American workers have lost as much as $2 trillion in retirement savings over the last year – highlighting the devastating toll that the nation’s financial crisis is taking on their retirement plans, witnesses told the Committee today. Today’s hearing was one of several that House Democrats scheduled to investigate the causes of the financial crisis and what additional steps should be taken to protect taxpayers, homeowners, workers, and families.

“Unlike Wall Street executives, American families don’t have a golden parachute to fall back on,” said Chairman George Miller. “It’s clear that Americans’ retirement security may be one of the greatest casualties of this financial crisis.”

According to the Congressional Budget Office, this multi-trillion dollar loss in workers’ retirement wealth could further slow the ailing economy. 

“To the extent households view balances in defined-contribution plans as part of their overall portfolio of wealth, a decline in those balances could lead people to reduce or delay purchases of goods and services,” said Peter Orszag, director of the CBO. “It could also lead some workers to delay their retirement.”

According to a survey released today by the AARP, in the last year 20 percent of baby boomers stopped contributing to their retirement plans because they have had trouble making ends meet. As several witnesses explained, workers closest to retirement may suffer the biggest hit from the financial meltdown. 

“The current financial crisis has certainly highlighted the fact that 401(k) participants—whose 401(k) account represent their sole retirement savings—bear all the investment risk,” said Jerry Bramlett, president and CEO of BenefitStreet, Inc., an independent retirement plan administration firm. “The pain is particularly acute for those participants closer to retirement whose retirement income expectations have been significantly impaired possibly resulting in the need to postpone retirement.”

The AARP also found that a third of workers surveyed are considering delaying retirement as a result of the financial and housing crises.

“In the last few weeks, we’ve been confronted with older worker and retirees’ lives being turned upside down; their panic tops-off an already existing state of chronic anxiety about retirement futures,” said Teresa Ghilarducci, professor of economic policy analysis at The New School for Social Research.

Witnesses also said that while the current financial crisis is reducing workers' savings today, retirement insecurity had been steadily growing over the past decade.

 “While the events that have taken place over the past several weeks have shone a spotlight on how affected Americans’ retirement plans can be by such volatility in the financial markets, it is important to keep in mind that Americans’ retirement security has been in distress for much longer than the past few weeks,” said Christian Weller, senior fellow at the Center for American Progress  “In fact, retirement security has been a growing concern for Americans for many years due to limited retirement plan coverage, little retirement wealth, and increasing risk exposure of the individual.”

Chairman Miller said that greater transparency in retirement plans and the fees workers pay is needed, especially when workers are losing money and looking for the best deal.

“401(k) holders lack critical information about how their money is managed and what fees they pay. I’m here to say right now, those days are over,” said Chairman Miller. “We must have more transparency in 401(k) investment practices. The Wall Street veil of secrecy must end.”

Earlier this year, the Committee passed a bill introduced by Chairman Miller that would require workers to receive clear and complete information about fees that – in some cases – are cutting deeply into their 401(k)-style retirement savings.

This statement was made today by Chairman George Miller at the House Education and Labor Committee's hearing on the "Impact of the Financial Crisis on Workers' Retirement Security."

Good afternoon.

Last week, Congress approved an emergency rescue plan in response to the worst financial crisis our country has seen since the Great Depression. We know that this plan alone will not magically turn the economy around. But we are confident that without it we will not have the chance to move forward.

We insisted that the plan include strong protections for taxpayers and tough accountability – neither of which was included in the President’s original request to Congress.

Immediately after the plan was approved, Speaker Pelosi announced that the House would conduct a series of hearings to investigate the causes of the current financial crisis and what steps we should take next to protect homeowners, workers and families struggling today.

As part of that commitment, the Committee on Education and Labor today is holding a hearing to explore how this financial crisis is impacting the retirement security of American families.

Yesterday, the House Oversight and Government Reform Committee launched the first of many oversight hearings examining the toxic mix of corporate greed, recklessness, and deregulation that created this financial crisis.

During his testimony, Lehman’s CEO, Mr. Fuld, showed no remorse for his catastrophic mismanagement of the company. In fact, he repeatedly denied responsibility for running the storied Lehman Brothers investment house into financial oblivion.

