THE BLOG
12/18/2008 05:12 am ET | Updated May 25, 2011

Principles to Preserve and Strengthen 401(k)s in the 111th Congress

On Friday, a Wall Street Journal editorial further perpetuated an active campaign that is blatantly misrepresenting Democratic efforts to preserve and strengthen Americans' retirement security. In light of these ongoing distortions, Chairman George Miller reiterated the committee's legislative priorities in preparation for the next Congress' efforts to help Americans enjoy a secure retirement.

The Wall Street Journal is needlessly creating fear among Americans rightly worried about their retirement security by misrepresenting my efforts to strengthen workers' retirement savings - attacks that have no basis in fact. I do not support 'abolishing' 401(k)s, moving these plans, or changing their tax status, plain and simple. The truth is that Democrats in Congress are working to preserve and strengthen 401(k)s.

Last year, our Committee worked with the employer and investment community to pass legislation to increase transparency and protect workers' hard-earned retirement savings from excessive and hidden fees that could cut deeply into their accounts. In addition to providing workers with better information about the fees they're paying, we know other steps must be taken to make sure our retirement system is as strong as it can be for our nation's workers and retirees. These principles will help guide the next Congress as we work to ensure that every American can enjoy a safe and secure retirement.

Recent hearings held by the committee have shown the devastating toll the economic downturn has leveled on Americans' retirement savings, including the loss of over $4 trillion in pension benefits.

To help preserve and strengthen 401(k)-style and other retirement plans, the committee will work to:

Expose excess fees that Wall Street middle men take from workers accounts. Currently, millions of Americans are paying excessive 401(k) fees at the hands of Wall Street middle men who refuse to fully disclose and detail extra fees and charges paid by employees. This is wrong, especially in light of the dramatic losses faced by millions of Americans in their 401(k) plans this year. According to the GAO, even a difference of just 1 percentage point in hidden fees can drastically eat into a worker's 401(k) account balance - by as much as 20 percent or more over a career. This 1 percentage point difference could cost a worker with a $20,000 account balance more than $12,000 in reduced savings over this time period.

Bring young and low-wage workers into the system at a higher rate through automatic enrollment for employers already offering 401(k)s. Unless employers more quickly automatically enroll new workers, nearly 40 percent of workers born in 1990 will have no 401(k)-style savings at all when they retire, according to the GAO. Current law allows employers to automatically enroll their workers in their companies' 401(k)s but employers have been slow to enroll employees. Studies show that automatic enrollment can increase participation by as much as 35 percentage points. And even after 3-4 years, the vast majority of those automatically enrolled are still participating.

Ensure that retirement accounts have diversified investment options with low fees. Many 401(k) plans have inadequate, and all too often, expensive investment options. Workers should have access to simple investment options, including low-cost index funds.

Ensure workers have access to reliable independent investment advice. Too often, workers are given self-interested advice from financial advisors or money managers - advice that may not always lead to the best retirement investment. All plan participants should have access to objective advice and investment information to help them better manage their savings.

Reduce vesting periods and improve portability of 401(k) accounts. Workers are leaving millions of dollars on the table because of employers' rules that take away their savings when they change jobs. In many cases workers are required to work at a firm for three years or more before they can fully access their retirement savings. In addition, the GAO says that by automatically rolling over accounts into a new retirement plan when workers leave a job, Americans' retirement savings would increase by a projected 11 percent on average, with the biggest percentage increases for low-income workers.

In April, the committee passed the 401(k) Fair Disclosure for Retirement Security Act (H.R. 3185), which would help workers shop around for the best retirement investment options by providing complete information on how much in fees is taken from their retirement accounts. The legislation was supported by the AFL-CIO, the AARP, the American Society of Pension Professionals and Actuaries, the Council of Independent 401(k) Recordkeepers, and the Pension Rights Center.