Thursday, October 23, 2008

Time to rethink U.S. retirement savings, Miller says

SAN FRANCISCO — As financial news for retirees and the soon-to-retire grows worse with each passing day, it's time for "a wholesale re-examination" of the American retirement savings system, House Education and Labor Committee Chairman George Miller said Wednesday.

When Miller, D-Martinez, held a hearing on the impact of the economic crisis on retirement savings Oct. 7 in Washington, D.C., the Congressional Budget Office testified American workers have lost more than $2 trillion in retirement savings in the past 15 months as the stock market's decline decimated 401(k) accounts.

At Wednesday's hearing at San Francisco City Hall, Miller said it's worse yet: $1.9 trillion more has drained from public and private pension accounts, according to a new study from Boston College's Center for Retirement Research. For example, the California Public Employees' Retirement System — the largest U.S. public pension fund — has lost more than 20 percent of its value since July 1 and so might have to force already-struggling state and local governments to pay more for retirement benefits.

And Miller said his committee this week learned the Pension Benefits Guaranty Corp. — the government agency that insures private-sector pension plans — lost at least $3 billion in stock investments in the past fiscal year. PBGC chief Charles Millard will testify before Miller's committee Friday in Washington.

"Fiddling around the margins Advertisementis not going to serve the American people," Miller said Wednesday, questioning the wisdom of having let 401(k) funds — subject to the ebbs and flows of the stock market — supplant the traditional defined-benefit pension plans which used to be the American norm. "Being able to save for retirement after a lifetime of hard work has always been a core tenet of the American dream. We can't allow the promise of a secure retirement for workers to become a casualty of this financial crisis."

Workforce Protections Subcommittee chairwoman Rep. Lynn Woolsey, D-Petaluma, agreed. "We need to make big changes in this country. "... This is a rude awakening."

UC Berkeley Professor Jacob Hacker, among experts testifying Wednesday, said Americans went from having a "three-legged stool" of retirement savings — Social Security, guaranteed private pensions, and personal savings — to just Social Security and private savings, be they in 401(k)s or elsewhere. "And we all know how wobbly a two-legged stool is."

Hacker recommended a universal 401(k) system, available to all workers whether their employer offers a traditional retirement plan; employers would be encouraged to match employee contributions, and could be given tax breaks if they offer better matches to lower-wage workers. All benefits would remain in the same account throughout a worker's life, but these 401(k)s would be governed by the same rules now preventing traditional pension plans from excessive investment in the employing company's own stock. Instead, he said, their default investment option should be a low-cost index fund with a mix of stocks and bonds that automatically shifts from riskier to safer investments as workers approach retirement.

Mark Davis, a partner in the Kravitz Davis Sansone financial consulting firm, said as pensions gave way to 401(k)s, "we shifted the burden for retirement funding and investing from sponsors to participants with no corresponding emphasis on education." All Americans, starting in their K-12 years, should be taught basic financial principles including the importance of savings, Davis said.

But education isn't always enough.

Retired teacher Roberta Quan, 74, of Richmond, testified she'd planned carefully for retirement, yet has seen her savings decimated by the high costs of the residential care her Alzheimer's-stricken husband now requires; by skyrocketing costs of living; and now by the sinking stock market draining her 403(b) retirement savings account — a plan for public teachers and certain others similar to a 401(k).

"The bottom line is that I am retired and unable to re-earn those lost funds," she said. "I am now faced with the insecurity of outliving my rapidly declining 403(b) account. And that is worrisome for John and my future. The word 'fear' looms on the horizon."

Santa Rosa retired writer Steve Carroll, 67, said he and his partner made a seemingly conservative investment in AA- and AAA-rated bonds, including some issued by Washington Mutual; when the Federal Deposit Insurance Corp. seized and sold off the failing bank's assets, they lost their money. Meanwhile, their individual retirement accounts are tanking, yet Carroll's partner must lose on this investment because he's more than 70 years old and is subject to a mandatory minimum monthly withdrawal.

Carroll said he hopes Congress can help "all of us citizens who have trusted our institutions — who have operated strictly within the rules government and financial institutions set for us — and who now find our much anticipated 'golden years' rapidly morphing into years of ash and tears, all through no fault or misdeeds of our own."

Miller said Treasury Secretary Henry Paulson has been asked to waive the minimum-withdrawal requirements during this economic crisis; the experts on Wednesday's panel agreed that's a good move.

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