July 22,2004

Grassley on Retirement Savings Policy Priorities

Following are the prepared remarks of Sen. Chuck Grassley, chairman of the CommitteeFinance, for the “Conversation on Coverage,” a public policy forum designed to find new ways toexpand coverage for the millions of low and moderate wage earners who do not have pensions orretirement savings plans to supplement Social Security.

Prepared Remarks of Sen. Chuck Grassley Before the “Conversation on Coverage”
Thursday, July 22, 2004

Thank you for inviting me here today to give the opening remarks at the “Conversation on Coverage.” It is nice to see so many friendly and familiar faces here in this room – people who have dedicated their lives to the cause of helping all Americans achieve a secure retirement. The “Conversation on Coverage” is an important conversation for us to have. It is a conversation thatbegins with a simple question: “How do we get more Americans – and eventually all Americans –access to a retirement plan?” This is not just an “inside the beltway” conversation – to be had herein this room, but without any real import to folks out in the country. This is a conversation that isrelevant in every community in America – from our biggest cities to our smallest towns in places likemy home State of Iowa.

A retirement plan is a key that opens the door to financial freedom. A retirement plan offersa promise of living one’s golden years free of the fear of poverty or being a burden on children orother loved ones. We must make access to retirement plan coverage a national priority – a truepriority that trumps partisanship and political gamesmanship. We have a track record here inWashington of being able to address pension issues on a bipartisan basis, of bringing people of different views together for the good of all.

That is why I applaud the work being done here at the “Conversation on Coverage.” This“Conversation on Coverage” is an effort by a group of people – representing a range of persons andviews – to continue that spirit, to share ideas, to hear each other out, and I commend you for doingit. The people in this room have the expertise to build on the successes of the current system. Thepeople in this room have the expertise to help solve the problems plaguing our pension system. Thepeople in this room have the vision to help realize the goal of retirement plan coverage for everyAmerican. But we also know that there are very real, very critical problems facing our pensionsystem and that more than talk is needed. We also need action – and we need to act promptly.

For a long time, we have been talking about the impending retirement of the baby boom generationand what that would mean for our country. Well, that talk is being replaced by the reality that thebaby boomers are about to begin retiring in mass numbers. The first of the baby boomers – born in1946 to men and women building a new life after the struggles and hardship of the Second WorldWar – will turn 65 in 2011. Many of those baby boomers are beginning to retire today. So in fact,the retirement of the baby boom generation is upon us. What does this mean? Are we ready for it?

These questions face us. And on a more specific level, there are other questions – what will theeffect of this generational event be on our labor markets? Our financial markets? Our economy asa whole?

And of course, even more important, at the personal level, millions of Americans will askthemselves, Am I prepared for retirement? Will I be able to maintain my standard of living? WillI be able to live the lifestyle that I have always imagined for myself? We face these questions at atime when we have uncertainty – too much uncertainty -- about the foundations on which Americanshave planned for their retirement for generations. We have all heard the analogy of our retirementsystem as a three-legged stool – Social Security, employer-provided retirement plans, and privatesavings. Well, we all know that Americans are not doing enough personal savings, and that we needto everything we can to encourage more savings.

We also know that there are questions about Social Security, and that is an issue thatCongress will have to address at some point soon – and I hope sooner rather than later. While welook at ways to improve those two legs, we also need to be sure that the critical third leg – workplaceretirement plans – is as solid as possible. Yet there are also a lot of questions about our employmentbasedretirement system. Unfortunately, the future of that system – which has been critical inhelping millions upon millions of ordinary Americans achieve a secure retirement – is clouded withuncertainty. And we all know what the end result of that uncertainty is – fewer Americans coveredby a retirement plan. I believe there is a great deal we can do to remove this uncertainty, however.

With the uncertainty removed, I think we also will be able to see clearly that there is an awfullot that works right in our pension system, and that we’ve done some great things to improve thatsystem in recent years. First and foremost, we need to make permanent the positive retirementsavings changes that we enacted in the 2001 tax bill. The 2001 tax bill made wide-rangingimprovements and reforms to our retirement savings laws. And if there was an overriding themeto the changes we made, it was to expand coverage and increase retirement savings.

I believed that the retirement savings provisions were critical and fought hard to have themincluded in the bill that the President signed into law. As a result, we
o increased retirement plan contribution limits and allowed new catch-up contributions for olderworkers,
o made portability improvements that allow workers to move retirement plan assets more easilywhen changing jobs or going through other life transitions,
o created the savers’ credit to help low- and moderate-income workers,
o established a tax credit for small businesses that start retirement plans, and
o provided a host of other changes designed to simplify retirement plan rules and providesafeguards and protections for workers and participants.

