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89–779—PDF 2014

S. HRG. 113–402 

RETIREMENT SAVINGS FOR 

LOW-INCOME WORKERS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON SOCIAL SECURITY, 

PENSIONS, AND FAMILY POLICY 

OF THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

FEBRUARY 26, 2014 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

RON WYDEN, Oregon, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

ROBERT P. CASEY, Jr., Pennsylvania 

MARK R. WARNER, Virginia 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

JOSHUA SHEINKMAN, Staff Director 

CHRIS CAMPBELL, Republican Staff Director 

SUBCOMMITTEE ON SOCIAL SECURITY, PENSIONS, AND FAMILY POLICY

SHERROD BROWN, Ohio, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

CHARLES E. SCHUMER, New York 

BILL NELSON, Florida 

BENJAMIN L. CARDIN, Maryland 

PATRICK J. TOOMEY, Pennsylvania 

MIKE CRAPO, Idaho 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

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

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

Isakson, Hon. Johnny, a U.S. Senator from Georgia ............................................ 3 

Cardin, Hon. Benjamin L., a U.S. Senator from Maryland ................................. 4 

WITNESSES 

Iwry, J. Mark, Senior Advisor to the Secretary and Deputy Assistant Secretary for Retirement and Health Policy, Department of the Treasury, 

Washington, DC ................................................................................................... 5 

Oakley, Diane, executive director, National Institute on Retirement Security, 

Washington, DC ................................................................................................... 7 

Utkus, Stephen P., principal and director, Vanguard Center for Retirement 

Research, Malvern, PA ........................................................................................ 9 

Miller, Judy A., MSPA, FSA, MAAA, director of retirement policy, American 

Society of Pension Professionals and Actuaries (ASPPA), and executive 

director, ASPPA College of Pension Actuaries, Arlington, VA ......................... 11 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Brown, Hon. Sherrod: 

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

Cardin, Hon. Benjamin L.: 

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

Isakson, Hon. Johnny: 

Opening statement ........................................................................................... 3 

Iwry, J. Mark: 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 35 

Responses to questions from subcommittee members ................................... 44 

Miller, Judy A., MSPA, FSA, MAAA: 

Testimony .......................................................................................................... 11 

Prepared statement .......................................................................................... 47 

Oakley, Diane: 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 62 

Utkus, Stephen P.: 

Testimony .......................................................................................................... 9 

Prepared statement .......................................................................................... 73 

COMMUNICATIONS

AARP ........................................................................................................................ 83

Employee Benefit Research Institute (EBRI) ........................................................ 92 

Women’s Institute for a Secure Retirement (WISER) .......................................... 103 

(III) 

(1) 

RETIREMENT SAVINGS FOR 

LOW-INCOME WORKERS 

WEDNESDAY, FEBRUARY 26, 2014 

U.S. SENATE,

SUBCOMMITTEE ON SOCIAL SECURITY,

PENSIONS, AND FAMILY POLICY, 

COMMITTEE ON FINANCE, 

Washington, DC. 

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

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

(chairman of the subcommittee) presiding. 

Present: Senators Cardin and Isakson. 

Also present: Democratic Staff: Kara Getz, Senior Tax Counsel; 

and Tom Klouda, Professional Staff Member, Social Security. Republican Staff: Jeff Wrase, Chief Economist; and Preston Rutledge, 

Tax Counsel. 

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

SECURITY, PENSIONS, AND FAMILY POLICY, COMMITTEE ON 

FINANCE 

Senator BROWN. The subcommittee will come to order. Thanks to 

Senator Isakson for joining us, and the four panel members. I really appreciate your being here for an issue of increasing importance 

in our country. We know that there is a growing retirement crisis 

in the United States. 

For many Americans, the traditional 3-legged retirement system—that we have all talked about pretty much all our lives—of 

pensions, personal savings, and Social Security seems to no longer 

work for so many. That 3-legged stool lacks stability for too many 

people. 

The annuitized income of Social Security remains a safeguard of 

retirement security for working-class families. Social Security provides the overwhelming amount of retirement income for more than 

half the population. For a large number of people, it is essentially 

their entire income. 

For too many, it is the private retirement system that is not 

working. Fewer than half of American workers, nearly 75 million, 

have employer-provided retirement plans or other opportunities to 

save for retirement through workplace contributions. Even more so, 

the half who do have some kind of retirement plan, in many cases 

have little in retirement assets. The median retirement account 

balance is $3,000 for all working-aged households, including those 

2 

that have none. But the median is $3,000 and $12,000 for households nearing retirement. 

While tax-preferenced retirement accounts have helped spur a 

great deal of savings, the dollars in these private retirement accounts are typically concentrated among the top quartile or the 

wealthiest among those who have savings. Households in the top 

fifth of the income distribution account for 72 percent of IRA and 

401(k) assets. The average disbursement among all seniors is just 

under $1,500. Only 19 percent of senior households receive any disbursements at all. 

So, what do we do? Today we will discuss the dimensions of this 

crisis and a number of policy responses to it. These policies are specifically targeted towards low- and moderate-income workers. They 

all follow the same theme: doing more of what works. 

We know Social Security works for low-income workers; the only 

question is whether the benefit is adequate. A great deal of evidence suggests that, because of the state of the other two legs of 

the stool, that income is not sufficient. 

Sixty-plus percent of low-income families are at risk of having insufficient income to maintain their standard of living in retirement. 

For them, we are talking about the difference between a modest retirement and living in poverty. 

The Employee Benefit Research Institute has developed a model 

to predict whether retirees will have sufficient income to cover 

their expenses, and, in general, retirees in the bottom income quartile do not have enough money to cover those expenses in retirement. We will explore what those levels could, and should, be later 

in the hearing. The model predicts that just 16.8 percent of lowincome retirees will have enough money for any kind of a decent 

retirement. 

The President’s decision to withdraw what I believe is the illconceived policy of chained CPI should put an end to treating Social Security as another trading piece in budget negotiations. Now 

we can have the thoughtful debate we need: not Social Security as 

a budget issue, but Social Security as part of retirement security 

and what we can do in a more comprehensive way. 

We need to debate how to expand the kind of guaranteed 

annuitized income that Social Security provides. My colleague, Senator Harkin, has proposed a way to do this, his USA Retirement 

Accounts. It is legislation, I believe, with great merit. I am proud 

to be a co-sponsor. 

The bottom line is that access to tax-preferenced retirement accounts must not be something workers receive when they cross the 

threshold into the middle class, but a tool that helps them start 

that journey to get into the middle class. The proposal from Treasury to introduce the myRA program is a step in the right direction. 

In particular, the myRA plan addresses the gap in access to taxpreferenced savings. 

Mr. Iwry, I know, will talk in some detail about that. Fifty percent of full-time workers participate in an employer-sponsored 

plan, but only 13 percent of workers at companies with fewer than 

10 employees participate in an employer-sponsored retirement 

plan. 

3 

There are no easy answers, but, in a system where we primarily 

administer programs to encourage private retirement savings 

through the tax code, we need to make sure the incentives align 

to the need better than they have. 

The tax incentives do not much affect low-income people, and 

they only marginally and unevenly affect moderate-income people, 

those incentives we provide through the tax code. Those are some 

of the questions we need to explore. 

I appreciate Senator Isakson being here, and Senator Cardin 

also, who has been a leader in pension issues throughout his time 

in the other House on the Ways and Means Committee. Thank you 

for being here, Senator Isakson. 

OPENING STATEMENT OF HON. JOHNNY ISAKSON, 

A U.S. SENATOR FROM GEORGIA 

Senator ISAKSON. Well, thank you very much, Chairman Brown. 

I appreciate your calling this hearing on an important issue for all 

Americans. 

The recent recession left a glaring reminder to many that Americans simply are not saving enough, if any at all. We have made 

some progress over the years, but I argue that we can do more. 

Creating an environment for sound retirement is not only good for 

participants, it is good for America. The more we can empower individuals to save and plan for themselves, the less they have to 

rely on the government to take care of them in their latter years. 

Both in this committee and in the HELP Committee, we have 

been examining retirement issues. We have been presented with 

evidence that is clear that the most important factor in determining whether or not an individual is saving for retirement is 

whether or not their employer offers them a plan. 

If our goal is to increase the number of Americans saving for retirement, we should be expanding the options available to employers through existing structures rather than creating a new mandate or a new program which seems overly complicated for such a 

simple goal. 

I applaud Senator Orrin Hatch, the ranking member of this committee and a senior member of the Senate, for introducing last year 

a series of reforms for American workers and employers which 

would create stronger tools and options for providing pensions and 

more security in retirement. 

According to the Small Business Administration, small business 

makes up a substantial majority of the U.S. employer firms. We 

can certainly find ways to make it easier for these businesses and 

their employees to participate in savings vehicles and retirement 

vehicles by reducing unnecessary administrative and testing burdens. Further, at a time when we are trying to encourage higher 

retirement saving participation rates, we should certainly not be 

limiting individuals’ investment education and advice as the Department of Labor is proposing. With this proposal to redefine the 

term ‘‘fiduciary,’’ Department of Labor is unilaterally seeking to 

over-regulate 401(k) plans and IRAs, both critical tools for Americans investing in their own retirement. 

As we continue to examine the issue of retirement savings, I 

would continue to urge the Secretary of Labor and the Department 

4 

of Labor to revisit the Department’s approach to this issue and preserve access to professional advice for low- and moderate-income 

investors. 

I am pleased that the committee is continuing to explore ways 

to increase retirement savings for all Americans. I hope that we 

work together to find ways to simplify and improve access for business, to improve plans, as well as create an environment that continues to encourage the American people to save for their retirement and their future. 

Thank you, Mr. Chairman. 

Senator BROWN. Thank you, Senator Isakson. 

Senator Cardin, your opening statement, please? 

OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, 

A U.S. SENATOR FROM MARYLAND 

Senator CARDIN. Well, thank you, Mr. Chairman. I very much 

appreciate you calling this hearing. Senator Isakson, thank you for 

your leadership on this. I regret that I am going to have to leave 

shortly to chair a hearing in the Foreign Relations Committee, because this is a subject of great interest to me, and you have an incredible panel of experts who can really help us. 

Now, Mr. Chairman, you correctly have identified the huge problem we have in this country, and that is retirement security. We 

have made progress with some legislation that has been passed 

over the last decade, but we need to do more. 

The 3-legged stool that you mentioned is absolutely accurate. We 

have to, first, protect Social Security, make sure it is strong and 

remains strong. It is critically important. For many Americans, it 

is their primary or sole source of retirement security. 

We need to build on what has worked. The Saver’s Credit has 

worked. Millions of Americans today have retirement accounts who 

would not have retirement accounts but for the Saver’s Credit, so 

let us look at ways that we can strengthen the Saver’s Credit. I 

think there have been some suggestions that have been made that 

would make that more available. 

We need to continue to work on providing appropriate incentives 

for employers to sponsor retirement accounts. Your observation is 

absolutely correct, Mr. Chairman, that the tax-deferral incentive, 

particularly for low-income families, in and of itself has not been 

effective in getting them to participate in retirement accounts. 

