[House Hearing, 112 Congress]
[From the U.S. Government Printing Office]





                    RETIREMENT SECURITY: CHALLENGES
                        CONFRONTING PENSION PLAN
                    SPONSORS, WORKERS, AND RETIREES

=======================================================================

                                HEARING

                               before the

                        SUBCOMMITTEE ON HEALTH,
                     EMPLOYMENT, LABOR AND PENSIONS

                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE

                     U.S. House of Representatives

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

             HEARING HELD IN WASHINGTON, DC, JUNE 14, 2011

                               __________

                           Serial No. 112-28

                               __________

  Printed for the use of the Committee on Education and the Workforce







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                COMMITTEE ON EDUCATION AND THE WORKFORCE

                    JOHN KLINE, Minnesota, Chairman

Thomas E. Petri, Wisconsin           George Miller, California,
Howard P. ``Buck'' McKeon,             Senior Democratic Member
    California                       Dale E. Kildee, Michigan
Judy Biggert, Illinois               Donald M. Payne, New Jersey
Todd Russell Platts, Pennsylvania    Robert E. Andrews, New Jersey
Joe Wilson, South Carolina           Robert C. ``Bobby'' Scott, 
Virginia Foxx, North Carolina            Virginia
Bob Goodlatte, Virginia              Lynn C. Woolsey, California
Duncan Hunter, California            Ruben Hinojosa, Texas
David P. Roe, Tennessee              Carolyn McCarthy, New York
Glenn Thompson, Pennsylvania         John F. Tierney, Massachusetts
Tim Walberg, Michigan                Dennis J. Kucinich, Ohio
Scott DesJarlais, Tennessee          David Wu, Oregon
Richard L. Hanna, New York           Rush D. Holt, New Jersey
Todd Rokita, Indiana                 Susan A. Davis, California
Larry Bucshon, Indiana               Raul M. Grijalva, Arizona
Trey Gowdy, South Carolina           Timothy H. Bishop, New York
Lou Barletta, Pennsylvania           David Loebsack, Iowa
Kristi L. Noem, South Dakota         Mazie K. Hirono, Hawaii
Martha Roby, Alabama
Joseph J. Heck, Nevada
Dennis A. Ross, Florida
Mike Kelly, Pennsylvania

                      Barrett Karr, Staff Director
                 Jody Calemine, Minority Staff Director

         SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS

                   DAVID P. ROE, Tennessee, Chairman

Joe Wilson, South Carolina           Robert E. Andrews, New Jersey
Glenn Thompson, Pennsylvania           Ranking Minority Member
Tim Walberg, Michigan                Dennis J. Kucinich, Ohio
Scott DesJarlais, Tennessee          David Loebsack, Iowa
Richard L. Hanna, New York           Dale E. Kildee, Michigan
Todd Rokita, Indiana                 Ruben Hinojosa, Texas
Larry Bucshon, Indiana               Carolyn McCarthy, New York
Lou Barletta, Pennsylvania           John F. Tierney, Massachusetts
Kristi L. Noem, South Dakota         David Wu, Oregon
Martha Roby, Alabama                 Rush D. Holt, New Jersey
Joseph J. Heck, Nevada               Robert C. ``Bobby'' Scott, 
Dennis A. Ross, Florida                  Virginia











                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on June 14, 2011....................................     1

Statement of Members:
    Andrews, Hon. Robert E., ranking minority member, 
      Subcommittee on Health, Employment, Labor and Pensions.....     4
    Roe, Hon. David P., Chairman, Subcommittee on Health, 
      Employment, Labor and Pensions.............................     1
        Prepared statement of....................................     3

Statement of Witnesses:
    Brill, Alex M., research fellow, American Enterprise 
      Institute..................................................     6
        Prepared statement of....................................     9
    Delaney, Dennis T., executive vice president, human resources 
      & administration, Ingram Industries Inc....................    17
        Prepared statement of....................................    19
    Klein, James A., president, American Benefits Council........    26
        Prepared statement of....................................    28
    Richtman, Max, executive vice president and acting CEO, 
      National Committee to Preserve Social Security and Medicare    23
        Prepared statement of....................................    25

Additional Submissions:
    Mr. Andrews:
        Prepared statement of Retirement USA.....................    56
        Prepared statement of American Association of Retired 
          Persons................................................    58
    Chairman Roe:
        Prepared statement of the American Bankers Association; 
          the Financial Services Roundtable; the Financial 
          Services Institute; Insured Retirement Institute; 
          National Association of Insurance and Financial 
          Advisors; and the Securities Industry and Financial 
          Markets Association....................................    64
        Prepared statement of the Employee Benefit Research 
          Institute..............................................    72
        Prepared statement of the U.S. Chamber of Commerce.......    87

 
                    RETIREMENT SECURITY: CHALLENGES
                        CONFRONTING PENSION PLAN
                    SPONSORS, WORKERS, AND RETIREES

                              ----------                              


                         Tuesday, June 14, 2011

                     U.S. House of Representatives

         Subcommittee on Health, Employment, Labor and Pensions

                Committee on Education and the Workforce

                             Washington, DC

                              ----------                              

    The subcommittee met, pursuant to call, at 11:00 a.m., in 
room 2175, Rayburn House Office Building, Hon. Phil Roe 
[chairman of the subcommittee] presiding.
    Present: Representatives Roe, DesJarlais, Bucshon, 
Barletta, Roby, Heck, Kline (ex officio), Andrews, Kucinich, 
Loebsack, Kildee, Hinojosa, McCarthy, Tierney, Wu, Holt and 
Scott.
    Staff Present: Andrew Banducci, Professional Staff Member; 
Katherine Bathgate, Press Assistant/New Media Coordinator; 
Casey Buboltz, Coalitions and Member Services Coordinator; Ed 
Gilroy, Director of Workforce Policy; Benjamin Hoog, 
Legislative Assistant; Barrett Karr, Staff Director; Brian 
Newell, Deputy Communications Director; Krisann Pearce, General 
Counsel; Molly McLaughlin Salmi, Deputy Director of Workforce 
Policy; Ken Serafin, Workforce Policy Counsel; Linda Stevens, 
Chief Clerk/Assistant to the General Counsel; Alissa 
Strawcutter, Deputy Clerk; Aaron Albright, Minority 
Communications Director for Labor; Kate Ahlgren, Minority 
Investigative Counsel; Tylease Alli, Minority Clerk; Jody 
Calemine, Minority Staff Director; John D'Elia, Minority Staff 
Assistant; Brian Levin, Minority New Media Press Assistant; 
Megan O'Reilly, Minority General Counsel; Julie Peller, 
Minority Deputy Staff Director; Meredith Regine, Minority Labor 
Policy Associate; and Michele Varnhagen, Minority Chief Policy 
Advisor/Labor Policy Director (Counsel).
    Chairman Roe. A quorum being present, the Subcommittee on 
Health, Employment, Labor and Pensions will come to order.
    Good morning. I would like to welcome our guests and thank 
our witnesses for being with us today.
    Roughly 60 million workers participate in an employment-
based retirement plan. They, like so many Americans, have felt 
the impact of the recession and continue to experience tough 
times during this slow economy.
    As more Americans reach into their retirement savings just 
to make ends meet, policymakers have a responsibility to 
examine the difficulties facing workers and retirees and 
discuss whether Federal policies are hurting or helping efforts 
to rebuild retirement savings.
    A cornerstone of the Nation's retirement system is pension 
private plans. Whether through a defined benefits plan or a 
defined contribution plan, a worker's ability to plan and save 
for his or her retirement is critical to long-term financial 
security. Since 1974, the Employee Retirement Income Security 
Act, ERISA, has governed private pension plans, setting 
eligibility standards, fiduciary responsibilities for plan 
managers and the responsibility to disclose information to 
participants regarding the plan's financial health. Lawmakers 
have tried to balance the necessary flexibility to allow for 
investment opportunities with a demand for clear guidelines 
that protect workers.
    Unfortunately, the best efforts of Washington cannot 
predict the difficulties brought on by deep recession. Today 
pension plans face a number of challenges that threaten the 
retirement security of American workers. According to one 
estimate, defined benefit pension plans were underfunded by 
more than $500 billion in 2009. This situation may not improve 
if economic growth remains anemic.
    This situation threatens to place an even greater strain on 
an already burdened Pension Benefit Guaranty Corporation. For 
nearly 40 years the PBGC has insured the retirement benefits of 
workers enrolled in a defined benefit plan. Today it insures 
the benefits of 44 million workers, yet faces obligations that 
exceed its resources by nearly $22 billion.
    A number of ideas have been put forth seeking a solution, 
and I urge the administration to provide greater details about 
its own proposals so that we can find a common sense and long-
term solution on behalf of the American people.
    Additionally, pension plan sponsors and managers must cope 
with an uncertain regulatory environment. Last year, Congress 
passed a comprehensive overhaul of the Nation's financial 
regulatory system. The law has led to thousands of new pages of 
regulations and rules. Regardless of one's views on the 
prescription for financial reform, the law has created 
substantial changes to investment markets and additional 
uncertainty for pension plan sponsors, workers and retirees.
    The administration has also introduced a regulatory 
proposal that would transform a key part of ERISA. The proposed 
change to the defined definition of ``fiduciary'' will 
disregard 35 years of regulatory guidance without a full 
understanding of the consequences. Federal policy should help 
facilitate, rather than undermine, innovation and improvements 
to investment services. There are real concerns that the 
administration's proposal will take retirement planning in the 
wrong direction without a full understanding of the 
consequences.
    These are concerns shared across party lines. In a letter 
addressed to members of the Obama administration members of the 
New Democrat Coalition wrote, the proposed rule will result in 
``limiting access to investment education and information.'' 
The letter goes on to say, ``This would result in worse 
investment decisions by participants and would, in turn, 
increase the costs of investment products, services, and advice 
that are absolutely critical parts of a sound investment 
strategy for consumers.''
    Washington has a responsibility to provide clear rules of 
the road to prevent fraud and abuse, but must also be careful 
not to create an environment that stifles investment and 
ultimately threatens the income and security of America's 
retirees. New Democrat Coalition Members of Congress have 
called on an administration to restart the fiduciary rule 
process, and I hope the administration will do so.
    This hearing is our first opportunity to take a closer look 
at the challenges facing the pensions and retirement savings of 
workers and retirees. In recent years, these issues have 
generated a lively debate and yet have generally resulted in a 
bipartisan effort to strengthen the retirement security of our 
Nation. It would be regrettable at such a critical time for our 
country to abandon that spirit of cooperation today. There is 
certainly a lot to discuss.
    And with that, I will recognize Mr. Andrews, senior 
Democrat of the subcommittee, for his opening remarks. Mr. 
Andrews.
    [The statement of Chairman Roe follows:]

           Prepared Statement of Hon. David P. Roe, Chairman,
         Subcommittee on Health, Employment, Labor and Pensions

    Good morning. I would like to welcome our guests and thank our 
witnesses for being with us today.
    Roughly 60 million workers participate in an employment-based 
retirement plan. They, like so many Americans, have felt the impact of 
the recent recession and continue to experience tough times during this 
slow economy. As more Americans reach into their retirement savings 
just to make ends meet, policymakers have a responsibility to examine 
the difficulties facing workers and retirees and discuss whether 
federal policies are helping or hurting efforts to rebuild retirement 
savings.
    A cornerstone of the nation's retirement system is private pension 
plans. Whether through a defined benefits plan or a defined 
contribution plan, a worker's ability to plan and save for his or her 
retirement is critical to long-term financial security. Since 1974, the 
Employee Retirement Income Security Act has governed private pension 
plans, setting eligibility standards, fiduciary responsibilities for 
plan managers, and the responsibility to disclose information to 
participants regarding the plan's financial health. Lawmakers have 
tried to balance the necessary flexibility to allow for investment 
opportunities with the demand for clear guidelines that protect 
workers.
    Unfortunately, the best efforts of Washington cannot predict the 
difficulties brought on by a deep recession. Today, pension plans face 
a number of challenges that threaten the retirement security of 
America's workers. According to one estimate, defined benefit pension 
plans were underfunded by more than $500 billion in 2009. This 
situation may not improve if economic growth remains anemic.
    This situation threatens to place even greater strain on an already 
burdened Pension Benefit Guaranty Corporation. For nearly forty years, 
PBGC has insured the retirement benefits of workers enrolled in a 
defined benefit plan. Today, it insures the benefits of 44 million 
workers yet faces obligations that exceed its resources by nearly $22 
billion. A number of ideas have been put forth seeking a solution, and 
I urge the administration to provide greater details about its own 
proposal so we can find a commonsense and long-term solution on behalf 
of the American people.
    Additionally, pension plan sponsors and managers must cope with an 
uncertain regulatory environment. Last year, Congress passed a 
comprehensive overhaul of the nation's financial regulatory system. The 
law has led to thousands of pages in new rules and regulations. 
Regardless of one's views on the prescription for financial reform, the 
law has created substantial changes to investment markets and 
additional uncertainty for pension plan sponsors, workers, and 
retirees.
    The administration has also introduced a regulatory proposal that 
will transform a key part of ERISA. The proposed change to the 
definition of ``fiduciary'' will disregard 35 years of regulatory 
guidance without a full understanding of the consequences. Federal 
policy should help facilitate, rather than undermine, innovation and 
improvements to investment services. There are real concerns the 
administration's proposal will take retirement planning in the wrong 
direction, without a full understanding of the consequences.
    These are concerns shared across party lines. In a letter addressed 
to members of the Obama administration, members of the New Democrat 
Coalition wrote the proposed rule will result in ``limiting access to 
investment education and information.'' The letter goes on to say, 
``This would result in worse investment decisions by participants and 
would, in turn, increase the costs of investment products, services, 
and advice that are absolutely critical parts of a sound investment 
strategy for consumers.''
    Washington has a responsibility to provide clear rules of the road 
to prevent fraud and abuse, but must also be careful not to create an 
environment that stifles investment and ultimately threatens the income 
security of America's retirees. New Democrat Coalition members of 
Congress have called on the administration to restart the fiduciary 
rule process, and I hope the administration will do so.
    This hearing is our first opportunity to take a closer look at the 
challenges facing the pensions and retirement savings of workers and 
retirees. In recent years, these issues have generated a lively debate, 
yet have generally resulted in a bipartisan effort to strengthen the 
retirement security of our nation. It would be regrettable at such a 
critical time for our country to abandon that spirit of cooperation 
today.
    There is certainly a lot to discuss, and with that, I will now 
recognize Mr. Andrews, the senior Democrat of the subcommittee, for his 
opening remarks.
                                 ______
                                 
    Mr. Andrews. Thank you, Mr. Chairman. Good morning. Thank 
you for calling this hearing and I think it is good to see the 
chairman proceeding in a tradition on this subcommittee where 
the two sides try to work together on pension issues.
    When the present Speaker of the House, Speaker Boehner, 
chaired this subcommittee a few years ago, we were able to work 
with him quite successfully on the 2006 Pension Protection Act 
and I think achieve some good things for the people of our 
country, and I am glad to see that you are following in that 
tradition, and I appreciate it very, very much.
    I think this is a very timely discussion because anybody 
who visits retirees in their district now knows the incredible 
stress that these families are under.
    I live in a State that has a very, very high cost of 
living, high property taxes, high utility bills, high cost of 
food, all sorts of things. You know, last week was a very hot 
and humid week in our district, and I visited a number of 
senior citizens. You know, you see them living in one room 
because it costs too much to cool the rest of the house so they 
try to keep their air conditioning bills as low as possible. 
Some might not even turn on the air conditioning at all because 
it is a bill that they can't pay.
    You know, these are the people that you see at the grocery 
store searching for whatever aisle might have the deep discount 
markdown stuff, because the boxes are a little bit defective of 
cereal or the milk is a little bit older than the rest of the 
milk. These are the people who, if they get a gift, they save 
the wrapping paper so they can reuse the wrapping paper if they 
want to give their grandchild or someone a gift. These are 
people living at or very close to the edge of oblivion in their 
economic situation.
    And so obviously it makes a lot of sense for us to talk 
about ways that we can work together to try to enhance and 
improve retirement income for America's retirees. I know that 
the panel today will have some very good ideas about that. I 
would respectfully suggest, though, that there are two things 
that we ought to do to help retirees through this very, very 
difficult time.
    The first, and I say this with all due respect, would be 
for the majority to withdraw its ill-considered plan to end 
Medicare.
    The Congressional Budget Office tells us that the 
additional cost of copays and deductibles and premiums, the 
additional out-of-pocket health care costs for Medicare 
recipients, if the Republican plan goes through, would be an 
additional $6,000 a year. Now, put this in perspective. A 
person who is 54 years of age today would have to save an 
additional $182,000 in their 401(k) or some other account just 
to generate enough income to pay the extra health care bills 
that the Republican Medicare proposal entails. Put that in some 
perspective, most people about 5 years out from retirement only 
have $100,000 in their account to begin with.
    So if we want to talk about, you know, elevating the 
standard of living for America's retirees, we ought to talk 
about withdrawing this disastrous proposal on Medicare the 
Congress has looked at this spring.
    Second, I would say that, again with all due respect, when 
it comes to the fiduciary rule that is under consideration 
here, look, one of the reasons we had the financial collapse of 
this country of 2008 is the disease of conflict of interest 
where people were acting on behalf of one set of interests and 
representing they were really representing another set of 
interests.
    For most Americans, second only to their home equity, their 
most precious asset is their pension. And I think we definitely 
need rules that say when someone gives you advice on investing 
your pension, they should be acting in your interests and not 
theirs. People should not be receiving advice from someone who 
would stand to benefit more if you put your account in this 
mutual fund rather than that one or in a mutual fund rather 
than a bond fund.
    As I understand the proposed rule, it simply says that the 
interests of people giving advice have to be aligned with the 
interests of people receiving it, and I think that is something 
that we need and should be taking a look at.
    So I appreciate the chance to explore these issues. I know 
this panel is an expert panel. We are glad that you are here. 
We look forward to engaging questions, and I thank you again, 
Mr. Chairman.
    Chairman Roe. I thank the gentleman for yielding. Pursuant 
to committee rule 7(c), all members will be permitted to submit 
written statements to be included in the permanent hearing 
record.
    Without objection, the hearing record will remain open for 
14 days to allow such statements and other extraneous material 
referenced during the hearing to be submitted for the official 
hearing record.
    It is now my pleasure to introduce our distinguished panel 
of witnesses.
    Mr. Alex Brill is Research Fellow at the American 
Enterprise Institute, where he studies private pension systems. 
He is a former Senior Adviser and Chief Economist to the House 
Ways and Means Committee and also served on the staff of the 
President's Council of Economic Advisers. In Congress and at 
the CEA, Mr. Brill worked on a variety of issues, including 
dividend taxation, international tax policy, Social Security 
reform, defined benefit pension reform, and U.S. trade policy. 
Mr. Brill holds a Bachelor's Degree from Tufts University and a 
Master's Degree in mathematical finance from Boston University.
    Mr. Dennis Delaney is Executive Vice President of Human 
Resources & Administration for Ingram Industries, Inc., a book 
distributor and inland aquatic freight carrier. He is a member 
of the Employee Benefits Committee, chair of the Retirement 
Plans Committee, and a member of the Workplace Wellness 
Alliance Committee of the U.S. Chamber of Commerce, and the 
Unemployment Rights Committee of the Human Resources Policy 
Association.
    Mr. Delaney is a resident of Nashville, Tennessee--welcome 
to a fellow Tennessean--where Ingram Industries has 
headquarters. He holds a Bachelor's Degree from Michigan State 
University and a Master's Degree from Central Michigan 
University and a law degree from the University of Detroit. 
Welcome.
    Mr. Max Richtman is the Executive Vice President and acting 
CEO of the National Committee to Preserve Social Security and 
Medicare. He served as a Staff Director to the Senate Special 
Committee on Aging from 1986 to 1989 and the Senate Select 
Committee on Indian Affairs from 1979 to 1986.
    He was born in Munich, Germany, and grew up in Omaha, 
Nebraska. He graduated cum laude from Harvard College and 
received a law degree from Georgetown University Law School. 
Welcome.
    Mr. James Klein is President of the American Benefits 
Council, a trade association based in Washington, D.C., 
representing primarily Fortune 500 companies that either 
sponsor or administer health and retirement benefits covering 
more than 100 million Americans. Mr. Klein is a founding board 
member of the Americans for Generational Equity and serves on 
the Government Liaison Committee of the International 
Foundation of Employee Benefit Plans. Mr. Klein graduated magna 
cum laude from Tufts University with a degree in bioethics and 
graduated with honors from the National Law Center, George 
Washington University.
    Before I recognize the witnesses, each of you have provided 
your testimony, let me briefly explain the lighting system. You 
each have 5 minutes for your testimony, and with 1 minute 
remaining, the yellow light will come on. When your time has 
expired, the red light will come on. If you are in the middle 
of a thought or sentence, go ahead, obviously, and finish it.
    Please be aware and respectful of the time, and I will try 
to do the same as the chair. So with that, I will begin with 
Mr. Brill.

     STATEMENT OF ALEX M. BRILL, RESEARCH FELLOW, AMERICAN 
                      ENTERPRISE INSTITUTE

    Mr. Brill. Chairman Roe, Ranking Member Andrews, and other 
members of the subcommittee, thank you for the opportunity to 
appear before you this morning and recognizing the importance 
of addressing challenges confronting pension and retirement 
security issues.
    This is a policy area with serious, long-term macroeconomic 
and microeconomic consequences. From a macroeconomic 
perspective, inadequate national savings reduces investment, a 
key determinant in future economic growth and prosperity. From 
a microeconomic perspective, increased retirement savings are 
essential for the well-being of future retirees.
    I have submitted written testimony for the record and in my 
oral statement this morning I will briefly cover three areas.
    First, I will summarize data described in my testimony 
regarding the size and scope of the retirement system and the 
shift in recent years from defined benefit, DB, plans, towards 
defined contribution plans.
    Second, I will discuss problems with underfunding of 
retirement plans, both on the defined benefit and defined 
contribution side; and, finally, I will examine the recent 
recession's effects on retirement savings.
    At the end of 2010, retirement assets in the United States 
totaled approximately $17.5 trillion, with retirement savings 
making up 37 percent of all household financial assets.
    IRAs, defined contribution plans, and government pension 
plans each accounted for roughly a quarter of all retirement 
savings in the United States. The remaining quarter of assets 
was in private DB and annuity plans collectively, annuities 
collectively.
    Total retirement assets have generally grown over time with 
the exception of the significant but temporary decline in 
equity values that occurred in 2008 and 2009. Retirement 
savings in nominal terms have increased 50-fold from $368 
billion in 1974 to the present.
    At the same time, there has been a shift in the private 
sector from DB to DC plans. Today, about two-thirds of private 
employer-sponsored retirement assets are in defined 
contribution plans, the remaining one-third in defined benefit 
plans, an increase from about 50/50 20 years ago. However, the 
shift is, in fact, more dramatic as the share of new 
contributions to retirement are nearly 90 percent in the form 
of defined contribution.
    Though assets and participation are rising, serious 
problems still persist in these two areas. In terms of 
participation, while 65 percent of private sector workers have 
access to retirement plans, only 50 percent participate.
    New policies, encouraged by the Pension Protection Act of 
2006, foster auto enrollment and have been successful, but 
greater participation would further improve the well-being of 
future retirees.
    In terms of underfunding, it is estimated that nearly 50 
percent of baby boomers and Generation Xers' defined 
contribution plans may be at risk of being inadequate to see 
them through retirement. While these estimates are only 
tentative, they suggest that more education would be valuable 
to encouraging more savings.
    Underfunding is also a problem in public and private DB 
plans. The Congressional Budget Office recently found that 
State and local pension funding levels are below 80 percent by 
public pension systems' own metrics and by more standard 
accounting measures face funding levels near 50 percent.
    Private DB plans are underfunded as well. At the end of 
2010, the largest 100 plans were only 85 percent funded, an 
improvement from recent years, but a significant gap still 
exists.
    At the economy's low point, the first quarter of 2009, 
retirement savings in the United States had fallen by $2.7 
trillion from pre-recession levels. The stock market, as 
measured by the S&P 500, recovered by the beginning of 2011. 
The damage was done for many approaching or in retirement at 
the time of the recession.
    However, it should be understood that the greatest impact 
of the recession on retirement income is not a result of 
fluctuations in stock market values, but rather through labor 
market channels. Not only has the high unemployment rate 
reduced retirement savings, but anemic wage growth reduces 
lifetime incomes and, as a result, reduces future Social 
Security benefits.
    And, finally, I have been and remain a strong advocate of 
policies that establish default savings for retirement savings 
that encourage more participation, more appropriate asset 
allocation and higher savings rates, policies commonly known as 
auto enrollment life cycle investment funds and auto 
escalation. But I would like to emphasize that it is important 
that these tools be complements to, not substitutes, for active 
education, engagement and participation by workers in their own 
retirement planning.
    From a philosophical perspective, our country has foregone 
its commitment to the value of thrift. From a practical 
perspective, our workers lack adequate financial literacy.
    I would like to thank the committee for the opportunity to 
testify, and I look forward to your questions.
    [The statement of Mr. Brill follows:]
    
    
    
                                ------                                

    Chairman Roe. Thank you, Mr. Brill.
    Mr. Delaney.

 STATEMENT OF DENNIS DELANEY, EXECUTIVE VICE PRESIDENT, INGRAM 
                        INDUSTRIES, INC.

