All that would have otherwise gone toward retirement in addition to any pension plan they had but isnt available any more. We know that workers are not saving enough for their retirement. We know, as youve outlined, there has been a real shift from defined benefit to defined contribution plans. And that shift puts more responsibilities on workers shoulders to manage risks and to manage the decisions. Oftentimes without having investment expertise. Youve actually covered a lot of trt that i hope to cover territory that i hope to cover in my questions with you. In particular, about how workers with smaller accounts, those who arguably need the retirement protection the most, will have access to high quality and affordable advice. So im going to move to something a little bit more specific given some of the proud traditions in my home state of wisconsin. We actually have a history of cooperatives and mutual ownership companies. So companies that are owned northwest mutual for instance. For instance. I got married two miles north of their headquarters. And i had a very good visit not too long ago. But i would say and i would just while tooting the horn of my state, say that a lot of the traditions root back to the wisconsin progressive era where people like senator robert la fallette senior, fighting bob as hes known in the state, really laid the groundwork for the formation for a number of the companies. Now a lot of them have gained incredibly valuable experience that sort of imbedded into the products that they sell. And so i would like you to talk about what what assurances you can give to these sort of companies that they will continue to be able to sell their own retirement products as we move forward. Sure. Those are sometimes referred to as proprietary products and the rule is the same. Whether you are northwest mutual which has a long and distinguished history, and again, i got married a mile and a half north of the World Headquarters in milwaukee. And the rule is, again, putting your best interest putting your customers best interest first. And mart of pa is making sure you have policies and procedures in place to oversee your sales force. That is true whether it is northwest mutual, whether it is the abc bank. A big part of what the best interest standard means is that you have those internal policies. And so for instance, you are ensuring, in the case of like northwest mutual that might want to sell a proprietary product, one thing i would suggest that is a good idea to ask is it ought to be a product that a reasonablin deposit person would recommend to the customer. And one thing weve seen, and not at northwest mutual, but one thing weve seen in the course of the outreach, sometimes sale incentives become perverse. If you sell x number of one product, you get a trip to hawaii. And ive heard about the trip to the masters. And when that person walks in to give me advice, i dont want them looking at me thinking youre the only thing between me and hawaii with my family. That is when you have a misalignment of incentives and that is what were trying to address by making sure that we have the best interest standard in place. Now what the best interest standard does not mean is you have to sell someone the lowest fee product. Because i dont buy a yugo because it is a crappy car and that is why it is no longer on the market, i believe. But the point is it is not about the lowest cost, it is about the the north star is the best interest of the customer and places like northwest mutual or the abc bank or the brokerdealer or the person who is working with the Small Business owner like miss miller, the north star is the same for all of them. Senator warren. Thank you, mr. Chairman. It is hard really hard to save for retirement and the stats bear this out. Almost onethird of americans on the edge of retirement have zero savings and another third have less than a years worth of income put away and that is why it is doubly important that every dollar that someone puts away for retirement is protected. Many americans rely on Investment Advisers on guidance on how to save for retirement and most of them have the savers best interest at heart but not all advisers put their customers interest first and that is creating a hole creating 17 billion a year in Retirement Savings, money into an Investment Advisers pocket instead of the pocket trying to save for retirement. Thankfully that hole may soon be plugged with new rules that require brokers and advisers to put customers interests first so i have two quick questions about this secretary perez. So as i understand it, several studies, and many of them, most americans dont realize that the Investment Advisers arent required to put the clients interest first. They think if they go to someone that advises them they interest their interest will be put first. So explain why it is okay today to steer clients into things that line the advisers pockets rather than Retirement Savings. We have folked that operate under the fiduciary model, we go to a certified financial planner. They are required to put your financial interest first. He said keep your thrift savings plan. I cant do any better. That is an example of putting our even though he wont make money off. Even though he didnt make a dime. But i referred a number of clients to him because he will my best interest let me stop you right there. I get the suitability standard. What i dont get is how do it turn out to be legal . What went wrong. Why is that legal, mr. Secretary . Well it shouldnt be and that is why were trying to change it. Because i think the suitability standard is when was the last time we updated these laws . We havent updated the laws in in earnest in 40 years. So weve got a problem with outdated laws, loopholes in the laws and thats how we end up with two different standards. Again. We didnt think about iras and 401 k s back in 75. We were in the defined benefit world. This stuff just didnt matter because people had a guaranteed pension. So youve proposed some common sense rules to try to close the loopholes to try to update the laws. Just to make sure that all advisers are putting the customers interests first but lobbyers for the biggest Financial Companies and Investment Advisers are fighting this proposal tooth and nail. So help me out, mr. Secretary. What is it they are so worried about . Well little let them speak for themselves. I guess ill say two points. Number one, ive been heartened by the remarkably constructive conversations ive had with so many industry stakeholders. And as i said in my testimony, there has been an undeniable shift toward a recognition of the need for the best interest start ard. And then folks out there since the beginning, merrill lynch, b of a and some of us coming to us wanting to get to yes. And those in a different place, they tell me they would like to think they put their clients best interest first now and my response is there is good news for you. This will be easy to comply with, if you are, in fact, putting your customers best interest first. I think it is something that can be done. I hear from so many folks who are playing in this space day in and day out, we need a level Playing Field. Because supreme go to their advisers and some are dual hatted, depending on the transaction, sometimes they are the fiduciary and it is already confusing to begin with and that is stunningly confusing and we need one standard and it ought to be and i love the one standard and the best interest test but i assume there are a lot of people making a lot of money, that 17 billion is going somewhere and not staying with the retirees and this looks like a nobrainer to me, hard working americans who managed to pull money together for retirement should be able to trust that their retirement advisers are looking out for them and besides that the thousands of hard working advisers and owners who already put clients first every day shouldnt have to compete against those unethical advisers who dont. I understand why were in this fight. I understand there are people making money from keeping the game rigged but we dont work for them. Time to level the Playing Field. Thank you mr. Secretary, mr. Chairman. In the interest of the four panelists that will introduce mr. Casey who will be brief within his five minutes and well have time to hear from everybody. Senator cassidy. Good afternoon. Good to see you. I dont pretend to understand this as you do. So let me channel that of which people have ask me of. A fella came and said listen i have a complaint, hes pretty well off. I go into his office, help him with his Financial Planning and you said do you mind speaking to my employees and give them general advice about how to handle their money. And he said i do it as a favor to my client, but i think under the rule i would have each of the employees sign a contract before i would be able to give them the advice im giving them. Is that true or not . I dont know. Im asking. I dont think that is true for the following reason if you are sitting there telling workers what is your risk, here is what you need to think about, workers, to have a healthy retirement, what is your risk tolerant threshold, what you are married what is your wife or husband risk tolerance. Let me i think you got to the number. You dont think so or you know not. Well you need to give me more facts. I say this not to be ped antic. Because unless he has clarity from d. O. L. , he wont have clarity in terms of how he conducts himself, would he say, okay, i want you to sit here and im going to say this is what you should do with this money. If you are younger put it in this and older put it in that. First figure out all of your risk threshold and thank you, good to see you all and is that something they need to sign a contract for. General advice, not pick this product or that product, but go into mutual funds or index funds, that is advice in education or Asset Allocation so that wont cross the line. Sounds great. And im told the United Kingdom put this back in 2013 and banks stopped offering advice to those with less than 80 k in assets. It may be that the answer to senator warren is this worked for the lower moderate income people, and moderate assets, so just comment on that again. Just your thoughts on that. And it is not true. And let me give you the facts. After the u. K. Put in place the regulation, and by the way their regulation bans commissions. We dont ban commissions. There were advisers dropped 310,000 clients and 820,000 new clients came into the market. So there was a net delta increase after the regulation of over half a million. Investors with low balance accounts continued to be served because you were concerned about that, and here is the most interesting thing about the u. K. And i travelled there to meet with them because i heard that feedback a lot. The most interesting thing that happened in the u. K. , senator, is more and more people now are now getting into lower cost funds because the problem with our system in the u. S. Is it incentivized equity when frequency is what is called for and it incentivized complexity because that generates more fees just like the annuity i described. So the u. K. Annuity experience, i welcome inquiry because there is a fair amount of in correct information surrounding it. Okay. And d. O. L. Is estimated the cost of the rule be between 2. 4 and 5. 