“Expensive long-term care” as well as longer life expectancy, increasing healthcare costs, lingering effects of the 2007-2008 financial crisis on home values and the shift from pensions to 401(k)s are contributing to a $7.7 trillion gap in what Americans need for retirement and what they actually have saved, Sen. Susan Collins (R-ME), chairwoman of the Senate Special Committee on Aging, said during a Sept. 7 hearing on financial security in retirement.
The hearing’s two witnesses were former Sen. Kent Conrad, who also formerly chaired the Senate Budget Committee, and James B. Lockhart III, former director of the Federal Housing Finance Agency, deputy commissioner of the Social Security Administration and executive director of the Pension Benefit Guaranty Corp. As co-chairs of the Bipartisan Policy Center’s Commission on Retirement Security and Personal Savings, they shared with committee members the recently released set of recommendations to improve retirement security for Americans that 18 of the commission’s members arrived at after two years. Among them:
- Create so-called retirement security plans that would enable businesses with fewer than 500 employees to offer automatic-enrollment retirement plans for employees.
- Encourage other employers to automatically enroll employees in retirement and short-term savings plans.
- Reform the Treasury Department’s myRA program by enabling employers to automatically enroll employees and make contributions on behalf of their employees if they so choose.
- Eventually establish a national minimum-coverage standard that would require all businesses with at least 50 employees to offer their workers some form of workplace retirement savings option.
- Create a “starter saver’s match” — a refundable credit of up to $500 deposited directly into claimants’ retirement accounts — for individuals aged fewer than 35 years.
- Create a retirement security clearinghouse to help people consolidate their retirement accounts.
- Remove the deduction for interest on second mortgages and other lines of credit that reduce home equity before retirement, to discourage the use of home equity for pre-retirement use. (Conrad said this recommendation was the commission’s most controversial, whereas the recommendations related to Social Security were the most important.)
- Expand awareness of Federal Housing Administration-insured reverse mortgages and establish a low-dollar reverse-mortgage pool, allowing retirees to tap into a smaller portion of their home equity without incurring the large fees that accompany larger loans.
- Expand personal financial education in kindergarten through college.
- Improve Social Security benefit statements so that they more clearly reflect projected benefits and the how they are affected by the age at which they are first claimed.
- Gradually increase the payroll tax rate for Social Security, raise the amount of income subject to Social Security taxes and slowly raise the full retirement age.
- Increase Social Security benefits by 35% (compared with what is currently scheduled, and by 65% compared with what is currently payable with projected trust fund revenues) for the 20% of beneficiaries with the lowest lifetime earnings.
- Allow a surviving spouse to keep his or her full Social Security benefits plus three-fourths of the deceased spouse’s benefits.
“We are encouraged that the issues of savings and retirement security have attracted bipartisan interest among business leaders, the media, members of Congress, the administration, and the states, as well as from candidates seeking public office,” Conrad and Lockhart wrote in prepared remarks. “We hope that our work can inform these efforts and can contribute to meaningful action by individuals, businesses, and governments to improve retirement security in the United States.”
Conrad told committee members that the recommendations are meant to be implemented as a package, not on a piecemeal basis. When asked how Congress might find bipartisan support for the ideas, Conrad said that businesspeople with whom commission members met supported the ideas once they were explained in detail.
Although Collins and others have cited long-term care costs as a contributor to Americans” retirement saving challenges, Conrad said that the BPC Commission on Retirement Security and Personal Savings purposely did not address LTC financing because he thought his position as a member of the board of directors for insurance company Genworth would present a conflict of interest. The center set up a separate commission to examine the issue of long-term care financing.