March
10, 2009
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.
More
Information on US Social Security Issues
More Information on US Private Pension Issues
More Information on Trade Unions and Pension Issues
