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tv   Politics and Public Policy Today  CSPAN  June 30, 2016 3:00pm-5:01pm EDT

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jack, who i know has a lot of detail behind that. thank you. >> thank you, lew. so i will ask one follow-up question. as you said, right, there are a lot of tools, but practices aren't universal. so say a little bit more about what are the primary challenges that plan sponsors are facing that are preventing greater adoption. >> yeah. so, you know, clearly we still have a challenge to get employers comfortable and focused on the adoption of plan designs that incorporate the robust implementation of automation and focus on outcomes. we're definitely seeing significant movements in that direction, particularly in the larger employer space, but there are some very critical
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headwinds. one important one is the fear of litigation. you know, we really have to do something about the -- what i view as often frivolous litigation that's out there of that causes employers to really resist their otherwise natural inclination to innovate and to focus on outcomes. i think there's also, you know, a number of misperceptions that are common out there about what is allowed or even encouraged in the current law, and there's a lot we can do to educate plan sponsors and those that advise plan sponsors, and then i'd say, finally, there's really a lack of discussion right now about the mutual benefits of retirement security, both for the employer and the employee and a real opportunity to get people to understand that those
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interests really are well aligned. i know dcii is getting very close to releasing a paper. i'll put a little plug in here. what's in it for plan sponsors, which really tries to focus the plan sponsor community on the fact that not only is this the right thing to do for your employees, but this is actually the right thing to do for your workforce plan and for your company, and that will be coming out soon. >> great. we look forward to seeing it. jack. so now we're going to hear from jack vanderhei, who is the research director for the employee benefit research institute, and as many of you know, he's also the director of the center for research on retirement income. jack has more than 200 publications, if you can imagine that, devoted to employee benefits and insurance with a major focus on the financial aspects of private defined benefit and defined contribution
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retirement plans. for those of you like many of the people in the audience in the retirement space, jack has been a leading voice for many, many years, and we're delighted to have him here this morning. >> thank you, jeremy. on behalf of myself and the employ benefit research institute, i'd like to extend my appreciation as far as the opportunity to talk about such an important topic. we've been doing research on employee benefits since 1978. we got into the defined contribution database building process back in 1996, and i think it's easy to conclude that certainly ppa and the aftermath of ppa was one of the most important developments that we've seen in our entire research. what i'd like to do today is just very quickly go over an existing research. we want to set the stage as far as what we've already seen
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happen with respect to automatic -- in terms of what has happened with respect to the participant behavior. going to look very quickly at participation and contributions as well as asset allocation, but before we get into that in any detail, i really want to have a huge caveat that you really should not look at any of these as president-elects in isolation. for example, there was a front page story in "the wall street journal" back in 2011 that ended up making the big conclusion that ppa was bad for 401(k) plans, that basically if you look at 401(k) participants, deferral rates had gone down. well, the problem is if you're not going to look at what's going on with respect to participation at the same time you look at deferral rates, you're ignoring the fact that a lot of those people in automatic enrollment plans that admittedly have low contribution rates because of the defaultferrals
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of maybe 3% would have had 0% had there not been an automatic enrollment provision for them, so you have to keep that in mind as you look at some of this. what i'm going to try to spend much of my time on is a study that is going to be released in a few months that will look at how each of these components that we're going to be talking about today will impact outcomes, retirement outcomes, instead of just looking at individual snapshots year by year. and basically if you want to be able to do something like that, you need a model that's going to be able to look at the behavior of eligible employees under different types of automatic emiroment plan designs because as lew mentioned, there's many different types of designs out there, and if you're wanting to get a comparison to how much of an improvement there has been, you're still going to have to be able to figure out what these people would have done had there not been automatic enrollment,
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so we're also going to look at what happened under voluntary enrollment designs. for that you have to look at job change activity. we all know that so much of the leakage is still occurring when people change jobs and basically cash out those accounts, so we have to take that into account. we also have to take into account the impact of hardship withdrawals and the impact of loan defaults. in addition to everything else, basically you need a microsimulation model that can take into account uncertainties like uncertainties in the financial markets, and that's all going to be part of what we're going to be looking at today. very quickly, and this is from vanguard's latest report that was releaseder this month, how america saves. the two things people focus on are participation rates and deferral rates when it comes to automatic enrollment with a comparison against voluntary enrollment, and, again, much of the action has obviously taken place for the lower income individuals.
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if you take a look at the individuals under $30,000 in the most recent vanguard report, you see a jump in participation rates from 29% all the way up to 82%. even for those $30,000 to $50,000, you still have almost a doubling from 53% to 90%. the other side of the coin, of course, is if you go to the right-hand side and you look at those deferral rates, the deferral rate for an automatically enrolled person under $30,000 in the vanguard database comes at 3.6%, just a little bit over the 3% deferrals many of them have whereas the voluntary enrollment, people who basically got in on their own initiative and are probably being much more influenced by rates are up to 5.1%. so, again, if you look at only the right-hand side, you can come away with the kind of conclusion "the wall street journal" did back in 2011 that maybe these things aren't necessarily a great improvement, but if you look at the left side
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at the same time and keep in mind that you would have had a number of people otherwise having no deferrals who are now showing up at least with a 3% deferral, that goes a long way to explaining what we're going to be seeing in some of the next charts. certainly there's been a lot of conversation about what happens with asset allocation, and for this i just want to quickly highlight some results that i co-authored a couple months ago where we went back and looked at what the asset allocation was at year end 2007 and compared that to what we had for the most recent database year end 2014. we break this down into three different age cohorts. on the left side you see the 20s, middle is the 40s, and the right side is the 60s.
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in each case i'm comparing what's going on in 2007 with what's going on in 2014. if you look at that red rectangle on the bottom, what you're seeing is the percentage of equity that these participants have. in fact, back in 2007, almost 1 in 5 401(k) participants in their 20s had zero, and this is all equity components put together, direct equities, it is the balance funds, it is the target date funds, and it is company stock. 1 in 5 had nothing in the equities market. in 2014 largely because of automatic enrollment, largely because of the qdias, largely because of the shift to target date funds, you see that number has been reduced all the way to 7.7%. if you want to go to the other end to the people in the 60s and look at the green rectangle,
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what we find here is in the end of 2007 on the verge of the financial market collapse, you had 30% of the people in their 60s that had more than 80% of their 401(k) balance in equities. because of the glide path that many of the people have adopted in the target date funds, that number has come down appreciabye and is only 22.1% now in 2014. so not only did automatic enrollment have a huge impact on contributions and participation, but because of the fact that many of these people are being put in target date funds and leaving that money alone for age-appropriate asset allocation, you've also seen a shift away from the extremes for both the young and the older participants. so what i want to do is very quickly give you a little bit of background on the model i'm
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about to take you through. we're very fortunate, we've had a collaborative effort with ici going back to 1996 that's given us information on extremely detailed participant information as of year end 2014, we have participant information on 27 million individuals, so we know to the penny what they're invested in, what their account balances are, their contribution, and their loan activity. that's coming from more than 75,000 different plans and represents about $2 trillion in assets, and the database is longitudinal so we can track individuals from year to year to see how their activity changes with respect to age, wages, et cetera. what we've been able to do is a number of different simulation studies like i'm about to go through. we've got some results of that in the appendix if you'd like to see it, but the important point, and this is why this
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collaborative effort we're doing with dcii is so important, even though we've had an extraordinarily rich participant database, we've never really had the plan level data to go with it to be able to bifurcate between voluntary enrollment and automatic enrollment, for example. so we've been able to get that recently from a number of different participants -- a number of different record keepers, and what i'm about to run you through just very quickly, i just want to make sure everyone isenedi understan what's going on. the model you're about to see will look at employee contribution activity as a function of many different things, demographics certainly, but also what's going on as far as the plan is concerned. different plan matching formulas will have different incentives. some will stop the incentives after 3%. some will go to 6%. some will stretch it out even further. all of that is factored into this model. just as a quick note, what i'm about to show you does not include any amounts from iras or
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balances from previous employers, but it does allow for job change and leakages and basically what i'm going to assume is if you're a 401(k) participant when i see you today, that every time you change jobs you will continue working for an employer that sponsors a plan. it doesn't mean you're going to participate, but at least you will continue to be eligible. we have other versions of the model that give it more of a random version, and we also have participation and opt-out simulated on annual basis. so what i'm about to show you deals with eligible employees, okay? these are employees under voluntary employment that may very well choose not to participate. same thing with automatic enrollment, and what i'm going to focus on is the age 65 balances in 401(k) plans plus any rollover money that orange na nateed in the k plan. it's going to include both
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employee and employer contributions, and basically the numbers i'm going to show you are just simple multiples of final earnings. i'm going to take your account balance. i'm going to divide it by what you were earning right before you retired at 65 and show you the differences you're going to get between automatic enrollment and voluntary enrollment. so basically what's the best way to try to illustrate this difference? i mean, certainly there's a lot of debate going on. just very quickly what i tried to do today to get something relatively simple and quick to show is we're going to look at improvement in simulated retirement outcomes, as i said, measured as increases in the medians of these multiples of final pay, and i'm going to break it out for you by age and by salary kor tile to see whether there are differences. many people have alleged you're going to see different types of reactions among the low income versus the middle income versus the high income.