The Saver’s Credit puts money on the table, therefore they are 

likely to want to take advantage of the money being on the table. 

If an employer sponsors a plan and puts money on the table, workers are more likely to participate. 

With the Federal Government’s Thrift Savings Plan, we see high 

participation rates. We have also found that automatic enrollment 

is an effective way to get people to participate in retirement savings. Americans make decisions by inaction, and therefore the automatic enrollment feature where you have to opt out has also been 

effective. 

I would just identify another problem that we have, and that is, 

it is too easy to take out retirement funds for things other than retirement. They are all well worthwhile, we understand that: to buy 

a home, or health care, or similar needs. But retirement accounts 

5 

should be for your retirement. It is also easy to take out funds in 

lump sums rather than in annuities, and I think we need to look 

at the realities that people do not predict well how long they are 

going to live, and we should offer incentives so that people have income throughout their life. 

Many people start their retirement years with a healthy 3-legged 

stool for retirement security, only to find that the only leg that remains is Social Security, because they spend their retirement savings prematurely. 

So I think there are things that we can work on. There are bipartisan proposals that have been made, and I think this hearing will 

be very helpful to us to work our way through to find ways that 

we can really help Americans save for their retirement. 

Thank you. 

Senator BROWN. Thank you for your insight, Senator Cardin. 

The first witness will be Mark Iwry, Senior Advisor to the Secretary and Deputy Assistant Secretary for Retirement and Health 

Policy at the U.S Treasury Department. Mr. Iwry is the architect 

of the myRA program being launched by the Treasury and has extensive knowledge of all issues related to retirement and savings 

policy. 

Diane Oakley is executive director of the National Institute on 

Retirement Security. Before joining the NIRS, she served as Senior 

Policy Advisor to Congressman Earl Pomeroy from North Dakota. 

Welcome to you. 

Stephen Utkus is principal and director of Vanguard Center for 

Retirement Research in Philadelphia. Mr. Utkus is responsible for 

conducting the Center’s extensive research on retirement savings 

in the United States. 

Judy Miller is the director of retirement policy of the American 

Society of Pension Professionals and Actuaries. She served on the 

Finance Committee staff here from 2003 to 2007. We are glad to 

welcome her back. 

Mr. Iwry, if you would begin. Thank you. 

STATEMENT OF J. MARK IWRY, SENIOR ADVISOR TO THE SECRETARY AND DEPUTY ASSISTANT SECRETARY FOR RETIREMENT AND HEALTH POLICY, DEPARTMENT OF THE TREASURY, WASHINGTON, DC 

Mr. IWRY. Thank you, Mr. Chairman. Chairman Brown, Senator 

Isakson, Senator Cardin, thank you for the opportunity to appear 

before you today to discuss retirement savings for low-income 

Americans. 

The administration and Treasury remain committed to working 

with Congress to help secure a dignified retirement for all workers, 

and, first and foremost, Social Security is and must remain a rocksolid, guaranteed, and progressive benefit on which every American 

can rely. 

To supplement Social Security, as you have said, Mr. Chairman, 

as well as you, Senator Isakson, Senator Cardin, most secure retirement planning traditionally has included employer-sponsored 

retirement plans as well as individual savings. But too many of us 

are not on a path to be sufficiently prepared for retirement. Tens 

of millions of workers lack access to employer-sponsored plans or 

6 

retirement savings, and this puts the onus on the individuals to set 

up individual retirement accounts and save for retirement on their 

own. 

Fewer than one out of 10 workers eligible to contribute to an IRA 

actually does so. By contrast, roughly seven or eight out of 10 who 

are eligible to participate in an employer plan actually participate, 

and up to nine out of 10, to your point, Senator Cardin, in a plan 

with automatic enrollment. The risk of an insecure retirement is 

especially acute for women, for minorities, and for lower-income 

Americans. 

A number of factors are at work here. In addition to lack of 

access to employer-sponsored plans, those who are not currently 

saving may encounter minimum balance requirements and 

administrative- or investment-related expenses that make it difficult to sustain very small accounts. Also, many potential new savers may be hampered by concerns about investment risk and volatility, the challenge of making decisions regarding investment options and other financial choices, and the need to take initiative to 

establish an account. 

To help address these concerns and fill a gap in retirement saving, the President announced in his recent State of the Union address that Treasury would make available a new, specially designed savings bond to be held in a Roth IRA to provide an investment for deposits that may be too small to be of interest to most 

commercial financial institutions that offer IRAs. 

Called myRA, which stands for My Retirement Account, this vehicle will be targeted especially to moderate- and lower-income 

workers, especially to those who are first-time savers or potential 

first-time savers and those who are not eligible to participate in 

employer-sponsored plans, to give them a simple, safe, and affordable way to start saving. 

Contributions to be made by payroll deposit at the workplace could be as small as $5 each, with a minimum investment as little 

as $25. The bond will have an add-on feature so that additional 

contributions will increase the value of the bond instead of requiring the individual to purchase additional bonds in order to add to 

their saving. 

As a starter account, the myRA will be limited to $15,000 as a 

cumulative balance—obviously not a target for saving, but only a 

transition point at which people who have not already rolled over 

from their myRA account to a private-sector Roth IRA would then 

shift to a private-sector IRA. 

While it is obviously not nearly enough for a secure retirement, 

$15,000 may be enough to prime the pump to instill a habit of saving to make a new Saver’s Account viable in the private sector. 

These accounts could therefore serve as incubators for small accumulations of savings whose administrative costs might otherwise 

exceed their earnings. After savers graduate to private-sector Roth 

IRAs, they will be able to continue saving and accumulating balances greater than $15,000 that could be invested in diversified investment portfolios that have more growth potential. 

Employees who are eligible for employer plans will not be the 

target audience for the myRAs. They will have many good reasons 

to continue participating in those plans instead of myRAs, which 

7 

will complement and not compete with 401(k)s or other employer 

plans. 

The administration and Treasury are committed to expanding 

and enhancing retirement security and retirement saving, especially for lower- and moderate-income workers. To that end, much 

remains to be done, including, among other things: promoting more 

lifetime income in defined benefit and defined contribution plans; 

facilitating portability and consolidation of savings; encouraging 

employers to make 401(k)s more available, more automatic, and 

more effective; and extending coverage to tens of millions of workers not currently in the system. 

The President emphasized, in his State of the Union address, the 

administration’s continued support for legislation to provide for 

automatic enrollment in workplace IRAs for employees of firms 

that do not sponsor any 401(k) or other retirement plan. But until 

Congress acts, meaningful steps can be taken administratively and 

by plan sponsors to give workers better access to retirement saving, 

and we view the myRA initiative as one such step. We welcome the 

opportunity to work with the committee to achieve these important 

objectives. 

Senator BROWN. Thank you, Mr. Iwry. 

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

Senator BROWN. Ms. Oakley, thank you for joining us. 

STATEMENT OF DIANE OAKLEY, EXECUTIVE DIRECTOR, NATIONAL INSTITUTE ON RETIREMENT SECURITY, WASHINGTON, DC 

Ms. OAKLEY. Thank you, Chairman Brown, Senator Isakson, 

Senator Cardin. 

From the survey work that my organization, NIRS, has done, we 

found out that Americans are worried about retirement. In fact, 55 

percent of Americans told us they were very concerned about their 

prospects for retirement, and six out of 10 Americans strongly 

agreed that Washington needed to give retirement security a higher priority, so I am sure they are going to be very interested in the 

findings of today’s hearing. 

When NIRS also went and looked at the readiness of all working 

households for retirement, one of the things we realized was that 

the concerns Americans were expressing in their opinions were 

well-founded, especially when we looked at the levels of coverage, 

ownership, and savings as a percent of income. 

Clearly, the data shows that employer-sponsored plans are the 

most important source of retirement income after Social Security, 

but large shares of the American workforce lack access to a pension 

or a retirement plan, and increasingly individuals are relying on 

assets accumulated in defined contribution plans and have less access to a predictable income from a defined benefit pension. 

Those areas of the economy without access for workers typically 

tend to be small employers. Two-thirds of the employees who work 

for small employers lack access to a pension plan, mostly because 

the employer feels it is too costly or complicated to offer a plan, and 

yet both large and small employers in low-wage industries are also 

less likely to offer a plan. 

8 

The net impact, when we looked at data from the Federal Reserve Survey of Consumer Finances, showed us that 45 percent of 

households had neither the head of the household nor the spouse 

of the head of the household having a retirement account, and that 

actually translates into about 38 million households that have no 

dedicated retirement account assets. 

The other thing we found is that ownership of an account was 

very highly correlated with income and assets, and that households 

that owned retirement accounts had twice the level of income as 

households that did not own accounts and had five times the level 

of non-retirement assets as those individuals who did not have accounts. 

We also noted that account ownership was highly concentrated 

with regard to income. When you look at the top quartile of the income scale, nine out of 10 households had a retirement account in 

their financial package. When you looked at the bottom quartile of 

households by income, three-quarters of the households had no retirement account, so there really is this polarization in terms of 

that. 

When we looked at it, particularly in another study with regard 

to race, it was even more stark. Sixty-two percent of white workers 

have access to a retirement plan, 54 percent of black Americans 

and Asian Americans have access, but strikingly only 38 percent of 

Latino individuals have access to a retirement plan through their 

work. 

We also looked at account balances, and what we found there 

was, again, that same starkness. We often hear higher numbers because people just look at people who have retirement accounts and 

do not include in those numbers the number of households that 

have nothing saved. What we found there was that the median account balance for all households across the country between ages 

25 and 64 was $3,000. For those within 10 years of retirement, it 

was $12,000. 

When we looked at that as it relates to people’s income, because 

ultimately the purpose of a retirement plan is to replace your paycheck when you retire—and interestingly, we recently did some 

survey work, and people rated a paycheck, a monthly paycheck, 

equally important with the concept of portability in a pension plan. 

When we looked at retirement assets, eight out of 10 households 

across the whole age spectrum had less than 1 times their current 

salary put aside in retirement accounts. 

That is fine for people at the lowest level where they are probably on track, but when you get to individuals who are, again, between 55 and 64, what we found there was six out of 10 households 

had less than 1 times their salary put aside in retirement accounts. 

Another three of 10 had somewhere between 1 and 3 times their 

salary, and less than one out of 10 households had 4 times their 

salary or more, and at that age they really should have 5 times 

their salary, according to some financial sources. 

What we need to do, in our mind, or things that we should be 

looking at, are strengthening Social Security, as has been said, expanding access to low-cost and quality plans, such as the myRA, 

and I think we are seeing some action in a number of States where 

they are looking at what might be done. 

9 

Maryland is one State that has been looking at this, Senator 

Cardin and others, and also, I think there are other bills that are 

targeted at expanding access. And you are absolutely right, the 

Saver’s Credit is a very valuable tool. Six million workers today are 

getting a benefit. The benefit is extremely modest. It is less than 

$170, on average. I think there is some room to make that more 

attractive, more appealing, and make it a real viable option and a 

way to get people to save. 

Senator BROWN. Thank you for your insight, Ms. Oakley. 

[The prepared statement of Ms. Oakley appears in the appendix.] 

