Expect to hear some 401(k)-bashing and pining for a return to defined benefit plans from some big-name politicians, economists and lobbyists during a couple of back-to-back events in Washington D.C. this week—with considerable crossover between the two.
The separate events are scheduled for Tuesday and Wednesday in the form of a one-day conference and a Senate committee hearing—but a few people will be in front of the microphone at both events.
Sen. Bill Cassidy (R-LA), Teresa Ghilarducci, Ph.D., Professor of Economics at The New School for Social Research and Director of the Schwartz Center for Economic Policy Analysis, and Social Security Administration Commissioner Martin O’Malley are among the headliners scheduled to speak at the National Institute on Retirement Security’s (NIRS) 15th Annual Retirement Policy Conference on Tuesday at the Park Hyatt Washington.
And on Wednesday, the Senate Health, Education, Labor, and Pensions (HELP) Committee, chaired by Sen. Bernie Sanders (I-VT) (and where Cassidy is Ranking Member), will hold a hearing titled, “Taking a Serious Look at the Retirement Crisis in America: What can we do to expand defined benefit pension plans for workers?”
The day after appearing at the NIRS event, Ghilarducci is among five witnesses scheduled to provide testimony during the committee hearing, along with NIRS Executive Director Dan Doonan. Also scheduled to testify during Wednesday’s HELP Committee hearing are United Auto Workers member Sara Schambers; Rachel Greszler, Senior Research Fellow at The Heritage Foundation; and Nationwide Retirement Solutions President Eric Stevenson.
The hearing is expected to address the issue of how—according to Sanders—limited access to retirement plans in the workplace has contributed financially to insecure retirements for many Americans.
“At a time when more than half of older Americans have no retirement savings and more than 50% of our nation’s seniors are trying to survive on an income of less than $30,000 a year, we must address the retirement crisis facing working class Americans,” Sanders said in a press release announcing the hearing. “In the richest country in the history of the world, it is a national disgrace that one in 10 seniors live in poverty. We have the tools to ensure that every senior in America can retire with the dignity and security that they deserve. It’s time to act.”
In advance of Wednesday’s hearing, Sanders also took to X today to comment on retirement:
“Today, nearly 50% of older Americans have no retirement savings – ZERO. Meanwhile, 2,000 top executives have amassed over $13 BILLION in retirement savings thanks to special tax advantaged plans. Absurd. We need a retirement system for working people, not just the wealthy.”
Sanders’ press release states that today, nearly half of all Americans are at risk of a financially insecure retirement, up from one in three workers in 1983. “Part of this issue stems from the decline in access to defined benefit plans,” the release continues. “In contrast, defined contribution plans shift the risk on to individual employees and the amount they provide depends more on individual investment returns. A defined benefit plan is typically 49% more cost effective than a defined contribution account.”
While no citation was provided for the aforementioned claim, it likely comes from a Jan. 2022 NIRS analysis that found DB pension plans “offer substantial cost advantages over 401(k)-style defined contribution (DC) accounts.” That study said a typical pension has a 49% cost advantage as compared to a typical DC account, stemming from longevity risk pooling, higher investment returns, and optimally balanced investment portfolios.
The study also indicated that about four-fifths of the cost difference occurs during post-retirement years. “Once retired, individuals typically experience substantially higher fees when retirement assets are withdrawn from a workplace retirement plan. Also, retired individuals often shift their savings to lower risk, lower return asset classes, which is further complicated by today’s historically low interest rate environment,” the NIRS study said.
Sanders’ release went on to say that today, only 13.5% of workers have a traditional pension and about 57 million Americans do not have a way to save for retirement easily out of their regular paycheck. 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.
Wednesday’s hearing—scheduled for 10 a.m. ET in Room 430 of the Dirksen Senate Office Building—will be livestreamed on the HELP Committee’s website.
The American Retirement Association has indicated it will submit a statement for the record in response to the Senate HELP Committee hearing, addressing issues raised during opening remarks and testimony.
Defined contribution plans have been under fire lately, with debate sparked by a recent working paper from Andrew Biggs, Alicia Munnell, and Michael Wicklein that proposes to curb tax advantages of 401(k) plans they say primarily benefit the wealthy to aid Social Security’s troubled trust funds. On top of that, Allison Schrager, a senior fellow at the Manhattan Institute, recently posted a Bloomberg opinion column with the provocative headline, “Your 401(k) Will Be Gone within a Decade.” In it, Schrager argues that the intellectual case for getting rid of tax-advantaged retirement plans is strong, and the political case is catching up.
The recent attacks on 401(k)s generated rebuttals from a number of economists and retirement industry thought leaders.
NIRS conference and Ghilarducci’s Gray New Deal
The 15th Annual Retirement Policy Conference on Tuesday will feature discussions of key retirement policy challenges and opportunities, including efforts to strengthen Social Security and improve employee retirement benefits.
Speakers will also address retirement issues including what NIRS calls “the trend of plan sponsors returning to pensions, municipalities joining state retirement plans, and more.” The event also will feature the release of a new national poll detailing Americans’ views on retirement.
In addition to keynote speeches from Sen. Cassidy and Ghilarducci, Tuesday’s other headline speaker is Angela Antonelli, Research Professor and Executive Director, Center for Retirement Initiatives, Georgetown University’s McCourt School of Public Policy. The event will also include a book signing with Dr. Ghilarducci on her forthcoming book, Work, Retire, Repeat: The Uncertainty of Retirement in the New Economy.
In the book, Ghilarducci explains that working longer to afford retirement isn’t a practical solution for many lower-income Americans. Instead, she outlines a “Gray New Deal” with 8 policy ideas for improving access to retirement for all.
She argues that the erosion of pensions and the unreliability of other kinds of retirement accounts tied to fluctuating financial markets has only heightened inequality between people as they age. In effect, she says, we have two old-age labor markets. “At the top, people are living longer and healthier and choosing meaningful jobs in old age. Meanwhile, the middle and lower economic classes have much smaller increases in longevity, and they are either struggling in retirement without enough income or trying but failing to find good jobs.”
The book is meant to show how relatively low-cost changes to how Americans finance and manage retirement will allow people to truly choose how they spend their golden years.
In her “Gray New Deal,” Ghilarducci proposes that the government take a variety of steps to ensure a better retirement for all Americans, including lowering the cost of employing older workers, expanding health insurance to make it cheaper for employers to hire older workers, enforcing anti-discrimination policies to end stereotypes of elderly people, and most of all, ensure better pensions for all workers.
In an op-ed published in today’s Los Angeles Times, Ghilarducci argues that “work longer” is no solution for people who can’t afford to retire. “My research shows that at least two-thirds of workers 62 and older are working because they don’t have enough money to retire,” Ghilarducci writes.
Working until you drop is not a civilized plan for a civilized society, she continues. “We desperately need a Gray New Deal that improves jobs for older workers while also restoring and boosting pensions and retirement security. Federal and state incentives should promote better-paying and age-appropriate work. Improved job training and stronger unions would also make a difference… We need subsidized guaranteed retirement accounts and advance-funded pensions, and an expanded Social Security system.”
SEE ALSO:
• Economists Refute Biggs-Munnell Plan to Repeal 401(k) Tax Preferences to Boost Social Security
• New Brief Argues for Reallocating 401(k) Tax Expenditures to Social Security
• Why the 401k Fails and What A ‘Better’ System Looks Like, According to Teresa Ghilarducci