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S. HRG. 113–343 

THE ROLE OF SOCIAL SECURITY, DEFINED 

BENEFITS, AND PRIVATE RETIREMENT ACCOUNTS 

IN THE FACE OF THE RETIREMENT CRISIS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON SOCIAL SECURITY, 

PENSIONS, AND FAMILY POLICY 

OF THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

DECEMBER 18, 2013 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

MAX BAUCUS, Montana, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

ROBERT P. CASEY, Jr., Pennsylvania 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

AMBER COTTLE, Staff Director 

CHRIS CAMPBELL, Republican Staff Director 

SUBCOMMITTEE ON SOCIAL SECURITY, PENSIONS, AND FAMILY POLICY

SHERROD BROWN, Ohio, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

CHARLES E. SCHUMER, New York 

BILL NELSON, Florida 

BENJAMIN L. CARDIN, Maryland 

PATRICK J. TOOMEY, Pennsylvania 

MIKE CRAPO, Idaho 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

(II) 

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Brown, Hon. Sherrod, a U.S. Senator from Ohio, chairman, Subcommittee 

on Social Security, Pensions, and Family Policy, Committee on Finance ....... 1 

Toomey, Hon. Patrick J., a U.S. Senator from Pennsylvania .............................. 4 

Isakson, Hon. Johnny, a U.S. Senator from Georgia ............................................ 5 

WITNESSES 

Romasco, Rob G., president, AARP, Washington, DC .......................................... 6 

Biggs, Andrew G., resident scholar, American Enterprise Institute, Washington, DC ............................................................................................................. 8 

Baker, Dean, co-director, Center for Economic and Policy Research, Washington, DC ............................................................................................................. 10 

Sweeney, John F., executive vice president, Fidelity Investments, Boston, 

MA ......................................................................................................................... 12 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Baker, Dean: 

Testimony .......................................................................................................... 10 

Prepared statement .......................................................................................... 41 

Responses to questions from subcommittee members ................................... 48 

Biggs, Andrew G.: 

Testimony .......................................................................................................... 8 

Prepared statement .......................................................................................... 51 

Responses to questions from subcommittee members ................................... 57 

Brown, Hon. Sherrod: 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 61 

Isakson, Hon. Johnny: 

Opening statement ........................................................................................... 5 

Rockefeller, Hon. John D., IV: 

Prepared statement .......................................................................................... 64 

Romasco, Rob G.: 

Testimony .......................................................................................................... 6 

Prepared statement .......................................................................................... 65 

Responses to questions from subcommittee members ................................... 74 

Sweeney, John F.: 

Testimony .......................................................................................................... 12 

Prepared statement .......................................................................................... 81 

Responses to questions from subcommittee members ................................... 93 

Toomey, Hon. Patrick J.: 

Opening statement ........................................................................................... 4 

COMMUNICATIONS

The American Council of Life Insurers (posted to committee website) 

The American Council of Life Insurers et al. ........................................................ 99 

Brown, Virjeana Marie ............................................................................................ 103 

Employee Benefit Research Institute (EBRI) ........................................................ 107 

Employee-Owned S Corporations of America (ESCA) .......................................... 117 

The ESOP Association ............................................................................................. 120 

National Conference on Public Employee Retirement Systems (NCPERS) ........ 122 

National Conference of State Social Security Administrators (NCSSSA) ........... 127 

Page

IV 

Ohio Public Employees Retirement System (OPERS) .......................................... 133 

School Employees Retirement System of Ohio (SERS) ........................................ 135 

State Teachers Retirement System of Ohio (STRS) ............................................. 137 

(1) 

THE ROLE OF SOCIAL SECURITY, DEFINED 

BENEFITS, AND PRIVATE RETIREMENT 

ACCOUNTS IN THE FACE OF THE 

RETIREMENT CRISIS 

WEDNESDAY, DECEMBER 18, 2013 

U.S. SENATE,

SUBCOMMITTEE ON SOCIAL SECURITY,

PENSIONS, AND FAMILY POLICY, 

COMMITTEE ON FINANCE, 

Washington, DC. 

The hearing was convened, pursuant to notice, at 10:05 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Sherrod Brown 

(chairman of the subcommittee) presiding. 

Present: Senators Wyden, Nelson, Cardin, Casey, Isakson, and 

Toomey. 

OPENING STATEMENT OF HON. SHERROD BROWN, A U.S. SENATOR FROM OHIO, CHAIRMAN, SUBCOMMITTEE ON SOCIAL 

SECURITY, PENSIONS, AND FAMILY POLICY, COMMITTEE ON 

FINANCE 

Senator BROWN. The Subcommittee on Social Security, Pensions, 

and Family Policy will come to order. Welcome to Ranking Member 

Senator Toomey, and to Senator Isakson too. I think others will 

join us. 

This is likely the first of a series of hearings that Senator 

Toomey and I would like to do on the issues of retirement security, 

Social Security, and all that it relates to, and I appreciate his cooperation, as I do Senator Hatch’s and Chairman Baucus’s cooperation. 

I will begin, of course, with an opening statement, turn it over 

to Senator Toomey for his, and Senator Isakson and other members 

who come are certainly welcome to do the same. 

Retirement security in America, as we know from reading the 

histories of FDR and other stories from the New Deal on, has virtually always been thought of as a 3-legged stool: Social Security, 

employer-provided pensions, and personal savings and investment. 

The first leg of the stool, Social Security, guarantees a modest, 

but stable income during retirement years, but it is not just for retirement security. Social Security provides basic financial security 

in the face of unexpected tragedy. Social Security provides a vital 

safety net to the disabled, the orphaned, widows, and widowers, 

something traditional retirement plans often are unable to provide. 

2 

The other two legs of this 3-legged stool—personal savings and 

pension plans—build upon the bedrock of Social Security and allow 

families to maintain the standard of living or approach the standard of living they enjoyed while they were working. It protects seniors, but also allows families to use their resources to buy homes, 

to start families, and to pay for education. 

Without retirement savings, aging parents become dependent on 

their working-age children, preventing those children from saving 

for their own retirement, perpetuating the cycle of economic distress for far too many families in those retirement years. 

So, for far too many workers, we have seen Social Security as the 

only leg left standing on the 3-legged stool. The percentage of workers covered by traditional defined benefit plans—those where you 

pay in and you get a defined benefit, likely for the rest of your 

life—has been declining steadily over the past 35 years. There are 

now only some 30,000 private sector defined pension benefit plans, 

down from over 100,000 less than 30 years ago. 

From 1979 to 2011, the proportion of private workers with retirement plans covered by defined benefit pension plans fell from 62 

percent to 7 percent. At the same time, the percentage participating in defined contribution plans, much more common now, 

which inherently hold more challenges for the beneficiary and perhaps others, increased from 16 percent to 66 percent. 

Only half of America’s defined contribution plans have autoenrollment. At a time when we are told that we are in charge of 

our retirement futures, only one-quarter of American workers have 

automatic access to a defined contribution plan. About half the U.S. 

workforce today is covered by an employer-sponsored retirement 

plan, meaning that half of Americans, obviously, are not participating in any employer-sponsored plan. 

Working families are increasingly squeezed from every angle. 

Wages are stagnant. Home values have declined in far too many 

cases. Tuition costs for children are increasing at the time we begin 

to care for our aging parents. Close to two-thirds of families overall, middle-class and low-income families, rely on Social Security 

for a majority of their retirement income. 

Workers aged 50 to 64 are increasingly unprepared for retirement. The vast majority of economic gains in the last 25 to 30 

years have gone to those at the very top of the income distribution 

in this country, also, obviously, affecting savings and retirement. 

Middle-class workers have not shared in the economic gains, by 

and large, or seen increased income associated with increased productivity and higher corporate profits, meaning costs go up, but the 

ability to save has declined. The picture gets bleaker when considering racial disparities in wealth. The median wealth of white 

households is 20 times that of black households, 18 times that of 

Hispanic households—the highest ratios since the government 

began publishing this data a quarter-century ago. 

These factors are why most Americans have saved only a fraction 

of what they need for retirement. Workers approaching retirement 

age have an average savings of less than $27,000. One-third of 

Americans leading up to Social Security retirement age, one-third 

of Americans 45 to 64, have nothing, zero, saved for retirement at 

all. The numbers are only slightly better for workers with a retireVerDate Mar 15 2010 17:04 Aug 15, 2014 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 R:\DOCS\88820.000 TIMD
3 

ment plan. In 2010, 75 percent of Americans nearing retirement 

age had less than $30,000 in their IRAs or in their retirement accounts or 401(k)s. 

These facts illustrate how great the need is for, in my mind, 

maintaining and expanding Social Security, the only source of 

guaranteed lifetime benefits on which most retirees can rely. Social 

insurance—and this is social insurance, as are unemployment insurance and Medicare—with social insurance, you pay in, you get 

benefits out. Social insurance does not just provide much-needed financial support, it ensures that hardworking middle-class people 

can retire with dignity. 

For a majority of recipients, these modest benefits provide over 

half their income, lifting over 22 million Americans out of poverty. 

As I said earlier, one-third of retirees, Social Security beneficiaries, 

rely on Social Security—close to one-third—for essentially their entire income. The program is not only retirement insurance, it is 

family income insurance. One-third of benefits go to children and 

widows and the disabled. One in 10 children today lives with a 

grandparent. 

Rather than asking how we should scale back the program, we 

should be asking ourselves how we can strengthen it. That seems 

too often to be the debate on the talk shows: how we can scale back 

the program and save money for budget reasons, not the debate 

which I think it should be of, how do we deal with the whole issue 

of security, financial security, retirement security for people? That 

means not reducing benefits or raising the retirement age. 

Maintaining or expanding Social Security is the single most effective thing we can do to prevent poverty and economic ruin for 

millions of senior citizens while promoting economic mobility for 

their children and grandchildren so that their responsibilities and 

burden do not increase to the degree that makes it so difficult for 

them. 

The budget debate creates a vacuum that does not take into account the economic impact of Social Security benefits. A number of 

you, primarily Mr. Biggs and AARP, have written on that. So your 

comments will be interesting to hear. 

Social Security benefit cuts would decrease our 10-year deficit, 

but such cuts, I do not think, consider the impact on seniors, their 

families which support them, and current middle- and low-income 

workers. It is not a simple budgetary issue. It is a macroeconomic 

issue. Shifting the cost from the Federal budget does not resolve 

the problems in our retirement and savings programs. 

Social Security reforms should be considered as part of the Finance Committee’s examination of the burgeoning retirement crisis. I see this hearing as an important first step. 

[The prepared statement of Senator Brown appears in the appendix.] 

Senator BROWN. I want to yield to my Ranking Member, Senator 

Toomey. I appreciate his cooperation. I think we will learn a lot 

from today’s hearing, and I look forward to your contribution. 

4 

OPENING STATEMENT OF HON. PATRICK J. TOOMEY, 

A U.S. SENATOR FROM PENNSYLVANIA 

Senator TOOMEY. Thank you very much, Chairman Brown. I appreciate your having this hearing. 

This is, there is no question, an extremely important topic. We 

all agree on the importance of addressing retirement security. As 

you pointed out, Mr. Chairman, Americans rely generally on three 

main vehicles for financial security in retirement. There are the 

private savings that often come in the form of tax-deferred accounts. There are employer pensions, which, as you pointed out, 

are increasingly defined contribution plans. And there is the Social 

Security program. 

In my view, the government policy should focus on protecting all 

three of these pillars of retirement security. There are a couple of 

ways we can approach this. One would be to recognize the 

strengths of the current retirement system and preserve what 

works. But the other thing we need to do is acknowledge the hard 

truths about reforms that are going to be necessary to protect programs that seniors depend on. 

I think it is generally good to adopt the approach of, first, do no 

harm. One of the advantages of our current system is the diversity 

of saving options, whether it is 401(k)s or IRAs, pre-tax accounts, 

Roth-style accounts. The range of options gives taxpayers greater 

flexibility, more choices, and more opportunities to accumulate savings that will help them in their retirements. 

I think we ought to defend and encourage these provisions that 

help people to save. Some have suggested that we ought to reduce 

the amount that Americans can save in tax-deferred accounts. I 

think that is a bad idea. It would tend to diminish savings. And, 

while that would have adverse consequences for individuals attempting to save and provide for their own retirement, I think it 

would also be counterproductive from an economic point of view. 

The most important long-term driver of economic growth is the 

investment of accumulated capital—and it has to be accumulated 

before it can be invested. And so encouraging that savings over 

time maximizes economic growth. 

A second point I would make is that we have to make sure that 

Social Security is going to be there for future generations. It is an 

extremely important program. You have talked about this; we all 

know this. For decades, it has provided seniors with a guaranteed 

source of income and kept millions of Americans out of poverty. 

But the fact is the program, in its current form, is not solid. It 

has gone into a cash-flow deficit position since 2010. Benefits paid 

routinely exceed payroll taxes paid into the system by very large 

sums, which are only projected to grow. And I know people often 

like to invoke the assets in the trust fund, but, as we will probably 

get into in this discussion, there are no assets backing up anything 

in the trust fund. 

