Mar.Senate Banking Subcommittee Examines Automatic Enrollment
At a Senate Banking Subcommittee hearing on March 28, members discussed the retirement savings gap for Americans. Chairman Jon Tester (D-Mont.) said in his opening statement that the current retirement savings deficit is in the trillions. Ranking Member David Vitter (R-La.) expressed concern that the Federal Reserve Board’s (the Fed) zero interest rate policy is detrimental to Americans’ retirement security.
The subcommittee heard testimony from Michael Calabrese, senior research fellow at the New America Foundation, Jack VanDerhei, director of research at the Employee Benefit Research Institute (EBRI), and James Rickards, senior managing director at Tangent Capital Partners, LLC.
In his testimony, Calabrese noted that most individuals are not saving enough for retirement and many adults do not participate in any kind of retirement savings plan. He suggested a move toward a “more inclusive and seamless retirement saving system” by expanding the Savers Credit and creating an automatic infrastructure to enable every worker to save.
VanDerhei’s testimony focused on research from EBRI and noted that there has actually been an improvement in retirement income adequacy since 2003, although about 44 percent of Baby Boomers and Gen Xer households are still projected to have inadequate retirement income today. He cited the use of automatic enrollment provisions among plan sponsors as one reason retirement income adequacy is better today than nine years ago. VanDerhei also noted the importance of preserving the current retirement savings tax incentives.
In his testimony, Rickards criticized the Fed’s zero interest rate policy, saying it increases income inequality, depletes the net worth of retirees, creates a “new stock bubble,” and erodes trust and credibility.
During the question and answer session, Tester said that too many Americans aren’t asking how much they will need at retirement. Calabrese said that financial literacy is important for retirement security and that educational programs should begin in middle and high school. Rickards said retirement projections are “flimsy” and until a better policy is in place, the question cannot be answered.
Vitter asked the panel if the state of retirement savings is worsening. VanDerhei said because of the Pension Protection Act of 2006, there is a marked improvement especially in low-income households, partially because the Act made automatic enrollment plans more attractive.
Vitter asked the witnesses what would be a reasonable next step to increase automatic enrollment. VanDerhei said employers are “still sorting out” whether they want to use automatic enrollment, since they look at it from a cost-benefit standpoint. Rickards said that while he supports automatic enrollment, plan sponsors are reluctant to stray from traditional models.
Tester inquired how small business employees are saving for retirement, and asked what the witnesses would do if they were in his position to increase retirement security. Calabrese said the majority of small businesses are not sponsoring qualified retirement plans. VanDerhei said automatic enrollment, automatic escalation, and mitigation of longevity risk are three areas he would focus on to increase retirement security. Calabrese also cited the importance of automatic enrollment. Rickards said financial literacy and better investment options would be his suggestions.
More information on the hearing can be found here.
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At a Senate Banking Subcommittee hearing on March 28, members discussed the retirement savings gap for Americans. Chairman Jon Tester (D-Mont.) said in his opening statement that the current retirement savings deficit is in the trillions. Ranking Member David Vitter (R-La.) expressed concern that the Federal Reserve Board’s (the Fed) zero interest rate policy is detrimental to Americans’ retirement security.
The subcommittee heard testimony from Michael Calabrese, senior research fellow at the New America Foundation, Jack VanDerhei, director of research at the Employee Benefit Research Institute (EBRI), and James Rickards, senior managing director at Tangent Capital Partners, LLC.
In his testimony, Calabrese noted that most individuals are not saving enough for retirement and many adults do not participate in any kind of retirement savings plan. He suggested a move toward a “more inclusive and seamless retirement saving system” by expanding the Savers Credit and creating an automatic infrastructure to enable every worker to save.
VanDerhei’s testimony focused on research from EBRI and noted that there has actually been an improvement in retirement income adequacy since 2003, although about 44 percent of Baby Boomers and Gen Xer households are still projected to have inadequate retirement income today. He cited the use of automatic enrollment provisions among plan sponsors as one reason retirement income adequacy is better today than nine years ago. VanDerhei also noted the importance of preserving the current retirement savings tax incentives.
In his testimony, Rickards criticized the Fed’s zero interest rate policy, saying it increases income inequality, depletes the net worth of retirees, creates a “new stock bubble,” and erodes trust and credibility.
During the question and answer session, Tester said that too many Americans aren’t asking how much they will need at retirement. Calabrese said that financial literacy is important for retirement security and that educational programs should begin in middle and high school. Rickards said retirement projections are “flimsy” and until a better policy is in place, the question cannot be answered.
Vitter asked the panel if the state of retirement savings is worsening. VanDerhei said because of the Pension Protection Act of 2006, there is a marked improvement especially in low-income households, partially because the Act made automatic enrollment plans more attractive.
Vitter asked the witnesses what would be a reasonable next step to increase automatic enrollment. VanDerhei said employers are “still sorting out” whether they want to use automatic enrollment, since they look at it from a cost-benefit standpoint. Rickards said that while he supports automatic enrollment, plan sponsors are reluctant to stray from traditional models.
Tester inquired how small business employees are saving for retirement, and asked what the witnesses would do if they were in his position to increase retirement security. Calabrese said the majority of small businesses are not sponsoring qualified retirement plans. VanDerhei said automatic enrollment, automatic escalation, and mitigation of longevity risk are three areas he would focus on to increase retirement security. Calabrese also cited the importance of automatic enrollment. Rickards said financial literacy and better investment options would be his suggestions.
More information on the hearing can be found here.