    Mr. Delaney. Thank you, Chairman Roe, Ranking Member 
Andrews, and members of the committee, for the opportunity to 
discuss challenges for sponsors of defined benefit and defined 
contribution plans.
    Ingram Industries is a privately held company headquartered 
in Nashville, Tennessee, consisting of the Ingram Marine Group, 
which is the largest inland marine transportation company in 
the country, and Ingram Content Group, which provides a broad 
range of physical and digital services to the book industry.
    We administer benefit programs for over 5,000 domestic 
associates, we have over 2,400 active associates with a frozen 
defined benefit, 765 retirees and over 1,900 terminated vested 
plan participants.
    While there are challenges, the employer provided 
retirement system has been successful in providing retirement 
income. One of the greatest impediments to the employer 
provided system is a lack of predictability of the rules and 
regulatory flexibility to adapt to changing situations.
    During the recent financial crisis, plan sponsors were 
negatively impacted by inflexible funding rules. The 
unpredictability has forced my company to make difficult 
choices in balancing the needs of our employees with the need 
for prudent sound financial management of our company.
    In mid-2003 we looked at our defined benefit plan which had 
been in place since 1978. After 18 months of review, the 
decision was made to maintain the plan but to close it to new 
entrants effective January 1, 2005. In 2006, the Pension 
Protection Act changed the funding rules for defined benefit 
plans.
    A major impetus behind the PPA was to increase the funding 
level of pension plans. Most plan sponsors entered 2008 fully 
ready to comply, but the severe market downturn at the end of 
2008 drastically changed that situation.
    Because of the PPA's accelerated funding scenarios, and 
notwithstanding Congress' efforts to provide temporary funding 
relief, Ingram was faced with having to contribute tens of 
millions of dollars beyond our normal costs in a short period 
of time to a plan that, by design, was intended to bridge 
generations. The reality for Ingram was defined by one of our 
owners as unacceptably unpredictable. Consequently, Ingram 
froze its DB plan effective December 31, 2010.
    Adding to the unpredictability in defined benefit plans is 
the present situation, a consideration or proposal to increase 
PBGC premiums. Increasing premiums without the opportunity for 
discussion of details, consideration of the impact or buy-in 
from interested parties would present another challenge to the 
defined benefit pension system.
    The inclusion of automatic enrollment and automatic 
escalation in PPA has furthered retirement security. Ingram 
implemented an auto enrollment plan in 2005. New hires are 
enrolled in the defined contribution plan at a 3 percent 
deferral rate. Participation moved from 70 percent in 2005 to 
88 percent in 2010. Currently the average pretax deferral of 
all participants is over 5 percent.
    Our plan recognizes service with the company is important, 
and we match from 50 percent to 100 percent of the first 5 
percent, dependent on years of service with the company. To 
ensure that participants in defined contribution plans are 
getting the most benefit, investment in financial education is 
critical. A major concern for employers is the ability to 
provide investment advice and financial education without 
incurring liability. Legislation to further encourage such 
programs would be beneficial.
    Ingram has offered workshops for associates nearing 
retirement. We communicate retirement information through the 
Internet, postcards, fliers, posters, quarterly newsletters and 
quarterly reports on investment performance. In addition, we 
offer asset allocation guidance through Morningstar.
    We have hesitated to offer more robust advice in the form 
of investment recommendations, contribution increases and 
rebalancing due to the uncertainty of the regulations regarding 
advice services.
    In general, greater regulation often leads to greater 
administrative complexities and burdens. Plan sponsors are 
faced with two increasingly conflicting goals, providing 
information required under ERISA and providing clear and 
streamlined information.
    Accounting changes from FASB can also create worry for plan 
sponsors. This can discourage participation in the employer 
provided retirement system and has had a significant impact, 
for example, on the long-term prospects of providing post-
retirement medical benefits.
    There has been a shift away from defined benefit plans and 
an increase in defined contribution plans. The reasons for this 
shift are numerous, cost considerations, changing demographics, 
and uncertainty surrounding future liabilities of defined 
benefit plans.
    We implemented a money purchase plan for a segment of our 
employee population in 2007, and under this plan we make an 
annual contribution to each associate based on age and years of 
service.
    The key to ensuring the continuation of the private 
retirement system is flexibility and predictability. The mix 
and types of benefit plans in the future will be diverse, 
consequently it is increasingly important to ensure that there 
are no barriers to innovation.
    I hope that Congress continues to work with plan sponsors 
to enact legislation that will encourage further participation 
in the employer-provided system and keep them in the game.
    I thank you for the opportunity to testify today and look 
forward to any questions you may have.
    [The statement of Mr. Delaney follows:]

  Prepared Statement of Dennis T. Delaney, Executive Vice President, 
        Human Resources & Administration, Ingram Industries Inc.

    Thank you, Chairman Kline, Ranking Member Miller, and members of 
the Committee for the opportunity to appear before you today to discuss 
challenges for sponsors of defined benefit and defined contribution 
plans. My name is Dennis Delaney, Executive Vice President, Human 
Resources & Administration for Ingram Industries Inc.
    Ingram is a privately held company with a portfolio of operating 
businesses headquartered in Nashville, Tennessee, consisting of Ingram 
Marine Group, the largest inland marine transportation company in the 
country with over 140 motor vessels and 4,000 barges, and Ingram 
Content Group, which provides a competitive suite of physical book and 
digital content distribution, print on demand and content management 
and fulfillment services for retailers, publishers, libraries and 
educators both in the U.S. and internationally.
    Ingram administers benefit programs for over 5,000 domestic 
associates who live in 36 states. We have over 2,400 active associates 
with a frozen defined benefit, 765 retirees and over 1,900 terminated 
vested plan participants. My testimony reflects my 34 years of 
experience in the human resources field, 14 of which have been with 
Ingram Industries and 20 of which were with Ford Motor Company.
    I appreciate the opportunity to testify before you today on the 
challenges facing plan sponsors and in particular, Ingram's experience 
as it relates to our defined benefit and defined contribution plans.
    At the outset, I want to emphasize that these challenges do not 
just impact plan sponsors--they also have the potential to 
significantly impact the financial security of current workers and 
retirees. While we can each recognize real problems with the current 
retirement system, the employer--provided retirement system has been 
overwhelmingly successful in providing retirement income and security 
for employees. Private employers, with contributions and fees, spent 
over $200 billion on retirement income benefits in 2008 \1\ and paid 
out over $449 billion in retirement benefits.\2\ According to the 
Bureau of Labor Statistics, in March of 2009, 67% of all private sector 
workers had access to a retirement plan at work, and 51% participated. 
For full time workers, the numbers are 76% and 61%, respectively. 
Eighty-three percent of workers in private sector firms with 100 or 
more workers are covered in an employer-provided retirement plan and 
68% participate. Because some workers, such as those under age eighteen 
or twenty-one, or those waiting to meet a minimum service requirement, 
are often not eligible to participate in a plan, these statistics 
actually underreport the success of employer-provided retirement plans.
---------------------------------------------------------------------------
    \1\ EBRI Databook, 2009, Chapter 2.
    \2\ EBSA Private Pension Plan Bulletin Historical Tables and 
Graphs, 2009
---------------------------------------------------------------------------
    One of the greatest impediments to the employer-provided system 
today is the lack of predictability of the rules and regulatory 
flexibility to adapt to changing situations. Since 2002, Congress has 
passed five laws that address defined benefit funding.\3\ For over a 
decade, the legality of hybrid plans was unresolved and those plan 
sponsors were unable to get determination letters.\4\ During the recent 
financial crisis, plan sponsors faced unexpected financial burdens due 
to inflexible funding rules. These issues have each had a negative 
impact on the employer-provided retirement system and have acted as a 
disincentive for employers to continue to provide these benefits. 
Therefore, I strongly urge Congress to provide legislative solutions 
which inject the necessary predictability and flexibility into the 
retirement system to ensure that employers can continue to maintain 
plans that contribute to their workers' retirement security.
---------------------------------------------------------------------------
    \3\ Job Creation and Worker Assistance Act of 2002 (PL 107-147 
increasing the range of permissible interest rates for determining 
pension liabilities, lump sum distributions, and PBGC premiums for 
under-funded pension plans to 120% of the current 30-year Treasury bond 
interest rate; Pension Funding Equity Act of 2004 replacing the 
interest rate assumption for two years; Pension Protection Act of 2006 
fundamentally changing the funding rules for both single- employer and 
multiemployer defined benefit plans; The Worker, Retiree, and Employer 
Recovery Act of 2008 (``WRERA'') providing limited funding relief; The 
Preservation of Access to Care for Medicare Beneficiaries and Pension 
Relief Act of 2010, providing defined benefit plan funding relief for 
both single-employer and multiemployer plans.
    \4\ In 1999, the Service's Director of Employee Plans issued a 
Field Directive that effectively halted the determination letter 
applications of hybrid plans from being processed. In 2002, the 
Treasury Department, with input from the Equal Employment Opportunity 
Commission and the Department of Labor, issued proposed regulations 
addressing the issue of age discrimination in hybrid plans but withdrew 
the proposed regulations in 2004 in order to clear a path for Congress 
to act. The uncertainty surrounding hybrid plans has been even more 
considerable in the litigation arena with contradictory decisions among 
various circuit courts.
---------------------------------------------------------------------------
Issues Facing the Defined Benefit Funding System
    This unpredictability and the resulting inability to assess future 
funding needs has forced my company to come to grips with this 
uncertainty by making difficult choices in balancing the needs of our 
employees with the needs for prudent and sound financial management of 
our company.
    Subsequent to a major acquisition Ingram made in 2002, we took a 
long look at our defined benefit plan which had been in place since 
1978. After 18 months of review and 80 iterations of plan design 
changes, the decision was made to maintain the defined benefit plan for 
active participants but to close it to new entrants as of January 1, 
2005.
    On August 17, 2006, the Pension Protection Act of 2006 (``PPA'') 
was signed into law. The act fundamentally changed the funding rules 
for both single-employer and multi-employer defined benefit plans. A 
major impetus behind the PPA funding rules was to increase the funding 
level of pension plans. Consequently, most plan sponsors entered 2008 
fully prepared to comply with the new funding rules, and based their 
contribution estimates on these rules. However, the severe market 
downturn at the end of 2008 drastically changed the situation.\5\ 
Because of the accelerated funding scenarios spelled out in the PPA, 
and notwithstanding the efforts of Congress to provide some temporary 
funding relief, Ingram was faced with the reality of having to 
contribute tens of millions of dollars beyond our normal costs, in a 
short period of time, to a plan that, by design was intended to bridge 
generations and handle the economic cycles--both good and bad--which 
occur over a long period of time. The persistent turmoil in the market 
and the interest rate environment created a reality for Ingram that was 
defined by one of our owners as ``unacceptably unpredictable.'' 
Consequently, Ingram froze its defined benefit plan effective December 
31, 2010.
---------------------------------------------------------------------------
    \5\ At the beginning of 2008, the average funded level of plans was 
100%. Data from a study published by the Center for Retirement Research 
at Boston College indicates the following as of October 9, 2008:
     In the 12-month period ending October 9, 2008, equities 
held by private defined benefit plans lost almost a trillion dollars 
($.9 trillion).
     For funding purposes, the aggregate funded status of 
defined benefit plans unpredictably fell from 100% at the end of 2007 
to 75% at the end of 2008. (See footnote 5 of the study). [cont.]
     Aggregate contributions that employers will be required to 
make to such plans for 2009 could almost triple, from just over $50 
billion to almost $150 billion.
---------------------------------------------------------------------------
    Adding to the unpredictability in defined benefit plans is the 
consideration of increases to Pension Benefit Guaranty Corporation 
(PBGC) premiums. Increasing PBGC premiums without the opportunity for 
discussion of details, careful consideration of the potential impact, 
or buy-in from all interested parties would present another challenge 
to the private sector defined benefit system.
    Raising the PBGC premiums, without making contextual reforms to the 
agency or the defined benefit system, amounts to a tax on employers who 
have voluntarily decided to maintain defined benefit plans. An increase 
in PBGC premiums, when added to the multi-billion dollar impact of 
accelerated funding enacted in 2006, could divert critical resources 
from additional business investment and subsequent job creation.
The Defined Contribution Plan System
    Auto Enrollment and Auto Escalation Programs. The inclusion of 
automatic enrollment and automatic escalation in PPA has gone a long 
way to further retirement security.
    Ingram implemented auto-enrollment on January 1, 2005. New hires 
are enrolled in the defined contribution plan at a 3% deferral rate. 
Participation moved from 70% in 2005 to 88% in 2010. Currently, our 
lowest participation is 77% for the group of associates with 6-10 years 
of service. These associates were hired prior to implementation of 
auto-enrollment. Our highest participation is 96% for associates with 1 
year or less of service. Since implementation of auto-enrollment, the 
average pre-tax deferral of all associates eligible for the defined 
contribution plan moved from 3.9% in 2005 to 4.6% \6\ in 2010. The 
average pre-tax deferral of all participants in the defined 
contribution plan moved from 5.57% to 5.31%. This decline is due 
largely to the number of associates now participating in the plan at 
the auto-enroll deferral rate of 3%.
---------------------------------------------------------------------------
    \6\ United States Government Accountability Office, Private 
Pensions: Changes Needed to Provide 401(k) Plan Participants and the 
Department of Labor Better Information on Fees 5 (2007).
---------------------------------------------------------------------------
    Ingram does not currently use auto-escalation. Our plan recognizes 
that service with the company is important, and Ingram matches 50% of 
the first 5% contributed during an associate's first 5 years of 
employment. Between years 5 to 9, Ingram matches 75%, and at 10 years 
and beyond, the match is 100%.
    Investment Advice. Defined contribution plans require greater 
employee participation than traditional defined benefit plans. To 
ensure that participants are getting the most benefit from their 
defined contribution plans, investment and financial education is 
critical. Ninety-two percent of all 401(k) plan participants are 
responsible for making investment decisions about their contributions 
to their retirement plan.getting the most benefit from their defined 
contribution plans, investment and financial education is critical. 
Ninety-two percent of all 401(k) plan participants are responsible for 
making investment decisions about their contributions to their 
retirement plan.getting the most benefit from their defined 
contribution plans, investment and financial education is critical. 
Ninety-two percent of all 401(k) plan participants are responsible for 
making investment decisions about their contributions to their 
retirement plan.
    In addition to investment advice, some employers would like to 
provide general financial education. The financial education would make 
employees more knowledgeable, and thus savvier, in financial matters. 
Legislation to encourage employers to provide financial advice which 
includes appropriate protection from liability would be beneficial even 
if employees pay a nominal fee.
    Ingram has offered workshops for associates nearing retirement 
including overviews of the defined benefit and defined contribution 
plans, Social Security, personal savings and investments, information 
on insurance needs (including health (Medicare), life, disability, and 
long term care), estate planning, common mistakes in retirement, etc. 
We actively promote National 401(k) Day and communicate retirement 
information through the internet, postcards, flyers, posters, quarterly 
newsletters and quarterly reports on investment performance. In 
addition, for the defined contribution plan, we currently offer asset 
allocation guidance through Morningstar. We have hesitated to offer 
more robust advice in the form of investment recommendations, 
contribution increases and rebalancing due to the uncertainty of the 
regulations regarding advice services. Nearly 30% of our associate 
population is considered ``engaged achievers'' (more experienced and 
well-established participants who are interested and involved in 
retirement planning) or ``aspiring planners'' (associates who have a 
high interest in retirement planning and are willing to contribute to 
their accounts more than the average). A full 33% are considered 
``uninvolved savers''--associates who lack the interest or the time for 
retirement planning.
Challenges in the Regulatory System
    In general, greater regulation often leads to greater 
administrative complexities and burdens. Such regulatory burdens can 
often discourage plan sponsors from establishing and maintaining 
retirement plans. The following are just a few examples of these 
regulatory disincentives.
    Notice and Disclosure. Plan sponsors are faced with two 
increasingly conflicting goals--providing information required under 
ERISA and providing clear and streamlined information. In addition to 
required notices, plan sponsors want to make information available that 
is pertinent to the individual plan and provides greater transparency. 
However, this is difficult given the amount of required disclosures 
that currently exist. Although there is usually a good reason for every 
notice or disclosure requirement, they have a tendency to overwhelm the 
participants with information, making it difficult for them to 
distinguish the routine notices, e.g., summary annual reports, from the 
important information. It is critical that Congress coordinate with the 
agencies and the plan sponsor community to determine the most effective 
way to streamline the notice and disclosure requirements.
    Accounting Rules. In 2006, the Financial Accounting Standards Board 
(``FASB'') undertook a project to reconsider the method by which 
pensions and other benefits are reported in financial statements.\7\ 
They completed Phase I of the project but delayed Phase II, which would 
have removed smoothing periods from the measure of liabilities, until a 
later date. After significant concerns raised by the plan sponsor 
community, FASB indefinitely postponed the implementation of Phase II.
---------------------------------------------------------------------------
    \7\ Statement of Financial Accounting Standards No. 158, 
``Employers' Accounting for Defined Benefit Pension and Other 
Postretirement Plans'' (FAS 158). This statement requires companies to 
report the net financial status of pension and other benefits on the 
company's balance sheet rather than in the footnotes. In addition, plan 
assets and benefit obligations must be measured as of the date of the 
employer's fiscal year end and employers must use the projected benefit 
obligation measure of liabilities.
---------------------------------------------------------------------------
    Accounting changes from FASB can create worry for plan sponsors. 
These changes can and have had significant ramifications for 
businesses--impacting credit determinations and loan agreements--
without having any impact on the actual funding of the plans. This can 
discourage participation in the employer-provided retirement system and 
has had a significant impact on the long term prospects of providing 
post-retirement medical plans for new and existing participants.
Current Trends in Retirement Plans--The Shift from DB to DC Plans
    The number of defined benefit plans has been declining over the 
past several years.\8\ While there has been a shift away from defined 
benefit plans, the number of defined contribution plans has increased 
exponentially. Since 1975, the number of defined contribution plans has 
almost quadrupled from 207,748 to 658,805 in 2007.\9\ In 1992-93, 32 
percent of workers in private industry participated in a defined 
benefit plan, while 35 percent participated in a defined contribution 
plan.\10\ According to the 2008 National Compensation Survey, the 
participation for private industry workers in defined benefit plans 
decreased to 21 percent, while participation in defined contribution 
plans increased to 56 percent.\11\
---------------------------------------------------------------------------
    \8\ In 2007, 54 of the 100 largest employers offered a traditional 
pension plan to new workers, down from 58 in 2006, according to Watson 
Wyatt Worldwide. That 7% decline compares with a 14% drop as recently 
as 2005. Levitz, Jennifer. ``When 401 (k) Investing Goes Bad''. The 
Wall Street Journal Online 4 Aug. 2008. http://online.wsj.com/article/
SB121744530152197819.html (accessed August 21, 2009) Also see Private 
Pension Plan Bulletin Historical Tables: U.S. Department of Labor, 
Employee Benefits Security Administration, June 2010, http://
www.dol.gov/ebsa/pdf/1975-2007historicaltables.pdf (accessed August 11, 
2010).
    \9\ Private Pension Plan Bulletin Historical Tables: U.S. 
Department of Labor, Employee Benefits Security Administration, June 
2010, http://www.dol.gov/ebsa/pdf/1975-2007historicaltables.pdf 
(accessed August 11, 2010).
    \10\ Beckman, Allan. ``Access, Participation, and Take-up Rates in 
Defined Contribution Retirement Plans Among Workers in Private 
Industry, 2006''. Bureau of Labor Statistics. December 27, 2006. http:/
/www.bls.gov/opub/cwc/cm20061213ar01p1.htm (accessed August 11, 2010).
    \11\ ``Percent of Workers in Private Industry With Access to 
Retirement and Health Care Benefits by Selected Characteristics: 
2008'', Bureau of Labor Statistics, http://www.census.gov/compendia/
statab/2010/tables/10s0639.pdf (Accessed August 11, 2010).
---------------------------------------------------------------------------
    The reasons for this shift are numerous: cost considerations; 
changing demographics of the workforce; uncertainty surrounding future 
liabilities associated with a defined benefit plan; and a sense that 
workers undervalue these plans, among other things.
    Ingram implemented a money purchase plan for a certain segment of 
our employee population in 2007. This was in response to the need to 
``replace'' the defined benefit plan, which was closed to new hires in 
2005, due to recruiting and retention concerns. Under this plan, Ingram 
makes an annual contribution to associates based on a formula that uses 
age, years of service and compensation.
    Nonetheless, there is still a great need and desire for some of the 
characteristics of the traditional defined benefit plan. In many 
instances, employers like us are freezing or terminating the defined 
benefit plan while adding features to the defined contribution plan 
that resemble the benefits of the old plan. For example, employers are 
adding annuity options to their defined contribution plans. Moreover, 
new defined contribution plan designs are being introduced that 
incorporate defined benefit features. Consequently, while the names and 
designs may end up being different, it is very possible that many of 
the features that are now in the defined benefit system will continue 
to be an important part of the private retirement plan landscape. In 
Ingram's money purchase plan, contributions are invested in a life path 
fund depending on the associates year of birth. This, along with 
annuity options, is intended to create a ``defined benefit-like'' 
retirement plan for associates.
    The keys to ensuring the continuation of the private retirement 
system are flexibility and predictability. The mix of types of benefit 
plans in the future will be diverse--defined benefit, defined 
contribution, multiemployer, cash balance, and hybrid plans. In 
addition, demographic and competitive needs will spur the creation of 
plan designs that we have not even begun to contemplate. Consequently, 
it is increasingly important to ensure that there are no statutory, 
practical, or political barriers to innovation that would discourage 
participation in the private retirement system.
Conclusion
    The challenges facing plan sponsors are numerous. As stated before, 
these challenges impact not only the employer but also the retirement 
security of current and future retirees. I hope that Congress continues 
to work with plan sponsors to enact legislation that will further 
encourage participation in the employer-provided system and ``keep them 
in the game''. I thank you for the opportunity to testify today and 
look forward to any questions you may have.
                                 ______
                                 
    Chairman Roe. Thank you, Mr. Delaney.
    Mr. Richtman.

   STATEMENT OF MAX RICHTMAN, ESQ., EXECUTIVE VICE PRESIDENT/
ACTING CEO, NATIONAL COMMITTEE TO PRESERVE SOCIAL SECURITY AND 
                            MEDICARE

    Mr. Richtman. Mr. Chairman, members of the committee, on 
behalf of over 3 million supporters of the National Committee 
to Preserve Social Security and Medicare, I am honored to be 
here to testify. Our members come from all walks of life and 
every political persuasion. About one-third identify themselves 
as Democrats, one-third as Republicans, and the remaining third 
are unaffiliated with a political party. What unites them is 
their passion for protecting and strengthening Social Security 
and Medicare, not just for themselves but for their children 
and grandchildren.
    It is critical that any discussion about retirement 
security include Social Security and Medicare, because these 
two programs form the linchpin of most Americans' retirement. 
About 54 million individuals receive Social Security benefits 
today, including 37 million retirees, and these benefits are 
modest. The average retiree receives about $14,000 in Social 
Security benefits each year, women receive about $12,000.
    Yet today's retirees are heavily dependent on these 
benefits. About one-third have no other income besides Social 
Security and two-thirds rely on Social Security for more than 
half of their retirement income. Younger generations are likely 
to be just as dependent on Social Security as their parents and 
grandparents. Just over one-half of the workforce has access to 
any kind of retirement plan at work and only about half of 
these people choose to participate. And those individuals who 
do participate in a retirement plan increasingly must do so 
within the context of a defined contribution plan rather than a 
defined benefit plan.
    Unfortunately, defined contribution plans place the burden 
of investment and risk management on individuals. Even in the 
best of times, defined contribution plans only work if 
individuals are able to save substantially, make good 
investment decisions and retain their savings until needed for 
retirement, as well as develop a retirement drawdown plan that 
assures a continuous stream of income for the remainder of 
their lives.
    The second major pillar of retirement security for today's 
retirees is Medicare. Prior to the creation of Medicare, 
millions of retirees had no health insurance and what insurance 
existed was very expensive. Private insurance companies shunned 
older people because they tended to have more expensive claims.
    Today little has changed in the private market. Private 
companies who participate in the Medicare Advantage Program are 
paid about 10 percent more than it would cost traditional 
Medicare to cover these same seniors. Without Medicare, health 
care would be unattainable or unaffordable for millions of 
seniors.
    Even with Medicare, health care costs represent a 
significant portion of a retiree's income. About 30 percent of 
the average senior Social Security check is spent on Medicare 
out-of-pocket costs for Medicare part B and D alone, and this 
percentage is expected to grow to almost 50 percent by the year 
2085.
    Social Security and Medicare help keep low-income workers 
out of poverty, and they provide critical support for middle-
class workers who do not earn enough during their working lives 
to finance decades of living in retirement. This helps explain 
their enduring popularity, and it explains why Americans are so 
unwilling to bet their futures on risky schemes to dramatically 
restructure these programs.
    President Bush discovered this when he proposed allowing 
workers to divert a portion of their payroll taxes into Social 
Security private accounts in 2005. Although they knew the Bush 
plan would not affect them, seniors spoke out to preserve the 
program for their children. Likewise, seniors around the 
country clearly oppose plans to privatize Medicare and convert 
it into a voucher program.
    As you know, under the House budget resolution workers age 
54 and younger today would purchase their health insurance from 
private companies and be given a voucher or premium support 
payment to cover a portion of these costs. These dramatic 
changes in Medicare will shift trillions of dollars of costs 
onto future beneficiaries.
    According to the CBO, the cost of purchasing insurance from 
private companies will more than double a retiree's out-of-
pocket costs in the first year, and the voucher used to 
subsidize the premiums will grow more slowly than health 
inflation, further reducing the value of the Federal 
contribution.
    According to the Center for Economic Policy Research, the 
impact of these changes, as the ranking member has stated, will 
be that a 54-year-old will need to save an additional $182,000 
during the next decade to afford Medicare.
    Younger people, just entering the workforce, will need to 
save more than $640,000 through their working lives to afford 
these additional costs. And because these benefits will no 
longer be guaranteed, it is unclear what kind of health care 
coverage this extra money will buy.
    Mr. Chairman, the National Committee strongly supports 
enhancing retirement security for American workers, but we do 
not believe this can be accomplished by privatizing Social 
Security, Medicare or cutting benefits.
    Mr. Chairman, I know my time is up, but I wanted to thank 
you for your legislation on the Independent Payment Advisory 
Board. As you know, we have come out strongly for your 
legislation. We feel that process is the wrong way to go, and 
we are working hard to garner additional support.
    [The statement of Mr. Richtman follows:]

Prepared Statement of Max Richtman, Executive Vice President and Acting 
    CEO, National Committee to Preserve Social Security and Medicare

    Mr. Chairman and Members of the Committee: On behalf of over 3 
million members and supporters of the National Committee to Preserve 
Social Security and Medicare, I am honored to testify here today.
    Our members come from all walks of life and every political 
persuasion. About one third identify themselves as Democrats, one third 
as Republicans, and the remaining third are unaffiliated with a 
political party. What unites them is their passion for protecting and 
strengthening Social Security and Medicare--not just for themselves, 
but for their children and grandchildren.
    It is critical that any discussion about Retirement Security 
include Social Security and Medicare--because these two programs form 
the lynchpin of most Americans' retirement. About 54 million 
individuals receive Social Security benefits today, including37 million 
retirees.
    These benefits are modest. The average retiree receives about 
$14,000 in Social Security benefits each year. Women receive about 
$12,000. Yet today's retirees are heavily dependent on these benefits. 
About one-third have no income other than Social Security, and two-
thirds rely on Social Security for more than one-half of their 
retirement income.
    Younger generations are likely to be just as dependent on Social 
Security as their parents and grandparents. Just over one-half of the 
workforce has access to any kind of retirement plan at work, and only 
about one-half of these workers choose to participate.
    And those individuals who participate in a retirement plan 
increasingly must do so within the context of a defined contribution 
plan, such as a 401(k), rather than in a defined benefit pension plan. 
Unfortunately, defined contribution plans place the burden of 
investment and risk management on individuals. Even in the best of 
times, defined contribution plans work only if individuals are able to 
save substantially, make good investment decisions, retain their 
savings until needed for retirement, and develop a retirement drawdown 
plan that assures a continuous stream of income for the remainder of 
their lives.
    The second major pillar of retirement security for today's retirees 
is Medicare. Prior to the creation of Medicare, millions of retirees 
had no health insurance, and what insurance existed was very expensive. 
Private insurance companies shunned older people because they tend to 
have expensive claims.
    Today, little has changed in the private market. Private companies 
who participate in the Medicare Advantage program are paid about 10% 
more than it would cost traditional Medicare to cover the same seniors. 
Without Medicare, health care would be unattainable or unaffordable for 
millions of seniors.
    Even with Medicare, health care costs represent a significant 
portion of a retiree's income. About 30% of the average seniors' Social 
Security benefit is spent on Medicare out-of-pocket costs for Medicare 
Parts B and D alone. This percentage is expected to grow to almost 50% 
by 2085.
    Social Security and Medicare help keep low-income workers out of 
poverty in retirement. And they provide critical support for middle-
class workers who do not earn enough during their working lives to 
finance decades living in retirement. This helps explain their enduring 
popularity. And it explains why Americans are so unwilling to bet their 
futures on risky schemes to dramatically restructure them.
    President George W. Bush discovered this when he proposed allowing 
workers to divert a portion of their payroll taxes into Social Security 
private accounts in 2005. Although they knew the Bush plan would not 
affect them, seniors spoke out to preserve the program for their 
children. Likewise, seniors all around the country oppose plans to 
privatize Medicare and convert it into a voucher program.
    As you know, under the House budget resolution workers age 54 and 
younger today would purchase their health insurance from private 
companies, and be given a voucher--or premium support payment--to cover 
a portion of their costs.
    These two dramatic changes in Medicare will shift trillions of 
dollars of costs onto future beneficiaries. According to the 
Congressional Budget Office, the cost of purchasing insurance from 
private companies will more than double a retiree's out-of-pocket costs 
in the first year. And the vouchers used to subsidize the premiums will 
grow more slowly than health inflation, further reducing the value of 
the federal contribution over time.
    According to the Center for Economic and Policy Research, the 
impact of these two changes will be that a 54-year old will need to 
save an additional $182,000 during the next decade in order to afford 
Medicare under the Ryan plan. Young people just entering the workforce 
will need to save more than $640,000 extra through their working lives 
to afford the additional costs. And because benefits will no longer be 
guaranteed, it is unclear what kind of health care coverage this extra 
money will buy.
    Mr. Chairman, the National Committee strongly supports enhancing 
retirement security for America's workers. But we do not believe that 
can be accomplished by privatizing Social Security or Medicare, or by 
cutting benefits.
    Thank you.
                                 ______
                                 
    Chairman Roe. Thank you. Thank you, Mr. Richtman.
    Mr. Klein.

