WASHINGTON – Today U.S. Senator Herb Kohl, Chairman of the Special Committee on Aging, held a hearing on options to help retirees transform their retirement savings into lifetime income, taking a close look at the decisions plan participants must make in a defined contribution world to ensure they can have a secure retirement after a lifetime of hard work. Senator Kohl pressed administration, expert, and industry witnesses on how to provide more Americans with a choice of a lifetime income options at a reasonable cost and with adequate consumer protections, and mentioned his interest in drafting legislation to make it easier for employers to offer lifetime income options to workers.
“So far, the focus of most of our education efforts have been on encouraging people to save, but we have done little to help the average retiree make the difficult choices about how to make their savings last,” said Chairman Kohl. “With Americans living longer, the stakes are high for not adequately managing one’s savings.”
At the hearing, Assistant Secretary of Labor for the Employee Benefits Security Administration Phyllis Borzi and Deputy Assistant Secretary for Retirement and Health Policy at the Treasury Department Mark Iwry presented their early analysis of responses they have received to their joint Request for Information (RFI) to determine how the agencies might enhance Americans’ retirement security by facilitating access to and the use of lifetime income arrangements. Kohl responded to the RFI earlier this year by sharing with the agencies a report by the U.S. Government Accountability Office (GAO) examining the options retired Americans have for converting retirement savings into postretirement income. GAO also studied how pensions, annuities, and other retirement savings products are regulated.
Kohl also sent DOL and Treasury a bill he sponsored alongside Senators Jeff Bingaman (D-NM) and Johnny Isakson (R-GA) to help Americans translate their retirement savings into retirement income. The Lifetime Income Disclosure Act (S. 2832) would require 401(k) plan sponsors to inform participating workers of the projected monthly income they could expect at retirement based on their current account balance. The measure is patterned on the Social Security Administration’s annual statements, which are mailed annually to working Americans to inform them of estimated monthly benefits based on their current earnings. Congress mandated annual Social Security statements in 1989, and they have proven to be very useful to workers in preparing for retirement. By providing similar information for 401(k) plans, the Lifetime Income Disclosure Act would give American workers a more complete snapshot of their projected income in retirement.
Much of the hearing focused on annuity products. Kohl stressed that while annuities may be the right fit for some retirees, they can also be highly complex and, in the retail market, they have often been associated with aggressive sales tactics. In 2007, the Aging Committee began examining some of the questionable practices used by so-called senior financial investment specialists in order to gain access to the retirement savings of older Americans. Many seniors targeted by unscrupulous salesmen have lost their life savings because they were steered toward investment instruments that were unsuitable for them, given their retirement needs and life expectancy.
In response, Kohl introduced S. 1661, the Senior Investor Protection Act, which calls for the creation of a new grant program to assist states in their efforts to protect seniors from misleading financial advisor designations, which has been included in both Senate and House versions of financial regulatory reform. He also worked with the National Association of Insurance Commission on improving the suitability standards and the use of professional titles in selling annuities. Kohl has continued his investigation into misleading sales practices, recently sending a letter to Bankers Life and Casualty after learning of the predatory tactics promoted in their sales training program.
Finally, Kohl sent a letter today to GAO requesting that they conduct a review of how the current regulatory structures ensure that institutions that sell annuities will be able to meet the financial commitments they entail, and the types of state guarantee funds that exist to protect purchasers of annuities, including how they are structured, how they are monitored, and the circumstances under which they have been used to compensate owners of annuities.
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A webcast of the hearing will be posted within 24 hours on the Committee webpage: www.aging.senate.gov
Special Committee on Aging
Senator Herb Kohl, Chair
Ph: (202) 224-5364
Cell: (202) 340-3299