as an exciting
shift towards greater flexibility, control, and stability in retirement
savings. Total retirement savings have risen from 48 percent of total
employee wages in 1975 to a staggering 337 percent of wages in 2017.
And in 2016, the Survey of Consumer Finances found that three-quarters
of Americans over 65 reported retirement income that was at least
enough to maintain their standard of living--up 14 percentage points
since 1992.
That being said, the reality is, financial literacy remains a
barrier to effective retirement savings for too many Americans. A 2018
report from the Board of Governors of the Federal Reserve System found
that three-fifths of non-retired adults with self-directed plans
reported having little or no comfort managing their investments. On a
five-question assessment on basic finance, the average number of
correct answers was just 2.8. As the co-chair of the Financial Literacy
Caucus, I find this particularly troubling.
Clearly one piece of this puzzle is improving our educational
system to ensure that financial literacy receives much more emphasis.
Beyond that, however, what tools, resources, and programs are out there
that might assist folks in planning for their financial well-being in
the long term, and--more importantly--how can we connect workers to
these programs?
Answer. One of the most important set of tools are effective
default options, including automatic enrollment, automatic escalation
of contributions, and defaults to fiduciary selected and appropriate
investment options. Defaults can help those with little investment
experience start down the right path of retirement savings. In
addition, offering a manageable number of high quality investment
options can help prevent ``paralysis by analysis'' where too many
choices overwhelm an employee. Many of the State level Work and Save
programs use default options that help remove many of the barriers that
savers tend to face when opening a retirement savings account. For
example, workers are 20 times more likely to save when they are
automatically enrolled into a retirement savings option at work.
______
Questions Submitted by Hon. Maria Cantwell
Question. The States are leading the way by creating new and
innovative ways to expand retirement savings options. Oregon has
enacted an ``auto-IRA'' system that allows workers to save through
their employer's retirement savings plans or use the State program if
an employer does not offer a plan. Many States have followed your lead
and your model. In Washington, we chose a different model--a
``marketplace'' model, which lets small businesses and individuals shop
around for the retirement savings plan that best meets their needs. New
Jersey uses this model too.
What changes could Congress make to Federal law that would aid in
the implementation of State-based auto-IRA programs?
Answer. States are currently experimenting with different options
and varied approaches. Congress should encourage such State level
action by ensuring no changes at the Federal level that will undermine
or discourage activity at the State level. There is even activity with
a State, such as New Jersey--which originally passed an auto-IRA
program, later changed to a marketplace model, and then again re-passed
auto-IRA legislation.
Question. What are the key concerns of employers, and how have you
addressed those concerns?
Answer. Small employers have told us time and again that they are
interested in offering their employees a way to save for retirement,
but they are focused on their business, and setting up a retirement
plan is confusing, time-consuming, and costly. Work and Save programs
at the State level work to eliminate these concerns for employers. They
are simple for employers--they need only provide their employees with a
packet provided to them by the program, and add a line-item deduction
to employees' payroll. There are no additional costs or contributions
required from employers.
Question. In 2015, Washington State became one of the first States
in the country to authorize a Small Business Retirement Marketplace to
make it easier and less expensive for small businesses to offer
retirement savings options to their employees. Under Washington's
program, employers with fewer than 100 employees will be able to
voluntarily participate in this marketplace and offer low-cost,
portable retirement savings plans to their employees.
What has been the impact of this type of marketplace on small
business participation and their ability to offer retirement plans for
their employees?
Answer. Initial anecdotal evidence is that the marketplace concept
has generated less interest than, for example, Oregon's automatic
payroll deduction option, but no real data has yet been made publicly
available.
Question. What is the impact on employees' savings rates when their
employer offers a retirement plan compared to those who do not?
Answer. Research shows that workers are 15 times more likely to
save for retirement when they can do so out of their regular paycheck
at work. Only one in 20 people will open their own individual
retirement savings account if they don't have access to a retirement
savings option at work. The number of people who contribute to a
retirement savings account jumps to 75 percent when they have access to
a way to save out of their regular paycheck at work. People want to
save--having easy access to a paycheck deduction retirement savings
option at work is the key.
Question. Portability of lifetime income products is another
important issue. Many younger and lower-income workers actively saving
for their retirements have to worry about transferring those balances
to new plans when changing jobs. This results in leakage and lost
accounts for many workers, which hurts them more in the long run
because they also lose the interest income. These are the Americans who
need more retirement savings than most.
What partnerships exist to make sure that there is adequate
technology and support to ensure that we eliminate this ongoing
problem?
Answer. Greater pension portability is needed to protect the value
of earned benefits for workers who change jobs. Plan to plan roll-overs
should be automatic, provided participants agree. Congress should
review existing practices to determine how to make roll-overs easier
and in participants' best interests.
Some employers are willing to accept roll-overs. At a minimum, the
financial services industry could agree to a uniform roll-over form
which would greatly simplify and standardize the process. In addition,
creating a national retirement account database, coordinated by the
private sector or government, would insure that participants and firms
can keep track of all accounts and maximize earned retirement savings.
State Work and Save programs offer retirement savings that are
portable--so it is important for their success that there be ease in
transferring balances when changing jobs.
Question. I've worked on policies to ensure lifetime income
portability and annuity selection safe harbors. Why are these
provisions important?
Answer. Retirees need to ensure an income stream that will last
throughout their retirement lives. Notably, Social Security provides
the most important annuity to most retirees--a monthly benefit, with a
built-in cost-of-living adjustment, that cannot be outlived. Annuities
can provide lifetime income protection, and protect both the retiree
and his or her spouse. However, there are many type of annuities and
many can be complex and costly. Further, annuities may not be the best
option for younger workers, workers with small retirement balances and
workers with a terminal illness. The financial services industry is
starting to provide many new services, including periodic payment
options and lifetime managed accounts. The Federal Employee Thrift
Savings Plan now offers a variety of payment options. AARP looks
forward to working with Congress to provide families with affordable
spend-down options that meet their lifetime retirement income needs.
Question. Too many people underestimate how much money they will
need to save in order to comfortably retire. Individuals need a better
understanding of the lifetime value of their current level of savings
in their 401(k) plan. Understanding of the value of the total assets
saved for retirement and how much those savings will translate to on a
monthly basis will help to improve individual retirement savings
levels. By helping workers better gauge how much they will need to
retire, individuals will be better prepared for retirement and be able
to make more educated decisions about their savings and investments.
How would providing an estimate of the monthly income distribution
from their retirement savings on the individual's annual benefit
statement help working people gauge their progress toward reaching the
goal of a safe and secure retirement?
Answer. Empowering people to take control of their financial future
is crucial to financial well-being later in life. Providing individuals
with an estimate of the monthly income distribution from their
retirement savings may help workers gauge their progress towards their
retirement income goals by helping them to understand their income
versus expenses on a more easily understood basis. It may also
encourage workers to build their savings, thereby growing that monthly
income in order to better prepare for what they will need later in
life.
______
Questions Submitted by Hon. Michael F. Bennet
Question. Last year, the Fifth Circuit Court of Appeals vacated the
DOL fiduciary rule, which protects Americans trying to save for
retirement from bad financial advice. The Trump administration has
refused to stand up for retirement savers by defending the rule.
What has been the impact of overturning this rule?
What role does reliable financial advice play in promoting
retirement security?
Answer. AARP was extremely disappointed in the court's decision
last year to vacate the fiduciary rule. AARP sought to protect the
retirement advice provided to our members and other Americans saving
for retirement by ensuring that financial advisers would act in the
customer's best interest. This past year, we took our fight to the SEC.
However, following the SEC's recent vote on their own rulemaking for
financial conduct for advisers, AARP is even more alarmed by their
action that will erode consumer protections. We are concerned that
financial professionals will find new ways to recommend investments
with higher fees, riskier features, and lower returns because they will
be beneficial for the adviser, even if those investments are not the
best choices for the customer. Bad advice is wrong, and we learned
through the DOL rulemaking that bad advice can cost Americans up to an
estimated $17 billion per year.
Question. AARP has raised serious concerns about the SEC proposal
to include the fiduciary rule in its upcoming standards-of-conduct
package that may be out as soon as a few weeks from now.
Can you discuss the most concerning differences between the SEC
proposal and the original rule?
AARP completed two rounds of testing on the disclosures. Why did
you feel it was necessary to do so?
What was the experience of testing like? What were the main
outcomes?
Further, do you find it problematic that the SEC is moving forward
with a revised disclosure without completing their own testing of the
new proposal?
What needs to be done to ensure the SEC fiduciary rule lives up to
investors' reasonable expectations?
Answer. The SEC has now voted on its final rule and AARP is
concerned that the final product leaves retail investors worse off than
even the draft proposal from April 2018. AARP asked for a fiduciary
standard--that financial advice be solely in the best interest of
retail investors. The SEC decided not to create an enforceable, uniform
fiduciary standard, and did not require that all financial advisers act
in the consumers' best interest. In addition, our independent usability
studies demonstrated that consumers were still very confused by the
proposed disclosure statements, and that mislabeling a standard as
``best interest'' leads investors to mistakenly believe that they are
getting advice that puts their financial interests first, ahead of the
interests of broker dealers.
Question. As the American workforce changes, the way we plan for
retirement has to adapt as well. Often, people are working for multiple
companies at once, or frequently changing employers throughout their
careers. Unique work situations require us to think more creatively
about how we can help people save.
One idea would be to create a 401(k) or 401(k)-like product that is
detached from a specific employer. This would allow employees to
maintain the same account as they go between employers, and allow those
employers to match their contributions and follow other best practices,
like auto-enrollment and auto-escalation, while applying the same
protections that they receive in an employer-based 401(k).
What are your views on this idea?
Answer. AARP supports retirement savings options that are more
easily accessible to employers and their employees, as well as key
features such as portability, automatic enrollment, and low cost
default investments. Costs should be kept low for the employee, and
employer requirements should be simplified, especially for small
employers. The percentage of the workforce with an employer-provide
retirement savings plan has not expanded significantly sine the
enactment of ERISA, and we support options--such as the Work and Save
programs at the State level--that will expand coverage to the tens of
million of workers currently without coverage.
Question. Besides addressing the multiemployer pension crisis and
passing RESA, what do you think are the most important steps we can
take to increase retirement security for working Americans?
Answer. Increasing access to payroll deduction retirement savings
options at work for the tens of millions of workers currently without
such an option--including part-time workers--is one needed measure to
increase overall retirement savings for working Americans. Access to
automatic payroll deduction is a key feature to ensuring that people
save more for retirement. Most workers find it easiest to have money
withheld from their paychecks--if they don't have it, they can't spend
it. We have found that even lower-income workers are often eager to
save. In OregonSaves, workers are saving at rates that are even higher
than the default rate of 5 percent, meaning many are opting to save
even more than they would if they took no action to set their savings
rate. In addition, improvements to the Saver's Credit--such as
increasing the thresholds and making the credit refundable--will both
encourage savings and increase the amounts accumulated in retirement
accounts.
Question Submitted by Hon. Maggie Hassan
Question. Per reports from AARP's own policy institute, on average,
women aged 55 and older see lower earnings than same-age men and have
fewer years in the paid workforce because they are more likely to take
time out to be caregivers. In turn, they also have lower Social
Security benefits in retirement. And they are also more likely to live
longer, stretching out retirement savings even further. All of these
things lead to women being less secure in retirement than their male
counterparts.
How can Congress help address this compounded problem of women both
saving less for retirement and having smaller income streams in
retirement?
Answer. The issue of women having less in retirement savings than
men is significant, and means they are considerably more at risk for
retiring into poverty. As you note, there are many causes, including
lower wages and more time out of the workforce. Having access to a way
to save for retirement at work is a crucial factor in helping anyone
save and can have a positive impact on women's retirement savings.
Covering part-time work would also be helpful, and AARP strongly
supports proposals by Senators Portman, Cardin, and Murray to extend
retirement coverage to part-time workers, many of whom are women and/or
caregivers. An improved Saver's Credit--including higher thresholds and
refundability--would also help, as women tend to have lower income
levels and could benefit from an improved credit. In addition, AARP
also supports requiring spousal protections in defined contribution
plans so that retirement savings are treated as marital assets and
cannot be dissipated without spousal consent. Women who are divorced or
become widows tend to be even more vulnerable in retirement.
______
Prepared Statement of Joni Tibbetts, Vice President, Retirement
and Income Solutions, The Principal Financial Group
As the Senate Finance Committee considers current challenges in the
retirement system today, Principal Financial Group'
(Principal') is pleased to offer expertise based on our work
with tens of thousands of retirement plan clients of all sizes and
millions of their employees. Principal is based in Des Moines, IA and
operates nationally and worldwide in 80 countries.
Principal assists businesses and individuals by offering
comprehensive solutions that help grow and protect their assets. We
specialize in providing solutions to protect against risk and loss,
assist with succession planning and wealth transfer, and build and
protect wealth for retirement. As a leading provider of retirement
plans and a global investment manager, our expertise is based on more
than 75 years in the retirement industry and our experience mostly with
small to medium-sized employers and their employees. We currently
provide retirement services to more than 45,500 retirement plans and
5.9 million employee participants, including more than 38,000
retirement plans of small businesses \1\ and their 1.6 million
participants. We are a top-5 recordkeeper of retirement plans,\2\ #1
provider of Employee Stock Ownership Plans (ESOP),\3\ #1 provider of
Defined Benefit plans,\4\ #1 provider of Non-Qualified deferred
compensation plans,\5\ and are on the leading edge of providing
innovative products that allow savers to convert accumulated savings
into a stream of guaranteed income. We also provide group dental,
vision, life, and disability insurance.
---------------------------------------------------------------------------
\1\ Retirement plans of small business defined as those with less
than 500 participants.
\2\ Based on number of plans and assets, Pension and Investments
Annual Recordkeeper Survey, 2018.
\3\ Based on number of plans, PLANSPONSOR Recordkeeping Survey,
June 2017.
\4\ Based on number of plans, PLANSPONSOR Defined Benefit
Administration survey, May 2018.
\5\ Based on total number of section 409A plans, PLANSPONSOR 2018
NQDC Recordkeeping Survey, June 2018.
Our retirement business expertise extends internationally.
Principal is an industry leader in providing pension management and
retirement savings in emerging markets. We are the largest pension
provider in Latin America (by AUM) and operate long-term savings
businesses in seven Asian markets. We work closely with international
organizations such as the OECD and World Bank to ensure our approach to
retirement policy continually incorporates the best global practices
with respect to pension system design, behavioral economics, and
---------------------------------------------------------------------------
financial education.
