“The truth is that we now have a retirement crisis in America that demands our immediate attention.”
That’s how Sen. Bernie Sanders (I-VT), Chair of the Senate Health, Education, Labor, and Pensions (HELP) Committee, kicked off a hearing in Washington Wednesday titled, “Taking a Serious Look at the Retirement Crisis in America: What Can We Do to Expand Defined Benefit Pension Plans for Workers?”
Most speakers during the 90-minute hearing expressed a desire for a shift back to defined benefit pension plans while other speakers, including HELP Committee ranking member Bill Cassidy (R-LA), argued that defined contribution plans are working and must be given a chance to improve further with the help of various provisions in the SECURE Act and SECURE 2.0.
After Sanders and Cassidy concluded their opening remarks, five expert witnesses testified during the hearing before answering a variety of questions from committee members. Here’s an overview of what was talked about, from Sanders’ opening remarks through the testimony of the fifth witness.
Ahead of Wednesday’s hearing, Sanders released a new report detailing what a press release called the depth of the crisis, while also exploring solutions he said would allow all Americans to retire with dignity and security—not just the very wealthy.
Sanders said in the U.S. today, “almost 45% of older Americans between the ages of 55 and 64 have no savings at all and no idea how they will retire with any shred of dignity or respect.”
The report also examined how workers are 15 times more likely to save for retirement if they can do so via payroll deduction and 20 times more likely to save if access to a workplace retirement plan is automatic. Today, roughly 57 million Americans do not have a way to save for retirement easily and automatically out of their regular paycheck and only 13.5% of workers have a pension.
He said during opening remarks that according to the Organization of Economic Cooperation and Development, the U.S. has one of the highest rates of senior poverty compared to other wealthy nations, citing that only 3% of seniors live in poverty in Denmark, 4.4% in France, and 15.5% in the United Kingdom, but in America over 23% of seniors are living in poverty.
“I would hope that we would agree that that is simply unacceptable and that’s got to change,” Sanders said.
While making no mention of the differences in how much more frequently people change jobs today, he then went on to say how 50 years ago it was not uncommon for corporations to provide workers with pensions that would enable them to live comfortably in retirement.
“Sadly, tragically those days are mostly behind us as a result of a relentless 40-year war on the working-class wage by corporate America. Traditional pension plans have become an endangered species on their way to extinction and the result for workers has been tragic,” Sanders said.
He cited another statistic, that in 1983, 31% of American workers were at risk of not being able to maintain their standard of living in old age. In 2020 that number rose to 51%. “In other words, we are moving in exactly the wrong direction,” Sanders said.
To address the crisis, Sanders said:
“We must expand Social Security, not cut Social Security as many of my colleagues in Congress would have us do. And we must make Social Security solvent for the next 75 years so it’ll be there for our kids and our grandchildren.”
“At a time of massive income and wealth inequality, we have the radical idea that maybe the people on top should start paying their fair share of taxes,” Sanders said. “Today, a billionaire pays the same amount of money into Social Security as somebody who makes $168,000 a year as a result of the cap on the Social Security payroll tax.”
“The legislation we have proposed would lift the cap on Social Security starting at $200,000. You do that—tax all income—Social Security is solvent for the next 75 years, [and you] increase benefits by $2,400 per person.”
But that’s not all that we have to do, he concluded.
“In my view, every corporation in America should be required to provide a retirement plan for their workers and if corporations choose not to offer a retirement plan, they must give workers the option of contributing to a federal pension plan similar… to what members of Congress have.”
Cassidy defends DC plans
Sen. Cassidy followed up Sanders’ opening remarks by defending the success of defined contribution plans, noting how they work better for today’s job-changing workforce.
“Very few people now retire after 50 years at a company and get a gold watch. Most will move between employers. This allows them to do so while maintaining their retirement fund,” Cassidy said.
He noted how Sanders spoke of “needing to find a solution to our crisis, but we have that solution,” Cassidy continued, inferring that provisions in the bipartisan SECURE Act and SECURE 2.0 are working. “By the way, there’s still provisions of SECURE Act 2.0 that have yet to be implemented, including those helping low-income individuals,” Cassidy said. “For example, the enhanced Saver’s Match, a tax credit going right into low-income Americans’ retirement accounts which goes into effect in 2027.”
In acknowledging the statistics raised by Sanders indicating a crisis, Cassidy turned back to SECURE 2.0.
“The chair is referencing statistics pointing to a retirement crisis, but many of these are from 2021, which predate the passage of SECURE 2.0, the improvements that it made, and the improvements that it will make—especially those targeting lower-income Americans.”
Other quotable remarks from his statement:
• “Republicans do not support putting the thumb on the scale to prefer either defined benefit or defined contribution. We support what works.”
