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S. HRG. 113–337 

PENSION SAVINGS: ARE WORKERS SAVING 

ENOUGH FOR RETIREMENT? 

HEARING 

BEFORE THE

COMMITTEE ON HEALTH, EDUCATION, 

LABOR, AND PENSIONS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

ON

EXAMINING PENSION SAVINGS, FOCUSING ON IF WORKERS ARE 

SAVING ENOUGH FOR RETIREMENT 

JANUARY 31, 2013 

Printed for the use of the Committee on Health, Education, Labor, and Pensions 

( 

Available via the World Wide Web: http://www.gpo.gov/fdsys/ 
COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS 

TOM HARKIN, Iowa, Chairman 

BARBARA A. MIKULSKI, Maryland 

PATTY MURRAY, Washington 

BERNARD SANDERS (I), Vermont 

ROBERT P. CASEY, JR., Pennsylvania 

KAY R. HAGAN, North Carolina 

AL FRANKEN, Minnesota 

MICHAEL F. BENNET, Colorado 

SHELDON WHITEHOUSE, Rhode Island 

TAMMY BALDWIN, Wisconsin 

CHRISTOPHER S. MURPHY, Connecticut 

ELIZABETH WARREN, Massachusetts 

LAMAR ALEXANDER, Tennessee 

MICHAEL B. ENZI, Wyoming 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

RAND PAUL, Kentucky 

ORRIN G. HATCH, Utah 

PAT ROBERTS, Kansas 

LISA MURKOWSKI, Alaska 

MARK KIRK, Illinois 

TIM SCOTT, South Carolina 

PAMELA J. SMITH, Staff Director 

LAUREN MCFERRAN, Deputy Staff Director 

DAVID P. CLEARY, Republican Staff Director 

(II) 
C O N T E N T S 

STATEMENTS 

THURSDAY, JANUARY 31, 2013 

Page 

COMMITTEE MEMBERS

Harkin, Hon. Tom, Chairman, Committee on Health, Education, Labor, and 

Pensions, opening statement ............................................................................... 1 

Alexander, Hon. Lamar, a U.S. Senator from the State of Tennessee, opening 

statement .............................................................................................................. 2 

Enzi, Hon. Michael B., a U.S. Senator from the State of Wyoming .................... 45 

Warren, Hon. Elizabeth, a U.S. Senator from the State of Massachusetts ........ 46 

Murphy, Hon. Christopher, a U.S. Senator from the State of Connecticut ........ 50 

Isakson, Hon. Johnny, a U.S. Senator from the State of Georgia ....................... 52 

Baldwin, Hon. Tammy, a U.S. Senator from the State of Wisconsin .................. 53 

Franken, Hon. Al, a U.S. Senator from the State of Minnesota .......................... 55 

WITNESSES

Moslander, Edward, Senior Managing Director, TIAA–CREF, New York, NY .. 5 

Prepared statement .......................................................................................... 7 

McCarthy, Julia, Executive Vice President, Fidelity Investments, Boston, MA 10 

Prepared statement .......................................................................................... 12 

Hounsell, M. Cindy, President, Women’s Institute for a Secure Retirement, 

Washington, DC ................................................................................................... 30 

Prepared statement .......................................................................................... 32 

Madrian, Brigitte C., Aetna Professor of Public Policy and Corporate Management, Harvard Kennedy School, Cambridge, MA ............................................. 37 

Prepared statement .......................................................................................... 40 

ADDITIONAL MATERIAL 

Statements, articles, publications, letters, etc.: 

Response by Edward Moslander to questions of: 

Senator Harkin .......................................................................................... 58 

Senator Enzi .............................................................................................. 58 

Response by Julia McCarthy to questions of: 

Senator Harkin .......................................................................................... 61 

Senator Enzi .............................................................................................. 62 

Senator Warren ......................................................................................... 64 

Response by M. Cindy Hounsell to questions of: 

Senator Harkin .......................................................................................... 67 

Senator Enzi .............................................................................................. 68 

(III) 

(1) 

PENSION SAVINGS: ARE WORKERS SAVING 

ENOUGH FOR RETIREMENT? 

THURSDAY, JANUARY 31, 2013 

U.S. SENATE, 

COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS, 

Washington, DC. 

The committee met, pursuant to notice, at 10:03 a.m., in room 

SD–430, Dirksen Senate Office Building, Hon. Tom Harkin, chairman of the committee, presiding. 

Present: Senators Harkin, Casey, Franken, Baldwin, Murphy, 

Warren, Alexander, Enzi, Burr and Isakson. 

OPENING STATEMENT OF SENATOR HARKIN

The CHAIRMAN. Good morning. The Senate Committee on Health, 

Education, Labor, and Pensions will please come to order. 

I want to welcome everyone to the latest in our ongoing series 

of hearings focusing on retirement security. I’m told this is the seventh or the eighth hearing. This is the seventh hearing that we’ve 

had on this over the last couple of years. 

Today we’re going to take a closer look at the question: How 

much do families need to save for retirement? Well, I guess maybe 

I’m about to find that out. It’s in my future. 

[Laughter.] 

That was an aside. 

But I already know from my constituents that the dream of a secure retirement is growing fainter. Whether it is a young family 

struggling to pay off student loan debt, save for the kids’ education 

and put something aside for their own retirement, or a 65-year-old 

nurse finally eligible to stop working, Americans are fearful about 

whether they’ll have enough money to live on when they retire. 

That’s why we’re starting this new Congress by focusing on how 

we can help people save for retirement. Today we’re going to hear 

testimony about how much people need to save, what’s holding 

them back, and how we can help them build a nest egg. 

As a starting point, I think we need to keep in mind the bottom 

line: people simply are not saving enough. I’ve said this before, but 

the retirement income deficit—that is, the difference between what 

people need for their retirement in the future and what they actually have—now has been estimated to be as high as $6.6 trillion. 

Half of all Americans have less than $10,000 in savings. 

These are very disturbing and frightening numbers. When people 

run out of money when they get old, they see their living standard 

decline. They lean more and more on the social safety net, squeez-
2 

ing government costs again at all levels. So it comes back on taxpayers again. 

We need to do more to help American families cope with this 

looming crisis. Hard-working Americans deserve to be able to rest 

and take a vacation, spend more time with their grandkids when 

they get older. But to do so, they need to have better opportunities, 

opportunities to save prior to retirement. 

We’ve always said there needs to be a three-legged stool of Social 

Security, pensions and savings. Social Security provided a base, but 

it was never meant to be a full retirement system. It was meant 

to be one leg of that stool. And then second, people of my generation and before counted on defined-benefit pensions. I always say 

that when I first came to Congress, one out of every two Americans 

had a pension, an annuity that would last until the day they died, 

defined benefit. Today it’s one out of five, and getting less. 

Third, people would have savings, but again these savings are not enough. As I said, half of all Americans have less than $10,000. 

And again, although many employers now offer retirement savings 

plans such as 401(k)’s, again those plans were designed to supplement, supplement traditional pensions, not replace them. 

Savings rates are just too low, and very few 401(k) plans offer 

people an easy, cost-effective way to convert their savings into a 

steady stream of lifetime retirement income. I look forward to hearing about some of the innovative ways that companies like TIAA– 

CREF and Fidelity and others are helping people to cope with 

these challenges. 

I’m a true believer that we need to restore the three-legged stool 

that starts with rebuilding the pension system. After all these 

hearings, we released a report last September called ‘‘The Retirement Crisis and a Plan to Solve It,’’ and we put out some ideas and 

suggestions. I’ve been working with Senator Enzi a lot on this over 

the past several months, and his staff, and again we’ve heard time 

and again in this committee that employers, especially small business, just can’t do pensions. They’re too complex, they’re too risky. 

They have to take it out of their bottom line to hire the people to 

run it. They have a fiduciary responsibility. That’s why we need a 

new plan that’s simplified, that’s privately run, that takes the onus 

off of the employers and makes it easy for people to actually put 

money away for a defined benefit. 

I’d like to say that our plan that we’ve been working on has some 

aspects of defined benefit and defined contribution. 

As the chairman of this committee, I am making this a top priority for this committee to look at and to actually bring something 

to fruition, hopefully in this Congress. 

With that, I’ll turn to Senator Alexander. 

OPENING STATEMENT OF SENATOR ALEXANDER

Senator ALEXANDER. Thanks, Mr. Chairman. I want to applaud 

you and Senator Enzi for your consistent focus on this. Lots of 

times, one of the most useful functions of the U.S. Senate is to put 

a spotlight on the right question and then explore toward some 

good solution. I believe you’ve clearly put the spotlight on the right 

question, are workers saving enough for retirement, and your focus 

on the retirement income deficit. 
3 

I also appreciate the even-handed way you have approached 

these hearings. You have your own suggested idea, but you have 

opened the hearings to witnesses from all directions, and that gives 

us a chance really to test Senator Harkin’s proposals, as well as 

other proposals, and hopefully come to a good conclusion. 

I thank the witnesses for being here. I told them earlier I look 

forward to hearing what they have to say. 

Of course, we currently have the mandatory retirement plan— 

Social Security. My preference would be to explore what we need 

to do to beef up and strengthen our voluntary retirement plans. We 

read regularly about troubles that both corporate and union defined-benefit plans have. We need to be careful in the changing 

world that we have where businesses aren’t like businesses were 

40 or 50 years ago. We’re in a global marketplace with rapidly 

changing companies. Employers look different than employers did 

some time ago. We have to be very careful about decisions we make 

here, because we’re talking about tens of millions of individuals, 

and we’re talking about hundreds of thousands of businesses who 

might be affected by whatever we do. 

I would like for us to be careful as we go through this process 

about placing new mandates on business enterprises in America, 

and I would like to use an example or two to suggest why. 

I was visited not long ago by a franchise group that owns 20 fast 

food restaurants in DC, Virginia and Maryland, and they employ 

542 people. They are trying to make a profit, which is their goal 

in business. They start out with a 6.2 percent Social Security and 

Medicare tax. They have a menu labeling mandate that costs another $1,000 per restaurant. For each $1 increase in the minimum 

wage mandate, that’s nearly $25,000 per year according to a company study. They also have some paid sick leave mandates. 

I’m not re-litigating any of those issues. I’m just saying if you’re 

operating a business, those are some of the mandates you start out 

paying, and we have to be careful about thinking about adding new 

ones. 

Then there’s the healthcare mandates that are coming, again not 

to re-litigate them, but if I were the owner of those 20 fast food restaurants, I would be concerned. They tell me that they offer health 

care to their 542 employees, but only 34 take it. If nothing changed 

next year—that is, if the healthcare law didn’t go into effect—they 

would still be spending $94,000 on health care. Under the 

healthcare law, if they opt to pay the penalty, they will be spending 

$1 million instead of $94,000. That exceeds their expected net profit for the year 2013. If they were to decide themselves to continue 

to offer healthcare, their costs would be estimated to be between 

$400,000 and $1.4 million. 

You could apply the same sort of reasoning and statistics to an 

even smaller company and come out with similar results. If we 

want to create an environment for the largest number of new jobs 

in America so people can have the largest incomes so that they can 

then have more money to spend on saving for retirement, we need 

to be very careful and circumspect about any new cost or mandate 

on existing businesses. Or, in the case of the healthcare law mandate, many restaurants are considering reducing the number of employees they have, and reducing the number of full-time employ-
4 

ees—people who work more than 30 hours—and therefore those 

workers won’t make as much money. Therefore, they may not have 

as much to retire. 

So my point is that, No. 1, I think the Chairman is doing a terrific job of moving us toward the right questions. He has offered a 

very thoughtful solution of his own. He has invited witnesses all 

across the board that should educate us. And my hope would be 

that as we look toward a solution, that we are very circumspect 

about imposing any new mandates on business enterprises in the 

country because I think they are likely to be self-defeating, reduce 

the number of full-time jobs, and reduce the level of incomes that 

people have from which they can save. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Alexander. 

We have an excellent panel of witnesses today, people that have 

done a lot of work in and thinking about retirement, and they have 

a lot to share with this committee. I thank them all for being here. 

I will introduce a couple, and then I’ll turn to Senator Warren for 

other introductions. 

First we’ll hear from Ed Moslander, Senior Managing Director at 

TIAA–CREF. Mr. Moslander has been with TIAA–CREF for more 

than 28 years and has extensive experience working with plans, 

sponsors in the academic, research, medical and cultural fields. 

We have Cindy Hounsell, president of the Women’s Institute for 

a Secure Retirement—‘‘WISER’’, I think it’s called. I was privileged 

to speak to your group just not too long ago. Ms. Hounsell has been 

working with women for years to equip them with the knowledge 

and tools they need to take charge of their finances and prepare 

for retirement. 

Now I’d recognize Senator Warren for the purpose of introduction 

of two other witnesses that we have. 

Senator Warren. 

Senator WARREN. Thank you very much, Mr. Chairman. I want 

to introduce Julia McCarthy. She was born and raised in Massachusetts. She now lives in Southborough, MA, with her husband 

and her two sons. She is an executive vice president in the Workplace Investing Division of Fidelity Investments. Fidelity is a 

homegrown Massachusetts company that has become a worldwide 

leader, providing investment management, retirement planning 

and other financial services to more than 20 million individuals 

and institutions. Ms. McCarthy has been a leader in that company, 

developing a data base analysis of retirement strategies. I’m proud 

to have Ms. McCarthy here today representing Fidelity, and I know 

she will offer valuable insights to this committee. 

I’m also very pleased to be able to introduce Dr. Brigitte 

Madrian, who is the Aetna Professor of Public Policy and Corporate 

Management at the Harvard Kennedy School. She has also taught 

at the University of Pennsylvania Wharton School, the University 

of Chicago Graduate School of Business, and the Harvard University economics department. 

Dr. Madrian’s research focuses on household savings and investment behavior. She received her Ph.D. in economics from the Massachusetts Institute of Technology and studied economics as an undergraduate at Brigham Young University. She is a recipient of the 
5 

National Academy of Social Insurance Dissertation prize, and a 

two-time recipient of the TIAA–CREF Paul A. Samuelson Award 

for Scholarly Research on Lifelong Financial Security. 

She is one of the country’s foremost experts on investment behavior, and I’m very pleased to have her here. I know that she will 

be very helpful to this committee. 

Welcome. 

The CHAIRMAN. Very good. Thank you very much, Senator, and 

thank you all again for being here. Your statements will be made 

a part of the record in their entirety. I read them over last evening. 

They are very good. 

I would ask that we start with Mr. Moslander, and we’ll just go 

down the line. If you could do a summary of your statement so that 

we can get into more of an exchange, I would appreciate that. If 

you’d take maybe 5 to 7 minutes to give us a summary of your 

statement, I would appreciate it. 

Mr. Moslander. 

STATEMENT OF EDWARD MOSLANDER, SENIOR MANAGING 

DIRECTOR, TIAA–CREF, NEW YORK, NY 

Mr. MOSLANDER. Thank you, Chairman Harkin and Ranking 

Member Alexander and members of the committee. Thanks for the 

opportunity to appear today to discuss ways Americans can achieve 

a financially secure retirement. I am Ed Moslander. I’m senior 

managing director of TIAA–CREF’s Institutional Client Services 

Organization. 

TIAA–CREF was founded nearly a century ago to assist college 

professors with achieving financial security in retirement. Today, 

we manage over $500 billion in assets for 3.7 million individuals 

that we serve in the educational, research, medical and cultural 

communities. 

We do believe the Nation is facing a retirement insecurity crisis. 

The traditional three-legged stool consisting of a pension, Social Security and personal savings has become increasingly unsteady. Retirement has become more of a do-it-yourself proposition, where a 

large part of an individual’s retirement security depends on defined 

contribution retirement plans. As a result, achieving a comfortable 

retirement has become a source of increasing concern for Americans, eroding confidence in their ability to do so. 

TIAA–CREF’s experience has provided us with a unique perspective on the retirement challenges America faces. The higher education community, our core market, has never depended on defined 

benefit plans; and instead, since 1918, it has relied only on defined 

contribution plans to provide retirement security. Employers have 

funded those plans to ensure that participants have adequate retirement savings. As a result, we found that our clients generally 

are more confident about retirement prospects when compared to 

the rest of the U.S. population. 

A survey conducted by our institute found that 75 percent of 

higher education employees are either very confident or somewhat 

confident in their retirement income prospects, compared with only 

49 percent of U.S. workers in general. The same survey found that 

88 percent of higher education employees are currently saving for 
6 

retirement, and of these, 60 percent have tried to figure out just 

how much they need to save for a secure retirement. 

I’d like to highlight a few things, practices that we encourage 

that we believe contributed to these results. First, the proliferation 

of the defined contribution plan model means that saving for retirement has become more of an individual responsibility. But for the 

model to be successful, it has to be, in our experience, a shared responsibility. While defined contribution plans enable workers to 

save for retirement, many eligible employees still don’t participate, 

and those who do have a difficult time saving 10 to 15 percent of 

their annual income that most financial experts agree is necessary 

for a secure retirement. 

For this reason, it is extremely important that employers recognize that attaining retirement savings goals is a shared responsibility between employers and employees, and accordingly, employer 

contributions should be a foundation of any retirement plan. 

That said, employers cannot be expected fully to fund a retirement plan, and should also ensure that matching programs are in 

place to further incentivize individual participation in the plan. 

Part of the success of our program is that there has always been 

an employer contribution, which is part of that shared responsibility. It’s not uncommon for our plan sponsors to contribute a flat 

percentage to an individual’s retirement plan over and above any 

match that they might offer. Employer contributions demonstrate 

to employees that the employer values saving for retirement and 

that they care about the employees’ future, and it can also be a 

competitive advantage in the quest for workers and talent. 

The next point I’d like to make is that while getting employees 

to contribute is an important step, we also have to recognize that 

workers have to make complex decisions about how much they 

should save and how to invest those savings. However, the pervasive lack of financial literacy across our Nation often means that 

a lot of people are not equipped for that task. 

We believe it’s important to offer clients tools that can assist 

them in making these decisions. Such tools include user-friendly 

online programs, advice, access to advisors and comprehensive, objective third-party advice programs. It’s important that each of 

these tools ensure that the guidance they provide is holistic, taking 

into account all sources of a worker’s savings; and second, is affordable and accessible to all employees, not only those with high balances; considers savings rates, retirement age, asset allocation, 

fund selection, and the probability of reaching goals; includes information on how to structure and invest retirement income; and is 

delivered by firms and advisors who take fiduciary responsibility 

for the advice that they provide. 

Finally, while there has been a lot of attention paid to the savings, the accumulation phase, there has been less of a focus on the 

drawdown phase, when people are spending the money they have 

saved during retirement. Due to our increasing lifespans, as well 

as concerns surrounding Social Security and the movement away 

from traditional defined benefit plans, the drawdown phase will 

and should become a greater focus of the retirement security discussion. TIAA–CREF sees the issue of ensuring that people do not 
7 

outlive their retirement savings as among the most pressing issues 

in retirement income security today. 

A 2011 report by the Government Accountability Office encouraged annuitization as an important means of addressing the issue. 

It is crucial that those who are saving for retirement receive information not just about how much they have in savings, but also 

about how that accumulation translates into income at retirement. 

TIAA–CREF includes a retirement income projection on all of our 

clients’ quarterly statements that provides an estimate of what 

their monthly income would be at retirement, while also providing 

information about how they could improve the prospects of this income projection by saving more. We believe that providing this key 

piece of additional information assists in reframing the conversation about retirement savings by putting the focus on income as opposed to strictly on accumulating assets. 

Based on this experience, TIAA–CREF supported the Lifetime 

Income Disclosure Act, which was introduced in the last Congress. 

This proposal would have required all retirement plan participants 

to receive at least annually an illustration of how their current accumulation would translate into income at retirement. 

To conclude, as the committee considers the issue of retirement 

security and improving retirement savings among Americans, we 

urge you to look at ways of strengthening the means by which 

Americans can achieve a secure retirement, some of which I have 

outlined here. We are confident that policymakers and the private 

sector can work together to address these challenges and find solutions that guarantee that all Americans can attain a financially secure retirement. TIAA–CREF is ready to assist in any way that we 

can as we work toward this shared goal. 

Thank you again for providing the opportunity to testify. I look 

forward to your questions. 

[The prepared statement of Mr. Moslander follows:] 

PREPARED STATEMENT OF EDWARD MOSLANDER

SUMMARY

TIAA–CREF is a financial services organization committed to helping our 3.7 million clients in the research, medical, and cultural communities achieve a secure retirement. We believe the Nation is facing a retirement security crisis and that the 

traditional ‘‘three-legged stool’’ of retirement has become increasingly unsteady. 

Achieving a secure retirement has become much more of a ‘‘do-it-yourself ’’ proposition, where a large part of an individual’s retirement security depends on his or 

her participation in defined contribution plans. Employers, therefore, need to encourage employee participation in such plans by taking steps that will incent employees to contribute, such as providing matching contributions. 

While getting employees to contribute is an important step, we also need to recognize that workers often have to make complex decisions about how much they 

should be saving and how to invest these savings. We believe it is important to offer 

clients tools that can assist them with making these decisions while also ensuring 

such tools are objective, comprehensive, and affordable and accessible to all employees. 

While there has been much attention paid to the accumulation phase of retirement, there has been less of a focus on the draw-down phase, when people are 

spending their retirement savings. The draw-down phase will and should become a 

greater focus of the retirement security discussion. TIAA–CREF sees the issue of ensuring one does not outlive their retirement savings as the most pressing issue in 

retirement security today and therefore believes it is crucial that those who are saving for retirement receive information not just about their accumulations, but also 

about how that accumulation translates into income at retirement. TIAA–CREF pro-
8 

1 As of December 31, 2012. 

2The 2011 Retirement Confidence Survey: Confidence Drops to Record Lows, Reflecting ‘‘the 

New Normal,’’ Ruth Helman, Mathew Greenwald & Associates, and Craig Copeland and Jack 

VanDerhei, Employee Benefit Research Institute. March 2011. 3 Ibid. 4 Retirement Confidence on Campus: The 2011 Higher Education Retirement Confidence Survey, Paul J. Yakaboski, TIAA–CREF Institute. June 2011. 5 Ibid. 

vides such information of our clients on their quarterly statements and supported 

the Lifetime Income Disclosure Act, a proposal introduced in the last Congress that 

would require all retirement plan participants receive, at least annually, information on the projected monthly income they could expect at retirement. 

As the committee considers the issue of retirement security and improving retirement savings among Americans, we urge you to look at ways of strengthening the 

means by which Americans can achieve a secure retirement. TIAA–CREF stands 

ready to assist in any way we can as you work toward this goal. 

I. INTRODUCTION

Chairman Harkin, Ranking Member Alexander, members of the committee, thank 

you for the opportunity to appear today to discuss ways Americans can achieve a 

financially secure retirement. My name is Ed Moslander and I am senior managing 

director for TIAA–CREF’s Institutional Client Services organization. In this capacity, I am responsible for managing relationships with plan sponsors, the consultant 

community that supports them, and the national associations of which not-for-profit 

plan sponsors are members. 

TIAA–CREF was founded nearly a century ago to assist college professors with 

achieving financial security in retirement. Today, we manage over $502 billion 1 in 

assets for the 3.7 million individuals we serve in the research, medical, and cultural 

communities. Our primary mission is to serve those who serve others by helping 

them achieve lifelong financial security. 

