Senate Aging Hearing on Retirement
United States Senate Special Committee on Aging
“Bridging the Gap: How Prepared are Americans for Retirement?”
Thursday, March 12, 2015
Key Topics & Takeaways
- The Retirement Security Act: Chairman Susan Collins (R-Maine) highlighted recent legislation she reintroduced with Sen. Bill Nelson (D-Fla.), the Retirement Security Act of 2015 (S. 266), which would help encourage small businesses to offer retirement plans, allow employees to save more, and help incentivize low- and middle-income taxpayers to save. Specifically, the bill would facilitate the use of multiple employer plans (MEPs) which would reduce costs by allowing small businesses to share the administrative burden of a retirement plan. Ranking Member Claire McCaskill (D-Mo.), as well as all of the panelists, expressed support for the legislation.
- Golden Moments: In her testimony, Michal Grinstein-Weiss spoke about taking advantage of “golden moments” in life to educate about and facilitate savings. One such “golden moment,” she said, would be at tax time, when a taxpayer could choose to save a portion of their refund. She also said kindergarten is a “golden moment” and highlighted initiatives by some states to establish 529 college savings accounts for all children. Nevada’s “College Kick Start Program” is one such effort.
- Sense of Urgency: Sen. Tim Scott (R-S.C.) asked how to create a “sense of urgency” to educate Americans about increased life expectancy and the need for savings. Rob Carmichael said that as a nation of consumers, the narrative should be to “pay yourself first.” Alicia Munnell argued that education has “limited ability” to solve the problem and said efforts should be made to make saving “automatic.”
Witnesses
· Jean Chatzky, Financial Journalist and Financial Editor, NBC’s Today Show
· Alicia Munnell, Director, Center for Retirement Research, Boston College
· Michal Grinstein-Weiss, Associate Professor, Associate Director, Brown School of Social Work, Washington University, Center for Social Development
· Rob Carmichael, Human Resources Director, Maine Savings Federal Credit Union
Opening Statements
Chairman Susan Collins (R-Maine) said in her opening statement that American workers 30 and older are “increasingly unprepared for retirement.” She highlighted recent legislation she reintroduced with Sen. Bill Nelson (D-Fla.), the Retirement Security Act of 2015 (S. 266), which would help encourage small businesses to offer retirement plans, allow employees to save more, and help incentivize low- and middle-income taxpayers to save. Specifically, she said the bill would facilitate the use of multiple employer plans (MEPs) which would reduce costs by allowing small businesses to share the administrative burden of a retirement plan.
Ranking Member Claire McCaskill (D-Mo.) said in her opening statement that despite the development of incentives, many Americans, particularly lower-income workers, are not saving. She noted that income is the difference between those who save and those who do not. McCaskill announced her support for Sens. Collins and Nelson’s legislation.
Witness Testimony
Jean Chatzky, Financial Journalist and Financial Editor for NBC’s Today Show, said in her testimony that Americans fear running out of money in retirement and that longevity and the cost of healthcare have contributed to feelings of unpreparedness. She encouraged policies to make it easier for small businesses to offer retirement plans.
Alicia Munnell, Director at the Center for Retirement Research at Boston College, highlighted in her testimonythat the ratio of wealth-to-income has remained largely unchanged from 1983 to 2013. This is “striking,” she said, because a lot has changed since 1983 “which should have caused people to save more,” including: changes in life expectancy, the shift from defined benefit to defined contribution, the decline of Social Security replacement rates, rising healthcare costs, and low real interest rates.
Munnell argued that the private pension system is “not working well” and recommended a strategy that would help Americans work longer and save more. She said that a strategy should include fixing Social Security, taking advantage of automatic plan features, and recognizing home ownership as a piece of retirement planning, among other things.
Michal Grinstein-Weiss, Associate Professor and Associate Director at the Brown School of Social Work, Washington University, said in her testimony that low- and moderate-income households face various barriers to saving. She highlighted the benefits of plans with automatic features and said the myRA could be a useful tool to build emergency savings.
