The Nation's Retirement System: A Comprehensive Re-evaluation Needed to Better Promote Future Retirement Security

Strengthening the U.S. retirement system to be more accessible and financially sound is important to ensuring that all Americans can retire with dignity and security, and to managing the fiscal exposures to the federal government from various retirement-related programs. Currently, the U.S. retirement system, and many of the workers and retirees it was designed to help, face major challenges.

This testimony discusses (1) the fiscal risks and other challenges facing the U.S. retirement system, and (2) the need to re-evaluate our nation's approach to financing retirement. It is based on a 2017 report, GAO-18-111SP , on the nation's retirement system, with updated statistics when more recent estimates from publicly available sources were available.

Fundamental changes over the past 40 years have led to various risks and challenges for the three main pillars supporting the U.S. retirement system. For example, current projections indicate that by 2034, the Old-Age and Survivors trust fund for Social Security's retirement program—the first pillar—will only be sufficient to pay 77 percent of scheduled benefits, due in part to the aging of the population (see figure). Other federal government retirement-related programs also face financial uncertainty. For example, the Pension Benefit Guaranty Corporation, which insures the pension benefits of most private sector defined benefit plans, estimates a greater than 90 percent chance the multiemployer program will be insolvent by 2025. Meanwhile, employer-sponsored plans—the second pillar—have experienced a shift from traditional defined benefit (DB) plans that generally provide set monthly payments for life, to defined contribution (DC) account-based plans, like 401(k)s. DC plans provide greater portability of savings that can be better suited to the needs of a more mobile workforce, but also require individuals to assume more responsibility for planning and managing their savings. While DC plans can provide meaningful retirement security for many, especially higher earners, lower earners appear more prone to having little or no savings in their DC accounts. Further, individuals' savings—the third pillar—may be constrained by economic trends such as low real wage growth and growing out-of-pocket health care costs. Combined with increased longevity, these challenges can put individuals at greater risk of outliving their savings and fiscal pressures on government programs will likely grow.

Congress generally has sought to address retirement-related issues in an incremental fashion. Also, no one agency is responsible for overseeing the U.S. retirement system in its entirety, so there is no obvious federal agency to lead a comprehensive reform effort. It has been nearly 40 years since a federal commission has conducted a comprehensive evaluation of the nation's approach to financing retirement. Without a more comprehensive re-evaluation of the challenges across all three pillars of the system, it may be difficult to identify effective, enduring solutions. Unless timely action is taken, many older Americans risk not having sufficient means for a secure and dignified retirement.

In the 2017 report, GAO recommended that Congress should consider establishing an independent commission to comprehensively examine the US retirement system and make recommendations to clarify key policy goals for the system and improve how the nation promotes retirement security.

Thank you for the opportunity to discuss the state of our nation’s  retirement system. Fundamental changes to the U.S. retirement system  have occurred over the past 40 years. Traditional pensions have become  less common, and the number of defined contribution plans, such as  401(k)s, has been growing. These types of plans can provide meaningful  retirement security for many; however, the U.S. retirement system, and  many of the workers and retirees it was designed to help, are facing  major challenges. Social Security’s financial outlook is threatened by  demographic trends, certain large pension plans face insolvency, and  individuals are increasingly responsible for planning and managing their  own retirement accounts. Strengthening the U.S. retirement system to be  more accessible and financially sound is important to better ensuring that  all Americans can retire with dignity and security, and to managing the  fiscal risks to the federal government from various retirement-related  programs.

My statement today will focus on two topics: (1) the fiscal risks and other  challenges facing the U.S. retirement system; and (2) the need to re- evaluate our nation’s approach to financing retirement.

My statement is based primarily on a report we issued in October 2017.  For that report, we began with an examination of our recently published  work and supplemented it with additional information from various federal  agencies, organizations, and institutions. We also obtained insights from  a panel of 15 experts that we convened in November 2016, representing  a range of organizations, subject matter expertise, and views (see app. I  for a list of the panelists). For this testimony, we updated statistics when  more recent estimates from publicly available sources were available. A  detailed description of the methodologies used is included in our prior  report. We conducted the work on which this statement is based in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Social Security has been the foundation of retirement security in the  United States. Enacted in 1935, Social Security provides for the general  welfare of older Americans by, among other things, establishing a system  of federal old-age benefits, including a retirement program. Officially titled  Old-Age and Survivors Insurance (OASI), the Social Security retirement  program provides benefits to retired workers, their families, and survivors  of deceased workers. About 51 million retirees and their families  received $798.7 billion in Social Security retirement benefits in 2017,  according to Social Security Administration (SSA), which is responsible  for administering the program.

About 40 years after the creation of Social Security, landmark legislation  was enacted in 1974 that has played a major role in establishing the  structure for private sector employers’ involvement in sponsoring  retirement plans for their workers: the Employee Retirement Income  Security Act of 1974 (ERISA). ERISA is a complex law administered by  multiple federal agencies including the Department of Labor (DOL), the  Internal Revenue Service (IRS) within the Department of the Treasury  (Treasury), along with the Pension Benefit Guaranty Corporation (PBGC),  and has evolved with many significant amendments over the years (see  app. II).

ERISA was enacted, in part, to address public concerns about the  security of pension benefits, including the prominent failure of a couple of  large, private sector pension plans. The act, as amended, does not  require any employer to establish a retirement plan, but those who do  must meet certain requirements and minimum standards. For example,  ERISA establishes certain requirements for all employer-sponsored  plans, including responsibilities for plan fiduciaries (those who manage  and control plan assets, among others), as well as minimum funding  standards for defined benefit (DB) plans, which traditionally promise to  provide a monthly payment to retirees for life. ERISA also established the PBGC, the government corporation responsible for insuring the pension  benefits of nearly 37 million American workers and retirees who  participate in nearly 24,800 private sector defined benefit plans. Under  ERISA, tax-qualified DB plans (or the employers who sponsor them) may  have to pay insurance premiums to the PBGC, based on the funding level  of their plans. The IRS also administers the Internal Revenue Code (IRC),  which has provisions that affect pensions and retirement savings.

While SSA administers the Social Security program, and the DOL, PBGC,  and IRS each are generally responsible for administering aspects of  ERISA, several other agencies also have important roles in various parts  of the retirement system. For example, the Department of Health and  Human Services oversees the Centers for Medicare and Medicaid  Services (CMS), which administers the major health care programs that  provide coverage for retirees, as well as the Administration on Aging,  which encourages and assists state grantees that provide services for  older adults.

In addition, agencies such as the U.S. Department of Agriculture and the  Department of Housing and Urban Development oversee food and  housing programs for older adults. Other agencies also play a role in  providing various services and supports for older adults. For example, the  Department of Transportation administers a program that improves  access and alternatives to public transportation for seniors and individuals  with disabilities. The Consumer Financial Protection Bureau, as part of its  mandate to provide financial literacy education, helps consumers  navigate financial choices related to retirement. The Federal Trade  Commission can have consumer protection and investor oversight roles  and responsibilities related to individuals borrowing against their  pensions. In addition, these federal agencies and others work together to  help combat elder financial exploitation, which experts have described as  an epidemic with society-wide repercussions. Citing our prior work on this  topic, in October 2017, Congress enacted the Elder Abuse Prevention  and Prosecution Act, calling on the Department of Justice to work with  other federal, state, and local law enforcement agencies to improve data  collection and provide technical assistance focused on combatting elder  abuse.