Senator BROWN. Mr. Utkus, thank you for joining us. 

STATEMENT OF STEPHEN P. UTKUS, PRINCIPAL AND DIRECTOR, VANGUARD CENTER FOR RETIREMENT RESEARCH, 

MALVERN, PA 

Mr. UTKUS. Thank you very much, Chairman Brown, Senator 

Isakson, and Senator Cardin. Thanks for the opportunity to address you today on this topic of low-income workers and retirement. 

At Vanguard, we manage over $2 trillion on behalf of tens of millions of investors, Americans, most of whom are saving those assets 

for retirement. Our mission at Vanguard is to take a stand for all 

investors, to treat them fairly, and to give them the best chance for 

investment success. 

We are particularly known for our efforts to drive down the cost 

of investing. All other things being equal, lowering the cost of investing is one of the critical levers that individuals and institutions 

do have to improve retirement outcomes. So we applaud the subcommittee’s attention to this issue today. Having a low lifetime income is one of the important risk factors for lack of preparation for 

retirement. 

Now as we consider this issue, I think it is particularly important to think about low-income workers in two categories. First, 

there are those who will remain at the lowest economic rungs for 

their working career. For these workers, Social Security does remain the bedrock of financial security. One critical way, of course, 

to strengthen retirement security for these workers is to ensure 

that Social Security is placed on a fiscally sustainable footing in 

the long run. 

Now, in addition, many Social Security reform proposals in recent years, while trimming benefits for the better-off, have expanded benefits for low-income workers and their surviving 

spouses. So Social Security is a particularly targeted and efficient 

way to help those with low lifetime incomes, and it also recognizes 

that many of these households lack the discretionary income to 

generate private savings. 

There is also a second group of low-income workers to consider: 

those who have low income today but who have rising income prospects in the future. For these workers, as their incomes grow, Social Security benefits will represent a smaller fraction of their retirement resources, and they will need more in private savings. 

Now, several developments in the private defined contribution 

system have emerged to improve retirement outcomes. As we have 

discussed already, one is automatic enrollment. Today, the majority 

of new hires into the private sector DC plan system are automatiVerDate Mar 15 2010 21:02 Sep 30, 2014 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 R:\DOCS\89779.000 TIMD
10 

cally enrolled, and automatic enrollment substantially increases 

plan participation among groups we have talked about: low-income 

workers, young workers, and among minorities. 

Now, a second important development has been the growing use 

of automatic investment solutions or programs. Defined contribution programs in the past have been criticized because they place 

the burden of investment decision-making on often unsophisticated 

workers. However, the landscape has changed considerably, so 

much so that we at Vanguard estimate that, within 5 years, the 

majority of American participants will be leaving investment 

decision-making in their retirement accounts to professionals chosen by their employers. This is particularly due to the expanded 

use of target-date funds, though not exclusively. So in effect, the 

pendulum has swung, and fewer workers are being asked to undertake the complex portfolio construction decisions that did occur 

within the retirement accounts. 

A third development I would highlight is the increased price competition that has been fostered by plan sponsor fee disclosure regulations from the Department of Labor. At Vanguard, we strongly 

believe that costs, as I said, are the important third lever for influencing retirement outcomes. As a result of these new Department 

of Labor rules, combined with intensive market competition, retirement plan costs are declining. 

Just as one illustration of this point, we now estimate that nearly 45 percent of target-date assets in defined contribution plans are 

passively invested, or index-invested, for lowest possible cost. Now 

part of this is, admittedly, what we call a Vanguard effect. By our 

estimate, we are now the leading provider of target-date funds and 

defined contribution plans. But it is also due to our competitors, 

who offer index offerings and, above all, to employers’ attention to 

the issue of costs. 

I would like to conclude my comments today by making a broader statement about retirement security in the U.S. Now, some have 

suggested a sort of glass half full/glass half empty view of retirement security based on a wide number of published studies, yet 

there are other studies suggesting that 70 to 75 percent of Americans may be prepared for retirement. 

Now, because of these different findings, there is actually, as you 

can see, a robust disagreement over a very basic policy question: 

is there a retirement crisis in America or not? As you consider this 

debate, I would recommend thinking of retirement security using 

a 3-part model. 

First, there is a group of Americans who are clearly on track, accounting for half or more of the population. For this group, maintaining current programs and incentives makes sense. 

There is also clearly a group of at-risk Americans, no doubt about 

that, often including many with low lifetime incomes. Strengthening Social Security is a critical policy lever. 

And then finally, there is this third group about which we disagree, an intermediate group. I call them the partially prepared, 

they who have taken the first steps but need to do more, either by 

saving more or working longer. Many of the automatic programs 

that I discussed today are designed to help improve outcomes 

among this particular group. 

11 

* The Secure Annuities for Employee (SAFE) Retirement Act of 2013. 

Thank you for your attention this morning. 

Senator BROWN. Well said, thank you. 

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

Senator BROWN. Ms. Miller, welcome back. Thank you for joining 

us. 

STATEMENT OF JUDY A. MILLER, MSPA, FSA, MAAA, DIRECTOR 

OF RETIREMENT POLICY, AMERICAN SOCIETY OF PENSION 

PROFESSIONALS AND ACTUARIES (ASPPA), AND EXECUTIVE 

DIRECTOR, ASPPA COLLEGE OF PENSION ACTUARIES, ARLINGTON, VA 

Ms. MILLER. Thank you. Thank you, Chairman Brown and Senator Isakson, for the opportunity to talk with you about retirement 

savings for low-income workers. 

Our retirement system today is working for tens of millions of 

Americans, many of whom are low-income. The system is not perfect, though, and more needs to be done to build on the success of 

this system and make workplace retirement savings available to 

more of those who currently do not have access, whether that is 20 

percent or 40 percent. 

There are a number of existing legislative proposals that would 

expand coverage while preserving existing plans. For example, the 

Starter 401(k) proposal in the Hatch SAFE Act * would be a big 

step in the right direction, as would a number of other proposals 

in that bill that would simplify the operation of current plans, encouraging small business owners to keep current plans and to establish new ones. 

ASPPA also supports auto-IRA proposals that would expand access to workplace savings and, like Starter 401(k), encourage employers to later step up to a more robust arrangement. Of course, 

there are proposals which will do the exact opposite, like proposals 

to slash contribution limits or turn the current year’s exclusion into 

a credit. These proposals would discourage employers, especially 

small business owners, from setting up or continuing to operate a 

retirement program. 

Why do these proposals exist? I think they buy into what I have 

called myths that distort an honest retirement policy discussion. In 

September of 2011, I testified before the full committee about these 

myths. I now think ‘‘myth’’ might be too mild a word because it 

sounds benign, and I do think these are potentially dangerous, but 

I will still call them myths anyway for lack of a better term. 

The first myth is that less than half of workers have access to 

retirement savings at work. Now, this is dangerous, because it 

gives the impression current incentives that have been targeted at 

substantially full-time workers have failed, when in fact the opposite is true. Bureau of Labor Statistics data shows 78 percent of 

full-time workers have access to a workplace plan, with 84 percent 

participating. 

The second myth is that only rich people save in 401(k)s. Now, 

this is absolutely false. In fact, 80 percent of 401(k) plan participants are middle-income Americans from households making less 

12 

than $100,000, and 43 percent of those households make less than 

$50,000 a year. 

The third myth is that the current tax incentive is upside-down. 

Now, this reflects a failure to understand that the incentives for 

workplace retirement plans are different than just about any other 

tax incentive in the code. First, it is a deferral, not a permanent 

exclusion, so every dollar excluded from income now will be included in a future year. But even if you just look at current-year 

benefits, this incentive is different. It is different because employer 

retirement plans are subject to non-discrimination rules that make 

sure contributions do not discriminate in favor of the highly paid. 

The result is, the current tax incentive for employer-sponsored 

defined contribution plans is actually more progressive than the 

current income tax system. Taxpayers making less than $50,000 

pay only 9 percent of Federal income taxes, but they get 28 percent 

of the tax incentives for defined contribution plans. By contrast, 

households making more than $200,000 pay 48 percent of income 

tax, but only receive 17 percent of retirement plan tax incentives. 

Compare this to capital gains. Nearly 90 percent of the capital gains tax benefit goes to those earning over $200,000, and about 

1 percent goes to those earning under $50,000. Now, that is upsidedown. A retirement tax incentive that provides 28 percent of the 

tax benefit to those paying 9 percent of taxes, I think, is actually 

very right-side up. 

Another myth is that small businesses will sponsor retirement 

plans without an appropriate tax incentive. I personally spent over 

20 years talking to small business owners about why they should 

set up or keep operating their plan, and with very rare exceptions 

the tax incentive was a very key factor, and in most cases really 

the factor, that supported the decision to put in the plan. 

Now, small business owners are really wonderful people with 

very, very rare exceptions, and it is not that they do not want to 

help their employees save for retirement. It is just that most small 

business owners do not have much cash. You need the cash savings 

generated from the tax incentive to help make contributions that 

are required by the non-discrimination rules. 

So it is a trade-off there, and reducing the incentive literally 

would have reduced available cash and allowed them to do less. So, 

there is no doubt in my mind that a reduced incentive is going to 

reduce coverage or lower contributions for those plans that are left 

over. 

The last myth is that it does not matter if employers terminate 

their plans because of reduced incentive because, if we re-engineer 

the incentive, make it a refundable credit, it will lead more employees to save on their own. The fact is, as Mark said earlier, 70 percent of workers in the $30,000 to $50,000 range will participate in 

an employer-sponsored plan, but less than 5 percent will save on 

their own in an IRA when there is no plan at work. 

So, changing the exclusion to a credit would have to inspire 15 

times more people to go out and take action on their own to make 

up less ground, and that is not considering what is so often forgotten in this discussion: the employer contributions that are going 

into these people’s accounts, which do not show up when you are 

analyzing strictly the tax benefit. If they have no tax liability, they 

13 

have no supposed tax benefit, but they are getting an employer 

contribution. 

In summary, the key to promoting retirement security is expanded workplace savings. Proposals like Starter 401(k) and autoIRA would expand access by building on the successes of the current system. Some other modest changes could also be made to 

make it easier for employers, particularly small businesses, to 

sponsor retirement plans. I think that these small changes would 

make a huge difference. 

Again, thank you for inviting me. I would be pleased to discuss 

these issues further. 

Senator BROWN. Thank you very much, Ms. Miller, for your insight. 

[The prepared statement of Ms. Miller appears in the appendix.] 

Senator BROWN. Senator Isakson is going to have to leave, so he 

is going to do the first question, or questions, if you need to. 

Senator ISAKSON. Just a couple of short ones. Thank you very 

much for your courtesy, Mr. Chairman. 

Mr. Iwry, let me ask you a question. Mr. Utkus made the statement that the cost of retirement accounts or the cost of setting up 

savings for retirement was somewhat of a deterrent—I think that 

was the comment that you made—or had an effect on people saving 

for their retirement. Does the myRA program have costs associated 

with it that the saver would have to pay for custodial fees or administrative fees? 