We believe it is clear the Nation is facing a retirement security crisis due to a 

number of factors, including changes in the way retirement is funded. The traditional ‘‘three-legged stool,’’ which consists of ‘‘defined benefit’’ pension plans, Social 

Security, and personal savings acquired through ‘‘defined contribution’’ 401(k)-type 

accounts, has become increasingly unsteady. 

Retirement has become much more of a ‘‘do-it-yourself ’’ proposition, where a large 

part of an individual’s retirement security depends on defined contribution plans. 

As a result, achieving a comfortable retirement has become a source of increasing 

concern for Americans, eroding confidence in their ability to do so. Consider that: 

• Only 14 percent of Americans say they are ‘‘very confident’’ they will have 

enough money for a comfortable retirement; 2

• Sixty percent of workers say they have less than $25,000 in retirement savings; 3 and 

• Sixty-six percent of respondents in a 2011 Gallup poll said their top financial 

concern is not having enough money for retirement. 

TIAA–CREF’s experience has provided us with a unique perspective on the retirement challenges Americans face, helping us better meet the financial needs of the 

individuals and institutions we serve. In fact, we have found that, in contrast to the 

above statistics, our clients generally are more confident about their retirement 

prospects. For example: 

• A survey conducted by the TIAA–CREF Institute found that 75 percent of higher education employees are either ‘‘very confident’’ or ‘‘somewhat confident’’ in their 

retirement income prospects, compared with 49 percent of U.S. workers in general.4

• This same survey also found 88 percent of higher education employees are currently saving for retirement and of these, 60 percent have tried to determine how 

much they need to save by the time they retire.5

I would like to highlight some of the practices we encourage that we believe have 

resulted in these higher levels of confidence and savings rates among our clients. 

II. SHARED RESPONSIBILITY

The proliferation of the defined contribution plan model means that saving for retirement has become much more of an individual responsibility. While defined contribution plans enable workers to save for retirement, many eligible workers still 

do not participate and those that do often have a difficult time saving the 10–15 
9 

6 Report to the Chairman, Senate Special Committee on Aging: Retirement Income—Ensuring 

Income throughout Retirement Requires Difficult Choices, U.S. Government Accountability Office. June 2011. 

percent of their annual income that most financial experts agree is necessary to 

achieve a secure retirement. For this reason, it is extremely important that employers recognize that attaining retirement savings goals is a shared responsibility between employers and employees, and accordingly should offer matching contributions that encourage employees to contribute. 

For example, an employer may provide a dollar-for-dollar match when an employee saves up to a certain percentage of his or her salary. In addition to providing 

a tangible incentive to contribute, matching contributions demonstrate to employees 

that their employer values saving for retirement and cares about their employees’ 

financial future. At TIAA–CREF, we have found that it is not uncommon for our 

plan sponsors to offer their employees a matching contribution, while also contributing a flat percentage over and above the match to further incent individual participation in the retirement plan. 

III. ADVICE AND PLANNING TOOLS

While getting employees to contribute is an important step, we also need to recognize that workers often have to make complex decisions about how much they 

should be saving and how to invest these savings. However, the pervasive lack of 

financial literacy across our Nation often means that most are not equipped for 

these tasks. 

Therefore, we believe it is important to offer clients tools that can assist them 

with making these decisions. Such tools include user-friendly online programs, access to advisors either in-person or over the phone, and comprehensive objective 

third-party advice programs. 

With respect to each of these tools, it is important to ensure that the guidance 

they provide: 

1. Is holistic, taking into account all sources of a worker’s savings; 

2. Is affordable and accessible to all employees regardless of account size; 

3. Takes into consideration asset allocation, fund selection, savings rates, retirement age, and probability of reaching goals; and 

4. Includes information on how to structure and invest retirement income. 

IV. IMPORTANCE OF LIFETIME INCOME

While there has been much attention paid to the accumulation phase, there has 

been less of a focus on the draw-down phase, when people are spending the money 

they have saved for retirement. Due to our increasing lifespans, as well as the aforementioned concerns surrounding Social Security and the movement away from traditional pension plans, the draw-down phase will and should become a greater focus 

of the retirement security discussion. TIAA–CREF sees the issue of ensuring one 

does not outlive their retirement savings as the most pressing issue in retirement 

security today. 

A 2011 report by the Government Accountability Office encouraged annuitization 

as an important means of addressing the issue.6 The report noted, however, that 

just 6 percent of those in a defined contribution plan chose or purchased an annuity 

at retirement. It is crucial that those who are saving for retirement receive information not just about their accumulations, but also about how that accumulation translates into income at retirement. TIAA–CREF includes a retirement income projection on all of our clients’ quarterly statements that provides a projection of what 

their monthly income would be at retirement, while also providing information 

about how they could improve the prospects of this income projection by saving 

more. We believe providing this additional piece of information assists in reframing 

the conversation about retirement savings by putting some focus on income as opposed to strictly accumulated assets. 

TIAA–CREF supported the Lifetime Income Disclosure Act, which was introduced 

in the last Congress. This proposal would have required all retirement plan participants receive, at least annually, an illustration of how their current accumulation 

would translate into income at retirement. However, we believe that retirement 

plan providers should take action now to institute this feature and not wait for policymakers to enact mandates. 
10 

V. CONCLUSION

As the committee considers the issue of retirement security and improving retirement savings among Americans, we urge you to look at ways of strengthening the 

means by which Americans can achieve a secure retirement. A number of steps can 

be taken to accomplish this, some of which I have outlined today. We are confident 

that policymakers and the private sector can work together to address these challenges and find solutions that guarantee all Americans can attain a financially secure retirement. TIAA–CREF is ready to assist in any way we can as we work toward this goal. 

Thank you again for providing me with the opportunity to testify. I look forward 

to taking your questions. 

The CHAIRMAN. Thank you, Mr. Moslander. It was very good testimony. 

Ms. McCarthy. 

STATEMENT OF JULIA McCARTHY, EXECUTIVE VICE 

PRESIDENT, FIDELITY INVESTMENTS, BOSTON, MA 

Ms. MCCARTHY. Chairman Harkin, Ranking Member Alexander, 

and members of the committee, thank you for the opportunity to 

be here today. My name is Julia McCarthy, and I am an executive 

vice president at Fidelity Investments within the Workplace Investing business. We have the privilege of serving more than 18 million 

American workers for more than 22,000 employers. Fidelity takes 

very seriously the responsibility to ensure that workers know how 

to save, how much to save, and how to invest for retirement. 

I would like to thank you for bringing attention to the issue of 

retirement security and, more importantly, the issue of ensuring 

that American workers are saving enough for retirement. We share 

your concern that many Americans are not prepared for retirement. 

Yet we know from our data what savings behaviors work for a majority of workers. 

The steps are straightforward: enroll in your workplace plan, the 

earlier the better; save at the highest levels possible; increase your 

contribution rate as your salary grows; invest in a diversified asset 

mix; and own your plan, stick with it, stay engaged, and avoid taking out loans or cashing out when you change jobs. 

That said, we know that savings is not always simple. I would 

like to focus on three areas which help people increase their savings but can be improved to help Americans reap the full power of 

their benefits. 

The first one is inertia. While the results of the Pension Protection Act have been impressive, more needs to be done to harness 

the power of automatic plan features and defaults. The default rate 

for many plans is too low. The current Safe Harbor Rules for 401(k) 

plans start at a 3 percent default rate. Starting at a 6 percent rate 

would give workers a significant leg up on savings. Our data show 

that 61 percent of workers who auto enroll do not change their default rate. Opt out rates are virtually identical regardless of the 3 

percent or the 6 percent starting point. Let’s give people the advantage of saving more and put the power of inertia to work for them. 

No. 2 is maximizing savings through automated programs. Recognizing inertia and the need to save, there are programs to leverage the additional feature of the Pension Protection Act that automatically increase contribution levels. Annual increase programs 

are the primary way workers are increasing their contributions. 

Our data show that close to one-third of all contribution increases 
11 

last year in the plans we administer were attributed to an annual 

increase program. Unfortunately, these programs are under-utilized. Only 11 percent of employers are offering them. 

It may feel a bit onerous, but when aligned with an annual salary increase, these programs can increase savings while minimizing the impact to take-home pay. 

No. 3 and critically important is education and guidance. More 

than ever, workers are responsible for saving and planning for 

their retirement. They need help understanding a range of financial topics, from the most basic information about how to enroll and 

how much they should save to the more complex topics such as 

proper asset allocation and retirement income planning. Workers 

who receive guidance take action and have better outcomes. 

Our data show that workers who engage in a retirement planning session, as an example, either online or on the phone, increase 

their deferral rates on average by 5 to 6 percentage points. One 

theme that is a constant in all of our research is that the majority 

of workers want and need help. 

Workers also need a simple way to gauge their savings process. 

Last fall, Fidelity released new research on age-based savings 

guidelines. These guidelines serve as a framework for establishing 

retirement savings goals. As workers progress through their careers, their salary times a factor of X can be one of the measures 

used to assess their retirement savings progress. We found that a 

simple to understand savings target is a framework that resonates 

with both workers and employers, and we believe this approach 

will be helpful for people who switch jobs frequently and who may 

have a number of retirement accounts, thus making it even more 

difficult to evaluate one’s savings strategy. 

In closing, there is a path to retirement security for most Americans, but the road is not always an easy one. Many key constituencies have a role in ensuring success. 

First, workers need to take an active role in saving and managing for their financial future. Employers need more flexibility in 

the rules and regulations to design benefit plans which meet the 

diverse needs of their workforce without risk of fiduciary liability 

and increased coverage costs. Third, service providers like Fidelity 

need to continue to innovate around how to help plan sponsors optimize their benefit programs and service participants based on 

their needs. 

And last, we ask policymakers to consider a variety of ideas to 

improve retirement savings outcomes. Some examples include increasing the default deferral rate, incentivizing more plans to adopt 

auto features, protecting and promoting the availability of education and guidance, modernizing and simplifying the current regulatory framework to allow for more innovation, exploring new ways 

to help incentivize younger workers to save for their retirement, 

and partnering with schools and other organizations to help ensure 

all students have access to quality financial literacy. 

Fidelity is committed to partnering with you, Mr. Chairman, and 

Ranking Member Alexander, and members of your committee, to 

work toward solving these critically important issues. I sincerely 

thank you for the opportunity to be here today and share our per-
12 

spective and experience in helping Americans save for retirement. 

I look forward to your questions. 

[The prepared statement of Ms. McCarthy follows:] 

PREPARED STATEMENT OF JULIA MCCARTHY

OVERVIEW

While Fidelity shares the concerns that many Americans are not adequately prepared for retirement, we know from analysis which savings behaviors work for a 

majority of 401(k) plan participants. The steps are straightforward, enroll in your 

workplace plan—the earlier, the better, save at the highest levels possible, increase 

your deferral rate periodically as your salary grows, invest in a diversified asset 

mix, and, finally, own your plan, stick with it, stay engaged, and avoid taking out 

loans or cashing out when you change jobs. 

Yet, Fidelity also knows from its direct interactions with retirement plan participants that saving is not always simple. The testimony focuses on three specific 

areas which Fidelity knows works in helping people increase their savings outcomes—but which need additional improvements in order for more Americans to 

reap the full power of their benefits. 

THREE KEY AREAS OF FOCUS

1. Increase the default deferral rate to 6 percent: Auto-enrollment has 

helped enroll many more participants in retirement savings plans but the default 

deferral rate for many plans is too low. Currently the safe harbor rules for 401(k) 

plans start at a 3 percent default deferral rate. Our experience is that participants 

who are auto-enrolled, regardless of the rate—3 percent, 6 percent or higher—are 

likely to take no additional action with regard to saving more for retirement. With 

opt-out rates virtually identical at each 3 percent and 6 percent respectively, steps 

should be taken to increase the default deferral rate to 6 percent. 

2. Auto Annual Increase Programs simplify savings increases: Annual Increase Programs are the single most effective driver of deferral increases at Fidelity. 

Our data show that close to one-third of all deferral increases last year were attributed to an annual increase program. Unfortunately they are underutilized; only 11 

percent of plans offer automatic annual increase programs—the rest requiring participants to pro-actively enroll in an annual step increase. More can be done to 

incent plans to adopt these important auto-features. 

3. Financial education and guidance lead to better savings outcomes: 

More than ever, workers are expected to bear the burden of saving and planning 

for retirement income needs on their own. They need help understanding a range 

of financial topics—from the most basic information about how to enroll in their 

plan, and how much they should save to more complex topics such as proper asset 

allocation and retirement income planning. Our data shows participants who receive 

guidance take action and have better outcomes—increased participation, increased 

savings and improved asset allocation. Policymakers should look to protect and promote the availability of education and guidance by service providers and recordkeepers. 

Chairman Harkin, Ranking Member Alexander, and members of the committee, 

good morning, and thank you for this opportunity today. 

My name is Julia McCarthy, and I am an executive vice president at Fidelity Investments, within our workplace investing business. We have the privilege of delivering Defined Contribution, Defined Benefit, Health & Welfare, Non Qualified and 

Health Savings plans to nearly 16 million plan participants from our more than 

22,000 plan sponsor clients. 

My area of responsibility is to understand participant needs and behaviors, and 

build solutions and engagement models to ensure that the participants we service 

receive the best experience in the industry, and that they are ready for retirement. 

Fidelity takes very seriously the responsibility to ensure that plan participants 

know how to save, how much to save and how to invest for retirement. 

THE NEED TO SAVE

I would like to thank you, Mr. Chairman and Ranking Member Alexander, for 

bringing attention to the issue of retirement security and—more specifically—the 

importance of ensuring American workers are saving sufficiently for retirement. We 

share your concern that many Americans are not adequately prepared for retire-
13 

ment, and that reliance on Social Security alone, is not enough. Yet we know from 

analysis of our participant data what savings behaviors work for a majority of 

401(k) plan participants. The steps are straightforward, enroll in your workplace 

plan—the earlier, the better, save at the highest levels possible, increase your deferral rate periodically as your salary grows, invest in a diversified asset mix, and, finally, own your plan, stick with it, stay engaged, and avoid taking out loans or cashing out when you change jobs. 

We know that saving is not always simple. I’d like to focus on three areas which 

we know work in helping people increase their savings outcomes—but which need 

additional improvements in order for more Americans to reap the full power of their 

benefits. 

1. Participant Inertia: A Simple Remedy 

It has been more than 6 years since the Pension Protection Act of 2006 was enacted. While the results under this law have been impressive, more needs to be done 

to harness the power of automatic plan features and defaults. The default deferral 

rate for many plans is too low. Currently the safe harbor rules for 401(k) plans start 

at a 3 percent default deferral rate. Our experience is that participants who are 

auto-enrolled, regardless of the rate—3 percent, 6 percent or higher—are likely to 

take no additional action with regard to saving more for retirement. Our data show 

that 61 percent of participants who are auto-enrolled make no change from the default deferral amount, and opt-out rates are virtually identical at each 3 percent and 

6 percent respectively. 

2. Simplifying Savings Through Auto Annual Increase Programs 

Annual Increase Programs are the single most effective driver of deferral increases at Fidelity. Our data show that close to one third of all deferral increases 

last year were attributed to an annual increase program. Unfortunately they are underutilized, only 11 percent of plans offer automatic annual increase programs—the 

rest requiring participants to pro-actively enroll in an annual step increase. Automatic annual increase programs that are linked to coincide with annual salary increases to minimize the impact to an employee’s net take-home pay are most effective. 

3. Participant Education and Guidance 

More than ever, workers are expected to bear the burden of saving and planning 

for retirement income needs on their own. They need help understanding a range 

of financial topics—from the most basic information about how to enroll in their 

plan, and how much they should save to more complex topics such as proper asset 

allocation and retirement income planning. Participants who receive guidance take 

action and have better outcomes—increased participation, increased savings and improved asset allocation. 

For example: 

• Participants who engage in an online retirement planning session increase their 

deferrals by an average of 5 percentage points, raising them from 8 percent to 13 

percent. • After using an on-line retirement planning tool, 55 percent of participants who make under $30,000 increased their deferral rate by 4.3 percentage points. • Participants who go through a retirement planning session with a telephone 

representative increase their deferral rate by an average of 6 percent percentage 

points. (3 percent to 9 percent) 

One theme that is consistent in all of our research is that the majority of participants want and need help. 

Participants are also in need of simple ways to gauge their savings progress. Last 

fall, Fidelity released new research on age-based savings guidelines. These guidelines serve as a framework for establishing retirement savings goals. As participants 

progress through their careers, their ‘‘salary times a factor of X’’ can be one of the 

measures used to assess their retirement savings progress. While Fidelity provides 

retirement guidance that allows participants to develop and evaluate their retirement plans using a variety of different measures, we have found that a simple way 

to understand savings target is a framework that resonates with both participants 

and plan sponsors. We believe this approach will be helpful to workers who switch 

jobs frequently, and who may have a number of retirement accounts thus making 

it even more difficult to evaluate one’s savings strategy. 

CLOSING STATEMENT

There is a path to retirement security for most Americans, but the road is not 

always an easy one. Many key constituencies have a role in ensuring success. 
14 

* Before investing in any mutual fund, please carefully consider the investment objectives, 

risks, charges, and expenses. For this and other information, call or write Fidelity for a free 

prospectus or, if available, a summary prospectus. Read it carefully before you invest. 1Future Workplace ‘‘Multiple Generations @ Work’’ survey of 1,189 employees and 150 managers, June 2012. 2The EBRI Retirement Readiness Rating:TM Retirement Income Preparation and Future Prospects, July 2010. 

• First, plan participants need to take an active role in saving and managing 

their financial future; 

• Second, plan sponsors need more flexibility in the rules and regulations to design benefit plans which meet the diverse needs of their workforce without risk of 

fiduciary liability and increased coverage cost; 

• Third, service providers, like Fidelity, need to continue to innovate around 

how to help plan sponsors optimize their benefit programs and service participants 

based on their needs; 

• And last, we ask policymakers to consider key areas to improve retirement 

savings outcomes: 

• increase the default deferral rate to 6 percent, 

• incent more plans to adopt auto-features currently available, such as automatic annual increase programs, 

• protect and promote the availability of education and guidance by service providers and recordkeepers, 

• modernize and simplify the current regulatory framework to allow innovation 

in plan design and participant communications, 

• explore new ways to help incent younger workers to build solid savings habits 

by enrolling earlier in their working careers, and 

• partner with school administrators, businesses and nonprofit organizations to 

help ensure all students have access to quality financial literacy. 

As the leader in providing 401(k) recordkeeping services to the workplace, Fidelity 

is in a unique position to analyze savings and investment trends, recommend new 

products and services, and help millions of American workers save more in their retirement accounts. Fidelity is committed to partnering with you, Mr. Chairman, and 

Ranking Member Alexander, and members of your committee as you work toward 

solving these issues. 

Again, I thank you for the opportunity to appear today and share our perspective 

and experience in helping Americans save for retirement. I am pleased to take your 

questions. 

Appendix* 

FIDELITY PERSPECTIVES—SEPTEMBER 2012 

DO YOUR PARTICIPANTS HAVE WHAT IT TAKES TO RETIRE?

When helping employees plan for retirement, it’s fair to say that the more money 

saved, the better. But how much savings is really enough? The truth is, a host of 

economic, demographic, and lifestyle variables make this seemingly straightforward 

question particularly difficult to answer. 

Today’s younger workers, for example, are likely to switch jobs more frequently 

than generations past. According to a recent survey, more than 90 percent of socalled Millennials (those born between 1977 and 1997, also known as Gen Y) expect 

to remain in any single job 3 or fewer years.1 As a result, members of this generation could hold 15 to 20 separate jobs during their working lives. Multiple jobs lead 

to the accumulation of multiple retirement accounts and a fragmented, clouded picture of progress toward retirement readiness. Moreover, job switching presents 

workers with a number of unwelcomed opportunities to cash out, causing potentially 

significant setbacks in the pursuit of financial security after work. 

This transient dynamic in the workplace, along with increasing life expectancy, 

escalating health care costs, and uncertainty about the future of Social Security all 

portend a looming retirement savings crisis for many. Indeed, an estimated 20 percent of retirees will exhaust their savings within 10 years of their retirement.2

Despite this sobering outlook, Fidelity believes it’s critical to help participants determine if they are on track toward their retirement savings goals throughout the 

course of their careers. 
15 

3 Eighty-five percent replacement rate is for a hypothetical average employee and may not factor in all anticipated future living expenses or needs, such as long-term care costs. 4 All dollars are today’s dollars, not future value. 

5The age when workers born 1960 or later are eligible for full Social Security benefits. 

GETTING ON TRACK AND STAYING THERE

Employees attempting to set a course toward a financially secure retirement are 

looking for help and asking for it explicitly. 

Setting up stepwise savings goals for employees and linking it to salary simplifies 

the process of determining if they are on track. Fidelity advocates that as participants progress through their careers their target multiples, or X’s, of their salaries 

can be used as the goal for retirement savings. For example, at age 35, this Fidelity 

guideline suggests a participant should have saved 1X their current salary. Using 

these multiples makes the concept of saving for retirement a bit easier to comprehend, and therefore, potentially more achievable. 

While every individual’s situation will differ greatly based on desired lifestyle in 

retirement, the average worker can expect to replace 85 percent of his pre-retirement income 3 by saving at least 8 times, or 8X, his ending salary.4 In order to reach 

the 8X level by age 67,5 Fidelity suggests workers should aim to save about 1X their 

salary by age 35, 3X by age 45, and 5X by age 55. The target amounts include all 

retirement savings vehicles. 

What is important to note is the savings multiple in comparison to salary. Fidelity 

analysis suggests that for most individuals the best way of achieving the recommended 8X goal at retirement is to ensure that the multiple target goals are met 

along the way. These hypothetical guidelines can help employees to meet the suggested income replacement rate of 85 percent in retirement. Since the 85 percent 

or 8X may seem daunting as an end goal, Fidelity believes that breaking the retirement planning process down to an age-based goal—especially for younger workers— 

will help make the savings process seem more attainable. 

This example of targeted savings could be positively or negatively impacted by 

any number of variables including breaks in employment, working past age 67, 

changes to the Social Security model, or individual asset allocation decisions. There 

is no one-size-fits-all number; however, using this method as a guide should generate the necessary questions and conversations to get employees thinking and ultimately prompt them to take action. 

To help employees assess their situation, education programs that explain the importance of debt reduction and the need to establish an emergency fund to avoid 

the negative impact of loans and hardship withdrawals as well as helping employees 

avoid interruptions in their savings history are critical to long-term success. Guidance and education via online tools, in-person sessions, or telephone consultations— 

can also play a critical role in engaging participants and bolstering their retirement 

readiness. 
16 

6Fidelity Investments record-kept data of corporate-defined contribution (DC) plans of nearly 

20,000 plans and 11.8 million participants as of June 30, 2012. 

Source: Fidelity Investments.—This hypothetical chart is for illustrative purposes 

only. It is not intended to predict or project investment results. Your rate of return 

may be higher or lower than that shown in the hypothetical illustration above. Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, 

RI 02917. 

LEADING THE WAY

While the responsibility for preparing for retirement is clearly a shared one, plan 

sponsors can lead the way with innovative, automated, plan design features that get 

participants saving early, saving more, and—with the help of strategic goal-setting 

and ongoing guidance—saving enough. The three steps outlined below can help 

move participants in the right direction. 