The need for government services and support for older adults in  retirement will continue to grow as the proportion of older adults in the  United States continues to rise significantly in the future. In 1970, those  age 65 and over accounted for about 10 percent of the population, but by  2060, they are expected to account for about 23 percent (see fig. 1). This  reflects long-term decreases in birth rates and increases in life  expectancy.

Main Pillars of the U.S. Retirement System Face Fiscal Risks and Other Challenges

The U.S. retirement system is supported by three main pillars—Social  Security, employer-sponsored plans, and individuals’ savings—that serve  as important sources of retirement income for Americans. Currently, each  of these pillars faces various risks and other challenges. If left  unchanged, these risks present the federal government with significant  potential fiscal exposures, which may legally commit or create  expectations for future federal spending.

Pillar One: Social Security and Other Federal Programs

The first pillar, Social Security (specifically, Social Security’s retirement  program), is facing financial difficulties, as are other federal programs that  provide essential supports to many older Americans, such as Medicare  and the PBGC’s insurance programs (see fig. 2). In addition, multiple  federal agencies help fund a broad array of home and community-based  services for older adults. As the number of older adults needing  assistance continues to grow, the pressure to increase federal funding for  these services is likely to increase.

As the foundation of retirement security in the United States, Social  Security’s retirement program, financed primarily by payroll taxes, helps  reduce poverty among beneficiaries, many of whom rely on Social  Security for the majority of their income once they retire. Our analysis of  data from the Federal Reserve Board’s most recent Survey of Consumer  Finances (SCF) showed that in 2016, among households age 65 and  over, the bottom 20 percent, ranked by income, relied on Social Security  retirement benefits for 81 percent of their income, on average.

But Social Security is facing financial difficulties that, if not addressed, will  affect its long-term stability. During the many years that the revenue for  Social Security’s retirement program exceeded costs, the program built  up reserves in the trust fund. However, since 2010, Social Security has  been paying out more in benefits than it received and has relied on  interest income to help cover expenses. For 2018, the cost of the  program was expected to exceed total income by $2 billion and, as a  result, asset reserves were expected to decline. If no changes are made,  current projections indicate that by 2034, the retirement program trust  fund will only be sufficient to pay 77 percent of scheduled benefits.

The underlying cause of Social Security’s financial difficulties is the aging  population, driven by lower fertility rates and increased life expectancy,  and accelerated by the ongoing retirement of the baby boom generation.  The first baby boomers began receiving Social Security retirement  benefits in 2008, and growing numbers will become eligible for Social  Security benefits in coming years. Our analysis indicates that the number  of baby boomers turning 65 is projected to increase from an average of  about 10,200 per day in 2018 to more than 11,000 per day in 2029 (see  fig. 3).

As with the Social Security retirement program, reserves had also built up  over time in the trust fund for Social Security’s disability program, but in  2005, the program began paying out more than it was taking in. To avoid  benefit reductions, which were expected to begin in 2016, Congress  passed a law in late 2015 that temporarily reallocated some payroll tax  revenue from the retirement trust fund to the disability trust fund. Even  with this added boost, if no further changes are made, reductions in  disability benefits are projected to be needed beginning in 2032,  according to SSA’s most recent report.

For both the Social Security retirement and disability programs combined,  the number of workers contributing to Social Security for each aged,  disabled, dependent, or surviving beneficiary is declining, due to the  aging population and other factors. While there are currently 2.8 workers  contributing to Social Security per beneficiary, this ratio is expected to  decline to 2.2 by 2035, and to 2.0 by 2095 (see fig. 4).

It is difficult to predict exactly what would occur if either Social Security’s  retirement or disability programs were to become insolvent because the  Social Security Act does not provide for any procedure for paying less  than full benefits. According to SSA, benefits could be reduced across the  board by a set percentage, certain benefits could be prioritized, or  benefits could be delayed.

The major health care programs that include coverage for retirees,  Medicare and Medicaid, also face increasing financial challenges due to  program and demographic changes. For example, over the years,  Congress has made changes to Medicare so that more people have  become eligible, even if under age 65. Also, Congress has added two  more parts to Medicare: one part allowing insurance under private plans  approved by Medicare (Medicare Advantage), and another part  providing prescription drug coverage. As of 2017, over 58 million people  were enrolled in one or more parts under Medicare. Projections indicate  that in the coming decade, as more members of the baby-boom  generation become eligible for benefits, the number of Medicare  beneficiaries will rise to 75 million in 2027. Similar to the challenges  facing Social Security, spending for Medicare Part A (Hospital Insurance)  is projected to outpace revenue over time, and the trust fund for  Medicare Part A is projected to be unable to pay full benefits beginning in  2026. At that time, the Hospital Insurance trust fund will only be sufficient  to pay 91 percent of hospital-related Medicare spending.

Medicaid, which provides health care coverage and financing for millions  of low-income individuals, including those age 65 or older, also faces  financial challenges. Medicaid is the nation’s primary payer for long-term  services and supports, and the elderly—along with those with  disabilities—are among the highest cost Medicaid beneficiaries. The  federal government and states share in the financing of the Medicaid  program, with the federal government matching most state expenditures  for Medicaid services using a statutory formula. Estimated Medicaid  outlays for fiscal year 2017 were $592.2 billion, of which $370.6 billion  was financed by the federal government and $221.6 billion by the states.  Over the next 7 years, Medicaid expenditures are expected to increase  significantly, reaching just over $1 trillion in 2026.

The PBGC insures the pension benefits of most private sector DB plans  through one of its two programs: the Single-Employer Insurance Program  and the Multiemployer Insurance Program. The single-employer program  is the larger of the two programs. As of the end of fiscal year 2018, the  single-employer program insured about 26 million workers and retirees  participating in about 23,400 private sector single-employer DB plans. As  of the end of fiscal year 2018, the multiemployer program insured about  11 million workers and retirees in about 1,400 private sector DB plans  created through a collective bargaining agreement between two or more  employers and a union.

Although PBGC is one of the largest of any federal government  corporations, with over $110 billion in assets, its pension benefit  guarantees are increasingly at risk due to its substantial liabilities. At the  end of fiscal year 2018, PBGC’s net accumulated financial deficit was  over $51 billion, and its exposure to potential future losses for  underfunded retirement plans was estimated to be nearly $185 billion.

We designated the single-employer program as high risk in July 2003 and  added the multi-employer program to our high-risk list in January 2009.  Concerns about PBGC’s financial future have kept both programs on  GAO’s high-risk list. As long as PBGC’s long-term financial stability  remains uncertain, the retirement benefits of millions of U.S. workers and  retirees are at risk of greater reductions should their benefit plans be  terminated below PBGC’s current guaranteed benefit levels.