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and basically this is probably the single most important thing i want to focus on is if you take a look, broken out by age and by income cortile, so i have the middle 50% together under the red line. the blue line is the lowest income cortile and the green is the highest income cortile and also broken out by age. regardless of age, regardless of income, the movement from voluntary enrollment to automatic enrollment with auto escalation is giving you at least a 15% increase at the median as you move from the voluntary enrollment to the automatic enrollment with auto escalation. now, the next steps and certainly we're going to have to be talking about ways to improve the system sometime during the course of today's conversation. certainly leakages is going to be one of the most important
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things to look at whether it's cash outs or job change, hardship withdrawal. the hardship withdrawal will include a six month suspension and hence the inability to get the employer match at that time and loan defaults so what i want to leave you with is the last graph is how of a difference, again, at the median do these leakages make. it should come as no surprise to individuals that the younger you are, the bigger the impact leakages will have, and because the low income are so much more likely to cash out their 401(k) balances at job change, also you have a bigger impact for the lowest income. so if you want to just focus very quickly, for people 25 to 29, the lowest income cortile, their median reduction relative to this optimized portfolio is
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about 15% reduction whereas it's about 9% for the middle 50% and about 6% for the highest income cortile. soov so overall we've come a long way. it certainly appears in terms of retirement outcomes, this is going to be a big improvement over where we are pre-ppa with the voluntary enrollment but there's still a lot that needs to be done and certainly leakages should be one of the aspects we take a look at as soon as possible. thank you. >> thanks, jack. that was fantastic. [ applause [ applause ] so clearly, i mean, a quick summary of a really comprehensive presentation, a lot of great evidence that shows that auto enrollment works for those who benefit from it, of course. you pointed out leakages as a
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major problem. what else would you say? if you were redesigning ppa or you were there at the table, what do you see as other perhaps significant shortcomings? >> one of the problems with ppa involves a safe harbor. now, not everybody who goes automatic enrollment takes a safe harbor approach, but if you look at the safe harbor with auto escalation, there's basically a maximum cap of 10%, and if you take a look at what the individual plans are doing, there is a huge percentage, i believe it's over one-third, that are capping the maximum auto escalations at 10%. i don't know the political rationale behind this, but i would say especially if you're a midcareer hire and you didn't have coverage before or perhaps you inadvisedly cashed out your 401(k) on the previous job and
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you're now in essence starting over at age 40, 10% plus whatever you're getting from the employer match is just not going to get you where you need to be. and i think if you could somehow increase those maximum limits under auto escalation, that would be a huge improvement. plus i agree with everything lew said, that coverage has to be the primary concern in the cases where the employer is not offering something, but for those that do, they should be allowed to escalate the employees much beyond 10%. >> thank you, jack. right now we're going to shift to kilolo. so kilolo kijakazi is an institute fellow at the urban institute. we're delighted to have her here with us today. kilolo in her capacity at the urban institute works with staff across the entire institute to develop collaborative partnerships with organizations and individuals who represent those most affected by economic
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and social issues. as many of you know, before she joined urban, kilolo spent many years as a program officer at the ford foundation where she focused on building economic security for working families and on incorporating the expertise of people of color in all aspects of ford's work. she's been a leading thinker on retirement issues for many years and we are delighted that she's here with us this morning. >> good morning. it's a pleasure to be here, and i also want to thank aspen for inviting me. we've heard from our previous speakers about the progress that's been made with pension savings since the enactment of the pension protection act. i'm going to talk about who still has not been reached and also tee up remarks for the panel -- the second panel which will discuss additional solutions that are needed. my remarks are reflective of my own views and are not
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necessarily the position of the urban institute where i work. i'm not going to use slides, but i did provide a handout that looks like this on the table outside because i'm going to be talking about quite a few numbers, and it allows you to follow along if you would like to. the information, the table that's in the handout is taken from the employee benefit research institute's data comparing 2006 and 2013 percentages of all workers who worked for an employer that sponsored a retirement plan. and similarly, there is a comparison for 2006 and 2013 of the percentage of all workers who participated in a plan. so before and after the enactment of the pension protection act.
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this includes workers who have access to plans through their employers and those who do not. the data are disaggregated in several ways to get a better sense of who has access to a plan and the extent to which different workers participate. one of the first things you'll notice is that there is generally improvement after the enactment of the law, but that change is modest, and this is consistent with research by my colleagues at the urban institute. automatic enrollment affects workers with employers who offer a retirement plan to which they have access. it does not affect workers who do not have access to a plan through their employer. almost 49% of all workers do not work for an employer that offers -- who sponsored a plan,
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so let's take a look at the disaggregated groups in the table to see what that shows. there's a difference by race and ethnicity in the percentage of workers who are employed in jobs that offer retirement plans and a difference in the rate of participation. about 55% of workers have jobs with plans, compared to 52% of african-american, 36% of latinos, and 48% of other groups. in terms of participation, almost 45% of white workers participate compared to 39% of african-americans, 27% of latinos, and 38% of others. african-americans and latinos are less likely to have jobs where employers offer retirement plans. discrimination in the labor market results in occupational
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segregation that leaves them disproportionately represented in service occupations, farming, and construction. only 34% of workers in service occupations had employers with retirement plans compared with 66% of workers in professional occupations. in addition, workers of color are less likely than white workers to have earnings levels and job tenure that facilitate participation in retirement plans. factors including employment discrimination mean that workers of color are more likely to face unemployment, have longer stints of unemployment, work in involuntary part-time jobs when they would prefer full-time jobs, and have lower wages than white workers. the table shows that part-time workers and workers with lower
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earnings are much less likely to have employers that sponsor retirement plans and have much lower participation rates. only 34% of workers who are employed part-time for the full year have jobs with retirement plans compared to 59% of workers with full-time jobs all year. workers participate -- i'm sorry. only 18% of part-time workers participate compared to 52% of full-time workers. with respect to earnings, only about 34% of workers earning $10,000 to $20,000 have jobs with plans, and they have a participation rate of about 17%. by contrast, 71% of workers with earnings of $75,000 or more have jobs with plans and 67%
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participate. it is important to note that when workers of color and white workers have similar circumstances, they make similar choices. a study by the center on retirement research found that, and i quote, for comparably situated individuals blacks whites and hispanics respond in a similar fashion in terms of joining a 401(k) plan and deciding how much to contribute. a study showed that african-americans and white wage salary workers with the same earnings have participation rates that are nearly the same. in fact, for workers earning $75,000 or more, the african-american rate of participation in retirement plans exceeds the rate of white workers at the same level of earnings.
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73% of african-americans compared to 71% of white workers participate. and for latinos, country of birth appears to be a factor. latinos born in the united states had retirement plan participation rates similar to african-american and other workers of color but still lower than white workers while latino workers born in other countries had rates that were much lower. so we've talked about race and ethnicity, occupations, full time versus part time, and earning levels. i'll talk about two other groups, and then i'll stop. women and men overall had similar rates of employment in jobs with plans and participation rates that were about the same as well. but if we look at marital status, it may give us a bit more insight about what might be happening in terms of gender differences.
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single workers, particularly widows, separated, and never married workers, have substantially lower rates of employment in jobs with plans and participation rates compared to married workers. divorced workers overall -- divorced workers are a bit better off than single workers, but overall these workers could be vulnerable to economic insecurity in retirement. and, finally, young workers. they have much lower rates of employment in jobs with plans and lower participation rates than older workers. 49% of workers who are aged 25-34 are employed in jobs with plans and 37% contribute. by contrast, 58% of workers ages 45-54 are in jobs with plans and 51% participate.