In addition to being proud of the communities that we serve,
Principal is also incredibly proud of its engaged and educated
workforce. We have a diverse range of employee resource groups,
including the very active and passionate LGBTQQIA Employee Resource
Group. In 2018, in its first ever ranking of the kind, Forbes named
Principal the #1 employer for women, and the National Association for
Female Executives named Principal as one of the top companies for
female executives for the 17th year in a row. Our employee population
boasts a 59-percent majority of women, with 55 percent of our
executives also being women. Additionally, our board consists of 45
percent women.
We serve all size ranges of employers and have a significant
presence in the small and medium-size business retirement plan market.
Our experience gives us a unique perspective into the motivations,
frustrations, and challenges of small and medium-sized employers and
their employees. Our perspective is informed by a representative client
council that holds annual client conferences to solicit feedback and
gather information about what plan sponsors and their employees want
and need for their retirement security. Additionally, we perform focus
group testing of individuals, including those participating in plans
and those who don't, to help us better understand how to effectively
inform, engage, and encourage individuals to take action regarding
retirement security. We also gather real-time feedback from plan
sponsors through a new online portal, and plan to expand this
capability to online and digital participant portals in the near
future. Finally, we collect data to ensure that the technology we
create and make available for our plan participants continues to drive
outcomes in a positive way for their financial security in retirement.
What we learn from our clients and their employees through our
client council, focus groups, real-time feedback, and data collection
informs our innovation efforts that seek to better connect and engage
with plan sponsors, eligible employees, and participants. Our ultimate
goal is to consistently and positively improve participant outcomes,
while maintaining flexibility to innovate as the needs of consumers
change. Some examples of recent enhancements we've made to the
participant experience include:
1. ``Retirement Wellness Score''--Providing retirement income
illustrations. As an example of how we are helping to change how
individuals think about saving for their futures, Principal frames all
account summaries online, digitally and on paper statements, not only
in a traditional account balance perspective, but as an illustration of
how much monthly income could be generated from an employee's
accumulated savings at retirement. This income illustration is
personalized to each participant, using their current account balance,
contribution level, annual pay and estimates of income from other
sources like Social Security, a pension or a Health Savings Account,
including certain assumptions.
The retirement income estimate is compared to an estimate of the
participant's pre-retirement income, giving the individual a basic
understanding of whether they are saving enough. The measure of an
individual's position relative to their income goal is known as their
``Retirement Wellness Score'' (Score). The Score uses a basic range of
1 to 100, with the number reflecting the percentage of pre-retirement
income estimated to be replaced at retirement, and is accompanied by a
green, yellow, or red depiction of the status, each with clear-cut
action prompts. The online and digital tools and resources are
interactive, and allow an individual to, as an example, ``dial up''
contribution percentages to determine how changes may impact their
Score, as well as add savings from another source or for a spouse or
partner.
2. Engaging with individuals through newly redesigned online and
digital experiences. When enrolling through our new, online enrollment
experience:
The average deferral rate for newly eligible employees is
nearly 8 percent (that's more than 34 percent higher than other
enrollment methods) and 29 percent of newly eligible employees
defer 10 percent or more.
For existing participants of plans that transition to
Principal, nearly 1 in 4 participants opt to save 10 percent or
more.
When looking at all participants who have visited the
website, average deferrals are 50 percent higher than those who
do not engage online.
Specialized and personalized financial wellness education and
planning is available to all clients' employees through our interactive
financial wellness planner experience called My Virtual Coach.
Those who enroll by taking the full planner experience have
an average deferral rate of 8.26 percent.
Those existing participants who elect and subsequently take
part in future My Virtual Coach Checkups have an average
deferral rate of 9.15 percent.
30 percent more participants increased deferrals after
having access to their Wellness Scores and the Planner compared
to participants who did not access the Planner.
The Retirement Wellness Score among participants who use the
Planner is more than 10 points higher than the average score (a
score of 100 points signaling an expectation that you are on
track to meet 100 percent of your retirement income goal).
Access to a growing suite of financial wellness education
and assistance addresses common challenges like dealing with
student loan debt, building emergency savings, budgeting, and
establishing a will.
the state of our retirement system
In many respects, our Nation's Defined Contribution (DC) Retirement
Plan System has been a great achievement. Assets invested in DC plans
and IRAs, a majority of which originated in DC plans, total $16.3
trillion, making up 60 percent of total assets in the U.S. retirement
system. The traditional, full-time worker has excellent opportunities
to save in a worksite retirement plan (80 percent have employers that
offer a plan and 80 percent of those workers participate).\6\ The
majority (96 percent) of employers who sponsor a 401(k) plan provide
some form of additional employer contribution in excess of the worker's
own contribution.\7\
---------------------------------------------------------------------------
\6\ Bureau of Labor Statistics.
\7\ Vanguard, ``How America Saves,'' 2018.
The unique combination of the U.S. progressive Social Security
system and
employer-sponsored retirement plans has helped position millions of
Americans for a secure retirement. A recent study coauthored by the
Investment Company Institute and the Internal Revenue Service
Statistics of Income Division staff found that most American workers
maintain or increase their spendable income after claiming Social
Security. The study also finds that, after claiming retirement, most
get substantial amounts of both Social Security benefits and income
from retirement savings sources (from employer-sponsored retirement
plans, annuities, or IRAs). In fact, the median worker in the study had
spendable income that was greater (103 percent) than spendable income
in the year before claiming. Notably, median replacement rates were
found to be highest for individuals in the lowest quintile of income
(123 percent) and lowest for individuals in the highest quintile (93
---------------------------------------------------------------------------
percent).
It's been nearly 15 years since the Pension Protection Act of 2006.
We need a retirement system that keeps up with changes in innovation,
technology, workforce, and consumer needs and desires that offers a
range of solutions within a competitive marketplace and is sensitive to
the challenges of small employer plan sponsorship. The Retirement
Enhancement and Savings Act (RESA) is a tremendous first step, and we
offer our enthusiastic and full support for the work that both the
House and Senate have done on RESA.
Of course, more can always be done. As the committee has
appropriately highlighted, we must find ways to enhance our current
voluntary retirement system to provide even greater financial security
to American workers. More Americans need access to worksite retirement
plans. Those who do have access to plans need to save more. More near-
retirees and retirees should consider securing guaranteed income from
their account balances. To accomplish these goals, necessary
enhancements must focus on expanding workplace retirement plan coverage
to more Americans, increasing both participation and savings levels in
workplace plans and encouraging plan sponsors to offer and participants
to secure guaranteed income for their retirement.
Having worked with businesses of all sizes and their employees on
their 401(k) and other DC plans for over 40 years, Principal has gained
valuable insight about both employer motivations and worker behaviors.
The insights make us bullish advocates for our robust retirement system
and we offer our comments to both applaud the committee on their
bipartisan efforts to advance the Retirement Savings and Enhancement
Act (RESA) but to also offer new ideas to enhance retirement security
for Americans.
resa's time is now
Our economy is evolving at a rapid pace. Workers' needs, driven in
part by advances in technology and generational differences, are also
changing rapidly. The retirement industry, leveraging behavioral
finance and intense study of 40 years of development in the defined
contribution system, is creating innovative engagement techniques and
products to meet the changing needs. Yet the legislative underpinnings
of our retirement system have not kept pace.
We applaud the committee for working in a bipartisan manner to
advance RESA, which consists of a collection of beneficial provisions,
some of which have been considered in legislation as far back as 10
years ago. As the committee has rightfully concluded, it's past time to
enact RESA's set of common-sense reforms, and to consider the next
phase of reforms to keep pace with rapidly changing needs and
solutions.
To reinforce the importance of RESA's enactment, we would like to
highlight several key provisions of the bill that we believe will be
extremely impactful in expanding coverage of worksite retirement plans
to more workers, driving adequate levels of savings, and addressing the
challenge of income in retirement.
Expand coverage of worksite retirement plans to more workers. While
access to worksite retirement plans is common for many in the
workforce, there is still a significant portion of the working
population that lacks access. The gap in workplace retirement plan
coverage is most pronounced among employees of small employers. For
workers without access to a workplace retirement plan, nearly 58
percent work for companies with fewer than 100 employees. Employers
that do not offer plans pointed to the financial cost (37 percent) and
organizational resources needed to start a plan (22 percent) as the
chief barriers.\8\ The same respondents most frequently said that
increased profits and tax credits to offset the expenses of starting a
plan would make offering retirement benefits more likely. Of course,
there is no one-size-fits-all solution for helping small businesses
start and maintain a workplace plan. Policy makers must take a holistic
view of employees and employers.
---------------------------------------------------------------------------
\8\ Pew Charitable Trust 2017 Employer Barriers to and Motivations
for Offering Retirement Benefits survey.
RESA employs a multi-faceted approach which, collectively, will be
a good step toward closing the retirement plan coverage gap for
---------------------------------------------------------------------------
employees of small employers:
Providing tax credit levels that are meaningful to small
employers will help to offset retirement plan set-up costs and
encourage more employers to sponsor a retirement plan.
Eliminating outdated barriers to allow expansion of open
multiple employer plans (MEPS) will provide opportunities for
small employers to offer retirement benefits to their employees
while effectively reducing the burdens of establishing a plan
and outsourcing a significant amount of the administrative
duties and fiduciary obligations incumbent on a plan sponsor.
Open MEPs also afford small employers the ability to band
together in a collective plan that can generate greater
efficiencies and economies of scale than might otherwise be
possible in a single employer plan.
Driving adequate savings levels. Research published in the American
Society of Pension Professionals and Actuaries (ASPPA) Journal
determined that savings rate is the primary driver of retirement
success and, compared to other factors, is approximately five times
more important than asset allocation, and approximately 45 times more
important than investment quality.\9\ An individual's savings rate is
attributable to 74 percent of their retirement outcome, with asset
allocation attributing to 20 percent, and the specific investment
options utilized attributing to only 2 percent. We must encourage
higher levels of savings within retirement plans.
---------------------------------------------------------------------------
\9\ ASPPA Journal, ``Retirement Success: A Surprising Look Into the
Factors That Drive Positive Outcomes,'' David M. Blanchett, QPA, QKA
and Jason E. Grantz, QPA, 2011.
Studies abound that prove the effectiveness of automatic plan
design in driving and increasing both worker participation and savings
levels. One published report found that 92 percent of employees
participated in automatic enrollment plans while only 57 percent
participated in voluntary enrollment plans.\10\ Unfortunately,
automatic plan design continues to be underutilized among small
employers. Only 19 percent of plans between $1 and $10 million in
assets use automatic enrollment. Even for plans between $10 and $50
million in assets, adoption rates are only around 35 percent. RESA
offers an initial step by encouraging more small employers to adopt
automatic enrollment through a tax incentive to do so. The bill also
encourages more progressively minded plan sponsors who employ both
automatic enrollment and automatic escalation of contributions through
a safe harbor plan design to allow escalation to continue beyond 10
percent of pay by removing the existing 10 percent of pay cap.
---------------------------------------------------------------------------
\10\ Vanguard, ``How America Saves,'' 2018.
Addressing the challenge of income in retirement. Many individuals
simply do not have a realistic understanding of how much money they
need in retirement or how much they can spend before they run out of
income from their savings. And while many savers are attracted to the
idea of a guaranteed income stream in retirement, few actually use
their accumulated DC balances to purchase products like income
annuities before or at retirement. Yet, increasing levels of annual
guaranteed income is demonstrated to improve retirees' satisfaction
levels in retirement, regardless of their level of wealth.\11\ To solve
the challenge, we must leverage more effective education techniques and
expand access to lifetime income product solutions for plan
participants.
---------------------------------------------------------------------------
\11\ The Health and Retirement Study, conducted through the
University of Michigan, surveys approximately 20,000 older Americans.
The 2014 wave of the survey includes a question that asks retirees to
estimate the amount of satisfaction they are experiencing with their
life in retirement. At all levels of wealth, more guaranteed income had
a strong positive impact on retiree satisfaction. http://
hrsonline.isr.umich.edu.
We also must make it easier for individuals to access product
solutions that provide guaranteed lifetime income. RESA includes two
key provisions that will encourage broader adoption by plan sponsors of
---------------------------------------------------------------------------
guaranteed lifetime income products within defined contribution plans:
The most common reason plan sponsors don't offer an in-plan
annuity option today is concern with fiduciary liability.\12\
The annuity provider selection safe harbor establishes a
realistic and workable set of obligations for plan sponsors to
follow when selecting and monitoring an annuity provider for
their plan.
---------------------------------------------------------------------------
\12\ Alight 2019 Top Topics in Retirement and Financial Well-being:
Building on the Past, Working Toward the Future.
Permitting defined contribution plan sponsors to make a
direct trustee-to-trustee transfer or distributions of lifetime
income investments in the form of a qualified plan distribution
annuity allows plan fiduciaries to fulfill their fiduciary
obligations without fear of negatively impacting participants
who have purchased lifetime income in their retirement plan.
looking beyond resa
We are encouraged by the number of new proposals from members of
Congress related to retirement system enhancements. Given the time that
has expired since the last comprehensive retirement reform was passed
into law, there is opportunity for retirement law to catch up to
developments in innovation that have occurred in the retirement
marketplace.
As the committee looks beyond enactment of RESA, we would recommend
the following areas of focus for additional congressional action:
Remove barriers to the adoption of best practice, automatic plan
design safe harbors, particularly for small employers. Best practice,
automatic enrollment and escalation plan features (commonly considered
as those that use an automatic enrollment default percentage of at
least 6 percent and automatically escalate participants to at least 10
percent) can have a dramatic effect on improving both employee
participation in plans and contribution levels. Unfortunately, even
basic automatic enrollment plan design is underutilized among small
employers as noted earlier in our testimony.
We know from our work with small employers that a safe harbor from
nondiscrimination testing can be an effective incentive. However, the
safe harbor design must also be sensitive to employer costs. The
existing Qualified Automatic Contribution Arrangement (QACA) safe
harbor requires a specific, two-tier matching formula (100 percent of
the first 1 percent of pay, 50 percent of the next 5 percent of pay)
that equates to an employer contribution of 3.5 percent of pay.
However, the most common matching formula in use today is a single-
tier match formula consisting of 50 percent match on 6 percent of pay,
equating to a total employer contribution of 3 percent of pay. To
conform with the safe harbor, a plan sponsor must consider not only a
plan amendment but also an increase in their employer contribution. We
believe the latter consideration is a major factor in the lack of
adoption of QACA.