In contrast to Social Security, PBGC is not funded by tax revenues, but by  the premiums paid by plans or their sponsors, the assets acquired from  terminated plans, and investment returns on these funds. The primary  drivers of the government’s fiscal exposure related to PBGC’s deficit are  the collective financial risk of the many underfunded pension plans  insured by PBGC and the long-term decline in the number of participants  covered by traditional DB plans. Since 1985, there has been a 78 percent  decline in the number of plans insured by PBGC and more than 13 million  fewer workers actively participating in PBGC-insured plans. There has  also been a recent trend of single-employer plan sponsors transferring  the liability for some of their participants to insurance companies via  group annuity “buy-outs,” further reducing the number of participants in  PBGC-covered plans. As a result of these trends, even though PBGC  premium rates have increased significantly in recent years, PBGC’s  premium base has been eroding over time as fewer sponsors are paying  premiums for fewer participants.

In addition, more recently, PBGC’s net accumulated financial deficit has  escalated dramatically due to the critical and declining status of a number  of large multiemployer pension plans. As we previously reported,  PBGC’s multiemployer plan is projected to become insolvent in  approximately 6 years, and if that happens, participants in the insolvent  multiemployer plans who rely on PBGC guarantees will receive only a  small fraction of current statutory guarantees. According to PBGC, most  participants would receive less than $2,000 a year, and in many cases  less.

Our prior work has found that federally-funded services for older  Americans were not reaching many older adults who may need them, and  that the funding for these programs had decreased while the number of  older adults had increased. The federal government helps provide state  and local governments with funding for a broad array of home and  community-based services for older adults through multiple federal  agencies and programs. In addition to long-term care services funded  by Medicaid, these programs also include services funded under the  Older Americans Act of 1965, as amended, which provides grants to  states for such services as home-delivered and congregate meals, home- based care, transportation, and housing. In our 2015 report, we  recommended that the Department of Health and Human Services (HHS)  should facilitate development of a cross-agency federal strategy to help  ensure that federal resources are used effectively and efficiently to  support a comprehensive system of home and community-based services  and related supports for older adults. While HHS agreed with our  recommendation, the agency has yet to develop a cross-agency strategy  involving all five agencies that fund these services.

As the number of older adults needing assistance continues to grow, the  gap in services can only be expected to widen. Absent any changes,  state and local governments are facing—and will continue to face—a gap  between receipts and expenditures in the coming years, putting greater  pressure on the federal government to increase funding.

Pillar Two: Employer- Sponsored Retirement Plans

The second pillar of the U.S. retirement system, employer-sponsored  retirement plans, is also an important source of income relied upon by  many Americans in their retirement. However, not everyone has access  to employer-sponsored plans, and among those who do, certain  provisions and requirements of the plans can make it difficult for  individuals to accumulate savings over time.

Bureau of Labor Statistics data indicate that about one-third of private  sector workers in the United States did not have access to an employer- sponsored retirement plan in 2016, and about two-thirds did. Of those  with access, the vast majority (about 76 percent) participated in the plan,  either because they were automatically enrolled by the plan sponsor or  they chose to participate.

Although individuals without access to an employer-sponsored plan can  save for retirement on their own, having access to an employer- sponsored retirement plan makes it easier to save, and more likely that  an individual will have another source of income in retirement beyond  Social Security. Our prior work found that employees working for smaller  firms and in certain industries, such as leisure and hospitality, are  significantly less likely to have access to an employer-sponsored plan  compared with those working in larger firms and in certain other  industries, such as information services. Also, we found that low-income  workers are much less likely than high-income workers to have access to  an employer-sponsored plan.

Among those individuals who have access to employer-sponsored plans  in the private sector, the structure of plans has changed over time, with a  shift from traditional DB pension plans to defined contribution (DC) plans,  such as 401(k)s, as the primary type of retirement plan (see fig. 5). DB  plans are traditional retirement plans that generally promise to provide a  benefit for the life of the participant, based on a formula specified in the  plan that typically takes into account factors such as an employee’s  salary, years of service, and age at retirement. DC plans are employer- sponsored account-based retirement plans, such as a 401(k) plan, that  allow individuals to accumulate tax-advantaged retirement savings in an  individual account based on employee and/or employer contributions, and  the investment returns (gains and losses) earned on the account. The  amount of assets held in individual retirement accounts (IRA) also has  increased significantly. Most of the assets in IRAs are funded by assets  rolled over from DC plans, and sometimes DB plans, when individuals  change jobs or retire.

With DB plans, participants can accumulate retirement savings simply by  continuing to work for the employer offering the plan, and the employer is  responsible for ensuring that the amount in the plan is sufficient to pay  promised benefits at retirement. However, even when DB plans were  more prevalent, many workers did not have access, and those with  access to DB plans could still face challenges under certain  circumstances. For example, when DB plan participants change  employers, their accrued benefits are less portable than accrued savings  in a DC plan. If the change in employers takes place before they have  met vesting requirements, DB plan participants can lose all the benefits  accumulated from employer contributions to that point, which in the  private sector, generally means everything. Also, for DB plans that base  benefits on final average salary, benefit accruals are significantly  “backloaded.” As a result, if a DB plan participant changes employers  mid-career, it could result in missing out on the time when the biggest  benefit accruals would have occurred. In addition, when entering  retirement, although those with DB plans can generally rely on receiving a  set monthly benefit for life, they may still face challenges. For example,  participants in certain financially troubled plans—such as those in the  multiemployer plans discussed earlier—could see their benefits being  suspended or cut. In addition, if a DB plan participant is offered and  accepts a lump-sum payment in place of a lifetime annuity, the participant  may face challenges similar to those with DC accounts in terms of  managing the spend down of their retirement savings.

With DC plans, responsibility for planning and managing retirement  savings is shifted from employers to employees. Participants in DC plans  are often required to make complex financial decisions—decisions that  generally require financial literacy and that could have significant  consequences for their financial security throughout retirement. For  example, workers with DC plans have to decide whether to participate in  the plan, how much to contribute to their accounts and how to manage  their investments to strike the right balance between risk and returns.

One way DC plan enrollment and contribution levels can be encouraged  is by putting automatic mechanisms in place. For example, DC plan  sponsors can encourage participation in the plan by adopting auto- enrollment, whereby eligible workers are enrolled into a plan  automatically, unless they choose to opt out. DC plan sponsors can also  encourage increases in contribution rates by adopting auto-escalation,  whereby the employee’s contributions are automatically increased to a  predetermined level on a set schedule, unless they choose to opt out.

Participants in DC plans also have to decide whether to borrow from their  accounts if other needs arise, or cash out their accounts when they  change jobs. When leaving an employer, those with DC accounts may be  allowed to transfer their accumulated balances into a new employer plan  or an individual retirement account (IRA), but they may also be tempted to  cash out their accounts, even though they may face associated tax  consequences. Similarly, when entering retirement, those with DC  accounts may decide to transfer the account balance into an IRA, or they  may decide to receive the funds in a lump-sum payment. While some DC  plans also offer monthly payments through an annuity, most do not  provide lifetime income options or other options that can help participants  draw down their retirement funds in a systematic way.