7 billion over the next ten years and a study by deloitte said over 10 years it could exceed 15 billion. Any thoughts on that discrepancy . I think our cost benefit analysis is quite strong. We estimate the benefit over the next ten years to be 40 billion. In an 11 trillion market, the cost of conflicted advice, when you have a 50,000 loss for the tofuls and 11 trillion market, it adds up fast and these are folks that cannot afford to lose this. And the benefit im hearing from employees like one of the next panelists has been that Market Forces are working to the advantage of small investors. So i hope youll talk to some of the folks who are already fiduciaries, senator, and doing great work. I yield back. Thank you. Now one of our members is grossly late but hes my dear friend and his staff has been doing me a good job of convincing me he only has two minutes worth of questions. Is that true . I am fully convinced. We have four other people to testify before 4 00. Recognize mr. Whitehouse. And mr. Secretary, you can answer to. And ive heard from companies who are major providers of services to investors who are totally on board with the notion they should have the responsibility of meeting the fiduciary standard but are concerned that around the edges things like the way in which they communicate with vast numbers of customers, that might be effected by this, probably in ways that none of us would intent. And i just want to make sure that you will be attentive to try to make sure there is not too much regulatory sprawl into areas outside of what we all expect which is to keep them putting the interest of the client first. Absolutely. And we had that conversation earlier and we certainly had a number of very constructive meetings with firms who have addressed concerns, i think similar to that. And it certainly wasnt our in tent. And the question we ask is show us in the proposal where you think that concern arises and then show us give us some potential solutions for that so that we can contemplate how to make sure that were getting to the right place. Very good. Thank you very much. And im well within my two minutes, mr. Chairman. Let the record reflect that Sheldon Whitehouse was brief. [ laughter ] you dont have to make it sound like that is a novelty. It was refreshing. Mr. Chairman, thank you for your courtesy as always. It is a pleasure to be with you. Will our second panelists please come forward. In the interest of time im begin the introduction of the panelists to get straight to their testimony. First, peter schneider, the president of prim erika which is a georgia based company. And thank you for being here today peter. Peter is a leader in Financial Services providing middle income market place and offering Retirement Savings and options to millions of americans. Mr. Snyder became president and Vice President for prim erika. We welcome you with being here tote. And we also have scott pure its. Is that correct. Correct. He is from rebalance riera in bethesda, maryland. A retirement expert having been referenced by the new york times, forbes and cbs and has a masters from harvard, university. Welcome and thank you for being here. At this time i would like to turn it over to Ranking Member franken and introduce miller and mr. Littonen. It is my presence to introduce darlene miller. Mostly sunny miller is the president and ceo of perm yak industries in minnesota, a Manufacturing Company that provides precision small part machines to other industries. Permac was the Small Business of the year in 2008 and in 2010 miss miller was named by the byrnesville chamber of commerce as the business person of the year. Ive had the good fortune of meeting miss miller when we toured byrnesville Senior High School to discuss the importance of stem education. We have also discussed my Community College career fund act which would create publicprivate partnership. Miss miller, thank you for being with us today and to discuss how you can best meet the needs of your employees. Thank you, mr. Chairman. Thank you. Well thank you, mr. Chairman. It is my privilege to introduce bob litan, economist and attorney and native kansasan. He has become involved in the Economics Community and brings a balanced perspective and has been in the private, public and government sectors. His lists on Advisory Boards reads like a selection of highly acomplished people rather than one man. From the Bookings Institution and counsel to a law firm based in st. Louis and chicago and chief chick adviser at patent properties, i thank you for taking the time to come before this committee today to provide a view point that unfortunately seems to be lost, if not solely ignored in this conversation. We look forward to hearing your testimony. We hope that you can offer us some solutions on how we can maintain access for middle and lower income families and businesses in regards to Financial Guidance and Retirement Planning. Thank you, sir. I hope all of the panelists will limit testimony to five minutes and after that eloquent introduction, mr. Lectonin, you should be first. Thank you for that kind introduction. Turn your mic on. Throw the little switch there. Where is it . So im thanking everybody again for their kind introductions and so forth, okay. Senator roberts, i dont want you to choke on these words but im a lifelong democrat and a former Clinton Administration official. But very proud to be have kansas. Well that doesnt bother me one damn bit. Okay. [ laughter ] but i say that because i come from a background where i was in the administration where we cared deeply about the kind of goals that the department is pursuing in this proposal. But i want to respectfully disagree with the way the proposals has been outlined and im going to make three quick points. Number one, the correctly estimated benefits of labors proposed rule do not outweigh the costs. Because the labor gives no credit or assigns no value to human Investment Advice. Namely encouraging clients to avoid trying to time the market. One of the worst decisions a longterm investor can make. And also helping clients rebalance their portfolios over time. When these factors are taking into account, my colleague and i come to the conclusion rather than generated 4 billion in annual benefits you for investor it would produce net harm of 1 billion to 3 billion annually depending on how many brokers are induced by the proposal to no longer serve the ira, mutual fund market. During a future downturn dr. Singer and i estimate and we show this in our comments we submitted to d. O. L. Yesterday, that by causing current accounts to be uneconomic to serve the rule could cost investors 80 billion, double the ten year estimates claimed by d. O. L. I should also mention this connection that the 17 billion number that has been thrown about by the cea estimate is flaws and based on a flawed reading of the economic studies and we show this in our report. In fact, not even labor counts on the 17 billion. They only use a 4 billion figure and even that figure we point out is incorrect. All right. That is important to keep in mind. Now word about robo advice because i know it is coming up. With all due respect to robo advice which i think is an important addition to the market, i think we have to be careful about drawing too much of a conclusion from online or text messaging. While robo advisors can help advisers can help, an email or text message during a market route is not an adequate substitute for a human being on the other end of a telephone reminding investors of the clear evidence that it pays to stay put if you are a longterm investor which by definition Retirement Savers are. Number two, if you lose your broker, the only other source of human advice you are likely to go to is somebody providing advice on the basis of a rat fee, which is a percentage of your account. Now we show in our report that for investors to choose that option, they end up paying por than they do under the current regime. This is for the small investors. And i want to underscore something about small investors. Secretary perez started his testimony about talking about a 650,000 account. That is not a small saver account. There are millions of people here, and i think senator warren pointed this out, there are tons of people that have account balances of 10,000 or 20,000 and that is all they got and for those people brokerage is a less expensive form of human advice than a rat fee. That is a fundamental fact. Third, my last point. The notion that all retirement Investment Advisers should be held to a best interest of client standard is not controversial. So lets just stipulate that as far as im concerned. Lets not argument argue about that. It is the way we enforce it. By classaction litigation or a body we have established to oversee the brokerage industry which is finra. And to cut to the chase, for the d. O. L. , they ought to go back to the drawing board and go to finra and they have said the rules are workable and the brokers are going to leave the market, the same conclusion that hal and i reach. They ought to go back to finra and figure out a way to administer a best interest rule that you, finra, can enforce and by the way if the problem is insufficient disclosure about who is getting paid and how they are getting paid, there is a simple solution. Better disclosure. Put a great big bold warning on the front of the document that says who is getting paid and how much. And the only basis and then ill conclude mr. Chairman, the only basis for rejecting that was one study that the department of labor cited based on Experimental Evidence not on real world market evidence. And if i were in the government and i proposed to my superior or secretary or whoever it is that we ought to upend an industry on one study on Experimental Evidence i would be told to go back to my office and find another job,al right. So there is no basis in my opinion, at least, at a minimum not trying better disclosure before we go ahead with this massive undertaking and i think that concludes my testimony. Thank you very much. Mr. Chairman, Ranking Member franklin and members of the subcommittee, i appreciate being home run today. The department of labor of proposed rule is enormous consequence to the middle class families we serve every day and in each of your states. Please allow me to tell you about prim erika. We were founded 40 years ago on a Central Mission that middle income families require someone to help them focus on their financial needs. That was true then, and it is just as true today. And we feel like at prim erika weve made some headway. We ensure 4 million lives with our term life insurance. This year well pay 1. 2 billion in death benefits to families. Those checks, which we deliver every day and will deliver multiple checks today, keep a personal tragedy from becoming a financial one. Weve helped our clients save almost 50 billion in our investment accounts. Most of our accounts are very small by industry standards but they are hugely important to the families who open them. Investment choices with us are very simple. An appropriate for our market. We do no individual stocks, we do no options, we do not commodities, mainly mutual funds and annuities. You cant buy google from us but you can buy 700 mutual funds from Top Companies like invesco and legg mason. Our Household Income is between 30,000 and 100,000 a year. There is usually two parents working in those homes and frankly all too often the homes are headed by a single mother. We strongly believe in Retirement Savings and our clients have opened 1. 