[Senate Hearing 116-524]
[From the U.S. Government Publishing Office]
S. Hrg. 116-524
INVESTIGATING CHALLENGES TO
AMERICAN RETIREMENT SECURITY
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HEARING
BEFORE THE
SUBCOMMITTEE ON SOCIAL SECURITY,
PENSIONS, AND FAMILY POLICY
OF THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
DECEMBER 9, 2020
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Finance
__________
U.S. GOVERNMENT PUBLISHING OFFICE
46-722 PDF WASHINGTON : 2022
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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
ROB PORTMAN, Ohio SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania MICHAEL F. BENNET, Colorado
TIM SCOTT, South Carolina ROBERT P. CASEY, Jr., Pennsylvania
BILL CASSIDY, Louisiana MARK R. WARNER, Virginia
JAMES LANKFORD, Oklahoma SHELDON WHITEHOUSE, Rhode Island
STEVE DAINES, Montana MAGGIE HASSAN, New Hampshire
TODD YOUNG, Indiana CATHERINE CORTEZ MASTO, Nevada
BEN SASSE, Nebraska
Kolan Davis, Staff Director and Chief Counsel
Joshua Sheinkman, Democratic Staff Director
______
Subcommittee on Social Security, Pensions, and Family Policy
ROB PORTMAN, Ohio, Chairman
CHUCK GRASSLEY, Iowa SHERROD BROWN, Ohio
BILL CASSIDY, Louisiana MICHAEL F. BENNET, Colorado
JAMES LANKFORD, Oklahoma ROBERT P. CASEY, Jr., Pennsylvania
TODD YOUNG, Indiana CATHERINE CORTEZ MASTO, Nevada
(ii)
?
C O N T E N T S
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OPENING STATEMENTS
Page
Portman, Hon. Rob, a U.S. Senator from Ohio, chairman,
Subcommittee on Social Security, Pensions, and Family Policy,
Committee on Finance........................................... 1
Brown, Hon. Sherrod, a U.S. Senator from Ohio.................... 4
WITNESSES
Barr, Scott, AAMS, financial advisor, Edward Jones, Zanesville,
OH............................................................. 7
Stevenson, Eric, president, retirement plans, Nationwide,
Columbus, OH................................................... 9
Kreps, Michael P., principal, Groom Law Group, Washington, DC.... 11
Luskin, Joshua, president, National Association of Government
Defined Contribution Administrators, Lexington, KY............. 13
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Barr, Scott, AAMS:
Testimony.................................................... 7
Prepared statement........................................... 41
Brown, Hon. Sherrod:
Opening statement............................................ 4
Prepared statement........................................... 44
Kreps, Michael P.:
Testimony.................................................... 11
Prepared statement........................................... 46
Luskin, Joshua:
Testimony.................................................... 13
Prepared statement........................................... 48
Response to a question from Senator Grassley................. 52
Portman, Hon. Rob:
Opening statement............................................ 1
Prepared statement........................................... 52
Stevenson, Eric:
Testimony.................................................... 9
Prepared statement........................................... 54
Communications
American Securities Association.................................. 61
Financial Services Institute..................................... 63
T. Rowe Price Associates, Inc.................................... 64
(iii)
INVESTIGATING CHALLENGES TO
AMERICAN RETIREMENT SECURITY
----------
WEDNESDAY, DECEMBER 9, 2020
U.S. Senate,
Subcommittee on Social Security,
Pensions, and Family Policy,
Committee on Finance,
Washington, DC.
The WebEx hearing was convened, pursuant to notice, at
10:01 a.m., Dirksen Senate Office Building, Hon. Rob Portman
(chairman of the subcommittee) presiding.
Present: Senators Grassley, Lankford, Daines, Young,
Carper, Cardin, Brown, Whitehouse, and Cortez Masto.
Also present: Republican staff: Michael Sinacore, Economic
Policy Advisor for Senator Portman; and Jamie Cummins, Tax
Counsel for Chairman Grassley. Democratic staff: Chad Bolt,
Legislative Assistant for Senator Brown; and Drew Crouch,
Senior Tax and ERISA Counsel for Ranking Member Wyden.
OPENING STATEMENT OF HON. ROB PORTMAN, A U.S. SENATOR FROM
OHIO, CHAIRMAN, SUBCOMMITTEE ON SOCIAL SECURITY, PENSIONS, AND
FAMILY POLICY, COMMITTEE ON FINANCE
Senator Portman. Well, listen, I do not have a big gavel
here, so I am going to just pound my fist on the table and say
this hearing will come to order.
I can see a number of my colleagues are already on. I thank
you for joining us, and a special thanks to Sherrod Brown and
his staff for working together with us to plan this hearing. I
have been looking forward to this hearing for a long time. I
appreciate the Finance Committee allowing us to move forward
with it now.
We have some great witnesses. I am sorry we have to be
remote, because I would love to be in person talking to you,
but I think this is best given where we are with the COVID-19
challenge. And we have opportunities to speak, and will
continue to, but this I think is really exciting, because
retirement security to me is not only just critically important
for all Americans--and frankly savings has taken a hit, as you
know, during the coronavirus--but also this is an opportunity
for bipartisan work. And I think we will hear about this later
from Senator Brown and Senator Cardin and others, but
regardless of who gets the majority in the Senate come January,
this is an area where I think we have the potential to make
some real progress, because I think it has been and will be
bipartisan.
And when you look at the support it has among the American
people, it is really impressive. I mean everybody talks about
who supports what in terms of tax policy, but I can tell you
that the idea of being able to save more for your own
retirement is just broadly popular.
So this is an opportunity for us. I have worked a lot with
Senator Cardin over the years on these issues. I notice he is
on the hearing--he is in his office today. I would not say he
is in the hearing room, but he is joining us remotely. And you
know, we have done some good things to help people save more
for retirement, and it has improved retirement savings
considerably.
Last year we introduced the latest iteration of Portman-
Cardin, and that is called The Retirement Security and Savings
Act, which has had some broad support, bicameral and
bipartisan. In fact, 27 of the Portman-Cardin provisions were
included in this new SECURE 2.0 legislation introduced by the
Ways and Means chairman, a Democrat, Richie Neal, and the
ranking member, Kevin Brady, on the House side. If that is not
bipartisan, I do not know what is. So the two of them coming
together, I think is terrific.
There are some provisions in ours they do not include, and
there are some in theirs we do not include, but that, in our
view, is just an opportunity, when you have so much common
ground between the two proposals. So I think it is a really
good starting point. And again, it gives us a great opportunity
to get something done.
A lot of other colleagues have worked on this issue.
Sherrod Brown has worked on it on a bipartisan basis. Senator
Daines and Senator Warren have a retirement lost and found bill
that is interesting. Senator Collins and Senator Hassan have
their assistance to military spouses, which I like. So I think
there is a lot of opportunity for members of the committee, and
even outside the committee, to come together on something here.
The one that Ben Cardin and I have introduced recently
focuses on what I think are the four big problems that could be
identified and addressed through legislation.
One is to help lower-income and part-time workers, and this
is an obvious issue. You know, you only have 20-some percent of
people who are part-time and low-income saving now. So when
people are living paycheck to paycheck, it is tough to set
money aside. And so we help in that regard in a number of ways.
Second, it focuses on small businesses. Why? Because that
is where the opportunity is. Less than half of workers employed
by small businesses have access to an employer-sponsored plan--
think about that--as compared to 88 percent of workers employed
by large businesses. So it is small businesses that we really
ought to target and focus on to expand coverage for so many
working Americans. And Eric talks about his restaurant
business. A lot of them are small businesses like that that
just cannot afford to put together a plan. So we help in that
regard. And they are also concerned about the complexity of it.
Third, we have an issue with baby boomers. A few of us on
this call would fit in that category. And we just are not
saving enough, as a generation, and have not been. And
therefore we do some things to help encourage people who are
getting ready for retirement or are near retirement, to save
more. And then finally, as folks are living longer, retirees,
even those who have accumulated some savings, are finding that
they are outliving those savings. And living longer is good
news. Longer, healthier lives are great, but they are tough on
our bank accounts, especially when current laws force Americans
to start depleting their taxable retirement savings account at
72. So that is an issue too. And that long-term savings piece,
how you ensure that that nest egg is adequate for people living
longer and healthier lives, is a key issue.
So we have made progress on some of these issues, but the
lack of sufficient retirement savings remains an urgent problem
for our country. And it is an opportunity, again, for us. In
2020, we moved this legislation to this point. Now in 2021, we
have to get it across the finish line.
Unfortunately, the pandemic, as we talked about, has just
exacerbated the need to improve savings. We may not be seeing a
V-shaped recovery in this pandemic. I think we are going to see
more, as we have so far, a K-shaped recovery. And it is K in
terms of savings, meaning it is not just going down like it
normally would in a recession and back up the same way; you
have some people who are doing well and others who are not. And
many of those who are not are some of these low-income and
part-time workers we talked about.
So that is why we allow those workers to have more
opportunities through both expanding savings plans for them,
but also allowing part-time folks to be able to access plans
more easily, lowering the number of hours someone works where
they qualify, in particular, in retirement plans.
We also make the Saver's Credit refundable, which is not
without controversy, I understand that, and some of my
Republican colleagues have concerns there. And we can talk
later about why I think that is important as part of an overall
balanced plan.
We also have a provision that allows recent graduates to
receive matching retirement contributions through their
employers as they pay off student loans. This is a good
connection between an obvious problem out there with student
loan debt and retirement. So it is a way to approach both.
A second set of solutions on small business I talked about
makes it easier to establish the plans. We increase the tax
credit. We have a lot of companies that want to adopt auto-
enrollment and encourage their employees to save more for
retirement, but that can be expensive. And so it does enhance
the start-up credit for small businesses. It makes offering
auto-enrollment features much more cost-effective for
employers. We like auto-enrollment. We make it more cost-
effective.
For those near retirement, whom we talked about, we want to
be sure that those who are saving money have the opportunity to
be able to spread that out over time. And so that is part of
what we do here through QLACs and also through changing the
minimum required distribution laws to take it up to 75.
By the way, before the pandemic, 9.7 percent of Americans
75 and older were working. It is, I am sure, more than that
now, but that is up from just about 7 percent 10 years ago. So
we have more and more Americans, again, working into their 70s.
That is just a reality.
Like all good legislation, we have taken ideas from
Senators in both parties. And we know there is more to do and
more to improve on. I think we can learn a lot about that today
in this hearing, because we have some great witnesses and great
colleagues on the dais.
So with that, let me recognize my colleague and my friend
and fellow Ohioan, Ranking Member Sherrod Brown, for his
opening statement.
[The prepared statement of Senator Portman appears in the
appendix.]
OPENING STATEMENT OF HON. SHERROD BROWN,
A U.S. SENATOR FROM OHIO
Senator Brown. Thanks for doing this, and thanks for the
spirit of cooperation in putting this hearing together. I am
especially appreciative that Mr. Barr is here from Zanesville,
OH, a town very similar to the one I grew up in, Mansfield. And
I appreciate you, Mr. Stevenson, being here from Columbus, OH,
from Nationwide. So thank you. And I appreciate our colleagues
Senators Casey and Cardin and Cortez Masto for being on the
call. And, Mr. Kreps, thank you for your public service and
leading in this hearing. And Mr. Luskin, thank you.
The focus, as Rob said, of today's hearing is retirement
security. We cannot talk about that without acknowledging the
looming crisis on the minds of millions of retired Americans
and workers in Ohio and across the country. Literally tens of
thousands of Ohioans are affected by this. These workers and
retirees in the multiemployer pension system are in danger of
losing their retirement security they have earned over a
lifetime.
This crisis affects thousands of Ohioans. It affects the
massive Central States pension plan, Iron Workers Local 17
pension plan, the Southwest Carpenters pension plan, the Bakers
and Confectioners pension plan, and so many others. It touches
literally every State in the country. It touches, maybe most
strongly, or most destructively, the part of the country that
Senator Portman and I represent. If this multiemployer system
collapses, it will not be just retirees who feel the pain.
Current workers will be stuck paying into pensions they will
never receive. Small businesses will be left drowning in
pension liability that they cannot afford to pay. Businesses
that have been in the family for generations could face
bankruptcy, and workers will lose jobs.
These plans were already in danger before the pandemic. Now
the economic emergency we are in has only put them in a worse
position. They were hit by the financial crisis and the
recession that followed. Now they are being hit again by an
economic crisis disproportionately hurting small businesses and
workers, as Wall Street has recovered.
The House has done its part. They have passed a bipartisan
solution. The Senate needs to do its part too. The pension
system should be part of the work we are doing on COVID-19.
There is no reason we should not be able to do this as part of
a year-end deal.
I ask my colleagues to think about the workers whose lives
and livelihoods will be devastated if we do not do our jobs.
These workers and retirees have rallied in the name of a
gentleman named Butch Lewis, an Ohioan who helped lead this
fight. He passed away far too soon, fighting for his fellow
workers. Mr. Lewis was in Cincinnati. His wife, Rita, has
continued this fight. She has become a leader and an
inspiration to many. Rita once told me that retirees and
workers struggling with this crisis--pre-pandemic--feel all too
often like they are invisible.
Those Americans should not be invisible to us. They are not
to me. They are not invisible to my colleagues who have worked
with us for years now trying to find a bipartisan solution. We
just cannot give up on that. The multiemployer system is to me
the most urgent retirement matter. We also have a lot of work
to do, as Senator Portman said, to protect and expand security
for all workers.
Over the past few decades, we have watched what happens
when Wall Street runs the economy. Corporate profits go up. CEO
pay soars. Stock buy-backs explode. But wages are flat, and the
middle class shrinks. That is the fundamental problem
underlying this whole crisis, that wages are flat and the
middle class shrinks. Americans' economic security has eroded,
and so have their retirement options. Too many workers have no
retirement account through their employers, as we all know.
Fundamentally, our tax system is set up to reward the already
wealthy with more wealth, instead of empowered to help everyone
save and invest for their futures.
Forty percent of adults do not have $400 to weather a
financial emergency, let alone save for retirement. Instead of
focusing on those who already have plenty saved, we have to do
more to help everyone else get started in the first place. That
is, I hope, what this hearing mostly will be about.
We have had 4 years of an administration that made things
worse, not better. In his first months in charge, President
Trump, with help from the Republican-controlled Congress, made
it harder for States to get auto-enrollment programs off the
ground. President Trump and the congressional Republicans'
massive tax cut in late 2017, early 2018, helped the wealthy
and corporations and threatened deep cuts to Social Security
and Medicare. Just yesterday, the Senate confirmed the Trump
appointee to the Federal judiciary who has advocated for
abolishing Social Security. This November, 80 million Americans
rejected that approach. People are tired of a system where Wall
Street runs the show. They voted for a new President and a new
direction. Next year we will have an opportunity to do
something concrete for middle-class families and low-paid, low-
wage workers who need help saving.
We know what some of these solutions are. We have to do
more with auto-enrollment, do more in auto-escalation. The
States have introduced auto-enrollment plans, like Ranking
Member Wyden's State of Oregon, which has seen real success in
the early years. Auto-enrollment is the best practice in
helping people save.
As I conclude, we have to do more in portability so
retirement policies reflect the workforce we have today. Job
flexibility should not be a corporate PR term for having no
economic security. We have an opportunity to do big things for
the American people and fix the multiemployer pension crisis
instead of allowing that crisis to get bigger; protect and
expand the Social Security benefits that people earn, instead
of threatening so-called ``entitlement cuts'' in the name of a
new-found religion on the deficit; and build a defined
contribution system that is inclusive, that is equitable, and
that meets the needs of today's workforce, instead of relying
on the status quo that works well for some but leaves so many
behind.
That is our mission. Those should be our goals. I thank
very much Senator Portman for doing this hearing today. Thanks,
Rob.
[The prepared statement of Senator Brown appears in the
appendix.]
Senator Portman. Thank you, Senator Brown. And let me just
say, the focus of this hearing, as you know, is on the defined
contribution plans, and that is what we have folks here talking
about. And we talked about the Portman-Cardin legislation that
we have been trying to get a hearing on for some time.
But I totally agree with Senator Brown on the multiemployer
front. We have got to solve that problem. And my understanding
is, there are discussions ongoing with the House leadership and
the Senate leadership, and my fervent hope is that in this
final package, whatever it is, whether it is a continuing
resolution--I hope it is not--but whether it is that, or
whether it is an omnibus spending bill, or whether it is a
COVID-19 package in some way, that we include the small-time
employer pension reform.
It is time to get it done, and I think we have a good
compromise that is consistent with the plan that we all talked
about in connection with the Select Committee that was formed
to look at this. But this is urgent for our businesses. It is
urgent for retirees. And it is urgent for our economy. So we
cannot let the PBGC multiemployer program go under water, which
is what is going to happen if we do not solve the problem.
So with that, again, thanks to my colleagues for being on.
We will get to our witnesses. I thank you for your opening
comments, Senator Brown.
We have a great group of witnesses here who are, as I said,
experts on this issue, particularly on the issue of how we help
people save more for their retirement. I am going to take just
a couple of minutes to introduce them.
The first is Scott Barr. Scott is a financial advisor
serving small businesses, their employees, and individual
investors, at his Zanesville, OH branch. He began his career
with Edward Jones in 1999. I really appreciate Edward Jones
helping us on these bills over the years, and thanks for being
here, Scott. He is a licensed, accredited asset management
specialist. He is a 1984 graduate of Miami University.
The next witness is Mr. Eric Stevenson. We talked to Eric
earlier. Mr. Stevenson is president of retirement plans at
Nationwide Insurance. Eric brings more than 15 years of
industry experience to his position, currently managing the
team responsible for Nationwide's retirement plans operations,
with nearly $115 billion in assets under his management. Eric
previously served as senior vice president of Nationwide
retirement plans distribution across both the 401(k) and 457
businesses. He joined Nationwide in 2006 in life insurance
marketing, and soon after that joined the retirement plan area.
Eric earned his bachelor's of business administration and
finance from the University of Oklahoma and a master's of
business administration degree from Northwestern University's
Kellogg School of Management.
Our third witness is Mr. Michael Kreps. Michael Kreps
advises a wide variety of clients on issues related to
retirement and health matters. He specializes in benefit plan
governance, administration, investments, funding, and
restructuring. Michael routinely represents clients before
regulators. His professional experience includes serving as a
Senior Pensions and Employment Counsel for the U.S. Senate
Committee on Health, Education, Labor, and Pensions, the HELP
Committee, from the 111th to the 114th Congress. He holds a
J.D. with honors from the George Washington University Law
School.
Last but not least, we have Mr. Joshua Luskin. Joshua
Luskin is director of plan administration for 12 governmental
defined contribution and defined benefit funds. The funds
represent more than 1,200 employers that include public-sector
workers, teachers, university staff, and more. His past
experience in the private sector was in retail banking,
investment management, financial education, change management,
and fiduciary oversight.
So we have, again, some witnesses who have some real-world
experience to bring to bear here, and we appreciate them
coming.
Mr. Barr, why don't we start with you? We are not going to
ask witnesses to be sworn in today. We are going to move right
to the testimony. Mr. Barr, you are up.
STATEMENT OF SCOTT BARR, AAMS, FINANCIAL
ADVISOR, EDWARD JONES, ZANESVILLE, OH
Mr. Barr. Thank you, Senator Portman. Chairman Portman,
Ranking Member Brown, members of the subcommittee, thank you
for inviting me to testify on the important issue of retirement
security. My name is Scott Barr, and I have served as a
financial advisor with Edward Jones here in my home town of
Zanesville, OH for the past 21 years. As a native Ohioan, it is
my pleasure and great honor to address both the men who serve
me and the people of our great State.
I would like to express right from the outset Edward
Jones's strong support of the Retirement Security and Savings
Act of 2019. Edward Jones offers a wide variety of products and
services that help individual investors and small business
owners achieve retirement security. Over 19,000 financial
advisors serve more than 7 million clients and care for more
than $1.3 trillion of their assets.
I am here today because I have had the privilege of helping
hundreds of my clients plan for and achieve financial security.
My clients have confided in me what is most important to them,
and they have trusted me to partner with them to guide them
toward their financial goals.
I have also found that my small business clients care
deeply about helping their employees prepare for their own
retirement. They really are interested in offering retirement
savings options, both because they know it helps them attract
and retain great employees, but also because they know it is
just the right thing to do.
Our Nation's private retirement savings system has been a
tremendous success. It has enabled folks to build financial
nest eggs that will help them supplement the retirement income
that they expect from Social Security.
Congressional efforts to promote and expand the private
retirement savings system have clearly worked. Edward Jones is
very encouraged by the recent congressional effort in the
SECURE Act. The start-up tax credits and new tax credit for the
adoption of automatic enrollment were significantly important
to a small surveying firm I recently helped establish a new
retirement plan.
These efforts built on decades of bipartisan support for
our Nation's private retirement savings system, spearheaded by
the tireless work of Senators Portman and Cardin. And as
somebody who works with clients every day and has tried to save
for retirement, I would like to take this opportunity to say
``thank you'' for these efforts.
And, Senator Brown, thank you, sir, for your leadership and
dedication in helping the working families of Ohio to save for
a secure and dignified retirement. I would also like to thank
Chairman Grassley and Ranking Member Wyden for their leadership
on retirement savings.
Although we have made progress, there is more work to be
done. To further strengthen the retirement savings system,
Edward Jones urges you to advance legislation that will, first,
make it easier and less costly for businesses of all sizes, but
especially small businesses, to offer workplace retirement
plans; and second, increase opportunities and eliminate
barriers that currently prevent Americans from adequately
saving and preparing for their financial future.
In pursuit of these goals, I reiterate our strong support
for Portman-Cardin. If enacted, the retirement preparedness of
the American worker would significantly improve.
I would like to highlight our support for a few provisions
we believe would be most effective in reducing the coverage gap
for small business employees, as well as increasing the
personal retirement savings of all Americans.
Edward Jones supports the provision that would increase the
start-up tax credit made available to small employers when they
establish retirement plans. In my experience, employer cost is
the most significant barrier to the creation of a workplace
retirement plan.
We support the new incentives for employers to offer more
generous automatic enrollment programs by directly offsetting
some of the employer costs. A tax credit based on employer
contributions would be a game-changer for employees.
We support expanding SIMPLE IRA offerings to allow the Roth
components. There is no reason to deny SIMPLE IRAs, which are
so important to small businesses, the same benefits enjoyed by
participants in larger plans such as 401(k)s, 403(b)s, and
government 457 plans.