Weiss spoke about taking advantage of “golden moments” in life to educate about and facilitate savings. One such “golden moment,” she said, would be at tax time, when a taxpayer could choose to save a portion of their refund. She also said kindergarten is a “golden moment” and highlighted initiatives by some states to establish 529 college savings accounts for all children. She offered Nevada’s “College Kick Start Program” is one such effort.
In his testimony, Rob Carmichael, Human Resources Director at the Maine Savings Federal Credit Union (MSFCU), described the set up of the MSFCU’s 401(k) plan and the percentage of employee participation. He noted the role that benefits packages play in attracting and retaining talented employees, and said it is important to make 401(k) plans available to small businesses who may have limited resources to start a plan. Carmichael expressed his support for the Retirement Security Act.
Question and Answer
Financial Literacy and Retirement Education
Sen. Tim Scott (R-S.C.) asked how to create a “sense of urgency” to educate Americans about increased life expectancy and the need for savings. Carmichael said that as a nation of consumers, the narrative should be to “pay yourself first.” Munnell argued that education has “limited ability” to solve the problem and said efforts should be made to make saving “automatic.”
Sen. Thom Tillis (R-N.C.) asked the panelists how much emphasis should be placed on financial literacy and if there are best practices on which to build. Munnell said that while it is “hard to argue against financial literacy,” she does not see it changing saving behavior. She argued for systems changes instead, highlighting automatic plan features. Weiss said that financial literacy should be integrated with “golden moment” opportunities, such as establishing college savings plans in kindergarten, so individuals can learn and save simultaneously.
McCaskill asked Chatzky about initiatives to link the driver license exam with financial literacy. Chatzky said such an initiative would need to be on a state-by-state basis and would need coordination with the Motor Vehicle Administration. She suggested the auto insurers could play a role as well by offering discount premiums for teens that pass a financial literacy test.
DOL Fiduciary
Sen. Elizabeth Warren (D-Mass.) quoted a New York Times article in which it was reported that “Wall Street is bleeding savers dry.” She added that high fees, commissions, and kickbacks are “eating away” at Americans’ retirement savings. Munnell said she “knows” individuals are “paying too much” in 401(k) fees and that she believes Americans are paying too much in IRAs too. She highlighted the shift from defined benefit plans to defined contribution plans as the primary retirement savings vehicle.
Warren said that shift means Americans have to rely on brokers and advisors who can “legally take kickbacks” for recommending “lousy products.” She asked why advisors and brokers are allowed to “peddle lousy products” that “line their own pockets.”
Munnell noted that IRAs are not covered by a fiduciary standard, but rather a suitability standard. She expressed support for the Department of Labor (DOL) initiative to expand the definition of fiduciary to cover all broker dealers. Munnell said she was “shocked” to see so many actively managed funds in 401(k) plans.
Warren asked Chatzky why she recommended investors seek out a fee-only investment advisor. Chatzky said that “everyone deserves unbiased financial advice,” but noted the recommendation “goes back several years” and that while there are advantages to a fee-only advisor, due to the evolution of the industry it may not be the best situation for all investors. Chatzky then recommended a transparent “across-the-board” way to compare fees and products. She noted that bad advice can happen no matter how someone chooses to pay.
Warren concluded by saying that while there are good investment advisors, they “have to compete with advisors who put their own interests first.”
In her closing statement, Collins addressed the issue of fees and said that the DOL finalized its rules requiring fee disclosure to 401(k) participants, noting that “transparency is the key” so individuals can make comparisons.
“Golden Moment”
McCaskill asked if the moment of employment could be utilized as a “golden moment” to encourage saving, noting that waiting until tax time may be too late to incentivize workers to save their refund. Weiss agreed that there could be changes made within the process, and again highlighted state efforts to open savings accounts early in life.
Scott asked how Americans could be encouraged to save their tax refund. Weiss noted that Intuit and the Department of the Treasury are testing a program to see if taxpayers can be encouraged to save their refund through myRA. The groups are hoping to streamline the system to fully implement it next year.
