Remarks Before the American Society of Pension Professionals and Actuaries

Remarks Prepared for Delivery by U.S. Secretary of Labor Elaine L. Chao
American Society of Pension Professionals and Actuaries
Washington , D.C.
Tuesday, April 26, 2005

Thank you, Brad [R. Bradford Huss, Member of the Board of Directors of ASPPA].

First of all, I want to thank the American Society of Pension Professionals and Actuaries for co-sponsoring this conference with the Department of Labor. I know you have worked closely with Ann Combs, the Assistant Secretary for the Employee Benefits Security Administration, who is doing a terrific job. This conference, which is dedicated to ERISA Title I issues, is a great example of how the public and private sectors can work together. And when that happens, workers benefit.

Promoting the well-being of wage-earners, job-seekers and retirees is the core of the Labor Department's mission.

And one of the greatest concerns of today's workers is retirement security. That's why President George W. Bush has put this important issue at the top of his second-term agenda.

It's often said that retirement security is a three-legged stool, resting upon the Social Security system, personal savings and private pension plans. All three legs are under stress today. So, President Bush has a plan to strengthen each of them.

As many of you may know, I'm part of a team that is going all around the country, visiting 60 cities in 60 days, to talk about Social Security reform. This Administration wants to ensure that all Americans understand what is at stake and why we have to act now.

It's important to remember that Social Security is safe for today's seniors and for those nearing retirement. For retirees currently receiving Social Security benefits—and for everyone born before 1950—nothing will change.

But the system needs to be modernized. You know the math better than anyone! In 1950, there were 16 workers for each beneficiary. Today, there are only 3.3 workers supporting every Social Security beneficiary. And by the time today's youngest workers reach retirement, there will only be 2 workers supporting each beneficiary.

In 2008, just three years from now, the Baby Boom generation will begin to retire. These workers are part of a generation that has benefited from the great advances of our era. They are living longer and healthier lives than ever before. That means that more people will be tapping Social Security for longer periods of time than ever before. And benefits are scheduled to increase dramatically.

The result is that 13 years from now, Social Security will begin to pay out more in benefits than it collects in payroll taxes. The shortfalls will grow larger with each passing year. By 2041, when today's younger workers begin to retire, the system will be insolvent.

The problem was reaffirmed by the report of the Social Security Trustees, of which I am a member. In fact, the report's most realistic and reliable assumptions noted that Social Security will actually reach insolvency one year earlier than previously expected.

That's why we need to come together to solve this problem. The President has made it clear that all options are on the table for strengthening Social Security. The one exception is raising the payroll tax rate, which will dampen job creation. He has pledged to work with members of Congress from both parties. But we must do something, and we must do it now.

We all know that fixing Social Security will not be easy. But President George W. Bush is a leader who is not content to pass the buck to the person who comes after him. He is committed to solving this problem once and for all.

As we fix Social Security, President Bush wants to make it a better deal for younger workers. One way is to allow younger workers—on a completely voluntary basis—to put a small part of their payroll taxes in personal, voluntary retirement accounts.

Voluntary Personal Retirement Accounts would belong to the individual owner. The government could not take them away. The money in that account would belong entirely to the worker. And the money could be passed on to the worker's loved ones.

Personal accounts are one way to ensure that a worker's Social Security contributions are saved for that worker's retirement. Unlike the money in the Trust Fund, workers' personal retirement savings could not be diverted to fund other government programs.

President Bush has offered other solutions to help workers save for the future. The President has proposed expanding savings opportunities through the creation of Retirement Savings Accounts (RSAs) and Lifetime Savings Accounts (LSAs).

RSAs would provide all Americans with a simple, tax-preferred way to prepare for retirement. LSAs would give every American an opportunity to save tax-free for job training, college tuition, home down-payments or retirement. Individuals could contribute up to $5,000 in each account. Contributions would be nondeductible. But interest would accumulate tax-free and savings would not be taxed upon distribution.

