Senate Aging Committee Hearing on Financial Security in Retirement
Senate Special Committee on Aging
“Financial Security in Retirement: Innovations and Best Practices to Promote Savings”
Wednesday, February 6, 2019
Key Topics & Takeaways
- Retirement Legislation: Chairwoman Susan Collins (R-Maine) stated that she introduced the Retirement Security Act of 2019 and SIMPLE Plan Modernization Act that will help small businesses offer plans for their employees.
- Retirement Plan Access and Participation: Collins asked how small businesses can be encouraged to offer plans for their employees, and Pew’s John Scott noted that high start-up costs, lack of internal administrative bandwidth, lack of awareness of available options such as SIMPLE IRAs, as well as lack of awareness of existing tax credits and benefits are all impediments to starting a plan. He noted that more awareness is one key to increasing small business participation. St. Peter added that incentives, education and outreach would prompt small businesses to offer a plan and added that open MEPs would be a positive step forward.
- Pooling: Sen. Mike Braun (R-Ind.) asked if pooling companies is helpful, to which Scott replied that there is interest among employers in taking a pooled approach to retirement plans, especially since it is completely voluntary. Scott added that there is also interest from the government in expanding opportunities to join in multiple employer plans, noting his hope for guidance from the Department of Labor (DOL) on this issue.
Chairwoman Susan Collins (R-Maine), Senate Special Committee on Aging
In her opening statement, Collins referred to a study conducted by the Center for Retirement Research that showed a $7.8 trillion gap between what Americans have saved for retirement and what they will actually need. She discussed retirement trends warranting attention: 1) the shift from defined benefit to defined contribution plans; 2) many companies not offering employer-sponsored plans; and 3) the reliance of Social Security as the only source of retirement income. Collins also stated that she introduced the Retirement Security Act of 2019 and SIMPLE Plan Modernization Act that will help small businesses offer plans to their employees.
Ranking Member Bob Casey (D-Pa.), Senate Special Committee on Aging
In his opening statement, Casey explained that while the retirement system does well for some, millions of Americans “fall through the cracks,” especially women. He stated his introduction of the Surviving Widow(er) Income Fair Treatment Act that will increase Social Security benefits for women and eliminate claiming rules and caps that impact a widow’s benefits.
The Honorable Gene L. Dodaro, U.S. Comptroller General, GAO
In his testimony, Dodaro noted that the current retirement system is not meeting the needs of Americans, stating that a third of the working population does not have access to an employer-based retirement plan and discussed the challenges these Americans face having to save for retirement on their own. Dodaro called on Congress to establish a comprehensive commission to holistically look at the retirement system in the U.S., including Social Security, the employer-based system and individual efforts.
John Scott, Retirement Savings Project Director, Pew Charitable Trusts
In his testimony, Scott discussed a Pew study focused on small employers that found benefits for having retirement plans include a desire to help employees save for retirement, as well as employee retention. He noted that there is a correlation between a firm’s financial stability and plan sponsorship, as those firms with increased earnings tend to offer plans. Regarding plan features, Scott explained that nearly all employers made contributions to plans, but that two-thirds of employers asked stated that they do not automatically enroll (auto enroll) employees into the system. Of the employers that did not offer retirement plans, he stated that startup costs and a lack of internal administrative capacity to maintain the plan were factors. Scott suggested start-up tax credits for employers creating plans, auto enrolling employees, open multiple employer plans (Open MEPS), and awareness of SIMPLE IRAs.
Denis St. Peter, President and CEO, CES, Inc.
In his testimony, St. Peter explained his own experience as a business owner regarindg offering an employer retirement plan and his shift in plan benefits, such as matching contributions to retain top talent. He noted that a group was created to improve their plan, made up of the Human Resources Director, CFO, 401(k) financial advisor, and 401(k) third party administrator. St. Peter continued that an employee investment committee now meets semiannually to review the plan’s performance, a benefits committee that advises them on structuring the plan, and that an investment advisor meets with their employees one-on-one and that education and communication throughout the year is key. He concluded that the changes made resulted in increased participation and increased plan assets.
