is it for the reasonable teenager thinks, how would it be understood by the recipient clicks to disconnect the speaker chooses their audience and they can communicate in a completely private manner on a facebook page. they can make certain aspects of the communication private or the speaker can open it up more widely. i don't think that the court requires them to decide the full dimension to what the context is because it was quite clear what the context was. >> that you are asking for the standard that would apply across the board. so, if the teenager has a lot of friends on his facebook page, then you are going to evaluate it by a different standard all over the different age groups that is a different standard and if he only has a few friends that have access to the statements? ..

>> what is the suggested instruction you would have in order to eliminate liability in my hypothetical injustice scalia hypothetical? >> it has to suggest a serious intention of the speaker to inflict bodily harm.

>> the instruction in this case. >> it wasn't requested. >> if you are saying it is waived, that is something else. the instruction given in this case does not meet the standard you just gave. >> just is kennedy, i think it does. it was understood as being a reference to the speaker's intent to carry out the threat. >> it seems to me if that is the case, you should have no problem at all to suggest the instruction of specific intent. as you well know all the time. >> let me give you a couple examples of what mr. elwood's position would cut out. it would cut out people who are reckless from the people consciously aware this would be taken as a serious expression of intent to do harm and the speakers are entirely disregard. >> how about using that exact and are quite it is standard to what justice breyer had.

it's knowledge that a reasonable person would cause fear. you could say it's basically the same thing to say, you know, substantial probability that the person you are talking to would feel fear. so either way, there's a little bit of a fudge factor. the critical point is you have to know something about the probability that you are going to cause fear in another person. and if you really don't know that, then you are not liable. what would be wrong with? >> thursday brought with it if it acyclic immunizes somebody who makes that statement and then can possibly say later i was drunk. i realize i just called in a bomb threat and the police had to respond and an elementary school had to be evacuated. i knew what everything but i was too drunk. >> drunkenness is often not a

defense. >> drunkenness is a defense in a specific intent case. >> i think we are trying to get you to focus very specifically, i think, forget the first amendment issue here. take it to the side. forget it. let's look at ordinary criminal law after the model penal code. there is the savior brief, the requirement is the person know the element of the offense. that is normal. if it is drugs, he has to know that this is a drug. it is a threat of force, he has to know he has the threat of force i take it. so why shouldn't he hear have to know the element of the crime namely that there is a true threat i so defined?

are we departing from that? >> actually, your description of the bank robbery situation is illustrated. if you look at the statute the court is going to consider tomorrow, 2113, interpreted and carter to require knowledge that you are engaging in the conduct. no intent element. no specific intent element. >> i agree with you no specific intent. that is you don't have to have it to be your purpose. that is what i used the model code terminology, which for me is easier. you don't have to have it as your purpose. but you do have to know the elements of the offense. >> you just have to know what you are doing. >> you have to know what you are doing. what you are doing this you have to communicate a true threat. >> the petitioner is not disputing in this case 15 at the words he was saying. we are not disputing the government has to show the individual is aware of the words

they are speaking. the dispute here is whether the government has to show the petitioner actually intended to cause fear or today mr. elwood has proposed moving down a level to knowledge. justice kagan has proposed one level further to recklessness. my submission is when conference passed the statue, intended to capture all of those people by making no intent element in the statute beyond the knowledge of what the speaker is saying. the presumption is when you speak english words and you're an speaker, you are accountable. >> i don't know what i was saying. this year she guilty? >> yes, the drunken person who creates panic and would be reasonably interpreted as having uttered the threat under the governments view is guilty. under mr. elwood's position, that individual would not be a cause of voluntary intoxication

is one requirement that is a defense. he has argued at the podium today perhaps not because voluntary intoxication doesn't necessarily negate knowledge. >> i'm still not sure how you insert justice scalia hypothetical in mine. the threat is just repeated. >> let's say the newspaper printed on the front page. the newspaper is not expressing its intent or making a statement that reflects the speaker's intent to inflict harm. what the threat is a statement the speaker makes, which in context would be understood as an intent to inflict harm. repeating it doesn't have to care was to be a actively discussed that the jury instructions that say that the early and context that is exactly how they were

understood. >> if you have a statement made in the style of rap music is the reasonable person supposed to be someone familiar with that file and the use of what might be viewed or not? >> it depends on who the speaker is speaking to. if the person is speaking to a general audience, i think the individual has to understand that not everybody will have the same private meanings that person attaches to wrath music and will bring -- >> that the subject to prosecution, the lyrics that a lot of rap artists use. >> not. >> not at all, mr. chief justice. in the context, it is pretty clear the purpose of the communication is entertainment. people seek out rap artists because they are seeking some form of entertainment.

>> how do you start out if you want to be a rap artist? first the communication you can't say i am an artist. >> i think you have perfect freedom to engage in rap artistry. what you don't have perfect freedom to do is to make statements that are like the ones in this case were after the individual who sees protection from an abuse order from court is on facebook boasts that his wife took as threatening, he comes up with a poston says fold up that psa and put it in your pocket. he knows his wife is reading these posts. despite the fact they are in the guise of rap music conference old hearing her penny goes out and escalates the statements. >> you have just made a wonderful closing statement. but why is the instruction

suggested here going to harm that. >> so just as sotomayor, the support goes with the position the petitioner advocated that there'd be a purpose to frighten because that would exclude the person who is conscious. i know this would probably scare my wife, but so what. it cuts out -- >> he has to know that he will be in fear. >> he didn't disavow it. the proposed jury instructions in the district court, not from the podium as the petitioner is arguing the case. i agree the court should decide what the statute means and is interpreted and what the fourth amendment requires. there is no request for a knowledge instruction. there is no argument that the proper standard is knowledge.

>> my knowledge is there is a distinction but a razor distinction between purpose and knowledge. so the idea of backing off from purpose to knowledge will make a practical difference is fanciful. there is a considerable difference between knowledge and recklessness. >> i think you basically understand it correctly. i would attribute a little more distinction. her pieces the conscious intent to receive the goal. knowledge under the model penal code is at the intentionally with knowledge of practical certainty, but the result will follow. recklessness takes it down to you are actually aware of the risk and you are indifferent to it. you act grossly negligently.

it doesn't have to be to the level of knowledge. just a significant risk and you disregarded. the >> i think that is the distinction. i think perhaps a lot of these cases would come up in domestic relations dispute. in such a case, the question would be because people get into heated arguments. you have to show the defendant used some words that in context would be taken as a true threat. or you have to show the defendant, with some words that have good characteristic and do they have that characteristic. if i am right -- >> the former. >> i know you think the former. is that the former or the latter? if it is totally open in the history and so forth, people do say things in domestic disputes that they are awfully sorry about later.

and where the person didn't know that he was saying something that a reasonable person would take is a threat. i am hesitating to say that congress wanted or it makes sense. he is. >> the jury instruction said right before the passage revolving focused on page 301 among many other places is that after giving a definition of the threat, the court said this is from idle or careless.com exaggeration comes up in a jocund manner. so the context of this very instruction took into account the runners concerned and it cuts that out. >> last week to find deviancy down, i don't agree with the

proposition people make physical threats to the person. >> i think that is rather unusual. >> i think even in the heat of anger. >> and will trigger just what happened here, a protection from abuse order as the individual is on notice that that person is being interpreted as a threat and a judge has validated that. and then you have the petitioner going on in continuing to do that. i actually think the domestic abuse context is one of the best reasons for the court not to add an element that it out of the 10 regional court of appeals have not done for decades. not to lead to a problem. >> you are asking us to go down. it is not purpose. it is not knowledge of causing fear. it is not a conscious disregard

of causing fear. it is just that you should have known that you are going to cause fear essentially and that is not the kind of standard that we typically used in the first amendment. the only time i can think of is in the fighting words context. we typically say the first amendment requires a kind of offers sound to ensure that even stuff that is wrongful, maybe it's permitted because we don't want to chill in a sense of behavior. so i guess the question is should we allow some kind of buffer zones here past the sword of reasonable man negligently standard that you are proposing? >> i don't think so, justice kagan. if you look at the cases that have attracted this buffer zone jurisprudence like "new york times" versus sullivan, you are talking about statements made about public officials or public

figures, perhaps extended to matters of public concern were there really was a social interest in preserving that kind of speech. here you are talking about criminal threats, statements that would leave the observers said the view that this guy intends to carry out an act of violence against somebody. this is not something that has first amendment value. there are plenty of ways to express yourself without doing it in a way that leaves people to think this guy is about to hurt somebody. >> what about the language on pages 54 to 55 of the petitioner's brief, you know, make a nice bed for mom at the bottom of the lake, tie a rope around of iraq. this is the context of a domestic dispute between a husband and wife. there goes momma/and in the water. no more fighting with dad. all of that stuff.