This is a filing cabinet with certificates that have no real assets 

to back them up and, therefore, the trust funds to which we routinely refer do nothing to enhance or enable the Federal Government to honor the commitment it has made. And so we should not 

be under the illusion that that somehow makes things okay. 

5 

The challenges facing Social Security are not a partisan observation. I want to quote briefly, Mr. Chairman, from the Social Security Trustees’ report of this year, 2013, in which they state, and I 

quote: ‘‘Both the Social Security and Medicare programs face substantial financing shortfalls that require legislative corrections. It 

is important to grasp that the amount of time remaining to enact 

a financing solution is far less than the amount of time projected 

before final depletion of Social Security’s combined trust funds. If 

lawmakers take action sooner rather than later, more options and 

more time will be available to phase in changes so that the public 

has adequate time to prepare. Earlier action will also help elected 

officials minimize adverse impacts on vulnerable populations, including lower-income workers and people already dependent on 

program benefits.’’ 

So the final point I would make is that tax increases do not solve 

this problem, and it would be a mistake to go down that road. Actuaries have even analyzed the proposal that some have suggested: 

that we completely lift the cap on income that is subject to the payroll tax. Of course, that is a radical idea to change the program 

fundamentally and, in the process, to sever the link between taxes 

paid in and benefits received. 

But even if that radical step were taken, it would only provide 

temporary relief. The cash flow deficits would return in just 11 

years. 

So again, Mr. Chairman, I thank you very much for agreeing to 

do this hearing. I am looking forward to hearing from our witnesses and having a discussion. 

Senator BROWN. Thank you for your comments. 

Senator Casey? 

Senator CASEY. Mr. Chairman, I will move right to the witnesses. 

Senator BROWN. Senator Isakson? 

OPENING STATEMENT OF HON. JOHNNY ISAKSON, 

A U.S. SENATOR FROM GEORGIA 

Senator ISAKSON. I just want to thank the chairman for calling 

this hearing. There is probably no more important subject for us 

to be talking about. Everybody talks about the housing bubble and 

all the bubbles we have had. The big bubble coming is the pension 

bubble and the retirement security bubble for America. 

My hometown of Atlanta, GA, the capital city of the State of 

Georgia, just finally faced up to the music and reformed their pension fund to try to make it actuarially sound for its beneficiaries 

in the future by reforming benefits, reforming contributions that go 

into the plan. But they finally faced the music. 

I want to associate myself with what Senator Toomey said. We 

have to face the music too. We have to preserve those entitlements 

for which people have paid. In fact, most people in America who 

have paid taxes have paid more for their retirement security than 

they have income taxes. They paid it under the payroll tax, and 

they deserve the protection, and they deserve a Congress that is 

looking into the future, not just for them, but for their children and 

grandchildren. 

As policymakers, we have to be willing to make some very difficult decisions, but make them in the context of our obligation to 

6 

the people we represent. So this hearing, as called, is most appropriate. The solutions are not easy, but Senator Toomey’s comments 

about preserving the tax benefits and incentives of government policy to direct people toward more private savings are absolutely essential, because people have to become more dependent upon themselves and less dependent upon government. But we need to 

incentivize that contribution process so it is easier and easier for 

them to accumulate benefits over time and accumulate capital over 

time. 

I look forward to participating in the hearing today and appreciate your calling it. 

Senator BROWN. Thank you, Senator Isakson. 

Let me introduce the witnesses, and then we will begin the testimony. 

The first witness is Rob Romasco, president of AARP, who came 

to AARP after a distinguished career in the private sector and has 

written and spoken extensively on the wide-ranging impact of Social Security on our economy. Thank you for joining us, Mr. 

Romasco. 

Andrew Biggs is resident scholar at the American Enterprise Institute. He has devoted his career to researching retirement savings and pensions issues and has served as the Principal Deputy 

Commissioner of the Social Security Administration. Welcome, Mr. 

Biggs. 

Dean Baker is the co-director of the Center for Economic and 

Policy Research. He has published extensively on these issues and 

on the tax treatment of retirement benefits. He is one of the foremost experts in the field. His research is regularly cited in major 

media outlets. Mr. Baker, welcome. 

And finally, John Sweeney is executive vice president of Fidelity. 

He is responsible for portfolio advisory services, where Fidelity has 

developed some of the best research available on America’s retirement security. Thank you, Mr. Sweeney, for joining us. 

Your written statements will be entered into the record. We appreciate you limiting your oral testimony to the allotted 5 minutes 

so we will have ample time for questions. 

Mr. Romasco, please begin. 

STATEMENT OF ROB G. ROMASCO, 

PRESIDENT, AARP, WASHINGTON, DC 

Mr. ROMASCO. Chairman Brown, Ranking Member Toomey, Senator Casey, Senator Isakson, on behalf of AARP’s more than 37 

million members, we thank you for holding this hearing on Social 

Security’s role as one of the Nation’s most important family protection programs. My name is Rob Romasco. I am a member of 

AARP’s all-volunteer board of directors, and I am honored to serve 

as AARP’s president. 

When we think about Social Security, we tend to picture retired 

people, and they are indeed the majority of those receiving benefits. 

That alone is a critical, important function. But Social Security is 

far more. It protects working men and women throughout their 

lives from the risks that can lead to the loss of livelihood, such as 

from death or disability. We may not think of Social Security as a 

family income protection program, but that is exactly what it is. 

7 

Picture this. More than 4 million Social Security recipients are 

children. In fact, Social Security pays more benefits to children 

than any other government program. Social Security coverage also 

protects more than 9 in 10 younger workers against the risks of 

death and disability, something that one in three workers will face 

before they retire. 

Social Security is an insurance policy with benefits worth hundreds of thousands of dollars. Social Security is critically important 

for millions of children who live with their grandparents. Without 

these benefits, many grand-families would sink into poverty. It is 

disaster relief that is there for families when catastrophe strikes. 

Less than 3 weeks after the September 11 terrorist attack, the Social Security Administration sent the first checks to survivors of 

workers killed in New York, Virginia, and Pennsylvania. Today, eligible children and surviving spouses of people killed and disabled 

in the attacks are still receiving monthly benefits. 

Picture for a moment, you are a 33-year-old mother of one, with 

a baby on the way, who learns her husband was just killed in an 

accident at work. Imagine that you have no idea how you are going 

to feed your family. Now, imagine the relief of discovering a program that will help you support your children until they become 

adults. That is a blessing—Social Security—and that family was 

mine. 

My dad died before I was born. My mom worked incredibly hard 

as a seamstress. But Social Security benefits, survivor benefits, 

were a big help in putting food on the table, clothes on our backs, 

and a roof over our head. So, yes, Social Security is a genuine lifeline for families, for every generation. It is a lifeline embraced by 

the young as well as their elders. 

As I travel across the country, people of all ages, especially those 

over 50, express their passionate commitment to leaving the world 

a better place for their children and grandchildren. As I visit college campuses, students talk about making sure their parents and 

grandparents are secure and independent. Social Security, the 

young and old understand, is a vital part of the intergenerational 

compact. 

We hear sometimes that the young and old are rival armies in 

the struggle for finite resources. That is not what I see. I see family 

members who depend on each other. I see Americans at different 

stages in life’s journey, older people helping younger people. Later, 

the caregivers become the cared for. One day, the young will need 

the retirement protections of Social Security every bit as much as 

seniors do today, and perhaps even more. 

Social Security is one of the pillars of retirement security—that 

3-legged stool Senator Brown talked about—we could once depend 

upon, along with the employer-provided pensions and personal savings. Unfortunately, Social Security is the sole remaining dependable leg. 

Traditional defined employee-based pensions have gone the way 

of the floppy disk. Retirement savings have shrunk. Real wages for 

most Americans are stagnant or going down. Health care costs 

have soared. No wonder more than 1 in 3 working households from 

21 to 64 years of age has no retirement savings. Half the workforce 

has no employer-provided retirement plan. For those who do, the 

8 

amount in their 401(k)s would pay them a retirement benefit of 

less than $80 a month for life. 

Financial security for many Americans is in jeopardy. Unless we 

reverse the current trends of stagnant wages and no pensions, Social Security will be even more important and, in many cases, the 

only source of retirement income for our families and our loved 

ones. 

We have to make sure Social Security is strengthened as a critical source of income they can rely upon. We also must help the 

American public understand that Social Security is not just a critical piece of retirement security, but also a powerful engine in our 

economy. State and local economies, businesses, and workers benefit from every Social Security dollar paid out. 

At AARP, we just did a report, which I would respectfully re- quest be included in the record, that found each $1 paid to beneficiaries generates nearly $2 in spending by individuals and businesses, adding about $1.4 trillion in total economic output in the 

year 2012. This output generates tax revenues for the State, local, 

and Federal governments exceeding $220 billion. 

The discussion the Nation needs to have about Social Security 

and retirement is more than about deficit numbers. It is about family protection and community support. It is about real families trying to make ends meet and afford the necessities of life. It is about 

children making sure their parents and grandparents can live with 

dignity and independently. It is about our parents not wanting to 

be a burden on their children. It is about my sister and me having 

enough to survive as children so we could change the trajectories 

of our lives and make a meaningful contribution. 

Social Security belongs to the people who worked hard all their 

lives and contributed from every paycheck, the people who were 

promised that it would be there for them and their families. It is 

a critical part of protecting our families throughout our working 

lives. It belongs to the children and grandchildren whose lives have 

been touched by misfortune. It protects all our families today and 

in future generations. We are all in this together. 

Thank you very much. 

[The prepared statement of Mr. Romasco appears in the appendix.] 

Senator BROWN. Thank you, Mr. Romasco. 

Mr. Biggs? 

STATEMENT OF ANDREW G. BIGGS, RESIDENT SCHOLAR, 

AMERICAN ENTERPRISE INSTITUTE, WASHINGTON, DC 

Mr. BIGGS. Thank you very much, Chairman Brown, Ranking 

Member Toomey, members of the committee. Thank you for the opportunity to testify today with regard to Social Security, pensions, 

and the retirement security of the American people. 

I wish to make three main points. First, Social Security’s benefits 

are more adequate, but its financing less healthy than many suspect. Financial advisors generally recommend that retirees have an 

income equal to 70 to 80 percent of their pre-retirement earnings. 

The typical new retiree today receives a Social Security benefit 

equal to around 69 percent of their earnings immediately preceding 

retirement. Does this mean that retirees are living high on the hog 

9 

from Social Security? Of course not. And there are many lowincome retirees who clearly receive inadequate benefits from the 

program. 

But it is not clear that Social Security’s benefits are all together 

too stingy. Yes, some European countries pay higher pension benefits than we do, but, if you look at countries with similar political 

and economic cultures to our own, say, the U.K., Canada, Australia, or New Zealand, their pension plans offer replacement rates 

that are pretty close to what Social Security pays. 

But Social Security’s finances are weaker than commonly understood. To make the program sustainably solvent without reducing 

benefits would demand an immediate and permanent 29-percent 

tax increase. If these tax increases are delayed, they only grow 

larger. 

Some have been willing to propose such tax increases, in par- ticular by eliminating the $113,000 ceiling on which payroll taxes 

are levied. This seems like a tempting and an easy solution to the 

Social Security problems. But let me point out several downsides. 

First, eliminating the so-called tax max would raise the top tax 

rate on earned income from around 43 percent today to about 55 

percent. Add State income taxes, and the top tax rate generally 

rises above 60 percent and, in some States, closer to 70 percent. 

Eliminating the so-called tax max would effectively tap out high 

earners before we fix the larger financial problems facing Medicare 

and Medicaid. 

Also, current proposals to eliminate the tax max also would increase benefits. As a result, they would fix only around half the 75- 

year shortfall and extend solvency by around 16 years. Furthermore, in an international context, our tax max is not unusually 

low. In the U.S., payroll taxes are applied up to around 3 times the 

average wage. In the average OECD country, payroll taxes are 

capped at around twice the average wage. 

The principal risk to retirement security today is Social Security’s insolvency. I believe that talk of raising Social Security benefits before solvency is restored is irresponsible. 

Second, some look with dismay at how defined contribution plans 

have supplanted traditional defined benefit plans over the past several decades, but participation in a traditional DB pension does not 

mean you will receive benefits from one. While long-term employees do very well from DB pensions, only around 1 in 10 individuals 

participating in DB systems actually ends up collecting benefits 

from them. 

For instance, the average employee today changes jobs every 4.6 

years. Such an employee would not even vest in a traditional defined benefit plan. And even employees who do vest often do not 

receive much. Despite our nostalgia for DB plans, I would wager 

that if DB pensions were the only plans available today, retirement 

security in the U.S. would be considerably worsened. 

Finally, while DB pensions do have important advantages over 

DC pensions, which I outline in my written testimony, many of 

these advantages can be transferred to DC programs. For instance, 

consider a defined contribution pension plan which had automatic 

enrollment at a healthy contribution rate, invested in a life cycle 

portfolio which automatically shifted from stocks to bonds over 

10 

time, with investments composed of low-cost index funds, and that 

at least partially annuitized benefits at retirement. 

