Feb.SFC Subcommittee Hearing on Retirement Savings for Low -Income Workers
AT WEDNESDAY’S SENATE FINANCE SUBCOMMITTEE HEARING,
“Retirement Savings for Low Income Workers,” the Subcommittee on Social
Security, Pensions, and Family Policy heard testimony relating to increasing
retirement savings for low-income workers in America.
Opening Statements
Chairman Sherrod Brown (D-Ohio) said in his opening remarks
that there is a “growing retirement crisis” and said the “three-legged stool” of
retirement is no longer stable. Social Security, he held, is working but the
private retirement system is not working for too many Americans.
“The median retirement account balance is $3,000 for all
working age households,” Brown stressed, warning that lower-income families are
at high risk for falling into poverty in retirement. Brown also championed
Senator Tom Harkin’s proposal, USA
Retirement Funds Act.
Senator Johnny Isakson (R-Ga.) said in his opening remarks
that the most important factor in determining whether an individual is saving
for retirement is whether their employer offers a plan. “We should be expanding
the options available to employers through existing structures, rather than
creating a new mandate or new program,” Isakson said.
Senator Ben Cardin (D-Md.) said in his remarks that Social
Security needs to be protected and noted that the “Saver’s Credit has worked.”
Cardin argued that the tax deferral has not been effective in getting
low-income families to participate in retirement accounts and highlighted the
problem of leakage.
Testimony
In his testimony,
J. Mark Iwry, Senior Advisor to the Secretary and Deputy Assistant Secretary
for Retirement and Health Policy, stressed the importance of securing Social
Security and discussed the MyRA program, of which he was the architect. Iwry
highlighted the key points of the program, including: payroll deduction; small
account size; no minimum balance; and an account cap at $15,000, at which point
it will be rolled over into a Roth IRA. The MyRA will also be eligible for the
Saver’s Credit.
In her testimony,
Diane Oakley, Executive Director at the National Institute on Retirement Security
(NIRS), highlighted two recent studies done by NIRS: The
Retirement Savings Crisis: Is It Worse Than We Think? and Race
and Retirement Insecurity in the United States. Oakley also stressed the
importance of Social Security and employer provided plans. “Two-thirds of small
business employees lack access to a pension plan,” Oakley said. “Among
households with at least one earner, 4 out 5 have retirement savings less than
their annual income.” Oakley closed by suggesting that going forward, Social
Security should be strengthened, access to low cost plans should be expanded,
and programs like the Saver’s Credit should be continued.
In his testimony,
Stephen Utkus, Principal at Vanguard, presented the topic of low-income workers
in two categories; first “those who will remain at the lowest economic rungs
for their working career.” Social Security remains the “bedrock” of retirement
income for this first group, Utkus said. Secondly, there are workers with low income
now, but who have prospects for earning more in the future. For the second
group, private savings will be the foundation for retirement income, according
to Utkus.
In her testimony,
Judy Miller, Executive Director at the American Society of Pension
Professionals and Actuaries (ASPPA), highlighted current proposals that would
be a step in the right direction, such as the Starter 401(k) proposal. ASPPA
also supports automatic IRA proposals, according to Miller. She went on to list
four “myths” she feels have led to proposals that would eventually hurt the
retirement system: 1) less than half of workers have access to retirement savings
at work; 2) only rich people save in 401(k) plans; 3) current tax incentive is
upside down; and finally, 4) small businesses will sponsor plans without a tax
incentive.
Question and Answer
During the question and answer portion of the hearing,
Miller confirmed with Iwry that the MyRA has no costs associated with the
account in the way of fees.
Brown asked how customers gauge how much they need to save
for retirement. Iwry said people should weigh the financial risks and their
expected longevity. Oakley discussed various opinions of what amount
individuals need, and noted studies that examine the amount based on basic
living conditions. Though, Oakley said, the problem is that some people just
are not saving.
