there is a private sect or fund management agency which works exceedingly well. we don't see any reason to is up plant it by a government entity for that. we do have the ability if the private sector provider so chooses to have what's called an r bond which is a retirement savings account. it is somewhat similar to the i bond which has been a u.s. treasury savings account for a number of years now. and that would allow small savers to accumulate roughly $5,000. but at that point then that

would be rolled into the private sector. we feel that the private sector is going to be more innovative. it's going to create more jobs. and, frankly, it will do a better job of keeping costs lower. >> thank you. thank you, mr. chairman. >> thank you. >> thank you, mr. chairman. thank you for holding this hearing today. and your leadership on these issues as well as overall tax reform. as someone who has been interested in pension and retirement issues since i've been here, i look forward to working with you, mr. chairman and others on this issue. i think strongly that we need to make sure that americans have the tools and the education necessary to feel as though they can make the right choices with respect to retirement. one of our panelists did a study with the employee benefits research institute and only in that study mr. vanderheid, only

14% of americans are confident they'll be able to afford a comfortable retirement in the study that you did and more than half of all workers reported that they have not calculated how much they will need to live during retirement and you're nodding your head in agreement. those are pretty unbelievable numbers. i find out anecdotally i have a friend who is a lawyer who took a 401(k) plan and put it into an i.r.a. then ultimately put his i.r.a. into a real estate investment that he has a third party, pretty sophisticated and doing really well according to him versus others who have not quite an understanding of how much it's been talked about before, how much they can put in because of the contribution limits or what they can put it in. my question to all of you, and start here on my right, is whether it's simplification, whether it's reform, whether

it's, whatever it is, how do we get more americans to change that 14% number so they have a better understanding and can make better choices and can have that 14 -- so that 14% number can be something substantial like 75% of americans feel they comfortably can live in retirement and understand what they need in retirement. how do we get there as policy makers, starting here? >> i like to think of the american people as falling into three buckets. there are the folks who really aren't going to save no matter what you do. if you force them to save they'll borrow more money somewhere else. there's the folks i call the squirrels who will save no matter what. that's my mother. and then there's almost everyone else. certainly including me. that wants to do the right thing, knows they need to save,

doesn't know quite how to do it. doesn't want the government telling them how to do it. but twoonts do the right thing. strategy like auto enrollment and auto escalation send a signal to that vast group of people that these are the levels you should be achieving to get to a retirement security. so i go to bill, whose son is saving for his first home. well, my son asked me, should i, you know, i want to buy a home, too. he is 25 years old. and i got this 401(k) plan at work and there is a match. i'm like put the money in the 401(k) plan first. that goes back to the issue of do people save for retirement. we need to set up structures and incentives that let people know how much to save and we'll see mr. vanderheid's numbers for the gen-x-ers and others start to go up even more by starting them young and getting them involves and into the habit of saving and

ultimately changing the culture of saving. >> thanks. >> i actually have four thoughts and they repeat and i imagine you'll hear much of the same thing here. number one is obviously everyone has to have access. if you don't have access we can talk all we want about doing it on your own. but 95% of people don't. second is of course start young. that's absolutely crucial. another thing is the auto structures. auto enrollment and particularly auto escalation. and one of the things that this committee can do as part of its discussion of tax simplification, tax reform, is to look at the 3% default rate for auto enrollment. there are a number of studies out there that show that people will have precisely the same participation rate if it's 5%, 6%, the like to start. people think that they are doing the right thing and that 3% since that's the way it starts, that must be the right amount for them to save. and they find themselves in a trap later on.

>> one of td things we were looking at when we did our retirement simplification proposals is that we thought that we were trying to harness the industry to do a lot more advertising with regard to savings. one of the things that we looked at was by eliminating the income restrictions for i.r.a.s that people -- there would be advertisements to get people to come in and do this. you know, we actually saw this happen when we -- when congress enacted the roth i.r.a. i was working for senator -- on senator roth's staff at that time. and when the roth i.r.a. was enacted, we saw it for all different types of i.r.a. savings additional because everybody was promoting it.

>> all right. thank you. i see we're over the time. mr. mcdermott is recognized. >> thank you, mr. chairman. i think it is a very important hearing to have to talk about and i agree, we probably come at the same concern over having people's security. but i fly back and forth from seattle where united airlines has its largest and oldest base. most of the flight attendants are about 55 to 60 years old. one of them told me a story and i'd like you guys to respond and ladies to respond to this. her husband worked for washington mutual and one day they closed the bank and he lost his entire 401(k). boom. gone. all gone because it was invested in the bank, right? because he was required to invest it in the bank.