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given the increased importance of beginning to save at very early stages in one's career, this disparity needs to be addressed. the pension protection act is important, but not sufficient. there is a need to expand coverage for workers employed in establishments that are offering a plan or establishments that limit their eligibility to a plan. thank you. >> thanks, kilolo. [ applause ] you've laid out some pretty important shortcomings across a number of different factors. i'm curious if you have a thought -- we'll probably get into this later in the conversation and also i'm sure it's going to be one of the things that we talk about in the second panel, but just to focus on one part of what you talked
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about to sort of break down between full time and part time. the economy appears to be moving towards a place where many, many more workers are either not getting -- are under employed and don't get enough hours or are the growing number of contingent workers. how do you see that playing out as we look into the future? what kind of reforms do you think are necessary to bring all of the workers who have new contingent relationships into coverage? >> so i'm sure that the panel later on will address some of this, but clearly there is a need to reach smaller employers. i think that a lot of the part-time and contingent workers are obtaining jobs with relatively small employers who are less likely to currently offer plans. so there needs to be an
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encouragement or a requirement for there to be more universal coverage of all workers, and even among employers who are offering plans, they may not be providing access to some of their employees who have not had the same tenure or the -- who have part-time positions within those organizations, and so that needs to be addressed as well. >> thank you. okay, now we're going to shift gears. we seem to be shifting gears a lot in this panel. to bring in an international perspective, we're delighted to have keith ambachtsheer who is the director emeritus of the international centre for pension management at the university of toronto. he's been a leader globally in the pensions and investment industry for more than four decades. he's an award-winning analyst. he advises governments, industry, associations, plan
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sponsors and money managers on governorer nance, finance, and other investment issues. he's also, as many of you know, the founder of kpa advisory services and cpm benchmarking which are highly respected organizations in the global pensions and investment industry. he has a lot of experience working with countries with funds around the globe. he's going to bring some of that experience, particularly that in the launch, related to the launch of the uk's recent nes program and the experiment that's going on in ontario. we look forward to hearing your perspectives. thank you. >> thank you. [ inaudible ]
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try this. yes. okay. the other comment i was going to make was that at the board we're not non-americans, we're aliens. i qualify twice, actually. i have a dutch passport and a canadian passport so i'm twice over an alien. so my perspective obviously is to look from the outside in, and then the question is, well, how to best do that. i think the place to start is with the melbourne mercer global pension index, gpi. how many people here know about the global pension index? about half of you. i think it's a terrific effort because it allows us to have comparative conversations about retirement income assistance, what's good about them, what's not good about them, and to see
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how we can all get better at it. the premise for this index, which was started in 2009, i actually happened to be in melbourne when it was originally launched. it was i think a very interesting and important occasion. it was put together by mercer actuary david knox in australia and his colleagues around the world to give an international perspective. so what drives retirement income system quality? they posit three things. one is adequacy, income replacement. second criteria is sustainability, the ability of the system to not only do it now but to do it 10, 20, 30 years from now, and the third dimension is integrity. is the system actually well put together, is it being well managed, is it being well supervised, if you like?
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this initiative start with 14 countries in 2009. the last report was with 25 countries and this year later on there will be 27, so it keeps growing every year. the top three are denmark, netherlands, and australia. the dutch used to be on top until denmark came in. it was a devastation to the dutch to actually lose their first place. along with not being in the euro cup this year, which is another tremendously sad event. so what's with the top three here? what does it take to get into the top three? you need a sustainable pillar one, the government piece of that actually looks at poverty issues and covers the poverty, elderly poverty aspect of retirement. second, all three countries have compulsory participation in workplace pension plans.
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that's number two. all three countries have strong regulatory processes that cover all workplace pension plans. public sector, private sector, union, it doesn't matter. everybody gets the same treatment. and what that means is because pillars one and two are well thought out and well run, there's little need for pillar three. and pillar three is where informational asymmetry sets in, which basically means if you leave people to figure it out for themselves or advise by advisers who aren't necessarily totally unbiased, then you get a lot of inefficiency into the retirement system and they don't have these issues because of the way these three countries have organized their retirement income system. where is the usa? out of 25, where do you think? 14.
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and basically you get cs in all three categories, c for aq adequacy, c for sustainability, and c for integrity. you have ways to go. we'll see how things turn out this year. so what comes out of this global pension index in terms of how you raise the bar from cs to bs, and as? one, raise the minimum pension, deal with the poverty issue, which is really a pillar one issue. number two, mandatory pillar two with a sensible net income replacement target for middle income workers. three, minimize leakages. came up in the conversation already. and, four, income for life back ends to dc plans. in other words, don't stop at retirement. figure out how to do income for life at the back end. so that's it. that's all you have to do and
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you'll become an "a" country in pensions. a little bit on your closest cousins, arguably, the uk who had an interesting event overnight, and you can't. by the way, uk ranks nine, canada ranks seven. we're somewhere in between the top and where you are. and what's interesting is in both countries have -- they've both taken on this question of the middle income workers without pension plans. that's been the big thing. the uk went through a major research process in the 19 -- in the 2000s which led to legislation which effectively required all employers in the uk to offer a workplace pension plan. interestingly, offered by a private sector provider or by default nest, the national employment savings trust, which ends up with everybody if the employer doesn't make an active
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decision otherwise. it's now been operating for about three years, and things are going well. it's actually unfolding as it should. what they decided to put in their system was on opt-out option for employees, and they thought the opt-out rate would be 20%. and what do you think it actually was? the ones that know can't answer. you've blown it. 6%, right? very low dropout rate. which surprised everybody by how low it was. that's very encouraging for an approach where you have auto enrollment and you don't want to go totally mandatory, you want to create this safety valve. it seems powerful to get people in and get people saving. the 7% that are dropping out are actually rational decisions, people close to retirement in higher income brackets. it makes sense. so that's interesting.