Findings from the most recent SCF indicate that an individual’s ability to  accumulate retirement savings depends on the individual’s income level.  In addition, the disparities in average account balances by income level  have increased markedly over time (see fig. 6). For example, according to  SCF data, households in the top 10 percent of income level appeared to  be substantially better prepared for retirement than most others, with an  average account balance of more than $720,000 in 2016. In contrast,  households with below average income, in the second quintile, had an  average account balance of about $47,000. Among lower-income  households, our prior work suggests that cashing out accounts when  changing jobs may be a significant drain on retirement savings, along with  unexpected events that may also cause them to withdraw funds from their  accounts prior to retirement.

Retirement experts have posited a variety of reasons for employers’ shift  to DC plans. One oft-cited reason is that the structure of DC plans gives  employers better control over how much they spend on wages and  benefits packages. With DC plans, employers may choose whether to  make contributions to participants’ individual accounts; in contrast, DB  plans promise a certain future monthly benefit to employees in retirement,  and the employer must bear the risk of making adequate contributions to  the plan to make good on that promise. Another reason retirement  experts cite for the shift to DC plans was the introduction of 401(k)  accounts in the Internal Revenue Code in 1978, which they credit with  fostering the adoption of account-based plans by sanctioning the use of  salary deferrals as a source of contributions. Some retirement experts  have also suggested that employees’ preferences and demands have  changed over time, making DC plans more feasible and, in some  respects, more appealing. For example, some analysts have noted that  the portability of an account-based plan can be better suited to meet the  needs of a more mobile workforce.

Pillar Three: Individuals’ Savings and Other Resources

The third pillar of the retirement savings system—individuals’ personal  savings—is the remaining important source of retirement income, and it  also faces certain risks and challenges. Personal savings can include a  variety of assets, such as amounts saved from income or wages;  contributions to accounts outside of a retirement plan; non-retirement  financial wealth that is inherited or accumulated over time; and equity  from tangible assets such as a home. These savings are expected to  augment any income from the first two pillars: Social Security and  employer-sponsored retirement plans.

Over the past several decades, however, the personal saving rate—which  is calculated as the proportion of disposable income that households  save—has trended steeply downward, from a high of 14.2 percent in  1975, to a low of 3.1 percent in 2005, before recovering somewhat to 6.8  percent in 2018 (see fig. 7).

While the specific implications of a historically low national saving rate on  any current or future retiree are less clear, the decline in the U.S.  personal savings rate over time is concerning and could have implications  for retirement security, particularly when coupled with the recent trend of  low wage growth. After accounting for inflation, average wages remain  near the levels they were in the 1970s for most individuals (see fig. 8),  adding to the difficulty of increasing their level of saving.

In addition, many households have accumulated little wealth. SCF data  show that among households in which the head of the household was  working, the average value of all financial assets, excluding savings in  retirement accounts, was $70,700 in 2016. For households in which the  head was retired, this average was $89,700.

For those who become home owners and build up equity in a home, this  equity can serve as an important asset, providing a potential income  source in retirement either by selling the home or obtaining a reverse  mortgage. However, increased household debt levels may affect the  amount of income available from this source, as well as from other  assets. Data on the make-up of debt indicate that home ownership has  been declining, while education debt has been rising, especially since  2013.

Another challenge with implications for individuals’ ability to accumulate  personal savings is that economy-wide, aggregate health care  expenditures are projected to continue to grow as a percentage of the  overall economy, and individuals have to contend with rising health care  costs as they strive to save for retirement. CMS projections estimate that  the annual growth rate of out-of-pocket health care spending for the U.S.  population, per capita, will increase from 3.0 percent in 2018 to about 3.8  percent by 2026. While these costs are projected to rise for the population  as a whole, individuals age 65 and over face the highest out-of-pocket  health-related expenses. Further, health care expenses can be larger  relative to other expenses for many retirees and hard to predict, making  the amount of income retirees need to plan to spend on health care  difficult to determine.

Simultaneously, trends in longer life expectancy have the potential to  increase economic vulnerability for retirees. Specifically, life expectancy  for those age 65 or older has increased significantly over the past century  and is projected to continue to increase. For example, a man turning 65 in  2030 is expected to live to age 85.0, on average, an additional 5.3 years  compared to a man who turned 65 in 1980, who was only expected to live  to age 79.7, on average. A woman turning 65 in 2030 is expected to live  to age 87.2, on average, an additional 3.5 years compared to a woman  who turned 65 in 1980, who was only expected to live to age 83.8, on  average.

Moreover, these life expectancies are averages, with some individuals  living well beyond their life expectancy. As a result, people must now  prepare for this greater longevity risk—that is, the risk that they will spend  more years in retirement and potentially outlive their savings. For those  who lack sufficient personal savings or other assets to augment their  Social Security benefit or income from any employer-sponsored plan, the  only option to maintain a desired standard of living may be to continue  working past age 65. Our prior work has found that labor force  participation among older workers has increased during the last decade  and that, compared to current retirees, workers age 55 or older were  more likely to expect to retire later and to work during retirement. Our  prior work has also identified challenges maintaining retirement savings  should older workers become unemployed.

The Need to Re-evaluate the Nation’s Approach to Financing Retirement

Over the past 40 years, the nation has taken an incremental approach to  addressing the U.S. retirement system; however, such an approach may  not be able to effectively address the interrelated foundational nature of  the challenges facing the system today. Without a more comprehensive  re-evaluation of the myriad challenges across all three pillars of the  retirement system, identifying effective, enduring solutions may be  difficult, and the consequences could be significant. Unless timely action  is taken, many older Americans risk not having sufficient means for a  secure and dignified retirement in the future.

Retirement Issues Have Been Addressed with an Incremental Approach

Congress has generally sought to address retirement-related issues and  concerns one issue at a time. As highlighted in appendix II, at least 25  laws pertaining to retirement have been enacted since ERISA. Some  laws—such as the Social Security Amendments of 1983 and the Pension  Protection Act of 2006—made large changes to the retirement system.  Other laws were more targeted. For example in 1984, Congress amended  ERISA to address concerns that women were not receiving their share of  private pension benefits by, among other things, permitting certain breaks  in service without loss of pension credits, and changing treatment of  pension benefits for widowed and divorced spouses. Similarly, in 1996,  Congress created a simplified retirement savings vehicle for employers  with 100 or fewer employees to help address concerns that smaller  employers were not sponsoring plans.

The number of agencies that play roles in the current retirement system  has also contributed to the incremental approach to addressing concerns,  with no single federal agency being responsible for taking a broad view of  the system as a whole. As described earlier, there are at least 10  agencies that have a role in overseeing some part of the system, or that  are involved in providing supports and services to older Americans. In  addition to DOL, IRS, and PBGC, which are the agencies generally  responsible for administering ERISA, SSA administers the Social Security  program; and the Department of Health and Human Services oversees  CMS, which administers the health care programs for retirees. In addition,  various other agencies play a role in providing a range of services and  supports to assist older adults through retirement.

