[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
IMPROVING RETIREMENT SECURITY AND
ACCESS TO MENTAL HEALTH BENEFITS
=======================================================================
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
SECOND SESSION
__________
HEARING HELD IN WASHINGTON, DC, MARCH 1, 2022
__________
Serial No. 117-40
__________
Printed for the use of the Committee on Education and Labor
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via: edworkforce.house.gov or www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
56-629 PDF WASHINGTON : 2025
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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 Marina Islands GLENN THOMPSON, Pennsylvania
FREDERICA 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 MARIANNETTE MILLER-MEEKS, Iowa
LUCY McBATH, Georgia BURGESS OWENS, Utah
JAHANA HAYES, Connecticut BOB GOOD, Virginia
ANDY LEVIN, Michigan, Vice Chairman LISA McCLAIN, Michigan
ILHAN OMAR, Minnesota DIANA HARSHBARGER, Tennessee
HALEY M. STEVENS, Michigan MARY MILLER, Illinios
TERESA LEGER FERNANDEZ, New Mexico VICTORIA SPARTZ, Indiana
MONDAIRE JONES, New York SCOTT FITZGERALD, Wisconsin
KATHY MANNING, North Carolina MADISON CAWTHORN, North Carolina
FRANK J. MRVAN, Indiana MICHELLE STEEL, California
JAMAAL BOWMAN, New York JULIA LETLOW, Louisiana
SHEILA CHERFILUS-McCORMICK, Florida VACANCY
MARK POCAN, Wisconsin VACANCY
JOAQUIN CASTRO, Texas
MIKIE SHERRILL, New Jersey
ADRIANO ESPAILLAT, New York
KWEISI MFUME, Maryland
Veronique Pluviose, Staff Director
Cyrus Artz, Minority Staff Director
------
SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS
MARK DeSAULNIER, California, Chairman
JOE COURTNEY, Connecticut RICK 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 MILLER, Illinios
FRANK J. MRVAN, Indiana SCOTT FITZGERALD, Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia VIRGINIA FOXX, North Carolina (Ex
(Ex Officio) Officio)
C O N T E N T S
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Page
Hearing held on March 1, 2022.................................... 1
OPENING STATEMENTS
DeSaulnier, Hon. Mark, Chairman, Subcommittee on Health,
Employment, Labor, and Pensions............................ 1
Prepared statement of.................................... 5
Allen, Hon. Rick, Ranking Member, Subcommittee on Health,
Employment, Labor, and Pensions............................ 7
Prepared statement of.................................... 9
WITNESSES
Matsui, Amy, Director of Income Security, National Women's
Law Center................................................. 11
Prepared statement of.................................... 13
Handorf, Karen, Senior Counsel, Berger Montague P.C.......... 22
Prepared statement of.................................... 25
Biggs, Andrew, Senior Fellow, American Enterprise Institute.. 39
Prepared statement of.................................... 41
Szapiro, Aron, Head of Retirement Studies and Public Policy,
Morningstar Investment Management, LLC..................... 53
Prepared statement of.................................... 55
ADDITIONAL SUBMISSIONS
Chairman DeSaulnier:
Letter dated February 28, 2022, from the American
Federation of State, County and Municipal Employees
(AFSCME)............................................... 110
Statement dated March 1, 2022, from the American Benefits
Council................................................ 113
Ranking Member Allen:
Statement dated March 1, 2022, from The Association for
Behavioral Health and Wellness......................... 86
Statement dated March 1, 2022, from The ERISA Industry
Committee.............................................. 88
Statement dated March 1, 2022, from Fidelity Investments.
Statement dated March 1, 2022, from the Hispanic
Leadership Fund........................................ 104
Letter dated March 1, 2022, from the Partnership for
Employer-Sponsored Coverage (P4ESC).................... 107
Norcross, Hon. Donald, a Representative in Congress from the
State of New Jersey:
Letter dated February 15, 2022, from TIAA................ 128
Walberg, Hon. Tim, a Representative in Congress from the
State of Michigan:
Statement dated March 15, 2022, from Robert H. Sitkoff... 129
Statement dated March 15, 2022, from the U.S. Chamber of
Commerce............................................... 133
QUESTIONS FOR THE RECORD
Responses to questions submitted for the record by:
Mr. Andrew Biggs......................................... 141
Ms. Amy Matsui........................................... 143
Ms. Karen L. Handorf..................................... 147
IMPROVING RETIREMENT SECURITY AND
ACCESS TO MENTAL HEALTH BENEFITS
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Tuesday, March 1, 2022
House of Representatives,
Subcommittee on Health, Employment, Labor, and
Pensions,
Committee on Education and Labor,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:18 a.m.,
via Zoom, Hon. Mark DeSaulnier (Chairman of the Subcommittee)
presiding.
Present: Representatives DeSaulnier, Courtney, Norcross,
Wild, McBath, Levin, Stevens, Scott (Ex Officio), Allen,
Walberg, Banks, Miller, Fitzgerald, and Foxx (Ex Officio).
Staff present: Illana Brunner, General Counsel; Daniel
Foster, Health and Labor Counsel; Rasheedah Hasan, Chief Clerk;
Sheila Havenner, Director of Information Technology; Eli
Hovland, Policy Associate; Carrie Hughes, Director of Health
and Human Services; Ariel Jona, Policy Associate; Stephanie
Lalle, Communications Director; Kevin McDermott, Senior Labor
Policy Advisor; Richard Miller, Director of Labor Policy; Max
Moore, Staff Assistant; Kayla Pennebecker, Staff Assistant;
Veronique Pluviose, Staff Director; Banyon Vassar, Deputy
Director of Information Technology; Cyrus Artz, Minority Staff
Director; Michael Davis, Minority Legislative Assistant; Mini
Ganesh, Minority Staff Assistant; John Martin, Minority Deputy
Director of Workplace Policy/Counsel; Hannah Matesic, Minority
Director of Member Services and Coalitions; Audra McGeorge,
Minority Communications Director; Ethan Pann, Minority Press
Assistant; Krystina Skurk, Minority Speechwriter; and Ben
Ridder, Minority Professional Staff Member.
Chairman DeSaulnier. Welcome everybody. Good morning. We
are ready to begin. I will count down from five and then we
will start, five, four, three to one.
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 Improving Retirement Security and Access to Mental
Health Benefits. This is an entirely remote hearing. 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. I would also ask that members please
identify themselves before they speak. Members should keep
their cameras on while in the proceeding.
Members shall be considered present in the proceeding when
they are visible on camera, and they shall be considered not
present when they are not visible on camera. The only exception
to this is if they are experiencing technical difficulty and
inform committee staff of such difficulties.
If any member experiences technical difficulty during the
hearing you should stay connected on the platform, make sure
that 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,
Congressman Levin, or another majority member is hereby
authorized to assume the gavel in the Chair's absence. This is
an entirely remote hearing, and as such the subcommittee's
hearing room is officially closed.
Members who choose to sit with their individual devices in
the hearing room must wear headphones to avoid feedback,
echoes, and distortion resulting from more than one person on
the software platform sitting in the same room.
While the recent guidance from the Office of the Attending
Physician has made mask wearing optional at this time, please
note that we have at both member and staff levels, the
committee strongly recommends that masks continue to be worn
out of concern for the safety of the unvaccinated, and
immunocompromised committee members and staff.
In order to ensure that the committee's 5-minute rule is
adhered to, staff will be keeping track of time using the
committee's digital timer which will appear in its own
thumbnail picture. Members and witnesses are asked to wrap up
promptly when their time has expired.
Pursuant to Committee Rule 8(c), opening statements are
limited to the Chair and the Ranking Member. This allows us to
hear from our witnesses sooner and provides all members with
adequate time to ask questions. I now recognize myself for the
purpose of making an opening statement.
Today we are meeting to discuss how Congress can improve
workers retirement and access to mental health benefits. As our
economy continues to recover, and our constituents struggle
with higher costs caused by the pandemic, now more than ever,
we need to help workers and retirees achieve financial
stability, including a secure retirement and high-quality
health care, including mental health and behavioral health.
According to the New York Times, roughly 55 million
Americans are 65 and older. Those at the peak of the Baby Boom
are reaching 65 this year. Many are working later in their
lives, relying on their next paycheck to make ends meet. With
the Federal Reserve indicating many Americans would struggle to
come up with money to finance an unexpected $400.00 expense,
such as a car repair.
Too few are earning enough to save for a dignified
retirement. Similarly, health care, particularly mental and
behavior health care is too often unaffordable for workers and
their families. Even before the pandemic less than half of
individuals with mental illness, and only 11 percent of
individuals with a substance abuse disorder received needed
behavioral health services or treatment.
The pandemic has underscored the urgency of this crisis. In
the past 2 years Congress and this committee have remained
committed to improving retirement security and strengthening
health coverage for workers and families. Last March
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, plans would have failed, workers
and retirees would have lost nearly everything they worked so
hard to save, and employers would have been forced to close or
cut jobs.
In November, the committee advanced the Retirement
Improvement and Savings Enhancement RISE Act. This bipartisan
legislation would make meaningful improvements to improving the
retirement security of American workers, and I want to thank
all my colleagues, the ranking members of the committee and the
subcommittee.
The committee has played a leading role in strengthening
health benefits, including through efforts to improve
enforcement of the Mental Health Parity and Addiction Equity
Act. However, we know that there is more work to be done, much
more work to be done to build a stronger, more inclusive
retirement system, and improve access to mental and behavioral
health care.
Today I look forward to discussing several commonsense
solutions to help us do just that. First the hearing will
explore draft legislation that Representative Lucy McBath
intends to file. This draft bill makes a number of improvements
in the Nation's retirement system, and includes important
legislation that has been, or will be filed by our committee
colleagues.
Specifically, the discussion draft helps 401K participants
better understand the fees they pay on investments. This is
based on legislation that Representative Susan Wild plans to
introduce soon. It increases lifetime income options in
worker's 401K plans. This is based on bipartisan legislation
Representative Don Norcross and Tim Walberg, our colleagues
recently introduced. I want to thank them for their leadership
on this, along with Representatives Wild and McBath.
This also gives workers additional opportunities to be part
of their employer's retirement plan. This is based on
legislation that Representative Kathy Manning recently
introduced. It boosts employee ownership programs through the
Department of Labor. This is based on legislation that
representatives Joe Courtney and Mark Pocan introduced.
It encourages emergency savings. This is based on
bipartisan legislation introduced by Representative Bonnie
Watson Coleman and Congressman French Hill. This discussion
draft also includes provisions to increase spousal protections
in 401K plans that were included in legislation offered by our
colleague Representative Lauren Underwood.
I look forward to today's testimony on how this package as
a whole can bolster American's retirement security. Second, the
Biden and Harris Administration has taken steps to reverse the
prior administration's rules that made it harder for retirement
plans to consider climate change, and other environmental
social governance, or ESG factors when selecting investments.
Workers are interested investing in a way that reflects their
values without sacrificing returns, something Representative
Andy Levin has been working on, and we look forward to the
final rule.
