U.S. Senate Committee on Health, Employment, Labor, and Pensions

Ghilarducci presented the following testimony before the US Senate Committee on Health, Education, Labor, and Pensions on February 28, 2024. Watch her testimony here and read it here.

“Because of an inadequate pension system in the United States, our elder poverty rate exceeds all of our peers. We are the highest at 23 percent. In contrast, the poverty risk for Dutch elders is a very low 3 percent.

The U.S. retirement system gets C's and D's on international benchmarks, and the Dutch system gets an A. You might hear about the average retirement wealth being quite high and actually growing, but for the typical American, the median retirement wealth has gone down for the bottom 90 percent because averages don't tell the story, distribution does.

If Elon Musk walked on the witness stand today, he would be the richest on average witnesses of all time in the HELP Committee. But the typical retirement wealth for us would not go up. For the typical American approaching retirement, and my study looks at the elder households and their typical retirement wealth, the Social Security wealth is the most important.

The stream of Social Security benefits, a defined benefit system, for those in the bottom half of the wealth distribution, is worth about $188,000, but they have zero retirement wealth and zero home equity.

For the typical household in the next 40 percent, the middle class, their retirement wealth is only about $20,000, and they have, we have about $129,000 in home equity. It is only the top 10 percent who over the past 30 years have had rapid increase in their retirement health--retirement wealth, their health as well, and their home equity exceeds four times that of the middle class.

This all adds up--into a lack of retirement readiness, and that lack of retirement readiness has materialized even though Congress has given lots of tax breaks for retirement savings. There are a lot of other proposed savings, policies like home owning incentives.

There have been soaring tax breaks for savings, and there's been lots of substantial investments into financial advice and all sorts of retirement products. The U.S. retirement system has not flourished. It lacks three fundamental elements of a well-designed pension system.

A well designed pension system only needs three things. It needs to help all Americans accumulate enough money into their retirement accounts. It needs to help all Americans invest well into their retirement accounts. It needs to have a good way for Americans to de-accumulate their retirement accounts and lifetime benefits.

What is to be done? Well, Senators here have tried to protect the defined benefit system. Senators Cassidy and Kaine would mandate that ERISA plans let people into these plans earlier, at 18 not at 21. Your auto enroll act would help reinvigorate these auto enrollment provisions to help more participation.

You may hear about auto IRAs. These are automatic individual retirement accounts. They are at the state level and at the Federal level. They are good baby steps for more access, but IRAs permit leakages and they do not pool investments. And because people access their individual retirement accounts for emergency savings, homeownership, and other life events, they should be called individual emergency savings accounts.

They are not retirement accounts. But we can extend wealth building opportunities to all Americans. And one bipartisan, powerful proposal already exists. Senator Hickenlooper, along with Senator Tillis, Republican, Democrat, and also a Democrat and Republican in the House of Representatives, Terry Sewell and Lloyd Smucker, would expand retirement accounts to all public sector workers who don't have one. They do not crowd out existing accounts.

It follows a successful thrift savings plan, again, the savings plan for the staff Members of Congress and for Members of Congress. It would feature automatic enrollment. It would feature portability, a good investment offer option, and sensible de-accumulation.

It meets that three-prong test, and there is also a 5 percent match, which helps mitigate the top heaviness of our current match. It is endorsed by experts all across the political spectrum, the AARP, The Charles Schwab.

Last week I was on a radio talk show, and the 25 year old NPR host asked me why professor is retirement in America becoming a luxury? My students asked me every semester, why do so many people in America who are old, why are they poor or why do they have to work?

I congratulate Committee Members from both parties for recognizing the urgency, the disaster, and the crisis, and for your caring and your wisdom to solve it. I heard you all say that you need a bold bipartisan reform. Thank you.”