[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
EXAMINING PATHWAYS TO BUILD A STRONGER,
MORE INCLUSIVE RETIREMENT SYSTEM
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
HEALTH, EMPLOYMENT,
LABOR, AND PENSIONS
OF THE
COMMITTEE ON EDUCATION AND LABOR
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, JUNE 23, 2021
__________
Serial No. 117-21
__________
Printed for the use of the Committee on Education and Labor
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via: edlabor.house.gov or www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
44-858 PDF WASHINGTON : 2022
-----------------------------------------------------------------------------------
COMMITTEE ON EDUCATION AND LABOR
ROBERT C. ``BOBBY'' SCOTT, Virginia, Chairman
RAUL M. GRIJALVA, Arizona VIRGINIA FOXX, North Carolina,
JOE COURTNEY, Connecticut Ranking Member
GREGORIO KILILI CAMACHO SABLAN, JOE WILSON, South Carolina
Northern Mariana Islands GLENN THOMPSON, Pennsylvania
FREDERICA S. WILSON, Florida TIM WALBERG, Michigan
SUZANNE BONAMICI, Oregon GLENN GROTHMAN, Wisconsin
MARK TAKANO, California ELISE M. STEFANIK, New York
ALMA S. ADAMS, North Carolina RICK W. ALLEN, Georgia
MARK DeSAULNIER, California JIM BANKS, Indiana
DONALD NORCROSS, New Jersey JAMES COMER, Kentucky
PRAMILA JAYAPAL, Washington RUSS FULCHER, Idaho
JOSEPH D. MORELLE, New York FRED KELLER, Pennsylvania
SUSAN WILD, Pennsylvania GREGORY F. MURPHY, North Carolina
LUCY McBATH, Georgia MARIANNETTE MILLER-MEEKS, Iowa
JAHANA HAYES, Connecticut BURGESS OWENS, Utah
ANDY LEVIN, Michigan BOB GOOD, Virginia
ILHAN OMAR, Minnesota LISA C. McCLAIN, Michigan
HALEY M. STEVENS, Michigan DIANA HARSHBARGER, Tennessee
TERESA LEGER FERNANDEZ, New Mexico MARY E. MILLER, Illinois
MONDAIRE JONES, New York VICTORIA SPARTZ, Indiana
KATHY E. MANNING, North Carolina SCOTT FITZGERALD, Wisconsin
FRANK J. MRVAN, Indiana MADISON CAWTHORN, North Carolina
JAMAAL BOWMAN, New York, Vice-Chair MICHELLE STEEL, California
MARK POCAN, Wisconsin JULIA LETLOW, Louisiana
JOAQUIN CASTRO, Texas Vacancy
MIKIE SHERRILL, New Jersey
JOHN A. YARMUTH, Kentucky
ADRIANO ESPAILLAT, New York
KWEISI MFUME, Maryland
Veronique Pluviose, Staff Director
Cyrus Artz, Minority Staff Director
------
SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS
MARK De SAULNIER, California, Chairman
JOE COURTNEY, Connecticut RICK W. ALLEN, Georgia
DONALD NORCROSS, New Jersey Ranking Member
JOSEPH D. MORELLE, New York JOE WILSON, South Carolina
SUSAN WILD, Pennsylvania TIM WALBERG, Michigan
LUCY McBATH, Georgia JIM BANKS, Indiana
ANDY LEVIN, Michigan DIANA HARSHBARGER, Tennessee
HALEY M. STEVENS, Michigan MARY E. MILLER, Illinois
FRANK J. MRVAN, Indiana SCOTT FITZGERALD, Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia VIRGINIA FOXX, North Carolina
(ex officio) (ex officio)
C O N T E N T S
----------
Page
Hearing held on June 23, 2021.................................... 1
Statement of Members:
DeSaulnier, Hon. Mark, Chairman, Subcommittee on Health,
Employment, Labor, and Pensions............................ 1
Prepared statement of.................................... 4
Allen, Hon. Rick, Ranking Member, Subcommittee on Health,
Employment, Labor, and Pensions............................ 6
Prepared statement of.................................... 7
Statement of Witnesses:
Biggs, Andrew, Resident Scholar, American Enterprise
Institute.................................................. 35
Prepared statement of.................................... 38
Certner, David, Legislative Counsel and Director of
Legislative Policy for Government Affairs, AARP............ 57
Prepared statement of.................................... 60
Ghilarducci, Teresa, Irene and Bernard L. Schwartz Professor
of Economics and Policy Analysis, The New School for Social
Research................................................... 9
Prepared statement of.................................... 12
Rhee, Nari, Director, Retirement Security Program, University
of
California at Berkeley..................................... 19
Prepared statement of.................................... 22
Additional Submissions:
Chairman DeSaulnier:
Insured Retirment Institute statement for the record..... 98
American Benefits Council statement for the record....... 110
Mr. Allen:
American Benefits Council statement for the record....... 110
ERISA Industry Committee statement for the record........ 123
Spark Institute letter dated June 23, 2021............... 125
Scott, Hon. Robert C. ``Bobby'', a Representative in Congress
from the State of Virginia:
American Council of Life Insurers statement for the
record................................................. 129
Stevens, Hon. Haley M., a Representative in Congress from the
State of Michigan:
Central States Pension Fund Economic Impact on
Subcommittee Member Districts.......................... 138
EXAMINING PATHWAYS TO BUILD
A STRONGER, MORE INCLUSIVE
RETIREMENT SYSTEM
----------
Wednesday, June 23, 2021
House of Representatives,
Subcommittee on Health, Employment,
Labor, and Pensions,
Committee on Education and Labor,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:05 a.m.,
via Zoom, Hon. Mark DeSaulnier (Chairman of the Subcommittee)
presiding.
Present: Representatives DeSaulnier, Courtney, Norcross,
Morelle, Wild, Stevens, Levin, Mrvan, Allen, Walberg, Banks,
Harshbarger, Miller, Fitzgerald, and Foxx (ex officio).
Staff present: Ilana Brunner, General Counsel; Rasheedah
Hasan, Chief Clerk; Sheila Havenner, Director of Information
Technology; Eli Hovland, Policy Associate; Andre Lindsay,
Policy Associate; Kevin McDermott, Senior Labor Policy Advisor;
Richard Miller, Director of Labor Policy; Max Moore, Staff
Assistant; Mariah Mowbray, Clerk/Special Assistant to the Staff
Director; Kayla Pennebecker, Staff Assistant; Veronique
Pluviose, Staff Director; Banyon Vassar, Deputy Director of
Information Technology; Cyrus Artz, Minority Staff Director;
Rob Green, Minority Director of Workforce Policy; Taylor
Hittle, Minority Professional Staff Member; Georgie Littlefair,
Minority Legislative Assistant; John Martin, Minority Workforce
Policy Counsel; Hannah Matesic, Minority Director of
Operations; Alex Ricci, Minority Speechwriter; and Ben Ridder,
Minority Professional Staff Member.
Chairman DeSaulnier. The Subcommittee on Health,
Employment, Labor, and Pensions will come to order.
Welcome again, everyone. I note that a quorum is present.
The Subcommittee is meeting today to hear testimony on
examining pathways to build a stronger and more inclusive
retirement system for Americans.
This is an entirely remote hearing, and as such, the
Committee's hearing room is officially closed.
All microphones will be kept muted as a general rule to
avoid unnecessary background noise. Members and witnesses will
be responsible for unmuting themselves when they are recognized
to speak or when they wish to seek recognition.
If a Member or witness experiences technical difficulties
during the hearing, please stay connected on the platform, make
sure you are muted, and use your phone to immediately call the
Committee's IT director, whose number was provided in advance.
Should the Chair experience technical difficulty or need to
step away, my distinguished colleague, Mr. Levin from Michigan,
or another majority Member is hereby authorized to assume the
gavel in my absence.
In order to ensure that the Committee's five-minute rule is
adhered to, staff will be keeping track of time using the
Committee's field timer, which appears in its own thumbnail
picture and will show a blinking light when time is up.
Pursuant to Committee Rule 8(c), opening statements are
limited to the Chair and Ranking Member.
I recognize myself now for the purpose of making an opening
statement.
Today we are meeting to explore the strengths, challenges,
and inequities of America's retirement system, as well as to
review H.R. 2954, the Securing a Strong Retirement Act of 2021,
which is known as the SECURE Act 2.0. This bill includes
important provisions in the Education and Labor Committee's
jurisdiction.
Earlier this year, congressional Democrats and the
administration addressed the urgent multi-employer pension
crisis and fully protected the pensions of more than 1 million
Americans. Our solution was broadly supported by key
stakeholders, including hundreds of employers and the United
States Chamber of Commerce.
Had we not acted, the unacceptable status quo would have
continued, plans would have failed, and the Pension Benefit
Guaranty Corporation would have become insolvent.
If that had happened, workers and retirees would lose
nearly everything they had worked and contributed so hard to
save. Many participating employers would be forced to close or
cut jobs.
American taxpayers would have suffered as well. One expert
estimated that if Congress failed to address the multi-employer
pension crisis, the total cost to U.S. taxpayers in terms of
lost tax revenue and increased social safety net spending due
to pensioners' difficulty making ends meet would be between
$170 billion and $240 billion over a 10-year budget window.
This far exceeds the estimated $86 billion cost of the solution
included in the American Rescue Plan Act.
As we proceed, we should remain mindful that taxpayers
would have been on the hook one way or another with the multi-
employer pension crisis.
By acting now, congressional Democrats and the Biden
administration averted a catastrophe, spared over a million
Americans harm, saved businesses, and protected jobs, which in
my view was the right thing to do and far better and less
expensive for taxpayers than doing nothing.
Certainly we can all agree that a look back on lessons
learned is valuable. But today's hearing is not about past
action. It is about the present State of private sector
retirement and what we need to do in the future to make it
stronger and more inclusive.
I am certain we all believe that Americans, after a hard-
working life, deserve to retire with some level of security.
That is what this hearing is about.
For decades, the retirement system has been premised on
Americans relying on three income streams--the so-called three-
legged stool--to support themselves as they age: Social
Security, employer-sponsored pensions, and personal savings.
Social Security remains the foundation of retirement
security for most Americans. When President Franklin Roosevelt
signed the Social Security Act into law, he talked about giving
it, quote, ``some measure of protection to the average citizen
and to their family . . . against poverty-ridden old age,'' end
quote.
He was right. To this day, Social Security provides the
majority of income to most elderly Americans and singlehandedly
keeps 15 million Americans out of poverty.
There has been a changing social model over the past
decades. In 1975, 47 percent of women with children were in the
labor force. Most of those were part-time jobs. Now it is 72
percent, most of them full-time jobs.
Many Americans age 65 and older left the labor force in
2020 due to the pandemic, but millions remain. And according to
the Bureau of Labor Statistics, people held, on average, 12
jobs from age 18 to 52, with nearly half of these jobs held
before age 25--12 jobs from age 18 to 52 and half of those
before they are 25.
Meanwhile, the employer-provided retirement and wage-
earning landscapes also significantly changed. These changes
have been to the detriment of the workers' ability and our
society to achieve a secure and dignified retirement for
Americans.
Employers have shifted away from offering traditional
defined benefit pension plans, which provided workers
guaranteed lifetime income after they retired. Nowadays, when a
private sector employer offers a retirement plan, it is likely
to be a defined contribution plan, such as a 401(k), but that
is if employers offer one at all.
Too many Americans lack access to a retirement savings plan
through their employer. An estimated 7.5 million Californians
and roughly 55 million people nationwide, do not have access to
retirement benefits through their employer.
There are also significant disparities along racial and
ethnic lines when it comes to retirement savings. According to
the Urban Institute, in 2016 White families had about $130,000
more--or six times more--in average liquid retirement savings
than African-American and Hispanic families. That disparity has
increased fivefold over the past 25 years.
Additionally, few Americans are earning enough to save for
a stable, secure retirement. Workers are doing more today than
ever before. Over the last 40 years, worker productivity has
risen 72.2 percent. At the same time, worker wages have
essentially stagnated, increasing only 17 percent. Worker
productivity in the last 40 years has increased over 70
percent. Wages, adjusted for inflation, increasing less than 20
percent.
It is incredibly hard for workers to do much on their own
for retirement. According to the Federal Reserve, many would
struggle to come up with the money to finance an unexpected
$400 expense, such as a car repair or a medical bill, in their
daily life.
That is why I believe retirement security is fundamentally
aligned with workers' wages during their lifetime. The more
people earn, the easier it is for them to plan and save for
retirement. At a minimum, we must support policies that
increase workers' wages and strengthen their ability to
organize and collectively bargain.
The data is clear that unionized workers have greater
access to retirement plans and higher participation rates than
their non-unionized counterparts.
But we shouldn't stop there. We must strengthen and protect
Social Security. We must address inequities and discriminatory
barriers in the labor market.
I also am interested in learning more from the witnesses
today about the SECURE Act 2.0 and how it helps Americans plan
and save for retirement.
Before I conclude, I just want to recall a recent issue of
The New York Times Magazine discussing how human life span
doubled over the past century. And now, with medicines
combating diseases and prolonging life, the number of people
who might live to be 100 years old could increase--should
increase.
According to the United Nations estimate cited by The New
York Times, there were 95,000 centenarians in the world in
1990, but there could be 25 million by 2100.
A recent Kaiser Foundation report showed that the life
expectancy for people over 65 is increasing exponentially.
According to this study, the U.S. ranks 13th in the world in
life expectancy increases for people over 65.
I am proud to say, when you separate that by region, the
western United States--and the State of California, where I
live--is No. 1 in the world in life expectancy for people over
65.
We must make sure our retirement system is equipped to
support people living longer and that it provides the measure
of protection Franklin Roosevelt mentioned in 1935.
