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January 6, 2006
I’m happy be with you today to talk about the
President’s agenda to maintain a strong, vibrant economy. As we all know
from recent reports, the economy is growing and creating jobs. Real
disposable income is up, and consumers are confident. New orders for
durable goods have risen sharply, and shipments of manufactured goods are
also up. Over the past four-and-a-half years, productivity has grown at
its fastest rate since the 1960s, and small businesses are thriving.
The strong performance of the U.S. economy is giving
Americans a great deal to be proud of and every reason to be optimistic
about the future. The American economy is the strongest in the world; more
Americans are working today than ever before; and our economy continues on
a path of strong, sustained growth.
We have not reached this point easily or by accident.
Our economy has weathered enormous challenges over the past few years:
from an inherited recession to corporate scandals to the attacks of 9/11
and more recently, devastating Gulf Coast hurricanes and high gas prices.
The President responded to these challenges with
pro-growth economic policies. Lower tax rates put money in the pockets of
American consumers when they needed it most and encouraged investment to
expand businesses and create jobs. Relief programs for the Gulf Coast,
such as Gulf Opportunity Zones, are easing the rebuilding process and are
giving devastated communities the tools they need to get back on their
feet.
The President's economic strategy and sound monetary
policy from the Federal Reserve have created the conditions for economic
growth. The American economy is growing faster than any other major
industrialized country. It grew 4.3 percent in the third quarter of 2005
-- above the average in the 70s, 80s and 90s; added 4.6 million jobs in
just over two years; and employment is at an all-time high.
The Department reported good news this morning, that
the unemployment rate fell to 4.9 percent -- which is below the average in
each of the past 3 decades – and that we had the 31st straight month of
job growth; mortgage rates remain near historic lows; core inflation
remains low; the national homeownership rate remains near a record high;
sales of new and existing homes each reached a new record in the third
quarter of 2005; and household wealth reached an all-time high of $51.1
trillion for the third quarter of 2005.
This is extremely good news; at the same time, there is
still more to do. The President is committed to maintaining the
fundamentals of economic growth by keeping taxes low and constraining
federal spending. He understands it is a responsibility of government to
create the conditions for prosperity and to give workers and entrepreneurs
the tools they need to succeed.
And that is why he's committed to strengthening job
training programs, reducing our dependence on foreign sources of oil,
opening new markets for American products, and putting consumers back in
charge of their health care with Health Savings Accounts.
Our economy is strong because the spirit and ingenuity
of the American people is strong. With continued economic policies –
such as cutting the deficit, making tax relief permanent, and
strengthening the retirement system -- that encourage growth and empower
American entrepreneurs and workers, we can have confidence that our best
economic days are ahead.
One key component of a strong economy is a healthy
retirement system. Retirement plans exert a significant economic impact
because they comprise a large portion of investment capital in U.S.
markets – over $13 trillion.
You know first-hand about the demographic & market
place changes driving changes in our retirement systems and the continuing
increases in the costs of providing benefits.
The issue on everyone’s mind these days is the future
of defined benefit plans and how to ensure that retirement promises made
to workers are kept. Clearly, the defined benefit system is broken, and
mere tinkering with current rules will not fix it. The current rules fail
to ensure that plans are adequately funded or that pension promises are
kept. This failure carries a very real human cost: Workers’ and retirees’
expectations of a secure retirement can be shattered.
The goal of the Bush Administration is to get plans on
a path toward better funding, to reduce harmful volatility in
contributions, and to encourage companies to set funds aside during good
times so that when we enter a tough economic patch, sufficient assets have
been set aside to weather the storm.
We also must improve the accuracy of measurement of
plan assets and liabilities and make plans more transparent to workers,
retirees, investors and regulators through better disclosure. Workers and
retirees have a critical need – and a right – to know the true status
of their pension promises so they can plan effectively for retirement.