Mr. IWRY. Senator, the myRA program is designed so that there 

would be no fees or costs that the saver would have to pay. It is 

a very simple arrangement. The saver would be able to contribute 

as modest an amount as they would like, down to as little as $5 

each time, and have no fees involved in this account. 

Senator ISAKSON. And I suppose, like a regular IRA, the benefit 

would ultimately be taxable when they withdrew it, is that correct? 

Mr. IWRY. Senator Isakson, it is like a regular Roth IRA. 

Senator ISAKSON. All right. 

Mr. IWRY. You are correct. In fact, the bond would be held in a 

Roth IRA that could then roll over to the private sector, would indeed roll over to the private-sector Roth IRAs. 

Senator ISAKSON. Ms. Miller, I had a question pop up in my mind 

when you were talking about small business people. I was a small 

business person in my other life, and many small businesses do not 

have employees—they have independent contractors. 

One of the tests on independent contractors to qualify for that 

status is, you cannot offer a benefit program like a retirement plan. 

Would it be of interest to pursue IRS rethinking their position in 

terms of the independent contractor test so that small business 

people would be encouraged to offer plans for their employees to 

save for their retirement? 

Ms. MILLER. I am not that familiar with the independent contractor rules, but, if what you say is true, then that certainly 

should be considered, yes. 

Senator ISAKSON. It was not a trap, I promise. 

Ms. MILLER. No, I know. I know. 

Senator ISAKSON. It just popped into my mind. 

14 

Ms. MILLER. I did not mean to say ‘‘if what you say is true.’’ I 

should not have said that. 

Senator ISAKSON. No, no. 

Ms. MILLER. But, no. If that is the case, then yes, they should. 

Senator ISAKSON. Senators are always subject to being questioned. Do not worry about it. [Laughter.] 

And one last question. Are you familiar with the proposal Ms. 

Solis made on the fiduciary rule when she was Secretary of Labor? 

Ms. MILLER. Generally, yes. 

Senator ISAKSON. And I understand that that is surfacing again 

under Secretary Perez. 

Ms. MILLER. Yes. 

Senator ISAKSON. Would you have any comments on what would 

happen if we changed the fiduciary rule as they tried to do it? 

Ms. MILLER. We are very concerned about that, particularly in 

the small business context. We think that some significant changes 

have to be made to the re-proposed rule or else it will be a disaster. 

Senator ISAKSON. I think if we prohibit investment advice for 

savers, we are going to have even fewer savers than we had before, 

right? 

Ms. MILLER. I believe that is true, yes. 

Senator ISAKSON. Thank you very much for your courtesy, Mr. 

Chairman. 

Senator BROWN. Thank you. Thank you, Senator Isakson. 

Thank you all for your testimony, and those are all good insights. 

I appreciate that. 

I want to start with Ms. Oakley. We are starting to see some 

kind of cross-currents in the discussion, from what some might call 

retirement crisis deniers who think that there is some claim that 

the retirement crisis is based on a pretty fairly selective reading of 

data. 

I would like you to walk us through the data. What are the key 

numbers we should be paying attention to? Why do experts interpret the status so differently? 

Ms. OAKLEY. You know, there are a lot of different sources of 

data. The source, for example, that we used is the Survey of Consumer Finances, which is a comprehensive analysis done once 

every 3 years by the Federal Reserve. That is based on a survey. 

A number of other survey instruments exist, such as the consumer population survey done by the Bureau of Labor Statistics, 

BLS, and others. There are other, various surveys. There is also 

some data that becomes available via tax information as well, and 

there are different cuts of that. 

Now, each one of those has pluses and minuses. Some of the tax 

data might be missing. As you know, there are a large number of 

households where their income is so low that they do not pay taxes. 

But one of the things is, if you look at the survey data, even 

though people may understate the values of their accounts, there 

still are pretty consistent responses across a various range of survey data that lead you to understand that the data is fairly accurate, or as accurate as we have in terms of a picture. The triennial 

update from the Consumer Finance Study is only done once every 

3 years, so the data we have is based on 2010. 

15 

The 2013 data in the survey just finished being out in the field, 

and that data will probably be released by the Fed sometime later 

this year. So, there are a lot of different sources. But if you just 

look at people, just saying the amount in an account, that is very 

helpful for people who have accounts. But one of the real data 

pieces that is missing is this large group of Americans who have 

nothing saved. 

If we are concerned about low-income individuals, those are really those same individuals in many cases, and so you have to get 

to databases that are broader than just looking at account balances 

and mutual fund accounts. 

Mr. UTKUS. Senator, could I add something to that? 

Senator BROWN. Yes. Certainly, Mr. Utkus. Then the next question is for you. But go ahead. 

Mr. UTKUS. So I was going to say, though, that there is actually 

a quite varied set of studies about the sort of extent of the vulnerable population. So I think there is a general agreement that there 

is a vulnerable population in the United States. The question is its 

size and the degree of vulnerability. 

So I would encourage you—in my formal testimony, I did actually cite some of the papers from Rand, University of Michigan, the 

Federal Reserve, Williams College, and others, where independent 

economists have arrived at sort of different estimates of what constitutes a vulnerable population. 

So there is a robust debate, like there is about the weather in 

Washington, I guess, about these long-term forecasts, and they 

range in this area from half of households to three-quarters of 

households being prepared. So I think there is an actual debate 

about that. 

Senator BROWN. Each of you, if you would—and thank you for 

the lead-in to that. I mean, fundamentally we know a few things. 

We know, first of all, the fundamental question, the challenge for 

all of us as we work on pension and retirement issues, is how do 

you build retirement security for whatever the number is of people 

who have inadequate retirement savings. I mean, it is fundamentally a problem of wages and all that comes with that. 

But give me your read, each of you, and start if you would, Mr. 

Iwry, on how do you gauge retirement adequacy? I mean, how do 

we define that in your mind as people sort of strive for enough security to have a decent kind of lifestyle after their retirement? How 

do we define that to start with? And I will ask each of you that. 

Mr. IWRY. Mr. Chairman, it is a matter, I think, of looking at the 

financial risks that individuals face after their working years or 

after their full-time work starts to phase down, how they can protect themselves against the risk of not having enough assets to 

maintain a reasonable standard of living for the rest of their life 

as a supplement to the bedrock Social Security guarantee. 

There is the longevity risk that is so hard for individuals to estimate. There is the financial risk of losses in their assets; there is 

inflation risk. People need to think of their retirement preparedness in terms of probabilities, not just a flat amount that they need 

to save and have as a nest egg when they start into retirement. 

Circumstances differ. The income replacement, the degree to 

which one needs to maintain a standard of living that they had 

16 

while they were working, is the way to start defining it, what income do you need for your life, and then look back into present values and strategies for achieving that. We have been trying to help 

people—and I think many of my co-panelists have been very much 

involved in this—to think about that question on an individual 

household basis. 

The Department of Labor has put out guidance to ask 401(k) 

plans to state the amount someone has accumulated as an income 

flow in retirement, not just as a lump sum. We know that the lump 

sum characterization or the account balance is something that most 

folks find difficult to translate into a pension paycheck. How much 

of my monthly income can I supplement? 

Senator BROWN. And the amount suggests more security to many 

people than it really is. 

Mr. IWRY. Of course, yes. And, Mr. Chairman, just to wrap up, 

I would encourage all of us—and I know you are very much focused 

on this too—to keep our eyes on the prize here. We know the data 

are important, the debates over how to view the data are important, but the most important thing is what we are doing about the 

problem. 

Proposals such as the President’s automatic IRA proposal provide 

a breakthrough in coverage. Initiatives like the myRA—and I am 

proud to be a part of the team that developed it at Treasury under 

Secretary Lew, and under the President—will do what we can 

without legislation to get more people saving, more people covered. 

I think we can all agree very much on the direction in which we 

need to move and on the serious need to take action in that direction. 

Senator BROWN. Thank you. 

Ms. Oakley, how do you gauge retirement adequacy? You talked 

about 4 times, 5 times income upon retirement in savings, 4 to 5 

times of income in savings. Give me as precise a definition as you 

can. 

Ms. OAKLEY. Well, let me start with a little story, Senator, if I 

could, just to give you some sense of how complicated this is. I was 

giving a speech, and I went and Googled, ‘‘how much do I need to 

retire,’’ and in 37 seconds I got 3.8 million answers coming up on 

Google in my search. So it is not an easy question to answer, and 

everybody has a different answer to it. 

But there seems to be a growing consensus. There has been this 

thing of, do you need 70 percent, do you need 80 percent to replace 

your income to maintain your standard of living? You could also 

look at, what do you need for bare expenses? There has actually 

been a study done. What does someone need, bare living expenses? 

My eyes popped open when I looked at it. 

They would say a household, a couple, needs about $20,000 a 

year for basic living expenses. But that might mean rent of only 

$500. I live in the DC area, and I am trying to think of where I 

could get an apartment for $500. So I think there are different levels of that for each household. 

If we also care in this country about our economy, one of the 

things we know is that retirees spend their money, and it is a really powerful part of our economy. It generates a trillion dollars of 

economic output in the GDP. 

17 

So, if we have a large generation of individuals who have to cut 

their standard of living dramatically because they do not have the 

resources, what I will also say is, we found interesting studies that 

were done by Fidelity and another group called Aon Hewitt, done 

with the University of Georgia, where they looked at and tried to 

simplify this for Americans so that they could say, well, when you 

are 50 years old, you need 5 times your salary put away for retirement. 

The Fidelity numbers came up, when you are 67, you need 8 

times your salary. That is in addition to Social Security. When we 

look at the numbers where most of the households are in our work 

from the Federal Reserve data, we are so far beyond that. We have 

nine out of 10 households that are not on those sort of graded 

benchmarks that Fidelity has put out there. So I think we do have 

people who are falling behind. Some people can make up the difference, but we also have a lot of people who just are not in the 

game, and getting them in the game and what has been proposed 

with the myRA, I think, will make some differences. 

Senator BROWN. Mr. Utkus? 

Mr. UTKUS. So again, maybe I will answer this slightly differently. I think Ms. Oakley pointed out properly that there are 

various measures of adequacy. I think from a policy point of view, 

there are measures of, is it about creating minimum standards or 

optimal replacement rates for households? Those are the questions 

in front of the committee. 

But I come back to this model of, we have three really distinct 

audiences. We have a group of audiences who appear to be wellprepared. It is half of Americans, possibly more. Then there is a 

group of Americans who have very low lifetime income, for whom, 

by the way, additional discretionary savings is not an appropriate 

policy lever. You have to figure out where to draw the line of where 

that threshold is where Social Security will be the principal and 

sole retirement income support. 

And then really the debate is, what is the extent of the problem 

we are trying to solve for this remaining quarter of Americans who 

earn higher than the sort of lowest possible income group, yet on 

the other hand are not doing enough with the available tools? I 

think that sort of crystallizes the question in front of policymakers. 

There are three very different audiences. 

Senator BROWN. Thank you. 

Ms. Miller, let me phrase it a bit differently with you—— 

Ms. MILLER. Sure. 