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now, the great white north, your neighbors to the north. we've been dealing with the same issue, middle income workers, no retirement pension plan. what are we going to do? this has been going on for ten years. and effectively, there's a group that says we already have the canada pension plan, works very well. it's a relatively modest system. let's expand it. let's do two things, increase the benefits, cover more income. and but we have this rule in terms of changing the cpp/qpp. quebec does its own thing on this. it requires 2/3 of the provinces with 2/3 of the population as well as the federal government to make any change. so that's a pretty high hurdle. so we've had a federal government for quite some time who said, no, people should figure this out themselves. so it's been a nonstarter. ontario a few years ago said enough already, we're going to start the orpp, the ontario
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retirement pension plan, because it looks like we're never going to agree federally on anything, and so that started a couple years ago. legislation was enacted last year. there's a process now in terms of actually creating the delivery organization, and then we had last monday. i don't know whether with all the news going on down here, whether you get any canadian news whatsoever, but in our world something really big happened on monday. and that was there was agreement to actually increase the cpp. so we had a change in government last october. that was a positive on enhancing the cpp. frankly, ontario would rather do something nationally with the other provinces than do things on their own. so the between ontario and the federal government and doing some further work, there was actually agreement on monday to
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do two things with respect to the canada pension plan. one was to increase the benefit, and number two is to increase the amount of income that's going to be covered by the benefit. so it's a big deal in canada right up there with stabilizing the cpp in the 1990s. so there's a lot of detail to be worked out as to okay, exactly you get down to the bottom line what does it all mean in terms of implementation. a long window on implementation, starts 2019. seven-year window to implement the whole thing. that got agreement -- that's what got agreement from the hesitant provinces to have a very long runway. so that now changes the conversation in canada in terms of, okay, given we're going to do that, what else do we need to do? it's quite a change in conversation. so good things can happen. there can be agreement between
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governments, apparently, if you get the right vibes and somebody called trudeau in the room and it happened. so where does that leave you all here? three things. one is that i think it's important to have the ideal system in mind. ideally if you could wave a magic wand, what would it look like? and then number two is realistically, how close can you get there? because there are a lot of barriers, a lot of path dependency on how to got to where they are today, some of them nonchangeable, but still i think this notion of the ideal, what can we do, you know at the margin, where should we be spending our time? and it seems to me, firstly, that the poverty alleviation for seniors is one major issue that i would look at in terms of what we do about that, and then i think with respect to middle income workers without pension plans, the question really does become is -- you know, how
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forceful can you become about getting that participation up? and it's interesting that in the uk, they went through this and they said, you know, you've got to mandate it, and now in canada through expanding the canada pension plan, it is mandatory. so all employers will have to be involved in this. so i think the question for you is to what degree can you require, number one, participation, but also, number two, getting the contribution rate up to a level where it actually matters, where you can get the income replacement. so those are my opening thoughts. thanks. [ applause ] >> thanks so much, pete. so we have about 15 minutes left and i want to make sure we have lots of time for -- well, lots of time, some time for audience questions, so i would say i would like to pose one question to all of you that you can answer or not, as the case may
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be, based on things that everyone has pointed out that coverage is a huge issue. keith has just put on the table that the key to it internationally is compulsory participation. is that the key to it? and, you know, related to what -- the way he framed it at the end which i thought was really useful, right, is like there's an ideal system in mind and then there's realistically how close can you get there? we all know the prospects for compulsory systems in the united states are particularly challenging in the aftermath of the affordable care act, so comment, if you would, on whether you think compulsory is the solution or what a different alternative might be that would get us there. >> do you want me to start? >> sure. >> so i'd say to start, the first thing i would suggest is we don't use the term
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compulsory. >> how about mandate? >> probably not that one either. so i've been at a number of events with the folks from n.e.s.t. and others from the uk that were part of their reforms. they always start using the term compulsion. and i think, boy, that will never sell here. and i see david john in the room, and i know mark is going to be here later, and i think the critical thing is to think about how we build on, you know, the start that they got on the auto ira and think about the framing in a way that makes people in policy circles comfortable with the fact that we're not talking about compulsion or a mandate. we're talking about putting in place a series of defaults that puts people on a path towards retirement security, towards
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success, and that if we don't, we're doing the same thing, we're just choosing a negative default. we're putting them on a path toward failure. so why as a society would we do that? i mean, it just doesn't make any sense, and i think if you frame it that way, it's a lot easier to get the 90% of the way there that we can get to and not make the search, the -- for the ideal be the enemy of good enough here. that's my thought. >> thank you. >> sure. >> i like the term universal as opposed to compulsory. i like the sense that everyone, all workers, would be covered, would have some way of providing for retirement. and targeted universalism perhaps -- by that i mean doing
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something for those who are the lowest earners through tax credit, expanding the saver's credit and making it refundable, something to that effect so that there is an additional boost in terms of ensur suring that there is enough for them at their retirement age. [ inaudible ] >> maybe this is the time where i'm supposed to remember to say my views are my own and don't reflect the trustees, et cetera, et cetera. i think you really need to focus on how to best draw employers in as part of the solution. we modeled what would happen if auto iras were basically available on a national basis, and of the $4.13 trillion in retirement savings shortfalls,
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we were only able to decrease it by 6.5%. the reason is, of course, you don't have any employer money coming in and you don't have any incentives for the employees to go beyond the 3%. so whether we're calling it mandatory or universal or compulsory, i think we should do everything we possibly can to incentivize the employers to become part of this process and to come in as contributions. the other thing i think you have to be really careful on is what is your objective? i mean, do you really want to have every single employee, quote, covered every single year? we look at these snapshots and we look at a huge percentage of individuals that don't necessarily have coverage or aren't participating in a particular year, but that doesn't mean they're going to go through their entire career without participating or without coverage. so you have to look basically over a full lifetime. then you get to the end and what
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is it that you want to have available for these people? we find in our modeling that a lot of individuals look like they'd be in good shape financially, and then because of is it really a problem with not enough savings, or is it a problem we are retirement expenditures that are not being dealt with sufficiently. whether it's through long term care insurance or some government program, what have you. >> thank you. i'm going to give you the last -- give you the last word on this and we'll open it to the audience if that's okay. [ inaudible ] >> i think behavioral economics is important and understanding it. the framing is really critical. i was going to give an example of that and this relates to my friend david knox -- this goes back to the inventor of gpi.
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he's on a mission to invent the back ends on dc plans, income for life back ends. and we just had a work shop in toronto on that. and i wrote it up, and i used in my language, i used income for life guarantees in my draft. and he came back and he said don't use the word guarantees. use protection. income for life protection. and, again, i think it's classic example of something that goes down a lot easier because, again, with protection, it's not necessarily a guarantee. i mean, you can actually do a lot of shifting between the people that die too soon and the ones that live longer than they're supposed to without guarantees. and that's the focus. so i think there's a whole open question of the language we use and how we rethink getting to where we want to go using language that facilitates rather than creates barriers.
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>> thanks, keith. that's a great point. let's go to audience questions. i would ask -- remind you that we're on cspan, not because anybody should be afraid that are on tv. but if you would wait till we get a microphone, stand up and also if you would please identify yourself before you start. i think melissa, did you have a hand up? >> thanks, melissa kahn. and i agree about all the comments about language. language is very important and framing is very important. i like the term of universal as opposed to mandate. lou, i'm sorry to put you on the spot. we're a member and support you greatly. i'm curious, you know, i think auto enrollment, escalation,
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changing safe harbors is important here. but i still think you have the gap of workers who don't work for companies, especially in the small employer sector who don't and won't have access. so how would you get them covered? >> yeah, great question. so i think the first thing you want to do is understand as jack was alluding to who is left out of the system and i think we often reflectively fall into the trap of looking at a snap shot that at any given time there's a significant percentage, maybe an overreported percentage, but a significant percentage of the population that at that moment in time is not covered. a significant number of those people that are not covered are going to cycle back into coverage and maybe out of it and back in. so i do think it's important for
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us to understand through a working lifetime, you know, whether people have access to enough coverage to get them where they need to be. but that aside, who is left out? so part-time employees are clearly in a position where they're more often than not left out. we need to figure out what the incentives are in the system right now that are causing employers to leave their part-time employees off the table. i think there are rules in place qualification rules that are probably an akronistic we need to rethink. we need to make sure the incentives are to cover people and not leave them out. it goes well beyond that. the self-employed are often out of the system. you would think there's a way for us to incentivize them to take care of themselves. i think that's going to be further exacerbated as we see the emerging gig economy where a
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lot of people are technically self-employed even though they feel like they're working for others. and then, you know, we clearly have issues with very very small employers and with the service industry. and you know, i think once we sort of define where that coverage gap is, it helps us to think through what the appropriate solutions are. you know, there are definitely different paths to take. i do like the idea of focusing on the framing around universality. i think there is going to have to be a nudge there somehow. i think practically it's a nudge and not mandate. but, you know, it has the same effect. you know, ultimately i think the other thing is it may be a little beyond the scope here, but we have to think about the critical role that social security plays in providing for
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the retirement security of the least among us. and you know, social security was conceived as a social insurance program. we've gotten to thinking about it as a retirement savings program. and i think as part of the conversation we have to think about there is going to be a portion of our population that whatever we do are not going to have enough periods of coverage through working to provide for their retirement security needs. we have to make sure that their security is provided through social security. i think it's a critical part of the total calculus. >> other questions? >> thanks so much, everyone. i'm justin king from new america. congressman crowley did a great job offering up the idea of the
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need for savings, for a variety of needs over the course of one's life. and i'd love to solicit reactions from the panel about the tension between people's emergency needs and retirement savings. and whether or not there's potential to adapt the retirement savings system to more holistically meet the needs of americans. whether we can address withdrawals and leakage in a way that supports families, emergency needs and the fact that life happens going forward. >> anyone want to take that? >> that's a very good question. definitely there is the need to acknowledge that people are going to have requirements for
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the use of savings before they get to retirement. and to have multiple ways of saving. we have research that shows that people of all income levels can and do save when they have the structures in place to facilitate savings. like upper income households have had for a long time. so there are options to have bifurcated savings strategies so some are going into retirement accounts, at the same time some savings are going into accounts for other uses. which could be emergency savings. i think we need to keep those on the table and explore that as we go forward. >> i want today quickly comment, so i think it goes beyond programs. i think we have a real need for cultural change. we need to change the mindset,
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change the beliefs in our country around the savings and the taking control of your financial future. there are definitely programs that can put in place i would suggest outside the retirement savings system instead of detracting from it. i think it's important we get people focused on a gut level on the need for taking control of their financial future. >> thank you. so i think we have time for one more question. lenny, i saw your hand up. >> first of all, thanks for a wonderful and comprehensive panel. i wanted just to note that what was about closing the coverage gap is more than just about providing options for retirement income. it's also addressing an issue with social justice and helping us become a more perfect union.
