[Senate Hearing 117-186]
[From the U.S. Government Publishing Office]
S. Hrg. 117-186
RETIREMENT SECURITY:
BUILDING A BETTER FUTURE
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HEARING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING RETIREMENT SECURITY, FOCUSING ON BUILDING A BETTER FUTURE
__________
MAY 13, 2021
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Printed for the use of the Committee on Health, Education, Labor, and
Pensions
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
___________
U.S. GOVERNMENT PUBLISHING OFFICE
46-766 PDF WASHINGTON : 2022
COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
PATTY MURRAY, Washington, Chair
BERNIE SANDERS (I), Vermont RICHARD BURR, North Carolina,
ROBERT P. CASEY, JR., Pennsylvania Ranking Member
TAMMY BALDWIN, Wisconsin RAND PAUL, M.D., Kentucky
CHRISTOPHER S. MURPHY, Connecticut SUSAN M. COLLINS, Maine
TIM KAINE, Virginia BILL CASSIDY, M.D., Louisiana
MAGGIE HASSAN, New Hampshire LISA MURKOWSKI, Alaska
TINA SMITH, Minnesota MIKE BRAUN, Indiana
JACKY ROSEN, Nevada ROGER MARSHALL, M.D., Kansas
BEN RAY LUJAN, New Mexico TIM SCOTT, South Carolina
JOHN HICKENLOOPER, Colorado MITT ROMNEY, Utah
TOMMY TUBERVILLE, Alabama
JERRY MORAN, Kansas
Evan T. Schatz, Staff Director
David P. Cleary, Republican Staff Director
John Righter, Deputy Staff Director
C O N T E N T S
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STATEMENTS
THURSDAY, MAY 13, 2021
Page
Committee Members
Murray, Hon. Patty, Chair, Committee on Health, Education, Labor,
and Pensions, Opening statement................................ 1
Burr, Hon. Richard, Ranking Member, a U.S. Senator from the State
of North Carolina, Opening statement........................... 3
Witnesses
Lucas, Lori, President and CEO, Employee Benefit Research
Institute, Washington, DC...................................... 5
Prepared statement........................................... 8
Summary statement............................................ 26
Akabas, Shai, Director of Economic Policy, Bipartisan Policy
Center, Washington, DC......................................... 26
Prepared statement........................................... 30
Summary statement............................................ 47
Kyle, Deva, Counsel, Bredhoff & Kaiser, Washington, DC........... 47
Prepared statement........................................... 49
Summary statement............................................ 54
Gray, Dave, Head of Workplace Retirement Products, Fidelity
Investments, Boston, MA........................................ 55
Prepared statement........................................... 56
RETIREMENT SECURITY:
BUILDING A BETTER FUTURE
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Thursday, May 13, 2021
U.S. Senate,
Committee on Health, Education, Labor, and Pensions,
Washington, DC.
The Committee met, pursuant to notice, at 10:05 a.m., in
room 106, Dirksen Senate Office Building, Hon. Patty Murray,
Chair of the Committee, presiding.
Present: Senators Murray [presiding], Casey, Murphy, Kaine,
Hassan, Smith, Rosen, Burr, Braun, Marshall, Scott, Tuberville,
and Moran.
OPENING STATEMENT OF SENATOR MURRAY
The Chair. Good morning. The Senate Health, Education,
Labor, and Pensions Committee will please come to order.
Today, we are having a hearing on retirement security, and
this is the first this Committee has had since 2013. So, I want
to thank Ranking Member Burr for working with me to hold this
bipartisan hearing. Senator Burr and I will each have an
opening statement, and I will introduce our witnesses. After
they give their testimony, Senators will each have 5 minutes
for a round of questions.
Before we begin, as usual, I want to walk through the
COVID-19 safety protocols in place. We are all, again, grateful
to our Clerks and all of our staff who have worked hard to get
this set up and help make sure everyone stays healthy and safe.
We will follow the advice of the Attending Physician and
the Sergeant at Arms in conducting this hearing. Committee
Members are seated at least 6 feet apart, and some Senators are
participating by videoconference. And while we are unable to
have the hearing fully open to the public or media for in-
person attendance, live video is available on our Committee
website at help.senate.gov. And if you are in need of
accommodations, including closed captioning, you can reach out
to the Committee or to the Office of Congressional
Accessibility Services.
Even before this pandemic wreaked havoc on our Nation, it
was clear, our economy did not work for a lot of working
families, and too many people in Washington State and across
the Country were struggling just to get by, let alone plan for
the future.
Calculations from the World Economic Forum found that the
gap between what our Country is saving for retirement and what
people will need was $28 trillion in 2015 and would be $137
trillion by 2050.
In 2016, over half a million full-time workers in
Washington State worked for an employer that did not offer a
retirement plan.
Only one in three workers in our Country is saving enough
to retire comfortably, with the average worker on track to have
their standard of living cut by one-fifth in retirement, and
the situation is even worse among women and workers who are
paid low income.
It is not just people's financial futures that have been in
jeopardy. In 2018, the Federal Reserve found almost 40 percent
of Americans said they would struggle to come up with $400 in
an emergency. A historic pandemic that causes millions of lost
jobs and millions of people to be forced out of the workforce
to care for their families is exactly the kind of emergency
people cannot afford.
That is why we took action in our relief bills, so people
could draw on retirement savings to weather the storm without
being penalized; and to provide direct financial assistance, as
well, since helping people access their retirement can only go
so far when one in four people in our Country do not have
retirement savings to start with, and one-third say they are
not on track for retirement.
Even before this crisis, women were more likely than men to
face poverty in retirement, in part due to the wages they lose
over the course of their careers to pay discrimination, lack of
quality, affordable childcare, and national paid family leave.
Injustices, like investments, compound over time, leaving
the average woman with over 400,000 less in earnings than her
male colleagues over a 40-year career. That gap is even larger
for women of color, who are estimated to lose around $1 million
over the course of their career due to the wage gap. And, now,
after this pandemic, one-fifth of Americans, one-quarter of
women, and over one-quarter of people of color say they are
worse off financially. Over half of Americans say they are more
worried about retirement than they were a year ago, and nearly
half do not think they will ever be able to retire.
We were facing a retirement crisis before COVID-19, but, as
with so many other things, this pandemic has just poured
gasoline on the fire.
If we are going to rebuild our Country stronger and fairer,
we have to address the reality that, for far too long, the ways
we helped families plan for the future have been stuck in the
past; stuck in a time when women were not half of the
workforce; when student debt was not at a historic high; when
healthcare was less expensive; when more employers offered
strong retirement benefits, like pensions; and when it was
unthinkable that cyberattacks could throw the life savings of
millions of people into jeopardy with just a few keystrokes.
We need to take steps today to protect families' plans for
tomorrow. We need to make it easier for people to save for an
emergency, enroll in a quality retirement plan, and get the
tools and knowledge they need to plan their financial futures.
We need to address longstanding threats to families'
finances, like the racism, sexism, and ableism that have
chipped away at the economic security of so many people for
decades, and new threats, like cyberattacks, which our
retirement system has yet to fully reckon with.
A lot has changed for families across the Country over the
last year, to say nothing of the last 8 years since our last
retirement hearing. So, I am incredibly glad we are able to
have this hearing today, and I am looking forward to continuing
the conversation we are having today and working with my
colleagues on both sides of the aisle to address pressing
challenges and make long-needed updates to our Nation's
retirement security.
With that, I will turn it over to Ranking Member Senator
Burr for his opening remarks.
OPENING STATEMENT OF SENATOR BURR
Senator Burr. Thank you, Madam Chair, for scheduling this
hearing and highlight the needs for Americans to save more for
their future. I hope this bipartisan hearing is a sign that the
Committee will work collaboratively on retirement legislation
in our jurisdiction instead of using reconciliation again to
move partisan ideas or more expensive bailouts.
I want to welcome our witnesses. I want to thank you for
being here and for your expertise. And I want to especially
welcome Dave Gray. North Carolina, Madam Chair, is the home of
a lot of Fidelity employees, so we look to Fidelity for more
than just the advice they give us today. They are the backbone
of employment.
Some Members of the HELP Committee, like myself, serve on
other committees, like Finance and Aging, who have held recent
hearings on retirement matters. The hook into retirement issues
for Labor Committee is ERISA, and the Employee Retirement and
Income Security Act, ERISA, sets standards for retirement and
health plans in private industry to protect individuals in
these plans.
The Tax Committee in Congress handles the Internal Revenue
Code portion.
There is an overlap between Committees that typically gets
worked out very smoothly. That said, as a Member of the HELP
Finance and Aging, I consider my office a one-stop shop on
retirement and aging matters. I will personally get engaged in
any bipartisan retirement matter without worry of jurisdiction,
but for today, we will concentrate on the HELP piece.
Our particular focus today is to find contribution plans,
the reliable superstar of the retirement world. The question
before us is, what is working well and what is lagging and
needs improvements?
The answer to that question is easy at the surface level.
The system works great. The system does not work great when you
do not or cannot participate. What we need to do is help
Americans and their employers offer, operate, and fund
individual retirement plans.
We also need to make sure that people who have screwed up
nearly every other retirement plan in America do not get their
hands on the freedom and flexibility Americans have in their
private retirement accounts. Many Americans who look ahead at
their retirement have to look at the newspaper to see what is
happening with Social Security, with their company or union
defined benefit plan, or their catastrophically underfunded
state and local pension plans.
Not so with defined contribution. Americans in defined
contribution plans pick up a piece of paper and see two
things--their name and their account balance. It is their
money, and it is there. It is not a promise. It is not an
accounting notation. It does not require a bailout. It is their
money. It requires time, it requires personal contributions,
maybe an employer match, and some basic financial knowledge.
While investments must be managed well, market fluctuations
must be weathered and smart decisions made as you near
retirement. No politician can steal your 401(k) or IRA--at
least not yet.
Congress is good at two things--overreacting and
underreacting. Individual retirement plans have not gotten a
lot of attention in some respects because they work. Individual
retirement plans show that regular folks benefit from the
success of corporate America and, quite frankly, investments.
Despite the anti-business rhetoric we hear from some in
Congress and the Administration, it would surprise many that
the energy or pharmaceutical companies that the Biden
administration intends to put out of business are mainly owned
by retirement plans, and that, in fact, is Americans. That is
you and me and anyone else with a retirement account.
This irks some. It does not jibe with their government-
centric philosophy. It does not jibe with their desire to
demonize business when business is owned by Americans'
retirement plans.
Retirement works when Americans control their own money. It
goes wrong when we add middlemen with goals other than putting
real money into a nest egg and growing that.
What happens when people other than you control your
retirement? In the American Rescue Plan Act passed by Congress
and signed into law in March, they included a massive bailout
for certain multi-employer pension plans. These are retirement
plans negotiated and promised by private sector employers and
unions to private sector workers. Employers and unions could
not afford the promises they made to workers over the past
several decades, so they gave them $80 billion. That is, they
gave them $80 billion of taxpayer funds to make private
agreements work. A bailout, pure and simple, with no reforms to
these plans to make sure that the promises will be able to be
honored in the future.
The Federal Government cannot afford to guarantee every
retirement promise made between private companies and their
workers, or between poorly run states and their public unions.
We have a national debt of $28 trillion, and that is just
today.
There are numerous mismanaged pension systems that have
failures looming both in the private and public sectors as we
sit here. The latest data in 2018 from the Federal Reserve
estimates $4.5 trillion in public plan underfunding. Four point
five trillion dollars in underfunding.
Employees, states, and retirees should not and cannot rely
on government bailouts for the future, so that means Congress
needs to work together to shore up retirement options and to
help Americans save for their own retirement.
Americans need to start saving more. With fewer Americans
having access to an employer-sponsored pension plan, old rules
of thumb about how much to save are outdated. The gap between
the retirement savings Americans have and the savings they need
is already in the trillions and likely to grow.
Not only are many Americans struggling to keep pace with
their savings needs, even more alarming is how many people have
no savings outside of Social Security. The data we have seen
says that over one-quarter of non-retirees have nothing in
their retirement piggy banks, many of whom are already nearing
the traditional retirement age.
While the long-term impact of the pandemic and economic
lockdowns remains to be seen, we know that many Americans
needed to tap into their retirement savings to pay more
immediate needs in the past year, draining assets that were
intended for retirement.
On the bright side of these discouraging numbers is what we
know that works. AARP says that workers are 15 times more
likely to save for retirement if they have access to a payroll
deduction plan at work. You don't spend what you don't see.
We have also seen the success of a defined contribution
plan, features like automatic enrollment and employer matching,
which show that most workers will not opt out of an employer-
sponsored savings plan if they are already enrolled, and many
will set their payroll deduction to maximize the level they
earn on the employer match.
The question of how to improve the average American's
retirement outlook is not how do we bail out the systems that
make up multi-trillion dollar savings gaps. Instead, it is, how
do we help employers--employees and employers take advantage of
the savings programs that already work.
I look forward to the hearing today. I look forward to the
expertise of our panelists, and I thank the Chair for her
indulgence.
The Chair. Thank you, Senator Burr.
I will now introduce today's witnesses.
Lori Lucas is the President and CEO of the Employee Benefit
Research Institute in Washington, DC.
Thank you, and welcome, and thank you for joining us today.
Next, I would like to introduce Shai Akabas, the Director
of Economic Policy at the Bipartisan Policy Center in
Washington, DC.
Thank you for joining us today.
Next, Deva Kyle serves as counsel to Bredhoff & Kaiser,
PLLC and advises clients on a wide range of issues under
retirement and Internal Revenue code, laws, and regulations.
We are glad to have you here today.
Finally, I would like to introduce Dave Gray. Mr. Gray is
the Head of Workplace Retirement Offerings and Platforms at
Fidelity Investments in Washington, DC.
Thank you for being here today.
Ms. Lucas, we will begin with your opening statement.
STATEMENT OF LORI LUCAS, PRESIDENT AND CEO, EMPLOYEE BENEFIT
RESEARCH INSTITUTE, WASHINGTON, DC
Ms. Lucas. Good morning, and thank you to Chair Murray,
Ranking Member Burr, and Members of the Committee for inviting
me to testify on the important topic of retirement security.
The events of the past 14 months, including pandemic-
related job loss, increased care giving needs, and heightened
stress have, among other things, highlighted the need for
savings and financial security.
My name is Lori Lucas, and I am the CEO of the Employee
Benefit Research Institute. EBRI is a non-partisan, tax-exempt
organization that contributes to sound employee benefit
programs and public policy through independent, objective,
fact-based research.
I want to start by thanking the Senate HELP Committee for
the good work they have done in improving the U.S. retirement
system over the years.
To put things in context, I believe that the best way to
think of the U.S. retirement system is pre-and post-2006
Pension Protection Act. Prior to the PPA, defined contribution
plans largely relied on individual workers to be engaged and to
navigate savings and investing on their own. It was essentially
a do-it-yourself system. However, the average worker is not a
professional investor. They need help.
The PPA recognized this and incentivized employers to
automate their defined contribution plan so that the default is
for workers to be enrolled in the plan, to save at higher
levels over time, and to invest in a diversified portfolio.
Yet, there are areas that the PPA did not fully address,
creating the opportunity today to further improve the system.
These include greater access, reduced plan leakage, and
supporting thoughtful, post-retirement spending.
When it comes to improving access, EBRI research shows that
the probability of successful retirement depends to a great
extent on whether employees are eligible to participate in the
defined contribution plan. Using EBRI's retirement security
projection model, we find that merely having access to an
employer-sponsored DC plan increases the chances that workers
will have enough money to sustain themselves in retirement by
50 percent.
Yet, we find that about four in ten workers are projected
to fall short of what they need in retirement savings,
resulting in an aggregate retirement deficit across all U.S.
households of $3.68 trillion in today's dollars.
This deficit is owed in part to the fact that many American
workers, mainly those who work for small employers, do not have
access to employer-sponsored retirement plans. Indeed, while 90
percent of workers at large companies have access, only half of
workers at smaller companies do. Simply put, smaller companies
often cannot afford to offer the existing traditional
retirement plans.