Having multiple agencies involved in the system has also contributed to a  complex web of programs and requirements. For example, our prior work  identified more than 130 reports and disclosures stemming from  provisions of ERISA and the Internal Revenue Code. Although each plan  sponsor is required to submit only certain of these reports and  disclosures, determining which ones can be challenging, and we found  that the agencies’ online resources to aid plan sponsors with this task  were neither comprehensive nor up to date. We made several  recommendations to address these issues that have not been fully  implemented.

Need for More Comprehensive Reform of the U.S. Retirement System

While three federal commissions have focused on various retirement  issues (see app. III), it has been nearly 40 years since the last  comprehensive evaluation of the nation’s approach to financing  retirement by a federal commission. The 1979 President’s Commission  on Pension Policy conducted a broad study of retirement-related issues  and made a series of over-arching recommendations, such as creation of  a minimum universal pension system that would provide a portable  benefit for all workers that would be a supplement to Social Security.  Other recommendations included federal protections for participants in  state and local government plans, more consistent tax treatment of  pension plans and retirement savings vehicles, provisions to strengthen  Social Security, as well as proposals regarding employment of older  workers and disability programs. However, many of the commission’s  recommendations were not implemented.

The issues identified nearly 40 years ago by the 1979 commission’s  comprehensive re-evaluation of the U.S. retirement system continue to be  issues facing the nation today. In fact, these issues have only become  more complex and more urgent due to fundamental changes that have  occurred since 1979—especially the growing fiscal exposure to the  federal government and the shift from DB to DC plans, with its associated  increase in risks and responsibilities for individual workers. Taken  together, these changes may make it harder for retirees to achieve  financial security in retirement, especially for those without access to  employer-sponsored plans and at the lower end of the income scale.

A panel of 15 retirement experts convened by GAO in November 2016  agreed that there is a need for a new comprehensive evaluation of the  U.S. retirement system. They noted weaknesses in the current system’s  ability to help ensure that all individuals can provide for a secure  retirement. They also discussed the burden that the current system’s  complexity places on individuals, employers, and federal government.  Although there was agreement among many panelists that a more  comprehensive approach would be needed to provide a secure retirement  for future retirees, opinions varied on the types of solutions needed. For  example, some panelists suggested that a new government-sponsored  savings vehicle should be created, while others supported modifying the  existing employer-sponsored system to make any needed changes.

In addition, several panelists commented on how the current system can  be overly complex and confusing for employers, especially small  employers. They discussed how the current private sector system poses  financial and litigation risk for employers, especially with respect to  investment decisions, fiduciary duty, and fees. For example, one panelist  suggested that DC plan sponsors may welcome the federal government  providing more guidance on the types of investments that would be  regarded as prudent and safe as a way to reduce their litigation risk.

Panelists also noted that the experiences of other countries can provide  useful insights for ways to improve U.S. retirement programs and policies.  For example, some panelists described the approach being taken by the  United Kingdom (UK) as a potential model for expanding access to  retirement savings plans. In the UK model, universal access for workers  was implemented by mandating that all employers automatically enroll  employees in either their own or the government-sponsored retirement  savings plan, the National Employment Savings Trust.

In our 2017 report, we suggested five policy goals for a reformed U.S.  retirement system as a starting point for discussion: (1) promoting  universal access to a retirement savings vehicle, (2) ensuring greater  retirement income adequacy, (3) improving options for the spend down  phase of retirement, (4) reducing complexity and risk for both participants  and plan sponsors, and (5) stabilizing fiscal exposure to the federal  government (see table 1 for more detail on these goals).

Reforming the nation’s retirement system to create a system that meets  all of these goals, or others identified by the Congress, will require a  careful and deliberative approach. For example, some type of consensus  about the goals would need to be established as a first step. Broad  questions are likely to be raised about how each of the goals should be  achieved. The examination of relevant issues by past federal  commissions, the discussions at our November 2016 panel, as well as  what we can learn from the experiences of other countries, further  illustrate how complex any reform effort is likely to be. Also, we recognize  that some of these goals may compete with each other—in particular,  ensuring greater retirement security and minimizing fiscal exposure to the  federal government. Therefore, a balanced approach will be required,  which can only result from a more holistic examination of the issues by  those representing a broad range of perspectives.

As a result, we recommended that Congress consider establishing an  independent commission to comprehensively examine the U.S. retirement  system and make recommendations to clarify key policy goals for the  system and improve the nation’s approach to promoting more stable  retirement security. We suggested that such a commission include  representatives from government agencies, employers, the financial  services industry, unions, participant advocates, and researchers, among  others, to help inform policymakers on changes needed to improve the  current U.S. retirement system.

Chairman Collins, Ranking Member Casey, and Members of the  Committee, this concludes my prepared remarks. I would be happy to  answer any questions that you may have.

For further information regarding this testimony, please contact Charles  A. Jeszeck at (202) 512-7215 or jeszeckc@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this statement.

In addition to the contact above, Margie K. Shields, Assistant Director;  Jennifer Gregory, Analyst-in-Charge; Justine Augeri; and Gustavo O.  Fernandez made key contributions to this publication. Also contributing to  this report were Barbara D. Bovbjerg, Managing Director, Education,  Workforce, and Income Security Issues; Oliver Richard, Chief Economist;  Frank Todisco, Chief Actuary; James Bennett, Deborah Bland, Corinna  Nicolaou, and Adam Wendel, with assistance from others who worked on  our 2017 report.

Appendix I: GAO’s Expert Panel on the State of Retirement

We convened a panel of retirement experts in November 2016 to obtain  their insights on the condition of retirement in the United States and  various options for a new approach to help ensure that all individuals can  provide for a secure retirement. This appendix provides a description of  our methodology for selecting the panel. (See text box for final list of 15  experts participating in our panel.)

To identify the experts to invite to this meeting, we compiled an initial list  based on interviews with experts conducted during recent GAO  retirement income security work and the organizations invited to  participate in a 2005 GAO forum on the future of the defined benefit  system and the Pension Benefit Guaranty Corporation. Potential experts  were identified based on the following criteria:

Organizational type: To ensure that we considered the unique roles or  situations of various entities involved in retirement income policy, we  selected panelists from the federal government, state or local  government, research institutes or universities, advocacy or  membership organizations, and financial services firms.

Organizational reputation: To ensure that our panelists span political  perspectives, we selected panelists from organizations known to be  conservative, moderate, and liberal (to the extent the reputation for  the organization could be easily identified).

Subject matter expertise: To ensure that the discussion considered as  many aspects of retirement income security as possible, we selected  panelists with expertise across a range of areas, including defined  benefit (DB) plans, defined contribution (DC) plans, individual  retirement accounts (IRA), demographic trends, vulnerable  populations, actuarial science, income in retirement, financial literacy,  and behavioral finance.

Range of views: To ensure that our discussion was inclusive of  different philosophies regarding the role of government with regard to  the population and the economy, we selected panelists to represent  the viewpoints of individuals and business.

