Opening Statement of the Hon. Bill Thomas, a Representative in Congress from the State of California,
and Chairman, Committee on Ways and Means

Hearing on Retirement Security and Defined Contribution Plans

February 26, 2002

Good afternoon. Today’s examination of defined contribution pension plans is the first in a series of hearings that will allow the Ways and Means Committee to look at significant aspects of retirement security for America’s workers.

Private pension plans are an important component of retirement savings for millions of Americans.  Historically, most American workers were covered by “defined benefit” plans that provided a guaranteed benefit at retirement after a number of years of commitment, almost always at one company or corporation.  However, over the last two decades we have seen an expansion in defined contribution pension plans.  In a defined contribution plan, individual accounts are established for each worker and funded with either employer contributions, or employee contributions, or a mix of both.  These contributions are usually invested at the worker’s discretion, and retirement income depends on the worker’s account balance at retirement.  Today more than 55 million American workers hold nearly $2.5 trillion in assets in more than 660,000 defined contribution plans.

We have witnessed a huge growth in defined contribution plans because they create significant benefits for both employers and employees. For employers, they are less burdensome and cheaper to administer.  For employees, they provide more control and the opportunity for higher retirement income. Moreover, they are more portable so that employees with today’s mobility in the workforce can take assets with them when they change jobs.

Overall, defined contribution plans have been extremely successful, allowing millions of Americans to retire more comfortably than they otherwise could have.  However, defined contribution plans do contain the risk that the contribution will not be invested to maximize return while minimizing risk. As a result, it is important to examine whether the law has successfully kept pace with the shift to defined contribution plans, or whether adjustments to the plan are required.

An important issue has emerged in the context of these recent experiences, and that is the need for a greater commitment to financial education.  Indeed when we look at the decisions that employees or workers as consumers need to make now, not only in the retirement area but in the healthcare field as well, educating workers about their options that allow them to make the right choices for their own specific circumstances is more important than ever before.  Financial literacy will allow employees to make more sophisticated judgments about where and how to place their investments.

It is not the intention of this Committee to legislate based on isolated cases where the system has not worked, but rather to look at whether and how the broad underlying fundamentals need correction. 

Therefore, this committee will look at the current legal framework for defined contribution plans and examine reforms that help workers successfully save and invest for their retirement.

That doesn’t mean that the Ways and Means Committee will not listen to and examine any current specific situation.  Subcommittees will be holding a series of hearings, both Oversight and other subcommittees, focusing on specific examples and allowing the Committee to look at the broader framework.

I look forward to learning more about the President’s recommendations for retirement security and hearing from our panel of pension experts.  Ultimately we will hold a series of hearings, as I said, on retirement security to examine defined benefit pensions as well as defined contributions and Social Security and its solvency in the 21st century.