              STATEMENT OF JAMES KLEIN, PRESIDENT,
                   AMERICAN BENEFITS COUNCIL

    Mr. Klein. Mr. Chairman, Congressman Andrews, members of 
the subcommittee, thank you so much for the opportunity to 
testify today. There are many positive features of the employer 
sponsored retirement system, and I do sincerely hope that you 
ask me some questions about them during that period of the 
hearing.
    But since the hearing is really about the challenges facing 
the retirement system, and I only have 5 minutes, I hope you 
will indulge me if I use my time to cite five of our principal 
concerns.
    First, there are multiple agencies with regulatory 
authority over the retirement system. The Department of Labor, 
the Department of Treasury and the IRS, Pension Benefit 
Guaranty Corporation, the Securities and Exchange Commission, 
now the Commodity Futures Trading Commission. While this multi-
agency system may be unavoidable, it does put significant 
responsibility on those agencies to harmonize their initiatives 
so that regulatory requirements are not duplicative, 
inconsistent, or, even worse, contradictory.
    An example of this are the proposed Commodity Futures 
Trading Commission business conduct rules issued pursuant to 
the Dodd-Frank financial reform law that will, if followed, 
force certain parties to violate the fiduciary standards of 
ERISA that obviously fall within the jurisdiction of this 
committee.
    Second, Congress needs to assert greater oversight on 
agencies that issue regulations that are clearly inconsistent 
with legislative intent. An example of this relates to hybrid 
convention plans. The statute requires interest crediting rates 
not to exceed a market rate of return. The proposed Treasury-
IRS rules specify a certain interest rate and state that any 
other higher interest rate will violate the law. So even if the 
plan is able to get a higher rate in the market, it cannot use 
it. This will force employers to reduce the rate at which it 
credits plan accounts to the obvious detriment of plan 
participants.
    Third, agencies need to give adequate time to comply with 
new rules. The Department of Labor recently announced an 
extension of the applicability date for new rules governing fee 
disclosure between service providers and employer plan 
sponsors. And the DOL is also extending the corresponding 
transition period for employers to comply with a separate set 
of finalized rules governing disclosure of fees to 
participants.
    We appreciate very much the recognition by the Department 
of Labor to extend the date, but the problem here is twofold. 
The final rules regarding the service provider to plan sponsor 
disclosures have not yet been sent to the Office of Management 
and Budget. So it seems very likely that they could come out 
very close to the end of the year, at which time both service 
providers and plan sponsors are going to have to be scrambling 
to comply.
    Moreover, and ideally, a new set of separate revised rules 
on electronic disclosure of information should really be 
effective before the effective date of the rules governing fee 
disclosure to plan participants, since those new requirements 
are going to cause a vast amount of information to have to be 
provided to millions of plan participants. But it seems highly 
unlikely that this will happen given the timing of the rules 
being issued.
    Fourth, clearly, plan sponsors need to be held to an 
appropriate standard of care in handling their various 
government reporting functions. But when employers are faced 
with significant additional premiums for what are obviously 
innocent mistakes, it really undermines their willingness to 
continue sponsoring a plan.
    An example of this is where the PBGC has required 
additional premiums from companies that actually paid the 
correct amount of the premium on time but made a simple 
clerical error when submitting the premiums through the PBGC's 
new electronic submission system. The agencies are not so 
flawless in all of their operations that they should be so 
unforgiving of an inadvertent error that did not even affect 
the agency receiving the correct payment in a timely fashion.
    Fifth, plan sponsors need predictability. Employers know 
that sponsoring a pension plan will be a costly endeavor and 
for the most part they are okay with that if they can plan 
accordingly. But when they are required to implement funding 
rules, such as those prescribed under the Pension Protection 
Act that are highly sensitive to minor changes in interest 
rates or minor changes in the stock market, it leads to a level 
of volatility that erodes the ability of employers to continue 
sponsoring plans, especially during tough economic times.
    Finally, I must share that employers are very concerned 
that in the effort to reduce the Federal deficit, Congress may 
look to the tax expenditure for employer-provided retirement 
plans that is estimated to be $112 billion in fiscal year 2011 
and yet overlook the fact that providing incentives to 
employers and workers to save for retirement is a lower cost 
way of providing a needed level of personal financial security 
than through expanded public programs. For every dollar of tax 
expenditure, a plan provides about $5 worth of benefits.
    Because members of the Education and the Workforce 
Committee inherently understand the value of employer sponsored 
retirement plans, you are especially well positioned to be a 
voice within the forthcoming budget debate on the need for tax 
policy to support, not erode, employer plans and retirement 
savings.
    Thank you very much.
    [The statement of Mr. Klein follows:]

            Prepared Statement of James A. Klein, President,
                       American Benefits Council

    Chairman Roe, Ranking Member Andrews, and Members of the 
Subcommittee, I am grateful for the opportunity to appear before you on 
this critically important topic. My name is James Klein and I am 
President of the American Benefits Council. The Council is a public 
policy organization representing principally Fortune 500 companies and 
other organizations that assist employers of all sizes in providing 
benefits to employees. Collectively, the Council's members either 
sponsor directly or provide services to retirement and health plans 
that cover more than 100 million Americans.
    My testimony today will cover three areas. First, I will briefly 
contextualize the critical role employers play in ensuring a secure 
retirement for American workers. Second, I will identify regulatory 
developments that threaten to undermine that role, potentially 
prompting some employers to discontinue or scale back their existing 
retirement plans, while chilling other employers from adopting new 
retirement plans. Finally, I will discuss the importance of maintaining 
the established tax incentives both for employers to promote workplace 
plans and for employees to contribute to them.
(1) The voluntary system for workplace savings plans
    I believe it would be useful to set the stage by briefly reviewing 
the scope of our voluntary system for workplace savings plans. 
According to the Bureau of Labor Statistics, just over half of all 
workers in the private sector participated in an employer-sponsored 
retirement plan of some kind in 2007. In particular, only one in five 
private-sector workers participated in a traditional pension (i.e., a 
defined benefit plan), while about two in five participated in 401(k) 
and other defined contribution plans. Meanwhile, upwards of two in five 
private-sector workers had no opportunity whatsoever to participate in 
a retirement savings plan at work.
    There are many recognized advantages of ``qualified'' plans offered 
at the workplace. Employers bring unique advantages to bear for 
employees when it comes to retirement savings and income: 
noncontributory plans that benefit employees who cannot afford to 
contribute; matching contribution arrangements that create enormous 
incentives to save; educational services underscoring the importance of 
savings; bargaining and purchasing power; economies of scale; fiduciary 
decision-making and oversight; and access to beneficial products and 
services. Employers are also in a strong position to know the 
retirement needs of their employee populations and can tailor 
retirement programs to these needs.
    In short, employers play an important role in promoting a secure 
retirement for America's workforce. But given the voluntary nature of 
employer plans, policymakers must seek to support employers in 
facilitating and, where feasible, financing retirement income for 
employees. In particular, policymakers should recognize that providing 
retirement benefits is not the core business mission of employers. In 
today's globally competitive marketplace, employers are increasingly 
sensitive to the costs, risks, and potential liabilities of all their 
activities. Government policies that raise the costs, risks, and 
potential liabilities associated with retirement plan sponsorship 
jeopardize the employer commitment to providing retirement benefits. 
This danger is present for employers of all sizes. But given the 
importance of expanding workplace retirement plan coverage for 
individuals who lack it, policymakers should be particularly sensitive 
to the effect of such increased costs, risks, and potential liabilities 
on small employers and on their willingness to initiate employer-
sponsored retirement plans for their workers.
(2) Regulatory complexity and burdens
    This brings me to my second point: In recent years, the regulation 
of employee benefit plans has grown considerably, and the employee 
benefits field has become an area of the law that is well-known for its 
complexity and burdensome regulatory regime. To be sure, plan sponsors 
appreciate the importance of rules that are appropriately protective of 
plan sponsors' and participants' interests. But those interests are not 
well-served when requirements are unnecessarily broad and overly 
burdensome. Rather, the government should establish a coordinated legal 
and regulatory regime under which individual savers and employer plan 
sponsors can operate effectively.
    To achieve these objectives, regulatory activity must be well-
coordinated across all agencies of jurisdiction to avoid conflicting or 
inconsistent guidance and enforcement. President Obama acknowledged the 
critical importance of this principle and of avoiding such regulatory 
conflicts in his January 18, 2011, executive order on Improving 
Regulation and Regulatory Review. Yet current examples of inconsistent 
guidance abound, particularly between the Department of Labor's current 
proposed regulations redefining the term fiduciary, and various 
regulations proposed by the Commodity Futures Trading Commission and 
the Securities and Exchange Commission under the Dodd-Frank Wall Street 
Reform and Consumer Protection Act. On January 18, 2011 the President 
issued an Executive Order emphasizing the importance of agency 
coordination. This means far more than agencies letting each other know 
about regulatory projects being developed. In the President's words, 
coordination means ``harmonizing rules'' and avoiding ``inconsistent'' 
or ``overlapping'' rules. Such coordination among the Department, the 
SEC, and the CFTC is essential. The critical need for coordination with 
the CFTC is discussed further below
    Moreover, compliance burdens on employer plan sponsors can be 
unreasonably magnified by requiring employers to comply first with 
statutory provisions and subsequently with regulations that articulate 
an interpretation of the statute that differs substantially from a good 
faith reading. The hybrid plan provisions of the Pension Protection Act 
of 2006 (PPA) are one example of this burdensome phenomenon. For 
example, the Pension Protection Act of 2006 prohibited cash balance 
plans and other hybrid plans from crediting interest at an above market 
rate. Treasury has issued proposed regulations that are clearly 
inconsistent with the statute and that expressly prohibit the use of 
thousands of interest crediting rates available in the market. 
Accordingly, these proposed regulations would force countless 
substantial plan modifications, as well as causing a very substantial 
portion of the cash balance plans in the country to reduce benefits.
    This is but one example of a regulatory interpretation that was 
issued many years subsequent to the effective date of the statutory 
provision and bears limited resemblance to the plain meaning of the 
statute. As a result, plan sponsors face costly and unexpected 
compliance changes, some of which require substantial plan redesigns. 
Regulations should be crafted with an eye to effecting legislative 
intent while limiting and mitigating the unintended consequences for 
plan administration and plan benefits.
    I would like now to turn to some specific developments that 
evidence this trend toward increased regulation, uncoordinated 
regulations, and undue burdens on employers who are trying to do the 
right thing for their workers by providing retirement plans.
            (a) Definition of the term ``fiduciary''
    In October, the Department of Labor proposed regulations on the 
definition of the term ``fiduciary'' under the Employee Retirement 
Income Security Act (ERISA). The proposed regulations would set aside 
the rule that has defined the term for 35 years. We understand the 
Department's desire to update and improve the definition, and we agree 
that the employer community would benefit from rules that establish 
clear lines between fiduciary advice, on the one hand, and non-
fiduciary education, marketing, and selling on the other hand. But the 
proposed regulations create too broad a definition of fiduciary. We are 
very concerned that an overly broad definition would actually have a 
very adverse effect on retirement savings by inhibiting investment 
education and guidance for plans and participants, raising costs, and 
shrinking the pool of service providers willing to provide such 
investment education and guidance.
    There has been some perception that the concerns related to the 
proposed regulations only relate to service providers, and primarily 
involve IRAs. That is not the case. The proposed regulations raise very 
serious issues for plan sponsors.
    ``May be considered'' standard. Under the proposed regulations, an 
individual can become a fiduciary solely by reason of providing casual 
investment information that ``may be considered'' by the recipient. 
Assume, for example, that a plan participant has consulted with an 
advisor and has decided tentatively to invest in a group of investment 
options available under the plan. As a last-minute check, the 
individual asks a colleague in the employer's human resources 
department if the participant's fund selections make sense for an 
individual in her situation. The human resources employee says he is 
not an expert but the choices make sense to him and are consistent with 
what many others are doing. Under the regulation, that casual reaction 
is fiduciary advice. Similarly, if the participant were to ask a call 
center operator the same question, any answer would be investment 
advice. But neither interaction is really investment advice. An ERISA 
fiduciary relationship is a very serious relationship with the highest 
fiduciary standard under the law. In that context, fiduciary status 
should not be triggered by casual discussions but only by serious 
communications that reflect a mutual understanding that an adviser/
advisee relationship exists.
    If the proposed rule were finalized, plan sponsors may need to 
inform human resources departments and call centers never to discuss 
investments in any manner. This would hurt and frustrate participants, 
which is the last thing that plan sponsors want to do. Nor would that 
be a positive development from a policy perspective.
    Plan sponsor employees. It is, of course, common for a plan sponsor 
to form a committee of senior executives to oversee plan issues, 
including plan investment issues. It is certainly clear that such 
committee has fiduciary status. But under the proposed regulations, 
large numbers of middle-level employees who frame issues and make 
recommendations for senior employees to consider would also be 
fiduciaries. If all of these employees were fiduciaries, the effects 
would be severely negative. For example, the cost of fiduciary 
insurance would skyrocket, if such insurance would be available at all 
for such employees. These costs would ultimately be borne by 
participants in the form of higher costs and lower benefits.
    Plan investment menus. Today, one of our greatest challenges in the 
retirement security area is broadening retirement plan coverage among 
small businesses. Small businesses will generally adopt a retirement 
plan only if the process is simple and inexpensive. In this context, 
imagine the hardware store owner who would like to adopt a plan for his 
12 employees. Assume that the service provider presents its menu of 300 
investment options, provides objective data regarding all 300, and 
tells the hardware store owner (1) to decide how many options to offer 
and (2) to pick the right options for his employees, subject to 
fiduciary liability if he picks imprudently. Alternatively, the 
hardware store owner can find some independent consultants, interview 
them, choose one (subject to fiduciary liability), and pay that 
consultant a substantial amount of money to pick and monitor the plan 
menu.
    Needless to say, if that is the message that the hardware store 
owner receives, he will not adopt a plan for his employees. Yet under 
the proposed regulations, if the service provider did anything more to 
help the hardware store owner, the service provider would be deemed a 
fiduciary. So if the rule set forth in the proposed regulations is 
finalized in its current form, we are likely to see a marked decline in 
retirement plan coverage.
    Service providers need a way to provide employers with help in 
choosing the plan menu so that the process is simple and inexpensive. 
For example, the service provider may screen funds based on objective 
criteria that are provided by the plan fiduciary or that are commonly 
used in the industry.
    Valuation. We believe that the proposed regulation's application of 
fiduciary status attributable to the provision of valuation services is 
overly broad and needs to be reconsidered. First, it would sweep in 
countless routine valuations, such as valuing annuity contracts for 
purposes of determining required minimum distributions. Second, even in 
the areas that are the object of the Department's express concerns--
such as ESOP valuations--the nature of the fiduciary duty needs work. 
The Department wants to ensure an objective valuation. A fiduciary 
advocates for participants; a fiduciary is precluded by law from being 
objective.
    Management of securities. Under the proposed regulations, advice 
regarding the management of securities constitutes investment advice. 
This raises serious issues for plan sponsors. For example, assume that 
a plan decides to change trustees and begins negotiating a trust 
agreement with the new trustee. The trustee is involved in the 
``management'' of plan assets, and the terms of the trust agreement 
affect that management. Are all of the plan sponsor's legal and 
compliance personnel fiduciaries by reason of working on the trust 
agreement? Under the proposed regulations, the answer is yes. This will 
cause the cost of trust agreements and many other routine plan actions 
to increase exponentially with the imposition of new duties and large 
potential liabilities.
    What about the persons working on the agreement for the new 
trustee? If such persons make any ``recommendations'' to the plan in 
the course of negotiations, they would become fiduciaries because the 
seller exemption, on its face, only appears to apply to sales of 
property and not services. Any such recommendations would thus trigger 
fiduciary status and corresponding prohibited transactions.
    There are many similar examples. To avoid such inappropriate 
results and enormous new costs and burdens on plan sponsors, the 
proposed regulations need significant modification.
    Legal and other non-investment advice. Assume that ERISA counsel 
advises the plan that entering into a swap with a particular dealer 
would raise prohibited transaction issues and counsels the plan not to 
enter into the swap for that reason. Under the proposed regulations, 
that would clearly constitute investment advice, making the ERISA 
attorney a fiduciary. Again, this is an unworkable result for plan 
sponsors who need to be advised on compliance issues.
    In sum, the increased cost and confusion attributable to the 
proposed regulation is a source of significant concern for our plan 
sponsors. The Council and many other organizations representing 
employers have communicated these concerns to the Department of Labor. 
We appreciate the support we have received from many Members of 
Congress, and hope that on a bipartisan basis Members of Congress will 
continue to join us in warning the Department of the dangers inherent 
in an overly broad proposal that does not fully take account of 
ramifications that could raise costs or otherwise chill employers from 
offering plans in the first place.
            (b) Electronic disclosure
    ERISA requires the extensive provision by plan sponsors of reports, 
statements, notices and other documents. Unfortunately, current 
regulations severely restrict the circumstances in which email and 
other paperless means of communication can be utilized. The regulations 
contemplate the use of electronic media only if a participant either 
(i) uses an electronic network (e.g., a computer or a smart phone) as 
an integral part of his or her duties as an employee, or (ii) 
affirmatively consents to receiving documents electronically in a 
manner that demonstrates the ability to access electronic disclosures. 
This standard severely restricts the use of email as a means of 
communication for many categories of employees and former employees, 
even in circumstances where the employer has email addresses and 
routinely uses email or other electronic disclosure for other forms of 
communication. As a result, the multitude of notices and statements 
that plan administrators must provide to plan participants and 
beneficiaries are typically provided through labor intensive and costly 
paper media.
    There are enormous potential cost savings that would benefit 
participants, beneficiaries, employers and the environment if the 
existing regulation were revised to more broadly accommodate electronic 
communication, including use of home computers and personal cell phones 
or internet connections. We appreciate that not every participant or 
beneficiary has access to a particular system, but believe that these 
participants can be accommodated through rules that allow participants 
to opt out of electronic delivery and request paper copies of the 
relevant materials.
    DOL recently instituted a Request for Information Regarding 
Electronic Disclosure by Employee Benefit Plans. We appreciate DOL's 
initiation of this project, as we believe that appropriate electronic 
disclosure is a more user-friendly, efficient, and cost-effective means 
of providing necessary information to plan participants and 
beneficiaries and is a method that is more popular with participants 
and beneficiaries. Effective electronic communications can enhance the 
disclosures for the majority of participants while protecting their 
rights and ensuring that those who still wish to receive paper notices 
are entitled to receive them upon request.
    More specifically, we strongly believe that a current Department of 
Labor rule in effect with respect to benefit statements would work very 
well for all communications. Under that rule, a plan posts information 
on a secure website, informs participants by non-electronic means of 
the availability of the information on such website, and also informs 
participants of their right to receive paper notices. This structure is 
very protective of participant rights, is very efficient, and is very 
effective in offering participants the best way to find what they need 
whenever they need it.
    In this regard, we believe that it is critical that all agencies 
whose rules affect plans adopt the secure website rule described above. 
I note that DOL's current regulation differs materially from the 
electronic delivery standards of other regulatory agencies, including 
the Internal Revenue Service (IRS) and the SEC which share oversight 
responsibility for employee benefit plans with DOL. These different 
standards can be very frustrating and burdensome for employers who must 
comply, for example, with one set of standards in furnishing DOL-
required notices, another standard in providing IRS-required 
disclosures, and a third standard in distributing SEC-required 
disclosures. Under the President's Executive Order of January 18, 
discussed above, these standards should be harmonized. The Council 
recommends that the rules be harmonized by the uniform adoption of the 
secure website approach described above.
            (c) Use of Swaps
    Pension plans use swaps to manage interest rate risks and other 
risks, and to reduce volatility with respect to funding obligations. If 
swaps were to become materially less available to plans, plan costs and 
funding volatility would rise sharply. This would undermine 
participants' retirement security and would force employers to reserve, 
in the aggregate, billions of additional dollars to address increased 
funding volatility. These reserves would have to be diverted from 
investments that create and retain jobs and that spur economic growth 
and recovery.
    In enacting the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Congress adopted ``business conduct'' standards to help 
plans and other swap counterparties by ensuring that swap dealers and 
major swap participants (MSPs) deal fairly with plans and other 
counterparties. However, the proposed regulations issued by the 
Commodity Futures Trading Commission under Dodd-Frank would actually 
have devastating effects on plans.
    The proposed business conduct standards would require swap dealers 
and MSPs to provide certain services to retirement plans and other 
plans governed by ERISA with respect to swaps (or potential swaps) with 
such plans. The required services would likely make the swap dealer or 
MSP a plan fiduciary under a regulatory definition of a fiduciary 
recently proposed by the Department of Labor (and under the current-law 
definition). For example, the proposed business conduct standards would 
require a swap dealer or MSP (1) to provide a plan with information 
about the risks of a swap, (2) to provide swap valuation services to a 
plan, and (3) to review a plan's advisor. Each of these services would 
likely make the swap dealer or MSP a plan fiduciary under the DOL's 
proposed regulations, and the third would make swap dealers or MSPs a 
fiduciary under current law. If a swap dealer or MSP is a plan 
fiduciary, it would be a prohibited transaction under ERISA for the 
swap dealer or MSP to enter into a swap with the plan. Thus, the 
proposed business conduct standards would likely require a swap dealer 
or MSP entering into a swap with an ERISA plan to violate ERISA. The 
only way to avoid this result is for all swaps with plans to cease, 
which would be devastating for plans, as discussed above.
    The interaction of the business conduct standards and the DOL's 
definition of a fiduciary should be publicly and formally resolved in a 
legally binding way by the time the CFTC finalizes the business conduct 
standards. If the issue is not resolved before finalization of the 
business conduct standards, there would be an immediate chilling effect 
on all swap activity due to uncertainty regarding current and future 
DOL regulations. Accordingly, prior to finalization of either 
regulation, the CFTC and the DOL should jointly announce that no action 
required by the business conduct standards shall cause a swap dealer or 
MSP to be an ERISA fiduciary.
    Furthermore, under the proposed business conduct standards, if a 
swap dealer or MSP ``recommends'' a swap to a plan, the swap dealer or 
MSP must act ``in the best interests'' of the plan with respect to the 
swap. Under the proposed rules, many standard communications used by a 
swap dealer or an MSP in the selling process--such as ``this swap may 
fit your interest rate hedging needs''--would be a recommendation. In 
fact, it seems clear that the term ``recommendation'' would include 
information regarding plan risks that the business conduct standards 
require a swap dealer or MSP to provide to a plan. This means that swap 
dealers or MSPs acting solely as counterparties would be required to 
also act in the best interests of the plan. This is not possible and 
accordingly would likely cause all swaps with plans to cease. A swap 
dealer or MSP as a party to a swap transaction cannot have a 
conflicting duty to act against its own interests and in the best 
interests of its counterparty with respect to the swap. If a swap 
dealer or MSP clearly communicates to a plan in writing that it is 
functioning solely as the plan's counterparty or potential 
counterparty, no communication by the swap dealer or MSP should be 
treated as a ``recommendation.''
    Finally, if a swap dealer or MSP is simply acting as a counterparty 
or potential counterparty with respect to a swap with a plan, the 
proposed business conduct standards require the swap dealer or MSP to 
carefully review the qualifications of the advisor advising the plan 
with respect to the swap, and to veto the advisor if appropriate. This 
rule is problematic for several reasons. First, there is no basis for 
this rule in the statute; under the statute, a swap dealer or MSP's 
duties are fulfilled with respect to a swap with an ERISA plan if the 
swap dealer or MSP determines that the entity advising the plan is an 
ERISA fiduciary. Second, if swap dealers or MSPs can veto plan 
advisors, plan advisors could potentially be reluctant to negotiate in 
a zealous manner against a dealer, thus severely hurting plans. Third, 
swap transactions often need to happen quickly to effectively hedge 
plan risks; there is no time for investigations of advisors. Last, 
reviewing a plan's advisor may well make a swap dealer or MSP a 
fiduciary of the plan, which, as discussed above, would in turn make 
the swap a prohibited transaction. If an ERISA plan represents to a 
swap dealer or MSP that the plan is being advised or will be advised by 
a fiduciary subject to the requirements of ERISA, the swap dealer or 
MSP should not be required, or permitted, to make any further inquiry 
to satisfy the statutory requirement.
    These issues pose a serious threat to the ability of defined 
benefit plans to manage risk. At a time when plan sponsors face 
enormous financial and regulatory challenges in maintaining a plan, we 
must ensure that new swap rules do not create a further disincentive to 
maintaining the plan.
            (d) PBGC disruption of normal business activities
    We would also like to express deep concerns regarding the PBGC's 
proposed regulations under ERISA section 4062(e). First, the proposed 
regulations are not consistent with the statute. Under the statute, 
liability is triggered if ``an employer ceases operations at a facility 
in any location''. The proposed regulations do not follow the statute, 
which was clearly intended to be limited to situations where operations 
at a facility are shut down. Instead, under the proposed regulations, 
liability can be triggered where no operations are shut down and no 
employees are laid off, but rather operations are, for example, (1) 
transferred to another employer, (2) moved to another location, or (3) 
temporarily suspended for a few weeks to repair or improve a facility. 
The proposed regulations need to be revised to conform to the statute, 
so as not to disturb normal business transactions that are not within 
the intended scope of the statute and pose no risk to the PBGC.
    Moreover, the liability created by the proposed regulations can be 
vastly out of proportion with the transactions that give rise to the 
liability. For example, where a plan has been frozen for many years, a 
de minimis business transaction affecting far less than 1% of an 
employer's employees can trigger hundreds of millions or billions of 
dollars of liability. This needs to be addressed. In addition, as 
noted, the proposed regulations would impose enormous liabilities on 
plan sponsors even in situations where a plan poses no real risk to the 
PBGC. There should be exemptions for small plans and for well-funded 
plans. The exemption for well-funded plans should be based on a plan's 
funded status for funding purposes. If a company has, for example, 
little or no funding obligation with respect to a plan under the 
funding rules, it is inappropriate to impose large obligations on such 
company based on a theory that the obligations are needed to protect 
the PBGC.
    These proposed regulations would clearly hasten the demise of that 
system. By placing an enormous toll charge on plan sponsors that engage 
in normal business transactions, these proposed regulations would send 
a powerful negative message to those left in the defined benefit plan 
system.
            (e) PBGC premium filings
    We are also very concerned about a pattern that seems to be 
developing with respect to the PBGC's review of premium filings. We are 
receiving repeated reports from our members that filings are being 
rejected and penalties are being imposed for reasons that seem 
unnecessarily rigid.
    In our view, the relationship between the PBGC and defined benefit 
plan sponsors should be a cooperative one that furthers the mission of 
the PBGC. The PBGC's mission includes ``encourag[ing] the continuation 
and maintenance of voluntary private pension plans for the benefit of 
their participants.'' In that context, imposing large premium increases 
and penalties seems inappropriate in the case of conscientious sponsors 
that are trying to comply with the rules.
    Based on our members' experience, we have numerous examples of this 
concern, but we will only highlight one here today. In the case of one 
of our members, the premium was paid on October 14th, the day before 
the deadline. The plan sponsor contacted the PBGC on October 15th to 
ensure that the payment had been received; a PBGC representative 
confirmed orally that the payment had been made. Then on October 19th, 
the PBGC contacted the plan sponsor and said that the payment had been 
returned. Apparently, the plan sponsor had made a clerical error with 
respect to the account number. On the same day--October 19th--the plan 
sponsor made the full premium payment.
    This plan sponsor was assessed a large penalty and all of its 
requests for reconsideration have been denied. The PBGC stated in its 
second denial: ``the payment failure was the result of a clerical error 
by the Plan and therefore does not meet reasonable cause. An oversight 
is not in keeping with ordinary business care and prudence.''
    It is very disturbing that the PBGC's current position is that any 
oversight affecting timely payment is a cause for penalties. Regardless 
of the care used by the plan sponsor, any error apparently triggers 
penalties. We agree that there need to be incentives for plan sponsors 
to be conscientious and careful. But in order to be true to its 
mission, PBGC needs to balance that objective with the need not to act 
in a punitive way with respect to plan sponsors that make inadvertent 
errors despite clear evidence of an intent to comply.
    The above facts clearly demonstrate the plan sponsor's 
conscientiousness does not matter under PBGC's penalty system. If a 
plan sponsor makes any mistake affecting timely payment, penalties 
apply under PBGC's current system. This is not the right answer. We 
strongly believe that inadvertent errors, such as clerical errors, that 
are made despite a clear intent to comply should not give rise to 
penalties. Any other position would simply be punitive and inconsistent 
with the PBGC's mission.
    PBGC needs to review its filing program to ensure that filings are 
not rejected or subjected to penalties inappropriately. A failure to do 
so would just be one more reason--and a very preventable reason--for 
companies to leave the defined benefit system.
(3) Essential tax incentives
    The U.S. retirement savings system successfully encourages 
individuals to save for retirement by providing tax incentives--
typically income tax exclusions or deductions--for contributions to 
employer-sponsored defined contribution plans and IRAs, up to certain 
limits. This tax incentive structure is a fundamental pillar of our 
successful private retirement savings system. It provides a strong 
incentive for individuals at all income levels to save for retirement 
and encourages employers to sponsor plans that deliver meaningful 
benefits to Americans up and down the income scale.
    The current pre-tax treatment of retirement savings is a powerful 
incentive for individuals. It is viewed by taxpayers as the core of our 
retirement savings regime and allows them to save more on a paycheck-
by-paycheck basis than would be the case with after-tax contributions. 
This financially efficient approach is particularly important for low- 
and middle-income families trying to make the most of scarce dollars. 
The payroll tax savings on employer contributions provides another 
significant advantage for modest-income households, as does the 
deferral on gains that spares families from annual tax bills on their 
accumulating savings.
    And current incentives efficiently produce retirement benefits. 
Repeated analyses have shown that, for every dollar of federal tax 
expenditure devoted to tax-preferred workplace retirement plans, four 
to five dollars in ultimate retirement benefits result. This extremely 
efficient catalyst produces a remarkable amount of benefits for workers 
and their families--in 2008, private employer retirement plans paid out 
$462 billion in benefits.
    Because the employer-sponsored retirement system is premised on its 
voluntary nature, tax incentives for contributions by employees are 
important in encouraging plan sponsorship. A move to a capped tax 
credit that provides a reduced tax benefit could discourage plan 
sponsorship. If sponsorship declines and more employees are forced to 
save on their own, they would not receive the many protections and 
benefits associated with employer-sponsored plans (from ERISA 
protection to fiduciary oversight--especially of investments and fees--
to employer contributions).
    Employers play an important role in helping to facilitate the 
accumulation of retirement savings and income by American workers. We 
are proud of the role we have played and the unique advantages we can 
bring to bear when it comes to retirement savings and income. And we 
urge policymakers to support our role as employers in facilitating and, 
where feasible, financing retirement income for employees.
    Thank you for this opportunity to testify.
                                 ______
                                 