Senator BROWN [continuing]. Partly because you have said some 

things that the others seem not to agree with in some cases. The 

Census Bureau’s Survey of Income and Program Participation— 

slightly different numbers from yours but not significantly different, maybe—indicate 70 percent of workers had access to a retirement plan, and 80 percent of those with access made contributions. That would mean 56 percent of workers—if 70 × 80 equals 

56, which I think it does [laughter]—participate in a retirement 

plan, understanding that participation does not necessarily suggest 

adequate dollars, obviously. 

Ms. MILLER. Absolutely. 

18 

Senator BROWN. So how much money do workers need so they 

are ready? I mean, how many near-retirees are on track to be 

ready for retirement? Your thoughts on that—how many are there? 

Ms. MILLER. I have to build on what everybody is saying, which 

is, it is unfortunately not a simple answer. I would add one other, 

what I think is an incredibly important piece to this puzzle, which 

is: what happens with Medicare, and what have we done to help 

people with things like nursing home expenses or medical assisted 

living? Because one of the differences with some of these models is 

what they assume about medical expenses in retirement, and how 

that is going to interact. 

So you have to assume status quo and kind of go from there, and 

I think that what makes for a secure retirement is absolutely individual. In my hometown of Greensburg, PA, I think you can get by 

on a pretty modest amount of income, whereas, if one were to stay 

here, it is very different. Many of us who live here—myself included—in order to retire comfortably, intend to sell our home and 

move to a place where we can buy one a lot less expensively and 

have something else to add to it. 

So when we are looking at—and I am not trying to avoid the 

question, it is just that I think that we have to look at the bare 

expenses as an absolute minimum. I think, as others have said, for 

people who are at an income level where they do not have discretionary income to build up a substantial retirement, Social Security 

is obviously where that is largely going to come from. 

Then having some discretionary funds available for unusual expenses, whether it is a car repair or some other kind of lump sum 

need, I think is important. Like many of us, I think of this in very 

personal terms. It has been 20 years since my mother retired, but 

when she did, she basically was able to live on Social Security in 

Greensburg, and she had her IRA and she did cash out her DB 

plan, in spite of whatever advice. 

Senator BROWN. In spite of her expert daughter’s advice. 

Ms. MILLER. But her monthly income was fine for that environment. Having that pot of money to use to occasionally get a new 

car or occasionally to go out to dinner with her friends made her 

pretty comfortable. Well, I would not want to live like that. My 

measurement is a different measurement. 

So, unfortunately, I am not giving you a good answer, because 

there really just is no easy answer to this, and it really depends 

on where you live, what your medical needs are, what other assets 

you have to deal with that. 

Senator BROWN. And it is interesting that—well, let me go somewhere else here. You were the first person, I think, on the panel 

to mention housing. I think Ms. Oakley mentioned the cost of an 

apartment. 

Ms. MILLER. Yes. 

Senator BROWN. But the whole issue of equity in a home. If your 

mother was like many of her generation in small towns, she maybe 

had her home paid off by then. 

Ms. MILLER. She had an apartment. 

Senator BROWN. She had an apartment? 

Ms. MILLER. Yes. 

19 

Senator BROWN. All right. But what do we include? I said to Senator Isakson before he left that one of the tragedies of this whole 

discussion is that the equity people had in their homes 5 years ago 

or 10 years ago has largely evaporated, or worse. 

Ms. MILLER. Exactly. 

Senator BROWN. Does it make sense to include home equity in 

measurements of retirement preparedness, do you think, Ms. Oakley? 

Ms. OAKLEY. No. I think your home equity or even your cost of 

housing is just another important piece. A lot of retirees—we are 

seeing more and more people go into retirement with mortgages. In 

my organization, we are just in the midst of really preparing for 

another study to be released. 

On a preliminary basis, we are looking at the cost of housing for 

seniors, and we are finding that, compared to before the recession, 

when there were about 14 States where 30 percent of retirees were 

at the level of having more than 30 percent of their income being 

paid towards housing costs, we are now at double that amount in 

terms of States where there is a large majority of individuals having more and more of their total income going toward housing 

costs. 

So housing costs are important. I think the housing value is 

something you have to look at as well. A lot of people do not want 

to sell their house that they have grown up in and lived in, even 

though they have equity in it. 

I think if you want to talk about stories of my mother, when my 

mother went into the nursing home, I found this yellow sheet on 

which she was calculating how much money she could spend each 

year—or how little money she could spend each year—so that she 

could stay in her house before she would have to sell her home. I 

mean, that is the type of debate that is going on around kitchen 

tables all over America. 

Mr. UTKUS. Just on the housing issue, you have to, in any calculation of retirement adequacy, include it because, if you live in 

your home—let us say you live in a home in an expensive area— 

that is $1,000 worth, if you will, of rental income you do not have 

to pay a month. That is $12,000 a year. 

Senator BROWN. That is your Social Security check for many people. 

Mr. UTKUS. So if you take out, of course, the cost of maintenance 

and utilities and so forth, still, the whole point is, economists are 

pretty clear that at least part of that is a substantial resource. It 

is rental costs avoided. That is why, for example, some of these 

numbers that we talk about on retirement adequacy always do look 

better. So I think that is the important issue on housing. 

Senator BROWN. Mr. Utkus, what are these reverse mortgages 

that Senator Thompson and others hawk on TV to this question, 

without judging what he is doing? 

Mr. UTKUS. Well, Senator, I have to plead relative ignorance 

about the reverse mortgage market. What we do know about home 

equity in retirement is this—we know two things: (1) it is used first 

and foremost as a way to save on the cost of living while in the 

early phases of retirement, and (2) we know from economics research that it is used at the time of either the death of a spouse 

20 

or your own illness for paying costs for nursing home care. As you 

know, before you qualify for Medicaid for nursing home care, you 

want to deplete assets and use those private resources to pay for 

private nursing care. 

So it does seem that a house is a really interesting resource in 

the first sense, in that it helps you save on rental costs while you 

are sort of in the active stage of retirement, but later in life it is 

a critical resource used to pay for private nursing home care before 

Medicaid kicks in. 

Senator BROWN. All right. I think this is probably for you, Ms. 

Oakley and Mr. Utkus, but any of the four of you can respond to 

it. You talked about the distributions in private retirement accounts. Andrew Biggs, who testified here on another couple of retirement issues a while ago, and Sylvester Schieber write that seniors are doing better than we think because Census data does not 

include lump sum distributions to IRAs and 401(k) accounts. 

The question is not whether these distributions exist, obviously, 

or their size. We know they exist. We are talking about a great 

deal of retirement wealth. You know a lot about that, Mr. Utkus, 

at Vanguard, as your competitors do. Talk to me if you could about 

who is receiving the distribution from these private retirement accounts. I mean, obviously people who made more money have more 

in their accounts, but give me some information about, who is the 

beneficiary of these distributions? Ms. Oakley, you want to start? 

Ms. OAKLEY. We do not have data on that, but we actually did 

a study looking at the income sources of seniors in retirement. 

Again, looking at the data, not so much the survey, what we generally found was that the data with regard to distributions coming 

from 401(k) accounts was negligible in terms of an impact in keeping people out of poverty. 

But we did notice, in contrast to that, that for individuals who 

were receiving distributions, predictable DB plan payments, 

monthly checks in retirement, we found that there was a real important role that those accounts were playing, such that someone 

who had a defined benefit plan payment was 9 times less likely to 

fall into poverty than someone who did not have a defined benefit 

type of payment. So we think the idea of making sure that there 

is some type of lifetime payment does have a really big difference 

in terms of senior poverty levels and maintaining—— 

Senator BROWN. Well, we kind of know that. But the question is 

not, is it desirable, because they are disappearing—— 

Ms. OAKLEY. Right. But we found that the defined contribution 

plans, really, right now on the data that is out there, just do not 

show up as a significant force. 

Senator BROWN. Mr. Iwry, do you want to speak on that? 

Mr. IWRY. Mr. Chairman, I would add to what Diane Oakley has 

said. I think you are focusing on a key issue. The nature of the distribution matters. When there is guaranteed lifetime income, such 

as the Social Security program provides, such as defined benefit 

pensions have traditionally provided but increasingly less so, such 

as even 401(k)s and IRAs can provide, we make it much easier for 

the individual to make sure they do not run out of savings during 

their retirement. 

21 

It is easier for the individual to manage their assets and figure 

out how much they can prudently spend consistent with retirement 

security. Treasury and the Labor Department have been working 

for the past several years to emphasize the importance of keeping 

the pension, the regular monthly payment for life, in our private 

pension system. 

We have been issuing guidance designed to encourage individuals to consider seriously these lifetime income options, to encourage plan sponsors to consider seriously putting lifetime income into 

their plans or making them a more salient choice for the individuals in those plans, whether they are 401(k)s, IRAs, or defined benefit pensions, which so often pay lump sums instead of lifetime income. 

Senator BROWN. Mr. Utkus? 

Mr. UTKUS. I was going to add—if I could use Judy’s mother as 

an example—so when Judy’s mother went to her IRA and used 

money from her IRA to support her standard of living in retirement, economists doing the work in Census decided that that was 

not income because it was an aperiodic or an ad hoc withdrawal. 

So if I, for example—— 

Senator BROWN. It would have been income if she had annuitized 

it. 

Ms. MILLER. Right. 

Mr. UTKUS. Or if she had set it up as a monthly withdrawal 

plan. But because she took the money and spent it—so for example, 

if I take money from an IRA or a 401(k) plan on the advice of a 

financial planner once a year and put it in my checking account 

and use it for income, that does not count as income from my IRA 

because I took it once and it was not scheduled. So there is just 

an empirical problem that—— 

Senator BROWN. But either way, the distribution is going to a 

relatively small number of people, and the tax code incents any of 

us who can to take advantage of that, and people who set up—— 

Mr. UTKUS. Well, this gets back to your earlier question, I think, 

which is that today, among older households, about half of households have what you would call tax-deferred retirement accounts. 

The benefits of those accounts obviously accrue to those households. As I think Diane pointed out, the median balance of those 

owning those accounts today at retirement age is $100,000, but the 

median balance of those, of course, not owning accounts is zero. So 

I think you have to think about two different elements of this. One 

is that the median balance of people who have these savings vehicles is $100,000—— 

Senator BROWN. And that $100,000, the group you are talking 

about is all ages or those above 55? 

Mr. UTKUS. I was talking about pre-retirees. 

Senator BROWN. Any period—so a 40-year-old with $60,000 is 

part of that average of a 60-year-old with $120,000, correct? 

Mr. UTKUS. No, no. I was just saying for people, say preretirement age, say 60 to 65—— 

Senator BROWN. Oh, 60 to 65, it is $100,000. 

Mr. UTKUS. It is actually about the same number—— 

Senator BROWN. So, even if the universe is only those who have 

savings, retirement savings, excluding those who have zero, that 

22 

number is inadequate, clearly, depending on if they have a defined 

pension benefit and all that, obviously. 

Let me ask you the question this way. Is the reason that baby 

boomers—well, first of all, I assume that baby boomers are less 

prepared for their retirement than those who have more recently 

retired, are slightly older, correct? 

