ASEC of other organizations stand at the ready to as we launched the Choose to Save nationa different earnings pattern. Full 2002 were generally constant. Reports from Security is the m As you can see, even if a pers • • governm Surveys find that the public does not know wh Most workers repo o est widely recogn nt and nonprofit program Summary and Oral Statement of Dallas Salisbury rt hav results of this res ion invested a portion of thei ng accum ized and ut l public service announcem su ass , and 4) se individual 401(k) adm lated less th ilizied retirem st in the 20 earch will be publis t standards for eval en they will be eligible for Social an $50,000 in total saving ent incom 05 SAVER Summ r payroll tax in an individual inistration firm e program ent initiative. In 1998 hed in the May 2005 uation tools, serve in the United it and in the s suggest s, and T-143 The American Savings Education Council (ASEC), an EBRI program, is a nonprofit and 2002, the first of three National Summ that nearly 90% of participants m States. As I noted, EBRI Issue Brief. FLEC strategy im account, certain investment allocatio as clearinghouse for them, and ple it is th mentation. Writt e only source of incom en Testimony o ake no changes over tim ns would actually result in a dissemits inate best practices. f on Retirem Dallas Salis e for 25% e. e bury nt Savings called for by the of retirees, and the prim reduced benefit over other ary only 11% have saved m Security, how long they are likely to liv ore than $250,000—the e, how much they need to save for lump-sum value of that average Appendix national coalition of public- and private-sector institutions undertaking initiatives to raise SAVER Act source of incom options. Chairman Oxley, Rankin were held, and the e for 66% of retirees. W g Mem last summ b Written Statement er Frank, and mem it is called for by statute in 2005. Over these h atever results from bers of the comm Social Security ittee: My nam reform e is , • Federal governm $9,000-a-year Social Security benefit. retirement, and m ent policy should encourage uch more. and facilitate easy savings through the public awareness about what is needed to ensure long-term personal financial independence. years, the S Conclusion Am What Can Data and Surveys Tell Us About Social Security Reform? Dallas Salisbury. I am ericans will need to Chairm However, for a 20-year-old born 10 years la an Oxley, Rankin EC held investor education fo presiden understand how the progr g Mem t and chief executive officer of the nonpartisan Em ber Frank, and mem rums ter (in 1985) and currently earning the same around the nation that included m am works and how it affects their overall bers of the committee: My nam ployee any other e is Annual EBRI work place, includ Retirement Confidence Survey ing more small businesses and individual savings. • • More than 8 401(k) plan data show that m 5% of workers say they will ore than half work af of participants have less than $10,000 in ter “retirement,” yet more than 401(k) Accounts: What the EBRI/ICI Database Shows th ASEC works through its partners to educate Americans on all aspects of personal finance governm Dallas Salisbury. I am financial future. Th Benefit Research Institute (EBR amount, the initial Social Security benefit unde For the 15 Unfortunately, no m First, as I already noted, ent agencies and private organizations, year in 2005, EBRI and Matthew Gr is w presiden a on’t be easy to do: tter how you look at the st Sot and CEO of the nonpartisan cial Secu I). I am pleased to appear be rity is either the Even though Am for the r current law w as well as sim atistics, the bottom eenwald & Associates have conducted only ericans fEm o or the ould be $12,500 a year. What re you today to testify on ilar forums developed by the ployee Benefit Research have been getting primary lines are the sam income source annual e: • Nonprofit organizations should their accounts. 40% of retirees report having retired earlier than pla 1) participate in creati nned due to m ng a national plan, and 2) edical problems To understand Americans’ retirement plan investment activity and decisions, EBRI and wealth development, including credit management, college savings, home purchase, and Office of Personnel Managem benefit statem f then the country' financial education and financial literacy. Institute (E or m 1. ? ost Americ Financial literacy in the nation is not good. BRI). I am s m ents for years, only 18% of o an re st established and com tir pleased to appear before ees. ent and the Depart prehens EBRI has worked on these issu respondents in our 2005 you today to testify on fina ive study of the attitu ment of Defense. Now, the statutorily Retirem des and behavior of es since its ncial literacy as it ent Confidence cooperate and coordinate or the loss of a job. with other organizations. • By comparison, look at