I look forward to hearing from my colleagues and from our
expert witnesses about these issues.
[The statement of Chairman DeSaulnier follows:]
Statement of Hon. Mark DeSaulnier, Chairman,
Subcommittee on Health, Employment, Labor, and Pensions
Today we are meeting to explore the strengths, challenges, and
inequities of America's retirement system as well as review H.R. 2954,
the Securing a Strong Retirement Act of 2021, which is known as the
SECURE Act 2.0. This bill includes important provisions in the
Education and Labor Committee's jurisdiction.
Earlier this year, congressional Democrats and the Biden
administration addressed the urgent multiemployer pension crisis and
fully protected the pensions of more than one million Americans. Our
solution was broadly supported by key stakeholders, including hundreds
of employers and the U.S. Chamber of Commerce. Had we not acted, the
unacceptable status-quo would have continued; plans would have failed;
and the Pension Benefit Guaranty Corporation would have become
insolvent. If that happened, workers and retirees would lose nearly
everything they worked and contributed so hard to save. Many
participating employers would be forced to close or cut jobs.
American taxpayers would have suffered, too. One expert estimated
that, if Congress failed to address the multiemployer pension crisis,
the total cost to the U.S. taxpayers--in terms of lost tax revenue and
increased social safety net spending due to pensioners' difficulty
making ends meet--would be between $170 billion and $240 billion over
the 10-year budget window. This far exceeds the estimated $86 billion
cost of the solution included in the American Rescue Plan Act.
As we proceed, we should remain mindful that taxpayers would have
been on the hook one way or another with the multiemployer pension
crisis. By acting now, congressional Democrats and the Biden
administration averted a catastrophe, spared over a million Americans
harm, saved businesses, and protected jobs. Which in my view is the
right thing to do--and far better, and less expensive for the taxpayers
than doing nothing. Certainly we can all agree to look back on lessons
learned is valuable.
But today's hearing is not about past action; it's about the
present State of the private sector retirement and what we need to do
in the future to make it stronger and more inclusive. Im certain we all
beleive that Americans after a hard working life deserve to retire in
some level of security. That's what this hearing is all about.
For decades, the retirement system has been premised on Americans
relying on three income streams--the so-called three-legged stool--to
support themselves as they age: Social Security, employer-sponsored
pensions, and personal savings.
Social Security remains the foundation of retirement security for
most Americans. When President Franklin Roosevelt signed the Social
Security Act into law, he talked about it giving--quote--``some measure
of protection to the average citizen and to his family . . . against
poverty-ridden old age.'' He was right. To this day, Social Security
provides the majority of income to most elderly Americans and single-
handily keeps up to 15 million seniors out of poverty.
There has been a changing social model over the past decades. In
1975, 47 percent of women with children were in the labor force--most
of those were part-time jobs. Now, it is 72 percent and most of them
full-time jobs. Many Americans age 65 and older left the labor force in
2020 due to the pandemic, but millions remain. And, according to the
Bureau of Labor Statistics, people held an average of 12 jobs from ages
18 to 52, with nearly half of these jobs held before age 25. 12 jobs
from ages 18 to 52, with nearly half of these jobs held before age 25.
Meanwhile, the employer-provided retirement and wage-earning landscapes
also significantly changed. These changes have been to the detriment of
workers' ability to achieve a secure and dignified retirement.
Employers have shifted away from offering traditional defined
benefit pension plans, which provided workers guaranteed lifetime
income after they retired. Nowadays when a private sector employer
offers a retirement plan, it is likely to be a defined contribution
plan, such as a 401(k). But that's if employers offer one at all. Too
many Americans lack access to a retirement savings plan through their
employer. An estimated 7.5 million Californians and roughly 55 million
people nationwide do not have access to retirement benefits through
their employer.
There are also significant disparities along racial and ethnic
lines when it comes to retirement savings. According to the Urban
Institute, in 2016, white families had about $130,000 more--or six
times more--in average liquid retirement savings than African American
and Hispanic families. That disparity has increased fivefold over the
past 25 years.
Additionally, few Americans are earning enough to save for a
stable, secure retirement. Workers are doing more today than ever
before. Over the last 40 years, worker productivity has risen 72.2
percent. At the same time, worker wages has essentially stagnated--
increasing only 17.2 percent. Worker productivity in the last 40 years
has increased over 70 percent. Wages, adjusted for inflation,
increasing less than 20 percent. It is incredibly hard for workers to
do much on their own for retirement when, according to the Federal
Reserve, many would struggle to come up with the money to finance an
unexpected $400 expense, such as a car repair or a medical bill in
their daily life.
That is why I believe retirement security is fundamentally aligned
with workers' wages. The more people earn, the easier it is for them to
plan and save for retirement. At a minimum, we must support policies
that increase workers' wages and strengthen their ability to organize
and collectively bargain. The data is clear that unionized workers have
greater access to retirement plans and higher participation rates than
their non-unionized counterparts.
But we shouldn't stop there. We must strengthen and protect Social
Security. We must address inequities and discriminatory barriers in the
labor market. I also am interested in learning more from the witnesses
today about the SECURE Act 2.0 and how it helps Americans plan and save
for retirement.
Before I conclude, I recall a recent issue of the New York Times
Magazine discussing how the human life span doubled over the past
century. And now--with medicines combating diseases and prolonging
life--the number of people who might live to be 100 years old could
increase--should increase. According to a United Nations estimate cited
by the Magazine, there were 95,000 centenarians in the world in 1990;
but there could be 25 million by 2100.
A recent Kaiser Foundation report showed that the life expectancy
for people over 65 is increasing exponentially. According to this
study, the U.S. ranks 13th in the world in life expectacy increases for
people over 65. I'm proud to say that when you separate that by region
the western United States, and State of California where I live, is No.
1 in the world in life expectancy for people over 65.
We must make sure our retirement system is equipped to support
people living longer and that it provides that ``measure of
protection'' Franklin Roosevelt mentioned in 1935.
I look forward to hearing from our expert witnesses about these
issues, and I now recognize my friend and the distinguished Ranking
Member, Mr. Allen, for his opening statement.
______
Chairman DeSaulnier. And I now am pleased to recognize my
friend and the distinguished Ranking Member from Georgia, Mr.
Allen, for his opening statement.
Mr. Allen. Thank you, Chairman.
We all desire financial security in our latter years.
Individuals work for decades and diligently save money to have
peace of mind when they move from success, their career, to
significance. And for decades this Committee and Congress have
come together in a bipartisan fashion to address the financial
needs of our Nation's workers and retirees.
The Pension Protection Act of 2006 strengthened protections
for workers owed pension benefits, and the Multi-Employer
Pension Reform Act of 2014 established a responsible and
balanced process to save multi-employer pension plans projected
to run out of money.
The bipartisan approach continued last Congress.
Republicans and Democrats worked together to pass the SECURE
Act of 2019 which empowered small businesses to offer
retirement plans through open, multiple, and pooled employer
plans. The bipartisan CARES Act allowed workers to tap into
their retirement savings without penalty to offset pandemic-
induced hardships.
However, earlier this year, Democrats went in a different
direction and used pandemic relief as an excuse to bail out
failing multi-employer pensions without any structural reforms
to hold unions and businesses accountable for the mismanagement
of their pension plans. Taxpayers are now on the hook for this
$86 billion bailout.
Asking hard-working taxpayers to foot the bill for a
contract between private parties is unsustainable and an abuse
of the public's trust. Democrats are doing workers and retirees
a great disservice by defending outdated defined benefit multi-
employer pension plans.
Our nation's economy and workplaces have evolved. These
pension plans have not evolved along with them.
The simple fact of the matter is that most of these plans
can no longer fulfill their promises. Ninety-six percent of
multi-employer plan participants are enrolled in pensions that
are less than 60 percent funded.
Instead of modernizing outdated policies, Democrats
continue to double down on failed pension arrangements. They
depend on taxpayers not to notice that they are now on the hook
for decades of mistakes made by entities with a track record of
mismanagement.
We must empower individuals to make the best financial
choices for their own unique situation. Republicans trust the
American worker. We believe every worker and retiree knows how
best to save and spend their own money. Defined contribution
plans present employees a flexible pathway to realize their
retirement goals.
There are numerous reasons why defined contribution plans,
like 401(k)s, are more advantageous for employees. Defined
contribution plans are immediately the property of employees,
can be tailored to the precise retirement needs of the worker,
and will never require taxpayer bailout.
Furthermore, defined contribution plans are portable.
Individual accounts travel with the worker as the person finds
another job. These flexibilities are crucial in the modern
economy.
I see room for bipartisanship and commonsense policy
updates, and this Committee must lead the way in working
together to expand on the SECURE Act and ensure that Americans
are secure in their retirement.
One way we can help Americans secure a comfortable
retirement is by making it easier for them to save part of
their paycheck earlier in their working life.
As this Committee considers updates to ERISA, we must focus
on expanding access to defined contribution plans, increasing
retirement options for employees of small businesses, making
plans more transparent, and eliminating the need for future
taxpayer-funded bailouts of special interests.
This Committee has a long history of working together in a
bipartisan way to address the retirement security needs of
American workers and retirees. We need to return to that model
by adopting evidence-based, balanced, and fiscally responsible
solutions moving forward. This approach, accompanied by
policies to ensure a growing and vibrant economy, will do far
more to help American workers and retirees in the long run.
And with that, Mr. Chairman, I yield back.
[The statement of Ranking Member Allen follows:]
Statement of Hon. Rick W. Allen, Ranking Member,
Subcommittee on Health, Employment, Labor, and Pensions
Thank you, Chairman DeSaulnier.
We all want a long and happy retirement. Individuals work for
decades and diligently save money to have peace of mind for when they
retire.
And for decades, this Committee and Congress has come together in a
bipartisan fashion to address the financial needs of our Nation's
workers and retirees. The Pension Protection Act of 2006 strengthened
protections for workers owed pension benefits, and the Multiemployer
Pension Reform Act of 2014 established a responsible and balanced
process to save multiemployer pension plans projected to run out of
money.
The bipartisan approach continued last Congress. Republicans and
Democrats worked together to pass the SECURE Act in 2019, which
empowered small businesses to offer retirement plans through open
multiple and pooled employer plans. The bipartisan CARES Act allowed
workers to tap into their retirement savings without penalty to offset
pandemic-induced hardships.
However, earlier this year, Democrats went in a different direction
and used pandemic relief as an excuse to bail out failing multiemployer
pensions without any structural reforms to hold unions and businesses
accountable for the mismanagement of their pension plans. Taxpayers are
now on the hook for this $86 billion bailout. Asking hardworking
taxpayers to foot the bill for a contract between private parties is
unsustainable and an abuse of the public's trust.
Democrats are doing workers and retirees a great disservice by
defending outdated defined benefit, multiemployer pension plans. Our
nation's economy and workplaces have evolved, but these pension plans
have not evolved along with them. The simple fact of the matter is that
most of these plans can no longer fulfill their promises. Ninety-six
percent of multiemployer plan participants are enrolled in pensions
that are less than 60 percent funded.
Instead of modernizing outdated policies, Democrats continue to
double down on failed pension arrangements. They depend on taxpayers
not to notice that they are now on the hook for decades of mistakes
made by entities with a track record of mismanagement. We must empower
individuals to make the best financial choices for their own unique
situation. Republicans trust the American worker; we believe every
worker and retiree knows how best to save and spend their own money.
Defined contribution plans present employees a flexible pathway to
realize their retirement goals. There are numerous reasons why defined
contribution plans like a 401(k) are more advantageous for employees.
Defined contribution plans are immediately the property of
employees, can be tailored to the precise retirement needs of the
worker, and will never require a taxpayer bailout. Furthermore, defined
contribution plans are portable. Individual accounts travel with the
worker as the person finds new jobs. These flexibilities are crucial in
the modern economy.
I see room for bipartisanship and commonsense policy updates, and
this committee must lead the way in working together to expand on the
SECURE Act and ensure that Americans are secure in their retirement.
One way we can help Americans secure a comfortable retirement is by
making it easier for them to save part of their paycheck earlier in
their working life. As this Committee considers updates to ERISA, we
must focus on expanding access to defined contribution plans,
increasing retirement options for employees of small businesses, making
plans more transparent, and eliminating the need for future taxpayer-
funded bailouts of special interests.
This Committee has a long history of working together in a
bipartisan way to address the retirement security needs of America's
workers and retirees. We need to return to that model by adopting
evidence-based, balanced and fiscally responsible solutions moving
forward. This approach, accompanied by policies to ensure a growing and
vibrant economy, will do far more to help America's workers and
retirees in the long run.
______
Chairman DeSaulnier. Thank you, Mr. Allen. I am encouraged
by your comments and look forward to working with you. I think
we can all agree that responsible oversight by this Committee--
this Subcommittee--would be a great addition. And I really look
forward in a bipartisan way to look at that and conduct
evidence-based oversight, both for the financial institutions
that do much of this investment and the management of those. So
encouraging.
Without objection, all other Members who wish to insert
written statements into the record may do so by submitting them
to the Committee Clerk electronically in Microsoft Word format
by 5 p.m. on July 7.
Now I would like to introduce our witnesses, a really great
panel. I want to thank our staff for getting them here, both
Republican and Democratic staff.
First, Dr. Teresa Ghilarducci is a professor of economics
at the New School for Social Research and the director of the
Schwartz Center for Economic Policy Analysis in the New
School's Retirement Equity Lab.
Dr. Nari Rhee is the director of the Retirement Security
Program at the finest public university in the country, a
neighbor of mine in my district, the University of California,
Berkeley Center for Labor Research and Education--although I am
not biased.
