Sen. Bob Casey, chairman of the Senate Special Committee on Aging
Calling the state of retirement security a “critically important issue,” Sen. Bob Casey (D-PA) led a Senate Special Committee on Aging hearing Thursday focused on helping those “left behind” by the system.
Casey, the committee’s chairman, said that although all Americans hope to enjoy retirement on their own terms, the reality is that “too many seniors are barely able to make ends meet” because the retirement system allows millions of Americans to fall through the cracks.
This reality has ramifications for senior living operators, who primarily rely on private funds from individuals for revenue. And it is a reality that operators increasingly are trying to meet by finding ways to serve older adults who can’t afford to live in many existing communities.
Protections to strengthen Social Security — the “bedrock of our retirement system” — and support for home care workers through higher wages, Casey said, are key components of the Better Care Better Jobs Act.
Highlighting gaps in the nation’s retirement system, hearing witnesses spoke about the effects of career disruption and lack of access to employer-sponsored retirement plans. But they also discussed ways to improve on the bipartisan Setting Every Community Up for Retirement Enhancement Act, signed into law in December 2019. The SECURE Act increased the start-up credit for small employer retirement plans, repealed the maximum age for traditional individual retirement account contributions, and established provisions to cover long-term part-time employees.
6 areas for policy focus
Although the national retirement system works well for those with stable employment, sufficient income and opportunities to save, policymakers should focus on those for whom the system does not work, said hearing witness Shai Akabas, director of the Economic Policy Project at the Bipartisan Policy Center.
Akabas highlighted six areas for policy focus: improving access to workplace retirement savings plans, facilitating lifetime income options, enabling the use of home equity for retirement, improving financial capability, strengthening Social Security, and promoting personal savings for short-term needs and preserving retirement savings for older age.
Retirement security can and should remain a bipartisan issue, he added.
Holistic approach needed
Hearing witness Nari Rhee, Ph.D., director of the Retirement Security Program at the University of California at Berkeley Center for Labor Research and Education, said that a holistic policy approach that includes wage policy, Social Security reform, tax policy and a universal retirement savings system is necessary to ensure financial security for all workers.
The current employer-sponsored retirement savings system, she said, omits many employees, including direct care workers, who toil in predominantly low-wage jobs. This reality, Rhee added, poses special challenges for women, given their disproportionate caregiving responsibilities for children and aging parents, due to foregoing pay, a lasting pay penalty and a significant cumulative reduction in potential lifetime earnings.
“In addition to the gender pay gap, many women find themselves having to withdraw from the labor force or reducing paid work hours in order to care for children or aging parents, which results in interrupted or truncated careers,” she said. “And an aging population means an increased aggregate need for caregiving that falls on women’s shoulders.”
Access to workplace plans absent for many
Workers face a variety of barriers in saving for retirement, including working at small firms, working part-time or in lower hour industries, and lacking access to workplace plans due to being nontraditional workers, said hearing witness John Scott, director of the Retirement Savings Project at the Pew Charitable Trusts.
Unemployment, disability and caregiving responsibilities also suddenly can disrupt the ability of workers to save for retirement, he said.
John Scott relayed several “promising ideas and initiatives” that could have implications for policymakers, including pooled employer plans and state auto-enrollment in individual retirement accounts.
Auto portability could prevent account ‘leakage’
The most important improvement needed is to help workers preserve their savings when switching jobs or facing career disruptions, said hearing witness J. Spencer Williams, founder, president and CEO of Retirement Clearinghouse.
More than 30% of all participants in employer-sponsored retirement plans — and almost 50% of minority participants — cash out their retirement savings when they change jobs, he said, adding that the savings lost add up to about $100 billion annually.
The committee’s ranking member Tim Scott (R-SC) called that “leakage” — when employees cash out or lose accrued retirement savings, leaving them fewer dollars when they need it the most.
Williams advocated for auto portability, technology that allows a person’s account to automatically follow him or her from one employer’s plan to the next. The Employee Benefit Research Institute estimates that auto portability could preserve about $1.5 trillion in additional retirement savings over a generation, he said.