Increasing Retirement Savings
Sen. Timothy Kaine (D-Va.) said student loan debt is a hindrance to saving for retirement. Munnell agreed that there are “a lot of hurdles” to clear before saving for retirement becomes a priority concern.
Weiss noted that there is empirical evidence showing that student loan debt is a “major barrier” to saving.
Tillis asked Chatzky about the value of an app called “Saved Plus,” which Chatzky highlighted in her testimony. Chatzky said it is a free mobile app which automatically transfers a percentage of spending into a savings account. She noted that the average user saves over $4,000 annually through the app and said it has been successful because it allows individuals to save “mindlessly.”
Sen. Robert Casey (D-Pa.) asked how policymakers can better incentivize employees through the tax code. Munnell expressed support for employer-sponsored plans to have mandatory automatic enrollment and matching employer contributions.
Casey said there is a “squeeze” on the “sandwich generation” because of obligations to care for children and aging parents simultaneously. He asked how that stress can be alleviated. Chatzky highlighted tools that financial institutions offer such as longevity annuities to help protect individuals living longer. She noted that a lot of time is spent discussing accumulation of savings, but said not a lot of time is spent talking about how to make it last.
Sen. Sheldon Whitehouse (D-R.I.) asked panelists for their thoughts on the merits of automatic IRA proposals that would require employers to offer an IRA to employees. Panelists all agreed that the proposal would be helpful to increase savings.
Social Security
Collins noted that three fourths of Americans start taking Social Security benefits at age 62, the earliest age, which leads to a cumulative average loss of over $300,000 for couples than if they waited to take benefits until age 70. She asked what could be done to encourage workers to stay in the workforce longer, if they are able. Chatzky replied that there is a need for greater education, noting that people should understand what they are losing if they “start the clock too early.”
Munnell noted that information from the Social Security Administration is confusing and said workers should be encouraged to wait to take benefits, if they can.
For more information and a webcast of this event, please click here.
,Blog Tags:,Blog Categories:,Blog TrackBack:,Blog Pingback:No,Hearing Summaries Issues:Retirement/Pensions,Hearing Summaries Agency:Senate Special Committee on Aging,Publish Year:2015
United States Senate Special Committee on Aging
“Bridging the Gap: How Prepared are Americans for Retirement?”
Thursday, March 12, 2015
Key Topics & Takeaways
- The Retirement Security Act: Chairman Susan Collins (R-Maine) highlighted recent legislation she reintroduced with Sen. Bill Nelson (D-Fla.), the Retirement Security Act of 2015 (S. 266), which would help encourage small businesses to offer retirement plans, allow employees to save more, and help incentivize low- and middle-income taxpayers to save. Specifically, the bill would facilitate the use of multiple employer plans (MEPs) which would reduce costs by allowing small businesses to share the administrative burden of a retirement plan. Ranking Member Claire McCaskill (D-Mo.), as well as all of the panelists, expressed support for the legislation.
- Golden Moments: In her testimony, Michal Grinstein-Weiss spoke about taking advantage of “golden moments” in life to educate about and facilitate savings. One such “golden moment,” she said, would be at tax time, when a taxpayer could choose to save a portion of their refund. She also said kindergarten is a “golden moment” and highlighted initiatives by some states to establish 529 college savings accounts for all children. Nevada’s “College Kick Start Program” is one such effort.
- Sense of Urgency: Sen. Tim Scott (R-S.C.) asked how to create a “sense of urgency” to educate Americans about increased life expectancy and the need for savings. Rob Carmichael said that as a nation of consumers, the narrative should be to “pay yourself first.” Alicia Munnell argued that education has “limited ability” to solve the problem and said efforts should be made to make saving “automatic.”
