January-February 2009
February 27, 2009ACCF Engages 111th Congress and Media on Stimulus and U.S. Economy
As Congress debated how to address the deepening U.S. recession, the American Council for Capital Formation brought together key lawmakers, top media, and private sector leaders for two ACCF Economic Policy Evenings focused on indepth discussions of the stimulus package aimed at boosting economic growth, saving jobs, creating new jobs and businesses, and putting the U.S. economy back on track.
Now in their 27th year, ACCF Economic Policy Evenings have hosted more than 220 members of the U.S. House of Representatives and nearly 100 members of theU.S. Senate, as well as many members of the print and electronic media and business leaders from high tech, manufacturing, real estate, financial service, small and mid-size firms, and others. The Economist in its “Lexington” column wrote that ACCF Evenings “provide an opportunity away from the concerns and grandstanding to discuss economic issues of the day and on occasion to help steer economic policy.”
Top members of congressional tax, energy, and economic policy committees joined members of the press and leaders from the business and association community to focus on the stimulus package and other significant issues on the country’s economic agenda at ACCF Policy Evenings on January 27 and February 10. Pictured here and on page 4 are some of the guests at these two sessions.
The Way Forward on Strengthening Retirement Security
The global economy is currently facing the most severe financial crisis since the Great Depression.The collapse in the financial markets around the world has led to a decline in the real economy. According to the latest IMF projections, world economic growth is expected to decline to 0.5 percent in 2009, the lowest rate of growth since World War II.1The outlook for the United States economy is evenmore alarming, with the latest projections indicating a decline in GDP for 2009 of 1.6 percent. In addition to increasing the focus on the role of government in stimulating the economy, the financial crisis has brought the issue of retirement security back into the spotlight. Already strained by the failure to adapt to long-run trends such as increased life expectancy, decreased fertility and earlier retirement, retirement policy now must deal with precipitous declines in the value of private pension savings as a result of the stock market collapse.
Policymakers, academics and private sector experts are all trying to find an answer to the million dollar question: How to provide for a more secure retirement. Congress has begun to hold hearings to discuss possible reforms to the 401(k) system which has suffered considerable losses due to recent market fluctuations. According to data reported by Fidelity Investments, average balances in defined contribution accounts fell by 27 percent2 in 2008 while the S&P 500 fell 38 percent at the same time period. On February 24, 2009, the Education and Labor Committee of the U.S. House of Representatives held a hearing on “Strengthening Worker Retirement Security” which brought together widely recognized experts on the issue of retirement security.3 One common theme from the hearing was the importance of the Social Security system as a safety net for millions of low and moderate wage earners. All of the witnesses at the hearing agreed that it is essential to put the current system on a sound financial footing. Witnesses also offered suggestions about different ways to improve defined contribution (DC) plans.
Among the reform proposals put forward at the hearing were:
- Relax the minimum distribution rules. Currently a retirement plan account owner has to start withdrawing money from his or her account when he reaches age 701⁄2. As suggested by Paul Schott Stevens, president, Investment Company Institute, given increasing life expectancies it would be wise to increase this age limit to 75.
- Increase coverage through adoption of a multi-faceted set of reforms. According to written testimony submitted by the American Benefits Council, coverage of more American workers through the workplace can be achieved by reforms such as expansion of default systems. These include automatic enrollment and automatic escalation, simplified retirement plan designs, and expanded retirement tax incentives both for individuals and employers.
- Introduce a new tier of retirement income. The director of Boston College’s Center for Retirement Research, Prof. Alicia Munnell, proposes a new tier to the retirement system aiming to replace about 20 percent of pre-retirement income. Participation in this new tier would be mandatory and there would be no access to saved funds before retirement. The payout from this new tier would take the form of an annuity. According to Prof. Munnell, this new system should be funded and reside as much as possible in the private sector.
- Provide the option to contribute to a government-run pension system. Dean Baker, co-director of the Center for Economic and Policy Research, supports a voluntary universal system which would provide a modest guaranteed rate of return. This guaranteed rate should be consistent with a long-term average return on a conservatively invested portfolio. The payout stage for such a system would also favor annuitization by charging a modest penalty to workers who choose a lump-sum payment.
- Create a single, simple DC structure. John C. Bogle, founder and former chief executive of the Vanguard Group, proposes simplifying today’s various traditional DC plans such as IRAs, Roth IRAs, 401(k) plans and the federal Thrift Savings Plan into a single DC plan. While this new system would remain in the private sector, an independent Federal Retirement Board would oversee both the employer-sponsors and the plan providers in order to establish sound principles of asset allocation and diversification. This system would mandate partial annuitization at retirement.
CONCLUSIONS
Defined contribution plans have become an important part of retirement savings in the United States. Depending on the investment strategy, DC plans can be subject to varying kinds of market risk. However, it is important to remember that these plans are designed as long-term investments and thus should not be judged solely on shortterm market fluctuations. The current debate should focus on the big picture and identify improvements in the system that will be essential in strengthening the future retirement security of Americans.
Leading House Energy/Climate Policy Expert Briefs ACCF Members
“Expert, up-to-date research on energy and climate policy and its implications for our economy is essential this year,” Representative F. James Sensenbrenner (R-WI), the ranking GOP member of the House Select Committee on Energy Independence and Global Warming, told ACCF members on February 2. “Enactment of a ‘cap and tax’ bill could result in severe economic consequences for this country, which is already suffering from a painful recession. We need to carefully evaluate the impact of proposed energy and climate legislation on the economy,” he added.
“We need more solid research that measures the economic effects of energy and climate policy proposals on the U.S. economy,” Representative Sensenbrenner said. “One good example is the ACCF/NAM analysis of the Lieberman/Warner Climate Security Act [S. 2191]. This is the type of research that can help us evaluate the impact of energy and climate policy proposals so we can understand the consequences that proposed legislation could have for our states and the country. I hope the ACCF will take on additional research projects this year that will help us evaluate the shortand long-term implications of new proposals,” he said. (To read the joint ACCF/NAM study assessing the potential national and state economic impacts resulting from S. 2191, see http://www.accf.org/publications.php?pubID=109.)
ACCF in the News
The year 2009 has brought a new Administration, a new Congress and a long list of challenging issues facing the nation. The ACCF has been at the forefront of the debate on many of the leading economic news topics facing the nation today -- the recession, economic stimulus, the sluggish stock market, tax and energy policy.
ACCF has become a regular commentator on BBC News, offering economic perspectives and advocating pro-growth policy recommendations on the network’s international radio and TV programs. ACCF also frequently appears on Fox Business News.
Dr. Margo Thorning has offered counsel on energy and economic policy to President Obama in her “Do’s and Don’ts” op-ed in Investors Business Daily. She also offered counsel on energy policy during a special feature on National Public Radio.
ACCF’s credible research on the estate tax was the included in both a Wall Street Journal news article and subsequent editorial.
Recently, economic data from the ACCF/NAM comprehensive study on the impact of federal cap-and-trade legislation was featured as an infographic in the Washington Post.
Dr. Thorning and Mark Bloomfield also join a long list of distinguished leading authorities on environmental and energy policy and economic policy on respective blogs sponsored by National Journal.
In addition to ACCF’s core policy issues, Mark Bloomfield is also a contributor to The Hill’s K Street Insiders feature. In his most recent column he discussed the importance of fostering long-term personal bipartisan relationships on Capitol Hill.
For more information on ACCF in the News and the ACCF’s publications and programs, please visit the ACCF’s website at http://www.accf.org/home.php. For background on the ACCF’s new capital gains blog, please visit http://www.accf.org/blog/mrcapitalgains/.
January-February 2009 Newsletter