2 million iras with us. You can start one with prim erika for as little as 50 a month. Pry mayor kau and even that amount is hard to find in the families that live find in the families that live paycheck to paycheck. What we sometimes say is, they have too much month at the end of the money. We provide facetoface help with licensed representatives who live and work in the communities. These representatives begin with education. They teach the fundamentals of how money works. Dollar cost averaging, time in the market, emergency cash accounts, that is all important. And oliver winemans study just released found that advised individuals accumulate 38 more assets than the nonadvised, they are 114 more. Our clients benefit from their presence in their financial lives. A comment letter was submitted by shelly rosen, one of our reps, 15 years ago she sat down with a Railroad Worker and his wife, they had a lot of debt and no savings and they were very generous, so generous that he ran up debt on credit cards buying gifts for their friends. We helped teach them other ways to be generous. Today they are debtfree and financially independent. The department of labor rule will stop shelly rosen from helping folks like that railroad engineer. The proposal subjects our client interactions to the prohibited transaction rules in arissa and the irs code which make the brokerage model chosen by 98 of accounts under 25,000 illegal. The department tried to write an exemption in the best contract exemption but it is so complex and so onerous and so costly, it is unworkable. They attempted to make it principalbased but instead introduced uncertainty, which makes the exemption unusable in a world of arissa where there is strict liability. No firm we know of in tends tte use it. That makes this rule more punishing than the one that was withdrawn in 2011. Prior testimony to the department of labor suggested these robo advisers will fill the gap and help the millions stranded by the rule. We disagree. Our Company Believes in bi biorhythms, not algorithms. They need a person not a personal commuter to navigate a financial landscape that is unfamiliar to them. Without a helping hand they worry about a mistake and they wont hit the send button. In the households we serve, there is a struggle going on. It is not between investment a. , b. Or c. , it is a fight between savings and spending. A fight to put an extra 50 away. We all agree we must act in a clients best interest, but inadequate Retirement Savings is the overriding issue facing the middle class and this rule is another obstacle. Dont doubt the d. O. L. S good intentions but it is such an important issue that Everyone Needs to be involved and we look forward to working with everyone and were glad the senate is involved with this issue. Thank you very much for listening to me. Thank you, mr. Schneider. It opened in 1966 and i purchased it in 1993 and 94 and started with seven employees, and we now have almost 30, and were looking to expand. In order to expand, my company must be able to compete with much Larger Companies for talented employees, and in one way we were able to do so is by Employment Benefits including a Retirement Savings plan and as the owner of a business i am using outside professionals to help me with business functions. For example, i use a cpa to assist me with tax issues and attorneys to assist me with legal issues and a Financial Adviser to help me with my Retirement Savings plan. In 1999, there was a plan implemented. At that point i worked to determine how to continue to provide Retirement Benefits for my employees. We decided the 401 k plan was the best option for my company. We have a 96 enrollment rate in our plan, and almost all our employees participate in that plan and there is only one close to retirement that does not purchase that or a couple part time are not quite eligible. Under the 401 k plan, employees receive a matching contribution equal to 100 of their first 3 they contribute and then 50 of the next 2 of contributions. Also, and just as important, they provide substantial benefits to employees. My employs are like family to me and i want to be able to help them, especially with retirement and i want to attract new employees. 82 of our association say that they also need to be able to provide this benefit to their perspective new employees. I am very concerned the proposed rule will impact our ability to do so. Last week the chamber submitted a letter to the department of labor enumerating many ways in which the proposed rule is unworkable and in my testimony i want to highlight three issues that will have a negative impact in Small Business plans. First, the discrimination against Small Businesses, and under the proposal there is the advisers that are selling or marketing materials, however that does not apply to advisers to Small Businesses. Small Business Owners such as myself need additional protection. When i work with my Financial Adviser i am aware he is providing a service and selling a product and i would not be able to run a successful business when i am not able to tell when i am involved in a business discussion. This information allows them to make informed Investment Decisions and many of my employees would not be able to invest and might be discouraged in investing in the plan at all if my company did not provide the benefit, and third the increase of the costs to services to Small Businesses and possibly eliminate access. There is no question whether advisers to Small Business plans are able to use the exemption sorry, and even assuming that there are, that they are, theres certain to be costs associated with the changes. Thank you for the opportunity to testify before you today, and i look forward to any questions you might have. Thank you, mrs. Miller. I want to apologize. Senator roberts and i both have annet an ethics committee, so i will turn over the rest of the committee to the acting chairman, senator franken. Unprecedented. Good grief. Mr. Acting chairman, i dont know what to say. You again . May i help you . Lets just go right to mr. Pierce. Thank you for this opportunity to provide the conflict of interests rules. I am scott pure kwreuts, the cofou cofounder and we serve about approximately 500 clients. Rebalance ira is a new national advisement firm that provides expert Investment Advisers, real human beings with low costs portfolios for Everyday Americans. We provide retirement Investment Advice without commissions and conflicts. This makes it very easy to embrace it. The balance irs is a proud tend of trends that seeks to provide a fundamentally better set of retirement investment options. A group of innovators include new firms such as my own, and well front and personal capital and also includes established industry players such as vanguard and schwaab. This trend is about three years old and was met with considerable success in the marketplace, and tens of thousands of clients have switched over. This group of investment innovators is growing fast and manages over 15 billion of assets. Imagine what would happen if there was a level Playing Field. Imagine. These investment innovators have three common features, first the technology to make the process more efficient, and second we harness new Business Models and then deploy new investment vehicles, and the results are considerable. Lower costs, pure Asset Allocation, superior transparency and finally we are building profitable Business Models. The clients seek our help because they needed a viadvice how to manage their investments and savings. Were in the marketplace every day dealing with Everyday Americans as they struggle to find the best way to manage their investment savings. If you will, we see how the sausage is made, and frequently its not a pretty sight. Over 30 of our clients come to us directly from having a sub relationship with another firm, and we refer to them as brokerage refugees. The story we see is all too familiar. A client at a Brokerage Firm is stunned to know the adviser does not have a tpau tkaorb air kwry responsibility. The brokerage refugees average a certain amount of fees, and it may not sound like a lot of money but that extra fee burden can eat away at over half of the consumers nest egg, over half. When we take them on as clients of our firm we immediately reduce the Fee Structure by an average of 68 and in addition we put in place a comprehensive Retirement Plan and provide retirement investment portfolios and finally we pair all of our clients with highly qualified twoperson, real heartbeats, investive teams. For all consumers to reap the full benefit of this truly extraordinary surge of innovati innovation, there needs to be three things, Greater Transparency and costs and alignment of economic interests. We believe that a regulatory Playing Field will dramatically accelerate the retooling Financial Services industry and provide Everyday Americans with a fund fundamentally better way to plan for their future. This is what the department of labors rule can do, and americans struggling to save for a dignified retirement should no longer be subjected to the conflicts of interests that drain their retirements and if the Brokerage Firms refuse to serve modest savers, so be it, so be it. Other firms that embrace the client first i would ask you to wrap up. All americans at all income levels can plan for a retirement. Since i will be here until the end, i will go to senator warren so she can ask her questions. Its perfectly legal for advisers to give advice by selling lousy products to their clients and according to the data not paid for by the industry this bad advise costs americans about 17 billion a year. The department of labor proposed a rule that would put a stop to the Retirement Savings drain and would require all Investment Advisers to put their customers first. You are the ceo of primerica and you testified the department of labors rule is these are your words, complex and burdensome and one thing critical to your success is you always operate in your clients best interest, so i was interested to read a new report this morning that lawsuits brought against advisers in florida. According to the article, at least 238 firefighters, teachers and other career Public Workers who were near retirement age accused your company of providing bad advise that drained their Retirement Savings, and you did it by advising them to move their Retirement Savings out of the guaranteed government pension into riskier private investments. Now priamerica was poised to make a lot of money but only if you could convince florida firefighters who were near retirement age to cash out their guaranteed pensioned. I want to understand your companys advice in these cases. Do you think people like these firefighters in florida who are near retirement and have secure pensioned with guaranteed Monthly Payments should move their money into riskier assets with no guarantees just before they retire . First of all, senator warren, i appreciate the promotion. I am the president of the company and not the ceo. Oh, okay. I am familiar with the matter in which you speak and it doesnt have any application to the rule before the committee because in that case none of the individuals were clients of primerica. Lets stop right there. The article did not say the workers were your retirement clients, it says you gave them bad advise. Here is the quote. Once these workers retired and moved out of their government plans primerica agents stood to profit by managing theiring a their assets. My question is not how you were paid. My question is whether you think it is sound Investment Advice to encourage Public Employees to move their money out of their pensions and into riskier assets with no guarantees just before they retire . Senator, in that particular matter, first of all, regulators looked at that and found the firm acted properly in the case the question about the regulators is the question about is it legal to do that . Thats the problem do that . And thats exactly the problem weve got. It is legal to do that. And i think thats what the regulators say. Its legal. My question, once again, is about the advice that primerica agents gave. Is it a good idea for firefighters on the front edge of retirement to move out of a guaranteed benefit plan that was going to cover them for all their lives and move into a risky investment that would make a lot of fees for your agents . You know, each situation is really very different. If you were in a defined benefit plan and youre sick, what happens is in the state of florida, for example, were you to retire and then die two or three weeks later, you would no ability to leave your money to your loved ones. So its very im sorry, are you suggesting that these 238 people were weeks away from dying and thats why they all got this advice . Well, senator, this the courts dismissed those cases and, frankly, this