Brown brought up the Census Bureau survey of
income and program participation study which showed that 70 percent of
workers had access to employer plans, and of that group, 80 percent made
contributions to a plan. Brown asked Miller how much workers need to save to be
ready for retirement. Miller agreed with the other panelists that it is not a
simple answer, and added the caveat of calculating Medicare and growing
healthcare costs.
Brown asked if home equity should be included in measurements
of retirement preparedness. Oakley responded that it should be included, but
said it should also be incuded as an expense. “We’re seeing more retirees go
into retirement with mortgages,” she added. Utkus stressed that you have to add
in the equity because “if you own your home, that’s $1,000 of rental you don’t
have to pay.”
When asked about lump sum distributions, Oakley said a
person with a defined benefit (DB) plan was nine times less likely to fall into
poverty than someone who did not have such a plan. Iwry stressed how important
lifetime income payments are, such as Social Security offers.
Brown asked what customer Iwry had in mind when designing
the MyRA. Iwry responded that the target is lower-income Americans who are not
saving, and Americans without a DB plan or other 401(k) plan. Brown asked
Utkus if Vanguard was worried about competition from people taking part in the
MyRA, but Utkus assured him that Vanguard did not view it as a competitor.
Brown asked how to reform and strengthen the Saver’s Credit.
Iwry commented that the Saver’s Credit is much weaker now than when it was
originally designed. He added that the steps to fix it would be to reinstate a
50 percent credit rate across the board, make it refundable, and extend the
income limits to a higher income level. Oakley and Miller both agreed with
Iwry’s suggestions.
Brown asked for the details of the automatic IRA proposal
from the President. Iwry shot down concerns that it would harm small
businesses, saying “the private sector employer would not have any outlay, not
make a penny of contribution, would not have out of pocket costs.” The only
requirement of the employer would be the set up of payroll deductions. Utkus
raised concerns over administrative costs for the accounts. Miller also
expressed ASPPA’s support for the automatic IRA proposal, adding that an “ideal
world would be the auto IRA coupled with the Hatch Starter K.”
For more information on this hearing and to view a webcast
please click here.
,Blog Tags:,Blog Categories:,Blog TrackBack:,Blog Pingback:No,Hearing Summaries Issues:Retirement/Pensions,Hearing Summaries Agency:Senate Finance Committee,Publish Year:2014
AT WEDNESDAY’S SENATE FINANCE SUBCOMMITTEE HEARING,
“Retirement Savings for Low Income Workers,” the Subcommittee on Social
Security, Pensions, and Family Policy heard testimony relating to increasing
retirement savings for low-income workers in America.
Opening Statements
Chairman Sherrod Brown (D-Ohio) said in his opening remarks
that there is a “growing retirement crisis” and said the “three-legged stool” of
retirement is no longer stable. Social Security, he held, is working but the
private retirement system is not working for too many Americans.
“The median retirement account balance is $3,000 for all
working age households,” Brown stressed, warning that lower-income families are
at high risk for falling into poverty in retirement. Brown also championed
Senator Tom Harkin’s proposal, USA
Retirement Funds Act.
Senator Johnny Isakson (R-Ga.) said in his opening remarks
that the most important factor in determining whether an individual is saving
for retirement is whether their employer offers a plan. “We should be expanding
the options available to employers through existing structures, rather than
creating a new mandate or new program,” Isakson said.
Senator Ben Cardin (D-Md.) said in his remarks that Social
Security needs to be protected and noted that the “Saver’s Credit has worked.”
Cardin argued that the tax deferral has not been effective in getting
low-income families to participate in retirement accounts and highlighted the
problem of leakage.
Testimony
In his testimony,
J. Mark Iwry, Senior Advisor to the Secretary and Deputy Assistant Secretary
for Retirement and Health Policy, stressed the importance of securing Social
Security and discussed the MyRA program, of which he was the architect. Iwry
highlighted the key points of the program, including: payroll deduction; small
account size; no minimum balance; and an account cap at $15,000, at which point
it will be rolled over into a Roth IRA. The MyRA will also be eligible for the
Saver’s Credit.