Finally, we have to shore up the federal insurance
system for defined benefit plans. As you know, the Pension Benefit
Guaranty Corporation has a $23 billion deficit. Premiums paid to the PBGC
must be set at a level that preserves its ability to pay promised benefits
and avoids a potential taxpayer bailout down the road.
By strengthening the rules to restore certainty in
funding and prevent abuses, we will stabilize the system and make it more
attractive for plan sponsors to retain their defined benefit plans.
As you know, the House and Senate have each passed a
version of pension reform. Both these bills adopt the framework laid out
by the Administration last January and have many positive attributes. We
are concerned, however, that overly long transition rules leave workers at
risk for too long a time and that certain provisions in the bills continue
to allow companies to avoid fully funding their pension promises.
We want to see pension reform enacted into law and look
forward to working with Congress as they work through the differences
between the House and Senate bills but the President has been very clear.
He has left no doubt that he stands on the side of workers and retirees in
this debate. He will not sign a bill that weakens pension funding for
American workers.
The pension reform legislation also contains many
important improvements affecting defined contribution plans. Among other
things, it would make the increased limits for contributions to 401(k)s
and IRAs permanent; expand access to much-needed investment advice; and
encourage the adoption of automatic enrollment – or default – 401(k)
plans. As an increasing number of workers rely on 401(k)-type plans for
their retirement, it is critically important that we strengthen these
plans and make sure workers have the tools they need to save effectively
for retirement.
Another issue on the mind of all Americans is the
rising cost of health care and the problems that creates for access to
affordable, quality insurance. The President has a comprehensive approach
to tackle the problem. He has proposed tax credits to help individuals
purchase health care, increased funding for community-based health care
centers and medical malpractice reform.
And, one of his most exciting initiatives was adopted
as part of the Medicare Prescription Drug reforms just over two years ago
– Health Savings Accounts.
HSAs are tax favored savings accounts used in
conjunction with a consumer-directed high deductible health plan. HSAs
allow employers or employees to put pre-tax money into an employee’s
account – an account which accumulates interest and can be drawn on
tax-free to pay for qualified health expenditures. Money that is not spent
in one year can roll over to the next.
Because HSAs are not tied to any one plan or employer,
they are portable and thus are well suited for employees who move from one
employment setting to another. And, the President has proposed to make
them even more attractive by making the premiums of the high deductible
policy tax-preferred when linked to an HSA.
According to a study by America’s Health Insurance
Plans, HSA enrollment as of last May had already exceeded one million
participants, and the best news is, 37% of these people were previously
uninsured. Surveys of employers show an extraordinarily high degree of
interest in offering these plans as an option to their workers. We expect
the number of individuals covered by HSAs to increase substantially.
Putting the consumer back into the equation in health
care will dramatically change the market and lead to better price
transparency and competition – driving health care costs down.
Consumer-directed health plans and HSAs have been embraced by the market
faster than any new product in my experience. It’s a revolution out
there.
President Bush also strongly supports legislation to
create Association Health Plans, or AHPs. AHPs are benefit arrangements
offered through industry associations to their members and employees.
AHPs would allow small businesses to enjoy the
advantages currently available to large employers and unions: bargaining
power, administrative efficiencies, benefit design, and risk pooling. And,
because insurance will be more affordable with AHPs, more small firms will
provide it to their employees and their families.
Now, I would like to take a moment to highlight just a
few of the regulatory initiatives we are working to implement.
I mentioned earlier that the pension reform bills
pending in Congress encourage automatic enrollment in 401(k) plans. A
study by Harvard, the Wharton School, and the Hewitt Associates consulting
firm concluded that many workers are leaving money on the table by not
taking advantage of matching 401(k) contributions from their employers.
Studies indicate as many as a third of workers do not participate in
401(k) plans offered to them.
To address this concern, employers are stepping up
their efforts to educate and make it easier for employees to effectively
participate in their 401(k) plans. Almost half of the companies surveyed
reported that they are likely to automate certain features of their 401(k)
plan -- such as automatic enrollment, automatic contribution rate increase
features, default investment options, and automatic rebalancing -- to
increase participation and the quality of the participation.