illustrates one of the problems because its not illegal activity. I think weve established that, mr. Snyder, that no one broke the law. The question is whether the law should be changed. It illustrates one of the issues with the rule because were here to talk about the rule. One problem with the rule is, as everyone in the Financial Services industry knows, especially after the financial crisis, you can be sued, sometimes appropriately, but also sometimes frivolously. And under the best interest contract exemption, youve entered into a contract with the client, and they can sue you and you can lose the benefit of the exemption. So you not just i understand, mr. Snyder, that you dont want to be sued. I totally get that. But the question i keep trying to ask is whether its generally a good idea for workers like firefighters and teachers on the eve of their retirement to move their money from guaranteed defined benefit plans into riskier assets. Let me ask you that question, mr. Puritz. Youre the managing director of rebalance i. R. A. You have a large investment firm. Would you advise 50yearold, 60yearold clients to cash out of a defined benefit pension plan and move money into an i. R. A. Managed by your company . As a general rule, the answer is no. Okay. So youd say no. Why not . In a traditional pension, a defined benefit plan, there is safety and predictability. My answer would be different if it was a defined contribution plan. Thats not what we have here. We have a defined benefit plan that guarantees that these people are going to be covered for their entire lives. Is that right . So theres a lot of research around this, i understand. Are there circumstances in which it is a good idea for someone right on the threshold of retirement to move from a defined benefit plan that will protect them for the rest of their lives to a much riskier plan . There are circumstances, but theyre very rare. Oh, you so you would describe them as very rare. Im going to say, i took a look at the research on this and wanted to get more some more Expert Opinion on this, and it seems to me the research is pretty clear. Alicia menell from Boston College said, and ill quote her, only those with serious illnesses who believe they do not have much time left should even consider cashing out a defined benefit pension, and even that isnt obvious because, as she puts it, even sick people may live longer than they think. So mr. Puritz, let me ask you one more question. Do you think it is and i want to use the correct quote here complex and burdensome to offer advice that is in the best interests of the client as primerica claims . [ inaudible ]. I didnt think so. So, frankly, the suggestion that its too expensive to provide people with sound Financial Advice is ridiculous. Millions of Financial Advisers do it every day. Hard working americans like the florida firefighters and teachers who devoted their careers to protecting the public and who were targeted by primerica shouldnt have to worry about whether their Financial Advisers are planning to get rich by playing roulette with their customers Retirement Savings. I am glad the department of labor is working to fix this problem. Thank you, mr. Chairman. Thank you, senator. Mr. Puritz, in both your spoken testimony and your written testimony, you refer to something called a brokerage refugee. I think that someone who fled a brokerage and had a bad experience, i guess, right . Okay. It was mentioned in your written testimony, a married 37yearold mother of three who was paying excessive fees, was recommended by a broker she inherited from her family. How do the services you provide and the fees you charge under your duty as a fiduciary differ from those that this woman experienced with her inherited broker . What does that mean for Retirement Investors nest egg . Or their ability to retire after, say, 30 years of working and saving. [ inaudible ]. She literally means raising the microphone to your lips or to your mouth not to your lips, but how is that . You can turn the light on. Push the button. Thank you. There you go. There we go. Senator, thank you. Thats an excellent question and really gets to the heart of this matter from an economic point of view, from a return point of view. And the example that we cited with a client, were talking about an extra fee burden. Charlie ellis, who is a member of our investment committee, has a phrase. He says the dirtiest word in finance is only. Only 1 . We think of 1 as whats the big deal . We paid 15 for tips, 20 if youre generous. 1 seems inconsequential. But in the scenario that we run into consistently with clients who come from brokerage relationships, that extra fee burden is 2. 37 . And if you trend line that out over 30 years, thats additional or thats what theyre paying . Thats what theyre paying per year. Okay. I got it. In the current environment with plenty of lower comfort alternatives, its really unnecessary fee burden. And is that compounded . Fees compound, just like return. Exactly. And over time, the give you an example. If someone had 100,000 and they were in an allgrowth stock, which historically is returned, our magic number is 7. 2 a year. Is that number, in a tax deferred account, that account would double every ten years. So in the 30year time frame, 100,000 would become 800,000. A considerable wealth creation. By contrast, if you reduce that down to 5 , which is really the fee delta that we see in the marketplace, that 100,000 only grows to 400 this 400,000, or amount of money. Its a doubling of the return. Okay. So how are you able to provide your service at such a lower my computations, 32 of 2. 37 is about 0. 75 . Thats correct. How do you do that . We use technology to make everything we do more productive. We use exclusively low cost etf index funds. Is that what was called disparaging low robo . Robo is a phrase for a new generation of Investment Advisers who use technology. Now, there are some advisers who are 100 computerized and thats where the term robo comes from. And they are theres some very successful ones including wellfront, that is the market leader. And theyre targeting millennials and people in their 20s and 30s who are familiar with working. Theyre familiar with computers. Their retirement is a relatively small part of their overall live. Their whole career is ahead of them. By contrast, theres other firms such as personal capital and my own firm rebalance i. R. A. Where we have similar investment philosophies and similar use of technology, but we have real life Investment Advisers who deal extensively with clients and match them with the right Asset Allocation, low cost underlying portfolios and sdis discipline rebalancing. Well, i did that answer your question . I have a lot of questions, but well submit them for the record and we will keep this open. I didnt come here thinking i would adjourn this, so when i say well keep it open for a certain period of time, and i imagine is that ten days, anybody . Ten business days. I was right. I was in the majority at one point. So, i thank you all for your testimony, and this hearing is adjourned. The july jobs numbers were released this morning. U. S. Employers added 215,000 jobs in july. The unemploy rate holding at 5. 3 for a second straight month. The Associated Press reports that monthly job growth has averaged 211,286 so far this year, indicating employers are confident that the sixyear recovery from the Great Recession can sustain strong consumer demand and require more workers. That from the ap. You can find a link to the latest jobs report on cspan. Org. Today at 4 00 eastern, a hearing on wildfire management from the energy and Natural Resources committee. They examine the impacts on communities prone to wildfires. Thomas tidwell, the chief of the u. S. Forest service testified. Thats on cspan. Tonight at 8 00, a discussion on urban riots. Zocalo Public Square organized the panel which includes remarks from authors and history professors robin d. G. Kelly and max herman. Heres a preview. One of the Big Questions behind this whole panel is do the urban riots, do they cause change to make a difference . I was just reminded two of things. When Michael Brown was killed, it wasnt his death that actually pushed gaza off the 24hour news cycle. It was the rebellion that took place afterwards. Thats what got cnn to cover it. In baltimore, people have been beat by police consistently but it wasnt until people came out in the streets in ways that was considered urban rebellion of riots, that attention was paid to freddie gray. And same thing with cincinnati. Those riots that erupted in 2001 after Timothy Thomas killer was let off, led to significant changes, even shortterm changes, but changes in policing and kind of community agreement. You can watch that program on race riots tonight at 8 00 p. M. Eastern on our companion network cspan. This weekend on the cspan networks, politics, books and American History. Saturday night at 8 00 eastern on cspan, congressional profiles with four freshmen members. Pennsylvania democrat brend an boyle, Louisiana Republican ralph abraham, michigan democrat Brenda Lawrence and new Jersey Republican tom macarthur. Sunday night at 9 00 with elections coming in october, a debate among the four National Party leaders in canada. On cspan2, saturday night at 10 00 eastern on book tvs afterwards, Charles Murray argues that through the use of technology we can rein in the power of the federal government. And sunday evening at 7 00, susan souther talks about the city and people of nagasaki japan from the morning it was bombed on august 9th, 1945, to today. This weekend on American History tv on cspan3, we commemorate the 70th anniversary of the bombings of hiroshima and nagasaki, japan, and the end of the war in the pacific. Our programming starts saturday morning at 10 00 with a conversation with president trumans grandson. And well visit the atomic bombing exhibit. And sunday morning at 10 00, our coverage continues with the 2000 documentary on the making of the atomic bomb. And later interviews with two bomb survivors. Get our complete schedule at cspan. Org. Theodore roosevelt becomes president after the assassination of william mckinney. Edith roosevelt renovates the entire second floor of the executive mansion. Thus the creation of a west wing. By adding a social secretary, she creates the office of the first lady and changed the name from executive mansion to the white house. Edith roosevelt this sunday on first ladies, influence and image. Examining the public and private lives of the women who filled the role of first lady from Martha Washington to michelle obama. Sundays at 8 00 p. M. Eastern on American History tv on cspan3. In iran news today, the hill writes that current and former white house officials are pouncing on senator Chuck Schumer of new york after his opposition to the nuclear deal with iran was made public, implying it may be an obstacle to his serving as the next Senate Democratic leader. John kerry said friday he, quote, profoundly disagrees with the decision from schumer and the facts dont back up their arguments. Schumer is likely to become the next Senate Democratic leader says it does not effectively cut off irans path to a Nuclear Weapon because it does not provide for any time, anywhere inspections. Theres a risk iran could use billions in sanctions relief to pursue its nefarious goals. Undersecretary of state Wendy Sherman testified before the Senate Banking committee telling members that she understands lawmakers concerns over not seeing the iaea Agreement Regarding the iran nuclear deal. But stressed she will brief everyone on its contents in a classified session. Heres that hearing from wednesday. Its 3 1 2 hours. Committee will come to order. We have a very important hearing today, and we have a lot of attendants. Ill start the hearing off by recognizing my colleague and friend senator corker because he has hes tied up on similar