under your test could not be prosecuted? >> no. if you look at -- >> because eminem said it? >> because eminem said it at a concert where people are entertained. this is the political part of the context. it's not that he said in a facebook page after receiving protection from abuse order. it was meant. it wasn't as if he appropriated a style of rap that wasn't anything he'd been doing previously in the marriage and all of a sudden try to express violent statements that way. in the context, any reasonable person would conclude at a minimum that there is ambiguity about the statements being a serious intention of expression to do harm. this is critical here. we are talking about an area in which the jury finds if it is ambiguous and has to acquit. it has to conclude this is how statement should be interpreted here to >> well, yes. you are dealing with some very inflammatory language for the question is whether the jury will be swept away with the language is the language as opposed to making subtle

determinations are talking about. >> there were two protections they are. when the government has to prove beyond a reasonable doubt and not a subject review. the second protection is that it means to be a true threat. as expressed in the watts case, whether good term or bad term, it means these statements are to be taken seriously. they are not ingest, they are not exaggeration, not hyperbole, not artistic expression. this is not a standard that led to a problem. >> the first two are correct language is not what the light anyway. >> that is correct as well, justice scully. proof is in the pudding here. unless the prevailing rule in 10 out of the 12 regional circuits is overthrown, there is going to be a tremendous show. but i think what he is overlooking is until recently, 11 out of the 12 circuits followed this rule. the 10th circuit changed while under submission and there's no evidence of chilling. the best evidence they

petitioner has come up with the case that was actually prosecuted that he think should was one in which an individual after having to urge the fbi agent to recommend a prosecution and failing, called him up and said, you know, have a good day. silver bullets are coming. the jury was able to hear in that case a tape of the statement, put in the context in which it was made and conclude that it was indeed a true threat. plus the very statute a prosecution actually did require proof of an intent to impede an official invasion of business. i don't think the petitioner is come up with a good reason for this court to change course. >> and the statue,a, b., c. and d.,a, b. and d. all have specific intent. i think you would agree with that. is it proper for us to then say it is likely the section c.

should be a specific? it is thought to say they are specific intent but this one is sent. the mac justice kennedy, it actually cuts the other way because congress and the other sections of the statute focus on an intent to extort. when it came down to prohibiting private in 875 seat, it did not do that. i think it is also notable that section 871, threats again the president statute requires the threats be made knowingly and willfully combat statute has universally interpreted except for the fourth circuit has not requiring any proof of an intent or knowledge that it would be taken as threatening language that was designed to put the president in fear. it has been interpreted the way the third circuit interpreted the statute. a statutory argument is adjusted the word thread has some

inherent meaning of an intent to put somebody in fear, it raises questions about that almost uniform and long-standing interpretation against the threat against the president statue. that statute only exemplifies in a magnified way the problems created by thread. the problem are they disrupt people's activities and put people in fear. the president is unlikely to be put in fear by an assassination attempt or an assassination threat made over the internet that the secret service intercepts. it is highly disruptive to society. when the secret service is considering what to investigate, doesn't have access to the private intention of an individual or his unreasonable interpretation of the language he actually speaks. the threat causes the harm regardless. >> couldn't you say that about a lot of criminal laws, that the harm is the contact heiress back tears of what was in the person's head and yet we insist

on looking very often at what was in the person's head. >> yes, congress rights statutes against a background and we expect that here. but the question is what has to be shown. is it enough that the person has knowledge of the words that he spoke as an english-language speaker understanding their meaning or does there have to be something more, namely the government must prove in each case that he intended about how, or had knowledge of it where he was conscious of it and disregard it. there's nothing in the statute that requires any of those things because the harm inflict that are just as bad, just as serious regardless of those. one final point on the intent question that your honor has raised. that is congress would well have understood that the majority of these cases, probably were people who intended to threaten some subset of them are people who are reckless.

for congress, it is no matter which those things were. the point was to impose a burden of proof on the government that could potentially immunize. >> lets go to that question. it may have been published as intent, but the first amendment provides a number alone is your intent. >> i don't think so, justice sotomayor. what just this kagan spoke of in the jurisprudence focuses on the effect the words will have on the person's hearsay. in the affinity context, which i know my opponent has to be generous, there is no requirement person who has the items in question. >> they create more exceptions to the first amendment. they nowhere in the, mom you have found a hook to say that we should create this is another

exception. >> i don't think it's an exception. it's part of the implementation. one more example. for public figures and public officials, the court has required actual malice. but not for private figures on matters that don't implicate private concern aired there is no requirement there be anything more than negligence in a defamation statute. the harms that defamation protects are much less serious than the harms protect you by the threats statute would you do with people's safety. so this court has calibrated the first amendment requirement not with a broad brush this is in all cases there must be mens rea, but in some cases you do not need it. the truth doctrine under watson on the circuit has never been a context in which the court had thought it necessary to lie around some intent. >> why is this really a question i asked some things be transmitted interstate commerce.

what is this being? is it a thing intended to cause fear or is it a thing that just naturally causes fear quiet i see your time is up, but i wish you had time to answer it. why is that a question of mens rea? will give you time to answer. >> justice alito, we are not going to punish people who love portability. but the statute focuses attention on an expression of an intent to do harm. that is what you have to look at. the expression in the context. then the question is did the individual know what he was doing? if he did commit a statutory analysis is complete. >> thank you, counsel. five minutes. >> we are trying to figure out what congress meant. i think it is valuable to look at what the traditions were at the time. as i pointed out in state versus

benedict, 1839 vermont case than in the warden treaty from 1857, the period in which the statute was an act it, both of those require showing the speaker knew he was putting the listener in fear. the first time the government -- >> why is it required intent last time you refer to those two? >> i've been accused of changing my position. the point is when you say something with knowledge, something certain to have been his intent. both purpose and knowledge plus. a form of intent, which by the way jay 22 we did ask for knowledge instruction. but on both sides of the bracket mean, you have to have intent that places the person in fear. the first case the government can point to that unequivocally says we will hold people to their meaning. we will hold people criner

responsible for what an english speaker would understand this to mean his 1966. and i think the peer's case. after that a relatively recent phenomenon that this is happening. when you look at what congress would've been thinking at the time, the standard understanding at the time was a person high to know they were going to be putting someone into fear. now, the government is enough to make someone criminally responsible if you know you are a speaker of english and you know the words you are saying. i don't think there's any reason, any different reason why the government would say you're not a native english speaker you get a little more slack. we've all had experiences where we all know that words can have two different meanings. we give the example of bob woodward in this book for the white house is saying you'll regret it. he interpreted as a threat. the other side said you'll think of this better down the road. the government wants to