We support allowing employers to make matching
contributions to their employees' retirement accounts based on
their employees' student loan repayments, and would like to
acknowledge Senator Wyden for his leadership on this provision.
This provision, I think, would help workers burdened with
student loan debt start saving for their retirement earlier in
their careers.
We support the provision permitting workers aged 60 and
older to make additional contributions to their employer-
sponsored retirement plan. I have many clients who would take
advantage of this important provision.
And we support increasing the requirement-of-distribution
age to 75. Americans are working and living longer. This change
would help address the greatest concern I hear most often: that
they will outlive their retirement savings and become a burden.
In closing, on behalf of Edward Jones and myself, I again
would like to thank Chairman Portman, Ranking Member Brown, and
the rest of the subcommittee for holding this important
hearing. Edward Jones fully supports Portman-Cardin. We believe
it will strengthen Americans' retirement saving system and help
more Americans enjoy the secure, dignified retirement they are
working so hard to achieve.
I would be happy to answer questions.
[The prepared statement of Mr. Barr appears in the
appendix.]
Senator Portman. Thank you, Mr. Barr. I appreciate it. To
all witnesses, we appreciate your trying to keep your oral
comments to about 5 minutes, and then your full written
statement of course will be made a part of the record.
Thanks very much, Mr. Barr.
Mr. Stevenson?
STATEMENT OF ERIC STEVENSON, PRESIDENT,
RETIREMENT PLANS, NATIONWIDE, COLUMBUS, OH
Mr. Stevenson. Good morning, Chairman Portman, Ranking
Member Brown, and members of the subcommittee. Thank you for
convening today's hearing. My name, as you mentioned, is Eric
Stevenson. I am president of retirement plans for Nationwide, a
Fortune 100 firm based in Columbus, OH, providing a full suite
of insurance and financial services.
We represent over 26,000 plans across the country--small,
medium, large-sized plans--with over $150 billion in assets.
And we are the number one provider of plans in the governmental
457 space.
I would also like to thank Chairman Grassley, Ranking
Member Wyden, Chairman Portman, Ranking Member Brown, Senator
Cardin, and members of the committee, for the work that you
have done tirelessly over the years, or we would not be having
this conversation. So thank you for your service and your
leadership.
One additional thing that we have in common with both you,
Senator Portman, and Senator Cardin in particular, is around
Ohio and in Ohio, we represent the Ohio Defined Contribution
Plan for the State of Ohio, and we protect 75,000 Ohioans,
their assets, almost $7 billion across the State, on the
corporate side and the government side. And we employ 15,000
associates here in Columbus.
And, Senator Cardin, also in Maryland, we represent about
$7 billion of assets for residents of Maryland, $7 billion in
total assets, 100,000 of your residents, and importantly for
the State of Maryland, Baltimore County, city of Baltimore,
Howard County, a number of counties and corporations across the
State. But most notably, the first governmental plan that was
ever started was the State of Maryland's. They have been our
client for 46 years, and are still our client today. And I will
tell you a story about that a little later.
On behalf of all that, we are Nationwide. And like myself,
personally, we are proud supporters of S. 1431, the Retirement
Security and Savings Act, which I will refer to going forward
as Portman-Cardin.
This important legislation builds on bipartisan work
accomplished by the SECURE Act, with bipartisan solutions to
help Americans prepare for and live in retirement. At
Nationwide, we have been busy operationalizing the SECURE Act
with new and innovative solutions, particularly around income
solutions inside the retirement plans. And once the
participants had done the hard work of saving for retirement,
we help them take that income in a very smart and tax-efficient
way, thanks to the SECURE Act.
I would also like to, as I go forward, connect the
conversation and the provisions that you have to three real
categories. The first of those is meeting today's financial
needs. Second, savings for retirement. And then third, living
in retirement.
And before you can start saving for retirement, the first
thing you have to do is be able to meet your immediate needs.
And one of the biggest obstacles, as we have talked about, is
student loan debt. And it is not just kids graduating anymore
around student loan debt, but it is those folks now into their
20s, 30s, and even 40s who are burdened with this. And we
believe the existing retirement system can play an important
role in alleviating some of the pressure.
In particular, we support the proposal permitting employers
to make matching contributions to a retirement plan based on
student loan repayments. This provision will help workers who
otherwise could not, and would not start saving for retirement.
And I mentioned the State of Maryland's plan. We have a
participant who joined that plan 4 years after it started. The
highest salary he ever made was $83,000. And I can tell you,
today after 20 years in retirement, he still has $900,000 saved
in that plan. And that is simply because he started early, and
that is why we are so supportive of that legislation.
When it comes to saving for retirement, the Portman-Cardin
provisions to increase catch-up contributions and collective
investment trusts are particularly beneficial.
Someone mentioned it earlier, but we know that nearly half
of Americans do not have $400 saved, and there are some who say
this is just a lot higher. So anything we can do to get more
people enrolled and help them get started and avoid some of the
traps, is important.
Along with our friends at NAGDCA, we are excited about the
opportunity to make collective investment trusts available to
403(b) plans to help more American workers save, especially
those in education, health care, and charitable organizations.
CITs are a proven, cost-effective way to help people save, and
they are widely available in 401(k) plans, and we think they
should be available in 403(b) plans as well.
As reflected in my written testimony, we strongly support
NAGDCA and their priorities around ensuring that government
retirement plans have a level playing field compared to 401(k)
plans and IRAs. It is through a partnership with NAGDCA and
EBRI that we have helped to sponsor and fund the Public
Retirement Research Lab that has provided much of the data that
we have shared today.
And finally, living in retirement--Nationwide is thinking
about how we can help participants reach their goals. So we
know that 25 percent of the people who are 65 years old now
will live to be at least 90. So the provision to increase RMB
to 75 helps by giving more time for those working and living
longer.
Hopefully, you can tell that Nationwide and I personally
are very excited about helping Americans achieve financial
wellness and security. I am proud of your work and the
partnership, and we hope to be a resource today and ongoing.
[The prepared statement of Mr. Stevenson appears in the
appendix.]
Senator Portman. Thank you very much, Mr. Stevenson. Great
comments.
Mr. Kreps, you are up.
STATEMENT OF MICHAEL P. KREPS, PRINCIPAL,
GROOM LAW GROUP, WASHINGTON, DC
Mr. Kreps. Good morning. I want to thank Chairman Portman
and Ranking Member Brown for inviting me to testify today, and
for their dedication to improving retirement security for all
Americans.
The topic of this hearing is critically important. I think
we can all agree that after a lifetime of hard work, everyone
deserves the opportunity to live out their golden years with
dignity and financial independence.
In 1935, at another time of great national hardship,
President Roosevelt, working with Congress, created Social
Security to stamp out elder poverty. It has been 85 years, and
Social Security is still the bedrock of our retirement system.
It is the most effective anti-poverty program in the United
States.
But Social Security benefits on their own are not enough to
allow most older Americans to maintain their standard of living
when they retire. That is why we need a robust, equitable, and
inclusive private retirement system. Over the years, a private
retirement system has evolved, and there have been many
important improvements. The system is working well for a great
many people, but there is still more work that needs to be done
for those falling through the cracks.
Many working people still do not have access to or are not
participating in employer-provided plans. That is particularly
true for private-sector employees who are younger, part-time,
in lower-wage occupations, and not a member of a union. There
is nothing stopping us from taking affirmative steps to reach
this uncovered workforce and give them the opportunity to
prepare for retirement.
Several States, including California, Illinois, Oregon, and
others, are already trying to address the problem through
State-based systems to provide for universal, or near-universal
access to payroll deduction savings plans.
Similarly, Washington State, working with SEIU, established
a savings plan specifically to help home-care workers, most of
whom earn very little despite providing critical care to our
sick, disabled, and elderly family members.
We cannot forget that millions of working people struggle
to pay their bills, let alone save for retirement. Congress
took an important step to address that issue in 2001 by
creating the Saver's Credit to provide a nonrefundable tax
credit to low-income taxpayers for certain retirement plan
contributions. But the Saver's Credit does not reach nearly
enough people, because many lower-income workers just do not
have taxable income.
We can fix that. We can make the credit refundable. We can
have it directly deposited into people's savings plans. That
approach has bipartisan support, and I commend Chairman
Portman, Ranking Member Brown, Senator Cardin, and committee
Ranking Member Wyden, for their leadership on this issue over
the years.
We should also plug some of the holes that drain people's
savings. Close to half of plan participants withdraw part or
all of their retirement plan assets following a job change. The
lost savings due to these cash-outs amount to between $60 and
$100 billion annually. But fortunately, the development of
auto-portability will help preserve savings for job-changers by
allowing people's accounts to automatically follow them from
one employer's plan to the next. Thanks to guidance from the
Department of Labor and strong bipartisan support from members
of Congress, including many members of this subcommittee, auto-
portability will be a reality for millions of plan participants
early next year.
Finally, and most importantly, we simply cannot ignore the
fact that we are on the brink of over a million Americans
losing their hard-earned pension benefits. Most multiemployer
pension plans are secure, but some plans, including some very
large plans, will become insolvent in the next few years.
The Federal pension insurance program is administered by
PBGC and only guarantees a fraction of multiemployer pension
plan participants' benefits. Worse yet is that the
multiemployer insurance program will be insolvent in 2026. When
that happens, PBGC will only be able to pay pennies on the
dollar, meaning participants and retirees in insolvent plans
will see their benefits slashed to the bone.
It is not these participants' fault their plans are
failing. They worked hard. They played by the rules and made
significant wage concessions, all so that they could have some
measure of economic security in retirement. They did everything
they could to achieve the American dream, but they are living a
nightmare.
Unless Congress acts soon, retirees, their families, and
communities will be devastated. The crisis is upon us, and only
Congress has the power to do something about it. We are the
richest country in the history of the world, and we owe it to
our fellow Americans to find a solution. That is going to
require putting aside politics and ideology and doing what is
right for retirees. There is simply no time left to lose, as
every day that ticks by, the problem becomes more difficult and
costly to fix.
I urge members of the subcommittee, and every member of
Congress, to act as soon as possible to address this crisis.
Thank you for your time today, your attention to these
issues, and for your commitment to making retirement more
secure for Americans. I would be happy to answer any questions
you have.
[The prepared statement of Mr. Kreps appears in the
appendix.]
Senator Portman. Thank you, Mr. Kreps. I appreciate your
insights.
Mr. Luskin, you are up.
STATEMENT OF JOSHUA LUSKIN, PRESIDENT, NATIONAL ASSOCIATION OF
GOVERNMENT DEFINED CONTRIBUTION ADMINISTRATORS, LEXINGTON, KY
Mr. Luskin. Good morning. My name is Joshua Luskin, and I
am the current president of the National Association of
Government Defined Contribution Administrators, or NAGDCA.
NAGDCA members oversee plans in 49 States and territorial
government entities and 132 local government entities including
counties, cities, public safety agencies, school districts, and
utilities. Our plan sponsors administer deferred comp on
defined contribution plans, including 457s, 401(k)s, 401(a)s,
and 403(b)s.
On behalf of NAGDCA, we sincerely thank Chairman Portman
and Ranking Member Brown and the members of the subcommittee
for holding this important meeting to explore ways to improve
Federal law that can create greater benefits for our plan
participants. Additional appreciation is also expressed to
Chairman Grassley, Ranking Member Wyden, and the members of the
full Finance Committee, for their ongoing commitment to
improving retirement systems for America.
One of the most effective ways NAGDCA supports our
government DC plans has been our long tradition of partnering
with
private-sector firms to help identify new opportunities to
improve retirement health plans. We collaborate on an ongoing
basis on everything from training and education to policy
development.
As an example, NAGDCA is excited about their new Public
Retirement Research Lab, or the PRRL, which it recently co-
founded with EBRI. We are thankful for the critical support
that PRRL receives from a number of our great corporate
partners, including Nationwide, who is with us this morning.
With the PRRL, we are building the largest aggregation of DC
government retirement plan data that will allow plan sponsors
to commit resources and time for data-driven decisions.
NAGDCA is grateful for the opportunity to testify today in
support of our bipartisan proposals. The proposals are directly
aimed at improving retirement outcomes for approximately 60
million teachers, first responders, public health-care workers,
and hard-working middle-class Americans in State and local
government service.
Day in and day out, these individuals provide countless
essential services that support the communities we live in.
With the remainder of my time this morning, I will focus on a
few of NAGDCA's six policy proposals. These proposals were
developed and vetted by many dedicated NAGDCA volunteers over
many years. We are happy to say that each one has been
incorporated into the Retirement Security and Savings Act,
which you introduced, Mr. Chairman, together with Senator
Cardin.
We thank you for all your passion and leadership in the
retirement space, and for your partnership with NAGDCA. I will
highlight one key proposal and briefly mention three more.
One of the proposals that potentially communicates a
significant improvement is to amend the IRC and securities law
to permit 403(b) plans to invest in collective investment
trusts, or CITs.
NAGDCA members brought this proposal to the organization
and pushed for it to be a priority because of the potential
benefits for 403(b) participants--the same benefits that
participants in other plans are currently benefiting from.
403(b)s are currently limited by statute to just mutual funds
and annuity contracts.
DC plans that are able to invest in CITs can realize lower
administrative costs, fees, and greater flexibility. This is
one example: a paper by Blackrock estimated that lowering fees
by just 20 basis points can result in more than $100 million in
aggregate savings per year for these 403(b) plan participants.
And for participants having 10-, 20-, 30-plus-year careers, the
time value of those savings could really positively impact
people's lives.
I also want to mention two other provisions which we
believe would make it easier for DC plan participants to
consolidate their retirement assets. Consolidation of
retirement assets is a proven method to help participants
maintain a unified investment strategy, as well as potentially
providing lower costs and fees within their employer plans, as
opposed to many retail IRAs.
The two changes we suggest are to permit non-spousal
beneficiaries to roll inherited IRA assets into their DC plans
and to allow participants with Roth accounts in their DC plans
to roll Roth IRA assets into their employer-sponsored plans.
We, finally, encourage Congress to help us clean up the
anachronism in IRC section 457(b) known as the ``first day of
the month'' rule. This rule requires participants, if they want
to change their elected deferral, to make the change before the
first day of the month in which then the change will go into
effect. This provision was enacted as an administrative
convenience prior to the advent of modern record-keeping
technology. Not only will eliminating it make life easier for
plan participants and record-keepers, but we believe it will
also help participants make better savings decisions.
Chairman Portman and Senator Brown, thank you again for
this opportunity to share some of NAGDCA's ideas about how to
improve DC retirement systems. I look forward to the Q&A and
continuing to work together to support changes which can result
in better retirement outcomes for so many hard-working people.
Thank you.
[The prepared statement of Mr. Luskin appears in the
appendix.]
Senator Portman. Mr. Luskin, thank you very much. And
thanks to all the witnesses for their very helpful testimony.
We are now going to go to questions. Because I will be here
until the bitter end and enjoying every minute of it--except
when I have to run out for votes--I am going to wait and ask my
questions later because there are some colleagues on the line
and they are going to have to run.
We have votes scheduled for 11 o'clock, which is about 20
minutes from now. And what I am going to ask my colleagues to
do is, if you would work me, I can run up and vote in the
Capitol, but some of you are going to have to take the gavel
here so we can be continuous. I do not want to stop this
hearing. There is such great information and so many people
interested.
The order we have is based on when colleagues showed up for
the call. We are going to start with Senator Brown, and then
Senator Grassley, Senator Bennett, Senator Lankford, Senator
Cardin, Senator Daines, Senator Casey, Senator Cortez Masto,
Senator Young, and Senator Whitehouse. Not all of you are on
the line now, but as they come on, they will have opportunity.
So let's start with you, Senator Brown.
Senator Brown. Well, I mean, he is in the majority party
and he is chairman of the committee, so if Chuck wants to go
first, I am certainly fine with that.
Senator Portman. Chuck, would you like to go first?
[Pause.]
Senator Portman. Are you on, Chuck?
Senator Brown. I think he is on mute. I am fine to do it
either way, but----
Senator Portman. Senator Grassley, if you are on, we would
love to hear from you first. If not, we will go to Senator
Brown.
Senator Grassley. I would like to go. And before I ask
questions, there are a couple of short things I want to
announce.
First of all, thank you, Chairman Portman and Senator
Brown, for this hearing. It is very important. And I applaud
you and Senator Cardin for your leadership on retirement
security issues. In the coming days, I plan to introduce
legislation that builds on the SECURE Act and important
provisions of Portman-Cardin, as well as stuff in the recently
introduced House Ways and Means bill that Chairman Neal and
Ranking Member Brady have put into place.
And then, secondly, before I ask questions, just to follow
on what Senator Portman had said about our efforts to get a
multiemployer pension plan, we have been negotiating with our
Democratic colleagues for more than a week to find a solution
on the multiemployer pensions. And I would still like to find a
way to reach a deal.
Both sides have very much been working diligently and very
much in good faith, and I appreciate that. And we plan to keep
at this problem until we find a solution.
I want to go to COVID-19's impact for my first question,
for all witnesses. The pandemic continues to cause pain for
many individuals and businesses, and I have heard from a number
of Iowans that the pandemic has affected their retirement
savings, or even reduced their retirement savings.
And I know many provisions have already been mentioned. But
which do each of you see as the most relevant and urgent need,
given the current crisis that we have with the pandemic? Any
order you want to, jump in, please.
Mr. Barr. Senator Grassley, this is Scott Barr with Edward
Jones here in Zanesville. I think I would like to take a shot
at answering your question. I think it is a great question, and
our firm believes that the Portman-Cardin bill was structured
to address the needs of lot of different sectors of the economy
and sectors of workers. So folks who are affected by the
pandemic are, I think, going to benefit from the bill as it
stands right now.
I think it is a great question.
Senator Grassley. Does anybody want to add to that?
Mr. Kreps. This is Michael Kreps. Thank you so much for
that question, and obviously the pandemic has had a pretty
profound impact on working people, both moderate-, upper-, and
lower-
income working people. In the CARES Act, Congress provided some
helpful relief to allow people to have access to their
retirement savings, and that will be helpful to re-up and to
think about doing again. But at the same time, we have to
recognize that a large portion of the population does not have
a lot saved in their retirement plan, and we need a strong
social safety net to take care of these folks and to support
families in crises like this.
Senator Grassley. Do either of the other two of you left
want to----
Mr. Stevenson. Sure, Chairman Grassley. I will try not to
be redundant. A couple of things that I would call out, number
one, the student loan provision--and Portman-Cardin will be an
important piece to that. People have just got to get a habit of
saving more. That is a great way to start.
The second one I would mention is the volatility that we
have seen through COVID, not just people taking money out, but
people investing poorly. When the market goes down, they sell.
When the market goes up, they buy. And in the first SECURE Act,
the income allowance to put guarantees inside of retirement
plans will really help us reduce some of that volatility for
participants and help them be much better prepared over the
long term in terms of retirement savings.
Senator Grassley. Thank you. Go ahead, sir.
Mr. Luskin. Like my colleague just mentioned, we do believe
that the Portman-Cardin package was structured very carefully
to address the different needs of many people struggling
currently.
There are a lot of different populations that are impacted
and have felt the economic effects of the pandemic. Having
multiple tools to be able to address this--there is some value
too.
So thank you very much for that question, Mr. Chairman.
Senator Grassley. Before I go to the other question, I
remind Senator Portman, I do not have a clock in front of me.
So when I have used up my time, you will have to tell me.
Mr. Stevenson, in your testimony you note that both the
opportunity and the means to save are needed in what you call
the ``beginning planning'' stage of saving. I agree with you
that both are essential.
The question: in your opinion, how important is automatic
enrollment in this equation?
Mr. Stevenson. Yes, I think it is very important. And I
would add, another of the provisions in the bill is around the
Saver's Credit. I think that is an important provision. They
need both the means and the opportunity. And auto-enroll/auto-
escalate creates the opportunity and the means with the
provision that we can expand the Saver's Credit, especially the
part that allows that refund to go right into the account so it
is for retirement savings and not spent, which I think is
critical.
Senator Grassley. Okay, I guess I have time for one more
question. So, to Mr. Barr, in your testimony you cite data that
says 37 percent of the businesses point to the cost as the main
reason for not starting a retirement plan.
The current-law small business startup credit seeks to
defray some of those costs. In your view, what impact would be
the most helpful in bridging the small business coverage gap?
Mr. Stevenson. That is a great question, Senator. Thank you
for your question. I think the startup credit is a major player
in this. I think that the number one issue that I run into with
my small business clients is cost. How much is the extra
expense going to cost the business to start the plan up?
The firm I think supports the entirety of Portman-Cardin
because it really very closely addresses those issues. In
addition, the auto-enrollment and the auto-escalation, both of
those provisions go a long way toward encouraging businesses,
with the tax credit that is associated with that, to make that
part of their plan so that they can help their employees save.
Senator Grassley. Thank you, Senator Portman.
Senator Portman. Thank you, Mr. Chairman.
Mr. Chairman, we gave you some leniency because you are Mr.
Chairman, but thank you for raising the question of the clock.
The Finance Committee was not able to put the clock on the
screen today. However, we are keeping a clock here. And if it
is okay, what I will do, colleagues, is limit the questions to
5 minutes. And then at that 5-minute mark, I will indicate,
when we are probably a minute out, or 30 seconds out--how about
that, at 4\1/2\ minutes--so that we can try to get as many
questions as we can get in today.
And we are happy to have a second round, again, if people
are able to stay. Senator Brown, you are up.
Senator Brown. Senator Portman, there is a clock on the
screen that at least some of us can see.
Senator Portman. Oh, there is?
Senator Brown. Yes, for some of us.
Mr. Stevenson, we will start with you. You said in the
response to Senator Grassley's first question that people
should get in the habit of saving more. If you and Mr. Barr
would both answer this question: what is Edward Jones, what is
Nationwide doing to help lower-income families save for a
dignified retirement?
Mr. Stevenson. I will jump in. It is a great question,
Senator Brown. The key for us is that we have to get people
started early. And the education, how we show up, how we
provide retirement education and engaging them--employers, the
small businesses and large businesses have done a great job of
providing incentives. And then it is up to us to make sure we
go out and engage them and get them enrolled in the plans and
get them started and keep them in the plans.
The provisions in this bill around, again, whether it is
the Saver's Credit, whether it is auto-enroll/auto-escalate,
when people can see the progress they are making, that is
amazing. And the previous SECURE Act, one of the provisions was
that we start them out to show people what their savings look
like in terms of monthly income. That has been a huge add to
the plan. So now we can show them their pension, their 457, and
Social Security, show them all that in one picture. It is very
encouraging for people to get started and stay engaged in the
process.
Senator Brown. Mr. Barr, would you add to that?
