▶ 0:00:02how retirees draw down their defined contribution plan balances. Congress recognizes the widespread adoption and popularity of defined contribution plans among private sector employers and their employees and these plans have become the cornerstone of retirement security for millions of Americans. There is now an opportunity to build upon this system by expanding lifetime income options.
▶ 0:00:26This hearing will evaluate whether today's workforce would benefit from additional or more flexible payout options from the defined contribution plans as retirement needs continue to evolve. The retirement industry and Congress can work together to support predictable income streams and help retirees manage longevity risk and market fluctuations during retirement. Maximizing retirement savings is a shared goal.
▶ 0:00:52I look forward to discussing how the committee can continue its efforts to protect Orisa plan participants and strengthen their benefit plans. I want to thank our witnesses for joining us today. Each brings frontline experience helping define contribution plan participants convert retirement savings into lifetime income.
▶ 0:01:11We will hear about our how retirees manage their savings in retirement, the products that can help them do that, and an employer plan that has tailored an investment and payout option specifically to provide a lifetime income stream. At the same time, we must remain committed reserving the ability of retirees to choose how and when their retirement savings are paid out.
▶ 0:01:34This hearing will explore whether defined contribution plans should offer lifetime income options and how plans may do so while maintaining flexibility for their participants. With that, I yield to the ranking member for an opening statement.
▶ 0:01:49Thank you, Mr. Chairman. I want to thank all the witnesses for being here. This is a profoundly important issue. It may be very dry to a lot of people except for staff who study these issues. But in an era where our working people have more and more stress and less disposable income to invest in anything, retirement or um their family or healthcare. This is just really discussion and I hope we all are mindful that we want everyone to benefit from this. Nothing wrong with private investments.
▶ 0:02:18We still need social security of course because more Americans depend on that than ever. But what's happened with investment is really going to be concerning just generationally. Uh, and that's why this this is really should be a completely nonpartisan issue about how do we manage these opportunities to help the economy, but make sure it helps for everyone.
▶ 0:02:39And as people prepare um for retirement and people who aren't preparing for retirement, as we all did most likely when we were in our 20s and thought we would live forever, this is a really important discussion. In 2008, the Department of Labor issued a regulatory safe harbor regarding the selection of annuity products in retirement plans. And then in 2019, Congress took bipartisan action to establish a statutory safe harbor that makes it easier for retirement plans to offer annuity products.
▶ 0:03:10Ma makes it much easier. If there is a bipartisan interest in going beyond that, Congress has already done. We must proceed carefully. As I said in my first comments is these kinds of investments can be costly, opaque and complex. And we want to be easy for everyone to analy and an analyze their risk assessment.
▶ 0:03:30But I think it's important for us to take a step back as well and be mindful that we're having this discussion about lifetime income and 401k plan cam plans in a time when there are far too many workers as I said are struggling to earn a decent income over their lifetime. Right now many workers across the country are struggling to pay their bills and meet basic needs let alone save for retirement.
▶ 0:03:55It is incredibly hard for workers to save the retire for retirement when a according to the Federal Reserve such as a simple $400 unexpected expense like a car repair could force them into a really dire financial situation. And I think the numbers from the Fed are more than 40% of Americans are $400 in an unexpected cost and going into a dire financial situation, just a cash flow problem.
▶ 0:04:26[snorts] So, it's very important with our failure so far to extend uh the premium tax credits under the affordable care act or have a meaningful discussion about how do we address that important fixed cost in American household healthcare. um that's going to make it more difficult for those 20 million Americans. And in this committee, we've had extensive hearings over the last four years about the 120 million Americans who get their health care from employer-based. Bad for the employer, bad for the employee.
▶ 0:04:55The chair and I have had multiple conversations about how we could work to make sure that both for employers and employees those those health care plans are also addressed because the quality of care and the cost is going up as well.
▶ 0:05:10So in all of that context, um, average Americans trying to decide how much they can contribute to retirement given the pressures on housing cost, health care, transportation, education, all the other fixed cost and the lack of discretionary income makes this a really important long-term discussion that really should be bipartisan in my view and has been historically in this committee. And I I think the chairman and I have worked uh Um, and I'd like to really thank uh Dr.
▶ 0:05:39Ree for being here. Go Bears. Uh, representing a district that I like to say if you go up to the Berkeley Hills, I have the pleasure of looking down for my district at Berkeley. Um, so thank you for being here. I have nothing but respect for the Labor Institute, which I've had a lot of interaction with over the years and your testimony as well as the other uh witnesses. So, we must work to fix these inequities. I've mentioned the ranking member of the full committee, Mr.
▶ 0:06:05Scott and I consistently make the case that retirement security is fundamentally aligned with workers wages. If you don't make enough and you don't have enough discretionary income to be able to make decisions in investments for retirement, it makes it that much more difficult. The more people earn, the easier it is for them to plan and save for retirement. At a minimum, we must support policy that increase workers wages and strengthen their ability to organize and collectively bargain.
▶ 0:06:33The data is clear that unionized workers have greater access to retirement plans and higher participation rates than their non-unified uh counterparts. And the research also is clear for non-un union counterparts is their ability the union members to be able to negotiate a fair retirement plan helps non-UN as well. But we shouldn't stop there. In 1935, President Roosevelt signed the Social Security Act into law.
▶ 0:07:00And when doing so, he said, quote, "Well, this will give some measure of protection to the average citizen and to this to his family, his and her family, against the loss of a job against povertyridden old age." Remind people that before Social Security, if you were old and you're an average American, you were poor. Social Security remains one of the nation's most effective, successful, and popular programs. It currently provides lifetime income to over 67 million Americans.
▶ 0:07:30According to the Center for Budget and Policy Priorities, for four and 10 retirees, it provided at least 50% income. And for one in seven retirees, it provided at least 90% of their income. There have been Republican-led attempts to privatize or destabilize social security in the past. But fortunately, those misguided efforts were rejected.
▶ 0:07:55And we must now work together to protect and strengthen social security for future generations who will all be and baby boomers of which I am one who will all be at least 65 by 2030 for future generations. Finally, Mr. Chairman, today's hearing is happening at a precarious time for retirement savers. Risks are increasing while core protections are being abandoned or attacked.
▶ 0:08:19For instance, the current administration is walking away from a sensible rule protecting workers and small businesses from harmful retirement investment advice often related to certain annuity products. While the administration is also finalizing a regulation to make it easier for retirement plan sponsors to offer risky investments as such as crypto in workers 401k plans.
▶ 0:08:43At the same time, my colleagues across the aisle appear intent on advancing legislation, some of my colleagues, that would make it harder for retirement savers to seek justice in courts when charged with excessive fees. It seems that such legislation may be connected to today's hearings. I hope not as Republican witnessed prior hearing testified that litigation and the threat of it were impacting 401 campaign campaigns. And fast lastly just a few numbers that to me are staggering that Dr.
▶ 0:09:13Ree will uh talk about. Among near retirement households, the share of 401k IRA assets held by the bottom 70% has substantially decreased since 2007, 7.2% 2% to 4.9% reflecting growing retirement inequality. This is a survey of consumer finances.
▶ 0:09:34The top 20% of households in this age group held 86% of 401k IRA IRA assets in 2022 which is a reflection of the earlier numbers about how many Americans completely or largely rely on social security because they can't afford to get into 401ks.
▶ 0:09:54So with that as a as an opening statement, I hope that you take these and from a perspective of we want to work to make the system work and not have high risk uh or low risk, high reward for some investors and high risk um high or low return for other investors like 80% of the American public. Mr. Chairman, I really appreciate this hearing and look forward to working with you to make sure that Americans have secure retirement for generations to come.
▶ 0:10:24The ranking member yields. Uh, pursuant to committee rule 8C, all members who wish to insert written statements into the record may do so by submitting them to the committee clerk electronically in Microsoft Word format by 5:00 p.m. 14 days after this hearing. And without objection, the hearing record will remain open for 14 days to allow such statements and other extraneous material noted during the hearing to be submitted for the official hearing record.
▶ 0:10:55I will now turn to the introduction of our four distinguished witnesses and thank you very much for being here. Our first witness is Mr. uh Sar Kalera Calibri the head of the TIAA Institute from Boston Mass Massachusetts. Our second witness is Mr. Ke uh Ken Lavine, executive director of global retirement strategy at RTX from Charlotte, North Carolina. Our third witness is Dr.
▶ 0:11:25Neri uh Ree, a the director of the retirement security program at UC Berkeley Labor Center from Berkeley, California. Our last witness is Mr. Wayne Chopus, uh uh the president and chief executive officer at Insured Retirement Institute from Washington DC. Uh we thank again the witnesses for being here today. We look forward to your testimony. Pursu pursuant to committee rule uh rules.