criminalize that when you have two people -- we both know what these words are capable of meaning. for the turn or burn, we know -- english speakers know what those words generally are capable of meaning. what we don't know was what they are meant to mean in this particular case. the government wants to impose a five-year felony liability on any time there's a disagreement between those two parts, the understanding of the speaker and understanding of the listener. i want to point out because mr. dreeben in his argument talked about how after the psa was granted, he continued to make arguments. i wanted to point out page 329 of the joint appendix, which is three days before the protected abuse order was created. to the idea he came upon threatening his wife, there is a long rap fare, which is nothing

to do with his life. it is the standard stuff over at those steam. you'll notice he says in this wants to a departing, he calls an al qaeda sympathizer, which says he's the first amendment advocate. he says i do this for me. it's therapeutic. the idea this is a recent invention, there is subject to point to there was a misunderstanding between the two of them because when both the speaker and listener focus on different things, when talking about context, you can look at page 344. this is a page that shows this is the only record of the standard that appeared on his webpage promotion at all content posted to this is strictly entertainment purposes only. again, you can imagine a situation where somebody says this is for entertainment purposes only. you can see the posted style of rock. >> is some think a roadmap for

threatening a spouse and getting away with it. so you put some stuff about the internet on it and say i'm an aspiring rap artist. then you are free from prosecution. >> the prosecution would he perfectly free to point out all of the things to say this is inconsistent with the theory. this is the only threat case i can think of where somebody is saying this isn't a threat. this is in a threat. this is in a threat. the jeffries case they came up from the sixth circuit. there he says i'm not kidding, judge. ordinarily, a kind of diminishes the value of a threat if the person doesn't know they are threatened. >> what do you say that the fear position adopted will have a very grave of fact in cases of domestic violence. they are wrong, they don't understand the situation quiet >> it is their interest to have

a standard that has no mens rea because it's easier to prove intentions. the fact of the matter is many states including the states you would want to have if you win the electoral college, california, texas, new york, all of these states have subjective requirements and the government has never shown that those states have had any trouble protecting the populace from fear. >> thank you, counsel. the case is submitted. >> recently sat down with a retiring members of congress to get their thoughts about their time in office to hear about the personal legislative achievements. tonight, see our interviews with the house ways and means committee chair congressman dave camp and armed services committee chair, buck mckeon. here's a preview. >> i knew i wanted to get on the ways and means committee. others they work harder welfare reform and adoption issues and trade issues. but at that time, the steering committee was called the committee on committees. so you are in a government

process. it really is the campaign about the folks on that committee who determines who gets a seat on the committee like ways and means. so you are talking to remember on the committee and there's a particular member of the really wasn't for me and i didn't know what to do and sort of out of the blue i doubt president ford's office in california. i had met him several times. i wasn't sure he knew me. i certainly knew him. his secretariat said the phone and said commerce in camp, old. he got on the phone and said dave, how are you quick studies that i used to be leader. somebody owes me a favor and i will make a call. and he did in the person came to me on the floor and said, anybody who get off our president of the united states to call me i am for. so he changed his vote and i did get on ways and means. i told susan ford that story also wants. i'm not sure she cared. it was really a changing moment

for me and he was very gracious. the fact he was in the office and to a call. i had not scheduled to call. i literally called the knot of the blue. it was very much a merry path. >> someway we need to go back and make things a little simpler. when my dad first went into business, he had been working for a company, selling off of a truck and finally, he saved enough money and he bought a used fish truck and he and my mom worked so we can to get the smell out of the truck and early monday morning, the warhead already started. he went down and he had some friends. he was able to buy enough to fill up his truck and then he started going around to sell it. one weekend and he was in business. one day he could have been out of business. at the end of the day he found

somebody that bought everything he had a night out and started. now they are going into business. you've got to get different licenses and in his disorganization, that organization. everything is tougher. the taxes that, all these things. while this is the greatest country in the world, we have got lots of challenges. >> before heading on vacation with his family, president obama held the final news conference of the year with the north korea cyberattack income in the keystone oil pipeline in the current state of race relations. you can watch the president's entire news conference tonight starting at 9:10 eastern on c-span. the mac

>> the federal reserve reported that americans balance in retirement accounts is rising. a number of those counts fell below 50% in 2015. a senate committee took a look at u.s. retirement savings in the gap between what americans are saving of what is needed in retirement. this is just under two hours. >> the finance committee will calm to order. when you take a look at the state of retirement savings in america, it is clear that something is out of whack.

the american taxpayer delivers $140 billion each year to subsidize requirement amounts, but still millions of americans nearing retirement have little or nothing saved. the fact is the incentives for saving in the american tax code just are not getting to those who need them most. a pair of new studies spells out the issue. the federal reserve found last month that an employee with middle of the pack savings has about $59,000 set aside for retirement. yet according to the government accountability office, some 9000 taxpayers have i aerate accounts worth more than $5 million. it would take several lifetimes of work are the typical

middle-class american to save that much money. so how did those massive ira accounts come to be? in many cases, they seem to be sweetheart stock deals that most investors would never have access to. executives buy stocks at a special rock-bottom price, sometimes fractions of a penny per share and use an ira as a tax shelter. the stocks start out dirt cheap, but just like that, they turn to gold in the ira shoots up in value. now wise investors have every right to use all the tools available to them and no one should begrudge them their success. that the ira was never intended to be a tax shelter for millionaires. they were designed to help the typical americans save for retirement.

the finance committee continues to work on modernizing the tax code. it needs to take a good bipartisan look at fixing this issue. with limited resource, it is crucial to use taxpayer dollars as widely as possible. this same study from the federal reserve included the federal reserve include another alarming piece of information. nearly a third of workers according to the fatah have no pension and not been set aside for retirement. it is a fact of today's economy that millions of americans are walking on an economic tightrope and are unable to save. report after report has shown that america's middle class has the best struggling to stay afloat. five years after the great recessionary means tough for many people to find and keep a steady job. , they tied up before the

housing collapse and they are not yet closed before recovery. at the same time, workers, especially younger ones are changing jobs more frequently than ever before and may find it difficult to save without portable savings account. women face special challenges to savings that has to be addressed to tax reform. that is also true of part-time workers. this sort of leave it to beaver ideal of a worker spending 40 years with one firm and retired with a generous pension and a gold watch is sorely outdated. retirement policies need to keep up with the the times and the finance committee is beginning today to examine those savings issues. one proposal worth looking at being pursued by my home state of oregon.

in many oregonians have trouble saving anything at all. so the state set a retirement savings task force to look at solutions. just yesterday they recommended the state set up an auto ira program for any oregon worker who is not covered by an employer retirement plan. a percentage of employee paychecks would go into the savings account to the contribution to rise the time. it would not be mandatory employee is good outdated anytime. it certainly has potential to be a first step towards retirement security for many oregonians. in my view, the tax code should give all americans the chance to get ahead and making it easier to save is one of the best ways to accomplish that. that is why it's important for the committee and improving the savings incentives and ensure

the health middle-class americans prepare for retirement and not just set up tax shelters for millionaires. senator hatch, i look forward to working on a bipartisan basis. it's an important topic. we have an outstanding panel of witnesses. retirement policy has always been known as racially important topic to this committee. it is also always been bipartisan. most of the major pieces of retirement legislation congress has passed in recent decades have been named for senators from the committee. one from each party. i'm talking of course about legislation that bentson ross, ross perot, grassley bob graham, hatch prior, which in the other body came to be known as cardin for the two legislatures i am proud to say are now colleagues on this committee.