He refused to admit that his own reckless management – and his industry’s success of keeping regulators at bay – directly contributed to this historic financial crisis that is costing taxpayers, shareholders, and the nation’s current and future retirees billions of dollars from their nest eggs.

All the while, he insisted on taking obscene multi-million dollar bonuses for his executive teammates.

Unlike Wall Street executives, American families don’t have a golden parachute to fall back on.
It’s clear that their retirement security may be one of the greatest casualties of this financial crisis.

The current financial and housing crises are stripping wealth from American families at a record rate.

A new poll just found that 63 percent of Americans are worried that they will not have enough savings for their retirement. Tragically, they may very well be right. Due to the collapse of the housing market and the financial crisis, trillions of dollars that Americans were counting on has been lost.

Americans were counting on much of this wealth for their retirement. Now it is gone – as is their ability to adequately fund their retirement.

Even before the current meltdown, middle-income families were losing ground due to the decline in middle-class wages over the last decade – making it harder for them to save for their retirement and family emergencies.

Retirement and financial experts now predict that retirees and older workers who rely on financial investments for retirement income may suffer more than any portion of the American population in the coming years.

According a survey released today by the AARP, one in five middle-aged workers stopped contributing to their retirement plans in the last year because they had trouble making ends meet. One in three workers has considered delaying retirement.

Now, the number of investors taking loans on their 401(k) accounts is increasing. And hardship withdrawals are also increasing.

T. Rowe Price estimates a 14 percent increase in hardship withdrawals just in the first eight months of 2008.

And, all the signs point to an increased frequency of 401(k) loans and hardship withdrawals in the coming year.

It makes sense that more Americans will be raiding their retirement accounts as they deal with rising unemployment and increasing costs of basic necessities.

Unfortunately, these drastic measures taken by workers today will have a long-lasting impact by significantly reducing account balances once these workers reach retirement age.

Over the past 12 months, more than a half trillion dollars have evaporated from 401(k) plans as a direct result of the crisis in the markets.

Some experts say that it will take as long as 3 years to recover market losses in 401(k)-style accounts – but only if the market turns around soon.

Just like consumer directed retirement plans, traditional pension plans are not immune from the financial crisis.

Although pension plans hire professional money managers and are required to be diversified, these plans will likely lose value as a result of the weak performance of the investment markets.

Sophisticated pension funds lost 20 to 30 percent of their value during the 2001 recession and took several years to overcome those losses.

We must keep our eye on these plans and I await further data on the health of our nation’s pensions.

While this crisis began on Wall Street, much of the financial burden will ultimately be borne by Main Street. And this did not happen overnight.

With the Republicans’ help and armed with their powerful lobbyists, Wall Street cunningly held off fair regulations by Congress, arguing that Americans would be better off if left to their own devices.

As Congress continues our investigations into this crisis, we cannot allow those responsible to emerge unscathed. The American people are paying the price of this go-go, Wild West approach to governing.

One cost will be the concern that our nation’s workers will not have sufficient savings to ensure a secure retirement after a lifetime of hard work. In the coming months, this committee will examine what measures may be needed to ensure a safe and secure retirement for workers, retirees and their families.

For starters, we know that 401(k) holders lack critical information about how their money is managed and what fees they pay.

I’m here to say right now, those days are over.

We must have more transparency in 401(k) investment practices. The Wall Street veil of secrecy must end.

I would like to thank all of our witnesses for joining us today. I look forward to their testimony.  

And I expect that we will be back here repeatedly until we can ensure greater security for the retirement of hard-working Americans.

The Committee today will hold a hearing to examine how the current financial crisis is impacting pension funds and workers’ directed retirement accounts, such as 401(k) plans. According to a recent poll by the Associated Press, more than half of all Americans are worried that the ongoing financial crisis will force them to postpone retirement.

"The Impact of the Financial Crisis on Workers' Retirement Security"
Scheduled at 1:00 p.m. on Tuesday, October 7, 2008, in room 2175 Rayburn H.O.B.

Witnesses:

Jerry Bramlett
CEO
BenefitStreet, Inc.

Dr. Teresa Ghilarducci
Professor of Economic Policy Analysis
The New School for Social Research

Dr. Peter Orszag
Director
Congressional Budget Office

Jack VanDerhei
Research Director
Employee Benefit Research Institute

Dr. Christian Weller
Associate Professor of Public Policy, University of Massachusetts-Boston
Senior Fellow, Center for American Progress

The U.S. Bureau of Labor Statistics announced today that 159,000 jobs were lost in September, the steepest decline in five years and the 9th consecutive month of job losses.