▶ 0:11:54I would ask that you each limit your oral presentation to a threeminut summary of your written statement. As committee members have many questions for you. The clock will count down from three minutes. Pursuant to committee rule AD and committee practice. However, you will not cut off your testimony until you reach the 5-minute mark. I would also like to remind the witnesses to be aware of their responsibility to provide accurate information to the subcommittee.
▶ 0:12:21I will first uh recognize uh Mr. Kuri uh for your testimony.
▶ 0:12:28Uh Chairman Allen, uh Ranking Member Donier, and distinguished members of the subcommittee. Uh thank you for inviting me to testify uh on the steps we can take to continue to modernize our retirement system. I'm Surya Korei and I serve as the head of the TIA Institute, a division of the retirement service provider TIAA. And at the institute, we are dedicated to conducting research on enhancing financial security for Americans.
▶ 0:12:52Uh for example, our research shows that American workers today face challenges that we can address. 45% of American households in our research we show are projected to run short of money uh in retirement. I'm going to make a couple of psychological points.
▶ 0:13:10Uh 64% of Americans worry more about running about money than about their own uh and a third of who have already retired cite uh not addressing potentially outliving their savings as their top financial regret. So we call that regret research. So defined contribution plans have succeeded in helping workers save for retirement.
▶ 0:13:36They often fall short in helping them convert them into a guaranteed income uh that lasts throughout the retirement. We call this the guarantee gap. Uh Congress has taken important bipartisan steps to address these challenges by passing uh secure act and secure act 2.0. In particular, grateful to chairman Wahlberg who first introduced the annuity provider safe harbor provision.
▶ 0:14:03U I would like to highlight three policy proposals to address this guarantee gap. Uh the first uh is Congress should further encourage guaranteed lifetime income products as part of the default investment offerings in plan. This can be done by amending the safe harbor regulations of the department of labor's qualified defined investment alternative QDIA.
▶ 0:14:26Um the lifetime income for employees act the bipartisan legislation previously introduced by chairman Wahlberg and Congressman Norcross takes towards addressing this. Uh the Department of Labor can also take steps to encourage plan sponsors to integrate lifetime income solutions. Second, uh Congress should pass legislation requiring defined contribution plans to offer a participant menu of qualified options. We call them coupons.
▶ 0:14:55There could be a whole bunch of choices people can have to make withdrawals in a systematic basis. Third, policy makers should take steps to address what at institute we call longevity literacy. Uh that is an understanding of how long an individual is going to likely live in retirement. In our research uh we find that savers tend to underestimate uh how long they're going to live, thus incurring longevity risk.
▶ 0:15:25Um so providing workers with enhanced longevity literacy education can help them plan better. Uh so thank you for your leadership on this critical issue and for this opportunity for me to testify when the time is right. I'm happy to answer questions.
▶ 0:15:42Okay. Thank you sir for your testimony. Uh now recognize Mr. Lavine for your mic, sir. Your mic. And if you would uh hold it closer to you, that would be great. Thank you. Is it on?
▶ 0:16:05It is on.
▶ 0:16:06You got it. Thank you.
▶ 0:16:07Thank you for that. Uh Chairman Allen, Ranking Member Dier, members of the subcommittee, thank you for inviting me to testify today on the important topic of modernizing retirement policy for today's workforce. I'm Ken Lavine, executive director of global retirement strategy and part of the pension investments team at RTX.
▶ 0:16:29I'm an actuary by training and have worked in the employee benefits arena with a focus on retirement for nearly 40 years, 29 of them with RTX and its predecessor companies. RTX, formed by the April 2020 merger of United Technologies and Rathon, is today one of the world's largest aerospace and defense companies.
▶ 0:16:51The retirement industry, thanks in no small part from congressional actions, has done an excellent job at promoting and enabling workers to accumulate significant account balances in their 401k plans by the time they retire.
▶ 0:17:05However, Americans have been left to their own devices to figure out how to generally needing to choose between retaining control over their assets, figuring it out for themselves how to invest and spend down in retirement versus opting for the uh certainty of fixed income in exchange for giving up the control of their assets.
▶ 0:17:30Solving this accumulation in Enigma has become more critical with fewer workers having access to traditional employerprovided defined benefit pension plans. RTX collaborated with the investment firm Alliance Bernstein to develop a 401k plan investment option that accumulates as effectively as a target date fund while also building retirement income guaranteed for life.
▶ 0:17:54The result lifetime income strategy was introduced in 2012 as the plan's default investment option. Making it the default was critical to ensure that it would deliver lifetime income to as many employees as possible. Supported by more than 13 years of experience, lifetime income strategy has proven to be an effective way for RTX employees to build meaningful retirement income guaranteed for life without sacrificing on the accumulation of their account.
▶ 0:18:25While it is an annuity, it does not require annuitization, that irreversible exchange of assets typically associated with annuities. Instead, it's a personalized target date fund that continues into retirement and embeds insurance with a modest, explicit, transparent fee that guarantees that retirement income will continue for life.
▶ 0:18:49Investing in lifetime income strategy turns a 401k into an individual pension account, an IPA. Employees accumulate their account just like they would by investing in a target date fund. Then in retirement de accumulate by withdrawing directly from their account a monthly pension-like payment. There is no irreversible exchange of assets nor a rollover to an IRA.
▶ 0:19:13The retireesees 401k balance remains their 401k balance with the potential for continued growth if investment markets perform well. increasing income during retirement but of that income in down markets until the account is depleted. It is invested fully liquid accessible and passes to heirs upon the retireese's death.
▶ 0:19:38If the guaranteed withdrawal fully depletes the account, the insurance steps in to continued the monthly income. When RTX introduced lifetime income strategy, we anticipated other plan sponsors would follow suit. But to date, few other plan sponsors have. My view is the lack of takeup has to do with misperceptions about guaranteed income products and limited knowledge among the investment consulting and plan sponsor communities.
▶ 0:20:06However, there has been renewed interest and some innovative solutions have recently come to market. The purpose of my testimony today is to let you know that not only is it possible for employers to provide a modernized retirement plan by embedding insurance into a 401k, but RTX has already successfully done it and other plan sponsors can too.
▶ 0:20:30Thank you, Mr. Lavine, for your testimony. Next, I recognize Dr. Ree for your testimony. Good morning, Chairman Allen, Ranking Member Don, and distinguished members of the subcommittee. Um, thank you for having me here today to testify on this important topic.
▶ 0:20:49Um, so my name is Nari Ree, and I direct the UC Berkeley Labor C Center's retirement security research program, focusing on the challenges facing most American workers in the current retirement system. So today I would like to talk about some of those challenges um and also take some time to highlight the need for strong guard rails if we're going to be talking about um further congressional action to further integrate lifetime income products into 401k plans.
▶ 0:21:20So, first of all, big picture. Um, as we discuss modernizing retirement policy, it's important to understand that the current system is set up to work for the few um and fail the many. Nearly half of wage and salary employees in this country, mostly low and middle wage workers, are not covered by an employer sponsored retirement plan, whether a pension or a 401k. Um, two out of five working age households have nothing saved in a retirement account.
▶ 0:21:48And for about a quarter of Americans, social security is going to be their entire lifetime in old age, excuse me, lifeline in old age. So while there are record assets held in 401ks and IAS, um there's very little trickling down to the middle or even much less the bottom. Um the median retirement savings balance counting all working age households um is $8,000. For households approaching retirement, it's just $20,000 age 55 to 64.
▶ 0:22:18So that is counting all households, not just the people who are lucky enough to have 401k accounts. Um um and within this pre-retirement cohort, the the bottom 70% owns less than 5% of assets and um basically 401ks have accelerated wealth inequality in the United States. So much of this is driven by growing economic inequality and economic insecurity for the mass of workers.
▶ 0:22:47We've had 40 plus years of wage stagnation at the middle and bottom of the labor market, 16 years of a frozen minimum wage, um, and more and more income going to the top earners. We also have increasingly insecure employment relationships and especially for hourly employees and gig workers, unpredictable monthly income and all of that makes it extremely difficult to plan ahead and save for retirement.
▶ 0:23:15So I want to move on to um the topic of lifetime income and further policy action. Um so as more workers retire with a defined contribution plan rather than a defined benefit plan as their primary employer plan for retirement. I do think that the interested lifetime income is legitimate.
▶ 0:23:34Um, I will mention just for ident identification purposes that I'm on the board of trustees of the Cal Savers auto IRA program run by the state of California to try to close a little bit of the retirement savings gap for lowwage workers. Um, and you know, I've talked with fellow researchers about the possibilities of of offering annuities and plans, but there are significant questions when you talk about defaulting annuities into a product like that.
