US Senate Committee on Health, Education, Labor, & Pensions

Statement of Chairman Tom Harkin (D-IA)

At the HELP Committee Hearing “Simplifying Security: Encouraging Better Retirement Decisions”

Thursday, February 03, 2011Justine Sessions (202)-224-3254

“I want to welcome everyone to the latest in our series of hearings focusing on retirement security.  This is our first hearing looking specifically at how to make retirement plans work better.  

“There is no question that it is getting harder and harder for the average person to retire.  Families are facing unprecedented challenges, and saving for retirement is just not an option for many.  Wages have been stagnant for years, and people are working longer and harder than ever before.  Yet they still cannot seem to meet the costs of basic everyday needs, like education, transportation, and housing, let alone save enough to support them in their old age.

“Even people who want to prepare for retirement often find it difficult to do so.  Over a quarter of workers do not have any meaningful retirement savings at all, and only a small percentage of people have a traditional pension.  These days, the vast majority of the people with any retirement plan at all just have a 401(k).  

“But 401(k)s often do not provide real retirement security.  They leave workers exposed to the vagaries of the market and do not necessarily provide workers with a guaranteed lifetime income stream like traditional pension plans.  That means families relying on a 401(k) have to roll the dice and pray that they do not outlive their retirement savings.  

“We have taken some important steps to improve the 401(k) system by requiring more transparency.  For the first time, there is a bright spotlight shining directly on the fees that have been siphoning off people's retirement savings for years.  People are finally going to be able to easily compare different investment options, and costs will come down as the market becomes more open and honest.  

“But we still have a long way to go before the 401(k) system works for everyone.  Just recently, I heard from a carpenter who told me that when he tried to sign up for his plan, his employer handed him a list of investments two pages long and a five-inch binder full of prospectuses.  If you are working twelve hours a day and trying to raise a family, you do not have time to pour through hundreds of pages of fine print to try to figure out what to do with your 401(k).  There has got to be a way to make saving for retirement simpler.

“Automatic enrollment was a good first step.  There is a considerable amount of evidence that people are more likely to participate in a 401(k) plan if they are automatically enrolled by their employer than if they have to actually sign up on their own.  The Pension Protection Act of 2006 Congress helped encourage automatic enrollment by removing some of the barriers and giving employers some piece of mind.  Now, more and more plans are using automatic enrollment, and that has gotten more people saving.  

“The question for today is whether we can do more.  Can we apply the lessons of automatic enrollment elsewhere?  And can we do a better job getting people the information they need to make better financial decisions?  

“One way to encourage people to boost savings is to give them an estimate of how much monthly retirement income a person can expect from their 401(k).  People already get that kind of estimate on their annual Social Security statement, and it is incredibly helpful.  I commend Senators Bingaman, Isakson, and Kohl for the work they have already done on this issue.

“Another way to encourage people to save is to allow for more financial education, especially among young people just entering the workforce.   Every day, we see people coming up with new and innovative ways to educate people about personal finance, and when people are engaged, they tend to save more.  One study found that 18 percent of people that used an online retirement calculator increased their contribution rate.  That will have a long-term, positive effect.

“As we look at ways to improve 401(k) plans, it is important we remember that making plans simpler and more automatic does not always mean they are safer or more secure.  Target date funds are a good example.  Those funds show considerable promise as an easy way for people to manage their retirement accounts, but the effects of the Great Recession highlighted that there is still a lot that needs to be done to make target date funds safe for workers and retirees.  Going forward, any steps we take to make 401(k)s simpler must be accompanied by protections to ensure that participants are being treated fairly and getting the best possible value.

“We also need to remember that a simpler 401(k) is not going to help the millions of American families barely scraping by.  Those people deserve a secure retirement, too, and I plan to address the challenges they face and the need for improved access to the pension system in future hearings in this Committee.

“Retirement issues have always been an area of great bipartisan interest, so there is a real opportunity to work together to improve retirement security for families all across America.  I am confident that the hearing today will give us all a lot to think about, and I look forward to working with my colleagues to find practical solutions solve to the retirement crisis in America.  Thank you all for being here today.”

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