Step 1—Encourage employees to begin saving as early in their careers as possible. Early participation in a retirement savings plan can have an enormous impact 

on long-term wealth accumulation. This is especially critical as the DC savings plan 

will likely be the primary retirement funding vehicle for generations to come. 

Step 2—Implement auto-enrollment (AE) with an automatic Annual Increase feature. Not only does AE support the goal of early savings for the youngest workers, 

it also boosts plan participation rates overall. According to Fidelity’s latest data, the 

average participation rate in plans with AE is approximately 90 percent, far higher 

than the 67 percent rate in plans without it. Fidelity data also shows a marked increase in savings rates by employees when employers marry a higher default deferral rate with an automatic escalation provision such as an Automatic Increase Program (AIP). Only 6 percent of participants offered an AIP elect to enroll on their 

own.6 Requiring employees to opt out of an AIP rather than opting in exposes a 

much larger number of participants to the benefits of higher deferral rates. 
17 

Step 3—Promote the use of guidance and planning tools. Fidelity’s MyPlan Snapshot® online savings tool allows participants to anticipate how much they need to 

save for retirement which can help set savings goals. From there, our Income Simulator tool can help them translate their savings into an estimated monthly income 

stream during retirement. 

As we’ve noted, retirement planning is not an easy matter to tackle but plan sponsors can help move their participants in the right direction by following this simplified guideline of target multiples, optimizing plan design and encouraging their 

employees to seek guidance. For more information on helping participants reach retirement savings sufficiency, contact your Fidelity representative. 

FIDELITY PERSPECTIVES—SUMMER 2011 

REDUCING REGRET IN RETIREMENT

New Fidelity survey provides insight on participant sentiment and decisions relative to enrollment, savings and early withdrawals. 

In this post-recession economy, many Americans are more focused on saving and 

are increasingly more prudent in their spending. As individuals consider their options, a recent Fidelity survey reveals that Defined Contribution (DC) plans such 

as 401(k)’s and IRAs play more prominently in their ability to save. A key finding 

is that more than half (55 percent) of current DC participants agree that they would 

not be saving for retirement if it weren’t for their DC plan. In addition, employees 

of all ages view their DC plans as an effective way to save money for retirement. 

In fact, just under half of working participants indicated that the DC plan is critical 

to meeting their financial goals and is the only way they are saving for retirement. 

With the DC plan becoming the foundation for so many as a means to retirement 

income, employers may be wondering why employees aren’t doing more to grow and 

preserve their account for its intended purpose. Interestingly, one-third of retired 

and about half of working participants said they wished they had contributed more 

to their retirement savings. Many expressed regret at borrowing from their account. 

The survey of 1,000 working and retired DC plan participants conducted in February 2011, underscores the role that DC plans have come to play in employees’ retirement savings efforts. Among retirees, it also reiterated and reinforced how having some form of a financial plan can boost confidence and help reduce negative behaviors such as taking loans or cashing out. 

Consider these highlights from the survey results: 

• More than 95 percent of those surveyed cited DC plans are a good way to save 

money for retirement. 

• Eighty-five percent of those currently working as well as 86 percent of retirees 

indicated they wouldn’t have saved as much for retirement without a DC plan. 

• Ninety percent of current workers surveyed said DC plans influence their choice 

of an employer. 

• Thirty-nine percent of retirees and 29 percent of working participants who have 

taken a loan cited they would not take a loan if faced with the same decision again. 

• IRAs are the most commonly held non-DC plan savings vehicle (37 percent) for 

current workers. 

This paper delves into the results to better understand what drives employee retirement savings decisions. The study examines employees’ rationale for participating, why they save as much as they do, and whether they regret any of their 

retirement savings decisions. 

Company Match Drives Enrollment Decisions 

Perhaps the most critical retirement savings decision an employee can make is 

their first decision—enrolling in their employer’s DC plan. With that realization in 

mind, we surveyed DC plan participants about what factors helped to overcome any 

inertia or indecision and drove them to enroll in the first place. 

The most common reason given by current workers across all age groups was the 

desire to take advantage of company matching contributions. The majority of working participants (92 percent) surveyed indicated this was an important factor. Employers seem to be cognizant of this preference, as 83 percent of working employees 

indicated they receive some type of employer contribution. In addition, only 13 percent of working employees said their employers reduced or suspended matching contributions during the past 3 years, an indication that many employers are hesitant 

to take this important benefit away from employees, even during a recession. 

Tax benefits were another common driver of plan participation, with 9 out of 10 

indicating they believe their DC plan offers a good way to save for retirement on 
18 

7 Based on our analysis of nearly 16,500 corporate DC plans and 11 million participants as 

of March 31, 2011. 

a tax-deferred basis. This sentiment was even more pronounced among pre-retirees, 

who generally earn more and may be subject to higher tax rates. 

There also seems to be widespread support for auto-enrollment, although this attitude is more prevalent among retired DC participants (perhaps due to their own experiences trying to save for retirement). Among retirees, nearly three quarters agree 

that all employees should be automatically enrolled in a workplace retirement savings plan. 

Raise in Pay Leads to Increases in Deferral Rates 

The majority of current DC plan participants (54 percent) feel that saving more 

will improve their financial outlook for retirement. This attitude is particularly 

prevalent among the youngest employees (those age 25 to 34). Of course, one way 

to contribute more is to spend less. Yet, only 14 percent of working DC plan participants indicated that spending less was the one thing they could do to improve their 

financial outlook for retirement. 

Despite the challenging economic environment of the past 2 years, 17 percent of 

employees indicated they increased their deferral rates within the past year and an 

additional 12 percent did so within the past 12 to 24 months. Fidelity record-kept 

data echoes these findings—by the end of the first quarter of this year, nearly 10 

percent of active plan participants increased their deferral rate—the largest portion 

to do so since Fidelity began tracking this figure in 2006.7 Receiving a raise or having extra money available were the most common reasons given for increasing deferral rates. This seems to be an encouraging sign that some employees understand 

the importance of increasing deferral rates whenever possible. 

As employees close in on retirement, their efforts to save through their DC plan 

take on additional urgency. Approximately one out of four pre-retirees ages 55+ indicated the need to save more to meet retirement goals was their reason for upping 

their contributions. 

• While many employees made every effort to defer as much as possible over the 

past 5 years, 23 percent of those still working reported they had decreased their salary deferral rates. Of those that have ever decreased deferrals, 34 percent cited that 

the money was needed to cope with a spouse/partner’s layoff, they needed the extra 

money for an emergency fund, or their employer suspended the company match. 

Many Older Workers Save the Maximum Allowed; Younger Workers Saving What 

They Can Afford 

Among retirees surveyed, one-third indicated they deferred the maximum allowable by law in the period prior to retirement. Another 29 percent of retirees deferred 

the amount necessary to receive a full company match and 27 percent deferred the 

most they could afford. Conversely, among employees who are still working, only 15 

percent are deferring the maximum amount, 31 percent are deferring enough to 

earn the company match, and 43 percent are deferring all they can afford. 

The youngest employees surveyed were least likely to defer the maximum amount 

allowed (12 percent). It’s possible that this population is grappling with college 

loans, saving for a down payment on a home, or may simply not earn enough to 

defer more salary. Nevertheless, convincing younger employees to defer the maximum allowable amount could produce tremendous long-term benefits for them. 

Regrets, they’ve had a few 

Many DC participants indicated they made decisions that they later regretted. 

For example, among retirees, one-in-three said they wished they had contributed 

more to their retirement savings. Among those who decreased salary deferrals, 26 

percent of current employees lamented that decision. 

Taking a loan, hardship withdrawal, or full payout when changing jobs was another source of regret for retirees and current employees alike. 

• Among retirees who had taken a loan, nearly 4 in 10 cited they would not make 

the same decision again, whereas roughly 30 percent of working participants felt the 

same way—many may not regret the decision until they’re actually in retirement. 

• Roughly 40 percent of both working and retired participants regretted their decision to withdraw money for an emergency. 

• More than half of working participants cited that they regretted the decision 

to take a full payout when leaving a job. Many retirees may take full payouts to 

consolidate accounts and/or to purchase annuities. 
19 

8 Based on Fidelity analysis of 20,222 corporate DC plans (including advisor-sold DC) and 12M 

participants as of 9/30/2012. 

Having A Financial Plan Leads To Better Decision Making 

The existence of a complete financial retirement plan—or lack thereof—is another 

important factor impacting one’s decision on how much to contribute to their DC 

plan. Three out of four working employees with a financial plan increased their salary deferral rate at some point in their careers, while only 59 percent of those without a plan reported doing so. Those without a plan were also somewhat more likely 

to increase salary deferrals out of a necessity to catch up later in life than those 

with a plan. 

A consistent theme: having a plan can help—and the earlier the better. 

The existence of a complete financial retirement plan appears to play an important role in the level of regret experienced by participants. For example, those with 

a financial plan—and therefore more likely to have a better understanding of their 

financial situation—were more likely to regret their decision to decrease salary deferrals (34 percent versus 25 percent) than those participants without a complete 

plan and potentially in the dark on the ultimate impact of their decision. 

The existence of a complete financial retirement plan also appears to produce better savings habits. Among retirees, those with a plan were significantly less likely 

to have: 

• Taken a loan (18 percent vs. 30 percent) • Taken a hardship withdrawal (16 percent vs. 34 percent) • Taken a full payout (25 percent vs. 37 percent) 

Current employees with a plan were also less likely to withdraw assets early than 

those without a plan (26 percent vs. 35 percent). Among working participants, the 

level of regret over decisions to take early withdrawals was for the most part similar, whether or not the employee had a financial plan. Only time will tell if these 

employees come to regret these decisions later in life. 

Three steps employers can take to help employees minimize regret or 

leave employees with no regret. 

These results demonstrate that better educated and prepared employees make 

better retirement savings decisions. They are less likely to withdraw assets prior to 

retirement and even if they do need to do so, they are less apt to regret their decisions if they have prepared a comprehensive retirement financial plan. 

Of course, employees are unlikely to make any meaningful progress toward a financially secure retirement if they do not start participating in their DC plans as 

soon as possible. To motivate employees to get started and help increase their 

chances of success, employers must: 

1. Communicate the benefits of contributing to a DC plan in simple terms to all 

employees—and the importance of maximizing every opportunity to save more. 

2. Automatic enrollment for all eligible non-participating employees—not simply 

the newly hired—provides another, even more efficient way to overcome the dual 

challenges of employee enrollment and savings rates. Combining automatic enrollment with an Annual Increase Program (AIP) can help employees save more and 

put them on a path toward a secure retirement. 

3. Most importantly, while automatic plan features can get employees started, 

they will need guidance along the way to avoid making decisions they may come 

to regret later. Promoting the benefits of having a plan and offering guidance 

through planning tools, workshops, and one-on-one consultations may produce better results for employees and employers alike. 

BUILDING FUTURES—FALL 2012 

WHAT CAN SAVING MORE REALLY GET YOU? (MORE THAN YOU MIGHT THINK.)—A 

BUILDING FUTURES REPORT: Q2 2012 

AVERAGE ACCOUNT BALANCES REACH AN ALL-TIME HIGH

At the close of Q3, average defined contribution (DC) account balances had 

reached $75,900 8—an all-time high—while the average account balance among 10- 

year continuous DC participants totaled $198,800.8

While the news is good and the trend is clearly positive, a closer examination of 

participant data reveals that deferral rates are a key driver in accumulating savings. According to Fidelity’s latest data, covering more than 20,000 DC plans and 

12 million participants, total savings rates average 12 percent, composed of 8 per-
20 

9While the information provided herein is based on actual Fidelity workplace savings plan 

participant behavior, ‘‘Thomas’’ and ‘‘Trisha’’ are fictitious names and the examples provided are 

for illustrative purposes. Trisha started with a beginning balance in 2001 of $1,869 while Thomas’s beginning balance in 2001 was $5,544. Approximately 20 percent of the end account balance 

growth is contributed to market return/conditions. Both participants were allocated 70 percent 

to equities. Actual salaries used were $44,944 and $45,098. The data is based on Fidelity research from 6/30/2000 through 6/30/2012. 

cent from employee contributions and 4 percent from employers. This total rate falls 

within Fidelity’s recommended range of 10 percent–15 percent and Fidelity analysis 

reveals that increases in employee deferral rates can have dramatic effects on participant account balances over time. 

Fidelity recommends a 10 percent–15 percent total savings rate. 

In this first in a series of studies of participant behavior and associated outcomes, 

Fidelity analysis quantifies the substantial benefits participants can reap from deferring more and identifies steps plan sponsors can take to help employees realize 

the advantages. 

A LEADING LEVER IN DRIVING BETTER OUTCOMES: DEFERRAL RATES

It’s intuitive that if you save more you should end up with more. But it begs the 

question: how much more? To quantify the difference between savings rates Fidelity 

profiled two DC plan participants—‘‘Trisha’’ and ‘‘Thomas’’, 9 who have been 

proactive about saving for retirement. Trisha and Thomas are remarkably similar. 

Both are in their mid-forties, earn roughly $45,000 9 annually, and had exactly the 

same balanced asset allocation over the past 12 years; they each currently are invested approximately 70 percent in equities. Both had less than $6,000 for plan DC 

account balances 12 years ago, and both make pre-tax contributions to their plan 

and receive company contributions each year. Neither has ever taken a loan or a 

hardship withdrawal. 

Similarities aside, Trisha’s and Thomas’s investor profiles diverge in one critical 

area—their deferral rates. And that has made a big difference. 

Trisha’s Account Balance Grows 

Trisha contributes 4 percent of her salary annually and receives a 1 percent core 

contribution from her employer. As shown in our illustration, Trisha’s account balance has increased over the past 12 years to its current total of $27,000. 

In reviewing Trisha’s account, we can see that her DC account balance has grown, 

and she still has approximately 20 years in the workforce during which she can continue to save. But how does Trisha’s situation compare with Thomas’? 
21 

Figure 1: Deferrals Drive Outcomes for ‘‘Thomas’’ and ‘‘Trisha’’ 9

Thomas Makes Bigger Strides 

Like Trisha, Thomas benefits from a core employer contribution of 1 percent. 

However, Thomas has consistently saved two to three times as much as Trisha. He 

deferred 12 percent of his salary for the past 5 years and 8 percent annually prior 

to that. Thomas’s current total savings rate is 13 percent versus Trisha’s total savings rate of 5 percent. The additional money Thomas saved has produced impressive 

results. 

While Trisha’s account balance grew to over $27,000 during the past 12 years, Thomas’s grew to a balance of over $68,000. In this case, the additional 8 percent 

Thomas contributed over Trisha has resulted in a retirement savings balance that 

is 21⁄2 times larger than Trisha’s. Clearly, Thomas’s higher deferral rate over the 

last 12 years has left him better prepared for retirement. Despite the fact that they 

had the same savings potential, Thomas is more on target demonstrating that higher deferral rates are critical to successful retirement planning. 

HOW CAN PLAN SPONSORS HELP?

As the participant case study of Thomas and Trisha depicts, the effects of participant choices relative to their retirement savings are magnified over time. Thus, it’s 

critical that plan sponsors work with plan providers, their advisors and consultants 

to not only educate employees early and often about the impact their decisions can 

have over time on their outcomes but also structure their plan design to promote 

optimal behaviors. 

Accelerating Savings 

For workers facing the economic realities of the here and now, retirement planning can be a daunting proposition. As a result, many are subject to inertia by either not participating in their DC plan or they set it and forget it once enrolled and 

very infrequently, if at all, increase their deferral rate. In fact, according to Fidelity 

data, 61 percent of participants who are auto-enrolled make no change from the default deferral amount.8

Auto-escalation drives 1⁄3 of all deferral increases.8

To combat such participant inertia, sponsors can implement the automatic annual 

increase programs (AIPs) to boost deferral rates. AIP can be linked to coincide with 

annual salary increases to minimize the impact to an employee’s net take home pay. 

AIP is the single most effective driver of deferral increases, as 33 percent of all de-
22 

10Fidelity Investments, CKC Onboarding Results from January–July 2011; based on 192,000 

auto-enrolled participants. 11Data in this presentation exclude tax-exempt plans, nonqualified plans, and the FMR Co. 

plan. This analysis includes data from the Fidelity Advisor 401(k) Program. 

ferral increases during the past 12 months were due to AIP and for young workers 

(age 20–30) 52 percent of all deferral increases are due to AIP.8 In addition, Fidelity 

data reveals that very few employees decline to participate; 93 percent of those enrolled by their employer remain within the program.8

Putting Employees on a Better Path 

Fidelity data shows that the opt-out rates in plans with a 3 percent automatic 

enrollment default rate are virtually identical to those in plans with a default rate 

of 6 percent. 8 Automatically enrolling employees at a savings rate that will set 

them down the right path—such as 6 percent combined with an annual increase at 

1 percent a year up to 10 percent or 12 percent—can help drive better outcomes 

without adversely affecting participation. In addition, 16 percent of auto-enrolled 

employees who received an e-mail and telephone call from a Fidelity representative 

to orient them to their plan increased contributions, and on average their deferral 

rates nearly doubled (3.5 percent to 6.7 percent).10

Know Where Your Opportunities Lie 

Plan sponsors should look beyond the averages to examine participant behaviors. 

Learn which employees aren’t participating and why. Identify participants missing 

out on a full company match and those who have never increased their deferral 

rates. By understanding these participants more fully, sponsors are better able to 

respond with timely information, targeted communications, and appropriate guidance. 

Thomas and Trisha are saving, which is the first step on the road to retirement 

readiness; however, there is more that may help them and others to be fully prepared for retirement. Identifying where your participants stand and targeting populations that may be lagging is critical to helping participants prepare for retirement. 

Guidance can lead to higher deferral rates.10

A BUILDING FUTURES REPORT: Q4 2012 TRENDS

FIDELITY INVESTMENTS: AN INDUSTRY LEADING RETIREMENT PROVIDER

Fidelity’s record-kept database is one of the industry’s most comprehensive proprietary collections of defined contribution plan and participant information. 

• Based on record-kept data of corporate-defined contribution (DC) plans: 

• Over 20,000 plans 

• 11.9 million participants 

• Data as of December 31, 2012 unless otherwise noted 11
23 
24 
25 
26 
27 
28 
29 

IMPORTANT ADDITIONAL INFORMATION

Before investing in any mutual fund, please carefully consider the investment objectives, risks, charges, and expenses. For this and other information, call or write Fidelity for a free prospectus or, if available, a summary 

prospectus. Read it carefully before you invest. 

As with all your investments through Fidelity, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, financial situation and your 

evaluation of the security. 

Personal Rate of Return (PRR): A measure of portfolio performance that indicates 

the return earned over a given time period. Personal rate of return used in our analyses (unless otherwise noted) is time weighted, which means it was calculated by 

subtracting beginning market value from ending market value and dividing by beginning market value for each sub-period. A new sub-period began each time there 

was cash-flow. The sub-period returns were then geometrically linked together to 

calculate the return for the entire period. All returns shown are historical and include change in share value and reinvestment of dividends and capital gains, if any. 

Risk is defined as the volatility of historical portfolio returns; it measures the average deviation of a series of historical returns from its mean. Large values of risk 

indicate large volatility in the historical return series, and small values indicate low 

volatility. 

Keep in mind investing involves risk. The value of your investment will fluctuate 

over time and you may gain or lose money. 

Past performance is no guarantee of future results. 

Important Additional Information about Charts Showing Participant Equity Holding versus Freedom Funds’ Equity Rolldown 

For the equity rolldown chart, ‘‘Equities’’ are defined as domestic equity, international equity, company stock, and the equity portion of blended investment options. A random sample of 5,000 participant data points are plotted on the related 

charts. Percentage of assets invested in equities is based on data for participants 

in the defined contribution plans record-kept by Fidelity with a balance as of quarter end. These plans included both qualified and assetized nonqualified plans (i.e., 

nonqualified plans informally funded with mutual funds and other securities), as 

well as single-fund plans, which include Employee Stock Ownership Plans (ESOPs). 

Plans sponsored by Fidelity Investments for the benefit of its own employees are 

excluded. The Fidelity Freedom Funds® rolldown schedule on both Exhibits illus-
30 

trate the Freedom Funds’ target asset allocations among equities and was created 

by Strategic Advisers, Inc. This rolldown schedule also illustrates how these allocations may change over time. The Freedom fund future target asset allocations may 

differ from this approximate illustration. 

Fidelity Freedom Funds® are designed for investors expecting to retire around 

the year indicated in each fund’s name. Except for the Freedom Income Fund the 

funds’ asset allocation strategy becomes increasingly conservative as it approaches 

the target date and beyond. Ultimately, they are expected to merge with the Freedom Income Fund. The investment risks of each Fidelity Freedom Funds® change 

over time as its asset allocation changes. They are subject to the volatility of the 

financial markets, including equity and fixed income investments in the United 

States and abroad and may be subject to risks associated with investing in high 

yield, small cap and, commodity-related, foreign securities. Principal invested is not 

guaranteed at any time, including at or after their target dates. 

The CHAIRMAN. Thank you very much, Ms. McCarthy. 

And now, Ms. Hounsell. 

STATEMENT OF M. CINDY HOUNSELL, PRESIDENT, WOMEN’S 

INSTITUTE FOR A SECURE RETIREMENT, WASHINGTON, DC 

Ms. HOUNSELL. Good morning, Chairman Harkin, Senator Alexander, and the other distinguished members of the committee. We 

appreciate the opportunity to be here today to discuss retirement 

saving by American workers and to ensure that committee members recognize the significant retirement risks that women face, 

particularly the millions of women who are on the cusp of retirement. 

My name is Cindy Hounsell. I am president of the Women’s Institute for a Secure Retirement. For 17 years, we have been trying 

to help women, educators and policymakers understand the important issues surrounding women’s retirement income. Our primary 

mission is financial education and capability, providing women 

with the crucial skills and information they need to avoid poverty 

in retirement. 

WISER and the U.S. Administration on Aging also operate the 

National Education and Resource Center on Women and Retirement Planning. 

We commend the committee for examining the adequacy of retirement savings because this comes at a time when 61 percent of 

Americans age 44 to 75 fear running out of retirement assets more 

than they fear death. Women are among the most worried about 

savings and their financial security in retirement, and rightly so. 

They live longer, they have less retirement income. Divorce and 

widowhood have significant negative consequences for their financial well-being. Current discussions about tax reform would lead us 

to expect that policymakers would use the process as an opportunity to strengthen the retirement system and improve its effectiveness. 

We believe that much can be accomplished by strengthening and 

building on our existing retirement programs such as Social Security, employer-sponsored plans, financially innovative products, incentives for longer work, and increased financial education and 

planning. 

Every year there is new research and literature showing that 

American workers are not saving enough. The Employee Benefit 

Research Institute’s retirement security projection model for 2012 

shows that 44 percent of Baby Boomers and Gen-Xers won’t have 

enough retirement income to cover even basic retirement expenses 
31 

and uninsured health costs. When looking just at the Gen-Xers, the 

shortfall, the average savings deficit for a single female is a little 

over $133,000. That’s the additional amount that a single female 

would, on average, need to save by age 65 to eliminate her shortfall. 

The recent economic crisis has made it even more difficult. The 

low contribution rates and the lack of understanding of the need 

for a comprehensive retirement strategy means inadequate income 

for the rest of your life. These issues are compounded for women. 

