Witnesses testified during the Senate Banking Subcommittee on Economic Policy’s hearing on retirement security last week that millions of Americans facing retirement may also face significant financial security challenges.
Monique Morrissey, an economist at the Economic Policy Institute and witness at the hearing, pointed to a 2013 figure from the National Academy of Social Insurance that estimates that cuts to Social Security in 1983 and 1993 will reduce retirement benefits by 24 percent.
Another witness, Oregon State Treasurer Ted Wheeler, said if Social Security were to expire, the poverty rate among the elderly in the state would rise from seven percent to 40 percent.
Social Security cuts may mean many older Americans will find it difficult, if not impossible, to retire. Employers have also begun to shift away from pension plans in favor of defined contribution, or retirement, plans, in which the costs and risks of retirement are transferred from employer to employee.
According to Morrissey, in 2010, 50 percent of full-time private-sector workers had retirement plans, 22 percent had a pension plan and approximately 13 percent had both retirement and pension plans available to them.
Morrissey said the shift from pension to retirement plans should have made it easier for employers to offer retirement benefits; however, participation in employer-based retirement plans fell to 44 percent in 2012 from a peak of 52 percent in 2000.
Kristi Mitchem, the executive vice president for State Street Global Advisors, said larger employers are more likely to offer retirement plans than smaller companies. Approximately 90 percent of large companies offer retirement plans, compared to 14 percent for small employers, according to a 2013 GAO study.
Mitchem said that in order to increase plan sponsorship among smaller employees, policymakers must address current challenges that make it difficult for smaller firms to offer retirement plans.
“Unlike large employers, small businesses often do not have the time, resources and expertise to administer a retirement plan,” Mitchem said in her testimony. “The administrative burdens and fiduciary responsibilities associated with plan sponsorship can be overwhelming and inhibit adoption.”
All three witnesses called on policymakers to examine the challenges retirees face and to develop policies that encourage and promote retirement savings.
“More needs to be done, and quickly, to reduce the profound economic impact of what I believe is a generational crisis, which threatens to plunge seniors into poverty, disrupt entire families and impact the overall economy,” Wheeler said. “It is quickly moving from the realm of being a personal issue to becoming a social issue.”