WASHINGTON (Reuters) - Now that the stock market’s plunge has shrunk Americans’ 401(k) retirement accounts, Congress will examine what changes are needed to the system, the head of the House panel on the workforce said on Thursday.
“We’re not getting what we wanted out of it,” Rep. George Miller, chairman of the Committee on Education and Labor, said of 401(k)s, tax-advantaged savings plans that are the dominant type of private-sector retirement plan in the United States.
President Barack Obama, in office two days, and the new Congress run by his Democratic party are focusing now on a mammoth stimulus plan they hope will create enough new investment and jobs to relieve a deepening economic crisis.
One horror of the crisis for many Americans, even if they have kept their jobs, has been watching their 401(k) accounts lose value. Workers are responsible for managing investments in these accounts, named after a section of the U.S. tax code.
Balances in U.S. 401(k)s are down $573 billion since one year ago, according to the non-profit, non-partisan Employee Benefit Research Institute in Washington.
In an interview with Reuters, Miller said he plans a series of hearings starting next month on retirement security. “What is it we would do to strengthen the 401(k)s? What is it we would do to grow the retirement security of people?” he said.
He predicted the hearings would lead, at a minimum, to a revival of reforms that he initially proposed last spring before the global financial crisis hit.
Among other things, the changes would provide workers with more independent advice on how to invest the assets in their accounts, and make 401(k) fees more transparent, Miller said.
“The drumbeat for that (the changes) is now growing, because not only did the price of stock go down, but in many cases people found out this (system) has been manipulated one way or another,” Miller told Reuters.
“You (the worker) were given bad (investment) choices, you were given risky choices when you should have had safe choices. Things that were guaranteed weren’t really guaranteed,” he said.
Miller, a California Democrat, already had some hearings last year after the stock market meltdown began. Some experts told his committee that poverty among older citizens will spread if something is not done about retirement savings.
Miller said he did not know yet whether it had been a mistake to let employers gradually shift to the 401(k) system in recent decades, leaving fewer workers with old-fashioned pensions that pay a fixed monthly benefit for life.
“I don’t have any conclusion yet. If people insist I have a conclusion before I start an inquiry, I can never have an inquiry,” Miller declared.
Traditional pension plans managed by employers have also been hit by the stock market’s fall. But those losses are borne by the employers, who still must pay a pension when the employee retires. They have been asking Congress for legislation giving them more time to fund their plans.
Miller noted that a bright spot for Americans in the financial crisis has been the continued existence of the government Social Security program financed through payroll taxes. But he noted that “for the kind of retirement security that most people expect, Social Security isn’t sufficient.”
“People say, Thank God you didn’t screw up Social Security,” he said, remembering that former President Bush had hoped to privatize part of the government program.
Nonetheless, Obama wants to look at Social Security and other U.S. government-funded “entitlements” whose costs are spiraling, Miller said. Obama has said he plans to hold a “fiscal responsibility” summit next month as part of efforts to overhaul entitlements and contain government spending.
“The president is apparently going to start a discussion on entitlements, Social Security and Medicare, and we’ll see what happens,” Miller said.
Reporting by Susan Cornwell; editing by Carol Bishopric