someone who turns 65 and has no other source of income maintains the EBRI/ICI 401(k) database. This is the world’s largest repository of retirement planning. ASEC's goal is to make saving and planning a vital concern of all crea Survey knew the age at which they would be e founding in 1978, and expanded its work in 1995 relates to decisions Am Second, for a growing num 2. ted Fina • Most Am Because th ncial Liter ericans are not planning for their is indiv a ericans face about Soci cy Educatio House Com idual will reach the norm ber of workers, n Comm mittee on Financial Ser issi al Security and their financial security in ligi on (or FLEC) is com with creation of the Am Social Security will bfuture by taking control of their current le for full al retirem benefi vices ent age ts. Clearly, m p be the only annuity le afte ting its analysis of erican Savings r the date when ost people American workers and retirees towards all aspects of saving, retirement planning, and long- • • Em than the average $9,000-a-year Social Secur More than two-thirds of ployers should institute workers are c voluntary efforts in employee retirem oncerned that they are behind schedule in ity benefit: The lump-sum ent plan value of that information about individual 401(k) plan participant accounts. As of Dec. 31, 2003, the Americans. comments from do not read or understand their Soci incom retirem Education C ee protection they have again financial situation and saving for nt. Social Secu ouncil and in 1997 with the Choos over 170 organizations as it f rity’s revenues will f st the risk al Security benefit statements. retirem all belo of outliv e to Save program eont and other life events. rm w its co ulates a national strategy for financial ing their m sts, the stee oney. At 91, m of public service p reduction caused by y father has term financial security, the Retirement Confidence Survey (RCS). This annual survey is a participa annual benefit is about $250,000. That gi their saving, and m tion. any of those state that ves you an idea of how s high expenses and debt keep them from mall most EBRI/ICI database includes statistical information on 15.0 million 401(k) plan participants, literacy. E had a m announcem “Generations Working Together: Financial 3. Established in 1978, EBRI is comm There are a num To change that, we need to sustain and e u the cliff benefit cut option would redu ch longer life than he an BRI and hundreds of other organizati ents. ber of Social Security refo ticipated, itted exclusively to data dissem an rm ce his or her initia ons stand at the ready d with each L scenarios under consideration. Given the xpan iteradcy and Social Secu the nation passing year Social Security l benefit to $7,700. al effort to increase th ination, policy to assist in the 2005 rity Reform” e random, nationally representative survey of 1,000 individuals age 25 and over. The survey in 45,152 employer-sponsored 401(k) plans, ho • Education program savings are in Am saving. erica, even s should target 1) em among those who have savings. lding $776.0 billion in assets. The 2003 ployees, 2) youth, and 3) minorities under- ### SAVER Summit and in the FLEC strategy im contains a core set of questi becom projected funding shortf research, and education on financial security Research has consistently docum • edelivery of financial education s increasingly important to Dad and Mom. If the benefit reductions were gr all curre ons that is asked ntly facing Social Security, ented that adual, the benefit would be $9,800. and em plem Americ annually, allowing key entation. Fe ployee benefits. W w plan their spending in anticipation ans are not f the prom inancia e do not lobby or ised benefit is not attitudes and self- lly fit—as most EBRI/ICI database covers appr represented in current retir oxim em ately 35% of the universe ent savings. In addition, these program of 401(k) plan participants, s should teach of living to that 10% probability. During re advocate sp reported behavior patterns to be tracked over tim recen projec Unfortunately, no m tly do • ted to m Under Model 2 individual accounts, th cum ecific policy ae terialize ( nted by recomm the 2005 aw tter how you look at the ith intermediate a endations Retirem April 20, 2005 ; our m etirement, budgeting m nt ssumptions), unless changes are m Confidence S ei. W ssion is to provide objective and reliable e benefit would range from statistics, the bottom e also add special questions each year. urvey released by EBRI earlier ay well be m lines are the same: oare i $10,800 to de by either mportant W Earlier surveys by EBRI found that less than ith changing demographics, projected financ 40% of adults have ever had a budget—yet ing shortfalls in public programs such as 10% of plans, and 41% of 401(k) plan assets. through segmented affinity groups such as The EBRI/ICI data are unique because they sports