Mr. Barr. I think he had a great answer, and I would point
out what Edward Jones is doing. In my practice, Edward Jones, I
think as much as any firm out there, opens the doors to the
serious long-term investor across the entire income spectrum,
socioeconomic spectrum of folks who value the service and
advice that we provide.
In addition, as a firm we support the entirety of Portman-
Cardin, and we believe that the Saver's Credit provision and
the enhancement to that Saver's Credit provision is a great way
to help folks who are low- and middle-income savers saving for
retirement.
Senator Brown. Thank you both.
Mr. Kreps, I wanted to ask you about the urgency of
addressing the multiemployer pension crisis. And thanks for
your comments during your testimony.
What is the effect on the economy if Congress does not act
soon? Would that impact be limited to union workers and
retirees in these plans, or does it go broader than that?
Mr. Kreps. Thanks for that question, Senator Brown. It is
an important point. When 1 million participants, over 1 million
participants, lose their pension benefits, that is going to be
devastating to those families, obviously. People are going to
be faced with the horrible choice of trying to decide whether
to use the limited assets they have to keep the lights on or
buy their medications. And that is not a position we want
anyone to be in.
But it is going to have a devastating impact on communities
as well. In the Midwest and across the country, there are
multiemployer plan participants who are affected by this--all
over the country. And when their pensions are ripped away from
them, it will be like kicking the leg out from a table. Whole
communities will be destabilized. The whole system becomes
wobbly.
Children will have to support their parents, and they will
be burdened. The governmental systems, the support systems we
have in place, to the extent we have them, are going to be
taxed trying to support these communities, the businesses that
rely on the dollars being spent in the communities, the
employers who are going to be faced with increasing liabilities
and are unable to continue to keep people employed.
It is going to have ripple effects that go across the
economy, which is why it is so important to deal with it now
and not wait any longer.
Senator Brown. And not dealing with it now means it gets
worse the longer we wait, correct?
Mr. Krebs. It absolutely gets worse every day we wait.
Senator Brown. I will note to my colleagues that for years
we have been hearing this: the longer we wait to act, the worse
it is going to be. It would have been cheaper to fix 3 years
ago. It would have been cheaper to fix last year. And now we
are in the middle of an economic crisis that is shuttering
small businesses and draining people's savings, and retirees
cannot wait.
Let me, in the last minute, go one more place with you, Mr.
Kreps. We know that people change jobs more often than they
used to. When they do, they are often denied a chance to build
the retirement savings that Mr. Barr and Mr. Stevenson talked
about getting people into early.
Many corporations have made part of their business plan to
deny responsibility for millions of their workers by using
independent contracting and subcontracting to get out of doing
their part to contribute to their employees' retirement.
What can Congress do about the so-called missing
participant problem and improving portability for workers who
move from job to job over a 20- or 30-year period?
Mr. Kreps. This is a great question, and an important one.
Oftentimes when people change jobs, they lose track of their
retirement account. It has happened to my family members. I
know they have missing accounts elsewhere. And that lost
savings can add up over time.
And so the best thing we can do, or one of the best things
we can do, is to encourage the use of automatic portability so
that as people change jobs, their accounts follow them from job
to job, by negative consent.
Additionally, there is some legislation about a lost plan
registry that could be very helpful in addressing that problem.
Senator Brown. Thanks, Mr. Chairman. Thanks to all four of
you.
Senator Portman. Thank you, Senator Brown.
Senator Bennet?
[Pause.]
Senator Portman. Senator Bennet, are you on mute, or are
you not with us any longer?
[No response.]
Senator Portman. Senator Lankford?
Senator Lankford. Senator Portman, thank you very much--
Senator Portman and Senator Brown both--for hosting this
hearing. It is a tremendous asset to be able to get in this
conversation on Senator Portman's and Senator Cardin's piece of
legislation that you have worked on for a long time. And I
appreciate all the work on that that has gone into that.
I have several questions, and I want to deal with this both
on the retirement side and on the emergency fund side. But I
have a really pressing question for Mr. Stevenson first.
It is my understanding you were born in Oklahoma, but you
now live in Ohio. Is that correct?
Mr. Stevenson. That is correct.
Senator Lankford. So if I were to say the letters ``O-S-U''
to you, is that Oklahoma State or Ohio State that we are
talking about?
Mr. Stevenson. With all respect, that would be Oklahoma
State, my little brother.
Senator Lankford. That would be my assumption as well. I
just wanted to be able to clarify that, because that is an
important feature in this particular hearing with those who are
chairing it.
Senator Brown. What is that flag, Mr. Stevenson? Because it
sure looks like an Ohio flag.
Mr. Stevenson. That is the Ohio flag. This is where I live,
and this is where I work and pay taxes----
Senator Brown. Okay; all right. I just thought I'd check.
Mr. Stevenson. Senator Lankford is trying to get me in
trouble.
Senator Lankford. I am not trying to get you in trouble.
Just trying to bring clarity into this hearing as well.
Mr. Stevenson, let me ask you an important----
Senator Portman. Senator Lankford, you have an additional
30 seconds, if you acknowledge this mug [holding up an Ohio
State mug]. [Laughter.]
Senator Lankford. I will be careful with my time then.
Mr. Stevenson, I want to ask you about emergency funds. I
notice from your testimony that you are saying about 20 percent
of the withdrawals that you are seeing right now from
retirement funds are COVID-related issues, are for people who
did not have an emergency fund.
We talk a lot about retirement funds. I want to bring up
the issue of emergency funds with you. How do we encourage
people to set aside more liquid assets as an emergency fund
while we are all still trying to deal with retirement funds as
well?
Mr. Stevenson. Senator Lankford, thank you for that
question. And I think, while it is not a part of this
provision, this bill yet, I think, is a very important piece
that would go a long, long way.
What we have seen is, we have seen almost $900 million in
COVID-related withdrawals since April. I will say, the last 60
days we have seen those numbers increase each week. And when we
talk about how nearly half of Americans do not have $400, I
think there is a pretty straightforward way that we could
create some legislation that would allow that to be part of our
401(k), 457, 403(b) plans where that money gets--the first
$400, first $1,000 is available to that participant for
emergency savings. Where it is not an unforeseen emergency,
that would really encourage people to start saving early and
remove one of the barriers. Because one of the barriers is that
people feel like they cannot get access to the money.
If we make that first $1,000 available, I think it will
help. I think we would see less impact from an event like
COVID.
Senator Lankford. So is $1,000 the correct number on that?
Or should that number be higher? Obviously, it sounds like you
are saying at least $1,000. How did you come to the number of
$1,000?
Mr. Stevenson. I think, you know, we do not--I do not have
a position yet on the exact number. I would love to work with
Senator Portman, Senator Cardin, and yourself and others in
terms of determining that number. But we think that is in the
right ballpark.
We do not want it to take away from the long-term savings,
but we do think it is an important provision. And it is very
expensive and time-consuming for a participant to go through
the process of requesting a loan or to think about that. When
you are right out of college and your transmission goes out and
you need $400, right, or $800 to repair that, you go to credit
cards, you go to your parents, or you go do a loan out of your
401(k). We think there is a much easier, more efficient way to
do that.
Senator Lankford. Okay. Well, let me ask you one more
question on this, and I want to be able to open this up to the
whole group.
Mr. Stevenson, you have experience both around small
restaurants and the employees in them, and retirement. So you
have a unique perspective in this. Many individuals who are in
hourly jobs or who are just getting started, or in restaurants
and other places--I would assume that many people who are even
on this conference right now or in this hearing started work in
a restaurant, as I did years and years ago.
But very rarely would you actually start retirement
planning at that point as well. It is not easy to do. You are
part-time. You are hourly. Even setting aside small amounts is
more complicated.
Are there ways that we can actually engage with that
individual who may be 19, 20, 21, 22 years old just getting
started, or someone just out of college who is in an entry-
level job, to be able to do retirement savings? They assume
that they are going to switch jobs, so it is difficult to do a
retirement plan with an entity that you are then trying to be
able to move from. Is there an easier way to do that?
Mr. Stevenson. Yes, Senator Lankford; a couple of thoughts.
A couple have already been talked about. One is the ability for
portability. Adding that would make a big difference.
Number two, we talked about emergency savings.
Number three, any of those--and two of those are provisions
that are already in the Portman-Cardin act. I think if we can
move that forward, we can make a difference.
The other one is reducing the time, from 3 years down to 2
years, even 1 year, in terms of when those part-time workers
can start saving. That is an important provision that is in the
bill. At Nationwide, we are extremely supportive of that.
Senator Lankford. Are there other individuals who have a
response to that as well, for that part-time worker, or that
person just getting started, for saving?
Mr. Barr. Senator Lankford, yes, if you do not mind, I
would like to respond to that also. We support the entirety of
the Portman-Cardin bill, and that provision, I believe, in my
experience, is something that is going to be very important for
part-time employees, both because it offers them access, but
also because they have done a great job of threading the needle
on not having too much of an impact on the expense to the
employer.
So we support that provision of Portman-Cardin.
Senator Lankford. Thank you for that, Mr. Barr. Any other
responses to that, for the part-time worker just getting
started, for retirement savings?
[No response.]
Senator Lankford. All right. Thank you, Mr. Chairman. I
appreciate very much your indulgence and our conversation about
the correct OSU initials as well. And I appreciate you all
holding the hearing. It is extremely important to us.
Senator Portman. Not at all. I am glad we had you
outnumbered two to one today at least. Thank you, Senator
Lankford.
Senator Cardin?
Senator Cardin. Thank you, Mr. Chairman.
First, I really do want to thank you and Senator Brown for
conducting this hearing. Senator Portman and I have been
working on pension issues from the time we were in the House of
Representatives. So it is really gratifying to have this
hearing where we can really explore going to the next plateau
on pension reform.
And to Senator Brown, we really do need to deal with the
multiemployer issues. I know it is not the subject for today's
hearing, but I thank you for your leadership on that critically
important issue.
There are many provisions in the Portman-Cardin bill, and I
am not going to go through all those provisions before I ask
questions, but I want to sort of follow up on Senator
Lankford's point.
And that is, one of the challenges we have is getting
younger workers to get engaged in savings. Some are part-time
workers, so therefore extending and expanding eligibility for
part-time workers will help in offering them an opportunity to
start saving for retirement at an earlier age.
Many of those work for small companies that do not have
pension plans. And offering additional incentives for small
businesses to set up plans will mean we will have more workers
participating in plans. And again, a lot of these are younger
workers who today do not have that opportunity.
And although it is extremely important--the tax deferral
concept of saving for retirement--we find the most effective
way to get younger people engaged in saving for retirement is
when there is a match. If that match comes from an employer,
very few people want to leave money on the table. Very few
workers want to leave money on the table.
But if the employer does not offer the plan, there is not a
match unless they qualify for the Saver's Credit. And the
Saver's Credit has been a real godsend in getting people,
younger people, engaged, as we can see in our own Federal plan
that we have on savings, the Thrift Savings Plan.
So my question is to--I believe Mr. Kreps brought this up,
but I think others did as well. We have a provision in Portman-
Cardin that provides for a refundable Saver's Credit, with the
refundability going directly into a retirement savings account.
And I would like to get your view as to how effective you think
that would be in getting younger workers and lower-wage workers
to participate more in retirement savings, particularly at a
younger age.
Mr. Kreps. I will address that quickly, and maybe others
can weigh in if we have time, but I think what you and your
colleagues have done in that bill, to propose making the
Saver's Credit refundable, is one of the most important things
we can do.
Right now, the Saver's Credit, while well-intentioned--and
it definitely helps a lot of folks--it misses the people who
probably need it the most and need the most help saving. And
anything we can do to boost them up, to give them a shot to
have a safe and secure retirement, is critically important. And
I hope Congress will strongly consider moving not just your
legislation, but in particular that piece of it to help lower-
income people, as soon as possible.
Senator Cardin. And, Mr. Chairman, I wanted to highlight
that, because I know that it is an area we are going to have
further debate on in our committee. And I do think it is a
measure that can have a major impact on reaching a population
today that is just not saving for retirement at an early enough
age.
And I know other members want to ask questions, and I have
had opportunities to talk to many of the people on this panel
about our bill, but once again, to Senator Portman, thank you
for your partnership, for your leadership on these issues, and
I thank all our panelists.
Senator Portman. Thank you, Senator Cardin. And we will
have a chance to get into the Saver's Credit more later, I
hope. As I said, I want to talk about that. And there is so
much in this bill that helps to both deal with the small
business issue and deal with the specific issue of lower-income
and part-time workers who are not currently accessing plans,
and therefore not saving.
With that, we have votes that have started. I am going to
continue to chair until Senator Young is ready to spell me. He
said he was willing to do that. So let's move on to Senator
Daines and Senator Young. If you are on, can you let me know,
and I will run up and vote.
Senator Young. Senator Portman, just so that you know, this
is Senator Young. I am indeed here. I am happy to relieve you
whenever you require it so that you might go vote.
Senator Portman. Great. You have the gavel, and let us turn
to Senator Daines.
Senator Young [presiding]. Okay; Senator Daines.
Senator Portman. Next we have Senator Casey, Senator Cortez
Masto, and then you. So you can go in that order.
Senator Young. Do we have Senator Daines with us?
[No response.]
Senator Young. If not, we will go with Senator Casey, if
present. We are in the middle of votes, so it is understandable
if some of my colleagues are not currently present.
Senator Cortez Masto, are you present?
Senator Cortez Masto. I am here, Senator Young. Thank you.
Thank you. And let me just say again, thank you to Senator
Portman and Ranking Member Brown for this great conversation,
and a needed conversation, and to my colleagues as well for
their legislation in this space.
Can I--I know we are going to talk about this later, but I
am interested in the refundable Saver's Credit. And, Mr. Kreps,
I want to address it this way: I come from Nevada. We have been
so hard-hit with our hospitality-based industry. There are
60,000 fewer Las Vegans employed in the hospitality sector
compared with this time last year, and that does not include so
many workers who have seen their hours cut.
The bottom line is, there are too many Nevadans who are not
able to even put away for retirement right now. I am curious:
if we had folks who have spent down their retirement savings
during COVID, how do we help them catch up? Is the refundable
Saver's Credit the answer to that? I would be curious to get
your thoughts.
Mr. Kreps. That is a very good question. I appreciate it. I
do think the refundable Saver's Credit would help people. It is
effectively a Federal support for savings that matches their
contributions, so that would be incredibly helpful for them.
But in the larger context, we have relied in part on
addressing the pandemic through allowing people to tap their
retirement accounts. That is fine, and that helps a lot of
people, but at the same point it also highlights that maybe we
do not have the strongest support system for folks who are
suffering out there, and who were not prepared to address the
pandemic in the way they should have been.
The retirement system by itself cannot address all these
problems. We have to think bigger, and in a broader context.
Senator Cortez Masto. And I appreciate that, and that is my
concern. And that is why we have put so much money in other
areas to support individuals with direct payments and
unemployment insurance to help them with their rent, to help
them with food insecurity. I mean, there is so much that needs
to be done right now.
But this brings me to the next question. And maybe, Mr.
Stevenson, I would like for you to speak to it. I believe you
are the one who identified there is about 20 percent, or about
$900 million in COVID-related withdrawals that you have seen.
Is that correct?
Mr. Stevenson. That is correct. Out of our plans, yes.
Senator Cortez Masto. Just out of your plans. And I am
curious, because during this pandemic, there is so much need
right now. Should that not be higher? I mean, given the fact
that we have provided opportunities through the CARES Act and
the HEROES Act for so many to draw down or take advantage of
their retirement accounts because of the lack of income coming
in, that does not seem as high. And I am curious. And I am
going to open it up to all of you. Is that a reflection of
maybe they do not have retirement accounts, or they are
unwilling to draw down on the retirement accounts?
My concern is that they do not have retirement accounts or
the emergency assistance they even need. And so I am curious to
hear your thoughts on that.
Mr. Stevenson. So, thank you for that. But as that relates
to the $150 billion that we have, it is about 20 percent of the
total withdrawals that people normally would take; 20 percent
of them are COVID-related. So we thought that was quite high.
While we were encouraged by that, that more people did not
need to tap into it, it is 100-percent voluntary. We made it
available, and made everyone aware that that provision is
there. So we were encouraged that people were in better shape
maybe than we might have thought going into it, and they did
not need to tap into their retirement savings at even greater
rates.
Senator Cortez Masto. That is helpful. That is helpful to
hear. Anyone else? Any other perspectives based on your
experience, on what you are seeing?
Mr. Luskin. From the public sector, the experience with
NAGDCA, we found that we had about 50-50 plan sponsors taking
that provision. We do not see a whole lot of use of it, but it
did disproportionately affect our health-care workers and our
first responders. And so it was being accessed by the people
who needed it the most, who were impacted the most, but also
there was a lot of focus on education, because that is the time
value of money. Any withdrawal you take right now, 10, 20
years, if it is $1,000 now, $5,000 now, in 20 years it will be
$10,000.
So a lot of education was focused on that. But having more
access to retirement plans, having more people enrolling in
retirement plans, has quite a lot of downstream benefits.
Senator Cortez Masto. Thank you. Let me also add my support
for the auto-portability. I think that is so necessary. I mean,
I think anybody who has been in the workforce would appreciate
that opportunity.
Mr. Kreps--and I only have so much time left--can you speak
to how that might impact someone who is facing a longer gap
between jobs?
Mr. Kreps. Yes. The real benefit is, when they have a
longer gap between jobs, they are at a higher risk of losing
their retirement account. And so the benefit here is that, as
people move from employer to employer, their account can follow
them on an automatic basis. And rather than what they do now in
often cashing out their savings and paying the taxes and
penalties, they will maintain their savings over the course of
their career. They will build more and more personal wealth and
hopefully be able to retire with some dignity.
Senator Cortez Masto. Thank you. I appreciate that. I know
my time is up. I will submit the rest of my questions for the
record.
Gentlemen, thank you so much for the conversation this
morning.
Senator Young. Thank you, Senator Cortez Masto.
Well, Senator Portman will return and I believe will be
accepting the gavel once again momentarily, but I have some
questions for our witnesses.
I really thank you for all of your good work. And I commend
my colleagues, Senator Portman and Senator Cardin, for their
effort to kick-start this discussion with respect to retirement
security, with their Retirement Security and Savings Act, and
for holding this hearing today, as we look to lay the
groundwork for what we hope will be another bipartisan
retirement bill success story in the next Congress.
The ongoing pandemic is causing a multitude of problems for
Hoosiers, from unemployment to remote learning challenges to,
sadly, illness and even death among family and friends.
I am hopeful we will reach a bipartisan deal in the coming
days in a relief package that will help to address some of
these immediate challenges. But I am also mindful of the long-
term ramifications of the pandemic in a host of areas,
including retirement security.
I want to ask a question of Mr. Stevenson. Sir, in your
testimony, you noted the work that Nationwide has undertaken to
support workers during this pandemic and the CARES Act. Could
you update us on how you have implemented the CARES Act to
support workers through coronavirus-related distributions and
other provisions of the law, Mr. Stevenson?
Mr. Stevenson. Thank you, Senator Young. The CARES Act was
really, as you know, as we all know, a very important piece of
legislation to support our workers. And Nationwide has--our
goal is to make sure that it was easy and accessible.
When the volatility in the markets first hit, we saw an
incredible spike in phone calls. People called in to check on
their balances, and those concerns. And we made sure that we
had people and technology so that we could answer those
questions quickly and efficiently, and deliver the right kinds
of content to help people remain calm so they did not make the
mistake that so many do of selling when it is low and buying
when it is high.
We also delivered more and more education and workshops,
and engaging with the plan sponsoring the participant. A piece
that is really important is our partnership with our clients,
the small business owners, the government entities. Their voice
is even more important than our voice. So we partnered with
them to tell the story. There is so much credibility there with
the participant to help them make the right decision.
And the other part that we moved quickly on, as I
referenced a little bit earlier, is, one of the greatest things
that happens during all the volatility is participants do not
know how to react. And so people have saved sometimes $100,000,
$200,000, $1 million, and they can really blow that quickly.
So, allowing us to be able to deliver annuities, or in-plan
guarantees inside of a retirement plan--which is a very
efficient delivery vehicle--we managed the volatility. So just
like a target-date fund, participants start saving in that, and
then the professionals take over. The same way now with this
capability. We will manage that process all the way through
retirement into income, and really help participants be much
better prepared to live in retirement after they have worked
for 20 or 30 years to save--have worked so hard to save so
much.
Senator Young. Thank you very much. It sounds like you have
really played an important role to help your clients through
this crisis.
Mr. Barr, in your testimony you mention a new study that
found the pandemic has altered the retirement planning of
nearly 68 million Americans, with most of those planning to
retire later. In addition, about 20 million Americans have
paused their contributions to retirement savings during this
uncertain time.
What do you see as the long-term impact, sir, of those
changes? And could you elaborate on the proposals you think
would be most effective at incentivizing Americans to continue
saving, or making up for that lost time?
Mr. Barr. Thank you, Senator Young, for the question. It is
a great question. It is very pressing, and an issue that I deal
with every day. And to be frank, not just with COVID. COVID is
a sudden change. COVID is a sudden change that has altered,
from the study's point of view, exactly those statistics that
were in my testimony. Twenty million folks have stopped making
contributions, but folks go through sudden change all the time.
They change jobs. I have clients who are in the middle of what
is known as the sandwich generation. They are taking care of
children, their grandchildren, and they are taking care of
elderly parents.
So there are lots of circumstances in one's life that cause
a sudden change. The provisions that the Portman-Cardin
legislation permit that I think will have a huge impact on all
of those things are, first, any opportunity that my clients
have to put money away if they are incentivized to do so. Most
of my clients try to do just that, when they can. So that helps
with retirement savings on the way in.
Catching up at age 60, that provision in the Portman-Cardin
legislation is also something that I am certain many of my
clients are going to take advantage of, because there are times
in their life when they do not have the opportunity to put as
much away as they normally would, and they would later in life.
And then finally, a provision that is very near and dear to
me--the biggest fear that every client has is running out of
money and becoming a burden. We think the provision that
increases the required minimum distribution age to 75 attacks
the problem from the back end, that distribution time.
Senator Young. Thank you so much.
My final question is directed at Mr. Luskin, whom I want to
thank for your service, sir, to the thousands of Hoosiers who
serve in the public sector in the great State of Indiana and
rely on the funds you help to oversee for their retirement.
As you noted in your testimony, the average employee starts
savings for retirement at age 32. Many of them have accumulated
significant student loan debt, and you indicated that debt has
the impact on their ability to participate in an employer-
sponsored retirement plan.