In addition to living longer, older women are more likely to have 

costly chronic medical conditions and need long-term institutional 

care. Further, older women are more likely to be single at some 

point in their lives, which puts them at a higher risk for poverty, 

and it’s a cruel irony at the latest stage of life that many women 

become poor for the first time in their lives. 

Today, the rate of poverty for women aged 65 and over is close 

to 11 percent. In my testimony I have a lot more numbers, but 

what I’d like to just point out is that of those numbers, once you 

get to single women, for African-American women, almost a third 

are poor, and for Hispanic women it’s 44 percent, which is just 

enormous. 

Another twist on this is that women also work fewer years because they are the family primary caregivers, and caregiving can 

have serious financial consequences. A recent study shows that 

caregivers lost about $304,000 in wages, Social Security and private pension losses. And another problem is older women taking in 

their grown children and their grandchildren. Almost 20 percent of 

the grandparents responsible for grandchildren who live with them 

are living in poverty. 

In the workplace there is better news, but it still varies by ethnicity and racial groups, and black women were the most likely to 

work for an employer with a plan, while Latinos were the least 

likely. However, the gender gap is a continuing factor, and another 

EBRI report suggests that while women in the aggregate have been 

closing the retirement participation rate over the last decade, they 

slipped a little because of the recession. 

The reality of today’s retirement landscape, as already mentioned, is do it yourself, do it right, or live at or below the edge of 

poverty for the rest of your life. That’s the reality for a lot of people. And that slice of the pie keeps getting bigger and bigger. The 

nature of today’s system of individual responsibility demands financial capability. We need to help people with these issues, and 

a lot of the suggestions that are made are helpful for people if you 

work in a large company, but for those who are in smaller companies like what you are talking about, Senator Alexander, people 

just don’t have that level of education and literacy. 

Women, along with their male counterparts, tend to lack basic 

retirement financial knowledge. That is often the reason why they 

make serious financial mistakes. Women need the best information 

and opportunity to access information to ensure that they don’t 

make these mistakes. Experience and research shows that relevant 

financial information from trusted resources can dramatically increase your total net worth by nearly a third for those even with 
32 

the lowest incomes, and up to 18 percent for those with moderate 

incomes. 

So, what can we do? One of our key initiatives, as I mentioned, 

is the National Resource Center that we operate with the U.S. Administration on Aging that provides programs in communities, and 

these interventions leverage strategic partnerships not only with 

other nonprofit aging organizations but business, Federal agencies, 

and financial services groups. 

First of all, before I get into my long list which is in my testimony, and I won’t read that to you at this point, one of the most 

important things that we think needs to be done to support increased economic and financial security for women of all ages 

would be to strengthen the Social Security system, and we are 

happy to see that the white paper that the Chairman has issued 

has a plan to strengthen Social Security. 

Another one of my favorite provisions which has been talked 

about in this city for about 20 years is to help caregivers by including a provision in Social Security for caregiving credits. 

There are many programs around that help at-risk populations. 

What we need to do is start working with these models that we 

really know work and promote them on a larger scale. Many of 

these programs help people avoid dependence on government programs. 

In conclusion, I’d like to say thank you for letting me hammer 

home the risks for women in retirement. I would like to just say 

finally that there is no single solution. I have been hearing, ‘‘Everybody wait until we get the perfect plan.’’ There is no perfect plan. 

We already know where the problems are, what the challenges are. 

We need to target those segments of the population. There are a 

range of solutions. Most of all, we need to continue to build on 

what is working, make it better, and just realize that there are a 

lot of Americans out there who are just trying to achieve basic financial stability. Thank you. 

[The prepared statement of Ms. Hounsell follows:] 

PREPARED STATEMENT OF M. CINDY HOUNSELL

SUMMARY

American workers are not saving enough for retirement. The recent economic crisis has made it even more difficult and low contribution rates and lack of understanding of the need for a comprehensive strategy means inadequate income for the 

rest of your life. The topic of retirement income insecurity, however, is not new. We 

all know the themes: people are not saving enough, they are not investing intelligently, and they are not going to have enough money to live 20–30 years in retirement. When it comes to women, we know that they live longer, earn less, take time 

out of the workforce to provide family care, are more likely to work part-time and 

are likely to live alone at some point in retirement. While women are equally likely 

to have access to retirement savings plans through work, they are hampered by a 

significant pay gap and millions are unable to contribute at the levels needed. All 

of these factors make it that much harder for women to experience a financially secure retirement. 

The reality of today’s retirement landscape is do-it-yourself, and do it right, or live 

at or below the edge of poverty in what are supposed to be the golden years. The 

nature of today’s system of individual responsibility demands financial capability. 

This is WISER’s primary area of focus. Women face unique challenges, and they are 

in the difficult position of making big decisions while being unable to afford even 

a small mistake. Women, along with their male counterparts, also tend to lack basic 

financial knowledge, which is often the reason for making serious financial mistakes. Women need the best information and opportunity to access information; this 
33 

1Outliving Your Money Feared More Than Death, Allianz Life Insurance Company of North 

America press release, June 17, 2010. 

information should be targeted to women as spouses and caregivers, as well as to 

women as employees. 

WISER’s mission is to provide reliable, actionable and culturally relevant resources. WISER’s interventions leverage strategic partnerships to maximize our 

reach; from highly educated professionals to the most vulnerable populations. 

Through these partnerships, WISER educates women and inspires them to take action to improve their financial situation and outlook. WISER’s approach is to bring 

financial planning back to the basics. Our goal is to help women make the best decisions they can with the limited resources they may have available. 

There is no single solution to these issues. We need to start understanding what 

the specific challenges are to certain segments and target those segments with a 

wide range of solutions from financial education, to product design, policy changes 

and other innovations. WISER’s recommendations include: Protect, preserve and 

strengthen Social Security—a program critical to the financial well-being of women; 

support employer plans, make adjustments in education initiatives to recognize the 

difference in men’s and women’s employment experience and promote individual 

saving behavior; enable later retirement and support better work options at later 

ages; encourage financial product innovation that help older Americans preserve 

and protect their retirement incomes and assets; and educate women of all ages 

about longevity and how financial products, financial planning and saving can improve their financial prospects. 

Good morning, Chairman Harkin, Senator Alexander and distinguished members 

of the committee. I appreciate the opportunity to appear before you today to discuss 

retirement saving by American workers and to ensure that committee members recognize the significant retirement risks women face—particularly the millions of 

women who are on the cusp of retirement. 

INTRODUCTION

My name is Cindy Hounsell, and I am president of the Women’s Institute for a 

Secure Retirement (WISER). WISER is a nonprofit organization that works to help 

women, educators and policymakers understand the important issues surrounding 

women’s retirement income. Our primary mission is financial education and capability—providing women with the crucial skills and information they need to avoid 

poverty in retirement. As the only organization to focus exclusively on the unique 

financial challenges that women face, WISER supports women’s opportunities to secure adequate retirement income through research, training workshops, educational 

materials and outreach. WISER and the U.S. Administration on Aging operate the 

National Education and Resource Center on Women and Retirement Planning. 

WISER commends the committee for examining the adequacy of retirement saving by American workers. This focus comes at a time when 61 percent of Americans 

age 44 to 75 fear running out of retirement assets more than they fear death.1 Our 

testimony will focus primarily on women’s retirement savings—highlighting the 

challenges women face. We will summarize some of the activities WISER continues 

to undertake to help women deal with these challenges. We will also detail the outreach efforts of WISER and its partners to improve financial literacy and thereby 

improve savings. Finally, we believe that there needs to be a range of solutions that 

will help people today, and help various segments of the workforce who are facing 

differing challenges. 

INADEQUATE RETIREMENT SAVINGS

Women are worried about saving enough and about their financial security in retirement, and rightly so. They live longer than men, and they have less retirement 

income. Divorce and widowhood have significant negative consequences for their financial well-being. Current discussions about tax reform in 2013–14 would lead us 

to expect that policymakers would use the process as an opportunity to strengthen 

the retirement system and improve its effectiveness by including policies to improve 

the financial security of women (and men) and their families. We believe that much 

can be accomplished by strengthening and building on our existing retirement programs, such as Social Security, employer-sponsored plans, financially innovative 

products, incentives for longer work, and increased financial education and planning 

to improve the financial security of older women. 
34 

2 Employee Benefit Research Institute. Retirement Income Adequacy for Boomers and Gen 

Xers: Evidence from the EBRI 2012 Retirement Security Projection Model. EBRI Notes, May 

2012. 3 Ibid. 4Women’s Institute for a Secure Retirement. Fact Sheet: Single Older African American 

Women and Poverty. 5GAO. Retirement Security: Women Still Face Challenges. GAO–12–699. July 19, 2012. 6GAO. Retirement Security: Women Still Face Challenges. GAO–12–699. July 19, 2012. 7 Current Population Reports. Income, Poverty and Health Insurance Coverage in the United 

States, 2011. September 2012. 8Women’s Institute for a Secure Retirement. Fact Sheet: Single Older African American 

Women and Poverty. 2012. 9 Ibid. 

Every year there is new research and literature showing that American workers 

are not saving enough for retirement. The Employee Benefit Research Institute’s 

Retirement Security Projection Model 2012 shows that 44 percent of Baby Boomers 

and Generation Xers won’t have enough retirement income to cover basic retirement 

expenses and uninsured health costs.2 When looking just at Generation Xers that 

will have a shortfall, the average savings deficit for single females is $133,349. This 

is the additional amount that a single female would, on average, need to save by 

age 65, to eliminate her projected retirement shortfall.3

CHALLENGES WOMEN FACE

It’s clear from the data that, no matter how you slice it, American workers are 

not saving enough for retirement. The recent economic crisis has made it even more 

difficult and low contribution rates and lack of understanding of the need for a comprehensive strategy means inadequate income for the rest of your life. These issues 

are compounded for women. For one, women live longer, which means women need 

more income and their retirement assets have to last longer. Older women are also 

more likely to have chronic (read: costly) medical conditions and need long-term institutional care. Further, older women are more likely to be single, which puts them 

at higher risk for poverty. It is at this later stage of life that many women become 

poor or in the near poor category for the first time in their lives. 

Despite needing more retirement assets, women end up having less. In the case 

of single women over 65 today, fully half receive less than $750 a year in income 

from assets.4 Factors that play into this include pay inequity, uneven work histories 

due to caregiving responsibilities, and a greater likelihood of working part-time 

where retirement benefits are not offered. 

The result of these issues are included in a recent report by the GAO which identified that women age 65 and over have 25 percent less retirement income and twice 

the poverty rate of men.5 When widowhood or divorce occurs, the effects are even 

more harmful. The report found that the income of women near or in retirement 

dropped 37 percent as a result of widowhood, while men’s fell 22 percent. Divorce 

or separation reduced women’s income by 41 percent—almost twice the decline of 

men’s income.6 Today, the rate of poverty for women age 65 and over is 10.7 percent, compared to 6.2 per cent for men.7 When looking at single women over age 

65, the poverty rate jumps to 17.4 percent.8 In this mix is a poverty rate for white 

single women of 15.3 percent; 32.5 percent for single African-American women; and 

43.7 percent for single Hispanic women.9

CAREGIVING HURTS WOMEN’S SAVINGS OPPORTUNITIES

As noted above, while women earn less, live longer and are likely to live alone 

in old age, women also work fewer years by taking time out of the workforce for 

caregiving as their families’ primary caregivers for both children and older parents. 

As caregivers, women are also more likely to work part-time in jobs without benefits. The Social Security Administration finds that among new retired-worker beneficiaries, women average 12 years of zero earnings. This is 12 fewer years to put 

money away through a defined contribution plan or IRA. Since caring for the family 

is not recognized as an economic contribution, women lose out by bearing the main 

share of this responsibility and the corresponding economic consequences. 

Caregiving can have serious financial consequences, especially for adults nearing retirement. Reduced wages and benefits result in missed opportunities for compounded returns on 401(k) matching contributions and less in savings and investments. Caregivers’ also pay an estimate of $5,531 annually in out-of-pocket costs for 
35 

10 National Alliance for Caregiving, Caregiving in the U.S., 2009. 11The MetLife Study of Caregiving Costs to Working Caregivers, June 2011. 12Growth in Grandfamilies Leads to Food Insecurity. May/June 2012, Aging Today. 13Women’s Institute for a Secure Retirement, Fact Sheet: Women’s Retirement Income, 2012. 14 Employee Benefit Research Institute, Employment-Based Retirement Plan Participation, November 2012 EBRI Issue Brief. 15Lusardi, Annamaria, Saving and the Effectiveness of Financial Education. Published in 

‘‘Pension Design and Structure: New Lessons from Behavioral Finance,’’ edited by O. Mitchell 

and S. Utkus. Oxford University press, 2005. 

caregiving.10 A 2011 study showed that caregivers lost $303,880 in wages, Social Security, and private pension losses as a result of caregiving responsibilities. 11

Another problem for women in or near retirement is that almost 20 percent of the 

2.5 million grandparents responsible for grandchildren who live with them, were living in poverty. Half of the caregivers had been in this role more than 5 years. Many 

lose or quit jobs to care for children and incur more expenses that result in spending 

down retirement savings.12

Women must plan for a longer retirement with less income—the median income 

for women age 65 and older is only 60 percent of men’s income in that same age 

group.13 This should not come as a surprise—since the retirement system is based 

on what workers earn—so women are left with inadequate pensions and savings. 

The result is that women must rely too heavily on Social Security as an income 

source in retirement. 

In the workplace, women were more likely to work for employers that offered 

401(k) plans than were men. This varies by racial groups and black women were 

the most likely to work for an employer with a plan while Latinas were the least 

likely. However, the gender pay gap is the major issue preventing women from contributing more to their defined contribution plans. A recent EBRI report suggests 

that while women in the aggregate had been closing the retirement participation 

rate over the last decade—down to less than 1 percentage point by 2009—the recession caused women to fall slightly behind again in 2010 and 2011.14

FINANCIAL CAPABILITY

The reality of today’s retirement landscape is do-it-yourself, and do it right, or live 

at or below the edge of poverty in what are supposed to be the golden years. The 

nature of today’s system of individual responsibility demands financial capability. 

This is WISER’s primary area of focus. We focus on women because of the challenges we set forth earlier. Women are in the difficult position of making big decisions while being unable to afford even a small mistake. 

Women, along with their male counterparts, tend also to lack basic financial 

knowledge, which is often the reason for making serious financial mistakes. Women 

need the best information and opportunity to access information to ensure that they 

do not make costly decisions; this information should be targeted to women as 

spouses and caregivers, as well as to women as employees. Experience and research 

shows that relevant financial information can dramatically increase total net worth 

by nearly one-third for those with the lowest income and 18 percent for those with 

moderate income.15

One of WISER’s key initiatives is a program administered cooperatively and funded by the Administration on Aging—the National Education and Resource Center on Women and Retirement Planning. The AOA/WISER Resource Center’s 

primary goal is to educate the most women we can possibly reach with information 

that can assist them in their retirement planning. We seek to provide average and 

low-income women the opportunity to take the first step toward controlling their financial futures.

WISER’s approach is to bring financial planning back to the basics. Our goal is 

to help women make the best decisions they can with the limited resources they 

may have. We train trainers who assist women in their communities. We explain 

the hard reality of having to adjust living standards to live within their means and 

to find resources in their communities that they may not be aware of. 

The Center has directly reached tens of thousands of women through our own and 

our partners’ workshops, and we’ve reached millions with our publications and Web 

site. The Center’s strength is providing women with core financial knowledge that 

encourages them to make financial and retirement planning a priority in their lives. 

We focus on such issues as health and retirement benefits at work (or the implication of the lack of such benefits), the financial implications of providing care for children, parents and spouses, and the risks of inflation and longevity. 

The Center’s Business Advisory Council helps in disseminating education and information through the Community Partnership Program with the Financial Services 
36 

16Women’s Institute for a Secure Retirement, Changing Investment and Savings Behavior of 

Nurses, 2012. 17 Retirement Literacy: A Key to Financial Security for Women. Mathew Greenwald & Associates, Inc., WISER Symposium, Washington, DC. December 7, 2012. 18 Innovative Strategies to Help Maximize Social Security. James Mahaney, Strategic Initiatives, Prudential Financial. Updated Edition, 2012. 

Roundtable, as well as a long-standing partnership with the American Council of 

Life Insurers and several individual companies who help us further our education 

effort. Many other partners—employers, business and trade organizations, aging 

and women’s organizations and community-based groups help spread the message 

and disseminate the Center’s materials. 

We also work with Federal agencies, including the Department of Agriculture’s 

Cooperative Extension Service, the Department of Labor, the Consumer Financial 

Protection Bureau and the U.S. Social Security Administration. Recently, both 

Money magazine and ForbesWoman have commended WISER, with ForbesWoman 

naming WISER’s Web site, www.wiserwomen.org, one of the Top 100 Web sites for 

Women in 2012. 

Among the population we have reached are highly educated nurses, executive 

women, childcare workers and low-income entrepreneurs. The common thread we 

found among these varying groups of women was that there was an additional obstacle for many women. That obstacle is putting everyone’s needs ahead of their 

own. Many women were taken aback when the trainers encouraged them to fund 

their own retirement before spending money on their children and grandchildren.16

There is increasing evidence that planning for retirement is effective and work 

place seminars are helpful, but there is a need for more basic resources to help people figure out how much they need to increase their savings by in order to retire 

with security. We have included below a list of several issues that women are in 

particular need of learning about or better understanding.17 For example, we find 

that the following are key areas of retirement illiteracy: 

• Asset to income ratio is not understood and how much is needed for a secure 

retirement. 

• Longevity risk is poorly understood and not widely planned for. 

• Value of guaranteed lifetime income or how to draw down assets. 

• The impact of future inflation and taxes is not included in planning for retirement. 

• Many women assume they will just keep working beyond normal retirement 

age, but more than 40 percent of Americans end up retiring earlier than they 

planned to, usually due to job loss, family needs including health issues, or personal 

poor health. 

Agenda for Near Retirees: 

• Educate near retirees on the value of claiming Social Security later to attain 

higher Social Security benefits.18

• Obtain a benchmark measure of retirement literacy and target the most important area of insufficient literacy. 

• Provide benchmarks on determining retirement readiness or when retirement 

can be afforded. 

Finally, we need to strengthen our existing programs wherever possible. That 

means focusing in particular on Social Security, employer-sponsored retirement programs, individual saving initiatives, financial products that promote increased economic security in old age and longer work incentives for women. The following are 

suggested actions for building and supporting increased economic and financial security for women of all ages. 

• Protect, preserve and strengthen Social Security—a program critical to the financial well-being of women: 

• Preserve Social Security as an income-based social insurance system. 

• Improve benefits for low-wage workers—those with very low benefits are primarily low-wage, unmarried and widowed women. 

• Study ways to offer retirement protection to women with significant time 

spent as caregivers, including the provision of Social Security credits. 

• Support employer plans, recognize the difference in men’s and women’s employment experience and promote individual saving behavior: 

• Encourage more employers to offer a retirement program and make it easy 

for employers to do so. 
37 

19 Economic Security Initiative Fact Sheet 2012, National Council on Aging. 

• Encourage plan sponsors offering 401(k) and similar plans with better default 

investment options to enable more savers to accumulate more assets for retirement. • Extend retirement savings opportunities so that part-time and temporary 

workers have a way to save. 

• Enable later retirement and support better work options at later ages: 

• Study the interaction of increasing longevity and retirement ages, and develop a dynamic system to keep retirement ages in step with greater longevity. • Promote incentives for older workers to continue working and improve employment training and retraining programs to better serve older workers. 

• Encourage financial product innovation that help older Americans preserve and 

protect their retirement incomes and assets: 

• Support and encourage the continued sponsorship of retirement plans with 

risk-protection features, such as lifetime income options. • Support development of more products that include combining income and 

long term care. • Support development of longevity insurance. 

• Educate women of all ages about financial products, financial planning and saving: 

• Encourage employers to offer meaningful and appropriate financial education 

programs and assistance. • Government and foundations should act together to support community efforts of non-profit aging organizations to offer financial education, particularly 

those programs that target at-risk populations. WISER works with n4a, the 

National Association of Area Agencies on Aging as well as the National Council on Aging’s Economic Security Initiative model that works well. We need 

to promote these programs that are successful on a larger scale. 19

• We know Americans are not saving enough; now we need to direct more resources to getting them the information, tools, and services we know can help 

and that can make a real difference in their retirement savings. 

CONCLUSION

Mr. Chairman, thank you for including women’s retirement issues as part of the 

broader discussion on retirement savings adequacy. As we hope our testimony has 

pointed out, women are at a particularly high risk for poverty in retirement, and 

there are a series of policy options that can help greatly avoid this outcome. We 

need to make it easier for people and give them some level of confidence that they 

can do this or they just throw their hands in the air and say I will never have $2 

million so what is the point. The point is that a little can go a long way and we 

know that women need confidence to build on their financial knowledge and make 

better decisions. 

Finally, there is no single solution to these issues. We need to start understanding 

what the specific challenges are to certain segments and target those segments with 

a wide range of solutions from financial education, to guaranteed income product 

design, policy changes and other innovations. There are millions of workers who 

want to save and do not have access to any plan and do not know how to set up 

an IRA on their own—it is a very complicated process when you don’t speak the 

financial jargon. 

Most of all, we need to continue to build on what is working and make it better. 

While there are endless discussions in Washington about what the correct solution 

is, millions of Americans are just trying to achieve financial stability. 

The CHAIRMAN. Thank you very much, Ms. Hounsell. 

Now, Dr. Madrian. 

STATEMENT OF BRIGITTE C. MADRIAN, AETNA PROFESSOR OF 

PUBLIC POLICY AND CORPORATE MANAGEMENT, HARVARD 

KENNEDY SCHOOL, CAMBRIDGE, MA 

Ms. MADRIAN. Thank you for the opportunity to speak to you 

today and share my thoughts on how we can strengthen America’s 

retirement savings system. I am Brigitte Madrian, the Aetna Pro-
38 

fessor of Public Policy and Corporate Management at the Harvard 

University John F. Kennedy School of Government, and I have 

spent the last 15 years studying employer-sponsored savings plans 

and the types of policy interventions and plan design features that 

can improve savings outcomes. 

There is much concern in both academic and policy circles about 

whether our current private defined contribution retirement savings system can adequately meet the retirement income needs of 

individuals. Although the current system has several shortcomings, 

there are several sensible steps that can be taken to improve outcomes for individuals without substantially increasing the costs or 

risks to employers. 

My early research on automatic enrollment documented how 

small changes in plan design can have a large impact on savings 

outcomes. This research provided the impetus for the measures incorporated in the Pension Protection Act of 2006 that encourage 

employers to adopt automatic enrollment as part of their employersponsored savings plans. There are many other measures that can 

further strengthen the private defined contribution saving system 

in the United States. In my remarks, I will highlight four shortcomings of the current system and suggest potential avenues for 

change. 

The first shortcoming of the current system is participation. Less 

than half of private-sector workers participate in an employer-sponsored retirement plan. Low participation is a particular problem for 

employees in small firms, many of which do not even offer a savings plan. Policy initiatives that encourage and facilitate the automatic savings of employees in small firms are a key step to improving outcomes in a defined contribution retirement system. 

Two such proposals are the widely endorsed automatic IRA and 

the U.S. Senate HELP Committee’s USA Retirement Funds. Both 

would create a simple and low-cost mechanism for small employers 

to make contributions to retirement savings accounts for their employees through a payroll deduction. 

