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Statement of Senator Tom Harkin (D-IA) On Senate Floor: “Helping American Workers Retire Securely Is Good For the Whole Economy”

*As prepared for delivery*

WASHINGTON, D.C. – In a floor speech today, Senator Tom Harkin (D-IA), Chairman of the Senate Health, Education, Labor, and Pensions (HELP) Committee, talked about the growing retirement crisis Americans face and the need to act now to solve it. Many Americans are vastly unprepared for retirement, with the retirement income deficit—the difference between what Americans need to have saved for retirement and what they have actually saved—estimated to be at least $6.6 trillion.  Seventy-five million working Americans do not have a retirement plan, and half of all Americans have less than $10,000 in savings.

To tackle the retirement crisis, Harkin recently introduced the USA Retirement Funds Act, bold new legislation that would rebuild the private pension system by expanding access to privately-run, portable retirement plans. Harkin’s legislation would create a new type of privately-run retirement plan that combines the advantages of traditional pensions—including lifetime income benefits and pooled, professional management—with the portability and ease for employers of a 401(k).

“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,” Harkin said. “We can do better.  We must do better.  That’s why I recently introduced the USA Retirement Funds Act, a bill that will have tremendous benefits for working people, businesses, and our economy.”

The full text of Harkin’s remarks, as prepared for delivery, is as follows.

“I rise today to talk about a subject near and dear to my heart – retirement security.  I have been focused on retirement issues for 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 worried.  We are facing a retirement crisis, which is one of the most under-reported crises out there.  Consider this: The retirement income deficit – meaning, the difference between what people have saved for retirement and what they should have at this point – is a staggering $6.6 trillion and growing.  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.

“Everyone wants to enjoy their golden years with dignity and financial independence, but that is becoming less and less likely for the average person.  People who run out of money when they get old 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 have to rely entirely on the modest benefit provided by Social Security. 

“One of the primary causes of the retirement crisis is that only half the workforce has access to a retirement plan at the workplace. When I started in Congress, one out of every two workers had a traditional, defined benefit pension plan.  Now, it’s one out of five.  It’s fallen by over 30 percent in just a couple of decades.

“Unfortunately, instead of trying to improve the pension system and lift everyone up, there are too many people out there trying to score political points by scapegoating public servants for state and local budget shortfalls.  Pensions aren’t the cause of states’ fiscal problems, and retired public servants aren’t living high-on-the-hog on the taxpayers’ dime.  Those are malicious myths being spread by people who have two objectives: to discredit public-sector unions and to dismantle the pension system.   

“Pensions are one of the best ways to ensure that middle class folks can have a secure retirement, because they provide a guaranteed source of income that people can count on for as long as they live. Can current pension systems be improved?  Certainly.  But there's no reason to abandon a system that has worked for millions of people.

“The sad truth is that, these days, the vast majority of employees with any retirement plan at all just have a 401(k).  Those plans can be a good way to help people put a little money aside to supplement their pension, but 401(k)s were never intended to replace pensions.  Savings rates are too low, and there's no simple way for people to convert their savings into a stream of retirement income they can't outlive.

“The promise people made about 401(k)s was that more businesses would start them and more people would participate.  But decades after the start of 401(k)s, the number of workers participating in retirement plans has stayed flat.  According to Monique Morrissey of the Economic Policy Institute, in 1989, participation was at 46% of the workforce, and in 2010, it was 45%. 

“We have definitely seen some modest increases in overall savings in the past few years.  That should be good news.  But when you dig into the data, when you look at who is really saving more, it becomes clear just how unequal the system really is.  Most of the money is being saved by higher income Americans, while working class and low-wage workers are struggling to even earn regular full-time hours at work. A household in the 90th percentile of the retirement savings distribution has nearly 100 times more retirement savings than the median household, which has a negligible amount. 

“And there is an unacceptable amount of racial and gender inequality in the current system.  The National Institute on Retirement Security recently found that Black, Asian, and Latino workers have significantly less access to a retirement plan on the job than white Americans, especially in the private sector.  As a result, the vast majority of working-age households headed by people of color have little or no retirement savings.  For those with a retirement plan, the average account balances for Black and Latino households are less than one-fifth that of white households.

“Addressing the issue of retirement security would also be particularly beneficial to women. We all know about the income gap between men and women, but what a lot of people don’t realize is that the gap is especially pronounced after retirement. In 2011, the median annual income of older women was $14,225, while the median annual income of older men was $24,794.  Unequal pay during their working years allows women less opportunity to save, and the fact that they more often take time off during their working years means they have less time to save.

“Additionally, women are concentrated in jobs that don’t traditionally offer retirement plans. This means that despite having higher rates of savings, women still lag behind men when it comes to total retirement savings.

“We can do better.  We must do better.  That’s why I recently introduced the USA Retirement Funds Act, a bill that will have tremendous benefits for working people, businesses, and our economy.

“My legislation tackles the retirement crisis head-on by ensuring that the 75 million people without a workplace retirement plan would have the opportunity to earn a safe and secure pension benefit. The plans would be called Universal, Secure, and Adaptable Retirement Funds – USA Retirement Funds for short.  They would give millions of workers access to retirement savings they can’t outlive. 

“The concept is simple.  Employers who don’t offer a pension or a well-designed 401(k) would just automatically enroll their employees in a USA Retirement Fund.  If the person wants to opt out, she can.  No one would be forced to participate, but by making the system opt-out instead of opt-in, we can get millions more people participating.  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 for as long as he or she lives.

“Over time, as people contribute, they will earn a real retirement benefit that will be a better bang for the buck than what they could have gotten on their own.  That is because USA Retirement Funds would spread retirement risks over large groups of participants.  A recent report by David Madland at the Center for American Progress found that USA Retirement Funds – with their risk pooling and professional management – would make retirement much more affordable for working families.  In fact, it could cut in half the amount that people need to save when compared to current defined contribution plans.

“USA Retirement Funds would be great for small business, making it easy to offer quality benefits.  All the employer has to do is help their employees enroll in a fund and send along the contributions.  They wouldn’t have to manage the plan or make any decisions.  It would all be taken care of be a board of independent, qualified trustees. Employers could make voluntary contributions if they wanted.  That is important because I think a lot of employers will want to contribute toward their employees’ retirement.  Pensions are, after all, great recruitment and workforce management tools.

“USA Retirement Funds would be good for the economy, too.  This is a point a lot of people don’t consider.  By bringing more people into the retirement system, there will be a lot of new savings, and all of that money would be invested right back into economy, creating growth and new jobs.  And because the funds are long-term investors, they would be able to provide much needed ‘patient capital’ for our entrepreneurs and innovators.

“I want to emphasize two more key points about my bill.  First, USA Retirement Funds would not replace pensions or 401(k)s.  Employers could, and should, continue to offer retirement plans at the workplace.  What USA funds would do is give people without access to a quality employer-provided plan the opportunity to earn a retirement benefit.

“Second, USA Retirement Funds aren’t a new government program.  They are a new type of 21st century retirement plan that would be run entirely by the private sector, just like pensions and 401(k)s. 

“Finally, I would be remiss if I didn’t remind everyone that we can’t truly address the retirement crisis by reforming the private retirement system.  We also need to improve the most efficient, most effective retirement program we have – Social Security.  That’s why I introduced the Strengthening Social Security Act last year.  It 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.  It would provide for those modest benefit increases by lifting the cap on the payroll tax, which extends the life of the trust fund to almost 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.

“During this time of economic insecurity, it’s more important than ever that working people have the opportunity to prepare for retirement. I urge my colleagues to help rebuild the pension system in this country by supporting the USA Retirement Funds Act.”