Dr. Andrew Biggs is a resident scholar at the American
Enterprise Institute.
And Dr. David Certner is legislative counsel and director
of legislative policy for government affairs at AARP.
I apologize for any mispronunciations.
Our instructions to the witnesses are as follows. We
appreciate the witnesses for participating today and look
forward to your testimony. Your written statement will appear
in full in the hearing record, and you are asked to limit your
oral presentation to five minutes. After your presentation, we
will move to Member questions.
The witnesses are aware of their responsibility to provide
accurate information to the Subcommittee, and, therefore, we
will immediately proceed to hear testimony. And I will first
recognize Dr. Ghilarducci.
Doctor.
STATEMENT OF DR. TERESA GHILARDUCCI, IRENE AND
BERNARD L. SCHWARTZ PROFESSOR OF ECONOMICS AND
POLICY ANALYSIS, THE NEW SCHOOL FOR SOCIAL
RESEARCH, DEPARTMENT OF ECONOMICS, NEW YORK, NY
Ms. Ghilarducci. Thanks very much.
Even though I have taught at two universities, at present
the New School for Social Research in New York and for 25 years
at the University of Notre Dame in Indiana, I did attend all my
schooling at the best and greatest university, the University
of California at Berkeley.
Chairman DeSaulnier. Go Bears.
Ms. Ghilarducci. Both undergraduate, master's, Ph.D. So I
agree.
I am here to talk about the landscape of what this country
has done for older workers. It is called ``100 Years of
Progress in Equalizing Retirement and How We Could Lose It.''
Before Social Security and defined benefit plans were
established, workers were more likely to die than they were
more likely to retire. They died in their boots.
And women's work was mainly unpaid. She did significant
paid work when she did do that all throughout her life, and
that was mostly in taking in boarders. It was the modern-day
Airbnb. And she never retired either.
In the 15 years or so before Social Security was passed--
and that was in 1935, of course--only a few soldiers, some
government and railroad workers had a pension. A scattering of
union workers had pensions. And most of those were in single
and multi-employer plans.
And still, 5 years after Social Security was passed, it was
only the privileged that were truly able to retire. They would
tell historians and researchers at the time, ``Oh, I retired
because I wanted to.''
There was reference in the opening statements about a
dignified retirement, being able to look forward to retirement,
but that was a very rare event. Only 3 percent of retirees had
a voluntary retirement. And I will tell that story up until the
present. And of course that 3 percent were the most privileged.
They had the highest income, highest wealth, and they were
healthier.
Age in this period of time was a person's largest risk
factor of being poor. Age in itself was a risk factor of being
poor. And your grandparents and your great-grandparents and
those before that were very high risk of living with their
relatives when they got older.
And if they weren't that lucky to have kin or relatives to
live with, in this country the poor elderly were sent to county
poorhouses. Or, when those were closed because of their
brutality, in the early 20th century the aged went to
institutions they called then insane asylums. The older poor
were living with people who were severely mentally ill.
So one of the first signs of progress that came with elders
having more income was that they got to live independently and
they weren't poor.
But, given the work that we are doing now, we have done for
the past 10 years since the last recession, we are predicting
that the erosion of pensions, the scattered coverage of the
defined contribution plans that we talked about in opening
statements and the decline of defined benefit plans, and the
fact that they are top heavy, that they really are something
that the top people in the upper income distribution have, is
going to create a situation where we are going back to the
future.
Right now, all of us here at the hearing are at greater
risk of our parents moving in with us, in our spare bedroom, in
our basements, in our renovated garage, than our parents faced
with our grandparents.
And another reverse of progress that I fear is the widening
gap between the classes and the widening gap in what we have
taken for granted, and that is the ability to retire in some
kind of decency.
So, right now, a working man in the bottom third of the
educational distribution that is the best proxy for
socioeconomic class that we have, he can expect to have 12
years of retirement, not 20 or 30. It is about 12 years when we
use actual data to see when people actually retire and when
they die. And at the upper third, 14 years, so 12 and 14.
Now, there is a class divide there, but it is not that
great, and it is something we should celebrate. The rich and
the poor and the middle class have been able to retire.
But this is something that can be reversed very soon
because retirement equity came from defined benefit plans, both
single and multi-employer, retiree health plans, and an
expanding Social Security system.
Now, I come before you today as a professor and an
historian, a professor of economics. But for 25 years I served
as a trustee of not only the public pension plans for Indiana
when I was at Notre Dame, also, a corporate director
representing shareholders for the Yellow Freight Company, the
biggest contributor--one of the biggest contributors to the
Teamsters' Central States Fund. So I represented the
shareholders there.
And now I represent the $60 billion--I am a trustee of a
$60 billion healthcare fund for United Auto Workers and the big
three auto companies and for $1 billion for steelworkers and
the Goodyear Tire company.
And what I have learned from these roles is that the
incomes that our Members have and take to their communities--
and they are all over the country, they are not just
concentrated in Michigan or in Indiana or in Pennsylvania, they
are everywhere--when they take those incomes to their
communities, it has a huge multiplier effect. The Social
Security, the pensions, and the healthcare really adds to the
health of those communities.
So it is not just the workers, it is their employers, and
it is their communities.
So not----
Chairman DeSaulnier. Thank you, Doctor
Ms. Ghilarducci. Yes, not everyone had a DB plan before.
Only 70 percent of full-time workers had a DB plan then. And
now that is switched, and so the worker is lucky enough to have
any kind of plan, mostly 401(k)----
Chairman DeSaulnier. Doctor, I am going to have to ask you
to wrap up.
Ms. Ghilarducci. Got it. OK. Sorry about that.
One concern I have is that if we don't do something, we
will have more elders in poverty.
We have a solution. It is something that I provided back in
2018 and something now, live, that is very bipartisan.
I am working with an unlikely partner, Kevin Hassett, who
was on Trump's Council of Economic Advisers. We have proposed
with the Economic Innovation Group that everyone have access to
a plan like you all have, the Thrift Savings Plan. So we are
offering up a platform for everyone to have it. If we don't do
that, we could reverse the decades of promise we have had in
retirement equity.
[The prepared statement of Ms. Ghilarducci follows:]
Prepared Statement of Dr. Teresa Ghilarducci
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman DeSaulnier. Thank you, Doctor.
Ms. Ghilarducci. Thank you.
Chairman DeSaulnier. We look forward to hearing more about
your partnership.
Dr. Rhee, you are up for five minutes.
STATEMENT OF DR. NARI RHEE, DIRECTOR,
RETIREMENT SECURITY PROGRAM, UNIVERSITY OF
CALIFORNIA AT BERKELEY, BERKELEY, CA
Ms. Rhee. Thank you. Good morning, and thank you for this
opportunity to be here today.
I want to make three points today related to the
inequalities in the current private sector retirement system,
whether it is race, gender, and income. And I am so happy that
you covered a lot of the basic data.
So I am going to kind of reframe and talk about the
interactions between the employer-sponsored retirement system
and the fact that it is now primarily a defined contribution
system and dynamics inside and outside the labor market that
result in an incredible degree of inequality in retirement
savings outcomes.
So, as you mentioned, the retirement benefit access in the
private sector is incomplete. It is far short of 100 percent.
And it also varies wildly by occupation, industry, and wage
level, not to mention firm size. So that the likelihood of
being offered a retirement plan as a private sector worker is
directly correlated with your wage level.
At the end of the day, only about 20 percent of workers in
the bottom quartile, bottom 25 percent, actually participate in
a private sector retirement plan.
So this intersects with sort of labor market segmentation
and also kind of women's work realities. One is that, if you
look at it by industry or occupation, the sectors with the
heaviest concentrations of Black and Latino workers also have
the lowest rates of retirement benefit sponsorship.
I am just going to pull out two sectors, hotel and
restaurants. Latinos and Black workers are 60 percent
overrepresented in that sector relative to their overall labor
market presence. Only 33 percent of workers in that sector are
offered a plan.
Similarly, in administrative wing services, which is also
heavily overrepresented in terms of workers of color, only 38
percent have access.
And then if you look at the top levels where workers are
underrepresented in terms of workers of color, it is the
reverse, that you will see 80 percent or higher rates of access
in things like finance and business services.
So the upshot of this is that only 46 percent of Black
working households and 37 percent of Latino working households
has anybody on a pension or 401(k) in that family compared to
60 percent of White working households.
So I would say that both White working households and
households of color are not looking so good. But, obviously,
there is additional----[inaudible].
So I am going to ask the facilitator to advance to Figure
3. I just have a few charts that I want to highlight just to
illustrate the magnitude of inequality.
So if you would skip forward to Figure 3, please. Thank
you.
So we are looking at retirement account balances among near
retirement households by income quintile in 2019. And so just
kind of eyeball this chart and you can see that there is a
tremendous degree of inequality in account balances.
And this is just typical account balances. If you look at
mean or average account balances it looks a lot worse.
And then you will notice the zeros in the bottom 40 percent
of the chart, and that is because less than half of--well under
half of households in the bottom 40 percent of this age group,
basically they don't own a retirement account.
So I am going to advance to Figure 5, which shows the same
kind of data by race, and this is for working age households
age 25 to 64.
And so, again, you will see that the median balance for all
Black and Latino households is zero because, in fact, 60
percent of Black households and 68 percent of Latino households
do not own a retirement account.
And among the lucky few that do, the typical balance is
less than half that of the typical balance of White households.
And, again, it looks much worse if you look at means as opposed
to medians.
Finally, on Figure 7, just to break this down quickly by
sex and marital status, so marriage definitely gives you a
boost in retirement security, although the balances aren't that
impressive, and single women-led households tend to be the
worst off.
So women face particular challenges in an employer-based
retirement system. The data indicates that women have
approximate 30 with managers of retirement benefit access, but
they also face a lot of challenges, and that is longer lives,
the gender pay gap, and just in general lower wages than men,
but also their lifetime earnings are really truncated by unpaid
caregiving work. And that includes cumulative costs of hundreds
of thousands of dollars for women who have to take time out of
the labor force.
I see that we are over time, so I just want to highlight a
couple of things.
I have been deeply involved in the formation of the
CalSavers auto-IRA program. And the States are just desperate
for a solution to this problem because it is going to hit them
in their pocketbooks, and they know it.
So some States have jumped, just jumped in and gotten tired
of the Federal Government to act on universal retirement
coverage. And at the same time, they are severely limited in
terms of what they can do by ERISA preemption, so they can't
take employer contributions, they can't cover the part-time
workers who are excluded from ERISA-regulated plans. And so I
think there is a need for Federal leadership on this issue.
And the last point I want to make is that wage policy is
incredibly important. California enacted the $15 minimum wage
the same day that it enacted CalSavers. And combined, it has
the potential to increase low wage workers' retirement incomes
by up to 50 percent above the status quo. So wage policy is
incredibly important.
Thank you.
[The prepared statement of Ms. Rhee follows:]
Prepared Statement of Dr. Nari Rhee
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman DeSaulnier. Thank you, Doctor.
We will now go to Dr. Biggs for five minutes.
Doctor, the floor is yours.
STATEMENT OF DR. ANDREW BIGGS, RESIDENT SCHOLAR, AMERICAN
ENTERPRISE INSTITUTE, WASHINGTON, DC
Mr. Biggs. Thank you very much, Mr. Chairman and Ranking
Member Allen, for the opportunity to testify today.
A study published by a prominent think tank predicted that,
quote, ``More than 40 percent of households between the ages of
47 to 64 will not be able to replace even half of their
preretirement incomes once they stop working. Nearly 20 percent
will have retirement incomes below the poverty line.''
Those claims could have jumped from the testimony at
today's hearing. We have heard the retirement system is eroding
and retiree poverty will skyrocket.
And, yet, that frightening study was published nearly two
decades ago by the progressive Economic Policy Institute, and
none of its dire predictions came to pass.
Poverty in old age didn't increase. In fact, it fell
substantially.
Retirement incomes did not decline, but instead rose to
record levels.
And instead of a retirement crisis, 80 percent of retirees
today tell Gallup surveys they have enough money not merely to
survive but to, quote, ``live comfortably.'' Only 5 percent of
seniors tell a Federal Reserve survey they are, quote,
``finding it hard to get by.''
The data show clearly that never before have so many
Americans saved so much for retirement. Never before have
retiree incomes been so high or poverty in old age so low. And
so I predict the same will hold for the dire warnings you will
hear today.
But even more importantly, the Federal Government itself
does not predict anything approaching a retirement crisis. The
Social Security Administration's most sophisticated retirement
income model projects that future retirees will have a median
retirement income replacement rate about 110 percent of their
career average returns. That is very similar to today's
retirees.
The share with low replacement rates also will remain the
same while poverty and old age will continue to fall.
Why is the future so much brighter than some would have you
believe? Because we have done the things necessary to boost
retirement savings.
The switch from traditional pensions to 401(k)s means that
more Americans have access to retirement plans. Back in the
mid-1970s, when traditional pension participation was at its
peak, only around 4 in 10 private sector workers had a
retirement plan. IRS data show that nearly 60 percent of
workers are participating in a plan today.
Among married couples, over 80 percent have at least one
spouse participating in a retirement plan, and it is likely
that over 90 percent of couples have at least one spouse who is
offered a plan.
We have come a long way.
401(k)s also boost savings because unlike traditional
pensions, both employer and employee pay in. Since the 1970s,
total retirement plan contributions rose from 5.8 percent of
employee wages and salaries to 8.4 percent. That is a 45
percent relative increase in retirement savings.
Total retirement plan assets today are seven times higher
than back in the 1970s. Federal Reserve data show that
retirement savings have increased in every age, income,
educational, and racial or ethnic group.
401(k)s are also much more portable than traditional
pensions, which helps workers who switch jobs or take time out
of the workforce.