Representation of diverse groups: To ensure that the discussion  benefited from different viewpoints, we selected panelists to reflect  gender, racial, and ethnic diversity.

An initial list of 41 potential experts was shared with GAO management  officials with expertise in retirement issues, actuarial science, and  strategic planning, as well as GAO methodologists, for their comments  and suggestions. From this, we developed a shorter list eventually  arriving at our final group of 15, listed above. These final 15 panelists  were also evaluated for conflicts of interest. A conflict of interest was  considered to be any current financial or other interest that might conflict  with the service of an individual because it (1) could impair objectivity and  (2) could create an unfair competitive advantage for any person or  organization. All potential conflicts were discussed by GAO staff. The 15  experts were determined to be free of conflicts of interest, and the group  as a whole was judged to have no inappropriate biases.

Panelists engaged in a day-long discussion about our nation’s approach  to retirement policy (see text box). The discussion was guided by a list of  questions developed in advance, and the meeting was conducted by a  GAO moderator to ensure that all panelists had an opportunity to  participate and provide responses.

State of Retirement Expert Panel Agenda  Session 1: How Well Is Our Current National Approach to Retirement Security  Working?

Preamble: Retirement income sources in the United States have often been referred to  as a three-legged stool – Social Security, employer-sponsored retirement plans, and  personal savings.   1.  Can the U.S, retirement system today still be accurately described by these  three retirement income sources? Why/why not?  2.  Are there aspects of our nation’s approach to retirement income security that  are working well? If so, are these aspects functioning well for all, or only for  particular populations?  3.  Are there aspects of our nation’s approach to retirement income security that  are concerning? If so, what are your biggest concerns?   4.  Are there any specific populations you are particularly concerned about? If so,  which ones and why?

Session 2: Reevaluating the Roles of the Federal Government, Employers, and  Individuals  Preamble: Key actors in assuring a secure retirement have traditionally included the  federal government, employers, and individuals, but their roles have evolved over time.

Are there ways roles could or should be adapted or modified to address the  strengths and weaknesses that have been identified for:  o  Federal government?  o  Employers?  o Individuals?

Session 3: Reevaluating Our Nation’s Approach to Retirement Policy  Preamble: Various proposals for a broader, more cohesive approach to retirement policy  have been made over time.  1.  Do you believe there is a need for some type of national retirement policy?   2.

If such a policy were to be proposed--   2a. What could or should be the primary goals of such a policy?   2b. What could or should be the roles of key actors in achieving those  goals?   3.  What do you believe could be the greatest benefits of a national retirement  policy?   4.  What do you believe could be the greatest risks or potential downsides of a  national retirement policy?

What barriers exist to creating a national retirement policy and how could the federal  government best address these barriers?

Appendix II: Selected Federal Legislation Related to Retirement Security from 1960- Present

The chronology highlights below selected federal legislation related to  retirement security in the United States since 1960. It is based on a larger  chronology included in our prior special product on the nation’s retirement  system (GAO-18-111SP). The chronology is intended to illustrate the  incremental approach that the nation has taken to improving the U.S.  retirement system and to convey the changes that the legislation enacted  at the time. It is not intended to provide an exhaustive list of legislation  that has impacted retirement in the United States, to make statements  about current provisions of the law, or to provide comprehensive  descriptions of each law.

Chronology of Selected Federal Legislation Shaping Retirement in the United States (1960–Present)  1961  Social Security Amendments of 1961  Selected provision: Enacted a provision for men, comparable to the provision enacted for women in 1956, concerning  early retirement at age 62.  Self-Employed Individuals Tax Retirement Act of 1962  Selected provision: Imposed minimum distribution requirements for self-employed participants in a qualified plan  generally beginning at age 70 ½.  Social Security Amendments of 1965  Selected provisions: Enacted new titles to the Social Security Act for Medicare and Medicaid. Medicare provided  hospital, post-hospital extended care, and home health coverage to almost all Americans age 65 or older; Medicaid  provided states with the option of receiving federal funding for providing health care services to certain low-income and  medically needy individuals.  Age Discrimination in Employment Act of 1967  Selected provisions: Made it unlawful for an employer to discriminate against any individual with respect to  compensation, terms, conditions, or privileges of employment because of age; and required the Secretary of Labor to  carry on a continuing program of education and information, which could include research with a view to reducing  barriers to the employment of older persons.  Employee Retirement Income Security Act of 1974 (ERISA)  Selected provisions: Regulated private sector employers who offer pension or welfare benefit plans for their employees.

Title I: Imposed reporting and disclosure requirements on plans; imposed certain responsibilities on plan  fiduciaries.  Title II: Strengthened participation requirements for employees age 25 and over; established vesting rules; required  that a joint and survivor annuity be provided; and established minimum funding standards. In addition, provided  individual retirement accounts (IRAs) for persons not covered by pensions.  Title IV: Required certain employers and plan administrators to fund an insurance system to protect certain kinds of  retirement benefits (i.e., to pay premiums to the federal government’s Pension Benefit Guaranty Corporation  (PBGC)).

Revenue Act of 1978  Selected provisions: Established qualified deferred compensation plans called 401(k) plans after 26 U.S.C. § 401(k),  which allowed for pre-tax employee contributions to such plans (known as elective deferrals).  Multiemployer Pension Plan Amendments Act of 1980  Selected provisions: Strengthened the funding requirements for multiemployer pension plans; authorized plan  preservation measures for financially troubled multiemployer plans; and revised the manner in which insurance  provisions applied to multiemployer plans.

Chronology of Selected Federal Legislation Shaping Retirement in the United States (1960–Present) 1982