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i wanted just to ask jack a question about the 3% glitch in the ppa itself. is there somewhere in the bill, jack, where there's a reference to 3% as a starting point and you're not necessarily required to escalate from there? because perhaps that legislation inadvertently caused a lot of people to use 3% and create the issue that the "wall street journal" story brought up. >> haven't red ppa for about ten years, so i might be a little bit rusty on the details. i don't know if mark is here yet, but i would bet anything that the vast majority of the people who came in at 3% were coming in because of what was written back in the '90s when they were getting the guidance that a 2% or 3% default was
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going to be okay with irs and the treasury. whether or not you are basically going to be compelled to follow 3% for anything other than safe harbor, i don't think that was the intent of ppa, certainly. >> great. so we're going to move on to our next thing. please join me in thanking a wonderful panel. [ applause ] and ida is going to introduce our keynote speaker. >> thanks, jeremy. so when i started out this morning saying there was a room full of experience, was i wrong? it's really been an amazing conversation. and honestly an amazing set of careers dedicated to these issues and the path forward. so it's my pleasure to get the opportunity to introduce yet
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another one of the leaders who has amassed many years of experience and many years of expertise to share with us today from an industry's perspective on the unfinished agenda of the ppa. from one particular company's perspective. so please join me in welcoming edward f. murphy who i'm going to call ed for the rest of the introduction. he is president of empower retirement with over 8 million savers, 35,000 plans. and serving all segments of the employer sponsored retirement plan market. ed brings as i said over 30 years of experience to his role with empower and has been with putnam since 2009 and in 2014 took over the role as president of empower. prior to that he was head of
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defined contribution and investment and prior to 2009, he was in executive leadership with fidelity for 20 years. a lot of publications, a lot of thought leadership exhibited by you, ed, and also you're frequently here in d.c. i think it might be your second home. speak ing with congress, department of labor, department of treasury, the irs, around many of the kinds of conversations about reform and inclusion and expansion of retirement saving systems and their effectiveness to our policy leaders. earlier this week, at the spark conference, an industry conference that was here you got headlines for your call to your peers in industry to speak with one collective voice on public policy issues relating to expanding and improving retirement saving systems in this country. so i want to thank you for that leadership. i can't wait to hear what you have to say. i know we have slides for you,
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ed, if i can invite you up and everybody please give a warm welcome to ed murphy. [ applause ] >> good morning, everyone. thank you, ida, and thank you to the aspen institute for hosting this event. i do think it's timely, particularly in light of the election and what we can expect in 2017. i think we're optimistic about the opportunity for retirement legislation. today is an interesting day for us at empower, we have 5,000 associates. and we're really busy today. our call volumes are up 25%. as we've got 8 million americans that we support, but one of the things that's interesting is unlike years ago when we would have periods of volatility like this in the market, we're not seeing the panic selling and capitulation. i think investors through their
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own experience, are not reacting hastily. they realize that the investments they have in retirement plans are 20, 30, 40 year investments. so i think that's good to see. particularly with the market down 500 points. i think this is a great group we have here today. many of you were involved in helping to shape the pension protection act of 2006 and others are working on the next iteration as we look to build off the ppa. i have a little bit of a multimedia show here, but some really interesting data, empirical data we want to share with you. i'm going to cut right to the chase. and say the keys to solving america's retirement savings challenge are right in front of our noses. first, as a baseline, we must all foster the political will to
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make social security solvent. we heard the previous panel address this and also the congressman. beyond that in the savings arena we've conducted a mass investing experiment for well over a generation now. and the results are in. and we know that it works. in fact, we can trace the most beneficial factors that lift retirement readiness directly back to the ppa itself its endorsement of automatic plan features, qualified default investments, legal safe harbors for plan sponsors who offer these features was a qualitative change in the american retirement policy. indeed, the benefits of the best practices that the ppa endorsed literally jump off the page in the lifetime income score survey that empower retirement has been conducting for the past six years.
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these surveys take stock of the total net worth of more than 4,000 working americans ages 18-65. it's weighted to match u.s. census parameters. the assets we count are comprehensive. social security, db planned benefits. contribution rates, other savings. real estate, equity in the home, equity in small businesses to the extent it applies. our analysis projects the share of preretirement income that people are on track to replace once they stop work. to generate a lifetime income score or lis. because we see income replacement as the prime goal, the best, arguably the only measure of success or short fall for any retirement system or plan.
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you can see on the far left of this slide, we project income replacement of just 44% at the median for 20 million plus households who have no access to savings plans on the job. and that was a topic of discussion in the previous panel. at the far right, nearly 11 million households who stand at the median to draw incomes in retirement well over full replacement. 117% in fact. overall, as the dotted line shows, we estimate that the median working americans are on track to be able to replace roughly 62% of their current incomes in retirement. clearly tens of millions of americans may face a sharp falloff in living standards in retirement or at least real financial stress. that's the challenge.
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but what i'd like to suggest to you today is that the chart also provides us with something like a road map or action check list to identify priorities and solutions for america's entire retirement challenge. for example, since our data includes protected social security income, we can see how vital this program is and why making it solvent should be retirement policies job one. let's take a look. here's how retirement readiness would drop in the absence of social security. tens of millions of people would fall into absolute destitution. many millions more would be sorely stressed. that's why all of us who care about retirement policies should urge our political leaders to make social security solvent. it's a high priority because the
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system is under threat and time is not on our side. many of you know roughly 17 years from now, the system's own trustees protect the last of the trust funds will be drawn down. all recipients will face a cliff drop of 23% or more in their social security benefits. unless we act soon to make the system solvent. every american under age 48 today who plans to retire at age 65 in 2033 and beyond, faces a nasty retirement income pay cut. that's the very predictable price of inaction. so let's hope the next president and congress have the courage to take on this challenge. compromise fairly and shore up the foundation of americans' retirement security.
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and let's help them do that. they need prodding, they need support and compromise and sacrifice. if people like us here today don't offer the help who will? let's also come together on the next most salient priority, and that's getting every working american access to savings plan on the job. here's the difference between having a payroll deduction plan and not having one. pretty stark. access alone raises income replacement by fully 35%. from 44% to 79%. at empower we believe that everyone who pays mandatory fica tax should also have the option to set aside part of their paycheck for retirement. data from the employee benefits
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research institute shows roughly 70% of workers earning $30,000 to $50,000 who do have access to work place plans choose to save at some level. workers who don't have a payroll savings plan, less than 5% open up an individual retirement account. payroll deduction is roughly 14 times more effective than the tax incentive itself. to us this suggested the only real path to retirement readiness runs straight through the workplace. this isn't rocket science. that's why we support robust solutions to the access or coverage gap. at the national level. auto iri, simplified 401(k) are
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things that will improve access to savings. we know the primary reasons why small business owners do not create new plans is tied to complexity, the concerns about fiduciary responsibility and cost. and it can be addressed by the industry and many of us are working on it. savers who draw on professional advice, for example, step up their median income replacement rate to 87% at the median. it remains to be seen whether the dol fiduciary rule will help. particularly among small savers who need the advice more than ever.
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workers whose companies adopt auto enrollment in their plans take a further step up. they are on track to replace 92% of their work life incomes. again, at the median. firms that go on as they all should, to add automatic savings escalation bring their median workers replacement rates to just over 100%. which i think we would agree is success by any measure. lastly, we come to the highest success category on the far right. these are workers who not only enjoy fully automated savings plans on the jobs but who are deferring rates of 10% or more. a median replacement rate of 117% this cohort of workers may be able to step up their living standards in retirement. this group, by the way, is not
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some tiny number of well heeled outliers. it includes between 20 and 30 million people from a variety of income levels. we have advocated for the ten plus savings deferral rate for years. we are very pleased to see the financial services round table endorse the goal through their great save ten campaign which we've been very much a part of. so we don't expect to win the nobel prize by pointing out more is more and that higher savings compound over time. but we do think that setting a target of 10% system wide is actually an ambitious target and well worth pursuing. today's defined contribution participants savings rates, deferral rates are just over 7%.