Third, the administration recently released a report
examining implementation of mental health parity by health
plans. The report found widespread failure by health plans to
comply with important requirements of the law. It made several
recommendations that would improve enforcement, and strengthen
coverage of behavioral health, both for the benefit of workers,
their employers, and retirees.
Finally, we will learn about ways to protect workers and
their families from barriers they face in enforcing their
rights under retirement health plans including mandatory
arbitration agreements, discretionary clauses and other
technical issues.
Through these commonsense solutions I am hopeful, and I am
confident, we can take another step forward to help Americans
retire with security and access to all the health care they
need and deserve and have paid for. I welcome my Republican
colleagues' support, and hopefully we can work together to
further secure Americans' financial futures.
Now it is my pleasure to recognize the distinguished
ranking member for the purpose of making his opening statement.
Representative Allen.
[The statement of Chairman DeSaulnier follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Allen. All right. Thank you, Mr. Chairman. I think I am
unmuted. Can you hear me, okay?
Chairman DeSaulnier. Yes.
Mr. Allen. Okay. Well, I am in the committee hearing room,
and I will be just delighted to have you next to me sooner than
later, so I would hope we could consider that as we open up our
House to the people. Thank you for holding this hearing today.
Our retirement system is healthier than it's been in decades.
Employer based retirement savings are thriving. More
Americans see the value of saving for the future. Committee
republicans are working to make the future of American retirees
more secure, strengthening employer-sponsored retirement plans,
particularly defined contribution plans are the best way to
encourage workers to put money toward retirement savings
voluntarily.
The committee is addressing much needed reforms for the
defined contribution retirement system through bipartisan
legislation. The RISE Act, H.R. 5891 and the Securing a Strong
Retirement Act of 2021, H.R. 2954, will expand American
workers' access to secure retirement. The committee should
focus on enacting these bipartisan bills.
Specifically, the RISE Act expands multi-employer plans,
which will make it easier for non-profit organizations,
educational institutions, and small businesses to provide
retirement benefits to their employees. The RISE Act also
expands retirement savings for part-time and traditional
workers, helping more Americans get ready for retirement.
The RISE Act also allows employers to offer small,
financial incentives to employees for participating in
retirement plans. The earlier American workers prepare for
retirement the better. Empowering American workers to take
ownership of their retirement savings is important for their
long-term financial health, and that of their families.
It also contributes significantly to the future economic
health of our Nation. We must protect taxpayers from
irresponsible bailout schemes. President Biden's bail out of
multi-employer pension plans in the so-called American Rescue
Plan was reckless and irresponsible, sending 97 billion to
underfunded pension plans without addressing the root cause is
like scooping water out of a boat while it still has a hole in
it, and sinking.
One of my first hearings on this committee was--and this
was 8 years ago--dealing with multi-employer pension plans, and
we have yet to do anything about it. The multi-employer pension
system is in desperate need of systematic reform to protect
workers and retirees from further mismanagement and to stop
creating incentives for underfunding the plans, plus costing
taxpayers millions of dollars.
Unless changes are made, these pension plans will backslide
into old destructive patterns. We must demand accountability,
transparency, and assurances that taxpayers will never again be
asked to bear the burden of mismanaged pension plans.
Furthermore, we must be vigilant against the Biden
administration's aggressive and punitive regulatory agenda. The
administration has demonstrated that it cares more about its
radical progressive agenda than the financial well-being of
retirees.
This was evidenced by the Department of Labor's proposed
rule that will pressure retirement plan fiduciaries to
prioritize environmental, social and governance factors when
investing retirement plan assets. This is a reversal of
protections the Trump administration put in place for
retirement savers. Now the President of the United States is
going to tell people where to invest their money.
This is ridiculous. That is why republican leader Foxx, and
I sent a letter to Secretary Walsh in December requesting that
the DOL rescind this proposed rule. Retirement plan fiduciaries
are caretakers of retirement accounts, not social justice
lawyers. Putting the Biden administration's radical green and
social agendas above the financial interest of retirees is
unacceptable.
With government run retirement plans faltering, it is more
important than ever to strengthen employer-based retirement
savings. Our bipartisan legislation will empower both employers
and workers to cooperate for a better and more secure future.
Last, I would like to add a note about this hearing.
Cramming sweeping and diverse topics into one hearing fails to
give these important issues a really thorough bipartisan
discussion. I hope this committee could aim to do better in the
future, and with that, Mr. Chairman, I yield back.
[The statement of Ranking Member Allen follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman DeSaulnier. Thank you, Mr. Allen. Without
objection, all other members who wish to insert written
statements into the record may do so by submitting them to the
committee clerk. You should do this electronically in Microsoft
Word format by 5 p.m. on March 15.
It is now my pleasure to thank and introduce our witnesses
today. Thank you for being part of the hearing. I will start
with Ms. Amy Matsui, whose name sounds familiar to me, is the
Director of Income Security and Senior Counsel of the National
Women's Health Center.
Ms. Karen Handorf is Senior Counsel at the law firm Berger
Montague. Mr. Andrew Biggs is a Senior Fellow and Resident
Scholar as the American Enterprise Institute, and Mr. Aron
Szapiro is Head of Retirement Studies and Public Policy at
Morningstar, Inc. We very much appreciate the witnesses for
participating today and look forward to your testimony.
Let me remind the witnesses that we have read your written
statements, and they will appear in full in the hearing record.
Pursuant to Committee Rule 8(d) and committee practice, each of
you is asked to limit your oral presentation to a 5-minute
summary of your written statement.
Before you begin your testimony, please remember to unmute
your microphone. During your testimony staff will be keeping
track of time and a light will blink when your time is up.
Please be attentive to the time, wrap up when your time is
over, and then re-mute your microphone. If any of you
experience technical difficulty during your testimony, or later
in the hearing, you should 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 to you in
advance.
We will let all the witnesses make their presentation
before we move to member questions. When answering a question
please remember to unmute your microphone. The witnesses are
aware of their responsibility to provide accurate information
to the subcommittee, and therefore we will proceed with their
testimony.
I will first recognize Ms. Matsui. Your mother-in-law has
asked me to be nice to you, and I will. Go ahead.
STATEMENT OF MS. AMY MATSUI, DIRECTOR OF INCOME SECURITY AND
SENIOR COUNSEL, NATIONAL WOMEN'S LAW CENTER, WASHINGTON, D.C.
Ms. Matsui. Thank you Chair DeSaulnier, Ranking Member
Allen, Chairman Scott, Ranking Member Foxx, and members of the
committee and subcommittee. I appreciate the opportunity to
testify about improving women's retirement security. My name is
Amy Matsui. I am the Director of Income Security and Senior
Counsel of the National Women's Law Center.
In order to ensure a dignified retirement, women need
retirement income from employer-sponsored pensions, and
retirement savings plans to supplement social security's modest
benefits. Because women face workplace inequities and shoulder
the burden of family caregiving, they experience disparities in
retirement income and retirement savings.
Women, especially women of color and women in low-wage
jobs, may have less access to retirement savings plans at work,
and even when women participate in retirement savings plans,
they may be less able to save from their smaller paychecks.
The gender wage gap alone costs women $400,000.00 over a
40-year career, with a lifetime loss of earnings for black
women and Latinos, approximating one million dollars.
COVID will likely have negative long-term effects on
women's lifetime incomes, wealth, and overall economic
security. According to an AARP survey last year, more than one
in five women reported that they prematurely dipped into their
retirement savings or stopped contributing altogether during
the pandemic.
For all of these reasons, married women rely on their
spouse's retirement income and savings more than men do.
Unfortunately, loopholes in spousal protections under ERISA
undermine women's retirement security. The Retirement Equity
Act of 1984 established spousal protections for traditional
defined benefit pension plans by requiring the default form of
benefit for married participants to be a joint and survivor
annuity.
In order for a married participant to receive pension
benefits in a different form, like a single life annuity or a
lump sum, the participant spouse must agree to waive his or her
spousal rights in writing before a notary public or plan
administrator. This prevents the participant spouse from making
unilateral decisions that impact their spouse's retirement.
However, the same protections do not apply to defined
contribution plans like 401Ks, which are the predominant form
of employer-sponsored retirement benefits. A married
participant in a DC plan must obtain spousal consent if they
want to designate a beneficiary other than their spouse to
receive the account balance in case the participant dies while
working.
Unless a married worker elects to receive their DC account
balance in the form of a life annuity, ERISA does not require
DC plans to provide a joint and survivor spousal annuity as the
default form of benefit. In other words, no spousal consent is
required if the participant retires or changes jobs and decides
to withdraw the account balance as lump sum, or roll it over
into an IRA.
At that point, there is nothing to stop the participant
spouse from taking actions that could undermine the other
spouse's retirement security. For example, the participant
spouse could withdraw his retirement savings and make a risky
investment, an extravagant purchase, or a gift that the other
spouse did not consent to.
He could squander the funds gambling. In any of those cases
the funds would no longer be available for retirement.
Practitioners have reported instances where participant spouses
have drained their retirement savings accounts to prevent the
other spouse from receiving a share during divorce proceedings.
Even if the other spouse finds out they may effectively be
without a remedy if their retirements funds are spent, and
there are few other assets. Because Federal law does not
require married IRA holders to name their spouse as a
beneficiary, if the participant spouse rolls their 401K account
balance into an IRA, they could name a child, a sibling, or a
girlfriend as a beneficiary, cutting out the spouse.
In all of these instances marital retirement savings have
been placed out of the reach of spouses. Spouses may be
deprived of their retirement savings when they need them the
most. They may not even find out that the retirement savings
they were counting on are gone until their spouse dies.
Section four of the discussion draft circulated to the
subcommittee would provide robust spousal protections and
defined contribution plans and protect spouses against the
risks I just described. It would give spouses decisionmaking
power over how and when retirement savings are withdrawn from
the account by requiring the default form of benefit to be a
qualified joint survivor annuity, or its equivalent.
It would not however require spousal consent for rollovers
to other employer sponsored DC plans, or to IRAs that require
spousal consent to have a beneficiary other than spouse named.
Women faced a retirement crisis well before the pandemic and
are likely to experience an even more uncertain retirement in
its wake.
Strengthening spousal rights in defined contribution plans
would help ensure that women who rely on their spouse's
retirement savings because they have fewer of their own, do not
bear the risk of their spouse depleting, or giving those
savings away. Thank you for the opportunity to testify, and I
look forward to your questions.
[The prepared statement of Ms. Matsui follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman DeSaulnier. Thank you. We will now hear from Ms.
Handorf. Please proceed.
STATEMENT OF MS. KAREN HANDORF, SENIOR COUNSEL, BERGER
MONTAGUE, ALEXANDRIA, VIRGINIA
Ms. Handorf. Good morning, Mr. Chairman, Ranking Members,
and members of the subcommittee, and thank you for the
opportunity to testify today. The Department of Labor's 2022
Mental Health Parity Report revealed stunning lack of mental
health parity compliance by targeted plans and indicates a
widespread non-compliance in general.