Witnesses
· Jean Chatzky, Financial Journalist and Financial Editor, NBC’s Today Show
· Alicia Munnell, Director, Center for Retirement Research, Boston College
· Michal Grinstein-Weiss, Associate Professor, Associate Director, Brown School of Social Work, Washington University, Center for Social Development
· Rob Carmichael, Human Resources Director, Maine Savings Federal Credit Union
Opening Statements
Chairman Susan Collins (R-Maine) said in her opening statement that American workers 30 and older are “increasingly unprepared for retirement.” She highlighted recent legislation she reintroduced with Sen. Bill Nelson (D-Fla.), the Retirement Security Act of 2015 (S. 266), which would help encourage small businesses to offer retirement plans, allow employees to save more, and help incentivize low- and middle-income taxpayers to save. Specifically, she said the bill would facilitate the use of multiple employer plans (MEPs) which would reduce costs by allowing small businesses to share the administrative burden of a retirement plan.
Ranking Member Claire McCaskill (D-Mo.) said in her opening statement that despite the development of incentives, many Americans, particularly lower-income workers, are not saving. She noted that income is the difference between those who save and those who do not. McCaskill announced her support for Sens. Collins and Nelson’s legislation.
Witness Testimony
Jean Chatzky, Financial Journalist and Financial Editor for NBC’s Today Show, said in her testimony that Americans fear running out of money in retirement and that longevity and the cost of healthcare have contributed to feelings of unpreparedness. She encouraged policies to make it easier for small businesses to offer retirement plans.
Alicia Munnell, Director at the Center for Retirement Research at Boston College, highlighted in her testimonythat the ratio of wealth-to-income has remained largely unchanged from 1983 to 2013. This is “striking,” she said, because a lot has changed since 1983 “which should have caused people to save more,” including: changes in life expectancy, the shift from defined benefit to defined contribution, the decline of Social Security replacement rates, rising healthcare costs, and low real interest rates.
Munnell argued that the private pension system is “not working well” and recommended a strategy that would help Americans work longer and save more. She said that a strategy should include fixing Social Security, taking advantage of automatic plan features, and recognizing home ownership as a piece of retirement planning, among other things.
Michal Grinstein-Weiss, Associate Professor and Associate Director at the Brown School of Social Work, Washington University, said in her testimony that low- and moderate-income households face various barriers to saving. She highlighted the benefits of plans with automatic features and said the myRA could be a useful tool to build emergency savings.
Weiss spoke about taking advantage of “golden moments” in life to educate about and facilitate savings. One such “golden moment,” she said, would be at tax time, when a taxpayer could choose to save a portion of their refund. She also said kindergarten is a “golden moment” and highlighted initiatives by some states to establish 529 college savings accounts for all children. She offered Nevada’s “College Kick Start Program” is one such effort.
In his testimony, Rob Carmichael, Human Resources Director at the Maine Savings Federal Credit Union (MSFCU), described the set up of the MSFCU’s 401(k) plan and the percentage of employee participation. He noted the role that benefits packages play in attracting and retaining talented employees, and said it is important to make 401(k) plans available to small businesses who may have limited resources to start a plan. Carmichael expressed his support for the Retirement Security Act.
Question and Answer
Financial Literacy and Retirement Education
Sen. Tim Scott (R-S.C.) asked how to create a “sense of urgency” to educate Americans about increased life expectancy and the need for savings. Carmichael said that as a nation of consumers, the narrative should be to “pay yourself first.” Munnell argued that education has “limited ability” to solve the problem and said efforts should be made to make saving “automatic.”
Sen. Thom Tillis (R-N.C.) asked the panelists how much emphasis should be placed on financial literacy and if there are best practices on which to build. Munnell said that while it is “hard to argue against financial literacy,” she does not see it changing saving behavior. She argued for systems changes instead, highlighting automatic plan features. Weiss said that financial literacy should be integrated with “golden moment” opportunities, such as establishing college savings plans in kindergarten, so individuals can learn and save simultaneously.
McCaskill asked Chatzky about initiatives to link the driver license exam with financial literacy. Chatzky said such an initiative would need to be on a state-by-state basis and would need coordination with the Motor Vehicle Administration. She suggested the auto insurers could play a role as well by offering discount premiums for teens that pass a financial literacy test.