Such a plan would address most of the concerns raised about retirement security today with very limited downsides for individuals 

and no risk to the taxpayer. Moreover, nearly all of this will be allowable under current law. 

Retirement policy has massive ramifications for individual retirement security, the Federal budget, and the broader American economy. We need policies that encourage Americans to work and to 

save and to delay retirement. Such policies will enhance individual 

retirement security, as well as boost the economy, which is the ultimate source of retirement income for all of us. 

Thank you for your consideration. 

[The prepared statement of Mr. Biggs appears in the appendix.] 

Senator BROWN. Thank you very much, Mr. Biggs. 

Mr. Baker? 

STATEMENT OF DEAN BAKER, CO-DIRECTOR, CENTER FOR 

ECONOMIC AND POLICY RESEARCH, WASHINGTON, DC 

Mr. BAKER. Thank you very much, Chairman Brown, Ranking 

Member Toomey, for inviting me to speak here today. 

I want to make three main points in my testimony, first off, emphasizing the comments Chairman Brown had made at the beginning that Social Security is the main source of income for most retirees, particularly moderate-income retirees; secondly, that it is 

projected to become an even more important source of income in 

the decades ahead, primarily as a result of the disappearance of defined benefit pension plans, inadequate replacement of 401(k)s, and 

also stagnant wages. Third, I want to comment briefly on proposals 

to change the indexation formula for Social Security. I would argue 

that switching to the elderly consumer price index is very much in 

keeping with the original intent of Congress, and I would argue the 

opposite with the chained consumer price index. That is basically 

a way to cut the program. 

Before I do that, I just want to quickly make a couple of comments. Ranking Member Toomey had said that Social Security was 

cash-flow negative. I would like to point out that, in fact, that is 

not the case. A portion of the cash flow is interest on the bonds 

held by the trust fund. That is under the law. A business that had 

interest income would not be considered cash-flow negative if that 

put it into positive territory. 

Another point that I just want to make quickly is in terms of the 

size of the tax increases. I think it is important to realize two 

points. One is the extent to which the shortfall facing Social Security is attributable to the upward redistribution of income over the 

last 3 decades. Ninety percent of wage income was covered by the 

cap after the Greenspan Commission set it in 1983. Because of a 

large upward redistribution of income, we now cover less than 83 

percent of wage income. If it had covered 90 percent of wage income over this whole period, that would have cut the projected 

shortfall by more than 40 percent. 

In the same vein, when we talk about the size of the tax increases, it is important to keep in mind some reference. We have 

seen stagnant wages over the last 3 decades for most workers. If 

11 

workers’ wages grew at the same rate as projected average wage 

growth—in other words, all workers shared equally in wage 

growth—the tax increases needed to make the fund fully solvent 

would be about 5 percent of projected wage growth over the next 

3 decades. And you are welcome to decide whether that is big or 

small, but I think it is important to understand the context. 

Returning to the points I had wanted to make, Chairman Brown 

very well laid out the basic argument about how important Social 

Security is for most retirees. It covers 36 percent of income for people over age 65, and 52.2 percent of non-wage income. It provides 

90 percent or more of the income for 35 percent of seniors and 45 

percent of unmarried seniors. 

One of the facts about seniors I think is very striking is that the 

poverty rate, the supplemental poverty rate, which most people 

view as the better measure for seniors, is now 14.8 percent. That 

compares to 15.5 percent for the adult population as a whole. The 

story there is that Social Security has been effective in lifting huge 

numbers of seniors above poverty. So their poverty rate is basically 

the same as the adult population, which is very different from the 

story we saw before we had Social Security. 

The second point I wanted to make is the importance of Social 

Security for middle-income people, a population that is projected to 

rise hugely over the next 2 decades. If we look at the current generation of retirees, Social Security accounts for 34.2 percent of their 

total income. That is projected to rise to 37 percent for workers 

who hit 67 between the years 2033 and 2042. The rise is more dramatic if you look at non-wage income. It goes from 41.9 percent to 

48.6 percent. If you look at non-wage, non-rental income—we have 

imputed housing income in that—the rise is from 46.4 percent to 

54.8 percent. 

This just illustrates the fact that, because of the collapse of defined benefit pensions, Social Security is projected to be a much 

more important source of income in the decades ahead, something 

that I think we all have to be very aware of. 

The last point I want to make is in reference to the elderly consumer price index. If you go back to the decision to index Social Security to the cost of living, presumably Congress did that in 1975 

with the intention of ensuring that seniors could preserve their 

standard of living. The elderly index is intended to track the standard of living—the prices paid by the elderly. It has consistently 

risen two-tenths to three-tenths of a percentage point more rapidly 

than the overall CPI, primarily because of the more rapid growth 

in health care costs. 

By contrast, if we look at the proposal to switch the indexation 

to the chained consumer price index, there is literally no evidence—no one claims that that is a more accurate measure of the 

cost of living as seen by the elderly. There are features of that that 

are desirable, such as picking up substitution, but it is looking at 

substitution for the population as a whole, not for the elderly. 

If the intention of Congress is to have an index that accurately 

tracks the consumption patterns of the elderly, it can instruct the 

Bureau of Labor Statistics to set one up. And frankly, I do not 

know whether that would show a higher measured rate of inflation 

12 

or a lower measured rate of inflation. What I can say is, it would 

show a more accurate one. 

Thank you. 

[The prepared statement of Mr. Baker appears in the appendix.] 

Senator BROWN. Thank you, Mr. Baker. 

Mr. Sweeney? 

STATEMENT OF JOHN F. SWEENEY, EXECUTIVE VICE 

PRESIDENT, FIDELITY INVESTMENTS, BOSTON, MA 

Mr. SWEENEY. Chairman Brown, Ranking Member Toomey, Senators Isakson and Casey, thank you for having us speak to you 

today on this very important topic. My name is John Sweeney. I 

am an executive vice president at Fidelity Investments. I am responsible for the retirement and investment strategies that we develop for the investors that we serve. 

We have the privilege of helping more than 23 million Americans 

save for retirement through their workplace and personal savings 

retirement accounts, such as 401(k)s and IRAs. And like you, we 

want to help Americans feel more confident, make clear financial 

decisions, and achieve better results for their families when it 

comes to retirement. 

At Fidelity, we are passionate about sharing our expertise and 

our insights with our customers. Every day, working Americans 

ask us how to divide their family’s paycheck in order to meet multiple financial obligations, including paying down a mortgage, saving for their children’s college, possibly caring for an aging parent. 

One goal which is common to all of our customers is being ready 

for retirement. This includes the young investors enrolling in a 

workplace savings plan or an older couple nearing 65 and asking 

if they have saved enough to contemplate retirement. 

These investors need help navigating the multiple accounts and 

investment choices available to them at all stages of life. We believe that the private retirement system is working well for those 

who utilize it as designed. However, many people are not saving 

enough to ensure that they will have a comfortable retirement, and 

young investors face an especially difficult road ahead. At the highest level, Americans need to save more, and we need to incent them 

to do that, and we need to provide the help that they are seeking 

in order to make it easier to achieve retirement security. 

As you know, workplace savings plans have become one of the 

primary ways that most working Americans save for retirement. 

And for those who enroll early in their careers, save as much as 

possible, increase their savings as they earn more, and stay the 

course when markets get volatile, the results are generally good. 

In fact, our latest data shows that for people who have been continuously saving for 10 years, the average balance in a 401(k) has 

reached more than $223,000, up from approximately $53,000 a decade ago, representing a more than 15-percent annual increase. 

That said, we still have work to do to ensure that as many people 

as possible are prepared for retirement. 

We surveyed several thousand American households to understand how prepared people were to cover basic expenses like housing, food, and health care in retirement, and the results, in aggregate, were sobering. We found that 55 percent of American workers 

13 

were in fair or poor condition and were not on track to cover their 

essential expenses in retirement. We coded these people red and 

yellow in our retirement preparedness measure, which you will see 

on page 7 of our written testimony, as well as on the chart to my 

right. 

On the other hand, a third of the households we surveyed are on 

track to cover 95 percent of essential expenses. We have given 

these people a green score, and, for these people, the system is 

working well. And, while baby boomers, as an age cohort, are generally doing well, Generation Y workers face more significant challenges. With longer life expectancies and fewer pensions available 

to them, Gen Y investors will need to save more on their own and 

anticipate working longer in order to live a comfortable retirement. 

That is why we believe that we need to encourage higher levels 

of savings now. We know, especially with younger investors, that 

the most powerful way to improve readiness is to save more, even 

if only a small amount. Our research shows that for a 25-year-old 

earning $40,000 a year, increasing savings just 1 percent a year 

can mean up to $300 per month more in income in retirement. 

We applaud the employers who have adopted auto-enrollment 

and auto-increase programs and provide a generous company 

match. These firms are leaders in helping their employees get on 

the path to retirement security. 

Policymakers should consider doubling the default savings rate 

from 3 percent to 6 percent. While our research shows that people 

need to save 10 to 15 percent of their salary annually in order to 

retire securely, by starting at 6 percent with an auto-escalation feature, you can get a young saver on track to a successful retirement 

within a few short years. Taking this step now would mean a world 

of difference for younger generations in particular. 

Finally, we need to continue to find ways to provide investors 

with more guidance and education, not less. At Fidelity, people 

come to us to help navigate some of the most complex, difficult decisions of their lives, and the demand for education and guidance 

is up dramatically since the financial crisis. 

We take seriously our obligation to simplify that complexity and 

to do everything in our power to help them. The earlier, the better. 

Our data shows that workers who engage in a retirement planning 

session either online or on the phone increase the amount they 

save by an average of 5 to 6 percent. We take great pride in offering these resources to anyone. 

We would encourage this committee to work with the administration to ensure that people can continue to have access to the kinds 

of resources they need to make good, responsible decisions for 

themselves and their families. We recognize there are major challenges to solving these issues, but, with your partnership, we can 

work together to increase the savings rates in the workplace and 

help more Americans be better prepared for retirement and meet 

the challenges that lie ahead. 

So, thank you for the opportunity to appear today, and I am 

pleased to take your questions. 

[The prepared statement of Mr. Sweeney appears in the appendix.] 

Senator BROWN. Thank you, Mr. Sweeney. 

14 

Mr. Romasco, you suggested that some see efforts to enhance or 

increase Social Security in a variety of different ways as a war between the generations. Why are they wrong? 

Mr. ROMASCO. I think the issue is, that is a false premise. Basically, it says we have a finite pot of resources, they are limited to 

these, and we have to fight over them. 

The issue is, we all age. When you are 20 and you enter the 

workforce, you have, hopefully, a long life in retirement and so 

forth. And, if you look at the intergenerational activity, you are 

concerned about your life and your family and your parents and 

your grandparents, and vice versa. 

So the notion is not one of intergenerational conflict. It should 

be intergenerational solidarity. If we look at the data, that data 

does not indicate the transfer of wealth from old to young. It is 

kind of different. It is from bottom to top. We have seen the most 

massive wealth redistribution in this country over the last 30 

years. 

So it is a false premise. We are all in this together. We care for 

our children. Our children do not want our parents to be burdened, 

and we, as grandparents and parents, do not want our children to 

be burdened. So, when you look at the intergenerational dynamics 

of families, of protecting them as workers, we have an idea based 

on social insurance. We are all in this together, we all contribute, 

and we take the benefits appropriately. 

But they are designed to protect us all through the journey of 

life. 

Senator BROWN. Thank you. 

Mr. Biggs, I want to put a series of questions to you and then— 

I will just ask three or four questions—if you would answer them 

sort of together, and then each of you take a shot at that, if you 

would like to. 

Just give us your general thoughts on, are current Social Security levels adequate? Should we enhance Social Security, and, if so, 

how should we do it? And, if you believe that we should modernize 

Social Security, what is your definition of modernizing the system? 

Mr. Biggs, give us sort of your general thoughts about those 

three questions, and then each of you respond also, please. 

Mr. BIGGS. Well, as I note in my testimony, I believe that Social 

Security benefits are, on average, more adequate than many people 

think. The talking point you hear, which comes from Social Security itself, says, well, financial advisors recommend you need to replace 70 percent to 80 percent of your retirement income. Social Security offers the average retiree 40 percent. 

The problem is, those measurements are measured in different 

ways. Financial advisors measure benefits for replacement rates 

relative to final earnings. Social Security measures them relative 

to the wage-indexed average of your highest 35 earnings—do not 

worry how that is measured, but they are just apples and oranges. 

If you measure Social Security benefits the way financial advisors would, relative to the earnings right before retirement, Social 

Security benefits, on average, are not, clearly, inadequate. 

At the same time, the big problem for folks at the low end is not 

that Social Security benefits are not adequate, on average, or that 

Social Security benefits are not progressive enough. The problem is 

15 

that there is an enormous variation in the replacement rates that 

people receive even if they have the same lifetime incomes and the 

same contributions to the program. 

For example, if you take a husband and wife, a couple, the benefit they can get can vary based on whether they split the earnings 

evenly between the husband and wife or whether the husband 

earns it all and the wife does not, even if they have the exact same 

lifetime earnings. Likewise, if you have two individuals with the 

same total lifetime earnings, and one fits them into 35 years, but 

the other has a longer career, over 45 years, they will have the 

same lifetime earnings, but they will get a very different benefit. 