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what we're calling for with a save ten is a step up of nearly 40% in the savings rates of tens of millions of americans in d.c. plans today. we don't serve anybody well by allowing them to believe they're on track for retirement readiness at savings rates of 3% or 5%. or 7%. if americans want financial security for 20-30 years after their work lives ends, we'll simply have to save more and a lot more than we're doing today. so let's just tell people the truth. one last point on this six step x-ray of retirement readiness. you might think that what lifts people to the solid readiness we are seeing on the far right is sheer income. but that's just not the case.
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it's true that higher income people are somewhat more able to save. though surprisingly large number of higher income people don't. but our survey also finds that plenty of low and moderate income people do reach high levels of readiness because of plan design features that get them engaged in savings and allocate them to solid default investments. planned design matters critically. it is possible and should be our goal to create a defined contribution system that makes success easy and failure hard. one example of this year's survey suggests progress towards the goal may be gaining traction. we're seeing uptick in retirement readiness of young workers, millennials, 81% in
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this year's survey. this data set is too short to be definitive. we suspect it reflects the fact that many more companies have been adopting auto enrollment. we see that in our own business, particularly new hires, recent years. we're going to continue to watch this space to see if we see consistency and momentum going forward. i don't think we need a lot more data to tell us the main policy implications of the great retirement savings experiment that americans have been living through over the past 30 years. we simply must spread the best practices found in the universe as widely as humanly possible. access itself is vital.
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with 50 million americans outside of the dc system is a scandal. besides coverage we need auto plan design as universal as possible. we want to support measures that can close the coverage gap and make success contagious by make being these best practices and plan design the national norm. because our data tells us we can really solve the accumulation of the retirement challenge just by implementing the proven successes that ppa helped foster. once we do that we should move on to finish the job that the ppa started and that means solving for the distribution phase. the next slide i want to touch
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on, at empower we call our vision for the next generation a workplace savings in this country, workplace savings 4.0 because it follows three previous sometimes overlapping generations of workplace savings. 1.0, if you will was the initial explosion of dc savings plans from the mid-'80s to mid-'90s. workplace 2.0 took hold in the mid-'90s when progressive plan sponsors and providers began experimenting with features like target day funds and trying out auto enrollment and savings escalation. workplace 3.0 began in 2006 with the protection ake and essentially codified these best practices. but today with nearly 10,000 baby boomers moving into retirement every day, we're entering a new phase in the evolution of workplace savings.
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we still have to finish implementing ppa endorsed best practices, take the dc system to a new level and then move on to solve the new challenge of lifetime income. this slide shows our workplace 4.0 agenda in a nutshell. we start by preserving all existing savings incentives and seeking to correct the bogus scoring methods that make retirement savings such a juicy target for budget hawks. the ask here is for honest arithmetic. distinguish between tax deferrals in once and gone tax expenditures and doing that before any major tax reform. the next major goal is close the access gap at the national level. so we will actively support regulatory efforts to do that. as i mentioned earlier auto
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i.r.a., starter plans, simplified 401 (k)s. we favor more generous and refundable tax credits to encourage employers to establish plans as was touched on earlier today by others and we support efforts to engage the large and growing share of the workforce doing part-time work or contract work. that's the big challenge, because these workers have no regular w2 payroll income to take deductions from. they need strong, new incentives to engage retirement savings. across existing workplace system, it's time for regulators to guide, nudge and even mandate the adoption of full auto plan designs. these designs are qualitatively better than purely voluntary plans without auto features.
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they have vastly more, in short, they work. to get to a new auto system will require legislation and planned legal safe harbors for planned sponsors who do the right thing. we need to continue efforts already under way led by treasury to make it easier for workplace savings plans to include guaranteed or as keith would say protection options. annuities, partial and deferred annuities, longevity insurance, guaranteed drawdown plans, these are all going to be critical as we move through the massive demographic shift that's occurring in our country. we would prefer tax preference, perhaps allowing workers to draw first $10,000 a year in
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guaranteed income tax-free. last but not least we believe congress should deliver major help to many millions of retirees by allowing tax-free withdrawals from qualified plans to cover medical expenses and health insurance. these changes taken together will go far towards fleshing out next generation of workplace savings in america. i want to close by emphasizing the great opportunity that all of us in retirement services have to make this country more prosperous, more dynamic, and, indeed, more just. keeping is the promise of dignified retirement after a lifetime work is not just a decent goal to fight for, it's the way to turn what could be a crisis into an opportunity for renewed growth ins in
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confidence. imagine america in 2020 where every worker has strong incentives to save and plans designed to actually deliver a dignified retirement. with those savings flowing through the markets to finance growth, entrepreneurship and job creation, imagine a country that knows that it can meet real challenges because it has just done so. that's what solving our retirement challenge can do for america. so let's go from here to empowerment. let's set the agenda for change in retirement policy this year and then drive it forward in 2017. thanks for listening. [ applause ] >> i know stand between you and
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lunch. >> we have a few minutes. anybody have any questions for ed? >> just an opportunity to push an 8-year-old book called "fixing the future, how candidates usually fractious government work together for pension plan." it's a very interesting story, the same issue as the social security except we ended up with a situation where we actually doubled contribution rate in a relatively short period of time and built up a reserve fund that stabilized contribution rate into the foreseeable future. it's a fascinating story, actually. you have to figure out how to carry out the u.s. equivalent of that story. >> i think it's a great point. as you and i discussed earlier, we're owned by a canadian entity and we've spent a lot of time studying the canadian system and
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the way public and private came together to shape pension policy in canada. thank you, everyone. once again, i want to thank you for asking me. [ applause ] defense secretary ashton carter announced earlier today the u.s. military will now allow transgender members to serve openly in all positions including front line combat. here's part of today's announcement. >> as a result of this year long study i'm announcing today we're earneding the ban on transgender americans in the united states military. effective immediately transgender americans may serve openly and they can no longer be discharged or otherwise separated from the military just for being transgender.
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additionally, i have directed that the gender identity of an otherwise qualified individual will not bar them from military service or from any succession program. we're eliminating policies in transgender members being treated differently from their peers based solely on their gender identity rather than their ability to serve. we're confirming going forward we'll apply the same general principles, standards and procedures to transgender service members as we do to all service members. when i heard from the transgender service members i met with overwhelmingly was that they don't want special treatment they want to be held to the same standards and be treated like everybody else. >> following carrier's announcement the chairman of the armed services committee released a statement saying in part this is the latest example of the pentagon and president prioritizes politics over policy. he goes on to say our military
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readiness and hence our national security is dependent on our troops being medically ready and deployable. the administration seems unwilling or unable to assure congress and the american people that transgender individuals will meet these individual readiness requirements at a time when our armed forces are deployed around the world. watch all of today's announcement from secretary carter on our website, c-span.org. >> on july 1st, 1976 the smithsonian national space and air museum opened its doors to the public. friday marks the 40th anniversary of the museum and american history tv's live coverage starts at 6:00 p.m. eastern on c-span 3. we'll tour the museum and see one-of-a-kind aviation and space station artifacts plus live events at the front of the building. learn more about the museum as
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we talk with the directors. you can join the conversation as we'll be taking your phone call, emails and tweets. the 40th anniversary of the smithsonian national air and space museum, live friday evening beginning at 6:00 eastern on c-span 3's american history tv. >> this fourth of july weekend book tv has four days of nonfiction books and authors on c-span 2. on friday starting at 9:30 a.m. eastern book tv features an interview with california senator barbara boxer discussing her political career. former pro basketball player kareem abd kareem abdul jabbar weighs in on politic issues. on after words, a science writer discusses her book "rise of the
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rocket girls." she chronicles an elite group of women and their contribution to rocket design, space exploration and first american satellite. >> in the beginning they did a lot of trajectories. so they calculated the potential of different rocket propellents, and they did trajectories for many of the early missile, they worked on the corporal and sergeant. then things changed when the space race happened and when nasa was formed and then these women roles began changing. they ended up becoming the lab's first computer programmers and they had these nibbincredibly l careers at nasa. >> on sunday in depth is live with sebastian younger who will take your questions from noon to
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3:00 many eastern discussing his latest book "tribe." he's the author of "war." at 9:00 p.m. eastern part two of a special two part q and a interview with public interest lawyer mark green, author of "bright infinite future." then on monday at 2:30 p.m. eastern book tv tours the vivian g. harsh collection the largest african-american literature collection in the midwest. for the complete weekend schedule go to book tv.org. the nominee to lead u.s. african command says he's not aware of an overall grand strategy in kwlab and additional ground troops are not needed at the moment. he testified at a senate armed
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services committee confirmation hearing. also testifying was lieutenant general joseph langley who is nominated to become the next national guard bureau chief. senator john mccain chairs the meeting. good morning, the senate arm services committee meets this morning to consider to be command of u.s. africa command and joseph lingel to be chief of the national guard bureau. i welcome both of our nominees and thank them for their continued willingness to serve our nation. general, africa has reemerged as an active front in the global war on terror with isil, al qaeda, boko haram and al-shabaab, launching successful attacks throughout the continent.