All in all, while just 45 percent of retirees received
benefits from a private retirement plan in 1990, 61 percent of
retirees do today.
When we think about a retirement system, especially how
different groups are treated, we need to think about the whole
system.
U.S. households today hold $41 trillion in private
retirement savings. Those savings are skewed toward high
earners. But Americans have also earned nearly $41 trillion in
Social Security benefits, and Social Security benefits are
tilted toward low-income households.
For instance, the CBO finds that the poorest fifth of
retirees received Social Security benefits equal to about 80
percent of their preretirement earnings, while the richest
fifth received a replacement rate of just 34 percent of their
earnings.
Given this, it is not at all surprising that low-income
Americans save little on top of Social Security while high-
income Americans save a great deal more.
Remember, retirement saving isn't about ending life with
the most money. It is about saving enough to maintain your
standard of living once you stop working. And a variety of data
show the vast majority of Americans, rich and poor and from
different walks of life, are able to do that.
I support policies to give all Americans access to
retirement plans. The U.S. retirement system has made great
progress in the last several decades and it is foolish to deny
that progress. But past progress isn't enough. We need to keep
working to fill the gaps that remain in our system so that
every American who wants and needs to save for retirement has
an easy and affordable way to do so.
Thank you very much.
[The prepared statement of Mr. Biggs follows:]
Prepared Statement of Andrew Biggs
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman DeSaulnier. Thank you, Doctor.
We will now go to our last witness, panelist, Dr. Certner.
I apologize for the previous mispronunciation.
Dr. Certner, you are recognized for five minutes.
STATEMENT OF MR. DAVID CERTNER, LEGISLATIVE COUNSEL AND
DIRECTOR OF LEGISLATIVE POLICY FOR GOVERNMENT AFFAIRS, AARP,
WASHINGTON, DC
Mr. Certner. Thank you, Mr. Chairman and Members of the
Committee. Thank you for the opportunity to testify today on
improving our retirement system.
A secure retirement traditionally centered on the three-
legged stool of employer-provided pensions, personal savings,
and Social Security. Unfortunately, diminishing pensions and
inadequate savings, plus longer life expectancies and high
health costs, has put a secure requirement out of reach for too
many, requiring Social Security to play an even greater role in
retirement.
Social Security is already the principal source of income
for over half of older households. Roughly one quarter, about
10 million people, depend on Social Security for nearly all--
meaning 90 percent or more--of their income. Social Security
keeps approximately 15 million older Americans out of poverty
and allows millions more to live without fear of outliving
their income.
And while Social Security is the base of income in
retirement, more is needed. The dramatic switch from defined
benefit plans to defined contribution plans over the past 40
years has important implications for retirement security.
Employees are now responsible for whether and how much to save
and must manage their retirement funds even though most have
little investment experience. And, unfortunately, most workers
are not saving enough.
Of course, access to a plan is better than none at all.
Remarkably, less than half of all workers have access to a
retirement plan at work.
Now, Congress has taken numerous steps to make retirement
saving easier, including features such as automatic enrollment
and default investment that have helped workers and increased
savings. However, automatic features only help workers who have
a retirement plan. Expanding coverage for the tens of millions
of workers without coverage remains a high priority.
At the State level, AARP is focused on passing what are
called Work and Save programs, like CalSavers, which provide
employer-facilitated access to payroll deduction savings
options for workers who don't have a way to save for retirement
at work.
Such access helps address the coverage gap because workers
are 15 times more likely to save for retirement simply through
payroll deduction at work.
State programs have already shown much promise in
increasing coverage and savings.
In addition to State programs, Federal policy should also
encourage automatic payroll deduction savings. AARP has been a
long-time supporter of Federal auto-IRA legislation, most
recently proposed by House Ways and Means Chairman Neal.
AARP also supports bipartisan legislation recently approved
by the Ways and Means Committee, the Securing a Strong
Retirement Act, known as SECURE 2, which includes many
important changes.
The bill would improve coverage for the 27 million part-
time workers who generally are not covered by retirement
savings plans. This is especially important for older workers
and caregivers, who often shift to part-time work.
The bill would also automatically enroll workers in new
employer retirement savings plans.
SECURE 2 includes an important requirement for an annual
paper retirement benefit statement, which AARP strongly
supports. Plan participants who generally prefer paper copies
of important financial documents should be provided statements
in paper form unless they choose electronic delivery.
Congress needs to ensure that workers receive and can
review their annual benefit statement, similar to the Social
Security and Federal employee statement of benefits, to help
employees better understand and manage their plans.
SECURE 2 would also establish a national retirement lost
and found office to help workers locate retirement accounts
with previous employers. This has become increasingly important
as more workers change jobs several times over their career.
And SECURE 2 also makes improvements to the required
minimum distribution rules, including exempting a threshold
amount that will both simplify the rules and help preserve
savings.
Separately, AARP also supports efforts to improve the
saver's tax credit, which acts as a matching contribution for
low-and moderate-income taxpayers who contribute to a
retirement plan. Improvements to the credit, again, can
encourage and increase savings for those who are least able to
save.
We also must do more to protect hard-earned retirement nest
eggs. All tax-deferred retirement savings should be prudently
invested with reasonable fees and without conflicts of
interest. A uniform strong fiduciary standard should ensure
that all financial professionals act in the sole interest of
their customers when providing investment advice.
AARP also urges Congress to discourage preretirement cash-
outs of retirement funds and instead encourage account
portability and stable lifetime income streams.
We look forward to working with the Committee to encourage
asset preservation and to provide low-cost distribution and
spend-down options that meet workers' needs in retirement.
Finally, AARP commends the Congress for enacting earlier
this year important legislation to protect the earned benefits
of millions of workers and retirees counting on multi-employer
pensions for retirement security.
Many retirees experienced and were facing devastating
benefit cuts. While this was a difficult problem, the
legislative support was critical to protecting the benefits of
workers and retirees who had worked hard, earned their
benefits, and were put at risk through no fault of their own.
Again, in conclusion, AARP would again like to thank the
Committee for considering the challenges and needs for a secure
retirement and the opportunity to share our policy views. We
stand ready to work with the Committee to improve Americans'
retirement security.
Thank you.
[The prepared statement of Mr. Certner follows:]
Prepared Statement of David Certner
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman DeSaulnier. Thank you, Doctor.
Thank you to all the panelists. Terrific testimony. I
appreciate the content and the tone very much.
Under Committee Rule, we will now question the witnesses
under the five-minute rule, please, and I will be recognizing
Subcommittee Members in seniority order.
As the list I currently have from staff, I am going to
speak first, and then we will go to Representative Walberg and
then Representative Norcross.
As Chair, I now recognize myself for five minutes.
And, again, I want to thank the panelists. I look forward
to further discussion and--in the terminology of the Ranking
Member--evidence-based research.
We certainly can have differences of opinion to our
approach, and we do, to solving this problem, but I respect
divergent opinions. And if we go by the evidence-based
research, I think we can really make strong progress.
And I want to work with the other committees of
jurisdiction, particularly Ways and Means, but this
Subcommittee, and I know the full Committee, thinks this is a
priority. And I appreciate all the input from Subcommittee
Members prior to this hearing, and I am open to further input.
And, Dr. Biggs, I appreciate your testimony. We certainly
want to be driven by evidence-based research. But I also don't
think it necessarily contradicts the testimony from Dr. Rhee,
and it is reflective of our overall inequality in this country,
which isn't surprising, both for workers and for retirees.
So the question is, how best do we have a discussion about
that. There is nothing wrong with capital investments in
general if they are done with responsibility toward all, as
Piketty's work and Emmanuel Saez's work would indicate to me.
But that balance between wages and capital investment, both for
workers and retirees, are important for everybody's happiness.
So I look forward to talking to you personally, Dr. Biggs,
and other panelists on how we can honestly address these issues
in a thoughtful way in this Subcommittee and, again, as the
Ranking Member says, be driven by evidence-based research.
My questions.
Dr. Ghilarducci, in my opening statement I mentioned the
recent New York Times Magazine on the doubling of life
expectancy between 1920 and 2020. So the social model has
changed, mostly for better, I would say, and particularly
having two incomes in the workforce. Certainly household
productivity I think, has undeniably increased in the United
States because of this addition.
But it has caused strains on our system as well, and the
social model is very different. Young people are forced to have
greater mobility when they look for jobs, not just in their own
neighborhood and community and region but nationally.
So in your written statement you mentioned several reasons
why older Americans are better off these past hundred years.
Would you please talk briefly about how having the ability to
retire with a pension is so important and connected to human
longevity and the quality of life as we get older?
Doctor?
Ms. Ghilarducci. Yes, just quickly, and I am sorry I went
over time last time.
We tend to think that improving longevity just happens and
that that requires people to work longer, because people
improved their longevity and they also exited the labor market,
as if those two things were unrelated.
And what the research, the medical research, using the
health and retirement survey and other sources of data have
shown is that living longer is actually related to being able
to retire voluntarily with income.
For many, many people, and it is unequally distributed this
way, working at old age causes a lot of stress. Cortisol levels
go up, you are subordinate in the workforce, you can't control
the pace and content of your time like many of us can do now.
And so, especially for women in service organizations or paid
care work, working every day in your sixties and seventies
actually reduces longevity.
So, Andrew, notwithstanding your warning that our
predictions can be wrong, the evidence is pointing to, if we
are forcing people to work longer because we don't do anything
about our pension system, we could actually reverse that great
longevity gain and make those longevity gains really unequal.
Most of those longevity gains, as you know, have gone to
the people at the top of the income distribution.
Chairman DeSaulnier. Dr. Rhee, let's talk about comparisons
globally. We talk a lot about global competitiveness. Dr. Rhee
or Dr. Ghilarducci, how do we compare vis-a-vis our global
competitors?
Dr. Rhee?
Ms. Rhee. I think in terms of retirement plan coverage, I
want to sort of stress that it is a totality between Social
Security, pensions, employer-sponsored pensions, and private
savings. And we just want to make sure that there is universal
coverage and that benefits are adequate.
And I think that on the whole U.S. Social Security benefits
are less generous than other advanced countries, and we need to
be doing more on the pension front, and that is actually not
what is going on.
Chairman DeSaulnier. Thank you, Doctor.
My time is up. I am told that the Ranking Member would like
to wait until later in the testimony for questioning. So that
will put my friend and colleague from Michigan, Mr. Walberg, as
the next speaker.
You are recognized for five minutes.
Mr. Walberg. Thank you, Mr. Chairman.
And thank you to the panel for being here today.
An important issue. Retirement security is an important
topic and one that has a history of bipartisan support.
Americans dream of retirement financial security, but,
unfortunately, many struggle on how to get there.
With that in mind, in 2018, when I Chaired this Committee,
we held a bipartisan hearing that examined solutions to
modernize our retirement system and make it easier for
employees to save for retirement.
The proposals that we discussed in 2018 were later signed
into law, gratefully, as part of the SECURE Act, which was the
first major update to our retirement policies in over a decade.
Ensuring that American retirees can count on sufficient
income to last throughout their retirement is not only
important to families, but also for our economy.
So I thank the Committee for holding this hearing, and I
hope that Members on this Committee will continue our history
of bipartisanship and buildupon the success of the SECURE Act
so every American can retire with dignity and peace of mind.
Dr. Biggs, thank you for being here as an additional point
of view that we truly need to hear.
Employer-sponsored retirement plans are an indispensable
pillar to the U.S. retirement system. That is not really
debatable.
Could you please elaborate on your research regarding
participation in employer-sponsored plans and the amount of
savings employees are achieving through this model?
Mr. Biggs. Well, thank you very much, Congressman Walberg.
I think we all agree that having a retirement plan at work
increases savings significantly versus having to set one up on
your own, such as through an IRA. So it is important that
employers offer these plans.
What we have seen over time is that employers are
increasingly offering retirement plans. Some gaps remain. But
if we go back to the heyday of traditional pensions, which we
all have rose-colored glasses on, at their peak, 39 percent of
private sector workers participated in a defined benefit plan.
Today, you have somewhere around 60 percent of workers
participating in some sort of plan, more than that being
offered a plan.
So when we think about why employers will offer a plan, we
have to think of the attributes of the plan. A defined benefit
pension, a traditional benefit is very onerous on the employer
to offer both from an administrative standpoint, but also from
the standpoint of financial liabilities.
What happened up to the mid-1970s, before we had ERISA, was
that employers were willing to offer traditional pensions, but
they didn't fund them, and they set these vesting requirements
such that literally, like, 92 percent of defined benefit
participants, according to a Senate Labor Committee study in
the 1970s, they participated in a plan, they never collected
benefits because they didn't vest.
ERISA changed that and said, well, if you are going to
offer benefits, you have to have reasonable vesting
requirements and you have to fund them. That is when employers
said, it is not really worth it for us to cover, to offer these
plans anymore.
401(k) plans are much easier for employers to offer, and so
coverage spread. We have, in relative terms, 50 percent more
employees participating in 401(k) plans today than we did with
traditional pensions.
So you have to think about what is on the employer side and
how to facilitate them offering that plan, because that is
really a crucial aspect.
Mr. Walberg. Dr. Biggs, could you describe the existing
barriers that may discourage certain employers, especially
small employers, from offering a retirement plan to their
employees?
Mr. Biggs. Yes. Small employers are really where the gaps
exist. If you look at larger employers, vast majorities of them
are already offering a plan.
For small employers, they have a couple of issues. All
along we have had issue with sort of the fixed costs of
offering a retirement plan. If you are running a laundromat or
something like that and you have 10 employees you still have to
get a financial adviser, you may have some legal fees involved
with setting it up. So it is a bigger issue, a bigger cost for
you compared to the number of employees you are going to serve.