stuff himself. Senator corker . I just want to ask the first question. Oh, you want to go ahead and ask it now . You want to wait . Okay. If that satisfies you, that satisfies me. Much has changed since the Committee Held its hearing on iran and marked up an economic sanctions bill drafted by senators kirk and menendez. Since then, theres been a Nuclear Agreement with iran after numerous delays. Many serious concerns have been raised regarding this deal, including first and foremost whether it would actually prevent iran from continuing on its dangerous path to a Nuclear Weapon. Although a new deal has been reached, fundamental problems remain with iran, the country upon whose assurances the deal rests. Iran remains the worlds leading state sponsor of terrorism. It remains a serious risk to the National Security interests of the United States. It remains a constant threat to the survival of israel. And despite these grave concerns, it will remain a country with the capability to enrich uranium. Under these circumstances, i believe its critical that congress conduct a thorough review of the agreement as required by the iran Nuclear Agreement review act. As part of this review, the Banking Committee will focus specifically on analyzing the sanctions relief provided in the Nuclear Agreement and the implications of taking such actions. Theres general agreement that the pressure of sanctions brought iran to the negotiating table. Congress must consider carefully now the repercussions of lifting those sanctions on our National Security and our economic interests. In recent weeks, many of my colleagues on both sides of the aisle have expressed skepticism over several aspects of the agreement. For example, the relief provided to iran under this deal would allow us to rejoin the international allow it to rejoin the International Economic system. Over time this would give iran the financial means to increase its support of terrorism and regional destabilization. In addition, the mechanism for reimposing the harshest sanctions should iran not comply with parts of the deal may prove ineffective except in the most extreme cases of violation. Many view it as irans license to cheat. As long as such cheating falls just short of a significant violation of the agreement. Financial sanctions have become a critical tool of u. S. Foreign policy, and theyre an important part of this committees jurisdiction. In fact, over initial administration objections, this committee was instrumental in imposing the sanctions that brought iran to negotiations in the first place. I believe its essential for u. S. Sanctions law and policy to continue to evolve to meet any new security challenges presented by iran. Today the committee will hear from two panels. On our first panel, well hear from the administrations lead negotiator of the agreement and its lead sanctions expert. Following this, the committee will receive testimony from a panel of experts who have studied the agreement extensively, including officials from the previous administration. Senator brown . Thank you, mr. Chairman. Thank you for being here and for your very important public service. From our witness, we will hear from the second panel, four witnesses who worked in the Bush Administration and terrorist finance and middle east policy. In fact, this whole process began in the Bush Administration with a republican president who was in the wake of the iraq war willing to engage iran diplomatically. As secretary kerry observed and senator corker and senator menendezs committee the other day, the Bush Administration laid the foundation for what became the iran agreement. Sanctions relief in return for strict limits on Irans Nuclear program. In june 2008, president bushs National Security adviser Condoleezza Rice signed a memorandum with the p5 1 which said in return for iran doing key things to limit its Nuclear Program, the United States was ready to do a number of things. One, to recognize irans right to Nuclear Energy for peaceful purposes. Two, treat Irans Nuclear program like any other nonNuclear Weapons state party to the npt and the peaceful nature of its program could be restored. Three, provide technical and Financial Aid for peaceful Nuclear Energy. And fourth, to work with iran on confidencebuilding measures to begin to normalize trade and economic relations that allow for Civil Aviation cooperation. That was Condoleezza Rices agreement at the time. This should sound familiar because it was the early outline of the iran agreement just completed. Thats partly why ive been so disappointed, so disappointed in the politicized nature of the debate on this agreement so far, including from colleagues coming out in opposition to the agreement within hours of its release. Even though its over 100 pages long and very dense and complicated to read. This is one of the most significant National Security issues congress will face in a generation. I say that the most important this will be the second or first most important vote ive ever cast in foreign policy. Second perhaps only or even more important than my vote against the iraq war a decade plus ago. This should not be subject to partisan attacks and political ad wars, even though it has been. Congress should give this agreement the serious debate it deserves. We know iran is a sponsor of terrorism. We know it destabilizes the region. We know it violates the human rights of its people. Thats why western policymakers agreed to separate out and try to secure agreement on this one specific issue. They knew an iran with a Nuclear Weapon would be especially dangerous to us, to israel, and to the region. That was the singular goal of p5 1 negotiations to keep iran from getting a Nuclear Weapon. Since iran has deceived the west, verification is a key. Its not a question of trust. Of course, we must understand how verification will work. Theres a number of questions why iaea has sufficient resources to conduct inspections, not just at declared sites, but at suspicious covert sites. Will our intelligence capabilities be able to detect cheating . Will irans breakout time extended from two to three months to a year for the next ten years, will we have time to respond politically, economically, and if necessary, militarily if iran makes a break for a weapon . And finally, what actually happens if Congress Rejects the deal . How would we maintain effective enforcement of our sanctions without the support of our p5 1 allies whose ambassadors made clear to a large group of us yesterday that we would be isolated. What happens if a country like china walks away and starts establishing banks with no correspondent relationships in the u. S. And starts buying iranian oil again. What would a rejection in congress do to the credibility of the United States in the eyes of the rest of the world . We need answers to these questions and other questions. Some well hear today. Others weve been receiving in classified sessions. Over the years, ive joined many of my colleagues in supporting round after round of tough unilateral and International Sanctions which clearly brought iran to the table and helped secure this agreement. Some predicted the jpoa would unravel the sanctions regime. It has not. Others worried iran would not comply or would benefit unduly from sanctions relief. That has not happened. We have an unusually grave and historic responsibility to assess the consequences without partisan rank or without any partisan attacks to assess the consequences of this agreement. Then to weigh the risks, weigh the benefits of allowing the president and our allies to test irans ability to comply with it. While some of us might differ on tactics, its clear we share the same goals to ensure that iran does not achieve a Nuclear Weapon. To do that diplomatically, if possible, and to recognize that other alternatives remain on the table and are not precluded by this agreement. Thank you, mr. Chairman. Thank you, senator brown. On our first panel, we will hear first from the honorable Wendy Sherman. Shes the undersecretary for Political Affairs at the u. S. Department of state. Next we will hear from mr. Adam szubin. Hes currently the acting undersecretary of the treasury for terrorism and financial crimes. Both written testimonies will be made part of the hearing record today. Ambassador sherman, you proceed as you wish. Good morning. Chairman shelby, Ranking Member brown, and members of the committee, thank you very much for this opportunity to discuss the joint comprehensive plan of action that the United States and our International Partners recently concluded with iran. To reserve as much time as possible for questions, ill only highlight a few key points. By blocking each of irans potential pathways to the fissile material required for a bomb, the deal approved in vienna ensures Irans Nuclear program will be peaceful over the long term. Under the deals provisions, iran must remove twothirds of its installed centrifuges for ten years, reduce its stockpile of enriched uranium by 98 for 15 years, and cap uranium enrichment at 3. 67 , far below the danger point for 15 years. The core of irans heavy water reactor at iraq will be removed and rendered unusable, and the facility rebuilt so that it cannot produce weapons grade plutonium. Meanwhile, spent fuel from the reactor will be shipped out of the country. I emphasize, as both the chairman and the Ranking Member did, this deal is based on verification, not trust. Before obtaining any relief from economic sanctions, iran must meet its major nuclearrelated commitments. International inspectors will have unprecedented access to irans declared Nuclear Facilities and its entire Nuclear Supply chain. From uranium production to centrifuge manufacturing and operation, and if there are suspicious undeclared sites, no sites, no sites will be off limits. If iran fails to meet its responsibilities, we can ensure that sanctions snap back into place, and no country can stop that from happening. If iran tries to break out of the deal altogether, the world will have more time, a year, compared to the two months prior to the negotiation, to respond before iran could possibly have enough fissile material for a bomb. At that point, all the potential options that we have today would remain on the table. But we would also have the moral authority and International Support that comes from having exhausted all peaceful alternatives. This is also a longterm deal. Some provisions will be in effect for 10 years, some for 15, some for 25, and some indefinitely. Under the Nuclear Nonproliferation treaty, iran is permanently prohibited from pursuing a Nuclear Weapon. The access and verification provisions associated with the npt will remain in place forever. Enhanced by the Additional Protocol as a result of the joint comprehensive plan of action. The bottom line is that this deal does exactly what it was intended to do when we began formal negotiations nearly two years ago. At that point, we faced an iran that was enriching uranium up to 20 at a facility built in secret and buried in a mountain and was rapidly stockpiling enriched uranium, had installed over 19,000 centrifuges, and was building a heavy water reactor that could produce weapons grade plutonium at a rate of one to two bombs per year. The plan agreed to will shrink those numbers dramatically, ensure facilities can only be used for peaceful purposes, and put the entire program under a microscope. Some have expressed concerns about what might happen 15 years from now, but without this agreement, as secretary kerry and moniz have said, year 15 would begin today. And if the United States walks away from the jcpoa, which has been negotiated every step of the way with our International Partners, we will be left alone. That would be the worst of all worlds. Iran could push ahead with its Nuclear Program in whatever direction it chooses. Everything we have tried to prevent could occur. We would not have enhanced transparency