the other bipartisan it issue campbell continued. mr. chairman, dream a highway bill mark we agree to work together on an employer reform. that was done in this. and i have the reform bill for the modern economy that last week received high marks and i hope to work with me to receive the highest marks. it is my sincere hope that tradition of bipartisan ship will retire in this committee and will be known as wyden hatch. we've always had incentives to encourage saving for retirement. as the late chairman roth said there are no bad savings. congress is revisited same incentives on occasion with an eye towards improving the incentives and increasing savings. for example, in 2001 the congress increased the limit for contributions to 401(k) plans so

that today a worker may contribute $17,500 to a 401(k) and $5000 to an ira. congress also added a quote catch-up, unquote contribution feature to the quote to allow workers to introduce several thousands of dollars beginning in their 50s and in asia and many workers finally get serious about saving among workers including spouses, primarily women, might have left the workforce for a time finally have the opportunity to save again. as reported in the bluebook published at the time at the joint committee on taxation, congress believed is important to increase the amount of employee elective deferral is allowed under such plans. other plans that allow deferrals to better enable plan participants to save for their retirement. well, it worked. since 2000 retired assets and a fine country should plan to have

grown from $3 trillion to nearly $6 trillion that the market downturn in 2008. assets in my areas have grown from $2.6 trillion to $6.5 trillion. in fact, increased contribution limits work so well that in 2006 congress made provisions permanent and the road to make them permanent was overwhelming 93 to five. the retirement policy has always been about helping americans to help themselves save more of their hard-earned money, not less. democrats and republicans have worked together to respond to a mutually shared goal. the targeted workers like savers credit. democrats believe managers need to have some tax benefits skin in the game to take on the burdens of adopting and maintaining retirement plans. in these areas, members of both parties have resisted artisan

impulse is ms a result we been able to craft good policy. lately i've become concerned that there is a political strategy by some in congress to turn pension policy in background. some of the other committees in congress. somewhat disregard the bipartisan disc will of the gears would be unfortunate. i hope it does not happen in our hearing today. mr. chairman, what i hope to hear today are policy consideration. they need to know how much income americans are projected to need in retirement, how much they are projected to have and if there is a shortfall, but i hope to not hear today are slogans like quote upside down tax incentives, bang for the buck, unquote, pension stripping

for the system is, unquote without substantiating data. we need to hear facts and figures policy proposals, not slogans. i want to thank you again, mr. chairman, for holding this hearing. let me say bye to personally extend a special welcome to my fellow utah, mr. scott bends. scott and his company have done excellent work helping you time save for retirement and i'm especially grateful that you would travel all the way from utah to be here today to help us make this a useful hearing. thank you for being here. thank you, mr. chairman. >> thank you, senator hatch. you are right to stress the bipartisan tradition in this committee is focusing on the savings incentives, particularly to create opportunity for folks to get into the middle class. i look forward to pursuing that with you and in pursuit of an approach that is fact turbine,

that is why we asked the government accountability office to help us get an assessment of the most recent development in savings and at that point, with whatever the bills are called, you and i will be able to lead in a bipartisan way and i look forward to pursuing not. now we've got six witnesses. we have one who is still a very talented scholar. ms. allen schultz who is ill battling impact allays. we hope she will be with us. john vogel has figured as usual a way to navigate through that, so we are glad that he is here. he's of course the founder and ceo. our next witness will be dr. brian reid, chief economist at the investment company institute. the third witness will be scott betts of national benefit services. the fourth witness will be dr. brigitte vedrine, professor of public policy and corporate

management at the john f. kennedy school of government at harvard. she was idly the first academic to do research on automatic enrollment in 401(k) plans. a number of our colleagues are interested in discussing not. our fifth witness is dr. andrew biggs, a resident scholar at the american enterprise institute. he also lives in oregon. i told senator stabenow that i was wearing my duck type today and they didn't wear it for two weeks out of respect to senator stabenow in the state of michigan after the death i am over michigan state. mr. biggs, i couldn't hold off any longer. >> i'm glad it's between two democrats this time. last night >> and we will be. welcome and we look forward to your presentation.

senator brown has a very tight schedule this morning. so when all of you are done, senator brown will begin to question for our side will turn to senator hatch. senator vocal. >> ranking member hatch and other members of the committee, i am honored to be with you. my career in the financial services field began more than xt three years ago and in 1974, i founded the vanguard group, a new company in the mutual fund scene. we now manage $3 trillion worth of other people's money and become the largest in the world. the principal reason for that success is a fair description is since 2008, this farm as a comment for one half of the industry's entire cash flow is simple. we're founded with a single focus. to serve mutual fund investors.

our management company and this is important, the vanguard group is not owned by editors for, nor by u.s. or foreign insurance company. the most public corporate structure. we're owned by mutual funds, which in turn are owned by 20 million mutual fund shareholders. we are uniquely mutual fund. we operate on the basis of a substantial profits we might otherwise make, which came in $19 billion in 2013 allowed for an effect rebated to shareholders in the form of lower cost. i'm also a founder of the world's first index mutual fund, vanguard 500 index petroleum. as you all know, the index fund mimics the portfolio for a particular index price. largely because they faced no investment advisory fee and

doesn't require any advice that carries the rock-bottom expense ratio as well as 0.02% or 0.05%, what we call to the five basis points compared to other groups charging maybe 200 basis points. index has accounted for more than 350% of the u.s. equity net cash flows since 2007, taken in $750 billion while other funds were losing $550 billion. the picture is pretty clear and now constitute 33% of u.s. equity mutual fund assets. at vanguard come to join dollars more than that are owned by investors building their own retirement for corporations, large and small among the employees of state and local governments as well.

among all defined contribution retirement plans, we are now the largest provider of mutual fund assets. so we have a huge steak, business stake in assuring that our nation's retirement plans are structurally efficient and fiscally sound. fund shareholders have also a huge stake in minimizing management costs outside of vanguard, those costs are grossly excessive. unfortunately, retired assistant today is neither structurally efficient, nor fiscally sound. for different reasons come each one of the three legs as we call them ever retired assistant school, social security, pension funds is headed for a serious drain rack. other witnesses seem to assume social security and pension funds are soundly financed. unequivocally they are not. like one social security with relatively small changes from imperfections today to moderate

the growth of benefits and increase contributions. the defined benefit plans and now most deeply underwater by $4 trillion or more will require much more realistic assumptions of future investment returns 8% they use is just not in the cards as well as higher employer contributions and b., lower employee benefits. defined contribution plans for the largest and fastest growing component of our retirement system cry out for structured efficiency and cost reductions. the retirement funds investors accumulate are slashed when d.c. plans are incurred vastly excessive costs. simply if they invest in low-cost mutual funds rather than high-cost actively managed funds, the investors return of a show on exhibit two of my submission, and investors long-term wealth could be increased by 65%.

that sample from $561,000 to $927,000, a three for $66,000 advantage by taking the cost of the system down to where it ought to be. we need larger contributions from employees and plans. we need the ability to withdraw savings on demand. we need to have some requirement that employers maintain their contributions. we need to expand access of employee participation and we need to limit the participation of high-cost purveyors in d.c. plans and iras. we also need a federal standard of fiduciary duty for money managers. including virtually ignored by policymakers, regulators and

legislators. i'll explain this more fully my prepared testimony. forgive me for going a little over my time. thank you for hearing me out. >> you were very helpful. dr. reid, next. >> thank you, chairman wyden and ranking member hatch for the opportunity to testify. i brann reid, chief economist at investment is to do, delete and association of regulated funds. ici's numbers management of $17 trillion serve more than 90 million shareholders. the point at today's hearing, mutual funds manage about half of the defined contribution plan an individual retirement account asset. ici has devoted years of research and considerable resources to make and in communicating inaccurate assessment of america's retirement system. today, such an assessment must recognize three key facts. first of america's retirement system is working to build security to the majority of americans. the incentives for savings based

in deferral of taxes, not in tax exclusion or tax deduction are key to the successes and strengths of the system. third, while their opportunities to improve the retirement system, changes should build upon our current structure and not put the risk. it may contradict what you often hear so that makes wayne. not only do social security cover working americans that 80% of your tire over in 2013 pension benefit. and the research demonstrates the retirement system has become stronger in the past half-century. the poverty rate among the elderly has fallen since 1966 for nearly 30% to 90%. the lowest among all age groups. since 1975, the amount of assets earmarked for retirement per

household has increased sevenfold after adjusting for inflation. the sheer retirees receiving private sector pension income has increased by more than 60%. the medium private sector pension income that retirees receive after adjusting for inflation has increased by 40%. these statistics speak to the impact of congress is bipartisan effort to transform social security to a strong foundation for america's retirement system and created a framework of laws and tax incentive on which voluntary private employer plans have grown and thrived. as important as the tax incentives are urging employers to offer employee participation from the nature of role of incentives is often misunderstood. the tax incentives take the form of tax deferral detests contributions and earnings to traditional retirement plans are taxed when a retiree withdraws the income.