For low-income people, Social Security is a risky benefit, not in 

the sense of market risk, but it is an uncertain benefit, highly uncertain. You have enormous variation in the benefits they receive. 

If we simply reduce that variation and give a better-targeted, more 

uniform benefit, which is something I have written about fairly extensively, you could reduce poverty in old age, you could provide a 

much more reliable social insurance program, and you could do it 

at the same price that we are currently paying. 

The problem with Social Security is, as a social insurance program, it is like a housing insurance policy that may or may not pay 

off if your house burns down. You cannot be assured of having a 

high replacement rate if you are a low-income person. 

So I think we need a simpler, better-targeted program, one that 

is a better social insurance policy for people on the bottom end, but, 

to be frank, tells middle- and high-income people they have to save 

more. 

People know—and Dean’s testimony will point to this—that Social Security is an important component of income even for middleincome and even high-income people in the United States. Some 

people will say, well, that shows how important Social Security is. 

What that tells me is we have a lot of people who could, should, 

and would be saving more, but they are not because they are getting Social Security benefits instead. 

Low-income people need a better Social Security program, but 

higher-income folks really do need to save more on their own. 

Senator BROWN. Mr. Baker, your thoughts on those questions? 

Mr. BAKER. A couple of points. I would say, certainly for lowincome to moderate-income people, I think Social Security is inadequate. And sort of the good part of that story is, it is easy to make 

a very big difference for low- and moderate-income people with 

some reforms that do not add a lot to the cost. 

Some women’s groups put together a program some years back 

that called for, among other things, making the surviving spousal 

benefit 75 percent of the combined benefit. A lot of the poorest elderly are surviving spouses, most often women, obviously, in their 

80s and 90s and older years. It is a relatively low-cost proposal. 

You could cap that at the average wage so it does not add a big 

expense. 

Also, raising the bottom tier from 90 percent to 100 percent, you 

could take that back so that higher-income beneficiaries do not 

benefit from that. Again, that would limit the cost and increase the 

payback of the benefits on the order of 11 percent for lower-income 

16 

people. So I think there are some things we could do at very low 

cost. 

Now, I think I am agreeing here with Andrew a little bit. I do 

think it is important to make it easier for people to save, and I 

think that it is unfortunate that so many workers, basically, have 

lost defined benefit pension plans, and many workers do not work 

at places that have defined contribution plans, or, if they do, they 

do not stay there long enough. 

There have been a number of proposals, and I think some of 

them have enjoyed bipartisan support, to set up some sort of system, like the Thrift Savings Plan, that would be open to everyone, 

an affordable system, a low-cost system. The administrative costs, 

of course, make a very big difference. Mr. Sweeney’s outfit does 

have very low costs. Many do not. Those low costs make a very big 

difference in someone’s ability to accumulate wealth for retirement. 

So, if everyone had the option to have a certain amount deducted—and you could have that as a default contribution you 

could opt out of—and put into a Thrift Savings-type plan with low 

administrative costs, take that wherever they went, automatic 

annuitization, again, opt out of that, but that would be the default, 

I think that could make a big difference for middle-income retirees 

and how much they are able to save. 

Senator BROWN. Mr. Sweeney, your thoughts on that? 

Mr. SWEENEY. Chairman Brown, the way we think about Social 

Security is, it solves two issues: one, longevity, and two, it provides 

a floor of predictable income for people who are entering retirement. 

So, when we do retirement planning with customers who are contemplating the ability to enter retirement, we ask them to figure 

out their expenses, and really what we are trying to do is cover 

those essential expenses—food, shelter, medical care—with as predictable a stream of income as possible. Social Security provides 

one of those predictable streams of income. 

The other thing, though, that we do counsel them is, if you can 

continue to work longer, the benefit you will receive on an annual 

basis increases approximately 8 percent a year. So that is one of 

the tradeoffs. 

We ask people who have accumulated some wealth to think 

about spending down their current personal wealth before they tap 

into Social Security in order to receive a higher annual payment 

from Social Security if they can defer the time they begin taking 

it. 

Senator BROWN. Thank you. 

Senator Toomey? 

Senator TOOMEY. Thanks, Mr. Chairman. 

I want to delve into the solvency issue facing Social Security. 

And Mr. Baker objected to my characterizing the program as being 

cash-flow negative, and, of course, technically, he is exactly correct, 

because we have what I consider a series of accounting devices that 

obfuscate the reality of this program. 

One of them is the interest income that is a certificate that the 

Treasury hands over to the Social Security Administration, which 

is promptly filed in a filing cabinet and has no more real assets behind it than any of the certificates in that filing cabinet. 

17 

So, when we look at this, we could look narrowly at what we 

deem to be assets in the Social Security Trust Fund, and I think 

we would miss the more essential point, which is this: what is the 

ability of the Federal Government to honor the commitments that 

it has made to current retirees and future retirees in the Social Security program? 

Mr. Biggs, I am wondering if you would agree with my characterization that, for the purpose of evaluating that question—the ability of the Federal Government, as a whole, to actually honor its 

commitments—what matters is the cash flow that is coming in 

through the payroll taxes and the benefits that are being paid out, 

and intra-governmental transfers of certificates do not have any 

material impact at all on that fundamental ability. 

Do you agree with that, Mr. Biggs? 

Mr. BIGGS. Sure. I mean, here is maybe one way to think about 

it. Imagine if we had no Social Security Trust Fund at all. If that 

were the case, then back a couple of years ago when Social Security 

started running negative cash flow, we would face the choice of either raising taxes, issuing more debt, or cutting benefits. So those 

would be the three choices we would face. 

When you do have a trust fund, you have essentially the three 

same choices. The trust fund biases you in one direction. As long 

as you have a positive trust fund balance, the default position of 

the Federal Government is, well, we are either going to raise taxes 

or borrow so we can pay full benefits. Once the trust fund runs out, 

the default position of the Federal Government is, well, we are 

going to cut benefits back to whatever level we can pay with payroll taxes. So the trust fund has a legal significance, and it pushes 

your policy in one direction or the other, but the choices you face— 

the resources you have available, where you have to get them 

from—those are the same whether you have a trust fund or do not 

have a trust fund. 

Senator TOOMEY. So is it fair to say that, economically, there are 

no real assets backing up the certificates in the trust fund and the 

existence of the trust fund does not have any impact whatsoever 

on the overall ability of the Federal Government to honor its commitments? 

Mr. BIGGS. Exactly. The trust fund is a commitment to pay. It 

is not money that enables you to pay. 

Senator TOOMEY. Right. 

Mr. BIGGS. The trust fund does not make it any easier for taxpayers to finance Social Security. It just says that the taxpayer has 

promised to finance Social Security. 

Senator TOOMEY. And this interest income, which I would view 

as an accounting device, is that not rather akin to my taking 

$1,000 out of my savings account, moving it to my checking account 

and saying, oh, I have another $1,000 of income? There is nothing 

real there. 

I think it is important that we focus on this, because I think we 

are kidding ourselves if we think that somehow everything is fine 

for several decades because we have this nominal trust fund that 

we treat as though it were real assets, and it is fundamentally not. 

I want to ask another question, because you made a very interesting series of points about how defined contribution plans could 

18 

have the advantages that we often associate with defined benefit 

plans. I think people sometimes mistakenly think of or even characterize defined contribution plans as being very risky, and they 

think of the person who takes their accumulated life savings and 

invests in Enron the day before it all goes to nothing. 

But life cycle investing and at least partial annuitization eliminate that risk. Could you explain in particular what the life cycle 

investment profile is all about and how that works? 

Mr. BIGGS. Well, you get these life cycle—some people call them 

lifestyle—funds. They are available in the Thrift Savings Plan 

today. They are available in a number of 401(k) plans. And they 

try to tackle the problem that a lot of people do not pay very much 

attention to their investments. People do not reallocate their investments as they get older. They do not think about how their different investments fared. 

So these are plans that automatically shift you from stocks when 

you are young to bonds as you get older. The idea is that, when 

you are younger, you can afford to bear a little bit more investment 

risk. When you are older, you want something that is more predictable. And it does this automatically over time. If you have this allocation working, as the TSP does, using low-cost index funds, it is 

a simple and low-cost solution to a problem. 

I think, just more broadly, when people think about DB versus 

DC plans, the thing they think about is, who bears the market 

risk? I think that is actually the less important thing to focus on. 

But the difference of being automatically enrolled, the difference in 

the contribution rates or the saving rates, the difference in terms 

of annuitization, those are, by far, the more important differences 

to me, and those are things we can do today through DC plans and, 

to a certain degree, we already are doing today. 

DC plans clearly have problems. I do not deny that. But they are 

problems that could be fixed. DB plans, again, if you look at the 

State and local sector, have problems that I think, in a lot of ways, 

are much, much more difficult to fix. 

Senator TOOMEY. Thanks very much. I see my time has expired. 

Thanks, Mr. Chairman. 

Senator BROWN. Sure. 

Senator Isakson? 

Senator ISAKSON. In 1983, when Reagan and O’Neill, Tip O’Neill, 

changed the Social Security rules, I was 39 years old, and they 

passed a new rule that said if you were born after 1943, your eligibility went from age 65 to age 66. Well, I was born in 1944, so I 

was the first generation of Americans to lose a year of my Social 

Security eligibility. And it is going to age 67 here in a few years. 

There are a lot of people proposing looking into the out-years and 

pushing eligibility out in the out-years for our children and grandchildren. What would be your position on that, Mr. Romasco? 

Mr. ROMASCO. Well, I think what we have advocated and have 

been strenuously advocating for over a year is, let us take this conversation out of the deficit discussion and have a retirement discussion. And among the possibilities is raising the age, along with a 

series of others. But we have to look at the financial issue, the circumstantial issue, as well as sort of the value issue. 

19 

I think there are challenges with raising the age, and I think one 

of the challenges is, clearly, it is going to become very difficult to 

ask a coal miner to go down in that mine when he is 68 or 69 or 

70 or a waitress who has been on her feet for 30 years. 

So I think there are issues with it, and I think that should be 

part of that larger conversation about Social Security’s role in the 

broader retirement system. We have heard a lot of suggestions here 

that are worthy of consideration, but the important thing is, let us 

have Social Security as part of our retirement system conversation, 

not a deficit conversation. 

Senator ISAKSON. Mr. Biggs, what do you think about raising the 

age? Just briefly. 

Mr. BIGGS. Well, Mr. Romasco cited a coal miner or somebody 

like that. Go back to 1950 when we had a highly industrialized 

economy. You had coal miners and farmers and factory workers. 

The average age of initial Social Security claiming then was 68. 

Today, when your biggest on-the-job risk is carpal tunnel syndrome 

from your mouse or something like that, it is 63. 

In a proposal I did for AEI a few months ago, I did not propose 

raising the retirement age. But I think the idea that we cannot 

have a higher retirement age, I think it just flies in the face of the 

fact that people did, in fact, retire later in the past, and today’s 

jobs are less physically demanding than they were in the past. 

So it is not something I say has to happen, but I think it is something that people should at least be open to. 

Senator ISAKSON. Mr. Baker? 

Mr. BAKER. Well, just a couple of points. First off, there has been 

a growing gap in life expectancy. So people often point to the fact 

that we are living longer, and that is true, but it is not quite the 

same for everyone. So, disproportionately, the gains in life expectancy have gone to those in the top quintile, not to those in the bottom half of the income distribution. So the idea that they will enjoy 

a longer retirement is not necessarily true. 

The other point is, following on Andrew’s, we actually did an 

analysis of this, looking at Labor Department classifications, and 

we found that close to half of workers and close to 60 percent of 

workers in the bottom quintile were at jobs that were classified by 

the Labor Department as physically demanding. So these are people working as custodians, working as waitresses, being on their 

feet pretty much 8 hours a day. 

So the idea that we are all just worried about carpal tunnel syndrome with our mouse, I think that is just not true. So I would be 

very hesitant to raise the retirement age. 

Senator ISAKSON. Mr. Sweeney? 

Mr. SWEENEY. Senator Isakson, we actually tried to quantify in 

our survey how impactful delaying retirement was. We found that 

if workers delayed retirement from 65 to age 70, they saw a 12- 

point improvement in what we characterized as their retirement 

preparedness measure. When we saw folks who worked part-time— 

that was working 1 day less a week for each of those 5 years past 

age 65—we saw a 7-point improvement in their scores. So it is a 

choice that people can make. 

The other thing I would say about the types of work that people 

do is, we are going to have seven different jobs during the course 

20 

of our working tenure, and so those jobs may not all be the same 

types of jobs. We just need to consider what type of work people 

want to do. 

People want to work longer. Today’s 65-year-olds are more 

healthy and more active than our parents’ generation. So I think 

that is going to be a trend that workers are going to want to continue to pursue. 

Senator ISAKSON. One of the things that I think is probably the 

single biggest problem we have to figure a way to overcome is the 

lack of investor sophistication and knowledge of the average American in terms of saving for their retirement in the first place. 

