Senate HELP Hearing on Retirement Security
Senate Committee on Health, Education, Labor & Pensions
Retirement Security: Building a Better Future
Thursday, May 13, 2021
Witnesses
- Lori Lucas, President and CEO, Employee Benefit Research Institute
- Shai Akabas, Director of Economic Policy, Bipartisan Policy Center
- Deva Kyle, Counsel, Bredhoff & Kaiser
- Dave Gray, Head of Workplace Retirement Products, Fidelity Investments
Opening Statements
Chairwoman Patty Murray (D-Wash.)
In her opening statement, Murray said that even before the pandemic, it was clear the economy was not working for many American families struggling to get by. She said the World Economic Forum found that the gap between what the country is saving for retirement and what people will need would be $137 trillion by 2050, adding that only one in three workers is currently saving enough. She said the situation is worse for women and low-income workers, and women are more likely than men to face poverty in retirement in part due to the wages they lose over the course of their careers due to pay discrimination, lack of affordable childcare, and lack of paid family leave. Murray said that now, after the pandemic, one-fifth of Americans, one-quarter of women and one-quarter of people of color say they are worse of financially, and nearly half do not think they will ever be able to retire. She said in order to rebuild the country and make it stronger and fairer, it is essential to address the reality that the ways we help families plan for the future are stuck in the past and to take steps to make it easier for people to save for an emergency, enroll in a quality retirement plan, and get the tools they need to plan for their financial futures.
Ranking Member Richard Burr (R-N.C.)
In his opening statement, Burr noted that the committee has jurisdiction over retirement issues insomuch as it relates to the Employee Retirement Income Security Act (ERISA), which he said sets standards for retirement and health plans in private industry to protect individuals in such plans, highlighting the jurisdictional overlap among various Senate committees. Burr said the focus of the hearing would be to examine what is working well versus what is lagging and needs improvement in the current retirement system, which he said works well, but does not work for those who cannot or will not participate. He said many Americans who look ahead to retirement have to look to Social Security, pension plans, or underfunded state and local pension plans, contrasting those options with defined contribution plans, saying retirement works when Americans control their own money. Burr criticized that the American Rescue Plan included a “massive bailout” for certain multiemployer pension plans without instituting any reforms to these plans, saying the federal government cannot afford to meet every retirement promise made between private employers and their workers or between “poorly run states” and their public unions. He called on Congress to shore up retirement options and help Americans save for their own retirement, noting that the gap between what people have saved and what they need is already in the trillions and is likely to grow. He highlighted the success of defined contribution plan features like auto enrollment and employer matching, saying it is important to help employers and workers take advantage of the savings programs that already work.
Testimony
Lori Lucas, President and CEO, Employee Benefit Research Institute
In her testimony, Lucas explained that pandemic-related job loss, increased caregiving needs and heightened stress have highlighted the need for savings and financial security. She noted that prior to the 2006 Pension Protection Act, defined contribution plans relied on individual workers to navigate saving and investing on their own, but the legislation incentivized employers to automate plans and invest in a diversified portfolio. She said there is now an opportunity to further enhance the system and provide greater access, reduce plan leakage and support thoughtful post-retirement spending. She highlighted research that shows having access to an employer-sponsored defined contribution plan increases the chances workers will have enough to sustain themselves in retirement by 50 percent. Luces noted, however, that only half of workers at smaller companies have this access, as many small businesses cannot afford to offer a traditional plan. She continued that the SECURE Act offered an alternative in allowing pooled employer plans (PEPs), saying the key to these plans fulfilling their potential for expanding access is to streamline the legal and compliance requirements. Regarding leakage and cashouts, Lucas said auto portability features and policies that reduce or eliminate cashouts would help keep assets in the retirement system and help improve retirement outcomes, especially for lower wage workers. She also noted the importance of policies that support financial education during the accumulation phase of retirement saving to provide financial skills that carry over into retirement, as well as policies that promote sources of guaranteed income.
Shai Akabas, Director of Economic Policy, Bipartisan Policy Center
In his testimony, Akabas said that the retirement system is working well for many people, particularly those with stable employment, sufficient income, and opportunities to save, but millions are falling through the cracks. He noted that a majority of Americans worry about running out of money in retirement, and low-income workers, people of color, women, and part-time and seasonal workers disproportionately struggle to save and often do not have access to a workplace plan. Akabas laid out a number of areas of importance, including improving access to workplace plans, promoting personal savings for short term needs to preserve retirement savings for older age, facilitating lifetime income options, facilitating that use of home equity for retirement consumption, improving financial capabilities among all Americans, and strengthening and modernizing Social Security. He highlighted how PEPs can help improve access to workplace plans, and suggested shifting the fiduciary responsibility for small businesses onto private sector entities that are better equipped to handle it. He also called for increased auto enrollment and a national minimum coverage standard that would preempt state level mandates. Akabas also highlighted proposals that would allow employers to enroll their workers in emergency savings plans.
Deva Kyle, Counsel, Bredhoff & Kaiser
In her testimony, Kyle focused on retirement savings disparities along class, race and gender lines, noting that retirement policy that relies on the ability of individuals to save will only exacerbate existing inequalities. She explained that in 2019, high income families were 14 times more likely to have retirement savings accounts than low-income families, and those with incomes in the bottom 20 percent of earners have no savings at all. She also highlighted that part-time workers often are not able to save and do not see retiring as an option. Kyle continued that most Black and Hispanic households have no retirement savings, and women are disproportionately low-wage workers and also face a persistent wage gap. Kyle highlighted that union membership substantially improves access to retirement benefits, citing that in 2019, 90 percent of union workers had access to private retirement benefits. Kyle called for policies that improve wages, expand access, require employer contributions, and provide workers with funds to cover emergencies to bolster retirement savings, as well as policies targeted at addressing disparities.