▶ 0:24:02um especially in terms of the any changes to worker protections. Um annuities vary widely um in terms of the nature of the guarantee, the the level of complexity, the benefit structure, the cost structure.
▶ 0:24:15Annuity pricing can be opaque because there are key um drivers of costs that are not made public or or made disclosed to are disclosed to consumers and that includes um the life tables underlying the benefit and also um you know sort of variable annuities often there are some undisclosed costs as well in terms of the upside that you're giving up.
▶ 0:24:40Um and importantly, some annuity products do involve long-term contracts for participants and all of this means that there should be a high level of fiduciary care. This is not like a target date fund, right? It's a lot more Um because of this, Congress should not compromise existing standards of protection under ORISA. Any move to expand the use of annuities as a default investment must include strong guard rails to protect employees hard-earned savings.
▶ 0:25:10Three points on that. Uh we need careful standards for defaulting participants into annuity products both in terms of the kinds of products, the quality of the insurers and the thresholds for defaulting employees. Laws and regulations should protect participants against excessive costs. Um this includes actuarial fairness. um disclosure requirements should allow employees to make informed decisions comparing products on an apples to apples basis.
▶ 0:25:37So to circle back the most important retirement system is um the social security system which is a bedrock of American retirement and that needs bolstering. Thank you
▶ 0:25:49Dr. R. Thank you for your testimony. Lastly, I recognize Mr. Chapass for your
▶ 0:25:56Thank you. Good morning, Chairman Allen, Ranking Member Sier, Chairman Wahlberg, Ranking Member Scott, members of the Health, Employment, Labor, and Pension Subcommittee. I'm Wayne Chopus, president and CEO of the Insured Retirement Institute, which represents the full supply chain of the insured retirement industry, including lifeurers, distributors, asset managers, and solution providers.
▶ 0:26:17Thank you for the opportunity today to address a challenge that impacts every American worker and retiree and that is transforming the dream of retirement into a secure reality marked by confidence and peace of mind and the assurance that savings will last. This challenge can be understood through three realities. First, Americans are living longer, but retirement readiness has not kept pace, especially the risk out living savings.
▶ 0:26:43A recent study showed that 64% of Americans worry more about running out of money than about death itself. Second, the private sector retirement savings system has fundamentally changed. We've moved from pensions that provide a guaranteed lifetime income to to find contribution plans where all the responsibility is placed on individuals to save and to turn those savings into sustainable retirement income.
▶ 0:27:08Lastly, while secure and secure 2.0 know have expanded and integrated lifetime income solutions into uh defined contribution plans. Gaps still remain. Annuities can close those gaps by pro uh providing protected guaranteed income. They work in harmony with IAS, 401ks, social security by uniquely removing longevity and market risk that other retirement vehicles just cannot match.
▶ 0:27:35Just as Americans ensure their homes and their cars and their health, annuities ensure against the risk of outliving your savings, they guarantee a steady stream of mailbox money income that retirees will receive monthly regardless of market conditions. An example is is uh is certainly personal to me. My parents are both retired. They both have defined benefit plans. They do not have significant savings, but they sleep well at night because every month without fail, checks arrive from their employers.
▶ 0:28:05And it's income they know they can out not outlive. And that peace of mind is largely missing today. Across every congressional district, thousands of workers and retirees lie awake anxious about outliving their savings. Annuities provide that mailbox money to ease financial stress and replace uncertainty with the steady reassurance of monthly checks that arrive like clockwork, lifting a burden from retirey shoulders.
▶ 0:28:29By expanding access to lifetime income solutions, as IRI recommends, Americans can step boldly into retirement protected and confident, free from the shadow of financial IRA is ready to work uh with you on our shared mission to ensure all Americans access to a secure, dignified, and financially independent retirement. Thank you, and I look forward to your Thank you, Mr. Chas, for your testimony.
▶ 0:29:01Under [clears throat] rule nine, we will now question witnesses under the fivem minute rule. I'll recognize myself for five minutes. Uh Mr. Uh, Chapass, uh, your written testimony cites a 2025 study by Capital Group finding that 60% of investors of all ages believe generating a steady income is more important than growing assets.
▶ 0:29:25Based on your experience, what features or options do retirement plan participants value the most for converting defined contribution balances to lifetime income?
▶ 0:29:35Great. Thank you for the question. Uh, and first I'd like to just thank you and and everyone um in here on both sides of the aisle for the work done on secure and secure 2.0 to lay the groundwork to help Americans with their greatest concern which is outliving their savings. I think Americans have spent their entire lives accumulating and saving, but uh to borrow a phrase from our partners at TIAA, ultimately income is the outcome.
▶ 0:30:01And in retirement, I I believe consumers are seeking the benefits that annuities um have such as uh guaranteed stream of life uh income that you cannot outlive, uh the longevity protection that comes with that, the downside protection uh it provides in um certain markets and I believe the flexibility to convert that savings uh from the 401k, the defined contribution uh into an annuity uh we'll take the number uh which again a
▶ 0:30:31TIA number that only 18% of consumers are very confident they'll have enough money to last through retirement um and improve that security boost that number uh well above 18 as we move forward.
▶ 0:30:44Thank you Mr. Kuri. Uh your written testimony states that less than 20% of 401k plans offer participants access to lifetime income action options. Even among plans that offer these options, some are simply systematic withdrawals or other options that do not protect against the risk of outliving savings.
▶ 0:31:05What is the most important thing that Congress can do in order to encourage 401k plan sponsors to offer lifetime income options that protect against longevity risk?
▶ 0:31:16Chairman Ellen, thank you for this important question. uh the most important action I think Congress can take is to encourage uh more lifetime income options in the default investment in the plan QDAS and required DC plans to offer what I had called before coupons qualified payout options and and the reason why I'm saying this is when we are saving for retirement we have choices we could invest in a fixed income we could equities target date funds but
▶ 0:31:46when we retire guess what we at a lump sum and we've given a very difficult challenge for somebody who's going to retire with a big sum of money and no guidance on what to do. So why don't we provide options when we retire as well like we do when we save. So we call them coupons. Uh it could be a managed payout. It could be a regular withdrawal. It could be a lifetime income. So let's give them choices in addition to the lumpsum with some education. So that would be our
▶ 0:32:14Yeah. Well, the American people want choice. That's that's for sure. Mr. Savine, your written testimony notes there is not widespread adoption of guaranteed lifetime income solutions in 401k plans and there is widespread adoption of lifetime income solutions by your company's 40 401k uh K plan participants. Your testimony also states that in your view other employers sponsoring 401k plans may not be offering lifetime income products because of misconceptions.
▶ 0:32:45Can you explain what these misconceptions are and how Congress can help correct these
▶ 0:32:52Yeah, thank you, Chairman Allen. Um, the misperceptions or myths that I generally hear from other plan sponsors regarding guaranteed lifetime income are that their participants don't need or want guaranteed lifetime income in their 401k plan. Uh, two, putting guaranteed lifetime income solution increases the plan sponsor's fiduciary risk.
▶ 0:33:18Three, guaranteed lifetime income products are too complex, expensive, and restrictive. And four, guaranteed lifetime income as a default will lock participants into something that they do not want or will hinder their investment I hope my testimony uh my oral and the written testimony I've submitted debunks these myths for you.
▶ 0:33:43I think a as I said uh you know a large reason why other sponsors have not adopted is they just don't know a solution like this exists. We've talked about heard everyone talking about the problems of de accumulation running out of money.
▶ 0:34:00We've actually found a solution that has an explicit insurance cost and by making it the default, it puts all the participants into it and then they have their choice to retain the guaranteed income or do whatever else they want with their accumulated assets.
▶ 0:34:18Okay. Thank you, Mr. Lavine. Well, my time is up and I yield back. I now recognize uh for the purpose of questioning the witnesses uh Mr. Norcross from New Jersey.
▶ 0:34:29Thank you, chairman and ranking member, not only for what we are talking about today, but really emphasizing one of the most important decisions we make as humans. Um, as I call retirement, it is the greatest dream and the greatest nightmare. How do we save enough money for those golden years?
▶ 0:34:54Um, when I first met my wife, um, we were very young and she had a TIAA annuity. I had no idea what that I was a young apprentice electrician. We had a defined benefit program set up for us. We knew exactly what was going on. I learned very quickly what this was. She did not have ability.
▶ 0:35:19She worked for a medical system hospital and they didn't have what we were looking as a defined benefit but we found out about it but this is a great issue to talk about. I was on the joint employer the multi-mployer plan back in 2018 where we were addressing some of the issues some significant issues with the defined benefit plan. Uh luckily we were able to address that.
