American workers have lost as much as $2 trillion in their pensions and retirement savings in the past 15 months, witnesses told a hearing of the House Education and Labor Committee.
According to the Congressional Budget Office, this multi-trillion dollar loss in workers' retirement wealth could further slow the economy. "To the extent households view balances in defined-contribution plans as part of their overall portfolio of wealth, a decline in those balances could lead people to reduce or delay purchases of goods and services," said CBO Director Peter Orszag. "It could also lead some workers to delay their retirement."
Federal Reserve data indicates that the decline in the value of financial assets cost pension funds, both private-sector and public-sector combined, roughly $1 trillion-almost 10 percent of their assets-from the second quarter of 2007 to the second quarter of 2008, the latest period for which data are available, and there has been a significant further drop in asset prices since that time.
"Unlike Wall Street executives, American families don't have a golden parachute to fall back on," said committee chairman George Miller, D-Calif. "It's clear that Americans' retirement security may be one of the greatest casualties of this financial crisis."
In a survey released by the AARP, in the last year 20 percent of Baby Boomers stopped contributing to their retirement plans because they have had trouble making ends meet. Workers closest to retirement may suffer the biggest hit from the financial meltdown. The AARP found that a third of workers surveyed are considering delaying retirement as a result of the financial and housing crises. In a related report, the AARP's Public Policy Institute found that approximately 51 percent of workers do not have pension coverage at their current job.
Witnesses at the hearing said that while the current financial crisis is reducing workers' savings today, retirement insecurity had been growing steadily over the past decade.
"While the events that have taken place over the past several weeks have shone a spotlight on how affected Americans' retirement plans can be by such volatility in the financial markets, it is important to keep in mind that Americans' retirement security has been in distress for much longer than the past few weeks," said Christian Weller, senior fellow at the Center for American Progress.
Rep. Miller called for greater transparency in retirement plans and the fees workers pay. His committee has passed a bill he introduced that would require workers to receive clear and complete information about fees that in some cases are cutting deeply into their retirement savings.
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