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Remarks Prepared for Delivery by
U.S.
Secretary of Labor Elaine L. Chao
National Summit on Retirement Savings
Washington, D.C.
Wednesday, March 1, 2006
Thank you, Ann [Ann Combs, Assistant Secretary for Employee Benefits
Security Administration].
Welcome to the Saver Summit! I know many of you have traveled a long way
to come to this conference, so thank you for participating in this important
and timely discussion. We have put together a very special program for you
— the Vice President of the United States, distinguished members of
Congress and many world class experts on retirement and finance will be joining
us. I know their presentations will inspire you and illuminate many of the
retirement security challenges our country is facing.
The recommendations you make in the next day-and-a-half will have a
tremendous impact on the future of millions of American workers. That's because
our country is on the verge of a tremendous demographic shift and retirement
issues are front and center on the public policy agenda. This year, the first
of about 78 million baby boomers turns 60 years old. Workers age 55 and older
are projected to grow at four times the rate of the labor force overall —
the fastest growth rates of any age group. The number of workers nearing
retirement is, quite literally, booming.
Our country is fortunate because we are facing this retirement boom from
a position of overall economic strength. Unemployment is at a low 4.7 percent.
A record number of Americans are working. Our economy is strong and getting
stronger. Home ownership is at an all-time high. Real household net worth is at
$51.1 trillion — another all-time high. And Americans are living longer,
healthier, and more active lives than ever before.
Yet we all know that many are not prepared for one of life's most
important milestones — retirement. Less than half of Americans have even
calculated how much retirement savings they will need.
Last year, the national personal savings rate fell to its lowest level
in more than 70 years. Some of this is due to economic fluctuations, such as
high energy prices. And people are saving for other things than their
retirement — such as their children's education and to buy homes. In fact,
when housing prices are high, people build up equity in their homes, which
contributes to a lower savings rate. But the long term downward trend in
savings is still of concern.
Our mission is to help reverse that trend. But there are many
challenges. Savings takes time, dedication, and careful planning. Your
challenge is to identify the obstacles to savings for four key groups, and then
come up with recommendations that will make it easier for working Americans to
save.
Congress and the federal government are already taking some very
important steps to encourage saving. In fact, you couldn't be here at a more
important time. As we meet, members of the House and Senate are preparing to
meet on Capitol Hill to come to consensus on a pension reform bill.
Under current law, companies can make pension promises they can't fully
pay for. They can also keep workers in the dark about the health of pension
plans. It is critical to enact a pension reform bill that strengthens defined
benefit pension plans. 44 million Americans depend on them!
The President has urged Congress to keep key protections of this reform
from being watered down. That's especially important for industries with
under-funded pension plans. He wants to ensure that the promises made to
workers will be kept.
The pension reform legislation also contains several provisions to
improve the choice, control, and confidence workers have in their retirement
saving plans.
The legislation will increase access to professional investment advice
for workers in employer sponsored plans. It will clarify standards for
automatic enrollment in defined contribution plans. It will protect workers by
mandating reasonable diversification rights. And it will improve transparency
by requiring quarterly benefits statements. This Administration has long
supported these important reforms.
Our country is fortunate to have active champions of these reforms on
the Hill. I am hopeful that working with the conferees from the House and
Senate, we will be able to advance a proposal that meets all the President's
goals.
The pension reform legislation is important for America's workers. It
will be a giant leap forward in building more secure retirements. But it will
not solve all of the retirement challenges we face. That's why your advice and
expertise are so important. You are here to address the obstacles to saving
faced by four key groups-new labor market entrants, low-income wage earners,
small business owners and their employees, and workers near-retirement. Each of
these groups faces its own special challenges.
New entrants to the workforce are preoccupied with gaining experience
and building a successful career path. They are so far from retirement that
they usually don't think about it at all. They assume they have plenty of time
to plan for their golden years later.
What they don't realize is that time is their greatest ally when it
comes to saving for retirement. A worker who saves $1,000 a year from age 20
through age 30 and then stops, will have more at retirement than someone
that starts at age 30 and saves the same amount for 35 years straight.
For every 10 years of delay, a worker will need to save three times as
much each month to catch up. No wonder Albert Einstein said compound interest
was the greatest mathematical discovery of all time!
New entrants are also likely to change jobs. In fact, changing jobs has
become a way of life in today's workforce. The average American will have had
10 jobs between the ages of 18 and 38. Every year, about one-third of our
workforce changes jobs, largely to take advantage of better opportunities.
Studies have shown, however, that many workers who change jobs are not
making the best use of their retirement plans. Only 43 percent of workers
changing jobs rolled lump sums from their former retirement plan into an IRA or
a new employer's retirement plan.
Low-income workers face many challenges, as well. Low-income workers are
faced with balancing today's needs with saving for tomorrow's retirement. The
urgency of today's needs often win out.
Outreach and education, along with tools like the Saver's Credit, are
important for low-income workers. Regardless of career paths or earning
potential, all workers can benefit from the power of compound interest. Saving
$100 at age 20 can grow to more than $1,900 by age 65. Starting early even with
small amounts can make a real difference.
It is not unusual for something small to make a big difference for
American workers. Small businesses have created 70 percent of the 4.8 million
net new jobs created in the last two-and-a-half years. Small businesses are a
powerful force in job creation. We need to find ways to make them a more
powerful force for retirement savings.
Only about two of every 10 small businesses with fewer than 100
employees offer some type of retirement plan. These employers are often
intimidated by complex rules and high costs. It is important to identify
strategies to overcome these significant barriers.
And finally, the other group requiring special attention is those who
are at or near retirement. The Department of Labor recently released a new
publication to help those nearing retirement. It is titled "Taking the Mystery
out of Retirement Planning." This publication is designed to assist individuals
who are within 10 years of retirement. You will receive copies while you are
here. And I hope you will help spread the word about the availability of this
publication. It can be downloaded from the Labor Department's Web site at
www.dol.gov/ebsa. This useful publication contains advice and worksheets to
calculate income, savings and common expenses in retirement. With these tools,
anyone can learn how much they need to save.
Those nearing retirement have a lot of important decisions before them.
Their choices will affect their ability to realize their retirement dreams. By
eliminating obstacles in their path, we can help them realize the full
potential of their golden years.
As I mentioned earlier, our nation's high standard of living and modern
medicine are ensuring that more Americans can look forward to longer,
healthier, and more productive lives. And building a diverse savings portfolio
is the best way to ensure lasting independence during the retirement
years.
So thank you, again, for lending your expertise and advice to this
important summit. By working together, we can help ensure that more Americans
than ever before will have access to the secure retirement that was once
available only to a few.
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