Dave Gray, Head of Workplace Retirement Products, Fidelity Investments
In his testimony, Gray said workplace retirement plans have proven to be an indispensable foundation to the retirement system, and the system is working well for those that can access and optimize its features. He noted, however, that nearly 50 percent of private sector workers lack access to a workplace plan, noting that PEPs are an excellent step forward in addressing this coverage gap. Gray said that the pandemic has highlighted the challenges many Americans face every day to cover immediate costs while trying to save for the future, noting that 1.6 million Fidelity customers took a CARES Act distribution from their retirement accounts due to the financial impacts of the pandemic. He said this demonstrates the need for emergency savings and employers can play a key role in helping workers accumulate short-term savings. He also highlighted that employees are increasingly turning to their employers for help tackling student debt, and 79 percent of those with student debt say it impacts their ability to save for retirement. Gray also discussed the long-term value of health savings accounts in positioning families for greater financial security, calling for legislation to expand access to these savings vehicles and expressing support for a number of other bills that address many of these issues.
Question & Answer
Pooled Employer Plans (PEPs)
Burr asked Gray how much interest Fidelity has seen in PEPs. Gray responded that there has been significant, strong organic demand, and small businesses that Fidelity previously could not serve in a cost-effective way are reaching out for solutions. He said he expects demand to grow.
Sen. Jacky Rosen (D-Nev.) asked how to help small businesses offer plans. Gray said that it is important to incent small businesses to offer plans and to use automatic enrollment, saying this feature is critical and not employed as often among small businesses as it is among larger businesses. He said PEPs are an excellent option, noting they offload administrative duties to the plan administrator.
Plan Features
Sen. Bob Casey (D-Pa.) asked what the best tools are to give working families the opportunity to save. Kyle said that beyond raising wages, providing access to employer sponsored plans, required employer contributions, auto enrollment, portability, and starter tax credits are all important provisions that would help people save. She also highlighted that both emergency and retirement accounts with direct tax credits would help those who cannot afford to save money from their wages.
Sen. Tim Kaine (D-Va.) asked about auto enrollment, as well as whether automatic re-enrollment for those who opt out would be effective. Lucas said inertia is a powerful force, and people who are automatically enrolled in a plan generally stay in at very high levels. She said that for those who do opt out, automatic re-enrollment is a good solution because inertia will remain a factor and it will capture people who meant to eventually enroll and never did.
Emergency Savings
Sen. Jerry Moran (R-Kans.) asked what employers can do to help individuals save for emergencies to better preserve their retirement accounts for later life. Lucas said it is important to think about how the existing system can be leveraged to address the need for emergency savings, such as though sidecar savings accounts and allowing employers to match contributions to those accounts. Akabas also noted the importance of being able to autoenroll employees into emergency savings accounts.
Retirement Savings Inequities
Sen. Maggie Hassan (D-N.H.) asked how Congress can help address the retirement gap for women. Kyle said that focusing on Social Security is essential, as it is the primary retirement vehicle for most Americans. She also highlighted that women are disproportionately in low-wage jobs and face caregiving responsibilities and resulting time away from the workforce, so paid family leave is also essential. She suggested portability of retirement benefits would help so that when women leave the workforce they can take their benefits with them. Lucas added that catch-up contributions help women catch-up on their savings when they are displaced from the workforce. Akabas agreed that paid family leave is important, as is addressing the access gap. He also said enhancing the Social Security survivor benefit would help, as women are often the surviving spouse. Gray highlighted that in a survey, 75 percent of women said they would enroll in an emergency savings plan if incentives were offered.
Rosen asked how the recent economic downturn has affected inequities in retirement savings for underrepresented communities and what actions Congress can take to maximize the ability of these groups to catch up. Kyle agreed that the pandemic worsened many inequalities in retirement savings for communities of color and low-wage workers. She said efforts to aid emergency savings are essential to ensure people of color can access money when they need it instead of tapping their retirement accounts. She also said policies that help address the overall wealth gap will help close the retirement gap as well.
Financial Literacy
In response to a question from Murray about how to assist those trying to plan for retirement, Akabas noted that overall financial literacy is important, but so is “just in time” intervention at certain financial inflection points to ensure people have the information they need at the time they are making important decisions such as when they enroll in a retirement plan or claim Social Security.
Coverage for Part-Time Employees
Murray asked what can be done to help part-time workers save. Akabas called for a national standard that would mandate coverage but also make it as seamless and costless as possible for small businesses to offer plans, including transferring fiduciary responsibility to other entities. Kyle noted that portable plans are important and said mandating employer contributions would provide employees with the funds they need to save more. Gray highlighted the “tremendous” interest in PEPs.
Pandemic-Related Regulatory Relief
Moran asked if any pandemic-related regulatory relief, such as notarization requirements, should be made permanent and if doing so would reduce the material cost associated with small businesses offering plans. Gray said the e-notarization relief should be made permanent, calling it an effective way for the notarization process to happen and adding that it is far more secure. He also said a continuation of electronic delivery of notices reduces cost burdens, helps with accessibility, and better engages individuals to interact with their retirement plan.
Cybersecurity
Hassan noted the threat cyber-attacks pose to retirement plans and asked how Fidelity addresses cybersecurity risks. Gray said Fidelity views cybersecurity as one of the most paramount things it can do to protect customer data. He said the company employs the most sophisticated technology and best practices designed to protect sensitive information and customer accounts.
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