The second shortcoming of the current system is that those workers who do participate in a defined contribution retirement savings 

plan too often have contribution rates that are too low. Savings 

plans need to be structured to encourage higher participant contributions. Let me suggest three easy ways to do so. 

No. 1, change the structure of the employer match. A typical savings plan employer match is 50 percent, up to 6 percent of pay. 

Such a match costs the employer 3 percent of pay for employees 

contributing 6 percent or more to the plan, and gives employees an 

incentive to save 6 percent of pay. Consider instead a match of 30 

percent, up to 10 percent of pay. This would cost the employer 3 

percent of pay for every employee contributing at or above 10 percent to the plan, but this match gives employees a financial incentive to save at least 10 percent of pay but at no increased cost to 

the employer. 

No. 2, encourage employers to adopt a higher default contribution rate under automatic enrollment. The widespread adoption of 

automatic enrollment following the Pension Protection Act of 2006 

has been a clear victory for public policy. But the typical default 

contribution rate is 3 percent, a rate that falls well short of what 
39 

most need to save for retirement. Yet we know from extensive research that many employees will persist at the default. The solution is easy. Set a higher default contribution rate. 

One concern is that a higher default contribution rate will encourage more employees to opt out of savings plan participation altogether. In my own research, I have found that few employees object to higher automatic enrollment default contribution rates of 5 

or 6 percent in companies that match at least to that level. 

No. 3, more aggressive automatic contribution escalation. Even 

though the Pension Protection Act automatic contribution increase 

baseline calls for a 1 percent increase in contribution rates each 

year, there is no reason that employers could not escalate employee 

contribution rates more quickly, say at 2 percent or even 3 percent 

a year. Research shows that few employees opt out of contribution 

escalation even with more aggressive annual increases. 

Note that these three approaches to increasing employee contributions are not mutually exclusive, and indeed a combination of 

these approaches could be particularly powerful. 

A third shortcoming of the current system is leakage. Many individuals take money out of their account before retirement for other 

purposes. This is a serious problem and one that has been largely 

under the radar screen. Recent studies by the GAO, the employees 

at the Federal Reserve and the IRS, and by the private company 

Hello Wallet, all estimate that there is a sizable amount of leakage 

from the retirement savings system most significantly due to preretirement cash distributions after employees change jobs. Moreover, survey results from Fidelity Investments and the Boston Research Group find that 55 percent of employees who have taken a 

pre-retirement cash distribution from their defined contribution 

savings plan later regret having done so. 

The reality is that defined contribution savings plans are not 

used solely to fund retirement. For many, they serve as an all-purpose savings vehicle. Because of this, the recommended contribution rate to these accounts should reflect not only what is needed 

to successfully fund retirement but what will in all likelihood be 

withdrawn from the plan before retirement as well. This suggests 

that policy should either encourage contribution rates that are 

above those needed solely to fund retirement, or policy should limit 

the extent to which individuals can take pre-retirement distributions from these accounts. 

A final shortcoming of the current system is that most employer 

savings plans do not offer employees an easy way to transform 

their retirement wealth into retirement income through an 

annuitization option. If retirees want an annuitized income stream, 

above and beyond Social Security, they are left to contend with the 

private market on their own, trying to evaluate a product with 

which they have little experience and whose purchase will consume 

a substantial fraction of their wealth. The end result is that 

annuitization rates are very low. 

Employers provide several valuable services to their employees 

when it comes to the investment options in their savings plans. 

They evaluate the many available alternatives and select a few options that are best suited to their employees’ needs, and they are 

able to offer employees lower-cost investment options than the em-
40 

ployees would have access to individually through economies of 

scale. Having employers perform the same function for retirement 

income options would be a valuable service to many current and 

former employees, but employers currently have little incentive to 

do so. 

Our defined contribution retirement system is not perfect, but 

there are several things we can do to make it substantively better. 

In conclusion, first we can increase coverage by creating an easy 

and low-cost mechanism for small employers to use so that employees at these firms can benefit from the ease of payroll deductions 

to fund their retirement savings account. Second, we can encourage 

employers to structure their savings plans in ways that promote 

higher employee contribution rates. Third, we can limit leakage 

from retirement savings plans. And fourth, we can encourage the 

adoption of in-plan annuity options. Thank you. 

[The prepared statement of Ms. Madrian follows:] 

PREPARED STATEMENT OF BRIGITTE C. MADRIAN

IMPROVING INDIVIDUAL RETIREMENT SAVINGS OUTCOMES IN DEFINED CONTRIBUTION

SAVINGS PLANS

SUMMARY

There is much concern in both academic and policy circles about whether our current private defined contribution retirement savings system can adequately meet 

the retirement income needs of individuals. Although the current system has several 

shortcomings, there are sensible steps that can be taken to improve outcomes for 

individuals without increasing the costs or risks to employers. 

1. Increase the Coverage of Employer-Sponsored Retirement Savings 

Plans. Policy initiatives that encourage and facilitate the automatic savings of employees in small firms are a key step to increasing participation and improving outcomes in a defined contribution retirement savings system. Two such proposals are 

the widely endorsed Automatic IRA and the U.S. Senate HELP committee’s USA 

Retirement Funds. Both would create a simple and low-cost mechanism for small 

employers to make contributions to retirement savings accounts for their employees 

through payroll deduction. 

2. Increase Employee Retirement Savings Contributions. There are three 

easy ways to increase employee retirement savings contributions. First, encourage 

employers to structure their match to reward higher employee contribution rates, 

e.g., with a match of 30 percent up to 10 percent of pay rather than 50 percent up 

to 6 percent of pay. The cost to the employer is the same for employees who contribute at or above the match threshold, but the former gives employees an incentive to save 10 percent, while the latter only gives them an incentive to save 6 percent. Second, encourage employers with automatic enrollment to adopt a higher 

automatic enrollment default contribution rate (e.g., a 6 percent default rather than 

a 3 percent default). Third, encourage employers to be more aggressive in using 

automatic contribution increases. These are not mutually exclusive options, and in 

fact are likely to be quite effective when used together. 

3. Reduce the Impact of Leakage from the Retirement Savings System. 

Defined contribution savings plans are not used solely to fund retirement; for many, 

they serve as an all-purpose savings vehicle that is frequently tapped before retirement for other reasons. Policy should either encourage contribution rates that are 

above those needed solely to fund retirement, or policy should limit the extent to 

which individuals can take pre-retirement distributions from these accounts. 

4. Turning Retirement Wealth into Retirement Income. A defined contribution retirement savings system should include mechanisms that make it easy for 

employees to convert at least some of their retirement wealth into a secure lifetime 

income stream. 

There is much concern in both academic and policy circles about whether our current private defined contribution retirement savings system can adequately meet 

the retirement income needs of individuals. Although the current system has several 
41 

1 Alica Munnell (2012). ‘‘401(k) Plans in 2010: An Update from the SCF.’’ Center for Retirement Research Working Paper Number 12–13 (July 2012). http://crr.bc.edu/wp-content/ 

uploads/2012/07/IBl12–13.pdf, accessed January 29, 2013. 2See J. Mark Iwry and David John (2009), ‘‘Pursuing Universal Retirement Security through 

Automatic IRAs.’’ Retirement Security Project Working Paper 2009–3, http://www.brookings 

.edu//media/research/files/papers/2009/7/automatic%20ira%20iwry/07lautomaticliral 

iwry.pdf, accessed January 29 2013, and U.S. Senate Committee on Health, Education, Labor, 

and Pensions (2012), ‘‘The Retirement Crisis and a Plan to Solve It,’’ http://www.harkin.senate. 

gov/documents/pdf/5011b69191eb4.pdf, accessed January 29, 2013. 

shortcomings, there are sensible steps that can be taken to improve outcomes for 

individuals without increasing the costs or risks to employers. 

INCREASING THE COVERAGE OF EMPLOYER-SPONSORED RETIREMENT SAVINGS PLANS

The first shortcoming of the current system is participation: less than half of private sector workers participate in an employer-sponsored retirement plan.1 This is 

not such a big problem in medium and large firms. Most such firms offer a retirement savings plan and have been quick to adopt automatic enrollment so that participation rates are relatively high. It is a much bigger problem in small firms which 

are less likely to offer a retirement savings plan and, if they do, are much less likely 

to use automatic enrollment. 

Policy initiatives that encourage and facilitate the automatic savings of employees 

in small firms are a key step to increasing participation and improving outcomes 

in a defined contribution retirement savings system. Two such proposals are the 

widely endorsed Automatic IRA and the U.S. Senate HELP committee’s USA Retirement Funds.2 Both would create a simple and low-cost mechanism for small employers to make contributions to retirement savings accounts for their employees 

through payroll deduction. 

INCREASING EMPLOYEE RETIREMENT SAVINGS CONTRIBUTIONS

The second shortcoming of the current system is that those workers who do participate in a defined contribution retirement savings plan too often have contribution rates that are too low. Savings plans need to be structured to encourage higher 

participant contributions. Let me suggest three easy ways to do so. 

(1) In most defined contribution savings plans, employees designate their contributions as a percent of pay. In these plans, the contribution rates that employees 

choose tend to be either multiples of 5 (e.g., 5 percent, 10 percent or 15 percent), 

the rate that maxes out the employer match, or the maximum rate allowed by the 

plan. In most plans, the most popular contribution rate is the match threshold, the 

rate that maxes out the employer match. This makes the match threshold an important lever in determining how much employees save. 

A typical savings plan employer match is 50 percent up to 6 percent of pay. Such 

a match costs the employer 3 percent of pay for every employee contributing at or 

above the 6 percent match threshold and gives employees a financial incentive to 

save at least 6 percent of pay. 

Consider now a match of 30 percent up to 10 percent of pay. Such a match would 

cost the employer 3 percent of pay for every employee contributing at or above the 

10 percent match threshold. This match gives employees a financial incentive to 

save at least 10 percent of pay but at no increased cost to the employer. 

Encouraging employers to change the structure of their employer match to provide 

a financial incentive for employees to save more is an easy way to increase employee 

retirement savings plan contributions. 

(2) Encourage employers to adopt a higher default contribution rate under automatic enrollment. The typical automatic enrollment default contribution rate is 3 

percent. For most people, this falls well short of what they need to save to fund 

their retirement, yet we know from extensive research that many employees will 

persist at the default. The solution is easy—set a higher default contribution rate. 

One concern that employers voice about doing so is that a higher default contribution rate will encourage more employees to opt-out of savings plan participation altogether which would circumvent the primary goal of automatic enrollment which 

is high participation. In my own research, I have found that few employees object 

to higher automatic enrollment default contributions rates of 5 percent or 6 percent 

in companies that match at least to that level. 

(3) More aggressive automatic contribution escalation. The Pension Protection Act 

of 2006 provides a non-discrimination testing safe harbor for plans that adopt automatic enrollment with a 3 percent default contribution rate in conjunction with 

automatic contribution escalation of 1 percent a year until employees are saving at 
42 

least 6 percent of pay. A more aggressive approach would be an initial default of 

5 percent or 6 percent of pay coupled with automatic contribution escalation of 1 

percent a year until employees are saving 10 percent. If employees don’t opt out of 

these defaults, the latter approach would generate 67 percent more in retirement 

wealth accumulation than the Pension Protection Act baseline. Even though the 

Pension Protection Act automatic contribution increase baseline calls for a 1 percent 

increase each year, there is no reason that employers could not escalate employee 

contributions more quickly, say, at 2 percent or even 3 percent a year, always allowing employees to opt out to a slower rate of escalation or none at all if a 2 percent 

of 3 percent increase seems beyond their reach. Research shows that few employees 

opt out of contribution escalation even with more aggressive annual increases, and 

this can be a very effective way to quickly move employees to a contribution rate 

that could reasonably be expected to meet their retirement income needs. 

Note that the combination of these approaches could be particularly powerful. 

Suppose that a company adopted a match of 30 percent of contributions up to 10 

percent of pay in combination with automatic enrollment with a default contribution 

rate of 6 percent along with automatic contribution increases of 2 percent a year 

up to 10 percent of pay. In their first 2 years on the job, new employees who persist 

at the default would move from saving 6 percent to 8 percent to 10 percent of their 

own pay; moreover, they would have a financial incentive through the employer 

match to want to reach a savings rate of at least 10 percent of pay; if you layer 

the employer match on top of this, their total savings, including the employer 

match, would increase from 7.8 percent to 10.4 percent to 13 percent of pay in their 

first 2 years. In contrast, an employee at a firm with a typical match of 50 percent 

up to 6 percent of pay and with automatic enrollment and automatic contribution 

increases that comply with the Pension Protection Act minimum standards would 

only reach a much lower maximum combined employee/employer contribution rate 

of 9 percent of pay after 3 years on the job. 

REDUCING THE IMPACT OF LEAKAGE FROM THE RETIREMENT SAVINGS SYSTEM

A third shortcoming of the current system is leakage: many individuals take 

money out of their account before retirement for other purposes, and that money 

is subsequently not available to fund retirement. This is a serious problem and one 

that has largely been under the radar screen. Recent studies by the GAO, by employees at the Federal Reserve and the IRS, and by the private company Hello Wallet, all estimate that there is a sizable amount of leakage from the retirement savings system, most significantly due to pre-retirement cash distributions after employees change jobs. Moreover, survey results from Fidelity Investments and the 

Boston Research Group find that 55 percent of employees who have taken a preretirement cash distribution from their defined contribution savings plan later regret having done so. 

The reality is that defined contribution savings plans are not used solely to fund 

retirement; for many, they serve as an all-purpose savings vehicle that is frequently 

tapped before retirement for other reasons. Because of this, the ‘‘recommended’’ contribution rate to these accounts should reflect not only what is needed to successfully fund retirement, but what will in all likelihood be withdrawn from the plan 

before retirement as well. Retirement savings calculators designed to help individuals determine how much they need to save for retirement will understate how 

much actually needs to be saved if the calculators don’t account for the fact that 

some portion of the money that is contributed will in fact be withdrawn and unavailable at the time of retirement. 

This suggests that policy should either encourage contribution rates that are 

above those needed solely to fund retirement, or policy should limit the extent to 

which individuals can take pre-retirement distributions from these accounts. 

TURNING RETIREMENT WEALTH INTO RETIREMENT INCOME

A final shortcoming of the current system is that most employer savings plans do 

not offer employees an easy way to transform their retirement wealth into retirement income through an annuitization option. If retirees want an annuitized income 

stream, they are left to contend with the private market on their own, trying to 

evaluate a product with which they have little experience and whose purchase will 

consume a substantial fraction of their wealth. The end result is that annuitization 

rates are very low. Employers provide several valuable services to their employees 

which it comes to the investment options in their savings plans: they evaluate the 

many available alternatives and select the few options that are best suited to their 

employees’ needs, and they are able to offer employees lower cost investment options 

than the employees would have access to individually through economies of scale. 
43 

Having employers perform the same function for retirement income options would 

be a valuable service to many current and former employees, but employers currently have little incentive to do so. 

CONCLUSION

Our defined contribution retirement savings system is not perfect, but there are 

several things we can do to make it substantively better. First, we can increase coverage by creating an easy and low-cost mechanism for small employers to use so 

that employees at these firms can benefit from payroll deductions that go straight 

into a retirement savings account. Second, we can encourage employers to structure 

their savings plans in ways that promote higher employee contribution rates. Third, 

we can limit leakage from retirement savings plans. And fourth, we can encourage 

the adoption of in plan annuitization options. 

The CHAIRMAN. Thank you, Dr. Madrian. 

I’ll start a round of 5-minute questions. 

Dr. Madrian, I just want you to know that we are looking at the 

whole leakage problem, and this is something that I have become 

more and more aware of, and hopefully this committee will be looking at this shortly. 

Let me just ask you, though, in this plan that we rolled out last 

year, this USA Retirement plan, a key open issue is what the contribution rate should be. Those who have been working and developing this plan thought about it not like a Social Security, where 

it’s an even match between employer and employee. This is mostly 

on employees to put in a contribution with some very low threshold 

employer match, and then allowing an employer to raise that 

match if they want to as an employment incentive. 

One employer might provide 1.5 percent, and another employer 

might say, ‘‘Well, if you come to work for me, we will do 2.5 percent.’’ You could use that as an employment incentive for employers. 

But have you ever thought about what, if we move ahead in this 

area, what should the contribution rate be when we default people 

into the plan? 

Ms. MADRIAN. That’s an excellent question, and I would encourage the committee to think not in terms of a single default contribution rate but perhaps differentiated alternatives. When Senator Alexander was talking about the small restaurant chain, my 

guess is that a lot of the employees working at companies like that 

are younger. They are teenagers. It’s their first job. And for them 

a lower contribution rate might make sense, 3 percent of pay, 5 

percent of pay. Whereas if you are looking at someone who is a bit 

older and this is their full-time job and they are going to be working there for a while, the appropriate default contribution rate for 

them might be substantially higher. 

We know from investor psychology that individuals, when they 

think about saving, think in terms of round numbers, multiples of 

five, 5 percent of pay, 10 percent of pay, 15 percent of pay. I think 

those are benchmarks that individuals can easily get their hands 

around. It might be worth thinking about something lower, 5 percent for younger workers; something higher, maybe 10 percent, for 

older workers. 

The CHAIRMAN. I understand, but keep in mind we are trying to 

make this as simple as possible. 

[Laughter.] 

Ms. MADRIAN. And I am a big fan of simplicity. 
44 

The CHAIRMAN. OK. I hear you. I understand that. 

A question for you, and I will just ask everyone else here, we 

sometimes hear the argument that automatic enrollment doesn’t 

really boost savings because people make up for the lost disposable 

income by reducing other forms of savings. Have any of you looked 

at whether or not automatic enrollment crowds out other forms of 

savings? 

Ms. MADRIAN. I have been trying to do a study that would answer this question for years, and it’s really hard to get the data to 

do that well. The little evidence that we have suggests that to the 

extent there is crowd out, it probably isn’t that big. I have a former 

graduate student who has done some research on savings behavior 

by members of the military and the Thrift Savings Plan, and he 

finds that financial education programs that have substantially increased savings in the TSP have had no adverse impact, for example, on the amount of credit that military members have outstanding. He is finding no crowd out there. 

There is a study by my colleagues John Friedman and Raj 

Chetty at Harvard looking at Denmark, where you can get much 

better data. The Scandinavians aren’t so concerned about privacy. 

When they look at automatic savings programs, they find very little crowd out on other parts of the balance sheet either. 

I think it is a legitimate concern, but I think most of the evidence out there suggests that certainly it’s not a one-for-one offset. 

The CHAIRMAN. Any other thoughts on the crowd out at all, Ms. 

McCarthy? 

Ms. MCCARTHY. Yes. We don’t have research to support it because I think the complexity of getting at that, what’s happening 

outside the plan, is difficult. But I think what is really important 

on the automatic enrollment is recognition of the significant impact 

it has in getting participants actually into the plan. 

Our enrollment rate, participation rate across our customers is 

67 percent. With automatic enrollment, it is 88 percent. It is a 

very, very powerful distinction that in and of itself is so dramatic 

that it’s hard for me to think it is creating a big distraction with 

other savings vehicles. 

The CHAIRMAN. Ms. Hounsell, before my time is up, quickly, a lot 

of people who don’t have traditional 40-hour-per-week jobs, parttime workers, temporary workers, caregivers, what do we need to 

do to make sure that people with non-traditional employment arrangements have access, easy access to a retirement plan? 

Ms. HOUNSELL. I think we need options and opportunities for 

people to save at work. A lot of part-time workers are just not eligible for benefits, and it has been true—I don’t know that that is 

ever going to change. I don’t think requiring employers to do that— 

tax lawyers tell me all the ways you can fudge those rules. I just 

think we need ways for people wherever they work to save, and we 

don’t have that for half the workforce. 

The CHAIRMAN. OK. Again, that is something we are looking at 

in developing this USA Retirement Fund, make it simple, make it 

easy so that there is not a burden on employers for part-time employees or employees that come in and out of the system all the 

time, where the employer would not have a fiduciary responsibility, 
45 

would not have to operate a plan or anything like that. Any other 

advice you have on that, please let us know. 

Ms. HOUNSELL. We look forward to seeing the plan. 

The CHAIRMAN. Senator Alexander. 

Senator ALEXANDER. Mr. Chairman, since Senator Enzi has been 

working on this with you for a while, I would like for him to have 

the first questions. 

The CHAIRMAN. Sure. 

STATEMENT OF SENATOR ENZI

Senator ENZI. Thank you, Mr. Chairman, and thank you for 

working on this. It really is important. I want to thank the panel 

for their tremendous suggestions. Your testimony is just packed 

with ideas, and that has led to a lot of questions which are of a 

more technical nature than I will attempt while doing my questions. 

I appreciate the emphasis on auto enrollment versus perhaps a 

mandate, and I appreciate the comments too about the schools 

needing to do financial literacy. I have looked at a number of 

schools to see what they are doing, and I am very disturbed that 

when they provide them with the money that they are going to 

learn to budget, they leave out the fact that their Social Security 

and Medicare are taken out and the possibility of any kind of savings that they might add to that. So I am hopeful that that will 

change. 

For Dr. Madrian and Ms. McCarthy, have you done anything on 

the plans whether it would make a difference if the deferred 

amount was a 401(k) versus a Roth? Would that make a difference 

in this auto enrollment and contribution? 

Ms. MADRIAN. The limited research that I have done on regular 

versus Roth savings accounts suggests that people behave very 

similarly in both types of savings plans, which suggests that the 

Roth option might actually lead to higher levels of long-run wealth 

accumulation because the taxes have been taken out on the front 

end. 

But truthfully, we need much more research into that question. 

Senator ENZI. Ms. McCarthy. 

Ms. MCCARTHY. I would agree with that, Senator Enzi. It is a 

very good question. We haven’t done extensive research. We are 

seeing powerful results with both the Roth IRA, the Roth plan and 

the ability that that provides for incremental savings coupled with 

auto, but I don’t have distinctive research at this point. 

Senator ENZI. OK. Well, I am hoping both stay in effect as possibilities. 

One of the things I really am concerned about is the amount of 

regulation that we have and the possibility for liability when they 

are doing that. Those are the two things that small businessmen 

tell me are the things that keep them from going into this. 

I am an accountant. I used to do the accounting for primarily 

401(k), and then do the fairness testing, and that gets into whether 

the top executives are getting paid more and saving more versus 

the other people. 
46 

Do you have any suggestions for ways that the regulations could 

be made simpler perhaps for particularly small business? Mr. 

Moslander, I think you were relating to some of that. 

Mr. MOSLANDER. Certainly, regulation is a difficult thing for employers to deal with, especially around fiduciary responsibility. I 

think one of the more creative and perhaps—it could have unintended positive consequences, lifting the fiduciary burden from the 

employer and putting it elsewhere. I think it might lead to portability possibilities that are difficult today for people to manage 

who change jobs. But the fiduciary responsibility, if we could somehow ease that, simplify it, even lift it from the employer, that 

would go a long way toward simplifying the ability of employers to 

provide for the plans, and also simplifying portability by participants. They might not cash out those benefits the way they do 

today when they terminate employment if it were easier for those 

benefits to be portable. 

Senator ENZI. I really appreciate the portability. 

Does anybody else want to comment on the regulations? 