What can we do to address student loan debt while also
encouraging younger workers to begin saving for retirement
earlier in their careers?
Mr. Luskin. Thank you for the question, Senator Young. And
because I am representing NAGDCA and a few of the provisions
that we have approved, I will not go into too much detail as
far as the student loans go. So I do apologize. But I think one
of the points that you made was a great point in your
conversation with the other witnesses that has to do--as you
look at the retirement cycle and looking at the Hoosiers we
support, it starts out with making sure people are
participating.
And then as you get to the end of that retirement cycle, it
has to do with, what is your balance, and how are you able to
go ahead and break that down into replacement income?
So we are looking at those two bookends. But during their
whole career, as you mentioned, most government employees, this
is their second career, and they need to be able to make
choices to be able to either invest in their retirement or
invest in paying off their student loan debt.
So I go back to the obvious. I have been raised by
educators, so providing education to the participants that
allows them to make the best decisions becomes very important,
regardless of what is the option.
Senator Young. Well, thank you so much. It is my
understanding that Senator Portman has returned. And if indeed
that is the case, I will be handing the gavel back to you, sir.
You have the baton, as we say in the Navy.
Senator Portman. Excellent. I appreciate having it. And I
thought you did a superb job in handling this delicate
responsibility, and good questions.
I think we have Senator Whitehouse next, if you are with
us, Senator Whitehouse?
Senator Whitehouse. I am here with you. I thank you and
Senator Cardin and Senator Brown very much.
The problem of where you set defaults when people are
making choices is an important question. If I am not mistaken,
a psychologist won the Nobel Prize in Economics a couple of
years ago for his work on choice, and where defaults are set,
and how people make choices.
I have what we call the auto-IRA bill, which sets the
default that employees are automatically enrolled in their IRA
plan unless they opt out, as opposed to automatically not
enrolled in their IRA plan unless they opt in.
The employee retains full choice. It is just a question of
where the default is set. It exempts smaller businesses, and
businesses in States that already have a similar program
operating at the State level. And I think it is one way to
address the problem of having 25 percent of non-retiree adults
having no retirement savings or pension at all. And only 55
percent of workers participate in
employer-sponsored retirement plans when they have them.
So I would like to ask--let me ask Mr. Kreps. Do you
believe that an auto-enrollment IRA program would help in that
circumstance? And specifically, are there elements that we have
learned from the successful State auto-enrollment IRA programs
that, if we were to spread one across the Federal system, we
should use as models?
Mr. Kreps. Well, thanks for that question and for your
leadership on this issue. Clearly, if we had a national
requirement that employers either provide a plan or
automatically enroll their employees in a savings program, more
people would save. There is really no question about that.
Where we set the default matters, as you said, and we can
look to what they are doing in Oregon, Illinois, California,
elsewhere, to fine-tune it at the Federal level, if we go that
direction, to make it the most effective. But there is no
question that that would get more people saving.
Senator Whitehouse. And it leaves the employee with
complete freedom of choice. If they want one or the other--
anybody who feels strongly about which way to go can make their
own decision. It is not taking choice away from anybody. It is
just following this choice theory problem, setting the default
in a way that signals people to their own best interests.
Mr. Kreps. I completely agree.
Senator Whitehouse. That is the one point that I wanted to
raise, and I look forward to having that default setting
question be a part of the conversation as we move forward with
Portman-Cardin. Thanks, very much.
Senator Portman. Thank you, Senator Whitehouse.
Let me say to the panelists and those who might be tuning
in, we had a great turnout of Senators today. Some had to go
vote, or go to other hearings, but we had to pass over Senator
Bennet. If he is now with us, I ask him to speak up.
[No response.]
Senator Portman. Senator Daines?
[No response.]
Senator Portman. He is not with us? Well, to both of them,
thank you for being on the hearing call and listening, and to
all my colleagues, thanks for participating.
As I said, I am here to the bitter end. So I am going to
ask a few more questions, many of which are questions that have
been touched on, but I think we need a little deeper dive.
The first issue that I mentioned earlier was the fact that
we do not have adequate savings among low-income and part-time
workers. These are people who are working, and yet they are not
saving. And I think it is important that the bill lowers the
number of hours that someone has to work before they qualify to
be saving in a retirement plan. That was improved by the SECURE
Act, by the way. We take it to the next level.
A lot of workers have part-time jobs. And by the way, a lot
of parents, particularly women, work part-time raising their
kids. And it is particularly important now, during the
pandemic, to address that concern about, how does this address
the COVID-19 reality? With child care being as expensive as it
is, part-time jobs are sometimes all people can do because they
have to take care of their kids when the schools are closed.
So I think that it is really important that we help. It is
a great opportunity. The matching thresholds being increased
for those workers is also important, and that is something that
ought to be emphasized, as we give employers the opportunity to
increase the match so that those individuals can save money
more quickly and build up their nest egg.
Only about 25 percent of low-income workers are saving. We
have heard that over time. Some say 22 percent; whatever the
number is, it is too low. And the Saver's Credit being made
refundable will help there.
And by the way, again I have some colleagues on my side of
the aisle who have some concerns about this. I do think the
Saver's Credit has worked well, but it has run into sort of a
roadblock in terms of its ability to help people that I think
can be answered through refundability.
And we are careful about it. The money goes into a
retirement account, as an example, which I think is very
important. It is not easy to administer that, but I think it is
very important that it go into retirement.
I would also say I am excited about this provision that
would allow recent graduates to receive matching retirement
contributions from their employers if they have student debt to
be paid off. Again, this goes to a lot of these lower-income
and part-time workers too. If they have some debt--and as was
said earlier by Mr. Stevenson, some are in their 30s and 40s
and they have this debt still hanging over them that makes it
hard for them to save for retirement. And it is a national
problem. And here we have a partial solution.
The small business issue we have talked a lot about today,
and I appreciate again the help we have gotten over time from
the small business community as to what would make it easier
for them to have a plan. And auto-enrollment to encourage
employees to save for retirement is very important. And you
know, that was one of our previous reforms, and we are very
excited about the difference it makes. If you are in a plan
that maybe has 70 percent participation, typically if you have
auto-enrollment, it goes up to about 95 percent.
Senator Whitehouse just talked about it in relation to his
bill, but he is correct, in the sense that where there is an
auto-
enrollment option, people do not have to make the decision. So
I do think that we are helpful there because, for small
businesses, that can be expensive.
In fact, just starting a plan can be expensive. That is why
it enhances the start-up credit for small businesses, so they
can put auto-enrollment in place and put a plan in place,
making it more cost-effective for them.
And then those who are at or near retirement, again the
data is that I think only 55 percent of baby boomers are close
to being prepared for their retirement. And again, a lot of
those good people are living longer, and they have not been
able to save enough. Others have saved virtually nothing.
But I think it is critical for that person who maybe could
not save as much money when they were younger--they were paying
off college debt for instance, or saving for their kids to go
to college. And now they have the opportunity later in their
career to be able to put some more money aside.
So that is why we have the catch-up contribution for people
who are 60 and up. And we also think it is important to help
manage that retirement. So going to 75, we think is really
important for the minimum required distribution.
My dad was working into his 70s, and he would always
complain to me about why he had to take his money out and pay
taxes on it when he was still working, well into his 70s. And
unfortunately, with this pandemic, more and more people are
finding themselves in a situation where they have to work
longer hours and more years in order to just sort of stay up.
So I think it is particularly helpful now. And I appreciate
what you all have said about those provisions.
Anyway, those are some of the things that we had a chance
to talk about today, and I think they are very important.
On auto-enrollment--and that goes back to a bill we
introduced back in 1999 with Senator Cardin and myself, and
this next generation of auto-enrollment legislation, I think
will help. It allows employers to increase the initial default
contribution from 3 percent of pay to 6 percent, and then
gradually increases the default rate to 10 percent of pay over
time.
Can anyone share views on that? I might start with you, Mr.
Stevenson, because I know you have an interest in this, but do
you think that will be helpful?
Mr. Stevenson. Without question. Thank you, Mr. Chairman.
And quite frankly, all of the provisions that you just ran
through we wholeheartedly support--and auto-enrollment in
particular. Auto-enrollment and auto-escalation--I think those
are both really important.
And one of the things we do not talk enough about is just
the pattern that it creates. Once people get started, they get
in that habit and they see that balance grow, and they are glad
they did it. And one of the things I would point to is--we hear
this all the time, especially from firefighters and police
where there is a strong sisterhood/brotherhood--once somebody
gets in the plan, they keep contributing, and they are so glad
they did. And that is essentially what we are doing with auto-
enroll and auto-escalate: we are making that more systemic in
getting people in those plans.
So anything that we can do to support that, we will. And we
have seen great success with that on the corporate side, where
companies apply that without it being legislated. So anything
else that we can do, we are with you.
Senator Portman. Great. Well, thank you, thank you. And
again, you are in the trenches dealing with this every day, and
trying to encourage companies to do it, and I think that more
incentive helps.
On the catch-up contribution--and anybody can jump in
here--the current bill would create a higher catch-up at 60, as
I said: $10,000 versus $6,500 at age 50. How would that higher
limit help people to get a more secure retirement? And maybe,
Mr. Barr or Mr. Kreps, you guys could talk about that a little
bit.
Mr. Barr. Thank you, Senator Portman. I would be happy to
answer that question. First, let me say I really do want to
thank you and Senator Cardin for your incredible work on this
bill. Edward Jones supports every provision of it. It is, we
think, a very needed piece of legislation, and it really hits
the mark against the target that people need to be incentivized
to save more.
The catch-up contribution, in my opinion, increasing the
RMD date to 75, all of those provisions--if somebody has the
opportunity to save more money, it has been my experience that
they do. It is also my experience that with increasing the
required minimum distribution age--you mentioned your father
earlier in your comments. I had that situation happen
frequently in my office as well.
Having people allow their money to compound over time by
contributing, and by educating them to do so and allowing
people a little bit of extra time at the end to take care of
themselves--their number one concern is that they become a
burden to their families, to their friends, to their community.
And these provisions, I think, help with that.
So we applaud your efforts, and we thank you.
Senator Portman. I am, again, happy that we have made some
progress for small businesses. We talked about that earlier.
Mr. Kreps, you may want to talk about this, but the SIMPLE plan
that we proposed back in, I think it was enacted in 1996, I
think has been helpful. The small business startup credit was
established in 2001. I think we have done some things to help
on SIMPLE plans and on start-up credits that helped small
businesses, but still we have these numbers that are
inescapably discouraging, that many small businesses are not
offering plans.
Mr. Kreps, why don't you start, but also obviously, Edward
Jones, you would have--Mr. Barr, you would have a strong view
on this. Talk to us about what we should do with regard to
small businesses. And particularly, SIMPLE plans do not permit
employees to make Roth contributions now, which I have always
thought was a mistake. All other plans permit it. 401(k)s
permit it. 403(b) plans, 427 plans, Mr. Luskin can talk about.
So I would like to give small employers all those options,
including the Roth option. Is there any reason not to do that?
Can you comment on that?
Mr. Kreps. I cannot think of a reason not to give them a
Roth option. And in kind of the larger context, when we look at
the uncovered workforce, the folks who do not have access to a
plan, a lot of them are employees of small businesses. And I am
sympathetic to a small business owner who does not have the
time or energy to go through the complicated process sometimes
of establishing and running a 401(k) plan, and sometimes they
need a simpler option. So anything we can do to incentivize
them to take those steps, to make the economics work better
through credits, to give them more options, is great. That will
help expand coverage.
Senator Portman. Thank you. Any other thoughts on that?
Then I want to go to Mr. Luskin for a question. Any others?
[No response.]
Senator Portman. Mr. Luskin, I want to ask you to take a
look at one provision. It is the non-spousal assets being able
to be rolled into a plan. Can you talk about that a little and
how that might affect some of the beneficiaries you serve?
Mr. Luskin. Absolutely, and thank you for the question,
Senator. When it comes to rolling over the non-spousal
beneficiaries to IRAs, it goes back to what we were talking
about, about some of the benefits behind asset consolidation.
The larger balances you have open you up to additional
investment vehicles that can lower investment costs and
administrative costs. And lowering those costs for those
individuals allows them to partake in a better return. Because
expenses and paying for good investment advice and so forth are
important, lowering those allows them to have better returns
and to build up their balances more.
And so what we are trying to do is give people the
opportunity to consolidate their accounts, which allows them to
align their asset allocations to make sure that they have
financial plans that will provide them with better
opportunities to be retirement-ready. Because, once again, and
I apologize for reiterating, but by the end of the game when
you are getting ready to retire, you need to convert that
balance--and the larger the balance the better--into
replacement income.
And the lower income you make, the higher your replacement
income needs to be. So consolidating the assets gives you a lot
of advantages when it comes to, not just your financial plans
but lowering your investment and administrative costs to make
sure that those balances can grow.
So that is what we are looking to support: providing that
ability.
Senator Portman. Let me follow on that for a minute then.
One of the ways to give plans the flexibility they need to
ensure you can get the most gain out of your investment might
be these collective investment trust provisions. Can you talk
about that? I think in your opening statement you talked about
how this will save plans a significant amount--I think you said
a total of about a billion dollars. Can you talk a little about
the collective trust, the investment trusts provision and how
that might be helpful?
Mr. Luskin. Absolutely. And thank you for the opportunity
for that question. I had the privilege of being raised by
educators and understand the population being impacted. So
thank you for that.
Essentially right now, the crux of the argument is that we
want to provide 403(b) participants with the same advantages
that participants in other plans have. Once again, having an
open market is very important, and there are a lot of different
options, depending on the plan's metrics, where you have access
to annuity contracts, mutual funds, or CITs, and what we are
looking to support is allowing especially some of these larger
plans, these large 403(b) plans, to have access to the CITs,
because not only does it give them lower fees, but it gives
them the opportunity to have pricing flexibility, customized
investment options, and to mitigate potential downside risks.
And so providing that vehicle and that option that fits for
that specific plan's sponsor should be something that should be
provided.
And on the other side of the coin--it is always important
to look at that other side of the coin. I cannot think of a
single reason why we would not want to provide that option for
them, especially people who work so hard and are dedicated to
the public and our communities.
Senator Portman. Well, good.
Here is another one that we have not talked about today,
which is exempting Roth assets in a plan from the required
minimum distribution rules. And I think that also helps your
beneficiaries, and I don't know if you, and maybe Mr. Barr,
want to comment on that for a minute. That is one that I think
is an important provision in this bill that has not gotten much
attention.
Mr. Luskin. I agree. Mr. Barr, would you like to go first?
Mr. Barr. That is a provision that I am not as familiar
with, so I will defer to you, Mr. Luskin. Thank you.
Mr. Luskin. Thank you.
Right now, traditional IRAs are exempt from RMDs. And what
we are looking to do is, once again--one of the biggest
considerations about that is to the point of people who are
coming near retirement age maintaining those large balances.
And so right now, IRAs are not required to have an RMD on
those Roth accounts, but plan sponsors in governmental
retirement plans are. So what we are simply looking to do is
provide our government participants who work so hard the same
benefits that IRAs are providing.
So we are just looking to even the field.
Senator Portman. Yes. And, Mr. Barr, I know how strongly
you feel about RMDs, so I was giving you a chance to just talk
generally about RMDs too. But thank you, Mr. Luskin, for that.
There are a lot of great provisions in this bill that are
going to affect people's lives. I said at the outset, this is
about peace of mind in retirement. And I think Mr. Kreps talked
about the golden years. You know, people work hard, and they
end up in retirement and find, ``Oh, my gosh, I am outliving my
savings, and I do not want to be a burden on my family or
others.''
So everything in this bill, I think, is directed toward
that in one way or another.
I see that Mr. Daines has now joined us. Steve, if you
would like to ask questions of the witnesses, that would be
great.
Senator Daines. Yes; thank you, Mr. Chairman. I am really
glad you are holding this hearing. This is an important issue
of retirement security. We think about how many Americans, how
many Montanans, work hard to save for decades with the hopes of
achieving a peaceful retirement. They want a retirement--and I
have been listening to this back-and-forth conversation where
folks do not have to worry about outliving their savings. And
how do we promote more personal responsibility as it relates to
saving more money so they can do that on their own and not have
to rely on somebody else?
It is so important, we have found, that people who are in
the workplace today are aware of how much they need to save to
achieve their desired retirement, and to make sure they do not
make any significant errors or mistakes along the way.
One easy thing that Congress could do--and, Chairman
Portman, thanks for mentioning this bill that I am working on
with Senator Warren--is helping future retirees with this
Retirement Savings Lost and Found Act.
As we dug into this issue, we found, first of all,
Americans, by no surprise, are switching jobs at a higher rate
than ever before. But they are unknowingly leaving behind
401(k) balances. In fact, there was a study from a major
investment management company that showed up to 30 percent of
employees left behind some retirement savings when they
switched jobs--nearly 1 in 3. So this bipartisan bill I have
with Senator Warren would solve that problem. It would assure
that people keep more of their hard-earned money by creating a
national lost and found registry for retirement accounts--one
place to go and find this information. And it would be using
data that employers are already required to report. So it would
not add another reporting burden to employers.
And by using this registry, employees could find all the
former employer-sponsored retirement accounts in one easy
location online. It would be a big help for employers who often
spend a lot of time, a lot of hours, trying to reunite
employees with their lost accounts.
So this would be a win for Montana workers, for families,
businesses, and I would like to see it passed. I just wanted to
highlight that as a piece of legislation I think would be a
pretty common-sense fix and help here to build larger
retirement accounts long-term.
Well, I have a question for the whole panel. With that kind
of introduction, would you agree that creating a retirement
savings lost and found registry would be helpful to reunite
workers and retirees with their missing retirement accounts? I
will start with the panel, and whoever wants to jump in, go
ahead.
Mr. Stevenson. Senator Daines, thank you for joining us,
and this is Eric Stevenson of Nationwide, and we certainly
support that piece of legislation that you have discussed and
outlined.
The other part I think that is also important is,
everything we can do to strengthen beneficiaries, making sure
that these plans have really clear beneficiaries on them, also
helps with us tracking that down. Because you are right: they
have earned it. They worked hard, and that money should follow
them wherever they go.
Senator Daines. Great. Thank you, Mr. Stevenson.
Somebody else?
Mr. Kreps. Senator Daines, I would also like to echo what
Mr. Stevenson just said. It is an important piece of
legislation. And one part of that legislation that I
particularly like is that it is forward-looking, and not only
does it form this registry but then has the ability for the
administrator of this program to basically work with the
private sector to actively try and find people who have missing
accounts. And that is important.
Senator Daines. Yes.
Mr. Barr. Senator Daines, as somebody who has spent time
helping clients do just that, I agree that it does address a
critically important issue for lots of Americans. And I extend
the offer that our firm would be happy to help you in any way
that we can.
Senator Daines. Well, I appreciate it. We will have you
review the bill and make sure we got it right, and any other
feedback you might give before we have a hearing on it.
But you know, we are parents to four children. All of our
children now have graduated from college and have started their
own careers and have their 401(k) accounts. And we had those
dad and mom moments helping our kids setting those up and
telling them to maximize it with the match, and so forth.
But also, as we all know here, the importance of starting
early, how big an effect that has long-term on the growth of
these savings accounts. This would be one way to make sure you
do not lose that early investment, which of course turns out to
be a big number as you move through life.
Well, I want to ask another question here regarding
personal savings rates. One of the trends that surprised us as
we were doing some investigation about what is happening with
savings rates during the pandemic, is that we have seen a big
jump in the personal savings rate. In fact, the personal
savings rate in the data that we have collected went from about
7.6 percent in January to north of 33 percent in April.
Now as of October, we have seen this personal rate decrease
to 13.6 percent. But it is definitely moving up, which we think
is actually a healthy thing for long-term retirement.
Here is my question for the whole panel. Once things get
back to normal--and I was at the President's vaccine summit
yesterday at the White House. I am encouraged by the direction
we are headed here, and we may have some very good news here as
a Christmas present for the Nation with these vaccines. But
once things are back to normal on the other side of the
pandemic, what would you say is the ideal personal savings
rate? And how can we make sure that folks at all income levels
are saving enough?
Mr. Luskin. Thank you, Senator Daines, for the question. I
think it is a very good question. And I think it is very
dependent on a few factors, depending if your DC plan is a
supplemental versus a primary. The savings rate, the 3 percent
we are used to hearing, was based off some past research that
came out when 401(k)s started to come out. The higher the
percentage you need is dependent on if it is a primary or a
supplemental. But a lot of the reading I have done points
toward double-digit contributions. And I think from your
initial question and your motivation, there is a lot of
downstream benefit to helping participants get to those rates
that help them satisfy their replacement income, because there
is so much dependent on the individual needs.
So, thank you.
Senator Daines. Yes, thanks, Mr. Luskin. Someone else?
Mr. Stevenson. I would just reiterate. I think the point
that Mr. Luskin made is that we think that number depends on
what else you have--what is your Social Security benefit; do
you have access to a pension? But if the DC, defined
contribution, is your only savings vehicle, that number does
need to be double-digits and greater--10, 15 percent--to have a
real chance at having a secure retirement.
There is a lot of data out there, and we are happy to
provide that to your office, some of the information, after
this call.
Senator Daines. I appreciate that. Thanks, Mr. Stevenson;
you bet. Did I miss anybody else who wants to provide a thought
on that question?
[No response.]
Senator Daines. If not, Mr. Chairman, I will toss it back
to you.
Senator Portman. I appreciate that back and forth with some
of the witnesses about the fact that one of our challenges in
our system right now is that people are moving jobs more
frequently, and sometimes losing savings, which may be
relatively small, but it adds up when you have several plans,
which is not unusual for the generation of your kids and my
kids, particularly as they move from job to job.
I will say on the personal savings rate, just to throw this
in, we talked earlier about the K-shaped recovery. My sense
from talking to some of the experts on this is, the reason the
personal savings rate got so high was that some people were
saving more who could afford to and, particularly with the
stock market doing as well as it was, and continues to, that
higher-income individuals were able to save more--and a lot of
middle-income workers as well. But unfortunately, it was not,
as you indicated in your comment, Senator Daines, at all income
levels. You know, you want to see that kind of savings. And our
focus here today has been a lot about the part-time worker, the
worker in a small business, the lower-income worker, which is
where the huge opportunity is, because they are not saving.
Senator Daines worked for the Proctor and Gamble Company in
his distinguished career, and they had a great savings plan.
And you know, in effect their profit-sharing plan and 401(k)
plan together meant that people were really given great
opportunities.