Today’s jobs report highlights the massive destruction that the Bush-Cheney-McCain wrecking ball has done to our economy, workers, and families. Eight years of their misguided policies have culminated in nine straight months of job losses. Two million workers have been unemployed for more than 27 months – 167,000 more than in August. Our nation is now dealing with the largest financial crisis since the Great Depression.

America’s working families are hurting, and in need of real solutions to get our economy back on track. For starters, we must extend unemployment benefits for hundreds of thousands of out-of-work Americans whose current benefits are set to expire this weekend. Today, as the House considers a financial rescue plan to protect the credit that small businesses and families rely on, we will also vote to extend unemployment benefits to help workers cover their bills while looking for a new job.

But workers also need a long-term strategy to generate new jobs. Last week, the House passed a much-needed stimulus that would create millions of good-paying jobs by investing in our crumbling infrastructure – an investment that would get our nation back to work and prevent our economy from falling deeper into recession. Unfortunately for American families, Senate Republicans blocked the package.

This latest news underscores the urgent need to ease the pain of America’s working families and get our economy on the road to recovery.

On September 26, the House of Representatives approved final bipartisan legislation to strengthen protections and support for America’s runaway and homeless children. The measure, the Reconnecting Homeless Youth Act (S.2982), builds on legislation authored by Rep. John Yarmuth, which the House overwhelmingly passed on June 9, 2008. It now heads to the President’s desk for his signature.

The bill reauthorizes the Runaway and Homeless Youth Act. Among other things, it would significantly improve the quality of services available to help disconnected youth and would expand access to those programs – so that fewer runaway and homeless children are turned away from shelters. More than a million children experience homelessness each year; in many cases these children flee because of situations of abuse and neglect. Studies show that runaway and homeless youth are at greater risk of behavioral and mental health problems.

In addition, the bill would also increase transparency at the Department of Health and Human Services and provide funding for local community programs that help homeless and runaway youth. In 2005, these programs served more than 500,000 homeless and runaway children.

“We must protect our nation’s most vulnerable children, especially those who have been pushed out and are living on the streets. This legislation will give them the physical shelter and emotional support they need to start rebuilding their lives.  I commend Rep. Yarmuth for his leadership and dedication to providing runaway and homeless children across the country with the attention, stability, and hope they deserve.” -- Chairman George Miller

“This legislation will bring us significantly closer to ensuring that, in America, no child ever has to grow up without a home.  For more than a million children each year, this legislation could mean the difference between continuing to live on the streets without hope and finding a path to successful adulthood.” -- Rep. Yarmuth

“I would like to congratulate Rep. Yarmuth on this bill and commend him for his commitment to helping our nation’s runaway and homeless youth.  It is crucial that we do everything in our power to help the thousands of vulnerable young people in this country that are without a home.  The programs that are reauthorized in this bill will give runaway and homeless children a real chance at getting a new start in life and help them get on track to a better future.” -- Rep. Carolyn McCarthy, chairwoman of the House Subcommittee on Healthy Families and Communities 

Stronger protections in federal law are needed to ensure that companies deliver on their promise to provide health care to retired workers, witnesses told the full committee today.  With insurance premiums skyrocketing and companies looking to cut expenses, an increasing number of companies have been rolling back or eliminating promised retiree health benefits. The Kaiser Family Foundation estimates that the share of large firms offering retiree health coverage fell by half between 1988 and 2005, from 66 percent to 33 percent.

“Through the years, millions of workers have retired believing that they would be provided with the health care benefits that they were promised by their employer, benefits that they earned. What many of those workers found was their former employer eventually made a cost-cutting decision to renege on that promise and cut or reduce those health care benefits,” said Rep. John Tierney.

One of those companies was Raytheon Missile Systems, a defense contractor. Despite guaranteeing lifetime heath coverage to its retirees in the 1990s, in 2004 the company notified retirees that they would be have to pay several hundred dollars a month to continue coverage. “Retirees have been forced to sell a large part of their retirement dreams in order to afford the premiums they now have to pay,” said David Lillie