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SFC Retirement Hearing

Senate Finance Committee

Building on Bipartisan Retirement Legislation: How Can Congress Help?

Wednesday, July 28, 2021

Witnesses

Opening Statements
Chairman Ron Wyden (D-Ore.)
In his opening statement, Wyden noted how even before the COVID-19 pandemic, it was already far too difficult for Americans to save for a dignified retirement, stating that as of 2018, more than 100 million working-age Americans had no pension or retirement assets. He further stated that the pandemic made saving even harder, citing that among those fortunate enough to have retirement accounts, nearly one quarter had to dip into savings or stop contributing altogether due to the pandemic.  He lauded legislative efforts to support retirement accessibility, such as the Encouraging Americans to Save Act and the Retirement Parity for Student Loans Act. He stated that the Committee should improve retirement savings portability by making it easier for workers to move their retirement accounts when they change jobs.

Ranking Member Mike Crapo (R-Idaho)
In his opening statement, Crapo noted how private retirement savings and retirement security have historically had bipartisan support. Crapo noted how the pandemic put a great of deal of economic stress on workers and retirees, with some having no choice but to withdraw money from retirement accounts to make ends meet. He recommended that Congress enact policies encouraging workers to save, referencing a Department of Labor survey that found that while 71 percent of civilian workers had access to retirement benefits, the participation rate for that same group was only 55 percent. He also recommended that Congress explore legislation to allow small businesses to offer retirement plans more efficiently and affordably, noting that small business owners currently find existing rules for offering employees a retirement plan expensive and cumbersome. He closed by stating that the economy is constantly evolving and noting the importance of the Finance Committee exploring further retirement legislation to keep pace.

Testimony
Aliya Robinson, Senior Vice President, Retirement and Compensation Policy, The ERISA Industry Committee
In her testimony, Robinson stated that ERIC supports treating student loans payments as elected deferrals for the purpose of employer-matching contributions, as included in the Retirement Savings and Security Act, given that employers do not want their workers to miss out on matching contributions because of repaying student-loan debts. She further stated that ERIC supports the Enhancing Emergency and Retirement Savings Act, noting that allowing for emergency savings as part of retirement savings plans is critical to strengthening the connection between short-term financial concerns and adequate long-term savings. Robinson noted that companies want innovation in the definition of a highly-compensated employee, referencing how highly-compensated employees in decision-making positions are incentivized to provide proportional benefits to non-highly-compensated employees. She stated that ERIC proposes an employer consequently be permitted to limit the employees considered highly-compensated to the top ten percent of employees by compensation. In closing, she said ERIC believes it is important to reduce administrative burdens in retirement savings and thus supports the Retirement Security and Savings Act.

Brian H. Graff, Chief Executive Officer, American Retirement Association
In his testimony, Graff noted that the workplace retirement plan system has been a success for those who have access, with almost $10 trillion in assets and a strong ability to provide long-term economic growth and financial security for the middle class. He said the gateway to a comfortable retirement is having coverage by a workplace retirement plan, but far too many Americans still lack access to a retirement plan at work, and that this inequality is particularly pronounced in the Black and Latinx communities. Graff stated that expanding coverage with auto-enrollment is the key to solving this issue, as data shows that when moderate-income workers are auto-enrolled in a workplace plan, there is no racial disparity in retirement savings and participation. He further stated that the ARA supports the Encouraging Americans to Save Act, incentivizing and supplementing retirement savings of moderate-income workers by expanding and enhancing the existing Saver’s Credit, turning it into a government-matching contribution of up to a $1,000 a year for workers who save in a retirement account, and expanding eligibility for the Saver’s Match.

David Certner, Legislative Counsel and Policy Director, AARP
In his testimony, Certner stated that a secure retirement consists of three components: employer-provided pensions, personal savings, and social security. He explained that declining pensions and inadequate savings, in addition to longer life expectancies and higher health costs, have put a secure retirement out of reach for many Americans. Certner said expanding coverage to the tens of millions of workers who do not currently have coverage remains a high priority and described how at the state level, AARP is focused on passing work-and-save programs that provide employer-facilitated access to payroll deduction savings for workers. He stated that federal policy should further encourage automatic payroll deduction savings, and noted that AARP has been a long-time supporter of federal automatic IRA legislation and the SECURE Act 2.0, and supports separate efforts to improve the Saver’s Credit.