Is the reason for that incomes, or is the reason for that the decline of savings, or is the reason for that decline of defined pension 

benefits? Or is it all three, the reason that baby boomers are less 

prepared for retirement than those who have retired in the last 10 

years? 

Are we as baby boomers—which I think the four of you and I are; 

I do not want to judge the age of anybody, but I think so—less prepared because we have fewer defined pension benefits, or we save 

less, or our incomes have stagnated, or is it all three? Do you want 

to answer that, Ms. Oakley? 

Ms. OAKLEY. It is really a combination of all three. We have 

looked again at the data from the Federal Reserve about who has 

a DB plan. So the baby boomers, the early baby boomers—because 

they go over, like, 20 years, the baby boomers—— 

Senator BROWN. Right. 

Ms. OAKLEY. So the people between 55 and 64, about 60 percent 

of those households have someone, either the spouse or the household head, who has a defined benefit plan either on its own or as 

part of their retirement account mix. When you look at the second—— 

Senator BROWN. That could be a 401(k) with annuitized planned 

payment payout. 

Ms. OAKLEY. It could be an IRA or something like that. Right. 

If you look at the younger level of the baby boomers, those people 

between 45 and 54, the level drops precipitously so that now the 

majority of people are really going to rely only on a defined 

contribution-type of an account in retirement at that level. So there 

is a difference among the baby boomers themselves, besides what 

has happened in the past. Then when you start to look at those account values again, people in or out of—— 

Senator BROWN. So let me interrupt. So the baby boomers born 

in the 1940s are better off, taking into account age, than baby 

boomers born in 1958 or 1959? 

Ms. OAKLEY. Yes. 

Mr. UTKUS. I do not know that that is the case. 

Ms. OAKLEY. Well, they have—— 

Senator BROWN. They have a higher percentage of defined benefit, DB, plans. 

Ms. OAKLEY. They will have a higher percentage of those households having some type of defined benefit income. 

Mr. UTKUS. I just want to be clear, though. So there is the median American versus people in defined benefit plans. It is a very 

different group. We know that defined benefit plans were typically 

held by affluent, long-tenured men, college-educated, in major corporations in the United States. Those are where the most generous 

benefits accrued. That was not the typical American. 

I think the estimate is that boomers’ resources, in terms of Social 

Security, Medicare, Medicaid, 401(k)s, DB plans that are still in exVerDate Mar 15 2010 21:02 Sep 30, 2014 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 R:\DOCS\89779.000 TIMD
23 

istence, and so forth, the resources that they command compared 

to their parents, will purchase more in income, and they will have 

an absolutely higher standard of living. 

But because baby boomers were richer than their parents in 

terms of income and did not save as much, whether through DB 

plans or through 401(k)s or through personal savings, they in fact 

will have somewhat lower replacement rates. 

So I think it is very clear in the data that boomers will be richer 

than their parents but relatively less well-off on a replacement 

basis. You just have to look at the real value going from Social Security to Medicare, but it would be substantially greater to the 

boomer generation. 

Ms. MILLER. I would like to add that one of the things that happened with boomers is, those who did have a defined benefit plan 

and had it frozen and then had their 401(k) plan that they probably had not had for their whole working lifetime, lost accruals in 

DB plans when they were most valuable—because the accruals are 

worth more as you get older—and instead are saving in their 

401(k) plan when there is less time for it to accrue. 

I know that Steve has said—and I wish I had it in front of me, 

but I do not—EBRI has done some work that I think shows 

boomers as being probably not the group as a whole that we should 

be most worried about; rather, it is a little further down the line. 

Ms. OAKLEY. Although there are some other studies from the 

Urban Institute where they looked at those late boomers, the second half. Senator, what they found was that, of middle-income 

boomers, four out of 10 are at risk of falling into low-income levels 

when they retire just because of not having saved enough, not having enough time to recover, for example, from the last Great Recession and what that did to their levels of savings as they get ready 

to retire. 

Mr. UTKUS. And I think that is right. All I observe is that, look 

at older retirees today. The old-age retirement income is $30,000 

a year, most of which is coming from 2-earner Social Security. 

So that is typical, and I think that gets back to this question of, 

who is the focal point? The low-income worker, I think, is quite different from the median-income worker, who is different from sort 

of the upper-income worker. That is why they get—— 

Senator BROWN. Let us talk about that. The lowest-income worker is—I mean, some significant number of them have a negative 

net worth, some significant number of them, so just by definition 

they cannot save unless they have had some myRA exposure opportunities. The second quartile, the second-lowest quartile, if you 

will, has an average net worth of $35,000. For that group, there 

can be some retirement savings. Let me back up on the low end. 

The lowest quartile, I mean, a minimum-wage worker, particularly if we can raise it to—this is more commentary on the low 

minimum wage in my mind. But if we raise the minimum wage to 

$10, or to $10.10 as the President suggests and our legislation 

does, that is not a lot more income than Social Security. 

The average Social Security check in Ohio is $1,300 a month. Is 

that right? Something like that. So that is not a lot less than the 

minimum wage. But put that group aside for a minute. The second 

quartile—what does their retirement picture look like, Mr. Utkus? 

24 

I mean, you have talked about, the lowest earners are not going 

to be able—I mean, we just have not addressed their savings. How 

about the second quartile, second to the lowest? 

Mr. UTKUS. Well, this is where I definitely agree with Ms. Oakley that, as you go up the income level, retirement preparation improves. So, when you go into that second quartile group, you are 

going to see some people—you are still going to see people at risk, 

but you are going to see some improvement in the number of people who are partially prepared and maybe a few who are adequately prepared. 

So I think it does get to the heart of the question of, of this 

group, where private savings is possible, as opposed to the lower 

group, where I think we all agree that if you are earning less 

than—the bottom quartile, I think, is $24,000. I looked that up before our discussion today. So, for households earning less than 

$24,000—— 

Senator BROWN. This is the $24,000 for pre-retirement earners? 

Mr. UTKUS. Yes. Yes. Or working-age households. 

Senator BROWN. Yes. 

Mr. UTKUS. Yes. That is sort of the bottom, I think, quartile. 

That is a group that is very unlikely to accumulate private savings, 

and, when they do—I think I had this conversation with one of 

your staff members—when they do, they are more likely to apply 

it to debt reduction, emergency savings, even purchase of a home. 

So that is where the savings among the very lowest-income 

households go. When they do in fact save, they are going to do it 

mostly for emergency savings. I think the debate then is what to 

do about this second quartile of income in terms of plan offering 

and plan participation. 

Senator BROWN. Thank you. 

What does your company, Mr. Utkus, say about the importance 

of Social Security? You do not obviously make a lot of money off 

the lowest quartile—even the two lowest quartiles, but especially 

the lowest quartile. What do you say about Social Security, as a 

company, about its importance, its changes, suggested changes? 

Have you addressed the issue or taken a position on the issue, or 

should we find a way to increase payout to low-income workers, to 

the lowest-income workers? What does Vanguard say, as a company? 

Mr. UTKUS. Senator, we actually have not developed a fully 

fledged proposal on Social Security reform. However, what I observed in my testimony is that every proposal, from the ones that 

create private accounts to the one that maintains its defined benefit character, every proposal that I am aware of over the past 15 

years always included provisions to increase minimum payments 

for low-income workers and their surviving spouses to deal with 

some of the issues I think Ms. Oakley raised. 

So there really is this seemingly unanimous agreement that, for 

the lowest-income households, that is going to be the critical policy 

lever. The current minimum benefit in Social Security, which really 

no one really qualifies for because it is so low, is really an ineffective policy instrument. So I think that has been the uniform recommendation from all those studies. 

25 

Ms. OAKLEY. Senator, if I could add, when we did some of our 

survey work, one of the questions we asked Americans was, what 

were some of the barriers to using saving for retirement, or to you 

getting a secure retirement? Most of the lower-income individuals, 

people with incomes under $35,000, said their salary was one, an 

important one, but there was also a really interesting thing about 

Social Security. 

We asked about raising the Social Security normal retirement 

age to 67, and there was a big divergence in opinion on that between households at an income level of $35,000 and below, where 

69 percent of them said that that was a major challenge to their 

retirement security. And I think the one thing we all know is, 

when we raise the retirement age—and that is one of these proposals often in reforms—that really translates into a benefit cut, 

especially if individuals retire earlier. That means they get less income from Social Security. 

So we clearly see at the low-income level a concern about that. 

That is, when we ask the same question of people from households 

with $75,000 of income, it was a concern of only 40 percent of the 

individuals who responded to the survey. So I think, at the lowincome level, there is a real difference in terms of, what do you do 

and how do you change Social Security? 

Senator BROWN. Pope Francis said not too long ago that he exhorted his parish priests to go out and smell like the flock. When 

I hear talk of raising the retirement age or raising the Medicare 

eligibility age, I think that all of us who do this for a living should 

be doing what the Pope has suggested and actually listening to 

people in situations like that. 

I will never forget, I was in Youngstown 2, 3 years ago at a town 

hall in a poor area of the city. A woman—this is not a Social Security issue but it is a retirement issue more or less—said, ‘‘I am 63 

years old.’’ She was working two jobs. She had never made much 

money. She said, ‘‘I am 63 years old. I just have to stay alive another year and a half so I can get health insurance, so I can get 

Medicare.’’ 

To think that you define your life that way: I have to stay alive 

so I can get health insurance, not stay alive so I can raise my 

grandchildren or do something, I mean that is—when I hear talk 

of retirement age and people like us saying it, dressing like this 

and living like this—anyway. 

Mr. Iwry, talk to me more about the myRA. Whom were you 

thinking of when the myRA was conceived? I mean, talk to me 

about the kind of person you were thinking of and describe that 

person to me. 

Mr. IWRY. Mr. Chairman, we were thinking of the kind of person 

you just referred to. We were thinking of ordinary Americans, people who do not have savings now, people particularly who do not 

have the good fortune to be in a defined benefit pension or have 

eligibility for a 401(k) or another employer-sponsored plan, people 

who are moderate- and lower-income. 

Those groups, moderate- and lower-income, people not now saving, people who could be saving if it was made easy and convenient 

enough for them, those are the target audience. Because this program has virtually no minimum investment—$25—has a $5 minVerDate Mar 15 2010 21:02 Sep 30, 2014 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 R:\DOCS\89779.000 TIMD
26 

imum contribution, has payroll deduction, has the convenient way 

to help people get past the barriers of having to open up their own 

IRA and decide what type and at which institution and how to invest their funds and so forth, it is done for them to a very great 

extent. 

Senator BROWN. Well, let me ask it this way. Thank you for that. 

Let me ask it this way. The challenges are many, of course. One 

of them is, people become aware of these things. I stopped at a fast 

food restaurant between Dayton and Cincinnati a few months ago, 

right before the health care roll-out. This was September. There 

was a lull, nobody at the counter at that time. 

I walked up to the counter, and I was talking. There were five 

or six workers there, mostly in their 30s, probably late 20s, 30s. 

None of them made more than $10 an hour, except maybe the supervisor. I asked them if they had health insurance. One did because his wife had it—or her husband, I cannot remember—so only 

one had health insurance. 