The recently passed SECURE Act recognized this and created
an alternative--pooled employer plans. PEPs allow multiple
employers to offer a single plan that is run by an outside
administrator, who also serves as the plan's fiduciary. The key
to PEPs fulfilling their potential for expanding access,
however, is to streamline legal and compliance needs, namely
non-essential reporting, auditing, and compliance requirements
that can cost--that can increase costs, and thereby reduce
employer adoption rates.
Turning to plan leakage, the main culprit here is cash-outs
by employees when they leave their employer. Each year,
approximately 40 percent of terminated participants elect to
prematurely cash out of their defined contribution plan, and
these are mainly younger workers with small balances. Part of
the reason is that cash-outs are easy. In contrast, under the
current rules, rolling over money into your new employer's plan
can be extremely challenging.
How cannot cashing out be made easy? One way is through
auto portability. That is where a participant's account from a
former employer's retirement plan is automatically combined
with their active account in the new employer's plan. This
helps keep the assets in the retirement system and reduces
leakage from cash-outs.
EBRI research finds that if we were to completely eliminate
cash-outs, the youngest workers in the lowest income quartile
would have a 35.5 percent increase in balances at retirement.
Policies and support reducing or eliminating cash-outs from
workplace retirement plans can improve outcomes, especially for
lower-wage workers.
I want to conclude with a discussion of financial security
in retirement. EBRI spending and retirement survey identifies
two types of retirees who stand in stark contrast to one
another. First are highly indebted retirees, who are a
significant and growing group. They are characterized as
predominantly female, divorced, people of color, with
relatively low financial assets and crushing or unmanageable
debt. Their retirement lifestyle is fraught with challenges,
uncertainty, frustration, and the sense that they are barely
hanging on.
Policies that promote financial wellness initiatives, such
as budgeting, debt management, and financial coaching through
the workplace during the accumulation phase can benefit workers
in real time and also provide skills that can be carried over
to retirement to potentially address the growing issue of debt
in older ages.
On the other end of the spectrum, you have long-term,
secure retirees, who have many sources of income, and they are
often guaranteed, such as defined benefit plans or retiree
medical coverage. These retiree lives are comfortable, stable,
and secure.
But, unfortunately, this long-term secure cohort is likely
to shrink as defined benefit plans and retiree medical plans
become less prevalent. A possible solution would involve
policies that promote sources of guaranteed income within the
workplace, other than defined benefit plans, such as immediate
or deferred income annuities.
In conclusion, the U.S. retirement system has made a lot of
progress in the past 15 years. However, there is more to do.
Taking lessons from the PPA, solutions that employ automation,
that leverage the current system without undermining it, and
that understand the needs of American workers to improve
access, stem leakage, and create better retirement spenders.
Thank you for all you have done to improve the retirement
system over the years. With your support and perseverance, we
can build an even better future for Americans' retirement
security.
[The prepared statement of Ms. Lucas follows:]
prepared statement of lori lucas
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[summary statement of lori lucas]
The 2006 Pension Protection Act achieved great strides in improving
the defined benefit retirement system by incentivizing employers to
``automate'' their defined contribution plans so that the ``default''
is for workers to be enrolled in the plan, to save at higher levels
over time, and to invest in diversified portfolios.
Yet, there are areas that the PPA did not fully address, creating
the opportunity today to further improve the system. These include
greater access, reduced plan leakage; and supporting thoughtful post-
retirement spending.
Improving Access: Pooled Employer Plans can improve
access for employees of small companies because they
potentially offer reduced costs and administrative burden to
small employers by allowing multiple employers to offer a
single plan that is run by an outside administrator who also
serves as the plan's fiduciary. The key to PEPs fulfilling
their potential for expanding access, however, is to streamline
legal and compliance requirements--namely, nonessential
reporting / audit / and compliance requirements that can
increase costs and thereby reduce employer adoption rates.
Reducing Plan Leakage: The main culprit when it comes
to workplace plan leakage is cash outs by employees when they
leave their employer. They do this because it is easy under the
current system. Policies that support solutions that make is
easy to NOT cash out from workplace retirement plans--which may
include auto portability--can improve outcomes, especially for
lower wage workers who are more likely to cash out their
smaller balances as they change jobs.
Supporting Employers' Interest in Helping with
Emergency Savings: Employers increasingly seek to facilitate
emergency savings through workplace programs. Policies that
promote adoption of such solutions, including solutions made
available through the existing workplace defined contribution
plan structure, could lead to wider availability of these
offerings by employers--which could also take pressure off core
defined contribution assets to serve as de facto emergency
savings during times of crisis.
Facilitating Post-Retirement Spending: (1) Highly
indebted retirees are a significant and growing group. Policies
that promote financial wellness initiatives, such as budgeting,
debt management, and financial coaching through the workplace
during the ``accumulation phase'' can benefit workers real
time, and also provide skills that can be carried over to
retirement to potentially address the growing issue of debt in
older ages. (2) As defined benefit and retiree medical plans
become less and less prevalent, the need for other sources of
guaranteed income increases. A possible solution could involve
policies that promote sources of guaranteed income within the
workplace, other than defined benefit plans, such as immediate
or deferred income annuities. Also, for workers that no longer
have access to retiree medical plans, facilitating usage of
health savings accounts for retirement health care expenses may
ultimately give retirees greater comfort that they can cover
out of pocket health care expenses in retirement.
______
The Chair. Thank you.
Mr. Akabas.
STATEMENT OF SHAI AKABAS, DIRECTOR OF ECONOMIC POLICY,
BIPARTISAN POLICY CENTER, WASHINGTON, DC
Mr. Akabas. Good morning, Chair Murray, Ranking Member
Burr, and distinguished Members of the Committee. Thank you for
inviting me to testify today about the state of retirement
security in America and where we go from here.
My name is Shai Akabas, and I am Director of Economic
Policy at the Bipartisan Policy Center, a non-profit
organization that combines the best ideas from both parties to
promote health, security, and opportunity for all Americans.
The U.S. retirement system is working well for many people,
particularly those with stable employment, sufficient income,
and opportunities to save throughout their life. While the
structures in place have room for improvement, they result in
positive, financially stable outcomes for a majority of
households.
But, millions of Americans are falling through the
proverbial cracks in the system, and cracks is really an
understatement. These are gaping holes in need of reform. My
testimony will discuss where these holes are and how this
Committee can start to repair them.
I will start by briefly discussing the challenge. A
majority of Americans worry about running out of money in
retirement, making it the Nation's top financial concern.
Recent trends from the COVID pandemic and recession to rising
healthcare costs, to increasing life expectancies, have made
building a secure retirement both more important and more
challenging.
Although the retirement security challenge is faced by all
Americans, the ability to meet it varies significantly. Workers
with low incomes, those without college degrees, people of
color, women, and part-time, seasonal, and temporary workers
all disproportionately struggle to save for retirement.
Even when these workers can and want to save, they
frequently do not have access to a workplace retirement plan. I
hope this Committee will appreciate how the current retirement
system often works well for people like us in this room and
focus on how to make it work just as well for those it
currently leaves behind.
In 2016, BPC convened a bipartisan commission on retirement
security and personal savings, co-chaired by former Senator
Kent Conrad and Jim Lockhart, a senior Bush administration
official. The commission spent 2 years studying the status of
retirement security in the U.S. and made recommendations in six
key areas. They were:
One, improving access to and the design of workplace
retirement savings plans.
Two, promoting personal savings for short-term needs and
preserving retirement savings for older age.
Three, facilitating lifetime income options to reduce the
risk of outliving savings.
Four, facilitating the use of home equity for retirement
consumption.
Five, improving financial capability among all Americans.
Six, strengthening Social Security's finances and
modernizing the program.
I know it is outside this Committee's jurisdiction, but
looming over the retirement landscape is the impending
depletion of the Social Security Retirement Trust Fund. While
policymakers can debate the best way to restore the program to
financial sustainability, I want to emphasize that the longer
Congress waits to make changes, the less palatable and the more
drastic they will be. And the delay is incredibly unfair to
Americans trying to plan for retirement. Social Security's
financial challenges are solvable, but they will be easiest to
address if we start now.
There is no silver bullet to America's retirement security
challenge, and different solutions will help different groups
of savers. We need an all-of-the-above approach to maximize the
reach and effectiveness of our current retirement system.
I am going to briefly propose three good bipartisan places
to start.
One, in the private sector, only two-thirds of workers have
access to a workplace retirement plan, and only half actually
participate. Employees of small-and medium-sized businesses are
especially unlikely to have access to an employer-sponsored
plan.
When you ask these businesses why they do not offer plans,
the No. 1 reason cited is often cost or administrative burden.
The emerging PEPs authorized by the SECURE Act could help in
this regard, but there is another part of the equation. Most
employers wishing to offer a retirement plan today also must
accept the fiduciary responsibility that goes along with it.
For businesses with small or non-existent H.R. departments,
this task is daunting or simply impossible without paying for
external support.
To help these businesses offer plans while ensuring that
their employees are protected, Congress should further relax
fiduciary obligations for small businesses while making sure to
transfer that responsibility to other private sector entities
and regulators who are better equipped to handle them.
Meanwhile, several states have enacted laws requiring all
employers over a certain size to automatically enroll their
workers in some form of retirement savings plan. More states
are following suit. But, workers in states without these
requirements are getting left behind, while the emerging
patchwork of different requirements in different states is a
headache for businesses that operate across state lines.
Congress can extend coverage to Americans everywhere and
streamline regulations by creating a national minimum coverage
standard that preempts the multitude of mandates at the state
level. One study found that this approach could increase
average retirement savings for middle income earners by roughly
50 percent.
No. 2, without emergency savings, a sudden loss of income
or a surprise expense can upend a worker's financial life. It
can also lead them to raid retirement savings. Unfortunately,
an alarming share of Americans have very little emergency
savings, or even none whatsoever.
A promising way to help workers build emergency savings is
to take a tool from the retirement world and apply it to
retirement savings for emergencies--excuse me, apply it to
building savings for emergencies. Automatic enrollment has
proven to be an extremely powerful way to increase
participation and boost retirement savings.
Employers that want to should be able to similarly default
their workers into an emergency savings plan that deposits a
portion of each paycheck into an emergency savings account.
Unfortunately, the law is unclear for employers that want to
adopt automatic enrollment for these accounts. Providing
regulatory clarity, along with reasonable consumer protections,
will open the door to this promising tool, and with it, better
savings outcomes.
No. 3, several pieces of pending bipartisan legislation
would build on the success of automatic features, incorporating
them into more retirement plans. I have touched on that in my
written testimony and will be glad to discuss it further in the
Q and A.
Finally, retirement security has been a standout area for
bipartisan cooperation in Congress, in no small part thanks to
the leadership of many Members of this Committee. We at BPC
have seen the power that a broad coalition can bring to an
issue like retirement security. We launched the Funding Our
Future initiative in 2018, and our coalition now unites more
than 50 organizations from the academic, non-profit, trade
association, and corporate sectors. I can attest that its
strength comes from its bipartisan makeup.
Funding Our Future's three goals are to make savings easier
for Americans at all ages, to help them transform nest eggs
into retirement income, and to ensure that Social Security is
financially stable both for current and future retirees. We at
BPC and Funding Our Future are eager to continue working toward
those goals with all of you.
Thank you for your time, and I look forward to your
questions.
[The prepared statement of Mr. Akabas follows:]
prepared statement of shai akabas
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
[summary statement of shai akabas]
1. Too many workers lack the ability to save in a workplace
retirement plan--especially workers who are disadvantaged or
employed at small businesses. Lawmakers can most effectively
increase access by relaxing regulatory burdens that prevent
small-and medium-sized businesses from starting retirement
plans and by creating a nationwide minimum-coverage standard to
harmonize the patchwork of rules being created at the state
level.
2. Workers need emergency savings for short-term financial
stability and to protect retirement savings from current
spending needs. Congress can help Americans build emergency
savings by clearing the way for firms to automatically enroll
their employees in workplace emergency savings plans.
3. Automatic enrollment and automatic escalation of employee
contributions are critical features for retirement plans to
incorporate. Widespread adoption will mean more savers and
greater savings. Legislation that would increase the use of
these features could significantly boost retirement outcomes.
4. Retirement security has been a standout area of working
across party lines. This issue can and should remain bipartisan
to most effectively help Americans meet their retirement goals.
______
The Chair. Thank you.
We will turn to Ms. Kyle.
STATEMENT OF DEVA KYLE, COUNSEL, BREDHOFF & KAISER, WASHINGTON,
DC
Ms. Kyle. Chair Murray, Ranking Member Burr, and Members of
the Committee, thank you for the opportunity to testify today
about disparities in retirement savings.
My name is Deva Kyle, and I am of counsel with the law firm
of Bredhoff & Kaiser. Since joining the firm in 2019, I have
represented pension plans and labor organizations in the public
and private sector in a range of industries, including food
service, education, manufacturing, cleaning services, and
construction. I work principally as benefits counsel, providing
advice on Federal and state compliance as it relates to 401(k)
and other defined contribution, defined benefit, and health and
welfare plans.
Before joining Bredhoff & Kaiser, I spent 15 years in
government. I worked at the Pension Benefit Guaranty
Corporation on detail with the Treasury Department, and the
House of Representatives Ways and Means Committee, where I
advised on a range of tax and retirement issues. I have
dedicated the better part of the last two decades to supporting
the retirement systems so many rely on in this Country.
In my testimony today, I will be discussing retirement
savings with a focus on class disparities, racial disparities,
and gender disparities. While the numbers are different in each
of these groups, the story is the same. Retirement policy that
relies on the ability of individuals to save will only
exacerbate the income inequality already present in this
Country.
In 2019, high-income families were 14 times more likely to
have retirement savings accounts than low-income families.
Those with incomes in the bottom 20 percent of earners have
zero savings, and those in the second bottom 20 percent of
earners have only $860 in savings.
When you look at the median working family that actually
does have retirement savings, they have, on average, only
$11,700 saved in their retirement accounts.
Part-time workers, whose jobs are the most insecure, not
only do not save for retirement, but do not see retirement as
an option. Over half of part-time workers in a recent survey
said they will keep working past normal retirement age, and
over one in five said that they will never retire.
When we look at retirement disparities among race and
ethnic lines, the picture is even worse. By and large, White
people have substantially more retirement savings and
retirement plan participation than people of color. In 2016,
the average White family had almost $160,000 in liquid
retirement savings, compared to only about $25,000 for Black
families and $29,000 for Hispanic families. Most Black and
Hispanic households have no retirement savings at all.
Many of the disparities we see by gender come from the fact
that women are disproportionately low-wage workers and work in
industries that do not provide access to employer-sponsored
retirement plans. Disparities in retirement savings between men
and women also are a result of the persistent gender wage gap.
Because labor unions fight and achieve improved wages and
benefits for working people, it is not surprising that union
membership substantially improves access to the participation
in retirement benefits that are provided through employment,
especially for blue collar jobs. The U.S. Bureau of Labor
Statistics reported that in 2019, over 90 percent of union
workers had access to private retirement benefits, compared to
less than two-thirds of non-union workers.
Women and people of color have faced increased difficulties
in saving for retirement as a result of the COVID-19 pandemic,
and many no longer have jobs to provide income that allow them
to save for retirement. In total, over 2.3 million women left
the labor workforce from February 2020 to February 2021, a
disproportionate number as compared to their percentage in the
overall workforce. When women and people of color cannot pay
for their day-to-day needs, they cannot save for retirement.
As these disparities make clear, retirement insecurity is
highly correlated to whether workers have the disposable income
to afford to save for retirement, but this does not have to be
the case. Policies that improve worker wages, expand access,
and require employer contributions--not just matching
contributions--to defined contribution plans and provide
workers with funds to cover emergencies so that they can save
for retirement all will bolster retirement savings for working
people.