Tax Equity and Fiscal Responsibility Act of 1982  Selected provisions: Reduced the maximum annual addition (employer contributions, employee contributions, and  forfeitures) for each participant in a defined contribution (DC) plan; reduced the maximum annual retirement benefit for  each participant in a defined benefit (DB) plan; introduced special rules for “top heavy” plans (i.e., plans in which more  than 60 percent of the present value of the cumulative accrued benefits under the plan for all employees accrue to key  employees, including certain owners and officers); and expanded minimum distribution requirements to all qualified  plans.  Social Security Amendments of 1983  Selected provisions: Gradually raised the normal retirement age from 65 to 67, depending on an individuals’ year of  birth; expanded coverage; increased the self-employment tax for self-employed persons; subjected a portion of Social  Security benefits to federal income tax for the first time; and changed how cost-of-living adjustments are calculated  when trust funds are low.  Deficit Reduction Act of 1984  Selected provisions: Amended nondiscrimination testing requirements for 401(k) plans and required minimum  distribution rules, and restricted prefunding of certain employee post-retirement welfare benefits (such as disability and  medical benefits).  Retirement Equity Act of 1984  Selected provisions: Changed participation rules by lowering the minimum age that a plan may require for enrollment  (from age 25 to 21), and permitted certain breaks in service without loss of pension credits. Also, strengthened  treatment of pension benefits for widowed and divorced spouses.  Single-Employer Pension Plan Amendments Act of 1986  Selected provisions: Raised the per-participant PBGC premium from $2.60 to $8.50; established certain distress criteria  that a contributing sponsor or substantial member of a contributing sponsor’s controlled group must meet in order to  terminate a single-employer plan under a distress termination; established certain criteria for PBGC to terminate a plan  that does not have sufficient assets to pay benefits that are currently due (referred to as “involuntary terminations”); and  created a new liability to plan participants for certain non-guaranteed benefits.  Federal Employees’ Retirement System Act of 1986  Selected provisions: Established the Federal Employees’ Retirement System (FERS). Unlike the existing Civil Service  Retirement System (CSRS), retirement and disability benefits under FERS were structured to be fully funded by  employee and employer contributions and interest earned by the bonds in which the contributions were invested. The  DB under FERS was lower than under CSRS, but FERS also included a DC plan component: the Thrift Savings Plan.  Omnibus Budget Reconciliation Act of 1986  Selected provisions: Required employers that sponsor pension (DB plans) and retirement savings plans (DC plans such  as a 401(k)) to provide benefit accruals or allocations for employees who work beyond their normal retirement age.  Tax Reform Act of 1986  Selected provisions: Established faster minimum vesting schedules; adjusted limitations on contributions and benefits  for qualified plans; limited the exclusion for employee elective deferrals to $7,000; and amended nondiscrimination  coverage rules. Also, restricted the allowable tax-deductible contributions to IRAs for individuals with incomes above a  certain level and who participate in employer-sponsored pension plans, and imposed an additional 10 percent tax on  early distributions (before age 59 ½) from a qualified retirement plan.  Omnibus Budget Reconciliation Act of 1987  Selected provisions: Strengthened funding rules for pension plans and the level and structure of PBGC premiums.  Omnibus Budget Reconciliation Act of 1993  Selected provisions: Reduced compensation taken into account in determining contributions and benefits under  qualified retirement plans, and expanded taxation of Social Security benefits.

Chronology of Selected Federal Legislation Shaping Retirement in the United States (1960–Present) 1994

Retirement Protection Act of 1994  Selected provisions: Strengthened funding rules for pension plans.  Small Business Job Protection Act of 1996  Selected provisions: Created a type of simplified retirement savings vehicle for small employers; added a  nondiscrimination safe harbor for 401(k) plans; amended the definition highly compensated employee; and modified  certain participation rules for DC plans.  Taxpayer Relief Act of 1997  Selected provision: Established Roth IRAs, under which contributions are after-tax, but distributions after age 59½ are  tax-free.   Senior Citizens’ Freedom to Work Act of 2000    Selected provision: Amended the Social Security Act to eliminate the earnings limit for individuals who have reached  their normal retirement age.  Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)  Selected provisions: Increased the individual elective deferrals that may be made to a 401(k) plan; added “catch-up  contributions” that allow individuals age 50 or older to make additional contributions; increased the maximum annual  contributions to DC plans and individual retirement accounts; increased the maximum annual benefits under a DB plan;  increased the compensation limit for qualified trusts; reduced the minimum vesting requirements for matching  contributions; and changed the rules that permit plans to cash-out, without consent.  Sarbanes-Oxley Act of 2002  Selected provision: Added a new requirement that individual account pension plans provide notice to participants and  beneficiaries in advance of periods during which the ability of participants or beneficiaries to take certain actions with  respect to their accounts will be temporarily suspended, limited, or restricted (referred to as “blackout periods”).  Deficit Reduction Act of 2005  Selected provisions: For plan years that begin after December 31, 2005, set the PBGC flat-rate premium for  multiemployer plans at $8.00; and, for each plan year that begins after 2006, indexed future premium levels to the  national average wage index.  Pension Protection Act of 2006 (PPA)  Selected provisions: Strengthened the minimum funding requirements for DB plans; set certain benefit limitations for  underfunded DB plans; enhanced the protections for spouses; amended plan asset diversification requirements;  changed provisions concerning the portability of pension plans; allowed the adoption of automatic enrollment and target  date funds for DC plans; and increased reporting and disclosure requirements for plan sponsors.  Worker, Retiree, and Employer Recovery Act of 2008  Selected provision: Modified PPA’s funding requirements to grant relief for single-employer DB plans.  Moving Ahead for Progress in the 21st Century Act (MAP-21)  Selected provisions: Provided funding relief for single-employer DB plans by changing the interest rates used to reflect a  25-year historical average; increased premium rates for sponsors of single-employer and multiemployer DB plans; and  included other provisions intended to improve the governance of PBGC.  American Taxpayer Relief Act of 2012  Selected provisions: Extended the tax-free treatment of distributions from IRAs made for charitable purposes; allowed  for certain in-plan transfers to a Roth account.  Multiemployer Pension Reform Act of 2014 (MPRA)  Selected provisions: Allowed severely underfunded multiemployer plans, under certain conditions and with the approval  of federal regulators, the option to reduce the retirement benefits of current retirees to avoid plan insolvency; and  expanded PBGC’s ability to intervene when plans are in financial distress.

Chronology of Selected Federal Legislation Shaping Retirement in the United States (1960–Present) 2018

Bipartisan Budget Act of 2018  Selected provisions: Established a temporary Joint Select Committee on Solvency of Multiemployer Pension Plans. The  goal of the Joint Select Committee was to improve the solvency of multiemployer pension plans and PBGC.

Appendix III: Structure, Scope, and Recommendations of Three Past Federal Commissions on Retirement Issues

Since the enactment of ERISA, there have been three federal  commissions on retirement issues: The President’s Commission on  Pension Policy, the National Commission on Social Security Reform, and  the President’s Commission to Strengthen Social Security (see table 2).  We examined these commissions to gain insights on possible structures  for federal commissions, the scope of work these commissions can take  on, and the types of recommendations they can make.

In 1978, President Carter signed an executive order authorizing the  Carter Commission, which was established when committee members  were appointed in 1979. The commission was to conduct a 2-year sturdy  of the nation’s pension systems and the future course of national  retirement income policies. President Carter appointed all 11 commission  members. The commission also had an executive director and 37  staffers. Its final report, Coming of Age: Toward a National Retirement  Income Policy, was released in February 1981.

Conduct a comprehensive review of retirement, survivor, and disability  programs existing in the United States, including private, federal,  state, and local programs.

Develop national policies for retirement, survivor, and disability  programs that can be used as a guide by public and private programs.  The policies were to be designed to ensure that the nation had  effective and equitable retirement, survivor, and disability programs  that took into account available resources and demographic changes  expected into the middle of the next century.

Submit to the President a series of reports including the commission’s  findings and recommendations on short-term and long-term issues  with respect to retirement, survivor, and disability programs. The  commission was charged with covering the following issues in its  findings and recommendations: overlaps and gaps among the private, state, and local sectors in  providing income to retired, surviving, and disabled persons;  the financial ability of private, federal, state, and local retirement,  survivor, and disability systems to meet their future obligations; appropriate retirement ages, the relationship of annuity levels to  past earnings and contributions, and the role of retirement,  survivor, and disability programs in private capital formation and  economic growth;  the implications of the recommended national policies for the  financing and benefit structures of the retirement, survivor, and  disability programs in the public and private sectors; and  specific reforms and organizational changes in the present  systems that may be required to meet the goals of the national  policies.