▶ 0:35:46But today as people are getting ready to retire and I look up here at the dis uh the ones with gray hair are the ones who are thinking a lot more about this. Uh between secure 1.0 not everybody has gray hair
▶ 0:36:01blonde hair too.
▶ 0:36:02Uh and 2.0 I know we made some terrific changes that I think will give opportunities because the earlier you invest, the better chance you have. I heard all the statistics about people who are outliving their savings. That's the nightmare. And we're not all experts. We might have a great 401 plan, but you get the sum of money and what do you do with it? We're not experts. How much do you withdraw each month?
▶ 0:36:30for those who want to take on that risk personally, great. God bless you. Go do it. But annuities do give that opportunity of a guarantee, a promise. You know what's going to come and that's why I believe there are a number of issues that you've talked about that we really can change here. This is bipartisan and I'm really glad to hear that.
▶ 0:36:55Uh I have a bill with chairman Wahlberg called the life act which makes some more adjustments in the annuity but again it's a choice for the annuity doesn't mean anybody has to take it. Uh I think the guard rails that some of you spoke of but how did we get to where we are today where there's so many misconceptions. So Mr. Clory you laid out some ideas on what we can go in the future. How do you think we got here?
▶ 0:37:19I understand years ago it was a very different world but tell us how that's changed in the last 10 years.
▶ 0:37:27Yeah. So um when I think about my grandparents and their access to defined benefit plans and their peace of mind uh we can sense uh the the safety and comfort they had. uh but for a variety of reasons costs not withstanding they've been diminishing and we've added a defined contribution plan uh in the beginning as an addition but with one going down and the other going up we have swung hard towards and we've done a good job with encouraging people
▶ 0:37:57to save uh but the time has come with 30 million baby boomers headed towards retirement that we have to now start thinking about how can we provide that lifetime income option. One quick illustration in addition to the parents point that you were making. Um we had a story the other day that the oldest check recipient from TIA was 104 years old. Uh and that interview was two years ago.
▶ 0:38:25And when we interviewed him, he concluded by saying Surya to the interviewer, I think I beat the odds. uh but having that sustained lifetime income for those many years becomes very important.
▶ 0:38:38Thank you Mr. Chopus. When we talk about what plans are available and you're 104 years old is pretty good run. Uh the idea of annuities 30 years ago and what they have transformed into obviously we want them to be affordable.
▶ 0:38:56Transparency is all great idea, but then how do we explain to the average person who's not part of a union who is laid out by fiduciaries that we hire the average person, how do they make it to the annuity and say this is a good idea. You're not going to lay out 30 different plans and have the average person. So, what can we do to help change that perception?
▶ 0:39:20But uh thank you for the question and I you know I've seen in my 30 plus years in this industry the the products continue to evol evolve the um the innovation postsecure is starting to ramp up.
▶ 0:39:35Um and there is uh there is a simplicity to how an annuity works um especially from a defined benefit plan or sorry defined contribution plan standpoint here that u that I think it is easy for our our consumers whether it's directly through their plan sponsors or through the use of a financial advisor to understand the um the straightforward a dollar amount today that turns into this amount every month for the rest of your life that you cannot running out of time.
▶ 0:40:05Thank you, chairman. I yield back and love to follow up with you.
▶ 0:40:20Thank you, Mr. Chairman. And my good friend and colleague on the other side of the aisle talking about gray hair, at least didn't mention loss of hair. So, looking at your uh full head of hair, it bothers me a little bit, but we'll let it go. Thanks to the witnesses for being here, Mr. Cullery, in in your written testimony, uh you state the greatest fear of 58% of retirement savers is outliving their assets.
▶ 0:40:48And 64% of Americans worry about running out of more than death and probably death and taxes. You have to put them together, right? If defined contribution plans do not incorporate lifetime income solutions, what are the risks that you would state for us that Americans will outlive their savings?
▶ 0:41:11Chair Walker, thank you for this question. First of all, uh we really appreciate your work with Congressman Norcross on the life act. Uh we are huge fans and supporters of it. This question about longevity, I'm very passionate about. And if you don't mind, I'm going to show you a picture. This is our latest report that we did. And the title of it is retired for how long
▶ 0:41:31which puts a focus on longevity. Now the good news is uh as humanity we have really increased longevity. In fact if I think about the last 50 years we have doubled the time in retirement. So let's celebrate that but at the same time we need to address risks. There are two risks. One is physically you could just run out of money.
▶ 0:41:53But the second is when we ask the question of survey respondents across America, they underestimate how long they expect to live. And I think it's because we dial in infant mortality into that number. Um, and so it's about 10 years. And so both the understanding of it and the actual outliving of it are two risks that I think we need to solve. And by having lifetime income in plan, I think we can address that.
▶ 0:42:19Yeah. Well, thank you. I think that type of information needs to get out more so and would give more confidence to people as well to make the right decisions.
▶ 0:42:26Thank you, Mr. uh Chopass. Uh drawing on your 33 years of uh experience in the retirement income industry, how do you think uh expanding access to annuities and defined contribution plans will ease workers and retirees concerns about running out of money?
▶ 0:42:43Uh thank you for the question. I um I think if you as we've stated we're moving away from a defined benefit world to a defined contribution world where the onus is on the the consumer or the individual. Um they are looking for protections that only annuities can provide in terms of lifetime income and downside protection and peace of mind and through secure one and through secure two and through wherever we go in the next step of this modernization discussion.
▶ 0:43:10If you just look at the some of the biggest statistics, the ones I've already quoted on the 64% of Americans more worried about running out of money uh than death, and then you couple that with a survey we saw last year that 97% of annuity owners uh feel that it will help them worry less about uh running out of money in retirement.
▶ 0:43:31To me, the the more access, again, not requirement, but the more access we have to uh lifetime income options throughout the retirement plan landscape, uh it it can do nothing but decrease consumer anxiety over running out of money.
▶ 0:43:45Yeah. More choice again.
▶ 0:43:47Of course, we want good counsel, too, but more choice gives that opportunity. Thank you. Um Mr. Lavine, uh over the last several decades, defined contribution plans have replaced defined benefit plans as you've mentioned. as the predominant type of employer sponsored retirement benefit. Could you discuss whether employer contributions to defined contribution plans are generally meant uh to be a replacement for defined benefit plan
▶ 0:44:17Yeah, thank you chairman Wahberg for the question. Um, what many employers have done, RTX included, is to replace defined benefit plan acrruels with what are called non-elective employer contributions. So, the employer puts a percentage of pay directly into the employees 401k account that was generally designed as the replacement for the pension that the company was no longer providing.
▶ 0:44:47uh employers also do offer matching contributions to uh enhance the the employees own contributions. So with the demise of the DB plans, the 401k has become the primary vehicle and with those non elective employer contributions, we can truly make it an individual pension account where the employee has their account and can take their pension from their own account and
▶ 0:45:17address the concerns about living their assets and the uh other things that we've been talking about today.
▶ 0:45:23Okay. Thank you. My time has expired. I yield back.
▶ 0:45:27Our chairman yields. Now we'll call on Mrs. Bath from Georgia for her five minutes of question.
▶ 0:45:33Thank you, Chairman Ellen and Ranking Member Dier. And thank you to our witnesses for being here today. You know, there's so much um that Congress can do to ensure that every worker is taking advantage of a retirement plan that will sustain a dignified life for themselves and, you know, definitely after they retire. And I'm one of those that thinks about that every day, too. No American should be forced to work well into their 70s or even their 80s just to feed themselves.
▶ 0:46:03But that is the reality for so many in our country every single day. Congress has allowed this to happen for far too long. And I am glad to see our bipartisan efforts to ensure that more Americans are taking advantage of employer sponsored retirement plans and that those plans are providing a good quality of life for people as they live longer.
▶ 0:46:27As people live longer and life in this country becomes more and more expensive, many workers underestimate how much they're really going to need to retire on. And when separating from a company, they must often make lifealtering decisions about lump sum worth tens to hundreds of thousands of dollars without the information that they need to make the best decisions for themselves or how they're going to make that money last.
▶ 0:46:54When implemented with strong guard rails and affordable fees, lifetime annuities help ensure that workers have what they need to retire with dignity for as long as they are blessed to remain here on Americans, you know, they work their entire lives for this moment. your dreams of retirement, wherever and whatever they might be.
▶ 0:47:18The pride of passing down some of what you worked so hard for to the next generation for your family. Spending your golden years, how you want to spend them, not how you have to spend them in order to cobble together enough money to survive.
▶ 0:47:36These things must not be taken away from someone because the entity responsible for managing their money put its own interest in profit over the person whose money they uh have responsibility for. That is not common practice, but it's exactly the type of behavior Congress must prevent when expanding access to these products. A more effective way that my Republican colleagues can support Americans in retirement is to protect and to expand Social Security.
