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Retirement Security Focus of Senate Hearing
By
Stephen Baetge
Staff Writer
The
economic downturn and its effect on retirement security was the subject
of the most recent hearing by the U.S. Senate Special Committee on
Aging, held February 25, 2009.
The hearing focused on the economic security of those on the brink of retirement,
and it featured testimony that offered insight into the factors affecting the
ability of the baby boomers to retire.
Among the challenges to secure retirement cited at the hearing were the weakened
performance of 401(k) funds, the instability of housing values and the challenges
facing older workers in the labor market.
The Committee closely scrutinized 401(k) target date funds, which are designed
to gradually shift to more conservative investments as workers approach retirement,
and it unveiled findings from a Committee investigation of 401(k) funds designed
for people planning to retire in 2010.
The investigation revealed a wide variety of objectives, portfolio composition
and risk within same-year target date funds. The results of excessive risk can
be devastating for those on the brink of retirement: One 2010 target date fund
lost 41 percent in 2008.
The findings prompted Committee Chairman Senator Herb Kohl, D-Wis., to send letters
to U.S. Secretary of Labor, Hilda Solis, and U.S. Securities and Exchange Commission
Chairwoman, Mary Schapiro, urging them to immediately commence a review of target
date funds and begin work on regulations to protect plan participants.
“Despite their growing popularity, there are absolutely no regulations
regarding the composition of target date funds,” said Chairman Kohl. “With
more and more Americans relying on 401(k) s and other defined contribution plans
as their primary source for retirement savings, we need to make sure their savings
are well-protected with strong oversight and regulation.”
The hearing’s lead witness, Jeanine Cook, testified about the difficulties
Americans face as they head into retirement. Cook has experienced a decline in
her housing and 401(k) investments in conjunction with diminishing job prospects.
Dallas Salisbury, president and CEO of the Employee Benefits Research Institute
(EBRI), highlighted findings about target date funds, which will be released
in the March 2009 EBRI issue brief. He also discussed EBRI calculations about
how long boomers will need to remain in their 401(k) plan to make up for the
2008 declines based on continued contributions and differing market scenarios.
According to Salisbury, it will take between two to 10 years for many 401(k)
plans to recover to their pre-2008 levels.
Dean Baker, co-director of the Center for Economic and Policy Research (CEPR),
discussed the decline in savings and equity among young and older baby boomers.
In conjunction with this hearing, CEPR released a new report on how the housing
crash is affecting boomers’ retirement prospects.
“The collapse of the housing bubble, which led to the current recession,
has already destroyed almost $6 trillion in housing wealth for homeowners,” said
report co-author Baker. “This reality is compounded by the recent collapse
of the stock market. The result is that many baby boomers will only have Social
Security and Medicare to rely on in their retirement.”
Ignacio Salazar from SER-Jobs for Progress testified about some of the challenges
that older workers face in today’s workforce and how Workforce Investment
Act one-stop career centers are not doing a satisfactory job in training seniors
for new careers.
Former U.S. Congresswoman Barbara Kennelly, president and CEO of the National
Committee to Preserve Social Security and Medicare, testified about how government
programs, such as Social Security and Medicare, are crucial to America’s
seniors, especially in a stagnant economy.
“Unfortunately, Social Security has been unfairly singled out by those
concerned about the federal budget,” said Kennelly. “It has been
swept up, together with Medicare and Medicaid, into the scary sound bite of an ‘entitlement
crisis.’ But Social Security is anything but out-of-control. In fact, it
is the most fiscally conservative and responsible part of the federal budget.”
Kennelly also commented on the rising bankruptcies among seniors and highlighted
some of the government’s efforts in the stimulus to help older Americans
as they retire.
The final testimony before the Committee came from Deena Katz, a certified financial
planner and associate professor at Texas Tech University.
Katz gave an overview of boomer financial history and described the challenges
and risks facing boomers as they enter retirement and begin to spend down their
savings. She also offered steps that boomers and policymakers might consider
to help attain a secure retirement.
The Committee took the testimony under advisement and will release a report later
this year. Historically, Aging Committee hearings result in the issuance of legislation
targeting problems identified during the hearings.
This page and its contents ©2009
Metropolitan News Company, Inc.