To leverage its resources the Department of Labor should be
given the requested authority to deal directly with insurance
carriers and insurers acting as third-party administrators. The
relevant terms of insured plans issued by carriers are likely
to be administered and be identical by the carrier in the same
way.
The relevant terms of prototype plans sold by carriers to
self-insured employers are also likely to be identical and
administered by the insurer acting as a third-party
administrator in the same way. If there are violations of
mental health parity requirements, either in plan documents, or
through plan administration, they are likely to show up in all
plans insured or administered by the same carrier.
DOL could leverage its limited resources if it could
correct the problems at the insurer third-party service
provider level, rather than seeking compliance from each
employer individually. DOL should also be given civil penalty
enforcement authority for parity violations. Under the current
system there's no financial deterrent.
A non-compliant employer only has to fix the non-compliant
plan and pay the benefits it should have paid in the first
place. If non-compliance results in a stiff penalty, employers
will be more likely to comply before DOL knocks on the door.
Employers are also more likely to comply if make-whole relief
is available to participants who have been harmed by benefit
denials.
This is fair to the injured participant, and will
incentivize employers to comply, or they will have to bear the
financial consequences. Compliance will be even more likely if
the Department is given the authority to make-whole relief on
behalf of all participants who have been injured by a
violation. DOL cannot do it alone. Congress intended for
participants to have effective remedies, and ready access to
the Federal courts.
It is imperative that Congress lift the roadblocks that
keep participants from protecting their own rights. One major
roadblock is the deferential standard of review of benefit
determinations. Many plan documents give broad discretion to
those deciding benefit claims. Courts review those decisions
under an extremely deferential standard of review.
Benefits that would have been granted under a de novo
standard are not under this discretionary standard. Because
these discretionary standards undermine promised coverage, 26
states have banned them from insurance policies issued in their
states. They should also be banned in ERISA.
An ERISA ban will protect plan participant's rights to
receive hard-earned benefits, and it will ensure uniformity
among plans in different states and between insured and self-
insured plans. Plan arbitration clauses are another major
roadblock to private enforcement. These provisions deny
participants their right to litigate their claims in Federal
court.
Some also prohibit class action lawsuits or limit the
participant's ability to obtain relief for the plan as a whole.
Some include confidentiality clauses and make it impossible for
participants to inform others of fiduciary breaches. These
arbitration clauses make it unlikely that a plan participant
will challenge even egregious misconduct.
Almost always, the monetary value of their individual claim
will be a lot less than the cost of legal representation, and
as a result, systemic violations impacting all plan
participants will not be redressed. In many cases individual
arbitration simply does not work with the remedial structure of
ERISA.
Plan investment decisions impact all plan participants in
the same way, and relief for those violations should be uniform
among participants. Individual arbitrations are likely to
result in conflicting decisions about fiduciary misconduct, and
inconsistent and non-uniform remedies for plan participants.
There are many other significant roadblocks to effective
private enforcement of ERISA as outlined in my written
testimony. If we are committed to employer-sponsored health and
pension plans, we must give DOL and participants the ability to
make them work. Thank you.
[The prepared statement of Ms. Handorf follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman DeSaulnier. Thank you, Ms. Handorf. Now we will
hear from Mr. Biggs. Mr. Biggs, the floor is yours.
STATEMENT OF MR. ANDREW BIGGS, SENIOR FELLOW, AMERICAN
ENTERPRISE INSTITUTE, WASHINGTON, D.C.
Mr. Biggs. Thank you very much, Chairman DeSaulnier,
Ranking Member Allen, and members of the subcommittee. Thank
you for the opportunity to testify today. My remarks will focus
on how environmental; social and governance considerations
should factor into the duties of fiduciaries such as retirement
plan administrators owe to plan participants.
I wish to start by pointing out the overlooked successes of
the US retirement system. Despite what you may read about a
purported retirement crisis, nearly all indicators of
retirement preparedness are pointing in the right direction.
More Americans are saving more for retirement than ever
before, with savings increasing among every age, income,
educational, and racial or ethnic group.
Americans are working longer and delaying claiming social
security benefits. More retirees are receiving benefits from
private retirement plans. Retirement incomes are at record
highs across the income distribution, and poverty and old age
are at record lows.
I am not Pollyannaish when it comes to our retirement
system. I point out these successes so that we know what we may
put at risk by ill-conceived policies. Under ERISA, fiduciaries
are charged with acting solely in the interest of retirement
plan participants. The Supreme Court unanimously ruled that
those interests should be defined in purely financial terms.
Now it is perfectly reasonable to suppose an environmental,
social and governance factors could affect the financial
returns on investment, but here is the problem. To the degree
that ESG factors directly affect financial returns, those
factors are likely already incorporated into the price of those
investments.
The firm that is superior in ESG factors in ways that will
raise the firm's profits will carry a higher price today before
any regulations or legislation has been passed.
A firm whose ESG practices may reduce its profits will
trade at a lower price today. Why do I say that? Today that is
a supposition that we apply to nearly every factor that can
affect financial returns.
Investors like to make money in any factor that they
believe will affect the firm's profits will be factored into
the price they're willing to pay for the firm's stocks. That is
true for ESG characteristics, just as it is true from whether
investors think the new Play Station or Marvel movie will be a
success. The Federal Thrift Savings Plan offers only index
funds for precisely that reason.
However, I am concerned that the regulatory or legislative
attempts to force ESG further into the mix could have adverse
results. For instance, H.R. 3604 would require that fiduciaries
document how they have considered economic issues such as local
job creation and affordable housing, employee treatment issues
such as health safety, diversity, demographics, human rights,
the right to collectively bargain, the prevention
discrimination child labor and supply chain management.
Environmental consideration, such as climate issues,
species endangerment, environmental justice, worker transitions
with respect to the shift to low carbon economy, and governance
considerations such as executive compensation and board
diversity.
Given that exhaustive list of criteria, and the fact that a
fiduciary who violates their duties risks being sued, fined or
imprisoned, many fiduciaries might simply opt for the ESG fund
to protect themselves, much as physicians practice wasteful
precautionary medicine to protect against malpractice suits.
I know that both legislation and regulations say the ESG
factors should be included only if they do not reduce the value
of an investment to the client. In the real world, including
ESG funds, may be seen as an effective safe harbor against
litigation.
In an era of increasing lawsuits in 401K plan providers,
that may skew fiduciaries' behaviors, but this would
effectively negate ERISA's requirements that investors be
placed first.
The Americans' savings for retirement will be placed after
Congress's desire to promote certain public policy goals, and
after financial advisor's desire not to risk litigation for
failing to promote Congress's goals.
This could come at the expense of the saver. Research has
shown that economically targeted investments conducted by State
and local government pension plans are associated with lower
investment returns. Other research in peer review journals
finds that ESG investments tend to produce lower risk adjusted
returns than other investments.
Likewise, a recent study from the Center for Retirement
Research at Boston College found that across nearly every asset
class the 10-year average return on ESG funds trailed that of a
comparable Vanguard index fund by an average of over 3
percentage points annually.
One reason for that is that ESG funds carry far higher fees
than index funds. I believe fees help account for the rising
popularity of ESG funds in the investment industry. In an era
of index funds, actively managed ESG funds can be far more
profitable to the fund manager, but this often comes at a cost
to the investor's own savings.
Again, I do not oppose fiduciaries considering any factors
that would affect the financial value of investment offers,
including ESG. We should consider carefully, either regulations
or legislation that will push fiduciaries beyond that. Thank
you very much.
[The prepared statement of Mr. Andrew Biggs follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman DeSaulnier. Thank you, Mr. Biggs, perfect. We will
now hear from Mr. Szapiro.
STATEMENT OF MR. ARON SZAPIRO, HEAD OF RETIREMENT STUDIES AND
PUBLIC POLICY, MORNINGSTAR, INC. AND MORNINGSTAR INVESTMENT
MANAGEMENT LLC., CHICAGO, IL
Mr. Szapiro. Thank you, Chairman and members of the
subcommittee for this opportunity to discuss ways to improve
the U.S. retirement system.
I am head of retirement studies and public policy at
Morningstar, Inc., Morningstar Investment Management, LLC, and
I also lead our Center for Retirement and Policy Studies, which
released new research this morning addressing some of the
issues that we are discussing today, and which I excerpted it
in my written testimony.
I am going to focus my remarks on the value of regulatory
or statutory clarity on how plan sponsors should use
environmental social governance, or ESG information, when
selecting investments for their retirement plans, and I have a
different perspective from Mr. Biggs, and I will try to explain
why in this brief time.
As requested in my written testimony, I have also covered
two additional important issues, fee disclosures and provisions
to expand access to lifetime income products and employer-based
plans. Morningstar's mission is to empower investor success,
and I bring several Morningstar perspectives to this testimony.
We offer a variety of services to retirement plan sponsors and
participants, including fiduciary services and managed
accounts.
I bring the perspectives of my colleagues who work every
day to help investors reach their retirement goals. Morningstar
also has specific expertise in ESG analysis, and I have
gathered our views on the ESG issues from financial
professionals across our organization.
We categorize and rate different pooled investments such as
mutual funds based on their ESG attributes. We also identify
funds in our data base that claim ESG or sustainable investing
as core to their investment approach. Second, our equity
analysts use ESG as part of their approach to assessing
investments.
Finally, our sustained analytics division is a leading
provider of ESG ratings and data. Let me try to be clear here.
We believe proposals to encourage plan sponsors to consider ESG
information as part of a prudent process for selecting plan
investments such as the Department of Labor's proposal from
last fall, are consistent with common practices that asset
managers use to integrate ESG considerations into their
investment processes and selections.
An ESG risk analysis can be part of any premium investment
analysis and does not need to be called out for special or
unique scrutiny. Indeed, many asset managers view ESG risk as a
pecuniary matter that is fundamental to evaluating the likely
risk-adjusted performance of an investment.
This view has become widespread in the past decade, and
especially the past 5 years, as ESG issues are increasingly
seen as potentially material to the performance of an
investment, and as more robust ESG data and analytics have
become available allowing asset managers greater insight into
material ESG issues.
To be more specific, many firms have some financially
material amount of exposure to climate risk, but those without
a plan to transition away from fossil fuels, or with physical
assets vulnerable to severe weather risk may be caught flat
footed in the face of new regulation or environmental
realities.
Or to take another example, companies with poor human
capital management may find it very difficult to retain or
attract talent to remain competitive in the future. They could
also face regulatory risks and reputational risks from
customers.
Beyond managing the ESG risks, participants themselves may
want investment options that align with their personal values,
especially around sustainability related issues.
To the extent that plan sponsors can offer options that
support these values without sacrificing risk adjusted returns,
and over the past half decade data shows many sustainably
oriented funds have performed well, such investment
alternatives could encourage people to save, or save more for
retirement, furthering the overall goal of enhancing U.S.
retirement security.