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and threatening our interest and those of our allies. libya, they command an army of over 5,000 fighters. while recent is encouraging, the country -- unity government is unable to exercise control outside of libya. outside of tripoli and to date has failed to secure the support of important blocks within the population. the failure of the united states and the international community to put forth a comprehensive strategy for libya following the fall of gaddafi in 2011 has contributed to the current crisis and isis's ability to expand in libya is a troubling warning about the price of the administrations reactive, indirect approach to fighting this enemy. until this changes, i fear libya will continue to deteriorate. compounding the rising terror
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threat across the continent africa remains plagued by long standing conflict and weak governance that divide large displacement of people into stability. while the threat in africa continues to metastasize, our military commanders are being forced to do more with less and stafford for resources and denied timely and flexible authorities to take advantage of battlefield opportunities and halt the advance of extremism and other drivers of instability. general, i look forward to your thoughts today on how you intend to approach both the enormous challenges and opportunities within the africon area of responsibility. the role of the chief of the national guard bureau has evolved over the last 10 years. it now sits on the joint chiefs of staff, serves as an advisor
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to the president on policy and security matters, and manages a relationship with a 54 agitant generals. this committee is followed closely the recommendations of both the national commission on the structure of the air force and the national commissions on the future of the army. both commissions reported out recommendations for reinventing the total force. i hope you will address the commission recommendations in your testimony here today. another area we're watching is the mobilization and demobilization cycle and procedures for the national guard. guard members and their families write to me often to discuss the stresses. i hope you have given serious thought how you plan to promote
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family readiness in the national guard. we're interested in working with the next chief of the national guard bureau on reforms to address the unique needs of our national guard and reserve service members and their families. as is our tradition before proceeding with opening statements, i would invite them to invite any family members joining them this morning. senator reed. >> thank you very much, mr. chairman. and let me join in welcoming our nominees. the position which these individuals have been nominated involve challenging duties that you have outlined in your statement. both nominees are qualified for the position for which they have been nominated. lieutenant general who has been nominated in the united states africa command, currently serves the j-7. director of join force development. he has served a number joint operations positions that prepared him to serve including
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commanding general first marine division and as the commander in the united states marine corps forces central command. notably, he has the qualification that probably makes him without doubt the imminently qualified. he's a united states ranger school graduate. so, congratulations. and lieutenant general also comes to us with many qualifications. he has served as chairman of the national guard bureau and has vast experience as an air force pilot. the chief of the national guard bureau is a member of the joint chiefs of staff and chief advisor to the joint chief of defense. in support of homeland defense and civil missions. in this case he plays a critical role with the corporate mission and as we've seen several times through the years in hearings before this committee, this is a tough job and takes a talented individual to fill it. i have every confidence they
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will fulfill these difficult jobs. i want to extend a special thanks to your family. i understand your wife and son have joined you today and your wife sally and katy have joined you. we know how important your families are to your careers. without them, you wouldn't be here today, literally. again, thank you, mr. chairman. >> before we proceed, i want to note the presence of distinguished senator from texas who i know would provide important words of wisdom and instruction to all members of the committee. senator cornyn. >> thank you chairman mccain and reed. i'm honored to be here to introduce one of the nominees. as the nominee to serve as the next chief of the national guard bureau. citizen soldiers of course have
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been part of our country's fabric since the beginning and in the 21st century their role continues to evolve to help safeguard our nation and in addition to ensuring they're able and willing to do their job, they must be able to provide sage military advice to the chairman of the joint chiefs of staff, the secretary of defense and the president of the united states. he's the right man for this critical position and the depth and breadth of his experience make him exceptionally well qualified. after completing his undergraduate pilot training, he cut his teeth in the cockpit of an f-16. his 34 years of service include an array of command assignments as well as desert storm, provide comfort, southern watch and enduring freedom and served as a defense attache overseas. and both of you have noted, both chairman and the ranking member
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his wife of 24 years, sally and his daughter, katy are both here as has already been pointed out. but i'd like to mention his two sons who could not be here today. michael, because he's following in his dad's footsteps as one of the air force's newest f-16 pilots and joe who is attending college. he hails from a proud military family and knows first hand what it means to service and sacrifice. his father and mother couldn't be here today but are certainly watching on tv. his dad was also an air force pilot and he shares some history with our distinguished chairman, senator mccain. he was shot down while flying over vietnam in august of 1967 and held as a prisoner of war until march of 1973. in 1975, he returned to vietnam
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to fly missions during the fall of saigon, being one of only two former pilots to return after 1973 to fly missions. during his dad's captivity, his mother raised him along with his brothers, greg and dan and his sister, toty. and his younger brother carried the family tradition and currently serves as a major general in the air force. once confirmed his experience and leadership will be instrumental to the national guard as it faces a myriad of challenges both at home and abroad. thank you for giving me a few moments to introduce him and recommend his confirmation. >> thank you senator cornyn and i know you have important obligations, but i thank you for being here to introduce this highly qualified general.
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thank you. i hope unlike your father and me that the number of landings have matched the number of takeoffs. so, i have standard questions for the nominees that need to be answered and then we will proceed. in order to just answer yes or no to the following questions. in order to exercise its legislative and oversight responsibilities important that this committee and other appropriate committees of the congress are able to receive testimony, briefings and other kmkss of information, have youed a heard to applicable laws and regulations governing conflicts of interest. >> yes. >> do you agree when giving your personal views even if they differ from administration and power? >> yes. >> have you taken any actions that would presume to assume the outcome of this process? >> no. >> will you ensure your staff
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complies with deadlines established for requested communications including questions for the record and hearings? >> yes, sir. >> will you cooperate in providing witnesses to congressional requests? >> yes, senator. >> will they be protected from reprisal for their testimony or briefings? yes, sir. >> do you agree if called to testify before this committee? >> yes. >> do you agree to provide documents including electronic forms of communication in a timely manner when requested by a duly stoconstituted committee? yes. >> general, we'll begin with you. as i mentioned if you would like to introduce your family to the committee, members that are here. please proceed. >> thank you, senator. senator mccain and distinguished members of the committee, good morning and thank you for the opportunity to appear before you today.
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i am truly honored to be nominated as the commander u.s. africa command. i want to thank the president and secretary of defense for their confidence in me and i want to recognize the current africa commander dan rodriguez and his wife for their dedicated service to our country and men and women in uniform. joining me today is my wife gale and my son mark. gale has been a great mother and superb advocate for military families over the years. she taught middle school for many years where a large number of students were military families in the communities we were stationed. since the stand up of africa, nearly a decade ago the command has made many contributions to our national security interests on the continent. today there are numerous come plegs challenges in the african
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area responsibility. terrorist organizations and terrorist activities conducted by groups such as the islamic state in libya, al shabaab in somalia are active across continent. ethnic strife, poverty, mass atrocities and trafficking threatens stability and economic growth particularly in nations with weak governments. consequently we must continue to work with national and international partners to disrupt these transnational threats and prevent the export of terror on the continent, in the region, and ultimately to our homeland. additionally, africon must work with african partners to create an environment where these partners are capable and twoilg address their security concerns. if confirmed, i will work with not only the u.s. military components of africon but with
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my fellow combatant commanders as well in order to foster an environment where our challenges are viewed from a transregional perspective and not just from a particular geographic area of responsibility. i'll provide my best military advice to this kmet when requested. finally and most importantly i'll do everything i can to properly lead, respect and keep the faith with those in uniform and the civilian workforce who voluntarily serve our nation. thank you again for allowing me to appear before this committee this morning and i'm prepared to answer your questions. >> thank you, general. chairman mccain, ranking member reed, distinguished members of this committee it's a plea sure to be here today. i would like to thank senator cornyn for his opening remarks. my wife sal jay and daughter katy is here.