The Honorable Tobias Read, Oregon State Treasurer, State of Oregon
In his testimony, Read described how Oregon created OregonSaves, the first state-based auto-IRA program, in response to the growing retirement savings crisis. He said when it was launched in 2017, Oregon had approximately one million private-sector workers without access to a retirement savings plan at work, but today, more than 110,000 Oregonians have funded IRAs and have collectively saved over $123 million. Read stated the necessity of having portable retirement accounts, which are designed to provide workers with a continuity in savings despite changes in employment circumstances. He also noted how the Roth IRA structure provides flexibility to savers in managing contributions and withdrawals. Read stated that Oregon is especially supportive of Congress’s efforts to incentivize savings, such as the Encouraging Americans to Save Act. He closed by noting that the success of OregonSaves will have long-term positive implications for savers and for Oregon as a whole, with fewer Oregonians entering retirement in poverty and fewer individuals needing to dominantly rely on social safety nets for financial security.

Question & Answer
Policies to Incentivize Savings
Sens. Tom Carper (D-Del.) and Crapo asked about policies that would help incentivize and encourage savings. Certner, Read, and Graff highlighted the importance of automatic enrollment. Read added that automatic escalation and additional credit and matching mechanisms would also help.

Sen. Ben Cardin (D-Md.) highlighted his legislation with Sen. Rob Portman (R-Ohio) and the importance of features like the Saver’s Credit, matching contributions, student loan parity, enhanced catch-up contributions, and automatic enrollment, asking the witnesses which tools are most important. Graff said that proposals to increase access to retirement plans and to automatically enroll employees will move the needle, as will matching contributions.

Student Loan Parity
Sen. John Thune (R-S.D.) asked if companies would choose to match student loan payments with retirement contributions, and how employers would know those loan payments were being made. Robinson replied that companies want this ability, and any benefit employers can offer to help with student loans and retirement savings would be beneficial and critical. She also explained that programs like this are already in place, and payroll providers are capable of verifying loan payment information in order to facilitate a 401(k) match.

Required Minimum Distribution (RMD) Age
Thune asked about proposals to further increase the RMD age. Certner said it will help savers keep money in their plans longer. He also highlighted proposals that would set a savings threshold below which RMD rules would not apply. Graff echoed this point, noting that the process is complicated, particularly for those without access to professionals to help them and a safe harbor amount would help simplify the rules.

Emergency Savings
Sen. James Lankford (R-Okla.) referenced his bill, the Enhancing Emergency and Retirement Savings Act, introduced with Sens. Chuck Grassley (R-Iowa) and Maggie Hassan (D-N.H.), which would allow savers to withdraw up to $1,000 per year from their retirement saving to cover emergency expenses. He asked if this flexibility is the right approach. Robinson said this kind of flexibility is appropriate for both the participant and the plan sponsor. She added that there may still be room for discussion about what amount is appropriate, as people need to be able to take enough to cover an emergency but not take money out for non-emergencies. Graff highlighted that the issue of emergency savings has become more acute and obvious due to the pandemic and this solution would go a long way in addressing the problem without undermining the retirement savings system.

Military Spouses
Hassan raised the issue of military spouses, explaining that they often face a wide retirement savings gap because they move locations frequently and often do not stay at employers long enough to be eligible to participate in the workplace plan. She highlighted her bill to incentivize employers to make military spouses immediately eligible to participate in a plan. Robinson said incentives help employees save and committed to consulting with ERIC’s membership on the proposal.

Small Businesses
Several committee members asked about various provisions to help small businesses offer plans. Grassley asked about his legislation, with Sens. Lankford and Hassan, to clarify that the startup credit applies to businesses joining pooled employer plans (PEPs) and allow nonprofits to join PEPs. Graff said this is important legislation that would go a long way to increase access. Sen. John Barrasso (R-Wyo.) asked what Congress can do to help employers encourage participation in plans. Graff replied that making it easier for small businesses to adopt a plan, such as a tax credit that would cover 100 percent of the cost and safe harbors to simplify the rules, would be helpful. In response to a question from Sen. Todd Young (R-Ind.) about the barriers that prevent small businesses from starting plans, Graff explained that the administrative costs associated with plans are a primary challenge.

State-Run Retirement Plans
Wyden cited testimony that combining tax credits with a national program similar to OregonSaves would result in 50 million additional retirement savers and $6.2 trillion in retirement savings over a decade. Graff said that it would have a “tremendous” impact on retirement outcomes. Certner said that many people do not have access to a plan, so providing access through an auto-IRA or programs like OregonSaves would help the coverage gap.

