At a Feb. 6 hearing, the Senate Special Committee on Aging heard ideas from a panel of experts on how to increase retirement savings and enhance Americans’ financial readiness to retire.
“As Americans live longer, the risk that they will outlive their savings only increases,” said Special Committee on Aging Chair Sen. Susan Collins (D-ME) in her opening remarks. “For many, saving for retirement seems out of the question,” she said, adding, “We’re on the verge of a national crisis.”
Traditional pensions are “rare these days,” Collins said, with individuals increasingly responsible for preparing for retirement themselves. Another important trend, she noted, is that many employers do not offer retirement plans; in addition, she said that it is “increasingly clear that Social Security should not be the only source of retirement income security.” The three pillars on which retirement financing is based “are all on shaky ground,” said Collins.
“The truth is that our retirement system does well for some, but allows others to fall through the cracks,” said Ranking Member Sen. Bob Casey (D-PA), adding that that is especially true for women and for those whose employers do not offer a retirement plan. Comptroller General of the United States Gene Dodaro sounded a similar note, telling the committee that regarding saving for retirement, “some people are doing it very well, but others are not.
“The current retirement system is not well-suited to meet the 21st century needs of our country,” Dodaro remarked. He told the committee that portability of some plans is “a plus,” but does not benefit everyone because lower income workers have trouble saving.
Dodaro added that “there is a tension between encouraging people to spend in order to boost the economy and encouraging people to save.” Sen. Krysten Sinema (D-AZ), as did Collins, noted that the interruption some employees experience in their working lives to care for aging parents also complicates their ability to save for retirement.
Denis St. Peter, President and CEO of the engineering consultant firm CES, Inc. outlined for the committee the steps his company took to increase its employees’ retirement readiness. He said that in examining their plan, they were struck by their lack of an employer match. They also knew that their employees were underfunding their retirement accounts, and said that their top heavy testing showed that they were close to the limit.
Their response was to increase the match, start an investment committee and a benefits committee, better educate and communicate with employees and make full use of their TPA. He reported that the results were that participation in the plan rose from 62.3% to 89.5% and that the employer match became a useful recruitment and retention tool.
John Scott, Director of the Retirement Savings Project at the Pew Charitable Trusts, suggested possible answers. Among them: auto-enrollment, which he said could boost participation, and a tax credit for the costs of starting a retirement plan. Such a credit, he said, “could be useful” in encouraging new plan formation.
Multiple employer plans (MEPs) are another possible answer, both Scott and Dodaro suggested. Scott noted that Pew has found support for MEPs in its research, and Dodaro said that MEPs have been on the Governmental Accountability Office’s “highest wish list since 2009.” Regarding MEPs, Dodaro said that it is “very urgent that Congress take action,” and if it doesn’t, many people aren’t going to have any prospects for a financially secure retirement. St. Denis also expressed support for MEPs.
Increasing financial literacy is another response panelists suggested. “Financial literacy is a real issue,” said Dodaro, “People don’t know how much to save,” said Linda Stone, a Fellow of the Women’s Institute for a Secure Retirement and a Society of Actuaries Committee on Postretirement Needs and Risks volunteer. She noted that annual statements regarding Social Security projections are no longer sent, and said that it is difficult to obtain useful information about that by phone. She suggested that providing information regarding how to translate lump sums into monthly payments would be helpful.
Scott suggested that lack of awareness also includes small businesses. He told the committee that many are not aware of the array of retirement plan options, such as SIMPLE plans. “We need to give them the tools,” he said.
Access to plans is key as well, Stone indicated. “There’s something about workplace plans that make people feel more secure,” she said, adding that it would be helpful if something could be put in place to facilitate greater access to plans.
In response to remarks by Sen. Richard Blumenthal (D-NY) that Social Security comprises half of the income of half the senior citizens in the United States and that “the news is not great looking into the future” for Social Security, Dodaro called it “essential” to reform the Social Security system. “You have a very big issue here” regarding upcoming shortfalls, he said.
Scott suggested that a reevaluation of the entire system may be worthwhile. A “comprehensive conversation would be helpful” for many people, he said.
“The longer we ignore the looming retirement crisis, the worse it will be,” said Collins.