▶ 0:48:07And this is not to be called an entitlement. It is not an entitlement. Americans pay for Social Security in every one of their paychecks. They earn it every day at work. And it is dishonest to say that it's otherwise. Using the word entitlement is a tactic to try to trick the American people into believing that your Social Security isn't really yours. They're trying to convince you that the pay that you give up every month doesn't really belong to you at all.
▶ 0:48:34That you should expect to lose those benefits that you paid your entire life for. It's an attempt to break the promises made to you and your families for generations. As we begin a new year, our country inches closer to cutting benefits for all Social Security retirees. Unless Congress acts, a typical couple that retires after benefits are scheduled to be cut in 2032, just a few years from now, will lose $19,000 in payments every year.
▶ 0:49:04Benefits that they already paid for and rely on to survive. Social Security was never meant to be the American people's sole retirement plan. But that is the unfortunate truth for almost half of our population. Almost half of working Americans have no savings at all in a retirement account, which means they're just a few years away from losing their only source of income in retirement. It is a problem that we cannot afford to ignore any longer.
▶ 0:49:35I appreciate the majority taking time to explore bipartisan solutions to ensure that every American can retire with dignity, but the most effective way to solve this problem is to save Social Security.
▶ 0:49:48I look forward to working with Chairman Wahberg and Chairman Al Allen on expanding access to retirement plans and lifetime income options as well as getting Chairman Allen's Retire Through Ownership Act through the House and signed into law by the president now that it it has been marked up and passed out of the Senate. And I yield.
▶ 0:50:14The gentle lady yields. And now I'll call on Mr. Wilson from the great state of South Carolina and my neighbor
▶ 0:50:21you're here
▶ 0:50:21across the river for his uh five minutes of questioning
▶ 0:50:25and indeed thank you very much for your leadership chairman Rick Allen and uh I'm really grateful you see bipartisanship today this is really remarkable uh with somebody we all love and respect Don Norcross leading the message of bipartisanship and then Lucy McBth backed it up and so you're uh it's real live right here uh in Washington with this in mind indeed Mr. Lavine, I I am happy to be your neighbor and I'm to the south at Columbia, South Carolina. And of course, we're adjacent to Augustus, so Georgia.
▶ 0:50:55So, uh, hey, and we love toh consider that Charlotte is the largest city in South Carolina. And so, and so, and please don't get that any more confused. With that in mind, it it really is impressive to me that uh RTX savings that uh the assets you have 59 billion, 212,000 participants. Um it has been successfully designed incorporated a lifetime income strategy investment.
▶ 0:51:24This investment has qualified for safe habit under the Department of Labor's qualified default investment alternative rules. Why aren't other retirement plan sponsors using this investment strategy?
▶ 0:51:37I'm sorry. Why haven't others started using it?
▶ 0:51:41Yeah, it goes back, I think, to the the the lack of knowledge that a product like this exists. We've uh you know where an employee can accumulate their assets and de accumulate directly from their account with that backing of insurance that will continue to pay for life. Most people think of annuities as giving up an exchange uh giving up their assets.
▶ 0:52:08And I I think it's it's it is the lack of knowledge and it's I think helpful to have discussions about this to let others know that products like this exist and we've made it very simple for employees by making it our default investment option
▶ 0:52:25and and I'm very confident uh that Dr. Re is going to educate people on this issue. So I it's it's really impressive to have everybody here today and Mr. Chopus, this committee in Congress has taken steps to encourage lifetime income and define contribution plans, including providing clarity of fiduciary rules and fiduciary safe havens and annuity selection under the pension protection act of 2006 secure act of 2019.
▶ 0:52:51What other steps can Congress take to ensure lifetime income and define contribution Uh well I think the uh to to the question and also um next steps on u the fiduciary safe harbor the secure act did allow plan sponsors to rely on state commissioners for certification around the company but not necessarily the product and we've worked hard um and believe Congress can boost confidence on that front.
▶ 0:53:19If the clarification could come out that also uh indicated that it covers u the product as well, I think at this point that clarity would certainly spike the amount of lifetime income products being used in divine contribution plans.
▶ 0:53:32Thank you very much and indeed Mr. Clurry, thank you for promoting lifelong financial security. As the past chairman of the India caucus, I particularly appreciate your heritage. Uh, additionally, I appreciate as the current uh K Korean caucus chair, Miss Dr. Ree, hey, it uh it's exciting to see the people who are here today and what a contribution you make to American society.
▶ 0:53:57With that in mind, uh it's uh reassuring to see the bipartisanship and respected leaders like Chairman Tim Wahberg and Congressman Don Norcross with the Life Act. And so what would be the strongest argument that we can make and presentation we can make to promote this bipartisan legislation?
▶ 0:54:17Is this director?
▶ 0:54:19Uh thank you for the question. uh I would say with all the discussions that we've had so far uh the fact that it's a very complicated decision to make to have a lump sum and figure out what do I want to do to buy a car is difficult to make a decision on a a sum of money that's we have safer retirement is even more difficult so to make it easy providing uh what the department of labor can do a tips sheet to plan sponsors to say here are your options and here's the merit
▶ 0:54:49and demerit of each of these options options for your circumstance and providing both education and the choices at retirement I think is going to be very helpful that fits nicely into the life act construct.
▶ 0:55:02Well, it it really is exciting and I'm glad you brought up about buying a car. Um people need to know in the big beautiful bill that President Donald Trump successfully uh achieved uh the um in the uh interest on the car payment now is deductible. something that uh is appealing to many of us and so thank you for your presentation and I yield back.
▶ 0:55:25Uh I thank the gentleman for yielding. Uh we have a uh classified briefing uh here that's scheduled uh shortly. So pursuant to the previous order, the chair declares the committee in recess subject to the call of the chair. I apologize for to the witnesses for this u uh but we'll plan to reconvene promptly after the briefing uh that many of us here need to attend.
▶ 0:55:56The committee now stands in recess.
▶ 2:44:15Hallelujah. Hallelujah.
▶ 2:47:37Uh the education and workforce, health, employment, labor, and pensions subcommittee is back in order. Uh I recognize myself uh for five minutes. Well, thank you to all the witnesses for being here today. We apologize for the interruption. Um I want to start um with you, Mr. Lavine.
▶ 2:47:57Um of course, as you know, the retirement industry, the Trump administration, Congress, and this is a bipartisan effort, I believe, have made efforts to promote and enable Americans to save for retirement through 401k plans. Um, RT RTX has of course, as you testified, developed a way to incorporate the security of a lifetime pension into its 401k plan called the lifetime income strategy.
▶ 2:48:23The Department of Labor recently issued an advisory opinion uh September clarifying that lifetime income, the lifetime income strategy is a qualified default investment alternative or QDIA. I wanted to follow up on on some things you said in your testimony. Um the I wanted to clarify um you you said there is no uh universal exchange of assets within your within that plan.
▶ 2:48:51Um I think I know what that means but I'll could you explain
▶ 2:48:56Sure. Thanks uh for the question. Yeah. So there's no irreversible exchange of
▶ 2:49:04irreversible. I can't read my own handwriting. Right. which mean you know that that people typically think of when they're purchasing an annuity. You hand over a pot of assets to the insurance company and in return you get the guaranteed income.
▶ 2:49:19With lifetime income strategy,
▶ 2:49:21the income actually comes out of your own account and you still have full access to that account. the insurance doesn't kick in until you've depleted your account and then what's called a guaranteed lifetime withdrawal benefit would step in and continue to pay you if once you have depleted the assets in your own account.
▶ 2:49:47So I think that probably resolves a a few concerns people sometimes have about annuity. one is that I mean if you look at the stock market the last 12 months um you know probably outperformed most annuities um so if you're drawing down on your own 401k assets which you know would be a mixture say of stocks and
▶ 2:50:09that's right
▶ 2:50:10that might have a a better return
▶ 2:50:12it does in fact yeah that that's quite astute it's how how this really works the the assets are in a 60% equity 40% fixed income portfolio while you're in retirement. And that's I'm saying 60 equity 40 portfolio higher grow because the insurance is in place. That's a higher growth exposure than most people would invest in during
▶ 2:50:39Yeah. Usually considered higher risk, but that's right. Not because of the the annuity component.
▶ 2:50:44Exactly. So there is a high probability that your account balance will continue to grow in retirement and each time it does a new high water market set and your payout rate goes you know uh applies to a higher amount
▶ 2:51:01and I think that perhaps you know alleviates amilarates another concern people sometimes have about annuities which is fees in fact um I think it was page six of of your testimony Dr. three where where you have a graph of return return or total value of of one's retirement assets compared to fees based on fees. Obviously higher the fees the less you benefit.
