Dec.Senate Finance Subcommittee Discusses Social Security and Retirement Savings
The Role of Social Security, Defined Benefits, and Private Retirement Accounts in the Face of the Retirement Crisis
U.S. Senate Finance Subcommittee on Social Security, Pensions, and Family Policy
AT TODAY’S HEARING, lawmakers and industry representatives explored the “three-legged stool” of savings that includes Social Security, individual private savings, and employer pensions. Chairman Sherrod Brown (D-Ohio) said this hearing is likely the first of a series of hearings on the issue.
In his opening statement, Ranking Member Patrick Toomey (R-Pa.) said lawmakers need to protect all three pillars of the stool and expressed the importance to “do no harm.” Toomey described the current system as a range of options that give taxpayers many choices and opportunities to save, and noted the need to ensure Social Security will be available for future generations.
Sen. Johnny Isakson (R-Ga.) said in his opening remarks that a “pension bubble is coming” and said those entitlements should be preserved for which people have already paid. He also noted the importance of incentives for Americans to save.
Testimony
Robert Romasco, President at AARP, said in his testimony that Social Security could also be described as “family income protection security,” adding it is the “sole remaining dependable leg” of the stool and it should be strengthened.
In his statement, Andrew Biggs, Resident Scholar at the American Enterprise Institute (AEI), told lawmakers that while the advantages of defined benefit plans currently outweigh those of defined contribution plans, advantages such as automatic features and annuitization can be adopted by defined contribution plans.
Dean Baker, Co-Director at the Center for Economic and Policy Research, said in his statement that Social Security is the main source of income for most retirees and is projected to become even more important in future years.
John Sweeney, Executive Vice President at Fidelity Investments, noted in his testimony that the private retirement system is working but that many Americans are not saving enough. Sweeney suggested doubling the default savings rate from three percent to six percent, and highlighted the benefits of automatic features such as auto enrollment and auto escalation. He also noted the importance of financial literacy and said we need to find more ways to help educate Americans.
Question & Answer
Brown asked the panel if the current Social Security benefit levels are adequate and if the system should be enhanced or modernized. Biggs responded that Social Security benefits on average are “more adequate” than most people realize, but noted that a more targeted program could be beneficial for lower income Americans.
Baker argued that benefits are inadequate for lower income Americans and suggested a plan similar to the Thrift Savings Plan (TSP) that could be available to all Americans.
Toomey asked Biggs about the benefits of life cycle investment funds. Biggs replied that the plan would automatically shift the participant’s investment allocations from stock-heavy to bond-heavy as they age, adding that it is a low cost solution.
Isakson asked the witnesses if the eligibility rate for Social Security benefits should be raised. Romasco conceded that it is a possibility, but said there would be challenges associated with it, particularly for workers with physically demanding occupations. Sweeney noted a positive correlation between delaying retirement and increased savings, adding that “people want to work.”
Isakson then asked if there were steps or initiatives Congress should be taking. Sen. Robert Casey (D-Pa.) echoed the question. Sweeney highlighted the importance of engaging employees at a young age and again noted the benefits of automatic plan features. Romasco asked Congress not to tie the conversation to the deficit reduction debate. Biggs disagreed, saying Social Security reform should be looked at in a comprehensive way, not in isolation from the rest of the budget.
Sen. Bill Nelson (D-Fla.) mentioned the Lifetime Income Disclosure Act, saying it would help incentivize people to save more. He asked Sweeney what tools Fidelity has relating to lifetime income. Sweeney noted that Fidelity has a number of calculators and tools, underscoring one such tool that aggregates a person’s holdings to provide them with a complete picture for retirement.
Brown asked the panel what should be done to help Americans with lower incomes. Baker noted the Bowles-Simpson proposal had a carve-out for certain occupations, adding that it would have been a “nightmare situation,” but “at least they recognized the problem.” Biggs suggested eliminating the Social Security payroll tax for Americans age 62 and older; noting the marginal return on paying into the system past that age is negligible. He added that eliminating the tax would provide an incentive to remain in the workforce a few additional years.
Brown also asked the panel to describe what the retirement system should look like five years from now. Sweeney stressed the importance of education and guidance and said Congress should take a “client-oriented” view to any changes. Baker said that Social Security should be enhanced and suggested a system of “portable, universal, voluntary” accounts, adding that a number of states have already looked at the idea. Biggs said savings should be enhanced first through retirement plans with the use of automatic features and life cycle funds. He added that Social Security should have a “more robust safety net at the bottom.”
Sen. Benjamin Cardin (D-Md.) noted the importance of both Social Security and private savings. He added that incentives for saving should be improved and Congress should be careful to “do no harm.” Cardin also argued to strengthen the Saver’s Credit.
More information and a webcast of the hearing can be found here.
