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 Several years ago, I joined then Congressman Harris Fawell as
an original cosponsor of legislation which called for three White House Summits
on the vital, if then unsung, issue of retirement savings. We directed the
convening of three such Summits over ten years because we knew the issue was
only going to grow in importance for America’s families, and that it would
evolve in unpredictable ways which warranted treatment as a dynamic ongoing
national priority.
It was our hope that the national spotlight a White House
Conference would generate, coupled with the energy that would be created by
assembling national leaders in the retirement security area, would create
momentum and generate ideas for this national imperative. I believe this second
Savers Summit will meet the highest hopes former Congressman Fawell and I had as
we worked on this legislation.
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I commend the Administration, particularly Assistant
Secretary of Labor Ann Combs, for preparing and conducting such an
outstanding Summit. I also commend each of you for the considerable efforts
you have made to participate and make this event a success. You brought to
this Summit your considerable expertise. Your ongoing leadership in the
retirement savings arena will mean a great deal to advancing
retirement savings and building financial security for Americans.
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In the next few minutes, I would like to briefly outline my
view of the components of a national retirement income security strategy, and
identify public policy issues presented by each which will require our
collective attention now and in the years to come.
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Blueprint For Financial Security In Retirement - The United States retirement income system consists of
several independent components enacted at different times over many years.
Either by design, or more likely, by fortunate accident, the various parts of
our system complement one another and work as an integrated approach. The
foundation is the public pension program - Social Security - augmented by
workplace pension plans and defined contribution plans, and individual
retirement savings.
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This combination of public and private approaches to
retirement income security has proven successful because, as a system, it has
provided the following: universal coverage, basic income guarantees in
retirement even for low wage earners, strong incentive for personal
responsibility of wage earners to acquire private retirement savings, and a
significant role for employers in providing retirement programs as an employment
benefit.
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Social Security - Social Security is the foundation of retirement income for
America’s families. Social Security covers 96% of the workforce, and provides
covered retirees a defined benefit payment each month for as long as they live.
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For most recipients, their Social Security check is a vital
part of their income in retirement. In fact, 64% rely on those payments for most
of their income and, for 29%, those checks represent 90% or more of their
monthly income. Without this program half of those 62 and older would have
income under the poverty level.
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I have real questions about proposals to reduce the
guarantees in Social Security through structural reforms providing for private
accounts. Americans already have loads of risk when it comes to retirement
income. Risk of not having workplace retirement savings; risk of not saving
enough; risk of investing in ways that fail to generate the expected return;
risk of spending assets intended for retirement on some other purpose —
emergency or otherwise; and increasingly risk of outliving retirement savings.
Social Security offsets these risks very effectively, at least in terms of
bottom line income in retirement years. Changes which, in the end, add further
risks to Social Security, do not represent a strategically sound move for this
foundation of retirement for Americans.
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One place privatizers and system protectors can find common
ground involves an aspect of fiscal prudence core to the future solvency of
Social Security regardless of how the program is structured. Spending the cash
coming in from Social Security payroll taxes on unrelated functions of
government will make it harder to meet the commitments of this program to future
retirees. Budget projections show we are on track to spend $1.5 trillion coming
in for Social Security on other government expenses over the next ten years.
This is unacceptable. We all need to pull together with urgency — to end
deficits in the general fund of the federal government so Social Security
revenue can be held strictly for the benefit of Social Security.
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Workplace Defined Pension Plans - Defined benefit pension plans, like Social Security, deliver
predictable income throughout the covered retirees retirement years.
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I believe this format continues to offer a great deal in
advancing retirement income security and am not prepared to accept the notion
that defined benefit pensions are an idea whose time has come and gone. The
place to start is by trying to keep the plans we have. The federal government
should help rather than hinder employers trying to keep their pension coverage
for their workers.
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We began by making overdue benefit updates in Portman-Cardin,
and now we have to fix an inappropriate reserving requirement which, if not
addressed, will make the cost of pension coverage unnecessarily expensive.
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I believe there is more we can do to increase the appeal of
defined benefit plans to employers who do not presently offer this coverage. I
recognize pensions will occupy a relatively small part of the overall picture,
but those who are covered find the coverage to be very important. It only makes
sense to try and expand the number in the workplace covered with lifetime
pension coverage.
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Workplace Defined Contribution Plans - Defined contribution plans have become the primary vehicles
for workplace retirement savings. The tremendous growth of plans, covered
individuals, and assets saved, all reflect what a tremendous success the 401(k)
and other DC plans have become. We must be clear-eyed, however, about evaluating
whether these vehicles will, in the end, deliver the retirement income security
for participants through their lifetimes that we hope for. In making this
evaluation, we must look at workers’ participation rates, and whether those
who do participate are accumulating the balances required for meaningful
retirement income.
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Participation - Not surprisingly, participation rates by employees with
defined contribution retirement savings opportunities varies directly with
whether incentives are provided in the form of an employer match.
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With a match, more than 70% participate, substantially fewer
when no match is provided. The lesson we need to consider here as we deliberate
post-Enron reforms is to avoid measures which may reduce or end the match
provided by a number of employers to their workers. Such a result would be a
setback rather than an advance in retirement savings.
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I commend the Administration for advancing a number of well
considered reforms in this area and expect they will receive bipartisan support
as they move in the legislative process.
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Rates of Savings - Questions exist in my mind about whether those who do
participate in a 401(k) are saving enough. A recent Congressional Research
Service (CRS) report revealed that of the 39% of the workforce who had a DC
plan, the average balance was $34,700, with the median balance being $14,000.
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Fortunately, account balances are considerably larger on
average for older workers rather than younger ones, so the picture may not be as
bleak as these numbers would indicate. All the same, however, we are counting on
DC plans to deliver a lot of retirement security for Americans. We need to
carefully evaluate what the savings balances being achieved will actually
deliver in this regard.
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Investment Advice - In the breakout group I attended yesterday, there was strong
consensus that folks needed more information on retirement savings and the
workplace was the most effective place to deliver meaningful information.
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Expanding the information actually delivered in the workplace
through the investment advisor legislation introduced by Chairman John Boehner
makes sense to me. Legitimate concerns have been raised about the prospects of
abusive sales activity occurring, and I have developed a few consumer protection
amendments to help address these issues. In my view, insufficient information is
the greatest concern for those facing bewildering investment choices.
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Matching Nest Egg to Longevity - To date, most of
the attention to retirement savings involves the phase of activity
associated with growing the retirement nest egg.
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Matching saved assets to income needs in retirement
through appropriate asset draw down will represent another important phase
of issues. This is a tricky proposition for a retiree with finite assets,
but nothing but unknowns in terms of life expectancy or the potential of
long-term care costs. I believe lifetime annuity products will continue to
become more popular as individuals look for retirement income security
through these vehicles.
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Congress should consider developing incentives for people
to protect their retirement income through annuities. It would, in all
likelihood, be a lot cheaper than providing full public services for aged
retirees who have outlived their assets.
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Private Retirement Savings - Sixty-one percent of
workers do not own a retirement savings account of any kind -- be it an IRA,
Keogh account, or 401(k) account. The fact that nearly two-thirds of
American workers lack any type of retirement savings account indicates that
there is a need for greater awareness among the public about the importance
of saving to prepare for life after they have stopped working. This begins
with financial literacy education in the schools. Financial literacy and
worker investment education and advice must be the ongoing focus by the
Administration and Congress alike.
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Social Security, tax incentives for workplace pension
plans and defined contribution plans, and tax incentives for individual
retirement savings are complementing strategies to deliver retirement
security. We need to promote each in addressing retirement income security.
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