    Chairman Roe. I thank the panel for their testimony. Our 
first questioner will be Dr. Bucshon.
    Mr. Bucshon. Thank you, Mr. Chairman. I will make a couple 
comments. First of all, I am a physician and I assure you that 
I am very concerned about the future of American seniors and 
our current seniors, and I just want to go over and remind 
everyone that according to the recent Medicare trustees report 
that Medicare will be insolvent in 2024, and, again, that is 
not my opinion, that is the one that just came out from the 
Medicare trustees.
    And, with all due respect, I would like to have a request 
that the minority propose a solution, if they don't like our 
solution, which was, by the way, modeled after what we have as 
Members of Congress and also was outlined in a Democrat report, 
the Breaux Commission in the 1990s, under President Clinton.
    The status quo under the Affordable Care Act will allow for 
severe cuts to seniors' benefits in 2024 without action, and 
the only proposal to address the issue at all under current law 
is a 15-member board, IPAB, that will certainly result in 
significant slashes to Medicare funding at the time as we know 
that the number of people on Medicare will be doubling by 2030.
    So with that said, I have a couple of questions as it 
relates to the pension area.
    First of all, Mr. Brill, you mentioned that the trend in 
retirement security is toward offering more defined 
contribution plans, but people still don't save. So to what 
extent can public policy help increase participation in 
voluntary retirement plans when it really is a matter of 
personal responsibility, and how do we promote sufficient 
savings for retirement for our American seniors?
    Mr. Brill. Thank you, Congressman, for your question. As 
you indicated, there is a need for more workers to save and for 
those who do save to save more so that they have an adequate 
nest egg when they reach their retirement age. I don't think 
that there is a single solution that can help us reach that 
goal, although I think that there are a set of policies that 
one could consider pursuing.
    As I mentioned in my testimony, auto enrollment, auto 
escalation policies have shown to be effective in getting more 
people enrolled and, in particular, getting people enrolled in 
DB--I am sorry--in DC plans sooner. And one of the keys to 
having an adequate retirement nest egg is starting when you are 
young and adopting both that mentality, the value of thrift, 
the value of savings, and putting those assets aside as early 
as possible so that they have the opportunity to accumulate.
    In addition, evidence from economists Olivia Mitchell and 
Annamaria Lussardi at Dartmouth College have found that there 
is an inadequate amount of financial literacy among many 
workers, particularly minorities and women, who are not well 
informed about the skills necessary and the appropriate levels 
of savings in order to have sufficient amounts of savings.
    I think that greater awareness, greater communication by 
employers to employees and other activities like that can help 
address some of those issues.
    Mr. Bucshon. Okay, thank you. Mr. Delaney, we have heard 
some testimony that the Department of Labor regulations may 
reduce investment flexibility for pension plans. Can you 
discuss how important it is for both defined benefit and 
defined contribution plans to have access to a wide range of 
investment products for our citizens?
    Mr. Delaney. Well, I believe it is very important. First of 
all, as it relates to a predictability and being able to rely 
upon what the guidelines are from any particular piece of 
legislation, we certainly want to provide to our associates a 
broad range of investment opportunities through the DC plan.
    Certainly, if you were to speak with our Treasurer, he 
certainly wants to be able to talk with people that he deals 
with respect to investment options with respect to the DB 
assets. I would tell you that our associates have at this point 
17 different investment opportunities in their defined 
contribution plan, and we spend a lot of time marketing those. 
They have online capability. We do a lot of things with them in 
terms of education and being able to provide them with 
opportunities to have a wide range of options based on their 
risk tolerance and their personal circumstance.
    Mr. Bucshon. Thank you. I yield back.
    Chairman Roe. Mr. Andrews.
    Mr. Andrews. Thank you. I would like to thank the witnesses 
for their testimony. It did not disappoint. It was very good 
for everybody. Thank you.
    Mr. Brill, on page 7 of your testimony you cite a Boston 
College study that found that the financial crisis put the 
percentage of households at risk of not having sufficient post-
retirement standard of living increased from 44 percent to 51 
percent. So a lot of retired people in real trouble.
    I assume by ``at risk'' you mean that their incomes would 
either stagnate or not go up much and their costs would go up 
by a lot. Is that what ``at risk'' means?
    Mr. Brill. The trigger for being at risk in the study was 
that one's expected retirement income was more than 10 
percentage points less than the targeted replacement rate.
    Mr. Andrews. Does it take cost into consideration at all, 
cost of living?
    Mr. Brill. It does in the sense that it is considering 
income in real terms, not in nominal terms.
    Mr. Andrews. If someone's retirement cost went up by $6,000 
because of increased out-of-pocket health care costs, do you 
think that would increase the number of senior households at 
risk?
    Mr. Brill. Congressman Andrews, with regard to the Medicare 
issue, what I would note is the greatest concern that I have is 
the unsustainability of the current system.
    Mr. Andrews. Well, my greatest concern is the answer to my 
question. What I asked you was would it put more senior 
households at risk if their costs went up by $6,000 a year?
    Mr. Brill. I think that what is important is that people 
have an awareness of the situation that they are in. If they 
have the opportunity to save that additional----
    Mr. Andrews. Would they be aware if their out-of-pocket 
went up by $6,000 a year that they would be in more trouble; is 
that a fair statement?
    Mr. Brill. Without warning?
    Mr. Andrews. Yes.
    Mr. Brill. Without warning, yes.
    Mr. Andrews. Well, with or without warning, I mean, say to 
somebody here is some news. A few years from now it is going to 
cost you 6,000 bucks a year more to live. Does the warning 
really do them any good if they don't have the income?
    Mr. Brill. If they have the opportunity to save, they can 
mitigate those concerns.
    Mr. Andrews. If they have the opportunity to save. But your 
own testimony says that there--the number of households who 
don't have the opportunity to save and therefore at risk grew 
from 44 percent to 51 percent because of existing economic 
conditions. So do you think they are going to have much of an 
opportunity to overcome that?
    Mr. Brill. I would agree it is important to strengthen our 
retirement security programs, encourage more people to save, 
make more people aware of the need to save and facilitate their 
DC plans.
    Mr. Andrews. Now on page 8 of your statement you say 
Medicare, while recognized by some as an unsustainable program 
as currently constructed, lacks the bipartisan cooperation 
necessary to achieve meaningful savings.
    Is it true or false that the Affordable Care Act had $495 
billion in Medicare savings in it?
    Mr. Brill. I am sorry, could you repeat the question?
    Mr. Andrews. The Affordable Care Act, signed by the 
President last year, had $495 billion in Medicare savings in 
it; is that correct?
    Mr. Brill. I believe that--I agree that the----
    Mr. Andrews. And isn't it also correct that the Republican 
budget resolution, in its baseline, assumed those $495 billion 
in savings for future budgets; is that correct?
    Mr. Brill. I am not aware.
    Mr. Andrews. The record will show that it is.
    I want to talk about meaningful savings in Medicare. What 
do you think about if idea of permitting the Medicare 
administration to negotiate the price of prescription drug the 
way the VA does? There are projections, I think, Mr. Richtman's 
organization projects that that could save $24 billion a year. 
Is that something we should do?
    Mr. Brill. I don't think that is a policy we should pursue.
    Mr. Andrews. Why not?
    Mr. Brill. I am concerned about setting the prices in 
pharmaceuticals, because of the effect it may have on the 
development of new drugs.
    Mr. Andrews. Well, has the VA negotiating prices affected 
the development of new drugs?
    Mr. Brill. The size of the VA market is smaller than the 
size of the retiree market.
    Mr. Andrews. So it is your position that we should have a 
law that says that the Medicare program should pay whatever the 
drug companies demand to be paid for prescription drugs?
    Mr. Brill. That is not the current policy.
    Mr. Andrews. That is what the law says. They are prohibited 
from negotiating the drug prices, aren't they? What's the 
current policy?
    Mr. Brill. The current policy with regard to part B drugs 
is that Medicare reimburses what is referred to as ASP plus 6, 
the average sales price as set by the market.
    Mr. Andrews. Is CMS allowed to negotiate the price of the 
Coumadin pill that it buys?
    Mr. Brill. No, they are not.
    Mr. Andrews. Well, that sounds to me like the present deal 
is you have got to pay whatever the industry demands. Do you 
think that is a good idea?
    Mr. Brill. No, the current deal is that you are set to pay 
what the market demands, not what the industry sets.
    Mr. Andrews. But you can't participate in the market by 
being a purchaser, you have to wait and see what everybody else 
does? I just think that is a meaningful Medicare savings you 
don't seem to support.
    I yield back.
    Chairman Roe. I thank the gentleman.
    Dr. Heck.
    Mr. Heck. Thank you, Mr. Chair. This is for Mr. Delaney. We 
heard testimony about the lack of participation and extent of 
savings by employees in the plans that are available and that 
education is one of the ways that we can try to change that 
behavior. What obstacles do you face as an employer in 
providing that type of education, and what could be done to 
facilitate that process?
    Mr. Delaney. Well, I think as an employer Ingram has done a 
very good job of getting information out to our associates. One 
of the things that would be a difficult situation for us is we 
have a very diverse workforce. We have individuals, for 
instance, who spend most of their time in a distribution center 
or individuals who spend most of their time on a tow boat. And 
so access to online communication is not readily available for 
those folks in the workplace for sure. And so we have to take a 
multifaceted view and strategy in terms of how we get 
information to them.
    We have provided, as I mentioned in my statement, 
retirement planning workshops, and we send a lot of direct 
mails to folks that we consider to be very, very effective.
    In terms of general education, we think that basically the 
environment today allows us to do what we need to do to get the 
word out to get people to save more and to participate in 
higher numbers.
    Mr. Heck. Is there any concern over liability with 
providing financial advice to your employees?
    Mr. Delaney. Well, I would tell you that we go up to a 
certain line and not, in our opinion, not beyond that. We 
certainly don't make advice in terms of what they should put 
money into. I mention that we use, for balancing purposes, 
Morningstar, a third party, to do that.
    But for the most part what we do is we educate. We tell 
people what their options are but we do not make, but we do not 
make judgments about their particular circumstances and what 
they should or should not do with respect to investment.
    Mr. Heck. Thank you, Mr. Chair.
    Chairman Roe. Mr. Kildee.
    Mr. Kildee. Thank you, Mr. Chairman. Mr. Richtman, the Paul 
Ryan Republican budget on Medicare indicates that it will 
affect only those age 54 and younger. Is that actually correct?
    Mr. Richtman. Well, it clearly affects, in a dramatic way, 
as has been pointed out already today, those 54 and younger. 
But it also has a dramatic effect on current beneficiaries.
    Chairman Ryan's proposal repeals the Affordable Care Act. 
The Affordable Care Act had some improvements that are very 
important for seniors. The well-known and well discussed donut 
hole is eliminated in the Affordable Care Act. That disappears 
under the chairman's legislation.
    All of the improvements in preventive care that eliminated 
out-of-pocket contributions for preventive care, that is gone 
in the budget that Chairman Ryan has proposed.
    So to simply say to seniors, don't worry, this is not going 
to affect you, is completely inaccurate.
    Mr. Kildee. So the concern, I have talked to others at home 
for about 9 days and talked primarily to senior citizens, and, 
being one myself, I generally see a lot of them.
    And so their concern is not just out of charity for the 
younger workers, but they look at their own financial situation 
and find difficulties created by the Ryan approach.
    Mr. Richtman. That is absolutely true and, as Congressman 
Andrews pointed out, by dividing these two groups by age, it 
has an impact on the risk pool of older people, and it is 
virtually impossible to prevent an adverse impact because of 
those consequences on people currently on Medicare.
    Mr. Kildee. Could we say, then, and I use this and heard it 
when I was back home in Flint, Michigan, Saginaw, Michigan, Bay 
City, Michigan, there were a lot of retirees, mostly General 
Motors or Delphi retirees, and we assume then that by keeping 
it in Medicare for this new program proposed by Mr. Ryan, is he 
using an assumed name for this new program?
    Mr. Richtman. No. Technically, I suppose it could be 
Medicare. I have heard people at the town meetings I 
participated in with seniors, our members, call it coupon care. 
And, you know, they are okay with clipping coupons for 
groceries, but they are not too keen on coupons for purchasing 
their health care.
    Mr. Kildee. And given, comparable to a food stamp, you have 
to go out and try to find the best bargain you can find? A lot 
of these people are very, quite old. I am 81 myself, I think I 
can still do that myself. I do it for the country, I hope I can 
do it myself. But a lot of these people are going to find it 
very difficult to have to shop around and look for the most 
appropriate policy for themselves.
    So I really think it is kind of a--they ought to be honest 
and name it something else because Medicare, from the time that 
Lyndon Johnson signed that into law, one of the greatest things 
since Franklin Roosevelt signed Social Security into law in 
1935, Medicare means one thing to these older people. And what 
the shell game has done is put something else there and still 
call it Medicare. I myself would think that they should not use 
an assumed name for this new program.
    Thank you very much, and thank you for what you do.
    Mr. Richtman. Thank you.
    Chairman Roe. Dr. DesJarlais.
    Mr. DesJarlais. Thank you, Mr. Chairman. As I sit and 
listen to this discussion and as a family practice physician 
for the past 18 years prior to coming to Congress, it certainly 
gives me pause to listen to the various testimony here today 
and listen to some of the discussions about Social Security and 
insolvency and Medicare and insolvency. I know a lot of folks 
who are in my age group, I am 47, for the past decade have 
wondered whether Social Security is even going to be there, 
whether Medicare is even going to be there and, you know, we 
don't seem to be able to give them a real good answer.
    But, you know, Social Security back home, at least with my 
constituents, is something that the government has mismanaged, 
that they have handled irresponsibly, that they borrowed money 
from, and it has created a real problem with that certainty of 
what they will get and what they won't get.
    As far as Medicare goes, you know, certainly as a 
physician, I don't think that I have ever looked at treating a 
patient as treating a Democrat or a Republican. I just treated 
a patient. And I know that there is a lot of concern about 
where the health care is going to come from.
    But as far as just talking to the people in general and 
talking about the facts of Medicare on a bipartisan basis, we 
know for a fact that there are 10,000 new members entering 
Medicare every day. We know that in 1965, when Medicare was 
created, the average life expectancy of a male was 68 years. So 
the plan was designed to cover them for 3 years. Thankfully, 
through good medicine males are living at least 10 years longer 
and females 12 years longer.
    Unfortunately, the government didn't account and adjust for 
that. The average couple pays into Medicare about a dollar for 
every $3 that comes out.
    So to look at Medicare and try to change the name of 
Medicare or call it something it is not is irrelevant to me. 
The bottom line is Medicare is going broke and it is going to 
be insolvent sooner than later. So the cost of doing nothing is 
to see to end to Medicare as we know it.
    So I just wanted to put that out there whether or not you 
are for or against some of the discussions that have been going 
on here. I know we can't do nothing.
    And getting back to the topic at hand today, Mr. Klein, I 
wanted to ask you a question about the Department of Labor's 
proposed amendment to the definition of fiduciary. It has 
created a lot of uncertainty in the plan's sponsor and 
financial service community.
    You mentioned that you believe that some service providers 
would leave the market. Can you please how explain how this 
would negatively impact workers and retirees?
    Mr. Klein. Yes, thank you, Congressman, I think that the 
concern here is that the uncertainty around what kind of 
activity might be deemed to be a fiduciary act would scare away 
some service providers from providing information that would be 
very valuable to individuals and, you know, to their detriment. 
I think it was outlined at the very beginning in the opening 
statements how extremely important it is that people have 
adequate retirement income.
    And, you know, I don't think that, we are certainly not 
opposed to the idea of revisiting rules they have been around 
for 35 years, recognizing the vast changes that have been made 
in the financial marketplace.
    But a lot of the uncertainty, as I said, around various 
practices, has both service providers, as well as employers, 
and it should have participants also very concerned.
    Mr. DesJarlais. Thank you. We have heard that defined 
contribution plans are becoming more prevalent. What are some 
of the industry's best practices that sponsors have taken to 
increase financial education and participation?
    Mr. Klein. Several interesting things. I think one of the 
most fascinating things that represents best practices is the 
application of behavioral economic concepts, the notion that 
different people respond to different types of incentives and 
different kinds of encouragement.
    So rather than a one-size-fits-all approach to education, 
there is actually a lot of fascinating work that is being done 
in terms of segmenting how to approach different people based 
upon their different age cohorts, their relationships to their 
coworkers and so forth.
    Other areas involve greater use of electronic means. That 
is one of the reasons that we are so interested in this. It is 
much easier for individuals to go on line to model their 
particular situation, to understand what it is that they might 
need, and then to seek the appropriate advice and so forth. So 
these are just a couple of examples.
    I guess I would cite one more. There is a lot of awareness 
that very often an employee's spouse plays a significant role 
in helping make the decision around various investments. And so 
a lot of companies sponsor forums not just for their employees, 
but invite their spouses to come as well, so there could be a 
joint activity with greater results.
    Mr. DesJarlais. I see I am out of time. I thank the 
witnesses for their testimony. And I know that there are a lot 
of American people watching hearings like this, hoping that we 
get it right. So we have a lot of work to do.
    Thank you. I yield back.
    Chairman Roe. Thank you. Mr. Loebsack.
    Mr. Loebsack. I do applaud having this hearing on 
retirement issues. I should state that at the outset. I think 
it is really, really critical, especially when we hear things 
that young people don't think that Social Security is going to 
be there for them, when we have been talking about the so-
called Ryan budget and ending Medicare, in effect.
    But I also wish this hearing could more broadly focus on 
ensuring real retirement security, which means focusing on 
making sure that the millions of people currently out of work 
actually can find a good-paying job and improved opportunities, 
because as Mr. Brill mentioned, one of the main reasons why we 
have a reduction right now in retirement savings is because of 
the recession, because people have been out of work for so 
long, and so many people have.
    And so we have got to make sure that we focus more 
generally, I think, on making sure that we get people back to 
work, making sure that we get them good-paying jobs, so that 
they can in fact take responsibility for themselves, too, and 
afford to save more for their retirement.
    And while I generally would agree more with what Mr. 
Richtman has said today than the other three of you, 
nonetheless, I think there are certain things that we can agree 
on, and I think the point about financial literacy is a really 
great point. I think we have far too many people in this 
country who are financially illiterate. I have a bill also that 
promotes statistical literacy. I think that is important as 
well and contributes to financial literacy.
    I am all for people taking responsibility for themselves, 
especially when it comes to retirement. But at the same time, 
of course, I have a lot of concerns about the move from defined 
benefit to defined contribution. I still think that there is a 
place, a very important place, for defined benefit plans. And I 
don't want to see us continue to move in the direction of 
defined contribution plans.
    Also, I hope this hearing really is the beginning of a 
larger discussion, as I just said, and some ways on how to 
improve people's retirement savings and get them the 
information they need. I think that is absolutely critical. But 
I am also glad that we can use this hearing to focus on other 
retirement security for all Americans, and that is Medicare and 
Social Security.
    Republicans' budget, as was already mentioned, 
unfortunately will end Medicare. And not Medicare as we know 
it, but I think as Mr. Kildee said, Medicare. It wants to 
replace Medicare with something else. And they can call it 
Medicare, but it is not Medicare. It is simply something 
different. It turns it into a voucher program.
    Just last week some of our Republican colleagues again 
introduced legislation that would privatize Social Security. I 
thought we had gone through that with the Bush administration 
in 2005, but apparently not. And this proposal that was 
introduced goes even further than President Bush did. It is not 
allowing folks to put 1 or 2 percent into private accounts, but 
the full 6.2 percent that they now pay, as I understand it. And 
somebody correct me if my information is wrong.
    But Mr. Richtman, a question having to do with the 
Republican budget to transform Medicare, double seniors' out-
of-pocket health care costs and, really, with so many Americans 
already struggling to save enough for retirement, what does 
this mean for their retirement planning and for employers' 
future costs, this budget that we have already referred to? Mr. 
Richtman?
    Mr. Richtman. Well, I think that Congressman Andrews tried 
to elicit that earlier in the hearing. If a senior on Medicare 
is paying twice as much out of pocket, there is no question 
that it affects their retirement security. There is less money 
to spend on other things, other essentials. At the same time, 
Social Security COLAs have been withheld, there was no COLA in 
2010, there was no COLA this year in 2011. And I am sure if you 
go to your town meetings or any of the members of the 
committee, and you tell--ask your seniors, do you think the 
price of the things you count on has not changed in the last 
year, they are going to laugh because they know everything has 
gone up.
    So when you combine paying more out of pocket for your 
health care, receiving a Social Security benefit that is not 
growing to keep up with inflation, it is going to have an 
impact on your overall retirement security in my opinion.
    Mr. Loebsack. I am nearly at the end of my time. I just 
want to ask, Mr. Brill, I think you referred to long-term 
trends, and I know that folks who are in favor of defined 
contribution plans and those who are in favor of putting some 
Social Security funds into private accounts talk about long-
term trends of the stock market and all the rest. But we have 
to keep in mind that at any given time there can be a crash as 
we saw in 2008, as we have seen previously, and there will be 
folks who will have their retirement moneys in the stock 
market, invested, when those crashes happen. And we can talk 
all we want about long term and how there is a better return 
for the money in a private account perhaps than in Social 
Security, but we have to think about those folks who get caught 
in the middle of those downturns when they have had that money 
invested in private accounts. I think that is something that we 
have to keep in mind and can never forget.
    Thank you all for being here. Thank you, Dr. Roe. I 
appreciate it.
    Chairman Roe. Mr. Barletta.
    Mr. Barletta. Thank you, Mr. Chairman. I would like to 
yield my time back to the chair.
    Chairman Roe. Thank you. Just a few questions and 
background. I started in a small medical practice with 12 
employees, and when I left we had 350-plus employees. And I 
really prided myself, our practice and our group, on providing 
retirement benefits. And I agree with you, education is one of 
the most important things you can talk about. And I have always 
heard investment advisors say the younger you are, the more 
aggressive you should be with your investments. I totally 
disagree. I think the first dollar that you invest has got the 
most times to turn over. We all know the rule of sevens. You 
earn 10 percent, your money doubles in 7.2 years.
    So we have had employees in our practice for over 30-
something years and they are going to have a very generous 
retirement plan. We began with a defined benefit plan and we 
looked at that, and for our younger employees we actually could 
put more money away for them in a defined contribution plan.
    The city where I was mayor--this was a public entity--
changed from a defined benefit plan to a defined contribution.
    And I agree with the education that Dr. Loebsack was 
talking about is that that is absolutely critical, and Mr. 
Delaney talked about in educating your employees. I want you to 
discuss the fiduciary role, because I felt the pressure in our 
pension meetings in our practice, because you are reluctant to 
give advice. And what we have done is exactly what Mr. Delaney 
has done. We have offered about a dozen or maybe 15 different 
investment options.
    And Mr. Loebsack also brought up the idea that the market 
can crash. That is true, it can do that. Certainly no one would 
recommend that at age 65 you have all of your money in 
equities. And there are various plans that can help with those 
things.
    For instance, in my own personal plan, I use a 401(k). The 
plan advisor said how much money do you want to retire on, so I 
gave him a number, and 3 years of that, 36 months, is put in 
cash. It does not matter what the market does in that time. 
There is a 3- to 5-year investment strategy and then a longer-
term investment strategy. Those are strategies you can use to 
iron out these things.
    But I want to talk about the fiduciary role because that 
concerned me when I was in practice, and I think it may have 
held down the return because of my inability to really 
communicate better with my employees. Mr. Delaney, I think our 
problems are similar.
    Mr. Delaney. Yes, Mr. Chairman. We approach this on a 
number of levels. One, we have an Investment and Retirement 
Plans Committee that meets on a quarterly basis that reviews 
everything with respect to the defined benefit plan and the 
defined contribution plan. We look at the returns each of the 
investments for our associates are providing on a regular 
basis, both near term and over the course of, say, 5 years. We 
review those on a regular basis to make sure that our 
associates have access to the types of investments that will 
provide them an opportunity to save for retirement and get good 
returns.
    Chairman Roe. I don't mean to interrupt, but as I read this 
in the fiduciary--and you can correct me, Mr. Klein, if I am 
wrong--you can't put past performance as part of the formula; 
is that correct?
    Mr. Delaney. I do not know the answer to that question.
    Mr. Klein. I don't believe that is fully correct, that you 
can't discuss past performance. I think you are limited--I can 
look to my legal counsel sitting behind me--in terms of the 
extent to which you make a promise about the future in terms of 
past performance.
    Chairman Roe. You can at least say the last 5 years this 
plan is up 15 percent, or whatever?
    Mr. Klein. That apparently is included in a proposed reg 
which is not yet finalized about not looking back at past 
performance.
    Chairman Roe. So it is part of the rulemaking process now 
that may be a rule?
    Mr. Klein. Might be, yes.
    Chairman Roe. I didn't mean to interrupt, Mr. Delaney.
    Mr. Delaney. That is okay. We will certainly take a look at 
that. There are things that we do individually for associates 
who can access information, as I referenced. Morningstar, where 
they can do--I believe they can do kind of a questionnaire to 
determine tolerance for risk and so on, and be able to make 
recommendations in terms of what are the offerings through the 
plan that would basically fit their profile.
    But all of the discussions that we have had today with 
respect to return and saving enough for retirement, there is 
probably something beyond that that would make some sense for 
our associates to have access to; that at this point, we are a 
little bit hesitant to provide because of some potential 
fiduciary risks.
    Chairman Roe. Thank you. And now I yield to Mr. Holt.
    Mr. Holt. Thank you, Mr. Chairman. You know I, like my 
colleagues, I thank you for holding this hearing. I wish, I 
suppose, that it had been held before the Republican majority 
voted to end Medicare and before introducing legislation to 
privatize Social Security.
    As Mr. Richtman has pointed out, about a third of all 
Americans have no income other than Social Security, and about 
two-thirds rely on Social Security for most of their retirement 
income. We have a responsibility to see that people can enter 
their nonwage-earning years with dignity. Privatizing Medicare 
and Social Security will return us to a you-are-on-your-own 
society, where it used to be to be old meant to be poor. To be 
old was to have inferior health care.
    You know, according to the Ryan plan, which has now been 
approved twice by the Republican majority, the privatization of 
Medicare future retirees would have real effects. They claim 
that those under 55 are not affected, but as Mr. Andrews has 
pointed out, and as the witnesses I think have been forced to 
agree, it requires that a 54-year-old would have to set aside 
about $182,000 to be prepared for the additional out-of-pocket 
costs. Or a 20-year-old, today's 20-year-old would have to set 
aside about three-quarters of a million dollars of extra 
retirement savings to cover the additional out-of-pocket costs.
    So this is on top of the problem that we all face of 
Americans are underprepared and are surprised to learn that 
they are underprepared; the average American family already a 
quarter of a million dollars short from what they think they 
need for retirement. And most are not only unprepared for 
retirement, they are startled to learn how unprepared they are. 
So rather than privatizing Medicare and Social Security, we 
should actually be helping workers save for retirement.
    My colleague Tom Petri and I have introduced the Lifetime 