teams, social clubs, religious Financial literacy in the nation is not good. than at any other life stage, as goin research and inform this m reducing benefits or raising revenues. Am onth (details at www.ebri.org/rcs/2005/index.htm erica is a land of great $15,700, depending upo ation. All of our res opportunity. However, m n the investm g back earch is available to work f eMost Am nt of the account assets. o)r incom . on the Internet at ericans are not planning for their any of e becom its citizens are passing on es less of www.ebri.org an option This year’s findings shed light on a number of issues relevant to financial literacy related Social Security and Medicare, only with a clear knowledge of expenses agai and a transfer in responsibilit nst income, and a budget for savings, are the y for retirement savings and cover a wide variety of plan record keepers organizations, community service organizations, etc. and, therefore, a wide range of plan sizes 1 See the President’s Commission to Strengthen Social Security report for a further future by taking control of their current fina their often one-tim with each passing year. To address this prob EBRI resear Working with others, EB ch shows h e chance to lem,o we m RI establishe w people in dif build wealth and to have fi ust begin d the Am in the schools and in fncial situation and saving for retirem erent stages of erican Savings Education Council th nancial security by spending e lif hom e cy es by teaching m cle will fare ent and un oney der to retirement planning and savings. We found that: distribution decisions from overall statistics likely to change. employers to individuals, there is a greater need than ever before offering a variety of investm • Topics to teach should include both basic ent alternatives. In addition, the database covers a broad range skills (such as budgeting) and “higher- ® discussion of this model, as well as the other models that were offered by the commission at other life events. To change that, we need beyond their m basics. W program various courses of reform. If Third, Socia Again, any benefit an individual account prov in 1995, and the Choose to Save e must then teach Am eans, not properly pl l Security annuities sav the nation settles on including so ericans the m anning for life’s unexpected ev e the m education program in to sustain and expand the national effort to any arria aspects of financial risk and how to deal ides would fluctuate widely according to ges of retire me1997, to educate the nation es’ ch sort of individual accounts ents, f ildren. ailing to invest in This pay-as- • Employers with a retirement plan can help their workers achieve investment for all individuals to actively pl of 401(k) plans, from very large an and save for their long-term corporations to small businesses. personal financial security. level” skills (such as retirement planning, investing, and managing debt). www.csss.gov/reports/Final_report.pdf. increase the delivery of financial educati you go system their own retirem on the need to save. Our Choose to Save early decisions this individual m effectively with each. in Social Security, EBRI research s autom ent savings, m The m atically transf aajor risks are no aking bad decisions kes. hows the onl ers funds fro on in order to increa media public service announcements run across t saving, excessive d y way to achieve greate m about debt, and not participating in thei working kids to their parents w se financial literacy. ebtr retu , excessive interest rns, other than ithout r diversification through the investment options they offer. Employers looking to W Have the N ithout action on the part of individuals, we ation and Work Radically Changed? could at least experience greater income The most recent findings from this database indicate the portion of 401(k) balances 2 em guilt. More im the nation through our partnership with the Na taking a reduction of benefits, expense, poor health, not dive ployers’ retirem Mr. Chairman and m What about a higher-incom portant, it does it with ent plans. W embers of the co rsifying investm is to ensure the accounts are i e e, older individua feelout havi the grea mmittee, I commend you for exploring th ng to negotiate with your sp e tional Association of Broadcasters and around test sham nts, or outliving the m l? For exam e is that these actions are often done nvested in diversified portfolios ple, a 50-year-old individual oney you have saved. ouse on a monthly ese help employees make more informed investment allocations may be able to do so dif fiThe nation and the work force have not changed as m culties for Americans as they age, and at worse a dramatic uch over recen decline in the standa t decades, as the rd of invested in equities increased in 2003, reflecting the strength of equity prices. Beyond the Som The $10,000 annual salary is 27 percent of