I asked them about—this was September. I asked them, were 

they looking forward to the Affordable Care Act, or were they going 

to sign up? None of them knew about it. These were not 17-yearolds, these were people in their late 20s, early 30s. None of them 

knew about the Affordable Care Act, so they had no idea how to 

sign up. 

So my question is this: how are those fast food workers who are 

not—I mean, one reason I want to raise the minimum wage is because I do not really buy that every one of those fast food workers 

is going to graduate to a better, and better, and better job and 

make $50,000 a year, $40,000. Many of them are not going to do 

a lot better than they are doing now because of the economic situation, because of their education, because of their opportunities, 

whatever it is. 

So what do these workers lives’ look like in 20 years? If myRA 

is implemented the way you want, this now 32-year-old fast food 

worker in Dayton, OH, who in 20 years will probably not be working there but probably not be in anything approaching a middleclass job—mostly high school graduates, probably not Sinclair Community College, probably not University of Dayton, whatever, but 

wherever they are going—where do these myRA people end up? 

What do they look like? What do their lives look like in 20 years 

in your concept of this? So, two questions. How do you get it so 

they know about this, and, second, what do their lives look like in 

20 years? 

Mr. IWRY. Mr. Chairman, for them to—— 

Senator BROWN. What do their savings lives look like in 20 

years? 

Mr. IWRY. Right. Understood. First of all, how do we get them 

to know about this? The President started out by highlighting the 

need for more retirement security, for more retirement saving, especially among ordinary Americans such as the people you are describing, in his State of the Union address just a few weeks ago. 

This program, myRA, is intended to start them down a path 

where, 20 years from now, they will be saving regularly on their 

own in a private-sector retirement saving arrangement, ideally 

with employer plans. But whether or not they are fortunate enough 

27 

to be covered by an employer plan, something that we want to 

focus on and expand at the same time is, they will have been started into the habit of lifelong saving. 

Senator BROWN. Let me interrupt and continue on that. 

Mr. IWRY. Sure. 

Senator BROWN. Is implicit in that that they will no longer—I 

mean, is part of this the whole issue of the unbanked, that they 

will not go to the payday lender, that they will be at some kind 

of—— 

I assume that—I mean I kind of know what your answer is going 

to be, but include that in the answer too, how that translates into 

changing that pattern of having to go to a payday lender and then 

instead going to some financial institution if their myRAs encourage them to do that. 

Mr. IWRY. The process of starting to save and watching one’s self 

accumulate a nest egg is something that has worked wonders for 

a lot of people, including people in the lower ranges of the income 

distribution. We know, Mr. Chairman—and this is very much a bipartisan point—that saving on one’s own, saving with the benefit 

of convenient aides for saving, such as a myRA or automatic enrollment in a 401(k) or automatic enrollment in IRAs, as the President 

has proposed, helps people gain a sense of greater independence, 

of financial security, of hope that they can keep going, keep saving, 

keep accumulating, reduce their debt, avoid financial practices that 

are not good for them, increase their financial capability, their financial literacy. 

It is an occasion for people to learn more and to grow and to particulate in the system more actively. There are all sorts of benefits, 

tangible and intangible, once we get people into a lifelong habit of 

saving. The two critical elements to that are: get them to start, get 

them to continue. The myRA is intended to get people to start, to 

encourage them to do so. It is voluntary with employers, it is voluntary with individuals. But the idea is that it is not only that 

these people do not earn so much and do not have a lot of disposable income that keeps them from saving now, it is also that the 

saving arrangements are not easy or convenient enough. 

That is the importance of employer plans, or lacking an employer 

plan, payroll deposit saving, the automatic nature of it, Mr. Chairman—that once it starts it just continues, and it can continue for 

those whole 20 years and longer. That is what we would hope, that 

20 years from now millions more of those people you are talking 

about will have actually had their lives transformed for the better 

by having gotten into the saving habit this year. By the end of this 

year, we are hoping that the myRA program will be ready to be implemented. 

Through that, plus more sweeping measures that Congress can 

enact—such as automatic enrollment of tens of millions of people 

in payroll-deduction IRAs—we can have those folks in a much better place in terms of financial security and a sense of independence 

and full participation in our system. 

Senator BROWN. Thank you. Mr. Utkus, so with this fast food worker who puts $20 a paycheck, if they can do that much, into their myRA, and then they 

reach the $15,000 level, and then they get to experience the VanVerDate Mar 15 2010 21:02 Sep 30, 2014 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 R:\DOCS\89779.000 TIMD
28 

guard effect, if I can bring that up—talk to me. I understand your 

fees, or what I have been given is a ratio—the average expense 

ratio for Vanguard funds is slightly less than two-tenths of 1 percent, one-fifth what is average for the mutual fund industry. That 

is the number I have been given. 

Two things. One is, how do we make sure that those myRA man- agers charge the bare minimum when workers get to the $15,000, 

if they come to you, if they come to Fidelity, to whomever they go? 

Second, how do we educate those who hold these myRAs in sophisticated issues of investment? I know you said that it is good news. 

I understand it also would be good for your company, but it is 

good news, and I agree with that, that more and more people are 

turning those investment decisions over to professionals chosen by 

their employer. This will be a different situation. So this fast food worker who now has the $15,000 and comes to 

Vanguard, how can we be assured that it is going to be done right, 

and how do you advise that person when there is not a lot of money 

to be made from that person’s account? Where does that go then 

when they get to that number 4 years from now, or whatever? 

Mr. UTKUS. Well, interestingly enough, what happens today if 

you show up with a $15,000 IRA is, overwhelmingly, people at Vanguard choose target-date funds as their IRA choice because of the 

simplicity of choice. 

It used to be, by the way, that when individuals would show up 

with their IRA contributions, they might make decisions based on 

recent fund performance, funds that were doing particularly well, 

which is actually not always a good way to structure these decisions. But the innovation of a target-date fund really has eliminated this focus on accumulating different types of assets for your 

portfolio and focusing instead on the date you expect to retire, the 

risk of the portfolio you are taking on, and of course the cost you 

are paying. So I think that is, in fact, what would happen in this 

kind of arrangement. 

In fact, I know Mark has discussed the whole question of how 

these arrangements will leave the Treasury platform and move into 

the private sector. That is an open area of discussion, exactly how 

that might happen. But certainly our thought would be that a simple solution would be a target-date series solution with low cost. 

Senator BROWN. Are you concerned that these myRAs would 

crowd out, compete with, or replace private retirement accounts? 

Are you concerned about any competition from them for your company? 

Mr. UTKUS. No, we do not think of it in those terms, because this 

is a group of employers that does not offer retirement plans today. 

We actually have a fairly robust and growing relatively new offering serving small employers, but those of course are the employers 

that do offer plans, sort of Judy’s natural clientele. But in fact, we 

think it is a useful addition to the savings landscape. 

I think Mark characterized it very well. It is a bit of what we 

would call a sandbox, or an experiment to sort of work through the 

mechanics of serving the millions of small employers who may be 

interested in it. But the real question, the real lever in influencing 

retirement savings, comes with automatic enrollment, not the voluntary nature as it is structured today. 

29 

Senator BROWN. I want to talk at some point, Mr. Iwry, but I 

want to move to other things. We have about half an hour. On the 

whole financial literacy question, I just hope that—I assume you 

are, but I hope—you are doing a lot of thinking about that and how 

to engage with people who have myRAs on financial literacy questions, but I cannot imagine you are not thinking about them already. 

Let me talk about the Saver’s Credit. Any of you certainly can 

respond to this. How do you reform the Saver’s Credit to make it 

a stronger incentive for, I guess, the bottom two quartiles or quartiles we are talking about today, the bottom half or bottom 40 percent? Who wants to start on that? Do you want to start? Just, how 

do we do this better? 

Everybody on this panel, and the other two Senators, seemed to 

like the Saver’s Credit. I think it generally gets good reviews, but 

it is obviously a bit inadequate still, or more so. So talk that 

through, if you would. Each of you, if you have an opinion, I would 

like to hear it. 

Mr. IWRY. Mr. Chairman, the Saver’s Credit was originally designed in the late 1990s–2000 to be much more robust than the 

Saver’s Credit as enacted. It had a 50-percent credit rate instead 

of the 10-percent, 20-percent, and for a few eligible people 50- 

percent, credit rates that it now has. 

The 50-percent rate was much more robust, applied across the 

board. It would be available to a larger portion of the middle class 

in America. The income limits right now go up to $30,000 individual, unmarried, and $60,000 married filing jointly. It could usefully be extended to more of the middle-income group beyond those 

maximums. It could be made refundable. 

Right now the Saver’s Credit is not refundable, yet the way it 

was originally designed and proposed, it would have been available 

to the 50 million or so families who pay their Social Security taxes 

and participate as working households in our economy but do not 

owe Federal income tax because their income is not high enough 

or because they have an Earned Income Tax Credit. 

So the refundability of the Saver’s Credit, having a single 50- 

percent credit rate instead of the three rates that it now has— 

which are much less of a playing field leveler for the lower- and 

moderate-income people who are eligible for the Saver’s Credit— 

and having it extend to more of the middle class, middle-income 

people, would be fundamental reforms. 

Many have also suggested that the credit be deposited in the account in which the person is saving, so, if you are saving in a 

401(k) or an IRA, that the credit go into that account. That is another possible improvement. It would have to be administratively 

feasible before that is done. 

But right now, that is why the myRA has been designed to be 

encased in an IRA account, a bond with the full faith and credit 

of the United States backing it in a Roth IRA so that the individual 

who is contributing to this retirement savings bond would get a 

Saver’s Credit under current law, and hopefully, if we can expand 

the Saver’s Credit, a more robust one in the future. 

Senator BROWN. You wanted to comment too, Ms. Oakley? 

30 

Ms. OAKLEY. I guess, Senator, the one thing I would add is, having worked for Congressman Pomeroy, he actually introduced a bill 

to do almost everything Mark talked about when he was in the 

House, which was expanding the credit, making it refundable, enabling that credit to perhaps go back into the account and perhaps 

even giving the employer, if it was an IRA or a 401(k) account, 

some of that credit as something to help them meet some of the 

non-discrimination tests as a way to encourage employers to want 

to accept that money. 

I think the Saver’s Credit really can be a very valuable tool. It 

could be a much more substantial benefit for some of the individuals. As I mentioned, right now the average benefit in that Saver’s 

Credit going to the households who elect it is only $170. For many 

people, if you are putting in $1,000, that is not much. But what we 

used to describe as the Uncle Sam match can be a really powerful 

tool for people who may not have an employer match. 

Senator BROWN. All right. Thank you. 

Ms. Miller, do you want to talk about that? 

Ms. MILLER. Yes. I would agree with, number one, simplifying it. 

If you look at it now, it looks way too confusing. I think just having 

the 50-percent credit as it was originally intended would make it 

a lot easier to talk about. 

That gets to my second point, which is communicating it. I found 

in practice that there were an awful lot of people who had no clue 

that it was out there. They may never know. If they file an EZ 

form, they may not even claim it. So I think there was a letter in 

the Collins-Nelson bill directing IRS to make it so that you could 

claim it on the 1040EZ, which is something about which I think 

letters have gone out from the committee before. But I understand 

it is hard to change a form, but many of the people who are eligible 

for it file the EZ and do not even know it is there. 

