Witnesses testifying before a House panel agreed that more needs to be done to address the current retirement savings coverage gap, but they diverged on what those solutions should entail.
The June 23 hearing, “Examining Pathways to Build a Stronger, More Inclusive Retirement System,” before the House Education and Labor Subcommittee on Health, Employment, Labor and Pensions (HELP) featured plugs for the SECURE Act 2.0 and state efforts to offer auto-IRAs, as well as calls to enact universal coverage.
Subcommittee chair Rep. Mark DeSaulnier (D-CA) noted that the HELP Committee plans to consider the SECURE Act 2.0 legislation in the coming months. The House Ways & Means Committee approved the legislation on May 5.
Testifying on behalf of the Democrats were Dr. Teresa Ghilarducci, Professor at The New School for Social Research; Dr. Nari Rhee, Director of the Retirement Security Program at the University of California at Berkeley; and David Certner, AARP’s Legislative Counsel and Director of Legislative Policy for Government Affairs. Dr. Andrew Biggs, Resident Scholar at the American Enterprise Institute, was the lone witness testifying on behalf of Republicans.
In many instances, the hearing was something of a history lesson on the creation and development of pensions and 401(k) plans, but there also was an underlying debate about whether the country really does face a retirement savings crisis, as well as a rehash of the multiemployer plan relief legislation enacted this past spring.
“The median retirement savings balance for the bottom 50% of American families is $0. And if we do nothing in the next 10 years, two in five of older middle- and lower-income workers and their spouses will be downwardly mobile into poverty when they move into their retirement years,” Ghilarducci testified. She argued that, if action is not taken, it threatens to erase 100 years of progress in retirement equity.
As she has done in recent years, Ghilarducci contended that everyone should have access to a pension like the federal government’s Thrift Savings Plan. In this instance, she called on Congress to support the plan she developed in collaboration with Kevin Hassett, former chair of President Trump’s Council of Economic Advisors and current Visiting Fellow at the Hoover Institution.
What Crisis?
In contrast, Biggs noted that one of the reasons he pushes back so hard against arguments that the country faces a retirement crisis is because he believes those claims ignore all the progress the country has made in improving retirement security. “Total retirement savings today are more than seven times higher than in the 1970s. Since 1989, retirement savings have increased among every age, income, education and racial/ethnic group,” Biggs testified.
“The realization is that the system has worked remarkably well in improving retirement savings,” Bigg stated later in the hearing, explaining that policymakers should look at where the gaps are in the current 401(k) system and consider how to fill those gaps, particularly for small employers. “I think we really need to think about first lowering costs and protecting legal liabilities for small employers, but we also realistically need to think about if there are alternatives for people in those employer groups where they just aren’t up to running a 401(k) plan ... and whether there are other alternatives—and that may be state plans or a federal version,” he explained.
Biggs noted, however, that he does have some concerns that small employers may seek to take the easy way out by going through the state-plan route, noting that a 401(k) is a much better savings plan. To that end, Biggs offered support for the SECURE Act 2.0. And while he doesn’t favor the multiemployer relief legislation passed earlier this year, Biggs suggested that Congress should work to implement that plan to “minimize adverse incentives and costs to the taxpayer, and to more generally reform the funding rules of multiemployer pensions that led to this fiscal disaster.”
Savings Disparities
Rhee’s testimony focused largely on how the ownership of retirement assets is “highly uneven by race, with Blacks worse off than Whites, and Latinos the worst off.” Among households age 25-64, Rhee noted that 64% of White households have a pension, 401(k) or IRA, compared with 49% of Black households and 39% of Latino households.
And while noting that the current gaps in the retirement system is a broad problem affecting all workers, Rhee remarked that the middle 50% of near-retirement households has “insufficient” retirement account balances, while most low-income households have “no retirement assets.”
Rhee offered support for several policy proposals, including enhancing Social Security benefits for low-wage workers and caregivers, restructuring tax incentives for retirement savings, and state policy efforts to expand auto-IRAs. But like Ghilarducci, Rhee also argued for a national universal retirement savings system. “I am agnostic on the exact policy model. Having been deeply involved with the development of the CalSavers program, I offer that there’s much to learn from the states, and from other national models like the UK NEST program and the Australian Superannuation program, in terms of the possible combinations of employer- and publicly-sponsored plans in a universal coverage scheme,” Rhee testified.
AARP’s Position
Among other things, the AARP’s Certner pointed to the success of automatic features, noting that among new hires, participation rates nearly doubled to 93% under automatic enrollment, compared with 47% under voluntary enrollment. But one caveat he added is that auto features only help those with access to a plan.
To that end, he noted that AARP supports auto-IRA plans at the state and federal levels, and in particular, has been working at the state level on efforts to expand coverage for those workers who don’t have access to plans.
Certner also offered support for SECURE 2.0, noting that the bill would extend greater coverage to more part-time workers and automatically enroll workers in new employer retirement savings plans once they have been in business for three years and employ more than 10 employees. “AARP urges Congress to improve coverage for the 27 million part-time workers who generally are not covered by retirement savings plans. This is especially important for older workers and caregivers who often shift from full-time to part-time work or return to the workforce less than full-time due to caregiving responsibilities,” he testified.
A video of the hearing and the witnesses’ testimony are online here.
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