We propose establishing a new safe harbor that would require
automatic enrollment at 6 percent of pay, automatic escalation each
subsequent year to at least 10 percent of pay, and a flexible matching
contribution requirement. At a minimum, the matching formula would
require a 50 percent match on 6 percent of pay, conforming with the
most widely used matching formula in practice today. The minimum
requirement would result in participants saving 9 percent in the
initial year capping at 13 percent total savings, assuming a
participant doesn't opt out. Additional matching formulas could meet
the safe harbor, but only if they (a) equate to at least a 3-percent
employer contribution when the employee contributes 6 percent, and (b)
the matching formula does not increase as employee contributions
increase.
To further support our proposal, a recent study of more than 2,000
retirement plans found no discernable difference in opt-out rates
between plans with a 3-
percent default and plans with a 6-percent default (11.3 percent and
11.4 percent respectively).\13\ The study also found no difference in
opt-out rates among lower-
income workers and higher-income workers.
---------------------------------------------------------------------------
\13\ Wells Fargo Institutional Retirement and Trust 2018 Driving
Plan Health. Data was gathered from more than 2,000 plans representing
more than 4 million eligible employees in a range of industries.
Expand RESA's open MEP to 403(b) plans. Small non-profit
organizations should similarly benefit as for-profits. We urge Congress
---------------------------------------------------------------------------
to expand MEPs to 403(b) plans.
Recognizing workers burdened by student loan debt. Student loan
debt nearly tripled between 2005 and 2017 \14\ and through our
conversations with our plan sponsor community, we know that employers
are increasingly concerned about the impact that student loan debt has
on their employees' ability to participate in their retirement savings
plan. The Internal Revenue Service's recent Private Letter Ruling, PLR-
131066-17, allows the submitting employer to make non-elective
contributions of 5 percent of pay to the retirement plan account of
employees who can demonstrate paying at least 2 percent of compensation
to their student loan debt.
---------------------------------------------------------------------------
\14\ Center for Retirement Research at Boston College, ``Do young
adults with student debt save less for retirement?'', 2018 research
brief.
While a positive development for employers concerned about
employees similarly limited by student loan debt, there are many
questions regarding the subsequent impact on coverage,
nondiscrimination, and contribution limits. There is the real potential
for coverage and nondiscrimination failures. We urge Congress to
explore options, like Ranking Member Wyden's Retirement Parity for
Student Loans Act, to avoid harmful consequences of a policy aimed at
helping struggling employees establish a foothold in retirement
---------------------------------------------------------------------------
savings.
Reevaluate administrative requirements in the era of open MEPs and
automatic plan features. We're all invested in the success of open MEPs
and believe in their potential to provide efficient, professionally-
managed defined contribution plans to small businesses. As plans expand
in the marketplace, we should take a fresh look at the regime of
administrative requirements, many of which were designed for a single
employer plan structure at a time when automatic plan features were not
even a consideration.
In support of a fresh look, our own survey results from the
Principal Financial Group Retirement Readiness Survey \15\ found nearly
half of plan sponsors felt easing reporting requirements (47 percent)
and compliance burdens (42 percent) would help with plan operations.
More than half of plan sponsors (52 percent) said allowing all
employees to defer up to Internal Revenue Service limits would make it
easier for employers to operate their plans.
---------------------------------------------------------------------------
\15\ The 2011 Principal Financial Group Retirement Readiness Survey
commissioned by Principal Financial Group conducted by Harris
Interactive online. Data was gathered May 17-June 17, 2011 from 1,305
employers.
Reevaluating requirements in the emerging context of the open MEP
structure and auto-feature safe harbors may identify areas for
simplification and reduction of administrative burdens, all of which
will be beneficial to encouraging more small businesses to sponsor a
defined contribution plan and improving the operating efficiencies of
open MEPs.
conclusion
Thank you for the opportunity to testify about the importance of
and successes in our private retirement system. Principal Financial
Group appreciates the effort and sincerity with which Chairman
Grassley, Ranking Member Wyden, and all members of the Senate Finance
Committee have undertaken the important considerations of Americans'
retirement security. We commend the chairman, ranking member, and their
dedicated staff for their thoughtful and deliberate leadership on RESA
and look forward to continuing to work with the committee on future
legislative efforts to help all Americans save for and realize a
financially secure retirement.
______
Questions Submitted for the Record to Joni Tibbetts
Question Submitted by Hon. Chuck Grassley
Question. Individual retirement accounts, or IRAs, are an important
part Americans' retirement savings, accounting for nearly a third of
those savings. IRAs are subject to many of the same complex rules as
employer plans, but individuals don't have resources equivalent to
employer plans to comply with those rules. Also, the available IRS
guidance with respect to IRAs is often less than that available to
employer plans. Because of these disparities, IRAs are prone to common
errors. One common mistake is failure to take required minimum
distributions on time, which results in a staggering 50-percent excise
tax. A recent Government Accountability Office report suggests that
these kinds of mistakes are common--with mistakes in a single year
affecting 1.5 million individuals. Such mistakes expose Americans'
hard-earned retirement savings to exorbitant penalties and potentially
the loss of favorable tax qualification.
Would better guidance for individuals on the use of IRAs and
permitting self-
correction of common IRA errors provide greater retirement security for
Americans?
Answer. Required minimum distribution rules are complex and errors
can be very costly for retired Americans. We support efforts to improve
guidance and provide possible self-correction options to help retirees
comply with the law and avoid large excise taxes that can jeopardize
their retirement security.
We also support increasing the starting age for required minimum
distributions (RMDs) to age 72, as reflected in the SECURE Act, and
eliminating RMDs completely for smaller account balances and
significantly reducing penalties, as laid out in the Retirement
Security and Savings Act of 2019 from Senators Portman and Cardin.
______
Questions Submitted by Hon. Tim Scott
Question. In South Carolina, we have a large--and growing--
population of retirees, as well as a dynamic, diverse workforce--where
retirement security is a high priority.
Now, one hurdle to ensuring a successful and stable retirement, in
the past, has been a lack of portability as folks transition from one
job to the next. Of the 14.8 million workers who change jobs each year,
6 million cash out of their retirement plans. This has been
particularly difficult for some African American employees, who have a
401(k) cash-out rate of 63 percent.
For this reason, I have been strongly supportive of the private
sector's efforts to address cash-outs and, in particular, the
development of auto-portability, which would allow a person's
retirement savings to move with them when they change jobs. I worked
closely with Secretary Acosta and the Department of Labor on guidance
to facilitate auto-portability, and it has the potential to help
millions of families. Now, we just need to implement the system, and
I'm hopeful we can move forward with that as efficiently as possible.
To what extent do you see cash-outs and leakage as threatening
retirement security in the long term, and are there other steps we can
take to build upon auto-portability?
Answer. With our increasingly mobile workforce, it's becoming more
common for individuals to lose track of their retirement accounts with
their former employer(s) plan(s). Senators Warren and Daines introduced
a bill, the Retirement Savings Lost and Found Act of 2018, that would
set up a Lost and Found online database that uses the data employers
are already required to report, so that any worker can locate all of
his or her former employer-sponsored retirement accounts. The bill
would provide individuals with the ability to view contact information
for the plan administrator of any plan with respect to which the
individual is a participant or beneficiary, sufficient to allow the
individual to locate the individual's plan. This type of free resource
would be a beneficial new tool to help workers stay on top of their
retirement savings.
Question. In recent decades, we've seen what I see as an exciting
shift towards greater flexibility, control, and stability in retirement
savings. Total retirement savings have risen from 48 percent of total
employee wages in 1975 to a staggering 337 percent of wages in 2017.
And in 2016, the Survey of Consumer Finances found that three-quarters
of Americans over 65 reported retirement income that was at least
enough to maintain their standard of living--up fourteen percentage
points since 1992.
That being said, the reality is, financial literacy remains a
barrier to effective retirement savings for too many Americans. A 2018
report from the Board of Governors of the Federal Reserve System found
that three-fifths of non-retired adults with self-directed plans
reported having little or no comfort managing their investments. On a
five-question assessment on basic finance, the average number of
correct answers was just 2.8. As the Co-Chair of the Financial Literacy
Caucus, I find this particularly troubling.
Clearly one piece of this puzzle is improving our educational
system to ensure that financial literacy receives much more emphasis.
Beyond that, however, what tools, resources, and programs are out there
that might assist folks in planning for their financial well-being in
the long term, and--more importantly--how can we connect workers to
these programs?
Answer. Americans are increasingly using digital and online
interfaces to engage in virtually all aspects of their lives and
they've come to expect and demand intuitive and engaging experiences.
And these interfaces are the perfect environment to foster and improve
financial literacy. In fact, we have found that individuals who engage
online or through their phones to enroll and/or access financial
planning have significantly improved retirement outcome measures
relative to those who use more traditional hardcopy kits and forms.
When enrolling through our online enrollment experience:
The average deferral rate for newly eligible employees is
nearly 8 percent (that's more than 34 percent higher than other
enrollment methods) and 29 percent of newly eligible employees
defer 10 percent or more.
For existing participants of plans that transition to
Principal, nearly 1 in 4 participants opt to save 10 percent or
more.
When looking at all participants who have visited the
website, average deferrals are 50 percent higher than those who
do not engage online.
Principal offers My Virtual Coach, an interactive financial
wellness planner experience. We have noticed the following:
Those who enroll by taking the full Planner experience have
an average deferral rate of 8.26 percent.
Those existing participants who elect and subsequently take
part in future My Virtual Coach Checkups have an average
deferral rate of 9.15 percent.
30 percent more participants increased deferrals after
having access to their Wellness Scores and the Planner.
The Retirement Wellness Score among participants who use our
digital resources is more than 10 points higher than the
average score (a score of 100 points signaling an expectation
that you are on track to meet 100 percent of your retirement
income goal).
We believe strongly that drawing more individuals to engage
digitally or online for their retirement savings decisions will improve
outcomes. One solution to encourage individuals to go to their
retirement provider's website is to change the default delivery method
of required retirement plan notices and statements from paper mailings
to electronic notices, as outlined in the Receiving Electronic
Statements to Improve Retiree Earnings (RETIRE) Act.
By providing notices in a way that more and more consumers prefer
and expect, and that the data shows drives more positive participant
outcomes, more individuals will take the opportunity to access engaging
and intuitive education and planning resources that will make a
difference in their retirement security.
______
Questions Submitted by Hon. Maria Cantwell
Question. More Americans are reaching retirement age and many are
facing the danger of outliving their savings. We should encourage
guaranteed lifetime income options, including annuity products, as a
part of our retirement security agenda. We should make open
multiemployer plans more available so that more people have access to
retirement plans. And these plans should include a lifetime income plan
as an option.
How does a guaranteed lifetime income option help protect people
from outliving their savings?
Answer. With defined benefit retirement plans becoming increasingly
rare, most Americans with retirement savings have a defined
contribution plan with an established account balance. As savers
approach retirement, they must consider how to make their nest egg of
dollars last the rest of their lives once they retire. The only product
that can guarantee monthly income for life is an annuity. Annuities can
provide a cost-effective and safe option to mitigate or eliminate
market volatility risk while providing a guaranteed stream of monthly
income for life.
Question. Do you believe Congress should provide more direction
regarding the composition of a model plan?
If so, what recommendations would you make?
Answer. Congress should be engaged in encouraging employers to
adopt best practice retirement plan design that drives improved
retirement outcomes for their employees. Past Congresses have enacted
nondiscrimination testing safe harbors to encourage adoption of
prescribed auto-feature plan designs and we hope this Congress enacts
the SECURE Act, which includes a new tax credit to incent small
employers to adopt automatic enrollment.
We encourage Congress to look further into the reasons why small
employers have not adopted automatic features, and specifically the
Qualified Automatic Contribution Arrangement (QACA) safe harbor, in
greater numbers. Only 19 percent of plans between $1 and $10 million in
assets use automatic enrollment. Even for plans between $10 and $50
million in assets, adoption rates are only around 35 percent.
We believe the key factors in the lack of adoption of best
practice, auto-feature plan design among small employers are the cost
and complexity of the employer contribution requirements in QACA. The
most widely used employer matching formula by small plans today is a 50
percent match up to 6 percent of pay (equivalent to 3 percent of pay).
QACA requires two levels of matching, equating to 3.5 percent of pay.
For small employers, any increase in benefit costs can be a dead-end.
We propose creating a new auto-feature safe harbor that is more
accessible to small employers. The safe harbor would require enhanced
automatic enrollment at a starting default of 6 percent of pay with
annual escalations of 1 percent up to a minimum of 10 percent of pay.
The employer contribution requirement would allow a flexible range of
matching formulas that meet the following parameters: the formula must
deliver an employer contribution equal to at least 3 percent of pay
when a participant contributes 6 percent of pay, and the matching
percentage may not increase as a participant's contribution increases.
Importantly, the required parameters would encompass the most commonly
used matching formula among small plans, 50-percent match up to 6
percent of pay.
When combined with the auto-features, the minimum matching
requirement would result in participants saving a total of 9 percent in
their initial year capping at 13 percent total savings, assuming the
participant does not opt out.
To further support the best practice auto-feature design of this
proposal, a recent study of more than 2,000 retirement plans found no
discernable difference in opt-out rates between plans with a 3-percent
default and plans with a 6-percent default (11.3 percent and 11.4
percent respectively).\1\ The study also found no difference in opt-out
rates among lower-income workers and higher-income workers.
---------------------------------------------------------------------------
\1\ Wells Fargo Institutional Retirement and Trust, 2018, ``Driving
Plan Health.'' Data was gathered from more than 2,000 plans
representing more than 4 million eligible employees in a range of
industries.
Question. Portability of lifetime income products is another
important issue. Many younger and lower-income workers actively saving
for their retirements have to worry about transferring those balances
to new plans when changing jobs. This results in leakage and lost
accounts for many workers, which hurts them more in the long run
because they also lose the interest income. These are the Americans who
---------------------------------------------------------------------------
need more retirement savings than most.
What partnerships exist to make sure that there is adequate
technology and support to ensure that we eliminate this ongoing
problem?
Answer. We believe the provision in the SECURE Act and RESA that
allows for portability of lifetime income options effectively addresses
the challenge. In the case of a plan fiduciary's decision to
discontinue a guaranteed lifetime income option in their plan, the
provision allows plan participants to retain the guaranteed lifetime
income they have purchased by transferring the contract to an
individual account without incurring early withdrawal penalties.