The second issue, which is more recent, is potential
liability issues. The lawsuits against 401(k) plan providers
have increased significantly in recent years.
So if you are a small employer, you may today just say it
is not worth the trouble to me, that there is a cost burden
involved, and then I may be taking on a financial risk.
And so we need to address those things, both smooth the
costs out for them, but also make very clear what you can do to
be protected. And I think if you do that, they will be more
willing.
But we also need to be realistic. I don't think you are
going to get a hundred percent coverage among small employers.
So then we want to think about what other options might be for
workers in those employers.
Mr. Walberg. So much more I could ask, but my time has
ended. So I yield back.
Mr. Biggs. Thank you.
Chairman DeSaulnier. Thank you, Representative Walberg.
Really good questions. As a former small business owner and
restaurateur who has struggled with this issue, another area
that I think that we could have a really good discussion about
on what is best for those small businesses who are already
struggling to make ends meet.
Next is the distinguished gentleman from New Jersey, Mr.
Norcross, somebody who has a unique passion on this issue.
Mr. Norcross. Well, first of all, thank you, Chairman, for
holding this meeting and bringing to the front of the line
something that is near and dear to everyone on this call,
whether you agree how we get there or not, it's those golden
years. And, certainly, we work all our lives, and we want to be
able to enjoy that as we get there.
And certainly to my colleagues on the other side, Mr.
Walberg and I have reached many common grounds on this. So I
think there is a real pathway here.
When we looked over the past year, it has been a challenge
to every one of us. Luckily, we finally came together, and this
is after we served on the bicameral, bipartisan commission a
couple years ago focusing on how we could save the multi-
employer.
Somehow we talk about it like it is companies or unions.
These are people. These are people that we saved. And while we
might have a disagreement on how we saved it, the fact of the
matter is literally thousands of men and women are going to be
able to survive in their retirement, and that is thanks to that
plan.
And, by the way, this wasn't just one side. It was UPS,
Kroger, large companies that literally could be going bankrupt
if it had not been for this. The Chamber of Commerce, the
National Association of Manufacturers.
So what I am going to start out with is, quite frankly,
what would have happened if we didn't pass this and we went
down the road.
So, Ms. Ghilarducci, could you touch base? What would have
been the cost, social and otherwise, financial, to this country
had we not saved the multi-employer plan?
Ms. Ghilarducci. It would have been substantial. As I
mentioned in my testimony, the dollars spent by the retiree in
those communities multiplied and created aggregate demand. It
also allowed the Member to stay in their communities.
As I said, I was a trustee for the--a director for the
shareholders of Yellow Freight based in Kansas City, and that
company would have gone bankrupt if it had to fund the multi-
employer plan all on itself, as they were supporting many more
retirees than they had Members.
So it could have caused bankruptcy of major employers and a
loss of income and vitality in those Midwestern and other
working-class communities. It would have been far more than the
$80 billion, probably another 2 or 3.
Mr. Norcross. Thank you.
And, listen, we as a country we make these decisions, and
obviously in Congress, we do. The trillions of dollars we just
spent propping up businesses through the pandemic, you could
call that a bailout. No, it is helping Americans. And thank you
for your discussion on this issue.
Mr. Certner, I want to talk about SECURE Act 2.0.
Unfortunately or fortunately, history and human behavior
have taught us that once an employee gets the money in the
paycheck, it is so much more difficult for them to turn around
and contribute to a retirement plan. Why? Particularly in the
lower economic scale of wages, ``Hey, do I want to send my kid
to camp? Do I want to buy them a pair of sneakers?'' Extremely
difficult.
Those plans across the spectrum that have been successful,
it is pre-dollars in the paycheck. The SECURE 2.0 talks about
the automatic enrollment.
Can you go into a little bit more detail on the 401 and the
403? Why is that important that we get the auto enrollment
ahead of the curve when it comes to the outcome?
Mr. Certner. Thank you, Congressman. Automatic enrollment
dramatically increases enrollment of the workforce. It usually
jumps from anywhere close from around 50 percent to around 80
percent when you have automatic enrollment.
Again, so if the employee is not paying attention to the
joining form, they are automatically basically making the right
decisions for the employee. They are going to be put in the
plan, they can start saving.
Now, the employee always has a choice to opt out, but most
employees, when they join up, are not thinking about
retirement, and it is good to have the system automatically
putting them in the right direction. If they want to make other
choices, that is great, but it is better that we have an
automatic system that is getting people, A, to sign up, and B,
are getting them into funds normally, like default lifestyle
funds, that basically can put them in a more diversified
investment scenario that is more appropriate for their age. So
this is putting people on the track to a better retirement.
Mr. Norcross. And it is a bipartisan approach, and we
certainly appreciate what they are doing because, again,
defined benefit, we all participate in; defined contribution,
so many employers only contribute if the employee contributes.
And those on the lower economic scale, unfortunately, need to
eat and take care of life.
Unfortunately, I have run out of time, but thank you for
the testimony, and I yield back to the Chairman.
Chairman DeSaulnier. Thank you, Mr. Norcross. And, again,
thank you for your passion on this issue. And since I bragged
on the University of California, I want to brag for you about
Rutgers University and their Labor Institute in your district.
Next, Mr. Banks, if you are prepared, you are next in the
queue. If not, we will go to Representative Harshbarger.
Mrs. Harshbarger. Thank you, Chairman and Ranking Member
and all the witnesses today. I am a small business owner, too,
that offered a 401(k) to my employees, because that helps me
retain employees, absolutely. And it is a good investment in
their future as well as the future of the business.
Mr. Biggs, Dr. Biggs, I am looking over your testimony and,
you know, I am looking at the increase in, you know, people
joining 401(k)s and employer ratings. Since 2017, 81 percent of
joint tax return filers have at least one Member of the couple
participating in a retirement plan.
And then we see the Department of Labor statistics that
show, you know, a 45 percent increase in total private sector
pension contributions in the last 40 years. And what is
remarkable is since 1989, retirement savings have increased in
every age, income, educational, racial, ethnic group. To me,
that is pretty remarkable, that it encompasses every race,
every age, every income, every educational and every ethnic
group. So to me, there is not a discrepancy or disparity there.
But I do have a couple of questions, and one of the things
that occurs to me is, we need to make some value-based
judgments about the respective roles of Social Security,
employment-based pensions, and individual savings. And I have a
couple questions about that.
No. 1 is, do we want to follow the historical, traditional,
three-leg stool approach to retirement security or just
disregard it in favor of another approach? And the second part
of that question is, is there still a role for all three of
these elements? And the third part is, do we even want there to
be a role for all three of these elements, and, if so, then we
need to decide how much of the job should be done by each
component.
So if you could offer me some perspectives on those three
components, I would be very interested in hearing about it.
Mr. Biggs. Sure. Well, thank you very much. If you look at
the sort of research literature on retirement, which is pretty
wonky, but, you know, often we will say, you know, a retiree
wants to have an income equal to 70 percent of their
preretirement, a 70 percent replacement rate. When you actually
look at the research, things differ quite a bit between
different households of how much income they need in
retirement. That can depend on your earnings level, the
children you have, family size, et cetera.
So you want to leave flexibility. You don't want to set up
your mandatory savings system like Social Security so it covers
everything that somebody might need, because we know that is
going to differ from person to person.
We also don't want to cover too much of retirement combined
with Social Security, because that is, to be frank, it is a
funding system that is not good for economic growth. It may be
a great system to have, but savings-based systems are going to
be stronger for economic growth.
So, we want to leave discretion between people's personal
choices and what they are getting from Social Security. So I
think we want to build on what we have. We don't want to
eliminate that.
Mrs. Harshbarger. Very good. You know, it is critical that
we make the changes, just like, you know, improving what we
already have, the SECURE 2.0.
Dr. Biggs, do you believe that corporate sponsors of
pension plans who underestimate their plan liabilities and who
underfund their pension plans should be bailed out with
taxpayer money?
Mr. Biggs. Look, when we think about the multiemployer plan
problem, we have to remember, you know, we created this in the
sense that the government set much lower funding standards for
multiemployer plans than they did for single employer plans.
So they went into their problems with much lower levels of
contributions. They took much longer to address their problems.
So this was a predictable crisis. In fact, you can find things
going back 20 years ago predicting this crisis would take
place.
So the key thing we need to remember here is, A, we created
this through bad governance, but B, all of the arguments that
are being made today for bailing out the multiemployer plans at
$86 billion or whatever they end up being, those same arguments
apply to bailing out underfunded State and local government
pensions, whose unfunded liabilities aren't $86 billion. It is
somewhere north of $4 trillion. If we are going to bail out
underfunded or, you know, pensions for truckers and miners, are
we not going to bail out Illinois' policemen and teachers?
The rationale we are hearing today is exactly the same. And
I think it is just--it is a very risky proposition to get into
saying we have just got to bail these things out. At some
point, the plan is either self-funding and responsible for
itself, or it is not. And if we are going to socialize these,
we need to regulate them much more carefully than we did. So we
really need to think very hard about this stuff.
Mrs. Harshbarger. Thank you, Dr. Biggs.
And, Chairman, I yield back.
Chairman DeSaulnier. Thank you, Representative. Next up is
Representative Morelle. The floor is yours.
Mr. Morelle. Thank you, Mr. Chairman.
I, first and most importantly, thank you for a really
important conversation. I will admit that, you know, for me,
thinking about the years I had and thinking about the changes
in pensions in the United States over the years, I am
concerned.
And I talk to my adult children all the time about their
retirement savings to make sure that they are thinking about
this. I also tell them that you are going to go from 30 years
old to 60 years old in about five minutes, and if you don't
think about it long in advance and really start preparing, you
are going to find yourself older quicker than you thought that
you would be.
So I am really grateful to you for the hearing. I think it
is really important. I appreciate the witnesses very much for
their contributions.
One of the things that I worry about in our country is sort
of the lack of financial literacy. Right now, I am going
through--sadly, my mother-in-law passed away a couple of months
ago, and my father-in-law was smart to think ahead and is
thinking ahead, but he is a little bewildered by all the things
that he will have to make decisions about. And some of it is
pretty confusing. And the more I talk to people, I realize this
is one of those sort of things that we, perhaps, haven't done
well enough in the country.
And I thought, perhaps, Dr. Certner, you might be able to
comment on any thoughts that you have around increasing
literacy for young people, as well as people in the workforce
about their future, any things that we should be doing or
thoughts that you have on it?
Mr. Certner. First, we agree 100 percent that literacy has
been a huge problem in this area, and it has been compounded by
the fact that now, with 401(k) plans and individual retirement
accounts, people are asked to take on a lot more of the
responsibility.
They need to figure out how much I can save. They need to
figure out how to invest that money. And then even later on, we
are seeing with our own Members when they finally get to
retirement they have some very big decisions to make at
retirement about whether to take lump sums, or annuities, or
what distribution option will there be that will help me not
outlive my money.
And these are very complicated decisions for people to
make, and they don't have nearly enough either investment
experience or financial planning experience to do that. It is
not an easy answer here. We think some of the education should
start early. These are great classes I think for high school
and college kids to have a basic understanding of particularly
being able to start saving early.
I think Benjamin Franklin did us a disservice when he said
a penny saved is a penny earned. He should have said a penny
saved is a penny compounded. I think that would have gone a
long way. You know, getting money in early into these plans
when people aren't thinking about retirement is really one of
the best ways to get a good head start.
So having education, having notices and information going
from the plan and from the providers to the individuals are
critically important, because that is, very often, who the
workers are going to listen to is their employers.
And that is one of the reasons we think it is so important
that some of this information be provided by paper and not
electronically, so people can see what is happening with their
plan. They can see what their investments are. They can see
what kind of fees that they are paying. They can see what kind
of investment returns they are getting. If you don't have that
in your hands and can take the time and look it over, you are
never going to learn or understand what is going on with your
plan.
And one of the side problems with having some of these
things just done all automatically is that people are paying
less and less attention to them. Now, that may not be a bad
thing if they are headed in the right direction, but we also do
want people to pay attention so that they know what is going on
with their own retirements.
Mr. Morelle. I will observe--and I had the privilege of
Chairing the New York State Assembly Committee on Insurance in
my service in the State legislature. And the kind of retirement
vehicles that you can now invest in, to your point, taking lump
sum distributions or annuities, are they pretax? Are they yet
to be taxed? How does that impact? Those are all confusing.
And I often think back that I passed my physics regents
exam in no small amount to Mr. Uhler and his patience, but I
think back. I haven't really used my high school physics since
I left high school. I might have been better served to have
taken a course in financial literacy, and maybe that is what we
ought to be encouraging school districts around the country to
start doing, but, certainly, in the workforce.
And you are right, when you go to work you start thinking
about it. So other ways that our witnesses can provide to us
after this on ways that we can increase financial literacy, I
think, would be really important.
With that, Mr. Chairman, again, thanks for the great
hearing and I yield back, sir.
Chairman DeSaulnier. Thank you, Mr. Morelle.
Next up is Representative Miller. You are recognized for
your five minutes.
Mrs. Miller. Thank you. Thank you to our witnesses for
coming to discuss the important issue of retirement security.
Dr. Biggs, I found your testimony especially thought-
provoking, and I do have a few questions to ask. OK. So I am
from Illinois, and we are a sinking ship there because, well,
according to Moody's, as of June 2020, Illinois' pension
liability was at $154 billion.
This is unconscionable. The pension liability has been
growing steadily since 2006. Illinois State pensions have been
critically underfunded, or possibly overpromised for more than
a decade, with no end in sight. It is the elephant in the room.
This fund is supposed to provide benefits to public servants in
their retirement, but its chronic underfunding threatens to
fail these workers.