this is fundamentally different from a tax reduction or exclusion for the initial tax reduction never recovered. in economic terms, is the after-tax rate of return that is the incentive to say it. tax deferral effectively taxes investment committee zero tax rate for retirement savers in all income groups. rather than creating the saving, tax deferral equalizes incentive to save across all retirement savers and all in come groups and encourages support for employer-sponsored pension plans among a wide range of workers. the american people overwhelmingly support today's defined contribution retirement plans, including tax incentives. in a fall 2013 survey, 86% disagreed with the idea of the lemonade in tax advantages of defined contribution plans and 83% opposed in a reduction in employee contribution limits. despite the strengths and successes of our system, it could be improved, the changes

to the current system should build upon existing system, not put it at risk. ici supports measures to promote retirement savings come up as social security and a sound financial footing as a universal employment taste progressive plan for all americans, foster innovation and growth in the voluntary retirement savings systems, help smaller employees by offering simple plan features and easier access to multiple employer plans in providing flexible approaches to retirement income. that is central to these ideas as they build upon and do not understand the current retirement system. this requires the incentives provided for retirement savings. proposal to reduce the tax benefit of employer-sponsored retirement plans would not affect upper-income workers and reduce their desire to participate in such plans come instead they would undoubtedly reduce the number of employers that sponsor retirement plans and depriving workers of all

ages of incomes of the many benefits of plan participation. in short, retirement system has many strengths and successes in building upon our strong voluntary system will enhance america's retirement security for generations to come. thank you did i look forward to your question. >> the next witness will be mr. scott betts. >> thank you, chairman wyden, ranking member hatch and members of the finance committee for the opportunity to talk about her employer-sponsored system. my name is scott betts, senior vice president of national benefit services. mbs is a fee-for-service third-party administrator specializing in the administration of all types of employer-sponsored retirement plans. nbs has more than 225 employees located in west utah and supports more than 7500 retirement benefit plans in 46 states. our goal is to give every working american the ability to save for a comfortable

retirement. i've been working with employers on their plans for a most 20 years and can tell you firsthand that qualified retirement plans like 401(k) plans are proving successful for millions of american workers. what i see everyday is born onto some important statistics. middle-class families representing the overwhelming majority, 401(k) plans make less than $100,000 per year in 43% of participants make less than $50,000 per year. an analysis by the nonpartisan employee benefits institute found over 70% of workers earn between $30,050,000 participated in retirement plans when a plan was a plan with available worth less than 5% without access to employer-sponsored plans contributed to an ira. another words, workers were 15 times more likely to say for

families retirement at work than on their own. if increasing the goal, increasing the availability of workforce plans is the way to get there. that is why it's so important that no harm be done to the current structure of tax incentives that motivate employers to voluntary sponsor and contribute with the employees themselves to these retirement plans. ..

had access to the retirement benefits at work and 81% of those workers participated in these arrangements. in spite of these positive numbers, there's still millions of workers who do not have plans available at their workplace. more can and should be done to encourage and help employers especially small business owners set up and operate the plans and cost effective manner so their employees can save for their retirement there are some changes that can be made to streamline the plan operations and penalties for employers already have a plan.

the starter four o. one k. plan proposal that all business owners were developed and to commit the contradictions that offer employees a chance to save for the workplace plans to adopt the plan after the end of the year when the final results to the business for the prior year available. they would band together in the plan arrangements, the so-called oil providing critical safeguards for adopting employers to create a new designated provider. finally, senator hatch's bill addresses many of the inefficiencies and traps for the employer that increased cost and can discourage employers from sponsoring the plan.

senator hatch, the bill is a big step in the right direction for the complexities in the system and extend the availability of the workplace plans for the business owners to be able to provide a better retirement plan members of the committee, thank you for the opportunity to speak to you today and share my thoughts at how we can strengthen america's retirement savings system. the public policy is historically promoted the saving for retirement is in financial incentives. in the united states the primary inducement to say that the exemption of the retirement savings plan contributions up to the limit on the taxable income. the joint committee on taxation places a magnitude of the tax

expenditure in 2014 at $127 billion annually. lower-income taxpayers are also eligible for the credit as a further enticement to save. in addition public policy encourages employers to sponsor a retirement savings plan to provide their own financial inducement for employees to say namely the position of the employer match. it's to the financial incentives. i gather the consistent finding from the literature that a behavioral response to the changes and incentives is not particularly large. in the recent fever, i surveyed the academic literature on the impact of one kind of financial incentive matching on saving plans participation and contribution. the studies using the most credible methods find strikingly similar results in a variety of different contacts using a variety of different data sources. a matching contribution to the 25% increases the saving plans participation by roughly five

percentage points. this is a modest effect at best. the participating savings plan financial incentives can impact how much individuals save that this doesn't come from the magnitude of the financial incentive so much as the fact that that at some point the incentive expires. the saver gives them moderate households with financial incentives to save for retirement but only for the first $20,000 contributed to the ira workplace savings plan. the limited savings are in a certain threshold. this becomes the focal point and individuals decide how much to save you for example it shows the savings plan participants overwhelmingly choose conservation rates that are either multiple and besides, 5%, 10%, 15%.

this finds that threshold may be a much more important perimeter and matching scheme then the match rate. the incentives on the savings plan participation suggest that a failure to save is not related result of an adequate financial incentives. it's not addressed by the policy solutions. the behavioral economics economics and savings outcomes points to an the myriad of friction that impede successful savings. the inattention and the temptation to spend. countering the descriptions leads to increases in savings by dissipation and evacuation that surpassed the fact of the financial incentives. before discussing the false alternatives to the financial incentives in the behavioral economics, let me know that from

the behavioral economic standpoint it is particularly ill-suited and the general incentives to save. it's to assess the financial incentives that he or she faces in the tax code. the research project i'm working on my co-authors and i have found that most individuals do not accurately understand the tax implications of savings and iraq versus a regular four o. one k. or ira without the help of the tax professional they would likely be a daunting task. indeed i attempted to do so in preparing these remarks and quickly gave up. many of the financial incentives operate through the tax code are delayed. but they are as the benefits of the tax deductions or credits

that aren't processed through payroll deductions. to encourage the individuals who will work on the savings plan this multimedia financial reward is actually not allowed in the savings plans under the current law. the financial incentives are not a savings panacea what is? by far the most effective method to increase the savings plan participation is automatic enrollment. the impact of the automatic enrollment on the participation rates can be sizable and the greatest of the group of the lowest savings rate initially younger and lower income workers. expanding the reach of the automatic and all that is the most promising policy steps that we can take to increase the track shouldn't americans saving for retirement. this means continuing to increase the number of employers with savings plan to use automatic enrollment for increasing the number of employees who offer savings plans and provide simple savings

alternatives for individuals that are self-employed or an employers who do not and are unlikely to ever sponsor a savings plan. policy initiatives that support these measures include the proposals to facilitate the creation of an employer plans with limited fiduciary liability. paradoxically we have a savings system that in the absence of automatic enrollment makes savings complicated while at the same time making it very easy for individuals to tap into that retirement savings before retirement. they encourage the accumulation and to reduce the leakage from the retirement savings systems. in conclusion the lessons from the behavioral economics research are clear. if we want individuals to say make it easy if you want individuals to save more come and make it easy. if you want employers to help the workers safe, make it easy and if you want individuals to spend less, make it hard. is that i got the drift and it

was all about easy. [laughter] >> when you talk about auto enrollment, you still give the individual the last word. the individual can choose not to auto and roll >> thank you for the opportunity to testify on the retirement savings and security of america. the word crisis is over used. generally this is harmless but in the perception of a crisis and finds it causes people to look before they leap believe before they lock. when 50% are at risk of the retirement income and other study finds that 85% of americans are falling short in the total retirement savings gap the beach $14 trillion.