• “I agree with the chair that lifetime income is desired by many Americans. Let’s make it easier for the defined contribution [plan] to include them.”
Cassidy also talked about two bipartisan bills he and Sen. Tim Kaine (D-VA) recently introduced—the Helping Young Americans Save for Retirement Act and the Auto-Reenroll Act of 2023.
“I hope that chair will indulge us with the markup of these bipartisan pieces of legislation,” Cassidy said before wrapping up his opening statement.
UAW still wants pensions
The first witness, United Auto Workers member Sara Schambers, talked of how despite winning some major victories in UAW’s recent six-week strike, they still fell short of restoring pensions like previous generations of auto workers had.
While the automakers are expected to fight a return to pensions in the next round of union contract negotiations, Schambers said UAW’s goal of restoring pensions will again play a big role.
“Our next ‘big three’ contracts expire in 2028, and we are ready to fight like hell for retirement security, for pensions and healthcare when I retire,” Schambers said.
“I want to close by asking you—our U.S. Senators who represent us—which side are you on: the American workers who elect you, or corporate greed and Wall Street who say dignified retirement is too much for the American people to ask for?”
Ghilarducci stumps for RSAA
Teresa Ghilarducci, a professor at the New School for Social Research, was next to testify.
“You might hear about the average retirement wealth being quite high and actually growing. But for the typical American, the median retirement wealth has gone down for the bottom 90% because averages don’t tell the story—distribution does.”
Ghilarducci said the bottom half of the wealth distribution among older households have zero retirement savings or home equity and the next 40% have little retirement savings or home equity. Her research finds it’s only the top 10% who over the last year 30 years have had a rapid increase in their retirement wealth.
“This all adds up into a lack of retirement readiness, and that lack of retirement readiness has materialized even though Congress has given lots of tax breaks for retirement savings,” Ghilarducci said.
“The U.S. retirement system has not flourished. It lacks three fundamental elements of a well-designed pension system. A well-designed pension system only needs three things: it needs to help all Americans accumulate enough money into their retirement accounts. it needs to help all Americans invest well into their retirement accounts. It needs to have a good way for Americans to de-accumulate their retirement accounts and lifetime benefits.”
In terms of fixing what she sees as the problem, Ghilarducci said some of the bills proposed would help, and called state-based IRA programs “baby steps” for providing more access to IRAs, but also called them out for permitting leakage and not pooling assets, and as really being emergency savings accounts instead of retirement accounts because the funds can be accessed early and for reasons other than retirement.
She then went on to voice support for the Retirement Savings for Americans Act of 2023—a bill based largely on a white paper she co-authored with economist Kevin Hassett for the Economic Innovation Group (EIG)—as a way to extend wealth-building opportunities to all Americans.
The Thrift Savings-like plan for lower-income private sector workers would establish a new program that gives eligible workers access to portable, tax-advantaged retirement savings accounts. If passed, the RSAA would allow the federal government to match contributions for low- and middle-income workers, with the match beginning to phase out at median income.
“They do not crowd out existing accounts,” Ghilarducci noted, addressing a primary concern of bill opponents including the American Retirement Association, which on Wednesday posted an article on its National Association of Plan Advisors website about the hearing titled, “Teresa Ghilarducci Confirms Proposal to Create Federal 401(k) Would Remove Employers from Retirement Saving System.”
That article cites a Jan. 30 MarketWatch interview with Ghilarducci, where she is quoted as saying about the RSAA that, “it gets the individual employer out of it and focuses on the worker and the government.”
Ghilarducci said during her testimony Wednesday that the RSAA is “endorsed by experts all across the political spectrum,” and noted that AARP and Charles Schwab have endorsed it.
She concluded her testimony by congratulating committee members from both parties for “recognizing the urgency, the disaster and the crisis, and for your caring and your wisdom to solve it. I heard you all say that you need a bold, bipartisan reform.”
Doonan says Americans want pensions
Next to testify was Dan Doonan, executive director of the National Institute on Retirement Security (NIRS), who used his time to promote a return to defined benefit plans.
While admitting SECURE and SECURE 2.0 were steps in the right direction, he said Americans do face an alarming retirement savings shortfall, and “the move away from pensions is a major culprit in the nation’s retirement crisis.”
While he said 401(k) plans are an important part of the retirement equation, “they were just not designed to replace pensions.”
He said pensions are the most economically efficient way to deliver retirement income and they offer workforce advantages to employers, are user-friendly for workers and face little leakage.
“I believe that if companies give pensions a fresh look, they will discover that win-win solutions are possible,” Doonan said.
He went on to cite new research from NIRS, which found that 83% of Americans believe all workers should have a pension, 79% believe the nation faces a retirement crisis (up from 67% in 2020), and 55% are concerned that they cannot achieve financial security in retirement.