Question. I've worked on policies to ensure lifetime income
portability and annuity selection safe harbors. Why are these
provisions important?
Answer. Increasing the availability of guaranteed lifetime income
options within defined contribution plans is a crucial step in helping
working Americans make their defined contribution plan nest eggs last
throughout their retirement years. Unfortunately, plan fiduciaries who
are considering making these options available to their employees today
face unrealistic obligations for evaluating annuity providers that lead
to open-ended and dangerous liabilities. The fiduciary concerns are the
chief reason that plan sponsors have chosen not to offer a lifetime
income option to their plans.
The SECURE Act and RESA address the challenges by:
Instituting a realistic and workable safe harbor for plan
fiduciaries to follow when selecting an annuity provider for
their plan.
Allowing plan participants who have elected lifetime income
to transfer those contracts to an individual account, without
early withdrawal penalties, in the event the plan fiduciary
discontinues the option.
Question. Too many people underestimate how much money they will
need to save in order to comfortably retire. Individuals need a better
understanding of the lifetime value of their current level of savings
in their 401(k) plan. Understanding of the value of the total assets
saved for retirement and how much those savings will translate to on a
monthly basis will help to improve individual retirement savings
levels. By helping workers better gauge how much they will need to
retire, individuals will be better prepared for retirement and be able
to make more educated decisions about their savings and investments.
How would providing an estimate of the monthly income distribution
from their retirement savings on the individual's annual benefit
statement help working people gauge their progress toward reaching the
goal of a safe and secure retirement?
Answer. Monthly income illustrations are a crucial tool in helping
individuals determine how much monthly income their accumulated
retirement savings may generate and whether they are on track to meet a
retirement income goal. As noted in our written testimony, Principal
frames all account summaries online, digitally, and on paper
statements, not only in a traditional account balance perspective, but
as an illustration of how much monthly income could be generated from
an employee's accumulated savings at retirement. The income
illustration is personalized to each participant, using their current
account balance, contribution level, annual pay, and estimates of
income from other sources like Social Security, a pension or a Health
Savings Account, including certain assumptions.
The retirement income estimate is compared to an estimate of the
participant's pre-retirement income, giving the individual a basic
understanding of whether they are saving enough. The measure of an
individual's position relative to their income goal is known as their
``Retirement Wellness Score'' (Score). The Score uses a basic range of
1 to 100, with the number reflecting the percentage of pre-retirement
income estimated to be replaced at retirement, and is accompanied by a
green, yellow, or red depiction of the status, each with clear-cut
action prompts. The online and digital tools and resources are
interactive, and allow an individual to, as an example, ``dial up''
contribution percentages to determine how changes may impact their
Score, as well as add savings from another source or for a spouse or
partner.
______
Questions Submitted by Hon. Michael F. Bennet
Question. As the American workforce changes, the way we plan for
retirement has to adapt as well. Often, people are working for multiple
companies at once, or frequently changing employers throughout their
careers. Unique work situations require us to think more creatively
about how we can help people save.
One idea would be to create a 401(k) or 401(k)-like product that is
detached from a specific employer. This would allow employees to
maintain the same account as they go between employers, and allow those
employers to match their contributions and follow other best practices,
like auto-enrollment and auto-escalation, while applying the same
protections that they receive in an employer-based 401(k).
What are your views on this idea?
Answer. We believe the U.S. employer-based, defined contribution
system has been a great success in many regards and we should remain
focused on seeking to improve upon it, rather than seek to replace it.
Unfortunately, it's been nearly 14 years since Congress has enacted any
type of enhancement. We urge the Senate to enact the SECURE Act, which
passed in the House by an overwhelming 417-3 margin, and further commit
to timely and ongoing considerations of new ideas to enhance our
retirement savings system for working Americans.
Question. Besides addressing the multiemployer pension crisis and
passing RESA, what do you think are the most important steps we can
take to increase retirement security for working Americans?
Answer. Both RESA and the SECURE Act contain important enhancements
that will help to close the retirement coverage gap, particularly among
small employers. One important provision of both bills is establishment
of open multiple employer plans (MEPs). Open MEPs not only offer a more
streamlined and efficient retirement plan solution for small employers,
they could also serve to support elements of the nontraditional
workforce who lack a formal employer. We urge Congress to also consider
expanding the availability of open MEPs to non-profit organizations.
And while the SECURE Act also includes a beneficial, new tax credit
to incent small employers to adopt automatic enrollment, we must look
for other ways to improve adoption rates of not only automatic
enrollment, but best practice, auto-
feature plan design among small and mid-size employers. Only 19 percent
of plans between $1 and $10 million in assets use automatic enrollment.
Even for plans between $10 and $50 million in assets, adoption rates
are only around 35 percent.
We believe the key factors in the lack of adoption of best
practice, auto-feature plan design among small employers are the cost
and complexity of the employer contribution requirements in the
Qualified Automatic Contribution Arrangement (QACA) safe harbor. The
most widely used employer matching formula by small plans today is a
50-percent match up to 6 percent of pay (equivalent to 3 percent of
pay). QACA requires two levels of matching, equating to 3.5 percent of
pay. For small employers, any increase in benefit costs can be a dead-
end.
We propose creating a new auto-feature safe harbor that is more
accessible to small employers. The safe harbor would require enhanced
automatic enrollment at a starting default of 6 percent of pay with
annual escalations of 1 percent up to a minimum of 10 percent of pay.
The employer contribution requirement would allow a flexible range of
matching formulas that meet the following parameters: the formula must
deliver an employer contribution equal to at least 3 percent of pay
when a participant contributes 6 percent of pay, and the matching
percentage may not increase as a participant's contribution increases.
Importantly, the required parameters would encompass the most commonly
used matching formula among small plans, 50-percent match up to 6
percent of pay.
Question. When combined with the auto-features, the minimum
matching requirement would result in participants saving a total of 9
percent in their initial year capping at 13 percent total savings,
assuming the participant does not opt out.
Answer. To further support the best practice auto-feature design of
this proposal, a recent study of more than 2,000 retirement plans found
no discernable difference in opt-out rates between plans with a 3-
percent default and plans with a 6-percent default (11.3 percent and
11.4 percent respectively).\2\ The study also found no difference in
opt-out rates among lower-income workers and higher-income workers.
---------------------------------------------------------------------------
\2\ Wells Fargo Institutional Retirement and Trust, 2018, ``Driving
Plan Health.'' Data was gathered from more than 2,000 plans
representing more than 4 million eligible employees in a range of
industries.
______
Prepared Statement of Hon. Ron Wyden,
a U.S. Senator From Oregon
This morning the Finance Committee takes a broad look at challenges
with the retirement system. I want to begin my remarks with a word on
Social Security.
According to the most recent trustees report, Social Security can
pay full benefits until 2035. After that, retirees would be hit with a
20-percent cut. That means a 50-year-old worker who's paid into Social
Security out of every paycheck faces the prospect of not receiving the
full benefits that she has earned.
So let me be clear this morning. As long as I have anything to say
about it, that cut is not going to happen. The Congress has solved
fiscal challenges bigger than this one in the past, and it will do it
again.
Furthermore, let's understand that no program has done more for
Americans' economic well-being and stability than Social Security. The
Congress must not do anything to undermine it. Social Security is not a
piggy bank for lawmakers to smash when they're in search of funding for
other priorities. Instead, let's protect Social Security for all
workers and the generations to come. Let's also examine the other areas
where our retirement system needs strengthening.
Across the country, more than 100 million Americans have no pension
and no savings in a retirement plan. A dignified retirement is out of
reach for many working Americans today. But there are a lot of ways
this committee can take a leading role in changing that.
First, this committee worked on a bipartisan basis to put together
the Retirement Enhancement and Savings Act. Our bill is all about
making it easier for employers--particularly small businesses--to offer
retirement plans to their employees. Giving those small businesses an
opportunity to band together and offer a common retirement plan is a
simpler and more cost-effective way of helping more people save.
It also ought to be easier for older Americans to save. Ever since
I was co-director of the Oregon Gray Panthers, I've said that there's
no good reason to cut somebody off from saving just because they've
crossed an arbitrary age limit. In my judgment, changing this part of
IRA law is a no-brainer.
I think of older working-class people who can't yet afford to
retire and want to keep saving. With so many families dealing with the
consequences of the opioid epidemic, I think of working grandparents
who are supporting youngsters and want to keep saving. They ought to
have that opportunity. Those are key parts of our bill, and I'm hopeful
it'll get across the finish line soon.
In addition to RESA, there are a number of other ideas to discuss
this morning. Yesterday I introduced the Retirement Parity for Student
Loans Act. It's based on a simple proposition: somebody who's paying
off student loans should not be denied the opportunity to start saving
for retirement. The bill would allow employers to make ``matching''
payments into a retirement plan while their employees are making loan
payments. The bottom line is, whether you're paying off loans or
building up a nest-egg, you're making the right financial choices. You
ought to be rewarded for it with an opportunity for more savings.
Next, the committee is fortunate to have Oregon Treasurer Tobias
Read here with us this morning. Oregon is leading the Nation with its
new auto-enrolled IRA program for people who don't have access to a
retirement plan at work. It's called OregonSaves. It started with a
successful pilot program. It went statewide in 2018. Hundreds of
thousands of people in my home State are going to be saving for
retirement when the program is fully up and running. In my view, this
committee ought to look at expanding on this idea nationally. So I want
to thank Treasurer Read for being here to talk with us about it.
One last point. This committee needs to act--and act now--on
multiemployer pensions. There are 150 of these pension plans facing
insolvency in the next decade or two. That's upward of a million
Americans who could be thrown off a financial cliff. They've worked
hard. They've paid into their plans. They're facing this crisis through
no fault of their own. It's long past time to fix it. Congress cannot
sit idly on the sidelines as many of these Americans fall into poverty.
______
Communications
----------
American Council of Life Insurers
101 Constitution Avenue, NW
Washington, DC 20001
Statement of Susan K. Neely, President and CEO
The American Council of Life Insurers (ACLI) is pleased to submit this
statement for the record on ``Challenges in the Retirement System.''
The ACLI thanks Chairman Chuck Grassley (R-IA) and Ranking Member Ron
Wyden (D-OR) for holding this important hearing. This statement will
highlight the successes of the current retirement system, challenges
that workers and retirees face and public policy proposals supported by
ACLI that would enhance and build upon the successes of the retirement
system .
THE AMERICAN COUNCIL OF LIFE INSURERS
The American Council of Life Insurers (ACLI) advocates on behalf of 280
member companies dedicated to providing products and services that
promote consumers' financial and retirement security. Financial
security is our core business, and retirement security for all
Americans is a critical mission. We protect 90 million American
families with financial products that reduce risk and increase
financial security, including life insurance, annuities, retirement
plans, long-term care insurance, disability income insurance, dental
and vision benefits and other supplemental benefits. As society and
work changes, we are committed to solutions that protect all Americans,
regardless of where and how they work, their stage in life, or the
economic status of their household. Americans are living longer, and
financial security into retirement is a big challenge facing our
country. We help people retire with security, with more products,
availability, accessibility, and affordability for all.
ACLI members represent 95 percent of industry assets in the United
States. Through a well-crafted partnership of the private solutions
ACLI members provide, and public solutions that are necessary, we
believe the benefits of financial security can be made available to all
Americans. Accordingly, ACLI member companies offer insurance contracts
and investment products and services to employment-based retirement
plans (including defined benefit pension plans, 401(k), SIMPLE, SEP,
403(b), and 457(b) plans) and to individuals (through individual
retirement accounts (IRAs) and annuities). ACLI members are also
employer sponsors of retirement plans for their employees. As service
and product providers, as well as employer plan sponsors, life insurers
believe that adequately and consistently saving for retirement,
effectively managing assets throughout retirement and utilizing
appropriate financial protection products are all critical to
Americans' retirement and financial security.
In 2017, American families received $364 billion in payments from
annuities, $126 billion in payments from life insurance, $19 billion in
disability income insurance benefits and $11 billion in long-term care
insurance benefits. Americans are facing with significant financial
security challenges, and the insurance industry is a vitally important
part of how Americans are able to plan, save and guarantee themselves a
secure retirement. No other industry provides Americans with the level
of financial guarantees provided by the insurance industry.
THE RETIREMENT SYSTEM IN AMERICA
The retirement system for private-sector workers in America builds upon
the contributions made to Social Security and is enhanced by
employment-based retirement plans, IRAs, individual annuities, and
other investments. These private-sector savings programs play a vital
role in retirement security for millions of Americans. Current tax
incentives, for pensions and retirement savings, encourage employers to
provide and maintain employment-based plans and have enabled millions
of American families to accumulate savings, thereby improving their
retirement security. According to the Bureau of Labor Statistics, more
than 80 percent of full-time civilian workers have access to a
retirement plan through their employer, and of these workers, 80
percent participate in a workplace plan. Yet, more can be done to
ensure that everyone who can afford to save for retirement is saving
for retirement.
While the current combination of Social Security and employment-based
and private retirement arrangements has successfully demonstrated the
ability of workers to attain retirement security, several legislative
enhancements, including those with a focus on financial literacy, can
build upon this success. ACLI supports the committee's commitment to
improving retirement savings for all Americans.
CHALLENGES FACING RETIREMENT SAVERS
Closing the retirement savings gap is a big need--and it's becoming an
even bigger need as society evolves. While workplace retirement plans
are incredibly effective at helping people save, impediments still
exist that prevent too many Americans from maximizing this important
savings tool. For some, understanding the value of saving for
retirement and the underlying concepts can prove to be daunting. Some
of the mystery derives from the shift over time from defined benefit
plans to defined contribution retirement plans. With greater choice and
flexibility, plan participants must set personal savings goals, make
informed investment decisions and plan for income throughout
retirement.
Numerous segments of the population seem to have greater barriers to
savings. While more than 80 percent of full-time workers have access to
a retirement plan in the workplace, only 40 percent of part-time
workers enjoy access to this benefit, in particular people who work for
small employers and gig economy workers.\1\ According to Betterment's
study, Gig Economy and the Future of Retirement, nearly 40 percent of
respondents feel unprepared to save enough to maintain their lifestyle
during retirement.\2\
---------------------------------------------------------------------------
\1\ Bureau of Labor Statistics, Employee Benefit Survey, https://
www.bls.gov/ncs/ebs/benefits/2018/ownership/civilian/table02a.htm.