yet another study claims that they only have a small ira plan. some are proposing expensive expansions of the social security benefits they aren't working and should effectively be scrapped. this kind of analysis is necessarily complex and i might simplify it with two sets of facts. 75% of the retirees tell them they have enough money to live comfortably. the data on poverty and other measures of the retirement security should enable them to match the pre- retirement standard of living. it's off of the policy and using input and the best experts in and outside of the government projects to future generations retirees will have about the same level of retirement security as today's.

specifically we project that retirement will have the same replacement rate as individuals during the depression was supposedly enjoyed the golden age retirement security. the employee benefit research institute also projects that retirement security for the retirement security for the future generations will roughly hold steady with today's retirees. but the two facts together and come to this conclusion. it doesn't appear that we will have on in the future. some americans are underprepared for retirement. 25% according to a study with relatively modest savings, shortfalls among those that are falling short. but these shortfalls are targeted. for instance, one study finds that the single less educated women are roughly twice as likely to fall short in retirement as pretty much any other demographic group. so, why do we do not need to

reinvent the wheel, we do need to do something. i'm fully in favor of the auto enrollment plan, but the less educated workers are less likely to be offered pensions on the job. they offer the pension the chance to participate in the federal savings plan. you reference today the state-based plans and enhanced offerings for the workers who wouldn't offer plans on the job. they might not otherwise be offered one. this may not be enough. for instance many single women without a high school education are likely to have only spermatic attachments in the labor force. as a personal savings can only go so far for these individuals. at the same time though, the

social security treat single women far less well than it does married women so they aren't getting much help from the end of things either. there's one reason that i and others proposed reforming social security to include a flat universal benefit standard of poverty level that would look at at old retirees regardless of the participation. they provided either through their employer or if not available through the government. this approach is qualitatively similar to that of the uk, australia, canada and new zealand. in the u.s. context of a scud reduce the elderly poverty rate from today's level of roughly 9% to approximately 0%. real increasing the real retirement savings among the middle and the high income workers that truly should be saving more. the lesson of all of this is that there are no simple problems and no simple solutions. the small is more complex if more complex problem is better than the retirement crisis.

we have busy schedules but we have the special dispensation here. 1970 political scientist named ben wattenberg decided to try to find a person represented america best. they had a pension plan on how to define the benefit pension plan. in those days the family income was up 60,000. she was right in the middle. half of america was poor and wealthier than she. today kind of machinists wife and wouldn't have a pension benefit and would have left him she and her husband would have less equity in their home. depending on the estimates if she is in her mid-50s she

would have savings of somewhere scholars differ on as little as $11,000 if you look at the federal numbers up to maybe 50,000 take the middle of say 25, whatever that number is. in fact, today in my state of ohio is not much different from other states. the majority of people on social security rely on social security for more than half of the income the enormous percentage of american workers retirement security is in doubt. in your testimony, you make a number of important points about adequacy. one important point is the high-cost funds. they were those in the broad

middle were slightly lower can rub the ability to adequately savings. should congress make it. they auto escalate. in the auto enrollment is easy to say. why not have it mandated. i for one would be the champion for that index funds. all of the investors in america, all of the investors, all of the total stock market together, they are a giant index fund so they can go to the index fund and owned the total share of the stock market for two to five basis points if they want to fight among themselves to see who can get them to the others they are going to get the market returned and that is 200 basis

points. so, it is mathematically correct that in the last. the fact of the matter is every family is different. should you want to escalate for demand six children all going to college and a wife that is maybe ill when you go from the generalities to the particulars, it is tough. >> that's why you get the option to opt out.

to get access to the tax preference savings vehicles they should be designed to help the workers get them into the middle class. what our policy changes that we need to make to ensure that this happens. the biggest problem in the system as many workers don't have access to save for retirement through the people deduction because their employer isn't offering a savings plan or they are not eligible for the savings plan that their employer is offering. so, i think initiatives to encourage small employers to offer a savings plan the employer is a lot like the individual investor.

they don't have the research professional it is better at picking a savings plan for his employees and his employees are at picking him that mutual funds but the best way to save for the retirement is. having an option that is easy for joe's pizza to opt into what help close the access gap. a lot of the chamber of commerce to sponsor the pension plan where joe doesn't have to worry about the fiduciary liability of picking the right or wrong investment options and the employees who were in the same workforce in the locality have a sour benefit plan they can talk about and learn about. things like that would go a long way to closing the access gap

providing incentives for companies to open their savings plans to all employees. for some of the company's part-time workers are excluded. these are simple measures that can go a long way. another point that i brought up in my testimony is the current law right now does not allow for companies to get a small financial incentive to sign up for the savings plan in the first place. so if you didn't have automatic enrollment or even if you did to encourage employees to opt in rather than to opt out critics say sign-up before the end sign up before the end of the month and you will get a 50-dollar amazon gift card or sign-up for the end of the month and we will enter you in the drawing for an ipod. things the banks have used in the past and people sign up for the savings account for phone companies have used to get employees to sign up for the cell phone plan for those are not allowed under the current

law even though the literature on the employee behavior suggests that small and immediate financial rewards are in fact very effective types of incentives. >> we have to move on at this point. senator hatch? >> you have realized trying to convince the small employers about the retirement plan for their workers. can you explain number one what are the motivations and a naked assertion of the plan and and number two, what sort of things convince them to say no to setting up the new plan flex >> it's been the incentives in the plan to set them up if they motivated the employers to provide the retirement plan.

this fact to be very powerful. they will ask if you have the four o. one k. plan a four o. one k. plan for me, but that incentive is the key piece. if that were changed or removed within the employers would end those plans the incentive is what allows me to veto the new employers to start and get the benefits of starting off into the plans. september is there and demonstrates the number of american savings. >> thank you. at the end result of many of the proposals i read about what effectively capped the but effectively tap the employee deferrals. all of the proposals seem to rely on the premise of the contribution.

it also reduced the tax incentives for the companies that had no effect on the willingness of the business to keep the plan and operation and start a new plan. they raised the contribution levels and increase tax incentives to say two things will happen at the minimum. the business is .-full-stop contributing to the plans because they are too complex and expensive to put at the incentives and the employees .-full-stop saving so much because the tax incentives would be less for most workers. i don't think academics generally understand either of these points. >> they are very powerful if

making these decisions. the tax incentive to contribute is very motivational now. i agree a lot with the auto enrollment that is added to the number of americans participating but it is that incentive motivates people to enter into those plans. >> there are two points that i'd like to make. the first point is opposite of tax incentives and what is the incentive to save. this is the key question. so as you know the current system. it didn't pay the income taxes on the money that we paid into. in the retirement plans in the 401k we pay the income tax when it comes out. therefore it's a difficult update detection or exclusion. on the investment income plan

that is the incentives that removes the tax wedge and allows the return for the investor to come to the point after the attacks. why is that important? some proposals cap the deduction and would actually turn. and it is the 20% to give you a credit that anybody that is in an income tax level. let's say 35% would have to pay the tax going into the plan. the to dissent the descendents by somebody that is in the plan in the upper income level and actually to make it almost preferential to put into the taxable account. they would have to hold the money in the plan for 13 years

to sort of catch up for that extra tax at the beginning. so the proposals to cap the deduction and make it a credit and what the penalty on but be very determined because the participants many of them would be hired. the second point is that the contribution limits are important and one reason the contribution levels are currently important is because of ability and willingness is for the retirement of changes over the lifetime. they are contributed to the contribution limits. >> the economics of showing a couple of success. it contains some who were

providing the nudge to help people navigate the difficult decision-making to provide full-fledged private citizens. in the technocrats they are infallible. it's how they should allocate the resources. in the administration and the financial services regulation. the credit cards are determined to be fair by some government technocrat and used the nationalized funds for the financial education and other ways to help. what do you give up a proposal.