Income Disclosure Act to inform workers of the projected 
monthly income they could expect at retirement where they find 
themselves now in this situation with what they have set aside 
so far; and it would provide participants with illustrative 
conversion directly on their annual statements, such as we 
Members of Congress have now started receiving with our Thrift 
Savings Plan.
    I, like most Members of Congress, I think like most Members 
of Congress, don't have a dedicated personal financial advisor 
whose time is dedicated to me. And I know that is true for most 
Americans so this on the Thrift Savings Plan has actually been 
helpful.
    Congress and the administration must continue to do all 
they can to make sure that people have access to investment 
advice. From my own experience, I have seen the benefit of 
sound, professional investment advice, and I am going to 
continue to encourage the administration and my colleagues here 
in Congress to ensure that we don't take actions that could 
have the unintended effect of limiting the financial advice and 
leaving Americans even less prepared for their retirement 
years.
    Getting back to Medicare, I mean, really no one disputes 
that Medicare works very efficiently. So now the opponents have 
taken to saying, well, but it is unsustainable. Mr. Richtman, I 
would like to point out what I think should be clear to 
everyone; that no health insurance plan is sustainable if we 
have 10 percent a year inflation over the overall cost of 
living. The problem is not with Medicare, the problem is with 
increasing health care costs.
    Mr. Richtman, is it not true that Medicare, according to 
economic studies, is more effective than private insurers in 
keeping down the costs?
    Mr. Richtman. Well, the administrative cost of Medicare is 
extremely low. Social Security, the administrative cost is 
nine-tenths of 1 percent, and all of that is paid for out of 
the payroll tax. So these are very efficient programs.
    But on the larger point that you have made, I couldn't 
agree more. Singling out Medicare without addressing the 
overall cost of health care will only lead to a way--a system 
of health care for seniors where seniors pay more and get less. 
You are absolutely right about that, Congressman Holt. The only 
way to address effectively Medicare costs is to address overall 
health care costs in our country.
    Mr. Holt. So private insurance plans could be just as 
unsustainable?
    Mr. Richtman. Absolutely.
    Mr. Holt. Thank you, Mr. Chairman
    Chairman Roe. Mrs. Roby.
    Mrs. Roby. Thank you, Mr. Chairman. Thank you to all of you 
for being here today answering our questions.
    And, Mr. Brill, I just want to ask you a couple of 
questions, if you could expand on your testimony. You have data 
that shows many defined benefit programs as underfunded, and I 
find that to be very alarming, the data that you have. How big 
of a problem is this? And is it a hopeless situation going 
forward?
    Mr. Brill. Thank you for your question. With regard to the 
magnitude of the underfunding situation, of course the degree 
to which plans are underfunded, if a particular plan is 
underfunded, vary significantly from plan to plan and over 
time, year to year, as well. Among the largest plans have been 
suggested that are underfunded, they are about 85 percent 
underfunded, about 15 percent under. That translates into 
hundreds of billions of dollars in the aggregate.
    A lot of these issues were addressed in legislation in 2006 
that Mr. Andrews referenced to help set stricter rules to 
require plans to fund to higher targets, to fund towards 100 
percent, and to have more strict rules regarding the rate at 
which they catch up when they are underfunded. Nevertheless, 
there remains these gaps.
    With regard to the question of whether it is hopeless, I 
think it is not. I think that the shifts we have seen in 
different years in terms of the asset allocation among defined 
benefit plans and the continued phase-in of the rules from the 
2006 act are continuing to improve the solvency of the DB plans 
so that we are in a better place now than we were.
    Mrs. Roby. Well, just to examine that, the PPA with respect 
to funding at the macro level, can you discuss even further the 
impact of that, and specifically what are the most successful 
aspects of that law as we look forward?
    Mr. Brill. Sure. The legislation certainly was a balancing 
act of a number of competing forces. The simplest things that I 
think were clear positives, as I mentioned earlier, setting a 
funding target of 100 percent. So you need to put your money 
where your mouth is. If you are making promises to your workers 
to have benefits, you have to be putting in the funds at the 
time that will allow those workers to receive those benefits.
    Previous to the 2006 act, that target was only 90 percent. 
So we were only asking people to get 90 cents on the dollar. 
Now we are asking people to try to fully fund their plans.
    In addition, when a funding gap does originate from a plan, 
either as a result of the change in asset values or a change in 
interest rates which affect their liabilities, plans amortize 
that gap over a 7-year period. Prior law was a hodgepodge of 
policies, some depending on the cause of your underfunding; 
sometimes that gap wouldn't necessarily be closed for periods 
of up to 30 years.
    So we want to keep plans closer to fully funded, and 
raising the targets and shortening the periods in which gaps 
can be closed has helped, and we have seen the results of that 
already.
    Mr. Klein. Congresswoman, would it be okay if I entered 
some thoughts on this also?
    Mrs. Roby. Surely.
    Mr. Klein. Hank you. First, a number of comments have been 
made today about the underfunding of defined benefit plans. And 
I think it is really important to keep in mind that anytime you 
take a snapshot view of a long-term obligation like a pension, 
you are going to get a skewed perspective. And in an 
environment where the market has had a downturn and interest 
rates are at a historically low level, plans are going to look 
today underfunded.
    Likewise, you know, when the market was higher and interest 
rates were higher, we might have looked at overfunded plans 
and, you know, rested on our laurels over that. That would have 
been equally a mistake.
    So it is important to remember that these benefits are 
going to be paid out over decades over many, many different 
economic cycles.
    The second question, I would just say that the concern that 
many employer sponsors of pension plans have around the funding 
rules in the Pension Protection Act concerns the fact that very 
minor changes in interest rates and minor, let alone 
significant, changes in the equity markets can lead to enormous 
funding obligations at the worst possible time for the company, 
when you want the company, obviously, to be putting money into 
retaining jobs and creating opportunities and investing.
    Everyone is concerned to make sure that the obligations are 
honored, but it is really important to recognize the level path 
and that employers will not sponsor plans if they can't have 
predictability. And that is what the Pension Protection Act has 
injected, some unpredictability.
    Mrs. Roby. Thank you. My time has expired.
    Chairman Roe. Mr. Hinojosa.
    Mr. Hinojosa. Thank you, Chairman Roe and Ranking Member 
Andrews for this hearing on retirement security.
    It seems to me that in America we are fortunate to have 
Medicare and Social Security, a safety net for working families 
and middle-class Americans that must be strengthened and 
preserved. While I respect my colleagues on the other side of 
the aisle, we know the Republican plan to end Medicare as we 
know it would be devastating to Americans' retirement security.
    I have a question for you, Mr. Richtman. In your testimony 
you indicate that Social Security and Medicare help keep low-
income workers out of poverty in retirement and provide 
critical support for middle-class workers who do not earn 
enough during their working lives to finance their retirement. 
So as an expert, why do you believe seniors all across the 
country oppose plans to privatize Medicare as we know it and 
convert it into a voucher program?
    Mr. Richtman. I think the reaction we have seen lately in 
the election in New York and also across the country is seniors 
and younger people have seen that both of these programs work 
and they work well. One of the members of the panel earlier 
said the government has not managed Social Security well. I 
really don't understand how that statement could be made.
    Last summer Social Security celebrated its 75th birthday. 
Here is a program that has paid everybody every penny they were 
entitled to for 75 years. Now, you as Members of Congress, you 
know how many times different parts of the government run out 
of money and come to you requesting emergency supplemental 
appropriations. Here is a program that has been sound for 75 
years; has, as I mentioned, administrative costs of nine-tenths 
of 1 percent.
    Mr. Hinojosa. I agree with you. I agree with you, and the 
cost of operating it is extremely cheap for us Americans. And I 
agree with you.
    Tell me, what are your thoughts on 401(k)s? Are they 
fulfilling the promise to help American workers build their 
retirement assets?
    Mr. Richtman. Well, my 401(k) stopped fulfilling my promise 
a couple of years ago when it became--somebody said a 
``201(k).'' That is why I am so glad to be invited to this 
hearing. They are an important part of what has been called a 
three-legged stool for retirement. Social Security is the one 
that we really need to make sure continues.
    Mr. Hinojosa. I agree with you. I remember having town hall 
meetings when we were going to privatize Social Security under 
the Bush administration. And now when I run into some of those 
constituents, they tell me thank goodness we did not, because 
my retirement would have dropped at least 40 percent.
    I have a question for Mr. Brill. From your testimony, I 
understand you want American workers to take more 
responsibility for their retirement savings and expanded 
financial education to help them achieve their goal. I believe, 
as you know, financial literacy is extremely important, 
especially in low-income and minority communities.
    What is it that you would advise us? How do we ensure that 
financial advisors act in the workers' best interest when they 
are giving us advice?
    Mr. Brill. Thank you, Congressman. With regard to financial 
literacy, I would note that on the employer's side there is, of 
course, important disclosure and fiduciary responsibilities. 
There is no question that those issues are clear. And as Mr. 
Klein noted in his remarks, if it is time to review those 
policies--it may be--I would hope that it would be undertaken 
in an open and transparent process.
    I am also concerned, however, and in fact more concerned 
with the inadequate amount of education for many workers. You 
mentioned low-income workers, but it extends to middle-income 
workers as well.
    Mr. Hinojosa. Let me stop you, because the Chris Dodd-Frank 
bill has a component known as Consumer Financial Protection 
Bureau which creates a financial literacy bureau that would be 
working out there. Do you support it?
    Mr. Brill. I am not familiar with the provision in Dodd-
Frank. I know that at the Treasury Department there were 
efforts to study and promote these issues. Those are certainly 
good concepts. I don't see in the data a significant change in 
the level of financial literacy. So I think we need to do more.
    Mr. Hinojosa. My time has expired.
    Chairman Roe. Thank you.
    Just a few questions, one on the employer's side. One of 
the reasons that you want to get very good advice is the fact 
that my 401(k) is tied exactly into what my employees are 
doing. So I have a vested interest in getting the best advice I 
can, because I am doing that. And I also understand that there 
are people out there who--and I understand what we were trying 
to do with the fiduciary, is if there is someone giving advice 
where just they benefit and not the employee and so forth, I 
get that. I understand that. Those incentives have to be 
aligned where the person giving you advice benefits and you 
also benefit.
    And as I have said many times, in a particular plan if 
somebody has 10 percent load and they make me 15 percent, I do 
better if someone has a half a percent load and they make me 2. 
It is just common sense that you go out and try to find the 
best yield and return and do that for your employees. They are 
happy and the employer is happy; because most of the time, as 
Mr. Delaney has said, his 401(k) and his retirement plan is 
tied right in with the employees of the company because that is 
where he works.
    The other thing I think that was brought up a minute ago by 
the ranking member, Mr. Brill, was asking you about 
competition. I think he probably did not use a good example 
when he used Coumadin in the market. You can get that for $4 a 
month. So the market system works pretty well in that, and 
being able to keep those drug prices down.
    The real problem, as we all know, is bringing a new 
molecule to market. That is incredibly expensive. And I agree 
with you that that will dry up and we are seeing it dry up, the 
new medications being brought to market. And that is a concern 
for me as a physician being able to prescribe for patients.
    I think one of the most important things we can do, we 
ought to get the financial education even down to elementary 
and high schools, to educate folks that you need to start 
planning for your retirement now, at the beginning of your 
life. And I would like to see us--this is not a new idea at 
all--is to start saving at birth. We deliver 4 million children 
a year in America, and I would like to see a retirement plan 
put away right then for your health care and your retirement, a 
$2,000 account for each at birth, and let that go for 65 years 
in addition to what we are already doing. I think that is 
something we need do. It would relieve a lot of pressures on 
future liabilities that we have if we did that.
    I think the other thing you can do in your office that I 
have done time after time after time, I had an employee one 
time that took $30,000 out of retirement plan, paid the tax, 
paid the penalty, and bought a car. That was about a $300,000 
car, because over time you have a chance to grow that into a 
very large sum of money. And so I think education is absolutely 
critical.
    Folks watching this may not understand why businesses, at 
least ours, looked at changing with cost structures. In a 
defined contribution plan you put away so much money each year, 
and some of it is usually matched by your employer. Whereas a 
defined benefit plan, you get a certain benefit at the end of 
that time, at 30 years or 20 years or whenever it might be.
    I think an employer like me was more likely to go with a 
defined contribution, because each year I knew what my cost 
was. And in a very volatile market now, I think that is why we 
are looking and seeing it more and more and more.
    The auto-enrollment idea, I would like some comment on 
that. I think that is a wonderful idea in education. Mr. Klein, 
if you would.
    Mr. Klein. Sure. Auto-enrollment is one of those examples 
of behavioral economics that I was referring to in response to 
an earlier question. It definitely--the data has definitely 
shown that those employers who put that in because of general 
human nature, people who did not get around to participating 
were perfectly fine for the most part with being automatically 
enrolled in a plan. They still have the option to opt out or 
change the allocation or change the amount that is going in. 
But there is no question that that is a very simple way to 
increase participation.
    Chairman Roe. Mr. Brill brought up a great point a minute 
ago. How you get more people involved in a pension plan is to 
give more people a job. Quite frankly, that is the biggest 
problem in America. When I go around today, the first question 
I ask is, do you feel that this recession is over? And nobody 
holds their hand up. And the reason they don't hold their hand 
up is because they can't go out and find a job. If they could 
go out and find a job, the recession would be over and many of 
those jobs would have retirement benefits.
    And it just creates, the job creation, the job market now 
is a disaster in this country and we have to get that 
straightened out.
    All of what we are talking about, what Mr. Richtman is 
talking about, what everybody is talking about, is amplified 
and made worse because right now our people cannot find work. 
And the ones who are working, frankly, are underemployed. You 
go talk to people in my community at home, and I talked to I 
don't know how many in the last week that couldn't find a job 
doing anything. So I think that is the issue we have got to 
deal with now is to get people back to work.
    My time has expired. Mr. Tierney.
    Mr. Tierney. Thank you. I don't want to deviate from what 
my questions are going to be, but I do want to say that we are 
all happy to talk about jobs. We have been here about 160 days 
and we are still waiting for the majority to put forth any kind 
of proposal that would help on the jobs front. And that would 
certainly play into security and retirement. But we have not 
seen any bills about infrastructure, banks being created, 
nothing about research and development, uncertainties going 
forward, nothing about Workforce Investment Act of any 
consequence.
    So by all means, let's talk about jobs and that will help 
everybody's security. But for now at this particular hearing, 
Mr. Richtman, we are supposed to be talking about security 
retirement. So I think you said one-third of the current 
retirees rely on Social Security for all of their income.
    Mr. Richtman. That is correct.
    Mr. Tierney. And that is an average of about $14,000 a 
year?
    Mr. Richtman. Fourteen. And for women it is an average of 
12,000.
    Mr. Tierney. And two-thirds rely on Social Security for 
half of their income, or more.
    Mr. Richtman. That is correct.
    Mr. Tierney. If we were to privatize Social Security so 
that people didn't get their payments out, as they do under the 
current system, but instead had to rely on the volatility of 
the market and investments, would that one-third or two-thirds 
be more secure or less secure?
    Mr. Richtman. Well, they would be suffering is the way I 
would characterize it. They would be suffering quite a bit. And 
we are grateful that the Congress did not pursue that approach 
to Social Security privatization.
    Mr. Tierney. So for people in general, but specifically for 
people at the lower end who are earning only enough to get that 
minimum benefit or to have that minimum benefit be half of 
their retirement, if they had a defined benefit plan that they 
could have counted on a certain payout under the formulas for 
that, but switched to a defined contribution plan where they 
were subject to the vagaries of the market and their 
investments on that, would that individual be more secure or 
less secure?
    Mr. Richtman. No, it would be less secure. I guess--I think 
what you are pointing out, at least the way I see it, we need 
to have one source of retirement revenue that is secure, that 
you can count on, that is not subject to the whims of the 
market.
    And as was pointed out earlier, there are ups and downs in 
the market, but you retire at a certain time and you can't 
predict whether it is going to be at the top of the market or 
at the bottom or anywhere in between.
    Mr. Tierney. So for those individuals who are now paying 
about 25 percent of the cost of Medicare, under the Republican 
proposal they would be paying eventually over 60 percent, 65 
percent of that. So obviously I assume that would make it a 
less secure environment for them, less certain. But also right 
now if you get Medicare you have--stop me if I am wrong--a 
guaranteed set of benefits; right?
    Mr. Richtman. That is correct.
    Mr. Tierney. You have preventive care now and well-being 
visits.
    Mr. Richtman. After the passage of the Affordable Care Act; 
that is correct.
    Mr. Tierney. You have your choice of provider. Everyone who 
accepts Medicare, has to accept particular patients. So you 
have a choice of all those providers; correct?
    Mr. Richtman. Correct.
    Mr. Tierney. And is it also true that if you are older and 
sicker, you don't get penalized for that? Your premiums don't 
go up through the roof because of that.
    Mr. Richtman. That is one of the beauties of the system.
    Mr. Tierney. So if we switch to the Republican plan on 
that, do you see any guarantee that an insurance company must 
provide a plan?
    Mr. Richtman. The only guarantee I see is that seniors 
would pay more and get less. That is the guarantee that I see.
    Mr. Tierney. But you don't see a guarantee that an 
insurance company would have to offer a plan?
    Mr. Richtman. That is correct.
    Mr. Tierney. Nobody is assuming that they will. If they do 
offer a plan, there is no guarantee that they would offer a 
plan with the same basic guarantees of the Medicare system.
    Mr. Richtman. Congressman, you can look at history. Before 
we had Medicare, what you are describing was a fact of life. At 
the National Committee to Preserve Social Security and 
Medicare, our concern is that this whole approach, whether it 
is privatizing Social Security or privatizing Medicare, is 
really an effort to go back to the 19th century when, as one of 
your colleagues said, you are on your own. Good luck, you are 
on your own. And I don't think most Americans want to go there.
    And I was asked why people support the program, both 
programs. It is because we don't want to go back to that era.
    Mr. Tierney. I guess that sums it up fine. I yield back.
    Chairman Roe. I yield to Mr. Scott.
    Mr. Scott. Thank you, Mr. Chairman.
    Mr. Richtman, you were talking about retirement security 
challenges and the gentleman from Massachusetts just pointed 
out that about a third of people over 65, they get virtually 
all of their income from Social Security; is that right?
    Mr. Richtman. That is correct.
    Mr. Scott. And two-thirds get most of the their income from 
Social Security. For those who get all of their income from 
Social Security and have essentially no pension, how would they 
be helped with education and advice in investments?
    Mr. Richtman. Well, that is--I am not sure how they would 
be helped. They wouldn't have much money to be investing, 
obviously.
    Mr. Scott. Whatever kind of education and advice we have, 
there would be a lot of people that will essentially get to 65 
and be virtually dependent on Social Security, and education 
and advice for those who are broke would be meaningless; is 
that right?
    Mr. Richtman. Once someone pays their rent, their heat, 
their electricity, there is not going to be much use, no matter 
what the education would be.
    Mr. Scott. Now, that is for retirement income. The other 
challenge, of course, is health care. Now, let's talk about 
this little voucher scheme that is going on. Is there anything 
in that voucher scheme that will reduce or increase costs?
    Mr. Richtman. Not that I know of.
    Mr. Scott. It will not reduce costs. Will it increase costs 
going to the private sector because the private sector has 
commissions, advertising, corporate CEO salaries, additional 
expenses, dividends, expenses that Medicare does not have?
    Mr. Richtman. By definition, the private sector is 
interested in profit.
    Mr. Scott. So you increase costs. Now, the voucher will not 
pay the whole cost when it starts. Is it true that the Medicare 
beneficiaries would be about $6,000 short of what they need?
    Mr. Richtman. That is correct. The way I understand it, the 
voucher is not designed to keep up with health care inflation, 
so it is virtually certain that individuals will be paying more 
and more out of pocket.
    Mr. Scott. So when it starts they are about $6,000 short, 
and in 10 years they are about $12,000 short?
    Mr. Richtman. That is correct.
    Mr. Scott. Does this scheme improve because they say they 
are going to delay it for 10 years?
    Mr. Richtman. I am sorry?
    Mr. Scott. Does it improve because they delay it for 10 
years? They tell senior citizens it is not going to apply to 
you, we won't start it for 10 years. Does that improve the plan 
at all?
    Mr. Richtman. It does not improve the plan for current--the 
plan, it does not for current or future----
    Mr. Scott. It is not a better scheme because you wait 10 
years to inflict it on people?
    Mr. Richtman. The longer you wait----
    Mr. Scott. It is the same bad plan.
    Mr. Richtman. The longer you wait, the younger you are when 
you get into this new plan if it becomes law, the more you will 
pay out of pocket.
    Mr. Scott. The promise is that it won't be inflicted on 
those 55 and above. Ten years from now, what would prevent 
Congress, which would be composed of people who did not make 
that promise, from changing its mind and imposing that plan on 
everybody, rather than protecting those that are 55?
    Mr. Richtman. The only thing that would prevent it would be 
more people in Congress such as yourself.
    Mr. Scott. Well, that is supposing. But if you had the plan 
and people were getting older and older, there is nothing to 
prevent Congress from saying we are going to impose this thing 
on everybody.
    Mr. Richtman. Absolutely.
    Mr. Scott. And the people who are making the promise today, 
most of them are not going to be there in 10 years. Now, are we 
expecting younger people to pay for a Medicare program that 
they are not going to get anything out of?
    Mr. Richtman. You know, when I was asked earlier why people 
have such strong support for Medicare and Social Security, it 
is because historically they have seen that the benefits are 
there when they do retire. And if there are questions raised, 
doubts raised, I think that support dissipates pretty quickly.
    Mr. Scott. In the Judiciary Committee, my other committee, 
we are considering this thing called the Balanced Budget 
Amendment, which incidentally does not require a balanced 
budget. Everybody is discussing the title. There is a provision 
in there that would require a two-thirds vote to spend more 
than 18 percent of GDP. We haven't gotten that low in terms of 
GDP since before Medicare.
    What do you think would happen to Medicare if that 
provision--would Medicare necessarily be in jeopardy if we 
actually passed--enacted that legislation?
    Mr. Richtman. I think both Medicare and Social Security 
would be in jeopardy. And our organization has opposed every 
version of the balanced budget that has come through the 
Congress.
    Mr. Scott. And most of the discussion has been on the 
title, not on the provisions. Like you can reduce benefits with 
a 50 percent vote, but you need 60 percent to save Medicare or 
Social Security by raising taxes. That is under the title.
    Mr. Richtman. Yes.
    Mr. Scott. Those kinds of things jeopardize both Social 
Security and Medicare if we adopt the plan as we are 
considering it in the Judiciary Committee.
    Mr. Richtman. That is correct.
    Mr. Scott. Thank you, Mr. Chairman.
    Chairman Roe. Mr. Kucinich.
    Mr. Kucinich. Thank you very much, Mr. Chairman, for 
calling this hearing.
    To Mr. Richtman, you may have answered this already, so you 
know, indulge me on this. There are many older baby boomers who 
are deferring their retirement right now; is that correct?
    Mr. Richtman. Many of them have to continue working; that 
is correct.
    Mr. Kucinich. Because?
    Mr. Richtman. Their costs are too high. They don't have a 
secure retirement arranged for themselves.
    Mr. Kucinich. And so let's talk about this concept of 
retirement. Because you know, overarching this entire 
discussion is the theory of retirement, the idea that let's say 
40 years ago, 50 years ago, when people entered the workforce, 
they had some thought that at the end of all their years of 
work there was going to be something there for them. They are 
now finding in many cases that is just not true for a lot of 
reasons.
    What is different from this period of time, though, than 
maybe a few decades ago is the level of unemployment that 
exists. There aren't opportunities for people to supplement 
their income. There are 15 million people unemployed and over 
20 million at least underemployed, so there is a labor market 
that is extraordinarily difficult for people who are trying to 
supplement their income.
    What is the practical effect on older workers who are 
forced to continue working? Are they able to make more money or 
less? Are they able to put away money for what will finally be 
their golden years, or are they in their golden years finding 
that their standard of living is eroding?
    Mr. Richtman. I am not really prepared to give you any 
statistics, but from what I have observed many older people 
stay in the workforce to make ends meet. The average Social 
Security check comes out to $14,000 a year. And there are, of 
course, parts of the country where it is easier to get by on 
that and many where it is not.
    Mr. Kucinich. But we have Social Security, but we also know 
when we are talking about private pension plans, which many 
people have used to supplement their Social Security, we see 
that the PBGC, depending on who you talk to, is anywhere from 
$5 billion to $23 billion underfunded. That also depends on 
interest rate assumptions.
    So if we have Social Security benefits on one hand 
sustaining most people's retirements; but then people who were 
in the private workforce and had separate pension funds, and 
they find those funds are not there the way they counted on, 
that has to have an extraordinary impact on people's standard 
of living when they reach their senior years; wouldn't you 
agree?
    Mr. Richtman. I would agree with that.
    Mr. Kucinich. Mr. Chairman, what we are looking at here is 
a condition where this so-called American dream that people 
bought into when they were in their twenties and in the 
workforce, it is a myth. It has evaporated. And my concern is 
that our society isn't paying enough attention to the effects 
of higher taxes, real estate taxes on seniors who are 
homeowners, to the limited effects that seniors have to be able 
to supplement their income, to the impact of Medicare Part D on 
a lot of seniors' budgets because--you know, the government 
should be getting a rate similar to what veterans pay, but they 
are going to be paying a little bit more on prescriptions, 
depending on what the changes are long term through the 
Affordable Health Care Act.
    And if retirement is about planning, what we are finding is 
that with employers not willing to pay higher premiums and more 
and more burdens being put on the Pension Benefit Guaranty 
Corp., underfunded, and more and more companies in the last 
years going bankrupt and jettisoning their retirement plans and 
throwing them into a place where people are lucky to get 
pennies on the dollar once it goes through the PBGC process, we 
are creating a whole new potential for poverty among elderly 
people that the reason why we set a retirement program in place 
in the first place is being essentially negotiated. It is like 
everything is coming full circle.
    When Roosevelt came forward in 1934 to create Social 
Security, he did so because elderly people were being driven 
into poverty. Social Security has rescued them from that. But 
also people relied on trying to maintain their middle-class 
status through these pension programs that they had through 
private sector and other services. This is all changing.
    So we are looking at really a very dangerous situation here 
where we could be--we could see this icy hand of poverty 
enveloping a senior population that thought that it was going 
to be okay, thought they saved for a rainy day, thought they 
worked to get ahead. And they arrived, and all of a sudden it 
is gone.
    I wanted to share that concern with you, Mr. Chairman, 
because all of these decisions that we are making are affecting 
tens of millions of elderly Americans who are really looking at 
serious financial troubles.
    Chairman Roe. Your time has expired. Mr. Wu.
    Mr. Wu. No questions.
    Chairman Roe. I thank you. And Mr. Andrews, for any closing 
comments.
    And I do have a unanimous consent request to enter into the 
record a letter from Retirement USA and other statements for 
the record submitted by the AARP.
    Without objection, so ordered.
    [The information follows:]