th e of these items have seen action. The Financial Literacy and Education e average wage, $16,500 is 45 percent of the topics, and thank you for the opportunity to m basis how much m out of sim the world through our partnership w (born in 1955) and currently earning about and not simply m For the nearly 60% of workers who ar ple ignorance. ooney to send to your respective re “save” bond fith the Departm unds, assum e saving at work—through program $72,500 would have a current-law benefit of eet with you today. There is m ing “in-laws.” Just think for a m ent of Defense. past returns are an indication of future uch to be oment about s like the done, more efficiently by offering lifestyle or lifecycle funds. Among participants not living of retirees and an incr headlines would often have us believe. In th ease in elderly poverty. Therefor e so-called “good old days,” about one-third of e, financial education—and the market-driven changes, 401(k) plan participants do not appear to have made significant asset Comm average wage, $36,500 is 100 percent, $55,000 is ission was established under Title V, the Fi 150 percent, $72,500 is nancial Literacy and Education 200 percent, and but—one person at a tim how that m $23,200—the sam Federal Thrift Savings Plan returns. Governm Organizations in both the private and public se Financial education and financ onthly session would go for you or your children. ee benefit as waiting until the nt regulation tells us that e—we m and 401(k)s—research has now docum uial literacy in Am st proceed. we should not assum ctors m erica are wo revenue shortfall. U ust continue to collaborate on all rthy of constant attention. It e that the past is an ented a number of nder the gradual currently offered these types of funds, 23% say they would be very likely to fworkers spent an entire career with just one inancial literacy to which it leads—are of great national im employer; today, that is down to about one- portance. Im reallocations or to have m provement Act, which was part of the Fair ade changes in their loan activity. and Accurate Credit Tr Buoyed by strong equity ansactions Act of 2003, $95,000 is 260 percent. Each worker maintains this percentage of the average wage levels to help educate A has been co approaches that would improve outcom reduction in benefits, her or his benefit indica I would be pleased to take Fourth, Social Secu tor ofnsisten the fu tly do ture, however, so there is s rity cum mericans about the im does not allow access ented that Am questions, and to respond to es: ericans are not f would be $22,900. Unde portance of taking control of their f till a r to funds for reaso isk r in ea lated to f written questions following the ncially prur Model 2 individual en tu ps other than death, ared. W re outcom e will eis. Our nancial participate in a lifecycle fund, 21% would be very likely to participate in a lifestyle quarter of the work force. At the height market returns and ongoing contributions, As president of EBRI over the past 27 y 401(k) account balances increased in 2003. of defined benefit pension coverage, about one- ears, I have had the unique privilege and to improve financial literacy and education of persons in the United States. The throughout his or her career. hearing. future. By c disability, or retirem only be where we accounts, this person’s annual benefit w research compares “Model 2” from the Pres ontinuing to com need ent. W to be as a nation when all Am e b know from ine and leverage our com ould range from IR ident’s 2001 Comm As and defined contri ericans understand the m $21,000–$21,300, depending on the prehensive networks and resources, ission to Strengthen Social bution plans (like the any aspects of • fund, and 15% would be Automatic enrollment in very work place savings plan likely to participate in a m s, with an op anaged account. t-out. opportunity to witness firsthand th third of retirees had pension incom e growth and evolution of fina e in retirement; today, among recent retirees, it is now ncial education in America. Among participants with accounts since year-end 1999, the average account balance Commission is now working on a national strategy, under legislative mandate, that will 3 “Funds” include mutual funds, bank collective trusts, life insurance separate accounts, and Federal Thrift Savings Plan, or TSP) that, we have a better chance of reaching people that investm financial ris Security (which appears to have the principles ents. So, this indivi k, how to deal effectively with each dual would be better off not given a chance to borrow for an individual account plan favored by the aspect of fin none of us a can reach alone. W ncial risk, and have beg contributing to an individual or take hardship e ne un to ed to • An automatic contribution increase provision. I can say that an increasing num about 31% and declinin • Half or