on the credit cards are the retirement savings under the notion that the citizens are not going what the technocrats want them to do. >> i have read the article more than once but you are referring to. i guess i would say -- how about if i enter a slightly different question which is i guess my view of the behavioral economics is what it does is try to expand the scope of understanding that is driving the behavior and what are the tools that you could influence. whether you you want to take a light handed approach or heavy-handed approach but it is a matter of personal preference. but i disagree with painting all of the economists with the same brush. i think that you are going to

find people along the entire spectrum. but i would be happy to go back and look at that article and then the youth of response. >> i have to leave but i just wanted to mention this is an excellent panel. i have a question for each one of you. i apologize that we have run out of time. >> thank you, senator hatch. as you and i have talked about in the past, this is great a ba focus of the bipartisan tax reform for working with you. senator stabenow. >> thank you mr. chairman and ranking member. this is a very important issue and i appreciate the focus now and look forward to working with you. i am a little surprised at what feels like an optimistic view of what people are saving and somehow people will have enough. i am just throwing out a couple of different numbers, the center for the retirement research sent

in 2010 would have at least a $6.6 trillion deficit in terms of what people needed and what they were saving. last year, 2013 the national institute on the retirement set of 92% of working households didn't meet the targets they needed for savings. somewhere between 6.814 trillion. so, i'm concerned about the difference is that i want to ask specifically about a group of folks that we haven't talked about this morning. that is as we look at what happened in the great recession and people in their jobs and their homes and they lack the equity in their homes which is a major way that people save for the middle-class families as well as retirement. and we look at what has happened to some of these folks. a lot of people took the hardship withdrawals in the retirement accounts and they were told that they increased as much as 40%.

so, folks were saving and had to take a hardship withdrawal because of what was happening. on top of losing the equity in their home i am very concerned about the folks that are now in a deficit position of who were doing the right thing. and were caught short because of what happened that was way beyond their control in all of this. and so, they said i would ask you first are there options that you would suggest that would help these workers to rebuild a secure retirement .-full-stop but behind but don't put behind the eight ball because of the recession? >> that isn't a problem to say the least. i do think that we have to face up and if we look at the whole retirement system, which i think according to the 33% of the population households they have no retirement plan at all. the federal reserve says in a

very reliable source they are about a quarter quarter of the households can only about a quarter preparing for the retirement. and i would look at that kind of data as more important than all of the data that you see about how many dollars are here and how many dollars are there. here is a case that common sense should override the complex data which concludes as you now found out just about any answer that you want. so how to help somebody that is in trouble is not easy. we should face the fact that the lower quintile of the american incomes are $20,000 a year before taxes unchanged on the real basis since 1979 and those people are not able to say if we want to help them there is simply no recourse on the benefits at the lower end of social security. that is complex but the money has to come from somewhere and

that would be the best answer i could give. we have to look elsewhere in the private retirement system. >> i would ask each of you if you could briefly respond right now it is costing us about $800 billion as we look at the retirement account and i suffer this as a major area that we are focusing tax policy but we also do know that according to the cbo the top 20% of households receive the benefits for the retirement savings at the bottom 80% combined. now we understand why that is good as we are looking at the tax reform, the household debt that needed the least held in the savings retirement for getting the best health and the people that needed the need it the most targeting the least help and so how would you suggest or would you suggest that we do anything to improve

the targeting of the tax incentive for the retirement and also if anybody has a thought on how to help the folks that got put in a hold on the recession i would appreciate it. >> first looking at the high end of that and this is something that i will stand in for because i read her book. the people at the high end of the sale have so many retirement plans the third compensation and reimbursement for the taxes paid. things that are in my opinion socially outrageous to handle the opinion that strong and get all kinds of benefits above and beyond what we can do and what we even think about in the retirement system that is the place to begin reform. and one of the savings for the payment for the wealthiest citizens can somehow be transferred to those of the lower income scale is desirable that i but i can tell you how to do that today. >> i would ask everybody briefly

-- smack into couple things here. first is if you think about the entire retirement system, just putting the employer plans plans together with social security still is a progressive system in its the combination of the two that creates the sort of joint incentive. the second point, and i think this is where we have put out the caution that if we begin to scale back, really the competitions are pretty modest relative to the way they work historically when it was first set up and individuals to take advantage that take advantage of them tend to be in peak earning years. if you begin to carve that back or look at how the tax incentives are created you can have higher income and he is not interested in participating anymore. and employers then decide that it's better to give them current compensation and not offer a plan and we could actually end up reducing the overall participation. think of an example of that in

1986 we removed the ability when he removed the ability of high income workers to participate. the following year not only did the income workers not only participate, but even low income workers stopped persecuting and its complex way that happened but i think that it is a cautionary tale. >> that is a good question and if you can all give answers that would be good. >> what i would say in the interest of time does anybody think that we ought to market to the incentives? >> if the plans it plans that can be put in by employers to expand the access. the disincentives are already built into the system that are difficult for the small employer to start his plans. senator hatch still has a number of things that remove the disincentives and make it more easy for the small employers to starts of more americans can be saving. >> if you are worried about low income and buffalo taxpayers,

another characteristic that would discredit individuals as they are not particularly financially literate and you can create all sorts of tax incentives and you're not going to get the traction because the tax incentives are not solving the problem. the reason they are not saving is because they are facing small tax incentives because they don't know what to do or their employers don't offer a plan. it is a far more sensible margin to create the incentives for employers to offer the savings plans and automatically enroll the low income workers because that's that solves the problem of inaction and individuals not really knowing what to do. >> i would briefly reiterate the report from the testimonies which is the folks that end up without a lot of golf off at the

very sporadic attachments start of attachments to the labor force during the working years. a lot of folks are not done particularly well because it is an earnings-based earnings based program and because it has a very odd distribution of benefits even within the low income people. so, i think we do need to rethink who is falling short and what do we need to do for them. for some it is more -- spinnaker going to have to stop you at this point. senator grassley. >> in your testimony you state that the system is more progressive than the progressive income tax. that is an important point from my standpoint because the critics of current savings incentives argue just the opposite. so i'm going to give you a chance to elaborate on how the current savings are actually progressive.