DOL Fiduciary
Sen. Elizabeth Warren (D-Mass.) quoted a New York Times article in which it was reported that “Wall Street is bleeding savers dry.” She added that high fees, commissions, and kickbacks are “eating away” at Americans’ retirement savings. Munnell said she “knows” individuals are “paying too much” in 401(k) fees and that she believes Americans are paying too much in IRAs too. She highlighted the shift from defined benefit plans to defined contribution plans as the primary retirement savings vehicle.
Warren said that shift means Americans have to rely on brokers and advisors who can “legally take kickbacks” for recommending “lousy products.” She asked why advisors and brokers are allowed to “peddle lousy products” that “line their own pockets.”
Munnell noted that IRAs are not covered by a fiduciary standard, but rather a suitability standard. She expressed support for the Department of Labor (DOL) initiative to expand the definition of fiduciary to cover all broker dealers. Munnell said she was “shocked” to see so many actively managed funds in 401(k) plans.
Warren asked Chatzky why she recommended investors seek out a fee-only investment advisor. Chatzky said that “everyone deserves unbiased financial advice,” but noted the recommendation “goes back several years” and that while there are advantages to a fee-only advisor, due to the evolution of the industry it may not be the best situation for all investors. Chatzky then recommended a transparent “across-the-board” way to compare fees and products. She noted that bad advice can happen no matter how someone chooses to pay.
Warren concluded by saying that while there are good investment advisors, they “have to compete with advisors who put their own interests first.”
In her closing statement, Collins addressed the issue of fees and said that the DOL finalized its rules requiring fee disclosure to 401(k) participants, noting that “transparency is the key” so individuals can make comparisons.
“Golden Moment”
McCaskill asked if the moment of employment could be utilized as a “golden moment” to encourage saving, noting that waiting until tax time may be too late to incentivize workers to save their refund. Weiss agreed that there could be changes made within the process, and again highlighted state efforts to open savings accounts early in life.
Scott asked how Americans could be encouraged to save their tax refund. Weiss noted that Intuit and the Department of the Treasury are testing a program to see if taxpayers can be encouraged to save their refund through myRA. The groups are hoping to streamline the system to fully implement it next year.
Increasing Retirement Savings
Sen. Timothy Kaine (D-Va.) said student loan debt is a hindrance to saving for retirement. Munnell agreed that there are “a lot of hurdles” to clear before saving for retirement becomes a priority concern.
Weiss noted that there is empirical evidence showing that student loan debt is a “major barrier” to saving.
Tillis asked Chatzky about the value of an app called “Saved Plus,” which Chatzky highlighted in her testimony. Chatzky said it is a free mobile app which automatically transfers a percentage of spending into a savings account. She noted that the average user saves over $4,000 annually through the app and said it has been successful because it allows individuals to save “mindlessly.”
Sen. Robert Casey (D-Pa.) asked how policymakers can better incentivize employees through the tax code. Munnell expressed support for employer-sponsored plans to have mandatory automatic enrollment and matching employer contributions.
Casey said there is a “squeeze” on the “sandwich generation” because of obligations to care for children and aging parents simultaneously. He asked how that stress can be alleviated. Chatzky highlighted tools that financial institutions offer such as longevity annuities to help protect individuals living longer. She noted that a lot of time is spent discussing accumulation of savings, but said not a lot of time is spent talking about how to make it last.
Sen. Sheldon Whitehouse (D-R.I.) asked panelists for their thoughts on the merits of automatic IRA proposals that would require employers to offer an IRA to employees. Panelists all agreed that the proposal would be helpful to increase savings.
Social Security
Collins noted that three fourths of Americans start taking Social Security benefits at age 62, the earliest age, which leads to a cumulative average loss of over $300,000 for couples than if they waited to take benefits until age 70. She asked what could be done to encourage workers to stay in the workforce longer, if they are able. Chatzky replied that there is a need for greater education, noting that people should understand what they are losing if they “start the clock too early.”
Munnell noted that information from the Social Security Administration is confusing and said workers should be encouraged to wait to take benefits, if they can.
For more information and a webcast of this event, please click here.