more think they would be g—and this declin ber of public- and private-sector organizations are e will much more continue o or ver decad somewhat more es. In oth like er words, ly to increased 29.1% by 2003. The principal fi ndings as of year-end 2003 are as follows: address many of these issues. The administration and Congress are called upon by the 1 any pooled investment product primarily invested in the security indicated (see page 6 for move financial education into the classroom withdrawals account. do so. W Bush admh inistration at are these risks? , millions w ) with three b ill do it—th The risk of not savi asic ereby e options: ating s as the ng. The risk of excessive debt. The risk of into retire No Child Left Behind ment savings and the b program, ase for comm most workers have itted to the m • participa Pre-diversified investm te if ission of always there had to save for them was a provision helping Am ent options, to ericans to bette that au sim selves in order to have incom tom plify the decision-m r plan atically rais , spend and save f es woa rkers king process. ’ contributions or the e on top of ir SAVER Act of 1997 to hold the third National Summit on Retirement Savings before the definitions of the investment categories used in this paper). Unless otherwise indicated, all future com hopefully, will do), m excessive interest expense. The risk of What about som • Current- pound interest. law eone who is born in 2015? benef ore fully, into the work place, and into senior centers. W its with taxes ra poor health. The risk ised Assum to cover the shortfall over the 75-year ing this individual has average annual of not diversifying hether the by a fixed amount or percentage when they receive a pay raise (55%). financial future. Although progress been very slow Social Se Asset Allocat curiity in re on tirement. Today, we do more to m , this ef ake fo th rt is no at possib t a mlae than at an tter of choice: I y other t is end of 2005, to further identify • Matching the contribution the in initiatives that should be undertaken by the public and dividual is asked to make. By asset allocation averages are expressed as a dollar-weighted average. issue is compound interest, or earnings of $55,000 in 2005 investments. actuarial period, by removing the exis The risk of outliv dollars, his or her ing th how long you are likely e money yo current-law benefit u have saved. To get th ting $90,000 wage cap and including al to live, there are would be $36,500. Under e public to the point numerous areas in l a m time in history, and we know m a • tter of • On average, at year-end 2003, 45% of 401(k) pl A third said a m necessity. Coalitions of anaged account would pers or ore than ev ganizations have f er about how to get workers to undertake uade them an participants’ assets were invested ormed that a to participate (35%). re committed to the private sectors. Also, the Office of Pers • Someone to talk to about what to do, and when. onnel Management, under a recent congressional 3 What Do Data and Research Tell Us About I which research shows that knowledg the cliff benefit cut opti of being prepared, we must workers. on, the benefit would fall to begin by teach e must be enhanced if lif ing individu ndividual Account Design? als how $22,700, and under the gradual elong financial security is to be to track expenses, how to m voluntary savings. Mandated savings, like that ission of teaching Americans to successfully m which occurs in a defined benefit retirem anage their financial lives. ent in equity funds, 16% in company stock, 9% in balanced funds, 10% in bond funds, mandate, is working on an education strategy for Surveys also underline why edu • Automatic enrollment in 401(k) plans, as cation and action are needed: the federal work force. Finally, under the opposed to waiting for the worker to sign Dallas Salisbury achieved. reduction in benefits budget, the m First, that either m • Maintain cu eaning of com rrent b to $24,500. The individual account andatory pound i enef participation or a default into a savings account gains the its until the r nterest, the na evenue shor ture of a stock and a bond, the danger of tfall occu plan would provide benefits rs, and then impose a program Americans’ consum such as Federal Em er debt has clim ployee Retirem bed to ent Sy frightening levels, more than doubling over stem (FERS), avoids leaving the results to 13% in guaranteed investment contracts (GICs) and other stable value funds, and 5% No Child Left Behind up, could also increase plan participation an law, financial literacy topics will b d savings. Non-partic e added to national exam ipants appear to inations in • The public does not know when they will be eligible for Social Security, how highest levels of participation. ranging from inertia, and much m The financial secu “clif $19,500–$31,700, depending on f” benef