Those provisions – which were developed through years of bipartisan work – will expire in2011 if Congress does not take action to permanently extend them. Without such a permanentextension, our entire retirement system is facing damaging and unnecessary uncertainty. We shouldnot wait until the eleventh hour to permanently extend these provisions. We should all be able toagree that retirement savings is a national priority, and extend these bipartisan provisions as soonas possible. But the need to extend these temporary provisions is not the only source of uncertaintyin our retirement savings laws. Today, our pension system is confronting uncertainty on a varietyof other fronts as well.

Much of this uncertainty is having a direct, negative impact on defined benefit pensions. Fordecades, defined benefit pensions were the backbone of our employment-based system. With theadvent of defined contribution plans, companies and workers have more options in retirement plandesign. More options and more flexibility is a good thing. It is good for workers and it is good forplan sponsors. There are pros and cons to all of the various types of retirement plans we have today,but one thing should be clear – we need all of these types of plans to help us reach our goal ofdelivering pension coverage and retirement security to all Americans. On that score, we cannot turnour back on defined benefit plans. Defined benefit pensions are an integral part of our retirementsystem, and must be preserved. Time is of the essence as we see these plans increasingly disappearfrom the pension landscape. And recent data on defined benefit plan sponsorship is alarming.

The total number of defined benefit plans insured by the PBGC dropped from about 114,000plans in 1985 to 32,000 plans in 2002 – an approximately three-quarter decline in defined benefitplan sponsorship. Anecdotal evidence indicates that this trend is only continuing – and is likely evenaccelerating! We must act aggressively to resolve the uncertainty facing defined benefit plans. Thisuncertainty stems from a number of different sources – a temporary interest rate that is used tocalculate pension funding requirements, debate about reform of the pension funding rules, andongoing dispute over the application of age discrimination laws to hybrid style pension plans, suchas cash balance plans. I believe that all of these issues can be resolved in a way that strengthensworkers’ retirement security, that gives employers the certainty they need to design plans that fit theneeds of their workforce, and that improves our retirement system.

But it is going to take a lot of work. And it is going to take a lot of will to rise above narrowdifferences for the common good. In Congress, we will need to do that hard work, in that spirit, andI am prepared to do it. But it also will take all of the people in this room – working together,bridging differences – to help us resolve the issues confronting our pension system. As probablyeveryone here realizes, this has been a very tough year to move legislation. The pension bill thattemporarily replaced the 30-year Treasury rate has been one of the only major pieces of legislationto make it to the President’s desk. While I was disappointed that bill was only a short-term,temporary fix – a band-aid really for our pension system – it was a very important band-aid, and I’mglad that we were able to get it done. Next year, however, with the election behind us, I am hopefulthat we can begin to address the pension issues that we are confronting.

This September, the Finance Committee will hold a hearing that I hope lays the groundworkfor action next year. We will look at the uncertainty created by the current environment and theeffect of that uncertainty of pension sponsorship and workers’ retirement security. Looking aheadto 2005 and the next Congress, the expiration of the temporary 30-year Treasury rate replacementat the end of next year will have to be dealt with again – and hopefully this time in a permanentmanner. I am hopeful that the need to address the interest rate issue will create a pension vehicle thatcan serve as an impetus for action to address outstanding pension issues.

As part of such a bill, I also hope that we can finally enact the Enron-inspired participantprotections that have been included in the Committee’s NESTEG bill. These participant protectionsare too important to be allowed to languish any longer. It has been nearly three years since thecollapse of Enron, and participants still have not been ensured their basic right to diversify companystock held in their retirement plans. I also believe that it is vitally important that we try to achievea resolution of the age discrimination issues that have been plaguing the pension system. I believethat we can resolve these issues in a way that is fair to participants and plan sponsors, and that theend result will be a stronger pension system. Without the ability to develop innovative new pensiondesigns (including hybrid-style pension plans), I fear that we are headed toward a one-dimensionalpension world where the vast majority of workers do not have access to a pension plan other thana 401(k) plan.

While 401(k) plans are a vital and irreplaceable part of our retirement system, we need anarray of pension tools for workers if we are to meet the retirement income challenges that lay aheadfor our nation. I know we have the ability – working together – to find common sense solutions tothe problems facing our pension system. And the people in this room should not underestimate theirimportance in this process and in ensuring the strength of our national retirement policy. The roleyou have is vital. You must continue to educate Congress and other federal policymakers on theimportance of pension and retirement issues. You must continue to be advocates for a strongnational retirement policy. This is a true national challenge that we face. Working together, I knowwe can improve the retirement security of millions upon millions of Americans across the country.

Working together, I am confident that we can ultimately achieve the goal of pension coverage forall Americans. I will look forward to hearing the results of this “Conversation on Coverage.” I knowthat the ideas that come from this event will help advance the cause of pension coverage.

In closing, let me say thank you again for inviting me to kick off the “Conversation onCoverage.” It is going to take some big minds to solve the retirement and pension issues facing us– and I know that there are some very big minds here in this room! I look forward to continuing towork with all of you to improve our pension laws. And I’ll be happy to answer any questions youhave.