Ms. MCCARTHY. If I could just add, simplification is key in every 

aspect of this conversation from a regulatory perspective. Our experience shows that in smaller plans, as you are pointing out, their 

adoption is very often avoided as a result of the regulatory requirements. So I think look at safe harbors and how to simplify those, 

and look at the fiduciary responsibilities. The disclosures are often 

very onerous, and it all drives costs for the employer, which will 

cause them to step back and not offer the benefit. 

Simplicity, there is a very real opportunity there, I think, without walking away from the importance of the goals looking to be 

achieved with the regulations. 

Senator ENZI. Anyone else? 

[No response.] 

I also have a bill that would allow pooling of small businesses so 

they can have one administrator for a number of them. I mean, it 

is still individual accounts, and that’s what allows the portability 

if they move to a different job, which improves the enhancement 

of this. Senator Kohl and I also have a bill that deals with some 

of the leakage problems so that people have an opportunity to put 

it back in, particularly if they leave one business. 

My time has expired. I thank the Chair. 

The CHAIRMAN. Thank you very much, Senator Enzi. 

I’m sure I needn’t tell you all this but Senator Enzi was chair 

of this committee and shepherded through the Pension Protection 

Act. He is one of our resident experts on this whole issue. I’m delighted to have him as a partner in this effort. 

As you know, we recognize people in order of appearance here. 

So it will be Senator Warren, and then back to Senator Alexander, 

Senator Murphy, Senator Isakson, Senator Baldwin, Senator Burr, 

Senator Franken, and then Senator Casey, in that order. 

I recognize Senator Warren. 

STATEMENT OF SENATOR WARREN

Senator WARREN. Thank you very much, Mr. Chairman. I want 

to offer my thanks to the panel. Thank you very much, Ms. 

Hounsell, for the work you are doing in education, for all of you, 
47 

the commitment that the companies have made in trying to educate clients, and the work you have done in research. 

I read your testimony. I agree with Senator Enzi. It is full of 

good ideas, good thoughts, primarily based around how we might 

do better with employer-sponsored plans and pulling people in. I 

went through all of them, the notion of changing opt out, increasing the default amount, the pre-commitments to growth, and your 

very creative plan, Dr. Madrian, of changing how the employer calculates the incentive to get people to stay in. 

But I also notice in your testimony that you all, to one extent or 

another, talk about incentivizing the employers or encouraging the 

employers. I notice the different verbs we use. I am mindful of Senator Alexander’s point that, on the one hand, we could require the 

employers to participate. Senator Alexander says that this creates 

complications for small businesses. 

So the question I really have is can you fill in that part of what 

you are talking about in your testimony? We don’t have employees 

who will participate in these plans if we don’t have employers who 

are offering these plans. How do we get more employers to offer 

these plans? What are the options available to us, and how effective will they be? 

Ms. McCarthy, would you like to start? 

Ms. MCCARTHY. Yes, thank you. I think it comes down to the discussion we had around simplification, because for smaller employers, one of the biggest inhibitors is the cost of administration and 

the fiduciary responsibility and complexity that goes along with administering the plans. If we can streamline some of the requirements and accountability of them, I think we would naturally have 

better adoption. Then when you get into the actual experience, 

there are ways to offer very simple plans that reduce the administrative costs as well. 

Senator WARREN. Dr. Madrian. 

Ms. MADRIAN. Yes, let me completely agree with that. I think 

there needs to be a very simple option for employers that needs to 

have no regulatory requirements, very minimal regulatory requirements, limited fiduciary responsibility, something simple and 

straightforward. Then to the extent that you can piggyback that 

with something else that employers are already doing so it doesn’t 

add an administrative burden, that would also help. 

For example, if small employers are filing their tax payments on 

behalf of their employees quarterly, couple the contributions to the 

savings plan with what they are already doing to pay their quarterly taxes instead of instituting another regulatory requirement 

that they need to do these contributions in some other way, shape, 

or form at some other point in time. Anything to minimize the administrative burden and the regulatory burden will be extremely 

helpful. 

You could also think about providing a modest tax incentive to 

companies if they offer savings plans, or if you offer the savings 

plan, we will give you a break on your employer taxes. 

Senator WARREN. Very valuable. 

Mr. Moslander. 

Mr. MOSLANDER. I would agree with everything that Julia and 

Brigitte said. The art of regulation, if you would, I think is impor-
48 

tant. Out of the Pension Protection Act, I just saw the auditing and 

reporting requirements, which are probably very good things. But 

we also added fee disclosure which, at the plan sponsor level, was 

malleable, at the participant level was the opposite of that. We all 

spent a lot of money and a lot of time and a lot of energy to mail 

out and send out fee disclosure information to participants who, in 

the first place, are minimally engaged in the plan. They are not 

going to be interested in the expense ratio of every fund that is offered under that plan. 

That was the kind of regulation well intended, but in the end it 

really didn’t have the impact that it was designed to have. Trying 

to manage necessary regulation, regulation that is really not going 

to have a big impact, just echoing what Julia and Brigitte said, is 

an important part. 

Senator WARREN. Ms. Hounsell, is this going to get us there, by 

making the plans simpler? 

Ms. HOUNSELL. I think so. I think it will make a big difference 

for people. 

Senator WARREN. Very valuable. Thank you very much. I appreciate it. 

The CHAIRMAN. Senator Alexander. 

Senator ALEXANDER. I would like to continue with Senator Warren’s line of questioning because I think it is very, very helpful. I 

remember, when I ran for office to be the Governor of Tennessee, 

I walked across the State many years ago. When I was out there 

with nobody to talk to but cows that were along the road, I was 

thinking that if I got elected, what if I could make a tax form or 

some sort of list that I could hand to somebody who wanted to start 

a business and say, from the State’s point of view, this is everything we care about. These are all the taxes, all the regulations, 

all the rules, a complete list of them. If you do all these things, you 

don’t have to worry about the State anymore. Of course, when I got 

into office, I never was able to do that. 

Simplicity I think is pretty big here. We have seen that a law 

that was passed a few years ago taught us some things about the 

value of a default position—about auto enrollment, about automatic 

escalations, and we know that financial literacy is not at a high 

level among a lot of us. These things can get very confusing. We 

don’t want to take anyone’s freedom away to make his or her own 

decision about this, but the automatic enrollment or automatic 

changes or default positions that better reflect the reality of what 

an individual needs to be saving seems to me to be one very promising further step we could take. We could use your advice about 

what that one step should be. 

I am very intrigued by this simple form, because that is exactly 

what I am thinking is needed, and I wonder what would happen 

if I invited you to write it for us and submit it to us. I mean, let’s 

say you are about to go into business and you are looking at what 

you need to do. Dr. Madrian, this is what you do. You study all this 

stuff. You have done it for 20 years. You know what’s going on better than we do. Why don’t you write for us a simple plan that we 

could put into law? So if I’m starting a business or I have a small 

business, I am already paying my FICA taxes, paying the minimum wage, I’m worried about the healthcare law, and somebody 
49 

says to me, ‘‘Why don’t you do something about retirement?’’ I’m 

going to say, I might not make any money this year. 

But if it’s so simple that I could do it and it was good for my employees and good to do, maybe we could make it a pilot program. 

We don’t have to do it for everybody in the whole country at once. 

We could take a simple plan and start a pilot program. 

So I would invite each of you, if you would like to, to submit to 

me, or to us, your idea of a simple plan. Submit anything you can 

think of to get free of burdensome regulation and still make it responsible and that would encourage an enterprise to offer a voluntary plan that would promote the savings levels that you think 

are appropriate. 

Now, I would like to ask one question about that. If you were to 

create a simple plan, would you do it for any business, or would 

you do it for a small business? And if so, how would you define the 

enterprise that you would do such a thing for? Does anyone have 

a response? 

Ms. MADRIAN. I’ll start out by saying I’m going to go back to my 

class next Monday and I’m going to give them your challenge, and 

we’ll see what they can come up with. 

Senator ALEXANDER. I’m quite serious. They are likely to come 

up—— 

Ms. MADRIAN. They are likely to come up with some excellent 

ideas. 

Senator ALEXANDER. Give them the idea of, say, look, you’re 

going into business and you’ve got a lot of other things to do. How 

would you do this? That would be very helpful to us. 

Ms. MADRIAN. Last year the CFPB held some sort of a competition—Senator Warren would know better about this—to redesign 

the mortgage disclosure forms, enlist the great thinkers in society 

interested in—— 

Senator ALEXANDER. If the Consumer Financial Protection Bureau would actually do that, it would double my—it would increase 

my appreciation of the agency. 

[Laughter.] 

Which is not very high right now. 

[Laughter.] 

But the mortgage disclosure form is a good example of what we 

are talking about. All of these regulations are well-intended. I 

mean, we don’t sit up here and say we want to do something bad 

to somebody. We all have good ideas, but they pile up, and then 

when you’re down here getting a loan, anybody who gets a mortgage loan knows it’s absurd. Nobody reads it. Nobody can read it 

or understand it. You really have less disclosure because of more 

regulation. 

So rather than complain about the regulation, let’s just start 

from scratch and say what could we do. Let’s followup Senator 

Warren’s comments, and mine, and that of others here. All of you 

seem to think simplicity makes a big difference, and I’m sure that’s 

true. 

Any comments on any of that by any of you? 

Ms. MCCARTHY. Thank you for the opportunity. We look forward 

to it. We have a lot of good ideas. We will bring them forth. 

The CHAIRMAN. Thank you very much, Senator Alexander. 
50 

And now Senator Murphy. 

STATEMENT OF SENATOR MURPHY

Senator MURPHY. Thank you very much, Mr. Chairman. What an 

important hearing. Just one quick thought, and then one or two 

questions. 

To my mind, the most important barrier to savings is not simplicity or regulation. It’s stagnant wages. The fact is that the average worker is making 4 percent less in real wages than they were 

in 1970. They haven’t had any gains since 2005. Meanwhile, all 

sorts of other costs are going up. Healthcare went from 8 percent 

of your budget to 18 percent of your budget in the last 40 years. 

It’s tough to save if you don’t make any more than you did 10 or 

20 years ago. 

I know we are not going to tackle that in the context of a bill 

on pensions, but I just think it’s worth noting that if Congress 

doesn’t tackle the issue of stagnant wages, there’s not a lot we can 

do around the edges to try to make money appear out of nowhere. 

That being said, younger generations today still think they are 

living in their parents’ world. I mean, they still think that if they 

go to work, that they’re just going to end up getting taken care of. 

They probably rely too much on Medicare and Social Security, but 

I think they also just don’t understand how much the obligation 

has now shifted to them. 

Mr. Moslander, I was really glad that you brought up the Lifetime Income Disclosure Act. This is a bill that Senator Isakson and 

Senator Bingaman supported. I’m hopeful to join you, Senator, this 

session in reintroducing it. But I just wanted to ask you to followup 

on your support for that piece of legislation, because this is a pretty 

innovative idea to just sort of put right in front of workers, especially younger workers, what the true annuity benefit of their savings is. 

I guess I will ask a devil’s advocate question about a bill that I 

support. But given that these forms sort of come to you with lots 

of information already, and a lot of workers don’t pay too much attention to them in the first place, what do we think the confidence 

is that adding another number, which will be a pretty startling 

number, the amount of money you are actually going to get if you 

continue on your current savings trajectory, what kind of confidence do we have that that might actually change people’s savings patterns? 

Mr. MOSLANDER. A couple of things. I’m not sure that young people are as confident that they’re going to be ‘‘taken care of.’’ I think 

there is some skepticism among young people about the viability 

and what there will be in Social Security and the like for them by 

the time they get older. I think there is some research that shows 

that younger people are a little bit more inclined to consider saving 

for retirement. 

At TIAA–CREF, for years and years and years, even before there 

were quarterly statement requirements, we sent people a projection, a statement at the end of each year that projected their income, and it wasn’t important that they looked at it every year. It 

was important that they got it every year. And over time, we believe that presenting them with that income figure, as opposed to 
51 

just an accumulation figure, created a mindset toward lifetime retirement income security. 

One of the reasons we believe we have seen a lot more 

annuitization in the higher education market than you see in the 

profit-making sector, part of it is the products that are used in that 

marketplace, but it is also, we believe, because we presented this, 

and the employers have reinforced the fact that the plan is for retirement income, and this was a reinforcing mechanism as a 

mindset issue more than as an actual—it does help people save 

more, but it also gets them in the mode of thinking this is not 

something I cash out when I’m done. This is something that I receive income from. 

Senator MURPHY. And one additional question to build on this 

line of conversation around simplicity. I think it’s incredibly important, and we have sort of been talking about it with respect to simplicity as it relates to employers. Maybe I will direct this to Professor Madrian. 

What about the barriers to savings from an employee perspective? I mean, it’s dizzying the verbiage surrounding retirement savings today. What do we know about the barriers presented to people who want to put money away when they are confronted with 

this absolute multitude of words and phrases and vehicles that are 

available to them? 

Ms. MADRIAN. Yes, the alphabet soup of retirement savings plan 

options in the United States. You should have come to my class 

yesterday. This is exactly what we talked about. 

I think the big challenge is not so much that people don’t want 

to save, but they don’t know how to do it. It’s a combination of a 

lot of people don’t have really high levels of financial literacy. They 

are not comfortable with choosing. At Harvard University, up until 

a year and a half ago, we had 259 different investment options. 

That’s a lot of choices to sort through if you’re trying to decide how 

to invest your money. 

I think that’s the key reason why automatic enrollment is so successful. Automatic enrollment is the extreme form of simplification. 

You don’t have to do anything if you want to be saving. In fact, the 

action needs to be taken by individuals who don’t want to save. 

They are the ones who have to opt out of the plan. 

The fact that when opt out happens, it happens immediately. It’s 

not like people discover a year later that my employer is taking 

money out of my paycheck, I didn’t want that to happen, I want 

to opt out. That, to me, is indicative of a strong desire for most people to save, and the simplification is really key. Even in plans without automatic enrollment, we found that if you provide a simplified 

option to sign up for the plan, think of a postcard that has a box 

on it that you can check and we’ll enroll you in the savings plan, 

and we’ve picked an investment allocation for you, even initiatives 

like that can substantially increase savings plan participation. 

I think the simplification is key for both the employee and the 

employer. 

Senator MURPHY. Thank you. 

Senator ALEXANDER [presiding]. Senator Isakson. 
52 

STATEMENT OF SENATOR ISAKSON

Senator ISAKSON. Thank you, Senator Alexander. I want to memorialize here publicly, in front of everybody, including those on 

television, that, Senator Murphy, I’m delighted to accept you as the 

replacement for Jeff Bingaman as the lead co-sponsor of the act. 

Senator MURPHY. Looking forward to it. 

Senator ISAKSON. And I appreciate the plug very much. 

I appreciate the comments of Mr. Moslander regarding the drawdown phase, because we are always talking about the accumulation 

phase and beginning the process, but taking the money out the 

wrong way can leave people without any retirement while they’re 

still alive, and I think it’s very important that we focus on that 

education. 

Ms. McCarthy, I want to ask you a question. I think you said in 

your testimony that participants who seek guidance take action 

and have better outcomes. Is that correct? 

Ms. MCCARTHY. Absolutely correct. 

Senator ISAKSON. The Department of Labor the last 2 years, and 

I understand continuing this year, is trying very much to change 

the definition of the term ‘‘fiduciary.’’ Would you give me your opinion on if that change takes place, what effect that would have on 

people getting education in terms of retirement savings? 

Ms. MCCARTHY. Yes. Thank you for the opportunity to talk about 

it. I fear that it would have a very dramatic effect on sponsors or 

partners, vendors, recordkeepers’ ability to provide guidance to participants. We’ve done a tremendous amount of research amongst 

the participants that we service to understand what drives their 

behavior enrolling in the plan, not enrolling in the plan—and one 

of the key dynamics is, again, simplicity, as we’ve been talking 

about; auto enroll has been dramatic; but simply not knowing what 

to do. 

When we think about guidance, guidance really boils down to 

help. It’s as simple as that. The prospect of not allowing providers 

to help participants engage in their plan will, I have confidence, 

have a dramatic impact on this issue we’re talking about today, 

and it won’t be advantageous. 

Senator ISAKSON. I appreciate your testimony very much, because I feel exactly the same way. I think education and transparency is invaluable in people making the right decision for themselves. Every time we put a barrier between them getting that good 

information, we’re causing bad things to happen. That’s not the intent, but that’s the result. 

And that brings me to Ms. Hounsell’s commentary, particularly 

about women, second-career women, divorce and things of that nature. I ran a company for 22 years where all my workers, all my 

salespeople were independent contractors, and I had 1,000 of them, 

and almost all of them were second-career women, divorced women 

or women over 50 years old who came back to have a career in real 

estate out of some life-driven necessity. Most of them had not saved 

or did not have a husband who had saved and were not prepared 

for retirement when it might come, which would be in 10 to 15 

years. 
53 

But because I used independent contractors as salespeople in my 

organization, the IRS prohibition against me providing any information or any help in savings made it impossible for me to help 

them, which brings me to the point of the fiduciary and everything 

else. We probably need a one-page list of all the things that we do 

up here that are negative toward people starting their retirement 

savings either in the tax code and IRS rules and regulations or 

what the Department of Labor might do. 

Those are not the intended consequences, but they are the consequences. They were with me. I finally—and I don’t know if it’s 

still true. The independent contractor test used to be a 10-point 

test at IRS, one of which was you could not provide information, 

vehicles, or anything else. You could direct them to an IRA set, but 

somebody else had to be the administrator and advisor. 

Could you do that for us? With the people you deal with and the 

trials and tribulations you have with people having access to that, 

would you give us a list of all those things that we require that, 

in the end, are negative toward formation of capital savings and retirement? 

Ms. HOUNSELL. I would be happy to do that, but I can’t do that 

off the top of my head now. 

Senator ISAKSON. I know that, but you’re very experienced with 

exactly the type of people we’re concerned about. 

Ms. HOUNSELL. I think what you’re saying is that you actually 

directed people toward some kind of a retirement plan, but you 

weren’t supposed to. 

Senator ISAKSON. No, I didn’t know. 

[Laughter.] 

Ms. HOUNSELL. You didn’t know. OK. 

Senator ISAKSON. I could not direct them to a plan. I could advise 

them they ought to seek information, but I couldn’t give them the 

direction or anything else. I just would tell them, ‘‘You really ought 

to go take care of this.’’ They’d say, ‘‘Can you help me?’’ I’d say, ‘‘I 

can’t.’’ 

Ms. HOUNSELL. Right, and that’s often what helps people get retirement income, because somebody will direct them to what they 

should be doing, especially if they don’t have auto enrollment. 

Senator ISAKSON. The reason I mentioned it, Senator Harkin 

made the statement about non-traditional—I think he called them 

‘‘non-traditional employees.’’ With the Affordable Care Act and 

some of the other things that are happening, there are going to be 

more independent contractors as workers in this country, I think, 

and more part-time workers in this country, and it’s going to be 

more and more difficult with some of the prohibitions that are in 

the law now, and regulation, for them to get the right type of information. 

I thank all of you for your testimony. 

Ms. HOUNSELL. I think that’s important. 

Senator ALEXANDER. Senator Baldwin. 

STATEMENT OF SENATOR BALDWIN

Senator BALDWIN. Thank you. I want to also thank the Chairman and Ranking Member for holding this important hearing, and 

our witnesses for testifying. 
54 

I’m deeply concerned about some of the statistics from my home 

State of Wisconsin, the number of citizens who rely solely on Social 

Security as a source of income once they retire. Figures shared by 

AARP suggest that 28 percent of Wisconsinites who receive Social 

Security have reported that this benefit is their only income, and 

two out of three Wisconsinites age 65 or older reported that Social 

Security makes up more than half of their monthly income. So the 

figures and trends are certainly troubling. 

I also appreciate my colleague, Senator Murphy, for talking 

about some of the issues that we’re not grappling with here today, 

stagnant wages, ET cetera, as we look at the health of our middle 

class. I just think about the hallmarks of middle-class status, and 

one of them in my mind is retirement security. Of course, we’re discussing the fact that that’s in jeopardy for some. 

Ms. Hounsell, I appreciate your testimony. This is the week in 

which we celebrate the fourth anniversary of the signing of the 

Lilly Ledbetter Act into law, and we’re hopeful that that Act, along 

with future legislation that we’re working on, will begin to decrease 

the wage gap that exists between men and women. But until that 

happens, obviously, it’s clear that women earn less, and therefore 

that affects the capability of saving for retirement. 

A report by the Joint Economic Committee released this week, 

chaired by our colleague on this committee, Senator Casey, states 

that for women over 65 years of age, Social Security accounts for 

two-thirds of their total income, while for men over the age of 65 

it’s roughly 54 percent. In your written testimony, you reference 

the importance of the National Education and Resource Center on 

Women and Retirement Planning in educating women on how to 

plan for retirement. It’s a program funded by the Administration 

on Aging. 

It’s my understanding that if sequestration proceeds, the Administration on Aging would see a decrease in its discretionary budget 

of about $121 million in 2013 alone. So I wonder if you can discuss 

generally the importance of this program in promoting retirement 

savings and whether you believe or have heard that sequestration 

would have an impact on the initiative. 

Ms. HOUNSELL. Yes, it will have an impact on all of the programs 

that are at the Administration on Aging, and a lot of these programs are minimally funded but have such a big reach. The way 

we’ve actually operated the Center was to train trainers all over 

the country, and we’ve actually worked with the Wider Opportunities for Women and a number of people in Wisconsin. Wider Opportunities just came out with their report last week. I don’t know if 

you saw that. What it does is it sort of shows what people over 65 

need to live on in various States and cities. I don’t remember Wisconsin, but I know that for single women it’s anywhere from 

$19,000 to $29,000. That’s just minimal, just rent, heat, all of those 

things that are absolutely necessary. 

I work with a lot of organizations, and everyone will say, we 

need one-on-one, especially for the Latina groups. We need one-onone for everyone, really. That’s what everybody wants, and you sort 

of know that from your research as well. 

I think what’s really important is senior centers, places where 

people can actually come for help. FINRA’s got this great project 
55 

on libraries, and there aren’t that many of them. I think there are 

about 25 they have funded. I’ve been to a number of them, doing 

programs with them. They’re incredible. 

There are ways that we could do this, but there’s no coordination, 

no reach nationally, except for these little programs. The National 

Council on Aging does a great initiative as well. 

I don’t know what will happen after sequestration. 

Senator BALDWIN. Thank you. 

Senator ALEXANDER. Senator Franken. 

STATEMENT OF SENATOR FRANKEN

Senator FRANKEN. Thank you. This topic brings up so many subjects about what is happening to the workforce, what kind of jobs 

people are going to do, what kind of companies people are going to 

have in the future. We’re changing, and people are going to have 

a lot more different jobs as we go into the future. It’s long past 

where you had the same job for your entire career. 

That’s an issue that I wonder about—not only do people change 

jobs, but companies exist for sometimes shorter times. What is the 

effect of that? What is the effect of people maybe having 20 jobs 

in their career, or 30 jobs in their career, going from one thing to 

another, and what happens when the place where you have your 

pension goes out of business? Anybody can speak to that. 

Ms. HOUNSELL. I can speak to that for a minute because it happened to me. I have a frozen benefit at the PBGC. I worked for a 

company for 16 years, and there went the DB plan. At some point 

it was frozen, then went to the PBGC. So what you do is people 

are going to have to cull together many of these different benefits 

wherever they go and look for them. 