I just want to take a moment to talk about the State of ESG
and 401K plans today. Plan sponsors appear to have shied away
from considering ESG information and analysis in part because
of regulatory uncertainty. In doing so, sponsors have left the
U.S. defined contribution system in the aggregate tilted toward
investments with more, rather than less ESG risk.
Specifically, just 4 percent of investment options and 2
percent of assets are in strategies with the lowest levels of
ESG risk, but 10 percent of all strategies rated by Morningstar
are in this category. Unless retirement plan sponsors are
convinced that ESG risks are overstated, they might want to
reexamine their investment choices through an ESG lens.
When some regulatory uncertainty appears to have a real-
world effect, exposing retirement savers to more risks than
might be prudent. I also want to note that in our study we find
about 60 percent of assets that are not in target date funds,
but other designated investment alternative assets, are in
actively managed funds.
Many of those managers are considering ESG risks, but some
of them are not, so just to address what Mr. Biggs said, I do
not think it is the case that all plans are using passive
investments today. Thank you.
[The prepared statement of Mr. Szapiro follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman DeSaulnier. Thank you to all the witnesses. Thank
you for being timely in your oral comments. Under Committee
Rule 9(a) we will now question witnesses under the 5-minute
rule. I will be recognizing subcommittee members in seniority
order, again, and to ensure that the member's 5-minute rule is
adhered to, staff will be keeping track of time. Please be
attentive to the time, wrap up when your time is over, and re-
mute your microphone.
As Chair I will begin by now recognizing myself for 5
minutes. Ms. Handorf, when ERISA was enacted with overwhelming
bipartisan support in 1974, Congress made clear that its
legislative purpose was to provide ``appropriate remedies,
sanctions and ready access to the Federal courts.''
Could you briefly explain how binding arbitration
agreements and class action waivers undermine that core tenant
of ERISA?
Ms. Handorf. Yes. They definitely do because they do not
give access to the Federal courts. They make it almost
impossible to--for participants to seek relief to the plan as a
whole, which is generally what you would want to seek if you
were trying to correct a fiduciary misconduct with respect to
an investment. In that way it really--it is designed really to
keep people out of court, rather than to give them access to
court.
Chairman DeSaulnier. Thanks. In my home State of California
our mental health parity law prohibits insurance companies from
including so-called discretionary clauses in health care
contracts, health plan contracts. This is an important
protection in my view that ensures consumers have a fair review
of their benefit claim if necessary, in court.
Ms. Handorf, how do discretionary clauses make it harder
for individuals to access their health benefits? Why is it
important that Federal ERISA statute be amended to provide
nationwide protections for plan participants considering
actions like we did in California?
Ms. Handorf. Well, I think that when you see the
discretionary, the arbitrary and capricious or differential
standard review in a benefit claim, the court is really looking
to see whether there is anything that supports the
administrator's decision to deny benefits rather than looking
to see whether they are really entitled to benefits.
The evidence indicates that a number of courts have said
that they would have granted benefits under de novo standard
review, but because it was a discretionary standard, they
deferred to the decisionmaker, so that really does deny
participants their bargain for benefits.
The other thing is that California is a great example of a
State that has concluded that these are not good for
individuals covered by insurance policies. The problem is that
only applies to insurance policies issued in the State of
California, and the other states that have adopted those
provisions. It also only applies to fully insured plans, not
the self-insured plans, and in order to have a uniform standard
between insured and uninsured plans, and between--or insured
and self-insured plan, and between all states, you really do
need an ERISA standard.
Chairman DeSaulnier. Thanks so much. Mr. Biggs, in your
written testimony you say that the California Public Employees
Retirement System, CALPERS ``costs its participants over 3.6
billion in investment gains over two decades,'' by choosing to
divest from tobacco products. You also mentioned that it
undercuts its fiduciary duty by not maximizing the financial
benefits for its participants.
This was based on an article from Wilshire Associates. As
you are undoubtedly aware, that same firm, investment
consultant firm Wilshire Associates, said that the 3.6 billion
dollars claim it updated its analysis from that number, and
said that CALPERS had done better by having a tobacco free
equity portfolio.
In fact, they said that CALPERS gained 856 million by
holding no tobacco stocks between January 1, 2017, and June 30,
2020, because those shares lagged behind market during that
period. Are you aware of that, and I am respectful of the
balance here of responsibility to the investment, but also
doing that in the context of short, mid-term and longer-term
investments? Would you care to respond?
Mr. Biggs. Sure. Thank you very much, Mr. Chairman. The 3.6
billion dollars figure I cited has been widely discussed, so it
was not reliant entirely on Wilshire. I was not aware of
Wilshire's more recent research looking at that. There is a
broader picture though of looking at economically targeted
investments from State and local pension plans. I would refer
you to this study from the Center for Retirement Research at
Boston College, but others have done it as well.
Economically targeted investments have a much longer track
record than ESG investments, but they're qualitatively similar,
and those have tended to be associated with lower returns with
pension plans that undertook them. What I was trying to do was
highlight the risk of this, that they have a duty to purely the
financial returns of their participants, and in these cases,
they took choices which seemed clearly skewed by a social
desire to get out of tobacco stocks.
Regardless of how that turned out in the end, the research
does tend to show that those types of investments are
associated with lower returns for State and local pensions.
Those are the ones that have used these sort of economically
targeted investments most commonly.
Chairman DeSaulnier. I appreciate that. Having been on a
Retirement Board when I was a county elected official during
that period of time, I appreciate that, but the dynamics of
investments as I'm sure you would agree trying to get this
balance, and I would include the health care costs, although
the legal definition as you mentioned we have to be mindful of
it. With that, I would now like to recognize--I am told I
recognize our distinguished Ranking Member of the full
committee, Ms. Foxx, for her questions.
Ms. Foxx. I thank you distinguished Chairman for
recognizing me. Dr. Biggs, I am going to followup a little bit
on the line of questioning. ERISA requires retirement plan
fiduciaries to act solely in the interest of plan participants
and beneficiaries for the exclusive purpose of providing
benefits to participants.
In 2014, the U.S. Supreme Court ruled unanimously that
under ERISA the term ``benefit'' refers to financial benefits
and does not include non-financial benefits. Does the Biden
administration's recent proposed rule on ESG investing comply
with the Supreme Court decision? How does the proposed rule
treat non-financial factors?
Mr. Biggs. Well, thank you, Congresswoman. Yes, as I made
clear in my written testimony, both the written word of ERISA,
and then the Court entered various Court interpretations showed
that the obligation of the fiduciary is solely to the
participant, and solely to the participant's pecuniary
benefits, meaning the financial benefits they get from the
investment.
Those other factors such as environmental social governance
economically targeted investments, those can only matter to the
degree that they do not detract from the financial returns to
participants.
Ms. Foxx. Thank you for--oh sorry, I was going to say thank
you for restating that. I have a couple other questions. Let me
try to get those in, and then I will let you come back. In
September, Pension Benefit Guarantee Corporation stated that
while insolvency has been delayed, its insurance program for
multi-employer pension plans is still likely to go insolvent.
Moreover, plans receiving lump sum payments from PBGC may
still fail. This is happening despite the taxpayer funded
bailout of underfunded and failing plans in democrat so-called
American Rescue Plan. Should plans that receive a bailout from
PBGC, which have already failed to keep their promises to
retirees, are allowed to continue making new promises of
benefits? Should Congress stop plans from digging a deeper
hole?
Mr. Biggs. With a single employer traditional pension
accompanying off the pension plan, if that goes insolvent in
general the plan is frozen, meaning the plan cannot continue to
promise new benefits in general, but employees would be
switched to a 401K plan, then you figure out the liabilities of
the plan, what can it continue to pay? What can it afford to
pay?
What happened to multi-employer pensions is something very
different, and what that was allowed was that the pensions
could continue promising new benefits despite the fact that
they are going to require at least 100 billion dollars in new
Federal money simply to pay benefits they have already accrued.
Moreover, they are continuing to promise benefits that in
the future those plans will not be able to pay because the
Federal money is not going to be sufficient to keep them going
indefinitely. I think the multi-employer situation, both the
initial regulation where multi-employer plans were not required
to fund sufficiently, and then the bailout, I think to be frank
Congress made a botch of it from the beginning.
I think they should recognize that problem, freeze the
plans, and then build toward the future. What we have now is
not fair.
Ms. Foxx. Thank you very much. Thanks for reiterating that.
Dr. Biggs a provision in the Chairman's discussion graph
requires an individual to receive the written, notarized
consent of his or her spouse before taking a distribution from
the retirement plan. One of the many benefits of the 401K-type
plan is the flexibility it provides participants to take
distributions in times of emergency, which we witnessed during
the COVID-19 pandemic.
Does the discussion draft adequately consider instances
when a notarized consent may be impractical, or harmful to
participants, including for wives who need emergency access?
Mr. Biggs. Thank you. I have seen cases like the one raised
by Ms. Matsui where one spouse would attempt to drain an
account, and that's a real problem. At the same time though you
could have cases where say in spousal abuse where you know
would the abused spouse be required to get her abuser's
consent?
More generally, DC plans like 401K's, withdrawals like that
are much, much more common than with traditional pensions. I
just think this needs additional study to quantify how often
these issues come up, and what are the best ways to balance
things. I just do not think there is a perfect you know cookie
cutter solution.
Ms. Foxx. Sure. Now I got you offtrack in your first
answer. Is there anything else that you want to add to that
that you didn't get a chance to say?
Mr. Biggs. Well, I think the material effect of the
regulations, or legislation on ESG is going to need to push
fiduciaries to over consider ESG factors. Not to consider
allowing to the extent that it is allowed on the paper of the
law, but to over consider them, and I think that is
inconsistent to the spirit of law, but also could reduce
financial returns.
Ms. Foxx. Thank you very much. Thank you, Mr. Chairman.
Chairman DeSaulnier. My pleasure, Ms. Foxx. I will now
recognize Mr. Courtney for 5 minutes.
Mr. Courtney.
Mr. Courtney. Thank you, Mr. Chairman, and thank you to our
witness. Again thank you, Mark, for mentioning the Work Act in
your opening remarks which is a bill that myself and Mark Pocan
have introduced along with Brian Fitzpatrick from Pennsylvania
to help promote ESOPs, employee stock ownership plans, which is
you know a great model for businesses that allow their workers,
their employees to become co-owners, and that creates obviously
a really healthy incentive in terms of people's buy in to you
know the success of companies.
It also provides a really extremely strong retirement you
know option in terms of stock ownership. The data shows that
ESOPs outperform 401Ks by a wide margin and this bill, which is
a very benign bill, will allow the Department of Labor to
really give technical assistance to companies who want to make
that conversion, purely voluntary, but there clearly is a need
to increase people's understanding of ESOPs, and that bill will
help provide it.
I will however, like to just pivot for a second to the
issue of mental health parity. Again, I always hear along with
a couple of the other veterans on the committee when we passed
the Wellstone Bill that created the Mental Health Parity Act.
In one of the provisions was to have the Department of Labor
every 2 years give a report in terms of how well we are doing.