\2\ Betterment, Gig Economy, and the Future of Retirement, https://
www.betterment.com/wp-content/uploads/2018/05/The-Gig-Economy-
Freelancing-and-Retirement-Betterment-Survey-2018_edited.pdf.
Additionally, millennials tend to be less prepared for retirement than
earlier generations at the same stage in life with 40 percent having no
dedicated retirement savings. Of those with dedicated retirement
savings, a third have saved $15,000 or less.\3\ Many are burdened with
student loan debt and may delay saving for retirement. This segment may
also face challenges related to access to a retirement savings plan in
the workplace. According to Pew Charitable Trust's report, Retirement
Plan Access and Participation Across Generations, younger workers are
less likely than older workers to be offered retirement plans by their
employers. And when they are, younger workers are less likely to
participate.\4\
---------------------------------------------------------------------------
\3\ ACLI analysis of Strategic Business Insights 2016-2017
MacroMonitor Household Survey.
\4\ The Pew Charitable Trust, Retirement Plan Access and
Participation Across Generations, https://www.pewtrusts.org/-/media/
assets/2017/02/ret_retirement_plan_access_and_participa
tion_across_generations.pdf.
Adult caregivers are also in a perplexing situation. Many financially
assist their children, while an estimated 9.7 million adult children
over the age of 50 care for their parents as well.\5\ Women act nearly
twice as often as men as caregivers for their adult parents, which can
have a significant impact on their retirement savings. The total
individual amount of lost wages due to women leaving the labor force
early because of caregiving responsibilities equals $142,693. The
estimated impact of caregiving on their lost Social Security benefits
is $131,351.\6\ Additionally, woman caregivers, due to their caregiving
responsibilities, are much less likely to participate in an employer's
401(k) program. Among single women 50 years old and older, the chance
of participating in a 401(k) plan is35.8 percent for caregivers,
compared to 43.6 percent for non-caregivers.\7\
---------------------------------------------------------------------------
\5\ MetLife, Mature Market Institute, The MetLife Study of
Caregiving Costs to Working Caregivers, https://www.caregiving.org/wp-
content/uploads/2011/06/mmi-caregiving-costs-working
-caregivers.pdf.
\6\ Id.
\7\ Christian E. Weller and Michele E. Tolson, Do Unpaid Caregivers
Save Less for Retirement?, https://jor.iijournals.com/content/6/2/61/
tab-article-info.
Furthermore, mothers of young children, due to their absence in the
labor force during child-rearing years, also experience gaps in
opportunities to contribute to a workplace retirement plan. According
to the Bureau of Labor Statistics, the labor force participation of
mothers of young children was only 62 percent, compared to 80 percent
of mothers with older children.\8\
---------------------------------------------------------------------------
\8\ Bureau of Labor Statistics, Employment Characteristics of
Families--2017, https://www.
bls.gov/news.release/archives/famee_04192018.pdf.
---------------------------------------------------------------------------
POTENTIAL SOLUTIONS TO ADDRESS CHALLENGES IN SAVING FOR RETIREMENT
Effective public policy proposals, in addition to action by plan
sponsors and providers, can address the challenges discussed above and
help Americans save for a secure retirement. Public policy should seek
to increase access to essential financial protections, retirement
savings and guaranteed retirement income products. Through the
Retirement Enhancement and Savings Act (RESA) (S. 972/H.R. 1007),
Congress has an opportunity to enact comprehensive legislation that
will help more people retire with peace of mind--increasing the
availability, accessibility and affordability of retirement security
products for all Americans. It represents sound retirement policy that
has strong bipartisan and bicameral support. RESA is the bedrock of
innovative and thoughtful proposals that have the potential to increase
retirement savings for Americans. It is imperative the Senate Finance
Committee take action and work to advance RESA as soon as possible.
Furthermore, policy proposals that seek to increase retirement savings
that ACLI supports include:
1. Increased Access and Participation Through Small Plan
Coverage
A sizable majority of full-time workers have access to a retirement
plan in the workplace. Still, more could be done to expand access and
coverage. While access is high for workers at larger employers, roughly
47 percent of all workers employed by businesses with fewer than 50
workers have access to a workplace retirement plan.\9\ Many small
businesses do not offer a retirement savings plan, but not for a lack
of access to a marketplace of product offerings. The uncertainty of
revenue is the leading reason given by small businesses for not
offering a plan, while cost, regulatory and administrative burdens and
lack of employee demand are other impediments.
---------------------------------------------------------------------------
\9\ Bureau of Labor Statistics, National Compensation Survey,
https://www.bls.gov/ncs/.
Proposed legislation seeks to remedy this access challenge by
facilitating retirement plan creation among small employers.\10\ The
expansion of private-sector sponsored multiple employer plans, also
known as ``open MEPs'' or ``pooled employer plans,'' can encourage and
facilitate adoption by employers that are not prepared to sponsor their
own stand-alone retirement plan. Open MEPs can be an important tool in
reducing the costs and administrative burdens to small employers. Under
an open MEP, many businesses can join together to achieve economies of
scale and advantages with respect to plan administration and investment
services, making plans much more affordable and efficiently maintained.
This would encourage more businesses to offer their employees
retirement plans. Additionally, eliminating the ``one bad apple'' rule,
which punishes all participating employers if any one of the
participating employers violates a qualification requirement, is vital.
ACLI estimates open MEPs will lead to an additional 700,000 workers
with access to workplace retirement savings.\11\
---------------------------------------------------------------------------
\10\ Retirement Security Act of 2019, introduced in the 116th
Congress by Senators Collins (R-ME) and Hassan (D-NH); H.R. 854,
introduced in the 115th Congress by Representatives Buchanan (R-FL) and
Kind (D-WI); S. 3219, introduced in the 115th Congress by Senators
Cotton (R-AR), Young (R-IN), Heitkamp (D-ND) and Booker (D-NJ).
\11\ ACLI estimate based on Joint Committee on Taxation, JCX-88-16,
``Estimated Revenue Effects of the Chairman's Modification of the
`Retirement Enhancement and Savings Act of 2016.' Scheduled for markup
by the Committee on Finance on September 21. 2016.''
While the Department of Labor (DOL) has issued a rulemaking proposal
relating to ``Associate Retirement Plans,'' DOL's proposal falls far
short of a real and viable way to expand small employer retirement plan
coverage. DOL has a unique opportunity to allow for the creation of
open MEPs in its current rulemaking project by removing the imposition
of a ``commonality'' requirement which is unsupported by law. DOL's
continued and incorrect interpretation of the law serves as an
---------------------------------------------------------------------------
impediment to expanding coverage for employees of small employers.
Undoubtedly, the open MEPs model will make a considerable impact upon
retirement plan coverage, but perhaps the biggest effect could be
achieved through an employer requirement approach. Based on the BLS
data, ACLI estimates that the possible impact of an employer retirement
plan requirement proposal, similar to House Ways and Means Chairman
Richard Neal's Automatic Retirement Act of 2017, could increase access
to an employer-sponsored DC retirement plan by an additional 30 million
workers, a 38-percent increase in access among private sector
workers.\12\ Assuming comparable take-up rates for those currently with
access, the additional increase in access would lead to 22 million
additional workers participating in a DC retirement plan, a 39-percent
increase over current participation figures. For this reason, ACLI
supports this approach, as a profound concept that could potentially
change the landscape of retirement savings and improve the financial
well-being of millions of Americans.
---------------------------------------------------------------------------
\12\ H.R. 4523, introduced in the 115th Congress by Representative
Neal (D-MA).
In addition to reforming and expanding open MEPs, other proposals to
---------------------------------------------------------------------------
improve small business plan access include:
Increased Start Up Credit: Under current law, small employers
(up to 100 employees) that adopt a new retirement plan are entitled to
an annual tax credit for 3 years equal to 50 percent of the costs of
starting up the plan, up to a cap on the annual credit of $500. Pending
legislation seeks to increase the credit and provide an additional
credit for employers who automatically enroll employees in their
plan.\13\
---------------------------------------------------------------------------
\13\ The Retirement Security and Savings Act of 2019, introduced in
the 116th Congress by Senators Portman (R-OH) and Cardin (D-MD); S.
1383, introduced in the 115th Congress by Senators Collins (R-ME) and
Nelson (D-FL); H.R. 4637, introduced in the 115th Congress by
Representatives Kind (D-WI) and Reichert (R-WA); H.R. 3902, introduced
in the 115th Congress by Representatives Bishop (R-UT) and Neal (D-MA).
Auto-IRA: Employers without a retirement savings plan should be
encouraged to automatically enroll employees into a payroll deduction
IRA. Employers that elect to sponsor an ``Auto-IRA'' should receive the
same level of protection and state wage law pre-emption provided to
employers sponsoring ``Auto-401(k)s.''\14\
---------------------------------------------------------------------------
\14\ SIMPLE Plan Modernization Act, in the 116th Congress
introduced by Senators Collins (R-ME) and Warner (D-VA); H.R. 4637, the
SAVE Act of 2017, introduced in the 115th Congress by Representatives
Kind (D-WI) and Reichert (R-WA).
SIMPLE IRA Improvement: SIMPLE IRAs should be made more
appealing to small businesses. Permitting a higher level of employer
contributions and improving rollover rules could make the plans more
valuable to employees.\15\
---------------------------------------------------------------------------
\15\ Retirement Security Act of 2019 (S. 321), introduced in the
116th Congress by Senators Collins (R-ME) and Hassan (D-NH); S. 2526,
introduced in the 115th Congress by Senators Hatch (R-UT) and Wyden (D-
OR); H.R. 4637, introduced in the 115th Congress by Representatives
Kind (D-WI) and Reichert (R-WA); H.R. 5282, Representatives Kelly (R-
PA) and Kind (D-WI).
Automatic Escalation Cap Removal: Under the current
nondiscrimination safe harbor for automatic enrollment and automatic
escalation, a retirement plan may not automatically enroll or escalate
employees beyond a contribution rate that exceeds 10 percent of pay.
The 10-percent limit has been widely criticized as unnecessarily
restrictive and an impediment to encouraging plan participants to save
more for retirement. Legislative efforts should focus on removal of
this arbitrary cap.\16\
---------------------------------------------------------------------------
\16\ S. 2526, introduced in the 115th Congress by Senators Hatch
(R-UT) and Wyden (D-OR); H.R. 4637, introduced in the 115th Congress by
Representatives Kind (D-WI) and Reichert (R-WA), H.R. 5282,
Representatives Kelly (R-PA) and Kind (D-WI).
---------------------------------------------------------------------------
2. Facilitating Plan Participant Access to Lifetime Income
Options
Many workers do not have access to an annuity option within their
employer-
provided plan. Annuities are the only financial product in the
marketplace that guarantee income for life. To offer annuities in a
401(k) plan, employers are required to make a determination as to
whether ``an annuity provider is financially able to make all future
payments under an annuity contract.'' This standard has been difficult
to meet in part because it is hard for an employer to know how to draw
this conclusion and has been an impediment to a broader inclusion of
annuities in defined contribution plans.
ACLI supports proposals which improve upon the current annuity provider
selection safe harbor rule.\17\ When considering an insurer's financial
capability, employers should be able to rely upon the work of state
insurance commissioners with specific representations from the insurer
regarding the plan's status in relation to state insurance regulation
and enforcement. Plan sponsors should not have to second-guess the
determinations of state insurance departments concerning the ability of
a licensed provider to satisfy its long-term financial obligations. By
improving the current safe harbor provision, the legislation will
mitigate employer concerns regarding selecting an annuity provider and
encourage them to add an annuity option to their retirement plan
offerings.
---------------------------------------------------------------------------
\17\ S. 2526, introduced in the 115th Congress by Senators Hatch
(R-UT) and Wyden (D-OR); H.R. 1439, introduced in the 116th Congress by
Representatives Blunt Rochester (D-DE) and Walberg (R-MI).
In addition to an improved annuity safe harbor regulation, participants
would benefit from lifetime income portability protections. ACLI
supports legislation and regulation that focuses on expanding the
annuity product portability rules to maintain participants' access to
lifetime income benefits. Participants could confidently diversify
their portfolio into an annuity vehicle, a key tenant to financial
planning. When the termination of a plan's annuity contract would lead
to the loss of access on the part of plan participants to the
contract's guaranteed lifetime benefits, the rules should permit the
distribution to be made via a qualified plan distributed annuity
contract or a direct rollover to an IRA or other eligible retirement
plan. Participants need the means to maintain access to these important
benefits. ACLI supports legislative proposals that would enhance the
portability of guaranteed lifetime income products.\18\
---------------------------------------------------------------------------
\18\ S. 2526, introduced in the 115th Congress by Senators Hatch
(R-UT) and Wyden (D-OR); H.R. 3910, introduced in the 115th Congress by
Representatives Neal (D-MA) and Bishop (R-UT).
---------------------------------------------------------------------------
3. Additional Plan Innovations
Employers and plan providers, understanding the value of education in
the workplace, have been working for decades to design and implement
effective financial literacy programs that incentivize employees to
save for retirement. Employers recognize that financial strain on their
employees can decrease productivity and increase stress. To combat this
challenge, more employers are offering financial wellness programs that
include investment and savings advice. The Benefits and Beyond:
Employer Perspectives on Financial Wellness, a report from Prudential
Financial Inc., found that the percentage of employers offering
financial wellness programs rose from 20 percent in 2015 to 83 percent
in 2017.\19\ Additionally, employers offering one-on-one retirement
plan investment advice rose by 14 percentage points to 55 percent in
2017.\20\
---------------------------------------------------------------------------
\19\ Prudential Financial Inc., Benefits and Beyond: Employer
Perspectives on Financial Wellness, https://www.prudential.com/media/
managed/rp/32467.html.
\20\ The Society for Human Resource Management, 2018 Employee
Benefit Report, https://www.shrm.org/hr-today/trends-and-forecasting/
research-and-surveys/Documents/2018%20
Employee%20Benefits%20Report.pdf.
Employers have instituted other valuable mechanisms as well that aim to
increase plan utilization and balances. Tools such as automatic
enrollment, automatic escalation and employer matches have become
invaluable to participants. Nearly 73 percent of employers now
automatically enroll new participants, compared with 68 percent in 2014
and 52 percent in 2009. Additionally, 60 percent provide an auto-
escalation feature, up from 54 percent in 2014.\21\
---------------------------------------------------------------------------
\21\ Willis Towers Watson, 2017 Defined Contribution Plan Survey,
https://globenewswire.com/news-release/2018/02/26/1387421/0/en/U-S-
emplovers-enhancing-defined-contribution-retirement-plans-to-help-
improve-workers-financial-security.html.
