House Education and Labor Committee Explores the Nation’s Retirement System

Washington, DC – February 25, 2009 – The House Education and Labor Committee, on Tuesday, held the first of a series of hearings designed to examine how 401(k) and other retirement plans are faring in light of the current economic crisis. The Committee does not have jurisdiction over public retirement plans. If they produce legislation it is likely that the House Ways and Means Committee, with jurisdiction over 457 plans, would at least hold hearings on it.

Committee Chairman Rep. George Miller (D-CA) said that American workers have lost millions of dollars from their 401(k) accounts as the economy has declined over the past two years, and stressed a need to strengthen and preserve these types of plans.

"For many retirees coping with rising costs for health care and other basic expenses, this loss in income is simply devastating," Miller said in his opening statement. "While 401(k)s are a part of life, this committee has found that these plans in their current form do not and will not provide sufficient retirement security for the vast majority of Americans."

In response to the chairman's inquiry, much of the testimonial and discussion during the hearing focused on creation of a new national defined contribution program that would supplement Social Security and employer-sponsored plans.

Alicia Munnell, director of Boston College's Center for Retirement Research agreed with Miller that 401(k)'s are not enough, adding that the accounts were never meant to be the backbone of retirement security, but rather supplemental to employer-funded pension and profit sharing plans

Munnell suggested creating a system of mandatory private retirement savings that would be paid out in the form of an annuity. John Bogle, founder of Vanguard Group, and Dean Baker, co-director of the Center for Economic and Policy Research, shared a similar sentiment, but differed on whether the new system should be mandatory or voluntary.

Bogle described an "ideal" savings system as one that would combine all defined contribution plans (401(k), 403(b), 457) into one structure managed by low-cost providers and focused on long-term investment in index funds.

Paul Schott Stevens, President and CEO of the Investment Company Institute, offering the only opposing viewpoint, said that although the 401(k) system has been affected by the economic decline, as have other plans, it continues to be strong savings vehicle, and that Americans are staying the course and continuing to contribute to their employer-sponsored plans.

Stevens said in his prepared statement that he "believes strongly in the 401(k) system and its inherent power of savings and long-term investing," and "fundamentally disagree[s] with attempts to scrap or undermine the existing system or radically alter its structure."

Miller indicated that the hearings on retirement issues would continue in the months ahead. ICMA-RC will monitor events and report on our Web site any progress of legislative and regulatory developments.

Hearing Testimony Statements

Statement of Rep. George Miller (D-CA)
Statement of Paul Schott Stevens, President and CEO of the Investment Company Institute
Statement of John C. Bogle, founder and former chief executive of The Vanguard Group
Statement of Dean Baker, co-director of the Center for Economic and Policy Research
Statement of Alicia Munnell, director of Boston College’s Center for Retirement Research

Related Links

ICI White Paper – Retirement Saving in the Wake of Financial Market Volatility