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sally served seven years in the air force. she remains my most trusted advisor. katie is a rising senior who is spending her summer with the peace corps. we're all proud of our three children. without their love and support i wouldn't be here today. i would like to acknowledge my fellow nominee and his distinguished service. it's a privilege to be we're him. i'm humbled by my nomination. humbled by the great leaders who served in this position in the past and if confirmed i will join the joint chiefs of staff. over the past four years i have been honored to serve as the vice chief and witnessed the visionary leadership of joint chiefs grass. they have left an indelible mark. i am grateful to serve with the 453,000 citizen soldiers and airmen, a proud force that's been helping to secure our
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nation for nearly 380 years. we are living in extraordinary times with incredible advances in technology that gives great cause for optimism and hope for future. this is tempered by challenges in our global security environment. transregional multidomain, multifunctional threats, regional actors, violent extremist organizations require a greater agility and inclusion of all elements of national power. since 9/11, the operational national guard has mobilized roughly 780,000 times. in support of the war fight. as the combat reserve of the army and air force if confirmed i'll ensure we continue to work seamlessly as part of the joint force to help bring security around the globe. our experience overseas enables us to protect the homeland and work with our governors and our generals to answer the call when disaster strikes here at home. on any given day we have
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anywhere between 3,000 and 4,000 guardsmen conducting domestic operations. the national guard remains at the forefront of building enduring partnerships with local, state, federal and globa. although we are proud of our heritage and past, i am more excited about our future. the guard's evolution as a operational force is a chapter in our nation's security at home and abroad which written to the incredible skill and devotion of america's citizens, soldiers and airmen. the development of our most important asset are people, our foremost task. if confirmed, i'll strive to grow and train leaders who innovate and motivate the force. we must ensure that ethical behavior goes from the top down, acts of demoralized units and degrade readiness such as sexual assault and discriminate conscious never be tolerated n short, if i'm confirmed, the national guard will strive to be ready and to be the most diverse and inclusive force we can be. thank you again for allowing me to be here today. i look forward to working with the congress, the department of
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defense, the interagency, governors, generals and all stake holders to ensure that we maintain the most capable, accessible and ready national guard possible. i look forward to your questions. >> thank you, general. general waldhauser, there is an old saying about chickens come home to roost. as a person who's been to libya on numerous occasions including when chris stevens was living there in a hotel, we watched ka dach r d kadavy being taken out bought the loss of a single aircraft or prn and then walked away. we walked away despite the repeated pleas of those of us who saw the situation deteriorating. we did nothing to help the libyans, not to treat their wounded, not to secure weapons caches, not to help them with border security, most of all, help a nation that had never known democracy to achieve it.
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now we're paying a price for it. now we're paying a heavy price. we have american troops in libya according to -- according to publish report s that true? >> we have a small number of troops on the ground. >> so we have american troops on the ground which never would have been required had we done the things naecessary after korea, world war ii and after bosnia instead of walking away from an abject disgraceful failure on the part of this administration and this president. so now you're handed, frankly, a can of worms because i don't have a lot of confidence in the rottens. i've seen them in action before. i don't have a lot of confidence in general haftar who has his own agenda, obviously. and, of course, isis is established approximately according to published reports about 5,000 people in libya.
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so you're going -- and not to mention the other challenges in africom. how are you going to make chicken salad out of this situation, general? >> senator mccain, the situation in libya is very kblechcomplex. we have to get the government of national accord up and running and the second is to disrupt libya, isil inside libya. the government of national court has been on station in tripoli since march. it has a long way to go. but it has shown some very basic progress. moreover, in the last -- >> does that government include general haftar? >> it does not. general haftar is in charge of -- they have pledge add leejance to the ga. >> does the government include them or they just pledge their
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allegiance? >> they pledge their allegiance with regards to the inclusion. i don't have a lot of knowledge on that particular topic. they are carrying out the mission of trying to take down isil. >> please go ahead. i interrupted you. >> thank you, senator. again, very complex situation. so the government, the gna is making very small progress. it's going to take a lot of time. with regards to the isil situation, the misrottens along with the petroleum guard force surrounded the city of sert. they gained territory in the last week but they have not gone into the city. you can can say there is progress. the bottom shrine with regards to tribal allegiances, these things come and go and are right now the misrottens, at least they pledged allegiance to the gna. >> are you confident that we have sufficient military presence and activity in libya to take care of isis and somehow restore or form up some kind of
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consensus government? >> at the present, our assistance has been advisory and has been to provide guidance. the misrottens and the petroleum guard has made progress, however, one thing we need to watch in the next few weeks is if there is success in sert, if isil does get routed and leave, we have to have a plan for success at that point. >> so right now you don't think we need additional u.s. military presence? >> at the moment, no. >> at the moment means to me we don't have a strategy. i don't know what at the moment -- this administration reacted at the moment with incrementalism, mission creep, a gradual escalation in iraq and syria and i don't want to see the same thing in lib yachya. do we have a strategy for libya or are we just acting in an ad hoc fashion which was -- has been the case as we watched isis
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establish and grow in libya? >> the two objectives we have is to assist -- >> i know the objectives. do we have a strategy? >> to continue to support that at this point in time. i am not aware of any overall grand strategy at this point. >> are you aware of a need for sufficient military engagement to see that mission is accomplished which it seems to me as you mentioned, twofold. one, take care of isis. the other, establish a stable government? . >> one thing we have to be careful about is the complex relationships of the various militias and so on. so if the government, meaning the gna, requests our support, then we should consider doing that. so i think we've been able to tell him what we could offer at this point in time. >> well, i would just finally
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say, you're inheriting a very difficult and complex situation which didn't have to be. we walked away from lieberman graham and i were there for the elections where they were full of hope and we walked away from them. another disgraceful chapter in the history of this administration. >> senator yooed h. reid? >> i have to go to the banking committee k i yield? >> thank you, mr. chairman. i'll address the national guard issues first. general, i've been long advocate of including the national guard in our cyber efforts. can you tell me how you see the national garden gauging in the cyber mission and one of the challenges has been a shortage of training seats for guardsmen which is the status of the professional education center. what needs to be done to ensure that it is available to provide
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additional cyber training capacity? >> senator, i thank you for that question. the national guard is building robust capacity in the cyber domain. there is cyber capacity in all 54 states, territories, and the district at a basic level. and we've got 15 cyber units in the air national guard and another 11 cyber protection teams in the army national guard. those are only partially built. we do need training. training slots in schools is a problem. and we have begun to address that by creating additional school slots down in arkansas, little rock, arkansas, created a separate school slot to work the extra storage required for cyber growth. i think siber is a great mission for the guard. great connectivity with the community, with the cyber expertise and the i.t. world. if confirmed, i'll continue to do everything i can to keep building at cyber enterprise. >> and just as a follow up, what will army guard's relationship
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be to cybercom cyber mission force? >> senator, currently they are not included as part of the army or cyber mission force. if confirmed, i'll work with our cyber and chief of staff of the army and u.s. cyber command. i think they should be part of the force. i think they think that, too. that will make school slots easier for us to get, solidify the requirements and should be better for the cyber enterprise. >> thank you, general. >> although they're considered a regional threat, they now identify as isil of west africa. i'm very concerned that groups like this by aligning with isil or al qaeda may morph regional threats into trance national threats. years before al qaeda attacked new york and washington, it hit our embassies in ken yachlt a group of senators assessed the growing threats in africa. this is a constant in our
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conversation. how concerned are you that groups like this will become transnational threats that will endanger lives in europe or even america and what should we be doing to prevent that possibility? >> nor, i'm very concerned that they will ultimately move out of the region and perhaps on the continent and perhaps also to the homeland. that is the isil brand. however, at this time, the lake chad basin region which has a multiregional task force headed by nigeria, we wshg with them to provide assistance, training, so they can take on this group. they are isil west africa is a regional threat. and one of the things we need to continue to watch. >> when we were there, we met with a number of the governments that you referenced. we were in chad and we met with some nigerians as well. each of those military components and each of the countries we visited asked

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