Opening Statement of Rep. Phil English
Subcommittee on Select Revenue Hearing On
 the Role of IRAs in Our Retirement System
June 26, 2008
(Remarks as Prepared)

The issue of improving our retirement savings system is certainly one that lends itself to bipartisan efforts, and it is one that is particularly important to me as a Co-Chair of the Congressional Savings and Ownership Caucus.  Clearly, we need to do more to encourage all Americans to save for retirement, and we need to work together to find creative solutions.

The U.S. retirement savings system is often described as a three-legged stool, with Social Security, employer-based retirement plans, and personal savings each constituting one of those legs.  The first leg, Social Security, covers workers on a near-universal basis, but the benefits of the program are limited by statute, and the system itself faces significant financial challenges over future decades due to changing demographic patterns.

The second leg, employer-based retirement savings plans, includes both traditional defined benefit pension plans and more recently established defined contribution arrangements, such as the now-familiar 401(k) plans.  Such employer-based plans are estimated to cover only about one-half of the workforce.  Although three-quarters of workers whose employers currently offer such a plan do participate in it, an estimated 75 million American workers are employed by businesses, typically small businesses, which do not offer such plans.

The third leg of the retirement stool is personal savings.  Unfortunately, the personal savings rate, which averaged about 9% during the 1960s, ‘70s and ‘80s, has now been on a steady decline for a generation.  Alarmingly, the personal savings rate has been less than 1% in every quarter since 2005.  This clearly constitutes a quiet crisis.

Congress has enacted numerous tax incentives over the past several decades designed to encourage retirement savings, both through employer-based plans and through individually-owned savings vehicles.  This hearing will focus on one such set of retirement savings vehicles in particular: IRAs.

IRAs were first created in their traditional form in 1974, and Congress has since enacted several major variations on this concept in efforts to increase IRA participation rates further.  As we will hear from our witnesses today, these savings vehicles play a significant role in the U.S. retirement system.  Indeed, more assets are held in IRAs than in any other type of retirement savings arrangement, including 401(k) plans.

Due to ongoing concerns with respect to the retirement savings patterns of Americans, especially among low and middle-income individuals, I have been interested in proposals to expand IRA coverage even further, including through the use of “automatic IRAs.”  Building on the success of similar initiatives, I believe this tool has the potential to fundamentally expand savings opportunities for millions of Americans and generate billions of dollars in new savings.

I look forward to hearing from our distinguished witnesses this morning, and I am hopeful that their testimony will help us develop creative solutions that better address the retirement savings needs of hard-working American families.

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