I know at Fidelity, you deal with that probably every day. When 

they come in at age 55, saying, ‘‘Well, I think I want to retire in 

10 years, can you help me get ready,’’ if they had done that 25 

years earlier, it would have been a lot easier question. 

I have a resolution—I think Senator Toomey has signed onto it 

and some of the others—to really promote the tax benefits of retirement savings and government programs that incentivize people to 

save. Are there things that you all can recommend that we should 

be doing? Because, in the end, the easing of the pressure on the 

government is going to be when individuals are capable of taking 

better care of themselves because they are better educated on the 

compounding of interest and retirement security in the first place. 

Mr. SWEENEY. Exactly right. The younger we can get an employee engaged in saving at a high level, correctly allocated, and 

understanding that they should continue to save even when markets get volatile, the more likely we are going to be successful in 

the future, and people are going to be better prepared to enter retirement. 

Some of the comments that Mr. Biggs made about autoenrollment—we have seen that to be very successful. Seventy-five 

percent of the plans that we administer offer auto-enrollment, but 

we need to have more employers make that a mandatory option. 

The other feature that is advantageous is what we call autoescalation. So today people default in at a 3-percent enrollment 

rate; 3 percent of their salary gets deferred to their 401(k). We 

think that number should be doubled to 6 percent. 

The real target is a number between 10 and 15 percent, which 

includes the employee contributions, plus a match, where available, 

from the employer. We want the auto-escalation so that people, 

over a very short period of time, get to that target savings rate of 

10 to 15 percent. 

Senator BROWN. Senator Casey? 

Senator CASEY. Mr. Chairman, thank you very much. And I want 

to thank Senator Brown for calling the hearing and for the work 

that he and Senator Toomey did to bring this hearing about. 

I want to start with Mr. Romasco. And I had a couple of questions prepared, but your opening statement, the way you personalized it sometimes, is the kind of testimony that we do not hear too 

often in this room. 

I want you to, if you could—and I know your answer probably 

is dependent upon some bit of extrapolation maybe, but if you could 

project to the present that scenario that you described that your 

mom was facing. How do you compare what your mom was facing 

21 

in terms of the dependency on Social Security and the effectiveness 

of it with what a 33-year-old mother would face today who loses 

her husband and has one child and one on the way? Are you able 

to do that? 

Mr. ROMASCO. Well, it is hard to do that, but I can tell you that 

if we look at the circumstances, if that were happening today, I 

suspect she would have twice as much difficulty finding a job, keeping a job, and paying the rent. It was a three-decker house in a 

working class suburb of Boston, part of Boston, and the forces, the 

economic forces in the late 1940s and early 1950s, were not lavish, 

but they are more severe now. Health care costs have increased. 

The utilities—all the costs have increased tremendously. So I 

would suspect it would be even more challenging, particularly 

given what has happened with wages over time. So I am just projecting that. 

And the difference of having some level of security, to know that 

we can pay the rent, we can put food on the table, makes an enormous difference in the way the family unit stays together. And I 

did not realize it, frankly, until I started to look into it. I always 

assumed my life was fine. I did not sit at the table with my mom 

and do the bills. But I had a sense of security, and I knew that 

I had a vague notion that a check was coming and she was not 

pulling her hair out every night. She was working hard. I suspect 

that would be significantly different. 

Remember, 20 percent of us in this country are doing okay, especially in this zip code. One percent of us are doing really okay. But 

most members tell me, ‘‘Rob, I’m just trying to get to Friday.’’ I am 

really worried about all Americans, particularly the 80 percent of 

us who are just trying to get to Friday. 

Senator CASEY. And I do not think there is any question that you 

do not need to have a degree in economics or a lot of advanced 

learning to look at the data on what has happened to the middle 

class over the last 4 years, the last 10 years, or the last 45. It is 

just stunning, the hammer blows that the middle class has endured—and the folks who are just below the middle class. 

You talked about, in your testimony, the idea that Social Security has become the primary source of retirement income, and you 

also point out that 78 million Americans do not have access to a 

workplace retirement plan. That is a really stunning number. 

We can debate how that has happened, but what would you hope 

that the Congress would do in just say the next 2 years or so, if 

we had an opportunity to make changes? Because I think all of us 

in either party, as much as we debate and might have disagreements, I think we all have a pretty serious obligation to get this 

right. 

I just want to get your thoughts on what you hope we would do. 

Mr. ROMASCO. Well, the first thing is, let us make sure we do not 

conflate this conversation with the deficit conversation. Let us have 

a separate conversation. This is a real challenge, the retirement 

challenge. Social Security plays a huge role in that. 

But I think we have heard a lot of suggestions about how to look 

at work and savings as part of the 3-legged stool. How do we restore that, those two legs, and not decimate or weaken Social Security? Remember, Social Security is about adequacy, as well as solVerDate Mar 15 2010 17:04 Aug 15, 2014 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 R:\DOCS\88820.000 TIMD
22 

vency, and I thought we heard a number of suggestions today that 

should be part of that conversation that can strengthen the savings 

dimension of that and encourage that. 

But at the same time, let us not look at Social Security as a 

piggy bank to solve the deficit. Let us have a separate conversation 

about that, and then ask the fundamental question, what kind of 

country do we want? What can we afford, and what are we willing 

to pay for? 

Senator CASEY. Mr. Chairman, I know the red light is on, but, 

because we are in a smaller hearing, I am asking your indulgence. 

Maybe we could just do a lightning round with the remaining 

witnesses on what you would hope we would do in the next 2 years. 

We will not allow you to have much time, but you can encapsulate 

what you hope we would do. 

Mr. BIGGS. Well, I agree that we would want to think about Social Security reform in a comprehensive way, in a far-reaching way. 

It is not simply about solvency. 

Too often, the problem is that Republicans think that Social Security is doing fine, except we do not want to raise taxes. Democrats think Social Security is doing just fine, except we do not want 

to cut benefits. 

The problem, but also the opportunity, is that Social Security is 

doing a lot of things not very well. If you make it do those things 

better, you can get a more efficient and more effective system. 

A second quick point. Although I think you want to look comprehensively at Social Security, if you look at it in isolation of the 

rest of the budget, you are going to miss something. The question 

I would pose is: would you fix Social Security differently if we did 

not have huge deficits in Medicare and Medicaid? I think, pretty 

obviously, the answer to that is ‘‘yes.’’ You would be more open to 

revenues perhaps than you would be if you did not have the Medicare problem. 

So you have to think about all of this stuff together. You have 

to say, how do we make these things fit? Social Security seems to 

be something where we can ask middle- and upper-class people to 

do more to save on their own. In Medicare, it is a lot harder to do 

that. You cannot tell somebody to go pay for their own health care 

benefits, because it is an insurance program. 

So we have to think about this in an integrated way as well. 

Senator CASEY. Mr. Baker? 

Mr. BAKER. I guess I would say a couple of things. First off, 

something that is defensible that could be done quickly is raising 

benefits for those at the bottom. I think you could make a very big 

difference in the income of a lot of retirees today or new retirees, 

raising those benefits at a relatively low cost. 

In terms of how we think about the longer-range story, I think 

it is not just the budget. I would say it is the economy. Again, I 

was making this point earlier. Much of the shortfall that we are 

looking at in Social Security is because of the upward redistribution of wage income. That is a tragedy, and one aspect of that is, 

Social Security faces a more difficult situation. On the other hand, 

the good side of that is, that is money for people who would not 

otherwise have it and desperately need it. 

23 

So I think we have to hope for better economic outcomes. That 

is where my focus is. It is not just the budget. It is the economy. 

And also, getting back to the issues Andrew raises, Medicare and 

Medicaid, we have had a sharp slowdown in health care costs. That 

is really, really important. It is amazing how little that seems to 

be appreciated, because that has made more differences in deficit 

projections than I think anything Congress is likely to do in the 

next few years. 

So let us hope that continues. I do not know whether it will or 

whether it will not, but that certainly affects the environment of 

how we think about Social Security or the government’s liabilities 

in the long term. 

Senator CASEY. Mr. Sweeney? 

Mr. SWEENEY. Senator Casey, there are two things that I would 

suggest. One is, increasing financial education and guidance; so, 

making the ability to help people make quick decisions and make 

complex decisions simple, that is the first thing. 

The second thing I would say is, from a behavioral decisionmaking standpoint, the auto features that were discussed earlier 

are actually very beneficial, improving upon those, because they 

are proven to work when used effectively. Auto-enrollment, autoescalation of contributing at higher levels, and then the default enrollment in target-date funds—all three features have been shown 

to yield very strong results. 

Senator CASEY. Thanks very much, Mr. Chairman. 

Senator BROWN. Senator Wyden? 

Senator WYDEN. Thank you, Senator Brown. I commend you for 

scheduling a very important hearing on a topic that really gets 

short shrift, and I commend you for it. 

Gentlemen, I am struck by how many folks come up and describe 

accounts that invariably get into the question of their pension melting away. They are talking about hopes and dreams that they had 

had for years essentially evaporating because their pension is not 

going to be there. Of course, there are a lot of pieces to this puzzle, 

and the recession is a factor, the aging workforce is a factor. Certainly, it is hard to follow how some of the changes at the State 

level affect private pensions. There are a host of issues that go into 

this mix. 

But I am also struck by some of the reports that some in the private sector—businesses and those in the retirement industry— 

seem to be doing some wheeling and dealing with pension funds. 

We recently came across the work of a Wall Street Journal reporter, Ellen Schultz, who apparently has done a fair amount of 

writing on this. She says—and she is not talking about all the businesses and all the people in the retirement industry, but she is saying that there are some who have taken billions of dollars from 

pension funds to finance downsizings and have sold the assets in 

merger deals. 

They have talked about how there are loopholes in discrimination rules that permit pension plans to be capped to pay, in effect, 

for executive payment arrangements, executive parachutes, things 

of that nature. They talk about the exploitation of new accounting 

rules which create an incentive to cut benefits, and cut benefits 

24 

even when there was a pretty good argument that the pension had 

enough money. 

And I was struck by this account, and clearly this reporter, a distinguished reporter, is not saying this is every business or everyone 

in the retirement industry. But I would be interested—and we can 

start with you, Mr. Baker, and you, Mr. Biggs, because you all 

have been in the field—how serious is this problem of the siphoning of dollars from pension funds to finance downsizing, the kind 

of wheeling and dealing that Ms. Schultz describes in really specific 

kinds of instances. 

Is this a serious part of this, and, if so, what kind of enforcement 

efforts could be put in place to deal with this, because this really 

looks to me like it is way over the line and, if not looting of private 

pension funds, certainly is pretty serious financial misconduct that 

should not be tolerated? 

Let’s start with you, Mr. Baker, and then you, Mr. Biggs. How 

serious a problem are these issues? 

Mr. Baker? 

Mr. BAKER. Well, I do think it is a very serious problem. Just to 

be clear, I do not think that that explains much of the issue in 

terms of workers facing inadequate retirement, in large part, just 

because there are not that many workers who still have defined 

benefit pensions. But you certainly have a number of instances, 

which she documents, where certainly people are violating the intent of the law; whether they are violating the letter of the law, 

I cannot really speak to. But clearly, the intent of the law is that, 

once money is in a pension, it is supposed to stay in a pension. It 

is used for those workers’ retirement. And she gives several accounts of ways in which major companies were able to effectively 

pull money out of those pensions in order to finance a merger or 

finance downsizing, whatever you want to say. And that should not 

happen. 

So that requires greater policing, greater scrutiny, and probably 

greater penalties so that, when you can determine that someone 

has, in fact, violated the law, that it is not just a slap on the wrist. 

So, you want to play a game and see if you can get away with it? 

Well, you might risk some time in jail. I think that would make 

people more reluctant to do so. 

Senator WYDEN. Let us have your colleague get into this. Mr. 

Biggs? 

Mr. BIGGS. One of the problems with defined benefit pensions, 

which I did not mention in my testimony, is it is very easy for a 

plan sponsor to not do the right thing. It is easy to promise benefits, but nobody wants to pay for them. That is true in the corporate sector, and it is true in the State and local sector. 

Defined benefit plans are very complex. They require a whole 

range of assumptions regarding what is going to go on in the future 

to determine what you have to pay today. It is very easy to avoid 

doing the right thing. A defined contribution plan is much more 

transparent. If your employer says, ‘‘I am going to put X amount 

into your 401(k) this year,’’ they either put X in or they do not put 

X in. The monitoring is much easier. 

That does not say there are not similar problems in 401(k)s. 

There was a recent case, I believe it was International Paper, 

25 

where they were accused of essentially funneling employee contributions into a fund of their own stock that charged them too 

much. That sort of thing can happen, and I think it should be punished. But by and large, I think it is not a major explanatory factor 

in problems we have in retirement security today, for the reasons 

Dean mentioned. 

Senator WYDEN. Let us do this. And I asked it the way I did because this, to me, really is not what is useful about what Senator 

Brown and Senator Casey are trying to do. This is the kind of factfinding effort that we ought to be doing more of. 

Ms. Schultz is an award-winning journalist. She is not saying 

that this is going on at every company plan or every part of the 

retirement industry, but suffice it to say, if you have the kind of 

documented examples here and you do not have enforcement 

against those kinds of instances, that certainly is an invitation to 

others to try to skirt the rules. 

