April 19, 2017

The Current State of Retirement Security in the US

Key Topics & Takeaways

  • DOL Fiduciary: Sen. Thom Tillis (R-N.C) asked if the Department of Labor’s fiduciary rule aids or hurts individuals who have a limited capacity to contribute to plans. Professor Mead stated that one of the challenges with the current system is that individuals have scattered accounts, low balances, and the cost of the fiduciary rule would make it difficult to utilize and grow those accounts.
  • Financial Literacy: Sen. Tillis discussed the importance of financial literacy as part of the multi-faceted challenge with retirement. Professor Mead, in agreement, stated that states must ensure curriculums include financial literacy. Tillis commended the promotion of workplace financial literacy.
  • Next Steps: Sen. Heidi Heitkamp (D-N.D.) questioned the future of labor and whether a retirement plan can be designed around the changing workplace. Conrad acknowledged the current “technological revolution,” and stated that it presents an opportunity to change the way retirement is viewed. He reiterated the need to build a culture of savings and improve the financial resilience of American families.

Witness

  • The Honorable Kent Conrad, Senior Fellow and Co-Chair of the Commission on Retirement Security and Personal Savings, Bipartisan Policy Center
  • Professor Walter Russell Mead, Distinguished Fellow at Hudson Institute, Chace Professor of Foreign Affairs and Humanities, Bard College, and Editor-at-Large, The American Interest

Opening Statements

In his opening statement, Subcommittee Chairman Tom Cotton (R-Ark.) highlighted the number of Americans that are inadequately saving and making enough to “just get by.” Cotton lamented on the increasing number of vulnerable individuals as they approach retirement due to the higher cost of living. He shockingly referenced that, “the typical American aged 55 to 62, only has $14,500 in savings,” while Social Security “sinks.” Cotton underlined the importance of taking action to ensure Americans have the proper vehicles to save for retirement.

Ranking Member Heidi Heitkamp (D-N.D.), in her opening statement, described the working class as “the backbone of our country, and workers should not fear for retirement.” Heitkamp noted that retirement security is more uncertain today than it was 20 years ago. She referenced that somewhere between 60 to 70 percent of Americans have access to a workplace retirement account or 401(k), therefore approximately 30 million full-time workers are without access. Lastly, she affirmed that the Subcommittee must think creatively to educate workers and expand access.

Testimony

The Honorable Kent Conrad, Senior Fellow and Co-Chair of the Commission on Retirement Security and Personal Savings, Bipartisan Policy Center

In his testimony, the Honorable Kent Conrad, Senior Fellow and Co-Chair on Retirement Security and Personal Savings at the Bipartisan Policy Center (BPC), referenced a  2016 Gallup poll stating that 64 percent of Americans are “very worried” or “moderately worried”  about not having enough money for retirement. Conrad cited the Urban Institute’s research that the median amount of retirement assets held by Americans aged 62-69 stood at just $32,000 in 2015, further stating that millions of Americans cross-generationally are not prepared for retirement. He listed six challenges associated with retirement security in America, identified by BPC’s Commission on Retirement Security and Personal Savings: 1) few workers participate in workplace plans; 2) account leakage caused by unexpected expenses; 3) longevity and the risk of outliving savings; 4) under-utilization of home-equity for retirement; 5) lack of financial literacy in America; and 6) shortfalls in Social Security. Conrad affirmed the need to simplify retirement for small businesses, allowing employers to enroll employees in multiple savings accounts, and to incentivize retirement for young workers.

Professor Walter Russell Mead, Distinguished Fellow at Hudson Institute, Chace Professor of Foreign Affairs and Humanities, Bard College, and Editor-at-Large, The American Interest

Professor Walter Russell Mead, Bard College, in his testimony, affirmed that “our three-legged retirement system—public savings (i.e. Social Security), employer-provided retirement plans (e.g. pensions), and private savings and investments is failing Americans.” He applauded the bipartisan efforts and focus of the Committee to address retirement security. Professor Mead said that adopting a system of retirement policies that shifts the burden of taxation and collection from employers to financial

Institutions, while protecting the retirement security of individuals, will boost the retirement system to the 21st century.

Questions and Answers

Current Retirement System

Cotton questioned why our current retirement system needs an overhaul. Professor Mead attributed the need for change to the role of technology. He added that the transformation in technology has caused a difficult transition in the retirement system, but the outcome of an advanced, reformed system will allow for a “much higher standard of living for retirees.” Former Senator Conrad explained that problems with the current system can be attributed to a lack of access and contributions to employer-sponsored retirement plans.

Financial Literacy

Sen. Thom Tillis (R-N.C) discussed the importance of financial literacy as part of the multi-faceted challenge with retirement. Professor Mead, in agreement, stated that states must ensure curriculums include financial literacy. Tillis commended the promotion of workplace financial literacy.

DOL Fiduciary

Tillis asked if the Department of Labor’s fiduciary rule aids or hurts individuals who have a limited capacity to contribute to plans. Professor Mead stated that one of the challenges with the current system is that individuals have scattered accounts, low balances, and the cost of the fiduciary rule would make it difficult to utilize and grow those accounts.

Next Steps

Heitkamp questioned the future of labor and whether a retirement plan can be designed around the changing workplace. Conrad acknowledged the current “technological revolution,” and stated that it presents an opportunity to change the way retirement is viewed. He reiterated the need to build a culture of savings and improve the financial resilience of American families. Conrad noted that organization and education are the next steps for the Subcommittee, stating it is a “tremendous opportunity” for reform. Professor Mead explained that the current system was not created in anticipation for evolving jobs. Professor Mead reminded the Subcommittee “to consider the lack of trust amongst elites and grassroots individuals because of national system failures like retirement.”

For more information on this hearing, please click here.