My dad worked there when he was a young man for a couple of
years, and he loved the idea at Proctor and Gamble. So when he
started his own small business with five people, he started a
profit-sharing plan like Proctor and Gamble's. Unfortunately,
they lost money the first 3 years and people did not get much
in their profit-sharing plan, but he started a 401(k) as soon
as he could, and today there are guys I know who turned a
wrench their whole career--these were lift-truck technicians;
he sold forklift trucks--who are retiring, my age. Guys I have
known virtually my whole life are retiring with a nice nest egg
for themselves and their family. I ran into one recently who
was using it to help his granddaughter go to college right now.
It really works. And these were small business workers and not
people who had a lot of means, but they had the ability to save
and they took advantage of it, and now they have 3-, 4-, 5-,
600,000 dollars coming to them, hopefully spread out over time
wisely, as we try to encourage through our legislation through
the QLACs and other periodic payment methods. But it really
works, and that is what is exciting.
And I know Senator Daines understands it really well, from
his experience in big business and small business. So we look
forward to working with you on your proposal. In a sense, I
think you have had a hearing on it today, and I hope you
realize that, and hopefully we can get it in legislation soon.
With that, I want to thank the witnesses, Mr. Barr, Mr.
Stevenson, Mr. Kreps, Mr. Luskin. You guys were very helpful
today, and you are the experts. We want to continue to stay in
touch with you, and we need your views as we put this together.
Senator Carper. Mr. Chairman?
Senator Portman. Yes?
Senator Carper. Tom Carper here.
Senator Portman. Oh, Senator Carper. I was just about to
close out. Thank goodness you spoke up. Okay, Senator Carper,
let me do this if I could, please.
I have to go run vote, so I am going to turn the gavel over
to either you or Senator Daines, whoever would like to have it,
and----
Senator Carper. I would like to have it.
Senator Portman. You have the gavel in that case, because I
have to run to go vote. I can come back, but I may miss the
vote if I do not go now. So for any members who have written
questions for the record, you should submit those by close of
business on Wednesday, December 16th.
And for our witnesses, again, if you have additional
written comments, please provide them. Everything that was in
writing is part of the record already, but feel free to add to
that.
And with that, I am going to turn the gavel over to Senator
Carper, who will formally adjourn this hearing.
Senator Carper?
Senator Carper [presiding]. Thank you, my chairman. Thank
you, Mr. Chairman.
Welcome, one and all.
As the chairman knows, I spent some formative years of my
life in Ohio, in Columbus. My dad started off as a claims
adjuster for Nationwide and ended up in the home office in
Columbus, being sort of in charge of training for claims
adjusters all over America for Nationwide. So we have more than
a little bit of interest.
And, Mr. Stevenson, I think you are with Nationwide. Is
that correct?
Mr. Stevenson. Yes, sir, that is correct.
Senator Carper. That is good. There is a great movie out
this last year, and I think it was nominated for an Academy
Award or two, and the name of the movie is ``Just Mercy.'' And
it focuses on the life of an African American attorney who grew
up in the rural south, and actually grew up in southern
Delaware, and he spent most of his life trying to make sure
that justice was provided for people of color as they navigated
through the criminal justice system.
You are a dead ringer for him. You are literally a dead
ringer for him. I turned on my laptop and saw you, and I said,
``Oh, my God, what is Bryan Stevenson doing on''----
Mr. Stevenson. And we share a last name, which is
interesting.
Senator Carper. A great guy. A great guy.
Is there somebody from Zanesville? Who is from Zanesville
on this?
Mr. Barr. Scott Barr. I am, Senator; Scott Barr from
Zanesville, with Edward Jones.
Senator Carper. That is great. And I have a stepson whose
life's work is helping people make investments for their
retirement security. He is up near north of Detroit. So I am
very proud of him and what he does.
So I have all kinds of interest in this hearing. I used to
be State Treasurer; I was elected at the age of 29. We had the
worst credit rating in the country. We had a pension system,
but we had no pension fund; not a dime in our pension fund. We
had a deferred compensation program that was just a tragedy. It
was just such a screwed-up mess. And we were able to work with
the great Governor Pete du Pont and others to straighten out
the pension fund and to actually make the deferred compensation
program something we could be proud of.
But I have a question for Mike Kreps, if I could. This
actually focuses on helping low-income and nontraditional
workers save for retirement. But, Mr. Kreps, I believe it was
you--and I have been going back and forth voting on the floor
and attending other hearings and have gotten a little bit
confused here, but I think it was in your opening statement you
raised a number of great proposals introduced by my colleagues
aimed at helping low- and moderate-income people save for
retirement.
And I am reminded in the New Testament of looking out for
the least of these, and I think, you know, when I was hungry,
did you feed me; when I was naked, did you clothe me, and on
and on and on. It does not say anything about, when I was a
low-income person and did not have much money, did you help me
save for retirement? But I think the inference is the same, and
I think there is a moral imperative at play here.
But a related challenge in this space is that most people
do not think that much about retirement savings until later in
life or at maybe a particular inflection point, maybe getting a
new job. And tax time is one inflection point that might be
particularly helpful to leverage, especially for people of
lower incomes, and maybe for nontraditional workers.
Here is an example out of Delaware. Delaware's Volunteer
Income Tax Assistance operator piloted a partnership this year
to refer tax preparation clients to a local institution where
they can sign up for an IRA.
And, Mr. Kreps, let me just ask, how should Congress, maybe
the incoming Biden administration, be thinking about better
leveraging inflection points in public-private partnerships to
encourage retirement savings, particularly amongst lower-income
and nontraditional workers?
Mr. Kreps. It is a great question. And you are right, we
have decades of academic and industry research showing very
clearly that we can do the most to help people and encourage
them to save if we hit them at inflection points when they are
thinking long-term about retirement: birthdays, starting a new
job, marriages, divorces, death in the family--things where
they have to think long-term.
And I think the Congress, the Biden administration, folks
in industry, can think a little more creatively about how we
can partner together to do things. Imagine if, every time you
got a tax refund--you file your taxes and you get a tax
refund--a window popped up and said, ``would you like to put
part of that towards retirement savings?'' Or, there was a more
national push to get people using the Saver's Credit? Or just
more of a national push to get people to save?
I think there is a lot of room to work there, particularly
through public-private partnerships, to do the education, to do
the kind of pushing on folks to nudge them in the right
direction when--you know, they are busy. They are not going to
think about retirement 24 hours a day like some of us in this
hearing.
Senator Carper. Thank you. Do any other panelists want to
comment on it, please? Thank you for your responses. Anybody
else?
Mr. Stevenson. Senator, I would just add that I think,
while using inflection points is helpful, just what I have seen
over time, and what the data continues to suggest, is that the
auto features are even more impactful.
The auto features are key. The Saver's Credit, expanding
that and making that more available, I think those are things
that are more standard so that people do not have to have
choice. Less choice, I think, will help them. But as they see
the balance and they have gotten the habit, then they are
hooked. I think that is also an important way to go.
Senator Carper. To your point on the auto features, the
Thrift Savings program for Federal employees--and a lot of
people participate in that, as they should. We find that before
we had an auto-signup feature, fewer than half of the people
joined the Thrift Savings Plan when they joined the Federal
workforce. Once we moved to the auto-provision, over three-
quarters.
Mr. Stevenson. And one of the opportunities in that Federal
Thrift Savings Plan even now is to help those Federal workers,
now that they are in the plan, help them get out of just that
safe account, that stable value, and get into more of the
equities. That is the next opportunity in that, and I think
that is something that we, in the right time, should also have
a conversation about.
Senator Carper. All right; thank you.
All right; anybody else?
[No response.]
Senator Carper. No? All right, let me find out if at least
two of you can spell the word O-H-I-O. Great to see you guys.
Thank you so much. Thanks for what you do, and thanks for
joining us today.
Does anybody else--I think I am the acting chair. Does
anybody else, members or witnesses, wish to comment?
[No response.]
Senator Carper. No? Going, going, gone. Thank you all.
Happy holidays. God Bless you. Thanks so much.
[Whereupon, at 12:03 p.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Scott Barr, AAMS,
Financial Advisor, Edward Jones
introduction
Chairman Portman, Ranking Member Brown, and members of the
subcommittee, thank you for inviting me to testify on the critically
important issues being considered this morning by the Finance
Committee's Subcommittee on Social Security, Pensions, and Family. My
name is Scott Barr, and I have been an Edward Jones financial advisor
in Zanesville, OH for the past 21 years. As discussed further below, I
would like to emphasize at the outset Edward Jones' strong support for
the Retirement Security and Savings Act of 2019 (S. 1431) (``Portman-
Cardin'').
Every day my work permits me the chance to build meaningful
relationships with our clients--families and small businesses in and
around Zanesville, OH. I have had the privilege of helping them plan
for and achieve their financial goals--whether it is preparing for
retirement, saving for a child's or grandchild's education, or simply
working towards a more secure financial future. I have found this work
to be tremendously rewarding because I have been able to help my
clients, who are often my friends and neighbors, build financial
resilience and achieve financially what is most important to them.
As an Edward Jones financial advisor, I take great pride in helping
my small business clients work towards a financially secure retirement
for themselves and their employees. When given the right opportunity,
my clients overwhelmingly strive to put money away for their own
retirement. Moreover, I consistently find that my small business
clients deeply care about giving their employees a chance to prepare
for their own retirement by establishing workplace savings plans and
facilitating the savings process for their employees. These small
business owners are not only interested in offering their employees
retirement savings options because it helps their businesses attract
and retain great employees, they also know that it is the right thing
to do and they want to help their employees make good financial
decisions for themselves and their families.
Edward Jones. Edward Jones offers a wide variety of products and
services that are designed to help individual investors and small
business owners achieve retirement security for themselves and their
employees. Our 19,000 financial advisors serve more than 7 million
clients and care for more than $1.3 trillion of their assets. Every
aspect of our business, from the investments we offer to the location
of our branch offices, is focused on serving the needs of individual
investors and small business owners.
Edward Jones recently partnered with Age Wave on a comprehensive
study to better understand the way our clients are viewing retirement--
across four central ``pillars''--health, family, purpose, and finances.
The study not only improves our ability to serve them and help them
achieve what's most important to them and their families, but also
highlights the profound impact the coronavirus has had on millions of
American family's retirement security. The study found the pandemic has
altered the retirement timing of nearly 68 million Americans, most
planning to retire later, and caused more than 20 million Americans to
stop making retirement savings contributions--reinforcing the
importance of the meaningful legislation we are discussing today.
(Source: www.edwardjones.com/NewRetirement)
retirement savings successes and current barriers
Successful Efforts to Promote Retirement Savings. Our Nation's
private retirement savings system has been a tremendous success for
countless Americans because it has enabled them to build a financial
nest egg that will help them supplement the retirement income that they
expect to receive through Social Security. Congressional efforts to
promote retirement savings--in partnership with companies that
facilitate those savings, such as Edward Jones--have benefited millions
of Americans by encouraging individuals to save for their own
retirement and establish retirement plans for their employees.
Edward Jones is encouraged by the most recent iteration of these
congressional efforts, which were signed into law as the Setting Every
Community Up for Retirement Enhancement (``SECURE'') Act at the end of
2019. We are particularly excited to see how the SECURE Act's improved
retirement plan start-up costs tax credit for small business and new
tax credit for the adoption of automatic enrollment will help to
improve the retirement readiness of the individual investors and small
businesses employees that Edward Jones serves.
This most recent congressional effort builds upon decades of
bipartisan support for our Nation's private retirement system, which
has been spearheaded, in many cases, by the tireless work of
subcommittee chairman Portman and Senator Cardin, who have worked
together so well and so effectively for so many years. As someone who
works every day with clients who strive to save for their own
retirement and improve the retirement preparedness of their employees,
I would like to take this opportunity to thank Chairman Portman and
Senator Cardin for their decades-long effort to make it easier for all
Americans to save for a financially secure retirement.
This includes, among other important initiatives, their successful
efforts to create SIMPLE retirement plans for small businesses,
appropriately increase the contribution limits for retirement plans and
IRAs and make permanent the saver's tax credit for low- and moderate-
income Americans who make contributions to their retirement accounts.
Thanks to the leadership on retirement of Chairman Portman and Senator
Cardin, my clients and Edward Jones's clients across the country are
far more likely to enjoy a financially secure retirement than they were
2 decades ago when I started in this business.
Similarly, I would like to thank committee chairman Grassley,
Ranking Member Wyden, and subcommittee ranking member Brown, and all
members of the Finance Committee for their many years of leadership on
retirement issues. We would not have made the progress we have without
all that you have done.
More Work to Be Done. Although congressional efforts to encourage
personal retirement savings have benefited millions of Americans, much
more can, and should, be done to increase personal retirement savings
and encourage the creation of workplace retirement plans, especially
for the employees of small businesses.
According to recent data compiled by the Bureau of Labor
Statistics, 88 percent of private sector employees who are employed by
a business with 500 or more employees have access to a workplace
retirement plan. By comparison, only 49 percent of private-sector
employees who are employed by a business with less than 50 employees
have access to a workplace retirement plan.\1\ This coverage gap for
small business employees is particularly concerning given that only 28
percent of Americans without access to a workplace retirement plan have
any retirement savings.\2\
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\1\ Bureau of Labor Statistics news release, Employee Benefits in
the United States--March 2020, available at: https://www.bls.gov/
news.release/pdf/ebs2.pdf.
\2\ Survey Highlights Worker Perspective on Barriers to Retirement
Savings (September 2017), available at: https://www.pewtrusts.org/-/
media/assets/2017/09/barriers_to_worker_savings_
report_draft.pdf.
In my experience, this small business coverage gap is not the
result of a lack of interest from small business owners. According to a
2016 survey conducted by the Pew Charitable Trust, 96 percent of all
small and medium-sized businesses expressed a desire to help their
employees save for retirement.\3\ According to the same survey, the
most significant barriers preventing small and medium-sized businesses
from establishing a workplace retirement plan for their employees were
the costs of plan creation and the lack of organizational resources. In
fact, 37 percent of the business surveyed cited cost as the main reason
for not starting a plan.\4\
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\3\ Employer Barriers to and Motivations for Offering Retirement
Benefits: Insights From Pew's National Survey of Small Businesses (June
2017), available at: https://www.pewtrusts.org/-/media/assets/2017/09/
employer_barriers_to_and_motivations.pdf.
\4\ Id.
We also know, however, that increased access to workplace
retirement plans is not a ``silver bullet'' for all of our Nation's
retirement preparedness challenges. This is because, even for many
Americans who have access to a retirement plan at work, other financial
priorities can prevent them from adequately saving for retirement.
Particularly in this pandemic, and when faced with immediate expenses
for housing, food, transportation, medical care, and family care,
saving for a retirement that may be years away can be daunting for many
Americans. These competing financial priorities make it difficult for
younger workers to save at the beginning of their careers because they
have relatively lower incomes and often carry student loan obligations
that account for a significant portion of their income.\5\ Most of
these younger workers eventually pay off their student debt and
increase their earnings, but not until a point in their career when
they have few remaining years to save--limiting the benefits of the
time value of money. We believe the Retirement Security and Savings Act
will meaningfully address these challenges and enable more Americans to
save for a secure and dignified retirement.
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\5\ We are working on finding statistics or data to support this.
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improving outcomes for individual savers and small business employees
The financial and legal barriers that make it difficult for more
Americans to achieve financial security in retirement are formidable,
but they are not insurmountable. Accordingly, to further encourage
personal retirement savings and eliminate the barriers discussed
earlier, Edward Jones urges this subcommittee and the full Senate
Finance Committee to advance legislation that will: (1) make it easier
and less costly for businesses of all sizes, but especially small
businesses, to offer workplace retirement plans to their employees; and
(2) increase opportunities and eliminate barriers that currently
prevent more Americans from adequately saving and preparing for their
financial future in retirement.
Support for Portman-Cardin. In pursuit of these goals, Edward Jones
strongly supports the provisions included in Portman-Cardin. Consistent
with Chairman Portman and Senator Cardin's longstanding and bipartisan
efforts to improve the private retirement savings of all Americans,
Edward Jones believes that the changes included in Portman-Cardin, if
enacted, would significantly improve the retirement preparedness of
American workers by making it easier and less costly for small
businesses to offer retirement savings plans to their employees and
increase opportunities for more Americans to save and invest for a
financially secure retirement.
Although Edward Jones supports the full suite of changes included
in Portman-Cardin, I would highlight our support for the provisions
that we believe would be most effective in reducing the coverage gap
for small business employees and increasing the personal retirement
savings of all Americans.
Incentives to Promote the Creation of Small Employer
Retirement Plans. Edward Jones supports the Portman-Cardin provision
that would increase the start-up tax credit made available to small
employers when they establish retirement plans for their employees.
Employer cost is the most significant barrier preventing small
employers from offering their employees workplace savings arrangements.
Accordingly, tax incentives that help offset those costs can go a long
way in expanding retirement plan access to small business employees.
Incentives for Employers That Embrace Automatic Enrollment.
Edward Jones supports the Portman-Cardin provisions that would create
new incentives for employers to offer automatic enrollment programs
that are more generous than what is contemplated under current law.
This includes support for Portman-Cardin's ``Secure Deferral
Arrangement'' safe harbor for satisfying the Internal Revenue Code's
nondiscrimination rules and a new tax credit to offset small employer
retirement plan contributions made in satisfaction of that safe harbor.
By directly offsetting some of the employer costs associated with plan
contributions, a tax credit based on employer contributions would be a
``game changer'' for employees who participate in workplace retirement
plans made available by their small employers.
SIMPLE Roth IRAs. Edward Jones supports the Portman-Cardin
provision that would expand SIMPLE IRA offerings by allowing SIMPLE
IRAs to be offered on a Roth basis. There is no reason to deny SIMPLE
IRAs, which are so important to small businesses, access to Roth
options available with respect to all other types of plans.
Support for Retirement Savers With Competing Financial
Priorities. Edward Jones supports the Portman-Cardin provision that was
originally introduced by Ranking Member Wyden that would permit
employers to make retirement plan matching contributions to their
employees' retirement accounts based on their employees' student loan
repayments. If enacted, this provision would help workers burdened with
student loan debt to pay down those obligations while also starting to
save for a secure retirement early in their careers.
Age 60 Catch-Up Contributions. Edward Jones supports the
Portman-Cardin provision that would permit workers who are age 60 and
older to make additional contributions to employer-sponsored retirement
arrangements. This provision would help workers to make up for
contributions that they could not afford earlier in their careers due
to competing financial priorities.
Increasing the Required Beginning Date. Edward Jones supports
the Portman-Cardin provision that would increase the required minimum
distribution (``RMD'') age from age 72 to age 75. Americans are living
longer than they ever have before and should not be unnecessarily
forced to distribute retirement savings before they have a financial
need.
Support for Other Solutions That Would Improve Outcomes for
Individual Investors and Small Business Employees. In addition to our
support for Portman-Cardin, Edward Jones supports other legislative
proposals that would make it easier for individual investors and small
business employees to prepare for a financially secure retirement.
Specifically, Edward Jones supports the bipartisan Securing a Strong
Retirement Act of 2020, which was recently introduced on a bipartisan
basis by House Ways and Means Committee Chairman Richard Neal (D-MA)
and Ranking Member Kevin Brady (R-TX). In addition to containing many
provisions that are also in Portman-Cardin, this bill includes other
important proposals, including:
Incentives to Support the Creation of Small Employer
Retirement Plans. Edward Jones supports the provision that would
provide small employers with a new tax credit based on the retirement
contributions that they make on behalf of their employees.
Incentives to Support Retirement Benefits for Military
Spouses. Edward Jones supports the provision that would create new tax
credits for small employers that provide accelerated eligibility and
vesting rights for military spouses. This provision recognizes the
unique challenges that military spouses face in saving for retirement
as they move around the globe when their spouses are deployed. We also
applaud Senators Collins and Hassan and Representatives Crow and
Wenstrup for addressing this important issue in stand-alone
legislation.
conclusion
In closing, I would like to again thank Chairman Portman, Ranking
Member Brown, and the rest of the subcommittee, on behalf of myself and
Edward Jones, for holding this important hearing to discuss the actions
that can be taken to make it easier for more Americans to enjoy a
financially secure retirement. In pursuit of these goals, Edward Jones
fully supports Portman-Cardin and other legislative proposals that
strengthen the retirement savings system and help more Americans enjoy
the dignified and secure retirement they have worked so hard to
achieve.
______
Prepared Statement of Hon. Sherrod Brown,
a U.S. Senator From Ohio
Thank you, Senator Portman, for scheduling this hearing, and to our
witnesses for participating today.
The focus of today's hearing is on retirement security, and we
can't talk about that without acknowledging the looming crisis on the
minds of millions of retired Americans and workers in Ohio and across
the country. These workers and retirees in the multiemployer pension
system are in danger of losing the retirement security they earned over
a lifetime of work.
This crisis affects thousands of Ohioans. It affects the massive
Central States Pension Plan, the Iron Workers Local 17 Pension Plan,
the Ohio Southwest Carpenters Pension Plan, the Bakers and
Confectioners Pension Plan, and so many others. And it touches every
State in the country.
If the entire multiemployer system collapses, it won't just be
retirees who will feel the pain. Current workers will be stuck paying
into pensions they'll never receive. Small businesses will be left
drowning in pension liability they can't afford to pay. Businesses that
have been in the family for generations could face bankruptcy, and
workers will lose their jobs.
These plans were already in danger before the pandemic, and now the
economic emergency we're in has only put them in a worse position. They
were hit by the financial crisis and the recession that followed, and
now they're being hit again by an economic crisis that's
disproportionately hurting small businesses and workers, while Wall
Street recovers.
The House has done its part. They have passed a bipartisan
solution. The Senate needs to do ours. A pensions solution should be
part of the work we're doing on COVID relief. There's no reason we
shouldn't be able to do this as part of a year-end deal.
I ask my colleagues to think about the workers whose lives and
livelihoods will be devastated if we don't do our job. Those workers
and retirees in Ohio and around the country have rallied in the name of
Butch Lewis, a great Ohioan who helped lead this fight and passed away
far too soon, fighting for his fellow workers.
His wife Rita has continued his fight and become a leader and
inspiration to so many. Rita once told me that retirees and workers
struggling with this crisis feel like they are invisible.
These Americans aren't invisible to me. And they aren't invisible
to my colleagues who have worked with us for years now, trying to find
a bipartisan solution. We aren't giving up on that.
Though the multiemployer system is the most urgent retirement
matter, we also have a lot of work to do to protect and expand
retirement security for all workers.