Mr. Baker, have you or any of those who have been advocating 

for workers done some writing on suggestions with respect to penalties and consumer protections for workers that ought to be put 

in place? 

Mr. BAKER. I have not written directly on this particular issue, 

but I can say that I would imagine others have. I just have to say 

I am not familiar with it. But I do have to say I kind of look at 

this as part of a sort of malfeasance, I think, in many cases, probably criminal actions that were taken as part of the financial crisis, 

and, as we know, almost no one has gone to jail in connection with 

that. And I do think that raises a serious issue. 

It is not, one, just a punishment. We might want that, but more 

importantly, the question of incentives for people who think that 

they could violate the law and, at very worst, their company faces 

a modest fine, are not discouraging that behavior. And we seem to 

understand that in other contexts. I do not quite understand why 

we do not apply that financially. 

Senator WYDEN. I am way over my time. Senator Brown, thank 

you. I would be open to suggestions from either of you two and 

from other panel members, because it struck me as an important 

set of issues that ought to be part of this debate. 

You go to a conference, you go to some academic setting, and people talk to you about the recession, they talk to you about the aging 

workforce. Then you see people at a town hall meeting and they 

talk about their pension melting away and they have questions 

about how that happened, and I think we ought to be looking at 

some of those issues. 

Thank you, Senator Brown. I thank you for your good work. 

Senator BROWN. Thank you, Senator Wyden. 

Senator Nelson? 

Senator NELSON. Mr. Chairman, there is nothing better at focusing the mind than when you realize that you are facing a situation, 

and a lot of Americans do not face the fact of retirement until they 

are way on down the road. 

The question is: are we going to have enough money in retirement? Have we saved enough? Several of us are sponsoring the 

Lifetime Income Disclosure Act, and it is a way of showing people 

26 

what their savings would look like in retirement as a way to get 

them to save more money today for retirement. 

So I want to ask Mr. Sweeney, can you explain the innovative 

tools that Fidelity has in order to show your clients what their savings will look like at retirement and what else you think you need 

from the government to get people thinking about this so that they 

can adequately plan for retirement? 

Mr. SWEENEY. Thank you, Senator Nelson. I would say two 

things. We develop a lot of tools that we make available to customers who work with Fidelity, but also to the general public. They 

can go in and they can assess their holdings with Fidelity. We also 

allow them to aggregate holdings that are kept at other firms. 

We think that is important, because oftentimes we find two 

halves of a couple come in, one may have a plan that is record-kept 

at a Fidelity platform, one may have a plan that is record-kept at 

another firm, but both halves of a couple are gearing towards a 

common retirement, and they want to be able to see how their combined balances can be used to achieve those very goals. 

We recently conducted what we call the retirement preparedness 

measure and calculated the readiness of people to do exactly what 

you say: take the accumulated assets and translate that into an income stream that will generate lifetime income. 

So that is an important disclosure. We are doing a lot to try to 

educate investors. They come to us with complex problems. Our job 

is to try to simplify those problems. But I think that the most critical factor is increasing savings rates, particularly for young investors. 

As they live longer, as they are less covered under pensions in 

the future, we think that they are going to have to save more on 

their own. So the more we can do to get them to save, and the more 

we can help people with comprehensive education, the more we are 

going to have an America that is better prepared for retirement in 

the future. 

Senator NELSON. What are the savings rates of America compared to other industrialized countries? 

Mr. SWEENEY. We look across the globe, and we look at different 

retirement systems. So, for example, Australia has a mandated retirement system which people are forced to put into a private retirement system of their choice. The thing that is perhaps masked 

is, they also have higher debt rates. We are not sure there is a causation there, but there seems to be some correlation. 

So, when we look across the globe, we think that there is an opportunity for people at all income levels to take some money aside 

and save. It is a very difficult decision for a young worker who is 

trying to put money in their first 401(k), and they say, ‘‘How could 

I possibly save 10 percent?’’ The comment I give back to them is, 

I say, ‘‘If I offered you your same job at 90 cents on the dollar, 

would you still take the job?’’ They say, ‘‘Well, yes, I would figure 

out how to buy a less expensive apartment, drive my car a little 

bit longer. I would make some tradeoffs.’’ But they would figure out 

how to live on 90 cents on the dollar. So that is really the decision 

we are asking each investor to make. 

Senator NELSON. And your particular tools, other than aggregating all of their savings so they have a comprehensive view, what 

27 

do they basically do? You take their composite savings and then 

project at their retirement age how much that is going to give them 

each year for the actuarial length of their life? Is that what it is? 

Mr. SWEENEY. We have several different tools. I can simplify 

them into accumulation-oriented tools and distribution-oriented 

tools. We have planning tools, and then we have investment tools. 

So, if you think at the simplest level about accumulation, I want 

to make sure I am saving enough so that I have accumulated a 

nest egg, so when I reach retirement age, I am able to translate 

that into an income stream. Clearly, for a 25-year-old or a 45-yearold, they are much more focused on accumulation. That is the dialogue we have with them. 

For a 65-year-old, it is much more about managing expenses. So 

we start with the expense hurdle that each retiree has to clear and 

look at the accumulated benefits that they have, either through 

their DC, their defined benefit program, or Social Security, and we 

say, how can you clear your monthly hurdle each month? But we 

do want to plan well beyond the actuarial life stage for retirees. 

We find that one quarter of all couples will live into their early 

90s, so planning to 87 is planning for a quarter of our population 

to fail. 

Senator NELSON. Let me just take a pure hypothetical: a person 

who is retiring at age 65 who has a salary in the range of $150,000. 

See if you can interpolate this for me. What basically is the nest 

egg of savings that they need to take them into their average situation of lifetime expectancy? 

Mr. SWEENEY. We look at starting with an accumulated nest egg 

of about 8 to 10 times their salary. So somebody making $150,000 

at age 65, you would want them to be somewhere in the range of 

$1.25 to $1.5 million. It is a pretty substantial number. 

Senator NELSON. And then that would pay out both principal 

plus interest over that actuarial life. 

Mr. SWEENEY. Correct. But what we find is that, for customers 

at the higher earning levels, those hurdles that they need to clear 

when they get to retirement are not as high for those people, for 

a couple of reasons. First, we assume that people at those higher 

income levels—and we see this—are actually saving. 

So, if I am saving 10 to 15 percent of my salary before I retire, 

automatically, I only need to clear a hurdle that is 85 cents on that 

dollar, because I no longer need to save for retirement. If I paid off 

my mortgage, that is, again, another big nut that you do not have 

to clear when you get to retirement. So you can begin to see what 

we call income replacement rates close to retirement ranging between 68 cents on the dollar for wealthier people up to ranges in 

the 90s for people who are at lower income levels. 

Senator NELSON. Thank you very much. You directly answered 

what I wanted to find out. Thank you. 

Thank you, Mr. Chairman. 

Senator BROWN. That is the purpose of the hearing, Senator Nelson. 

Senator NELSON. Thank you. Well, we have a lot of witnesses in 

front of us who do not answer. 

28 

Senator BROWN. I understand that. This is very good panel. 

Thank you, Senator Nelson. And we will do a second round of questions, Senator Casey. 

I appreciated Senator Casey’s comments, Mr. Romasco, about 

your personal story. I would like to kind of bring back the issue of 

retirement age and paint a picture of a couple of stories that are 

not as personal for me as they were for you, Mr. Romasco, but people whom I have gotten to know. 

One was my neighbor—10 years ago, in a working-class city on 

Lake Erie, in Lorain, OH—who lived next door. I was then in my 

late 40s, early 50s. He was about my age. He had been a carpenter 

since he was 18, a non-union carpenter. So his retirement was not 

as organized and lucrative—lucrative is the wrong word—but not 

as generous as it would have been had he been a union carpenter. 

But nonetheless, he had worked for 30 years, and there were a 

lot of things he could no longer do. I mean, he had trouble lifting 

things. He had worked outside. If you live on Lake Erie, it is pretty 

cold working outside on construction projects. He was doing pretty 

well with his income, but his body was breaking down. 

The second story is, I was in Youngstown at a town hall. A 

woman put her hand up. She struck me as someone—she said, ‘‘I 

have worked all my life. Now I am working two jobs. I am 63 years 

old.’’ And then she said, ‘‘I’ve just got to live another year and a 

half so I can get health care.’’ 

I mean, imagine someone thinking in their life that their goal— 

she had no insurance, and I do not think she had been insured 

much of her life. Her goal was to be able to live long enough to get 

health care, not live long enough to see a grandchild, not live long 

enough to complete something, some hobby or workplace success or 

something, but just to get health insurance. I mean, I think when 

we think about retirement age, I think we need to think in terms 

of personalizing it in that sense. 

But here is what I want to ask about. We know about the gap 

in life expectancy for those two people I mentioned—I, obviously, 

do not know about their personal life expectancy nor do they, but 

on the average, they will not live nearly as long as those of us who 

dress this way and have jobs like we have will live, on the average. 

We know that. 

We know that those same people, those two people, what they 

represent are much less likely than the seven of us to have, not 

just the leg on the stool of Social Security, but also have some 

other kind of private pension, private or public pension, and some 

significant savings. 

And we also know a third thing, and that is the increase in jobs 

in this country, the growth in jobs, is mostly in low-income areas. 

It is fast food workers, it is health care workers, people who often 

do not have insurance. They will have health care, fortunately, 

now, because of the ACA, most of them, but they also are unlikely 

to save. They are unlikely to have any kind of employer pension, 

or, if they do, it will not be particularly lucrative. 

So with all of that, we are seeing people like Simpson-Bowles 

saying, raise the retirement age. We are seeing all the serious people in Washington on the talk shows say we should raise the retirement age. 

29 

Talk that through, not just your position on retirement age—you 

have pretty much made that point—but what do we do about people who are retiring, people who are low-income, who do not live 

as long, people who do not draw as much Social Security, and people who live longer and have had more comfortable lives in terms 

of dollars who are living longer and getting higher Social Security? 

How do we deal with this in light of low-income workers generally? 

Mr. Romasco, do you want to start with that? 

Mr. ROMASCO. Well I think, first of all, we have to understand 

what the reality is. When you have corporate executives arguing to 

raise retirement age to 70 and their average retirement benefit 

personally is $14.5 million apiece, they should go to Lake Erie, they 

should go to Toledo, and they should talk to these people and say, 

as I say to the audiences, all those who want to live on $14,500 a 

year, raise your hand, which is the average Social Security benefit. 

I do not get a lot of takers for that. So we need to ground people 

in what the reality is—not just the math, but the reality. And we 

have to be aware of averages. I think that is so important. I think 

you have sort of parsed the numbers correctly, which is the average 

this and the average that. 

Well, Dean made the comment, and Andrew is well-aware of this: 

there is a very uneven situation going on here, where, if you are 

white, well-educated, and affluent, you are going to live longer and 

benefit more, but, if you do not happen to have those tools and 

those basic situations, you are going to be challenged. 

As I said before, younger workers have a 1 in 3 chance of encountering disability or not reaching retirement age because of some 

problem, and that proportion goes up in communities of color, and 

that is significant. So let us get the reality and the data out there. 

The second thing is, I think we heard suggestions—as part of 

this conversation we are trying to have about retirement, not about 

deficit, but retirement—of strengthening the system at the low end. 

We ought to look at that in terms of the adequacy issue. 

The third thing is, there is no doubt we can all do a better job 

of saving. And one of the challenges is utilizing the mechanisms 

that people in Mr. Sweeney’s business have and some of the suggestions that Andrew made to encourage saving and, at the same 

time, building on that foundational piece, which is Social Security. 

It is the foundational piece, and, if we weaken that or limit that, 

I think we have to face the reality of what is going on: stagnant 

wages, pensions disappearing, and savings under challenge. 

I mean, think about what we just heard with Senator Nelson and 

Mr. Sweeney. Well, the average income in this country is $50,000. 

So, using Mr. Sweeney’s 8 times, that means people have to have 

$400,000 in order to take care of themselves lifetime. 

What is the reality of that? The reality is a vast number of 

Americans are not even close. Some are, and good luck to them, 

and congratulations to them. 

Senator BROWN. Do others on the panel want to respond to that? 

Mr. BAKER. Yes. A couple of points. First off, I think the point 

you made about the Affordable Care Act is a hugely important one 

that has not gotten enough attention. There are going to be a lot 

of people like this woman who are 63, in bad health, who are strugVerDate Mar 15 2010 17:04 Aug 15, 2014 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 R:\DOCS\88820.000 TIMD
30 

gling to go to work every day, who now will be able to get health 

care insurance, and that is going to make a huge, huge difference 

in their life, which I think I am happy for. I appreciate that Congress voted the Affordable Care Act in for that reason. 

The other point is that there are these huge differences; people 

are, obviously, in different circumstances. Those of us in our suits 

with desk jobs, yes, we could work until 70. Many of us will; many 

of us will want to. It is a very, very different world for most of the 

workforce. 

