WASHINGTON, D.C. | June 14, 2011
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.
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