Creative policy approaches that would assist employees in saving for
retirement are also under consideration. One legislative approach ACLI
supports would enable employers to contribute a ``match'' to an
employee's 401(k) account in the amount that the employee is
contributing to their student loans.\22\ This would apply to 403(b) and
SIMPLE plans as well. Another approach seeks to provide home health
care workers with a path to save. As noted above, these workers may not
have taxable income due to their caregiving duties. A current
legislative proposal seeks to remedy this by allowing home health care
workers to contribute to a plan or IRA by amending the Employee
Retirement Income Security Act in order to allow ``difficulty of care''
payments as compensation when determining retirement continuation
limitations.\23\
---------------------------------------------------------------------------
\22\ S. 1428, introduced in the 116th Congress by Senators Wyden
(D-OR), Cantwell (D-WA), Cardin (D-MD), Whitehouse (D-RI), and Brown
(D-OH); the Retirement Security and Savings Act of 2019, introduced in
the 116th Congress by Senators Portman (R-OH) and Cardin (D-MD).
\23\ S. 972, introduced in the 116th Congress by Senators Grassley
(R-IA) and Wyden (D-OR); H.R. 1994, introduced in the 116th Congress by
Representatives Neal (D-MA), Brady (R-TX), Kind (D-WI), and Kelly (R-
PA).
In addition to efforts undertaken by employers to increase financial
literacy, legislative proposals supported by ACLI would leverage
financial literacy to improve retirement savings by informing
participants of their account balances through a lifetime income
disclosure illustration.\24\ These types of policy proposals would help
individuals think of their retirement plan savings as not only a lump
sum balance, but also as a source of guaranteed lifetime income.
Coupled with their Social Security income statement, a lifetime income
disclosure illustration on their benefit statement would let workers
see how much monthly income they could potentially receive in
retirement. Workers can better decide whether to increase their
savings, adjust their 401(k) investments or reconsider their retirement
date, if necessary, to assure the quality of life they expect in
retirement. Currently, federal workers have the benefit of such an
illustration in the federal Thrift Savings Plan annual statement.
---------------------------------------------------------------------------
\24\ S. 868, introduced in the 115th Congress by Senators Isakson
(R-GA) and Murphy (D-CT); H.R. 2367, introduced in the 116th Congress
by Representatives Pocan (D-WI), Budd (R-NC), Krishnamoorthi (D-IL),
Suozzi (R-NY), and Meadows (R-NC).
Additionally, as technology improves, so do the methods and practices
for delivery of information. Policy efforts should focus on
facilitating the most effective, efficient delivery practices for
providing employees with information about their retirement benefits by
making it easier for employers to communicate with employees
electronically. Legislative proposals that support electronic delivery
methods ensure retirement savers will have greater access to needed
information and online tools to assist them as they save and plan to
retire and allow employers to set electronic delivery as their default
communication method.\25\ By establishing important consumer
protections, such as an employee's right to opt-out of electronic
delivery at any time and receive paper statements at no direct cost
coupled with a required annual paper notice that summarizes the various
communications delivered over the year along with information about how
to change the delivery method, participants are ensured they will
receive plan material by a method of their choosing.
---------------------------------------------------------------------------
\25\ S. 3795, introduced in the 115th Congress by Senators Brown
(D-OH), Enzi (R-WY), Peters (D-MI), Portman (R-OH), Isakson (R-GA), and
Jones (D-AL); H.R. 4610, introduced in the 115th Congress by
Representatives Polis (D-CO), Roe (R-TN), Kind (D-WI), and Kelly (R-
PA).
---------------------------------------------------------------------------
CONCLUSION
Providing workers with greater access to employment-based retirement
savings arrangements will help them better prepare for retirement. Many
retirees can expect to live another 20-30 years or longer in
retirement. In fact, the first generation of workers who largely have
self-funded for retirement are nearing the age when they will start
drawing down on their savings. They need to understand how to manage
their savings to ensure it lasts their lifetime. Facilitating lifetime
income solutions and communicating how retirement savings translate
into a guaranteed monthly income benefit empowers and educates
participants to make better decisions. Nearly all the public policy
proposals detailed in this statement are included in RESA. They will
improve the current retirement system and guarantee a financially
secure retirement for millions of Americans. Through taking action on
RESA, Congress has an opportunity to enact comprehensive legislation
that will help more people retire with peace of mind--increasing the
availability, accessibility and affordability of retirement security
products for all Americans. ACLI continues to urge policymakers to
support and make every effort to enhance the current retirement system.
We and our members stand ready to assist the Congress in this
worthwhile endeavor.
______
Aon
May 24, 2019
The Honorable Chuck Grassley The Honorable Ron Wyden
Chairman Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committee on Finance
219 Dirksen Senate Office Building 219 Dirksen Senate Office Building
Washington, DC 20510 Washington, DC 20510
Dear Chairman Grassley and Ranking Member Wyden,
I write to you on behalf of Aon, a global professional services firm
that offers a wide range of retirement services, including actuarial
consulting, investment consulting, and plan administration and design.
Aon is one of the leading providers in each of these areas and is
committed to helping clients navigate retirement risk while providing
new levels of financial security. We appreciate the Committee's ongoing
efforts to better position the American workforce to save for
retirement. Updating current retirement savings policies will benefit
American employers, workers, and retirees, in addition to providing
greater overall financial security and reducing reliance on Social
Security and other entitlement programs.
Countless studies document a retirement savings gap among American
workers. This is a concern for employers of all sizes, but particularly
for small and mid-sized companies, which do not traditionally offer
tax-qualified retirement plans for their employees. The key reasons
that more employers have not offered retirement plans and employees
have not fully participated when those plans are available include:
Cost to the employer (including distraction from core business
operations);
Fees to the participant;
Employees' lack of disposable income for plan contributions;
Lack of access to cutting-edge programs, communication
materials, and administration platforms;
Employees not aware of available retirement programs and failure
to demand as part of recruitment/retention discussions; and
Fiduciary risks.
At Aon, we see a growing need for additional retirement income options.
One key reform to address this issue centers on finding the most
efficient and effective way to facilitate Open Multiple Employer Plans
(Open MEPs). Open MEPs will bring new employers and savers into the
retirement savings market and better value to current participants and
their employers. Specifically, we believe that these savings
arrangements will result in:
Greater participation in tax-qualified retirement programs. It
will be far easier for small and mid-sized employers to allow their
employees to participate in retirement programs.
Improved results on a dollar-for-dollar basis. Plans and
participants will see lower costs from reduced administrative and
investment fees and professional and consistent plan administration and
recordkeeping. The plans will also provide increased levels of
sophistication around investments and lifetime income solutions
provided by the pooled plan providers.
Increased opportunity for retirement readiness. The general
public will have greater awareness of retirement savings plan vehicles
and the importance of early savings through communications from their
employers and pooled plan providers. In addition, participants will
have more access to best practice forms of distribution, including lump
sums and annuities, safe harbor hardship withdrawals, and plan loan
provisions.
Analysis by Aon experts shows that retirement savings can experience a
15 to 75 percent or greater improvement in lifetime income opportunity
following participation in the Open MEPs arrangements contemplated by
the Committee. Aon is supportive of these savings arrangements and
encourages Congress to act swiftly to facilitate Open MEPs by passing
the Retirement Enhancement and Savings Act (RESA).
In response to the Committee's hearing on March 14, 2019, Aon wishes to
express appreciation for your efforts to continue examining
``challenges in the retirement system.'' We believe that enactment of
RESA will significantly improve retirement security for millions of
Americans. As it relates to Open MEPs specifically, we believe the
current legislative language could be enhanced further to make Open MEP
savings arrangements even more attractive to employers and fiduciary
service organizations.
In particular, we believe that the Open MEPs language in RESA could
include a provision that further enables the transfer of retirement
account balances from an ongoing qualified defined contribution plan to
a pooled employer plan. This slight modification will enhance
development of a streamlined administrative platform and attract a
range of employers to pooled retirement programs--ensuring a successful
start. This accommodation will help create a base of existing account
balances upon which future programs can be built and expanded upon and
provide immediate cost efficiencies benefiting individual participants.
We would be happy to provide further detail on these modest
modifications as helpful.
In closing, thank you to the Committee for the important work it has
done to improve retirement savings outcomes for American taxpayers.
Sincerely,
Richard E. Jones
Senior Partner
Retirement and Investment
______
Center for Fiscal Equity
14448 Parkvale Road, #6
Rockville, MD 20853
fiscalequitycenter@yahoo.com
Statement of Michael Bindner
Chairman Grassley and Ranking Member Wyden, thank you for the
opportunity to submit comments to the subcommittee, which reflect
comments we made to Ways and Means in March.
To strengthen the retirement system, we must understand the purpose of
social insurance and how tax reform and employee-ownership can bring
people into the middle class and keep them there.
Care for the retired was provided by families prior to the
establishment of Social Security. Extended families provided shelter,
income and health care because they had to. Allowing seniors to live
independently freed the nuclear family to move without taking everyone
with them. This led to a crisis in health coverage for those seniors
left behind.
The logic of social insurance led to both Social Security, Medicare and
Medicaid. This provided care for everyone regardless of accidents of
birth or death. Without it, families with no surviving parents or
grandparents would pay nothing, where only children might have to pay
for both parents and their in-laws. This inequality still happens with
housing and it strains many marriages.
Our comments on who belongs in the middle class are omitted. Our latest
comments on Family Income and Employee-Ownership before the
Subcommittee on Worker and Family Support on Leveling the Playing Field
for Working Families: Challenges and Opportunities, Thursday, March 7,
2019 are repeated in Attachment One. Attachment Two restates our Social
Security reforms last attached to our comments on the 2016 Trustees
Report.
Our employee-ownership comments are based in two elements of our four-
part approach to tax reform, the employee contribution to Old-Age and
Survivors Insurance and our Net Business Receipts/Subtraction Value-
Added Tax.
The employee contribution will feature a lower income cap, which allows
for lower payment levels to wealthier retirees without making bend
points more progressive. This contribution is only retained if a tie
between retirement income and wages is necessary to preserve broad
based support for the program. There should be a floor, however,
because most of the heavy lifting to support retirees will come from
the NBRT, with these contributions to FICA credited on an equal dollar
basis, rather than as a tie to wage levels. Doing so makes
contributions less regressive, both because they tax all value added
and because there is no upper limit to their collection. This ends the
need for the Earned Income Tax Credit and its replacement with a high
child credit.
The NBRT/SVAT includes additional tax expenditures for family support,
health care and the private delivery of governmental services. It will
fund entitlement spending and replace income tax filing for most people
(including people who file without paying), the corporate income tax,
business tax filing through individual income taxes and the employer
contribution to OASI, all payroll taxes for hospital insurance,
disability insurance, unemployment insurance and survivors under age
60.
Covering retirement will also be part of the NBRT. Employee-ownership
is the ultimate protection for worker wages. Our proposal for expanding
it involves diverting an ever-increasing portion of the employer
contribution to the Old-Age and Survivors fund to a combination of
employer voting stock and an insurance fund holding the stock of all
similar companies.
At some point, these companies will be run democratically, including
CEO pay, and workers will be safe from predatory management practices.
This is only possible if the Minority quits using fighting it as a
partisan cudgel and embraces it to empower the professional and working
classes.
Sadly, many people are trapped in poverty until they retire into a life
of less poverty. Bringing families into the middle class through
adequate family wages and building financial and real assets through
employee-ownership. The dignity of ownership is much more than the
dignity of work as a cog in a machine.
Thank you for the opportunity to address the committee. We are, of
course, available for direct testimony or to answer questions by
members and staff.
Attachment One, March 2019
Family Income
The most important factor in leveling the playing field is an adequate
wage for work. Ideally, this should come from a higher minimum wage,
which puts the burden on employers and ultimately customers for fair
pay, rather than a tax support for low wage workers (regardless of
parental status). The market cannot provide a fair wage for families,
as there will always be more desperate employees who can be taken
advantage of to force wages lower for everyone else. A minimum wage
protects those employers who would do the right thing by their
employees if not for their competitors.
A $15 per hour minimum wage is currently being demanded by a
significant share of the voters. Perhaps it is time to listen. If the
marginal productive product of these employees is more than this rate,
job losses will not occur--of course, the estimates of this product can
be easily manipulated by opponents who believe that managers provide
much more productivity than people who actually work, so such estimates
should be examined critically.
Internally, management usually have the correct number, but are loath
to share it if doing so hurts their political point. A higher minimum
wage puts the burden on employers and ultimately customers for fair
base wages, rather than subsidies to low wage employers.
The engine of redistribution for families will be the NBRT. For those
who are new to our comments, the NBRT is collected from employers but
is not visible on purchase receipts, making it an SVAT.
It is designed to redistribute income within companies rather than
having the government do it through more overt subsidies. The child tax
credit will be paid out, as it is now, through wages, but doing so will
not require any tax filing, save to verify that what is reported to the
government matches what is distributed to workers. Setting it to $1,000
per child per month makes it adequate to provide what the Department of
Agriculture estimates to be the actual cost of raising a child.
None other than Milton Friedman suggested a negative income tax and
both Republican and Democratic Presidents have enacted and expanded the
Child Tax Credit.
This can be called a Pro-Life measure, not because it elects
Republicans, but because it distributes enough money to families,
including single mothers, to end the need to resort to abortion, or
even contraception, for economic means. It is part of what Catholic
Social Teaching calls a fair wage.
The fair wage is the essence of the Seamless Garment of Life as
discussed by Cardinal Bernardin. The Center urges the National Right to
Life Committee to make adoption of these recommendations a scored life
issue. Failure to do so proves the point of NARAL-Pro-Choice America
that abortion restrictions would be all about controlling sexuality. If
the Minority wishes to prove NARAL wrong they can adopt these
recommendations.
Employee-Ownership
Employee-ownership is the ultimate protection for worker wages. Our
proposal for expanding it involves diverting an ever-increasing portion
of the employer contribution to the Old-Age and Survivors fund to a
combination of employer voting stock and an insurance fund holding the
stock of all similar companies. At some point, these companies will be
run democratically, including CEO pay, and workers will be safe from
predatory management practices. Increasing the number of
employee-owned firms also decreases the incentive to lower tax rates
and bid up asset markets with the proceeds.
Establishing personal retirement accounts holding index funds for Wall
Street to play with will not help. Accounts holding voting and
preferred stock in the employer and an insurance fund holding the
stocks of all such firms will, in time, reduce inequality and provide
local constituencies for infrastructure improvements and the funds to
carry them out.