ore. As a m it cu rity of the t. atter of nation, including the financial public education, it is the investments. Again, quite a challenge. well-being of m early decisions about y parents, the pas chance; but as these program tin m 10 y oney funds. ears. According to th s have shown, we e most recent figures from the Federal Reserve Board, now know that the right combination of accept automatic enrollment—40% say they would be very likely to stay in the the years ah long they are likely to live, how m ead. uch they need to save for retirement, and much President & CEO investing will greatly impact their four children, their six gr Second, that an em The need to do better as a nation is m • A gradual reduction in current-law benefits. ployer m this person’s standard of liv andchildren, and their six great- atching contributi ade clear by the financial stat on increases the am ing long after they are m grandchildren, depend on it. ount that workers will us of today’s retiree ade. consum education, payroll deduction, au er debt has reached more than $2 trillion. tomatic features in This figure, representing credit card and savings programs, and pre-diversified All of these actions • Equity securities—equity funds, the equity plan if their em represent reco ployer autom gnition that concer atically en portion of balanced funds, and com rolled them in one, and 26% would be ted action is needed to move pany more. Employee Benefit Research Institute contribute, and an autom population. One-quarter of Mr. Chairm The bottom line: There are som an and m ae tic in current retirees rely mbers of the comm crease provis e significant ion (as incom to ittee, I comm differences in outcom tally on Social Security f e increas end you for exploring these es) is the m es, which depend on or theo ir in st effectiv come, e car loan debt, but excluding m investment options can increaso e participation and savings. rtgages, translates into approximately $18,700 per U.S. Americans to the knowledge levels needed if stock—represented 67% of 401(k) plan a somewhat likely to do so. future retirees are ssets at year-end 2003, up from going to have greater 62% in • IRA and plan data show that over half of retirement plan participants have less way to achieve contribution growth. topics, and thank you for the opportunity to m when som and have no outside resour Under current law, a 30-year-old pers eone is born, how m ces. Two-thirds rely uch he or sh on (born in 1975) and currently m e earns, and how any funds in an individual eet p with you today. There is m rimarily on Social Security for their uch to be done, aking around household. Am ericans are neither financially literate nor financially fit. financial sec 2002, generally reflecting the st urity in retirement than today’s re rong perform tirees. ance of the equity markets relative to • Workers are more likely to save through the work place than on their own. More than $10,000 in their accounts. and but—one person at a tim account are invested. Nevert $16,500 a year would receive an initial annual So incom Third, tha e. One-third have annuity t individuals will pla e—we m heless, a few basic conclusi incom ce a high percen ust proceed. I would be pleased e from a pension pla cial Security retirem tage of assets n. W ons can be drawn from in “saf hile today’s workers are to take questions, and to e e” in nt benefit of $11,200 vestments, m this any Are Public and Private Organiz In today’s society and economations Making Progress? y, it is crucial for an individual to be financially literate. fixed-income securities. than 8 in 10 eligible workers say they participate in a work-place retirement • By comparison, look at someone who turns 65 and has no other source of income 2 will not diversify, and most will nev respond to written questions following the hearing. analys in today’s d saving m is: ore than those who went before ollars. Here is how that individual woul er change them, but they are not saving enough—and m the mix of investm d fare under the three basic options ents once set in place—but any That is, to have the ability to recognize, To take the savings message to every door analyze, and appropriate step, EBRI, the Departm ly act upon financial ent of Labor, the What EBRI • Other asset allocation patterns do not seem savings plan (82%); 38% of workers have Is Doing to Improve Financial Literacy to an individual retirem have been affected by the strong stock ent account (IRA). than the average $9,000-a-year Social Security benefit: The lump-sum value of American Savings Education Council com individu are not saving at all. • pared with th Lower-incom als have a high rate of acceptance of i e projected $11,20 e people are m0 initial an ore likely to do be nvestm nual current-law Social S ent options that au tter under an indivi tom ecurity benefit: dual account plan atically