Sept.Senate Special Committee on Aging Hearing on the BPC ‘s Recommendations to Boost Savings
Senate Special Committee on Aging
“Securing America’s Retirement Future: Examining the Bipartisan Policy Center’s Recommendations to Boost Savings”
Wednesday, September 7, 2016
Key Topics & Takeaways
- Open MEPs: Collins asked how the rules of Open MEPS can be liberalized in order to encourage small businesses to participate. Conrad emphasized the Committee’s recommendations on retirement security plans which would allow employers with fewer than 500 workers to “band together and form well-run, low-cost retirement plans that defuse administrative expenses,” similarly to Open MEPS.
- Leakage: Gillibrand asked if the Commission has studied the total number of investments that have been withdrawn from long term saving vehicles as a result of unforeseen medical emergencies. Conrad agreed that leakage is a major issue and concluded that, “if a plan is going to provide tax incentives for retirement savings, it should not be used as a ‘piggy bank’ for other things. Something about leakage has to be done.”
Witness
- Kent Conrad, Co-Chair, Bipartisan Policy Center
- James B. Lockhart III,Co-Chair, Bipartisan Policy Center
Opening Statements
In her opening statement, Chairwoman Susan Collins (R-Maine) reiterated the Committee’s focus on the retirement security crisis. She added that 60 percent of Americans are worried that they will not have enough money for retirement, and that according to the Center for Retirement Research, there is an estimated $7.7 trillion gap between the amount Americans have saved for retirement and the amount they will actually need. Further, she stated that “the many reasons for the staggering gap are the rise of healthcare costs, need for expensive long-term care, the lingering consequences of the financial crisis on home values, and life expectancy.” Collins expressed her belief that the shift away from employer-based defined benefit plans or pensions to defined contribution plans such as 401(k) plans has also contributed to the gap. Additionally, she noted the similarities in the Bipartisan Policy Center’s (BPC) report, “Securing Our Financial Future,” and her bill, S. 266, the Retirement Security Act.
Ranking Member Claire McCaskill (D-Mo.), in her opening statement, highlighted the bipartisan nature of BPC’s report. She proceeded to describe Open multiple employer plans (MEPS) as a key feature of the Retirement Security Act of 2015 that would enable small businesses without nexus to pull together to create one plan and allow a third party to handle administrative duties. McCaskill explained that the Committee has collaboratively worked on ensuring that seniors are not defrauded out of their life savings in or near retirement. She praised S.2216, the Senior$afe Act for providing financial institutions immunity if they report, in good faith, suspected fraud to the appropriate authorities while ensuring their financial advisors are trained.
Testimony
Kent Conrad, Co-Chair, Bipartisan Policy Center
In his testimony, Conrad stressed that an overwhelming majority of Americans say retirement security is their biggest financial concern. Conrad referenced a Federal Reserve study earlier this year that found that 46% of Americans would have a difficult time coming up with $400 for an emergency without borrowing or selling possessions.
BPC’s Commission on Retirement Security and Personal Savings found that the following would improve retirement security: 1) improving access to workplace retirement savings plans; 2) promoting personal savings for short-term needs; 3) facilitating lifetime income options to reduce the risk of outliving savings; 4) facilitating the use of home equity for retirement consumption; 5) improving financial stability among all Americans; and 6) strengthening Social Security’s finances. Conrad emphasized the Committee’s recommendations on retirement security plans which would allow employers with fewer than 500 workers to “band together and form well-run, low-cost retirement plans that defuse administrative expenses,” similarly to Open MEPS.
James B. Lockhart III, Co-Chair, Bipartisan Policy Center
In his testimony, James B. Lockhart III focused on the BPC Commission’s comprehensive package, adding that the if the package is enacted in its entirety, lower- and middle-income Americans would have incomes in retirement greater than or roughly equal to what they would receive if Social Security was able to pay full benefits as scheduled.
Questions and Answers
Collins asked how the rules of Open MEPS can be liberalized in order to encourage small businesses to participate. Conrad said it is one of the Commission’s most important recommendations and the response to many stakeholders’ requests to broaden the availability of MEPs. He added that it would give small businesses the opportunity to get together for the benefit of size to reduce cost and described it as “sort of a no-brainer.”
Sen. Tim Scott (R-S.C) commented that seniors frequently use their retirement funds as a savings account, and questioned how to strengthen the penalties for withdrawal before the appropriate time and/or provide education on the consequences of those withdrawals. Conrad said that BPC recommends harmonizing withdrawals rules for 401(k) plans and IRAs because of the tremendous leakage in the retirement system due to the difference. He opined harmonization will eliminate confusion.
Sen. Kirsten Gillibrand (D-N.Y.) stated that financial insecurity is not only a problem for low-income individuals, as 57 percent of Americans are not prepared for a financial shock. Gillibrand asked if the Commission has studied the total number of investments that have been withdrawn from long term saving vehicles as a result of unforeseen medical emergencies. Conrad agreed that leakage is a major issue and concluded that, “if a plan is going to provide tax incentives for retirement savings, it should not be used as a ‘piggy bank’ for other things. Something about leakage has to be done.”
Savings Culture
Sen. Time Kaine (D-Va.) raised concern over the savings culture and asked about incentives or strategies that can be implemented. Lockhart said Americans need to utilize non-retirement savings accounts and recognize the importance of financial literacy. Lockhart referenced the Commission’s proposed Starter Saver’s Match, which would replace the Saver’s Credit for individuals under the age of 35. He noted that the Starter Saver’s Match would be a refundable credit of up to $500 deposited directly into the claimant’s retirement account and would encourage younger workers with lower wages to save.
Conrad added that the Commission recommended reforming myRA by enabling employers to automatically enroll their employees and to make contributions on behalf of their employees if they so choose.