And one of the things I was struck by, if you read the BowlesSimpson proposal to raise the retirement age, they actually say we 

should carve out certain occupations and not raise it for them, 

which I have to say I got kind of a kick out of, because that was 

actually the thing that Greece was ridiculed for when they had this 

huge deficit, because everyone jumped on the bandwagon. Apparently, if you were a hairdresser in Greece, you could retire at age 

50, and the rationale was, they work with dangerous chemicals. 

I have no idea about the truth of that, but that is the sort of 

thing that Bowles and Simpson were proposing. That gets you into 

a nightmare story that I think we do not want to deal with, but 

it does show at least that they recognized the problem, and I give 

them credit for it. But it was not a very good way to deal with it. 

Senator BROWN. Anyone else? 

Mr. BIGGS. Sure, just quickly. I think this goes back to the example that Senator Nelson and Mr. Sweeney had and the comment 

that you made that, well, somebody making $50,000, they need 8 

times their annual income in savings. How are they going to get 

that? 

The fact is, they do not need 8 times their annual income in savings, because they are getting Social Security. Social Security is a 

much bigger part of their retirement than it will be for somebody 

making $150,000 per year. 

Retirement planning is really complicated. It depends on what 

your income level is, how many kids you have had, are you single, 

are you married. It is very easy to take these rules of thumb and 

misapply them. I cannot tell you, off the top of my head, how much 

savings somebody making $50,000 a year should have. It is not 8 

times their annual income, I will tell you that for certain. 

Just a second point which goes back to, I think, the problem you 

raised of the retirement age. Back in the early 1960s, we lowered 

the retirement age from age 65 to 62 for precisely the reasons you 

pointed out. We have laborers, we have people with physically demanding jobs. They cannot make it to 65. 

For those folks, I agree with you: 62 is fine. The problem is, it 

was not just those folks who retired at 62. It was everybody who 

retired at 62. What do we do then? One idea to encourage people 

to work longer is, I propose eliminating the Social Security payroll 

tax for workers aged 62 and over. There are technical reasons why 

you want to do it, but the point is to give people sort of a carrot, 

as well as a stick. 

Senator BROWN. Excuse me for interrupting, but let me ask you 

another question about that, Mr. Biggs. That would mean that 

their monthly check would not grow. I mean, I understand the difference of 63 now and 66, and you get more if you retire at 66, if 

31 

you wait. But the reason a 70-year-old gets more is because they 

have paid in those 4 years. 

Mr. BIGGS. That is actually untrue. 

Senator BROWN. That is not true? Why do they get more? 

Mr. BIGGS. I did a study a few years ago looking at a 62-yearold who chooses to delay retirement for a year and pay an extra 

year of taxes. For each additional $1 of taxes a new retiree pays 

in, they get about 2 cents back in additional benefits. 

Senator BROWN. Well, do not do it between 62 and 65 or 63 and 

66, because it has gone up. Do it so there is no penalty involved. 

Is that the case? If you retire at 66 versus retire at 70 and you are 

paying into Social Security those 4 extra years because you are 

working, as Mr. Sweeney suggests, does that mean your retirement 

does not go up because you paid more in? 

Mr. BIGGS. Your retirement benefit goes up solely because you 

delay claiming the benefit. It goes up almost nothing because of the 

additional taxes you pay. The sort of marginal return is essentially 

zero, and that is because—two reasons. 

One, Social Security is based on your highest 35 years of earnings. So the 36th year is unlikely to raise your benefits by much 

or anything. 

Second, most women continue to get a spousal benefit. So, if they 

work longer, they are not getting anything in exchange for their 

own taxes. They are getting something based on their husband. So 

if they work longer, they essentially get nothing. 

I was shocked when we actually ran these numbers, but when 

you work through the benefit formula, it is clear why it happens. 

So the fairest thing for people in that age range actually is to 

eliminate the payroll tax, but it is also something which the academic research indicates would have a really big response in terms 

of labor supply, because these are folks who can work a little bit 

longer if you really make it worth their while, and it might help 

somebody who had a physically demanding job. 

They may say, ‘‘Look, I don’t really want to be a Wal-Mart greeter,’’ or something like that, but if you eliminate that payroll tax, 

it becomes a little bit more attractive. They can stay in the workforce a little bit longer. 

So it is trying to use the carrot, as well as the stick on this end. 

I understand that some people need to retire early, but a lot of people can and should retire later, and the question is, how do we encourage that? 

Senator BROWN. Thank you. 

Mr. Sweeney, do you want to comment or not? 

Mr. SWEENEY. Senator Brown, an example. I think about expenses, and that is really the primary basis on which we look at 

retirement plans. 

So I think of an example I saw with a client in California. He 

had just retired from the University Medical System at age 62, and 

he came in and talked with a representative about his options, and 

he still had 15 years left on his mortgage. 

And he said, ‘‘I’d like to take some of my assets and pay down 

my living expenses for the next 3 years, until I can take Social Security at 65.’’ The representative said, ‘‘Sir, you know, this is going 

to be really challenging. You are drawing down a significant porVerDate Mar 15 2010 17:04 Aug 15, 2014 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 R:\DOCS\88820.000 TIMD
32 

tion of your assets to live on them for 3 years, and that is going 

to put the tail end of your retirement plan at risk. When you are 

in your 80s, you may run out of money.’’ 

And it was a challenging conversation to have with him, but he 

had already decided to retire. If we could have that conversation 

with people before they actually choose to retire, if he could have 

worked for another 3 years and been in a very good place, he could 

have downsized his home, paid off his mortgage, made other 

choices about spending, which would have made his retirement 

much more successful. 

Senator BROWN. Thank you. 

Senator Casey? 

Senator CASEY. Thanks very much. 

I was looking at, Mr. Baker, your testimony on page 2 and the 

really startling numbers on a couple of segments of the population. 

We look at the unemployment rates monthly or look at poverty 

rates, but the data you have here indicates that, for senior nonmarried women, the poverty rate is 16.3 percent by the official 

measure, with another 11 percent near-poor. So, if you add poverty 

and the near-poor, it is, I guess, 27.3 percent. For the next category, African-American seniors, if you do the same addition, it is 

28 percent. Then I think the same calculation, poverty and nearpoor, for Hispanic seniors is about the same, 28.2 percent. 

They are just startling numbers, and I think another reminder 

as to why Social Security is so important for folks across the board. 

Is there anything you want to say about that? I just was pointing 

that out. 

Mr. BAKER. I appreciate you bringing that up, and this gets to 

the point I was making earlier about how increasing benefits for 

those at the bottom can make a very big difference. So I was suggesting if you were to raise benefits for people at the bottom 10 to 

15 percent, that makes a huge difference in their standard of living. 

These are people just struggling to get by. The cost for raising 

their benefits is very, very low. So even though, obviously, I know 

the long-term projections for Social Security, debt is affected very 

little by raising those benefits for those at the bottom. 

Senator CASEY. I know, Mr. Biggs, you indicated on page 2 of 

your testimony, and I am quoting, ‘‘Benefits for low earners probably should be enhanced,’’ unquote. So you are—— 

Mr. BIGGS. I have argued for a more far-reaching reform, similar 

to what you have in New Zealand or the U.K., where every retiree 

receives a flat benefit at the poverty level. So the idea is, you take 

poverty among seniors, which today is 9 percent, down to 0 percent. On top of that, though, if you want a benefit above poverty, 

we need to sign people up for employer-sponsored plans or IRAs or 

something along those lines. 

Social Security—I am not going to say it does not cut poverty. 

Clearly, it does. Is it the most effective, efficient way to reduce poverty? No. We could give every senior in America a poverty-level retirement benefit for half of what we spend on Social Security. 

We can do better, but it is not just by saying we need across-theboard increases in benefits. It is saying, who is being poorly 

served? Why are some people not receiving the benefits they 

33 

should? It comes about because of the complexity of the benefit formula. 

It bases your benefits on your lifetime earnings, but a lot of 

things other than your lifetime earnings. Lifetime earnings are not 

the most important determinant of your benefits. Other factors are 

actually more important than that. 

So it is not a well-targeted benefit. It is a risky benefit for lowincome people. 

Senator CASEY. Mr. Romasco, I wanted to commend you for doing 

calculations for our States. On page 8 you say, and I am quoting, 

‘‘In Pennsylvania, Social Security benefits supported 470,442 jobs, 

$70.9 billion in output, and $4 billion in State and local tax revenues,’’ unquote. 

That is very helpful, for us to have that information, and your 

calculations will be used at another time. We are grateful for that, 

because sometimes it is difficult for people, and sometimes difficult 

for elected officials too, to clearly articulate the benefits in a 

broader-based way. We try to use bang-for-the-buck calculations all 

the time because it is one way to talk about these issues. So we 

appreciate that. 

I know we are nearing the end, Mr. Sweeney, so I am not going 

to go through too many questions for you, other than to point out 

for the record—Senator Brown may not know this, but Mr. 

Sweeney went to the greatest undergraduate institution in the 

world, Holy Cross. I wanted to leave him—— 

Senator BROWN. With a name like Sweeney, that is shocking. 

[Laughter.] 

Senator CASEY. I have four daughters, Mr. Sweeney, and I am 

just realizing, with your chart, when you indicate Generation Y 

was born 1978 to 1990, I realize that our oldest daughter is in Generation Y, and the next three, I guess, are millennials. 

The chart you have on Gen Y tells a lot about—you have a lot 

of red there, meaning their potential or their likelihood of saving 

is not very high up on the scale. So, what would you say to both 

the Gen Ys and even the younger folks, the millennials; what advice do you have for them—— 

Mr. SWEENEY. That finding was actually surprising. 

Senator CASEY [continuing]. So I can tell my daughters? 

Mr. SWEENEY. Please. I will be happy to talk with them as well, 

if that is helpful. 

I would say two things. We were surprised to find that Gen Y 

was so red because they had so much more time to correct the trajectory that they were on. 

Two things. The goal post—— 

Senator CASEY. Explain red again, just so—— 

Mr. SWEENEY. It meant that they were not on track to cover 

their essential expenses in retirement. 

There are two big drivers. They are not saving enough, but the 

second big driver is that their goal post has been moved further 

down the field than today’s generation of boomers. And by that, I 

mean that they are not going to be covered by defined benefit plans 

to the degree that today’s retirees are covered. So they are going 

to have to save more on their own. And, as we think about people 

living longer, your daughters will live longer than your parents, 

34 

and so the time frame over which they need to cover their own retirement expenses is going to be longer. 

So those are the two biggest predictors and factors that we need 

to make sure that Gen Y and millennials really understand today 

so they start saving early with that first paycheck. We want them 

to be putting 15 percent in, if they can. 

Senator CASEY. Great. Thank you very much. 

Senator BROWN. Thank you, Senator Casey. 

A couple of more questions. If Senator Casey has another round, 

he can do it. Otherwise, we will wrap up. 

A number of you have seen or you know these general statistics 

that last year, a Pew poll asked respondents, asked young people, 

if there will be enough money to provide Social Security and Medicare benefits at their current levels. Forty-one percent of those 18 

to 29 answered ‘‘likely;’’ 36 percent of 30- to 49-year-olds answered 

‘‘likely.’’ 

You have heard, too, for some years, and I think I have heard 

this for literally a number of decades, the line that—I do not know 

if this was actually a survey or somebody just thought it was clever—young people feel more likely that they are going to meet Elvis 

Presley than that they are going to draw Social Security. Not particularly funny, I do not think. 

But reassure us, Mr. Baker, that that is not going to be the case. 

Mr. BAKER. Well, I could give you two answers. I could tell you 

the one I often give to young people. I have spoken at many colleges around the country and ask that question, do you think you 

will get Social Security, and no one raises their hand. And then I 

say, ‘‘Well, so at some point, we are going to stop paying benefits,’’ 

and they are all kind of nodding their heads. 

So I say, ‘‘Okay. So let’s pick a year, 2030 or whatever,’’ and I 

say, ‘‘Okay. Will we still have Congress?’’ ‘‘Yes.’’ ‘‘Will we still have 

the military? Will we still have roads?’’ And then I say, ‘‘Okay. And 

retirees are going to be twice as large as a percent of the population, the voting population, as they are today. Do you think members of Congress are going to vote to cut Social Security, get rid of 

Social Security?’’ And most of them are convinced ‘‘no.’’ 

But in terms of the data, the shortfalls—it is easy to make these 

sound very large, and it is kind of a game that certainly a lot of 

people in Washington play, where they talk about tens of trillions, 

hundreds of trillions. The reality here is that these shortfalls are 

not very large relative to the size of the economy. So the projected 

shortfall in Social Security: we are talking about a shortfall of 

around 1 percentage point of GDP—hardly trivial. But on the other 

hand, when we fought the wars in Iraq and Afghanistan, we increased military spending by 1.6 percentage points of GDP. I will 

not say that had no impact, but it did not wreck our economy, and 

we have a much longer time frame to adjust to this. 

With health care, we do face very large costs, but that is basically because our health care system is broken. We spend more 

than twice as much per person, on average, as people in Germany, 

France, Canada, whomever you want to throw into that mix. 