Crapo asked about the response from employers regarding OregonSaves. Read said that while there is a range of opinions about the program, there are a number of small employers that have wanted to provide retirement benefits but have struggled to do so.

Sens. Maria Cantwell (D-Wash.) and Carper asked how the federal government can better facilitate the adoption and success of auto-IRA programs. Read said he hopes any auto-IRA legislation would preserve the “pioneering role” of Oregon in establishing these programs and allow states to continue innovating. Certner added that it is important for states to be allowed to continue developing their programs as proposals for a federal program are considered, and that improving the Saver’s Credit would help those that do not receive an employer match.

Sen. Catherine Cortez Masto (D-Nev.) asked about criticisms of state-based plans and suggestions that PEPs are a better option for small employers, to which Certner said that auto-IRAs reach a different kind of employer that is not interested in setting up an ERISA-covered plan. He said the two options should be complimentary, not be framed as a choice between one or the other.

Cantwell asked about the Washington state marketplace for small businesses to shop for retirement plans. Certner said states are filling the gaps that exist for employers that do not want to take on the cost or fiduciary responsibility of starting their own plan and it is something more states should consider.

Wyden commented that Oregon and Washington are leading the way in this space and he intends to try to match it at the federal level.

Plan Portability and Missing Participants
Sens. Steve Danes (R-Mont.), Grassley and Wyden asked questions about missing participants and how both plan portability and a retirement lost and found would help address this issue. Robinson noted that plan portability would help people keep track of their accounts, particularly those with small account balances or who only spend a short amount of time with an employer. She also highlighted that a lost and found would provide participants with a database to look for accounts left at a former employer. Graff, Certner, and Read also expressed support for a lost and found.

Large IRAs
Wyden expressed concern about “abusively large” IRAs. He said there is a double standard that some investors have access to investment vehicles that average Americans do not. Graff explained the difference between rollover and contributory IRAs, noting that rollover IRAs are subject to strict limits and nondiscrimination rules. He continued that the concerns Wyden referenced are largely regarding venture capitalists who include startup company stocks and other hard to value assets in contributory IRAs, calling this a tax planning tool rather than a retirement savings tool. He noted you have to be a sophisticated investor to access these kinds of investments.

Employee Stock Option Plans (ESOPs)
Crapo voiced his support of ESOPs and asked about the role they play in the retirement system. Robinson expressed support for ESOPs and employee stock ownership generally, saying they are beneficial for both employers and participants. She highlighted that ESOPs can contribute to greater employee stability, employers are more likely to offer secondary retirement saving options, and participants often save more than they would with only a 401(k). She also noted that they often have higher rates of return and less volatility than a 401(k).

Savings Disparities
Cortez Masto raised the issue of the racial wealth gap and asked about steps the retirement industry has taken to enhance financial literacy in diverse communities. Graff responded that the retirement plan industry is well aware of the challenges faced by communities of color and has been undergoing efforts to address language barriers. He added that more advisors and firms have been providing multilingual financial wellness programs and participant education. Young asked if automatic enrollment would help address racial disparities, to which Graff responded that automatically enrolling workers could eliminate a large portion of the racial disparity in retirement savings.

Hassan asked how Congress can help address the retirement gap for women, noting that the pandemic has exacerbated this issue. Certner highlighted that women often face lower wages and less access to plans, expressing support for improving coverage for part-time workers. Graff noted that coverage and savings gaps are particularly acute for single women, and that steps to improve coverage and incentivize savings would have promising results. Robinson added that increasing catch-up contribution limits is extremely helpful for women.

Closing Statements
Ranking Member Mike Crapo (R-Idaho)
In his closing statement, Crapo said that retirement is a bipartisan issue with a broad set of solutions. He noted that he and Wyden have agreed that this will be address on a bipartisan basis and will be at the top of the Committee’s agenda.

Chairman Ron Wyden (D-Ore.)
In his closing statement, Wyden highlighted several issues raised during the hearing, including the importance of automatic enrollment and how it can help reduce racial disparities in retirement plan savings rates. He said the Saver’s Credit proposal combined with a national program similar to OregonSaves could lead to a “staggering” number of new savers. He also noted testimony explaining that “mega IRAs” are largely the result of access to investments only available to wealthy investors under the securities laws.

For more information on this hearing, please click here.