NBRT/SVAT collections, which tax both labor and profit, will be set
high enough to fund employee-ownership and payment of current
beneficiaries. All employees would be credited with the same monthly
contribution, regardless of wage. The employer contribution to Old-Age
and Survivors Insurance will continue to provide income sensitive
payments to current retirees, which will bolster the political
acceptance of the entire system.
ESOP loans and distribution of a portion of the Social Security Trust
Fund could also speed the adoption of such accounts. Our Income and
Inheritance Surtax (where cash from estates and the sale of estate
assets are normal income) would fund reimbursements to the Fund.
Attachment Two--Hearing on the 2016 Social Security Trustees Report,
Lessons From the Great Recession
The only observation I will make regarding the Trustees report is that
the 2008 Recession triggered by our continuing asset-based Depression
has both temporary and permanent effects on the trust fund's cash flow.
The temporary effect is a decline in revenue caused by a slower economy
and the temporary cut in payroll tax rates to provide stimulus.
The permanent effect is the early retirement of many who had planned to
work longer, but because of the recent recession and slow recovery,
this cohort has decided to leave the labor force for good when their
extended unemployment ran out. This cohort is the older 77ers and 99ers
who needed some kind of income to survive. The combination of age
discrimination and the ability to retire has led them to the decision
to retire before they had planned to do so, which impacts the cash flow
of the trust fund, but not the overall payout (as lower benefit levels
offset the impact of the decision to retire early on their total
retirement cost to the system).
When Social Security was saved in the early 1980s, payroll taxes were
increased to build up a Trust Fund for the retirement of the Baby Boom
generation. The building of this allowed the government to use these
revenues' to finance current operations, allowing the President and his
allies in Congress to honor their commitment to preserving the last
increment of his signature tax cut.
This trust fund is now coming due, so it is entirely appropriate to
rely on increased income tax revenue to redeem them. It would be
entirely inappropriate to renege on these promises by further extending
the retirement age, cutting promised Medicare benefits or by enacting
an across the board increase to the OASI payroll tax as a way to
subsidize current spending or tax cuts.
The cash flow problem currently experienced by the trust fund is not
the trust fund's problem, but a problem for the Treasury to address,
either through further borrowing--which will require a quick resolution
to the debt limit extension and preferable through higher taxes for
those who received the lion's share of the benefit's from the tax cuts
of 1981, 1986, 2001, 2003 and 2010.
The cost of delaying actions to address Social Security's fiscal
challenges for workers and beneficiaries.
Actions should be taken as soon as possible, especially when they must
be phased in, as it is a truism that a little action early will have a
larger impact later.
This should not be done, however, as an excuse to use regressive Old-
Age and Survivors Insurance payroll taxes to subsidize continued tax
cuts on the top 20% of wage earners who pay the majority of income
taxes. Retirement on Social Security for those at the lowest levels is
still inadequate. Any change to the program should, in time, allow a
more comfortable standard of living in retirement.
The ultimate cause of the trust fund's long term difficulties is not
financial but demographic. Thus, the solution must also be
demographic--both in terms of population size and income distribution.
The largest demographic problem facing Social Security and the health
care entitlements, Medicare and Medicaid, is the aging of the
population. In the long term, the only solution for that aging is to
provide a decent income for every family through more generous tax
benefits.
The free market will not provide this support without such assistance,
preferring instead to hire employees as cheaply as possible. Only an
explicit subsidy for family size overcomes this market failure, leading
to a reverse of the aging crisis.
The recommendations for raising net income are within the context of
comprehensive tax reform, where the first 25-28 percent of personal
income tax rates, the corporate income tax, unemployment insurance
taxes, the Hospital Insurance payroll tax, the Disability Insurance
payroll tax and the portion of the Survivors Insurance payroll tax
funding survivors under the age of 60 have been subsumed by a Value-
Added Tax (VAT) and a Net Business Receipts Tax (where the net includes
all value added, including wages and salaries).
Net income would be adjusted upward by the amount of the VAT percentage
and an increased child tax credit of $500 to $1000 per child per month.
This credit would replace the earned income tax credit, the exemption
for children, the current child tax credit, the mortgage interest
deduction and the property tax deduction. This will lead employers to
decrease base wages generally so that the average family with children
and at an average income level would see no change in wage, while wages
would go up for lower income families with more children and down for
high income earners without children.
Gross income would be adjusted by the amount of tax withholding
transferred from the employee to the employer, after first adjusting
net income to reflect the amount of tax benefits lost due to the end of
the home mortgage and property tax deductions.
This shift in tax benefits is entirely paid for and it would not
decrease the support provided in the tax code to the housing sector--
although it would change the mix of support provided because the need
for larger housing is the largest expense faced by growing families.
Indeed, this reform will likely increase support for the housing
sector, as there is some doubt in the community of tax analysts as to
whether the home mortgage deduction impacted the purchase of housing,
including second homes, by wealthier taxpayers.
Within 20 years, a larger number of children born translates into more
workers, who in another decade will attain levels of productivity large
enough to reverse the demographic time bomb faced by Social Security in
the long term.
Such an approach is superior to proposals to enact personal savings
accounts as an addition to Social Security, as such accounts implicitly
rely on profits from overseas labor to fund the dividends required to
fill the hole caused by the aging crisis. This approach cannot succeed,
however, as newly industrialized workers always develop into consumers
who demand more income, leaving less for dividends to finance American
retirements. The answer must come from solving the demographic problem
at home, rather than relying on development abroad.
This proposal will also reduce the need for poor families to resort to
abortion services in the event of an unplanned pregnancy. Indeed, if
state governments were to follow suit in increasing child tax benefits
as part of coordinated tax reform, most family planning activities
would be to increase, rather than prevent, pregnancy. It is my hope
that this fact is not lost on the Pro-Life Community, who should score
support for this plan as an essential vote in maintaining a perfect
pro-life voter rating.
Obviously, this proposal would remove both the mortgage interest
deduction and the property tax deduction from the mix of proposals for
decreasing tax rates while reducing the deficit. This effectively ends
the notion that deficit finance can be attained in the short and medium
term through tax reforms where the base is broadened and rates are
reduced. The only alternatives left are a generalized tax increase
(which is probably necessary to finance future health care needs) and
allowing tax rates for high income individuals to return to the levels
already programmed in the law as of January 1, 2013. In this regard,
gridlock is the friend of deficit reduction. Should the President show
a willingness to let all rates rise to these levels, there is literally
no way to force him to accept anything other than higher rates for the
wealthy.
This is not to say that there is no room for reform in the Social
Security program. Indeed, comprehensive tax reform at the very least
requires calculating a new tax rate for the Old-Age and Survivors
Insurance program. My projection is that a 6.5% rate on net income for
employees and employers (or 13% total) will collect about the same
revenue as currently collected for these purposes, excluding sums paid
through the proposed enhanced child tax credit. Th1s calculation is, of
course, subject to revision.
While these taxes could be merged into the net business income/revenue
tax, VAT or the Fair Tax as others suggest, doing so makes it more
complicated to enact personal retirement accounts. My proposal for such
accounts differs from the plan offered in by either the Cato Institute
or the Bush Commission (aka the President's Commission to Save Social
Security).
As I wrote in the January 2003 issue of Labor and Corporate Governance,
I would equalize the employer contribution based on average income
rather than personal income. I would also increase or eliminate the cap
on contributions. The higher the income cap is raised, the more likely
it is that personal retirement accounts are necessary.
A major strength of Social Security is its income redistribution
function. I suspect that much of the support for personal accounts is
to subvert that function--so any proposal for such accounts must move
redistribution to account accumulation by equalizing the employer
contribution.
I propose directing personal account investments to employer voting
stock, rather than an index funds or any fund managed by outside
brokers. There are no Index Fund billionaires (except those who operate
them). People become rich by owning and controlling their own
companies. Additionally, keeping funds in-house is the cheapest option
administratively. I suspect it is even cheaper than the Social Security
system--which operates at a much lower administrative cost than any
defined contribution plan in existence.
Safety is, of course, a concern with personal accounts. Rather than
diversifying through investment, however, I propose diversifying
through insurance. A portion of the employer stock purchased would be
traded to an insurance fund holding shares from all such employers.
Additionally, any personal retirement accounts shifted from employee
payroll taxes or from payroll taxes from non-corporate employers would
go to this fund.
The insurance fund will save as a safeguard against bad management. If
a third of shares were held by the insurance fund than dissident
employees holding 25.1% of the employee held shares (16.7% of the
total) could combine with the insurance fund held shares to fire
management if the insurance fund agreed there was cause to do so. Such
a fund would make sure no one loses money should their employer fail
and would serve as a sword of Damocles to keep management in line. This
is in contrast to the Cato/PCSSS app roach, which would continue the
trend of management accountable to no one. The other part of my
proposal that does so is representative voting by occupation on
corporate boards, with either professional or union personnel providing
such representation.
The suggestions made here are much less complicated than the current
mix of proposals to change bend points and make OASI more of a needs
based program. If the personal account provisions are adopted, there is
no need to address the question of the retirement age. Workers will
retire when their dividend income is adequate to meet their retirement
income needs, with or even without a separate Social Security program.
No other proposal for personal retirement accounts is appropriate.
Personal accounts should not be used to develop a new income stream for
investment advisors and stock traders. It should certainly not result
in more ``trust fund socialism'' with management that is accountable to
no cause but short term gain. Such management often ignores the long-
term interests of American workers and leaves CEOs both over-paid and
unaccountable to anyone but themselves.
Progressives should not run away from proposals to enact personal
accounts. If the proposals above are used as conditions for enactment,
I suspect that they won't have to. The investment sector will run away
from them instead and will mobilize their constituency against them.
Let us hope that by then workers become invested in the possibilities
of reform.
All of the changes proposed here work more effectively if started
sooner. The sooner that the income cap on contributions is increased or
eliminated, the higher the stock accumulation for individuals at the
higher end of the age cohort to be covered by these changes--although
conceivably a firm could be allowed to opt out of FICA taxes altogether
provided they made all former workers and retirees whole with the
equity they would have otherwise received if they had started their
careers under a reformed system. I suspect, though, that most will
continue to pay contributions, with a slower phase in--especially if a
slower phase in leaves current management in place.
______
Church Alliance
May 28, 2019
The Honorable Chuck Grassley The Honorable Ron Wyden
Chairman Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committee on Finance
219 Dirksen Senate Office Building 219 Dirksen Senate Office Building
Washington, DC 20510 Washington, DC 20510
Dear Chairman Grassley and Ranking Member Wyden:
The Church Alliance is pleased to submit the following statement
for the record in response to the Senate Committee on Finance's May 14,
2019 hearing on Challenges in the Retirement System. As you know,
churches, synagogues, and other religious organizations are at the
heart of communities across our nation. We appreciate the Committee's
commitment to ensuring all Americans, including clergy, lay workers,
and their families, are prepared for a financially secure retirement
and look forward to continuing the discussion on retirement reform in
the 116th Congress.
ABOUT THE CHURCH ALLIANCE AND CHURCH BENEFIT PLANS
The Church Alliance is a coalition of chief executive officers of
thirty-seven (37) denominational benefit programs covering mainline and
evangelical Protestant, Catholic, and Jewish faith traditions. Church
Alliance members provide employee benefits to approximately one million
clergy (including ministers, priests, rabbis, and other spiritual
leaders), lay workers, and their family members, serving over 155,000
churches, synagogues, and affiliated organizations.
By way of background, denominational benefit plans are typically
maintained by a separately incorporated church benefit organization
(often called a pension board or benefit board) designated as the
entity that sponsors or administers and maintains the benefit programs
for eligible employees within the denomination. These benefit plans are
generally multiple-employer in nature and cover thousands of church and
synagogue employers throughout the country, many of which are located
in rural communities. These programs often also cover foreign mission
organizations and their missionaries. Church benefit organizations thus
typically provide retirement and welfare benefits to thousands (or, in
the case of the larger denominations, tens of thousands) of clergy and
lay workers at multiple locations. Retirement benefits may be provided
through a defined contribution (typically 403(b)(9)) plan, a defined
benefit plan or both. Having a centralized program sponsored by one
organization serving multiple church employers helps ensure continuity
and consistency of employee benefits for the many clergy who move from
one church or church-related organization to another to fulfill the
ministry of a denomination.
Many of the participating employers covered under these church
benefit plans are small, local churches with few employees. Oftentimes,
the local church's pastor may be that church's only employee. If there
are other employees, they are often part-time workers who assist with
secretarial or bookkeeping duties or perhaps provide for building
maintenance. In addition, many small local churches are staffed by bi-
vocational pastors (clergy who work for a secular employer part-time or
full-time and pastor a church or churches on the side). Denominational
plans also provide benefits to self-employed clergy.
In addition to serving local churches and synagogues,
denominational benefit plans cover other church related organizations
that historically have been viewed by denominations as an extension of
the ministry and are considered to be within the bounds of the
particular denomination with which they are affiliated. For example,
participating employers can include church-related nursing homes,
daycare centers, summer camps, preschools, colleges, universities,
hospitals, and other social service organizations. All of these
organizations typically are considered as fulfilling the ministry and
mission of the church.
Local churches are typically run by volunteer trustees, vestries,
boards of directors, boards of deacons, boards of elders, parish
councils, or the like. The individuals who hold these volunteer
leadership roles are focused on fulfillment of their church's ministry
and have the burden of allocating both human and monetary resources to
direct ministry, which leaves them with little time to focus on
employee benefit compliance issues. In the case of small to medium-
sized churches and synagogues, these individuals may, and usually do,
lack the expertise required to understand the various employee benefit
legal requirements that must be met. Except in the largest churches,
the typical church budget does not support the hiring of outside
experts required to assist the local church with employee benefits
compliance. As a result, absent the availability of the programs
provided through church benefit organizations and church associations,
many of these employers would be unable to provide adequate retirement
or welfare benefits to their employees.
The benefits provided by church benefit organizations or church
associations may be mandated by the denominational polity (the
operational and governance structure of a denomination). Over the
years, church denominations have organized themselves in a variety of
ways reflecting their own theological beliefs. Some denominations are
organized in a ``hierarchical'' polity, in which a ``parent'' church
organization sets the policy for the entire denomination. Other
denominations have organized themselves in a diocesan, synodical or
Presbyterian structure under which policy-making is carried out on a
local or regional level, through representatives drawn from the various
churches within the geographic area served by a particular level of
governance. Several other denominations, composed of autonomous
churches and synagogues, or conventions or associations of churches,
cooperate in a ``congregational'' form of governance in which churches
and church ministry organizations are associated by voluntary and
cooperative participation.