The President has also proposed the creation of Employer Retirement Savings Accounts (ERSAs) to simplify employer-sponsored retirement plans. ERSAs would consolidate 401(k)s, SIMPLE 401(k)s, 403(b)s and 457 defined-contribution accounts. They would be merged into a single plan that can be easily established by any employer.

The simplified ERSA addresses the number-one concern we hear from small business about 401(k)s and other retirement savings plans—that they are too complicated! And through simplification, ERSAs would lower administrative costs of the plans.

President Bush has also proposed a comprehensive plan to strengthen single-employer, defined-benefit pension plans. As many of you know, experts estimate that defined-benefit plans are underfunded by $450 billion. Nearly $100 million of that underfunding is in plans sponsored by financially ailing companies. Recent terminations of underfunded plans have resulted in a $23 billion deficit in the federal insurance program that covers these plans.

That's why the President has proposed a plan to strengthen single-employer, defined-benefit pension plans to ensure that the promises made to these workers are kept. The President's plan has three main objectives:

First, reform the funding rules to ensure that employers fully fund their retirement promises.

Second, reform the premiums that private-sector employers pay to the federal insurance program to better reflect the real risks and costs.

Third, increase disclosure to workers, investors and regulators to ensure greater transparency and accountability. That includes making timelier information about the financial health of pension plans more widely available.

As you all know, the pension rules need reform. But reforming the rules won't help workers if employers don't know how to comply. That's why compliance assistance is one of the Department of Labor's top priorities.

Last year, the Department introduced a compliance assistance program to help employers meet their fiduciary duties. It's called "Getting It Right—Know Your Fiduciary Responsibilities".

Strong fiduciary oversight and protecting workers' benefits is among our highest priorities.

Getting it right, however, can be challenging. This is especially true for small and medium-sized employers who have limited time, resources and access to professional help with benefit programs.

That's why the Department is offering a series of educational seminars to help plan sponsors understand the rules and meet their responsibilities to workers and retirees.

The Department uncovered the need for this kind of program because of its vigorous enforcement efforts in the health benefits and pension plans.

Those efforts protected or recovered $3.1 billion for employee pension and health benefit programs in FY 2004 alone.

Compliance assistance is important for retirement plan officials because ERISA is one of the more complicated statutes under our jurisdiction.

"Getting It Right" is designed to help plan sponsors and fiduciaries avoid many of the common problems we have identified through our investigations.

Offering a retirement plan can be one of the most rewarding decisions an employer can make.

The employees participating in the plan, their beneficiaries and the employer all benefit when a retirement plan is in place.

However, many employers have not implemented a systematic process to educate fiduciaries about their responsibilities under ERISA.

We have found that many ERISA fiduciaries are not full-time plan fiduciaries. They have other jobs—for instance, running the company—and may not spend time daily focusing on their retirement plans.

This program offers a helping hand to those who want to do the right thing, so that the pension plans of workers will be better protected.

The goal of all these reforms is to better protect workers and retirees, so they can be confident of the secure retirement they have worked for all their lives. But the President has in mind another, deeper goal that goes to the heart of our society. He wants to build an ownership society, in which more Americans have a stake in the economic success of our country.

This philosophy runs through his entire domestic agenda, whether it's helping more Americans own their own homes, build small businesses or afford quality health care. He wants to make sure that, as our economy grows, the gains are shared by all. And there is no better way to do it than by creating more opportunities for Americans to own a piece of the combined economic output of our nation, which is the envy of the world.

Today, more Americans than ever before can afford the secure retirement that was once available only to a few. We must work together to ensure that the foundations of retirement security—Social Security, private pension plans and personal savings—are strong, safe and secure. And we are committed to helping employers comply with the rules that protect workers.

Thank you for everything you do to help provide a secure retirement for America's working families. Have a great conference!

http://www.dol.gov/_sec/media/speeches/20050426_ASPPA.htm