Dr. Biggs, how do States like Illinois get out of this
mess? How can we best protect workers and taxpayers from being
harmed by these critically underfunded and abused State
pensions? Do you have any policy suggestions for my State?
Mr. Biggs. Well, thank you very much, Congresswoman. I have
worked a great deal on State and local pension issues. I am
also a Member of the Financial Oversight Board that is handling
the bankruptcy in Puerto Rico. And Puerto Rico's bankruptcy was
caused in no small part because it just ran its pension systems
into the ground. They just ran out of money. At that point,
everything falls apart.
For Illinois, it will be even more difficult if the pension
plan runs out of money, because the pension liabilities are so
large that even if Illinois defaulted on all its debt to
bondholders, it still wouldn't have enough money to fill them.
I suspect Chicago will probably go bankrupt 5 years, 10 years
from now. Illinois may look maybe a little bit further. But
they need to find ways to get on top of these problems.
Illinois is very constrained by constitutional protections,
which you interpret in such a way, you simply can't change
benefits. It has also been hamstrung, to be honest, by decades
of poor financial management by the government, and by the
trustees of this plan.
This gets to the issue I raise with multiemployer plans. I
mean, Illinois is a known bad actor when it comes to pensions.
It increased benefits. It promised too much. It simply refused
to do what it needed to do. It, even today, will not change its
State constitution to allow these adjustments.
They have already talked of getting a Federal bailout. When
that day comes, you know, everybody today in Congress is going
to say, We won't bail out these State and local pension plans.
But 2 years ago, everybody in Congress was saying, we are not
going to bail out the multiemployer plans, and that is
precisely what we did.
So when that day comes, there is going to be huge pressure
on the Federal Government to bail these plans out. And the
question is, should the taxpayers in States that have been
responsible with their pensions, that have funded them fully,
that made reforms when necessary, should they be on the hook
for Illinois?
And this is one--if I had to propose one solution, if we go
back to when ERISA was started in the 1970s, there was some
discussion then of subjecting State and local pensions to ERISA
coverage, to ERISA regulation. That, in retrospect, would have
been entirely appropriate. We thought back then that the State
and local governments could be trusted to responsibly fund
these plans while corporations couldn't. It turns out none of
them could be trusted. They have the same incentives.
So I think Federal regulation of these plans with some
transition period, you know, maybe some incentive to get up to
good funding, because these plans pose a systemic financial
threat that goes well beyond the government that sponsors them,
or the borders of their State. So this is a congressional
problem, and I really wish Congress would get on top of it
before it becomes a congressional crisis where we are forced to
do a bailout.
Mrs. Miller. Yes. And I am so concerned for the rank-and-
file teacher, policeman in our State that have planned their
retirement, based on, maybe, a reasonable pension. There is
just egregious abuse in the pension system.
I know people that are billing up to three and four
pensions. And in the private sector, this would never happen
where you could double-dip like that. Of course, the 3 percent
COLA and then they don't pay income tax on it, which is all
fine, but it is overpromised, and we can't afford it. So some
lawmakers in my State have been calling for the Federal bailout
of our State pension.
Do you think it is wise for the Federal Government to bail
out failing State pension plans and, if not, are there other
policies in the Federal Government that the Federal Government
should put in place to protect workers and taxpayers, which I
know you said if we would have----[inaudible]. Is there
anything else that you can think of?
Mr. Biggs. Well, I think Congress needs to act today. You
know, everybody will say, we are not going to bail out
Illinois' pensions. If Illinois' pensions go under, Illinois
goes bankrupt. I can tell you from the experience in Puerto
Rico that State-level bankruptcy is incredibly difficult
economically and politically. It is a real, real problem. At
that point, be it Congress or the Federal Reserve, but somebody
is going to bail out Illinois.
So if we can foresee that, the thing we need to do is act
today, just as we should have acted 20 years ago with
multiemployer pensions, but we didn't.
And so the question is, you know, are we going to show
leadership, or are we just going to be followership? Are we
going to kick the can down the road like we have done with
Social Security or multiemployer pensions or whatever, or are
we going to show some leadership on this?
State and local pensions, there is no constitutional reason
they cannot be federally regulated. The Federal Government
regulates work conditions. They regulate the minimum wage for
State and local governments. We can do this stuff. It is all
legal. And there is no reason not to do it, because the States,
at least the worst ones, have shown they are not capable of
running these things responsibly.
Whether we are looking at Illinois or New Jersey or
Connecticut or Kentucky, these are real problems that are
existential threats to the finances of their State and,
therefore, to the economies of their State and even to
bordering States. So, I think that Congress should really look
into this and think about whether ERISA should apply to these
plans.
Mrs. Miller. So now----
Chairman DeSaulnier. Excuse me, Doctor.
Representative Miller, your time is up. If you want to wrap
up, go ahead.
Mrs. Miller. Well, now we can see that we needed Federal
Government regulation, and, perhaps, we can get that rolling,
like you said, today, to act today. But what are we going to do
about the problem that we are bankrupt and we can't pay these?
Mr. Biggs. Ultimately, you may default to your bondholders.
Beyond that, it is really, really a tough decision. You know,
every public policy analyst says, I have some magic solution
for you. Now, my magic solution is a time machine to go back 25
years and fix it then. Once you are where Illinois is today, it
is really hard to get out of it.
Chairman DeSaulnier. Thank you, Doctor. Thank you,
Representative.
Now I am going to recognize the gentleman from Michigan,
and I am going to ask him to step in to Chair the hearing for a
short while, while I go off to another hearing. Andy, the floor
is yours.
Mr. Levin. [Presiding.] Thank you so much, Mr. Chairman. I
will ask my questions and then recognize others in order. It is
so good to see everybody, and I really appreciate all of our
witnesses here for participating in this vital hearing.
You know, retirement security should be a right of every
American. And I am proud that the Democratic majority passed
much-needed relief for multiemployer pension plans as part of
the American Rescue Plan. It was the right thing to do to
prevent a crisis and protect retirees who were on track to see
their pensions reduced, even, in some cases, to zero in the
midst of a huge economic crisis.
Unfortunately, my Republican colleagues have spent a lot of
time criticizing and mischaracterizing the special financial
assistance program for multiemployer plans that congressional
Democrats included in the American Rescue Plan.
For all the reasons Chairman DeSaulnier mentioned in his
opening statement, they are wrong. But I think it is also worth
discussing how consistently wrong they have been over the
decades when it comes to retirement security.
In 1935, House and Senate Republicans attempted to
eliminate the old age pension section of the Social Security
Act. If they had been successful, there would be no Social
Security as we know it today. More recently, in 2005, President
George W. Bush and congressional Republicans made privatizing
Social Security one of their top policy priorities.
These are just two examples. We need to remember our
history and examine what the consequences of these proposals
might have been so that we can analyze future proposals
properly, and make sure our actions do not prevent our
constituents from retiring with dignity with the basics they
need to live a decent life.
Dr. Ghilarducci, what do you think would have happened if
Republicans were successful in privatizing Social Security a
few years before the financial crisis and the Great Recession?
Ms. Ghilarducci. People would have withdrawn from their
Social Security system, and 10 years later they would not have
had the annuities to fall back on. The only logical prediction
would have been more poverty in old age and more stress for
families even if they weren't old.
But I want to point out that what you could do today is to
make sure that you expand coverage. We know, we all agree,
Andrew, all of us agree if you start early in the financial
market, you will be better off. But if Congress sets up a
system where people can take out money during their lives in
divorces and recessions, you have provided emergency savings
money. Congress has not provided retirement security.
So do what all of our other countries, our peers do--
Australia, the Netherlands, the U.K.--build an advance funded
system on top of the Social Security system and leave that
money in. But people need to have not financial education in
fourth grade, but they need a safe place to invest that money.
So accumulate it, invest it well, and deaccumulate it in a safe
way.
Mr. Levin. Thank you. Well, I would love to talk to you
about adding a level beyond our current Social Security system
that is universal, national, that every worker and employer can
pay into without friction.
But in my little time remaining, let me ask you a question,
Dr. Rhee. You know, occupational segregation so often results
in people of color working in jobs that do not offer retirement
savings plans. So I would like to ask you to discuss how that
factors into the disparities that you highlighted in your
testimony?
Ms. Rhee. Absolutely. So there is a lot of money in the
401(k) and IRA system, most of the IRAs, which are Individual
Retirement Accounts, actually are rollovers from the 401(k)
system. So basically, it requires participating in an employer-
sponsored plan to save for retirements, and that is just human
behavior.
And the evidence clearly shows that workers of color, in
particular, have difficulty accessing it and basically wind up
with no retirement savings, right? Most Latino and Black
households have no retirement savings. They are not seeing it.
So there may have been increases, but if you just look at who
has any and what those balances are, it is just woefully
inadequate.
And this is why we need to actually make sure, in one way
or another, to have universal coverage, either through the
employer-sponsored system or through a complementary system,
which is what the U.K. match program does.
Mr. Levin. Thank you so much, and not only for that great
answer, but being so brief that you answered in the time I had
remaining.
All right. Now I would like to have the honor of
recognizing the Ranking Member of our full Committee, Dr. Foxx.
Dr. Foxx, you have the floor for five minutes.
Ms. Foxx. Thank you very much, Mr. Levin. That is a very
nice way to introduce it.
Dr. Biggs, you explained your testimony that retirement
savings increased dramatically upon the introduction of a
defined contribution and individual account plans, like the
401(k). Can you describe further how these plans have helped
millions of Americans save for retirement, and why they are so
important to American workers and their families?
Mr. Biggs. Thanks very much, Congresswoman Foxx. I think in
these kind of hearings and discussions, I find it very
interesting, we are often talking about, as we transition from
traditional defined benefit pensions into 401(k)s, so and so,
good or bad things might happen. It is worth noting,
participation in defined benefit pensions peaked at something
like 39 percent of the private sector workforce in 1975. I
think we are far enough along now to know what is going to
happen here.
The 401(k) was introduced in 1979, started growing in the
1980s. If you look at a chart in my testimony, it looks at
Federal Reserve data on total retirement savings, you can see
there is an inflection point there where savings in IRAs and
401(k)s started shooting up. And that helps explain why total
retirement savings today are literally seven times higher than
they were in the 1970s. Now, that money has got to go
somewhere, and it is not all going to the rich.
So the 401(k)s work. First, more employers are willing to
offer a 401(k) than a traditional pension. That means more
opportunities to save.
Second, 401(k)s have contributions from both the worker and
the employer, while traditional pensions had just the employer.
That is two parties paying in, not just one.
Third, 401(k)s vest almost immediately. Traditional
pensions have much stricter vesting requirements. In his
opening statement, the Chairman noted that employees may switch
jobs 12 times over their career. For that employee, a defined
benefit pension would be a disaster, because they would be
failing to vest, then failing to vest, then failing to vest,
and they wouldn't get any money back.
We already see this in the public sector where there are
still defined benefit pensions. Employees who shift around
early in their careers get nothing. It is only the full career
employees who get that. In the private sector, that doesn't
exist anymore. We are switching around.
So we need a flexible system that allows people to save,
take their savings with them. Say, if you are a mom and you
take time out of the workforce, with a 401(k) that money still
earns interest while you are caring for your kids. And you come
back in and transfer it to a new plan. If you had a traditional
pension, you might fail to vest in your benefit and get
nothing. So we----
Ms. Foxx. You have answered. You have answered two
questions for me in that explanation. I appreciate it.
Earlier this year, Dr. Biggs, congressional Democrats
enacted an $86 billion taxpayer bailout of failing
multiemployer pension plans under the guise of COVID-19 relief.
Mismanaged multiemployer pension plans were failing to keep
their promises to retirees long before the pandemic. Unlike
previous Democrat proposals to provide, quote, ``loans,'' end
quote, to these plans, their taxpayer-funded handout will not
have to be repaid.
Dr. Biggs, I am concerned my Democrat colleagues believe
they have somehow solved the problems facing multiemployer
pension plans. Do you believe that simply throwing taxpayer
money at these plans will help workers and retirees in long
term? What changes should this Committee and Congress consider
to address the chronic mismanagement and underfunding plaguing
these plans? And I have one more question I would like to get
in.
Mr. Biggs. Well, you made the important point, that all
along, assistance to multiemployer plans was framed in terms of
loans. They need some help to get over the hump or to give them
some money. They will pay it back. And then in the
reconciliation bill, boom, the loans are gone. They are grants
that no longer need to be repaid. This happened very quickly.
As far as I can see, not much justification for it.
Now, the cost estimate so far is around $86 billion. That
may well go up, because the total unfunded liabilities for
multiemployer plans are $86 billion, something like that. And
the plans will try to act strategically. These are not well-run
plans where the trustees, which is employers and the unions,
have not acted as good stewards for the employees.
Ms. Foxx. Right.
Mr. Biggs. If these were single-employer plans, they would
be taken over by the PBGC. They would be frozen so they are not
continuing to promise new benefits. We threw all of that out.
And I think we just really need to rethink how we handle this.
Ms. Foxx. And with respect to my colleague from Michigan,
who was so nice to me, having more government-type plans like
this isn't going to solve the problem.
I want you to talk a little bit about the SECURE Act and
how programs have built on the progress of the SECURE Act and
expands retirement plan coverage, especially workers employed
by small businesses, in terms of their being able to band
together, as quickly as you can.
Mr. Biggs. We talked earlier about----
Mr. Levin. The gentlewoman's time has expired, so please
answer quite briefly.
Mr. Biggs. OK. We talked earlier about the difficulty small
businesses have starting retirement plans, the fixed costs that
are there for them. What the SECURE Act did for small employers
and SECURE Act 2 did for nonprofits is let them band together
to create multiple-employer plans.
