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Today, I chaired a U.S. House Committee on Education and Labor
hearing in San Francisco where we examined how the current financial crisis is affecting retirement savings. Witnesses told us that after a lifetime of planning and saving, a growing number of retirees are facing shrinking 401(k)s and increasing insecurity as a result of the ongoing financial crisis. While this crisis may have started on Wall Street, it's Main Street that stands to suffer the most. More than ever before, there is an urgent need to help Americans strengthen their retirement savings.
We also learned today that
U.S. Pension Benefit Guaranty Corporation lost at least $3 billion in stock investments
during the last fiscal year through August, and invested a significant
portion of its funds in mortgage-backed securities. The head of the
PBGC, Charles Millard, will testify before the committee on Friday in
Washington regarding the agency's financial problems.
Taxpayers
subsidize 401(k) plans by $80 billion dollars annually. For a taxpayer
investment of this size, we must ensure that the structure of 401(k)s
adequately protects the nest eggs of participating workers.
At a minimum, we know that much
greater transparency and disclosures in 401(k) investment policies are needed, to protect workers from “hidden” fees that could be eating deeply into their retirement accounts.
And with seniors poised to suffer the most from the current economic turmoil, we
must suspend an unfair tax penalty for seniors who don’t take a minimum withdrawal from their depleted retirement accounts,
like 401(k)s. We’ll push to enact legislation based on a bill Rep. Rob
Andrews recently introduced, so that seniors who have seen their
retirement savings evaporate don’t get penalized for trying to build
those savings back up.
At the hearing today, we heard from
Roberta Quan, a retired school teacher from San Pablo, CA, who is also
caring for her husband who has Alzheimer’s: "The recent unstable
financial crisis is having a devastating effect on my life. A lifetime
of savings in catastrophic decline is demoralizing. The bottom line is
that I am retired and unable to re-earn lost funds."
Steve
Carroll, a retired writer from Petaluma, CA, told us: "Our monthly
budget has been severely depleted for life. We still have our IRAs.
But, as they are in mutual stock funds they are so far down in value
that selling any of them right now, as the law requires of [my partner]
Chuck, the loss would be an enormous percentage of the investment."
Current
regulations require account holders of 401(k)-type account to withdraw
a minimum amount of money every year after they reach 70 ½ years old.
If seniors do not take out a minimum amount based on an Internal
Revenue Service formula, they are subject to a 50 percent penalty. For
instance, if an individual fails to withdraw $4,000, they would be
assessed a $2,000 tax the next year.
Registered investment
advisor Mark Davis told us that a temporary repeal of minimum required
distribution rules could help some retirees. On October 10, Rep.
Andrews and I
called
on U.S. Treasury Secretary Henry Paulson to suspend the tax penalty for
retirees who are forced to make withdrawals but want to have additional
time to rebuild their retirement savings.
Other witnesses
spoke about problems with the current retirement security system where
individually directed 401(k)-type plans have become a worker's main
retirement savings vehicle. Where investment decisions were once made
by professionals managing a traditional pension portfolio on behalf of
workers, the responsibility of picking the right investments and
implementing retirement savings strategies are left up to an individual
account holder.
The Education and Labor Committee passed legislation earlier in the year that would
help
workers shop around for the best retirement investment options by
providing complete information on the fees taken from their retirement
accounts. According to the Government Accountability Office, a 1
percentage point difference in fees can reduce retirement benefits by
nearly 20 percent.
We started this investigation last week,
as part of a series of hearings the House is conducting to investigate
the causes of the financial crisis, and what additional steps are
needed to protect homeowners, workers, and families.
Last week,
Peter Orszag, the director of the Congressional Budget Office, told us
that American workers have lost more than $2 trillion in retirement
savings over the last fifteen months – an astonishing loss that could
lead workers to delay their retirement.
Several experts also
told us that workers closest to retirement could suffer the most from
this financial tsunami. But while the housing and financial crises are
intensifying retirement insecurity, we also know that workers’
retirement savings have been declining for quite some time. Rising
unemployment, stagnating wages and benefits, and a shift away from more
traditional defined-benefit pension plans have been making it much
harder for workers to save for retirement while juggling other expenses.
Now,
the number of investors taking loans on their 401(k) accounts is
increasing. And hardship withdrawals are also increasing. T. Rowe Price
estimates a 14 percent increase in hardship withdrawals just in the
first eight months of 2008. And, all the signs point to an increased
frequency of 401(k) loans and hardship withdrawals in the coming year.
As
other committees’ hearings have revealed, many of the Wall Street
titans responsible for this crisis have still escaped with their plush
perks, lavish spa trips and golden parachutes intact. This is an
outrage. For too long, the Bush administration anything goes economic
policy allowed Wall Street to go unchecked.
As we look at how
we can rebuild workers’ retirement savings and our nation’s economy,
the Democratic Congress will continue to conduct this much-needed
oversight on behalf of the American people.
Being able to save
for retirement after a lifetime of hard work has always been a core
tenet of the American Dream. We can’t allow the promise of a secure
retirement for workers to become a casualty of the financial crisis.