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Senate Aging Retirement Hearing

Senate Special Committee on Aging

“A Financially Secure Future: Building a Stronger Retirement System for All Americans”

Thursday, October 28, 2021

Witnesses

Opening Statements
Chairman Bob Casey (D-Pa.)
In his opening statement, Casey discussed the challenges facing the U.S. retirement system including the millions of Americans falling through the cracks and the lack of retirement options in certain workplaces. He also discussed protecting Social Security and expanding support for family caregivers.

Ranking Member Tim Scott (R-S.C.)
In his opening statement, Scott emphasized the importance of talking about retirement security for seniors. He discussed a report on the gaps in retirement savings, strengthening the retirement system, and retirement leakage, including $92 billion leaked annually. He spoke about auto portability to decrease leakage and helping small businesses provide retirement accounts. Scott also discussed his Senior Citizens Freedom to Work Act to simplify the retirement decision making process for seniors.

Testimony
Dr. John Scott, Project Director, The Pew Charitable Trusts
In his testimony, Scott said many private sector workers lack access to a retirement plan at their jobs, which can lead to reduced living standards in old age. He added that non-traditional workers (gig workers) also do not have traditional employer-employee relationships, but the majority of them would save if they were given the chance. He said not all employers can afford to make contributions, but Congress expanding the service credit would likely act as an employer contribution. He added that automatic enrollment can also jumpstart savings.

Mr. Shai Akabas, Director of Economic Policy, Bipartisan Policy Center
In his testimony, Akabas said many gaps exist in access to a workplace retirement plan and offered recommendations in six key areas: (1) improving access to and the design of workplace retirement savings plans, (2) facilitating lifetime income options to reduce the risk of outliving savings, (3) enabling the use of home equity for retirement consumption, (4) improving financial capability among all Americans, (5) strengthening social security’s finances and modernizing the program, and (6) promoting personal savings for short term needs and preserving retirement savings for old age. Akabas said to reduce cost and administrative burdens, the emerging pulled employer plans by the SECURE Act should help with this. He added that most employers adopting a retirement plan must also accept the fiduciary responsibilities that go along with it, which can be daunting. To help these businesses, Akabas said Congress should relax fiduciary obligations and transfer that responsibility to other private sector entities and regulators. Finally, he said Congress should also extend automatic enrollment into the emergency savings policy space.

Dr. Nari Rhee, Director of Retirement Security Program, UC Berkeley
In her testimony, Rhee said there are large structural gaps in the current employer sponsored retirement system. Looking forward, she said we need a holistic approach to improve retirement security for low-wage workers. She believes this would be a matter of wage policy and retirement policy because workers need more income in order to save. She concluded that another key area needing attention is social security reform. Regarding state initiatives, she said states have realized they need to step into the void because it will have major fiscal repercussions down the line to have workers retire without sufficient means to live on. She pointed to Australia as an example, saying there needs to be Federal policy that says all workers will be covered, including independent contractors.

Mr. J. Spencer Williams, Founder President and CEO, Retirement Clearinghouse
In his testimony, Williams said helping minorities preserve their savings when switching jobs or facing career disruptions is the most important improvement to be made. He noted that the savings lost to cash outs adds up to $100 billion every year. He discussed auto portability as a technology that allows a person’s account to follow them from one employer’s plan to the next. Williams said they are working with two of the industry’s largest providers, Alight Solutions and Vanguard, to make auto portability available to over 16 million 401k savers and urged Congress to create modest tax incentives to encourage early adopters of auto portability.

Question & Answer
Pooled Employer Plans (PEPs)
Sen. Susan Collins (R-Maine) asked how PEPs can improve retirement security for employees of small businesses. Scott said it is an exciting and new provision but was pleasantly surprised by the reaction of the financial services industry in offering PEP products. He said the most encouraging aspect is that it reduces the fiduciary liability to small business owners and addresses the administrative capacity issue.

Simple Plan Modernization Act
Collins asked Williams if small business employees being treated comparably to large business employees would help improve savings for employees of his clients. Williams said any effort to harmonize the rules for all workers equally is a good thing.

Plan Leakage
Scott asked why people cash out of their retirement accounts, who is most likely to do so, and how it highlights the need to focus on leakage and auto portability. Williams said workers with the smallest balances are most likely to cash out and that hurdles like burdensome paperwork tempt workers to cash out.

Auto Enrollment and Auto Portability
Sen. Mike Lee (R-Utah) asked Akabas factual, mechanical questions about auto enrollment to highlight how workers could lose income through auto enrollment. Akabas confirmed Lee’s understanding. Lee asked Williams how auto portability can benefit families that can only contribute small amounts to their retirement savings account. Williams said that a Department of Labor ruling provided huge guardrails for the notice required to be given to people and that there is a high response rate of people asking for their funds to be routed to their new employer retirement plan. He added that people are very responsible when given the opportunity to keep their savings intact and when they need to pull out their savings for certain eventualities.

The Saver’s Credit
Casey asked about the importance of incentives for savings and how to expand awareness of the saver’s credit and streamline access. Scott said the saver’s credit can be impactful for certain taxpayers and noted that there are multiple proposals in Congress to expand it. In terms of awareness, Scott suggested doing so via the tax code and having the Internal Revenue Service help savers become aware and file for it. He also said beyond the government, plan sponsors can be facilitators to help workers claim these credits.

Early Retirement Trends
Sen. Mark Kelly (D-Ariz.) mentioned the influx in early retirements and asked if there should be concerns about individuals running out of money during retirement. Rhee said the big issue is that they are claiming Social Security earlier than they should be, and for every year you claim it prematurely, your base Social Security benefit reduces by seven to twelve percent.

Independent Workers
Kelly asked how to make retirement plans more attractive to independent workers and free lancers. Scott said he believes the demand is there despite the low levels of access. He mentioned active choice as a way to nudge them to choose to divert some money to savings.

Women, Minority, and Disadvantaged Workers
Casey asked Rhee to explain the effects of caregiving on workers’ ability to save for retirement. Rhee said that caregiving has tremendous impact on women’s retirement security and that early career interruption from childcare can lead to a $500,000 financial loss over a career. She added that women are likely to eat into their retirement savings sooner and use Social Security sooner.

Scott asked about the state of retirement for seniors and the difference between a job and career as it relates to the availability of retirement accounts. Akabas discussed how some workers, including people of color, women, temporary workers, etc. lack access to retirement options and the financial literacy to take advantage of what is available.

Small Business Burdens
Sen. Mike Braun (R-Ind.) asked about the burdens of retirement requirements on small businesses. Akabas said we need to make it almost costless for businesses to provide retirement benefits and that there is a way to make it easier for businesses to comply, provides tax credits to do so, and provide employees with a way to save for retirement.

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