,Blog Tags:,Blog Categories:,Blog TrackBack:,Blog Pingback:No,Hearing Summaries Issues:Retirement/Pensions,Hearing Summaries Agency:Senate Finance Committee,Publish Year:2013
The Role of Social Security, Defined Benefits, and Private Retirement Accounts in the Face of the Retirement Crisis
U.S. Senate Finance Subcommittee on Social Security, Pensions, and Family Policy
AT TODAY’S HEARING, lawmakers and industry representatives explored the “three-legged stool” of savings that includes Social Security, individual private savings, and employer pensions. Chairman Sherrod Brown (D-Ohio) said this hearing is likely the first of a series of hearings on the issue.
In his opening statement, Ranking Member Patrick Toomey (R-Pa.) said lawmakers need to protect all three pillars of the stool and expressed the importance to “do no harm.” Toomey described the current system as a range of options that give taxpayers many choices and opportunities to save, and noted the need to ensure Social Security will be available for future generations.
Sen. Johnny Isakson (R-Ga.) said in his opening remarks that a “pension bubble is coming” and said those entitlements should be preserved for which people have already paid. He also noted the importance of incentives for Americans to save.
Testimony
Robert Romasco, President at AARP, said in his testimony that Social Security could also be described as “family income protection security,” adding it is the “sole remaining dependable leg” of the stool and it should be strengthened.
In his statement, Andrew Biggs, Resident Scholar at the American Enterprise Institute (AEI), told lawmakers that while the advantages of defined benefit plans currently outweigh those of defined contribution plans, advantages such as automatic features and annuitization can be adopted by defined contribution plans.
Dean Baker, Co-Director at the Center for Economic and Policy Research, said in his statement that Social Security is the main source of income for most retirees and is projected to become even more important in future years.
John Sweeney, Executive Vice President at Fidelity Investments, noted in his testimony that the private retirement system is working but that many Americans are not saving enough. Sweeney suggested doubling the default savings rate from three percent to six percent, and highlighted the benefits of automatic features such as auto enrollment and auto escalation. He also noted the importance of financial literacy and said we need to find more ways to help educate Americans.
Question & Answer
Brown asked the panel if the current Social Security benefit levels are adequate and if the system should be enhanced or modernized. Biggs responded that Social Security benefits on average are “more adequate” than most people realize, but noted that a more targeted program could be beneficial for lower income Americans.
Baker argued that benefits are inadequate for lower income Americans and suggested a plan similar to the Thrift Savings Plan (TSP) that could be available to all Americans.
Toomey asked Biggs about the benefits of life cycle investment funds. Biggs replied that the plan would automatically shift the participant’s investment allocations from stock-heavy to bond-heavy as they age, adding that it is a low cost solution.
Isakson asked the witnesses if the eligibility rate for Social Security benefits should be raised. Romasco conceded that it is a possibility, but said there would be challenges associated with it, particularly for workers with physically demanding occupations. Sweeney noted a positive correlation between delaying retirement and increased savings, adding that “people want to work.”
Isakson then asked if there were steps or initiatives Congress should be taking. Sen. Robert Casey (D-Pa.) echoed the question. Sweeney highlighted the importance of engaging employees at a young age and again noted the benefits of automatic plan features. Romasco asked Congress not to tie the conversation to the deficit reduction debate. Biggs disagreed, saying Social Security reform should be looked at in a comprehensive way, not in isolation from the rest of the budget.
Sen. Bill Nelson (D-Fla.) mentioned the Lifetime Income Disclosure Act, saying it would help incentivize people to save more. He asked Sweeney what tools Fidelity has relating to lifetime income. Sweeney noted that Fidelity has a number of calculators and tools, underscoring one such tool that aggregates a person’s holdings to provide them with a complete picture for retirement.
Brown asked the panel what should be done to help Americans with lower incomes. Baker noted the Bowles-Simpson proposal had a carve-out for certain occupations, adding that it would have been a “nightmare situation,” but “at least they recognized the problem.” Biggs suggested eliminating the Social Security payroll tax for Americans age 62 and older; noting the marginal return on paying into the system past that age is negligible. He added that eliminating the tax would provide an incentive to remain in the workforce a few additional years.
Brown also asked the panel to describe what the retirement system should look like five years from now. Sweeney stressed the importance of education and guidance and said Congress should take a “client-oriented” view to any changes. Baker said that Social Security should be enhanced and suggested a system of “portable, universal, voluntary” accounts, adding that a number of states have already looked at the idea. Biggs said savings should be enhanced first through retirement plans with the use of automatic features and life cycle funds. He added that Social Security should have a “more robust safety net at the bottom.”
Sen. Benjamin Cardin (D-Md.) noted the importance of both Social Security and private savings. He added that incentives for saving should be improved and Congress should be careful to “do no harm.” Cardin also argued to strengthen the Saver’s Credit.
More information and a webcast of the hearing can be found here.