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

Statement of Senator Tom Harkin (D-IA) at the HELP Committee Hearing: “Pooled Retirement Plans: Closing the Retirement Plan Coverage Gap for Small Businesses”

Tuesday, July 16, 2013

*As Prepared for Delivery*

“I would like to thank all of you for coming to the latest in our ongoing series of hearings on the retirement system.  Today, we are going to focus on the fact that most people employed by small businesses simply are not being offered good retirement benefits.  And we are going to look at whether we can address this problem by allowing groups of small employers to reduce cost, complexity, and risk through pooled retirement plans.

“These are important issues because we are facing a retirement crisis in this country.  Whether it is a young family struggling to pay off student loan debt, save for their kid’s education, and put something aside for their own retirement, or someone whose body just cannot handle the stress of work any longer, Americans are terrified that they will not have enough money to live on when they stop working.

“They are right to be anxious.  Most people simply are not saving enough for retirement, and the dream of a secure retirement is growing more and more remote for middle class families.  The retirement income deficit—that is, the difference between what people have saved for retirement and what they should have saved—is estimated to be at least $6.6 trillion.  And half of Americans have less than $10,000 in savings.  

“To make matters worse, only half the workforce participates in an employer-provided retirement plan.  And defined benefit pension plans are disappearing.  When I came to Congress, one in two Americans had a pension.  Now, that number is just one in five.

“If you ask small business owners, they understand how big a problem the retirement crisis really is.  A recently survey by the Main Street Alliance and American Sustainable Business Council found that a super-majority of small business owners believe that a lack of retirement security hurts the economy by both making older Americans less willing to spend and by forcing the current generation to devote time and money to the financial support of their aging parents. 

“As we will hear today, the 42 million people working for small businesses are not getting the retirement plans they deserve.  Most small employers don't even offer a 401(k), let alone a pension.  When they do offer a plan, studies consistently show that participants pay higher fees, which can profoundly reduce retirement savings over the course of a career.  The plans also are not typically designed to produce retirement income.  They are savings plans that help people build up a nest egg during their working years but do nothing to help convert savings into a secure source of retirement income. 

“If we are ever going to solve the retirement crisis, we need to make sure everyone—including those who work for small businesses—has the opportunity to participate in a quality retirement plan.  That means we have to address the issues that are keeping small business owners from starting retirement plans.  We have to make the plans less costly, less complex and less risky. 

“That is the heart of my proposal to create USA Retirement Funds—21st-century retirement plans that are easier for employers to offer and give participants a secure source of retirement income for life.  USA Retirement Funds would provide employers—especially small employers—the chance to pool their resources so they can have all of the advantages large employers have.  And it would let them delegate their fiduciary responsibilities to professional boards of trustees.  Employers just have to automatically enroll their employees and make minimal contributions.  That’s it.

“The market is moving in that direction already.  Providers are finding ways to help employers limit their liability and to incorporate lifetime income into plans.  But there are a lot of roadblocks under current law.  I want to clear a path and make it easier for the industry to innovate.  I also want to make sure the law is sufficiently protective of participants.

“I am actively working on legislation to implement USA Retirement Funds and hope to introduce a comprehensive, bipartisan reform bill soon.  But I am also committed to making the system work better for employers that are already offering good pension benefits to their employees. 

“That is why I am introducing a bipartisan bill today called the Cooperative and Small Employer Charity Pension Flexibility Act of 2013.  The bill, which is co-sponsored by Senator Roberts, will make it easier for charities and cooperative associations to provide cost-effective, defined benefit pension benefits through pooled plans.“I am confident that if we work together, we can solve the retirement crisis. I look forward to working with my colleagues of both sides of the aisle to make this happen for all Americans. Thank you all for being here, and I look forward to hearing from our excellent panel of witnesses.”

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