WASHINGTON, D.C. | February 24, 2009
Last fall, as our nation’s financial crisis was worsening, the Committee held several hearings devoted to the effects of this crisis on retirement savings. We heard some troubling testimony about the state of our nation’s economic affairs, its impact on workers and retirees, and a range of proposals for solutions. Some I think we would all agree upon. Others were and remain far more controversial.
As I noted in the fall, our economy is in the midst of a serious downturn, constrained by a global credit crisis and burdened by the weight of toxic assets that have made it more difficult for businesses large and small to maintain their day-to-day operations, much less to create the new jobs our economy needs. And while it would be easy to dismiss the woes of the stock market as merely impacting the wealthy, the reality is that millions of Americans rely on investments in planning for retirement. Because of this, a downturn in our financial markets can have a real impact on workers’ retirement security.
While the two major types of retirement plans – defined-contribution and defined-benefit – have many differences, both are impacted by the overall health of our economic system and by investment performance in particular. 401(k)-type savings plans are invested directly, usually managed by workers. Defined-benefit plans require plan sponsors to manage millions in assets over a period of many decades. With the collapse in recent years of a number of defined-benefit plans, we have seen the risk to workers and retirees when plans are not effectively managed, or when benefits are over-promised and under-delivered.
I understand that the bulk of our examination today will be devoted to 401(k) plans, and the defined contribution pension system. I welcome this examination, and trust that the information we hear today will be of use to us. I would caution, however, that to the extent we focus on one side of the equation – the defined contribution side – we must not ignore the other. It may be tempting this morning to talk about the risks associated with defined contribution plans, and how workers would be so much better off if they were all in defined benefit plans. I think that simply misstates the case.
As the Chairman well knows, our nation’s defined benefit plans are facing historic challenges in the wake of our financial collapse. While workers with retirement savings in 401(k) plans are rightly worried about what the market is doing to their retirement plans, workers in defined benefit plans face their own worries about whether their companies will still be standing, whether their jobs will still be there, and whether their promised benefits will be delivered in the wake of this financial turmoil. I hope the Committee will pay the same attention to these issues as we move forward.
Second, I hope that this morning’s hearing will acknowledge the full scope of the challenges facing Americans planning for, or entering, retirement. I expect we will hear at some length about “fee disclosure” in 401(k) plans, and the need for improvement. I know this is an issue of particular concern to you, Chairman Miller, and one on which I expect we will again see legislation in this Congress. As I made clear last fall, I think all of us would support improved disclosure that is meaningful and useful to participants. And the question of how we go about that improvement is a fair question for today’s hearing.
I would caution, however, that we not suggest that investment fees are to blame for the dramatic declines in retirement savings which our nation’s workers and retirees have seen as result of this historic financial crisis. In a year where the S&P 500 lost 38 percent of its value, to suggest that the “problem” is merely one of investment fees is simply not factual or helpful. And indeed, on that point, it bears note that while the S&P lost almost 40 percent of its value, the best numbers available now suggest that the average workplace retirement savings account lost 27 percent of its value – still a difficult loss, but it does suggest that plans can and will vary with performance and their management.
Finally, I think it is important to recognize that while our defined contribution system could be improved, it would be a real mistake to dismantle it, or nationalize it, as has been suggested in this Committee in the past. We have a heavy responsibility in both the legislation we pass and in the debates we undertake. In particular, I would make clear that now is not the time to frighten people out of the market. Triggering a widespread exodus from the system would only exacerbate the market’s downward trend, while cementing these deep losses. I hope Members and witnesses will keep this in mind with their remarks today. Given the fact that historically, and over time, these plans have become vital retirement savings vehicles for millions of Americans, I am very mindful that we do not take any step, even in our conversations, to discourage that this morning.
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