                  Prepared Statement of Retirement USA

    We are pleased that the Subcommittee on Health, Employment, Labor, 
and Pensions is holding this hearing today on retirement income 
challenges. Retirement USA is a national campaign working to address 
the challenges facing the nation's private retirement system and to 
promote the development of a universal, secure, and adequate retirement 
income system that, in conjunction with Social Security, will provide 
future generations of workers with sufficient income for retirement. 
The Pension Rights Center, a nonprofit consumer rights organizations, 
is submitting this statement on behalf of the five organizations 
convening Retirement USA--the AFL-CIO, the Economic Policy Institute, 
the National Committee to Preserve Social Security and Medicare, the 
Pension Rights Center and the Service Employees International Union--
and our 23 supporting organizations.
    In recent months, attention has been focused on the long-term 
federal deficit facing the country. Retirement USA is concerned about 
another kind of deficit--the massive and growing Retirement Income 
Deficit that is facing millions of Americans. The Retirement Income 
Deficit is the gap between what people have currently saved for 
retirement and what they should have saved by today to be able to meet 
a basic level of sufficiency in retirement. This deficit is traceable 
principally to the freezing and termination of private pension plans, 
the failings of 401(k) plans, and the overall low coverage rates in 
employer-sponsored retirement plans.
    The Center for Retirement Research at Boston College last year 
calculated the Retirement Income Deficit at $6.6 trillion. To put it in 
perspective, this is more than four times the size of the federal 
deficit in 2009. To arrive at this number, the Center on Retirement 
Research used the same conservative methodology they used to calculate 
its National Retirement Risk Index. They looked at households in their 
peak earning years, between 32 and 64 years old, assumed that people 
would continue to earn pensions and contribute to 401(k)s, and factored 
in the value of home equity for retirement income.
    We are concerned that proposed cuts in Social Security, Medicare 
and public plans will only worsen the massive Retirement Income Deficit 
already facing American workers--and will particularly affect future 
generations of retirees.
What is needed to address the Retirement Income Deficit?
    First and foremost, policymakers must keep Social Security strong. 
All of the participants in Retirement USA are committed to protecting 
and improving Social Security. Social Security is the economic lifeline 
that millions of Americans rely on to survive. For the average worker, 
Social Security provides only slightly more than $14,000 a year. Fully 
one out of five retirees relies on this steady stream of income for all 
for all of their income, and two-thirds rely on it for more than half 
of their income. Social Security is doing an unparalleled job of 
providing a basic foundation of income for retirees. Cutting Social 
Security benefits--for example, by increasing the statutory retirement 
age or changing Social Security's indexing--would increase the 
Retirement Income Deficit that millions of Americans are already 
facing--and decimate the retirement prospects for future retirees.
    Second, there should be no cuts to Medicare benefits. Voucherizing 
Medicare will put health costs out of reach for millions of Americans 
who are already faced with inadequate retirement income. Privatizing 
Medicare will not control costs. It will simply make healthcare 
unaffordable and reduce the income that people need to make ends meet. 
Cuts in Medicare will only make the Retirement Income Deficit worse.
    Third, Congress should not undercut state and federal pension plans 
that have provided critical benefits to millions of teachers, 
firefighters, and other public servants who have worked to make our 
society a better place. The average public-sector employee earns a 
pension of about $22,000 a year, modest benefits that enable retirees 
to keep spending on goods and services in their communities--thereby 
helping to strengthen the economy. Despite the financial crisis and the 
deepest recession in 75 years, state plans are as well-funded as 
corporate pension plans. Efforts to weaken public plans, especially by 
turning guaranteed pension plans into 401(k) plans, will only make the 
Retirement Income Deficit worse.
    Fourth, employers, employees, and policymakers must work together 
to fix pension problems for private-sector workers. As it is, only 50 
percent of the private workforce is covered by any kind of pension or 
savings plan on top of Social Security. In addition, far too many 
companies are freezing, terminating, or cutting back on defined benefit 
plans--pension plans that typically provide guaranteed lifetime income 
to retirees. Most private-sector retirement plan participants are in 
401(k) plans. The problem is that, even in the best of circumstances, 
these plans only work if people are able to set aside significant 
amounts of money, make the correct investment choices, keep the money 
locked in until retirement, and then figure out how to make the money 
last for the rest of their lives. Even before the recession, retirement 
savings were low. In 2007, half of all families with 401(k)-type plans 
or IRA accounts had less than $45,000 saved in these accounts. For 
families that are headed by older workers, the median account balance 
was just $98,000.
    All the participants in Retirement USA believe in a two-tiered 
approach to addressing the challenges of the private system. First, we 
want to do everything possible to encourage and stabilize defined 
benefits plans, strengthen protections in 401(k) plans, and improve 
coverage in existing plans.
    However, in the long-run, to truly address the need for 
supplemental income on top of Social Security, Retirement USA believes 
that we need to start developing a visionary approach to economic 
sufficiency in retirement. To that end, we have developed 12 principles 
that incorporate the best parts of defined benefit pension plans and 
401(k) savings plans, and include some additional features. We believe 
these principles should underlie a new system that supplements Social 
Security.
    There are three overarching principles that we believe should guide 
the reshaping of our pension system for future generations of workers. 
These are:
    (1) Universal Coverage. Every worker should be covered by a 
retirement plan. A new retirement system that supplements Social 
Security should include all workers unless they already are in plans 
that provide equally secure and adequate benefits.
    (2) Secure Retirement. Retirement shouldn't be a gamble. Workers 
should be able to count on a steady lifetime stream of retirement 
income to supplement Social Security.
    (3) Adequate Income. Everyone should be able to have an adequate 
retirement income after a lifetime of work. The average worker should 
have sufficient income, together with Social Security, to maintain a 
reasonable standard of living in retirement.
Other principles include
     Shared Responsibility. Retirement should be the shared 
responsibility of employers, employees, and the government.
     Required Contributions. Employers and employees should be 
required to contribute a specified percentage of pay, and the 
government should subsidize the contributions of lower- income workers.
     Pooled Assets. Contributions to the system should be 
pooled and professionally managed to minimize costs and financial 
risks.
     Payouts Only at Retirement. No withdrawals or loans should 
be permitted before retirement, except for permanent disability.
     Lifetime Payouts. Benefits should be paid out over the 
lifetime of retirees and any surviving spouses, domestic partners, and 
former spouses.
     Portable Benefits. Benefits should be portable when 
workers change jobs.
     Voluntary Savings. Additional voluntary contributions 
should be permitted, with reasonable limits for tax-favored 
contributions.
     Efficient and Transparent Administration. The system 
should be administered by a governmental agency or by private, non-
profit institutions that are efficient, transparent, and governed by 
boards of trustees that include employer, employee, and retiree 
representatives.
     Effective Oversight. Oversight of the new system should be 
by a single government regulator dedicated solely to promoting 
retirement security.
    Social Security, of course, meets all of the core Retirement USA 
principles other than ``adequacy.'' Social Security benefits for the 
average retiree are less than the federal minimum wage. All of the 
organizations participating in Retirement USA believe that if there 
were the political will to do so, expanding Social Security to provide 
an adequate level of income would be the most efficient and effective 
way of strengthening workers' retirement security.
    But our groups recognize that our tradition of providing retirement 
security in America has been a mix of public and private systems. For 
that reason, our principles focus on features that we believe must be 
part of a new private system to supplement Social Security. There are 
proposals and programs both from this country and overseas that meet 
our principles that we would be pleased to share with Subcommittee 
members.
    We hope that you will consider options for developing a new private 
retirement system for the 21st century. This would be the best way of 
meeting the needs of employees--and ultimately of employers and society 
as well. We look forward to working with you to meet the retirement 
income challenge.
                                 ______
                                 

     Prepared Statement of American Association of Retired Persons

    On behalf of our members and all Americans age 50 and over, AARP 
appreciates the opportunity to submit written comments on some of the 
significant issues surrounding the current and future state of 
retirement security of American workers and their families. A major 
priority for AARP has long been to assist all Americans in accumulating 
and effectively managing the resources they need to supplement Social 
Security and maintain an adequate standard of living throughout their 
retirement years. Unfortunately, several key factors and trends over 
recent decades have made the necessity of achieving and maintaining an 
adequate income in retirement more challenging than ever before.
    These key factors and recent trends require the thoughtful and 
timely attention of Congress, the President and Executive Branch 
agencies. They also serve to underscore the critical importance Social 
Security plays, and will play, in the retirement security of both 
current and future generations of Americans. Historically, Social 
Security was designed to provide only a foundation of an individual's 
retirement security and was never intended to be the sole source of 
income for people who have retired. Due to shortcomings in other 
traditional components of retirement security that help individuals 
achieve an adequate level of income for their golden years--employer-
based pension plans, personal savings, home values and affordable 
health care--the median annual income of households in which the head 
or spouse was 65 or older was just over $30,000 in 2008.\1\ 
Unfortunately, many Americans rely, and will continue to rely, on 
Social Security as their primary, if not sole, source of family income 
for their retirement.
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    \1\ Congressional Research Service, Income of Americans Aged 65 and 
Older,1968 to 2008,(November 2009) Because of the importance of these 
issues, AARP would like to thank Chairman Roe and Ranking Member 
Andrews for convening today's hearing.
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Employer-Based Pension Coverage
    It is widely accepted that workplace retirement plans can be an 
efficient and effective means for individuals to save for their own 
retirement. As a result, AARP strongly believes that all workers need 
access to a workplace retirement plan that supplements Social 
Security's strong foundation. Since the enactment of the Employee 
Retirement Income Security Act (ERISA), the focus has been on three 
central issues: coverage and participation; security; and adequacy.
    Unfortunately, overall pension coverage in the U.S. private-sector 
labor force has generally hovered only near 50 percent for decades,\2\ 
with larger employers more likely than smaller ones to offer retirement 
plans.\3\ This means roughly 78 million American workers do not have 
access to a workplace retirement plan, such as a pension or 401(k) 
plan. As a result, very few of these individuals save for retirement on 
their own, and many are currently retired, or will retire, with less 
than enough money to meet their basic needs.
---------------------------------------------------------------------------
    \2\ S. Mackenzie & K.B. Wu, The Coverage of Employer Provided 
Pensions: Partial and Uncertain at 7 (AARP 2008).
    \3\ Id. at 15.
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    In response to this significant problem, AARP has been a strong 
supporter of proposals such as the Auto IRA, which would help bridge 
this coverage gap and provide access to a workplace retirement vehicle 
to tens of millions of American workers. Specifically, this proposal 
would allow workers without access to an employer plan to voluntarily 
fund their own individual retirement accounts (IRA) through payroll 
deductions. Harnessing the power of regular, automatic payroll 
deductions at work would encourage and simplify saving and 
significantly improve the retirement security of millions of Americans. 
Moreover, these accounts would be portable, so workers could take them 
to another job.
    In addition, these automatic accounts involve little or no cost for 
most employers. Because Auto IRA would establish simple individual 
retirement accounts rather than employer-sponsored retirement plans, 
employer responsibilities under this proposal are much more limited. 
For instance, Auto IRA employers would neither select, hold, nor manage 
investments, nor would they be required to provide contributions to 
employee accounts. Finally, Auto IRA provides tax credits for employers 
to help offset any limited costs of setting up these accounts.
    In addition to coverage issues, the actual participation rate of 
workers in private-sector pension plans varies with age, income, 
education, ethnicity, size of employer and type of employment. Older, 
better-educated, full-time, better-paid workers are more likely to be 
plan members than younger, less educated, part-time, lower-paid 
workers.\4\
---------------------------------------------------------------------------
    \4\ S. Mackenzie & K.B. Wu, The Coverage of Employer Provided 
Pensions: Partial and Uncertain 2, 7-12 (AARP 2008).
---------------------------------------------------------------------------
    In an effort to increase participation rates in 401(k) plans, AARP 
supported the auto-enrollment provisions in the bipartisan Pension 
Protection Act. A May 2011 Aon Hewitt study found that ``(t)hree in 
five employers automatically enrolled employees into their defined 
contribution plans in 2010, up from 24 percent in 2006. For employees 
who were subject to automatic enrollment, Aon Hewitt's analysis found 
that 85.3 percent participated in their DC plan, 18 percentage points 
higher than those that were not subject to automatic enrollment.'' \5\
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    \5\ Aon Hewitt News Release, May 24, 2011 (http://
aon.mediaroom.com/index.php?s=43&item=2285)
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The Move from Defined Benefit to Defined Contribution
    For those workers who are fortunate to work for employers who offer 
access to a workplace retirement vehicle, many of their employers have 
moved away from providing defined benefit (DB) plans and increasingly 
offer only defined contribution (DC) plans, such as 401(k) plans. While 
DC plans can be valuable to many, they transfer investment, longevity, 
inflation, and interest rate risks entirely to the individual, and 
could make it more likely that an individual would outlive his or her 
retirement nest egg. Today, only about 17 percent of workers have DB 
pension coverage on their current job, compared to 41 percent who have 
DC plan coverage.
    The shift away from DB plans to DC plans places significant 
responsibility on individuals to make appropriate decisions concerning 
their contributions, their investments and how they will manage their 
money once they retire so that they will have adequate income to fund 
their retirement years. Unfortunately, many individuals are simply not 
prepared to handle these risks and responsibilities. While DC-type 
plans can be an effective savings vehicle for retirement--especially if 
individuals take all the right actions and markets achieve historical 
rates of return--in practice this is not the case, and many people make 
mistakes at every step along the way, as evidenced by generally less 
than adequate DC account balances. Moreover, even if DC plan members 
make all the right decisions, if they happen to retire in a down 
market, much like the recent economic downturn, their account balances 
may still not be adequate for retirement. There is also substantial 
confusion among 401(k) plan participants as to the fees they pay. The 
fee information participants currently receive about their plan and 
investment options is often scattered among several sources, difficult 
to access, or nonexistent. Even if fee information is accessible, plan 
investment and fee information is not always presented in a way that is 
meaningful to participants. Fees are important because they reduce the 
level of assets available for retirement.
    The Government Accountability Office estimated that $20,000 left in 
a 401(k) account that had a 1 percentage point higher fee for 20 years 
would result in an over 17 percent reduction--over $10,000--in the 
account balance. We estimate that over a 30-year period, the account 
would be about 25 percent less. Even a difference of only half a 
percentage point, or 50 basis points, would reduce the value of the 
account by 13 percent over 30 years. In short, fees and expenses can 
have a huge impact on retirement income security levels. 401(k) plan 
participants therefore have a need and a right to receive timely, 
accurate, and informative fee disclosures from their 401(k) plans to 
help them better prepare for a financially secure retirement.
    Because fees reduce the level of assets available for retirement, 
we have supported both Congressional and regulatory efforts to increase 
disclosure requirements so that fiduciaries and participants can 
receive the information they need to make informed choices about these 
investments. AARP supports increased disclosure of fees charged by 
service providers to fiduciaries.\6\ Provider fees should be disclosed 
both to participants and employers, and clearly explained to 
participants on their annual statements. Participants should have the 
right to receive more detailed fee information on request.
---------------------------------------------------------------------------
    \6\ S. Mackenzie, Determining whether 401(K) plan fees are 
reasonable: Are disclosure rules adequate? (AARP Sept. 2008), available 
at http://www.aarp.org/research/ppi/econ-sec/pensions/articles/i8--
fees.html. In contrast, DB plans generally provide a predictable 
monthly retirement benefit to employees, lower fees, and professional 
management of retirement assets. DB plans are also more efficient--that 
is, they cost less to achieve a particular level of retirement income 
than defined contribution plans.
---------------------------------------------------------------------------
The Shift from Annuitized to Lump-Sum Distributions
    The share of traditional plans offering a lump-sum option has 
increased in part because plan sponsors shed longevity risk and pension 
costs by increasing the take-up of lump-sum distributions by plan 
members. As for DC plans, although more of their participants may be 
interested in the annuity option than had been previously thought, the 
lump sum option is still the overwhelming choice.\7\
---------------------------------------------------------------------------
    \7\ An AARP survey of the distribution choices made by workers and 
retirees with pension plans found that there was definite interest in 
the annuity option. Specifically, it found that about 31 percent of 
workers and 25 percent of retirees with DC plans that offered one or 
more options other than lump sum withdrawal were planning to select or 
had already selected the annuity option. See Kathi Brown et al. 2010. 
Annuities and Other Lifetime Income Products: Their Current and Future 
Role in Retirement Security. AARP Public Policy Institute, Factsheet 
189 (May).
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    Traditional DB plans have historically provided lifetime streams of 
income, while only a small fraction of DC plans offer an annuity or 
other lifetime income option. Moreover, many DB plan sponsors today 
offer lump-sum benefits and many retirees are opting for them. Younger 
workers are more likely than older workers to have only a DC plan, and 
the number of workers retiring and receiving their retirement account 
balances as a lump-sum is growing. It is not clear how, or how well, 
beneficiaries will manage those assets throughout decades of 
retirement.
    The lifetime monthly equivalent of a lump sum distribution of 
$100,000 would be worth approximately $600, or about half the typical 
Social Security retirement benefit. However, according to a 2011 
Fidelity report, the average 401(k) account balance was still only 
$71,500 at the end of 2010.\8\
---------------------------------------------------------------------------
    \8\ Fidelity News Release, February 23, 2011 (http://
www.fidelity.com/inside-fidelity/employer-services/q4-2011-401k-update)
---------------------------------------------------------------------------
    AARP is concerned that--unlike Social Security benefits--many 
Americans will outlive the retirement assets they have accumulated due 
to the combined effects of longer life expectancies and the overly 
optimistic assumptions many individuals make when spending down these 
assets. Effectively managing this decumulation phase of retirement can 
be especially complicated, but it is essential for the long term 
economic security of millions of American workers who can no longer 
count on the guaranteed lifetime income stream once overwhelmingly 
provided by workplace DB pension plans.
    AARP is therefore pleased to support H.R. 677, the bipartisan 
Lifetime Income Disclosure Act--legislation that would provide 
individuals with a better understanding of the lifetime value of their 
401(k) plan assets by including in a yearly benefit statement a 
conversion of their total accrued benefits into a monthly dollar amount 
as if they had opted to receive a lifetime annuity. This conversion 
would help provide a more meaningful long term perspective to 401(k) 
plan participants by giving them a more accurate picture of the 
lifetime value of their plan and helping them make better decisions 
about how much they may need to save and how best to manage their 
retirement assets.
Fiduciary Standards
    The impact of bad actors such as Enron, Worldcom and Bernie Madoff 
on individuals' private retirement savings has been devastating. 
Accordingly, the importance of strong fiduciary standards cannot be 
understated and are necessary to protect the security of individuals' 
hard earned retirement assets both now and in the future.
    Because the growth in 401(k) plans places significant 
responsibility on individuals to make appropriate investment choices so 
that they have adequate income to fund their retirement, AARP supports 
the goal of increasing access to investment advice for individual 
account plan participants so that participants may achieve their 
objectives. To that end, we have consistently asserted that such advice 
must be subject to the Employee Retirement Income Security Act's 
(ERISA) fiduciary rules, based on sound investment principles and 
protected from conflicts of interest. The recent financial turmoil and 
scandals on Wall Street once again underscore the imperative that such 
advice be independent and non-conflicted.
    AARP supports regulations to ensure that participants are provided 
with objective, non-conflicted investment advice. Consistent with a 
recent AARP poll, Americans believe that advice should be suitable for 
their needs, objectives and risk tolerance. AARP supports the 
Department of Labor's review of the definition of fiduciary regulation 
given that the current manner in which employee benefits are provided 
is significantly different from the situation in 1975, as is evident 
with the shift from defined benefit plans to defined contribution 
plans. Not only has the emphasis shifted to individual investment 
advice in 401(k) plans, but the variety and complexity of investments 
has radically changed. Consequently, AARP believes that a revision of 
this regulation to reflect the practices in the current market place 
would better protect the interests of plans and their participants and 
beneficiaries.
Healthcare
    Another key factor to consider when evaluating the retirement 
security of Americans and their families is the impact of high, and 
increasing, healthcare costs. Skyrocketing costs plague our entire 
health care system, burden individuals and employers, and threaten the 
sustainability of Medicare and Medicaid, vital programs that more than 
93 million Americans who are older, living with disabilities, or on 
very limited incomes rely on. Seniors spend a disproportionate share of 
their income (about 30 percent on average) on health care costs, which 
continue to increase at rates well above the rate of overall inflation. 
We must transform the delivery of health care and bring down costs 
throughout the system to keep Medicare and Medicaid affordable now and 
strong for future generations.
    These healthcare cost trends are not sustainable and Congress must 
work thoughtfully to find ways to hold down these costs, not simply 
shift them to other payors. However, it is important to realize that 
Medicare is just one part of our nation's health care system, which 
includes a vast array of other payers including public, individual, and 
employer-based health insurance. For families and workers, soaring 
costs compound job losses and other financial problems. For the past 
eight years, premiums for a family of four outpaced both earnings and 
overall inflation.\9\ The average annual premium for family coverage 
increased to $12,680 in 2008, almost double the figure in 2000.\10\ And 
the more employees must pay, the less likely they are to enroll in 
employer plans.\11\ People with private non-group insurance are even 
worse off; they often spend more than 10 percent of their income on 
health care.\12\
---------------------------------------------------------------------------
    \9\ HRET/Kaiser Family Foundation. 2008 Employer Health Benefits 
Survey
    \10\ Ibid.
    \11\ Kaiser Family Foundation. February 2007. Snapshots: Health 
Care Costs. Insurance Premium Cost-Sharing and Coverage Take-up.
    \12\ Jessica Banthin, ``Out-of-Pocket Burdens for Health Care: 
Insured, Uninsured, and Underinsured'' presentation. September 23, 
2008.
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    As you examine how to address the growing cost of health care 
programs, we urge you to reject arbitrary limits and cost shifting and 
focus instead on ways to make the delivery of health care to all 
Americans more efficient and cost-effective. Arbitrary cuts simply 
shift costs on to other payers of health care services, particularly 
beneficiaries and their families, and undermine current and future 
beneficiaries' access to quality care.
Social Security
    AARP strongly believes that the above trends and factors, as well 
as the recent economic crisis, highlight the importance of Social 
Security's guaranteed benefit as the foundation of retirement income 
for all Americans. In the face of declining traditional pensions or the 
outright lack of pension coverage, shrinking savings, diminished home 
values, longer life expectancies and higher healthcare costs, the 
guaranteed benefit of Social Security will be increasingly important to 
future generations of Americans.
    Social Security is currently the principal source of income for 
nearly two-thirds of older American households receiving benefits, and 
roughly one third of those households depend on Social Security 
benefits for nearly all (90 percent or more) of their income. Despite 
its critical importance, Social Security's earned benefits are modest, 
averaging only about $1,200 per month for all retired workers in March 
2011. Nonetheless, Social Security keeps countless millions of older 
Americans out of poverty and allows tens of millions of Americans to 
live their retirement years independently, without fear of outliving 
their retirement income. Social Security also provides critical income 
protection for workers and their families who become disabled or 
deceased.
    Social Security benefits are financed through payroll contributions 
from employees and their employers, each and every year, throughout an 
individual's working life. The program is separate from the rest of the 
federal budget and has not contributed to our large deficits. According 
to the Social Security Trustees, the program has sufficient assets to 
pay 100 percent of promised benefits for a quarter century, and even 
with no changes, can continue to pay approximately 75 percent of 
promised benefits thereafter.
    AARP believes that the nation's long-term debt requires attention 
and we are committed to lending our support to a balanced approach that 
addresses the nation's long-term fiscal challenges. However, AARP 
members recognize that Social Security is a self-financed program that 
has run surpluses for nearly 30 years and has not contributed to our 
large deficits. Accordingly, they firmly believe that using the Social 
Security benefits Americans have earned to remedy a problem that Social 
Security did not create is simply unfair.
    Given the already modest benefits current Social Security 
beneficiaries receive, the program's continued critical importance to 
future generations' income and retirement security, the system's 
dedicated financing, and the lack of a contributory impact on our 
current large deficits, AARP firmly believes that Social Security 
should not be targeted for cuts for deficit reduction or as part of a 
budget exercise to satisfy arbitrary spending thresholds. While Social 
Security faces a long-term shortfall, targeting it now for arbitrary, 
across-the-board cuts is unfair and unnecessary, and will most 
assuredly mean significant reductions in benefits for not only current 
beneficiaries, but for their children and grandchildren as well. To the 
contrary, Social Security solvency deserves to have its own national 
conversation that focuses on preserving and strengthening the 
retirement security of Americans and their families for generations to 
come.
    Finally, Congress should work to encourage those who can work 
longer to do so by removing barriers that deter individuals who either 
wish to stay--or by necessity must stay--in the workforce. Encouraging 
job creation and job sustainment for those over age 60, including 
combating age stereotypes, are particularly important, as requiring 
people to work longer when there are no jobs is simply ineffective. For 
those who are able, working longer can have positive impacts both 
personally and financially, especially as it pertains to an increase in 
the Social Security benefits many people receive when they retire. 
Moreover, delayed claiming of one's Social Security benefit is a cost-
effective way to increase the share of a retiree's annuitized wealth. 
At the same time, Congress should ensure that, for those who cannot 
continue to work, adequate protections are in place for the disabled as 
well as lower-income groups, who often have below-average life 
expectancies.
Conclusion
    Over the past 25 years, there has been a slow and steady erosion of 
the adequacy and security of employer provided pensions, an important 
component of our retirement security framework. As a nation, we need to 
refocus on the need for strengthened workplace retirement plans, 
especially given longer life spans and the need for added income to 
supplement Social Security. Once again, AARP would like to thank 
Chairman Roe and Ranking Member Andrews for holding today's important 
hearing. We look forward to working with you and the other Members of 
this Committee to help ensure that as many Americans as possible are 
able to achieve a secure and adequate retirement.
                                 ______
                                 