Over the past few decades, we've watch what happens when Wall
Street runs the economy: corporate profits go up, CEO pay soars, and
stock buybacks explode--but wages are flat, and the middle class
shrinks. And as Americans' economic security has eroded, so have their
retirement options. Too many workers have no retirement account through
their employer.
Fundamentally, our tax system is set up to reward the already-
wealthy with more wealth, instead of to help everyone save and invest
for their futures. Forty percent of adults don't have $400 to weather a
financial emergency, let alone save for retirement. Instead of focusing
on those who already have plenty saved, we have to do more to help
everyone else get started in the first place.
And we've had 4 years of an administration that made things worse,
not better. In his first months in charge, President Trump, with help
from the Republican-
controlled Congress, made it harder for States to get auto-enrollment
programs off the ground. President Trump and congressional Republicans'
massive tax cut for the wealthy and corporations threatened deep cuts
to Social Security and Medicare. Just yesterday, the Senate voted to
confirm a Trump appointee to the Federal judiciary who has advocated
for abolishing Social Security.
But this November, 80 million Americans decisively rejected that
approach. People are tired of a system where Wall Street runs the
show--they voted for a new President who has pledged to make government
work for everyone else.
Next year we have a real opportunity to do something concrete for
middle-class families and low-paid workers who need help saving. We
know what some of these solutions are. We have to do more on auto-
enrollment and on auto-escalation. The States that have introduced
auto-enrollment plans, like Senator Wyden's State of Oregon, have seen
real success in the early years. Auto-enrollment is a best practice in
helping people save.
And we have to do more on portability so our retirement policies
reflect the workforce we have today. Job flexibility shouldn't be a
corporate PR term for having no economic security.
We have an opportunity to do big things for the American people.
Fix the multiemployer pension crisis, instead of allowing it to grow.
Protect and expand the Social Security benefits that people earn,
instead of threatening so-called ``entitlement cuts'' in the name of
new-found religion on the deficit. Build a defined contribution system
that is inclusive, that is equitable, and that meets the needs of
today's workforce--instead of relying on the status quo that works well
for some but leaves too many behind.
I know many of my colleagues have ideas in this area, and I look
forward to working with all of you next Congress on an effort that
builds on the success of the SECURE Act to deliver results for the
people we serve.
Thanks again to Senator Portman for scheduling this hearing. I turn
it back to you.
______
Prepared Statement of Michael P. Kreps,
Principal, Groom Law Group
Good morning. I want to thank Chairman Portman and Ranking Member
Brown for inviting me to testify today and for their dedication to
improving retirement security for all Americans. The topic of this
hearing is critically important. I think we can all agree that, after a
lifetime of hard work, everyone deserves the opportunity to live out
their golden years with dignity and financial independence.
In 1935--at another time of great national hardship--President
Roosevelt and Congress enacted the Social Security Act (Pub. L. 74-271)
to ``give some measure of protection to the average citizen and to his
family against . . . poverty-ridden old age.''\1\ It has been 85 years,
and Social Security is still the bedrock of our retirement system. It
is the most effective anti-poverty program in the United States, having
kept 21.7 million Americans above the poverty line in 2019.\2\ In fact,
without Social Security, 37.8 percent of elderly Americans would have
incomes below the poverty line, all else being equal.\3\
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\1\ President Franklin D. Roosevelt, Statement on Signing the
Social Security Act (August 14, 1935), available at http://
docs.fdrlibrary.marist.edu/odssast.html. See also, The Social Security
Act, Preamble (Pub. L. 74-271) (stating that the purpose of the act was
to ``provide for the general welfare by establishing a system of
Federal old-age benefits, and by enabling the several States to make
more adequate provision for aged persons, blind persons, dependent and
crippled children, maternal and child welfare, public health, and the
administration of their unemployment compensation laws; to establish a
Social Security Board; to raise revenue; and for other purposes.'').
\2\ See, e.g., Kathleen Romig, Social Security Lifts More Americans
Above Poverty Than Any Other Program, Center for Budget and Policy
Priorities (February 20, 2020), available at https://www.cbpp.org/
research/social-security/social-security-lifts-more-americans-above-
poverty-than-any-other-program.
\3\ Id.
But Social Security benefits, on their own, are not enough to allow
most older Americans to maintain their standard of living when they
retire--whether retirement is a choice or, as is the case for many
Americans, a person cannot work any longer. That is why we need a
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robust, equitable, and inclusive private retirement system.
Over the years, our private retirement system has evolved, and
there have been many important improvements. More people are
participating in 401(k) plans thanks to the Pension Protection Act of
2006 (Pub. L. 109-280) and the proliferation of auto-enrollment; plans
are more transparent than ever before because of improved fee
disclosure; and the SECURE Act of 2019 (Pub. L. 116-94) gave employers
more tools to help participants protect themselves from the risk of
outliving their savings. Although the system is working well for many
people, there is still more work to be done for those falling through
the cracks.
Many working people still do not have access to, or participate in,
an employer provided plan.\4\ That is particularly true for private-
sector employees who are younger, part time, in lower wage occupations,
and/or not a member of a union.\5\ There is nothing stopping us from
taking affirmative steps to reach this uncovered workforce and give
them the opportunity to prepare for retirement.
---------------------------------------------------------------------------
\4\ The Congressional Research Service (``CRS'') determined
approximately 55 percent of all U.S. workers participate in employer-
sponsored retirement plans. CRS, Workers Participation in
Employer-sponsored Pensions: Data in Brief, R43439 (updated December 1,
2019), available at https://crsreports.congress.gov/product/pdf/R/
R43439. See also The Pew Charitable Trusts, Employer-Sponsored
Retirement Plan Access, Uptake, and Savings (September 2016), available
at http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2016/
09/employer-sponsored-retirement-plan-access-uptake-and-savings.
\5\ CRS, supra 4.
Several States--including California, Illinois, and Oregon--are
already trying to address the problem through State-based programs to
provide for universal or near-universal access to payroll deduction
savings programs.\6\ Similarly, Washington State--working with the
Service Employees International Union Local 775--established a savings
plan specifically to help homecare workers--most of whom earn very
little despite providing critical care to our sick, disabled, and
elderly family members. And there are efforts at both the State and
Federal levels to encourage the expansion of automatic enrollment,
including for public employees.\7\
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\6\ Up-to-date information about State-based efforts to improve
retirement security is available from the Georgetown Center on
Retirement Initiatives at http://cri.georgetown.edu. For policy
considerations and recommendations, see the Center's 2018 Policy
Innovation Forum Report: Driving Change to Improve Retirement Outcomes,
available at https://cri.georgetown.edu/wp-content/uploads/2019/02/CRI-
Policy-Forum-Report-2-28-19.pdf.
\7\ See, e.g., Securing a Strong Retirement Act of 2020 Sec. 101
(H.R. 8696, 116th Cong.); Internal Revenue Service Priv. Ltr. R.
201743002 (July, 19, 2017).
We cannot forget that millions of working people struggle to pay
their bills, let alone save for retirement. Congress took an important
step to address the issue in 2001 by creating the Retirement Savings
Contribution Credit--known as the Saver's Credit--to provide a
nonrefundable tax credit to low-income taxpayers for certain retirement
plan contributions.\8\ But the Saver's Credit does not reach nearly
enough people because many lower income workers do not have taxable
income.\9\ We can fix that by making the credit refundable and having
it deposited directly into a savings plan. That approach has bipartisan
support, and I commend the chairman, ranking member, committee chairman
Wyden, and Senator Cardin for their leadership on this issue.\10\
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\8\ Internal Revenue Code Sec. 25B.
\9\ In 2016, only 5.6 percent of taxpayers claimed the Saver's
Credit, and the average credit amount claimed was $182. Congressional
Research Service, The Retirement Savings Contribution Credit (April 2,
2019), available at https://fas.org/sgp/crs/misc/IF11159.pdf.
\10\ Retirement Security and Savings Act Sec. 104 (S. 1431, 116th
Cong.); Encouraging Americans to Save Act (S. 3636, 115th Cong.). See
also Securing a Strong Retirement Act of 2020 Sec. 103 (raising the
amount of the credit and creating a single credit rate).
We should also plug some of the holes that drain people's savings.
At least 33 percent and as many as 47 percent of plan participants
withdraw part or all of their retirement plan assets following a job
change.\11\ The lost savings due to these cash-outs amounts to between
$60 billion and $105 billion annually.\12\ Fortunately, the development
of auto portability will help preserve savings for many job-changers--
particularly lower-income earners--by allowing a person's account to
automatically follow them from one employer's plan to the next. Thanks
to guidance from the Department of Labor and strong, bipartisan support
from members of Congress, including many members of this subcommittee,
auto-portability will be a reality for millions of plan participants
early next year.\13\
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\11\ Savings Preservation Working Group, Cashing Out: Impact of
Withdrawing Savings Before Retirement (October 2019), available at
http://preservingsavings.org.
\12\ Id.
\13\ Pensions and Investments, Alight to Offer Auto-portability
Program to DC Plan Sponsors (July 15, 2020), available at http://
pionline.com/defined-contribution/alight-offer-auto-portability-
program-dc-plan-sponsors. See also DOL Advisory Opinion 2018-01
(November 5, 2018); DOL Prohibited Transaction Exemption 2019-02, 84
Fed. Reg. 37337 (July 19, 2019).
There is no shortage of proposals with significant bipartisan
support that could improve the retirement system. For example, Chairman
Portman and Senator Cardin introduced the Retirement Security and
Savings Act, and in in the U.S. House of Representatives, Ways and
Means Committee Chairman Neal and Ranking Member Brady recently
introduced the Securing a Strong Retirement Act of 2020.\14\ Chairman
Portman and Ranking Member Brown have also been long-time supporters of
employee stock ownership plans because of the meaningful impact
employee ownership can have on retirement savers across the
country.\15\ And of course, the most important thing we can do to help
people save for retirement is to put more money in their pockets
through Federal policies that lead to sustained wage growth, greater
economic equality, and shared prosperity.
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\14\ S. 1431 (116th Cong.); H.R. 8696 (116th Cong.).
\15\ See, e.g., Promotion and Expansion of Private Employee
Ownership Act (S. 177 and H.R. 2258, 116th Cong.). See also Jared
Bernstein, Employee Ownership, ESOPs, Wealth, and Wages (January 2016,
available at http://esca.us/wp-content/uploads/2016/01/ESOP-Study-
Final.
pdf.
Finally--and most importantly--we cannot ignore the fact that we
are on the brink of over a million Americans losing their hard-earned
pension benefits. Most multiemployer pension plans are secure, but some
plans--including some very large plans--will become insolvent in the
next few years.\16\ The Federal pension insurance program administered
by the Pension Benefit Guaranty Corporation (``PBGC'') only guarantees
a fraction of many multiemployer pension plan participants'
benefits.\17\ Worse yet, PBGC projects that its multiemployer insurance
program will be insolvent in 2026.\18\ When that happens, PBGC will
only be able to pay pennies on the dollar, meaning participants and
retirees in insolvent plans will see their benefits slashed to the
bone.
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\16\ Of the approximately 1,400 multiemployer pension plans, 124
are in critical and declining status and projected to become insolvent.
PBGC, FY19 Projections Report (2020), available at https://
www.pbgc.gov/sites/default/files/fy-2019-projections-report.pdf.
\17\ PBGC guaranteed benefits are set by statute. The guarantees
for multiemployer pension plans are not adjusted for inflation, and the
amount has not increased since it was last adjusted in 2000. See ERISA
Sec. Sec. 4022A, 4022B. The current maximum guaranteed benefit for a
multiemployer plan participant with 30 years of service is $12,870 per
year. Id.
\18\ PBGC, supra 16.
It is not these participants' fault that their plans are failing.
They worked hard, played by the rules, and made significant wage
concessions all so that they could have some measure of economic
security in retirement. They did everything they could to achieve the
American dream, but they are living a nightmare. Unless Congress acts
soon, retirees, their families, and their communities will be
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devastated.
Consider Pat and her husband in New York State. They refinanced
their mortgage to pay for their children to go to college, and now,
they are terrified that they will lose their house when their pension
gets cut. Or Christopher from Buffalo, who cannot work because of
debilitating back and shoulder problems caused by decades of manual
labor but does not qualify for Social Security Disability Insurance. Or
Larry from Michigan, who drove a truck for 40 years when he was
diagnosed with cancer and is now relying on his pension to make ends
meet.\19\ These are not isolated examples. There are over a million
real people just like Pat, Christopher, and Larry.
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\19\ These personal accounts were collected by the Pension Rights
Center. Pension Rights Center, Story Bank (accessed on December 9,
2019), available at http://www.pensionrights.org/create-content/action/
story-bank.
The crisis is upon us, and only Congress has the power to do
something about it. We are the richest country in the history of the
world, and we owe it to our fellow Americans to find a solution. That
is going to require putting aside politics and ideology and doing what
is right for retirees. There is simply no time left to lose as, every
day that ticks by, the problem becomes more intractable and more costly
to fix. I urge the members of this Subcommittee and every member of
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Congress to act as soon possible to address the crisis.
Thank you for your time today, your attention to these important
issues, and for your commitment to making retirement more secure for
all Americans. I would be happy to answer any questions you may have.
______
Prepared Statement of Joshua Luskin, President, National Association of
Government Defined Contribution Administrators
The National Association of Government Defined Contribution
Administrators (``NAGDCA'') thanks Chairman Portman and Ranking Member
Brown and the members of the Subcommittee on Social Security, Pensions,
and Family Policy for holding this hearing. We also thank Chairman
Grassley and Ranking Member Wyden and the members of the full Finance
committee for their ongoing commitment to improving America's
retirement system.
NAGDCA is grateful for the opportunity to testify today in support
of bipartisan proposals to improve the public-sector retirement system
and retirement outcomes for the approximately 16 million teachers,
first responders, public health workers, and other public servants
employed by America's State and local governments.
about nagdca
Founded in 1980, NAGDCA is the premier professional organization of
public
employer-sponsored deferred compensation and defined contribution plan
administrators. NAGDCA's mission is to support plan sponsors and
service providers of
government-sponsored deferred compensation and defined contribution
retirement plans in creating successful retirement security outcomes
for their plan participants.
NAGDCA governmental members oversee plans for participants from 49
State and territorial government entities and 132 local government
entities, including counties, cities, public safety agencies, school
districts, and utilities. NAGDCA's members administer governmental
deferred compensation and defined contribution plans, including section
457(b), 401(k), 401(a), and 403(b) plans which provide for employee and
employer contributions.
The association provides a forum for working together to improve DC
plan operations and outcomes by sharing information on investments,
marketing, administration, and the Federal laws and regulations
governing DC plans.
NAGDCA is also the sole sponsor of National Retirement Security
Month, an annual national campaign to improve retirement security. On
October 1st, the U.S. Senate recognized the goals and ideals of
National Retirement Security Month, unanimously approving S. Res. 743,
led by Senator Enzi and Senator Cardin, and cosponsored by fellow
Finance committee members, Senators Young and Hassan.
proposals to improve dc plan outcomes and administration
Congress has taken major strides to improve the retirement system,
including passage of the Setting Every Community Up for Retirement
Enhancement (SECURE) Act (Pub. L. 116-94) at the end of last year. Not
coincidentally, the SECURE Act built on, and incorporated, significant
provisions from the Finance committee's bipartisan work on the
Retirement Enhancement and Savings Act (RESA) in the 115th and 116th
Congresses. While this landmark legislation is beginning to bear fruit,
we believe that there is more that Congress can and should do to build
on these great accomplishments. Far too many Americans do not have
access to a retirement plan and among those who do, too many have not
saved enough to enjoy a financially secure retirement.
To that end, NAGDCA strongly endorses the following six targeted
proposals and urges that the Finance committee include them in a new
bipartisan package of retirement legislation that Congress can advance
as soon as possible. All six provisions have already been incorporated
in the Retirement Security and Savings Act, introduced by Chairman
Portman and Senator Cardin (``Portman-Cardin''). We thank both Senators
for their decades of leadership in the retirement space and for their
support for these sensible improvements to the system.
1. Expand 403(b) plan funding vehicle options to include
collective investment trusts.
2. Permit non-spousal beneficiaries to roll inherited IRA assets
into DC Plans.
3. Eliminate the 457(b) ``first day of the month'' requirement.
4. Allow participants with Roth accounts in DC plans to roll
Roth IRA assets into these plans.
5. Exempt Roth contributions in DC plans from required minimum
distribution rules.
6. Permit DC plan participants to make qualified charitable
distributions.
As a membership organization for public sector plan administrators,
NAGDCA's policy development process is member-driven. Past and present
legislative committee members, executive board members, and
representatives of our industry partners have volunteered countless
hours because they are passionate about improving the ability of people
to reach their own retirement goals. Each of these member-generated
proposals has been evaluated and endorsed as enabling plan participants
to increase their savings and plan sponsors to administer their plans
more efficiently.
expand 403(b) plan funding vehicle options
to include collective investment trusts
First, NAGDCA supports expanding the funding vehicle options for
403(b) plans to include collective investment trusts (``CITs''). CITs
are common investment choices in 401(a), 401(k) and 457(b) governmental
DC plans. However, with only limited exceptions, IRC section 403(b)
limits funding arrangements to annuity contracts issued by an insurance
company and custodial accounts invested solely in mutual funds.
Therefore, participants in 403(b) plans are not able to take advantage
of these options, potentially costing them thousands of dollars in
retirement as a result of higher investment expenses or reduced returns
from not having available the same breadth of investment structures as
have long been available to other types of governmental DC plans. In a
May 2020 viewpoint entitled Improving Investment Outcomes for 403(b)
Plan Participants, Blackrock analysts estimated that the lower fees
could result in more than $100,000,000 in aggregate savings per year
for 403(b) plan participants, which could translate into ``. . .
thousands of dollars in increased savings for an individual 403(b) plan
participant invested in a CIT over the course of his or her career.''
Plan sponsors would benefit from the use of CITs by having
increased flexibility to build more robust investment lineups, at lower
costs, often with improved speed to market and other efficiencies. In
addition, CITs would support increased customization of asset
allocations and glidepaths for 403(b) plans. Amending IRC section
403(b) to include these additional investment vehicles has the
potential to reduce costs, increase retirement security, and improve
the overall experience of plan members and sponsors. Finally, improved
403(b) plans can help plan sponsors better recruit and retain top
talent.
Section 117 of Portman-Cardin would amend IRC section 403(b) to
permit CITs as investment vehicles for all types of 403(b) plans.
Corresponding changes would also be made to the Investment Company Act
of 1940, the Securities Act of 1933, and the Securities Exchange Act of
1934.
permit non-spousal beneficiaries to roll inherited ira assets into dc
plans
Second, NAGDCA proposes permitting non-spousal beneficiaries to
roll inherited IRA assets to their 457(b), 401(k), 401(a) or 403(b)
plans. Lower expenses and coordination of retirement plans are two
important ways to improve retirement outcomes. In the Economic Growth
and Tax Relief Reconciliation Act of 2001 and the Pension Protection
Act of 2006, Congress acknowledged that coordination of retirement
plans is valuable to those with multiple retirement savings accounts.
Allowing non-spousal beneficiaries to roll inherited IRA assets to
their employer-sponsored plan would be beneficial to those plan
participants as employer-sponsored governmental DC plans generally have
lower fees and administrative costs than other retirement savings
plans. In addition, allowing IRA rollovers to employer sponsored
governmental DC plans would help participants achieve consolidation,
enhanced portability, and administrative simplicity.
Section 304 of Portman-Cardin would amend IRC section 408(d)(3)(C)
to permit non-spousal beneficiaries to roll IRA assets to their 457(b),
401(k), 401(a) and 403(b) governmental DC plans.
eliminate the 457(b) ``first day of the month'' requirement
Third, NAGDCA proposes eliminating the ``first day of the month''
requirement in 457(b) plans. IRC section 457(b) provides that a plan
participant's deferral changes must be made prior to the first day of
the month in which the change is to commence. This provision was
enacted as an administrative convenience prior to the advent of modern
record-keeping technology. Now it is an administrative inconvenience to
delay requested changes and is an unnecessary impediment to
participants' ability to manage their retirement assets. This
restriction is not imposed on other retirement savings plans and should
no longer apply to 457(b) plans.
Section 305 of Portman-Cardin would amend IRC section 457(b) to
repeal the requirement that deferral changes be made prior to the first
day of the month in which the change is to commence. The proposed
language would permit governmental 457(b) plans to allow deferrals
changes up to a date prior to which the compensation is otherwise
available.
allow participants with roth accounts in dc plans to
roll roth ira assets into these plans
Fourth, NAGDCA supports allowing participants with Roth accounts in
457(b), 401(k) and 403(b) plans to roll Roth IRA assets into these
plans. As noted above, lower plan expenses and better coordination of
retirement savings are two important ways to improve retirement
outcomes, as has been acknowledged by Congress. Rolling Roth IRA assets
to an employer-sponsored plan would be beneficial to those plan
participants who are making Roth contributions to these plans as
employer sponsored plans generally have lower fees and administrative
costs than other retirement savings plans. In addition, allowing Roth
IRA rollovers to Roth accounts in employer-sponsored governmental DC
plans would help participants achieve consolidation, enhanced
portability, and administrative simplicity.
If permitted by the respective plan, plan participants may make
Roth contributions to a governmental DC plan, but such plans are not
permitted to accept rollovers of Roth IRA assets. Section 504 of
Portman-Cardin would amend the IRC to allow 457(b), 401(k) and 403(b)
plans with Roth contributions to accept participant rollovers from Roth
IRAs into these plans.
exempt roth contributions in dc plans from
required minimum distribution rules
Fifth, NAGDCA supports exempting designated Roth contributions in
DC Plans from required minimum distribution (``RMD'') rules, as Roth
IRA assets are presently exempt. The disparate treatment between Roth
IRA assets and Roth assets in 457(b), 401(k) and 403(b) plans create an
incentive for plan participants to roll their Roth assets to a Roth IRA
in order to avoid the RMD rules. It would be beneficial for
participants to maintain Roth assets in their employer-sponsored
governmental DC plans because these plans generally offer lower
administrative costs and fees than retail market IRAs. The change
should be revenue-neutral.
Roth contributions in 457(b), 401(k) and 403(b) governmental DC
plans are subject to required minimum distribution (RMD) rules and must
be included when calculating the amount of a participant's RMD. Section
501 of Portman-Cardin would amend the IRC to exclude any designated
Roth account in 457(b), 401(k) and 403(b) plans from RMD requirements.
permit dc plan participants to make qualified charitable distributions
Finally, NAGDCA supports enhanced distribution choice, specifically
the proposal to permit 457(b), 401(a), 401(k) and 403(b) plan
participants to make qualified charitable distributions (``QCDs''). IRC
section 408(d)(8) permits QCDs from traditional IRA or Roth IRA
accounts of up to $100,000 to be excluded from gross income each year.
