American Benefits Council
Benefits Byte


May 21, 2014

The Benefits Byte is the American Benefits Council’s regular e-mail and online newsletter for members only, providing timely reports on legislative, regulatory and judicial developments, along with updates on the Council’s activities in support of employer-sponsored benefit plans.

The Benefits Byte is published by the American Benefits Council, based on staff reports and edited by Jason Hammersla, Council director of communications. Contact information for Council staff related to specific topics can be found at the end of each story.

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Senate Subcommittee Hearing on Social Security Includes Discussion of Employer Plans

As part of a May 21 Senate Finance Subcommittee hearing on the future of the Social Security program, witnesses discussed broad reforms to address the nation’s retirement security challenges, including potential changes to the employer-sponsored retirement benefits system. The hearing, entitled Strengthening Social Security to Meet the Needs of Tomorrow’s Retirees and hosted by the Subcommittee on Social Security, Pensions, and Family Policy, included as one of its witnesses Dr. Teresa Ghilarducci, a frequent and vocal critic of defined contribution plans.

In his opening statement, Chairman Sherrod Brown (D-OH) described the generational successes of the Social Security program and the challenges imposed by changing demographics. He invoked the image of the three-legged stool, with Social Security as one of the legs, noting that the other two legs of the stool, personal savings and pension plans, “have, for many, many, many workers, in this country, virtually been sawed off. … Defined pension benefits, as we know, have declined, [and] only half of workers have access to an employer sponsored retirement plan.” Brown is an original cosponsor of the Strengthening Social Security Act (S. 567), introduced by Senate Health, Education, Labor and Pensions Committee Chairman Tom Harkin (D-IA).

Ranking Republican Member Patrick J. Toomey (R-PA) said in his opening statement that the fundamental problem is that spending for Social Security is growing faster than the economy, which is unsustainable, and argued that additional tax increases are not the solution.

Senator Johnny Isakson (R-GA) also provided an opening statement, emphasizing that Congress needs to take some of the pressure off of the Social Security administration by empowering retirees and people who will retire to save and plan for retirement. “For most Americans, a vast majority, they are not saving for their retirement, they are not planning for their retirement, so it is important for us to take the tax incentives we have in the code for IRAs and 401(k)s and Roths and empower people to save. Every time somebody has saved for their retirement, it takes pressure off the Social Security system for additional benefits.”

The committee heard testimony from the following witnesses:

  • Dr. Teresa Ghilarducci, chair of the economics department at the New School for Social Research, voiced strong concerns about the employer-sponsored retirement system, suggesting that employer coverage is “eroding precipitously” and calling the existing tax incentives supporting employer plans “a failure.” She criticized what she described as the regressive nature of the tax incentives, as well as erosion of plan assets resulting from loans, hardship withdrawals, fees and inappropriate investments. As a solution, she recommended the creation of “universal retirement accounts,” with the tax “exclusion” converted into a refundable tax credit.
  • Stephen Goss, chief actuary for the Social Security Administration, discussed the demographic challenges facing Social Security, including the ongoing increase in the population of retirees and decrease in birth rates. In reference to employer-sponsored plans, he noted that a particular drawback of the defined contribution system is its lack of annuitization.
  • Dr. Jason J. Fichtner, a senior research fellow at the Mercatus Center at George Mason University, disputed the characterization of a national “retirement crisis,” suggesting that Congress should focus on long-term changes to the program including raising the early eligibility age and modifying the program’s benefit formula.
  • Dr. Maya Rockeymoore, president and CEO at the Center for Global Policy Solutions, described the different retirement challenges faced by lower-income and minority groups. Specifically, she highlighted the need to address the problems faced by workers without access to employer-sponsored benefits.

During the question-and-answer period, Fichtner tacitly endorsed the conversion of the 401(k) tax deferral to a refundable or non-refundable tax credit, comparing it to a mortgage interest deduction that benefits mostly high-income taxpayers.