▶ 2:51:29But if you're only annuitizing to to uh take care of longevity risk and you're drawing down 401k more conventional assets first I would think that would help to minimize the the fees the costs of the annuity component.
▶ 2:51:47Yeah. So so within that 6040 portfolio there the insurance fee is part of the expense ratio.
▶ 2:51:54Right. Right. So it is baked in there and so um the returns but again we we believe it's it's a higher return than a typical portfolio because of the higher
▶ 2:52:05growth exposure covers essentially covers that insurance fee
▶ 2:52:10and you still get return in excess of the insurance fee. And how do those that how does do those expense ratios compare to traditional 401ks that were maybe just just still parked 6040 or 4060.
▶ 2:52:25Right? So this was probably the biggest uh consideration and concern we had when implementing lifetime income strategy because most of the other investment options in our 401k plan have very very low fees. They're you know we're a large plan. You know we can get very low fees. the insurance fee, you know, when the participant gets to retirement age, the insurance fee fully kicks in and it's over 1%.
▶ 2:52:54Um, and that's that's a a large fee compared to our other investment options. And that was the biggest thing our council internal and external needed to get comfortable with. Yeah.
▶ 2:53:05That this fee is supportable by the value that participants get from it.
▶ 2:53:10Taking care of the longevity risk. Yes. Okay. Well, thank you very much for your testimony. Um, I'll I'll now recognize ranking member Scott from Virginia for one minute for five minutes.
▶ 2:53:22Thank you. Thank Thank you, Mr. Chairman. [clears throat] Um, we've heard a lot about the percentage of um workers who are covered or participating in in plans. We haven't heard much about and it's somewhere around a half, but we haven't heard how many are in plans and have enough of a fund balance to actually retire on. Um, if you use that as a standard, maybe enough to generate about twothirds of your salary for life.
▶ 2:53:52What portion of people have sufficient retirement plans?
▶ 2:54:02Is that for me? Sure.
▶ 2:54:04Yes. Okay. Um, so, uh, I just ran some numbers last night looking at the proportion of of seniors or those approaching retirement who have an account balance of more than a 100,000. Let's say say it this way. Among people approaching retirement, um, uh, about 75% have a balance less than 100,000. What?
▶ 2:54:33$100,000 will get you in terms of annuity income at age 65. I you know I don't want to overstep with the actuary on the panel, but if you were to say um that's not going to that's not going to replace u enough on top of social security to get you anywhere near twothirds replacement rates.
▶ 2:54:53Um that'll give you a few hundred. When we talk about um annuity security, uh these annuities are protected, backed up by insurance companies so that you really have security. These companies aren't going to go bankrupt.
▶ 2:55:07Um I think there's this is where I think there needs to be guard rails which is the strength of the insurance company um in terms of their financial standing. But not just that um the right now the insurance companies are backed by state guarantee associations and those also have a lot of differences in terms of how much of the the promised benefits are protected. So I do think that in that regard Congress would need to set some standards um in terms of not only
▶ 2:55:37that's something we need to look into.
▶ 2:55:38Yes. Yes.
▶ 2:55:39Okay. Now obviously benefits of annuity are stronger than you know people would rather have the guaranteed income than no guaranteed income but the chairman just mentioned the little fly in the ointment. You pay more for annuities significantly more. And we had one suggestion that you ought to be able to start investing in annuities from the beginning and presumably be paying higher fees all the way along. That doesn't seem like a good idea.
▶ 2:56:10Um but um how do we compare uh apples and apples so that we know if you've got a retirement fund, how is that comparable? What do you get in terms of annuity? And um I think you were just talking about can you do as well just leaving it in there and taking out a little bit? And I think this is where I raised the issue. There are so many different kinds of annuities.
▶ 2:56:41There are good products that are more transparent in pricing and there are other ones where um it could often [snorts] be hard to tell how much upside you're giving up. Um and there just needs to be stronger standards in that regard. Um I do think that it is fair to pay extra for the guarantee. Um but I also have a question.
▶ 2:57:01You pay to pay a higher fee. I it it's the fact that you know typically the market um will ask a certain price for in return for absorbing risk and that will fluctuate over time depending on how fixed income you know bond markets are doing. Um I will just stop there.
▶ 2:57:21Okay. Um well what is you can do this anyway. What does Congress need to be So, one thing I think that would be helpful, um, you know, we talked about these fees and having something that has higher fees involved with it raises the fear of litigation among plan sponsors that if we put in something that has higher fees, we'll
▶ 2:57:51face uh a lawsuit saying you're you're providing giving us something that has high fees. So if the you know standards of bringing litigation could be raised uh or made clear that these types of products um okay to offer
▶ 2:58:12with unlimited fees
▶ 2:58:14with the yeah with
▶ 2:58:15with unlimited fees
▶ 2:58:17with unlimited fees. I would
▶ 2:58:20what you want?
▶ 2:58:22No, not there reason limited fees but um you know as I explained to Mr. Andre in our product
▶ 2:58:31the fee
▶ 2:58:33pays for itself by allowing a more uh aggressive investment allocation which uh
▶ 2:58:41which you could have done on which you could have done on your own. you the problem with doing it on your own without the insurance is that you're taking a lot of risk. Um and so if investment markets do decline then you have no income to draw on in retirement. Whereas if you embed the the fee into a more aggressively invested portfolio, you still get all the upside.
▶ 2:59:09uh and and and what we've shown is that the net of fee return is similar to what an uninsured portfolio would get.
▶ 2:59:17Thank you. Uh the chair next to recognizes Dr. Fox from North Carolina.
▶ 2:59:24Thank you very much, Mr. Chairman, and I thank our [clears throat] witnesses for being here today. Uh Mr. Chapas, the insured retirement institute have suggested Congress should require defined contribution plans to offer an investment alternative that would provide guaranteed lifetime income as workers save for retirement. That's one answer to Mr. Scott's question.
▶ 2:59:50What benefits would an annuity investment option offer participants as compared to other investment alternatives traditionally offered by defined contribution plans?
▶ 3:00:01Right. Thank you for the question, Dr. Fox. Um, I think what's clear is consumers are seeking choice and seeking optionality. Um, twothirds of individuals between the ages of 65 and 70 don't think that they can confidently retire during that time frame. So with additional choice uh which is what we're talking about here today and modernizing the structure as we go forward comes additional outcomes and better outcomes for consumers.
▶ 3:00:25They're already comfortable with their defined contribution plans and have a relationship in many cases for decades uh within those plans. The ability now to convert some portion or all of that portion to guaranteed lifetime income that you can outlive to be protected from market downturns. um to get a check every month for the rest of your life brings uh an immense peace of mind that uh that didn't exist in this form uh years past and and I think uh we still have ways to continue to move that
▶ 3:00:56Uh my friends will tell you I'm very keen on what kind of language to use. So is optionality the same as options?
▶ 3:01:05Optionality and the way I'm using it is u pertains to choice.
▶ 3:01:10Choice. Okay. Okay. Um, okay. So then I've never heard that word optionality, so it's a new word for me. Uh, Mr. Kari, you've suggested that Congress should require defined contribution plans, offer participants a menu of payout options that includes guaranteed lifetime income solutions.
▶ 3:01:33Annuities are a type of guaranteed lifetime income that eliminate longevity risk and market volatility risk. How does requiring a payout option in a retirement plan differ from requiring an investment
▶ 3:01:48Dr. Fox, thank you so much for asking this question because part of the progress we need to make is we're shifting from saving for retirement to withdrawing money while we're retirement. So, we're ch we need to change the language. We need to change how we're approaching it. And so your question about investment options versus withdrawal options is very important. So investment options, the way I think about it is when I'm saving, I have some choices. I could put it in equities.
▶ 3:02:19I could put it in fixed income. I could put in a target date fund. I have all these choices. I get to retirement and what am I left with today? I'm left with I need to take this lump sum and decide on my own what to do. Instead, if you can provide some options in the same way that we had during accumulation, uh it could be uh a a a withdrawal, it could be a lifetime income, uh it could be uh a variety of choices like that that are in the plan that allows people to make the second set of options.
▶ 3:02:49So the we are again talking about choice but choice both going up while we're saving and choice coming down while we are withdrawing. So that and then my last thought is within the word ORISA, we have I, which is income. So, we're finally at this stage talking about introducing the I back into Orisa with these choices.