The report that was just finished by the Department of
Labor unfortunately you know had a lot of shocking data in
terms of the number of violations by health plans and insurers.
I would like to ask Ms. Handorf again, just sort of again your
take on that report, and you know some of the suggestions
including you know beefing up enforcement.
Don Norcross's bill I think is really going to go a long
way to helping us with that, but again maybe you can just sort
of comment a little more directly in terms of that report.
Ms. Handorf. Yes, I think that the report is rather
shocking in the non-compliance. It is not shocking really when
you look at the employer's sponsored health care in general
because really what you see is a system in which insurance
companies either acting as insurers or third-party
administrators to plans, are really running these plans, and
the employers are really not paying a whole lot of attention to
compliance.
They think that once they sign the contract that is the end
of it. If the Department of Labor can deal with the insurers
and the third-party administrators directly, they will be able
to get compliance in all of the plans that are administered or
insured by those third-party administrators. That will be much
more effective than to going to each individual employer and
trying to get compliance.
I also think that the penalty provisions will put the
employers on notice that they need to be paying attention to
what is in their plans, and that if they do not, they are going
to get a financial penalty or if you give--make whole relief,
the ability for the Department to make whole relief for
violations, that would be a further incentive because there
will be some financial harm that will come along to an employer
that does not comply with the statute, so I fully support those
recommendations.
Mr. Courtney. Great. Thank you. I mean one thing that I
think, you know, the shared experience before COVID--of the
opioid crisis, and what that has really done in terms of
creating tremendous demand for substance abuse and mental
health services.
My experience in terms of talking to substance abuse and
mental health providers is that they really struggle to a much
greater degree interacting with private health plans, versus
Medicaid. It just kind of screams out that we really cannot
allow that kind of disparity. The COVID behavioral health
overhang is just going to aggravate that situation even more.
Again, I mean this is not a very discrete problem. This is
a problem that is actually going to be growing in the wake of
COVID, and obviously the opioid addiction has not disappeared.
Maybe again, based on your experience whether or not that is
what you are seeing in that sector of health care.
Ms. Handorf. I am seeing it in that sector of health care,
but I think that is across the board with not just mental
health parity. I think that the inefficiencies in our current
system have driven up prices, both for employers and for
participants who are paying premiums and high deductibles, and
I think that while transparency is a really fine thing, you
really need employers to feel compelled to look at how their
insurers, and third-party administrators are administering the
plans.
If they did, they would find a lot of things that would be
rather shocking. I think that we have to have a vibrant
enforcement of those provisions, and that comes by giving the
Department more authority, and also strengthening private
enforcement.
Mr. Courtney. Thank you. I yield back.
Chairman DeSaulnier. Thank you, Mr. Courtney. We will now
recognize the ranking member of the subcommittee, Mr. Allen.
Mr. Allen. Thank you, Mr. Chairman. Dr. Biggs, in 2020 the
Trump administration Department of Labor issued a final rule
prohibiting ERISA retirement plan fiduciaries from
subordinating the financial interests of workers retirement
savings to other unrelated or collateral objections such as
investing in investments based on environmental social
governance or ESG factors.
Why is it important that investment decisions be based only
on financial factors that are relevant to the risk of return on
an investment?
Mr. Biggs. I think it is important because an ERISA plan, a
401K, is generally superior as a retirement vehicle to
something that is not covered by ERISA, say an IRA. You want to
keep people participating in those plans, but if they do not
feel as if their best interests are being looked after, they
may choose to go elsewhere.
We want to have people invested in these plans. They do not
clarify a little bit we see disagreement on some of the ESG
factors. I am not sure how much there really is. I do not
disagree that these factors could affect the profits generated
by a firm. If you have a firm that is vulnerable to these
factors, the CEO, and the management firm they have the
financial incentive to address as best they can.
Next, existing financial market participants, there are
hundreds of millions of people investing in these firms. They
then will weigh in, and they will not pay as high a price for a
firm that has not addressed these factors. At that point you
have really gotten on top of that, I think. Considering on top
of that you are assuming that the fiduciaries were being pushed
into these considerations by ESG regulations.
You are assuming they know something that both the managers
of the firm and the investors in the market done. If there is
one thing we have learned over the past 20 to 30 years, it is
that active management often falls short of simply investing in
the market index. ESG is active management like anything else,
and so I think there is just a risk of not doing as well for
your clients.
Mr. Allen. Right. It looks like just focusing on the actual
financial returns detects savers and retirees, and they rely on
these plan fiduciaries to make the decisions on their behalf,
and it is important that they have the freedom to do this
versus some one size fits all top down rule from the Department
of Labor saying oh, okay, if you are going to get tax deferred
retirement savings you have got to have so much percentage in
this.
I mean this administration has already been picking winners
and losers, so I mean don't you think that the best protections
for the plan holders is to have the freedom to use their
fiduciaries to give them the proper advice, rather than the
Biden administration?
Mr. Biggs. Sure. I mean I have no doubt if proponents of
ESG based investing think they are doing the best thing for the
planet, the best thing you know for workers, the best thing for
Governors. I do not doubt their motives on that. At the same
time though, I also do not doubt that the effect of these
regulations is going to be to push fiduciaries in a direction
that may overcompensate for this.
Perhaps I can just touch back on a question that came up in
Chairman DeSaulnier's questioning earlier looking at CALPERS,
they are economically targeted investments. I said that over a
20-year period they had lost 3.6 billion dollars according to
Wilshire. Wilshire, quoting the Chairman, has said that over
the past 3 years they had made 850 million dollars from this.
What that nets out is over 20 years they still lost several
billion dollars by investing in tobacco. That was very clearly
driven by a desire to sort of get out of the business of a
harmful product. I do not blame people for wanting to do that,
but that did come at the expense of the participants. I just
think that the record overall of doing these things of actually
benefiting the participants is not very strong, but that is in
fact the standard.
That is what ERISA says. If we want to change ERISA that is
fine. The standard on there is it has to be in the financial
best interest of the participants, and I think too much
emphasis on ESG factors is going to detract.
Mr. Allen. Well, you know obviously the Biden
administration signed the executive order protecting public
health and environmental and restoring science to tackle the
climate you know crisis, that executive order directs all
Federal agencies to review, revise and rescind guidance that is
consistent with prioritizing environmental justice and the
creation of well-paying union jobs.
That is what we are up against. Unfortunately, I am out of
time. Hopefully another member of the committee can follow
through on this question. With that, thank you Mr. Biggs, and I
yield back.
Chairman DeSaulnier. Thank you, Mr. Allen. I will now
recognize the gentleman from New Jersey, Mr. Norcross, for 5
minutes.
Mr. Norcross. Thank you, Chairman and thank you for holding
this hearing. Since I walked through these doors back in 2014,
we have been focused on the golden years. You work your whole
life, you play by the rules, you expect at the end that your
retirement will take you through those golden years.
Unfortunately, we found there are many impediments to that.
Certainly, when we look at a study by CNN Money, the
percentage of workers in the private sector, through its own
retirement account, it is a defined pension benefit, it is down
to 4 percent. Down from 60 percent. That is how much that has
changed since 1980.
Today, only about 14 percent of companies have a combined
of both types, instead they have a 401. In the 401 there is
typically not an option for workers to replicate that what we
call a lifetime income option. A feature of defined benefit
pension that we all know well. Mr. Walberg and I have
introduced a bill the Lifetime Income for Employee Act that
allows that to happen.
Mr. Szapiro, with the decline of defined benefit pensions
is there a concern that people with 401s could retire and
outlive what they have saved?
Mr. Szapiro. Yes absolutely. I am sorry.
Mr. Norcross. Just followup to that and speaking of that,
is it a good idea to increase lifetime income for 401s?
Mr. Szapiro. Thank you so much for the question. This has
been a perennial issue for decades you know finding ways to
ensure people in defined contribution plans they do not outlive
their savings.
I fully agree that policy that could help more workers
hedge this longevity risk could help more retirees achieve
their retirement goals, and that this you know when you look at
the studies out there, almost all of them will show many, many
Americans would benefit from an increase in guaranteed income
in retirement, and that's only going to increase as more and
more people exit the defined benefit system.
It is the wave of defined contribution only workers begin
to retire. There is a reason they call this lack of
annuitization the annuity puzzle. It has been a very hard
problem to solve, and I do think it is important to consider
that retirees have a wide variety of lifetime income needs
depending on their preferences--requests to maintain liquidity,
their savings levels, the replacement rate that they will
receive for Social Security and other factors.
Nonetheless, providing greater access to lifetime income
solutions is incredibly important. Our view is to the extent
that it can come with education, particularly personalized
education so that participants can feel confident that the
annuity recommendation, especially a recommendation into an
illiquid, permanent election, into an annuity product is right
for them.
We think if participants have that confidence there would
be a big uptick. If those options were available inside defined
contribution plans instead of 401K plans. This is a very
important issue, and it is only going to get more important.
Mr. Norcross. Thank you for your response. Certainly, we
want everybody's golden years. I want to thank the committee
for coming together in bipartisan. We might have some different
nuances, but we all agree to work hard you should be able to
retire in those golden years.
A report that Joe Courtney was just talking about is Parity
Enforcement Equity Act. It has been on the books for a long
time. You talked about some of the enforcement capabilities in
the bill that is included, and we appreciate you Chairman
putting that in The Parity Enforcement Act. If you could define
for us and walk through what happens to a national insurance
company who does not include that? Ms. Handorf, if an insurance
company elects not to provide that mental health, as bad as it
is out there right now in the pandemic, what happens to that
company?
Ms. Handorf. The insurance company?
Mr. Norcross. They get caught.
Ms. Handorf. Nothing.
Mr. Norcross. They have to pay for the bill, right?
Ms. Handorf. Well, the only thing that happens is they have
to comply, have to pay for the benefits if it is a fully
insured plan. If it is a self-insured plan the employer has to
pay the benefits, but that is basically it. Know there are so
many barriers to participants who want to enforce their own
rights to mental health parity.
You have to have a lawyer. You have to go through an
appeal's procedure in which your lawyer does not represent you
or does not get paid for it. You are limited in what type of
information you can get, and what information you can present.
You have anti-assignment provisions in plans, all of those are
barriers to participants getting their benefits paid.
On top of it they are dealing with mental illness in some
cases. All of those things need to be fixed in order for the
system to work. Strengthen employee's rights and strengthen the
Department's rights to enforce.
Mr. Norcross. It is time to put some enforcement. Nobody is
looking for people, but my gosh, if we have not figured out
mental health is just as important as physical health, we as a
country are going to face in terms of that. I yield back.
Chairman DeSaulnier. Thank you, Mr. Norcross. We will now
recognize Mr. Walberg.
Mr. Walberg. Thank you, Mr. Chair, and thanks to the panel
for being with us on an important topic. Whenever this
committee has approached the subject of retirement policy we
have done so generally in a spirited bipartisanship. That
spirit still exists, and is highlighted by the Life Act, which
was introduced by my colleague Representative Norcross and
myself, as he has indicated already.
