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Last week, U.S. Senate Special Committee on Aging Chairman
Herb Kohl (D-WI) held a hearing on the economic downturn’s effect on
retirement security, particularly for those who are on the brink of
retirement. Witnesses at the hearing offered insight into the
myriad factors that are affecting the ability of baby boomers to
retire, including the weakened performance of 401(k) funds, the
instability of housing values, and the challenges of the labor market
for older workers, all of which are contributing to diminished
prospects for a secure retirement.

The panel took a particularly close look at 401(k) target date
funds, which are designed to gradually shift to more conservative
investments as workers approach retirement. Kohl also unveiled
findings from a Committee investigation of 401(k) funds designed for
people planning to retire in 2010, which revealed a wide variety of
objectives, portfolio composition and risk within same-year target date
funds. The results of excessive risk can be devastating for
those on the brink of retirement: one 2010 target date fund
lost 41 percent in 2008. In conjunction with the hearing, Kohl
is sending letters  to U.S. Secretary of Labor Hilda Solis and
U.S. Securities and Exchange Commission Chairwoman Mary Schapiro,
urging them to immediately commence a review of target date funds and
begin work on regulations to protect plan

“Despite their growing popularity, there are absolutely no
regulations regarding the composition of target date funds,” said
Chairman Kohl. “With more and more Americans relying on
401(k)s and other defined contribution plans as their primary source
for retirement savings, we need to make sure their savings are
well-protected with strong oversight and regulation.”

Target date funds are designed to simplify long-term investing
by automatically adjusting to more conservative investments as the fund
approaches a set date. By authority of the Pension Protection
Act of 2006, the U.S. Department of Labor (DOL) has issued regulations
allowing target date funds to be used as a qualified default investment
alternative (QDIA) in employer-sponsored retirement
plans. However, under the Employee Retirement Income Security
Act (ERISA) and DOL guidelines, there are no requirements regarding the
composition of target date funds and the appropriate ratio of stocks
and bonds as the fund nears its target. As a result of the
decision to allow target date funds to be used as QDIAs, they are
increasingly used as the primary investment option for millions of
Americans. Target date funds only made up roughly 3 percent of
defined contribution savings in 2006, but are expected to increase to
20 percent in 2010. By 2015, it is expected that more than
one-third of all defined contribution savings will be in target date

The hearing’s lead witness, Jeanine Cook, testified about the
difficulties Americans face as they head into retirement. Like
millions of other Americans, she has experienced a decline in her
housing and 401(k) investments in conjunction with diminishing job
prospects. Dallas Salisbury, president and CEO of the Employee
Benefits Research Institute, highlighted some of the findings about
target date funds that will be released in their March 2009 EBRI issue
brief. He also discussed some calculations about how long
boomers will need to remain in their 401(k) plan to make up for the
2008 declines based on continued contributions and differing market

Dean Baker, co-director of the Center for Economic and Policy
Research (CEPR), discussed the decline in savings and equity among
young and older baby boomers. In conjunction with this
hearing, CEPR released a new report on how the housing crash is
affecting boomer’s retirement prospects. Ignacio
Salazar, from SER- Jobs for Progress, testified about some of the
challenges that older workers face in today’s workforce, and how
Workforce Investment Act (WIA) one-stop career centers are not doing a
satisfactory job in training seniors. Yesterday Kohl unveiled his agenda to make it easier
for older Americans to either reenter or remain in the

Barbara Kennelly, of the National Committee to
Preserve Social Security and Medicare, testified about how government
programs, like Social Security and Medicare, are crucial to America’s
seniors, especially in a stagnant economy. She also mentioned
the rising bankruptcies among seniors and highlighted some of the
government’s efforts in the stimulus to help older Americans as they
retire.  Finally, Deena Katz, a certified financial planner
and associate professor at Texas Tech University, gave an overview of
boomer financial history, and described the challenges and risks facing
boomers as they enter retirement and begin to spend down their
savings. She also offered steps that boomers and policy makers
might consider to help attain a secure retirement.

We have included below a table of some of the more
interesting facts presented at the hearing 
the table are links to the complete testimony presented at the

Facts Presented During


Average Social Security Benefit – $13,800

Committee to Preserve Social Security & Medicare

Two-Thirds of the Elderly Receive More Than Half of Their
Income From Social Security

National Committee to Preserve Social Security
& Medicare

Almost 50% of all Widowed,
Divorced, and Single Women Age 65 or older Receive 90% or More of Their
Incomes from Social Security

National Committee to Preserve Social Security
& Medicare

Medicare Provides Insurance
Coverage to 97% of Older Adults

National Committee to Preserve
Social Security & Medicare

Those Who Had
Retirement Account Balances With Less Than $10,000 Saw An Average
Growth of 40% in 2008

Employee Benefit Research Institute

Those Who Had Retirement Account Balances With More Than
$200,000 Had An Average Loss of More Than 25%

Employee Benefit Research

401K Participants on The Verge of
Retirement (Ages 56-65) Had Average Changes During This Period That
Varied Between +1% to an Average Loss of More Than 25%

Employee Benefit Research Institute

According to 2000 Mortality Tables, A 65 Year Old Couple Have
a 95% Chance Of One of Them Living To Age 91 Despite the Fact That Most
Boomers Do Not Believe They Will Live To Age 90

Deena Katz, CFP

Many Boomers Expected To Follow In Their Parents Footsteps and
Fund Their Retirement Years Using Home Equity But The Loss In Home
Values and Equity That Has Occurred Has Seriiously Damaged this Theory

Deena Katz, CFP

Most Retirees Believe That
a Safe Retirement Portfolio Should Be 100% in Bonds

Deena Katz,

Boomers Don’t Need Income At Retirement; They
Need Cashflow; That Is An Income Stream That Grows Regularly With the
Inflation Rate

Deena Katz, CFP

Median Household With a Person Between the Ages of 45-54 (Young
Boomers) Saw Their Net Worth Fall By More Than  45% Which
Includes Home Equity

Center for Economic and Policy

The Median Household With A
Person Between the Ages of 55-64 Saw Their Wealth Fall By Almost 38%
Also Including Home Equity

Center for Economic and Policy


Testimony Links


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