now she flies for united airlines. they've gone into bankruptcy twice and each time they go into bankruptcy the first thing the bankruptcy judge does and responds to the companies' pleadings is to scrape off the retirement. so this woman who has flown for united airlines for 29 years now has a guarantee of $231 a month from the pbgc on top of her social security. now, here are middle class americans who did everything right and they got clobbered by the system. i want to hear that this automatic system that we're going to enroll everybody in is going to protect those people. this woman said to me, i and my husband are going to work until we die because we have nothing but social security. >> i would like to take first stab at that. the situation she described is just horrible. congress has acted to prevent a

company forcing an employee to put all their money into employer stock. that is no longer permissible and that was, the ability was phased out and you guys did a great job on that. so hopefully that one won't happen again. i think the key on automatic enrollment is really all the defaults and one of those defaults is investment. and nppa, that was the -- >> let me stop you though. >> sure. >> you heard mr. teaberry talk about how many people know how to invest or understand. >> right. >> 14%. so how in the world could anybody sit up here and sensibly believe that we can design a system that says we're going to give all of you choice but only 14% of them understand what in the world they're in? >> most people don't take advantage of that choice. they'll stay where you put them. if you automatically enroll them, they'll stay in your default investments. so i think the key is to having a secure and appropriate default

investment and, again, there were changes made in ppa and i think there's been a recent study. >> does that mean then that the corporation, the company, the small business or whoever, has certain places they could put the money that's safe? they will be restricted as well or can they do whatever they want? >> they choose the provider but the type of investment that is the default investment is defined. it's, you know, like a target date fund or, you know, you could, frankly that is something you could be considering what should that be. but there's ample evidence that whatever you say the default investment can be is where most people are going to end up putting their money. >> so the automatic investment, the automatic enrollment would put it into something -- >> yes. >> -- that could be judged to be by whom? who would say that this is a safe investment? i'd like to know who those

people are. >> you defined the parameters. in terms of the individual companies. >> the treasury will ultimately put the blessing -- they'll bless the company that's going to make these investments, right? >> right now it would be that the planned sponsor or if you're in a -- would be the one that's choosing their investment adviser and the investment adviser if they hire an investment adviser accepts the fiduciary responsibility will have, you know, fiduciary responsibility for choosing a company that provides -- >> and who is on the hook if they made a bad choice? >> the fiduciary that is responsible for that decision. >> so any investment counselor would be then responsible for making the patient or not the patient -- i'm a doctor -- would be making the client whole? >> well, in theory. you know, fortunately there

aren't very many situations now that employer stock office the table. there aren't many situations where you have a company that the investment has gone down to zero. you know, when you do have responsible people choosing investment providers, it's not -- there are horror stories or more and more rare. >> and the flight attendants i should just tell them, tough luck. 231 is what you're going to get. >> the defined benefit system is a whole other -- >> it seems to me they ought to be connected somehow or we should take away the ability of the companies to take off the pension at bankruptcy. >> thank you. time is expired. >> thank you, chairman camp, for holding this very important hearing. as we look at tax reform and a very equally important area of retirement security, i've taken away a few things from this discussion. number one being that obviously

we need to look at how you can promote personal responsibility in savings. secondly, whatever we do i certainly appreciate the adage of first do no harm. so how do you avoid major disruptions? and, thirdly, can we simplify yet maintain flexibility? and as i'm trying to think through this, i remember that when i was running a small medical practice and dealing with some of these issues after a full day in the operating room and focusing on clinical -- the clinical side of my practice, you know, oftentimes individuals come in to work for you and they have worked somewhere else. they have a retirement account, multiple retirement accounts, and yet -- and they may also have an i.r.a. on top of that. and there are a variety of rules that govern this. i remember having to make phone calls to figure out how to incorporate somebody into your business structure when they had

these other outside arrangements in the past. i mean, talk to me about the rules, the complexity that these rules really present to a business owner trying to work with incoming employees. is this an area we can really simplify? >> well, i'll just start by saying that the problem you described has been around. the changes made in 2001 on portability of assets and allowing individuals to combine when they switch jobs, assets from one employer to the next employer from the i.r.a. and consolidate those in the new plan were a major improvement and really streamlined and made it possible to -- for a business owner to take those assets in. it's still complicated because you have items that maybe were put in some cases pretax and

others are post tax. those are issues we have to deal with no matter what because they exist today and you can't take away someone's pretax treatment or post tax treatment. but we made enormous treatment treatment. but we've made enormous strides since 2001 improving those rules. >> yes. i think there has been an awful lot of progress made. and i also think that if you look at the options that are available, these days you're more likely to have somebody that comes into your practice that also had a 401(k) plan at their other arrangement. and so there is a little more simplicity. i think sometimes when we talk about consolidation, and you're talking about a 403b, 457, 401(k), in the medical practice, maybe there was a 403b, but as randy said, the rules have been simplified to make that an

easier process. but in most instances, you now will have somebody coming from a similar type plan into your current arrangement. and i think that really, really smooths it. i do think in our written testimony there's some comments on -- there are rules that can be changed that make it a little easier for a small business to not get themselves in trouble. and i think we should get rid of those rules that trip people up. but frankly, they're rules that would apply whether it was an irsa or 401(k). >> if i may add, the serious problem is the fact that people forget to combine. i have actually an i.r.a. that was rolled over from tsp 20-plus years ago. and i keep meaning to roll it into heritage's plan but i have yet to do that. what we see is a significant number of people who lose their accounts, especially over the years, whether employers go out of business, the providers

