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Prepared Remarks for Delivery by
U.S. Secretary of Labor Elaine L. Chao
American Society of Pension Professionals and Actuaries DOL Speaks
Conference
Washington, District of Columbia
Thursday, May 24, 2007
Thank you, Tom, and thank you and the other members of ASPPA for partnering with the Department in sponsoring this conference. This is our third annual conference, and the only one of its kind to be dedicated solely to issues arising under ERISA Title I.
You might be interested to know that ASPPA’s partner in this conference, the Employee Benefits Security Administration, will be getting new leadership. I am delighted that the President has nominated Bradford Campbell to be Assistant Secretary for the Employee Benefits Security Administration. I am also pleased that Alice Joe has joined the EBSA team as the senior special assistant. This will be a strong team for DOL in protecting pensions and benefits for America’s workers.
While most Americans have never heard of Title I of ERISA, it plays a significant role in their retirement security. Nearly 150 million American workers, retirees and their families depend upon the pension, health and other benefits governed under ERISA.
The health of America’s retirement system has an impact beyond the worthy goal of providing retirement security for today’s retirees and the retirees of tomorrow. The $15.8 trillion in investment capital held in retirement accounts of various kinds, including the $5.6 trillion held by ERISA plans, help create jobs. So retirement security cannot be considered in isolation from the rest of the American economy. Especially when you consider the fact that our country’s GDP in 2006 was $13.2 trillion!
So, this morning, I’d like to talk about the strength of the economy, some important trends, and what the Department of Labor is doing to increase the competitiveness of America’s workforce. Then I would like to discuss how the Department is implementing the Pension Protection Act and mention several issues coming up in Washington that will have an impact on retirement security.
Our country’s economy is healthy and resilient. Despite rising energy prices and a bumpy housing market, the fundamentals of our economy remain positive.
Job growth is healthy and our country’s unemployment rate remains low at 4.5 percent. That’s more than a full percentage point lower than the average 5.7 percent unemployment rate of the 1990s. You can contrast this with Europe, where two countries, in particular — France and Germany — have unemployment rates near 9 percent and 7 percent, respectively. And their long-term unemployment is three times higher than the United States.
Our economy has created 7.9 million net new jobs since August 2003. That’s more jobs than Eurozone countries and Japan combined have created.
America’s workers are among the most productive of any major industrialized economy. And productivity growth in recent years is translating into higher wages and a higher standard of living. By most any measure, people today have more money in their pockets. Real per capita disposable income since January 2001 has risen 10.4 percent. And earnings for workers grew 3.7 percent over the 12 months ending in March. This translates into an extra $2,179 for a typical family of four with two wage earners.
America’s workforce is characterized by its flexibility and mobility. In the early part of the 20th century up until the 1950s, the family was usually supported by a husband who often stayed with one firm for most of his working life. Women stayed at home and took care of the family. Now two-thirds of American women work outside the home. Two-income families are the norm, not the exception. Part-time work is more widely available, and workers frequently change careers.
America has a workforce of over 150 million. And every year over 50 million workers change jobs — usually for better opportunities.
This level of change astonishes my European colleagues, because their countries have rigid regulations that limit the ability to create new jobs and discourage workers from taking new opportunities.
But America does face challenges. Our country is evolving into a knowledge-based economy. Two-thirds of all the new jobs being created require post-secondary education. These jobs require more creativity and critical thinking. And workers with more knowledge, skills, and creativity are in greater demand. So our country is facing a skills gap.
Over the next decade, our country will need 3.4 million healthcare professionals, including 1.2 million registered nurses. America’s job market will also require 23 percent more actuaries and 17 percent more financial analysts! That is good news for ASPPA! We also need workers in other high growth industries including nanotechnology, geospatial technology, and the life sciences, to name a few.
Providing a higher skilled, more educated workforce is clearly the future of our country in the worldwide economy. And the worldwide economy is nothing to be afraid of! Our free society rewards hard work, creativity, risk taking, and individual initiative. Those are unique qualities. And they comprise our country’s strongest competitive advantage in the world.
And the Labor Department recognizes this. The Department administers about $9.5 billion of your tax dollars to help fund worker training programs. And the private sector spends much more. Everyone recognizes that training is a must if our nation’s workforce is to remain competitive in the growing, worldwide economy.
There is another factor that affects America’s competitiveness: our aging population. The 2005 meeting of the G-8 Labor ministers concluded that this is a challenge facing all the major industrialized societies. The U.S. population over 65 comprises 12.4% of the population today. This will rise to 20% by 2030. In Japan and Italy, persons 65 or older comprise 20% of the population today. This will rise to almost 30% by 2030.
This demographic trend has important implications for retirement security in our country, as well as our economy. And that is why the President has introduced his proposal for comprehensive immigration reform.