Now, those are different from the ones we just bailed out.
But what would happen here is it spreads those fixed costs over
a larger group of companies and makes it easier for them to do
this. So I think that was really a worthy addition.
Ms. Foxx. Thank you. Thank you, Mr. Chairman, for your
patience. I am very grateful to you.
Mr. Levin. Thank you so much. And I would like to point out
for the record that I have changed jobs at least 12 times
myself, and I have vested in two pension plans. And they are
awesome, and I am super grateful that I will have that income
in my retirement.
So let me now call on the gentleman from Indiana, Mr.
Mrvan, who is next on the list. You have five minutes, sir.
Mr. Mrvan. Thank you very much.
Union Members typically have greater access to retirement
savings plans than their nonunion counterparts. They also
participate in these plans at a far greater rate than
nonunionized workers. This is a part of what is referred to as
the union advantage.
In fact, according to the Bureau of Labor Statistics, 91
percent of union workers have access to private sector
retirement benefits and 85 percent of the union workers
participate in retirement plans. Meanwhile, 65 percent of
nonunion workers have access to private sector retirement
benefits, and only 51 percent of nonunionized workers
participate in plans.
Dr. Rhee, do you think an increase in unionized workers
might help address the disparities you mentioned in your
testimony regarding access to the participation rates in
private sector retirement plans, particularly among women and
people of color?
Ms. Rhee. So, absolutely. Thank you so much for bringing
this up. So, insofar as workers of color have a retirement
plan, whether it is a pension or 401(k), it actually is
disproportionately through the unionized sector of the economy.
And also, with regard to women and pensions, I also want to
actually highlight they are more likely to have defined benefit
pensions versus 401(k). They are just more likely to have more
retirement savings. And I would like to say that, in terms of
the households that are doing OK, or well in terms of
retirement readiness, you are either in the top 20 percent
income bracket, or you have a pension.
With regard to women and pensions, it is particularly
important because of the life expectancy issue. And if you
would look at the data for current retirees, it is the women
who used to be teachers who have the best retirement incomes.
It is because they have that nice chunky pension that
supplements Social Security.
So both pensions and unionization are absolutely critical
for both workers of color having retirement security and women
having retirement security.
Mr. Mrvan. Thank you. Dr. Ghilarducci, your testimony
indicates that fewer than 15 percent of the workforce has a
secure defined benefit pension plan now, but back in the 1970s,
all workers with a retirement plan had a defined benefit plan.
Do you think there is a relationship between the decline in
union density in our country over the past 40 years, and the
decline of traditional defined benefit plans?
Ms. Ghilarducci. Definitely. Unions didn't just get pension
plans for themselves. They got the plans for their spouses, and
also the spillover effect of other employers mimicking what was
the norm in those industries.
So when the auto workers got a defined benefit plan, the
salaried workers wanted it as well, as well as the auto parts
and the local department store. We saw this all over the
Midwest. And I am happy to see someone from Indiana. I miss it
a lot.
The point is, is that what Representative Levin said, that
really does obviate what Andy said, is that having multiple
defined benefit plans adds up, because by the time that you get
to retirement, whether from your spouse, from your own work, it
adds up to income for the rest of your life.
I think we could all agree here--I am hearing it--that
everyone needs access to a plan they can save for early on. I
really commend you to look at, like, Kevin Hassett, the
Republican, and my plan to offer a TSP-like plan to everybody
to start. And we would look like the rest of other countries,
and we would really fulfill the promise that the 401(k) failed.
The 401(k) plan is a failure. Coverage hasn't expanded, and
most of the benefits have gone to the top.
Mr. Mrvan. Very quickly. How would enacting legislation
like the PRO Act, which strengthens workers' ability to
organize and collectively bargain, help workers' retirement
security?
Dr. Ghilarducci. Oh, it would actually multiply. I think
every one new union Member, the PRO Act would help would add
three more people to a pension plan. So the multiplier for a
union plan is about one to three. So the PRO Act would provide
retirement security.
Mr. Mrvan. Thank you, Doctor.
With that, Chairman, I yield back my time.
Mr. Levin. Thanks, Mr. Mrvan.
Well, Dr. Ghilarducci, Indiana is very well-represented
here, because I am next going to recognize another gentleman
from Indiana, Mr. Banks. And then I believe I will turn back
the gavel to our Chairman, who has returned.
So, Mr. Banks, you have five minutes.
Mr. Banks. Thank you, Mr. Chairman.
Dr. Biggs, the issue of reuniting missing participants with
their savings is a growing problem. Plan sponsors often incur
heavy costs searching to find up-to-date information to connect
these individuals with their retirement accounts.
I am wondering if you think that--would electronic delivery
of retirement plan documents enhance portability by allowing
individuals to easily update their contact information, or
monitor their savings accounts after changing jobs? I hope you
heard that. I briefly was interrupted there. But if you got the
gist of that, Dr. Biggs, if you could talk about how you
reunite missing participants with their savings using enhanced
portability, I would appreciate it.
Mr. Biggs. Yes, I did. The issue of lost accounts is a
problem associated--one of 401(k)s main advantages. 401(k)s are
portable in ways that traditional pensions never were, which
means that when you leave a job during one of these 12 job
changes that we think that every person will have, those
savings don't go away. They go with you.
One problem, though, is some of these accounts get lost.
The Social Security Administration, where I formerly worked,
did some research and found that something like one in six
workers who participate in a retirement plan, if you ask them
whether they participate in a retirement plan, they will tell
you they don't. They may be unaware. You know, we don't know
exactly what happens. But they leave, and then if they don't
leave a forwarding address, or whatever happens and the account
gets disconnected from them.
So the issue is, how do we reconnect these? There are
proposals now of having a centralized data base at Treasury
PBGC. And so, when a retirement plan sponsor has these lost
accounts, they have to go do their due diligence to find the
person. If they can't, then they report the account to the data
base.
The issue I think is what happens to the account, who holds
it. I would prefer that it continue to stay and earn interest,
since a lot of these accounts, the lost accounts, will be from
younger workers. You want them to stay invested, not get
shifted to Treasury bonds or something.
But then you have the question of how do you try to
reconnect with these people. And there is one question, do you
do it by paper or do you do it electronically? I suspect today
electronically is an easier way of doing it. I know I have done
work on the Social Security statement, because a paper
statement people would get, often people would get that and
they would look at it and it goes in the trash.
If you get an email from your employer trying to find you,
that is something you can search on. It saves it for you in
that way. You can access it more easily.
So I tend to favor electronic communication with people,
because I just think it is an easier way of reaching people
today, and it is easier for them to get back in touch with you
via link to the internet.
So I think this is doable, but it is a challenge associated
with one of actually the main plus points of 401(k) plans.
Mr. Banks. So sticking with that, Dr. Biggs, nearly 15
million American workers who saved for their retirement through
a defined contribution plan change jobs every year. These
workers deserve to keep the money they previously saved for
retirement, but far too often, they are unable to locate their
hard-earned investments.
I know there are private sector solutions that exist to
ensure some missing participants maintain balances in an IRA
that are not cashed out. Can you talk a little bit about some
of the hurdles that people face when they are trying to roll
their money over, and as policymakers, what we can do to make
that process easier?
Mr. Biggs. Sure. One of the problems that often happens
with small account balances, less than $1,000, is that when you
leave your job, the employer will simply issue you a check.
Now, in theory, you could take that check, reinvest it in an
IRA, maintain the savings, maintain the tax preference, but as
we have seen in general, people don't do it. They see a check
and they just cash it, and those savings are then lost.
So the issue is how do you find a way to keep that money
invested. And, so, I think looking at the idea of the data
bases of--there are private sector firms already that handle
these small accounts, and if you want to look more closely at
that. But it is keeping the money invested.
A lot of young folks--and it is for the same reasons you
don't sign up for a retirement plan in the first place. You are
busy. You are distracted. You may be changing jobs. You may be
changing homes or cities. We are human beings, and things tend
to fall by the wayside.
But going back, I think electronic communications is a
great way of handling this, because electronically, we can find
you everywhere these days. Your mailing address may change,
your email address won't. And so that is an easier way of
overcoming some of these hurdles that we have seen in the past.
Mr. Banks. Very good. Thank you very much.
I yield back.
Chairman DeSaulnier. [Presiding.] Thank you,
Representative.
I now want to recognize--well, first I want to thank Andy
for stepping in. And then, I want to recognize the
Representative from Michigan, Ms. Stevens, for five minutes.
You are recognized.
Ms. Stevens. Great. Thank you, Mr. Chair.
For years, workers, retirees, and participating businesses
have been waiting for Congress to deliver a solution to the
multiemployer pension crisis. And I am more than thrilled and
delighted to have been involved in that, in delivering that fix
through the American Rescue Plan Act, which provided financial
relief to the multiemployer pensions, and over 1.3 million
hardworking Americans whose very livelihoods were hanging in
the balance while we were waiting for Congress to fix this.
The Central States Pension Fund is no longer at risk of
being insolvent. That is where we are today. And now, over
43,000 Michiganders will have their retirement security that
they deserve. Over 260 businesses that serve as the lifeline
for Michigan's economy no longer face increased liabilities
that put jobs at risk.
And, Dr. Ghilarducci, could you speak about the importance
of passing this crucial fix and what consequences may have been
had Congress not have acted?
Ms. Ghilarducci. Yes. If those multiemployer plans had not
been bailed out, the areas of the country where the devastation
would have laid because those workers would not have incomes
was very concentrated in the industrial Midwest, in the South,
and in spotted communities.
So, notwithstanding the fact that these families would go
from being lower middle class to poverty, and then rely on
Medicaid and all sorts of poor relief, they would leave middle
class, go to welfare, a tragedy for their households, it would
have reverberated into their already devastated communities by
probably a multiplier of 1.5 to 2.
Ms. Stevens. Thank you.
And, Mr. Chair, I ask for unanimous consent to enter into
the record the Central States district sheet for every HELP
Subcommittee Member.
Chairman DeSaulnier. Without objection, so ordered.
Ms. Stevens. Thank you.
And then, Dr. Rhee, in your testimony you mention that
workers face an increasing retirement savings burden, and that
workers of all backgrounds are worried about retirement,
including millennials, who are now hitting age 40.
Could you please expand on why millennials are worried and
what the data suggests about their access to and participation
in retirement savings plans?
Ms. Rhee. Yes. Thank you. So, I am going to reference,
because I can't remember the exact statistics, some of the
surveys that I have cited in my written testimony.
So millennials have had a really rough time, right? So they
kind of came into the labor market during the 2007-2008
financial crisis and the long recovery from the recession that
followed. And I think that really sort of influenced their
thinking about retirement security.
If you look at some of the work done by the National
Institute on Retirement Security and their survey work focused
on millennials, they found that they are actually very
supportive of pensions, right? So it really kind of goes
against this image of a free-flowing millennial who is just
going to skip from job to job and wants all this flexibility.
And I think in some ways, millennials have had flexibility
imposed on them by the labor market and economic structure. And
at the same time, there actually is this kind of heightened
awareness of risks imposed by the market. And so, there
actually is worrying and thinking about retirement savings.
They are saving for retirement when they can. And also, there
is actually a high level of support for pensions.
Ms. Stevens. Thank you.
And, with that, Mr. Chair, I am going to yield back.
Chairman DeSaulnier. Thank you, Representative.
The Chair now recognizes Representative Fitzgerald for five
minutes. You are recognized.
Mr. Fitzgerald. Thank you, Mr. Chairman.
Mr. Biggs, I----
[inaudible]----You know, we are all very familiar kind of
with automatic enrollment, but SECURE Act 2.0 would expand
automatic enrollment, obviously, to the 401(k) plans.
You know, what impact does this typically have on the
employees? Has there been any analysis done on that or----
[audio malfunction]
Mr. Biggs. I apologize.
Mr. Fitzgerald [continuing] ----you know, has anybody
looked further?
Chairman DeSaulnier. Mr. Biggs, did you get the gist of
that?
Mr. Biggs. Just the gist of it. I think it is about
automatic enrollment in 401(k) plans and the SECURE Act. I
apologize. The signal was not great.
Automatic enrollment is a great example of----
Mr. Fitzgerald. That you aware of, and then what effect
does it have actually on employers? I mean, everyone I think
assumes that, you know, the automatic, kind of, forced savings
is just a great thing for everyone, but I am wondering if
anybody took a little bit longer or----
Mr. Biggs. OK. Going back to late 1990, a lot of what is
now being called behavioral economics research looked at the
effect of defaults on people's behavior. We always assumed that
people who needed to save or wanted to save would participate,
the people who didn't wouldn't.
It turns out that most people do whatever they are
defaulted into. If the default is to participate, 70 percent of
people participate. If the default is not, then participation
is going to be a lot lower.
So you can really influence people's behavior by choosing
to make it automatic to participate and sign them up rather
than not signing them up. And I think that is just a great
example of how, you know, this retirement research that, you
know, Teresa and Nari and I work in actually has translated
into the real world. And that is very encouraging.
So as automatic enrollment is adopted, you see greater
participation. The question is, how far is that going to go on
its own? I personally favor what you see in SECURE Act 2.0 of
making automatic enrollment sort of the default for newly hired
employees. It strikes me as the best practice just to sign
people up. And, you know, there are low-income people who don't
need to save where it is a little more problematic, but, by and
large, I think that is going to be a good policy.
The issue kind of I think you are getting at is what
happens beyond that? You know, if an employer is making a match
to their employee's 401(k)s and participation goes from 50
percent to 100 percent of their workforce just for instance,
the cost to the employer is going to increase.
And the question is, how are they going to handle that? Are
they going to offset that? You know, are they going to lower
the match rate? Are they offsetting as health benefits, lower
wages or whatever? I mean, that is the standard economic logic.