In its final report, the Carter Commission prescribed a goal for retirement  income policy and made numerous recommendations. According to the  report, a desirable retirement income goal is the replacement of pre- retirement income from all sources. Recommendations focused on  strengthening four areas: employer pensions, Social Security, “individual  efforts” (personal savings, employment of older workers, and disability),  and public assistance. Recommendations were also made regarding the  administration of the U.S. retirement system. Examples of ways to  strengthen each area follow:

Strengthening Employer Pensions. The commission recommended  establishing a Minimum Universal Pension System (MUPS) for all  workers. MUPS was intended to provide a portable benefit that was  supplemental to Social Security. It would have built upon existing  employer plans and existing plans that did not meet the requirements  would have needed to be amended. Another recommendation was to  establish a Public Employee Retirement Income Security Act (i.e. a  public sector version of ERISA) so that public and private sector  employees would receive similar protections.

Strengthening Social Security. The commission recommended  mandatory universal coverage, raising the retirement age for workers  who were not approaching retirement, re-examining or making  adjustments to the special minimum benefit as well as the spousal  benefit and other miscellaneous benefits.

Strengthening Individual Efforts. The commission recommended  that contribution and benefit limitations for all individuals should be  treated more consistently for all types of retirement savings. The  commission also recommended a refundable tax credit for low- and  moderate-income individuals to encourage saving for retirement. For  older workers, recommendations included improving unemployment  benefits to provide short-term income maintenance and keep them in  the labor force. The commission also recommended further in-depth  study of the Disability Insurance program.

Strengthening Public Assistance. The commission made  recommendations to address inflation protection for retirement income  and setting Social Security’s Supplemental Security Income at the  poverty line level and eliminating its assets test.

Administration. The commission recommended consolidating the  administration of all federal retirement systems as well as  consolidating ERISA administrative functions under one entity. It also  recommended an interdepartmental task force to coordinate executive  branch agencies dealing with retirement income.

In 1981, President Reagan signed an executive order establishing the  Greenspan Commission. The President asked the commission to conduct  a 1-year study and propose realistic, long-term reforms to put Social  Security on sound financial footing and to reach bipartisan consensus so  these reforms could be passed into law. The President, the Senate  Majority Leader, and the Speaker of the House of Representatives each  made five appointments, with no more than three of the five appointments  coming from one political party to ensure a bipartisan commission. The  President was responsible for appointing the commission’s chair. The  commission had a staff of 23. The final report, Report of the National  Commission on Social Security Reform, was issued on January 20,  1983.

Review relevant analyses of the current and long-term financial  condition of the Social Security Trust Funds  Identify problems that could threaten the long-term solvency of such  funds

Analyze potential solutions to such problems that would both assure  the financial integrity of the Social Security system and appropriate  benefits

Provide appropriate recommendations to the Secretary of Health and  Human Services, the President, and Congress.

In its final report, the Greenspan Commission found both short and long- term financing problems and recommended that action should be taken to  strengthen the financial status of the Social Security program. Twelve  commission members voted in favor of a consensus package with 13  recommendations to address Social Security’s short-term deficit,  including, for example:

Expand Social Security to include coverage for nonprofit and civilian  federal employees hired after January 1, 1984, as well as prohibiting  the withdrawal of state and local employees.

Shift cost-of-living adjustments to an annual basis.

Make the Social Security Administration its own separate,  independent agency.

Make adjustments to spousal and survivor benefits.

Revise the schedule for Social Security payroll taxes.

Establish the taxation of benefits for higher-income persons.

In addition, these 12 commission members agreed that the long-range  deficit should be reduced to approximately zero, and their  recommendations were projected to meet about two-thirds of the long- range financial deficit. Seven of the 12 members agreed that the  remaining one-third of the long-range financial deficit should be met by a  deferred, gradual increase in the normal retirement age, while the other 5  members agreed that it should be met by an increase in future  contribution rates starting in 2010.

After the Greenspan Commission’s final report was issued, Congress  enacted the Social Security Amendments of 1983. The amendments  incorporated many of the Greenspan Commission’s recommendations  and made comprehensive changes to Social Security coverage,  financing, and benefit structure. These changes included addressing  Social Security’s long-term financing problems by gradually increasing the  retirement age from 65 to 67, among other things.

President’s Commission to Strengthen Social Security (2001)

In 2001, President Bush signed an executive order establishing the  President’s Commission to Strengthen Social Security. The President  asked the Commission to produce an interim report describing the  challenges facing the Social Security system and the criteria by which the  Commission would evaluate reform proposals, as well as a final report to  set forth the Commission’s recommendations regarding how to  strengthen Social Security with personal accounts. The commission had a  staff of sixteen members appointed by the President, of which no more  than eight members were of the same political party. The final report,  Strengthening Social Security and Creating Personal Wealth for All  Americans, was issued in December 2001.

Charge to the President’s Commission to Strengthen Social Security

The commission was asked to submit to the President bipartisan  recommendations to modernize and restore fiscal soundness to the  Social Security system according to the following principles:

Modernization must not change Social Security benefits for retirees or

The entire Social Security surplus must be dedicated to Social

Social Security payroll taxes must not be increased;

Government must not invest Social Security funds in the stock market;

Modernization must preserve Social Security’s disability and survivors

Modernization must include individually controlled, voluntary personal  retirement accounts, which will augment the Social Security safety  net.

The President’s Commission to Strengthen Social Security Recommendations

In its final report, the Commission offered three models for Social Security  reform. All three models shared a common framework whereby voluntary  individual accounts were established in exchange for a reduction in the  Social Security defined portion of benefit. According to the report:

Reform Model 1 would have established a voluntary personal account  option, but did not specify other changes in Social Security’s benefit  and revenue structure and was intended to achieve full long-term  sustainability.

Reform Model 2 would have enabled future retirees to receive Social  Security benefits that would be at least as great as then current  retirees and increased Social Security benefits paid to low-income  workers. Model 2 would have established a voluntary personal  account without raising taxes or requiring additional worker  contributions. It was intended to achieve solvency and balanced  Social Security revenues and costs.

Reform Model 3 would have established a voluntary personal account  option that generally enabled workers to reach or exceed then-current  scheduled benefits and wage replacement ratios. It was intended to  achieve solvency by adding revenues and by slowing benefit growth  less than price indexing.

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The U.S. retirement system has fundamentally changed since the 1970s, and several challenges have emerged, including:

Baby boomers reaching retirement age, affecting Social Security's finances

Complexity of planning and managing funds in employer-sponsored retirement plans

Growing debt and health care costs hindering individual savings

These challenges increase the risk that people will outlive their retirement savings and put added pressure on government programs.

This testimony from U.S. Comptroller General Gene Dodaro is based on an earlier report that recommended establishing a commission to comprehensively examine the retirement system.