>> thank you senator grassley. yes, in my testimony i provided to demonstrate that they earned less earn less than $100,000 basically represented 28% of the tax collection to the same group of americans received 49% of the benefit through the employer-sponsored retirement plans. that seems to be quite a bit more progressive. in addition, what is not noted in that is that many employers that actually provided the employer conjugations into the plans because the way that they are designed for novice commission rules permit them to put more dollars than that are not covered in this. >> there are currently several proposals that would limit the ability of upgrading the individuals to deduct retirement contributions. the 28% limitation is an

example. do you discuss this with senator hatch from the employee standpoint and i would ask you how you've done your research to suggest that offering the fine conservation plans would respond to proposals such as the presidents agreed the plan as an employee benefit and when an employer is looking to attract employees, they know that could attract the employees they want to offer the benefits like they would any other benefit. if you have something in place that makes participating in the defined conditions and unattractive for a group of potential or existing employees, the employers are going to say i'm going to use both of my resources elsewhere to simply increase the wages or something else. and not offer a plan. but the example that i gave them was by putting the cap cat or the credit in place what will happen is that certain individual employees would have to pay the tax going into the

four o. one k. -- 401k and the full tax rate going out. and actually then for some of these employees would be better off just simply putting their savings into a taxable account outside of the employer's plan. if that begins to happen, it is a substantial number that the employees want on not going to i not going to offer that anymore and the other panelists have pointed out that it's having that an employer plan in place and being able to in many cases auto and old people is actually increasing the persecution. the actions that they've taken over the past 50 years would potentially reduce the plan participation. >> i'm going to go back to the employer-sponsored plans are an important component of any retirement plan. while 80% of the full-time workers have access to the retirement plan this number is only around 50% for employees

working for small employers with fewer than 100 workers. as someone that works with businesses in the administration and the retirement plan what to do you see as the biggest barrier particularly small employers offering retirement plans but probably a more apportioned? be the second one so we'll spend more time on this one single reform if implemented would do the most increase to offer retirement plans. >> there are several older rules and the nondiscrimination rules put in place early on in the plans. the new rules have done better at managing the non- discrimination requirements of the plans plans, so one of the ones that could be removed with the top retirement. it's how much money they would

have to put into the plan to satisfy that cool. another big step in the right direction would be the starter being able to provide an employer plan so they can start contributing where there is no risk in the end for your contribution until such time they become financially stable and can benefit from a larger plan. >> so much as to chairman would put in the walks i owe four o. one -- 401k and consolidating the types to reduce the confusion is it important for individuals to have more options one of the concerns.

to make it simpler for small employers to offer a plan to actually then if we sort of narrowed the options to begin more difficult for the small employers to offer the plan so that that idea been in favor of the concept such as the starter to sort of enhance and broaden the scope of the employer offerings of the retirement plans. >> do you have anything to add? >> thank you senator grassley for holding this hearing. this is a critically important issue. it's been 15 years since then congressman gordon and i recognized that we had a significant problem in our economy. 15 years ago the economy was growing at the workforce was growing and income was growing. they had the economic indicator positive except one and that was savings. they were negative during some of those years. we also recognize we didn't have enough in this retirement.

we try to do something about it and we were able to get a couple significant provisions incorporated into the tax code. first the first principle is to try to simplify. particularly if i conjugations because at the point of some of you have raised that when you are young you get the families and homes in all these issues in education from a utah thing about the retirement later in life and the limits on building up enough in order to provide for the retirement security. the purpose is pretty simple. we also recognize when employers

put money on the table they will participate. the workers participate. why, because they don't want to leave money on the table. so when they set up a plan that makes the match and it is much more likely that the workers will participate. that's one of the things we try to encourage. the alternative to that is to try to put some running on the table for the government. because as important as the attacks the pearl is, it is not enough to the lower wage workers to participate at the levels we would like them too. so the credit was the substitute and the savings credit has worked. millions of americans today were using the savings credit. so we have been able to get more participation. automatic enrollment was important not just for the people in rolling but also the default investment option is more sensitive to the present age which means they would be better invested rather than make decisions themselves.

last you mentioned financial literacy and investment advice. that is all part of what we try to do over tried to do over a decade ago and as a result we made progress. more people have retirement plans and would have and as you know, we have gone through a recession. you try to encourage people to spend, not saved. as a result we have lost ground that there is no question about it. we have been on the defense the last four or five years trying to preserve the options we currently have. that's been the strategy. it's time for us now to have a strategy to move forward and that's why i was pleased about this hearing. how can we build on the work and deal with the issues many of you talked about with the lower workers not putting enough money away for that retirement. mr. chairman there are some things we can do. senator portman and i introduced legislation to deal with the church plant verification. it deals with the practical problems they have.

there is no easy thing we should do. we have the legislation because you have a lot of companies that move from the benefit plans to defined competition plans to do what is right for the employees that are in the defined benefit plan and preserving those options but the testing rules can be very challenging. and we should act on it. i would hope that they could be done quickly because they are affecting the retirement options today and we shouldn't wait for the comprehensive when we could get some progress made. in the enrollment we should continue to try to simplify but i would like to start with doctor reed one of the things that frustrated me is when we designed the plans we made it too easy in my view for people to take retirement money out for things other than retirement. we also made it easy for them to take the sums out rather than

the income. one of the objective is to have the retirement security income source that takes the pressure off of the social security which was never intended to be the sole source of income for the people that are retired. so what can we do to encourage more lifetime income option for their retirement funds that are there rather than having money taken out too early either through the lump sum or other purposes? >> we find the money is rolled over and we also find that individuals tend to start tapping the money. if the minority of individuals that don't. the idea is to help the individuals individuals to spread out savings over the lifetime. i think our concern is driving the tax incentives to the particular product. for many low and moderate households there are already heavily for social security.

and they may have got lump sum for the emergency purposes or health care needs or something like that. and we wouldn't want to penalize these individuals for sort of wanting to keep the lump sum to be able to tack. i think other types of proposals to help people spread the savings over time and to draw on it would be valuable and we just want to make it short but these are product natural approaches. >> very quickly one of the proposals is to give an exemption for the amount of retirement funds for the distribution for the purposes you just said. they just take money out of that shouldn't and we want to do incentives not for any one product that incentives for the income that can help people not outlive their income that happens too frequently.

i gather that there was called for clarification act and for those that are following this, this important legislation does what it sounds like. the church plans and retirement plans of churches that generally are not subject to erisa so it can add these auto enrollment kind of features that are so popular. so we have to score the pending -- we are going to work closely with you on the sensible suggestion. >> thank you mr. chairman. >> senator casey? >> i want to thank the panel for your presence today and your work on these issues. i will start not only because the pennsylvania residents impact in the state and the country that we are grateful you are here.

>> i want to ask another dynamic that has played out to defined benefit and defined contribution and the implications of that. as the noted, the transfer of trillions of dollars into savings and risks to the individual investors and corporations. >> they get the tools they need to deal with that basic change. the question of educating investors, what more can we do. what model works in terms of giving them the opportunity to become better educated. >> we have to make the designs in the planned system and turn it into the retirement plan system and if we can just think

that through we get very close to where you want to be. in terms of greater utility and efficiency for investors there is no question in my mind. >> it is such an easy thing to conceptualize and picking the right manager and he doesn't do well or she doesn't do well, and we find that investors in mutual funds and this is my testimony. they have they have the cost to build into the system but 2% of the year making the wrong choices is another to present a year. so i think if we do would simplify the system.

>> is there any experience based upon the work is there a. of time in an individual's life where education can be especially significant in other words is starting earlier. even the students at a very young age are exposed and it is a strategy that they have that they've been successful with. >> to give you my own impression to be that we introduce young people to investing is to have stock picking contest.

they show them how a percentage point of the return found that over a lifetime to an astonishing amount when you get to a higher level of age i don't think that there is a single very very few maybe to be fair business school or finance school and tell you what i'm telling you the statement is far stronger than that about the inadequacy of the system given by the data, the manager of the endowment with such success and the integrity. so if we listen around. if it comes down to simple station in a market but alone the budget managers that you're investing for a lifetime.

spec i would be able to submit some questions for the record. and in less than five minutes that i have, i want to ask about -- you made a pointed reference to the automatic enrollment and the benefits of that. if you have to look at this purely from the point of view of the tax code where we are today and frankly where we hope to be, any recommendations for improvements we can make to the code to make it more effective and make changes to the tax code to make the changes were effective? ..