For more information on this hearing, please click here.
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Senate Special Committee on Aging
“Securing America’s Retirement Future: Examining the Bipartisan Policy Center’s Recommendations to Boost Savings”
Wednesday, September 7, 2016
Key Topics & Takeaways
- Open MEPs: Collins asked how the rules of Open MEPS can be liberalized in order to encourage small businesses to participate. Conrad emphasized the Committee’s recommendations on retirement security plans which would allow employers with fewer than 500 workers to “band together and form well-run, low-cost retirement plans that defuse administrative expenses,” similarly to Open MEPS.
- Leakage: Gillibrand asked if the Commission has studied the total number of investments that have been withdrawn from long term saving vehicles as a result of unforeseen medical emergencies. Conrad agreed that leakage is a major issue and concluded that, “if a plan is going to provide tax incentives for retirement savings, it should not be used as a ‘piggy bank’ for other things. Something about leakage has to be done.”
Witness
- Kent Conrad, Co-Chair, Bipartisan Policy Center
- James B. Lockhart III,Co-Chair, Bipartisan Policy Center
Opening Statements
In her opening statement, Chairwoman Susan Collins (R-Maine) reiterated the Committee’s focus on the retirement security crisis. She added that 60 percent of Americans are worried that they will not have enough money for retirement, and that according to the Center for Retirement Research, there is an estimated $7.7 trillion gap between the amount Americans have saved for retirement and the amount they will actually need. Further, she stated that “the many reasons for the staggering gap are the rise of healthcare costs, need for expensive long-term care, the lingering consequences of the financial crisis on home values, and life expectancy.” Collins expressed her belief that the shift away from employer-based defined benefit plans or pensions to defined contribution plans such as 401(k) plans has also contributed to the gap. Additionally, she noted the similarities in the Bipartisan Policy Center’s (BPC) report, “Securing Our Financial Future,” and her bill, S. 266, the Retirement Security Act.
Ranking Member Claire McCaskill (D-Mo.), in her opening statement, highlighted the bipartisan nature of BPC’s report. She proceeded to describe Open multiple employer plans (MEPS) as a key feature of the Retirement Security Act of 2015 that would enable small businesses without nexus to pull together to create one plan and allow a third party to handle administrative duties. McCaskill explained that the Committee has collaboratively worked on ensuring that seniors are not defrauded out of their life savings in or near retirement. She praised S.2216, the Senior$afe Act for providing financial institutions immunity if they report, in good faith, suspected fraud to the appropriate authorities while ensuring their financial advisors are trained.
Testimony
Kent Conrad, Co-Chair, Bipartisan Policy Center
In his testimony, Conrad stressed that an overwhelming majority of Americans say retirement security is their biggest financial concern. Conrad referenced a Federal Reserve study earlier this year that found that 46% of Americans would have a difficult time coming up with $400 for an emergency without borrowing or selling possessions.
BPC’s Commission on Retirement Security and Personal Savings found that the following would improve retirement security: 1) improving access to workplace retirement savings plans; 2) promoting personal savings for short-term needs; 3) facilitating lifetime income options to reduce the risk of outliving savings; 4) facilitating the use of home equity for retirement consumption; 5) improving financial stability among all Americans; and 6) strengthening Social Security’s finances. Conrad emphasized the Committee’s recommendations on retirement security plans which would allow employers with fewer than 500 workers to “band together and form well-run, low-cost retirement plans that defuse administrative expenses,” similarly to Open MEPS.
James B. Lockhart III, Co-Chair, Bipartisan Policy Center
In his testimony, James B. Lockhart III focused on the BPC Commission’s comprehensive package, adding that the if the package is enacted in its entirety, lower- and middle-income Americans would have incomes in retirement greater than or roughly equal to what they would receive if Social Security was able to pay full benefits as scheduled.
Questions and Answers
Collins asked how the rules of Open MEPS can be liberalized in order to encourage small businesses to participate. Conrad said it is one of the Commission’s most important recommendations and the response to many stakeholders’ requests to broaden the availability of MEPs. He added that it would give small businesses the opportunity to get together for the benefit of size to reduce cost and described it as “sort of a no-brainer.”
Sen. Tim Scott (R-S.C) commented that seniors frequently use their retirement funds as a savings account, and questioned how to strengthen the penalties for withdrawal before the appropriate time and/or provide education on the consequences of those withdrawals. Conrad said that BPC recommends harmonizing withdrawals rules for 401(k) plans and IRAs because of the tremendous leakage in the retirement system due to the difference. He opined harmonization will eliminate confusion.
Sen. Kirsten Gillibrand (D-N.Y.) stated that financial insecurity is not only a problem for low-income individuals, as 57 percent of Americans are not prepared for a financial shock. Gillibrand asked if the Commission has studied the total number of investments that have been withdrawn from long term saving vehicles as a result of unforeseen medical emergencies. Conrad agreed that leakage is a major issue and concluded that, “if a plan is going to provide tax incentives for retirement savings, it should not be used as a ‘piggy bank’ for other things. Something about leakage has to be done.”
Savings Culture
Sen. Time Kaine (D-Va.) raised concern over the savings culture and asked about incentives or strategies that can be implemented. Lockhart said Americans need to utilize non-retirement savings accounts and recognize the importance of financial literacy. Lockhart referenced the Commission’s proposed Starter Saver’s Match, which would replace the Saver’s Credit for individuals under the age of 35. He noted that the Starter Saver’s Match would be a refundable credit of up to $500 deposited directly into the claimant’s retirement account and would encourage younger workers with lower wages to save.
Conrad added that the Commission recommended reforming myRA by enabling employers to automatically enroll their employees and to make contributions on behalf of their employees if they so choose.
For more information on this hearing, please click here.