    Mr. Andrews. I would like to again thank the witnesses for 
their preparation and for the way they have informed the 
committee.
    I would like to thank the chairman for having the hearing, 
and just briefly say that we can, will, and should work 
together to find ways to increase income for our retirees by 
strengthening the private pension system.
    But I think there are two other issues that are looming 
over that discussion. The first is protecting the integrity of 
Social Security so it is never subject to the wild fluctuations 
of the marketplace and is a rock-solid promise on which 
retirees can depend. And second, Medicare shares that same 
status; that it is not you will have health benefits if we get 
around to it or if the market conditions are right. Medicare is 
an intergenerational promise and it is one that ought to be 
honored. We don't think that the majority plan does that and we 
are committed to making sure that promise is honored.
    I thank the chairman for the hearing.
    Chairman Roe. I thank you all for attending today.
    And just a couple of things to touch on. There have been a 
number of important issues talked about today: plan funding, 
regulatory challenges, worker participation, education. This is 
just the first of a number of hearings we are going to have. In 
subsequent weeks we are going to talk about this in more 
detail.
    And just to summarize and finish, when I came to Congress 
just 2\1/2\ years ago, I really came here to look at our health 
care system in this country because it is a such a driver for 
costs, 17 percent of the U.S. economy. The single biggest 
problem with the American health care system was it costs too 
much money. It is too expensive. If it was more affordable, we 
could all have it. We had a segment of our population that 
could not afford it. We had a liability problem.
    Also as we looked at these numbers going forward, we had a 
huge budget deficit in this country and we have a huge jobs 
deficit in this country, as Mr. Kucinich pointed out. In going 
forward, when we look at Medicare--and certainly you have to 
look at Medicare. When it began in 1965 it was a $3 billion 
program. Government estimators said that in 25 years this would 
be a $15 billion program; it was a $100 billion program. Today 
it is over $500 billion.
    The Affordable Health Care Act that was passed--as Mr. 
Andrews pointed out it is referred to as a savings--I would say 
that when you take $500 billion out of an already underfunded 
program you haven't saved it, you have created some real issues 
with that program because we are adding about 3 million new 
seniors per year for the next 20 years.
    On top of that, as Mr. Richtman pointed out, we have got a 
program called the IPAB, which is already part of the law, an 
independent panel advisory board. Fifteen bureaucrats 
appointed. And I don't want them appointed by a Republican or 
Democrat. These are administratively appointed people that do 
not look at quality and access to care; they look at simply 
costs. So if our costs go above a certain number we are 
advised--and the Congress has extricated itself from that 
unless we have a two-thirds majority. It is amazing they gave 
up that kind of power.
    And, frankly, I will tell you in the House of 
Representatives, our bill did not contain that. That was the 
Senate bill. And it was later voted on and confirmed by the 
House. It is a very bad idea, as Mr. Richtman--that will lead 
to rationing of care. There is no other way around it. When you 
have 30-something million people chasing 500 billion less 
dollars, you are going to have less access and costs are going 
up. So why are we having this discussion? Because the current 
system is unsustainable.
    My mother, right now in Medicare part A, lives on a Social 
Security check. A small pension. She pays exactly the same 
thing as Warren Buffett does. And when I heard on the campaign 
trail when I was out 3 years ago, and now we are out in our 
town hall meetings, is we don't think that is right. And so the 
plan is not a voucher, as I understand it, where you get mailed 
something in the mail and you go out and negotiate a fee or 
price.
    What the Ryan plan is saying is that the Federal Government 
will negotiate these plans, a multitude of plans as we 
currently have, and that we will have, that a citizen will have 
exactly the same benefit that I have right now as a U.S. 
Congressman. I heard that 2 years ago during this plan as ``I 
want what you have.'' And so we feel like that is a fair thing 
to do. And also a higher-income senior like myself is going to 
get a bigger part of the bill. We will not be like Warren 
Buffett. We will be paying more. If you are sick and you have 
preexisting conditions, you will pay a lot less.
    Why does anybody think this will work? Is this just some 
wild experiment? No, because we tried Medicare Part D as the 
only government health care program that I know of that has 
come in under budget. The CBO estimated that this would be a 
$670 billion program in 10 years and it turned out that it was 
41 percent lower. Why? Because seniors had a choice to pick 
what they wanted, not what someone else picked for them.
    We have a difference of opinion here about that, and I 
could not agree more, we need to have this security for our 
citizens.
    It has been a great hearing. I can't thank you enough for 
being here.
    Mr. Andrews. I neglected one other point.
    Chairman Roe. I yield to the gentleman.
    Mr. Andrews. Thank you very much. Sara Outterson, who is 
behind me on the screen, is finishing her tour of duty with our 
office this week, and I wanted to thank her for the work she 
has done for our constituents and for our committee. She is 
moving on to another office on Capitol Hill; obviously, not one 
as enlightened as ours, Mr. Chairman. But I wanted to thank her 
very much for the excellent work and wish her well.
    Chairman Roe. I thank you and the ranking member, and this 
meeting is adjourned.
    [Additional submissions of Chairman Roe follow:]

 Prepared Statement of the American Bankers Association; the Financial 
    Services Roundtable; the Financial Services Institute; Insured 
 Retirement Institute; National Association of Insurance and Financial 
Advisors; and the Securities Industry and Financial Markets Association

I. We support retirement security
    The undersigned organizations\1\ share the Congress' and the Obama 
Administration's goal of increasing opportunities for Americans to save 
and plan for their retirement. We support increased incentives and 
opportunities for Americans to save and invest. It is our belief that 
providing these opportunities for Americans is important because 
savings increase domestic investment, encourage economic growth, and 
result in higher wages, financial freedom, and a better standard of 
living. We believe that most Americans should approach retirement with 
a comprehensive strategy that incorporates a number of retirement 
vehicles. Consumer education about retirement savings products can help 
consumers make sound investment decisions and allow them to maximize 
their retirement savings.\2\ Further gains can be achieved through 
better use of investment advice, and by promoting policies that provide 
for more diversified, dynamic asset allocation, and exploration of new 
and innovative methods to help individuals make better investment 
decisions.
    As a partner with the Congress and the Obama Administration in our 
collective efforts to protect Americans' retirement security, we 
strongly believe that one of the largest challenges currently 
confronting pension plans, plan sponsors, small business owners, 
individual retirement account owners, employees, and retirees is the 
Department of Labor's (the ``Department'') proposed rule that would 
expand the definition of the term fiduciary\3\ under Title I of the 
Employee Retirement Income Security Act of 1974 (``ERISA'').\4\ In our 
view, the Department's Proposal will negatively impact the ability of 
hard-working Americans to save and plan for their retirement. Moreover, 
the Department's Proposal would substantially increase the categories 
of service providers who would be deemed fiduciaries for purposes of 
ERISA,\5\ and thereby decrease the availability of retirement planning 
options for all Americans.\6\ We respectfully request the Department 
formally withdraw its proposed definition of fiduciary\7\ and re-
propose a more narrow definition of fiduciary that targets specific 
abuses.
II. We believe that the proposed expansion of the definition of 
        fiduciary would jeopardize the retirement security of millions 
        of Americans
    Most Americans rely on retirement plans to supplement Social 
Security and private savings.\8\ For instance, Americans have increased 
their participation in 401(k) plans by 250 percent over the last 
twenty-five years.\9\ In addition, a 2009 study showed that over two-
thirds of ``U.S. households had retirement plans through their 
employers or individual retirement accounts (``IRAs'').''\10\
    IRAs are the fastest growing retirement savings accounts.\11\ IRAs 
are widely held by small investors\12\ who seek to maximize return by 
minimizing overhead on their accounts. According to the OLIVER WYMAN 
REPORT, smaller investors overwhelmingly prefer to use a brokerage 
account for their IRAs (rather than an advisory account) \13\ because 
of the lower operating costs associated with brokerage accounts. In 
fact, 98% of IRAs with less than $25,000 in assets are serviced by 
securities brokers.\14\
    We believe that the sheer breadth of the proposed expansion of the 
definition of fiduciary would have the unintended--but entirely 
foreseeable--consequence of reducing alternatives available to hard-
working Americans to help them save for retirement, and increasing the 
costs of remaining retirement savings alternatives. The resulting 
increase in the number of persons who could be subject to fiduciary 
duties, increased costs, and increased uncertainty for retirement 
services providers will very likely reduce the level and types of 
services available to benefit plan participants and IRA investors by 
making benefit plans and IRAs more costly and less efficient.\15\
    Thus, if the Department were to adopt the expanded definition of 
fiduciary in its present form,\16\ we believe it is clear that fewer 
Americans would have access to the advice they need to help them make 
prudent investment decisions that reflect their financial goals and 
tolerance for risk as they prepare for their retirement because of 
their reluctance to pay the increased costs that will likely be 
associated with professional investment advice.\17\
    We also are concerned that the Department's Proposal could lead to 
lower investment returns, and ultimately, a reduced amount of savings 
for retirement.\18\ Moreover, if the Department were to adopt its 
expanded definition of fiduciary in its present form, millions of hard-
working Americans are likely to have reduced access to meaningful 
investment services or help from an investment professional,\19\ and 
likely would incur greater expense to access the broad range of product 
types associated with brokerage accounts.\20\ We find the potentially 
adverse consequences that the Department's proposed expanded definition 
of fiduciary would have on our nation's retirement system and the 
retirement security of all Americans to be untenable.
    In summary, our specific concerns with the Department's proposed 
expansion of the definition of fiduciary are:
     The Department has not demonstrated that the current 
definition needs to be completely re-written.
     The proposed expansion of the fiduciary definition to 
encompass IRAs is ineffective and counterproductive.
     The Department's rule could result in significantly fewer 
retirement accounts and less retirement savings.
     The Department has not evaluated the economic impact on 
small business owners.
     Consultation and coordination with each of the relevant 
regulatory authorities is needed, including without limitation the 
Securities and Exchange Commission and the Commodity Futures Trading 
Commission.
     The Department provided insufficient regulatory analyses.
     Given the substantive concerns raised in the public 
comment record concerning the adverse impact of the rule, the 
Department should publish notice of its proposed revisions to the 
definition of fiduciary, and solicit public comment on the proposed 
revisions.
    1. The Department has not demonstrated that the current definition 
needs to be completely re-written.
     Despite 35 years of experience with the current definition 
of fiduciary,\21\ the Department has not provided adequate 
justification for its wholesale revisions to the current definition.
     The Department's stated rationale is to pursue bad actors 
(i.e., pension consultants and appraisers) who allegedly have provided 
substandard services and who failed to recognize or disclose conflicts 
of interest.\22\ If this is the goal, then the Department should more 
narrowly tailor the proposed changes to reach those particular bad 
actors.
     The Department also should consider whether other 
regulations (including those enforced by other authorities) already 
provide adequate safeguards. For example, the Department's recent 
disclosure regulations will require pension consultants to disclose all 
direct and indirect compensation they receive before entering into a 
service arrangement with a plan.\23\ This may address the Department's 
concerns.
    2. The proposed expansion of the fiduciary definition to encompass 
IRAs is ineffective and counterproductive.
     The proposed expansion of the definition of fiduciary 
would constrain the availability of lower-cost commission-based IRAs, 
which would increase costs for IRA owners and reduce retirement 
savings.\24\
     The Department previously expressed the view that 
regulatory initiatives designed for ERISA employee benefit plans were 
neither necessary nor appropriate for IRAs.\25\
     Sales practices for IRAs currently are subject to 
oversight by the Securities and Exchange Commission and FINRA. If the 
Department is concerned about oversight of sales practices, it should 
work together with those regulators to address those concerns, as 
opposed to overhauling a much broader regulatory regime.
     Service providers to IRAs should be expressly excluded 
from any definition of fiduciary for purposes of Title I of ERISA.
    3. The Department's rule could result in significantly fewer 
retirement accounts and less retirement savings.
     The Department issued the Proposal without having done any 
study or survey--or providing any data--on the Proposal's projected 
impact or effect on IRA owners or IRA service providers.\26\
     According to the OLIVER WYMAN REPORT, the effect of the 
Department's rule ``could well result in hundreds of thousands of fewer 
IRAs opened per year.''\27\
     ``Nearly 90% of IRA investors will be impacted by the 
proposed rule.''\28\
     The Department's Proposal would make service providers 
fiduciaries when merely providing a valuation of a security or other 
asset held in the account. This may lead service providers to withdraw 
from providing valuation services for real estate, venture capital 
interests, swaps, or other hard to value assets. As a consequence, 
investors will have far fewer investment choices available to diversify 
assets in their accounts as they seek to increase their retirement 
savings.
    4. The Department has not evaluated the economic impact on small 
business owners.
     Small plan sponsors are not likely to be able to absorb 
the potentially substantial increase in costs arising from the expanded 
definition of fiduciary.\29\
     Small business owners are struggling to recover in the 
U.S. economy.\30\
     We urge the Department to ensure that its regulations not 
only protect retirement plan participants and beneficiaries, but also 
remove undue burdens that constrain the feasibility for small business 
owners to provide retirement plans for their employees.
    5. Consultation and coordination with each of the relevant 
regulatory authorities are needed, including without limitation the 
Securities and Exchange Commission,\31\ FINRA, and the Commodity 
Futures Trading Commission.
     Investors and retirement services providers need a 
regulatory regime that provides clarity and certainty.
     Regulations that establish conflicting rules create 
confusion, increase costs to service providers, and tend to lessen the 
availability of retirement services overall.
    6. The Department provided insufficient regulatory analyses.
     The Department was obligated under Executive Order 
12866\32\ to determine whether its proposed expansion of the definition 
of fiduciary was a ``significant'' regulatory action.\33\ Even though 
the Office of Management and Budget determined the Department's 
proposed definition was economically significant,\34\ the Department 
performed an insufficient Regulatory Impact Analysis of the 
Proposal.\35\
     The Department stated ``it is uncertain about the 
magnitude of [the] benefits and potential costs'' of its regulatory 
action.\36\ Yet, the Department failed to provide any data whatsoever 
in support of its Regulatory Impact Analysis, in which the Department 
``tentatively conclude[d] that the proposed regulation's benefits would 
justify its costs.''\37\
     The Department's Initial Regulatory Flexibility Analysis 
failed to provide either an estimate of the number of affected small 
entities\38\ or the increased business costs small entities would incur 
if they were determined to be fiduciaries under the proposal as 
required by the Regulatory Flexibility Act.\39\ As a consequence, it 
appears that the Department of Labor performed an insufficient analysis 
under the Regulatory Flexibility Act when it estimated the impact of 
its rule proposal on small businesses, a segment of the market also 
impacted by the proposed expansion of the definition of fiduciary.
     On January 18, 2011, President Barack Obama issued 
Executive Order 13563 ``Improving Regulation and Regulatory 
Review.''\40\ The Order explains the Administration's goal of creating 
a regulatory system that protects the ``public health, welfare, safety, 
and our environment while promoting economic growth, innovation, 
competitiveness, and job creation,''\41\ while using ``the best, most 
innovative, and least burdensome tools for achieving regulatory 
ends.''\42\
     The Department's Proposal contravenes the Obama 
Administration's publicly articulated goal to ``identify and consider 
regulatory approaches that reduce burdens and maintain flexibility and 
freedom of choice for the public.''\43\
    7. Given the substantive concerns raised in the public comment 
record concerning the adverse impact of the rule, the Department should 
publish notice of its proposed revisions to the definition of 
fiduciary, and solicit public comment on the proposed revisions.
     The definition as proposed would require substantial 
changes to address concerns identified in the public comment file.\44\
     It is likely that class exemptions will be necessary and 
should be part of the rule itself, so that hard-working Americans do 
not lose access to investment products they need to fund their 
retirement while the financial services markets wait for the Department 
to adopt the required prohibited transaction class exemptions.
     The current definition of fiduciary\45\ has informed 
almost 35 years of Department guidance on investment advice for ERISA 
retirement plans and IRAs. Revisions to such a mature rule ordinarily 
should not require ancillary exemptions in order for the final rule to 
work in the real world.
III. In light of the substantive concerns raised by the public, we 
        believe the Department should withdraw its proposed expansion 
        of the definition of fiduciary, and re-propose a defintion of 
        fiduciary that addresses deficiences noted in the public 
        comment file
    We and other parties have filed comments and supplemental materials 
with the Department that generally have raised these and other concerns 
about the adverse impact of the Proposal.\46\ At present, it is our 
understanding that the Department is considering substantial revisions 
to its Proposal in response to the views expressed during the public 
comment period.\47\
    It is in the interest of the millions of hard-working Americans who 
are saving for retirement that the Obama Administration and the 
Congress collaborate actively with the private sector--in particular, 
the small business community and the retirement security community--to 
develop a regulatory regime that will benefit consumers and expand 
Americans' retirement savings.
IV. Conclusion
    In closing, strengthening the retirement security of all Americans 
is our priority. Strong and vibrant retirement programs benefit 
employees and their beneficiaries. As well, it strengthens the 
financial health and well-being of our nation. We, therefore, reiterate 
our request that the Department withdraw and re-propose a definition of 
the term fiduciary.
    While we support policies that encourage safeguards in retirement 
savings programs to protect consumers and our markets from fraudulent 
practices, we vigorously oppose regulations that would discourage 
participation by employers and employees in retirement programs or 
would imperil retirement security for millions of hard-working 
Americans.
    We urge policymakers to work with us to preserve a retirement 
system that helps strengthen retirement security for all Americans. We 
encourage the Congress to support policies that help promote retirement 
savings and enable the financial services industry to better meet the 
long-term retirement needs of hard-working Americans.
    We stand ready to work with you and the Department on this 
important issue.
            Respectfully submitted,
                              American Bankers Association,
                         The Financial Services Roundtable,
                          The Financial Services Institute,
                          The Insured Retirement Institute,
  National Association of Insurance and Financial Advisors,
     Securities Industry and Financial Markets Association.
                               end notes
    \1\ The American Bankers Association represents banks of all sizes 
and charters and is the voice for the nation's $13 trillion banking 
industry and its two million employees. Many of these banks are plan 
service providers, providing trust, custody, and other services for 
institutional clients, including employee benefit plans covered by the 
Employee Retirement Income Security Act of 1974. As of year-end 2010, 
banks held over $8 trillion in defined benefit, defined contribution, 
and retirement-related accounts (Source: FDIC Quarterly Banking 
Profile, Table VIII-A (Dec. 2010)).
    The Financial Services Roundtable represents 100 of the largest 
integrated financial services companies providing banking, insurance, 
and investment products and services to the American consumer. Among 
the Roundtable's Core Values are fairness (``We will engage in 
practices that provide a benefit and promote fairness to our customers, 
employees or other partners.''); integrity (``[E]verything we do [as an 
industry] is built on trust. That trust is earned and renewed based on 
every customer relationship.''); and respect (``We will treat the 
people on whom our businesses depend with the respect they deserve in 
each and every interaction.''). See Roundtable Statement of Core 
Values, available at http://www.fsround.org/.
    Roundtable member companies participate through the Chief Executive 
Officer and other senior executives nominated by the CEO. Roundtable 
member companies provide fuel for America's economic engine, accounting 
directly for $92.7 trillion in managed assets, $1.2 trillion in 
revenue, and 2.3 million jobs.
    The Financial Services Institute, which was founded in 2004, is the 
only advocacy organization working on behalf of independent broker-
dealers and independent financial advisors. Our vision is that all 
individuals have access to competent and affordable financial advice, 
products, and services delivered by a growing network of independent 
financial advisors affiliated with independent financial services 
firms. Our mission is to create a healthier regulatory environment for 
independent broker-dealers and their affiliated independent financial 
advisors through aggressive and effective advocacy, education, and 
public awareness. Our strategy supports our vision and mission through 
robust involvement in FINRA governance, constructive engagement in the 
regulatory process, and effective influence on the legislative process.
    The Insured Retirement Institute has been called the ``primary 
trade association for annuities'' by U.S. News and World Report and is 
the only association that represents the entire supply chain of insured 
retirement strategies. Our members are the major insurers, asset 
managers, broker dealers and financial advisors. IRI is a not-for-
profit organization that brings together the interests of the industry, 
financial advisors and consumers under one umbrella. Our official 
mission is to: encourage industry adherence to highest ethical 
principles; promote better understanding of the insured retirement 
value proposition; develop and promote best practice standards to 
improve value delivery; and to advocate before public policy makers on 
critical issues affecting insured retirement strategies. We currently 
have over 500 member companies which include more than 70,000 financial 
advisors and 10,000 home office financial professionals.
    National Association of Insurance and Financial Advisors 
(``NAIFA'') comprises more than 700 state and local associations 
representing the interests of approximately 200,000 agents and their 
associates nationwide. NAIFA is one of the only insurance organizations 
with members from every Congressional district in the United States. 
Members focus their practices on one or more of the following: life 
insurance and annuities, health insurance and employee benefits, 
multiline, and financial advising and investments. According to a Fall 
2010 survey, nearly two-thirds of NAIFA members are licensed to sell 
securities, and 89% of NAIFA member clients are ``main street'' 
investors who have less than $250,000 in household income. The 
Association's mission is to advocate for a positive legislative and 
regulatory environment, enhance business and professional skills, and 
promote the ethical conduct of its members.
    Securities Industry and Financial Markets Association (``SIFMA'') 
brings together the shared interests of hundreds of securities firms, 
banks and asset managers. SIFMA's mission is to support a strong 
financial industry, investor opportunity, capital formation, job 
creation and economic growth, while building trust and confidence in 
the financial markets. SIFMA, with offices in New York and Washington, 
D.C., is the U.S. regional member of the Global Financial Markets 
Association (GFMA). For more information, visit www.sifma.org.
    \2\ The financial services industry has developed numerous 
financial literacy initiatives, including initiatives directed toward 
elementary and high school students and programs presented to investors 
in the local community. See The Financial Services Roundtable, 
COMMUNITY SERVICE IMPACT REPORT at 64-69 (2010), available at http://
www.fsround.org/publications/pdfs/CS10-ImpactReport.pdf; Insured 
Retirement Institute, Retirement Planning Resources for Consumers, 
available at http://www.irionline.org/consumers/
retirementPlanningResources; Securities Industry and Financial Markets 
Association Foundation, available at http://www.sifma.org/Education/
SIFMA-Foundation/About-the-SIFMA-Foundation/; Investment Company 
Institute, available at http://ici.org/#investor--education; and FINRA, 
available at http://www.finra.org/Investors/.
    \3\ Definition of the Term ``Fiduciary'' [RIN: 1210--AB32], 75 Fed. 
Reg. 65263 (Oct. 22, 2010) (the ``Proposal'').
    \4\ 29 U.S.C. Sec.  1001, et seq.
    \5\ See Oliver Wyman, Inc., OLIVER WYMAN REPORT: ASSESSMENT OF THE 
IMPACT OF THE DEPARTMENT OF LABOR'S PROPOSED ``FIDUCIARY'' DEFINITION 
RULE ON IRA CONSUMERS at 13 (Apr. 12, 2011) (the ``OLIVER WYMAN 
REPORT''), available at http://www.dol.gov/ebsa/pdf/1210-AB32-PH060.pdf 
(noting that ``practically every investment-related conversation or 
interaction with a client [could become] subject to [a] fiduciary 
duty''). ``Even * * * discussions with call center and branch staff[ ] 
could be curtailed (so as to avoid inadvertently establishing a 
fiduciary duty.'' Id. at 15. The OLIVER WYMAN REPORT is based on 
aggregate proprietary data furnished by ``[twelve] financial services 
firms that offer services to retail investors.'' Id. at 1. These firms 
``represent over 19 million IRA holders who hold $1.79 trillion in 
assets through 25.3 million IRA accounts [or roughly forty percent 
(40%) of IRAs in the United States and forty percent (40%) of IRA 
assets].'' Id.
    \6\ OLIVER WYMAN REPORT, supra note 5 at 19-20. If the Department 
were to adopt the Proposal, the likely result would be a ``[r]educed 
choice of investment professional, level of investment guidance, and 
investment products,'' according to the OLIVER WYMAN REPORT. Id. at 19.
    \7\ It also would afford the Department an opportunity to receive 
further information and analyses from the public on the effectiveness 
of the proposed revisions. See Natural Resources Defense Council v. 
Environmental Protection Agency, 279 F.3d 1180, 1186 (9th Cir. 2002) 
(reviewing the ``notice and comment'' requirements, the court stated 
that ``one of the salient questions is `whether a new round of notice 
and comment would provide the first opportunity for interested parties 
to offer comments that could persuade the agency to modify its rule' 
'').
    \8\ Insurance Information Institute and The Financial Services 
Roundtable, THE FINANCIAL SERVICES FACT BOOK at 37 (2011) (``THE 
FINANCIAL SERVICES FACT BOOK''), available at http://www.fsround.org/
publications/pdfs/2011/Financial--Services--Factbook--2011[1].pdf.
    \9\ Retirement Security: 401(k)s (Sept. 23, 2010) (``Retirement 
Security''), available at http://www.fsround.org/fsr/pdfs/fast-facts/
2010-09-23-RetirementSecurity.pdf. In 2009, $2,121 billion of 
retirement assets were held in defined benefit plans compared to $3,336 
billion of assets in defined contribution plans. THE FINANCIAL SERVICES 
FACT BOOK, supra note 8 at 43 (2011) (Source: Securities Industry and 
Financial Markets Association).
    \10\ THE FINANCIAL SERVICES FACT BOOK, supra note 8 at 37.
    \11\ OLIVER WYMAN REPORT, supra note 5 at 4.
    \12\ Id. at 10 (``[A]pproximately half of IRA investors in the 
report sample have less than $25,000 in IRA assets, and over a third 
have less than $10,000.'').
    \13\ Id. at 12. Investors who hold IRA assets in a brokerage 
account pay commissions to the brokers who buy or sell securities for 
their IRAs. In the alternative, investors can hold IRA assets in an 
``advisory'' account and pay a fee that is a percentage of the assets 
held in the IRA. A study of 7,800 households conducted by Cerulli 
Associates found that more affluent investors also ``prefer paying 
commissions.'' See Fee vs. commission: No doubt which investors prefer, 
BLOOMBERG (June 8, 2011), http://www.investmentnews.com/apps/pbcs.dll/
article?AID=/20110608/FREE/110609950 (reporting that the survey 
examined ``households with more than $50,000 in annual income or more 
than $250,000 in * * * assets'').
    \14\ OLIVER WYMAN REPORT, supra note 5 at 2.
    \15\ Id. at 19-22.
    \16\ Proposal, supra note 3 at 65277-78.
    \17\ See OLIVER WYMAN REPORT, supra note 5 at 2; Fee vs. 
commission, supra note 13.
    \18\ OLIVER WYMAN REPORT, supra note 5 at 22 (``These increased 
investment costs would serve as a drag on long-term investment gains, 
and therefore on the ultimate retirement savings available to impacted 
[IRA] holders.'').
    \19\ Id. at 19.
    \20\ Id. at 20.
    \21\ 40 Fed. Reg. 50842 (Oct. 31, 1975). See also, Mercer Bullard, 
DOL's Fiduciary Proposal Misses the Mark (June 14, 2011), available at 
http://news.morningstar.com/articlenet/article.aspx?id=384065 (``It is 
unfair to the industry because it disregards decades of administrative 
law and practice under ERISA. It is bad for investors because it strips 
them of fiduciary protections when they are needed most.'').
    \22\ Proposal, supra note 3 at 65271 (citing a Securities and 
Exchange Commission staff report that found a majority of the 24 
pension consultants examined in 2002-2003 ``had business relationships 
with broker-dealers that raised a number of concerns about potential 
harm to pension plans''); GAO, Conflicts of Interest Can Affect Defined 
Benefit and Defined Contribution Plans, GAO-09-503T, Testimony Before 
the Subcommittee on Health, Employment, Labor and Pensions, Education 
and Labor Committee, House of Representatives at 4 (Mar. 24, 2009), 
available at http://www.gao.gov/new.items/d09503t.pdf (noting that 13 
of the 24 pension consultants examined by the Securities and Exchange 
Commission's staff ``had failed to disclose significant ongoing 
conflicts of interest to their pension fund clients'').
    \23\ Fiduciary Requirements for Disclosure in Participant-Directed 
Individual Account Plans; Final Rule [RIN: 1210--AB07], 75 Fed. Reg. 
64910 at 64937 (Oct. 20, 2010).
    \24\ OLIVER WYMAN REPORT, supra note 5 at 2 (noting that 
``estimated direct costs would increase by approximately 75% to 195% 
for these investors'').
    \25\ See Preamble to Interim Final 408(b)(2) Regulations, 75 Fed. 
Reg. 136 (July 16, 2010).
    ``The Department does not believe that IRAs should be subject to 
the final rule, which is designed with fiduciaries of employee benefit 
plans in mind. An IRA account-holder is responsible only for his or her 
own plan's security and asset accumulation. They should not be held to 
the same fiduciary duties to
    scrutinize and monitor plan service providers and their total 
compensation as are plan sponsors and other
    fiduciaries of pension plans under Title I of ERISA, who are 
responsible for protecting the retirement security of greater numbers 
of plan participants. Moreover, IRAs generally are marketed alongside 
other personal investment vehicles. Imposing the regulation's 
disclosure regime on IRAs could increase the costs associated with IRAs 
relative to similar vehicles that are not covered by the regulation. 
Therefore, although the final rule cross references the parallel 
provisions of section 4975 of the [Internal Revenue] Code, paragraph 
(c)(1)(ii) provides explicitly that IRAs and certain other accounts and 
plans are not covered plans for purposes of the rule.'' Id.
    \26\ Proposal, supra note 3 at 65274-76.
    \27\ OLIVER WYMAN REPORT, supra note 5 at 2.
    \28\ Id. at 19-20 (IRA holders who cannot qualify for an ``advisory 
account'' would be ``forced to migrate to a purely `low support' 
brokerage model * * * and have little access to investment services, 
research and tools'' to support their IRA savings goals.). See also, 
Most Americans Haven't Planned for Retirement and Other Areas of 
Concern, WALL ST. J., June 6, 2011, available at http://blogs.wsj.com/
economics/2011/06/06/most-americans-havent-planned-for-retirement-and-
other-areas-of-concern/ (``Efforts to make people essentially their own 
money managers may also be futile. Only 21% to 25% of respondents said 
they have used information sent to them from Social Security.'')
    \29\ While the costs associated with providing various employee 
benefits (including retirement plans) impact all employers, smaller 
companies typically are more sensitive to the costs associated with 
these programs. To the extent that service providers' expenses 
increase, those costs are passed through to their clientele. An example 
of expenses associated with the Department's Proposal is the legal cost 
associated with the initial ``compliance review.'' According to the 
Department, the cost of legal review would average sixteen (16) hours 
of time at a rate of $119 per hour. Proposal, supra note 3 at 65274. 
This rate, however, is significantly lower than the average billing 
rate of $295 per hour for 10,913 lawyers surveyed by the National Law 
Journal. SURVEY OF LAW FIRM ECONOMICS, NAT'L L. J. (2010) (``LAW FIRM 
SURVEY''), available at http://www.alm.com/pressroom/2011/02/10/alm-
legal-intelligence-releases-2011-survey-of-billing-and-practices-for-
small-and-midsize-law-firms/.
    \30\ See, Kelly Greene, Retirement Plans Make Comeback, With 
Limits, WALL ST. J., June 14, 2011, available at http://
professional.wsj.com/article/
SB10001424052702303714704576384072497942338.html (reporting that in the 
face of a ``slowly improving job market, [many companies] seek to 
balance the need to retain highly skilled workers with the need to 
limit costs'').
    \31\ The Securities and Exchange Commission released a study 
evaluating the regulatory regimes applicable to investment advisers and 
broker-dealers who provide advice to retail customers, as required by 
section 913 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act [Pub. L. No. 111-203, Sec.  913, 124 Stat. 1824 (2010) 
(the ``Dodd-Frank Act'')]. STUDY ON INVESTMENT ADVISERS AND BROKER-
DEALERS AS REQUIRED BY SECTION 913 OF THE DODD-FRANK WALL STREET REFORM 
AND CONSUMER PROTECTION ACT (Jan. 21, 2011), available at http://
sec.gov/news/studies/2011/913studyfinal.pdf. Section 913(f) authorized 
the Commission to engage in rulemaking to address the legal or 
regulatory standards of care applicable to investment professionals who 
provide ``personalized investment advice about securities'' to retail 
customers. Section 913(f) of the Dodd-Frank Act, 124 Stat.1827-28.
    \32\ 58 Fed. Reg. 51735.
    \33\ 75 Fed. Reg. at 65269.
    \34\ Id. (According to the Office of Management and Budget, the 
Department's proposed rule ``is likely to have an effect on the economy 
of $100 million in any one year.'').
    \35\ For example, the Department estimated that service providers 
would incur about sixteen (16) hours of legal review at a rate of $119 
per hour. While the complexity of the compliance review likely would 
far exceed the Department's estimate of sixteen (16) hours, an 
allocation of just $119 per hour for legal services vastly understates 
the cost of legal services in the United States. See LAW FIRM SURVEY, 
supra note 29 and accompanying text.
    \36\ 75 Fed. Reg. at 65275 (``[The Department's] estimates of the 
effects of this proposed rule are subject to uncertainty.'').
    \37\ Id.
    \38\ Id. at 65276.
    \39\ Id.
    \40\ Improving Regulation and Regulatory Review--Executive Order 
13563 (Jan. 18, 2011), available at http://www.whitehouse.gov/the-
press-office/2011/01/18/improving-regulation-and-regulatory-review-
executive-order.
    \41\ Id. at Section 1.
    \42\ Id.
    \43\ Id. at Section 4.
    \44\ See infra note 46.
    \45\ 29 C.F.R. Sec.  2510.3-21(c).
    \46\ See, e.g., Employee-Owned S Corporations of America (Jan. 12, 
2011), available at http://www.dol.gov/ebsa/pdf/1210-AB32-040.pdf; 
American Council of Engineering Companies (Jan. 19, 2011), available at 
http://www.dol.gov/ebsa/pdf/1210-AB32-048.pdf; American Institute of 
CPAs (Jan. 19, 2011), available at http://www.dol.gov/ebsa/pdf/1210-
AB32-050.pdf; National Association of Realtors (Jan. 20, 2011), 
available at http://www.dol.gov/ebsa/pdf/1210-AB32-052.pdf; Glass Lewis 
& Co. (Jan. 20, 2011), available at http://www.dol.gov/ebsa/pdf/1210-
AB32-053.pdf; Securities Law Committee of Business Law Section of the 
State Bar of Texas (Jan. 11, 2011), available at http://www.dol.gov/
ebsa/pdf/1210-AB32-039.pdf; Retirement Industry Trust Association (Jan. 
26, 2011), available at http://www.dol.gov/ebsa/pdf/1210-AB32-064.pdf; 
International Corporate Governance Network (Jan. 21, 2011), available 
at http://www.dol.gov/ebsa/pdf/1210-AB32-065.pdf; New York City Bar 
Committee on Employee Benefits & Executive Compensation (Jan. 28, 
2011), available at http://www.dol.gov/ebsa/pdf/1210-AB32-070.pdf; 
Investment Adviser Association (Feb. 2, 2011), available at http://
www.dol.gov/ebsa/pdf/1210-AB32-082.pdf; International Data Pricing and 
Reference Data, Inc. (Feb. 2, 2011), available at http://www.dol.gov/
ebsa/pdf/1210-AB32-082.pdf; The ERISA Industry Committee (Feb. 2, 
2011), available at http://www.dol.gov/ebsa/pdf/1210-AB32-090.pdf; 
Institutional Shareholder Services Inc. (Feb. 2, 2011), available at 
http://www.dol.gov/ebsa/pdf/1210-AB32-104.pdf; U.S. Chamber of Commerce 
(Feb. 3, 2011), available at http://www.dol.gov/ebsa/pdf/1210-AB32-
111.pdf; CFA Institute (Feb. 2, 2011), available at http://www.dol.gov/
ebsa/pdf/1210-AB32-128.pdf; Business Roundtable (Feb. 3, 2011), 
available at http://www.dol.gov/ebsa/pdf/1210-AB32-139.pdf; and 
Committee of Federal Regulation of Securities of the Section of 
Business Law of the American Bar Association (Feb. 3, 2011), available 
at http://www.dol.gov/ebsa/pdf/1210-AB32-152.pdf
    \47\ Definition of the term ``Fiduciary'' Proposed Rule Public 
Comments, available at http://www.dol.gov/ebsa/regs/cmt-1210-AB32.html.
                                 ______