Senator FRANKEN. I imagine your benefit under the Pension Benefit Guarantee Corporation is going to be a lot less than you had 

expected. 

Ms. HOUNSELL. Yes. It was frozen for 25 years, so it’s a lot less. 

Ms. MADRIAN. I think Julia can probably talk best about what 

happens from the plan administration standpoint. What I’d like to 

point out is, I think the fact that people are changing jobs so often 

really highlights the importance of getting employers to set higher 

default contribution rates and to address the problems of leakage, 

because those are both issues that are really tied to job changing. 

If you think of a system where companies have automatic enrollment and they enroll you at a low contribution rate that escalates 

over time, and you’re changing jobs every year, you’re always getting re-started at a low contribution rate and you never get up to 

a high enough contribution rate to really set aside money for retirement. That’s a key reason why we need a higher default contribution rate with automatic enrollment. 

And then we know that a lot of the leakage from the system is 

generated when people change jobs and suddenly they’re presented 

with this option to leave the money in the plan, to roll it over to 

another plan or, a-ha, I can take the money out and do something 

with it today, and that’s when the leakage is occurring. 

We need to think about ways to discourage employees from doing 

that, and to the extent some of them may need money because 
56 

they’re unemployed, to limit the extent to which they’re taking 

money out of the plan. Really important. 

Senator FRANKEN. I know you want to speak, Ms. McCarthy. I 

just want to put a bookmark in my head here, because that all goes 

to financial literacy. But, go ahead. 

Ms. MCCARTHY. Yes, it absolutely does. I agree with everything 

Brigitte is saying. It does come back to financial literacy and education on the implication of compounding. There are a number of 

different studies out there that talk about how long these next generations will stay in their roles, ranging from 10 years to 20 years, 

as you said—very, very different than the environment that we’ve 

grown up in. 

Portability is incredibly important. The ability to take your benefit and consolidate it, roll it together, so when you start to think 

about retirement projections, you really have a comprehensive view 

of what you’ve accumulated and you continue to build on that. 

We have a study that shows participants age 20 to 24, 51 percent 

of them don’t engage in the plan at all. There’s a portion that just 

simply aren’t engaging. Forty-four percent of this population cash 

out. That’s the problem. If you’re autoing them at 30, at 3 percent, 

maybe they get to 4 percent, you cash them out, they go on to the 

next company, they will never accumulate retirement wealth. 

Senator FRANKEN. Thank you. I want to just touch base on a couple of things. 

On financial literacy, we’re also the Education Committee. We’re 

the Health Committee, we’re the Labor Committee, and we’re the 

Pension Committee. We need to have financial literacy taught in 

our schools. Was it Senator Enzi who gave you a big assignment? 

I would have another set of your students work on a math curriculum that uses all the issues in retirement to teach math, but 

also teach financial literacy at the same time, because I remember 

we used to have shop and home ec, and home ec is home economics. So that is the place. There is a place for us to teach, to have 

kids understand the world that they’re going into so they don’t get 

in trouble with credit cards, so they don’t buy a house with a bad 

contract, so that it takes some of the pressure off the CFPB. 

[Laughter.] 

The other thing I want to mention is annuities. I was on the Special Committee on Aging, and I heard something that shocked me, 

and then I guess in retrospect it isn’t that shocking, that people actually, when asked how long do they think they’re going to live, underestimate it. So we need to get people into annuities. We need 

to do that so that they don’t outlive their savings. 

Thank you. 

Senator ALEXANDER. Thanks, Senator Franken. 

I want to thank the four witnesses. This has been very, very 

helpful. 

We’d like to leave the record open for 10 days. Senator Harkin 

had to step out, so I’m going to conclude the hearing, but several 

of us may have followup questions that we’d like to ask you. If you 

would be kind enough to respond to them, I think you can tell from 

the level of interest in your comments that we’ll surely pay close 

attention. You’ve gotten two big assignments here. 
57 

This is encouraging to me because the legislation that passed in 

2006 seems to have had some good effects, and we’ve gotten some 

good information about ways to meet Senator Harkin’s goal, which 

is to narrow the gap between what Americans ought to be saving 

for retirement and what they do save for retirement. 

From my own point of view, it seems to me that a good deal more 

work needs to be done on complexity, legalese, and liability. This 

is a committee where we supposedly have very different ideological 

views, but I think you’ve heard some common suggestion here that 

rather than taking off regulations, we might try a model that starts 

from scratch with the objective of making it easier for business enterprises to offer retirement plans. We have a changing country 

where apparently more Americans are going to be independent contractors, not full-time employees, or maybe be part-time employees—how do we make it easier for employers of any kind to offer 

retirement savings and to do it in a way that closes the gap that 

Senator Harkin called this hearing about? 

I thank you very much for coming, I look forward to hearing back 

from you, and I suspect you’ll be hearing from several of us with 

specific questions. 

The hearing is adjourned. 

[Additional material follows.] 
58 

ADDITIONAL MATERIAL 

RESPONSE TO QUESTIONS OF SENATOR HARKIN AND SENATOR ENZI

BY EDWARD MOSLANDER

SENATOR HARKIN

Question 1. One of the features of the defined contribution system is that it places 

investment risk on families rather than employers. Investing is complicated and 

most people don’t have the time or the knowledge to constantly monitor and adjust 

their portfolios. There has been a lot of work done to make investments simpler, 

for example, with target date funds. Is there more we can do to improve the investments available and make them more effective? 

Answer 1. One potential area of improvement lies within the Qualified Default 

Investment Alternative (QDIA) regulations. While we believe the Department of Labor’s (DOL) current QDIA rules allowing for the use of target date funds as a default investment in retirement plans is a significant improvement from the previous 

rules, there are steps Congress and/or the DOL should take to improve the default 

investments available to plan participants. We believe the focus of the final 2007 

QDIA rules on liquidity and market value may have unintended consequences. The 

ability to withdrawal accumulated balances in a lump sum when an individual terminates service from an employer is a difficult temptation to resist for many. The 

results of these actions over an individual’s career could result in insufficient balances in his or her defined contribution plans, which consequently could place more 

stress on public entitlement programs. Additionally, these withdrawals can create 

an excess tax burden on employees who would be subject to penalty taxes for taking 

the cash today as opposed to waiting for distributions at normal retirement age. 

We ask that the QDIA rules be improved by allowing plans to offer guaranteed 

products as part of the QDIA. Guaranteed products protect investors on the downside, while also offering them a lifetime stream of income when it is time to begin 

drawing down the plan balances. Allowing for the inclusion of guaranteed vehicles 

within retirement plans that provide for lifetime income and not just a mark-tomarket, cash payout at termination, is an effective way to allow plan participants 

to accumulate assets and plan for their eventual income stream. It also helps 

change the framing of defined contribution plans from wealth creating investments 

to vehicles whose end goal is to pay out benefits for as long as an employee lives 

in retirement. 

Question 2. One of the concerns I have heard about matching contributions is that 

lower income workers are at a disadvantage because they frequently can’t take full 

advantage of the match. Do you have any thoughts about how to make sure that 

low-income workers are being treated fairly with respect to company matches? 

Answer 2. We fully support reforms that strengthen retirement security for workers throughout the income distribution and for lower income workers in particular. 

Over the past decade, regulations that have encouraged employers to adopt provisions, such as automatic enrollment, default contribution rates and an automatic escalation of those contribution rates, have helped increase the retirement security 

prospects of many lower income workers. In addition, existing non-discrimination 

rules help ensure that these benefits are distributed across the income distribution. 

Unfortunately, too many low-income workers with access to employer-based retirement plans do not take full advantage of the savings incentives. For these workers, 

we recommend the consideration of regulatory and legislative reforms that would 

encourage employers to adopt plan designs that place greater emphasis on employer 

non-elective contributions as the primary source of contributions for lower income 

workers. 

SENATOR ENZI

Question 1. Haven’t we made financial disclosures too complex? How can we make 

financial literacy more interactive? With smartphones and tablets increasing exponentially, how can we utilize these tools for workers to let them know how much 

they need to save for retirement? 

Answer 1. Regarding the complexity of financial information and efforts to make 

a more financially astute, informed and retirement-ready American public, there are 

several challenges one should consider. For example, there are varying opinions 

about how much money workers need to save for retirement. It is difficult to create 

a financially literate populace that wants to save for its future if you cannot tell 

individuals what ‘‘success’’ actually looks like for them. That said, there is a con-
59 

sensus that workers should look to replace somewhere between 70 and 90 percent 

of their pre-retirement income. This number can vary depending on the lifestyle the 

person desires in retirement, the expenses they will have and their debt load, particularly the existence or absence of a mortgage. 

Once an individual decides on a percentage that would keep him or her relatively 

comfortable in retirement, an ideal interactive tool would be one that measures 

progress toward that goal based on one’s age over his or her working career. For 

instance, most financial advisors agree that saving somewhere between 10 to 15 percent of one’s salary each year, including any employer match that may be received, 

is going to keep most people on track toward a successful retirement. 

With respect to today’s interactive planning tools, there are opportunities to make 

these more effective. One shortcoming is a general inability to account fully for what 

retirement will look like for a specific individual. A truly effective financial planning 

tool should be able to look at any given worker’s annual income and make projections on how much Social Security income he or she will receive in retirement, 

project other income sources such as annuity payments, calculate the future value 

of money, make inflation and interest projections, and account for long-term debt 

(such as a mortgage). 

Another factor is healthcare. For most people, healthcare is the single largest expense they will have in retirement, but effectively projecting and communicating 

these costs is difficult. Integrated mobile tools would be well-suited to project for 

workers what their healthcare costs might be, perhaps by providing examples of 

healthcare costs for people in similar physical condition and offering projections of 

the future costs of those services based on standard cost inflation. 

A further aspect of creating a technology-informed, financially literate and retirement-ready population can be gleaned by learning from the teachers who make up 

the core of TIAA–CREF’s participant base and have a unique perspective on the 

value of lifetime income products. TIAA–CREF offers teachers lifetime income products (i.e., annuities) in nearly all its retirement plans. Individuals who invest in 

guaranteed lifetime income products tend to have a much stronger sense of financial 

security and are more confident they are on track to reach their retirement goals 

than those who do not. The reason is these people know that even if things go awry 

in retirement, which they sometimes do, they will have a steady stream of income 

that will cover basic living expenses no matter how long they live. We feel that lifetime income products are a key element in the success of any retirement plan, yet 

we see an American public that is, for the most part, not familiar with the value 

of these products and how critical they can be to a well-rounded retirement portfolio. Financial education should focus far more in this area. 

People are hungry for information—both technology-driven and from wellinformed personal advisors. The more tools people have to help them project what 

their future will really look like based on the actions they take every day, the more 

likely they are to rely on those tools to build their future. Perhaps, in the future, 

we will be able to compile all the data needed to build an online financial tool capable of providing feedback on all the factors discussed above, but that day is not quite 

here yet. In the meantime, people should seek assistance from qualified, low-cost financial advisors who can help them build their future by providing objective advice 

not only on how much to save and where to invest, but on how to evaluate lifetime 

income products, make intelligent healthcare choices and understand how all these 

factors work together to paint a successful picture of retirement. TIAA–CREF offers 

this type of advice through its financial advisors and is working toward migrating 

many of its online calculators to the mobile space so they are accessible to our clients across multiple platforms. Our clients also leverage these tools as well as a 

number of financial literacy tools we offer to educate their employee base. 

Question 2. Small businesses with low profit margins are already overburdened 

by the day-to-day obligations of running a small business. How can we give small 

businesses greater access to the 401(k) system when they do not have the extra 

money to spend? In addition, how can we provide small business owners with greater access to financial literacy tools at a low cost? 

Answer 2. For many years, TIAA–CREF has provided thousands of very small 

plans with access to our high quality retirement products. As a mission-driven organization itself, TIAA–CREF has established partnerships with small colleges, independent schools, libraries, foundations and other types of institutions to support 

their respective missions by providing low-cost retirement services to their dedicated 

employees. 

With recent changes in industry regulations, including increased focus on individual plan pricing, continuing to service these clients in a cost-effective manner is 

a great challenge. However, we remain committed to all of our institutional clients 
60 

and their participants and therefore have continuously sought out ways to make 

plan administration more affordable. Over the last several years, we have invested 

resources into streamlining the administration of these plans and improving their 

overall economics. Some of these efficiencies include the reduction of paper enrollments by more than 57 percent since 2009 and an almost full elimination of remittances via paper statements and checks. To assist plan sponsors with their ability 

to cover administration and other eligible expenses, we have also provided access 

to a new generation of institutionally owned contracts that allow for plan-level wrap 

fees that contribute to plan revenue. With the work we have already done and other 

enhancements we are planning, we are confident we will be able continue improving 

their respective plan financials and remain their provider of choice. 

In addition to these improvements, we have also developed a new client offer for 

eligible small businesses that meet some basic financial requirements. At a high 

level, such businesses need to have $2 million in mappable assets or at least 

$250,000 in annual remittance. This offer leverages institutionally owned contracts 

and provides access to an extensive list of non-proprietary and proprietary investment options. 

Beyond 401(k) and 403(b) offerings, TIAA–CREF supports small businesses by offering custodial services through individual retirement account (IRA) offerings. Specifically, TIAA–CREF has offered the Simplified Employee Pension (SEP) IRA since 

2005. In addition, TIAA–CREF in 2013 began offering the Savings Incentive Match 

Plan for Employees (SIMPLE) IRA. SIMPLE and SEP IRAs are available to business owners to provide retirement benefits for the business owners and their employees and offer simplified and less costly administration. Further, employees of 

businesses that adopt SIMPLE or SEP IRAs with TIAA–CREF have access to the 

tools, advise and planning services, and financial information offered by TIAA– 

CREF. 

Finally, another potential means of making plan administration more affordable 

for small (and large) employers is to modernize and simplify regulations related to 

providing electronic disclosure of documents to plan participants. Current regulations make it difficult for plans to provide their participants with disclosures via 

e-mail or online and rather encourage the continued use of paper as the preferred 

means of disclosure. We encourage the DOL to modernize its electronic delivery 

guidance to largely permit electronic delivery as the default method of delivery, subject to certain safeguards to preserve each participant’s right to request to receive 

paper delivery of any required disclosure materials at any time without charge. A 

default e-delivery standard will benefit both plan sponsors and plan participants 

through reduced expense and more timely and effective access to plan materials. 

Question 3. In the 112th Congress, Senator Kohl and I introduced the Savings Enhancement by Alleviating Leakage in 401(k) Savings Act of 2011, or the SEAL 

401(k) Savings Act. The SEAL 401(k) Savings Act is a bipartisan effort to reduce 

leakage and increase savings. The Act bans certain products that actively encourage 

participants to tap into their savings, often accruing large fees in the process. Can 

you explain how studies have shown that leakage from retirement plans can significantly reduce worker’s retirement savings and the amount of money they will have 

when they retire? 

Answer 3. TIAA–CREF understands the concerns about retirement plan leakage 

and supports efforts to enhance existing provisions affecting retirement plan loans 

and distributions. The SEAL 401(k) Savings Act was a positive step in the direction 

of addressing such concerns and helping increase retirement security for plan participants. While there are measures in place to discourage individuals from taking 

premature distributions from their retirement savings, events do arise where an individual finds it necessary to tap into his or her savings prior to normal retirement 

age. Fortunately, many plans do offer their participants the flexibility to access 

some of their savings through plan loans and/or hardship distributions. 

Plan loans allow participants to borrow against their savings and then payback 

the loan over a specified period (generally 5 years). When participants take a loan, 

they avoid the income taxes and potential tax penalties that apply to early withdrawals retirement accounts as long as the loan is paid back within the defined 

term. If the terms of the loan are not met and a participant fails to pay the loan 

back in a timely manner, the loan can go into default. In such situations, the 

amount in default would be removed from an individual’s plan accumulation to ensure the loan is paid in full and, accordingly, this amount becomes subject to taxes 

and potential tax penalties. To minimize the risk of this occurring, we believe it is 

important to take steps to ensure participants are educated on the consequences of 

a default and that steps are taken to ensure they avoid defaulting on the loan. The 

SEAL 401(k) Savings Act includes a provision that would help those who have ter-
61 

1 2011 Monthly Average Usage: 133,086; 2012 Monthly Average Usage: 223,463; 2013 Monthly 

Average Usage: 233,709 (January data only). There is no usage data available for Income Simulator, our newest tool, which is still in the process of being rolled out to participants. 

minated service with an employer and are required to repay outstanding loans in 

full within 60 days after termination. The provision would extend the rollover period 

for plan loan amounts for participants who default on a plan loan because they were 

unable to pay the loan back within the 60 day period by allowing them to contribute 

the amount outstanding on their loan to an Individual Retirement Account (IRA) 

up until the time they file their taxes for that year. While TIAA–CREF structures 

its plan loans so that participants are not required to pay back loans within 60 days 

of termination, we believe this provision would be helpful in plans that do. 

Hardship withdrawals are another means of allowing participants to access retirement funds to, among other things, avert potential financial crises (e.g., foreclosure 

or eviction). When individuals take a hardship withdrawal, however, they are in 

most cases required to cease contributing to their plan for 6 months after the withdrawal. Requiring an employee to stop contributing to his or her retirement plan 

is counterproductive when it comes to retirement security for two reasons. First, for 

individuals who have been compelled to deplete their retirement nest egg due to a 

hardship and as a result have experienced a setback in their retirement savings 

goals, it is important for them to continue to contribute to their plan to begin to 

replenish this amount. Second, since it is often difficult to get employees to initiate 

contributions in the first place, it also could be a challenge to get them to restart 

their contributions after the 6-month waiting period, potentially placing them on a 

path toward retirement insecurity. For this reason, we support the proposal in the 

SEAL 401(k) Savings Act that would eliminate this mandatory 6-month contribution 

hiatus following a hardship contribution. 

RESPONSE TO QUESTIONS OF SENATOR HARKIN, SENATOR ENZI, AND

SENATOR WARREN BY JULIA MCCARTHY

SENATOR HARKIN

Question 1. A lot of plans offer participants access to all kinds of tools and calculators so that people can get a better sense of what they need to save for retirement. 

How many people are actually using those tools?

Answer 1. Fidelity offers a variety of tools and calculators that are available via 

a phone representative or online via NetBenefits for our 401(k) participant population including: 

• Retirement Quick Check (used to determine how much money they will need 

in retirement). 

• Income Simulator (used to display current savings trajectory, including social 

security assumptions and other retirement income, and how this income translates 

into a monthly retirement paycheck). 

• Retirement Income Planner (targeted at customers who are within 5 years 

of retirement, or already in retirement and designed to answer questions such as, 

‘‘How much can I spend in retirement?’’ and ‘‘How long will my income last?’’). 

• Portfolio Review (helps participants design an appropriate asset allocation). 

• Income Strategy Evaluator (provides targeted guidance to help retirees make 

transition from retirement savings to managing retirement income by integrating a 

broad mix of products to develop the right solution for the participant, including 

mutual fund investments, fixed annuities and variable annuities). 

A monthly average of 211,000 participants uses our on-line tools and calculators. This does not include guidance interactions via the phone.1

Fidelity continues to study ways to increase participants’ involvement with their 

workplace retirement plans as our research has shown this to be the biggest inhibitor to greater use of educational tools and guidance. Once a participant has engaged either on-line or via a phone representative, our research shows that he/she 

is likely to have higher asset balances, is less likely to take a loan, and contributes 

at a higher overall savings rate. On average, 34 percent of participants do not engage with their plan during the course of a year. 

Question 2. You say in your testimony that automatically increasing people’s contributions is a good way to help them save more. Do you have a sense of what the 

ideal increases should be? For example, is 1 percent per year enough? 

Answer 2. We typically recommend that employers auto-enroll participants in the 

plan at 6 percent and institute an annual increase program that increases contributions by 1 percent each year up to 12 percent. 
62 

Yearly automatic increases combined with typical company match programs 

should get participants to a level of 12–15 percent annual savings (9 percent average employee savings and average 3–6 percent of company match) that will produce 

better outcomes. It is also our recommendation that automatic increases occur in 

tandem with salary increases to minimize the effect on the employee’s net takehome pay. In addition, Fidelity data reveals that few employees decline to participate. Ninety-three percent of those enrolled by their employer remain within the 

program. 

SENATOR ENZI

Question 1a. Haven’t we made financial disclosures too complex? How can we 

make financial literacy more interactive? With smartphones and tablets increasing 

exponentially, how can we utilize these tools for workers to let them know how 

much they need to save for retirement? Also, how can we provide small business 

owners with greater access to financial literacy tools at a low cost?

Answer 1a. Yes. A participant in a 401k plan will receive a minimum of 13 required disclosures in their first year of eligibility in a plan. Some of these disclosures can be 25 or more pages in length. While this information is important, the 

sheer volume and complexity of content often overwhelms employees who participate in a variety of benefit programs each with a separate disclosure program. The 

ability to streamline disclosures, enrollment and education materials, make them 

interactive, and accessible on a mobile device has the potential to significantly increase participant engagement in saving for retirement, in addition to addressing 

the cost of providing such disclosures, a major deterrent to small businesses to offer 

such plans. 

Fidelity is experimenting with interactive approaches to engage more participants 

in managing their 401k. For example, in 2012 we worked with a Fortune 100 company to create an interactive game with the expressed purpose of making retirement 

education fun. 

The results were impressive (based on a 35 percent response rate): 

• Eighty-five percent of participants reported learning more about investing and/ 

or their retirement plan; 

• Seventy-nine percent of participants plan to review and update their investments; 

• Fifty-eight percent plan to increase their deferral rate as a result of playing. 

We are working to bring more of this type of interactive approach into our product 

offering by developing an eEducation program which features a suite of videos using 

animation and movement to maintain attention while using digestible content. Concepts are introduced via short animated videos and then more fully explored 

through the use of podcasts, Brainsharks (an online learning tool), and articles. We 

are also updating our existing suite of tools for compatibility with mobile devices 

including access to live channel support. 

Fidelity is leveraging the unique features of the mobile channel so customers can 

interact with us using their smartphones and tablets. We are building simple user 

experiences with interactive content encouraging communication through SMS 

texting and other actions naturally tailored to a mobile device. 

As Fidelity deploys these approaches more broadly, we continue to evaluate which 

approaches, content, and interactions are most effective in helping our customers 

learn more about investing for their future. However, we are mindful that we still 

must meet current regulatory requirements for disclosure. 

Question 1b. How can we provide small business owners with greater access to 

financial literacy tools at a low cost?

Answer 1b. The use of Web sites, Internet discussion forums, blogs, and online 

financial management tools are all low-cost ways to educate consumers on saving 

for retirement and financial best practices. Technology expands financial literacy 

educational options by providing flexibility in how, when, and where learning occurs. It is our experience that participants prefer learning through technology given 

its accessibility, ability to provide instant feedback, and its use of interesting and 

impactful graphics, and video. 

Question 2. Small businesses with low-profit margins are already overburdened by 

the day-to-day obligations of running a small business. How can we give small businesses greater access to the 401(k) system when they don’t have the extra money 

to spend? 

Answer 2. The three principles that should guide a retirement plan for small business are: 
63 

(1) minimized ERISA fiduciary responsibilities and reduced administrative costs 

through simplified design and execution; 

(2) small business financial incentives to establish and maintain plans that include key automatic design features; 

(3) access to online guidance and education at no cost (included with recordkeeping arrangement). 