Proposals that are targeted to retirement disparities will
also help. The Women's Retirement Protection Act, for example,
extends spousal consent requirements into defined contribution
plans so women do not unknowingly lose their retirement at
divorce, and allows more long-term, part-time workers, who are
disproportionately women, to participate in company plans.
I testify today about the disparities in retirement, but I
am not a sociologist and I am not an economist. I am an
attorney who sees these disparities in my work with working
people every day. I see it when plans review the impact of
robust stock markets on plan investments and then turn to
consider appeals for members with limited means who have been
denied benefits. I see it when corporations decide to work from
home and their janitors lose their jobs and their retirement
savings all at once.
I ask as you consider retirement policy that you remember
these workers and three things:
Defined contribution plans are an important source of
retirement income for many Americans, but right now they are
insufficient to provide lifetime income for most.
Unions help the most vulnerable workers advocate for
better, more secure retirement, and public policy should
reflect that.
Last, adequately funding Social Security will have the
biggest impact on retirement security for most workers in this
Country because these workers simply do not make enough money
in their working years to cover decades of retirement.
I would like to thank the Committee for their time and
attention today and for their commitment to closing disparities
in retirement savings in this Country.
[The prepared statement of Ms. Kyle follows:]
prepared statement of deva kyle
Chair Murray, Ranking Member Burr, and Members of the Committee, I
want to thank you for the opportunity to testify today about
disparities in retirement savings in furtherance of your efforts to
ensure all Americans have the means to enjoy a secure retirement.
My name is Deva Kyle, and I am Of Counsel with the law firm of
Bredhoff & Kaiser, P.L.L.C. Since joining the firm in 2019, I have
represented pension plans and labor organizations that represent
workers in the public and private sectors in a range of industries
including: food service, education, professional sports, home
healthcare, manufacturing, cleaning services, and construction. I work
principally as benefits counsel providing advice on Federal and state
compliance as it relates to 401(k) and other defined-contribution,
defined-benefit, and health and welfare plans.
Before joining Bredhoff & Kaiser, I spent 15 years in government.
After graduating from Georgetown University Law Center in 2004, I
worked at the Pension Benefit Guaranty Corporation serving first as a
staff attorney and Assistant Chief Counsel before moving into
retirement policy in the role of Staff Director of Policy and External
Affairs. In 2015, I went on detail to assist the Treasury Department
with what was then a new pension program under the Multiemployer
Pension Reform Act of 2014 and served on detail in the House of
Representatives as Tax Counsel with the Ways and Means Committee,
advising on a broad range of tax and retirement issues. I have
dedicated the better part of the last two decades to supporting the
public and private retirement systems so many rely on in this country.
In my testimony today, I will be discussing retirement savings with
a focus on class disparities, racial disparities, and gender
disparities. While the numbers differ for each of these groups, the
story is the same--retirement policy that relies solely on the ability
of individuals to save will only exacerbate the income inequality
already present in this country.
Retirement Security Still Unavailable to Many
Many Americans have begun contemplating retiring years earlier than
planned. \1\ 2.7million Americans over 55 years old are considering
early retirement, and ``[t]he number of people expecting to work beyond
age 67 fell to a record low of 32.9 percent last month.'' \2\ Some of
these individuals are choosing to retire early because of fatigue from
the global pandemic. \3\ Those with the luxury to even contemplate
early retirement can do so because they have savings sufficient to last
them their whole lives. These potential early retirees are
disproportionately white with high salaries and large amounts of
accumulated wealth. \4\ Many working-class people, people of color, and
women, however, cannot retire early or at all because their savings are
not and will never be sufficient to last them into old age.
---------------------------------------------------------------------------
\1\ Michael Sasso and Alexandre Tanzi, Affluent Americans Rush to
Retire in New `Life-Is-Short' Mindset, Daily Lab. Rep. (BL) (Apr. 30,
2021), available at https://www.bloomberg.com/news/articles/20210430/
more-americans-are-considering-retirement-because-of-covid (last
visited May 10, 2021).
\2\ Id.
\3\ Id.
\4\ Id.
i. Socioeconomic Status
In 2013, the median income for individuals with retirement savings
was three times that of individuals without retirement savings. \5\
Broadly speaking, the societal shift from pension plans to defined
contribution plans has amplified disparities in retirement savings
along class lines. In 2019, 72 percent of families below retirement age
in the top quintile participated in defined-contribution plans, as
compared to only 5 percent of families in the bottom quintile--to put
it another way, high-income families were 14 times more likely to have
retirement savings accounts than low-income families. \6\
---------------------------------------------------------------------------
\5\ Jennifer Erin Brown, Joelle Saad-Lessler & Diane Oakley,
Retirement in America: Out of Reach for Working Americans?, Nat'l Inst.
on Ret. Sec. (Sept. 2018), at 8, available at https://
www.nirsonline.org/wp-content/uploads/2018/09/SavingsCrisis-Final.pdf
(last visited May 10, 2021).
\6\ Monique Morrissey, The State of American Retirement Savings,
How the shift to 401(k)'s has increased gaps in retirement preparedness
based on income, race, ethnicity, education, and marital status, Econ.
Pol'y Inst. (Dec. 10, 2019), at 9, 13, available at https://
files.epi.org/pdf/136219.pdf (last visited May 10, 2021), updated by
the author.
Participation in defined-contribution plans is highly correlated to
relative socioeconomic status, even among those who are considered
middle class. Almost two-thirds (58 percent) of families in the upper-
middle class participate in defined-contribution plans. \7\ That number
drops to four in ten (40 percent) families in the middle class, and
only one fourth (25 percent) of families in the lower-middle class. \8\
This disparity in actual participation may, in part, be explained by
the fact that 401(k) plans require workers to contribute, which is a
greater hurdle for lower-income workers with less disposable income,
lower investment risk tolerance, and lesser tax breaks. \9\
---------------------------------------------------------------------------
\7\ Id. at 9.
\8\ Id.
\9\ Monique Morrissey and Natalie Sabadish, Retirement Inequality
Chartbook, How the 401(k) revolution created a few big winners and many
losers, Econ. Pol'y Inst. (Sept. 6, 2013), at 3, 5, available at
https://files.epi.org/2013/epi-retirement-inequality-chartbook.pdf
(last visited May 10, 2021).
Of households with savings, the amount of savings varies widely
based on economic class. While median households with savings only have
$11,700 saved, families in the 90th percentile have $568,030 saved.
\10\
---------------------------------------------------------------------------
\10\ Kathleen Elkins, Here's How Much Money Americans Have in
Savings at Every Income Level, Make It, CNBC (September 27, 2018)
available at https://www.cnbc.com/2018/09/27/heres-how-much-money-
americans-have-in-savings-at-every-income-level.html (last visited May
11, 2021).
Many households have no savings at all. Those with incomes in the
bottom 20 percent of earners have zero savings and those in the second-
bottom 20 percent of earnings have only $860 in savings. \11\
Significantly, studies have shown that savings-based retirement plans
not only reflect income inequality, but also amplify it. Sixty percent
of working-age families receive 17 percent of total income but hold
only 8 percent of retirement savings, while the top 20 percent of
earners receive 64 percent of income but hold 79 percent of retirement
account balances in 2019. \12\
---------------------------------------------------------------------------
\11\ Id.
\12\ Morrissey, supra note 9, at 23, updated by the author.
---------------------------------------------------------------------------
Part-time workers, whose jobs are most insecure, not only do not
save for retirement but do not see retirement as an option. \13\ Over
half of part-time workers in a recent survey said they also will keep
working past normal retirement age and over one in five said that they
will never retire. \14\ Only 15 percent of full-time workers said the
same. \15\
---------------------------------------------------------------------------
\13\ Transamerica Center for Retirement Studies, Retirement
Security: A Compendium of Findings About U.S. Workers: 20th Annual
Transamerica Retirement Survey (December 2020), available at https://
transamericacenter.org/docs/default-source/retirement-survey-of-
workers/tcrs2020-sr-20th-annual-compendium-of-workers-report.pdf (last
visited May 10, 2021).
\14\ Id.
\15\ Id.
These numbers underscore the importance of Social Security. Social
Security is the greatest source of household wealth for half of workers
nearing retirement. Social Security represents 58 percent of net wealth
for near retirees in the bottom half or the wealth distribution; 27
percent for the middle class; and 7 percent for the top 10 percent.
\16\
---------------------------------------------------------------------------
\16\ Does Wall Street Always Win? GameStop, Robinhood, and Retail
Investors: Hearing Before the U.S. Senate Committee on Banking,
Housing, And Urban Affairs, 117th Cong. (2021). (Oral Testimony of
Teresa Ghilarducci).
ii. Race/Ethnicity
When we look at retirement disparities along race and ethnic lines,
the picture is worse. By and large, White people have substantially
more retirement savings and retirement plan participation than people
of color. \17\
---------------------------------------------------------------------------
\17\ Mark Miller, America's Retirement Race Gap, and Ideas for
Closing It, N.Y. TIMES (Aug. 14, 2020), available at https://
www.nytimes.com/2020/08/14/business/retirement-inequality-racism.html
(last visited May 10, 2021).
Most Black and Hispanic households have no retirement savings at
all. \18\ Fully 61 percent of Hispanic Americans and 54 percent of
Black Americans are at risk for having inadequate income in retirement,
compared to 48 percent of White Americans. \19\ But significantly,
Black and Hispanic participation in retirement savings plans has gotten
worse over time, particularly since the Great Recession. From 2007 to
2019, the percentage of Hispanic families with retirement savings
dropped from 38 percent to 32 percent; for Black families, the
percentage dropped from 47 percent to 44 percent. \20\ Meanwhile, in
2019, 65 percent of White families had retirement savings, only
slightly less than in 2007 (67 percent). \21\ The disparities in
participation in 401(k) plans are similar, with 50 percent of White
families participating in such plans in 2019, compared to 37 percent of
Black families and 26 percent of Hispanic families. \22\
---------------------------------------------------------------------------
\18\ Morrissey, supra note 6, at 14, updated by the author.
\19\ Margarida Correia, Plans Tackle Problem of Racial Disparity
in Savings, Pensions & Investments (Nov. 16, 2020), available at
https://www.pionline.com/defined-contribution/plans-tackle-problem-
racial-disparity-savings (last visited May 10, 2021).
\20\ Morrissey, supra note 6, at 14, updated by the author.
\21\ Id.
\22\ Id. at 9.
When looking at the amount of retirement savings Americans have in
their retirement plans, disparities along racial lines are even more
stark. In 2016, the average White family had almost $160,000 in liquid
retirement savings (including 401(k), 403(b), and IRAs), compared to
only about $25,000 for Black families and $29,000 for Hispanic
families. \23\ As with participation rates, the amount of retirement
savings held by Black and Hispanic families declined after the Great
Recession and took over 10 years to recover, in contrast to White
families whose savings recovered more quickly. In 2016, the median
account balance for Black families with retirement savings was about
$31,000, down from nearly $36,000 in 2007; the median amount for
Hispanic families with savings in 2016 was $24,000, down from $30,000
in 2007. \24\ The median amount for White families with savings, on the
other hand, increased from $77,000 in 2007 to over $85,000 in 2016. The
median account balance for White families with savings in 2019
($83,000) remains over twice as high as the median account balance for
Black families with savings ($40,000) or Hispanic families with savings
($38,000).over twice as high as the median account balance for Black
families with savings ($40,000) or Hispanic families with savings
($38,000).over twice as high as the median account balance for Black
families with savings ($40,000) or Hispanic families with savings
($38,000). \25\
---------------------------------------------------------------------------
\23\ Urban Inst., Nine Charts About Wealth Inequality in America
(Updated), (last updated Oct. 5, 2017), available at https://
apps.urban.org/features/wealth-inequality-charts/ [hereinafter Nine
Charts About Wealth Inequality] (last visited May 10, 2021).
\24\ Morrissey, supra note 6, at 15, updated by the author.
Amounts are adjusted for inflation to 2019 dollars.
\25\ Id.
A significant reason for these disparities in savings can be traced
to racial wage gaps. A 2019 study by the Economic Policy Institute
found that college-educated White workers earned an average of $35.90
per hour, compared to $30.35 for Hispanic workers and $27.81 for Black
workers with the same level of education. \26\ Yet the race-based gaps
in retirement wealth cannot be attributed to income differences alone,
as at the same income levels, gaps in retirement wealth along racial
lines remain. \27\
---------------------------------------------------------------------------
\26\ Elise Gould, State of Working America Wages 2019, A story of
slow, uneven, and unequal wage growth over the last 40 years, Econ.
Pol'y Inst. (Feb. 20, 2020), available at https://files.epi.org/pdf/
183498.pdf (last visited May 10, 2021).
\27\ Nine Charts About Wealth Inequality, supra note 21; see also
Morrissey & Sabadish, supra note 8, at 38 (describing data
``suggest[ing] that the growing disparity in retirement savings is not
simply a function of income inequality, but that our retirement system
exacerbates inequality between racial and ethnic groups'').
iii. Sex/Gender
Many of the disparities we see by gender result from women being
disproportionately low-wage workers \28\ who work in industries that do
not provide access to employer-sponsored retirement plans. \29\
Disparities in retirement savings between men and women also are a
result of the persistent gender wage gap. On average, a woman is still
paid 82 cents for every dollar a man is paid. \30\ Similarly, as of
2016, the median household income for retirement-aged women was just
over $47,000--83 percent of the median household income for men of the
same age ($57,144). \31\
---------------------------------------------------------------------------
\28\ National Women's Law Center, Women and the Minimum Wage,
State by State (January 12, 2021) available at https://nwlc.org/
resources/women-and-minimum-wage-state-state/ (last visited May 11,
2021).
\29\ Annie Nova, Carmer Reinicke, Why the 401(k) Won't Fix the
U.S. Retirement Crisis, CNBC (February 12, 2021) available at https://
www.cnbc.com/2021/02/14/why-401k-wont-fix-us-retirement-crisis.html
(last visited May 11, 2021).
\30\ Catherine Tymkiw, Retirement Savings by Gender, Learn what's
behind the retirement savings gap, Investopedia (last updated Apr. 7,
2021), available at https://www.investopedia.com/retirement-savings-by-
gender5100948 (last visited May 10, 2021).
\31\ Tyler Bond, Joelle Saad-Lessler, Ph.D., and Christian E.
Weller, Ph.D., Still Shortchanged, An Update on Women's Retirement
Preparedness, Nat'l Inst. on Ret. Sec. (May. 2020), at 1, available at
https://www.nirsonline.org/wp-content/uploads/2020/04/Still-
Shortchanged-Final.pdf (last visited May 10, 2021).
The gender wage gap, however, does not tell the whole story. At
each generational level, women are contributing a lower percentage of
their income to their 401(k) plans than men. \32\ Recent data show
larger gaps between annual income and 401(k) balances for women than
for men. A T. Rowe Price Retirement Savings and Spending study found
that women's median annual income in 2019 was $57,900 while their
median 401(k) balance was $48,300, whereas for men, their 2019 median
annual income was $85,500 compared to a median 401(k) balance of
$84,600. \33\ The disparity between men and women in median 401(k)
balances grew in 2020, with the median balance for women growing to
$52,300 while the median balance for men grew to $90,800. \34\
---------------------------------------------------------------------------
\32\ Judith Ward, CFP, Retirement Savings by Gender: What You Need
to Know, T. Rowe Price (May 10, 2021), available at https://
www.troweprice.com/content/dam/iinvestor/resources/insights/pdfs/
retirement-savings-gender-gap-what-you-need-to-know.pdf.
\33\ Id.
\34\ Id.