The taxpayer's RMD, made on or after the taxpayer has attained age 72,
or any portion thereof, may be considered a QCD and, therefore, is
distributed tax-free directly to the qualifying organization. This same
tax break is not available for RMDs from qualified plans, 403(b) or
governmental 457(b) plans.
Under current law, in order to take full advantage of a QCD as an
RMD, a governmental DC plan participant would have to roll plan assets
to an IRA prior to the participant attaining age 72 (RMDs, which begin
at age 72, are not eligible rollover distributions). If participants
were eligible to make QCDs from their 457(b), 401(a), 401(k) and 403(b)
governmental DC plans, this rollover step would not be required, and
participants' funds could remain in their governmental DC plans until
such participants choose to make QCDs.
Provisions of the Tax Cuts and Jobs Act of 2017, effective in 2018,
make this issue more relevant. Making QCDs from an IRA allows the
taxpayer to donate RMDs tax free even if claiming the standard
deduction ($26,500 standard deduction for married couples), rather than
itemizing deductions. Many more taxpayers are expected to use this
increased standard deduction.
Thus, allowing governmental DC plans to have this added benefit
could further incent participation and retention in governmental DC
plans.
Section 502 of Portman-Cardin would amend the IRC to permit QCDs
from 457(b), 401(a), 401(k) and 403(b) plans of up to $100,000 to be
excluded from gross income each year, just as QCDs are permitted from
traditional IRAs.
conclusion
Once again, I thank the subcommittee for inviting me to testify on
behalf of NAGDCA. It is an honor to work with you to advance targeted
improvements to the retirement system which we believe will benefit
many people by helping them to be ready for a financially secure
retirement. Beyond the individual, the benefits of more people enjoying
improved retirement security extend to the community as a whole,
leading to increased community well-being and reduced stress on social
safety net systems. We look forward to continuing to work with the
committee, with your counterparts in the House, with our industry
partners and with other stakeholders to move a bipartisan retirement
legislative package in the 117th Congress.
______
Question Submitted for the Record to Joshua Luskin
Question Submitted by Hon. Chuck Grassley
Question. The SECURE Act improved the rules governing multiple
employer plans, known as MEPs. I have heard that allowing 403(b) plans
to participate in MEPs could be beneficial. Do you agree? If not, why
not?
Answer. Yes, it would be beneficial to allow 403(b) plans to
participate in MEPs. Given the important differences between 401(k)
plans and 403(b) plans, increasing coverage and participation using
both types of plans is an important, common goal. Further, expanding
MEP availability in 403(b) plans can help facilitate efficiencies that
allow governmental 403(b) sponsors to provide valuable benefits to
their employees while minimizing their administrative burdens. Some of
these benefits of expanding MEP availability will be aligned with the
current focus on fee compression on investments and the potential
reduction of administrative costs/liability we have seen quite
extensively discussed in the retirement environment, this change is
aligned with the direction retirement industry and plan sponsors have
been going for the last decade or so. The broader potential long term
benefits of 403(b)s gaining access to MEPS will be participants
retiring with larger balances that eventually help with replacement
income for retirees. Due to the nature of spending of retirees,
additional replacement income spent in communities will provide
additional benefits for local economies, the local tax base,
potentially reduce the dependency on government assistance to name a
few. All different environments will benefit from this but government
jobs tend to be better paying jobs in rural communities and this
potentially will help support those communities that have been hit hard
recently.
______
Prepared Statement of Hon. Rob Portman,
a U.S. Senator From Ohio
The hearing will come to order. I want to first thank all of the
witnesses for being here to give us their expertise and counsel on such
an important topic--especially as we work remotely during these
challenging times for our country. I also want to give a special thanks
to Senator Brown and his staff for working together with us to plan
this hearing.
As some of you know, I have been looking forward to this hearing
for a long time. I appreciate the Finance Committee allowing us to move
forward with it now. We've got some great witnesses, and I'm sorry we
have to be remote, because I'd love to be in person talking to you, but
I think this is best, given where we are with the COVID-19 challenge.
And we've had plenty of opportunities to speak and will continue to,
but this, I think, is really exciting because retirement security, to
me, is not only just critically important for all Americans--and
frankly savings has taken a hit, as you know, during the coronavirus--
but also, this is an opportunity for bipartisan work, and I think we'll
hear about this later from Senator Brown, Senator Cardin, and others.
But regardless who gets the majority in the Senate come January,
this is an area where I think we have the potential to make some real
progress, because I think it has been, and will be, bipartisan. And
when you look at the support it has among the American people, it is
really impressive. I mean, everybody talks about who supports what in
terms of tax policy, but I can tell you, the idea of being able to save
more for your own retirement is just broadly popular, so this is an
opportunity for us.
I have worked a lot with Senator Cardin, over the years, on these
issues. I notice he is in the hearing--well, he is in his office, so I
wouldn't say he is in the hearing--but he is joining us remotely. And
you know, we've done some good things, helped people save more for
retirement, and it has improved retirement savings considerably.
Last year, we introduced the latest iteration of Portman-Cardin,
and that's called the Retirement Security and Savings Act, which has
had some broad support, bicameral and bipartisan. In fact, 27 of the
Portman-Cardin provisions were included in this new SECURE 2.0
legislation introduced by the Ways and Means chairman, a Democrat,
Richie Neal, and the Ranking Member Kevin Brady on the House side. If
that's not bipartisan, I don't know what is. So, the two of them coming
together, I think is terrific, and there are some provisions in ours
they do not include, and there are some in theirs we do not include,
but I think that, in my view, is an opportunity when you have so much
common ground between the two proposals. So I think it's a really good
starting point, and again it gives us a real opportunity to get
something done.
A lot of our other colleagues have worked on this issue. Sherrod
Brown has worked on it on a bipartisan basis. Senator Daines and
Senator Warren have a retirement lost and found bill that I think is
interesting. Senator Collins and Senator Hassan have their assistance
to military spouses, which I like. So I think there are a lot of
opportunities for members of the committee, and even outside of the
committee, to come together on something here.
The one that Ben Cardin and I have introduced recently focuses on
what I think are the four big problems that can be identified and
addressed through legislation. One is to help lower-income and part-
time workers. And this is an obvious issue when you know you only have
20-some percent of people who are part-time and low-income saving now.
So when people are living paycheck to paycheck, it's tough to set money
aside, and so we help in that regard in a number of ways.
Second, it focuses on small businesses. Why? Because that is where
the opportunity is. Less than half of workers employed by small
businesses have access to an employer-sponsored plan. Think about that.
That's compared to 88 percent of workers employed by large businesses.
So it's small businesses--that's where we really need to target and
focus to expand coverage for so many working Americans. And Eric talked
about his restaurant business. A lot of them are small businesses like
that, that just can't afford to put together a plan, so we help them in
that regard. And they're also concerned about the complexity of it.
Third, we've got an issue with the baby boomers. A few of us on
this call would fit into that category. And we just aren't saving
enough as a generation, and haven't been. And therefore, we do some
things to help encourage people who are getting ready for retirement,
near retirement, to save more. And then finally, as folks are living
longer, retirees, even those who have accumulated some savings, are
finding that they are outliving those savings. Living longer is good
news. Longer, healthier lives are great, but they are tough on our bank
accounts, especially when current laws force Americans to start
depleting and taxing their retirement savings accounts at age 72.
That's an issue too, and you know that long-term savings piece, how do
you ensure that nest egg is adequate for people living longer and
healthier lives, is a key issue.
So, we've made progress on some of these issues, but the lack of
sufficient retirement savings remains an urgent problem for our
country, and it's an opportunity, again, for us. In 2020, we've moved
this legislation to this point; now, in 2021, we've got to get it
across the finish line. Unfortunately, the pandemic, as we talked
about, has just exacerbated the need to improve savings. We may not be
seeing a V-shaped economic recovery in this pandemic. I think we're
going to see more, as we have so far, a K-shaped recovery. And it's K
in terms of savings, meaning it's not just going down like it normally
would in a recession and then back up the same way. You have some
people who are doing well and others who are not. And many of these who
are not are some of these middle- and low-income part-time workers we
talked about. That's why we allow those workers to have more
opportunities, through both expanding savings plans for them, but also
allowing part-time folks to be able to access plans more easily,
lowering the number of hours someone works where they qualify, in
particular, in a retirement plan.
We also make the Saver's Credit refundable, which is not without
controversy, I understand that. And some of my Republican colleagues
have concerns there, and we can talk later about why I think that's
important as part of an overall balanced plan. We also have a provision
that allows recent graduates to receive matching retirement
contributions from their employers as they pay off student loans. This
is a good connection between an obvious problem out there with student
loan debt and retirement, so it's a way to approach both.
Our second set of solutions on small business I talked about makes
it easier to establish plans. We increase the tax credit. We have a lot
of companies that want to adopt auto-enrollment and encourage their
employees to save more for retirement. But that can be expensive, so it
does enhance the start-up credit for small businesses. It makes
offering auto-enrollment features much more cost effective for
employers. We like auto-enrollment. We make it more cost-effective.
For those near retirement, whom we talked about, we want to be sure
that those who are saving money have the opportunity to be able to
spread that out over time. So that's part of what we do here through
QLACs and also changing the minimum required distribution laws to take
you up to 75. By the way, before the pandemic, 9.7 percent of Americans
75 and older were working. It's, I'm sure, more than that now, but
that's up from just 7.5 percent 10 years ago. So again, we have more
and more Americans, again, working into their 70s. That's just the
reality.
Like all good legislation, we have taken ideas from Senators from
both parties, and we know there's more to do and more to improve it. I
think we can learn about that today in this hearing, because we have
some great witnesses and great colleagues who are on the dais. So with
that, let me recognize my colleague, and my friend and fellow Ohioan,
Ranking Member Sherrod Brown, for his opening statement.
______
Prepared Statement of Eric Stevenson, President,
Retirement Plans, Nationwide
Good morning. I would like to thank Chairman Portman, Ranking
Member Brown, and all members of the Senate Finance Committee's
Subcommittee on Social Security, Pensions, and Family Policy for
holding this hearing on American retirement income, and for the
invitation to testify.
My name is Eric Stevenson. As president of Nationwide's retirement
plans business, I am currently managing the team responsible for
Nationwide's retirement plans operation that protects roughly $156
billion in participant assets for over 2.5 million participants. I am
passionate about fostering a culture that embraces collaboration to
bring value to Nationwide's customers that meets and exceeds the unique
retirement readiness needs of plan sponsors and participants. I have
nearly 16 years of experience in the industry, starting at Nationwide
in 2007 as vice president of marketing, then leading sales and
distribution for Nationwide's retirement plans business and now serving
as the business president since July 2019. I earned my bachelor's of
business administration in finance from the University of Oklahoma and
my master's of business administration degree from Northwestern
University Kellogg Graduate School of Management. I am also dedicated
to public service, serving in a 7-year term confirmed by the Oklahoma
Senate for the OU board of regents.
Nationwide, a Fortune 100 company based in Columbus, OH, is one of
the largest and strongest diversified insurance and financial services
organizations in the United States. Nationwide is rated A+ by both A.M.
Best and Standard and Poor's. An industry leader in driving customer-
focused innovation, Nationwide provides a full range of insurance and
financial services products including auto, business, homeowners, farm
and life insurance; public and private sector retirement plans,
annuities and mutual funds; excess and surplus, specialty and surety;
pet, motorcycle, and boat insurance.
In 1973, Nationwide Retirement Solutions, Inc. was founded to focus
on the needs of governmental employees, and we have been a major
innovator in this market ever since. As one of the first companies to
focus on public-sector 457 plan workers, Nationwide has over 47 years
of experience. Today, Nationwide is the largest retirement plan
provider serving the public sector with over 7,700 government-sector
retirement plans, ranging from smaller county and city plans to mega-
size State plans. In addition to the public sector, Nationwide also
administers retirement plans in the private sector defined contribution
and not-for-profit marketplace.
Protecting roughly $156 billion in participant assets, Nationwide
is the 9th largest provider of retirement plans in the U.S. by number
of plans administered (about 26,000) and 12th by number of
participants, with about 2.58 million. We are the top provider of
governmental retirement plans (457 plans) by number of plans and focus
on meeting the needs of smaller plans--managing 24,600 plans with less
than $10 million in assets (21 percent of the assets, 34 percent of
the plan participants). We also manage some very large plans, including
124 plans with more than $100 million in assets (60 percent of the
assets, 50 percent of the plan participants).
Nationwide greatly appreciates the efforts of the Subcommittee on
Social Security, Pensions, and Family Policy and the full Finance
Committee to continually improve our Nation's retirement system in a
bipartisan manner. We commend Chairman Grassley, Ranking Member Wyden,
Chairman Portman, Ranking Member Brown, Senator Cardin, and all members
of the committee for their leadership in this regard. Nationwide is
glad to be here today in strong support of S. 1431, the Retirement
Security and Savings Act, introduced by Chairman Portman and Senator
Cardin, which we are confident would help usher in a new era of
enhanced retirement security.
The impact of COVID-19 on Americans' health and finances has
highlighted several critical needs and challenges affecting workers.
Specifically at Nationwide, we've seen the impact of COVID-19 related
to the CARES Act provisions passed in March. Since that time,
Coronavirus-Related Distributions (CRDs) are close to 20 percent of
total withdrawals across our retirement plans, distributing $885M in
total withdrawals. Even though the Retirement Security and Savings Act
was introduced long before any of us encountered the term ``COVID-19,''
the bill's provisions will help us meet the challenge of both restoring
pre-COVID-19 retirement security and enhancing it.
journey to financial wellness
At Nationwide, we aim to support Americans throughout their entire
financial wellness journey. We find it helpful to think about this
journey in three key phases:
Beginning Planning;
Saving for Retirement; and
Living in Retirement
The Finance Committee's ongoing work to improve our retirement
system has benefited all three phases of American workers' journeys to
financial wellness. Building on the recent success of the SECURE Act,
Nationwide strongly supports the additional improvements Portman-Cardin
will make to Americans' financial wellness. In particular, Nationwide
believes the six key proposals highlighted below are critical to
supporting workers in their financial wellness journey to a secure
retirement.
phase 1: beginning planning
The Beginning Planning stage of the financial wellness journey
requires that workers have both an opportunity to save for retirement
and the financial means to fund that savings opportunity. According to
the Bureau of Labor Statistics, 71 percent of all workers and 67
percent of private industry workers are provided with an opportunity to
save through an employer-sponsored retirement plan. Plan Sponsor
Council of America estimates an average participation rate of 85
percent. Still, too many workers remain uncovered by a retirement plan.
Congress took significant steps to address this concern last year by
passing the SECURE Act, which included provisions to expand worker
access to retirement plans. One of those provisions created a new type
of multiple-employer plan (``MEP'') called a ``pooled employer plan,''
which is intended to make plan sponsorship more attractive and
attainable to small and mid-sized employers and will first be available
to employers in 2021.
But simply having an opportunity to save for retirement is not
enough. Workers must also be able to afford to take advantage of that
opportunity without jeopardizing other critical aspects of financial
security. Here, Nationwide believes that the retirement system could be
leveraged to help workers meet their short-term financial needs, like
paying down student debt, while also increasing workers' ability to
make greater and more consistent progress toward their retirement
savings goals.
Student Loan Debt
As the number of individuals with burdensome student loan debt
grows, fewer workers can afford to make contributions to an employer-
sponsored retirement plan, particularly in the early years of their
careers. In 2018, Nationwide conducted a study looking at the impact of
beginning retirement saving earlier in one's career. On average,
employees start saving for retirement at age 31.5. If those employees
consistently save until they reach Social Security's normal retirement
age, they'd have about 35 years of asset accumulation and potential
investment earnings at retirement. However, if they started saving for
retirement 8 years sooner, they could have significantly more available
for retirement income. If you take a specific example where an employee
is paid twice a month and contributes $50 per pay period to an account
that earns 6 percent annualized return on investment and the employee
starts at age 23, they'd have $88,572 more than if they started at age
31. At $100 per pay period, the difference would be $177,143.60.
At Nationwide, we understand the significant strain that student
debt is placing on many workers. The student loan debt statistics are
jarring. In the last 3 decades, the cost of a bachelor's degree has
increased by 1,120 percent. In less than 30 years, the amount of
student debt has tripled. Sixty-two percent owe more in debt than they
have in personal savings (source: Commonbond). But this is not just a
challenge faced by 20-somethings. Student loan debt is increasingly
affecting workers well into their 30s, 40s, and beyond, as some
individuals struggle for decades to repay six-figure loans and others
return to school mid-career. According to the Employee Benefits
Research Institute 2020 Retirement Confidence survey, 7 out of 10
workers report having some kind of non-mortgage debt and say it has
impacted their ability to save for retirement or emergencies. Roughly
half say their ability to participate in workplace retirement savings
plans has been impacted. Also, 1 in 5 workers has student loan debt for
themselves, a child, or grandchild, and 9 in 10 of all workers think it
would be a good idea if employers offered matching contributions to
retirement plans in exchange for workers making student loan payments.
Although the retirement industry can't solve the broader societal
challenges created by student loan debt, we do believe that the
existing retirement system can be utilized to alleviate some of the
immediate pressure and long-term financial impact on workers. As such,
we support the provision in Ranking Member Wyden's bill and in Portman-
Cardin that would permit employers to make matching contributions to a
401(k) or similar plan on behalf of a participant based on payments the
participant makes toward a student loan if certain requirements are
met. This provision would help workers who otherwise could not afford
to make elective contributions to the plan still take advantage of the
employer match and thus begin (or continue) accumulating money for
their retirement.
In recent years, we have increasingly seen employers take a greater
interest in providing for the overall financial health of their
employees. At Nationwide, we believe that the student loan employer
match provision will become a popular
employer-provided benefit, as it would help employers both respond to
workers' concerns over student debt burdens and help ensure a better
retirement savings outcome for workers struggling with student debt
payments.
phase 2: saving for retirement
The Saving for Retirement phase of the financial wellness journey
emphasizes taking advantage of tax-deferred savings opportunities to
the extent possible for an individual and ensuring that any amounts
saved are invested efficiently, such as through the avoidance of
excessive fees. Every dollar saved must be maximized to give workers
the best chance at reaching their retirement savings goals. Here, it is
not only important that individuals save as much as possible, but also
that plan sponsors and financial professionals provide appropriate
products and solutions that put those savings to work for the benefit
of the saver.
Increasing Catch-up Contributions
Americans are living longer than ever before, which means workers
need to accumulate even more savings in order to have a financially
secure retirement. At the same time, many workers in the beginning and
middle of their careers face competing financial needs--such as student
loan and car payments, home purchases, and the cost of raising a
family--that leave workers unable to contribute to a plan the maximum
amount allowed each year under the Internal Revenue Code. To put into
perspective, roughly 75 percent of full-time workers are living
paycheck to paycheck (2017, CNBC.com). A 2016 Mercer survey of U.S.
workers found that immediate financial concerns are a significant
source of worry for all workers, regardless of age, and that retirement
income only becomes the highest priority concern for individuals aged
50 or older.
To account for these combined challenges, Americans are working
longer than ever before, often using those additional years of
employment to make increased contributions to their retirement plans.
One way to accommodate both the increase in longevity and those workers
who are unable to save at consistently high levels throughout their
careers would be to allow savers to make greater ``catch-up''
contributions to a plan than what is allowed today. The amount
available and promotion of this savings vehicle could play a
significant role in closing the gap for savers, especially segments
nearing retirement.
In this regard, Nationwide supports the provision in Portman-Cardin
that would introduce an enhanced catch-up contribution limit for
workers age 60 or older. Today, individuals age 50 or older are allowed
to make an additional catch-up contribution of $6,500 (indexed) each
year to a 401(k), 403(b), or governmental 457(b) plan. Similarly,
individuals age 50 or older may make an additional catch-up
contribution of $3,000 (indexed) to a SIMPLE IRA or SIMPLE 401(k) plan.
The Retirement Security and Savings Act would increase those limits to
$10,000 and $5,000, respectively, for individuals age 60 or older, and
would also index those amounts. At Nationwide, we believe this
additional catch-up limit will make a meaningful difference in helping
older workers maximize their retirement preparedness in the very years
when many of them are best able to do so.
Exchange-Traded Funds
The SECURE Act increased access to a workplace retirement plan with
provisions like pooled employer plans (PEPs) and allowing long-term
part-time workers to participate. Further improvements from Portman-
Cardin such as expanding the Saver's Credit and reducing the service
requirement for long-time part-time workers will further expand access
to savings opportunities and provide a strong incentive to participate.
Still, some workers will need to save for retirement outside the
employer context. For those individuals, solutions like IRAs and
annuities provide an opportunity to prepare for retirement on an
individual basis. To that end, we support a provision from Portman-
Cardin to allow ETFs as an investment option in variable annuity
products. This change responds to clear consumer preference for ETFs
and is intended to lower the cost of variable annuity products and
better integrate these products for fee-based registered investment
advisers (RIAs).
Exchange-traded funds (``ETFs'') are pooled investment vehicles
that are similar to mutual funds, but ETF shares may be traded
throughout the day on the stock market instead of having to be held
until after the market closes. ETF products have been one of the
fastest growing retail investment products for years, and this rapid
rise is often credited to their simple structure, low cost, and
intraday trading capability. Those features have made ETFs the
preferred choice of many in the RIA community when selecting or making
recommendations of investments for their customers. According to
Cerulli's 2020 RIA Marketplace Report, ``over the past decade,
registered investment advisors' (RIAs') average allocation to exchange-
traded funds (ETFs) increased 12.3 percentage points, whereas average
mutual fund allocations decreased 17.8 percentage points. During the
same timeframe, RIAs' use of ETFs rose 38 percent.''
Despite the benefits and popularity of ETFs, under current law,
ETFs may not be used as investment options in variable annuity
contracts. This is largely due to the fact that the current IRS
diversification rules were created before ETFs were a viable product
category and thus don't anticipate their unique structure.
To provide variable annuity contract owners and advisors with the
investment products they prefer, Nationwide supports efforts to allow
ETFs to be used as investment options under variable annuity contracts,
and we thank the chairman and Senator Cardin for including a provision
that would accomplish this in Portman-Cardin.