required under the jcpoa to scrutinize every element of Irans Nuclear program, and the multilateral sanctions regime, which the president and Congress Worked so hard to put in place led by this committee, would begin rapidly to unravel along with the Senate Foreign relations committee, of course. As for irans behavior, the United States is under no illusions. This agreement was never based on the expectation that it would transform the Iranian Regime or cause tehran to cease contributing to sectarian violence and terrorism in the middle east. Thats why weve made clear that we will continue our unprecedented levels of Security Cooperation with israel. As secretary kerry confirmed earlier this week in qatar, we will work closely with the gulf states to build their capacity to defend themselves and to push back against iranian influence that destabilizes the region. Well continue to take actions to prevent terrorist groups, including hamas and hezbollah, from acquiring weapons. Well keep in place all of our own sanctions related to human rights, terrorism, wmd, and Ballistic Missiles, and well continue to insist on the release of u. S. Citizens unjustly detained in iran and for information about the whereabouts of Robert Levinson so everyone comes home. Im almost done, mr. Chairman. We all know the middle east today is undergoing severe stress due to violent extremism kwhjed governance and sectarian and political rivalries. But every one of those problems would be even worse if iran were allowed to have a Nuclear Weapon. Thats why the agreement reached in vienna is so important. None of us can accept a Nuclear Armed iran. Some have said if we double down on sanctions, we could force iran to dismantle its Nuclear Program, but quite frankly, ladies and gentlemen, members, that is a fantasy. The whole purpose of sanctions was to get iran to the bargaining table and to create incentives for precisely the kind of good agreement we were able to achieve in vienna. Over 90 countries have issued public statements in support of the deal. That list includes all of the countries that were involved in these negotiations. Every one of these countries has made tough choices to keep the International Sanctions regime in place. We need their support for implementation. Its important to remember that we tried for many years to get here, as was pointed out. We worked on this on a bipartisan basis. President obama and this committee pushed for stronger multilateral sanctions and unilateral sanctions to keep the door open to negotiations. Those sanctions forced iran to pay a high price but were not enough to make them change course. That required this diplomatic initiative. Congress played a Critical Role in getting us to this point. Sanctions achieved their goal by bringing about serious productive negotiations. Now congress has a chance to affirm a deal that will make our country and our allies safer, a deal that will keep Irans Nuclear program under intense scrutiny, a deal that will ensure the International Community remains united in demanding that Irans Nuclear activities must be wholly peaceful. It is a good deal for america, a good deal for israel, a good deal for the world, and i say to you all respectively, it deserves your support. Thank you. Mr. Szubin . Thank you, chairman shelby, Ranking Member brown, and distinguished members of the committee. Thank you for inviting me this morning to appear before you to discuss the nuclear deal with iran. Its a pleasure to appear alongside ambassador sherman. The global sanctions Coalition Built and led by the United States across administrations and with broad bipartisan support in congress, including from this committee, gave us the leverage to secure unprecedented Nuclear Concessions from iran. From the start, our purpose in imposing these sanctions was to build the leverage that could be used to obtain concessions on the nuclear file. Our secondary sanctions were meant to be the quid for the nuclear quo. Our three goals were to close off irans path to a Nuclear Weapon, ensure we had the access to know if they were cheating, and preserve the leverage to hold them to their commitments and to punish them if there was a breach. The jcpoa obtains these purposes. On the sanctions side of the deal, i would like to touch briefly on four points that have been much debated. The scope of relief, the snapback provisions, the campaign that is ongoing to combat irans support to terrorism, the qods force, and finally our remaining leverage in the event that the United States walks away from this deal. First, we should be clear in describing what sanctions relief will and will not mean to iran. If iran completes the nuclear steps in this deal, which will take it at least six to nine months, the United States will lift our nuclearrelated secondary sanctions. The primary u. S. Sanctions, our embargo, will still be in place with respect to iran and still be enforced aggressively. Iran will be denied access to the worlds most important market and unable to deal in the worlds most important currency. Our sanctions list, with respect to iran, will remain very extensive. We are not relieving sanctions against irans revolutionary guard corps, the irgc, or the qods force, or any of their subsidiaries or senior officials. In fact, under this deal, more than 225 individuals and companies linked to iran will remain designated, including major Iranian Companies and their financial, engineering, and transportation sectors. Theres been much discussion of the Iranian Foreign reserves that are to be released from foreign restricted accounts under the deal. If iran fulfills its nuclear commitments, iran will receive about 50 billion, not two or three times that much. The rest of whats been inaccessible will remain inaccessible. And with that about 50 billion, iran will need to try to address an economic hole that is half a trillion dollars deep. This was president rouhanis central promise to the iranian people when he ran for office, and he now needs to meet that promise. On snapback, if iran does not uphold its end of the bargain, wongs weve suspended sanctions we can promptly snap back sanctions. Our eu colleagues are prepared to do the same. For u. S. Sanctions, this can be done rapidly in a matter of days. And we have the discretion to impose everything from smaller penalties to the powerful oil and financial restrictions. A binary on or off snapback would not serve us well. Wed retain maximum flexibility and leverage here. If the sanctions snap back, theres no grandfather clause. No provision in the deal gives signed contract special status. Once snapback occurs, any new prospective transactions are sanctionable. Third, as we neutralize the most acute threat posed by iran, its Nuclear Program, we need to be aggressive in countering the array of irans other maligned activities. This deal in no way limits our ability to do so. Weve made that clear both to iran and to our partners. This means we will sustain and intensify our use of sanctions against irans backing for terror groups like hezbollah. Well be using our authorities to counter irans interventions in yemen and syria. Irans efforts to oppress those who are standing up for human rights in iran. And well be using our sanctions to block irans attempts to develop their missile program. Under the interim deal, while negotiations were ongoing, we took action against more than a hundred iranianlinked targets. Well be accelerating that work in the days and months ahead alongside israel and our regional allies to combat irans proxies, to interdict funds moving through its illicit networks. Ill personally be focused intensively on these efforts. Fourth and finally, let me provide my perspective as a sanctions official on the implications of walking away from this deal. The sanctions regime generated much of its force because the worlds major powers, including irans closest trading partners and oil customers, agreed on the goal of ending Irans Nuclear threat through diplomacy. It would be a mistake for the United States to back away from this International Consensus on the notion that we could feasibly, unilaterally escalate the pressure and obtain a broader capitulation from iran. U. S. Sanctions are extremely powerful. Ive seen that first hand in my ten years at the treasury department, but theyre not all powerful. If the u. S. Were to walk away and ask our partners to continue locking up irans reserves, limiting their oil purchases, the coalition we assembled would fray with unpredictable and risky results. It is difficult to see how a broken International Consensus and less leverage would help us to obtain a, quote, much better deal. Instead, enforcing this deal, securing the farreaching Nuclear Concessions iran has made will capitalize on our carefully built economic pressure and deny iran access to a terrifying weapons capability for the foreseeable future. And as we move forward, you have my commitment that the dedicated team at treasury will continue to pursue smart and aggressive sanctions to address irans remaining malign activities. Thank you very much. I look forward to answering your questions. Ill yield to senator corker. Thank you, chairman. We have miss romano coming in. Actually, we have four briefings and or hearings today, counting this one. So thank you very much. I want to start by addressing the Ranking Members comments. I couldnt agree more that this should not be a partisan effort. Could not agree more. I met with senator reid on monday just to talk a little bit about how this debate will take place in september. I can say to every one of my colleagues on both sides of the aisle, regardless of how people vote on this, youre not going to hear me making comments either way. I think this is a very important vote. What weve tried to do in the Foreign Relations committee is to make sure that people fully understand the ramifications. So i could not agree more. I do want to say that one of the details you left out in your letter regarding the bush agreement was they were not going to agree to enrichment. Thats a detail thats kind of been left out. And i think thats the rubicon that has been passed here, that we, in essence, are we have three state sponsors of terror that we list. Sudan, syria, and iran. What this is agreement in essence does is codifies with our approval the industrialization of their Nuclear Program. Thats a fact. Thats not been debated. I want to say that i think senator donnelly, senator heitkamp, senator warner, senator schumer, senator menendez all know that i have been very open to supporting an agreement. I had one of the few conversations ive ever had with secretary kerry. I think we all know him well. I actually thought he was listening to what i was saying on a saturday. It was interesting. I was standing in my driveway, and i emphasized the importance of these last pieces. Im talking about the inspections. Im talking about the previous military dimensions. I know its possible military dimensions. We all know theyre involved militarily. And how important that was not just from the standpoint of what it said but the indication to us that we were really going to apply these things, that we were really going to be tough and make this agreement stand. When i got the documents and ive been through all of them extensively i have to say my temperature rose very heavily. Then when i saw that we were lifting the conventional ban in five years, the missile ban in eight years, and on the front end, lifting the missile test ban. And on top of what these agreements said, i was very troubled. I want to get the sanctions relief, first of all, in perspective. I know you said, adam, 50. Most people have been saying 56. Overall its about 100. Some of that money is tied up in deposits for activities that are going to be taking place. But in fairness, its about 100 billion. Just to put that in perspective, their economy is 406 billion. So 100 billion would be like us getting in the next nine months 4 trillion. Just relative to our economy. Over the next theyve all said over the next ten years theyre going to get 400 to 600 billion. That would be like us getting 17. 