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House Ways & Means Committee Hearing on Retirement Security

House Ways & Means Committee

“Improving Retirement Security for America’s Workers”

Wednesday, February 6, 2019

Key Topics & Takeaways

  • Retirement Enhancement and Savings Act (RESA) and Open MEPs: Crandall explained that RESA would help workers at small companies or in the gig economy gain access to a plan, pool together to benefit from economies of scale, and reduce the cost and administrative burden of setting up a plan. Biggs said the high cost of plans relative to number of employees is prohibitive, as is the legal liability that many small employers do not want to risk, but MEPs spread the cost among employers and were designed to address exactly that problem.
  • Workplace Retirement Plans and Auto-Enrollment: Asked by multiple members what solutions exist for small businesses, Huffstutter said that Oregon Saves is a “great example” of how to get small businesses started, calling it a great partnership between the private sector and state government. Crandall added that auto-enrollment improves participation in retirement plans overall.

Witnesses

Opening Statements

Rep. Richard Neal (D-Mass.), Chairman, House Ways & Means Committee

In his opening statement, Neal said one of his priorities as committee chairman will be to help American workers plan for a secure retirement, noting that many are in danger of not having enough savings to maintain their standard of living, and many are increasingly forced to work past retirement age or risk sliding into poverty. Neal noted that nearly half of private sector employees work for an employer that does not offer a retirement plan, and that having an employer-sponsored plan is key to saving. He said the retirement crisis will continue unless they protect and improve Social Security, do more to help people save, and encourage employers to offer retirement plans. Neal noted a number of proposals, including H.R. 1007 and H.R. 397, that would help workers save and plan for retirement.

Rep. Kevin Brady (R-Texas), Ranking Member, House Ways & Means Committee

In his opening statement, Brady said that thanks to the Tax Cuts and Jobs Act, families have more money in their pockets due to lower taxes and higher paychecks, and that a strong and growing economy paves a “perfect path” to work together to help Americans save for retirement. Brady noted H.R. 6757, the Family Savings Act, which passed the House in the 115th Congress, as one example of how the committee has worked to help families save, and called on them to work to make it easier for local businesses to offer plans, allow businesses to band together to offer plans, and to remove age limits for contributions to individual retirement accounts (IRAs). He noted that Social Security is a “crucial” anti-poverty program, and protecting it is a bipartisan issue.

Testimony

Diane Oakley, Executive Director, National Institute on Retirement Security
In her testimony, Oakley said that Social Security and defined benefits have led to a “dramatic” reduction in poverty among older Americans, but changes to the retirement system have made it difficult for Americans to save. She noted that younger workers have to do much of their retirement planning on their own, and private sector pension coverage has greatly declined. She highlighted that roughly 100 million working Americans have no retirement accounts or pensions, and four out of five working Americans have less than one times their income saved. She said the shift from defined benefit (DB) to defined contribution (DC) plans has increased the risk and responsibility for individuals to plan and manage their retirement, and lowered coverage for the bottom half of the income scale. She added that Americans are working longer and spending less in retirement, and this will act as a “drag” on economic growth.

Nancy J. Altman, President, Social Security Work
In her testimony, Altman said Social Security is “overwhelmingly” popular because it addresses economic insecurities and is efficient, secure, and fair, and includes benefits that automatically index with inflation. She noted benefits are modest, but two-thirds of retirees depend on it for most of their income. She added Social Security is especially important for women and people of color, and that reliance on Social Security is growing. She said that Social Security should be recognized as the solution to both the retirement crisis and income inequality, and those who call for it to be means tested and only go to those who need it most fail to recognize it is not welfare, but is part of workers comp.

Cindy McDaniel, Co-director, Missouri-Kansas City Committee to Protect Pensions
In her testimony, McDaniel recounted her family’s experience following a cut in her husband’s pension benefits. She discussed the multi-employer pension crisis, with some workers standing to lose up to 70 percent of their benefits. She noted that many of these workers gave up wage increases in exchange for pension benefits, which now may be drastically cut. She called on Congress to act, noting the importance of H.R. 397, the Rehabilitation for Multiemployer Pensions Act.

Roger W. Crandall, Chairman, President & CEO, MassMutual
In his testimony, Crandall discussed gaps in the retirement system, noting that workplace retirement plans are very effective in enabling workers to save, but millions do not have access to a workplace plan largely due to the cost and complexity. Crandall added that expanding access alone will not be enough – Americans need to same earlier and save more, because longer life expectancies have made it more difficult to manage savings over an unpredictable period of time. Crandall highlighted MassMutual’s new program, Map My Finances, which will provide guidance to their clients on emergency funds, college savings, income protections, healthcare, and retirement, helping to optimize savers’ limited dollars among their needs. Crandall also highlighted the role of Congress in addressing the retirement savings crisis, noting support for the Retirement Enhancement and Savings Act, saying it would greatly decrease the cost of plans for small businesses and open up retirement savings options for the growing gig economy. He also applauded the Automatic Retirement Plan Act, calling it a bold and innovative solution.

Luke Huffstutter, Owner, Annastasia Salon and Summit Salon Academy, Portland, OR
In his testimony, Huffstutter discussed his experience with the Oregon Saves program, which has allowed him to offer retirement plan to his 40 employees. He said he had previous sought to provide a retirement plan numerous times, but they were too costly for him to run, and the Oregon Saves program was a solution. He noted the opt-out provision was important for his employees that already had IRAs, but all those that did not have remained in the program. He said it has made savings easy for his employees and for him as a business owner, and called on the committee to continue to let states facilitate similar programs.