▶ 3:03:12Thank you, Mr. Lavine. I understand the RTX retirement plans lifetime income solution offers both a guaranteed lifetime income investment option and a lifetime income payout option. Why in your view is a lifetime income solution important as both an investment option and a payout option for plan
▶ 3:03:38So it it goes I think right to exactly what Mr. Clary was just saying. We allow people through lifetime income strategy to accumulate uh as they would within the 401k plan investing in a target date fund and then at retirement their option is is right there. Uh they can turn on that withdrawal and continue and know it will last for a lifetime. But they don't have to. They have the choice.
▶ 3:04:06they can they've built up a balance which is comparable to what they would have built up even if they didn't have the insurance. So, we're allowing participants to build a balance that's just as big, accumulates just as much if you didn't have the insurance, but gives you that choice of a payout option to take it or take your account balance and move it to an IRA and do however you please with it. [snorts]
▶ 3:04:33Thanks. And I'd like to offer an answer to Mr. Scott, although he's not here when he asked, "What does Congress need to do?" as little as possible.
▶ 3:04:45Thank you. And the chair next to recognize is Mr. Tano from the great state of California.
▶ 3:04:53Thank you. Yes, we are a great state. Uh thank you, Mr. Chairman. Uh Dr. Ree, maybe others on the panel. At what point does this question of of de accumulation and lifetime uh income become relevant? How much do you have to have saved to actually have this be a problem for you?
▶ 3:05:19Is it $20,000? Is it 50? Is it h 100,000 as you're facing this issue? Are we talking more like a half million or a million dollars that it really becomes a significant issue? Um so I will start with that.
▶ 3:05:32Um [clears throat] I would say that you know uh it really depends on your overall portfolio but if you say you have some you know other assets um home equity you don't have a p defined benefit pension and you have social security you would still need I would say something in the order of at least $100,000 to really start thinking about taking a portion of that. The issue is that there there's other costs in retirement.
▶ 3:06:00One of the most overlooked ones is medical and long-term care.
▶ 3:06:04Well, long-term care is a separate
▶ 3:06:07Yeah. But what I'm saying
▶ 3:06:08and I have questions about how we make that happen, but I'm just trying to get to this question of how many Americans is this a problem for of you you accumulate a certain amount of money that you are thinking about annuitizing um either through a program that is at Mr. the Vines Corporation uh or not. But it seems to me that 20,000 doesn't make I mean, if you're like most Americans, maybe you own a home, maybe you don't.
▶ 3:06:38Uh maybe you've worked in a job uh a public public employee job where you have a maybe you work for a union, work at the union. They often have defined benefit payout plans. I guess the point I'm trying to drive out here is most Americans are struggling to even just save it all. And those that do save, the average amount is what, like I I thought I heard earlier in some of the testimony, maybe Is $20,000 worth this agonizing over
▶ 3:07:08Um definitely not. Um so why because
▶ 3:07:13So let me um start. So there's about 150 million workers covered by Social Security today,
▶ 3:07:18right? Um, I would say right now there's maybe about five million workers who have enough to actually start thinking about annuitizing and maybe they have something around $100,000
▶ 3:07:315 million workers out of in America
▶ 3:07:33out of about 15
▶ 3:07:34for whom anitizing is really an agonizing issue. So for most America, I mean this is a very elite topic. We get accused of being elitists in this institution. Democrats and and and and colleges and universities where you know on the side of but this hearing is really focused on a very elite problem my god are we going to how much fees are we paying?
▶ 3:08:02I mean most Americans don't really understand about the fees that might go into an uh do you put a million dollars into that annuity and get a guaranteed income? This is a very elite conversation to have because most people aren't going to even have that conversation, right?
▶ 3:08:23Definitely not.
▶ 3:08:24Most people, the vast majority of Americans are not going to have this problem because we're talking about the percentage of Americans that have $250,000 saved for retirement.
▶ 3:08:34It's a very small.
▶ 3:08:35It's very small. So annuitization is just this it's it's a problem for people who have at least maybe $100,000 saved and most Americans don't even have that saved. Would you say?
▶ 3:08:48I think the bigger problem for us here in this room and in Congress is we have a huge nation of people who are facing retirement only with social maybe a little bit of equity in their And this is the underlying anxiety of and a huge political problem for us all. They thought the American dream was going to pay out for them and it's not.
▶ 3:09:19They're not facing a dignified And I would suggest to the chair, the former chair is not here that this is a problem for Congress to deal with. How do we help Americans avoid this problem of having just a meager amount of money to live out in retirement? It's not enough. It's not enough to pay the rent. You can't live on social security and pay the rent. You need more than social security, but most Americans are not getting there.
▶ 3:09:51That's the problem. I yield back.
▶ 3:09:54Thank you, Mr. Tano. Um, the chair next recognizes Mr. Manion from the great state of New York.
▶ 3:10:04Thank you, Mr. Chair. Thanks to all of our witnesses today for being here and your testimonies are uh detailed and appreciated. Um and I think we can all agree that uh there needs to be greater attention on what we're talking about today and that's why this is an important session. But challenges that are facing retirees um are real and uh what we're talking about today is helpful and I hope that I can work with my colleagues to find bipartisan solutions.
▶ 3:10:33In recent years, there's been a growing interest in um lifetime income strategies, including annuities, within 401k plans that can help more people achieve retirement security. I believe all workers should have the access to options that best align with their financial goals and needs, helping them enter their retirement years with confidence and uh educated um decisionmaking, you know, having that background.
▶ 3:11:00Over the years, the steady decline of defined benefit or pension plans has created real challenges and shifted more risks and responsibilities onto the workers. Some of the information regarding annuities can be intimidating to people who are not financial planners or proficient in the understanding of how these things work. For generations, pensions have provided workers with predictable lifetime income in retirement.
▶ 3:11:29And they still do for many, particularly those in the public sector and union represented employees. As a former teachers association president, I represented educators who cared deeply about having a secure defined benefit retirement. Later, as a state senator, I worked to help frank strengthen public retirement benefits in New York.
▶ 3:11:50And for years, there was a system that asked younger teachers to contribute more out of every paycheck only for to receive a reduced pension benefit upon reaching a later retirement age. That imbalance was neither fair nor sustainable and we made progress in improve improving it. But this is after a tremendous negative impact on teacher recruitment and teacher retention.
▶ 3:12:19The teachers I represented saw the value of predictable income at the end of their career and fought hard to protect it as did I. I'm encouraged to see that shared sentiment in today's discussion of lifetime income products. I'm encouraged to see that and hope to find bipartisan solutions that include appropriate transparency and safeguards. Few questions. Um first, my first question is for Dr. Ree.
▶ 3:12:43Um while it's unfortunate in my opinion, uh that fewer and fewer workers are being offered a traditional defined benefit plan by their employers. It is my understanding and my experience that unionized workers typically uh have them or there's a higher percentage of union workers that have them.
▶ 3:13:05Can you talk about the advantage of being in a union as it relates to that, but also uh with our the other folks that are testifying here? Uh how unions have navigated through this and assisted their members along with uh they're also employees in uh in determining what best works for them.
▶ 3:13:27Great. Um thank you for the question. Um so just overall uh the in terms of the remaining coverage for defined benefit pensions in the US which is an relatively stable over the last decade um is on the one hand public sector um and on the other hand mostly unionized sectors like the trades.
▶ 3:13:50Um, so obviously unionized workforces tend to have just better benefits and pay overall than non-union workers, including being much more likely to have defined um benefit plans. They also have a positive impact on um state level labor policy and higher standards for all workers. Um I would say that unions have fought really really hard to maintain defined benefit pensions at the bargaining table because they know how much it matters to their members.
▶ 3:14:18defined benefit pensions are just simply more efficient um than 401ks for delivering retirement income. Um you know there are no profits. The the annuities are priced perfectly right to the actual workforce. That's part of how you run a pension plan.
▶ 3:14:35Um and and it's been you know and I noted that um with the UAW strike for instance with auto workers um you know one of the demands that they didn't wind up winning on but more and more unions are actually starting to think about how do we get defined benefit pensions back if they had to give it up recently um and what's happened is that in a lot of cases as they've switched over to 401ks um there's been a both reduction in employer contributions and the passing on of risk and so a lot of workers have not done well
▶ 3:15:06in that system when they've been transitioned over to 401ks.
▶ 3:15:10Thank you. Thank you to everyone who testified today. Certainly very informative for me and appreciated as we navigate towards the future. Thank you so much, Mr. Cherry. Yield back.
▶ 3:15:23Uh thank you the gentleman for yielding. Now I call on our my friend, our ranking member, Mr. Sier, for your question.
▶ 3:15:30thank you, Mr. Chairman. And uh for Miss Fox, I looked up the definition of optionality and it is the quality of being available to be chosen but not the obligation. So I'll share that with her more. Um Mr. Chis, you had a wonderful line that I didn't write down quick enough in your testimony about um how people are making the choice just to pay their bills as opposed to I wrote the word longevity, but I could you just repeat your choice of words? Um,
▶ 3:16:00so I get it right.