The Life Act will help guard against savers outliving their
retirement savings by expanding the accessibility of products
that provide guaranteed life income. Approximately 10,000
Americans turn 65 every day, many of whom are expected to live
up to 30 years in retirement. If we are to address anxiety
workers and retirees feel about their ability to accumulate
sufficient income that will last throughout their retirement
years, we must continue the bipartisan progress Congress has
made to improve defined covered contribution system.
However, I have significant concerns about some of the
other approaches we are discussing today, and the policy
priorities of the current administration. It appears the
Department of Labor's looking to revive its flawed 2016
fiduciary rule, a regulation which would have made it
drastically more difficult and costly for families to save for
retirement.
Dr. Biggs, should the DOL revive the fiduciary rule? How
would lower to middle income savers be impacted?
Mr. Biggs. Well, the likely impact of reinstating the
fiduciary rule is it would raise the cost of financial advice,
particularly, or in a most salient way for low-and middle-
income savers. The reason is that currently a part of that
advice is paid through fees the fiduciary receives, or the
participant receives otherwise, but those fees are going to
have to be charged out front.
Back in 2013, the United Kingdom had a very similar
regulation where advisors would have to act as fiduciaries, and
several studies that I have seen there have shown the intended
increase to cost of financial advice for low-income savers. It
did so in a way, it raised that upfront cost more than those
savers were willing to pay.
Over in the UK it is called the guidance gap, where you
know for some people, it worked very well. For high income,
people still got the financial advice, but it made it harder
for low-income people to do it. In theory, the fiduciary rule
sounds great, but we always have to think of what are the other
effects of this.
We do not want to cut other people off from financial
advice. I think it is just thinking about how we balance these
concerns.
Mr. Walberg. Yes, we definitely want to get people started.
If we can get started it is kind of like potato chips, you just
keep eating, and to make it difficult and costly. I do not get
it, and I believe that is why this rule was invalidated by the
Federal Court in 2018. How will the Department be able to
revive it even though it was blocked by the Court?
Will the Department be flouting the Court's ruling do you
think?
Mr. Biggs. I am going to credit you in the future for the
potato chips analogy, that is a very good one. I am a policy
person, economist, not an ERISA lawyer. You want to take that
for what it is worth, but the Court ruling in the original
fiduciary rule, which I think came out in 2018, simply said
that the DOL had gone beyond their legal rights in doing that.
I think if you wanted to go in that route again, I think
you would have to do it through legislation, rather than
through regulation. In general, that is how I think things
should be done. In Congress, people should agree on how you
want to do that. That will tend to produce compromise, it will
be more lasting over time, than having different
administrations changed regulatory rules.
Mr. Walberg. The Trump administration issued a revised rule
regarding investment advice in 2020, and full compliance with
that rule does not go into effect until June of this year. In
your view, Dr. Biggs, does it make sense for the Department to
pursue a new fiduciary rule when full compliance with the
current rule has not occurred? Would not it be wise to see how
the current rule is working before you try to change it?
Mr. Biggs. Now, I would stick with what we have, see how it
plays out, and then reconsider in the future. I think just
trying to jump back in on something which many people think
would be harmful, but also is invalidated in Court, I think you
are just setting yourself up for trouble, so let us just see
how things go, study it, and then look to improve it in the
future.
Mr. Walberg. I concur and seeing I have very limited time I
will yield back.
Chairman DeSaulnier. Thank you, Mr. Walberg. We will now go
to another member of the Michigan delegation, Ms. Stevens you
are recognized.
Ms. Stevens. Well, thank you so much, Mr. Chairman. I could
not be more grateful for today's just incredibly topical
hearing, and I really want to commend my colleagues.
Congresswoman McBath, for her discussion--direct bill that is
in formulation, and I know she is working hard on that. I got a
chance to talk with her about it.
Obviously, Congressman Norcross, for his work alongside Mr.
Walberg for the Lifetime Income for Employees Act as well. We
are working on these annuity contracts, which is just going to
be very important. Ms. Matsui, in particular, thank you for
your testimony today, to everybody, all of our distinguished
witnesses.
Ms. Matsui, in particular you noted that women confront
economic challenges in the workplace, pay and retirement
savings inequities. Certainly, in my home State of Michigan it
has been reported to just a recent March 2021 report from the
Michigan Bureau of Labor and Market Information and Strategic
Initiatives that women in Michigan experienced a sharp drop in
employment in April 2020 due to the pandemic.
What comes next? Loss of retirement savings. This was
documented to be a longer period than it was for men, and
frankly women have just failed to recover. As the report notes
that between February and December 2020, roughly 136,000 women
left the labor force, and unfortunately this is likely to have
a dramatic impact on lifetime earnings and retirement savings.
Ms. Matsui, is this reflective of what is been happening
nationally when it comes to the pandemic's impact on women?
Ms. Matsui. Thank you very much for the question,
Representative Stevens. We have in fact seen significant
employment impacts on women from the pandemic, so over 1.8
million net jobs have been lost since February 2020, and I will
also note that nearly a million women have left the labor force
altogether.
One of the things about retirement is that it is premised
on the time value of money. The assumption is if you start
early, if you continue to invest, the cumulative impact of just
continuing to contribute and interest means that you will have
a nest egg at retirement. Unfortunately, the converse is also
true. When there are disruptions to employment, when people are
not able to save or to contribute, that sets retirement
offtrack.
There is I think a significant concern that the impacts of
the pandemic will be to further derail women's retirement
security, and for some women later in their careers it may be
too late to make up the difference. You know when people are
kind of at the height presumably of their income, that is the
time when they are supposed to add additional savings,
additional cushion.
If they are not able to do that, and in fact, if they have
been having to rely on or withdraw those retirement savings,
their own retirement can be delayed or indefinitely deferred.
Ms. Stevens. Yes. I noticed your testimony cites research
suggesting younger workers entering the job market in a period
of high unemployment may experience reduced earnings for up to
10 years as well as reduced job mobility. Could you elaborate
on that based on what you were also just talking about?
Ms. Matsui. I am happy to. Thank you for the question. This
is really something that we saw you know kind of for
millennials after the last recession. They left school with a
lot of debt. They found you know jobs at lower pay with less
mobility, and it really is a challenge, especially for workers
at the beginning of their career when they are paying off
student loans.
Their salaries are lower. They cannot save for homes. They
cannot pay off their debt. They may defer having children. Of
all of those things, it seems so far off to start saving for
retirement that they do not begin to accumulate the savings
that they can, that they need to for the length of their
careers.
Just to the extent that we are seeing disparities for pay,
for women across the board, as soon as they start in the labor
force and throughout their lives, there is also going to be a
disparity for women, even among younger workers.
Ms. Stevens. Yes, sure. Let me just to conclude on a point
as well because I served in the U.S. Department of Treasury for
a number of years and we did a fair amount of financial
education, particularly around retirement. I remember when we
rolled out the My IRA and things along those lines that have
been really important.
We do need to not only educate ourselves as Members of
Congress, particularly around some of these disparities, but we
need to make sure that we have got transparency for the
American people. With that said, Mr. Chairman, we hope the
American people are tuning in today for our hearing, our
subcommittee hearing, and I yield back the remainder of my
time.
Chairman DeSaulnier. This subcommittee always gets a big
crowd of yours. With that, we will recognize the gentleman from
Indiana, Mr. Banks, for 5 minutes.
Mr. Banks. Thank you, Mr. Chairman. We cannot talk about
retirement security without talking about social security, and
I want to turn our attention to that for a moment as we expect
social security to be insolvent by 2033. In fact, the social
security and disability insurance programs experience a three
trillion dollar increase in their unfunded obligations since
just last year.
Dr. Biggs, what would happen to benefits for current social
security recipients once the program becomes insolvent?
Mr. Biggs. Well, thank you, Congressman. I would say at the
outset that if social security was handled with the same level
of bipartisanship that private retirement savings are, I think
we could have fixed the problem. There really is a contrast
between how private retirement savings initiatives work with
tons of bipartisanship and social security is much more
contentious.
People warn of a retirement crisis, which I think is just
in general entirely unwarranted. If social security becomes
insolvent, the trust fund runs out, legally it can only pay
benefits with the money it collects, that will imply an across-
the-board benefit cut of somewhere north of 25 percent for not
just new retirees, but existing retirees, the disabled
survivors. That is where you get the retirement crisis from, so
that will be a very concerning event.
Mr. Banks. Thank you. As you know, many Americans receiving
benefits today cannot afford to have their benefits cut due to
rampant inflation and soaring costs. Dr. Biggs, what will
happen to benefits for our children and grandchildren if
benefits for current social security recipients are not
lowered?
Mr. Biggs. It is a little bit of a complex issue in the
sense that social security is a pay as you go program, and the
taxes I pay today are not saved for me, they go straight out
the door to pay for my grandparents or whatever. Really, the
benefits available in the future are going to be premises on
the wage base in the future, and the taxes that are levied
then.
I think the key thing is we want to get this on a
sustainable track. You do not have to have cliffs where at some
points some dramatic change happens. We have known for 30 years
precisely what is going on with social security. You read an
article in the New York Times today it is essentially the same
as an article in 1990.
What is lacking in information was lacking as political
will. We should tell people that the deal you were promised
cannot be held up. You either have to pay more in, or get less
out, and people can make their choices, but we just need to be
honest upfront with people and tell them the sooner you do this
the easier it is going to be.
Mr. Banks. Social security's unfunded obligations are now
an astounding 20 trillion dollars. This means that to fund all
obligations without reducing benefits, every single American
household would have to be pay $154,000.00. Dr. Biggs, is it
economically viable to simply raise taxes to offset social
security obligations and interest? Who would bear the main
burden of such a proposed tax increase?
Mr. Biggs. Well, you know, yes in theory you can. I mean
there are countries that is--it is very, very, high social
security taxes. The issue though is first you know raising the
payroll tax, that is a tax on labor. That is going to reduce
incentives to work. It is less money particularly for lower
income people to save for retirement on their own.
This is a--it is a costly kind of thing to do. My own view
on this is that we should maintain and strengthen the safety
net curve for low-income Americans. That is not very expensive
to do. Most other countries do it. What we need to do is
middle-and upper-income people need to rely more on their own
savings, less on social security in the future.
That does not mean a dramatic cut. That does not mean
anybody is zeroed out, but it means we just transition to a
system in the future where middle-and upper-income people are
saving more on their own, relying less on a tax and transfer
system from the government. Many countries do that, you know
Australia, United Kingdom. It is not crazy, but it actually
works.
Mr. Banks. Give us one more piece of advice, Dr. Biggs,
with the minute that we have left. You talked about
bipartisanship, what is that one bipartisan solution that we
need to take to reduce the burden on American taxpayers to
reform social security and do what we need to do?
