Senate Subcommittee Looks at Retirement Mess

Wednesday, 19 Mar 2014 06:49 AM

By Robert Feinberg

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The Senate Banking Committee's Subcommittee on Monetary Policy, chaired by Jeff Merkley, D-Ore., held a hearing March 12 titled "The State of U.S. Retirement Security: Can the Middle Class Afford to Retire?"

The panel consisted of the able treasurer of Merkley's home state of Oregon, two witnesses from progressive think tanks with identical messages and an eager mutual fund sales lady.

Only Merkley, the ranking Republican, Dean Heller, R-Nev., and for a brief time, Elizabeth Warren, D-Mass., participated. This is like a "split squad" game in spring training, and it is not unusual to see such light attendance at an afternoon hearing of a mere subcommittee.

In his opening statement, Merkley spoke of the American Dream as including a comfortable retirement, supported in part but not entirely by Social Security. Perhaps one of the lessons of the ongoing financial crisis is that politicians and industry witnesses should stop using the expression "American Dream," and if they do, a siren should go off and lights should flash.

Merkley lamented that many Americans of retirement age have virtually no savings, and Ted Wheeler, the Oregon State Treasurer testified that a crisis in saving is so serious the state has formed a task force to study it, but since the group has not begun its work, there is nothing to report.

A theme of these articles is that the key question to keep in mind must always be, "Who is the client?" This is not always easy to discern, but in this case, it is evident that the client is State Street Bank, and one notes that the only senator other than the senior members who attended happened to be from Massachusetts. This does not prove anything, but a discerning reader will bear in mind that the bottom line of the message of Kristi Mitchem, executive vice president of State Street Global Advisors and head of the Americas Institutional Client Group, was that more rank and file employees should have mutual funds and the law should be changed to encourage more employees to put more money in mutual funds than they do now.

Mitchem stressed that the key to accumulation of retirement savings is to use automatic arrangements under which employees are placed in mutual funds unless they opt out and the amount contributed is also automatically increased, to ensure that employees contribute early and often. No one was indiscreet enough to point out that the people who are now telling employees that they are building wealth every time they contribute to their retirement plans sound a lot like the people who said the same thing about mortgages, and in each case, the cheerleaders were in the business of selling financial products and could gain fee income immediately from the sales.

Now comes the crucial warning from this hearing, delivered by Monique Morrissey, an economist at the Progressive Policy Institute, and Robert Hiltonsmith, a policy analyst at Demos, where Morrissey also worked: if one participates in retirement plans, it is essential to pay close attention to what fees are being charged and to realize that they can lose on the order of $155,000, or 30 percent from their 401(k) if they don't. They also warn of other risks posed by mutual funds, but the solutions they propose tend to lead workers back into the arms of fund managers.

(Archived video and witness statements can be found here.)

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