Disparities in retirement savings between men and women are
exacerbated by the fact that women. on average, live longer than men,
meaning women generally must stretch to make less money sustain them
for longer periods. \35\
---------------------------------------------------------------------------
\35\ Benjamin Curry and E. Napoletano, How the Gender Gap Impacts
Women's Retirement Forbes Advisor (May 10, 2021), available at https://
www.forbes.com/advisor/retirement/retirement-gender-income-gap/.
iv. Effects of Union Membership
Because labor unions fight in large part to improve wages and
benefits for working people, it is not surprising that union membership
substantially improves access to and participation in retirement
benefits that are provided through employment, especially for those in
blue collar jobs. The U.S. Bureau of Labor Statistics reported that, in
2019, 91 percent of union workers had access to private sector
retirement benefits, compared to 65 percent of nonunion workers. \36\
This difference is attributable in substantial part to union members'
access to defined-benefit plans in lieu of defined-contribution plans.
The same set of statistics demonstrated that 79 percent of union
members had access to defined-benefit plans as compared to 17 percent
of nonunion workers. \37\
---------------------------------------------------------------------------
\36\ U.S. Bureau of Labor Statistics, 67 percent of private
industry workers had access to retirement plans in 2020, TED: The
Economics Daily, (March 1, 2021), available at https://www.bls.gov/
opub/ted/2021/67-percent-of-private-industry-workers-had-access-to-
retirement-plans-in-2020.htm (last visited May 11, 2021).
\37\ Id.
Union membership improves retirement outcomes beyond providing
workers access to retirement plans. One study found that union
membership also has a positive effect on retirement satisfaction by,
for example, reducing incidences of forced retirement. \38\
---------------------------------------------------------------------------
\38\ Kevin Neuman, Is There Another Union Premium? The Effect of
Union Membership on Retirement Satisfaction, 64 Indus. & Lab. Rel.
Rev., no. 5, 2011, at 981, 982, 998 (2011).
Covid-19 Exacerbated Inequality in Retirement in America
Women and people of color have faced increased difficulties in
saving for retirement due to the Covid-19 pandemic, not the least of
which is that many no longer have jobs that provide the income that
allows them to save for retirement. \39\ Jobs that are held
disproportionately by women were hit the hardest: 83 percent of
waitresses, 72 percent of cleaners, and 58 percent of cooks lost their
jobs in the first 6 weeks of the pandemic. \40\ The National Women's
Law Center found that by the beginning of 2021, four out of five adults
in the US who stopped working or stopped looking for work were women.
\41\ In total, over 2.3 million women left the labor force from
February 2020 to February 2021, a disproportionate number as compared
to their percentage of the overall workforce. \42\ When women and
people of color cannot pay for their day-to-day needs, they cannot save
for retirement.
---------------------------------------------------------------------------
\39\ Heather Long, Andrew Van Dam, Alyssa Fowers, and Leslie
Shapiro, The covid-19 recession is the most unequal in modern U.S.
history, Wash. Post (September 30, 2020), available at https://
www.washingtonpost.com/graphics/2020/business/coronavirus-recession-
equality/ (last visited May 10, 2021).
\40\ Tim Henderson, Stateline, Pew Charitable Trusts, Single
Mothers Hit Hard by Job Losses (May 26, 2020), available at https://
www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2020/05/26/
single-mothers-hit-hard-by-job-losses (last visited May 10, 2021).
\41\ Claire Ewing-Nelson and Jasmine Tucker, Nat'l Women's Law
Ctr., A Year Into the Pandemic, Women Are Still Short Nearly 5.1
Million Jobs, (March 2021), available at https://nwlc.org/wp-content/
uploads/2021/03/Feb-Jobs-Day-v2.pdf (last visited May 9, 2021).
\42\ Id.
I started this testimony describing a recent news article that
states that, due to the pandemic, wealthy people are retiring early.
\43\ Their retirement plans, funded through employer contributions and
ample excess income put into savings, have fared well in the stock
market. Social and personal hardships brought on by the pandemic have
also led them to take stock in their lives. The impact of the pandemic
for working people has been very different. Almost a third of Americans
withdrew or borrowed money from their retirement plans in the last
year. \44\ Over 60 percent of people who withdrew their retirement
savings during the pandemic did so to cover basic living expenses. \45\
Provisions in the CARES Act and the American Rescue Plan understandably
allowed additional withdrawals from retirement savings because many
people had no other source of income to cover expenses while jobs were
shuttered. These workers that were able to make it through difficult
times with the help of savings were then left with an even larger
retirement income deficit to fill.
---------------------------------------------------------------------------
\43\ See, e.g., Michael Sasso and Alexandre Tanzi, supra note 1.
\44\ Teresa Ghilarducci, 30 percent Of Workers Dipped into
Retirement Funds During 2020, Forbes (January 6, 2021), available at
https://www.forbes.com/sites/teresaghilarducci/2021/01/06/60-of-
workers-dipped-into-retirement-funds-during-2020/?sh=5409dbfc7a64 (last
visited May 11, 2021).
\45\ Id.
Conclusion
As these disparities make clear, retirement insecurity is highly
correlated to whether workers have the disposable income to afford to
save for retirement. This does not have to be the case, however.
Policies that improve worker wages, require employer contributions (not
just matching contributions) to defined-contribution plans, and provide
workers with funds to cover emergencies so that they can save for
retirement without having to draw down on their retirement savings will
help to bolster retirement savings for working people.
Proposals that are targeted to reduce retirement income disparities
will also help. The Women's Retirement Protection Act, for example,
extends spousal consent requirements to defined contribution plans so
women do not unknowingly lose retirement income at divorce. \46\ The
bill also allows more long-term part-time workers to participate in
company retirement plans.
---------------------------------------------------------------------------
\46\ Women's Retirement Protection Act, S. 975, 116th Cong.
(2019).
I testify today about disparities in retirement, but I am not a
sociologist or economist. I am an attorney who sees these disparities
in my work every day. I see it when pension plans review the impact of
a robust stock market on plan investments and then turn to consider
appeals from members with limited means who have been denied benefits.
I see it when corporations decide to work-from-home endangering their
janitors' jobs and retirement savings all at once. I ask, as you
consider retirement policy, that you remember these workers and three
things: defined-contribution plans are an important source of
retirement income for many Americans but right now they are
insufficient to provide lifetime income for most. Requiring employer
contributions and otherwise increasing the value of these plans, will
improve people's lives. Unions can and do help the most vulnerable
workers advocate for a better more secure retirement, including
lifetime income through defined benefit plans. Public policy should
reflect that reality through support for legislation like the PRO Act.
\47\ Most importantly, expanding Social Security with legislation like
the Social Security Expansion Act, \48\ will have the biggest impact on
retirement security for most workers in this country because these
workers simply do not make enough money in their working years to cover
decades of retirement. Indeed, in the latest study of U.S. workers by
Transamerica Center for Retirement Studies, almost half of workers
surveyed said that the No. 1 retirement priority for Congress should be
addressing Social Security's funding shortfall. \49\
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\47\ Protecting the Right to Organize Act of 2021, S. 420, 117th
Cong. (2021).
\48\ Social Security Expansion Act, S. 478, 116th Cong. (2019).
\49\ Transamerica Center for Retirement Studies, Retirement
Security: A Compendium of Findings About U.S. Workers: 20th Annual
Transamerica Retirement Survey, (December 2020), available at https://
transamericacenter.org/docs/default-source/retirement-survey-of-
workers/tcrs2020-sr-20th-annual-compendium-of-workers-report.pdf (last
visited May, 10, 2021).
I would like to thank the Committee for its time and attention
today, and for its commitment to closing the gaping disparities in
retirement savings in this country. These gaps must be closed to ensure
retirement security for all Americans.
______
[summary statement of deva kyle]
Participation in defined-contribution plans is highly correlated to
relative socioeconomic status. Of households with savings, the amount
of savings varies widely based on economic class. While median
household with savings only have $11,700 saved, families in the 90th
percentile have $568,030 saved. Many households have no savings at all.
Part-time workers, whose jobs are most insecure, not only do not
save for retirement but do not see retirement as an option. Over half
of part-time workers in a recent survey said they will keep working
past normal retirement age and over one in five said that they will
never retire.
When we look at retirement disparities along race and ethnic lines,
the picture is worse. By and large, White people have substantially
more retirement savings and retirement plan participation than people
of color. The median account balance for White families with savings in
2019 ($83,000) remains over twice as high as the median account balance
for Black families with savings ($40,000) or Hispanic families with
savings ($38,000).
Many of the disparities by gender result from the fact that women
are disproportionately low-wage workers and work in industries that do
not provide access to employer-sponsored retirement plans. Disparities
in retirement savings between men and women also are a result of the
persistent gender wage gap.
Because labor unions improve wages and benefits for working people
union membership substantially improves access to and participation in
retirement benefits that are provided through employment, especially
for those in blue collar jobs.
The Covid-19 pandemic only exacerbated inequality in retirement in
America. In total, over 2.3 million women left the labor force from
February 2020 to February 2021, a disproportionate number as compared
to their percentage of the overall workforce. When women and people of
color cannot pay for their day-to-day needs, they cannot save for
retirement.
As these disparities make clear, retirement insecurity is highly
correlated to whether workers have the disposable income to afford to
save for retirement. This does not have to be the case. Policies that
expand Social Security, improve worker wages, require employer
contributions (not just matching contributions) to defined-contribution
plans, and provide workers with funds to cover emergencies so that they
can save for retirement without having to draw down on their retirement
savings will help to bolster retirement savings for working people.
______
The Chair. Thank you.
Mr. Gray.
STATEMENT OF DAVE GRAY, HEAD OF WORKPLACE RETIREMENT PRODUCTS,
FIDELITY INVESTMENTS, BOSTON, MA
Mr. Gray. Chair Murray, Ranking Member Burr, and Members of
the Committee, thank you for the opportunity to testify today.
I am even more honored, given Fidelity's significant presence
in many of the states represented by the Committee.
My name is Dave Gray, and I am the Head of Workplace
Retirement Product at Fidelity Investments. Fidelity is the
Nation's largest provider of workplace savings plans and
individual retirement accounts. In our workplace-investing
business, we have the privilege of serving more than 22,000
employers with over 33 million workplace participant accounts.
Today, I would like to share what is working in the
retirement system, but mostly focus my time on steps that
Congress can take to enhance it. We believe that workplace
retirement plans have proven to be an indispensible foundation
to the retirement system, assisting tens of millions of
families. And the system is working well for those that can
access and those that can optimize its features, like employer
match and auto escalating contributions.
However, nearly 50 percent of private sector workers have
lacked access to a workplace plan, so we applaud Congress for
creating the Pooled Employer Plan, or PEPs, as part of the
SECURE Act of 2019. PEPs are an excellent step forward toward
addressing the retirement coverage gap by making it easier for
small businesses to access a plan.
In response, Fidelity has created a PEP called the Fidelity
Advantage 401(k), and our initial offer is deliberately focused
on the needs of small businesses who do not yet offer a
retirement plan. We are very proud to have enrolled a small
grocery store, a women-owned publisher of children's books, and
a securities services firm founded by two disabled veterans,
just to name a few.
Fidelity, along with the other 60 or so entities that have
registered with the Department of Labor to serve as a pooled
plan provider, could go a long way together to help address the
coverage gap.
Now, there are many areas in which working together, we
believe we can enhance and strengthen the retirement security
system. Over the past year, the COVID-19 pandemic has
highlighted the challenges many American workers and their
families face every day to cover immediate costs while still
trying to save for the future.
Last year alone, 1.6 million Fidelity customers took
distributions from their retirement accounts under the CARES
Act due to the financial impact of the pandemic. The
substantial number of withdrawals demonstrates the need for
emergency savings. Employers can play a key role in helping
workers accumulate short-term savings. And I will tell you,
this is top of mind to many of the employers that we serve.
Congress can support the adoption of emergency savings programs
by enacting legislative change, such as allowing participants
to earn a match to their retirement plan by means of
contributing to an emergency savings account.
Additionally, employees are increasingly turning to their
employers for help with tackling student debt. Seventy-nine
percent of those with student debt tell us that it impacts
their ability to save for retirement. Now, we applaud the
extension of the CARES Act provision that allows employers to
contribute up to $5,250 annually toward an employee's student
loans, tax-free, through 2025.
However, we believe Congress can do more by passing
legislation that would permit an employer to make matching
contributions in the workplace retirement plan with respect to
student loan payments. Our research shows that this legislation
could have the effect of doubling retirement security for those
that are struggling with student debt, and we are seeing
significant pent-up demand from employers that are interested
in offering such a solution.
Last, saving for retirement plans means factoring in
healthcare costs. Fidelity estimates that a couple, age 65,
retiring today will need about $300,000 to cover medical
expenses throughout retirement, not including long-term costs.
The long-term value of a health savings account can position a
family for greater financial security, and we support
legislation that would expand access to these savings vehicles
and allow for additional contributions.
As a leading HSA provider, our data shows that the benefits
of an HSA also extend to low-income levels and workers as they
tend to accumulate a balance in their HSA accounts as years go
by. And the vast majority of Fidelity's clients precede the HSA
account with a specific amount, meaning that HSA holders, who
may not be able to contribute much, will still benefit from the
employer contribution.
In conclusion, Fidelity supports a number of bills that are
being considered by the Senate and the House that address many
of these issues. On behalf of Fidelity and the millions of
Americans we serve, we appreciate the invitation to share our
views, and we look forward to continuing to work with the
Committee.
Thank you.
[The prepared statement of Dave Gray follows:]
prepared statement of dave gray
Introduction
Chair Murray, Ranking Member Burr, and Members of the Committee,
thank you for the opportunity to speak with you today on retirement
security and how we can work together to build a better future for
working Americans. I am even more honored to testify today given
Fidelity's significant presence in many of the states represented by
the Committee here, including major campuses in North Carolina,
Colorado, Kentucky, New Hampshire, and New Mexico. My name is Dave
Gray, and I am Head of Workplace Retirement Product and Platforms for
Fidelity Investments.
Fidelity is the Nation's largest provider of workplace savings
plans, including defined contribution (DC), defined benefit (DB),
health and welfare and stock plan services to 22,000+ employers with
33.5 million workplace participant accounts. Fidelity provides
recordkeeping, investment management, brokerage and custodial/trustee
services to thousands of Code section 401(k), 403(b) and other
retirement plans.
Employer-sponsored DC and DB retirement plans are an indispensable
foundation to the U.S. retirement system. Retirement plans, like those
Fidelity sponsors and administers, successfully assist tens of millions
of families in accumulating retirement savings and will provide
trillions of dollars in retirement income, helping our Nation's workers
achieve a more financially secure retirement.
Congress has enacted legislation in recent years to build upon and
expand the private retirement system, including encouraging more
employers to voluntarily offer a DC retirement plan, facilitating
higher participation and savings rates with auto-enrollment and other
auto-solutions, promoting prudent investing, streamlining plan
administration and expense, and safeguarding participant interests.
Fidelity supported the landmark legislation, Setting Every Community Up
for Retirement Enhancement (SECURE) Act, that became law in late 2019
and brought meaningful enhancements to the private retirement system,
such as modernizing the age at which retirees must begin taking
required minimum distributions (RMDs), providing employers new tax
credits as incentives to begin offering their employees a retirement
plan, and creating open multiple employer plans (open MEPs)--a move
that is allowing small businesses a simpler, more affordable way to
offer their workers a retirement savings plan for the first time and
ultimately helping reduce the retirement savings plan coverage gap.
Today, I plan to cover the ways in which Fidelity helps families
and individuals navigate the road to retirement. We believe in a
holistic approach to help workers achieve success, including the
importance of starting financial education early, saving for
emergencies and healthcare, balancing student loan payments with long-
term savings goals, and reducing burdens on both employers and
employees. Notably, the retirement system in the United States is
already helping tens of millions of savers prepare for retirement and I
will also address what is working and how we can build upon those
successes.
Building a Better Future
Workplace retirement plans play a vital role in ensuring workers
have access to easy and affordable savings vehicles throughout their
careers. After decades of education and experience, the system is
working well for those who have access and can optimize its features--
such as maximizing an employer match, defaulting into investment
options with appropriate asset allocation, and auto-escalating
contributions. Along with Social Security, which serves as the
foundation of retirement income for most Americans, private retirement
savings help families successfully plan and prepare for their long-term
financial needs.
