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Senator Harkin's Remarks on the Retirement Crisis at the Center for American Progress Action Fund

*As Prepared for Delivery*

“It is a special pleasure to be able to talk about a subject near and dear to my heart – retirement security.  I have been focused on this issue for many years.  And I know from my constituents that the dream of a secure retirement is growing fainter and fainter.  Whether it’s a young family struggling to pay off student loan debt, save for their kids’ education and put something aside for their own retirement, or a 65-year old nurse finally eligible to stop working, most Americans are deeply worried that they will not have enough money to live on when they stop working. 

“They’re right to be deeply worried.  When I started looking into retirement issues, it quickly became clear that we are facing one of the most under-reported crises out there.  Consider this: the retirement income deficit – meaning, difference between what people have saved for retirement and what they should have at this point – is a staggering $6.6 trillion and growing.  That’s ‘trillion’ with a ‘T.’ The sad truth is that most people just aren’t prepared financially for retirement. 

“And what happens to people who run out of money when they get old?   They can’t keep up their standard of living.  They become a burden to their families – if they’re lucky enough to have family to turn to.  And they lean more and more on the social safety net, squeezing government at all levels. 

“Hardworking Americans want to enjoy their golden years with dignity and financial independence.  But that is getting less and less likely for the average person.  Today, half of Americans have less than $10,000 in savings, and only 14 percent are “very confident” they will have enough money for a comfortable retirement.  We can do better.  We must do better.

“The root of the problem is that there has been a breakdown of the traditional pension system.  Years ago, if you had a steady job, odds are you probably had a defined-benefit pension.  Having that pension meant you could go to bed at night and sleep easy because you knew that when you retired, you would have a predictable, guaranteed source of income for as long as you lived. 

“Now, defined-benefit pensions are an endangered species.  When I started in Congress, one out of every two workers had a pension.  Now, it’s one out of five.  It’s fallen by over 30 percent in just a couple of decades, and it’s only going to get worse unless we take action.

“The vast majority of employees with any retirement plan at all just have a 401(k), but, by themselves, those plans aren't doing enough to help families prepare for retirement.  Savings rates are low, and there's no simple way for people to convert their savings into a stream of retirement income they can't outlive. 

“Plus, let’s be honest, 401(k)s are just plain complicated.  How many of you in this room are really confident that you know what you’re doing with your investments?  And you’re the experts.  Think about how hard it is for people that don’t live and breathe this stuff.

“At the end of the day, 401(k)s help some people save for retirement .  And I'm all for that.  But pensions provide people with a number of benefits that 401(k)s don’t.  The most important thing is that they give people the opportunity to earn a retirement benefit for life – something they can’t outlive. And they do it at a lower cost. 

“Plus, pensions are good for the economy.  They are an important source of ‘patient’ capital that gets invested back into the economy, creating jobs and spurring innovation.

“Unfortunately, instead of looking for solutions to the looming crisis, we have the sad spectacle of ideologues and demagogues trying to score political points by attacking pensions and scapegoating public servants for state and local budget shortfalls.  Pensions aren’t the cause of states’ fiscal problems, and retired public employees aren’t living high-on-the-hog on the taxpayers’ dime.  Those are myths being spread by people who want to dismantle the pension system.   

“There are certainly things we can improve, but there's no reason to abandon a system that has worked for millions of people.  We need to keep the system and do what we can to make it stronger. 

“But we can't stop there.  We can’t just focus on protecting what we have, because every year – as more and more pensions disappear – it’s going to be harder and harder to keep what we have.  That’s why we need to broaden the conversation and make it one about lifting everyone up – ensuring that everyone has the opportunity to earn a safe and secure retirement. 

“Last year, as chair of the Health, Education, Labor, and Pensions Committee, I released a major report titled ‘The Retirement Crisis and a Plan to Solve It.’   The report summarizes two years of hearings and roundtable discussions in Washington and in my home state of Iowa, and it proposes to provide universal access to a new type of privately-run retirement plan. 

“The plans would be called Universal, Secure, and Adaptable Retirement Funds – USA Retirement Funds for short.  These funds would have the advantages of a traditional pension – professional management, economies of scale, longevity risk pooling – without forcing employers to bear all of the risk.  It’s very similar to the collective defined-contribution plan that CAP has proposed. 

“It would work like this:  Employers participating in a USA Retirement Fund would automatically enroll their employees.  In other words, all employees would participate unless they specifically opted out.  Employer and employee contributions would go into the fund and would be managed by a board of trustees.  When a participant retires, the fund would provide the retiree with a monthly benefit – like an annuity – for as long as he or she lives. 

“That's very similar to a normal pension, but here is the big difference: employers wouldn't be responsible for managing the fund or making up underfunding.  In our hearings in the HELP Committee, several witnesses made it very clear that it’s getting harder and harder to get employers to agree to bear the risk. 

“Personally, I would love it if employers would do the right thing and provide pensions, and many employers still see the benefits of offering a pension.  But I certainly understand their concerns, so with USA Retirement Funds, I am trying to strike a balance that is fair to both employers and employees. 

“USA Retirement funds would take all of the risk off of employers.  The funds would be managed by independent, qualified trustees.  And employers’ minimum contributions would be fixed, as they are with a defined-contribution plan.  Of course, they could put more in if they wanted, and I think a lot of employers would want to contribute more.  Pensions are, after all, great recruitment and workforce management tools.

“Some of you will ask, what about underfunding?  What happens if the fund needs more?  Well, by using conservative assumptions, we can be fairly certain that the fund will be able to pay full benefits for as long as participants live, without needing employers to provide additional funds.  But in the event that there is a sustained economic downturn or some other serious problems, benefits could be gradually adjusted to reflect market realities.  By spreading the risk over large groups of participants, we can significantly reduce the impact that market changes have on individuals. 

“Of course, that means USA Retirement Funds would not provide the same kind of guarantee that traditional pensions do.  But they would give people access to a lot of the benefits of traditional pensions while also being attractive to employers, especially small businesses. It is truly a win-win for everyone involved. 

“But my plan doesn't stop there.  I would also make sure that everyone has the opportunity to participate in a USA Retirement Fund.  We know that about half of the workforce lacks access to a retirement plan, and people without a plan are statistically much less likely to save for retirement.  That’s why I’m proposing that employers who do not offer a pension or a generous 401(k) would have to automatically enroll their employees in a USA Retirement Fund and make modest contributions. 

“In addition to private pension reform, I have also proposed some improvements to the most efficient, most effective retirement program we have – Social Security.  First, I would expand Social Security benefits by about $65 a month, and ensure that benefits keep pace with inflation by making the cost-of-living adjustment better reflect cost increases for seniors.  In doing so, I would also lift the cap on the payroll tax.  Even after providing a modest benefit increase, this simple change would extend the life of the trust fund beyond 2050, making Social Security stronger for future beneficiaries. 

“By improving the private retirement system and bolstering Social Security, we can tackle the retirement crisis in a robust way, and help millions of working people. 

“We’ve got a big job ahead of us.  We have to educate people – and raise consciousness – about the scale of this retirement crisis.  We need to come together around the kinds of practical solutions that I have talked about today. 

“On that score, again, let me say how much I deeply appreciate the excellent work that CAP is doing.  And, again, I thank you for the opportunity to share my thoughts with you this morning.”