diversify ® m Departm atters affecting one’s life dem ent of Treasury, and m ands and goals any private-se , both during w ctor organization orking years (when people are s formed the American mProm arket perform oting plans that allow autom ance: atic withdrawals from individual bank accounts Choose to Save that annual benefit is ab out $250,000. That gives you an idea of how small most (an EBRI Education and Research Fund Program) and rebalance the account. Am • ong the nearly 60% of workers who are structured like Model 2 than are higher-i Under the cliff benefit cut, where the cut saving at work through program ncom begins in 2042, this e individuals, reindividual’s benefit lative to s like the the other m Savings Education Council in 1995, and the aking decisions about spending, saving and planning for the future) and during retirem “Savings Matters” program was launched. ent may not significantly increase nonwork-place savings. In this case, ignorance is EBRI is undertaking its own efforts to im 4 Younger participants still tended to hol prove fi d a higher portion of their accounts in nancial literacy among Americans. savings are in America, even among those who have savings. Federal Thrift Savings Plan and 401(k)s ,resear Fourth, tha options. would still be $11,200, since he o t individuals will generally take ® r she ch has now docum a lum would p-sum reach th distribution at retirem ented a num e normal retirem ber of things: ent, rather ent age (when people m EBRI and ASEC then joined with others ust assess how long they are likely to live, m to create the Jum anage their assets, and p$tart Coalition for Youth equity assets and older participants tended not the issue: Nearly 7 in 10 of those who do not currently use autom to invest more in fixed-income assets. atic Our Emmy-award winning Choose to Save (CTS) public education program began in 1995 Washington, DC than an annuity, if given a choice, due to what • Twenty-something-year-olds and younger in before the steep cut goes in effect. econom dividuals (born in 1985 and after) will ists describe as the “wealth illusion.” • More than a quarter of those who could participate in a savings plan do not—but determ Financial Literacy. Congress ine how much they can spen passed the SAVER Act in 1997 d each year and not run out of m as EBRI launched the Choos oney). Research tells us e withdrawals for retirement savings are already aware that they have this option as we worked with the U Most workers have always had to save for th 4 The mix of investm .S. Department of ent options offered Labor on ways to implem em by a plan, particularly the inclusion of selves in order to have incom ent a public education e on top of Surveys indicate there is an absence of unders • benefit the most from If, instead, benefits were cut gradually, so reform action now, as opposed to waiting. tanding of life expect that one generation ancy and the prim doesn’t face the full ary automatic enrollment with an opt-out could dramatically increase participation. that there is much to be accom to Save national public service announcem plished. ent initiative. In 1998, the first National Summit (68%). campaign on the importance of savings and financial security. Social Security in retirem company stock or GICs and other stable ent. In the so-called “good old days,” about 1/3 of workers spent value products, significantly affects the www.ebri.org pooling v • Model 2 benefits with historic im irtue of an an pact of the funding deficit, this nuity, and the fact that equiindividual’s benefit ty rates of a lump return, a -sum will on rwould fall to $9,600. e thly e average last you un level of m til average any • Less than 8% contribute as much as they could legally contribute, but an automatic on Retirem For exam enple, the 2005 Retirem t Savings called for by the SAVE ent Confidence Su R Act was held and brought together 300 rvey released just this month highlights CTS includes educational brochures, radio and TV public service announcements their entire career with asset allocation of part just one employer. Today, that’s declined to about 1/4 of all icipants in a plan. life expectancy, whereas an annuity (pooled • possible scenarios; because there can be Under Model 2, if approximately half of th with other retirees) wide variations around an average, the e individual account was invested in the can provide a monthly som delegates from e of the contradictions that contribution increase provis across the nation to develop a education m ion tied to the date of ust overcom strategy for financial education. The second e: salary increases would be Americans’ Greatest Financial Education Needs (PSAs) in primetime, newspaper ads, and outdoor displays. Although the program stresses workers. At the height of defined benefit 4About 13% of the participants in these pl pension coverage, about 1/3 of