For many families however, the road to retirement security can be
rocky. At Fidelity, our customers constantly remind us that healthcare
expenses, unforeseen emergencies, caregiving, and paying down student
loan debt are among the more immediate needs that drive their financial
decisions and prevent them from consistently saving for retirement. To
address these challenges, workplace savings plans have proven to be one
of the most effective means of providing financial help, through 1-on-1
assistance, workshops, online tools, and methods to support financial
literacy. We take that responsibility seriously understanding that
financial education, starting much earlier, is the gateway to higher
financial confidence and decision making.
Financial Literacy
Research shows that only 27 percent of young adults know basic
financial concepts such as interest rates, inflation and risk
diversification. Simultaneously, households or individuals who are less
financially literate have been found to be more likely to take
``payday'' loans, pay only the minimum balance on a credit card, take
on high-cost mortgages, and have higher debt levels. Having a low level
of financial literacy can make young adults less financially secure,
less able to make financial decisions, and more vulnerable to financial
issues. Financial tools and institutions can help, but access to these
resources has historically been unequal. The lack of access for certain
communities, especially low-income communities and communities of
color, can prevent people from building wealth and achieving a number
of financial goals including saving for retirement.
Additionally, research shows that children begin developing
attitudes and behaviors about money as young as age six or seven, and
according to additional research by the FINRA Foundation, more rigorous
financial instruction leads to positive behavioral formation and better
outcomes such as improved credit scores and lower credit delinquency.
\1\ Fidelity collaborates with a wide variety of both national and
community partners to provide access to these resources for under-
represented students in under-served communities.
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\1\ FINRA, ``State Financial Education Mandates: It's All in the
Implementation,'' 2015. Found at: https://www.finra.org/media-center/
news-releases/2015/finra-foundation-funded-study-documents-
effectiveness-state-financial.
Just as we provide our customers with guidance and financial tools
to navigate through their life stages and decisions to reach their
financial goals, we use a similar approach for the communities where
our employees work and live. We connect our Fidelity associates with
our partners to create and deliver financial education programs and
experiences, both for school-age children to teach financial concepts
and teachers to ensure they have the resources available to educate
their classes. Through our programs, we have reached over 400,000
students and 3,500 teachers to date.
Emergency Savings
Over the past year, the COVID-19 pandemic has highlighted the
challenges many American workers and their families face every day to
cover immediate costs, while saving for the future. We saw millions of
workers have taken an early withdrawal from their plan for an
unexpected expense, and 58 percent of participants do not have enough
short-term savings to cover a financial emergency. \2\ The current
pandemic has caused 1 in 5 people to consider taking a loan or
withdrawal from their retirement savings plan. \3\ During the pandemic,
withdrawals increased as participants took advantage of expanded
distribution options and favorable tax treatment for up to $100,000 of
coronavirus-related distributions under the Coronavirus Aid, Relief,
and Economic Security (CARES) Act of 2020. From March 2020 to the end
of the year, 1.6 million Fidelity customers had taken a CARES Act
distribution from their retirement account, which represents 6.3
percent of eligible employees on our workplace savings platform. The
majority of individuals (59 percent) took one withdrawal in 2020 and
the overall average amount per withdrawal was $9,400 (the median amount
per withdrawal was $2,500). The substantial number of withdrawals last
year demonstrates the need for an emergency savings accounts.
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\2\ Based on 384.6k completed response of the Financial Wellness
Assessment from 04/01/2019-03/31/2020.
\3\ Fidelity Investments Market Uncertainty Study, April 2020, a
nationwide survey of 1.6k adults 18 years of age or older with at least
one investment account. This analysis is based on 716 working adults
with a workplace retirement savings plan. The study was fielded from
April 1-8, 2020 by ENGINE INSIGHTS, an independent research firm not
affiliated with Fidelity Investments. The results of this survey may
not be representative of all adults meeting the same criteria as those
surveyed for this study.
While the pandemic has put a spotlight on this problem, families
have been struggling with savings for emergencies well before last
year. Families need emergency savings accounts to be more prepared for
addressing the unplanned, but unavoidable challenges of life, not only
during a pandemic. Fidelity believes that employers can play a key role
in helping workers accumulate short-term savings, and we have seen
compelling innovation in this space across employers and financial
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services providers.
Today, Fidelity enables thousands of employees to save for short-
term goals including emergencies. Our ``Goal Booster'' program provides
savers with a path to a liquid savings option, tracking tools and
motivational insights to help them stay on track. While this is a good
start to getting participants on track to cover immediate and short-
term needs, we are exploring additional innovations that can be offered
through the workplace and complement retirement plans--many of these
ideas require legislative changes. For example, some employers are
seeking an option where a participant can earn a ``match'' to their
retirement plan by way of contributing to an emergency savings account,
therefore facilitating long-term savings for individuals who may
otherwise be unable to do so.
Student Debt
Additionally, employees are increasingly turning to their employers
to help with all areas of financial wellness, including tackling
student loan debt and managing healthcare expenses now and in
retirement. Student loan debt is a serious problem in the country, with
over 44 million Americans owing a combined total of $1.67 trillion in
outstanding student debt. \4\ Student loan debt can impact individuals
many years after they graduate college. Though typically associated
with only millennials, student debt impacts all age groups. In fact, 34
percent of Gen-Xers and 29 percent of baby boomers currently hold
student debt and interest rates are actually highest among Boomers. \5\
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\4\ Nerd Wallet, 2021 Student Loan Debt Statistics.
\5\ Fidelity Investments Student Debt Tool as of December 30,
2020.
At Fidelity, we see how student debt manifests as both a financial
and emotional burden on savers. Our data shows that it is a barrier to
moving forward with momentous life events, such as buying a home,
getting married, or helping to pay for a child's higher education. We
know that 79 percent of those with student debt say that student debt
impacts their ability to save for retirement, and 69 percent report
that they reduced their retirement deferrals by stopping contributions
entirely or took loans or hardship withdrawals. On average,
participants with student debt contribute 6 percent less to their
retirement accounts than individuals without student debt. \6\
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\6\ Workplace Investing Plan Participant Student Loan 2016 Study,
responses from 496 members (10/27/16--11/7/16).
Fidelity applauds the steps Congress has recently taken to reduce
the burden of paying down student debt. In particular, we supported a
provision in the CARES Act that temporarily allowed employers to
contribute up to $5,250 annually toward an employee's student loans tax
free (for both the employer and employee). Last December, Congress
authorized an extension of this provision through 2025, which gives
employers the certainty they need to offer student debt assistance as
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an employee benefit for years to come.
We have also advocated rule changes to allow for an employee
repaying student loans, in lieu of saving for retirement, to also
benefit from an employer contribution to their workplace retirement
plan. In essence, an employer ``match'' on their student loan payment.
This allows employees to take responsibility in reducing debt while
resting assured that they are able to get started saving for
retirement. A provision to enable this feature is currently being
considered as part of the next round of retirement reform legislation
and we would strongly encourage you to include it in any final
legislative package.
Complexity
Finally, complexity remains a persistent barrier to plan formation
and participation. There are a few areas where simplification for both
employers maintaining a plan, and employees saving for retirement,
could improve the process. Currently, there is a patchwork of different
rules relating to 401(k), 403(b), and 457 plans, which all have
different rules for contributions, hardship withdrawals, loans, and
distributions. Complexity discourages participation, and harmonization
could help ease the burden on employers and employees. Congress should
also simplify the process by making permanent the provision in the
CARES Act that allows participants to self-certify when applying for
hardships and loans. Absent participant self-certification, the
administrative burden and liability falls on the plan sponsors and
service providers, adding another barrier and layer of complexity to
the retirement system.
What's Working
Automatic Features
Even with the challenges facing Americans today, the retirement
system in the United States is working for tens of millions of savers.
Together with Social Security, workplace plans and individual accounts,
families have a wide range of savings plans and planning tools to meet
their needs. Many employers offer automatic enrollment and automatic
escalation, tax deferred payroll deductions, and matching
contributions. In fact, automatic features are a proven method of
increasing participation and savings rates. At Fidelity, plans that
utilize automatic enrollment have an 87.2 percent participation rate,
versus a 51.9 percent participation rate among those employees at plans
without the feature. \7\ These automatic features and tax incentives to
save are critical to ensuring Americans are prepared for retirement.
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\7\ Based on Fidelity analysis of 23,300 corporate DC plans
(including advisor-sold DC) and 19 million participants as of 12/31/
2020.
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Retirement Income
The benefits of saving in a workplace plan are also recognized into
retirement years. There is a growing population of individuals who
choose to keep their savings in a previous employer's retirement plan,
and 55 percent of retirees on Fidelity's platform keep their savings in
a plan past the first year of retirement. \8\ This shift has created
the need for in-plan retirement solutions to help retirees draw down
their savings. Employers are increasingly comfortable having workers
keep their savings within the company's savings plan when they retire
and are interested in offering a comprehensive in-plan retirement
income solution for those individuals.
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\8\ Fidelity Investments; stay-in-plan rates as of December 2018.
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Flexibility
Furthermore, there is no one-size-fits-all solution for every
saver, and the private marketplace has evolved to meet the needs of
every individual. In addition to the traditional 401(k) plan, employers
may offer a 403(b) plan, Roth options, SEP or SIMPLE plans, and now,
open MEPs. This wide variety of workplace savings plans allows
employers large and small to find a plan that fits their needs and the
needs of their employees. The flexibility in the current system along
with innovation for the future will allow companies like Fidelity to
continue to provide services for every saver.
Open MEPs, also called Pooled Employer Plans (PEPs), are an
excellent step toward filling the retirement coverage gap by making it
easier for small businesses and independent workers to access
retirement savings plans. Nearly 50 percent of private sector workers
in the U.S. lack access to a workplace retirement plan. \9\ Many small
businesses do not have the resources to offer their employees a
workplace plan due to the costs and complexity involved in
administering a plan. The SECURE Act of 2019 permitted the formation of
PEPs, eliminating barriers for smaller employers to band together in a
multiple employer plan. The PEP structure allows small business owners
to focus on running their business, rather than the complexity that
comes with administering a plan. According to the Department of Labor,
63 entities have registered to act as Pooled Plan Providers in the PEP
space as of today. This growing interest could go a long way to closing
the retirement coverage gap.
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\9\ ``Small Business Profile,'' U.S. Small Business Administration
Office of Advocacy, 2017.
Fidelity has created a PEP, the Fidelity Advantage 401(k), to help
close the coverage gap and help those small employers who are looking
to start a plan for the first time. While we know there are others in
the industry that are choosing to offer PEPs to employers who already
offer a plan, Fidelity's initial offering is deliberately focused on
helping address the coverage gap by crafting a solution built for the
needs of small businesses who do not yet offer a retirement savings
plan today. The plan is targeted toward employers with between 5-50
employees. We have seen significant organic demand since its launch
earlier this year. For example, we are proud to have enrolled a small
grocery store in California, a women-owned publisher of children's
books in Spanish and English, and a managed security services provider
founded by two disabled veterans. We believe entering a PEP can allow
businesses to capitalize on the economies of scale of a larger plan,
simplify administration, and provide their employees the coverage they
need.
Digitization
Critical to the continued success of the retirement system is
innovation and preparing for the future of savings. Fidelity supports
recent regulatory efforts to expand electronic delivery (e-delivery) as
the primary distribution method for retirement plan disclosures.
According to a 2015 study, 84 percent of retirement plan participants
find it acceptable to make e-delivery the default option (with the
option to request paper at no cost to the participant). \10\ Preference
for digital disclosures is clear; in fact, less than 1 percent of
participants change their delivery preference to paper where plan
sponsors use workplace emails for e-delivery under the current
regulations. E-delivery also encourages participants to engage with
their investments, which results in better outcomes, including higher
deferral rates and improved retirement preparedness. The SPARK
Institute's data indicates that savers with e-delivery contribute 72
percent more and are three times as likely to be saving a sufficient
amount for retirement than savers who receive paper disclosures. \11\
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\10\ See the full report at https://www.sparkinstitute.org/
contentfiles/improving-outcomes-with-electronic-delivery-of-retirement-
plan-documents.pdf.
\11\ Improving Outcomes with Electronic Delivery of Retirement
Plan Documents, SPARK Institute (2015).
In addition to investor preference, e-delivery is more
environmentally conscious and less costly. Reducing our use of paper
reduces our carbon footprint. \12\ In addition, the process of
manufacturing paper contributes to pollution, paper waste, and
deforestation. \13\, \14\ Default e-delivery for retirement plan
documents is supported by a number of leading union pension funds who
noted specific costs savings for their participants, as well as being
supported by the U.S. Chamber of Commerce and countless other groups.
Further, e-delivery is more accessible than paper, allowing retirement
savers with disabilities to access information in a format that meets
their unique needs. Nearly 70 percent of disabilities are related to
age; those experiencing vision loss later in life now have the
assistance of new technological advances such as screen readers (e.g.,
Voice Over on iPhones, Talk Back on Android phones, and Narrator on
Windows 7 machines) to audibly receive the same information contained
in a written disclosure.
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\12\ See U.S. Environmental Protection Agency, Paper Products
(Oct. 28, 2010), available at http://www.epa.gov/climatechange/wycd/
waste/downloads/paper-products10-28-10.pdf.
\13\ See U.S. Environmental Protection Agency, National Emission
Standards for Hazardous Air Pollutants for Source Category: Pulp and
Paper Production; Effluent Limitations Guidelines, Pretreatment
Standards, and New Source Performance Standards: Pulp, Paper, and
Paperboard Category, 63 Fed. Reg. Vol. 18504 (Apr. 15, 1998), available
at https://www.gpo.gov/fdsys/pkg/FR-1998-04-15/pdf/98-9613.pdf ("EPA
Guidelines").
\14\ U.S. Environmental Protection Agency, Causes of Climate
Change, available at http://www.epa.gov/climatechange/science/
causes.html.
Moreover, because 85 percent of special requests for disclosures
are for large print, having an electronic format for disclosure
delivery allows participants with moderate vision impairment to easily
enlarge the font on a computer or smart phone screen. Delivering plan
information electronically is a faster, more efficient and effective
way for participants to get the plan information they need. Electronic
accessibility enables participants to receive communications in the
digital manner they now expect. Communications can be sent and received
instantly, without delay, and without the risk of getting lost or
misplaced in the daily shuffle of paper mailings. With a digital-first
approach, Fidelity supports the delivery of plan related materials in a
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manner requested by plan participants.
Similarly, with the shift toward digitization and online access,
Fidelity supports efforts to make permanent the ability for plan
participants to obtain spousal consent through remote notarization and
the modernization of processes related to retirement plan
administration. Temporary relief is due to expire on June 30, 2021,
although the experience of the past year has shown that remote
notarization has broad acceptance across much of the Nation, and has
proven to be a commonsense method of authentication while maintaining
important protections and reliability. In fact, 33 states have enacted
laws and dozens of other states' Governors have issued executive orders
permitting remote notarization. Remote notarization has been successful
and beneficial for plan participants and plan sponsors during the
continuing pandemic. It has proven to be more secure and convenient,
particularly given that executing interactions and transactions
digitally is consistent with the way plan sponsors and plan
participants prefer to conduct business. Plan participants have found
that it provides an expedient and secure alternative to conventional
notarization in the presence of a notary. Moreover, Fidelity is aware
of no incidents of fraud related to remote notarizations obtained by
participants in the thousands of plans that Fidelity services.
Healthcare in Retirement
Last, savers are looking for ways to prepare for retirement
expenses beyond the every day, and for millions of Americans that means
preparing for increased healthcare expenses. It is estimated that a
couple retiring today will need $300,000 to cover medical expenses
throughout retirement, an 88 percent increase since 2002, based on the
annual Fidelity Retiree Health Care Cost Estimate. As one of the
leading service providers for Health Savings Accounts (HSAs), Fidelity
is committed to helping workers and their families save for current and
future health care expenses. As health care costs continue to rise,
both American families and their employers agree health care is a top
concern, particularly during retirement. Almost 90 percent of employers
consider the rising cost of health care to be a critical concern, and
26 percent of working Americans actually rank health care as the most
critical issue facing us today. \15\ Employers are moving toward HSA-
eligible health plans and today, 90 percent of large employers offer at
least one consumer directed health plan, which helps reduce employers'
costs, but these plans also offer individuals and families the benefit
of an HSA.