Collective Investment Trusts in 403(b) Plans
Collective investment trusts (``CITs'') are an investment option
that typically has lower costs than mutual funds. Although CITs may be
used in 401(k) and certain other retirement plans, the Internal Revenue
Code currently prevents 403(b)(7) custodial accounts, which are often
used by nonprofit, healthcare and higher education employers, from
investing in CITs.
The nonprofit and higher education worlds employ over 12.5 million
people saving for their retirement, and those savers should have the
same access to proven and low-cost vehicles within their institutional
plans that their private-sector taxable counterparts enjoy. Nationwide
therefore supports the provision in Portman-Cardin that would permit
403(b)(7) custodial accounts to invest in CITs (in addition to the
stock of regulated investment companies, which is permitted under
current law). We are pleased to partner with our friends at National
Association of Government Defined Contribution Administrators (NAGDCA)
in supporting this important provision and other provisions to improve
403(b) and 457 retirement plans, including:
Section 304 to permit non-spousal beneficiaries to roll
inherited IRA assets into 457(b), 401(k), 401(a) and 403(b) plans;
Section 305 to eliminate the ``first day of the month''
requirement in 457(b) plans;
Section 501 to exempt designated Roth contributions in 457(b),
401(k) and 403(b) plans from RMD rules, as Roth IRA assets are
presently exempt;
Section 502 to permit 457(b), 401(a), 401(k) and 403(b) plan
participants to make Qualifying Charitable Distributions; and
Section 504 to allow participants with Roth accounts in
457(b), 401(k), 401(a), and 403(b) plans to roll Roth IRA assets into
these plans.
phase 3: living in retirement
The goal of the third and final phase of the financial wellness
journey, Living in Retirement, is for savers to experience a
financially secure retirement for the remainder of their lives.
Although the planning, preparation, and saving that occurred during the
first two phases are critical to achieving a financially secure
retirement, it is equally important that savers be equipped to make
wise decisions and have the appropriate products and tools available in
their retirement years to make their savings last. Here again,
Nationwide believes that making some modifications to the existing
retirement system will enhance individuals' ability to live well in
retirement.
Increasing the RMD Age to 75
Today, Americans are living an average of 79 years, 50 percent of
Americans age 65 can expect to reach age 85, and 1 in 4 Americans age
65 can expect to live past age 90. For most individuals, the potential
need to fund many years of retirement living makes it very important to
maintain as much money in savings as possible for as long as possible.
One way the current retirement system could better serve those who are
living longer and/or working longer would be to increase the age at
which required minimum distributions (``RMDs'') generally must begin.
We very much appreciate that Congress took action in last year's
SECURE Act by increasing the age that triggers the deadline by which
RMDs must begin from age 70\1/2\ to 72. However, Nationwide encourages
Congress to further increase that to age 75, and we support the
provision in Portman-Cardin to do just that. This change would allow
workers to continue to save more effectively and not require that
distributions from retirement savings be taken ahead of the schedule
that works best for each saver. Workers face enough challenges in
saving enough money to last for a potentially lengthy retirement, and
the retirement system's forced systematic depletion of savings should
not unduly add to that challenge.
Improving Longevity Annuities
Saving enough money to last for an average-length retirement is
already challenging for many workers, but the prospect of having to
save enough to protect against the possibility of living to age 90,
100, or beyond can be daunting. A more efficient way for retirees to
protect themselves from the risk of outliving their savings in defined
contribution plans and IRAs is to share the cost of that risk with
others by purchasing a longevity annuity with a portion of their
assets. Longevity annuities are deferred annuities that generally begin
payments at or near the end of an individual's life expectancy. Since
payments begin so late, they can be a very inexpensive way of ensuring
guaranteed income after an individual reaches a certain age.
Prior to 2014, the RMD rules were an impediment to longevity
annuities because the rules generally required that distributions begin
before such an annuity would be scheduled to commence payments. In
2014, the Treasury Department and the Internal Revenue Service
(``IRS'') published final regulations on ``qualifying longevity annuity
contracts'' (``QLACs''), which generally exempt QLACs from the RMD
rules until payments under the contract commence, provided that certain
requirements are met. Critically, the regulations limit the premiums an
individual may pay for a QLAC in 2021 to the lesser of (1) $135,000 or
(2) 25 percent of the individual's account balance under the plan or
IRA. Although the $135,000 limit applies across all types of
arrangements, the 25-percent limit applies separately to each defined
contribution plan and collectively to all IRAs that an individual owns.
The 25-percent limitation is especially problematic when an
individual would like to purchase a QLAC using savings in a defined
contribution plan where a QLAC is not available for purchase directly
through the plan (as is most often the case). In that case, the
individual would need to roll money out of the fund and into an IRA
before purchasing a QLAC from an insurance company. But the 25-percent
QLAC limit on the account balance of all IRAs requires the individual
to roll four times the amount out of the defined contribution plan than
he or she may have otherwise wished to roll over, simply to purchase a
QLAC in the desired amount (e.g., in order to purchase a $100,000 QLAC,
the individual would to roll $400,000 out of the plan).
While Nationwide appreciates the efforts of the Treasury Department
and IRS to facilitate the use of longevity contracts, the QLAC
regulations in their present form could be improved to help longevity
annuities better realize their potential in helping retirees manage the
risk of outliving their savings. We therefore support the provision in
the Retirement Security and Savings Act that would direct the Treasury
Department and IRS to make key reforms to the QLAC regulations,
including eliminating the 25-percent limit and raising the $135,000 cap
(2021) to $200,000 (indexed). Those changes, together with other
improvements that the provision would make, would go a long way in
making QLACs more attractive to both retirees and insurers.
conclusion
Once more, thank you, Chairman Portman, Ranking Member Brown, and
all members of this subcommittee, for holding this important hearing
and for extending an invitation to Nationwide to testify. Although the
journey to financial wellness is one that lasts nearly a lifetime, many
opportunities exist to improve our current retirement system and make
that journey less arduous for savers. Today, we highlighted six of
those opportunities, all of which are addressed in Portman-Cardin. We
commend each of you for your ongoing, bipartisan work to improve every
phase of Americans' financial wellness journey, and we look forward to
continuing to work with you and supporting your efforts to make
achieving a financially secure retirement an attainable goal for all
Americans.
______
Communications
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American Securities Association
1455 Pennsylvania Avenue, NW, Suite 400
Washington, DC 20004
AmericanSecurites.org
@amersecurities
202-621-1784
Dear Chairman Portman, Ranking Member Brown, and Members of the
Subcommittee:
The American Securities Association (ASA), the only trade association
exclusively for regional financial services firms, is committed to
helping Americans prepare for retirement and other significant life
milestones, such as sending a child to college. ASA member companies
engage with regulators and policy makers to encourage common-sense,
private sector solutions to strengthen the current retirement system
and expand savings opportunities for all Americans.
In 2019, lawmakers came together on a bipartisan basis to pass the Set
ting Every Community Up for Retirement Enhancement (``SECURE'') Act.
This major legislation featured dozens of positive reforms to empower
more Americans to better prepare for retirement. The Senate Finance
Committee played a critical role in crafting the SECURE Act, which
ultimately received support from a broad range of industry and consumer
stakeholders.
The ASA applauds the Committee's interest in expanding on the positive
reforms enacted by the SECURE Act. However, as policymakers continue to
consider additional retirement proposals in the coming months, we
encourage the Committee to recognize that some provisions included in
SECURE Act are only now beginning to take effect. For example, the
broadly supported pooled employer plan (``PEP'') provisions will be
effective on January 1, 2021. These provisions are intended to help
more small employers offer retirement solutions for their employees.
While some policymakers are debating the merits of placing more
enrollment mandates on small businesses, the ASA encourages the
Committee to take a more cautious approach until the new PEP framework
can fully implemented and evaluated.
Rather than place costly and burdensome mandates on America's small
businesses, the SECURE Act correctly recognizes that incentives and
increased efficiency are better tools to address the savings gap. While
the ASA agrees that additional measures to improve access to retirement
savings should be considered, policymakers should also recognize that
small businesses are already subject to a mandatory retirement plan in
the form of Social Security. As the Committee knows, the Social
Security program relies on the private sector to ensure payroll taxes
are appropriately collected and transferred to the federal government.
Any additional man dates, particularly with differing rules and
requirements, would represent a significant challenge for small
employers.
Improve Small Business Retirement Plan Options: The ASA supports
updating rules that would encourage small businesses to offer
retirement plans to their employees. As such, we strongly encourage
Congress to consider enhancing and expanding low-cost SIMPLE IRAs.
SIMPLE IRAs have been proven successful in encouraging micro-businesses
to begin offering retirement savings arrangements to their employees.
Specifically, the ASA recommends that rules governing SIMPLE IRAs be
updated to allow for a Roth option while also permitting SIMPLE IRA
sponsors to make non-elective contributions on behalf of their
employees. These reforms would facilitate the creation of new plans for
very small employers while also easing the transition process for those
businesses who later choose to adopt a 401(k) savings arrangement.
These two proposals, which are included in the Retirement Security and
Savings Act introduced by Senators Rob Portman and Ben Cardin, would
likely encourage more small employees to consider offering SIMPLE IRAs
when a traditional 401(k) might still be too costly or complex relative
to the size of their business.
Encourage Utilization of Financial Planning: To encourage access to
financial advice, the ASA supports a bipartisan proposal from Senators
Portman and Cardin to allow employees to pay for financial planning
with pre-tax dollars through
employer-sponsored ``cafeteria'' plans.\1\ On average, individuals who
use financial planning services save more and are financially better
prepared, with one study suggesting that good financial planning can
yield nearly 29 percent additional retirement income.\2\ Providing
employees a tax advantaged benefit to pay for financial planning would
expand the use of this critical tool. Additionally, Congress can
further encourage work-site education by enhancing existing safe harbor
protections.
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\1\ Retirement Security and Savings Act of 2019 (S. 1431, 116th
Congress).
\2\ Blanchett, David, and Paul Kaplan. 2012. ``Alpha, Beta, and Now
. . . Gamma.'' Morningstar White Paper (December).
Build on the Success of 529 Plans: 529 plans are an invaluable tool for
families and individuals looking to save for school. Nearly every state
sponsors some type of 529 plan, with most states encouraging
contributions by offering tax deductions and/or credits. However, in
many states, such tax incentivizes are only available for contributions
made to the same state's 529 plan. Additionally, some states only allow
the account owner, and not third-party contributors, to claim the
deduction. To encourage all Americans to start saving as soon as
possible, the ASA recommends policymakers enact a modest, above-the-
line federal income tax deduction for contributions made to any state's
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qualified 529 plan.
This policy would promote contributions from grandparents and other
family members, providing additional resources for 529 savers.
Additionally, under the current system, some would-be savers who
anticipate one or several moves out of state--for employment, health
reasons or military service--may be reluctant to start making
contributions to their current state's 529 plan. Knowing that a federal
deduction is available would likely encourage these individuals to
enroll in a 529 plan and consistently contribute.
The ASA also appreciates Congress's interest in helping more Americans
struggling with student loan debt because of the negative impact debt
has on long-term savings goals, including a secure retirement. However,
the ASA believes that policymakers should also seek ways to encourage
more Americans to start saving ahead of these expenses, rather than
financing their education primarily through debt. Increased access to
529 plans could play a vital role in helping more Americans avoid
burdensome student loan costs.
Digital Communications: In recent years, Americans have overwhelmingly
embraced digital communication over outmoded paper delivery systems.
During the pandemic, the ability of our members to work remotely and
support their clients virtually depended on the successful adoption of
numerous technologies. The ASA believes that lawmakers should support
additional legislative and regulatory updates that would shift the
default method of delivering plan-related communications to clients. E-
delivery has proven to be an effective and popular tool for clients,
and we encourage policymakers to continue moving forward in this area.
Additionally, a 2018 study by the Investment Company Institute and the
American Retirement Association estimates that total printing and
mailing costs for paper delivery could exceed $385 million annually.
Finally, digital communication also provides greater access for the
visually impaired as well as retirement savers who are not proficient
in English.
Increase the Required Minimum Distribution Age to 75: The ASA supported
language in the SECURE Act to raise the required minimum distribution
(RMD) age for plan disbursements from 70\1/2\ to 72. This welcomed
change better reflects our current reality, in which many Americans are
living and working longer than ever before. The ASA believes Congress
can do even more to help seniors saving for retirement and is
encouraged that both chambers have introduced legislation to would
raise the RMD age to 75.\3\ This provision would allow seniors more
time to amass savings, providing greater retirement security and making
them less likely to depend on resource-strained safety net programs
later in life.
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\3\ Securing a Strong Retirement Act of 2020 (H.R. 8696, 116th
Congress); S. 1431.
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Thank you for your consideration of our views.
Sincerely,
Kelli McMorrow
Head of Government Affairs
American Securities Association
______
Financial Services Institute
1201 Pennsylvania Avenue, NW, Suite 700
Washington, DC 20004
888-373-1840
https://financialservices.org/
The Financial Services Institute (FSI) represents independent broker-
dealers (IBD) and the independent financial advisors affiliated with
them. We are pleased that the Subcommittee is holding this hearing to
explore the issues facing Main Street Americans saving for retirement,
particularly given that the COVID-19 pandemic has only worsened the
country's existing retirement savings crisis. Sadly, too many Americans
do not have access to competent and ethical financial advice to help
them navigate these difficult times and to ensure their ability to save
for a dignified retirement. We wish to register our support for S. 1431
the Retirement Security and Savings Act of 2019 and H.R. 8696 The
Securing a Strong Retirement Act of 2020, both of which build on the
important improvements made in the Setting Every Community Up for
Retirement Enhancement (SECURE) Act of 2019.
FSI Members believe that all investors should have access to competent
and affordable financial advice, products, and services. Research shows
that investors who work with a financial advisor are better prepared
for their retirement, better understand the costs that may arise in
retirement and how to save for them and feel more confident in their
ability to be successful in retirement.\1\ FSI supports S. 1431 and
H.R. 8696 because they provide private sector retirement solutions to
ensure that Americans have access to personalized investment advice.
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\1\ The Insured Retirement Institute, The State of Retirement
Security in America Today--2019 Boomer Expectations for Retirement
Study, available at: https://www.myirionline.org/docs/default-source/
default-document-library/
iri_babyboomers_whitepaper_2019_final.pdf?sfvrsn=0; Claude
Montmarquette, Nathalie Viennot-Briot, Centre for Interuniversity
Research and Analysis on Organizations (CIRANO), The Gamma Factor and
the Value of Advice of a Financial Advisor, available at https://
www.cirano.qc.ca/files/publications/2016s-35.pdf.
In particular, the legislation would address the current retirement
savings crisis by encouraging Americans to begin saving earlier and
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saving more for their retirement in the following ways:
Encouraging employees to begin saving for retirement earlier
through automatic enrollment;
Creating a new financial incentive for small businesses to offer
retirement plans by increasing the small-business startup credit;
Simplifying and increasing the Saver's Tax Credit;
Offering individuals 60 and older more flexibility to set aside
savings as they approach retirement;
Increasing the required minimum distribution (RMD) age to 75,
allowing individuals to save for retirement longer; and
Exempting individuals with less than $100K in their retirement
accounts from RMDs requirements, allowing smaller account balances to
continue to earn interest and individuals to save more for retirement.
Further, we encourage Congress to restore the pre-2017 tax deduction
for investment advisory fees without the 2 percent Adjusted Gross
Income (AGI) threshold to enable all taxpayers to access the deduction
regardless of income. Restoring and expanding this deduction under 26
U.S.C. Sec. 212 will encourage savers to seek advice from financial
professionals, which is even more important in these turbulent economic
times. Many investors, including those nearing retirement, are watching
their hard-earned savings fluctuate with the turbulent stock market.
Financial advisors can help investors avoid common errors in response--
such as buying high and selling low or losing sight of their long-term
financial plan--to ensure that their retirement savings are secure.
We urge Congress to include retirement savings legislation such as S.
1431 and H.R. 8696 in its end of year legislative package in order to
provide critical tools to address the retirement savings crisis, which
has only been exacerbated by the COVID-19 pandemic. We thank the
Subcommittee for holding this hearing and for the work it is doing to
address these issues. We are ready to serve as a resource in your
efforts to help Main Street Americans save for their retirement. Should
you have any questions or would like more information on FSI and our
position on this important issue, please contact our Director of
Legislative Affairs, Hanna Laver, at (202) 499-7224.
Background on FSI Members
The independent financial services community has been an important and
active part of the lives of American investors for more than 40 years.
In the US, there are more than 160,000 independent financial advisors,
which account for approximately 52.7 percent of all producing
registered representatives.\2\ These financial advisors are self-
employed independent contractors, rather than employees of the
Independent Broker-Dealers (IBD).\3\
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\2\ Cerulli Associates, Advisor Headcount 2016, on file with
author.
\3\ The use of the term ``financial advisor'' or ``advisor'' in
this letter is a reference to an individual who is a dually registered
representative of a broker-dealer and an investment adviser
representative of a registered investment adviser firm. The use of the
term ``investment adviser'' or ``adviser'' in this letter is a
reference to a firm or individual registered with the SEC or state
securities division as an investment adviser.
FSI's IBD member firms provide business support to independent
financial advisors in addition to supervising their business practices
and arranging for the execution and clearing of customer transactions.
Independent financial advisors are small business owners and job
creators with strong ties to their communities. These financial
advisors provide comprehensive and affordable financial services that
help millions of individuals, families, small businesses, associations,
organizations, and retirement plans. Their services include financial
education, planning, implementation, and investment monitoring. Due to
their unique business model, FSI member firms and their affiliated
financial advisors are especially well positioned to provide Main
Street Americans with the affordable financial advice, products, and
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services necessary to achieve their investment goals.
FSI members make substantial contributions to our nation's economy.
According to Oxford Economics, FSI members nationwide generate $48.3
billion of economic activity. This activity, in turn, supports 482,100
jobs including direct employees, those employed in the FSI supply
chain, and those supported in the broader economy. In addition, FSI
members contribute nearly $6.8 billion annually to federal, state, and
local government taxes. FSI members account for approximately 8.4
percent of the total financial services industry contribution to U.S.
economic activity.\4\
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\4\ Oxford Economics for the Financial Services Institute, The
Economic Impact of FSI's Members (2016).
______
T. Rowe Price Associates, Inc.
T. Rowe Price Associates, Inc. and its affiliates (collectively ``T.
Rowe Price'') thank Chairman Portman, Ranking Member Brown, and the
other Members of the Senate Finance Subcommittee on Social Security,
Pensions, and Family Policy for holding this hearing to examine the
challenges that American workers face in achieving their best
retirement outcomes. We appreciate that this hearing also examined the
challenges retirement plan sponsors, recordkeepers, and other service
providers face in helping American workers meet their retirement goals
while also balancing their competing priorities, such as paying off
student loan debt.
We particularly appreciate that legislation introduced by Chairman
Portman and Senator Cardin in 2019 (S. 1431) was a central focus of the
hearing.\1\ That legislation has served as the foundation for countless
bipartisan discussions on retirement savings during this Congress, and
some of its provisions are reflected in the SECURE Act, which was
enacted last year, and H.R. 8696, which was more recently introduced in
the House of Representatives by Ways and Means Committee Chairman Neal
and Ranking Member Brady.\2\
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\1\ The Retirement Security and Savings Act of 2019 (S. 1431) was
introduced on March 29, 2019.
\2\ The Setting Every Community Up for Retirement Enhancement Act
(the ``SECURE Act'') was signed into law on December 20, 2019, as part
of a comprehensive government spending bill, along with a handful of
other retirement measures, The Securing a Strong Retirement Act of 2020
(H.R. 8696) was introduced on October 27, 2020.
Both S. 1431 and H.R. 8696 include many common-sense changes to current
law that would build on the foundation of the SECURE Act to improve
individuals' abilities to save for retirement, including those that
promote increased utilization of automatic contribution and automatic
escalation features, simplify disclosures, and allow individuals saving
through 403(b) plans to enjoy the same lower cost investment vehicles
that participants in larger 401(k) plans enjoy through the use of
collective trusts. Although these are just a few of the many provisions
in S. 1431 and H.R. 8696 that would build on the success of the SECURE
Act, in our view each is critically important in addressing the needs
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of American retirement savers.
Encouraging the use of automatic contribution and automatic
escalation features. As Senator Brown pointed out in his opening
statement, ``auto-enrollment is a best practice in helping people
save,'' and doing more on auto-enrollment and auto-escalation
``provides a real opportunity to do something concrete for middle-class
families and low-paid workers who need help saving.''
Both S. 1431 and H.R. 8696 include provisions that encourage
greater utilization of automatic features in plans, but in different
ways. For example, H.R. 8696 includes provisions that generally require
automatic enrollment for all new plans at a minimum of 3% and auto-
escalation at one percentage point a year up to 10% (with a grandfather
provision for existing plans). S. 1431 introduces a new automatic
contribution safe harbor plan design with higher starting and ending
rates (6% and 15%), which are more consistent with the levels of
savings that we believe are necessary to help workers achieve their
best retirement outcomes. Both bills also include tax credits for small
employers to encourage adoption of safe harbor automatic contribution
programs. T. Rowe Price research has shown that these automatic
features help savers achieve successful retirement outcomes,
particularly at the higher rates reflected in S. 1431.
Simplifying disclosures. S. 1431 contemplates a number of
improvements in retirement plan disclosures, such as consolidation of
disclosures, simplification of the Internal Revenue Code section 402(f)
special tax notice, and allowing the presentation of benchmarks of
target date funds that more closely reflects their design and
objectives.
Allowing 403(b) plans to use collective investment trusts
(CITs). Both bills remove outdated regulatory constraints and allow
403(b) plans that enjoy fiduciary oversight to use CITs as funding
vehicles for investment options. CITs are often used by other types of
retirement plans, including 401(k) plans and 457 plans, because of
their institutional pricing and increased flexibility. In his testimony
at the hearing, Joshua Luskin highlighted these benefits, noting that
CITs could provide 403(b) plan sponsors with increased flexibility,
lower costs, faster speed to market, and increased customization of
asset allocations and glidepaths, all of which would result in
increased retirement security and a better overall experience for
403(b) plan participants and sponsors. We agree, and we commend the
sponsors of both S. 1431 and H.R. 8696 for including this
common-sense provision in their bills.
We appreciate the opportunity to submit this statement for the record
in connection with the December 9th hearing. We share the optimism
expressed by Chairman Portman, Ranking Member Brown, Senator Cardin,
and so many others that there is a real opportunity for bipartisan
consesus to emerge in the coming Congress on a legislative package that
could significantly improve the landscape for retirement savings in
America. We encourage all membrs of Congress, in both chambers, to work
toward that goal.
[all]