Financial Crisis Deepening Retirement Insecurity, Witnesses Tell Congressional Panel

Americans Have Lost $2 Trillion in Retirement Savings Over Fifteen Months, According to CBO

Tuesday, October 7, 2008

WASHINGTON, DC -- 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 U.S. House Education and Labor Committee today. Today’s hearing is one of several that House Democrats have 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 U.S. Rep. George Miller (D-CA), chairman of the committee. “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 worker’s 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.”

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

The House Education and Labor Committee passed a bill introduced by Rep. 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.

For more information on H.R. 3185 and the effects of hidden fees on workers’ retirement savings, click here.

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