There, the real key is the question of fixing our health care system, and, if we do not fix that, whether or not we have Medicare 

35 

and Medicaid—we could eliminate the government health care programs—we have a nightmare on our hands. 

If we do fix our health care system, then the costs are easily 

manageable, and, again, the very good news there has been that 

there has been a sharp slowing of costs over the last 5 years. I do 

not have a crystal ball. I do not know if that will continue. But if 

that does continue, then health care is going to be very much a 

manageable problem. 

So, again, we can make these sound like scary numbers. If we 

express these shortfalls as a share of income, again, it does not 

make them trivial, but these are expenses we have dealt with in 

many other contexts. 

Senator BROWN. Thank you for that. 

Let me ask a question of all four of you, and we will wrap up 

with that. 

You have all testified only about the challenges. You have found 

areas of agreement. You certainly disagreed on some things, but I 

think you have laid out the challenges of the issues and the options 

pretty well. 

Just give me a couple of minutes each. Senator Casey asked the 

question, sort of the lightning round he said. This is sort of a lightning round squared maybe, on sort of short-term, what do we do 

now? 

But would you paint for us—take a couple of minutes each or no 

more than that, if you can, on what a retirement system in this 

country should look like 5 years from now, what you would like us 

to work toward, painting that picture of what the retirement system should look like. 

Mr. Sweeney, why don’t you start, and we will go across that 

way? 

Mr. SWEENEY. Great. Thank you, Senator. I would say two 

things. This education and guidance issue is of paramount importance. People come to us, and they have one paycheck, and they 

have multiple needs, and they say, ‘‘I need help.’’ 

We have proposals in front of us that say we might limit the 

amount of guidance and advice that we provide based on the type 

of account that they are working with. We need to make sure that 

we take a client-oriented view to that and say, ‘‘How can I help 

you, as an individual, as a worker, solve the multiple needs that 

you have?’’ 

The second thing would be that we think that these default enrollment and auto-enrollment features are incredibly successful, 

and we want to do more of those. We want to build on the strength 

of the Pension Protection Act and essentially create another round 

of that, which will put people in the right products, help them stay 

invested in equities in the downturn, in the volatility. 

We have seen that people who have stayed the course through 

the downturn in 2008 and 2009 actually are in much better shape 

than those who panicked and pulled out. So the more we can help 

people understand that their time frame over which they are investing is fairly long, and the more we can do to get them enrolled, 

save at a high rate, and be well-invested, the more successful our 

American workers are going to be. 

Senator BROWN. Thank you. 

36 

Mr. Baker? 

Mr. BAKER. Well, I guess a couple points. First, as I was saying, 

with Social Security, I think we can take some steps to enhance it, 

particularly for low- and moderate-income workers. It can make a 

very, very big difference to a lot of people at relatively low cost. 

The other point that I was making is, I think we can set up a 

system of portable, universal accounts, voluntary, but with a 

strong, say, default contribution, the key point being here that people can carry these place to place. They would have very limited 

options, very low cost. 

There has been bipartisan support for this, by the way, in a 

number of States. Washington State, California, came close to passing these on several occasions, but they were stopped by the recession really. 

So I think something like that would be very good, basically, as 

the supplemental retirement vehicle for middle- and upper middleincome people. 

One final point. I think it does not get appreciated that, when 

people talk about future generations, we see huge fluctuations in 

asset prices that will dwarf the impact of the deficit and debt on 

future generations. So when housing prices fell by 30 percent, that 

was really bad news for everyone who owned a house. On the other 

hand, it is great news for your kids. 

It is the same story with the stock market that people should appreciate. So on the one hand, as someone who is invested in 

401(k)s, great, I am happy to see the market go up. What that is 

going to mean is that anyone investing tomorrow could expect 

lower returns. 

And just a very, very simple story. Traditionally, if we had historic price-to-earnings ratios, you can count on roughly a 7-percent 

real return in the stock market. Given price-to-earnings ratios 

today, you can count on roughly 5 percent. That is over the long 

term. That means if I were to put $1,000 in the market today and 

keep it there for 40 years, the 7-percent return would get me 

$16,000, and the 5-percent return would get me $8,000. 

So people who are worried about generational equity, they should 

be looking at the stock markets—bad news for that. 

Senator BROWN. Mr. Biggs? 

Mr. BIGGS. I would agree with Dean and John about really starting with enhancing the savings done by folks through their retirement plans. The auto-enrollment, auto-escalation, life cycle funds, 

the sorts of things we talked about today, those are the simplest 

and easiest ways to ensure that people will have adequate retirement savings. 

We have done the research. We know a lot more about what goes 

into retirement saving today than we did 10 or 20 years ago. That 

would solve, I really think, the vast majority of the problems we 

face. If people just saved as they should, it is not just better for 

them, but it makes life easier for Social Security, because Social 

Security does not then have to worry about paying a big benefit to 

somebody making $150,000 per year. So I think that is really the 

first thing that is actually achievable today, because there really is 

bipartisan agreement on how to do that. 

37 

In terms of Social Security itself, I think we need a more robust 

safety net on the bottom. Dean and I may differ a little bit about 

exactly how you do that, but I think we agree that it should be a 

better safety net, that a country as rich as ours should not be allowing so many folks to retire into poverty. 

I think it would be a simpler system, and I think we need to 

make middle- and high-income folks rely on themselves a little bit 

more for their retirement savings, because the challenges in Medicare and Medicaid are still out there. 

Senator BROWN. Thank you, Mr. Biggs. 

Mr. Romasco? 

Mr. ROMASCO. Well, I think what we have seen this morning is 

a broad set of ideas that deal with the retirement issue, and I 

think it is in that context that we have to change the conversation, 

as these hearings are designed to do. Let us look at it in that context. 

Let us look at Social Security. People need to understand Social 

Security in all its dimensions—the income-protection piece as well 

as the retirement piece—and I think that is a first step, because, 

unless we sort of clarify that, people will still have misconceptions 

about what it is, what it is not; it is solvent, it is not broke, those 

kinds of issues. We have to clarify Social Security. 

Secondly, we have to ask the right questions. It is not about solvency only. It is about adequacy and solvency. 

And third, we have to look at the other two legs of the stool, and 

I have heard a lot of suggestions this morning that we support in 

terms of helping people save more and make that personal responsibility piece as robust as possible. 

But until we have come to a place where we put the conversation 

separately—we look at retirement as a whole, we understand the 

value of Social Security, the low-income piece, the adequacy piece, 

and the social insurance aspect of, we are all in this together 

throughout our working lives—I think we are going to be dealing 

with a lot of, shall I say, unnecessary noise. 

So the clarification of that and the support of the other two legs 

of the stool in terms of the reforms, of some of the suggestions we 

have heard, in that context, we can have a good conversation, and 

I have a lot of confidence we will come to a good resolution. 

Senator BROWN. Senator Cardin? 

Senator CARDIN. First, let me apologize for not being at the hearing. I was chairing the hearing of the Subcommittee on East Asia 

and the Pacific of the Senate Foreign Relations Committee. One of 

the challenges of the United States Senate is that they put you on 

a lot of committees that have a lot of hearings. 

So I really regret it, because I think this hearing is very, very 

important, and I thank Senator Brown for convening this hearing 

on the importance of not just Social Security, but private savings 

on retirement, which is critical. 

Then-Congressman Portman and I worked on these issues when 

we were in the House, and it was interesting that, during the most 

robust time of our economic growth, American savings ratios were 

incredibly low, in fact negative, for many years when we had a 

growing economy. And at that time, we were told, do not worry 

38 

about it, because people were saving for their retirement through 

the equities in their homes, and we saw what happened to that. 

So I just really wanted to come by to thank the witnesses and 

to thank the chairman. It is critically important that we not only 

preserve, but strengthen Social Security. It is the only guaranteed 

lifetime inflation-proof annuity that people cannot outlive, and they 

do not have to check to see how the stock market is doing to know 

what their retirement benefits will be. 

It is critically important that we preserve that, but it is also important that we improve incentives for retirement savings. It starts 

with doing no harm to the tools that are currently available and 

building on that. The saver’s credit has worked. Six million Americans have taken advantage of the saver’s credit. We can strengthen 

that. 

And, as has been pointed out by the dialogue that has taken 

place this morning, there has been discussion about how middleincome and lower-income working families can do better in their 

retirement. There is no question that we need to do that. We found 

that the way to do this is to make it easier for people to save for 

their retirement, that the tax incentives are important, but you 

need to put something else on the table, and that is why employersponsored plans are important. 

Where I work, we have that. It is called the Thrift Savings Plan, 

and Federal employees take advantage of that because they do not 

want to leave money on the table. And the saver’s credit is money 

on the table, and 6 million Americans have taken advantage of that 

because they do not want to lose the money that is on the table. 

That helps them to save. 

But I would mention two factors that are important to strengthen these tools, and one is, Americans make a lot of decisions by inaction. We have found that automatic enrollment programs work, 

and not only do people get involved in the programs, but also the 

default investment options, which are sensitive usually to their 

age, provide for the rebalance, which people do not do on their own 

on their private savings plans. 

The second point is, if we were constructing the incentives for 

private savings and retirement today, I think we would have done 

a better job putting incentives in for lifetime income options rather 

than the ease of taking money out of retirement plans today. To 

me, those are the two areas that we really should be looking at as 

priorities for improvements to our current incentives. 

I have a minute and 21 seconds remaining on my first round, 

and I still have four more rounds after this. [Laughter.] So, if any 

of you would like to respond, I would be glad to listen to your response. 

Mr. SWEENEY. I would be happy to take that, Senator. 

When you talk about income for life—clearly, we talked about 

longer life expectancies that people need to plan for. Social Security 

provides a great lifetime income benefit. 

We try to use Social Security and model out the cash flows that 

one might get from that as a core foundation upon which people 

need to build from their personal and employer-sponsored retirement plans. 

39 

With the concept of private annuities or insurance companysponsored annuities, we find that about 14 percent of Americans 

have an annuity. The challenge is that people have to write you a 

fairly large check in exchange for an uncertain stream of cash 

flows. So, while people who own annuities find great benefit in 

them—— 

Senator CARDIN. I would just point out that annuities are one 

form of lifetime income. There are other ways of doing lifetime income in addition to just private annuities. 

But I guess my point is, it is easy to take retirement money and 

use it for other purposes today without penalty. I am all for having 

different types of savings incentives for college, for medical emergencies, but retirement is retirement, and I think we should have 

an easier way to protect retirement income for retirement income 

flow through a person’s life. 

And people have outlived their savings so many times today because they say, ‘‘Look, I am going to live to be 80,’’ and all of a sudden, at 90, they are still active and they do not have income, and 

there should have been greater concentration on lifetime income 

rather than allowing them to take out the money because we had 

an economic recession or they wanted to buy a home or their 

grandchild needed money for school. There are other ways to deal 

with those needs. 

Mr. Biggs, you looked like you were agreeing with me. So I will 

let you get the last word. [Laughter.] 

Mr. BIGGS. We have tax incentives in place to encourage retirement saving. I tend to think they are pretty weak, in the sense 

that you have a tax deferral, not a tax deduction. In theory, you 

could end up paying more taxes by virtue of saving in an IRA or 

a 401(k). I think making that more robust might make sense. 

I think the saver’s credit is a good idea, but I also think having 

more incentives to encourage annuitization makes sense. I think 

there is probably never an area where economists are more divided 

from the public than on annuities. The economic theory says you 

should essentially annuitize all of your wealth at retirement. That 

is the most efficient way of allocating your retirement income. 

Almost no individual in the general public will willingly annuitize. Very few people want to annuitize their 401(k)s. In defined 

benefit plans, if you give them the option of a lump sum, they will 

take it and walk away. It is just a human-nature kind of thing. The 

joke is, an annuity turns you from a millionaire into somebody getting a $50,000 income per year, and nobody likes it. 

But I think tax incentives or something along those lines, or defaults to encourage annuitization, really could make sense. I think 

once people have them, they will be happy with them, but the initial decision to do it is such a high hurdle to get over. 

Senator CARDIN. Thank you. I really came back to listen to the 

chairman’s closing comments. [Laughter.] 

Senator BROWN. Yes, you did. Thank you, Senator Cardin. Few 

in the Senate know retirement security issues as Ben Cardin does. 

So I am thrilled that he is here. 

Thank you all for testifying. Some members of this subcommittee 

or the full committee may have written questions for you. If you 

40 

would get answers back to us in the next week, I would appreciate 

it. 

I think the hearing was a success in many ways, because the debate should be about the issue of how to achieve retirement security. Mr. Romasco kind of started with that. I think that is particularly important. 

These are not budget issues in the same way that they are issues 

of debate on how we actually do this, especially for low-income 

workers. And all four of you seem to—when Mr. Baker and Mr. 

Biggs agree, that is consensus. That means that Senator Toomey 

and I can agree. So all kinds of things can happen. 

But thank you so much. Special thanks to all four of you, to Senator Cardin, and Senators Toomey, Isakson, Casey, Nelson, and 

Wyden, and to Gideon, Elaina, and Jennifer on my staff. I am really appreciative. 

This subcommittee is adjourned. 

[Whereupon, at 12 p.m., the hearing was concluded.] 

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