Retirement Security for the 21st Century - Remarks by Secretary Chao

Remarks Prepared for U.S. Secretary of Labor Elaine L. Chao
Retirement Security for the 21st Century
60 Cities/60 Days Tour
Dallas, Texas
Monday, April 4, 2005

Thank you, Tom [Baker, Chairman & CEO of TXU Electric Delivery].

I want to thank you, Pete Havel [Executive Director, SW Region, U.S. Chamber of Commerce], the U.S. Chamber, the Financial Services Roundtable and the Associated Builders and Contractors for providing this great forum to talk about one of the most important challenges our nation faces today—ensuring that all Americans can access a secure retirement.

I also want to recognize the distinguished members of Congress who are joining us: Congressman Sam Johnson, Congressman Pete Sessions and Congressman Jeb Hensarling. Thank you for everything you are doing to help people understand why retirement security is such a critical issue for our nation.

The urgent need to address this issue was brought home to me during a recent meeting of the Labor Ministers of the world's most developed countries. At that summit, I found that aging populations and retirement security are widely acknowledged to be among the top challenges that developed countries face today.

Declining birth rates have left most developed countries without enough younger workers to pay into the system that supports the retirement of older workers. As a result, retirees in France, Germany, Italy, Japan and Russia are facing the prospect of substantial benefit cuts. Workers in these countries are facing the prospect of retiring later and making substantially larger pension contributions. Their dilemma is a cautionary tale of what will happen to us if we don't face up to the solvency problems of Social Security now—before there is a crisis.

That's why President George W. Bush did the right thing in putting Social Security reform at the top of his second-term agenda. He knows we need to solve the financial problems of Social Security permanently, and not just create a temporary Band-Aid solution.

As many of you may know, I'm part of a team that is going all around the country, visiting 60 cities in 60 days, to talk about Social Security reform. I'm so pleased to have a chance to travel to Dallas and share this Administration's plan to strengthen retirement security with key business leaders in this community. The President wants his fellow Texans to understand what is at stake and why we have to act now.

The President has one goal in initiating a national dialogue on reforming Social Security: to ensure that promises made by the government to workers are kept. In talking about this issue, it's important to remind everyone that Social Security is safe for today's seniors and for those nearing retirement. For retirees currently getting Social Security benefits—and everyone born before 1950—nothing will change. No one is going to take away their checks.

But the system needs to be modernized. In 1950, there were 16 workers for each beneficiary. Today, there are only 3.3 workers supporting every Social Security beneficiary. And by the time today's youngest workers reach retirement, there will only be 2 workers supporting each beneficiary.

That means the government has made promises it cannot keep. That's why we must do something now to ensure that Social Security is there for future generations.

In 2008, just three years from now, workers born between 1946 and 1964 will begin to retire. These workers are part of a generation that has benefited from the great advances of our era. They are living longer and healthier lives than ever before. That means that more people will be tapping Social Security for longer periods of time than ever before. And benefits are scheduled to increase dramatically.

The result is that 13 years from now, Social Security will begin to pay out more in benefits than it collects in payroll taxes. The shortfalls will grow larger with each passing year. By 2041, when today's younger workers begin to retire, the system will be insolvent.

The problem was reaffirmed last week by the report of the Social Security Trustees, of which I am a member. In fact, the report's most realistic and reliable assumptions noted that Social Security will actually go broke one year earlier than previously expected.

That's why we need to come together to solve this problem. The President has made it clear that all options are on the table for strengthening Social Security, with the exception of raising the payroll tax rate, which would dampen job creation. And he has pledged to work with members of Congress from both parties. But he is clear about one thing: we must do something, and we must do it now.

As business and community leaders, you know how difficult it is to get younger workers to think about the long term future. And you know that an astonishing number of employees do not take advantage of the defined contribution pension plans that many private employers offer. That's why it's important, as we have this national conversation about retirement security, to also talk about promoting and protecting personal savings and private pensions.

$4.4 trillion of our nation's retirement assets reside in the pension plans provided by private sector employers like you. Some of these assets are in 401(k)s—an increasingly popular retirement instrument with our mobile workforce. And $1.8 trillion are in traditional defined benefit plans that cover about 34 million people.

As part of the effort to ensure that all Americans can access a secure retirement, President Bush has proposed a comprehensive plan to strengthen single employer, defined-benefit pension plans. Experts estimate that defined benefit plans are underfunded by $450 billion. Nearly $100 million of that underfunding is in plans sponsored by financially ailing companies. Recent terminations of underfunded plans have resulted in a $23 billion deficit in the federal insurance program that covers these plans.

That's why the President has proposed a plan to strengthen single employer, defined benefit pension plans to ensure that the promises made to these workers are kept. The President's plan is based on three main principles:

First, reform the funding rules to ensure that employers fully fund their retirement promises.

Second, reform the premiums that private sector employers pay to the federal insurance program to better reflect the real risks and costs.

Third, increase disclosure to workers, investors and regulators to ensure greater transparency and accountability. That includes making timelier information about the financial health of pension plans more widely available.

We also recognize that there are millions of Americans who are covered by multiemployer pension plans. And we firmly believe that their retirement security is equally important. This Administration wants to work together with the Congress, in a bipartisan fashion, to ensure that multiemployer plans are strengthened as well. I especially want to thank Congressman Sam Johnson for his leadership on this important issue.

The goal of all these reforms is to better protect workers and retirees, so they can be confident of the secure retirement they have worked for all their lives. That's why the President has also launched this national dialogue on Social Security and why I am here today.

We all know that fixing Social Security will not be easy. It's the third rail of U.S. politics. But President George W. Bush, as you in Texas know so well, is a leader who does not pass the buck to the person who comes after him. He is committed to solving this problem once and for all. Our children's retirement security is more important than partisan politics.

As we fix Social Security, President Bush wants to make it a better deal for younger workers. One way is to allow younger workers—on a completely voluntary basis—to put a small part of their payroll taxes in personal, voluntary retirement accounts.

Personal, voluntary accounts would belong to the individual owner. The government could not take them away. The money in that account would belong entirely to the worker. He or she could also pass it on to their loved ones. Those are important attributes to consider.

Today, more Americans than ever before can afford the secure retirement that was once available only to a few. We must work together to ensure that the foundations of retirement security—Social Security, private pension plans and personal savings—are strong, safe and secure. That's the best way to guarantee that the promises made to every generation of retirees are promises kept.

Thank you for inviting me to Dallas—it's a real treat to be in the President's home state. And now I will take a few questions.

http://www.dol.gov/_sec/media/speeches/20050404_dallas.htm