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\15\ The 2018 EBRI/Greenwald & Associates Health and Workplace
Benefits Survey.
Saving through an HSA allows individuals and families to set aside
money on a tax-advantaged basis to pay for current and future health
expenses in retirement. HSAs are also becoming more popular for U.S.
workers across all income levels. More than 50 percent of HSA holders
with household incomes between $20,000 and $50,000 per year are
enrolled in an HSA-eligible health plan and enrolled in an HSA. \16\
HSA holders in the lower income bracket benefit disproportionately by
participating in an HSA through the employer contribution. While the
employer contribution funding amount varies by plan, the vast majority
of Fidelity's plan sponsor clients pre-seed the HSA account with a
specific amount rather than matching on a 1:1 basis. This means that
HSA holders who may not be able to contribute much to their account,
will still reap the full benefits of the employer contribution. The
long-term value of an HSA can position a family for greater financial
security, and Fidelity supports legislation that would expand access to
these savings vehicles and allow for additional contributions so that
families can save for the long-term.
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\16\ Based on Fidelity record kept health and welfare data for 21
workplace investing clients as of May 2018.
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Conclusion
Finally, I would like to express Fidelity's support for the latest
retirement legislation under consideration, the Securing a Strong
Retirement Act, or SECURE 2.0 as it has been dubbed. Several of the
reforms are also included in the comprehensive bipartisan legislation
from Senators Cardin and Portman, the Retirement Security and Savings
Act, and we look forward to working with Members of Congress to advance
these important initiatives. These bills build upon the strong
foundation of their predecessor legislation and include many provisions
that would address the challenges raised above.
Notably, SECURE 2.0 takes an important step to help individuals who
are paying down student debt by allowing employers to make matching
contributions to a 401(k) plan while their employees make student loan
repayments. The legislation also includes a meaningful enhancement to
open MEPs and would allow 403(b) plans to participate in MEPs and
pooled employer plans (PEPs). We believe open MEPs and PEPs will go a
long way to closing the coverage gap for millions of Americans who do
not yet have access to a workplace retirement plan.
We also support the provisions to modernize retirement plan
disclosures, including directing the Department of Labor, Treasury, and
Pension Benefits Guarantee Corporation to study ways to consolidate,
simplify and standardize the disclosures. Eliminating the requirement
to send unnecessary plan disclosures to employees who are not enrolled
in the plan is a helpful step in this direction. While we do have
concerns about certain aspects of the electronic delivery provision, we
look forward to working further with policymakers so that we can ensure
participant demand for electronic delivery is met, and individuals are
receiving up-to-date information conveniently in a cost-effective and
environmentally conscious manner.
On behalf of Fidelity and the millions of Americans we serve, we
appreciate the invitation to share our views and contribute to this
important dialog to build a better future through retirement security.
We forward to continuing to work with the Committee to further American
workers' retirement security now and for the future.
______
The Chair. Thank you very much to all of our witnesses this
morning.
We will now begin a round of 5-minute questions of our
witnesses, and I, again, ask my colleagues to keep track of the
clock and stay within those 5 minutes.
Data released earlier this year by the Bureau of Labor
Statistics found that only 39 percent of part-time, private
sector workers have access to retirement benefits, and
according to the BLS, nearly two-thirds of part-time workers
are women.
We took a big first step in the SECURE Act by increasing
access to retirement plans for long-term, part-time workers,
but I think we can do a lot better. That is why I am pushing
for legislation, like the Women's Retirement Protection Act,
which would further expand access to retirement plans for part-
time workers and address other challenges that undermine
women's financial security.
I want to hear from each of you this morning. How can we
improve access to retirement benefits for part-time workers,
many of whom are women, and encourage participation when those
benefits are offered? Ms. Lucas, let's start with you.
Ms. Lucas. Thank you, Senator Murray. We looked at the
recently passed legislation for making or requiring coverage of
part-time employees at the Employee Benefit Research Institute
and, while we found that it was beneficial in increasing the
amount of people that will have enough savings for retirement,
we really--when we looked at it in combination with other
initiatives, we saw a much more robust picture. We looked at it
when--we looked at people that were in open MEPs, were
automatically enrolled, and required coverage of part-time
employees with auto portability.
Looking at this more holistic picture of not only getting
people into the plans, including part-time employees, but
keeping that money in the system, we saw a much greater
increase in the amount of people that would have retirement
security. In fact, we found that for people age 35 to 39, who
work for small employers, their reduction in savings shortfall
was 26 percent if you combine these features.
We believe that it is not just getting people into the
plans that is at issue here, but more holistically, keeping
that money in the system because part-time employees are likely
to have low balances, and those are the balances that are
likely to be cashed out, even once they are in the system, when
they change jobs.
The Chair. Mr. Akabas.
Mr. Akabas. Senator, we talked about the coverage gap a lot
today, and I think the most effective, and perhaps the only
solution that can really get all or most of these part-time
workers covered, is a national standard, and I think that has
two steps.
The first is that private businesses are unlikely to
voluntarily cover these workers because of the administrative
costs of maintaining many small accounts, including for former
employees. But, on the other hand, simply mandating all of them
would put undue burden on many of these small businesses and
lack consumer protections.
I think that there is two steps here. The first is to make
it as seamless and costless as possible for small businesses to
offer these plans. Steps were taken to do that in the SECURE
Act. There are additional provisions that could make that even
stronger and remove further responsibility from them, including
on the fiduciary side, and transfer that to other entities.
Then, the second is that once that is done and we have
options like PEPs and state plans out there, we can have a
national standard that requires all employers above a certain
size to enroll their workers. And, when we have that in place,
it could preempt all the different requirements that are
occurring at the state level and just have one consistent
national standard.
The Chair. Okay. Ms. Kyle.
Ms. Kyle. I agree with the other witnesses here. I also
think it is important to recognize that Social Security is the
best and most equal retirement system our Country has.
Improving Social Security will go a long way to improving
retirement security for women and part-time workers.
Second, I think solutions that focus on providing money to
individuals to save for retirement security in portable plans
are much more important than solutions that provide other kinds
of incentives, like tax deductions, which mostly benefit, as we
know, the wealthiest people in more secure employment.
I would encourage Congress to enact legislation that
mandates employer contributions to retirement savings plans and
that provide employees with funds so that they can save more.
The Chair. Thank you. Mr. Gray.
Mr. Gray. Madam Chair, thank you for the question. We are
very supportive of accelerating the participation requirements,
like we have seen in the SECURE Act and SECURE Act 2.0, that
would ensure that workers that are part-time workers get
covered by workplace retirement plans. I think that is
foundational to creating retirement security.
I would also emphasize, PEPs, pooled employer plans, I
think this is--we are very early in this. This is new. But,
from what we are seeing, we are seeing tremendous interest. And
I think one of the keys to addressing the question you raised
is to ensure that when those individuals go to work, their
employer can offer them a plan. And, what we see in PEPs is the
ability for small business owners to have the economies of
scale that large plans have, and to offload the administrative
work to reduce the barrier to offering a plan, allow them to
focus on their business, and allow us to focus on delivering a
retirement solution to their employees.
Beyond that, I certainly would agree, as well, that it
certainly goes beyond the workplace retirement plans. We should
look at things, such as emergency savings and the like, which I
know we will probably discuss in a few of the questions.
The Chair. Thank you.
Senator Burr.
Senator Burr. Thank you, Madam Chair.
I want to thank all four of you because all four of you
have actually presented solutions to real problems. And I will
not speak for the Chair, but sometimes we get testimony and we
are sitting there searching for the value out of it, other than
an opportunity to spend 5 minutes in front of a Congressional
Committee. And I think all four of you have done a wonderful
job at pointing us in directions.
Mr. Gray, Fidelity has a product that allows small business
to take advantage of the economies of scale and pool together.
You alluded to it, and you talked about the interest. Can you
gauge that interest? Can you convey to us how much interest is
out there?
Mr. Gray. Yes. I would say that we are seeing extremely
strong or significantly strong organic demand without really
any marketing or promotion on our part. Just small businesses
reaching out to us, calling us, asking for a solution.
I will tell you that, in the past, many of these small
businesses were businesses that we really could not serve in a
cost-effective way for them and their employees. Instead, now,
with the PEP, we are able to provide that solution for them. We
expect this to grow very significantly, and we are very
committed to making this solution work to get after the
coverage gap.
Senator Burr. Are there other barriers or red tape that
government should look at reducing or streamlining to encourage
more employers to adopt a retirement plan for their employees?
Mr. Gray. Yes. I think there is a couple potential
solutions to that. I think one, which we have seen in some of
the pending legislation, which is an extension of tax credits
to small employers to incent them to establish the plan.
I think, as well, making clear the fiduciary
responsibilities, as other testimony has provided. In a
solution that Fidelity is providing, we are taking fiduciary
responsibility for that retirement plan, trying to make it as
easy as possible for the employers. They simply need to make
the selection, fund the payroll, and we will take the fiduciary
responsibility from there. And I think that is really the gold
standard approach for a pooled employer plan.
Senator Burr. Ms. Lucas, you talked about in your testimony
financial literacy, and financial literacy is something that,
while we aim to advance it and to bring increased access to
retirement advice for all Americans, we understand the average
American will not attain the level of knowledge and proficiency
a retirement expert would have.
I remember in my early days in the House 27 years ago, I
used to put out a book. It was called Life 101, and it was
given to every high school graduate because many of those high
school graduates did not go to college where they got sort of
that advanced level. And it had things in it like how to set up
a bank account and some information on life insurance. I was
told by the Ethics Committee in the House that had to be
excluded from the book because that was not the responsibility
of a Member of Congress to share with constituents.
I approach this question with you from that aspect, that
government is not necessarily the right one to make the
decisions. But, what can we do to enhance the financial
literacy and the retirement advice that these folks are getting
over and above what is available today?
Ms. Lucas. Well, in our retirement confidence survey we
find that people are--there is a bit of a disconnect even in
terms of the amount of financial skill people think that they
have. The majority of people in the retirement confidence
survey are actually pretty confident about retirement. And,
then, we look at numbers like we have talked about today, which
shows that may be overconfidence.
On the other hand, we--I remember distinctly early in my
career when I--and this was decades ago, when I was talking to
a plan sponsor who said, we spend millions and millions of
dollars educating the same 20 percent of people. The other 80
percent do not--they are not listening to us.
That is why I think things like auto features are so
important, not only within the retirement system--and we have
demonstrated that they work--but, to Mr. Gray's point, other
aspects, as well. Not only perhaps emergency savings, but
student loan debt.
Using what works, what we know works, which is the defined
contribution system, to help people almost in spite of
themselves to harness the things that we know are dominating
their behavior, such as inertia, and allowing them to get into
an emergency savings vehicle, a student loan debt repayment
vehicle, or a 401(k), depending on their circumstances,
automatically. Not asking them to become financially literate
when they have a day job and other things that they need to be
focusing on, other than becoming a financial professional.
Senator Burr. Thank you. Thank you, Madam Chair.
The Chair. Senator Casey.
Senator Casey. Chair Murray, thank you for this hearing. I
want to thank you and the Ranking Member for making it possible
for us to focus on such a critically important issue to the
American people.
I will start with Ms. Kyle. I know that she has done a lot
of work not only in this area generally, but in particular, her
work in the House, and I am grateful for the public service she
did there.
I think I am stating something that is maybe self-evident,
but probably not said enough, that one of the most important
elements of any kind of economic security for the middle class
is retirement security. But, we do not spend enough time on
this issue.
Many Americans will ask, Do I have enough money to save for
retirement? Can I retire comfortably? All those questions are
on the minds of workers and, for too many of them, the answer
to those questions is no.
We are told that in 2018, just a little more than half, 52
percent, of private sector workers participated in a retirement
plan.
Ms. Kyle, you said--you noted in your testimony, when it
comes to Black Americans and Latino Americans, it is 54 and 61
are at risk of not having, not having enough money in
retirement. So, one of my priorities, and I know it is a huge
priority for so many of us, is making it easier for working and
middle class families to have a secure retirement. By
definition, that requires that we work with folks on both sides
of the aisle to ensure that Americans can earn a living wage
and that they have something left over to put away for
retirement.
I especially appreciate, Ms. Kyle, the fact that you made
the connection about today and tomorrow, meaning the connection
between wages and retirement, which is apparent and evident.
But, it also is not an issue--not a connection we make, that
people's wages and their income today will determine what they
have tomorrow.
I guess I would ask you, can you discuss some of the best
tools available today to give working families an opportunity
to save? So, that will be question one, the tools available.
Question two would be if you could shed some light on the
gaps that exist with respect to access to those tools.
Then, third, how they can be addressed. And I know you have
provided some of this in your testimony, but I think repetition
is helpful.
Ms. Kyle. Absolutely. And you are exactly right. The
retirement crisis in this Country is the flipside of the wage
crisis, right? I think that when we think about providing more
retirement security to workers, it is essential to ensure fair
pay so that people can actually afford to save.
There are a few things that can be done, though, beyond
looking solely at ensuring fair pay. You can assure that all
employers, large and small, either provide retirement plans
directly, or participate in pooled plans with required employer
contributions so that it does not rely solely on the wages of
an individual worker, and with automatic enrollment and
portability so that plans can follow people as they switch
jobs. Because, as we know we are no longer in the 1950's or
1960's where people get a job when they are 20 years old and
then retire there. People switch jobs, and a lot of times, if
their plans do not go with them, they are a step back in
providing retirement security.
Congress can also provide starter tax credits. That will go
a long way into providing retirement security by going directly
into savers' retirement accounts. Both emergency savings
accounts and retirement accounts with direct tax credits would
help people who cannot afford to put away money from their
wages.
I think the best thing that Congress can do is also to
limit efforts that stymie union participation. The evidence is
really clear that for working people, benefits provided through
unions are the primary way that they can save for their future.
Senator Casey. Well, it is very helpful. I know we are
almost out of time. I will yield back my time, maybe have some
questions for the record for other members of the panel.
But, Chair Murray, thank you very much.
The Chair. Thank you.
We will go to Senator Moran.
Senator Moran. Madam Chair, thank you very much. Let me ask
a couple of questions. Maybe the first one for Mr. Gray.
Mr. Gray, you are a plan provider. You are aware of the
types of temporary relief that regulators took to alleviate
burdens during the pandemic, prompted by the shutdown and
lockdowns and social distancing. I know the IRS granted
temporary relief to the notarization requirements for a spousal
consent, for example. Do you think that making these kinds of
things permanent, some or all of those temporary things that
were provided, or other temporary relief that I may not know
about, would that be helpful continuing into the future? Are
there ways that doing so would reduce the material costs
associated with small businesses offering these kinds of plans,
retirement plans?
Mr. Gray. Senator, thank you for the question. And I will
start specifically to your question around e-notarization in
the temporary relief. Yes, we at Fidelity, and our clients,
would certainly like to see that relief become permanent. We
think it has been a very effective way for notarization process
to happen in distributions that is both respective of
individuals' concerns with the pandemic and health crisis, as
well as in many ways far more secure. That e-notarization is
videotaped. And, in addition, there are challenge questions
presented in order to validate or verify the identity of the
individuals for e-notarization. Knowing that we are living in a
digital age, we think it makes sense that the relief should
continue for e-notarization for purposes of retirement plan
withdrawals.
In addition to that, I think great strides have been made
by this body and by regulators with regards to electronic
delivery of plan notices. We would also want to make sure that
continues and is expanded as necessary. We find e-delivering
notices to reduce cost burden, and also help individuals that
may have disabilities that need accessibility. And, we think it
actually better engages with individuals in interacting with
their retirement plan.