Linda K. Stone, Fellow Volunteer, Women’s Institute for a Secure Retirement (WISER)
In her testimony, Stone covered the unique situations of women in retirement and said two-thirds of the population over 85 years old are women. She discussed how women earn less than men in the workforce and how caring for children and parents many times causes women to leave their careers or work part-time without benefits, resulting in lower retirement savings than men. She stressed the need to strengthen Social Security and Medicare, as well as employer plans and individual saving initiatives.
Retirement Plan Access and Participation
Collins asked how small businesses can be encouraged to offer plans for their employees, and Scott noted that high start-up costs, lack of internal administrative bandwidth, lack of awareness of available options such as SIMPLE IRAs, as well as lack of awareness of existing credits and benefits are all impediments to starting a plan. He stated that more awareness is one key to increasing small business participation. St. Peter added that incentives, education and outreach would prompt small businesses to offer a plan and that open MEPs would be a positive step forward.
Casey noted that certain segments of the population still face limited access to a employer sponsored plans, including part time workers, employees of small businesses and workers in low-wage industries, and asked how access to a retirement plan affects an individual’s ability to save. Stone noted that given an incentive to save, many women will take the opportunity. She added that expanding savings to part time workers would help more women save for retirement.
In response to a question from Collins regarding impediments employees face, Dodaro explained that the low real wage growth, rising healthcare costs and out of pocket costs are impacting retirement savings, as well as “problematic fees” in defined contribution plans, portability in defined benefit plans, vesting issues and employees not rolling over their benefits upon job change. Collins asked how companies and policymakers can discourage cashouts and leakage, to which St. Peter replied that education and advice from investment advisors helps keep employees from tapping into their savings.
Sen. Mike Braun (R-Ind.) encouraged employers to raise employee 401(k) benefits and invest in their employees because of the opportunities tax reform created. He questioned how savings behavior has changed, and Dodaro replied that the U.S. is currently “nowhere near historic levels” of saving, adding that the issue “must be dealt with,” as there are ramifications on capital formation and other issues.
Braun asked if pooling companies is helpful, to which Scott replied there is interest among employers in taking a pooled approach to retirement plans, especially since it is completely voluntary. Scott added that there is also interest from the government in expanding opportunities to join in multiple employer plans, noting his hope for guidance from the Department of Labor (DOL) on this issue.
Casey stated the need for more education regarding claiming Social Security benefits, and Stone stressed the importance of understanding the difference in taking benefits out at the age of 62, 65, and 67. She also stated the need for additional information, education and advice when it comes to surviving spouse benefits. Sen. Richard Blumenthal (D-Conn.) stressed the importance of reforming the Social Security system to keep up with the increase in cost of living, to which Dodaro agreed.
In response to a question from Casey regarding the impact of benefit cuts for current and future retirees in multiemployer pension plans, Dodaro expressed concerns that many participants in multiemployer pension plans will see their benefits cut in the coming years and stressed the need for action.
Sen. Marth McSally (R-Ariz.) noted that women are more likely to leave the workforce to be caregivers, to which Stone explained the importance of helping women understand the opportunity costs of leaving the workforce, such as lost wages and benefits. Sen. Kyrsten Sinema (D-Ariz.) discussed a tax credit for caregivers, to which Stone replied that often times women spend many years working as caregivers, though it is not considered actual work. Scott added that Pew is currently looking into these issues.
Sen. Josh Hawley (R-Mo.) asked about steps Congress can take to decrease the cost of raising children to help families save more. St. Peter noted the importance of flexibility at the workplace. Dodaro added that while GAO has focused on caregiving for parents and spouses, they could look at children in the future. He noted that student loans are a related concern with the cost of raising children.
Sen. Doug Jones (D-Ala.) discussed the income wage gap between men and women, stating that Congress should help narrow this gap as it will reap benefits for women in retirement. Stone added that higher earnings results in higher benefits in retirement plans, as well as increasing the ability to save.
In response to a question from Jones regarding educating employees on retirement savings, Stone stated the need to show how much money is needed annually during retirement and how a lump sum translates into monthly income. Dodaro added that financial literacy is needed at every age and that the retirement system needs to be simplified. Scott noted that new technology, such as robo advisors and artificial intelligence, could help provide individuals with more comprehensive education about their savings.
For more information on this hearing, click here.