We are very interested in facilitating default 401(k)
plans and removing barriers to maximizing workers’ ability to take
advantage of savings opportunities. We are currently working on a proposed
regulation that will create a fiduciary safe harbor for default
investments in 401(k)-type plans. Historically, employers have been very
conservative in choosing default funds – typically using a money market
fund.
With the move toward automatic enrollment, the choice
of a default fund becomes critically important because many employees will
be placed in the fund and are likely to leave their assets in the default.
A money market fund is not a good long-term investment for a retirement
plan. We are considering allowing employers to use more appropriate
investment alternatives, such as life cycle or target-age funds, balanced
funds, or professionally managed accounts as defaults.
Another issue that has received a lot of publicity in
the last few years is plan fees. As you know, fees directly impact the
retirement savings of America’s workers and retirees. As the marketplace
has changed and developed, the number and type of fee arrangements,
including some undisclosed fees, has expanded. We take the issue of fee
transparency, and our responsibility to improve it, very seriously.
We do not regulate the type or level of fees that are
charged by various providers for various products. Instead, ERISA requires
that a fiduciary cannot pay more than reasonable compensation for
services. Therefore, it is incumbent on the fiduciary to understand what
fees are being charged and to asses their reasonableness.
To assist fiduciaries in this process and ensure that
workers have necessary information to make investment decisions, we are
currently examining what changes should be made to the type or timing of
fee disclosures. We are working to both clarify the fee disclosures that
must be made to participants in individually directed accounts, and what
information about fees that fiduciaries must obtain and service providers
must furnish. We will also be improving the fee disclosure required on the
annual report filed with the Department and made available to
participants.
Each year approximately 3600 pension plans are orphaned
– or abandoned by the plan sponsor. When this happens, the assets are
left with a financial institution but workers cannot get access to their
retirement savings. We are close to finalizing a regulation that spells
out how to deal with abandoned plans when there is no fiduciary to
distribute the assets. These rules provide a framework for financial
institutions that hold abandoned plan assets to wind up the affairs of the
abandoned plan and get the assets back into the control of the workers.
The abandoned plan regulation also incorporates guidance we had previously
issued on how to deal with missing plan participants.
When combined with the automatic rollover regulations
we issued last year, the cumulative effect of these rules will be that
more plan assets will be preserved for retirement, and that plan sponsors
and service providers will be able to manage retirement assets more
efficiently.
While our enforcement
program continues to safeguard workers’ pensions and health care, the
Department continues its commitment to compliance assistance. The
Voluntary Fiduciary Correction Program gives plan sponsors and service
providers the ability to self-correct certain transactions. Since the VFCP
was begun in 2002, we have received more than 1,700 applications and
verified over $282 million in corrections for plans and their
participants.
Final regulations will be issued this spring to
implement the expansion of the program to cover additional transactions
and to reduce the paperwork required to participate in the program. The
program also includes an online calculator to ease the determination of
the amount to be restored to plans. I urge you to take advantage of the
opportunity to conduct a self-audit of plans you control or advise and
participate in this program.
Our industry is constantly changing. The Department is
aware of this – our challenge is to create a regulatory environment that
is flexible and makes sense for the modern marketplace. We must create a
legal and regulatory environment that encourages employers to offer good
retirement and health plans.
To create an economic environment ensuring continued
opportunity for America's workers and entrepreneurs, President Bush has
outlined a pro-growth agenda based on sound economic policy that promotes
prosperity, productivity, and innovation in a global economy.
The President is determined to keep government on the
side of economic growth and job creation so America's businesses and
workers can compete and prosper in the knowledge that jobs are plentiful
and secure, hard work will be rewarded, and the institutions they depend
on are reliable and will keep their health care and retirement promises.
I look forward to continuing to work with you to
accomplish this critical task of preserving the health benefits and
retirement security of 150 million American workers and their families.
Thank you.
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