It is these diverse sets of church polities, and the differing
levels of control exercised over churches and church ministry
organizations under a particular polity, that present difficulties with
employee benefit requirements of the tax code, ERISA, and other laws,
most of which were designed with a for-profit, corporate structure in
mind. Together with the Constitutional proscription against excessive
government entanglement with religion, these considerations have led to
the development of a legal framework for church plans that reflects
their unique characteristics.
Clarification for Sec. 403(b)(9) Plans
Clarification of the rules governing church retirement plans is
urgently needed to reaffirm current Jaw dating to 1980, and more than
30 years of administrative practice, to ensure that all church-
affiliated organizations can participate in a church Sec. 403(b)(9)
plan. Throughout their history, the advantages of church retirement
plans have been open to church clergy and lay workers serving
individual churches, as well those of affiliated organizations that
advance the mission of the denomination, such as children's homes,
daycare centers, summer camps, nursing homes, retirement centers,
preschools, colleges and universities, and other religious nonprofit
entities.
The broad availability of these plans is now under threat by a
recent IRS and Treasury position that departs from longstanding
precedent, and restricts the retirement plan options available to
employees of certain religiously affiliated organizations. Under this
new position, employees of these organizations will no longer be able
to participate in Sec. 403(b)(9) plans. This creates significant issues
for church retirement plans, but most importantly, for the
beneficiaries they serve.
The IRS and Treasury position could mean that clergy and church lay
workers lose access to important Sec. 403(b)(9) features, such as
access to socially screened investment options that reflect a
particular denomination's faith and beliefs, as well as to
annuitization choices that can be provided directly by the church
benefit program. Moreover, this approach would inevitably lead to
higher costs with fewer Sec. 403(b)(9) plan participants over which to
spread plan expenses.
Recognizing these implications, bipartisan, broadly supported
legislation was introduced in the Senate this year (S. 836) to clarify
the appropriate and intended broad availability of Sec. 403(b)(9)
plans. The clarification has also been included in the Retirement
Enhancement and Savings Act (S. 972/H.R. 1007), the Setting Every
Community Up for Retirement Enhancement Act (H.R. 1994), and the Family
Savings Act (H.R. 1084). We strongly urge enactment of this
clarification at the earliest possible opportunity, either
independently or as part of a moving vehicle. Urgent resolution of this
issue is critical to the retirement security of clergy and church lay
workers across the nation.
Support for Additional Retirement Reform Efforts
The Church Alliance appreciates the Committee's commitment to
continuing its work on retirement reform throughout the 116th Congress.
In particular, the Church Alliance applauds the recent introduction of
the Retirement Security and Savings Act (S. 1431) by Senators Rob
Portman (R-OH) and Ben Cardin (D-OH). Most notably, S. 1431 supports
plan harmonization that would set retirement plans on even footing with
individual retirement accounts. We look forward to continuing the
discussion on S. 1431 and other pieces of legislation to improve
retirement security in the coming months.
Conclusion
In closing, the Church Alliance greatly appreciates the opportunity
to submit these comments. We are pleased to serve as a resource to the
Congress and the Committee on these and related matters. We look
forward to our continued work together on retirement reform. Thank you
for your consideration.
Sincerely,
James F. Sanft
Chair of the Church Alliance
______
ERISA Industry Committee (ERIC)
701 8th Street, NW, Suite 610
Washington, DC 20001
(202) 789-1400
www.eric.org
Chairman Grassley, Ranking Member Wyden, and Members of the
Committee, thank you for this opportunity to submit a statement for the
record on behalf of The ERISA Industry Committee (ERIC) regarding
Challenges in the Retirement System. ERIC is the only national
association that advocates exclusively for large employers on health,
retirement, and compensation public policies at the federal, state, and
local levels. ERIC's members are leaders in every industry sector and
provide comprehensive retirement benefits to tens of millions of active
and retired workers and their families across the country. As such,
ERIC has a strong interest in policies that impact the ongoing
viability of the private retirement system and shares your interests in
addressing challenges in the retirement system.
Introduction
ERIC thanks you for holding this hearing to address retirement
security in America. As discussed more fully in our comments below,
there are a number of issues that, if addressed, could strengthen
retirement security. We are encouraged by the introduction of the
Retirement Enhancement and Savings Act of 2019 (RESA) and the
Retirement Security and Savings Act of 2019 as they both include
provisions that are critical to removing unnecessary burdens and
modernizing the current system. In particular, we support the
following:
A permanent fix for nondiscrimination testing for frozen plans;
More flexible options in providing lifetime income disclosure
notices to avoid one-size-fits-all mandates;
A comprehensive resolution to the multiemployer pension plans
crisis;
Measures to facilitate electronic delivery to modernize notice
and disclosure rules;
Provisions that would allow employers to assist workers in
saving for retirement while paying off student loan debt; and
Expanding the allowance of pension transfers to retiree health
and welfare plans to protect retirees.
Comments
We offer the comments below and look forward to continued
discussions on addressing the challenges to the private retirement
system.
ERIC Supports the Permanent Fix for Non-discrimination Testing for
Frozen Plans. RESA includes an important measure that provides
permanent relief from ongoing nondiscrimination testing for frozen
defined benefit plans, subject to certain conditions. This provision
protects older, longer-serving participants by providing an exception
to nondiscrimination testing and allowing frozen defined benefit plans
to apply the nondiscrimination rules to the closed class of
participants as of the freeze date and beyond. Therefore, if the plan
passed the nondiscrimination testing requirements as of the date of the
freeze applicable to the closed class of participants, a plan would no
longer be required to apply the nondiscrimination testing requirements
to the closed class of participants (unless a plan amendment applied to
and changed the benefits of the closed class of participants). ERIC
supports this RESA provision as a critical tool for the continuation of
benefits under defined benefit plans.
ERIC Continues to Encourage Flexibility in Lifetime Income
Disclosures. While ERIC supports RESA, we continue to call for
modifications to the Lifetime Income Disclosure Act (LIDA) provision
currently contained in the legislation to allow plan sponsors to choose
the lifetime income disclosure tool that best supports plan
participants and relates most specifically to its retirement plan.
Since LIDA was first introduced in 2009, plans sponsors have voiced
serious concerns about the specific mandated lifetime income disclosure
obligation imposed on communications between the employer and employee-
participants. The rigidity of the mandated disclosure would create
needless confusion and additional costs, as well as stifle innovation.
Each year plans are implementing and offering more educational
tools, such as on-line calculators, that allow participants to input
their individual assumptions and receive lifetime income disclosures
and other information that is tailored to their unique circumstances.
LIDA will present plan participants with complex illustrations that
will likely have very little relevance to their personal circumstances.
We agree with the primary public policy goal of LIDA to increase plan
participant understanding of the importance of saving for a lifetime of
needs but believe strongly that there are better ways to achieve it
than the proposed rigid, limited approach, which calculates lifetime
income based solely in the form of an annuity payment. These better
ways would not need a wholesale rewrite of LIDA, rather just allow
options for plan sponsors that would allow them to choose the annuity
disclosure or to provide other, more relevant information for plan
participants.
We would like to work with you to enhance retirement savings
opportunities, including lifetime income options, but in a more
effective and flexible manner than LIDA currently would provide. We
have shared alternative approaches with Committee staff that would
encourage plan participants to consider lifetime income streams and we
are committed to continuing these conversations.
ERIC Encourages Congress to Address the Multiemployer Pension
Crisis. The multiemployer pension system is a looming crisis that
Congress needs to address immediately and comprehensively. The
multiemployer system is underfunded by 36 billion dollars with 1.3
million workers at risk of losing their retirement benefits. Moreover,
the backstop for multiemployer plans, the Pension Benefit Guaranty
Corporation (``PBGC'') multiemployer fund, is predicting its insolvency
by 2025 resulting in the loss millions of dollars in retirement
benefits.
This crisis does not impact just participants or retirees--there
will also be an adverse impact on employers in these plans. Because of
the current rules, employers cannot leave these plans without paying
large sums or claiming bankruptcy. Both of these results negatively
impact the ability to provide jobs, make capital investments, and
increase salaries.
There will not be any easy solutions to this crisis but, if nothing
is done, the consequences will be devastating. Retiree benefits, future
jobs, and businesses are at stake if a solution is not found.
Therefore, it is essential to find a solution that restores the
solvency of the multiemployer pension system while protecting the U.S.
economy as soon as possible.
ERIC Encourages the Use of Electronic Delivery. ERIC supports the
modernization and stream lining of mandated retirement and health care
notices to beneficiaries. One way to easily ensure better communication
between a plan sponsor and its beneficiaries is to allow for the plan
sponsor to use electronic delivery of notices through either email or a
website, while still allowing for the beneficiary to fully opt out and
receive all notices by mail, should they so choose. Updating the
process on how mandated disclosures are delivered to participants would
allow plan sponsors to enhance the disclosures to include more
interactive features as well as to tailor information to the
beneficiaries such as with links to options the participant can elect
to increase retirement savings. Electronic disclosure would make it
easier for plan participants to save and search the documents for
relevant information. Electronic disclosure will also save plans and
plan sponsors money on materials and administrative costs if required
disclosures were to be more frequently delivered electronically over
mail. At a minimum electronic disclosure should be allowed as the
default if the employer plan sponsor already has the email address of
the plan participant.
Employers Would Like to Assist Workers With Student Loan Debt
Repayment and Retirement Savings. Workers in the United States are
increasingly dependent on a 401(k) or other defined contribution plan
as their principal means of retirement savings. In this environment,
workers who are unable to set aside a sufficient amount of their own
money for their retirement are less likely to have a financially secure
retirement. This problem is compounded by the fact that many employers
match workers' contributions in their retirement plans, meaning that
workers who fail to set aside a sufficient amount of money also lose
out on the matching contributions. This problem is particularly acute
for workers who get a late start on retirement savings. Workers who do
not begin setting aside money for retirement early in their careers
often are not able to ``catch up'' in their retirement savings.
Student loan debt plays into both of these problems by preventing
workers from electing to participate in 401(k) plans or reducing the
amount that a worker can contribute to a 401(k) plan. Many employers
recognize the burden that student loan debt can have on their workers'
ability to save for retirement and would like to help these workers.
However, while we believe that current law allows employers to make
contributions to their retirement plans on behalf of workers who repay
student loan debt, the IRS has yet to clearly articulate that such
contributions will not affect the tax-qualified status of an employer's
retirement plan. The Private Letter Ruling recently issued by the
Internal Revenue Service is a significant step in this direction but we
believe that more employers would be encouraged to implement programs
similar to the one described in the PLR if there is legislation of
general applicability on this issue.
Congress Should Encourage the Continued Funding of Employer-
Provided Retiree Welfare Benefits. Congress should extend and modify
Section 420 of the Internal Revenue Code, which allows employers with
generously overfunded pension plans to use a portion of the plans'
surplus assets to fund retiree welfare benefits (health care benefits
and group life insurance coverage) for the same population of pension
retirees. Doing so ensures that companies with such plans can continue
to provide retiree welfare benefits in a financially prudent manner,
without jeopardizing pension security, consistent with Congressional
intent.
To ensure that pension assets are protected, we support not only
keeping the existing safeguards under Code section 420 but also adding
additional modifications to further safeguard pension benefits. These
additional safeguards include a de minimis transfer limit, which limits
the transfer amount to a de minimis percentage of the pension plan's
assets, and a 2-year look-back requirement to ensure the stability of
the pension plan assets.
Conclusion
We applaud the Committee's efforts to strengthen and improve the
private retirement plan system. As noted above, we support RESA,
introduced by Chairman Grassley and Ranking Member Wyden, with certain
modifications. In addition, the Retirement Security and Savings Act of
2019, recently introduced by Senators Portman and Cardin, includes very
helpful provisions that recognize the cost and compliance burdens
imposed on pension and retirement plans as well as numerous proposals
that address these challenges and support employers in their efforts to
provide critical voluntary benefits to their employees, retirees, and
families. In addition, ERIC is working on a comprehensive list of new
measures to modernize and update the retirement system and looks
forward to discussing these ideas with you soon.
Thank you for the opportunity to share our concerns. If you have
any questions, please contact either Aliya Robinson, Senior Vice
President for Retirement and Compensation Policy, or me, at 202-789-
1400.
Sincerely,
Aliya Robinson
Senior Vice President, Retirement and Compensation Policy
______
Letter Submitted by Thomas and Barbara LaBagh
May 14, 2019
U.S. Senate
Committee on Finance
Dirksen Senate Office Bldg.
Washington, DC 20510-6200
To Whom It May Concern:
After 25 years at Yellow Freight, I was preparing for my retirement. We
had many discussions with the Pension department at Local 707. We were
advised as to what we were going to be receiving monthly, electing to
take the pension benefit that would guarantee that my wife would
receive my same benefit, should I pass first. This election decreased
our pension payment by about $400 a month, but we felt the fact that my
wife would be left with a good income, it was worth it for that
assurance.
Our retirement life was based according to what we had worked for and
what we were promised. At no time during these discussions was there
any indication that the Pension Fund was in trouble. We were very
careful in our retirement planning, and felt that between our pension
and social security, we would be very comfortable.
Our pension payment has now been cut to about \1/4\ of our original
benefit, from around $2,800.00 to $724.00 a month.
Based on our pension at retirement, we built a retirement home in
Virginia. That home is now in jeopardy. We may have to sell the home we
love, because we can no longer afford it.
We have a disabled adult daughter that we try to help financially as
much as possible with her many medical expenses. We aren't able to do
as much for her as we would like to make her life better.
I now, an almost 71 year old man, get up at 1 a.m. daily to go to work,
hauling mail, loading and unloading the trailer with 600 lb. mail bins.
I've had a triple by-pass, and recently had to have a stent. My wife
has Type II diabetes. This is not the retirement life I worked so hard
for. This is not the retirement I had planned so long for or deserve.
This is HELL. There is a constant worry about finances. I really don't
feel now that I will ever be able to not work; I can't afford not to.
It would mean financial ruin for my family if I have to stop working,
because OUR PENSION FUND has robbed us of what we worked so hard for.
We can't have a quality retirement, being free to travel, help our
children, enjoy our retirement home, or just do nothing but relax. That
dream was stolen from us.
Sincerely,
Thomas R. and Barbara LaBagh