Mr. Biggs. That is the tough one. If we were back in the
late 1990's, you had a whole number of truly bipartisan bills
that could have passed a bipartisan plan then. Today, if you
look at something like the Social Security 2100 Act that has
shifted to not just fixing a problem entirely with tax
increases, but doing more than that, raising taxes above what
is needed to pay for full benefits, and the increasing benefits
further.
I think everybody needs to get a little more realistic
about what they can actually pass. A completely republican plan
will not pass. A completely democratic plan will not pass. You
really do need to meet in the middle, and that is where you go
have lunch with your colleagues and see what they are open to.
Mr. Banks. All right, thank you very much. I yield back.
Chairman DeSaulnier. Mr. Banks and Mr. Biggs, I will be
happy to go to lunch with both of you. We will recognize Ms.
Wild.
Ms. Wild. Thank you, Mr. Chair. I would like to recognize
you as well as our colleague representative Lucy McBath for
your leadership on the important retirement and health care
issues being considered by the subcommittee this morning.
I am proud that the legislation I plan to introduce is part
of Representative McBath's discussion draft legislation. The
Department of Labor requires 401K plans to provide workers with
information about the fees that they pay on their retirement
investments.
Several years ago, our committee asked the GAO to look into
this information and assess its usefulness and last August the
agency issued an eye-opening report. It found that almost 40
percent of 401K plan participants do not fully understand the
fees they are paying on their retirement accounts, and many are
unaware that they are even paying fees.
Clearly there is more work to do here to help workers
better understand these fees, and that they are paying fees on
their retirement investments. I am leading a bill to have the
Labor Department review these rules and explore how they can be
improved. I think it is a straightforward common-sense idea
that will benefit workers in all of our districts and make this
work easier for employers and plan sponsors.
With that, Mr. Szapiro, I appreciate that your testimony
focuses in part on retirement plan fees. Based on your
understanding of the data, do you agree with GAO's findings
that far too many Americans do not understand the fees that
they are paying, and that the Labor Department should give the
relevant regulation a fresh look?
Mr. Szapiro. Thanks so much for the question. Yes, I would
have a hard time disagreeing with my former colleagues at GAO
on this study. I think it is very clear, and we see that also
through practical experience. Morningstar has long advocated
for increased fee transparency and to retirement plan lineups.
I think a review of these 404A5 disclosures that participants
are supposed to get and understand are certainly called for.
I would also note that Congress could consider directing
the Department to review the publicly available fee disclosures
that plans provide, and that's on the Form 5500, and that might
help plan sponsors, regulators and EBSA itself, and third party
benchmark providers, better understand the fees in the lineup
that the plan is offering, and that would ultimately help the
sponsors to assess whether those are reasonable and improve
plans for all participants.
I just want to say you know this discussion around fees. It
is not an academic debate. We put out research this morning
looking at the variance in fees across different plans, and
there are some plans that are quite expensive, there are a lot
that are quite good, and it is really important that
participants understand what they are paying, where they sit,
particularly as they make decisions around rollovers and the
like. This can really materially impact their future nest egg.
Ms. Wild. In addition, your written testimony also details
the difference in fees that are being paid, depending on the
size of a retirement plan. That is that the larger the
retirement plan, the less expense it is likely to be for its
workers to invest for retirement. Is this correct? If so, would
you agree with me that it seems to indicate for those Americans
who work for a small business, it is even more imperative that
they understand the fees they are paying.
Mr. Szapiro. Yes, absolutely. I think that is absolutely
the case. You know at the median the fees for people at smaller
plans that are offered by smaller businesses could be almost
double the median fee for those larger plans, and so it really
is important for people to understand that what they pay for
retirement may be dependent on their employer.
I do want to note we see a lot of variability with small
plans. There are some that are quite inexpensive, but a lot
that are in that long tail. Most people are covered by large
plans, that makes sense, but there are lots of people who you
know may be paying quite a bit more than they think they are,
and really need to understand that.
Ms. Wild. Thank you so much. With that, I yield back.
Chairman DeSaulnier. Thank you. We will now recognize
Representative Fitzgerald for 5 minutes.
Mr. Fitzgerald. Thank you, Mr. Chair. I just had kind of a
quick one that I thought it might take some explanation, but
Dr. Biggs, one of the provisions that Chairman Scott has in
that discussion draft it prevents a spouse from taking a
distribution from a retirement account without the knowledge of
the other spouse.
It does not seem--I thought it was odd that this was
included, and I was trying to figure out why this would be--and
it is kind of a strange precedent I would think. What I wanted
to know is how frequently are retirement assets used by one
spouse for non-retirement expenses without the knowledge of the
other spouse? Is that something that happens? It is just
something that kind of stuck out in the actual discussion
today.
Mr. Biggs. Well, thanks, Congressman. The answer is we do
not really know, and I think I touched on this a little bit in
my earlier discussion of this where I think it would be good to
have better data to the degree it is possible on how this plays
out. Perhaps there are some plans that already require this,
maybe you can test how much it is happening.
With all of these issues that we are thinking about,
whether it is ESG, spousal consent, fiduciary role, these are
not easy issues. The easy decisions have already been made by
your predecessors. Now you get left with the harder ones where
you are balancing the different priorities.
I think with this I would just want to look further on it.
With all of these I am concerned of the unintended
consequences. We are trying to do the right thing, but then it
may have bad effects we have not anticipated, so even more up
front the better off we are.
Mr. Fitzgerald. Yes, I guess that was my point in bringing
it up was it appears that a lot of these areas there has either
been some precedent set-in retirement planning in the past, or
there has been kind of just a complete negligence in addressing
these. Even though the draft looks fairly clear, there are more
complex issues that could emerge as implementation happened.
You think that is true?
Mr. Biggs. Exactly. I mean this is just a more complex
issue than when we are looking at traditional defined benefit
pensions where you essentially make one decision now that these
are people that could be taking loans, they could be taking
emergency withdrawals, it is just a more complicated issue, I
think.
Mr. Fitzgerald. Yes, very good. I yield back. Thank you,
Mr. Chair.
Chairman DeSaulnier. Thank you, Congressman Fitzgerald. We
will now recognize Congresswoman McBath.
Mrs. McBath. Well thank you so much, Mr. Chair. Thank you
to all of our guests who have joined us to talk about these
really pressing matters. I have read all of your testimoneys.
Know that hardworking individuals deserve to retire with
security and dignity, and I am proud of the work that this
committee has done to improve and secure the retirement
benefits for millions of Americans, whether through the RISE
Act, or through the saving of multi-employer pension plans, my
colleagues and I really remain steadfast in our commitment to
the American worker.
I am pleased to continue that work with today's hearing,
which is really focused in part on draft legislation that I
plan to file in the coming weeks, and this common sense
legislation truly adds you know further protections and
clarification for benefit holders and financial managers, and I
thank each of my colleagues such as Representative Wild and
others, that have contributed to creating this really important
package of bills.
One of its key aspects is extending spousal protections
that are currently available for traditional defined benefit
pensions to define contribution plans like 401K's which we are
just discussing now. This provision is also a part of
legislation our colleague Representative Underwood of Illinois
introduced, and I thank her for her leadership.
For many families in my own district, and across the
country, their 401K plan is often their largest asset outside
their home, yet there is a loophole in current law that is
being exploited, allowing one spouse to make a withdrawal from
a 401K plan without the other spouse's knowledge or consent.
Women who are far more often have fewer assets and
retirement benefits than men, are the ones who are far more
likely to be harmed by this loophole. Ms. Matsui thank you for
your thoughtful and compelling testimony. I have a few
questions to emphasize what is at stake, and why Congress
really needs to act.
Let us say one spouse retires or changes jobs and decides
to withdraw a 401K balance that was intended to serve as a
retirement nest egg for both spouses. Is there anything in
current law to stop this spouse from depleting this account?
Ms. Matsui. Thank you very much for the question and for
this important legislation Representative McBath. Right now, if
a withdrawal is made there is nothing to prevent one spouse,
the participant spouse from depleting those assets. I will say
that you know for in some limited circumstances, if there is a
divorce pending, there may be a requirement to kind of hold
those assets, or think about those but it is often very
difficult to practically protect those since as you noted the
401K, or retirement savings plan could be the biggest asset in
the marriage, and if those assets or funds are spent or
depleted, there is not really a way to recoup them or get them
back.
By the same token some states do have--and only in common
law states though have protections in IRAs, but again those are
not comprehensive, and there really is no recourse, especially
since spouses may not find out until their spouse has passed
away.
Mrs. McBath. Okay, thank you. You have just answered my
next question that there is no recourse for that spouse. I can
see how this would be a major issue for couples in anticipation
of a divorce. Can you speak a little bit more to that?
Ms. Matsui. Yes, and thank you for the question. Because
pension benefits and retirement savings that are accumulated
during a marriage are effectively marital property, it is
deferred compensation, so it belongs to kind of the marital
unit. The one spouse does have kind of a right to share as
marital property.
While those benefits can be divided at divorce, again there
is a concern that if those funds are depleted, they are not
kind of available and ready, and in addition there are
sometimes considerations of you know tradeoffs, or one spouse
may be interested in keeping the house. It is not always kind
of a guarantee that a spouse will get their share. All of these
are points where retirement savings can be lost, and spouses
can be put at risk for a less secure retirement.
Mrs. McBath. Let us say this becomes law. Can you talk
about how these spousal consent provisions would be implemented
and administered by retirement plan sponsors?
Ms. Matsui. Yes, thank you. For almost four decades,
retirement plans who administer defined benefit plans have been
effectuating and implementing spousal consent provisions. In
addition, the Federal thrift savings plan for its recipients
does also have spousal protections for their defined
contribution plans.
If for example, a participant rolls the account balance
over to another defined contribution plan that is employer
sponsored, or an IRA where there is spousal protections, no
consent would be required, but there's kind of ample precedent.
Plans have been doing this for almost 4 years to be able to put
these protections in place.
Mrs. McBath. Thank you so much. I am out of time, and I
look forward to continuing to work on this really vital
legislation with my colleagues, and I yield back.
Chairman DeSaulnier. Thank you. We will now recognize Mr.
Levin for 5 minutes.
Mr. Levin. Thanks, Mr. Chairman, and thanks for convening
this hearing. I have long opposed the previous administration's
efforts to stymie environmental social and governance, or ESG
sustainable investing. I introduced two bills, the Sustainable
Investment Policies Act, and the Retiree's Sustainable
Investment Opportunities Act to protect and promote
transparency in this area.
Workers should be able to invest in accordance with their
values relating to environmental sustainability, workers'
rights, and corporate governance. Contrary to what some may
say, this kind of sustainable investing is not at odds with
making a profit. In fact, worker's profit motives are central.
If a company has negative practices, such as high liability
risks, or treatment of workers, even in their supply chains, or
carbon intensive business practices, their stock could suffer
in the long-term. Retirement plan fiduciaries should be able to
consider such factors when making investment decisions for
their participants.
That is exactly what the Biden-Harris administration's
proposed ESG rule seeks to do, and I am a strong supporter of
it. For today, I want to explore two important issues--the
performance of ESG funds, and the necessity of this Biden-
Harris administration regulation.