change and the like. and there is a suggestion in my written testimony about a way to use tax information to enable people to find their lost accounts and to encourage them to combine them. >> thank you. one last question. are there incremental steps that would make it easier for employers to offer annuity options as part of a defined contribution plan? >> well, i think this is something that the -- that the irs and the treasury department are currently looking at. and i think that it's -- it has been something that policymakers are really looking to give people that ability, to address -- to use an annuity. now, i'm not speaking for the current treasury department or the irs. but i think what they've been

trying to do is to -- to eliminate some of the -- some of the difficulties under the current law to go and to move into -- an annuity product. and that's something that i think policymakers have been looking at over a number of years. >> thank you. >> thank you very much. ms. jenkins is recognized. >> thank you, mr. chairman. thank you for holding this hearing. and thank you all to the panel for participating. i have a question for you, ms. miller. the president's 2013 budget proposal includes a proposal capping certain individuals itemized deductions to 28%. and the exclusion and deductions under the proposal include the exclusion or above the line deduction for pretax employee contributions to defined contribution plans and contributions to traditional i.r.a.s. ginn that the tax break for retirement savings is a deferral, not a permanent

write-off, wouldn't limiting deduction on the front end, but not when the amount is distributed result in double taxation, and what are your thoughts on how the president's proposal would affect retirement savings rates and also on small business owners decision to set up or maintain retirement plans for their employees? >> i appreciate that question. i was very disappointed to see retirement savings included in that proposal, because you're right, it would be double taxation if you have someone who has -- because this is a deferral. so if you have someone who is at a, you know, 31% marginal rate, and you're giving them 28% cap on that, then they're paying that -- you know, 3% now. but when they pull it out, there's no special accounting. and i'm not saying there should be, because that would be a wreck. but when you pull it out, they're paying taxes on it

again. so it really literally is double taxation. and if you're being honest when you're talking to an employer, why would they want to put themselves in that position? so i do think it would be harmful. and is, you know, anything that reduces a tax incentive for small business owner to me i believe will discourage coverage. >> okay, thank you. and mr. sweetnam, your testimony mentions that following the bush administration's proposal simplifying this area, many interested parties were concerned about the proposal resulting in fewer savings opportunities being available to small businesses, causing them to opt out of offering an employer-based savings vehicle. you also mentioned that the 2005 budget proposal addressedel some of those concerns. can you just elaborate for us what you heard during your proposal and what changes you made to the '05 budget, and if congress were to move forward on

meaningful reforms, what are some of the transition rules that you -- that you might advise us to keep in mind? >> well, the two big things that were -- were problems was one in 2004, we had the lsa and the rsa contribution amount at $7,500. and we reduced it to $5,000. and what we had heard from some of the -- some of the policy folks, particularly aspa being one, was that by having that high of a tax-favored savings amount, some smaller business people might say, well, you know what, i can put in $7,500 in my lsa, $7,500 in my rsa. i don't need -- i've sheltered everything. i don't need any further savings

through an employer-provided plan. the other thing that we did was in our ersa proposal, we tried to simplify some of the nondiscrimination rules. and one of the things that we did was we pulled out -- we eliminated all of the various testing methodologies that are -- that are currently available. thinking that that was, you know -- that was simplification. as i think judy has said before, one person's simplification is another person's opportunity to -- to make various changes. and so we listened to them, and what we did is we just reduced the general complexity of the test. we didn't reduce some of the

opportunities that small businesses would have in order to create more flexible -- more flexible types of plans. >> okay, thank you. i yield back. >> thank you. mr. neil is recognized. >> thank you, mr. chairman. mr. chairman, i've had a lang standing issue and i think pretty strong credentials in this area. just to recount quickly, i worked with bill thomas before he was the chairman of this committee on raising i.r.a. rates. if you recall, that was not a favorite of mr. rosstencould you ski at the time. and carried with bob rubin, recalling the clinton proposal, in terms of differentiating itself from the bush proposal was the clinton rsa proposal was in addition to social security. the bush rsa proposal was as a substitute for social security. and have carried this i.r.a. issue for a long period of time. now, i introduced this bill five years ago. and is at least three of the

panelis panelists, i know, have already endorsed it. and i suspect the other two have some sympathy for it. now, this proposal would -- could raise the national savings rate by nearly $8 billion a year. endorsed by brookings and now with hard work from david john and the heritage foundation, we've developed this proposal. i have kidded david many times. it's n it's not every day that a massachusetts democrat's legislation is endorsed by the heritage foundation. we've done just that. let me tell you who else supports this legislation. the aarp. latino's for secure retirement. the black u.s. chamber of commerce, putnam prudential, netixis, and i must say with some grave disappointment, since phil english left, i can't get one republican to sign on to this legislation. mr. herger, i thought, was headed in the