The findings are from “Retirement Insecurity 2024: Americans’ Views of Retirement,” based on a national survey of working age Americans conducted by Greenwald Research.
“A financially secure retirement is out of reach for many Americans, and our research finds workers are increasingly troubled by their retirement outlook. This new report details the range of Americans’ concerns about retirement, along with their strong desire for a return to the certainty that pensions provide,” Doonan said in a Feb. 27 press release.
“If our leaders are serious about rebuilding retirement security for Americans, there’s no question that increasing pension coverage must be part of the equation. Americans want them, and the ground indeed is shifting with employers like IBM returning to pensions,” Doonan said in the release. “Other employers could follow suit driven by their desire to provide retirement benefits in the most cost-efficient manner possible, employees’ preferences for reliable lifetime income, and a critical need to recruit and retain workers in an increasingly tight labor market.”
Rachel Greszler, Senior Research Fellow at The Heritage Foundation, was next to testify, and spoke in defense of defined contribution plans and against what she called failed policies that severely damaged pensions and Social Security.
She disputed the findings of Ghilarducci when it comes to the current state of Americans’ retirement security, saying the lowest earners have the highest income replacement rates in retirement. She cited research showing that households in the bottom 20% average 123% of their pre-retirement incomes whereas households at the top average 75%, and said older Americans report greater financial well-being than any other age group.
“As retirement savings have shifted from defined benefit to defined contribution plans, assets have surged,” Greszler said. “At $41.5 trillion, Americans’ inflation-adjusted retirement assets have increased 330% over the last 35 years.”
EDITOR’S NOTE: During the question portion of the hearing, Ghilarducci countered in a sense with this response to a question from Sanders: “That’s my little lesson on averages vs. medians. Because the rich have done so well, they have brought up those averages that people who talk about average retirement wealth can point to. It’s gone up. But that’s because the top 10% got the benefit of retirement tax cuts, they got the benefit of the run-up of the market, they didn’t take money out…”
Greszler went on to say both defined benefit and defined contribution plans can provide a secure retirement. “But when not managed properly, defined benefit plans can end up like Ponzi schemes. That’s what’s happened with Social Security and multi-employer or union pensions,” she said. “Past and current congresses have failed to properly manage Social Security and failed to require sound funding rules for union pensions. Now, neither can come close to providing retirees what they have promised.”
She argued that money contributed to Social Security via payroll taxes would be far better off in a personal account. “My analysis shows that if the younger worker today were allowed to put their Social Security taxes into a personal account, they would have three times as much in retirement after purchasing an annuity.”
She said policymakers must reform Social Security “before it becomes an even worse deal for younger workers by shifting towards a universal benefit and making other common-sense changes.”
Private union pension plans, she said, “are an even worse disaster than Social Security,” because unions took advantage of preferential rules that allowed them to increase benefits without requiring higher contributions to fund those benefits, and Congress’ pension bailout plan “does absolutely nothing to fix the root problems.”
Genzler concluded her remarks by calling for policymakers to enact universal savings accounts “so that it’s simpler and easier for Americans to save for all types of expected and unexpected life events.”
Nationwide’s Stevenson cites need for guaranteed income
Eric Stevenson, president of Nationwide Retirement Solutions, was the final witness to testify.
He encouraged lawmakers to help more Americans take advantage of the next generation of retirement savings vehicles: Protected retirement solutions, which replicate the income security of defined benefit plans within one of the most accessible savings vehicles available to workers today, their qualified defined contribution retirement plan.
Stevenson argued that Protected Retirement solutions will be the hallmark of a new era for American retirement savers.
In a year when more Americans will turn 65 than any point in history, Stevenson highlighted how many of today’s retirees are facing retirement without guaranteed lifetime income or a gameplan for decumulating the savings they built over the course of their careers.
“Encouraging plan sponsors to offer at least one protective retirement income solution in their plans will go a long way in making sure that people have guaranteed income when they retire,” Stevenson said.
A new Nationwide Retirement Institute survey found one-third of current retirees aged 60-65 are considering returning to work, with half (50%) citing the fear of running out of money or currently running out of money as their top reason for doing so.
He applauded many of the advances made possible by the SECURE Act and SECURE 2.0, highlighting how these policy changes are making it easier for employers to integrate guaranteed income solutions into their plans.
Following a 45-minute Q&A portion of the hearing, Sanders concluded the event with the following statement:
“I think we have strong disagreements about solutions, but we can all agree this is a serious problem, needs discussion and I think we’ve begun that today.”
• View a complete replay of the hearing here.
SEE ALSO:
• Controversial ‘Retirement Savings for Americans Act’ Reintroduced in Congress
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