With regard to depositing it into the account, I think that can be 

a great idea. I have some concerns in that, for people who are really low-income to the point where they have a hard timing coming 

up with money to save, being able to tell them, you are getting 

some of it back, can be helpful because it does not disrupt their 

cash flow as much. 

I kind of liked an approach that was in a bill that Mr. Neal did 

on the House side, and others, where you got more of a credit if 

you had it deposited than if you just took it back, so there was 

more of an incentive than a mandate. Again, if somebody needs the 

cash, let them make that judgment. I worry that if cash is really 

a problem, that maybe being able to get cash back is helpful. 

Senator BROWN. All right. Thank you. 

Mr. Iwry, I know the President’s automatic IRA proposal was developed by you and then by some people at the Heritage Foundation, a gentleman named David John, so there has been a broader 

ideological spectrum than on some issues. Walk us through that. 

One criticism I hear is that it is a potential burden on small businesses. How do you address that? Give us some information on 

that, if you would. 

Mr. IWRY. I will be happy to, Mr. Chairman. The President has 

proposed automatic enrollment in IRAs now in each of the budgets 

that he has put forward since he was elected, and the idea is really 

31 

to strengthen the building blocks that we know work in our current 

system, and there is a heck of a lot about our current system that 

works well: employer workplace-based saving, payroll deposit as a 

method of automatically continuing saving once it starts, automatic 

enrollment as a method of starting saving so that it can continue 

then automatically. We have seen how dramatically these measures work to increase the fewer than one out of 10 who will contribute to an individual retirement account on their own without 

the benefit of payroll deduction or automatic enrollment, to raise 

that one out of 10 to seven, eight, nine out of 10 or more in a workplace payroll-deposit, automatically enrolled environment. Small 

employers would not be burdened at all by this. The idea would be 

to simply have an employer that does not already sponsor a plan 

and that we have not successfully encouraged to sponsor a plan to 

at least let their workers use their payroll system as a conduit for 

the worker to save their own wages, whatever portion they would 

like, in a tax-favored account. 

The private-sector employer would not have any outlay, would 

not make a penny of contribution, would not have out-of-pocket 

costs. They would be asked simply to add to the payroll withholdings that they now have to do for income tax withholding—Federal 

and State, for unemployment insurance, for other purposes, including the direct deposit of paychecks that so many workers enjoy 

today—one other payroll deposit that would go to, instead of the 

place where the employee sends their paycheck in general, a different routing number, a different account number, an IRA, perhaps at that same institution, perhaps at a different institution. 

That would mean that the small business simply has to add to its 

to-do list another payroll withholding opportunity using standard 

forms that would be downloaded from a national source, a website, 

not to have fiduciary liability or to make investment decisions or 

to hold assets for individuals. These are small employers that we 

would love to persuade to adopt a 401(k) or another retirement 

plan. 

But if, and as long as we cannot do that, the least they could do 

is take on what is essentially a costless—other than adding another 

item on the to-do list and a certain amount of attention that the 

small business owner would have to pay to this, but not much— 

a virtually costless step to help their employees save easily. The 

Saver’s Credit would apply to these contributions as well. 

Senator BROWN. You have a different view of that, I understand. 

Mr. UTKUS. I think our view has been that the myRA—so one of 

the main issues with an automatic IRA program is—I will put it 

this way. There are 700,000 401(k) plans in the United States. 

There are 10 million establishments for work. 

So one of the big questions has been, what are the administrative 

costs from helping millions of small employers to establish the 

service? That is why we are very interested in the myRA experiment, or sandbox, if you will, to see exactly what it would take to 

serve such a large constituency of small employers and what the 

administrative costs would be. 

Although Mark talked about there being no fees, of course there 

are costs to the program, and they will be paid in one way or another. The question is what those costs will be at scale, and that 

32 

is one of the reasons why we find myRA encouraging. It would be 

an interesting experiment to understand that better. 

Senator BROWN. All right. 

Ms. Miller? 

Ms. MILLER. Yes. We are strongly supportive of the auto-IRA 

proposal. As I mentioned in the written testimony, to me an ideal 

world would be auto-IRA coupled with the Hatch Starter(k), because, if you are dealing with the small employer market, small 

business owners are so tied up with trying to just make their business work that one of the challenges is getting them to even think 

about a retirement plan. 

So, if you had payroll-deduction savings—I mean, you cannot 

have payroll deduction without an employer—that is going to be 

very little effort for that individual, and the proposals have a small 

credit to help defray any start-up costs. Then they are at least 

thinking about retirement, they are thinking about having an arrangement for their employees and themselves, because many of 

them will actually qualify for the Saver’s Credit. But we feel very 

strongly that, in that environment, not everybody is going to be 

going to myRA. We have a lot of folks who would love to be competing in that market for the auto-IRA accounts. 

In many cases, they probably would step into a Starter(k) right 

off the bat and have a little higher contribution and that kind of 

thing, having an ERISA arrangement. So, there are a lot of private 

entities that are very interested in serving the auto-IRA market as 

well. Like Diane’s organization, we are involved in various States 

in those efforts too. 

Senator BROWN. All right. Thank you. 

A couple more questions. I read recently an article by Shlomo 

Benartzi where he talks about the illusion of wealth, that a significant lump sum of money, $100,000 in a savings account or any 

kind of a retirement account, seems like far more money than it 

actually is, especially if you have to live on that amount, obviously, 

for some period of time. 

The concern is that workers might think they are saving enough 

for retirement when in reality they are falling far short, back to 

Ms. Oakley’s 4 or 5 times what your income has been. He suggests 

that with respect to DC plans, defined contribution plans, that 

there be an escalating kind of clause in this, that we combine automatic enrollment with automatic escalation that increases savings 

over time. 

My understanding is, Vanguard has done a lot of research on 

sort of the behavioral issues there. Would you kind of share that 

with us? 

Mr. UTKUS. Yes. In fact, we did the original pilot with Shlomo 

Benartzi at UCLA and Dick Thaler in Chicago on the autoescalation feature. Actually, about two-thirds of the employers that 

we have who have adopted automatic enrollment today combine 

this auto-escalation feature. It is a really interesting question, and 

it pertains to this issue of low-income versus middle-income versus 

higher-income, depending on your workforce. 

If tomorrow we auto-enrolled lots of people into 3-percent savings 

accounts, for the vast majority of Americans that would be inadVerDate Mar 15 2010 21:02 Sep 30, 2014 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 R:\DOCS\89779.000 TIMD
33 

equate. But for low-income workers, that might be just an additional supplement that would be useful on top of Social Security. 

So employers, following actually regulations from the IRS, from 

Treasury, tended to emphasize this 3-percent automatic enrollment 

rate. Realistically, we now realize that that is way too low. So, 

many employers are introducing these auto-escalation features, and 

they are targeting more higher savings rates, more appropriate for 

someone, say, at the middle income in the category of employees 

that they employ. So, for some firms, the cap on savings might be 

10 percent a year, for others it might be 15 percent a year depending on how affluent their particular workforces are. 

Senator BROWN. Mr. Iwry? Each of you, if you would like. Yes? 

Mr. IWRY. Mr. Chairman, if I may just add to what Mr. Utkus 

was saying. The President, several years ago, and the Treasury Department called attention to the power of automatic escalation. 

Professors Thaler and Benartzi have done great work in that area, 

and Treasury regulations and rulings have illustrated and effectively promoted the idea that automatic enrollment ought to continue at increasing levels, that it ought to start not just at 3 percent of pay—which is what our original rulings illustrated back in 

1998 when we were trying to get automatic features on the map 

for the first time—but that 5, 6 percent of pay, for example, ought 

to be a reasonable place for many employers, if they see fit, to start 

automatic enrollment, then escalate it over time as employees stay 

with the employer to the point where people get into double digits 

of saving, in addition to that employer match. 

What we are really trying to do is encourage the private sector 

to build on the success that it has already had in the private pension system, 401(k)s in particular, by taking the automatic enrollment to a whole new level, starting higher, auto-enrolling not just 

newly hired employees but people who have been with the company 

who have not been saving in the past, escalating, as Steve Utkus 

has described, over time, not stopping that escalation at 10 percent, 

but continuing as high as the employee wants to go with the choice 

on the part of the employee at all times to hop off the escalator, 

to level out at whatever level they are willing to do. 

Also, we need to encourage employers to keep their skin in this 

game, to make robust matching contributions, to make even nonmatching contributions to retirement security, so that we are not 

only looking at the individual to use increasing salary reduction, 

but we are keeping that incentive there in the form of an employer 

match. 

Senator BROWN. Thank you. 

Ms. Oakley? 

Ms. OAKLEY. Senator, I just want to add to that. I think Mark’s 

comment about the employers keeping skin in the game is important. When you look at some of these projections, the assumption 

is the employer will make a 3-percent matching contribution and 

stop, and then the worker, to get to an adequate retirement income, might then have to be contributing up to 12 percent of their 

pay for every year throughout their career if they are going to try 

to get an 85-percent target replacement. 

I have also seen a recent paper published by Jeff Brown at the 

University of Illinois, and he was making a suggestion that I would 

34 

find troubling if it was something that people were going to do, especially for the low-income individuals. Mark’s comment about 

making sure that people are at least going in so they get the full 

employer match in the auto-enrollment, I think is important to 

many people: go in at 3 percent, if their employer matches 50 percent, they get 1.5 percent. 

But, if they do not contribute at that 3-percent rate, then they 

are leaving that other 1.5 percent on the table, and we want to 

make sure they get the full employer benefit. One of the things 

that some people have been suggesting is this idea of stretching out 

the employer match and, instead of matching 50 percent up to 6 

percent of pay, match 25 percent up to 12 percent of pay. 

The one thing I would caution about something like that is, it 

would have a particular impact on the low-income individuals who 

are going to be the most likely to contribute. And I think some of 

the Vanguard studies show that your lower-income people have a 

much lower contribution into these types of plans, even when there 

is automatic enrollment. So to make sure that they still get a vibrant contribution, I think that is going to be an important concern 

to think about. 

Senator BROWN. All right. Thank you. 

The last point I want to make is not really a question, but for 

Mr. Iwry is that, I know you are thinking about this, and I want 

to hear more about it later, that is, the rules governing myRAs to 

ensure that managers, once they reach the $15,000 threshold, 

charge the bare minimum in fees. So I just want to implore you to 

work on that too. 

Thank you all. A special thanks to Senator Toomey, the ranking 

member of this subcommittee, who could not be here but represents 

your State, Mr. Utkus, for his cooperation on this issue and this 

hearing. Also, thanks to Chairman Wyden and Ranking Member 

Hatch for their support of this discussion. There may be some written questions to you from members of the Finance Committee, and 

please follow up with those within 7 days, if you can. Thanks for 

the insight you all showed. This was a really good discussion, and 

I think we all learned from each other, and I particularly learned 

a lot from the four of you. 

The subcommittee is adjourned. Thanks. 

[Whereupon, at 11:55 a.m., the hearing was concluded.] 

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