Robin Diamonte, Corporate Vice President, Pension Investments, United Technologies Corporation
In her testimony, Diamonte described the United Technologies Corporation’s approach to retirement savings as large employer and plan sponsor, particularly addressing their lifetime income strategy for DC plan participants. After they closed their DB plan to new participants in 2010, Diamonte said in 2012 they implemented a lifetime income strategy in which new employees are automatically enrolled in the savings plan, which escalates yearly and receives an employer match. This strategy begins as a low-cost target date fund, and later converts into a secure lifetime income fund that is guaranteed by a diverse group of insurance companies. Diamonte explained that they strive for security and control for their employees, who feel in control of their assets because they are free to transfer out of the program without penalty at any time. She said safe harbors for fiduciaries and clear and specific guidance will encourage more plan sponsors to offer this retirement strategy.

Andrew G. Biggs, Resident Scholar, American Enterprise Institute
In his testimony, Biggs said that there is a positive story to tell about the current state of retirement savings, including that participation, retirement plan assets, and the share of retirees receiving private benefits are all trending up, and that many of these improvements may continue to grow with reforms including 401(k) auto-enrollment, target date retirement funds, and open multiple employer plans (MEPS). He noted policymakers need to address the underfunding of government-run retirement plans, including Social Security, federal employee pensions, and state and local government plans, adding that the underfunding dramatically exceeds even the “most pessimistic” estimates of the private sector retirement savings gap.

Question & Answer

Retirement Enhancement and Savings Act (RESA) and Open MEPs

Asked by Neal what policies could help buttress Social Security, Crandall explained that RESA would help workers at small companies or in the gig economy gain access to a plan, pool together to benefit from economies of scale, and reduce the cost and administrative burden of setting up a plan. Reps. Jackie Walorski (R-Ind.), Suzan DelBene (D-Wash.), and Dwight Evans (D-Pa.) asked what obstacles are standing in the way of small businesses starting retirement plans and how open MEPs could address it. Biggs said the high cost of plans relative to number of employees is prohibitive, as is the legal liability that many small employers do not want to risk. He continued that MEPs spread the cost among employers and were designed to address exactly that problem. DelBene asked about options available to gig economy and contract workers, to which Crandall said a self-employed worker could become a member of an open MEP, a positive step for the retirement security of gig economy workers.

Workplace Retirement Plans and Auto-Enrollment

Asked by multiple members what solutions exist for small businesses, Huffstutter said that Oregon Saves is a “great example” of how to get small businesses started, calling it a great partnership between the private sector and state government. He added that his team has already seen their first auto-escalation increase of one percent and are excited to see their accounts grow over time. He noted that 27 of his 40 employees participate, and those who opted out did so because they already had an IRA or other savings plan. Asked what the driving factor was in offering the benefit, Huffstutter explained it is a “win-win” for him and his team, and through Oregon Saves he was able to get started without being in a precarious financial situation.

Asked about the success of auto-enrollment, Huffstutter explained his team previously was intimidated by their lack of knowledge about saving for retirement, but auto-enrollment took away that burden and has been a very easy process. Crandall added that auto-enrollment improves participation in retirement plans overall.

Other Retirement Solutions
Asked by Rep. Brendan Boyle (D-Pa.) to describe their lifetime income plan, Diamonte explained that it is similar in many ways to a DB plan in that it begins with a target date fund, and when workers are ready to retire they have a guaranteed income stream, with a floor that protects against market volatility, similar to having a variable annuity. She continued that when first going into retirement, participants draw from their own savings, but if they outlive that amount the insurance coverage begins and provides that level of income for life.

Asked by Rep. Darin LaHood (R-Ill.) about 529 plans, Biggs noted that retirement is not the only reason people save money, noting there is an argument to be made for a single universal savings vehicle for all purposes, rather than targeted accounts for different purposes, though having different “pots” for different goals does help.

Rep. Judy Chu (D-Calif.) asked about the saver’s credit and how it could be made more effective. Oakley responded that it would be beneficial if the money could go into the IRA, similar to an employer match, rather than back to the taxpayer as a payment. She also noted that the credit has income limits and restrictions, and the filing requires filing extra paperwork and could be made simpler.

Asked by Rep. George Holding (R-N.C.) about proposals to eliminate the maximum age for contributing to a traditional IRA, Biggs said that many retirees do not spend their entire income, and their median net worth rises as they get older, so should not be prohibited from making IRA contributions.

Social Security

Multiple members asked about Social Security, its role in retirement savings, its solvency, and proposals to protect it. Crandall noted that Social Security is a “critical component” in everyone’s retirement security, particularly because it has longevity and provides a lifetime income with an inflation escalator. He added it is important regardless of income, but is especially essential for low- and moderate-income workers. Altman added that Social Security is also particularly important for people of color, who have on average lower wages and higher rates of unemployment, and are historically less likely to work in jobs with private pensions. Asked is Social Security is solvent, Altman said it is able to pay through the year 2034, and Biggs noted that fails the test of long-term solvency.

For more information on this hearing, please click here.