WASHINGTON – Members of Congress were left with more questions than answer after a hearing Tuesday about how the financial crisis will affect retirement funds.
The Education and Labor Committee held the hearing at the request of House Speaker Nancy Pelosi,said the committee's chairman,Rep. George Miller,D-Calif. She also called for the companion hearings into the AIG bailout Tuesday and the Lehman Brothers bankruptcy Monday.
The five witnesses mentioned ways that the government could change the system in the long term by creating universal or voluntary retirement savings accounts on top of Social Security for every worker or restructuring tax credits.
But committee members kept peppering the experts with questions about what they could do to help workers whose 401(k) retirement accounts are shrinking.
“What do we say to all these Americans on the threshold of retirement about what the government can do?” asked Rep. Dennis Kucinich,D-Ohio. “What should we be doing to help American workers now?”
As more workers close to retirement start to add up the numbers,he said some will have to keep working into their 70s to fund their retirements.
Teresa Ghilarducci,economics professor at the New School for Social Research,said the only secure retirement plan is Social Security. Investments tied to the stock market always run the risk of losing money,she said.
To protect retirement funds,Ghilarducci said Congress should set up a system in which workers can exchange their 401(k)s for conservative government accounts that would protect their savings.
Under the current system,”People who have these assets have no flight to safety,” she said. “There's really no way to fix it now.”
Jerry Bramlett,chief executive officer for BenefitStreet Inc.,agreed the current system for retirement funds is not productive. Administrative costs and fees lessen the amount of return people actually see on their investments,he said.
“We're talking about a bloated financial system that is not necessary for us to operate,” he said.
But under the current system,Peter Orszag,director of the Congressional Budget Office,said investors with a stake in the financial market cannot avoid taking a risk with their investments because of the nature of the market.
In a financial crisis,he said workers can either spend less now to save more,spend less later because they did not save as much or retire later so that they can save money for longer.
“You have to respond in one of those three ways,” Orszag said,agreeing none of the choices was appealing,and spending less now could hurt the economy.
He said he has no doubts that economists will eventually label this period a recession because of the number of jobs lost and the steep losses by the Dow Jones Industrial Average. History shows that the market eventually rises again,Orszag said.
Miller,the committee chairman,said he was not convinced that the market would bounce back the same as it always has. After a housing bust coinciding with huge losses in the credit market,he said he does not think that a short-term or long-term solution will be simple.
“My sense is that somehow this is different,” Miller said. “I don't know how you just get well tomorrow they way you did yesterday.”