In response to a question from Brown, Ghilarducci stated that raising the retirement age is a bad idea because it does not account for differences in life expectancy. She also voiced support for Senator Marco Rubio’s (R-FL) new retirement plan (described in the May 14 Benefits Byte), which provides for federal thrift savings plans for individuals without employer plans.

Other questions arising during the discussion centered on how to equalize benefits for high and low-income workers, how to promote lifetime income options, the proper calculation of cost-of-living adjustments and how to mitigate discrepancies in life expectancy among various populations. For more information, contact Diann Howland, vice president, legislative affairs, at 202-289-6700.

Joint Economic Committee Examines Retirement Security for Women

The Joint Economic Committee – a bipartisan, bicameral advisory panel whose primary tasks are to review economic conditions and to recommend improvements in economic policy – held a hearing on May 21 to discuss Women’s Retirement Security.

Senator and Committee Vice Chair Amy Klobuchar (D-MN) presided over the hearing. “Women still face … a significantly higher poverty in their retirement,” she said, noting for example that the poverty rate for women aged 75 or older is twice that of men aged 75 or older.  Citing a report she released in April, Klobuchar described many of the economic challenges women face during their working lifetimes, affecting their ability to achieve a financially secure retirement.

Representative Richard Hanna (R-NY) suggested that retirement security challenges – for men and women – are a direct result of slow economic growth and a demographic shift characterized by the departure of baby boomers from the workforce.

The committee heard from the following witnesses:

  • Debra Whitman, executive vice president, Policy, Strategy and International Affairs for AARP, provided additional statistics illustrating the disparate retirement challenges women face. She recommended a “multi-pronged strategy” to address these problems, including strengthening the Social Security program, encouraging employer retirement plan sponsorship and features (including automatic enrollment and escalation and lifetime income options) and programs that would help workers without existing coverage save for retirement.
  • Brigitte Madrian, professor of public policy and corporate management at the Harvard John F. Kennedy School of Government, described the “financial literacy” gap between men and women during their working careers, though she noted that the gap narrows somewhat as individuals approach retirement age. She provided evidence indicating that the actual savings gap between men and women is primarily caused by income disparities rather than differences in access or participation to plans.
  • Cindy Hounsell, president of Women's Institute for a Secure Retirement, talked about how women serving as caregivers are at a significant disadvantage when saving for the future or entering (or re-entering) the workforce.
  • Rachel Greszler, senior policy analyst, economics and entitlements at the Center for Data Analysis at the Heritage Foundation, told the committee that the government “can do more by doing less.” She recommended that Congress focus primarily on ensuring broader economic growth, including addressing entitlement funding.

During the question-and-answer period, Representative John Delany (D-MD) asked what specific policy actions would help women close the gap with men. Whitman suggested that increased workplace flexibility would help women balance their responsibilities as caregivers with their responsibilities as employees. Madrian suggested that increased annuitization would help those who live to extreme old age or have difficulty managing their assets.

The witnesses expressed caution in response to a question from Hanna about the concept of means-testing benefits. Whitman voiced concern, since beneficiaries pay in a different rates. Gretzler supported means testing, conditional on an elimination of the payroll tax as part of comprehensive tax reform, so it would no longer be a contributory system.

Hanna also asked the witnesses about strategies to improve retirement savings apart from Social Security. Whitman responded that public policy should encourage employers to offer retirement plans, “be it through auto-IRA or through many of the states that are looking at state programs.”

Klobuchar asked what could be done to improve retirement coverage for those who don’t participate in an employer plan. Madrian replied that automatic enrollment can be a powerful tool, but she noted that automatic enrollment was less prevalent among small employers. Whitman added that automatic escalation of the employee contributions can also make a positive impact. Klobuchar followed up by suggesting that an automatic enrollment mandate might be warranted.

For more information, contact Diann Howland, vice president, legislative affairs, at 202-289-6700.

The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.

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