Mr. Szapiro, in Mr. Biggs's testimony, he cites studies
questioning the performance of ESG funds. Based on
Morningstar's extensive study of the data, have you seen
underperformance with ESG funds?
Mr. Szapiro. Thanks so much for the question, and we really
have not. We put out every year the sustainable funds landscape
report. We published the most recent one in January of this
year. What we find when we look across all sustainable funds
with different kinds of strategies, funds that incorporate the
ESG information into their investment process, what we find is
slightly more than half of those funds finish in the top half
of their Morningstar category by returns.
At least looking retrospectively, there is really not--
there to the argument that these funds systematically, or
generally underperform conventional funds. I want to emphasize
that that is all net of fees. In previous years we found
sustainable funds have actually performed--have been more
likely to perform quite a bit better than conventional funds.
Mr. Biggs also cited the CRR study, and I think that is an
interesting study, but just in a nutshell I do not think that
its findings support the notion that ERISA DC plans should not
consider ESG information, or that the Department of Labor's
regulation should not be promulgated. They look at, and I am
just quoting from the study here, a whole range of approaches
that run the gamut of State mandates and ESG policies, so I do
not think they are really capturing the kind of ESG analysis
that the regulation the Department of Labor is considering
would promote.
Mr. Levin. Exactly. Well, so I really want to sort of put a
fine point on that because clearly in his testimony, Mr. Biggs
questions whether the proposed ESG rule is even necessary at
all, and he seems to argue that plans are already doing this,
and the market is already pricing it in.
Based on Morningstar's study of the data, are plans
accounting for ESG factors, and is the proposed ESG regulation
needed?
Mr. Szapiro. I think it absolutely is, and in my written
testimony I provide some charts and figures on this, but I
think that the bottom line is something I alluded to earlier,
and I want to come back to. 4 percent of strategies, 2 percent
of assets that we can identify, around 3 trillion in assets we
can identify in the defined contribution system are in funds
that we would call five globe, that is that they are best
prepared to address ESG risks.
I think it is clear to me that plan sponsors are you know
afraid of considering these issues because of the regulatory
uncertainty, and that doing so would benefit participants
because it would allow the plans to say okay, we are
considering whether these risks are financially material, and
what they will mean for your future retirement.
Mr. Levin. Well, thanks, and you know I really appreciate
you underscoring the importance of the Biden-Harris
administration's proposed ESG rule. I plan to file legislation
to codify the rule once it's finalized by DOL because Congress
also needs to provide long-lasting clarity to plan fiduciaries,
and I welcome my colleague's support for this bill.
You said something else in your testimony that I really
believe, and I am going to expand on it because this is what I
think anyway. Young people, young workers, do not save nearly
enough for their retirement, and part of the reason is they are
not interested, it does not seem to meet their needs.
Letting them invest their values in ways that also maximize
their returns over time will get a lot more young people into
the game when they need to start saving for their retirement.
That is what we need to protect those young workers, that is
the whole reason we are here talking about that. Thanks, Mr.
Chairman, I yield back.
Chairman DeSaulnier. Thank you. We are now going to
recognize the Chair of the full committee, Mr. Scott.
Mr. Scott. Thank you, Mr. Chairman. Mr. Szapiro, let me
follow through on that because Mr. Biggs said that ESG funds as
a whole do not do as well as index funds. Is it true that most
other funds, actively managed funds, do not do as well as index
funds either?
Mr. Szapiro. That has been true for many active funds yes.
I think the arguments that get into returns on ESG, I mean
obviously we feel our study is the gold standard on this, but I
think they tend to sort of cherry pick specific examples. When
you look at the totality of funds that are incorporating the
ESG information into their strategy, they have performed as
well, or better than conventional funds in previous years.
That's what we found.
Mr. Scott. Okay, thank you. Mr. Biggs, you indicated that
because index funds do not do as well--because ESG funds do not
do as well as index funds, should not that argument also
exclude virtually all managed funds because they do not do as
well as index funds either?
Mr. Biggs. In my point of view, if you are looking out for
the pure financial best interests of your participants, an
index fund is probably the best choice. Just to touch back on
the points Mr. Szapiro made. I would be happy to provide you a
variety of cites to references of studies looking at ESG funds.
I have some in my written testimony.
I believe that Morningstar's study looked at more recent
returns the last 5 years or so. ESG funds are heavily weighted
to tech, have done well. The Boston College study looked at the
longer term, where I think short-term factors are less
important.
Mr. Scott. Well, Mr. Biggs, I think you made the point that
index funds are probably better.
Mr. Biggs. Sure.
Mr. Scott. Overall, anyway, but on a question of whose
money is it, why should not an employee be able to choose from
a list of options what they want to invest in, and why would
you be excluded from considering, if that is your choice with
your money, investments in ESG funds? Why should we even be
required to support carbon pollution and gambling and smoking
if you do not want to and knowing the risks it may or may not
make as much, but that is your choice, and it is your money.
Why should not that be your choice?
Mr. Biggs. Yes, I should be clear. I am much more open to
an ESG, or an ethical fund being introduced as an option in a
401K. Where I would have real problems would be if an ESG fund
became the default because we know that you know most people
are going to go with that. Again, I am not an ERISA lawyer.
There is a distinction between the individual's choice
versus what is effectively being chosen on that.
If you are in a defined benefit fund, I think ESG is really
problematic.
Mr. Scott. Thank you. Ms. Handorf, on mental health parity
we have talked about the penalty and the absence of penalties
for violation. Who enforces the violation right now? The
violation of a mental health parity on insurance policies?
Ms. Handorf. Basically, the Department of Labor has the
authority to make them come into compliance, employers to come
into compliance, but that is it, and then to pay whatever the
required benefits are. I think if you look at private
litigation, you are going to find some real changes being made
because participants have banded together to fix the problems
with large insurers, and third-party administrators.
Mr. Scott. Well, that sounds like class action to me. What
is the problem with banning class action in some of these
policies?
Ms. Handorf. Well, the problem with it is one single person
cannot afford to bring litigation that is as complex as ERISA
is, and they just do not have the money. It is not worth it to
them, so it is really important that they be able to band
together, and to get meaningful relief. That is the only way
you are going to get change.
Mr. Scott. Should there be any relief to insurance
companies in terms of mental health parity if there is a
provider shortage prior to putting a package together in your
provider network in some areas, frankly, are not the providers?
Ms. Handorf. Well, I think the providers, there are
providers. The networks I think are problematic altogether, but
networks definitely should--there is no incentive for them to
get any greater network coverage and, therefore.
Mr. Scott. Well, I mean in some areas network can include
everybody, but if everybody--there are not enough providers,
some counties do not have psychiatrists.
Ms. Handorf. That is a problem, and that is why I think the
telehealth issue is a good one. It would definitely expand the
availability of benefits to people that are underserviced
areas.
Mr. Scott. What is wrong with arbitration clauses?
Ms. Handorf. Arbitration clauses keep people out of court.
They make it impossible. I often see it in the topics of
employee's stock ownership plans where it does not really make
any sense that you would have arbitration provisions and each
person would go into court individually to sue for the exact
same violation that occurs for everybody, it just does not
work, and it is definitely put in plans to keep the
participants from protecting their rights.
Mr. Scott. Thank you, Mr. Chairman.
Chairman DeSaulnier. Thank you as well, Mr. Scott. That is
our last question for members. I want to remind my colleagues
that pursuant to committee practice, materials for submission
for 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 March 15, 2022, preferably in Microsoft
Word format.
The materials submitted must address the subject matter of
the hearing. Only a member of the subcommittee, or an invited
witness may submit materials for inclusion for the hearing
record. The documents are limited to 50 pages each. Documents
longer than 50 pages will be incorporated into the record via
an internet link that you must provide to the committee clerk
within the required timeframe, but please recognize that in the
future that link may no longer be operational.
Pursuant to House rules and regulation, items for the
record should be submitted to the clerk electronically by
emailing submissions to edandlabor.hearings@mail.house.gov.
Again, I want to thank our witnesses. You have all been
terrific, really good exchange, and for your participation
today.
Members of the subcommittee may have some additional
questions for you, and we ask the witnesses to please respond
to these questions in writing. The hearing record will be held
open for 14 days in order to receive these responses.
I remind my colleagues that pursuant to committee practice,
witness questions for the hearing record 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.
Now I would like to thank all of my colleagues. I want to
thank my ranking member. I am looking forward to being there in
the meeting room with you as well Mr. Allen, and I recognize
you for a closing statement.
Mr. Allen. Okay, there we go. Thank you, Mr. Chairman, and
I ask unanimous consent to enter a statement into the record
from the Association for Behavioral Health and Wellness, the
ERISA Industry Committee, Fidelity Investments, and the
Hispanic Leadership Fund, and a letter from the partnership for
employer sponsored coverage.
Chairman DeSaulnier. Without objection.
[The information of Mr. Allen follows:]
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Mr. Allen. Thank you Mr. Chairman. I would also like to
thank the witnesses for their testimony today, and thank you
Mr. Chairman for holding this hearing. I am concerned with the
timing of the hearing and my colleague's intentions. The
committee should focus on enacting bipartisan RISE Act, not
jumping to consider new, more partisan retirement package.
It is my hope that the committee continues its important
tradition of bipartisan cooperation in retirement legislation.
As we heard from today's testimony, the financial interests of
retirement savers and beneficiaries must be prioritized. The
Biden administration's proposed rule requiring ESG investing
and private retirement plans not only contradicts ERISA, but
also threatens the savings of American workers and retirees.
DOL's proposed rule and similar legislative proposals would
place retirement savers third behind the political whims of the
majority and a fiduciary fearing a lawsuit for non-compliance.
Thank you again to all the witnesses for participating in
today's hearing, and with that Mr. Chairman thank you and I
yield back.
Chairman DeSaulnier. Thank you, Mr. Allen. I will now
recognize myself for the purpose of making my closing
statement. First I ask unanimous consent to enter a letter from
the American Federation State, County and Municipal Employees
into the record. Without objection so ordered.
[The letter of Chairman DeSaulnier follows:]
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Chairman DeSaulnier. Thanks again to the witnesses. I
really mean it. It's a good conversation and encouraging. In
spite of our differences, I think there's a lot that we can
work on together. So thank you very much. Today we discussed,
excuse me, the importance of helping workers access secure
retirement, high-quality health care.
Unfortunately, as our witnesses shared, many workers
continue to face barriers to saving for retirement and
receiving the care they need. That is why Congress and this
committee advanced legislation to improve retirement security,
strengthen health benefits, and protect pensions of more than
one million workers and retirees through the American Rescue
Plan.
I look forward to continuing our efforts to advance common
sense solutions, that meaningfully improve the lives of
American workers and retirees. I welcome my Republican
colleagues' support for these ideas, and I also welcome our
conversation. Thank you again to our witnesses. If there's no
further business, without objection the subcommittee stands
adjourned. Thanks.
[Whereupon, at 12:07 p.m., the hearing was adjourned.]
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