There are approximately 11 to 12 million people living in the shadows who are undocumented. In his State of the Union in January, the President called for a serious, civil and conclusive debate on this issue.
He spoke about the need for comprehensive legislation that addresses all elements of this complex issue. The first important element is securing our border against terrorism and drug trafficking. Another is providing a realistic and effective temporary worker program for workers and employers. This proposal would give the undocumented opportunity to come in out of the shadows. Those who demonstrate good citizenship could enter into the immigration process in a way that is fair to those at the front of the line. Importantly, these men, women and children of good character would benefit from the protection of the law after years of contributing to society.
Recently, the Administration and a bipartisan group of Senators reached an agreement on an immigration reform bill. The proposal aims to ensure the integrity of our nation’s borders. It addresses the needs of our economy by allowing those who are here illegally to come out of the shadows and obtain legal status. The proposal also creates a temporary worker program for future workers.
Bringing more younger workers out of the shadows and into America’s economy may have a positive impact on the retirement system which is, as you know, based on a three-legged stool:
- Social Security
- Employer-provided pension systems, and
- Personal savings
All of these are affected by the changing demographics in our society. Currently, three workers support every retiree on Social Security. By 2032, only two workers will support every retiree. If this trend continues, Social Security benefits paid out annually will exceed payroll tax collections by 2017. That is why President George W. Bush proposed reforms to strengthen Social Security and to ensure the long term solvency of the system.
But Social Security does not, and was never intended to, do the job alone. This is why President Bush also supported passage of the Pension Protection Act to strengthen the second leg of the system.
Americans have invested more than $15.8 trillion in various types of private retirement assets. The majority of these assets are in pension plans, valued at approximately $10 trillion, provided by employers in the public, private and non-profit sectors. The U.S. Department of Labor helps to protect these assets by regulating the $5.6 trillion provided by private sector employers.
Today and tomorrow you will have the opportunity to discuss benefits issues with your colleagues, as well as with regulatory officials from the Department. In-depth discussions will take place regarding the Pension Protection Act, our regulatory agenda and other fiduciary, retirement and health plan issues. So let me talk a bit about the framework that has guided the retirement security reforms this Administration has proposed.
As I discussed earlier, our world and the global economy are undergoing great changes, providing not only opportunities, but challenges. This evolution impacts worker and employee retirement preferences. Today’s highly mobile workers, who change jobs frequently, want benefits that are portable. This is one of the reasons fewer workers are participating in defined benefit plans, and more are investing in defined contribution plans that can be rolled over from job to job. Just look at the numbers:
- In 1980, 30 million Americans participated in private defined benefit plans and only 19 million were enrolled in defined contribution plans.
- At end of 2005, 57 million workers were enrolled in defined contribution plans — such as 401(k) plans — compared with 22 million active participants in defined benefit plans.
- From 1980-2005, participants in defined benefit plans declined by 26.7 percent, while participants in defined contribution plans rose by 200 percent!
The Pension Protection Act made important changes to help employer-provided plans adapt to the needs of America’s dynamic workforce. Studies show that automatic enrollment, a feature strongly supported by ASPPA, will help increase participation in plans from 66 to 92 percent.
The Act also strengthens retirement security by:
- Strengthening plan funding requirements,
- Providing for greater plan transparency and disclosures to workers, and
- Improving the solvency of the pension insurance system.
The challenge facing the Department is to write clear, concise regulations implementing the law. As we do this, we must keep in mind our twin goals — to protect workers’ benefits, but also to expand access to employee benefit plans in our voluntary system. Others from EBSA will speak in greater detail on this effort. They are counting on your input as we work through this process, and we appreciate the comments many of you have already provided.
The new Congress is poised to make some decisions that will have a real impact on our economy and on the incomes of working Americans. For example, Congress is considering whether to extend President Bush’s tax relief program. The cuts, scheduled to expire in 2010, allowed more than 35 million Americans to save and invest more of their own money. If Congress allows these cuts to sunset, the average taxpayer will have to pay an additional $2,500 per year.
Another threat to savings is the Alternative Minimum Tax. According to some news accounts, if Congress does not act, the number of taxpayers hit by the AMT will rise from 3.5 million in 2006 to 23 million for tax year 2007. The Administration does not believe Congress should allow the AMT to impose a tax increase on millions more middle-class families.
Whether it’s creating the climate for growth, ensuring the competitiveness of our nation’s workforce, or balancing work and family needs, this Administration believes that the best way to build a brighter future is not through bigger, more expensive government programs but by empowering the individual.
When workers have ownership over their skills, training, education, and pensions, they are empowered. They can face the future with greater confidence. That’s the overarching principle behind nearly every major proposal and reform put forward by the Department of Labor in this Administration. With your help we can continue on this path of progress and help ensure that Americans can have confidence in their retirement security for decades to come.
Thank you.
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