5 trillion in our coffers over the next ten years on a relative basis. But heres the question i have. I was very discouraged with the final round, and i think maybe i showed a little temperature when i went through it and understood it. I apologize for that. I worked with senator cardin, i began with senator menendez over an excruciating period of time to make sure that the way this agreement worked, we got the documents. We got them in a way that was acceptable. He spent all weekend with you, the white house, and others on this iran review act. If we were to get all agreements, including the Side Agreements, now the very entity that were counting on to do the inspection, we cant even get a copy of the Side Agreement that lays out how were going to deal with parchin. If you havent been down to the intel area, you ought to see what iran is doing today while were sitting here in parchin. You should go look at it or get them to bring it to you. We cant even see the agreement that relates to how were going to deal with pmd. By the way, all sanctions relief occurs regardless of what they do with pmd. All they have to do, the iaea has to write a report. But if they dminus it or aplus it, they tell us everything, sanctions relief still occurs. So i would just ask miss sherman, after this painstaking effort we went through to make sure we didnt ask you to give us documents you couldnt give us, you knew what the iaea protocols were. Why now will you not give us the documents that exist that are so important to all of us relative to the integrity of this . Why not . Thank you very much. And thank you, mr. Chairman, for all of your hard work along with first senator menendez, then senator cardin on this deal and all your attention to it. Let me answer your question, but then i want to come back to one other point you made. Youre about to have the director general come and meet informally with the Senate Foreign relations committee. He made this decision on his own because the iaea is an independent agency. You made a bipartisan invitation to him, and he agreed to come. And i found out about it about the same time you found out about it. He did this on his own. I think it will be very useful. But why cant we im going to explain. We dont have the documents in the first instance. We dont have them. So we dont have them to give to you. The reason we dont have them is because they are safeguards confidential. The director general will explain this to you and what that means. The iaea does safeguards confidential protocols with the United States, and they dont share them with anyone else. So they dont want to share irans with anyone else. You, im sure, will say to me, but ambassador sherman, they did tell you about them. Indeed, they did. And the reason they did is it was in the middle of the negotiation, and they wanted to go over with some of our experts the technical details. So i did see the provisional documents. I didnt see the final documents. I saw the provisional documents, as did my experts. As you know, there will be a classified allsenate briefing this afternoon. I will go over in detail, in a classified setting, everything i know about these arrangements. So again, i want to say we spent four days going over every detail with the administration to make sure that the documents we were asking for were ones that could be delivered. And you got every single document we have. Every single one. The entity that we are depending upon for the integrity of this deal, we dont even have the agreement. Let me ask you this. Do you have any understanding as to whether there are limitations, whether the iaea actually is going to have physical access inside parchin to take samples themselves . Would you give that i will be glad to discuss all of this in a classified session this afternoon. And i will say this also, senator. On two other points you made, what iran must do is give to the iaea all of the actions and all of the access they believe is required for them to write their final report on the possible military dimensions of irans program. The United States has already made its own judgment about that. We made it in a National Intelligence estimate that was made public some years ago, and that estimate said publicly that we believe they did have military dimensions of their program up until 2003. So the United States has already made its judgment, and we stand by that judgment. What this deal is most focused on is where the program is and where its headed, and i quite agree, getting access to parchin is important because it says something about access in the future. Establishing the credibility of the iaea is also important to this. So im very glad that the director general is coming to see you. I would add one other point, mr. Chairman. That is that sanctions are absolutely crucial to having brought iran to the table, but sanctions never stopped irans program. When the Obama Administration began, there were about 5,000 centrifuges. Sanctions were the most extensive ever during the Obama Administration, and yet iran went to 19,200 centrifuges. So sanctions will not stop their program ever. It is negotiations or other options that will do that. I would just say in closing, and i didnt want to take this much time. I would just say to every senator here, this is a big decision. But wendy and secretary kerry, every other country, including iran, knew that because we drafted this iran review act, regardless of what is being said, we were going to have the opportunity to weigh in. We were going to have the opportunity to weigh in. So when people say its this versus that, especially on these issues that we have been so concerned about, and when we saw they were just punted on, negotiated away, issues that we with great sincerity talked with the administration about, and yet they were just punted on. I think each of us has to make our own decision based on whether we think this is going to keep iran from getting a Nuclear Weapon,. Regardless of where we feel with the International Community. I hope at some point on this grandfathering issue, and ill stop. We sent out a document to help everybody. It was nine pages long. We asked the administration for red lines. Ive got resources with staff and others to go through this agreement. Its a huge privilege to do that. So i sent out a cliff notes to everybody. There was one question about whether the gold rush that were all concerned about is going to occur. That is people going into iran immediately to sign contracts. We use the word grandfathered contracts. You used some interesting words. I guess the question i have, and its still unanswered and by the way, our friends in britain and germany and france and the eu have all told me that contracts are grandfathered. Now, they backed off a little bit. Theres some confusion around that. By the way, i want to say there is confusion. I think iran views it the way we had it in this document. But if someone spent a billion dollars when these sanctions are left lets say bp on an oil facility and sanctions snapped back by the way, yall realize in nine months iran has the nuclear snapback, meaning it shifts to them. All of the sudden if we put any sanctions in place, the agreement clearly states they can walk away. They have all their sanctions relieved, but they can walk away. So they have whats called a nuclear snapback. We have sanctions snapback. I guess the question is, if somebody enters into a contract over the next year when these sanctions are relieved, everyone expects them to be relieved in nine months, regardless of what the pmd report says, can that contract continue on . In other words, it was put in place during the free time. Can it continue on if sanctions are put in place afterwards . Thats a gray area. I think its a detail, but i think it does and i realize its not the biggest issue, but it does create concerns about people rushing in now to establish contracts, which we see happening right now with europe. Senator, i dont think thats an unimportant issue. I wouldnt describe that as a detail at all. I think thats pretty central. If youre talking about snapback and the leverage that we have, if companies could enter into contracts and then have them be somehow protected against snapback, then we would have a very weak snapback indeed. We were intent that we were not going to let that happen. So what we have, and its not gray, its very clear. Iran might want to put some grayness into the issue, but they understand this issue as well. Obviously, when sanctions are lifted, the business thats allowed by that lifting can occur. If sanctions are snapped back, any perspective transactions on a preexisting contract or on a new contract are sanctionable. Its that clear. Our friends in the uk understand that. France and germany understand that. If theres any doubt, i want to remove it here today. Could you get a letter from the other parties that agree to that . That would be helpful to us. If you could get the other parties, even including china and russia, to agree that thats the case because were getting very mixed i think it would just help us to some degree. At least some people who may still be on the bubble about the issue. If i may just add, i think, senator corker, i spoke with sir peter westmacott, the uk ambassador to the United States, this morning. I know hes talked to many of you. He shared with me an email that i believe he sent to your office about this. He said, i want to clarify the e3 position on our ability to apply sanctions to iran for other activities and for snapback, and said that, in fact, he is committed and europe is committed to snapback. And if the eu retains the freedom and ability to apply sanctions for other forms of unacceptable activity. He also said to me on the phone this morning that he absolutely understands, all europeans understand, and helga schmid, the deputy of the European Unions high representative office, just had a meeting with all the services of the European Union to affirm this very fact you questioned, which is indeed that companies have no grandfather clause whatsoever. Senator corker, thank you. Senator brown . Thanks, chairman. Its important. I appreciate his seriousness and gravitas about this issue and thoroughness that we have sanctions snapback, the iranians have, as he said, nuclear snapback. The military option, obviously, is always on the table. Its a political agreement that any party can obviously pull out of, just to make that clear. I want to and again, i appreciate senator corkers comments. I dont know that the analogy of what these first of all, the discussion on 50 versus 100plus, and i want to get to that with mr. Szubin in a moment. I dont know that analogizing that to the size of our economy is a very compelling really gets us anywhere. That aside, i want to talk about sanctions relief since this is the jurisdiction of this committee, the primary area of jurisdiction. I know you imposed, secretary sherman, a pay for Performance Model on iran in the agreement. Id like you to discuss generally the steps that iran will have to go through before receiving any new sanctions relief under the agreement on implementation day. If you would walk through that with us. Sure. Iran has to uninstall twothirds of its centrifuge. It has to get its stockpile down 98 from 12,000 tons to 12,000 kilograms to 300. It must take the core of the iraq reactor out and fill it with concrete so that it is rendered unusable. It must set up with the iaea all of the verification processes. The iaea will have access to the declared facilities, natanz, cordo and iraq on a 24 7 basis. There will also be Realtime Data transmission. There will also be electronic seals so, in fact, if something is tampered with, the iaea will know about it in