[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.
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    \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 
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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.
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    \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\
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    \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 
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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.
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    \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\
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    \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\
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    \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\
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    \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.
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  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\
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    \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

                      [email protected]

                      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

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