Thank you, Senator.
Senator Moran. Thank you, Mr. Gray.
Let me ask any of the witnesses. One of the things with the
pandemic that is highlighted is the lack of savings for an
emergency. Something happens in one's life or their family's
life, and sometimes perhaps retirement accounts become a place
that can provide some safety, a safety net, but the consequence
of that is diminishing the value of the retirement account upon
retirement.
Let me ask if there are things that employers could or
should be doing to help individuals save not just for
retirement, but for emergencies that may arise from today until
their date of retirement in order to better preserve their
retirement accounts for purposes of retirement. Anybody have
suggestions for me of things that I or me and my colleagues
might pursue?
Ms. Lucas. I can start with that question. We did see that
with the CARES Act, the defined contribution system, which,
again, is one place where people do tend to have money, was
used as a de facto emergency savings vehicle because that was
where the money was. And, fortunately, the--not a lot of people
did end up taking coronavirus-related distributions, but those
that did, they were in areas, industries, where they really
were in dire need, and they did need emergency savings. So,
thank goodness at least they had the 401(k) plan for that.
But, we need to think about how can we leverage the
existing system to help with emergency savings because it is
such a robust system. And having something like a sidecar
savings account attached to the existing defined contribution
system is something that employers have expressed a lot of
interest in. They--according to our financial well-being survey
of employers, 26 percent said that they would like to offer a
sidecar savings account in the next 1 to 2 years. And any
policies that could help to facilitate that, and including
allowing employers to match to those accounts, I think would be
very welcome, especially since, if they are a sidecar savings
account, they are not--people are then not taking money from
the corpus of their retirement plan. It is a separate account
that is attached to the 401(k) plan, but it is specifically for
emergencies.
That is important from a mental accounting perspective.
Behavioral finance shows that when people think--when they see
a big pile of money and they identify that as an emergency--
source of emergency savings, they will likely take more money
than they need. But, if they are limited to a pool that is
actually designated for emergencies as an emergency savings
account, they are likely to take--constrain the amount of money
they take during emergencies, and that would be the value of
the sidecar savings.
Senator Moran. That makes sense to me, Ms. Lucas. Thank
you.
Mr. Akabas. Senator, if I could just----
Senator Moran. Anyone else.
Mr. Akabas. Yes. If I could just quickly add to what Ms.
Lucas is saying. I think another barrier that a lot of
employers are facing to offering these types of plans is the
lack of ability to automatically enroll workers today. And
there is legislation from the last Congress that would clear
out regulatory barriers that currently make it unclear for
employers that want to use this, and that can make a huge
difference. Because today we are seeing enrollment in these
plans that are offered at fairly low levels, and that is what
we saw in retirement accounts before automatic enrollment
became the norm.
If we can have legislation that would clear those barriers.
There is legislation being rewritten right now that was
introduced in the last Congress by several bipartisan Senators
that could have that effect, and I think it could open the
doors for employers that want to experiment with these types of
accounts, whether it is a sidecar account that is actually
attached to the retirement account, or a stand-alone emergency
savings account that you could automatically enroll workers
into.
Senator Moran. Thank you very much. Thanks for highlighting
that.
The Chair. Thank you.
Senator Kaine.
Senator Kaine. Thank you, Chair Murray and Ranking Member
Burr, and to our witnesses. Very powerful testimony.
I want to begin with just re-emphasizing Ms. Kyle's
testimony about racial disparities that are on page four and
five of her written testimony. Just top line, the percentage of
Hispanic families with retirement savings in 2019 was 32
percent; Black families, 44 percent; White families, 65
percent.
Then, if you look at the amount of savings, it is even
starker. Average White family in 2016 had about $160,000 in
liquid retirement savings; Black families, $25,000 in liquid
retirement savings; and Hispanic families, $29,000. Ms. Kyle's
testimony points out that a good bit of this is because of wage
gaps, but you also really have to grapple with the effect of
wealth gaps.
We commemorated 400 years of African presence in Virginia
in 2019, and as we were doing that commemoration, it sort of
made me look at history this way. Divide the 400 years since
Africans came to the English colonies into eight half-
centuries. For five of the eight half-centuries, Africans were
held as property. They could not own and accumulate property.
They were held as somebody else's property. Enslaved, and even
freed African Americans under the Dred Scott ruling were ruled
to be never able to be citizens of the United States. That is
five-eighths of the history of African Americans in the United
States.
For the next 100 years, two-eighths of the history, slavery
was abolished. But, because civil rights laws had not been
passed, legally, African Americans were treated different in
every area of life, including housing, which is one of the
principal ways that people get wealth.
It was only in the 1960's, so only in the last half-
century, one-eighth of American history, that African Americans
were granted full legal equality, that is not the same as
social or economic equality.
Surprise, if African Americans had basically been locked
out of the norms of property accumulation, buying a house where
they wanted to, passing that house onto other family members,
it is really difficult to accumulate wealth like other folks.
You can say a very similar thing about Hispanic families.
This is one of the reasons, these statistics, that I have
signed on as a cosponsor to Senator Booker's bill to set up a
commission to look at the idea of reparations. I think how to
do it is very complicated, and I am not smart enough to figure
it out. But, I also feel like you cannot look at statistics
like these and the history we have had and say, well, there is
just nothing we can do about it. Because we did corporately, as
a Country, and the institutions and laws, did a whole lot of
things to create this and these disparities, and, so, the
notion that, well, we just cannot do anything about it, or it
is just the way it is, I mean, I--we have to figure out a way
to do something about it.
I am really glad, Ms. Kyle, that you made that--you put
that data in such a stark way in your testimony.
Auto enrollment. I want to ask some questions about auto--
potential for auto re-enrollment. So, one of the things that we
have learned over the years is that small tweaks to processes
can make a big difference in retirement savings. Some people
opt out of retirement early in their careers when they are
young, healthy invincibles, and then they do not go back and
maybe rethink that.
Do we have any evidence whether or not people who opt out
early are likely to reconsider the decision later in
employment? And could some potential for auto enrollment every
5 years or so, with the additional element that you can then
opt out if you choose to, might that help us get more people to
participate in retirement savings? Maybe Ms. Lucas, I will come
to you on that.
Ms. Lucas. Yes. Thank you. There is evidence that obviously
inertia is a powerful force. It can be harnessed by automatic
enrollment to get people into the plan and they will not opt
out, and we see that--to your point about different races, it
does not matter whether you are White, Black, Hispanic, woman,
man, all incomes--people, when they are automatically enrolled,
stay in plans at very high levels.
For those that do opt out, re-enrollment is a very good
solution because inertia will remain a factor. I remember I saw
a focus group years ago of people that had been automatically
enrolled into their plan and they were asked how they liked the
experience of being automatically enrolled. One woman said, I
have been working here for 10 years and, gee, time really
flies. I meant to enroll in my 401(k) plan and then never got
around to it.
I think re-enrollment is definitely a consideration because
we will continue to see inertia of people that opted out and
may ultimately have wanted to come back in but never got around
to it.
Senator Kaine. Thank you. I have other questions I will
submit for the record, but thank you to the witnesses.
The Chair. Senator Tuberville.
Senator Tuberville. Thank you, Madam Chair. Thank you for
being here today.
I know you hit a little bit on this a few minutes ago. In
1935, we started Social Security. This is really the only
retirement that a lot of people have. And, for some unforeseen
reason, in 1983, this group up here decided we would tax social
security, and sounds like we are getting ready to do another
tax on social security. We cannot find enough money in the
Federal Government to run this Hill up here, so we need to take
from the people that has paid into retirement.
Any of you want to answer this? How do we make it better?
How do we make Social Security better? Because we just--all of
you in your opening statements pretty much said nobody has
retirement, just a few; and the ones that have it, the
corporations have wasted and the taxpayers are having to pay
the money to pay them off.
How do we make Social Security better for everybody?
Mr. Akabas. Senator, you are absolutely right. The Social
Security system is meant to be the foundation of retirement
security, the rock of certainty that Americans have in
retirement. It has really become a major source of uncertainty
that they have because of the status of the trust fund. We are
only a little over a decade away from when the trust fund will
exhaust its reserves, and I think it is incumbent upon Congress
to take action to make sure that outcome does not occur, and
the sooner, the better.
We at BPC have a report that we put out with the commission
that I mentioned earlier that comprehensively addresses Social
Security. It does call for benefit adjustments, especially for
folks that can afford it at the higher end. It actually raises
benefits for those who are most vulnerable at the bottom end,
and then calls for some modest additional revenue increases to
make sure that the trust fund is funded over time.
I would certainly encourage you to take a look at the plan,
and I would be glad to discuss it further with you and your
staff.
Senator Tuberville. Thank you. Thank you. And it looks like
we are nearing bankruptcy in Social Security in 10, 12 years
down the road. That is my understanding. Hopefully not because
people are still paying into it and they are going to be
counting on it. I cannot imagine living off that small sum, but
it is something.
In retirement, too, is Medicare. People want to have some
kind of healthcare, which is most valuable when you get to the
point of retirement and you need Medicare. And back in
President Obama's days when we started Obamacare, they took
$780 billion out of our Medicare and put in Obamacare and it is
gone.
Where do you foresee Medicare going? I do not know if that
is in your realm, or any of your realms, if you would answer
that for me.
Mr. Akabas. Well, Senator, it is not my main focus, but I
do know that the trust fund for the Part A, which covers
hospital insurance for that program, as well, is actually in
even worse shape at the moment than the Social Security Trust
Fund that we just mentioned. It is projected in the last
projections----
Senator Tuberville. That makes me feel good.
Mr. Akabas [continuing]. To deplete in 2026. So, it really
is an urgent issue that Congress needs to address. There are
lots of proposals out there that would adjust the payment rates
or the method of delivering services, as well as potentially
the revenues that come into the program. Those are--there are
lots of options on the table, but it has not been a priority on
Congress' agenda recently. I think it needs to be in the coming
years because of how soon that trust fund is also going to
deplete.
Senator Tuberville. Yes. A few years ago, we had, I think,
some military funds being--getting ready to be invested in the
Chinese companies.
Ms. Lucas, did the Trump administration do the right thing
by pulling that back, of do not invest in China with retirement
funds?
Ms. Lucas. Well, we see that the typical worker is in a
target-date fund when they are automatically enrolled and, the
point of the target-date funds are to be well diversified. I
think any policy that impedes diversification is a
consideration. And, to the extent that we have policies that
are interfering with diversification, I would agree that they
are an issue.
Senator Tuberville. Yes. Well, thank you.
Just another comment about Millennials. I have two that
are--I try to get to put into funds and they will come right
back to me, say, Dad, at age 35, you took yours out to buy a
new home--and they are right--to make a down payment. And that
is what is happening. You will have a lot of these young people
that will cash out at an early age, and then 20 years later,
they are looking around and going what did I do?
I do not know what we can do about that, but retirement
is--with this age group coming up, as we are, the baby boomers,
it is--we are in a tough situation. A lot of people are, a lot
of my buddies and friends are.
But, thank you for you all being here today. It is very
eye-opening. I would like to get with you on the Social
Security part, too.
Thank you. Thank you, Madam Chair.
The Chair. Thank you.
Senator Smith.
Senator Smith. Thank you, Madam Chair, and thank you also
to Ranking Member Burr and to all of our panelists.
I come at this from the core idea that a safe, secure
retirement should be available to every American. And the sort
of pillars of that historically in our Country have been Social
Security, savings, and pensions. So, I want to dive in a little
bit on this. I heard a comment, I think, about sort of bailing
out the unions with the pension reform that we did in the
American Rescue Plan. I just want to get to that.
Ms. Kyle, I am going to direct my question to you here. So,
the first weekend that I was a United States Senator, I went to
Duluth, Minnesota and I had a chance to visit with some
Teamsters, who were very worried about what was going to happen
to their pensions. They were part of the Central States Pension
Plan. They paid in. They had done everything right. They had
saved. They had negotiated through their union contracts a
pension. And, now, come to find, that pension might not be
there for them.
Now, gratefully, thankfully, and with a lot of bipartisan
work, I and many others focused on this and we were able to get
the Butch Lewis Act passed.
Ms. Kyle, could you start just by saying--I mean, I have
heard from Minnesotans, but I would like to hear from your
perspective what this has meant to protecting the pensions for
the workers.
Ms. Kyle. Absolutely. Once fully implemented, the American
Rescue Plan Act will be life-changing for generations of
workers. I do not think I can overstate the impact it will have
on people's lives.
In the last 6 years, I have personally heard from thousands
of workers and retirees who were facing 50, 60, 70 percent cuts
in their income and retirement due to impending insolvency of
their pension plans. And these were essential workers, bakers,
truckers, those who worked their entire career doing difficult
jobs, and now were in a place where they could no longer work
and were looking to make good on their deferred wages that were
in the form of promised benefits, and they were worried that
was all going to slip away.
With the American Rescue Plan, those promised participant
benefits are now going to be kept, and that is huge. They will
no longer miss mortgage payments or roll the dice on missed
life-saving medications.
Senator Smith. Yes. I will never forget Vicky, the woman
who I talked to in Duluth, who said to me, Tina, I do not have
a plan B. If these pensions are cut that I paid into--I did
everything right, and if they are not there, I do not have a
plan B.
But, a lot of times, we do not pay enough attention to what
this also means for the businesses that also paid in, who did
what they had agreed to do through the contracts that they had.
Could you just address briefly what this means for those
businesses, many of them small, family owned businesses?
Ms. Kyle. Absolutely. In this, the multi-employer funding
crisis, there were no bad actors. The contributing employers
were giving in what they were supposed to, to their plans, and
many of them saw their competitors potentially leave their
multi-employer pension plans, and they were going to be left
holding the bag. And one asset of--or, excuse me, feature of
the multi-employer system is that when employers start to
leave, there is a chance for something called mass withdrawal,
which can result in the employer having to pay exorbitant
amounts in order to cover the liabilities of the plan.
We saw a number of employers who were going to be left with
what could be a significant liability for employees across the
multi-employer system. And, so, on the most part--for the most
part during the process of looking to find a solution for
multi-employer pension plans, the employers and the workers and
the retirees worked together in the importance of finding a
solution here.
Senator Smith. Just as I spoke with workers who were so
concerned about what this was going to mean for their
retirement, I spoke to family businesses that were worried
about how they were going to be able to pass that business on
to the next generation or potentially sell it, because that is
how they were going to monetize their life's work, unable to
because of this.
I just have a couple seconds left. But, was this in any way
a bailout of unions?
Ms. Kyle. No, it was not. These plans are run by a board of
trustees that is made up of union representatives and
employers, and that board of trustees is a group of fiduciaries
who are then responsible for running the plans.
Senator Smith. Thank you very much. Thank you, Ms. Kyle.
Thank you, Madam Chair.
Ms. Kyle. Thank you.
The Chair. Thank you.
Senator Braun.
Senator Braun. Thank you, Madam Chair.
My question is for Mr. Akabas, and I think Senator
Tuberville has already touched on a little bit.
I would like to know--we know actuarially and we have known
for a long time what is happening to Social Security. I am just
as concerned about Medicare. That is a tougher issue because of
the rising costs underlying it. Both drivers of our annual
structural deficit.
When it comes to Social Security, I think that the
variables are so simple in terms of what we need to choose
from--means testing, raising the age of retirement, raising
revenues, or maybe even cutting benefits. All of that would be
something everyone has to contend with if they are in other
areas of government, No. 1. And in any business, there are
tough decisions.
Those four, and if you have anything else in mind, what are
we going to do and when do we need to do it so we probably do
not confront, like we are going to confront with Medicare, a
precipice, a cliff, which is now a little over 5 years when we
have to do something?
Mr. Akabas. Senator, you are totally right. We--and when we
should do it? We should have done it yesterday. I mean, we are
getting close to the point of insolvency of the trust fund
where there will be no reserves left, other than the revenue
that is coming into the program, which can only fund somewhere
between 75 and 80 percent of benefits at that point. That would
be unthinkable to get to that point where retirees are seeing a
20 or 25 percent cut in their benefits.