In her testimony,
Diane Oakley, Executive Director at the National Institute on Retirement Security
(NIRS), highlighted two recent studies done by NIRS: The
Retirement Savings Crisis: Is It Worse Than We Think? and Race
and Retirement Insecurity in the United States. Oakley also stressed the
importance of Social Security and employer provided plans. “Two-thirds of small
business employees lack access to a pension plan,” Oakley said. “Among
households with at least one earner, 4 out 5 have retirement savings less than
their annual income.” Oakley closed by suggesting that going forward, Social
Security should be strengthened, access to low cost plans should be expanded,
and programs like the Saver’s Credit should be continued.
In his testimony,
Stephen Utkus, Principal at Vanguard, presented the topic of low-income workers
in two categories; first “those who will remain at the lowest economic rungs
for their working career.” Social Security remains the “bedrock” of retirement
income for this first group, Utkus said. Secondly, there are workers with low income
now, but who have prospects for earning more in the future. For the second
group, private savings will be the foundation for retirement income, according
to Utkus.
In her testimony,
Judy Miller, Executive Director at the American Society of Pension
Professionals and Actuaries (ASPPA), highlighted current proposals that would
be a step in the right direction, such as the Starter 401(k) proposal. ASPPA
also supports automatic IRA proposals, according to Miller. She went on to list
four “myths” she feels have led to proposals that would eventually hurt the
retirement system: 1) less than half of workers have access to retirement savings
at work; 2) only rich people save in 401(k) plans; 3) current tax incentive is
upside down; and finally, 4) small businesses will sponsor plans without a tax
incentive.
Question and Answer
During the question and answer portion of the hearing,
Miller confirmed with Iwry that the MyRA has no costs associated with the
account in the way of fees.
Brown asked how customers gauge how much they need to save
for retirement. Iwry said people should weigh the financial risks and their
expected longevity. Oakley discussed various opinions of what amount
individuals need, and noted studies that examine the amount based on basic
living conditions. Though, Oakley said, the problem is that some people just
are not saving.
Brown brought up the Census Bureau survey of
income and program participation study which showed that 70 percent of
workers had access to employer plans, and of that group, 80 percent made
contributions to a plan. Brown asked Miller how much workers need to save to be
ready for retirement. Miller agreed with the other panelists that it is not a
simple answer, and added the caveat of calculating Medicare and growing
healthcare costs.
Brown asked if home equity should be included in measurements
of retirement preparedness. Oakley responded that it should be included, but
said it should also be incuded as an expense. “We’re seeing more retirees go
into retirement with mortgages,” she added. Utkus stressed that you have to add
in the equity because “if you own your home, that’s $1,000 of rental you don’t
have to pay.”
When asked about lump sum distributions, Oakley said a
person with a defined benefit (DB) plan was nine times less likely to fall into
poverty than someone who did not have such a plan. Iwry stressed how important
lifetime income payments are, such as Social Security offers.
Brown asked what customer Iwry had in mind when designing
the MyRA. Iwry responded that the target is lower-income Americans who are not
saving, and Americans without a DB plan or other 401(k) plan. Brown asked
Utkus if Vanguard was worried about competition from people taking part in the
MyRA, but Utkus assured him that Vanguard did not view it as a competitor.
Brown asked how to reform and strengthen the Saver’s Credit.
Iwry commented that the Saver’s Credit is much weaker now than when it was
originally designed. He added that the steps to fix it would be to reinstate a
50 percent credit rate across the board, make it refundable, and extend the
income limits to a higher income level. Oakley and Miller both agreed with
Iwry’s suggestions.
Brown asked for the details of the automatic IRA proposal
from the President. Iwry shot down concerns that it would harm small
businesses, saying “the private sector employer would not have any outlay, not
make a penny of contribution, would not have out of pocket costs.” The only
requirement of the employer would be the set up of payroll deductions. Utkus
raised concerns over administrative costs for the accounts. Miller also
expressed ASPPA’s support for the automatic IRA proposal, adding that an “ideal
world would be the auto IRA coupled with the Hatch Starter K.”
For more information on this hearing and to view a webcast
please click here.