A House of Representatives’ subcommittee is tackling the longstanding issue of Americans’ retirement security. In the hearing’s opening statement, chairman of the Subcommittee on Health, Employment, Labor, and Pensions, Mark DeSaulnier (D-CA), noted that the COVID-19 pandemic has exacerbated the financial struggles of many workers and that “now more than ever we need to help workers and retirees achieve financial stability, including a secure retirement.”
In Tuesday’s hearing, the committee also heard from a variety of industry experts, including the National Women’s Law Center’s Director of Income Security, Amy Matsui. Matsui focused primarily on the struggles of women in their bid to achieve financial security now, and in retirement. She cited data that shows that in 2020, the poverty rate for women 65 and older was 10.1 percent (compared to 7.6 percent for older men). And poverty rates are consistently higher for older Black, Latinx, Asian and Native American women.
“Women need retirement income from employer-sponsored pensions and retirement savings plans,” said Matsui, in order to experience a “secure and dignified retirement.”
She pointed out that while many married women rely on their spouses’ retirement income and savings, there are loopholes in spousal protections under the Employee Retirement Income Act of 1974 that undermine women’s retirement security.
“These are long overdue to be addressed,” Matsui said, noting that because women face workplace inequities and shoulder the burden of family caregiving, it creates disparities in retirement income and retirement savings.
The problem with ESG
The committee also heard from Morningstar’s Head of Retirement Studies and Public Policy, Aron Szapiro, who provided perspective on several topics including the role of Environmental, Social and Governance (ESG) options in defined-contribution plans. Szapiro said that plan sponsors appear to be shying away from considering ESG information and analysis, in part because of regulatory uncertainty.
“In doing so, sponsors have left the U.S. defined-contribution system in the aggregate tilted toward investments with more ESG risks,” he warned.
Szapiro cited Morningstar’s ESG Risk Rating, which seeks to capture the degree to which companies fail to manage ESG risks, potentially “imperiling their long-term economic value.”
He added that U.S. retirement plans offer investment options that are more likely to have higher ESG risk compared with the overall distribution of ESG risk in investments that Morningstar rates. Specifically, just 4% of investment options and 2% of assets are in strategies with the lowest level of ESG risk, but 10% of all strategies rated by Morningstar are in this category.
“Unless retirement plan sponsors are convinced that ESG risks are overstated, they may wish to re-examine their investment choices using an ESG lens.”
More legislation coming
Rep. DeSaulnier is slated to help introduce legislation later this year that will propose a number of improvements to the nation’s retirement system, and may also address ESG-related issues.
The committee’s efforts come on the heels of previous retirement-focused legislation, including addressing the multiemployer pension crisis last March that in Rep. DeSaulnier’s words, “fully protected the pensions of more than one million Americans.” In November, the committee also advanced the bipartisan “Retirement Improvement and Savings Enhancement Act” to take key steps to improve the retirement security of American workers.
Lynn Brackpool Giles is a contributing editor to 401(k) Specialist. Giles is a former Managing Director of Communications and Consumer Services for the Financial Planning Association (FPA), where she oversaw all corporate, legislative, and consumer communications. In her current journalistic practice, she is a frequent contributor to numerous financial services industry publications.