All of the options that you listed I think do need to be on
the table. That is what we did in the commission that we hosted
at the Bipartisan Policy Center. It was 2 years of serious
deliberations that group had because these are tough decisions
that impact real lives.
But, we can get to a point where we protect the most
vulnerable retirees; in fact, increase their retirement
security, and then make modest changes that are phased in
gradually over time, like adjusting the retirement age to
account for the fact that, on average, Americans are and will
continue to live longer lives.
Now, when we do that, I think we need to acknowledge that
there are certain groups of Americans who have not seen those
increases in life expectancy, particularly people of color. And
in order to account for that, we can make companion changes to
the program that make sure to offset those reductions in their
benefits that would otherwise occur from increasing the
retirement age for the whole population.
But, we should not forestall necessary changes for the
broad system just because there are some who would be adversely
hurt. We should make sure that we target other policies to
protect those people so that we can make the system solvent
again for everybody.
Senator Braun. What about means testing and what about--I
think currently it is 7.65 percent shared by the--not shared,
each employer and employee, raising revenues? And then what
about tailoring reducing benefits or the other three out there,
as well? Retirement age, I think, would be the easiest one to
tweak.
Mr. Akabas. Yes, so, on benefits, what this commission did,
one of the proposals was to make the benefit formula more
progressive, and that means raising benefits modestly at the
bottom end, but curbing benefits, curbing the growth of
benefits particularly, for those at the upper end, and
including for things like spousal benefits. Because right now,
particularly well-off spouses, who did not work a full career,
can get 50 percent of their spouse's benefit. So, if we curtail
that particularly for spouses at the high end who really do not
need those additional benefits, we can make available more
resources for the population as a whole.
Then revenues was a modest component of the package, as
well. The commission increased that 6.2 percent payroll tax on
each side that goes to Social Security right now, gradually up
to 6.7 percent on each side. So, not a significant tax
increase, but a modest one to help fund the system overall.
Senator Braun. Thank you. I yield back the rest of my time.
The Chair. Senator Hassan.
Senator Hassan. Thank you, Madam Chair and Ranking Member
Burr. Thank you to all of our witnesses for being here today.
Every worker should be able to save enough to cover their
expenses during their retirement years, but we are here today
because we know that's not always the case. So, I look forward
to working with my colleagues to improve and expand access to
retirement savings for all Americans.
Mr. Gray, I want to start with a question to you. Following
a request that the Chair and House Education and Labor chair
Bobby Scott and I made, the Government Accountability Office
released a report highlighting the threat that cybersecurity
attacks--cyberattacks pose to retirement plans. The report
confirmed that cyber threats put private, defined contribution
retirement plans, like 401(k)'s, which are held by more than
100 million Americans, at risk and recommends that the
Department of Labor take action to address this issue.
Mr. Gray, can you share how Fidelity works to combat the
risks of cybersecurity in its client retirement plans? And what
would you recommend that Congress could do to address these
risks?
Mr. Gray. Senator, thank you for the question. Certainly,
Fidelity views cybersecurity as one of the most paramount
things that we can do, which is really all about protecting our
customer data and their trust. I would say Fidelity employs
some of the most sophisticated technologies and best practices
that is really designed to protect the sensitive information
and accounts of our customers. And this is a significant spend
for us. We view this as really one of our highest priorities,
and our viewpoint is we will do whatever it takes to ensure
that security.
To give you a few examples of kind of how we go about doing
this, we are cyber--our cybersecurities program is ISO-
certified, which is really one of the highest standards that
providers can use, or financial services can use, to validate
the strength of their cybersecurity program.
We actually employ 800 individuals on our cybersecurity
team that come from a range of backgrounds and credentials,
including law enforcement and intelligence agencies. We have
built strong partnerships, as well, and strategic partnerships
with the FBI, Secret Service, and others to help protect our
customer accounts.
We employ with our clients a number of active measures to
help protect their accounts:
A two-factor authentication, for example.
Voice biometric, so if a Fidelity customer calls, we can
authenticate them by their voice.
We also have the ability to track the voice of bad actors
who may be calling, trying to get access to retirement
accounts.
We use biometric authentication, and we work directly with
our customers, as well, to make sure that they are aware of any
cyber threats that may be faced by their participants and their
plans and to help them strengthen their cyber standards.
This is a proactive approach that we take, and we are very
supportive of the recommendations that were made by the
Department of Labor recently, and we worked very actively with
the Department in the formulation of those recommendations.
Senator Hassan. Well, thank you for that, and I would look
forward to further consultation about other ways Congress can
move forward on helping all of our retirement plans be cyber
secure.
I want to turn to a different issue for all of the
witnesses. As has been discussed here today, women often
struggle to save enough for retirement, lagging behind their
male counterparts due to a number of factors, including lower
earnings, spending time away from the workplace to meet
caregiving responsibilities, as well. Many of those issues have
been exacerbated by the pandemic, with nearly three million
women temporarily leaving the workforce.
To each of you, and I will ask you to be brief, how do you
think Congress can help address the retirement gap for women
especially as we recover from COVID-19? And I will start with
you, Ms. Kyle.
Ms. Kyle. Thank you. We talked about some of the solutions
here a little earlier, and I think that a--first, a focus on
Social Security is really essential because that is the primary
retirement vehicle for most Americans, including most women.
I think a recognition that women are disproportionately in
low-wage jobs and often have gaps in employment for childcare
is essential. And, so proposals that provide paid childcare
and--excuse me, paid family leave are really essential.
I also think it is important to have portable retirement
benefits so that when women do leave the workforce, they are
able to take their benefits with them.
Senator Hassan. Yes, thank you. And, Madam Chair, I am
almost out of time. Can I ask the others to comment briefly?
The Chair. Yes.
Senator Hassan. Thank you.
Ms. Lucas.
Ms. Lucas. Thank you. According to the retirement
confidence survey, the women that are very affected by having
low amounts of assets in retirement actually are divorced or
unmarried women. According to the retirement confidence survey,
38 percent of divorced women have less than $1,000 saved for
retirement, and 42 percent of never-married women.
To your point about women who have been displaced from the
workforce, we have a system already in place called catch-up
contributions, and that could be something that could be
leveraged for women who need to catch up because they have been
displaced from the workforce in their 401(k) plans.
Senator Hassan. Thank you.
Mr. Akabas.
Mr. Akabas. Thank you. I would agree with the other
witnesses. I think paid family leave is a big factor here, as
well as just the access gap that we have been talking about all
morning.
Things like automatic enrollment that can make sure to get
these workers into plans.
Then, finally, I would mention on Social Security, one
other provision of this package that I mentioned from BPC was
enhancing the survivor benefit. Because often, women are the
ones who are the surviving spouse. Right now, they only get to
keep the greater of their benefit or their spouse's benefit.
But, unfortunately, we know that household expenses usually do
not get cut in half when one spouse passes away. And, so,
enhancing that benefit for survivors would be really important.
Senator Hassan. Great. Thank you.
Mr. Gray.
Mr. Gray. Yes. I will just share a brief statistic. Of
female workers, 75 percent of them told us that they would be
likely to enroll in emergency savings accounts if incentives
were offered. And I think this Congress can act to make it easy
for employers to offer incentives, like in a match, an
emergency savings account, I think that would go a long way.
Senator Hassan. Thank you. And thank you for your
indulgence, Madam Chair.
The Chair. Thank you.
Senator Rosen.
Senator Rosen. Thank you, Madam Chair. I appreciate it.
Thank you, Ranking Member Burr.
Of course, thank you all the witnesses for being here
today, for your work in this area. It is critically important
because we do know there are disparities in our retirement
system. And we have known that since before the pandemic, of
course, retirement savings crisis in communities of color,
including for Black and Latino Americans.
There is a number of contributing factors, including lower
lifetime earnings, lower rates of investment, lower rates of
home ownership, which means that there is not one magic
solution, but it is important that we bring this up at front
and center when we are examining so many inequities that the
pandemic made worse, like healthcare and education.
Ms. Kyle, can you talk about how this past year's economic
downturn affected inequities in retirement savings for
underrepresented communities? And, is there action that you
think we here in Congress could take to address these
disparities? How can we help maximize the ability for these
groups to catch up?
Ms. Kyle. Yes, absolutely. The pandemic worsened many of
the inequalities that we see in retirement savings for people
of color and low-wage workers. And, I think that efforts toward
emergency savings are really essential in order to ensure that
people of color are able to pull money in when they need it and
not pull out of their retirement accounts, which they often do
not have.
I will also reiterate Senator Kaine brought up the fact
that many of the inequalities and disparities we see among
Black and Brown people is related to the overall racial wealth
gap. And, so, policies that help close that racial wealth gap,
I think, will have a huge impact on retirement savings, as
well.
Senator Rosen. Thank you. I appreciate that. And I want to
build on what Senator Hassan said about this, too, catching up,
building on inequities. Because one thing that I hope that
comes out of this pandemic is a broader understanding of family
caregiving. Many workers, disproportionately women, have to
leave the workforce mid-career in order to take care of their
children or aging relatives.
I actually experienced that myself when I left work to care
for my parents and in-laws toward the end of their lives in
different health journeys, and far too many people have to
really make that impossible decision between staying in the
workforce and leaving to care for family members. And, of
course, like I said, Senator Hassan talked about that is for--
that takes a backseat. Saving for retirement takes a backseat
to some of those things. So, women, I just want to reiterate,
we know they have to be able to catch up, and we will continue
to work with you on that.
Speaking of catching up, so many women, a lot of folks,
they work in small businesses. And, so, I know we are here
today with some large employers, but small businesses, how can
we help them help their employees to save? They do not have
large H.R. departments. They may struggle to offer a wide range
of products or even give them at all. And just, we need to be
able to enable our small businesses to give those resources.
Mr. Gray, could you talk about any possible policy changes
that you think Congress might enhance that could help small
businesses, those businesses with 500 employees and under, and
even our micro businesses with maybe 50, 10 employees. How do
they help their employees save for retirement?
Mr. Gray. Senator, thank you for the question. I think
small businesses and making sure that we close the coverage
gap, incent those small businesses to offer a plan, and also
incent them to offer automatic enrollment is really critical to
addressing the points that you have raised.
When you look at automatic enrollment, automatic enrollment
is used very heavily among large employers. But, small
businesses, like businesses with 50 employees and less,
typically only about 10 to 12 percent of those employers will
automatically enroll. I look at clients or businesses with
2,500 employees or greater, that number starts to become more
like 60 or 70 percent using automatic enrollment.
I think that it is critical that Congress find a way to
incent those small businesses to be able to automatically
enroll, and part of the challenge has simply been a matter of
cost for those businesses; and when, upon automatically
enrolling, the employer then, the small business owner, now has
the cost of a match. So, if steps can be taken on that, I think
that would go a long way.
I will also quickly comment on pooled employer plans again.
I think that is an excellent opportunity because it allows
those businesses to offload the administrative duties, focus on
their business and their employees, and trust Fidelity or
others to administer the plan for them.
Mr. Akabas. Senator, if I could just note, adding on what
Mr. Gray----
Senator Rosen. Yes.
Mr. Akabas [continuing]. Said on that automatic enrollment
piece.
There is legislation that was introduced in the last
Congress by Senators Young, Booker, and Jones and Cotton that
would address this issue with a safe harbor for automatic
enrollment to give small employers more flexibility in terms of
how much they can afford to contribute to the retirement plans,
and still incentivizing them to make that employer match, but
also recognizing that some cannot and still encouraging them to
use automatic enrollment. So, I encourage you to take a look at
that, and I would be happy to discuss it with you further.
Senator Rosen. Thank you. I appreciate that. I also think
for our small businesses, those administrative costs, having
that software, all of those things, they may not have a robust
IT department or know how to do that. So, being able to pool
and partner with larger groups or companies I think will be key
to success.
Thank you, Madam Chair.
The Chair. Thank you. Senator Burr, do you have any
additional questions?
Senator Burr. Madam Chair, I would just end with how I
started. I want to thank all four witnesses for their
willingness to be here today, for the knowledge that you have
been to bestow in us, and more importantly, for the suggestions
that you have provided to us as to ways that we can enhance
retirement savings in this Country. I thank all four of you.
Thank you, Madam Chair.
The Chair. Thank you.
I do have one additional comment and question. The shift
from traditional, defined benefit plans, like pensions, to
defined contribution plans, like 401(k) plans, means savings
for retirement is more complicated for participants. Workers
have to act as their own financial advisor, their own
investment manager, their own actuary, which is a daunting task
when you are raising children or focused on your own career, or
especially when you are struggling to make ends meet at home.
But, even when people are able to plan ahead, we know from
the latest retirement confidence survey released by EBRI, only
half of workers have tried to calculate what they will need for
retirement--that is a number that has essentially not changed
since 1999--despite initiatives to improve financial planning.
And, even when people do plan ahead, their plans to retire can
be upended by forces unseeable, like a pandemic.
Ms. Lucas, I wanted to just ask you to comment. What can we
do to help the families trying to chart a path to financial
security in retirement?
Ms. Lucas. I think there's two things that we see about
people who are actually living in retirement. There are two
groups that are--have almost the identical amount of assets,
and it is not that much. But, one is what we call struggling
retirees that have unmanageable debt, and their retirement is
very constrained and difficult.
The other, again, very similar in all aspects except they
do not have the unmanageable debt, we call them the just-
getting-by. And that sounds negative, but they actually are
able to piece together a pretty secure retirement because they
are not struggling with debt.
The other group is what we call the long-term secure
retirees, and those are people that have some source of
guaranteed income. Whether it is a defined benefit plan, an
annuity, retiree medical, they have some greater sense of
security because they are not completely relying on their own
nest egg, and those people feel less constrained about
spending. They feel more confident about spending, and they--
the retirement they describe is much more comfortable overall.
The Chair. Thank you. Did you want to----
Mr. Akabas. Senator, I would just add on the financial
literacy or capability point that you raised that I think that
financial literacy in general is important, but we should not
overstate necessarily the ability of teaching a high schooler
what they should be doing 7 years down the road to save for
their retirement 50 years down the road.
I think a much more effective place to go is what we call
just-in-time intervention. So, when those decision points are
being made, when people are enrolling in the plans, when they
are making decisions about their retirement income, for drawing
down their retirement accounts or for annuities, how can we
help them with the information that they need and the structure
that they need to make those decisions.
Social Security claiming is another really important one
where people often make those decisions without a whole lot of
knowledge about the benefits, decisions that they are making
that will impact them for the rest of their life. If they claim
at age 62, they will get a significantly reduced benefit for
their entire lifetime. And, so, what types of information and
nudges can we provide people at those ages so that they make
more informed decisions for their own retirement security.
The Chair. I agree that financial literacy is a lifetime
issue, but we certainly have a lot of young kids today who have
not--do not even have the basics. As my colleague, Senator
Burr, referred to, needing to know how to balance a checkbook;
or basic things, what happens when you charge a bunch of stuff
on your iPhone and have to pay the bill later. Small things.
But, again, I do think it is a lifetime learning. Just in time
is also of utmost importance.
That will end our hearing today, and I want to thank all of
my colleagues, all of our witnesses--Ms. Lucas, Mr. Akabas, Ms.
Kyle, Mr. Gray. Thank you for joining us today for this really
important discussion about how we can help shore up our
Nation's retirement security and make sure our families are
prepared for the future.
For any Senators who wish to ask additional questions,
questions for the record will be due in 10 business days, on
Thursday, May 27, at 5 p.m. The hearing record will also remain
open until then for Members who wish to submit additional
materials for the record.
The Committee will next meet on Tuesday, May 18 at 10 a.m.
in Dirksen 106 for a hearing on paid family leave.
With that, the Committee stands adjourned. Thank you.
[Whereupon, the hearing was adjourned at 11:43 a.m.]
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