realtime. Theyll put in place whats called a surveillance of centrifuge production, which means that rotors and bellows, which are the active parts of a centrifuge, the iaea will have eyes on that production. That will be for 20 years. For 25 years the iaea will have eyes on uranium from the time it comes out of the ground until its milled from its mining until its milling, conversion, fed into gas, so they will not be able to divert one ounce of uranium, one portion of uranium. Well always know where it goes. So iran in essence would have to create an entire new supply chain covertly in order to get to a Nuclear Weapon. In addition to all of these measures, which have to be put in place, iran has to have taken all of the steps the iaea requires on pmd. Thats supposed to happen, actually, by october 15th, which is around adoption day as opposed to implementation day. So even sooner. All of these things have to take place, and all of these are detailed in annex five of the agreement, before there is any sanctions relief whatsoever. At that point, all sanctions relief is a lifting. It is not a termination. Termination comes many years later or when the iaea reaches whats called the broader conclusions. The broader conclusions means that they have no undeclared facilities and indeed they can certify their program is completely peaceful. Mr. Szubin, if you would describe what sanctions remain in place that will help us manage, combat, eliminate, as much as possible, nefarious iranian activities and terrorism in the region. Within that answer, if you would talk about the 50 billion figure, why its 50 and not 100 in terms of obligations. And second, if you would speak to the 500 billion you said half a trillion, 500 billion i think you used the term hole in the iranian economy, what that means in terms of pressure on their government. I assume youre implying to meet some domestic needs as some of this money is available to the iranians. Y absolutely, senator. The sanctions regime that remains in place to combat irans malign activities and i take your question to mean not just referring to terrorist be referring to not just terrorist groups like hezbollah but the houthis, their ongoing support to shia militants in iraq, the assad regime in syria. That sanctions regime fully remains in place, and its a very extensive one. So its not just the companies the Front Companies and the actors and the generals that weve listed so far. But its an ongoing authority that we have, that the europeans maintain, and that many of our allies maintain to go appear thuz ags tobz. 6 after these actors. If i could interrupt, youre confident that our allies stay with us on those sanctions, unlike the suggestions we hear from ambassadors and others that particularly china and russia wont be there with the broader, deeper sanctions that are in place now overall . One does need to distinguish. When it comes to irans regional activities, theres a coalition of countries that are highly concerned that are working alongside us. Increasingly, were seeing a lot of cooperation from the gulf countries, who for understandable reasons are increasingly troubled by irans activities. I would note, and i think it deserves highlighting, you saw saudi arabia sanction a number of hezbollah leaders just a few months back, and in doing so called out hezbollah as a terrorist organization. The concern is very high. But our concerns about hezbollah, i dont want to mislead the committee, are not shared worldwide. Weve not been able to obtain u. N. Security Council Resolutions with respect to irans proxies in lebanon. And i dont think well see china and russia stepping up in the way that weve seen our allies in europe, in israel, and the gulf with respect to a lot of these regional interventions. Secretary sherman, the singular goal, as weve discussed, of the p5 1 negotiations was to make sure that iran did not obtain a Nuclear Weapon. Many of the opponents to this agreement have talked about the dollars that have been available that will be available because of the lifting of sanctions. And what discord and terror that iran can sew in the region. Speak to the broader strategy outside of Nuclear Issues in the middle east and sort of where this money goes and what the administrations doing to combat that. Thank you very much, senator. Indeed, we share the concerns that this committee has and the senate has and our country has about irans activities in the region. Not only will we have all the sanctions tools that acting undersecretary szubin laid out, but as you know, president obama has provided more Security Assistance to israel than any other president , to be fair. Every president , democrat or republican, has built on the efforts of the previous president. So each president has increased that assistance, but this president , most assistance. This president has also commissioned technology that allows us to take actions if we need to in iran in a way that no president has before and to ensure that we have the options that we need commissioned and deployed those options. In addition, as you know, the president had all of the gcc, the Gulf Cooperation Council to a meeting at camp david to talk about how to develop security for the region and a regional strategy. Thats been followed up with a meeting that secretary kerry just had in doha, in which, by the way, the gcc supported the joint plan of action, believing that if its fully implemented it will bring more security to the region because iran will not be able to project power, will not be able to have a Nuclear Weapon that acts as a deterrent. But we are focused very much on helping the gcc to better improve its capabilities, whether thats in special forces training, intelligence sharing and really work in coalition. So i think we are all in common cause. This is quite critical, and we will be following up on a daily basis to make sure that these new strategies, these new efforts go forward. And finally, as you know, secretary of defense carter was recently in israel. We are ready whenever the Prime Minister of israel is ready to discuss further enhancements to Security Assistance. My last question im sorry, senator. I had neglected to answer on the 50 billion. The 50 billion, yes. The answer is and we have a high degree of confidence in our figures on this, that its about 50 billion. I can get into more detail on a classified session and i know we have a classified session with you and all members of the senate later this afternoon. Thats important to do. Thank you. The reason that the 100 billion figure has been out there and weve been speaking to it for several years is that theres 100 billion of the central bank of irans foreign reserves that have been inaccessible to it. Some of that has been due to the sanctions, the powerful sanctions that congress put in place. Some of it because its already been obligated for other reasons and some of it because its gone. Its been spent. And so one can list it on the books but its just not there. So, obviously, those latter baskets, the funds that have been spent and arent there, the funds that are obligated and now in place as collateral, cant be recovered. Even when sanctions are lifted. What remains is this about 50 billion that can come back to iran. And with that, one needs to keep the perspective of the about 500 billion or more that iran needs to be able to meet really fundamental needs. In terms of unpaid military pensions and salaries, in terms of needed infrastructure, in terms of their oil sector, which is crippled. A final point that i want to add with respect to how much of that half trillion dollar hole would be required for them to get their oil sector up and producing so they can bring the wealth into the country that the iranians that we all think about and worry about and that they obviously aspire to . Their oil minister has publicly estimated that they require 160 to 200 billion just for the oil sector repairs alone. Thats not to take their oil sector forward to the future. Thats to get it back to baseline, to undo the damage that was done by the sanctions over the last few years. Across the iranian economy at large, we see about a sevenyear lag due to the sanctions, meaning upon sanctions relief, lets say in the middle of next year, the Major Economic sanctions abroad are relieved. It will be seven years before iran comes back to where they ought to be today. If they if they invested the 160 to 200 billion, it would take them that long . That wasnt a comment on the oil repairs. The oil repairs might happen in a shorter amount of time, two to three years. Im not certain. Id need to get back to you on that. What im saying is if you look at their gdp curve and where it ought to have been, it had this radical break, obviously due to this International Sanctions effort. And it only gets back in seven years to where it ought to have been today. So the hole that theyre in really cannot be overstated. 50 billion coming back to them does not begin to meet the needs. Whats more, that 50 billion is not spending money. Thats all of their freedup foreign reserves. In other words, no country is going to exhaust its foreign reserves down to zero. Its risking huge instability to do so. So, we estimate that irans going to use that money primarily for its domestic economy and its going to need to leave some in reserve in the way any country would with its foreign reserve. Last question, mr. Chairman. Secretary sherman, many of us have raised concern about the prospects of the u. N. Embargoes in iran and conventional arms being lifted in five years and on Ballistic Missiles in eight years. I know all of us would have preferred to retain these embargoes much, much longer. We know russia and china felt differently. Outline, if you will briefly, since my time has gone over, what specific u. N. Legal authorities remain in place to combat irans conventional arms and missile efforts. Sure. First of all, well still be able to rely on other u. N. Security Council Resolutions against areas of concern in lebanon, libya, north korea, houthi, shia, militants in iraq, et cetera. All of those remain in place. Well continue to work with over 100 countries around the world that have signed the Proliferation Security Initiative to help limit iranian missilerelated imports or expor exports. The Missile Technology control regime also remains in place and will play a Critical Role in that regard. In conjunction, we have a lot of unilateral, bilateral, cooperative tools. We have ongoing sanctions in place, as adam has pointed out. We have executive orders 12938 and 13382 which authorize u. S. Sanctions on foreign persons that materially contribute to the proliferation of missiles capable of delivering weapons, and we will make use of those executive orders. The iran north korea syria proliferation act levies u. S. Sanctions connected to iranian Cruise Missile activities, and the lethal military provision in the foreign assistance act, the iran sanctions act as you all know as amended in the irairaq arms proliferation act, all impose u. S. Sanctions on individuals and entities. I would also say the u. N. Security Council Resolution that was recently passed does not let a rans Ballistic Missile program off the hook. The current prohibitions on supply of Ballistic Missilerelated items, technology and assistance, will remain in place. Under this prohibition, states are still required to present transfers to iran of Ballistic Missile related items. From their territory or by their nationals. Theyre still required to prevent provision to iran of technology, Technical Assistance and other related services. Theyre still required to prevent transfer of other Ballistic Missile items that might pass through their territory. Theyre still required i could go on. There are about ten things that it still continues to require states around the world to do. Quite frankly, would we have liked them to go on forever in the u. N. Security council