“Senators, time is not our ally on this matter.” Oregon State Treasurer Ted Wheeler captured one of the few things that witnesses at a March 12 hearing of the Senate Banking, Housing and Urban Affairs Committee’s Economic Policy Subcommittee agreed on — that Americans need to save more for retirement.
That message was not lost on Subcommittee Chairman Sen. Jeff Merkley (D-OR), who said it is “very much a part of our [American] dream that hard-working Americans will not have to live in fear of their old age — that hard work, prudent saving and a strong safety net will allow them to develop a potential nest egg to support them throughout retirement and possibly leave something behind for their spouse and children.” Witnesses differed, however, on how to get to achieve that goal.
Wheeler cited the increasing age and poor retirement savings rate of constituents in his state as an alarm bell, warning that “this is a demographic tidal wave that threatens to swamp us.” Wheeler’s prescription is for states to devise their own solutions, in tandem with development of federal policies that will help boost savings.
Economic Policy Institute economist Monique Morrissey, an opponent of 401(k) plans, argued that they are “poorly designed to replace pensions as a primary retirement vehicle.” Robert Hiltonsmith, a policy analyst with Demos, was more vociferous. “This national experiment in 401(k)-based ‘do-it-yourself-retirement’ has been and will continue to be a failure,” he said in his prepared statements, citing as evidence the risks and fees they entail. Instead, he advocates a low-risk, low-cost, secure account that would provide a lifetime stream of income.
State Street Global Advisors’ EVP Kristi Mitchem suggesting instead ways to improve and refine DC plans. Sen. Elizabeth Warren (D-MA) expressed interest in Mitchem’s argument that pooling retirement plans would help small employers. “I really think getting more small employers into the retirement system is the key to getting more employees into retirement systems,” Warren remarked.
IRAs were fodder for even more sharp disagreement. Morrissey complained that they are riskier and entail higher fees than 401(k)s; Mitchem pointed out that IRAs entail higher fees because they are individual accounts and that fees are lower for larger, collective arrangements.
Mitchem also took issue with Hiltonsmith’s contention that there is no oversight of fees that apply to IRAs, and that disclosure of fees concerning them is poor at best. Mitchem countered that IRAs are regulated by the SEC and that most invest in mutual funds, which must make disclosures about fees.