retirees had ans held more than 80% of their account www.choosetosave.org payment as long as you live. resulting benefit could vary signific equity market and historical rates of antly frreturn were achieved, the annual benefit om this average benefit. accepted by many workers and would increase savings. summit, held in 2002, which focused educational initiatives aimed at one’s generation, and a • More than two-thirds of workers are not confident that Social Security and the seriousness of the savings message, it uses humor and positive examples to help people What We Already Know pension incom balances in com e in retirem pany stock. ent. Among recent retirees, it is now about 31% and declining-- These factors also repeat som • Everyone, regardless of would be $12,500. Instead, if the entire age, incom e of the financ e, a iand personal retirem l lite account were invested in Treasury bonds racy gaps and education needs that I ent goals, should be third is called for by statute in 2005. Over thes • Many participants in plans do not diversify e years, the S their investm EC has held investor education ents, and more than three- Medicare benefit promises will be kept at current levels. overcom In determining what n and it will be a decline that continues over decades. e their reluctance to address fina eeds are unmet in f ncial issues. Through local and national inancial literacy, EBRI has reviewed past The views expressed in this statement are solely those of Dallas L. Salisbury and should not be attributed to the mentioned at the beginning of m educated on issues of savings, life expect to avoid the risk of inv y testim esting in ony. the equity m ancy, investm arket, the annual benefit would be ent allocation, and the basics forums around the nation that included m quarters make no changes in their allo any cations and do not rebalance—but large other government agencies and private Employ • ee Ben Less than %20% of workers believe Social Secu efit Research Institute (EBRI), the EBRI Education and Research Fu rity will be a prim nd, any o ary source of f its programs, partnerships, the PSAs now run on radio and television stations in hundreds of cities in all Changes in Asset Allocat recomm So individual savings are e endations from a num ion Over Time ber of forum ssential. Today, both s, hearings, and summits on the topic. A few the public and private sectors are doing of Social Security. $10,400. o organizations, as well as sim fficers, trunum stees, sp bers would welcome pre-diversified i onsors, or other staff. ilar forum The Em s developed by the Office of Personnel Managem ployee Bennvestm efit Research ent options like those now being Institute is a nonprofit, nonpartisan, ent income in their retirement—despite the fact that it currently is the primary source Knowing how people currently pa 50 states. In addition, CTS PSAs are shown on m rticipate and allocate their em ilitary bases and ships worldwide. ployment-based retirement more to encourage savings than at any other issues consistently came to the fore. Those are: time in history. But, with mixed results. Social Secu education and researc rity Refo h orga rm Alternativ nization establise hed s: Comparing Benefits in Washington, DC in 1978 . The testimony draws heavily and the Departm implemented in the Federal Thrift S ent of Defense. Currently, avings Plan. the statutorily created Financial Literacy of income for more than two-thirds of retirees. savings, we need to know what workers do over tim e. Research shows that few participants To take the savings message to every doorstep, EBRI joined other organizations to form the • The federal government needs to 1) work more cooperatively and efficiently, 2) from research publications of the Employee Benefit Research Institute, but any errors or misinterpretations are A m The benefits ajor issu and rep e America lacem ns need to u ent rates p ndersta resented nd while m above are for very spec aking decisions about savings and ific individuals who Education Commission is completing its analysis of comments from more than 170 • Surveys indicate that even among investors, large numbers do not know the make changes in their asset allocations over time. Allocations in equity funds from 1999 to American Savings Education Counc make financial literacy an issue of nati il in 1995. EBRI then joined onal importance, 3) m with others to create the ake use of current those of the witness. work place retirem have steady earnings. T ent program hey are not the benefits s relates to what individuals should expect if they have a very and when Social Security will pay. Social organizations as it formulates a national strategy for financial literacy. EBRI and hundreds difference between a stock and a bond. Jump$tart Coalition for Youth Financial Literacy. Congress passed the SAVER Act in 1997 13 11 12 10 14 4 7 8 2 6 3 9 5