But there is also the issue of how will, sort of, lower
income people who are automatically enrolled in a plan, how
will that affect their sort of total savings? There is some
evidence that looked at automatic enrollment in the Federal
Government that, by and large, it increased savings. For less
educated workers, though, they increased savings in their TSP
plan, but debts and assets outside of it tended to decline,
which goes to show that, you know, you can lead a horse to
water, it is hard to make them drink. If they are really low
income, and they are thinking about putting food on the table
or, you know, sending their kids to summer camp or buying shoes
for their kids, it is a tougher proposition.
So I think, by and large, automatic enrollment is a worthy
thing, it is a great innovation, but we shouldn't think that
just all our solutions lie in that. Life is more complicated
for people, and they are going to try to make choices to make
their lives as best they can. And often we in government who
are policymakers can't foresee that accurately, so we just want
to be modest about our claims.
Mr. Fitzgerald. Very good. Very good. Thank you very much
for that answer.
Just real quick then, too, the other thing I hear when I am
in the district and visit with a small, you know, business
employer, and they are frustrated I think sometimes because
they say, Listen, I want to be a good employer. I want to set
up a retirement account for the employees that work for me,
but, quite honestly, the cost of it and the regulations
involved that we have to work toward meeting are too much.
And as a result of that, they never really can successfully
launch that retirement program. And is there anything that we
could do, as Members of Congress, to lessen that, or change
that dynamic?
Mr. Biggs. Well, this is an area where I feel a little
worried about introduction of the State-based automatic IRA
plans, like Dr. Rhee mentioned CalSavers. I live in the State
of Oregon. We have OregonSaves.
On the one hand, you have small employers who are thinking
they would like to offer a retirement plan for their employees,
but there is cost to them increasing, there are legal
liabilities to doing it. So they wonder what they are getting
themselves into.
And they still might have done it, but if they see the
automatic IRA plan, they may say, let's just put the employee
into that instead. The issue, though, is a 401(k) is a much
better retirement savings vehicle than an IRA, first, because
you have employer matching it, and, second, because the savings
limits are much higher than with IRAs.
So I am a little afraid we have set up this situation where
small employers see some problems in setting up their own
retirement plan. They see an easy out. Hey, let's just put them
in the State plan. The State plan isn't as good as a 401(k).
So I think we want to think both about what the State plans
or some Federal version of them can offer, but also think how
do we really make this easy on the smaller employers. SECURE
Act 1 and SECURE Act 2 are movement in that direction, to make
it lower cost and hopefully lower the scorecard.
Chairman DeSaulnier. Thank you, Mr. Biggs.
Mr. Fitzgerald, your time is up. Any concluding thoughts?
No.
All right. The Chair will now recognize the Ranking Member
for five minutes of questions. Mr. Allen, the floor is yours.
Mr. Fitzgerald. Thank you, Mr. Chair. I yield back. Thank
you.
Chairman DeSaulnier. Thank you, Mr. Fitzgerald.
Mr. Allen.
Mr. Allen. Thank you, Mr. Chairman.
Dr. Biggs, you stated in your testimony that more Americans
are saving for retirement than ever before, more employers are
offering retirement plans than ever before--and, of course, we
had that experience in our own company--and employees are
saving more in these plans than ever before.
This is great news. And I believe we can build on this
success. What more can this Committee and Congress do to
increase the number of small businesses providing retirement
plans for their workers? And how can we reduce the cost and the
regulatory issues? I know that is one thing that we faced was,
you know, all the, you know, the legal and other aspects you
have to deal with in setting these things up. What can we do to
reduce the cost to providing these plans to our employees?
Mr. Biggs. Well, the facts that you point out on
participation retirement plans, contributions, savings levels,
number of retirees getting benefits, the reason why I push back
so hard on the sort of retirement crisis meme that comes out,
this idea that we are entering some, you know, apocalyptic
period of retirement is because it will cause us to ignore all
the progress we have made, and forget that what we really have,
in a lot of ways, is kind of a mopping-up operation.
We need to say, where are the gaps in the current 401(k)
system or the retirement plan? How do we fill those gaps? If we
have this retirement crisis claim, people might say, Let's just
throw the whole thing out. But the reality is the whole thing
has worked remarkably well in improving retirement savings.
In my testimony, I point out U.S. retirement savings
relative to other countries, very high. I point out, you know,
Americans' ability to maintain their preretirement standard of
living when retired is much better than in Europe that has the
much more centralized sort of ways of doing things. We have to
remember our successes.
We also want to say, where are the shortcomings? The
shortcomings, I think, are largely in the small employer
community where, as we have talked before, the fixed costs of
setting up a plan are higher relative to the number of
employees who are going to be served, and, second, the legal
liabilities are just much more daunting. If you are a large
employer, you can handle those things pretty easily, and almost
all of them today are offering a plan. If you are a small
employer, it is much harder.
So, I think we really need to think about first, lowering
cost and protecting its legal liabilities for small employers,
but we also, I think realistically, need to think about if
there are alternatives for people in those employers. I mean,
the employers just aren't up to--you know, they are running a
taco stand or something like that. If running a 401(k) is not
what they can do, what other alternatives? And that may be
State plans or a Federal version of that.
Mr. Allen. And, perhaps, for just individuals that some
type of incentive to do this.
Dr. Biggs, according to the most recently available PBGC
data, the multiemployer pension plans are collectively
underfunded by $673 billion. Now, I said in my opening
statement that, you know, we are dependent on the taxpayer, or
at least the Democrats passed the American Rescue Plan and we
took supposedly taxpayer money and--to the tune of eighty-six
billion dollars to extend that plan process.
Right now, obviously, all of this money that is being
spent, we are maintaining our standard of living on the backs
of generations of Americans. I mean, you know, there may be
four or five, six generations as this debt mounts up.
And so what do you see right now if we said, OK, what is
actually staring us in the face? I think you mentioned $4
trillion of unfunded mandates that we have right now. And is
that the entirety of it?
Mr. Biggs. It is never the entirety. I think with the
multiemployer issue, we should have been honest with ourselves
and with the American people all along. For decades, the
American people were told, you know, the PBGC is self-funding.
There is no liability on the Federal Government, no obligation
on the Federal Government to pay anything. The multiemployer
participants, if one withdraws or goes bankrupt, the others are
going to bail it out. And because of that, they don't have to
use strict accounting rules. They can kind of cowboy it.
And then we said, Oh, well, these are not going to be
bailouts. These are going to be loans. All of that, at its
core, was not honest. I mean, you had to know that, politically
speaking, if these plans go under, the Federal Government is
going to bail them out, just as at the end of the day we are
going to bail out the Illinois firefighters, because we will
say they don't deserve to get hit.
The key, though, is, first, how do we manage these plans
and regulate them so we don't end up in that situation? And
people were warned about this for decades. They refused to do
it because there was a political cost.
But, second, when we go to a solution, I mean, maybe--and I
wasn't against any financial assistance for multiemployer
pensions. But to say this is all people who are going to be on
welfare or Medicaid, a third of the folks at Central States
were getting more than $3,000 a month on top of Social
Security.
These were generous pensions. You could have trimmed them
somewhat while maintaining the benefits at the bottom, cut the
cost to the taxpayer. And that would have been, I think, a more
responsible approach to this than simply saying, we are going
to cut a check for $86 billion, and whatever it ended up being
and call it solved.
To be honest, if my 401(k) drops when I am about to retire,
where is my $86 billion? I am a taxpayer, too. I am an
American, too. Why does one group of Americans get treated so
much better? The answer is political power, we know that. But
it is just, let's be good regulators about this. Let's think
about these plans seriously and be responsible about them.
Mr. Allen. Exactly. Point well taken. And thank you so much
for your testimony. I thank all the witnesses.
And I yield back, Mr. Chairman.
Chairman DeSaulnier. Thank you, Mr. Allen.
That is the last individual of the Subcommittee that I have
who wishes to speak. So, again, I want to thank the panelists.
And we will go to closing comments in just a second.
And just a little housekeeping: For material submitted to
the hearing record, pursuant to Committee practice, materials
or submissions to the hearing record must be submitted to the
Committee Clerk within 14 days following the last day of the
hearing. So by close of business on July 7th, preferably in
Microsoft Word format.
Only a Member of the Subcommittee or an invited witness may
submit materials for inclusion into the hearing record, and the
materials must address the subject matter of the hearing.
Please submit materials to the Committee Clerk electronically
by emailing submissions to edandlabor.hearings@mail.house.gov.
Witness questions for the hearing record. Again, I want to
thank the witnesses. You were terrific. Lots to digest and to
continue in conversation. I very much appreciate your
contributions today. Members of the Subcommittee may have
additional questions for you, and we ask that you please
respond to those questions in writing. The hearing record will
be held open for 14 days in order to receive those responses.
I want to remind my colleagues that, pursuant to Committee
practices, witness questions for the hearing record, again,
must be submitted to the Majority Committee Staff or Committee
Clerk within 7 days. The questions submitted must address the
subject matter of the hearing.
And now, for closing statements, we will go back to Mr.
Allen for the Ranking Member's closing statement.
Mr. Allen. Thank you, Mr. Chairman.
And, again, I would like to thank our witnesses for
participating in this important discussion this morning.
I would like to also note that folks in Georgia and across
the country work very hard so they can enjoy a comfortable and
meaning retirement.
Bipartisan updates to ERISA can help our constituents in
many ways. We can simplify and reduce the cost of administering
retirement plans. We can expand the number of retirement
options available to small business employees. And we can boost
access to defined contribution plans for workers.
Taxpayer-funded bailouts of outdated multi-employer pension
plans are an irresponsible and unsustainable solution. We must
fix this.
We must also focus on pro-growth economic policies to help
more Americans succeed in the long term.
And I will say it again: I believe there is room for
bipartisanship in the months ahead.
Thank you again to all the witnesses for participating in
today's hearing and sharing your expertise. I look forward to
working with all of you to ensure a strong American retirement
system.
And, Mr. Chairman, with that, I yield back.
Chairman DeSaulnier. Thank you, Mr. Allen. It is always
terrific to work with you. And I appreciate the fact that we
can respect our differences but work to a common goal, which in
this institution sometimes is very hard to get. So appreciate
your friendship.
Mr. Allen. Yes, sir.
Chairman DeSaulnier. And I now recognize myself for the
purpose of a closing statement.
Again, I want to thank the panelists. Terrific
presentation. I really look forward to continued conversation.
I want to thank all my colleagues who spent time and joined
us on this important subject matter.
I do want to talk about one thing we didn't talk about in
this and the three-legged stool. It is home ownership and moral
hazard and appropriate congressional action to make sure that
we have an appropriate risk assessment.
I am very involved in State and local government, both with
CalPERS and my own county, a ``37 Act'' county, here in
California. And, clearly, we did some things. We assumed that
our actuaries sometimes were too aggressive in terms of our
rate of return. And, of course, that is what we want--one of
the things we want to address.
So in terms of responsibility, we should remember that, as
Madison famously said: If humans were angels, there would be no
need for government. And this is one of those areas, I think,
whether it is in the financial service industry and what
happened in the housing industry where so many people,
particularly people who are disadvantaged by this economy.
And, Mr. Biggs, I appreciate your comments. I don't want to
be Polyannish, but I also think it is irresponsible not to
recognize the sort of Dickens aspect of some of the challenges
we have, that if you are a poor person, particularly a poor
person of color, and your wages are limited, it is harder.
Also completely agree with the small business argument.
When I did 401(k)s and was able to afford it as a restaurant
owner, if I had a dime for every time one of my younger
employees said, ``You know, I would rather you just give me the
money rather than put it in whatever this is.'' So it is
daunting.
But I think we should be proportionate and be mindful about
all of the risks and reinforce a responsible management and a
responsible risk assessment by the managers of these retirement
plans, irrespective of what their legal structure is, and also
not have selective amnesia about risk assessments and moral
hazards in financial institutions, because they are clearly
intertwined, and particularly intertwined when it comes to home
ownership, which we know is an important part, historically, of
that third pillar.
Sorry to digress, but I wanted to bring that up.
I also wanted to thank and just remind folks that,
accepting some of the criticism, we have a different
perspective on our legislation to help save those multi-
employer plans and that we did have support from AARP, the AFL-
CIO, the National Association of Manufacturers, the U.S.
Chamber of Commerce, and scores of other stakeholders who
supported our efforts.
So the evidence-based research, Mr. Allen, you brought that
up, and I am all in on that. So let's continue to do that.
Today's hearing also confirmed how vital and necessary
pensions are to Californians, my home State, and all Americans.
It highlighted the challenge and inequities in private sector
retirement systems, particularly as it relates to access to and
participation in employer-provided plans. And we have a lot of
work to do.
I appreciated the witnesses' analysis of the SECURE Act
2.0. The Education and Labor Committee is expected to mark up
the bill in the coming months. And look forward to more
communication with all of my colleagues as we lead up to that.
And I also look forward to the fact that we must not stop
there. We must continue to prioritize and enact other policies
that boost workers' wages, strengthen Social Security, and make
it easier for Americans workers to organize and collectively
bargain for their best interest and also be respectful of
employers.
I look forward to working with all of my colleagues on
these important issues.
If there is no further business, thank you all again.
Without objection, the Subcommittee stands adjourned.
[Additional submission by Chairman DeSaulnier follows:]
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[Additional submission by Chairman DeSaulnier and Mr. Allen
follows:]
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[Additional submissions by Mr. Allen follow:]
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[Additional submission by Chairman Scott follows:]
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[Additional submission by Ms. Stevens follows:]
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[Whereupon, at 12:19 p.m., the Subcommittee was adjourned.]
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