▶ 3:16:01Was it the mailbox money com?
▶ 3:16:03No. No. Prior to that you were just talk, which all of you have talked about in various forums about consumers are making choices, but they're not real choices because they've got to decide whether they pay for their health care, um, whether they put more money into retirement, whether they put more money into child care. So, it's not my questions are driven by wages because you have to have people making enough to contribute enough. Um, but in addition when in this instance, you've really got to be able to have that real choice.
▶ 3:16:33So, you had an interesting terminology about paying your bills versus mortality. I
▶ 3:16:38I Yeah, I think it was that 64% are um more afraid about living their income than than death. I think what I covered and I also point out that statistically um annuities are in many cases uh middle- inome household products, right? The average um the average income of an annuity holder is $76,000 and I believe 70% of all uh annuity purchasers make less than 100,000 a year.
▶ 3:17:06So what they're they're using that for the predictable lifetime income stream. Uh but your point is well taken that is to to cover any of a myriad of potential monthly expenses. uh they've just put that predictability and that lifetime guarantee piece behind as they determine how you know to respend that lifetime income check.
▶ 3:17:24So if you're a small business owner, which I used to be, used to own restaurants, thin margin, um you make choices to get good employees to offer benefits, healthcare, 401ks, it becomes also a challenge to the the small business as well in terms of liquidity and attracting a good workforce.
▶ 3:17:42I think I can't speak to that as it's that's not my specific background, but I do know um highly competitive defined contribution plans with lifetime income streams attached to them are ways to attract and retain u key workers as you move
▶ 3:17:57But it goes back to your observation that you've all shared in various forms. This is a choice. So you get how are you going to pay your bills every month when you get that number from the Fed that almost half of the American public is $400 away from an unexpected expense to being overdrawn in their bank. Uh Dr. Reed, thanks again for being here. Uh talk a little bit more about the numbers I mentioned earlier about just the concentration of investment.
▶ 3:18:23I mean it makes sense capital well spent getting returns. If you got more money you make more money. But that choice part and um how difficult it is when your wages aren't keeping up. But it's also one of our one of our measurements is dated. Well, a lot of our economic measurements are dated. Wages are great.
▶ 3:18:44You have to bring them up to have people be able to contribute as you've said, but the challenges of mixing all this together that this your retirement decisions aren't in isolation because the theory of be of choosing is fairly limited for most Americans. you're paying your month-to-month bills,
▶ 3:19:06Um, so as I mentioned in my written testimony, um, American productivity has about doubled over the last few decades and workers have captured a smaller and smaller share of that and wages in the bottom and middle have basically been flat.
▶ 3:19:22Um and so I think what a lot of households are facing is that um kind of costs like housing and health care and also education have gone up um and their income is falling behind and the consumer price index just isn't adequate to to um actually capture the impact of that in terms of what's happened with sort of some of the larger components of the cost of living over time.
▶ 3:19:45Um so what I see is that for instance in the Cal Savers program you know we saw in um most 401ks that if you do auto enrollment you get a 10% opt- out rate. What the state autos are experiencing is 30% opt outs and sometimes even higher and a lot of cash outs. And what that reflects is the economic reality of the low wage workforce that these programs serve. um uh people feeling like they just can't even afford a 5% deduction out of their paycheck.
▶ 3:20:16Um and also um that there's a lot of turnover and people cashing out of accounts and we saw a lot of that during you know the recent um the COVID pandemic and the economic impact on on workers was that they withdrew more and more from their accounts. So, I do think that for for the vast majority of workers, um, having enough really being able to share enough of the nation's prosperity to be able to actually save for retirement is a
▶ 3:20:44Thank you, Mr. Chairman. I yield back.
▶ 3:20:48I [cough and clears throat] thank the gentleman for yielding. And, uh, now I'd like to recognize the ranking member for your closing remarks.
▶ 3:20:55Thank you, Mr. Chairman. Just following up um since I'm talking to a fellow Californian who lives in a high-cost area. The other challenge is for people in high-cost housing areas. We talked about the other cost, but so many people are living on the equity of their homes in urban areas and where 65% of the GDP is from. So when you're looking at retirement in its totality, it's uh it's really a scary moment to continue this. Mr. Chairman, again, thank you.
▶ 3:21:24And I think this is an opportunity for us to work together to a more efficient, safer um retirement system for the country that allows people to really have a choice. Uh but we've got a lot to work on and we're more than anxious to work with you to do as much as we can as soon as we can. So for millions of workers across the country who are struggling to feed their families and afford the cost of day-to-day life, as I've said, let alone save for retirement.
▶ 3:21:51Unfortunately, this administration and my Republican colleagues sometimes have not been very helpful in lowering the cost of living. Affordability is important right now in politics, and here's a chance for us in Congress to demonstrate on this issue about affordability and, pardon the expression, return on long-term investments. Instead, prices are too high right now. Healthcare premiums are skyrocketing and wages have stagnated.
▶ 3:22:17To make matters worse, the current retirement system is having leaving many workers behind and may have many more to leave behind if the investors in AI technology get what they want Two out of five working age households have no 401k or IRA assets in the United States. Retirement security goes handinand with workers wages and their ability to choose.
▶ 3:22:41If we want to fix America's retirement system and forge an economy that works for everyone, for all Americans, Congress must take action, with all due respect to my friend from North Carolina, uh to raise the minimum wage, empower workers ability to collectively bargain for higher wages, benefit better benefits, and better workplaces. Well, I appreciate today's discussion and look forward to a future working collaboratively in these bipartisan conversations.
▶ 3:23:08Uh, while we can ensure that workers retire with dignity and financial security, I also want to remind my colleagues that it will be a challenge, but it's a challenge that would be well worth it for us to take up in a bipartisan fashion. Thank you, Mr. Chairman. I yield back.
▶ 3:23:24I thank the gentleman for yielding. Again, I want to thank our witnesses. again apologize for the uh break but uh it was important that we get down to that hearing and so thank you for hanging with us uh today. Uh obviously uh we got challenges uh you know a lot of this came up under the previous administration where we experienced over 20% in uh collective uh inflation over that 4-year period.
▶ 3:23:54We hadn't, believe it or not, if you were born after 1982, you had never seen inflation in this country. And all of a sudden, young people, retired folks, and everybody's waking up saying, "What in the world And I'm going to tell you, uh, and I welcome my uh, Democrat friends. I can tell you the Republicans are working very hard and so is the administration trying to get these prices down. If you've been to the gas pump lately, it's about $1.99. and not in California.
▶ 3:24:24Uh but in Georgia, we're at about $1.99. Y'all got to figure it out in California. And uh it's a lot less expensive to live in Georgia, by the way, than is California. And a lot of your folks are moving our way. So uh but we are the best state to do business with in in the last uh 10 years. So we experienced phenomenal growth and hopefully we can get we can continue to do things the right way.
▶ 3:24:46Uh, you know, with over 121 million participants and $8 trillion in assets defined contribution plans, they play a significant role preparing American workers for retirement. Maximizing retirement savings with a view toward providing a steady income stream during retirement is a goal that is, as our ranking members shared, it's collective.
▶ 3:25:07I mean both uh we want to see folks uh in those golden years uh uh be able to have the confidence that they can pay their bills. Uh I'll never forget my mother. She made me promise one bill that was in dispute that if something happened to her regardless of how much money that I would pay the bill and I told her I would do it. That's how committed she was to paying off debt.
▶ 3:25:35But uh the committee understands the need to build and on the defined contribution plan system and I think we can do that. We've heard a lot of great ideas from our our panel today and uh we just need Congress we need to get our arms around that and uh with your help uh uh get this thing uh through the House and the Senate and then get it to the president for signature. Uh we heard from our witnesses today that today's workforce may benefit from additional and more flexible payout options.
▶ 3:26:06Um again, thank you for that information on certainly defined contribution plans. Uh defined contribution plan participants and retirees will benefit from investment and payout options that manage longevity risk and market uh fluctuations in their retirement years. And that's important. Committee is committed to promoting and protecting a secure retirement for American workers.
▶ 3:26:29We've made a lot of progress over the years with security act and other things and uh uh we will continue our work with your help. And with that uh the me yes
▶ 3:26:41chairman just I I missed one thing. I'd ask unanimous consent to enter into the statement the following statements. Uh one from the United Steel Workers, one from Fidiciary Path and Kathleen McBride, one from CFP board and one from
▶ 3:26:57Without objection. Thank you sir. Okay with that we will adjourn. Thank you very much.