Here are the key plan design features that align with those principles: 

A. Minimized ERISA fiduciary responsibilities and reduced administrative costs through simplified design and execution: 

• Eliminate discrimination testing requirements if workers are enrolled at 6 percent; • Fiduciary responsibilities delegated to approved private sector plan Service Providers with professionally managed accounts (QDIA) for participants; • Simple, relevant, and actionable communications and disclosures; • Allowance of electronic means as the default form of communication for all required disclosures, • Consolidation and streamlining of required participant disclosures and notices; • Government as repository for small orphaned accounts via R bonds and larger 

account balances would be rolled over to current workplace plan or IRAs to enable 

consolidation of accounts for a highly mobile workforce; 

B. Small business financial incentives to establish and maintain plans 

that include key automatic design features: 

• Automatic enrollment of all employees, regardless of age and service at 6 percent with opt down option; 

• Incentives for small business owners to start plans (e.g., startup tax credits); 

• Automatic annual increase program for all employees; 

• Optional employer contributions—higher tax credit or other tax incentives for 

additional employer contributions; 

• Expand the savers credit for low-income workers; 

• Maintain current limits and retirement incentives on employee or employer contributions; 

• Restriction of loan provisions; 

• Hardship withdrawals restricted to safe harbor provisions only; 

• Simple web-based administration for plan sponsor and participant including 

mobile and digital access. 

C. Increased access to no-cost guidance and education: 

• Access to on-line guidance and education to participants at no cost; 

• Significant participant education services included as part of recordkeeping arrangement; 

• Uniform curriculum across providers—starting with simple basics of budgeting 

and saving to broader topics of investing and retirement income planning. 

Fidelity has conducted extensive research in understanding and meeting the 

needs of small employers. In fact, we categorize these clients as our ‘‘Fiduciary Segment’’ because meeting that responsibility is their greatest concern. This group of 

plan sponsors are looking for providers to ‘‘keep them out of trouble’’ while providing 

quality benefits to their employees at a reasonable cost. To that end, we have 

prototyped multiple concepts ranging from a fiduciary training college and a dynamic monitoring dashboard to an assurance model that would include a standardized investment lineup, use of a volume submitter document, simplified testing etc. 

These concepts have been well-received and we will continue to refine them based 

on client feedback. 

Question 3. In the 112th Congress, Senator Kohl and I introduced the Savings Enhancement by Alleviating Leakage in 401(k) Savings Act of 2011, or the SEAL 

401(k) Savings Act. The SEAL 401(k) Savings Act is a bipartisan effort to reduce 

leakage and increase savings. The Act bans certain products that actively encourage 

participants to tap into their savings, often accruing large fees in the process. Can 

you explain how studies have shown that leakage from retirement plans can significantly reduce worker’s retirement savings and the amount of money they will have 

when they retire?

Answer 3. Fidelity believes that in order for employees to stay on track and accumulate sufficient assets toward retirement, plan loan restrictions are essential as 

too many loans can have a significant negative impact on retirement savings. 

Attached is an illustration from Fidelity’s most recent piece on loans entitled Borrowing From Your Retirement which shows the effect a loan can have on your retirement assets. 
64 

The chart above is hypothetical and for illustrative purposes only. Please see 

below for the methodology. 

IMPORTANT: The projections or other information generated by Fidelity’s planning tools regarding the likelihood of various investment outcomes are hypothetical 

in nature, do not reflect actual investment results and are not guarantees of future 

results. They are intended to provide a rough estimate of investment scenarios over 

time. 

Additionally, EBRI’s Retirement Security Projection Model simulated the impact 

of loans on DC participant retirement savings. The projection simulates a full-time 

career employee who takes a loan and then stops saving for the duration of the loan 

repayment period (5 years). Ceasing deferrals during the loan repayment period is 

expected to decrease future retirement income by 10 percent to 13 percent. If two 

loans are taken, this reduction nearly doubles. On the other hand, if the participant 

continues to save during the repayment period, the loan causes little changes to expected retirement income. 

SENATOR WARREN

Question 1. In the HELP hearing on January 31, 2013, Professor Madrian suggested that it might make sense to provide employers with a simple way to participate in retirement plans, with a minimal burden and minimal regulatory requirements. She indicated support for ‘‘piggybacking’’ on activities that employers are already required to do. What specifically are the points at which it might be possible 

to modify existing employer activities to seamlessly integrate a pension element and 

how effective do you believe intervention at each of those points might be? Please 

address new employee forms, employer withholding actions, and employer quarterly 

tax forms, as well as any other points that you might think would provide such an 

opportunity. Any draft sample forms would be particularly helpful.

Answer 1. Employees typically receive wages on a weekly, bi-weekly or monthly 

basis. Thus, payroll deduction has proven to be an easy and convenient way for employees to participate in retirement plans, and simultaneously for employers to 

transfer an employee’s pre-tax 401(k) contributions to a service provider. 

Introducing new retirement plan processes and forms may cause more complexity 

for employers and additional confusion for employees. Instead, we believe in proven 

solutions such as automatic workplace enrollment and an automatic annual increase 

program. 

Since the passing of PPA in 2006 we have seen our customer’s adoption rate of 

automatic enrollment increase from 2.6 percent in 2006 to 23 percent as of 
65 

12/31/2012. The participation rate in plans with automatic enrollment is 83.5 percent versus 53.1 percent for plans that do not offer automatic enrollment. 

Question 2. How would you suggest structuring a default employer participation 

requirement that employers could opt out of if they determined that they would prefer, for whatever reason, not to provide such a plan for their employees? 

Answer 2. Historically, the passage of the Pension Protection Act (PPA) addressed 

many of the concerns plan sponsors had with respect to employer participation requirements or automatic contribution arrangements as it influenced whether an employer adopted an employer participation requirement/automatic enrollment arrangement. The PPA guidance on a Qualified Automatic Contribution Arrangement 

(‘‘QACA’’) eliminated the need for non-discrimination testing, clarified State withholding laws, and provided parameters for acceptable default elections. Fidelity saw 

an 18 percent increase in plans adopting these arrangements from 2006. 

Plans unwilling to commit fully to the QACA safe harbor were able to model their 

Automatic Contribution Arrangements (ACA) based on allowable QACA configurations. Any concerns about having too high or too low a deferral rate were effectively 

solved by mirroring the safe harbor election. Providing an additional safe harbor 

will motivate ACA Plan Sponsors to re-evaluate their deferral percentages to match 

the new safe harbor higher deferral limits. 

Recently, Fidelity proposed a new safe harbor (or a second safe harbor) for automatic arrangements including the following features: 

• The minimum levels of default contribution would be 6 percent for the first 

year, 8 percent for the second year, and 10 percent for the third year and all subsequent years. • The plan sponsors adopting this safe harbor would receive a tax credit equal 

to 10 percent of the employer and employee contributions made on behalf of nonhighly compensated employees to a maximum of $10,000. This credit would apply 

for the first 3 full years the new safe harbor is in effect. • The same non-elective contribution rule applies; however the matching contribution requirement would be modified to 50 cents on the dollar on the first 2 percent, then 25 cents on the dollar on the next 8 percent. 

Question 3. What are the factors that might influence whether a default employer 

participation requirement would materially increase the levels of employer participation in these plans across the country? 

Answer 3. Generally, we believe that the following factors would influence employer participation in offering workplace plans: 

(1) minimized ERISA fiduciary responsibilities and reduced administrative costs 

through simplified design and execution; 

(2) small business financial incentives to establish and maintain plans that include key automatic design features; 

(3) access to online guidance and education at no cost (included with recordkeeping arrangement). 

In 2012, a cross-company team of Fidelity associates partnered with Stanford’s 

University School of Design to better understand the true needs of participants in 

retirement plans and to better design retirement plans for future generations. A 

major theme of those discussions was the need for simplicity for both employers and 

employees in the design and operation of plans. A second issue of no less importance 

involves lowering the employer startup and maintenance costs of an employee savings plan. 

Fidelity is happy to engage in conversations with you and your staff regarding 

employer participation and ways to make employer participation simpler and more 

cost-effective. 

Question 4. What are some mechanisms that you believe might minimize the administrative costs of participation in a plan for small businesses and other employers? 

Answer 4. We believe employers can reduce administrative costs through more 

standardized plan design, efficient administration including periodic plan sponsor/ 

service provider review of plan costs, e-delivery communication strategies that drive 

participant engagement and outcomes, and cost-effective investment line-ups suitable for the workplace investor. 

We recommend the expansion of e-delivery regulatory policies by the Department 

of Labor and the Treasury Department so that more participants can enjoy the convenience of e-delivery. Labor Department 2011 technical guidance issued in conjunction with Participant Disclosure did little to allow for the increased use of technology. 
66 

Most recently, Department of Labor officials have made public the contents of a 

planned survey on benefit statements in furtherance of its 2013 regulatory agenda 

that includes proposed guidance on quarterly benefit statement requirements under 

ERISA. Despite the fact that Fidelity’s online benefit site, Netbenefits, has more 

than 2 million visits on a daily basis, the survey framework still supports the concept that most workplace 401(k) participants receive paper statements in the mail. 

An additional expected requirement within the proposed guidance, lifetime income 

illustrations, is another example of guidance that is more easily conveyed via an online tool that a participant can model to easily understand his/her need to alter current savings strategies and take action to produce better outcomes. 

Finally, as stated within our earlier response to Senator Enzi, a participant in a 

401(k) plan will receive a minimum of 13 required disclosures in their first year of 

eligibility. While this information is important, the sheer volume and complexity of 

the notice can overwhelm the employee who participates in a variety of benefit programs each with a separate disclosure program thereby defeating the regulatory objectives of notification and education. Fidelity’s experience with 2012 required participant disclosures under section 404A–5 is illustrative. Fidelity distributed close 

to 15 million lengthy disclosure statements that generated less than 1,000 phone 

calls mostly to inquire, ‘‘What is this?’’ and ‘‘Do I need to take any action as a result?’’ These required disclosures, although well-intentioned, are expensive to 

produce yet provide little to no value to the participant. Fidelity supports congressional initiatives to review and consolidate required disclosures and the elimination 

of those deemed extraneous or duplicative in order to simplify administration and 

lower cost. 

Question 5. Is there data to suggest that tax incentives for employers would materially increase the number of employers that offer retirement plans to their employees, and do you have any recommendations about how those incentives should be 

structured? 

Answer 5. Although Fidelity has not conducted research on the particular point 

of whether tax incentives for employers would materially increase the number of 

employers that offer retirement plans to their employees, certain recent studies 

have examined how employers might react to changes in retirement savings tax incentives, including likelihood of offering or reducing retirement savings plans. Findings indicate that tax incentives are a critical component in the decision to offer and 

maintain DC plans. In addition to the potential for significant negative impact on 

retirement security, it has been determined that changes in income tax exclusion 

would cause many current sponsors to modify their plans by decreasing or eliminating one or more plan provisions, while some would likely drop their plan altogether.

• Specifically, a 2011 survey by Harris Interactive commissioned by the Principal 

Financial Group survey found that if workers’ ability to deduct any amount of the 

401(k) contribution from taxable income was eliminated, 65 percent of the plan 

sponsors responding to the survey would have less desire to continue offering their 

plan.

• The Harris Interactive study further determined that 75 percent of small and 

medium-sized employers say current tax deferral incentives are the most attractive 

retirement plan feature to employees and eliminating retirement plan tax incentives 

could reduce the number of plans.

• Ninety-two percent of employers state that tax incentives for workers are important in their decision to offer a plan. 

• Sixty-five percent say their desire to continue offering a plan would decrease 

if those incentives were removed. 

• Thirty-six percent of those employers who don’t currently offer a plan say the 

lack of tax incentives would decrease their desire to start offering one.

• Many employers believe that even a reduction in tax incentives would diminish their own desire to offer a plan.

• In a survey conducted by Mathew Greenwald & Associates, Inc., on behalf of 

the American Benefits Institute, 8 in 10 employers say the exclusion of employee 

(81 percent) and employer (77 percent) contributions from current employee income 

taxation is important in their company’s decision to sponsor a DC plan.

• A 2011 AllianceBernstein survey of plan sponsors found that small sponsors 

were more likely than large employers to respond negatively to a proposed change 

in the deductibility of contributions by employees.

Though these studies did not query whether certain tax incentives would materially increase the number of employers that offer plans, there is strong evidence to 

suggest the inverse, in that there would most certainly be a dramatic reaction by 
67 

1 Nybo, Stig and Liz Alexander. 2013. ‘‘Transform Tomorrow.’’ Introduction, 14–16, John Wiley 

& Sons, Inc., Hoboken, NJ. 

plan sponsors should certain current tax incentives be eliminated or significantly altered. Various proposals to modify the income tax exclusion of DC plan contributions, such as the 20/20 proposal, a 25 percent tax credit, and a tax exclusion limitation, are likely to garner opposition from employers. In fact, companies that do not 

currently sponsor a plan would be less likely to start one if one of these proposals 

were passed, and many sponsors expressed a desire to offer no plans at all in the 

absence of tax incentives for employees.

Finally, if retirement tax incentives are taken away or altered, it is unlikely we 

would continue to see participation rates near 70 percent among employers that 

sponsor a retirement plan. In this vein, it remains critically important that we continue to listen to employers and how tax incentives affect their decisions with respect to plan sponsorship.

RESPONSE TO QUESTIONS OF SENATOR HARKIN AND SENATOR ENZI

BY M. CINDY HOUNSELL

SENATOR HARKIN

Question 1. I get the sense that a lot of people think that they’ll just be able to 

work longer to make up for not saving. But as you say in your testimony, lots of 

people end up being forced into retirement—either because they’re disabled or because it’s hard for older people to find work once they lose their jobs. What can we 

do to help people understand that they can’t work forever? 

Answer 1. Helping people understand that they cannot work forever is one of 

many important planning issues that are not understood by today’s workers. Public 

benchmarks are needed to help workers plan so that they understand what lies 

ahead for their retirement and can measure their future longevity risks and make 

better decisions. These benchmarks can be baselines agreed upon by both public and 

private partners that then become well-known by the public. They should be part 

of any education mechanism—whether workshops, webinars, podcasts, or publications—aimed at educating workers about retirement planning. 

Benchmarks should provide a basic guide or roadmap on what steps and strategies workers can take and how to implement the lifecycle approach as reminders. 

For instance, many workers know they are supposed to be saving and investing but 

they do not know how much they should be saving. The public/private partners 

would provide information based on best practices that would assist workers at each 

stage of life, or ‘‘the life-cycle approach.’’ For example, the strategies and material 

provided could advise individuals between ages 25–35 that building savings contributions up to 10–15 percent of salary is a typical retirement savings goal for their 

working lives. 

Nonprofits, government agencies (like the IRS, SSA, and DOL), employers, and 

financial institutions should be encouraged to highlight these benchmarks on their 

Web sites and in relevant communications. One of WISER’s partners has introduced 

the idea of a national retirement readiness education advertising campaign based 

on one of the top advertising campaigns of the 20th century, Iron Eyes Cody. The 

‘‘Crying Indian’’ Public Service Announcement known as the Iron Eyes Cody Campaign to clean up America was a combination of community action and legislation. 

It helped to transform the landscape. The nonprofit, Keep America Beautiful, had 

an impact on littering by impacting values and behavior and by reducing litter 61 

percent since 1969. The ‘‘Crying Indian’’ is available 40 years later on YouTube and 

is still getting hundreds of thousands of hits.1

Question 2. There are lots of people that don’t have traditional, 40-hour-a-week 

jobs—part-time workers, temporary workers, and independent contractors, to name 

a few. What do we need to do to make sure people with non-traditional employment 

arrangements have easy access to a retirement plan? 

Answer 2. The first problem as it relates to this question is that many of the people who work in non-traditional employment are paying both the employer and employee payments for Social Security; an amount that along with Medicare, adds up 

to over 13 percent of their pay. Many workers think this will be enough to provide 

them with sufficient financial and health security upon retirement, which it will not. 

While Social Security is an important income source, it is just a foundation and 

workers need to have additional savings to provide them with sufficient retirement 

income. One way to entice these workers to also consider making a contribution to 

a retirement plan and to save regularly is to provide a retirement plan with the 
68 

incentive of a simplified Saver’s Credit that is structured as a matching contribution. It could be automatically deposited into either an Automatic IRA or an R Bond. 

We know it is important to reach workers who do not have access to a 401(k) plan 

at work, and ways to do that would be through an Automatic IRA or a 401(k) 

through a Multiple Employer Plan. The Automatic IRA offers workers the opportunity to save through regular payroll deposits that continue automatically. The employer’s administrative functions would be minimal. With an Automatic IRA, employees would automatically be enrolled in an IRA and a percentage of their income 

would be directed to the account automatically. The contribution amount would increase year-by-year. The investment fund could be a target date fund. The Automatic IRA has the potential to reach up to 75 million workers that do not have access to a retirement plan at work. But the key to increasing coverage and participation for workers in this economic climate is the ability of workers to have easy access to a simplified Savers Credit as part of the structure of the Automatic IRA or 

R Bond. There is ample research showing that low-income workers understand and 

will respond well to receiving a match. 

SENATOR ENZI

Question 1. Haven’t we made financial disclosures too complex? How can we make 

financial literacy more interactive? With smartphones and tablets increasing exponentially, how can we utilize these tools for workers to let them know how much 

they need to save for retirement? 

Answer 1. The financial disclosures are too complex for most consumers. Among 

the thousands of people WISER has interacted within our education efforts, only a 

rare few have said they have ever read financial disclosures. We need to change the 

current model in a way that will make people want to read this important information. The disclosures need to appear less intimidating and have all the relevant information condensed in a summary. If they appear easy-to-read without financial 

jargon, busy consumers will be more likely to read them. These disclosures are usually written by lawyers or financial experts who are not experienced at writing for 

the average consumer. This may be one topic where input from the Consumer Financial Protection Bureau may be helpful, as well as nonprofit and other organizations that specialize in financial literacy. 

Question 2. Small businesses with low profit margins are already overburdened 

by the day-to-day obligations of running a small business. How can we give small 

businesses greater access to the 401(k) system when they don’t have the extra 

money to spend? Also, how can we provide small business owners with greater access to financial literacy tools at a low cost? 

Answer 2. Employers have access to a simplified 401(k) plan but it has never gotten traction. The Automatic IRA could provide an alternative as a way to make sure 

that workers without a qualified retirement plan have access to an automatic-enrollment payroll deduction plan. Increasing tax credits are needed as incentives to 

make these cost-effective retirement savings options more attractive to small businesses and to defray any costs employers might incur for establishing the mechanism of automatic savings for their workers. 

Multiple Employer Plans or MEPS are also a cost-efficient alternative for small 

businesses looking to avoid the expense and administrative burden of a stand-alone 

401(k) plan. Multiple employer 401(k) plans provide a way for small employers to 

join together to adopt a 401(k) plan and to share expenses. 

On the issue of small business and financial literacy, there are countless resources 

for free financial literacy information that can lead to improved financial decisionmaking. The bigger problem is the need for outreach to small employers and finding 

ways to make them aware of the available information, tools, and resources. The 

Department of Labor and employers are both ‘‘agents’’ that employees trust, and 

they need to join together to make more information and tools available. The Department of Labor could establish a public/private partnership and work to encourage a larger audience to use their tools, including ‘‘Taking the Mystery out of 

Retirement Planning’’ and ‘‘Savings Fitness: A Guide to Your Money and Financial Future.’’ Both are excellent tools for people looking to take the first step 

to plan for their future. 

Other resources include www.mymoney.gov, the site created by the Financial Literacy and Education Commission managed by the U.S. Department of the Treasury, 

the American Savings Education Council, AARP, the National Endowment for Financial Education, and the American Institute of CPAs. Also, as mentioned in our 

testimony, WISER operates the National Education and Resource Center on Women 

and Retirement Planning on behalf of the Administration on Aging. Materials are 

readily available on the WISER Web site, which was recently named by Forbes as 
69 

2Fellowes, Matt. The Retirement Breach in Defined Contribution Plans. HelloWallet. 3 Ibid. 4 Ibid. 

one of the 100 best Web sites for women. WISER has also been highly successful 

in its approach of training local partners as ‘‘trusted messengers’’ to provide retirement and savings educational programs. 

Question 3. In the 112th Congress, Senator Kohl and I introduced the Savings Enhancement by Alleviating Leakage in 401(k) Savings Act of 2011, or the SEAL 

401(k) Savings Act. The SEAL 401(k) Savings Act is a bipartisan effort to reduce 

leakage and increase savings. The Act bans certain products that actively encourage 

participants to tap into their savings, often accruing large fees in the process. Can 

you explain how studies have shown that leakage from retirement plans can significantly reduce worker’s retirement savings and the amount of money they will have 

when they retire? 

Answer 3. We applaud your efforts to help workers keep their retirement savings 

for retirement. A considerable number of studies over the years have shown that 

401(k) leakage can have a sizable impact on retirement security. The SEAL 401(k) 

Savings Act would ban 401(k) debit cards and make it easier for workers to pay 

back loans in the event they lose their job. Consideration should also be given to 

allowing IRAs to accept rollovers of participant loans from qualified plans. Another 

important piece is that the Act would allow workers to continue saving for retirement through the plan in the event of a hardship withdrawal. Currently, workers 

have to wait 6 months before they can resume saving through the plan. 

The largest area of leakage in 401(k) plans, however, is the cash-out between jobs. 

A recent study by Hello Wallet bears this out. Using survey data from the Federal 

Reserve’s Survey of Consumer Finance and the Census Bureau’s Survey of Income 

and Program Participation, the study finds that 19.1 percent of workers have cashed 

out their 401(k) at some point.2 The majority of those workers point to bills, loans, 

and other debt as the reason for cashing out.3 About 21 percent of workers with insufficient emergency savings have cashed out for non-retirement needs.4 We need 

to ensure that workers realize the difference; 401(k) funds should not be considered 

‘‘contingency funds’’ to cover short-term needs. They need to understand the importance of setting up a separate emergency fund to cover 3 to 6 months of expenses 

in the event they lose their job. However, while it goes against every tenet of retirement preservation there is a need to find a solution for the large number of workers 

who would rollover their retirement funds after a job loss if they knew they could 

borrow from it. We would be happy to discuss this issue in more detail with the 

committee. 

Question 4. You raised the issue of part-time employees and temporary workers 

not being offered retirement benefits. What are some ways that you propose extending retirement savings opportunities so that part-time and temporary workers have 

a way to save? 

Answer 4. One way to reach workers who do not have access to a 401(k) at work 

is through an Automatic IRA. The Automatic IRA offers the opportunity to save 

through regular payroll deposits that continue automatically. The employer’s administrative functions would be minimal. With an Automatic IRA, employees would 

automatically be enrolled in an IRA, and a percentage of their income would be directed to the account automatically. The contribution amount would increase yearby-year. The investment fund could be a target date fund or Treasury securities. 

The Automatic IRA has the potential to reach up to 75 million workers that do not 

have access to a retirement plan at work. 

To incentivize saving among lower income workers, the Saver’s Credit could be 

made refundable. Currently, the Saver’s Credit is nonrefundable, so it offers no incentive for very low-income earners who have little or no tax obligation. 

[Whereupon, at 11:33 a.m., the hearing was adjourned.] 

Æ