                      
                                 
                                ------                                


           Prepared Statement of the U.S. Chamber of Commerce

    The U.S. Chamber of Commerce would like to thank Chairman Roe, 
Ranking Member Andrews, and members of the Subcommittee for the 
opportunity to provide a statement for the record. The topic of today's 
hearing--challenges confronting plan sponsors, workers, and retirees--
is of significant concern to our membership.
    Despite the challenges facing plan sponsors, the voluntary 
employer-provided retirement system has been overwhelmingly successful 
in providing retirement income. Private employers spent over $200 
billion on retirement income benefits in 2008 \1\ and paid out over 
$449 billion in retirement benefits.\2\ According to the Bureau of 
Labor Statistics, in March of 2009, 67% of all private sector workers 
had access to a retirement plan at work, and 51% participated. For full 
time workers, the numbers are 76% and 61%, respectively. Nonetheless, 
the success of this system is being threatened and we urge Congress to 
work to remove these threats.
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    \1\ EBRI Databook, 2009, Chapter 2.
    \2\ EBSA Private Pension Plan Bulletin Historical Tables and 
Graphs, 2009.
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    The greatest challenge facing the employer-provided system today is 
the need for predictability of the rules and flexibility to adapt to 
changing situations. Our statement today focuses on two areas where 
this need is overwhelming--PBGC premiums and regulatory requirements.
PBGC Premium Payments Must Be Predictable
    A matter of recent concern involves premium payments to the Pension 
Benefit Guaranty Corporation (PBGC). Congress is considering a proposal 
to increase PBGC premiums as part of the current budget discussions. 
Changes of the type and magnitude being discussed would undermine the 
private sector defined benefit pension system, hinder the economic 
recovery and could create an ill-advised precedent of government 
intrusion into normal business activities.
    Raising the PBGC premiums, without making contextual reforms to the 
agency or the defined benefit system, amounts to a tax on employers 
that have voluntarily decided to maintain defined benefit plans. 
Proposals, like those included in the President's budget, that purport 
to raise $16 billion in additional PBGC premiums are flawed and, even 
if they were feasible, would result in an increase in PBGC premiums of 
almost 100 percent. Even less draconian PBGC premium increases, when 
added to the multi-billion dollar increases enacted in 2006, would 
divert critical resources from job creation and business investment.
    Furthermore, a creditworthiness test, like the one proposed by the 
Administration, would inevitably result in the PBGC becoming an entity 
that makes formal pronouncements about the financial status of American 
businesses. This role for a government agency would be inappropriate, 
especially for private companies and non-profit entities. Leaving aside 
the question of whether the PBGC can establish accurate mechanisms for 
measuring and adjusting an employer's credit risk across industries and 
across the country, even modest year-to-year changes in those 
government credit ratings could have implications well beyond PBGC 
premiums, potentially affecting stock prices or the company's access to 
other credit sources. We understand the pressures to address the budget 
deficits, but massive increases in PBGC premiums are not the solution.
Regulatory Requirements are Overly Burdensome
    In general, greater regulation often leads to greater 
administrative complexities and burdens. Such regulatory burdens can 
often discourage plan sponsors from establishing and maintaining 
retirement plans. The following are just a few examples of where the 
regulatory burden is overwhelming.
    Notice and Disclosure: Plan sponsors are faced with two 
increasingly conflicting goals--providing information required under 
ERISA and providing clear and streamlined information. In addition to 
required notices, plan sponsors want to provide information that is 
pertinent to the individual plan and provides greater transparency. 
However, this is difficult with the amount of required disclosures that 
currently exist. Although there is a reason, even a good reason, for 
every notice or disclosure requirement, excessive notice requirements 
are counterproductive in that they overwhelm participants with 
information, which many of them ignore because they find it difficult 
to distinguish the routine, e.g., summary annual reports, from the 
important. Excessive notice requirements also drive up plan 
administrative costs without providing any material benefit. It is 
critical that Congress coordinate with the agencies and the plan 
sponsor community to determine the best way to streamline the notice 
and disclosure requirements.
    Accounting Rules: In 2006, the Financial Accounting Standards Board 
(``FASB'') undertook a project to reconsider the method by which 
pensions and other benefits are reported in financial statements.\3\ 
They completed Phase I of the project but left Phase II, which would 
have removed smoothing periods from the measure of liabilities, until a 
later date. After significant negative feedback from the plan sponsor 
community, FASB indefinitely postponed the implementation of Phase II.
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    \3\ Statement of Financial Accounting Standards No. 158, 
``Employers' Accounting for Defined Benefit Pension and Other 
Postretirement Plans'' (FAS 158). This statement requires companies to 
report the net financial status of pension and other benefits on the 
company's balance sheet rather than in the footnotes. In addition, plan 
assets and benefit obligations must be measured as of the date of the 
employer's fiscal year end and employers must use the projected benefit 
obligation measure of liabilities.
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    In 2010, FASB issued two proposals concerning accounting 
requirements for businesses that participate in multiemployer plans. 
Each proposal would have required the participating employer to include 
estimated withdrawal liabilities on their statement regardless of the 
likelihood of withdrawal. As you are aware, the information included on 
financial statements is used to determine the credit-worthiness of a 
company. Therefore, disclosing an estimated withdrawal liability could 
be misleading and negatively impact an employer's ability to get 
appropriate financing either from banks or bonding agencies. In 
addition, even if an individual employer is not directly impacted, that 
employer may be indirectly impacted if other employers who participate 
in the plan suffer financial trouble due to the disclosure of this 
information. FASB recently revised this proposal at the urging of the 
business community.
    The threat of accounting changes from FASB is a constant worry of 
plan sponsors. These changes can have significant ramifications for 
their businesses--impacting credit determinations and loan agreements--
without having any impact on the actual funding of the plans. This 
persistent threat discourages participation in the employer-provided 
retirement system.
    PBGC Rule on Cessation of Operations: In August of 2010, the PBGC 
published a proposed rule under ERISA section 4062(e) which provides 
for reporting the liabilities for certain substantial cessations of 
operations from employers that maintain single-employer plans. If an 
employer ceases operations at a facility in any location that causes 
job losses affecting more than 20% of participants in the employer's 
qualified retirement plan, the PBGC can require an employer to put a 
certain amount in escrow or secure a bond to ensure against financial 
failure of the plan. These amounts can be quite substantial.
    We believe that the PBGC proposed rule goes beyond the intent of 
the statute and would create greater financial instability for plan 
sponsors. Furthermore, we are concerned that the proposed rules do not 
take into account the entirety of all circumstances but, rather, focus 
on particular incidents in isolation. As such, the proposed rule would 
have the effect of creating greater financial instability for plan 
sponsors.
    The PBGC recently announced that it is reconsidering the proposed 
rule. However, we continue to hear from members that the proposed rule 
continues to be enforced. This type of uncertainty is an unnecessary 
burden on plan sponsors and discourages continued participation in the 
defined benefit plan system.
    Alternative Premium Funding Target Election: The PBGC's regulations 
allow a plan to calculate its variable-rate premium (VRP) for plan 
years beginning after 2007, using a method that is simpler and less 
burdensome than the ``standard'' method currently prescribed by 
statute. Use of this alternative premium funding target (APFT) was 
particularly advantageous in 2009 because related pension funding 
relief provided by the Internal Revenue Service served for many plans 
to eliminate or significantly reduce VRP liability under the APFT 
method. However, in both 2008 and 2009 PBGC determined that hundreds of 
plan administrators failed to correctly and timely elect the AFPT in 
their comprehensive premium filing to the PBGC, with the failures due 
primarily to clerical errors in filling out the form or administrative 
delays in meeting the deadline.
    In June of 2010, the PBGC responded to the concerns of plan 
sponsors by issuing Technical Update 10-2 which provides relief to 
certain plan sponsors who incorrectly filed. We appreciate the PBGC's 
attention to this matter and its flexibility in responding to this 
situation. However, we are concerned that the relief provided does not 
capture all clerical errors or administrative errors that may have 
occurred and, therefore, some plan sponsors remain unfairly subject to 
what are substantial and entirely inappropriate penalties. As such, we 
believe that the rules established under the current regulation and the 
Technical Update should be considered a safe harbor. The regulation 
should be revised to state that if the safe harbor is not met, the PBGC 
will still allow use of the APFT if the filer can demonstrate, through 
appropriate documentation to the satisfaction of the PBGC, that a 
decision to use the APFT had been made on or before the VRP filing 
deadline. Proof of such a decision could be established, for example, 
by correspondence between the filer and the plan's enrolled actuary 
making it clear that, on or before the VRP filing deadline, the filer 
had opted for the APFT. It is important that this regulatory change be 
made on a retroactive basis, so as to provide needed relief to filers 
for all post-PPA plan years.
    Rulemaking under Section 6707A of the Internal Revenue Code: 
Section 6707A of the Internal Revenue Code imposes a penalty of 
$100,000 per individual and $200,000 per entity for each failure to 
make special disclosures with respect to a transaction that the 
Treasury Department characterizes as a ``listed transaction'' or 
``substantially similar'' to a listed transaction. The Treasury 
Department announces on an ad hoc basis what is a listed transaction. 
There is no regulatory process or public comment period involved in 
determining what should be a listed transaction. The penalty applies 
even if the small business and/or the small business owners derived no 
tax benefit from the transaction. The penalty also applies even if on 
audit the IRS accepts the derived tax benefit. The penalty is final and 
must be imposed by the IRS and cannot be rescinded under any 
circumstances. There is no judicial review allowed. In the case of a 
small business, the penalties can easily exceed the total earnings of 
the business and cause bankruptcy--totally out of proportion to any tax 
advantage that may or may not have been realized. If a transaction is 
not ``listed'' at the time the taxpayer files a return but it becomes 
listed years later, the taxpayer becomes responsible for filing a 
disclosure statement and will be liable for this penalty for failing to 
do so. This is true even if the taxpayer has no knowledge that the 
transaction has been listed. Consequently, we recommend an immediate 
moratorium on the assessment and collection of the IRC Section 6707A 
penalty until the ``listed transactions'' can be thoroughly reviewed 
and recommendations can be made to carry out the intention of Congress 
without the disproportionate and probable unconstitutional impact of 
current law on small businesses and their owners.
    Cash Balance Plan Regulations: On October 18, 2010, the Internal 
Revenue Service issued long-awaited regulations affecting cash balance 
benefit plans under the Pension Protection Act of 2006. In addition to 
the delay in receiving this regulatory guidance, plan sponsors were 
disappointed that the regulations deviated from clear Congressional 
intent. The Chamber is engaged in on-going conversations with the 
Treasury Department and is asking Treasury and the IRS to set forth a 
clear and rational approach to PPA compliance for Pension Equity Plans. 
Moreover, because of the complexity of hybrid plans and their 
regulation, we are requesting additional guidance to ensure that plan 
sponsors have sufficient clarity and flexibility to adopt and maintain 
hybrid pension plans with legal certainty.
    Top-Heavy Rules: The top-heavy rules under ERISA are an example of 
extremely complex and burdensome regulations that do not offer a 
corresponding benefit.\4\ We recommend that this statute be eliminated 
altogether.
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    \4\ IRC section 416.
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Conclusion
    The best way to encourage plan sponsors to maintain retirement 
plans is to create a predictable and flexible benefit system. This 
statement highlights two areas where Congress could work to 
significantly improve predictability and flexibility. We look forward 
to working with this Subcommittee and Congress to enact legislation 
that will encourage further participation in the employer-provided 
system rather than driving employers out of it. Thank you for your 
consideration of this statement.
                                 ______
                                 
    [Whereupon, at 12:54 p.m. the subcommittee was adjourned.]