wouldn't a level playing field as you said from your testimony, we have concerns about things like there is a -- some data retention obligations and we think you could do it differently. there is a best interest contract framework and we've heard feedback from folks saying it is clunky and there is a more streamlined way to do it. we have a point of sale disclosure requirement and people have said that that is not necessary. and so what we've done in every circumstance when someone said that the best interest contract is clunky, our response is tell us how to do it better. how do we retain that north star of enforceable best interest contract and still get it done and that is the feedback we've been getting and it has been helpful. >> and you've incorporated it. >> we haven't made final decisions yesterday. we won't put out a rule until we've gotten all of the comments. i'm confident if history is a guide the final rule will be materially different than and better than the proposal because you have to be a good listener in this business. we haven't made any decisions and we continue to open it -- with open mind. >> and you are open to suggestions fixes from firms? >> not only open we have affirmatively reached out for it because there are a lot of folks who know a lot about it and we want to get their insighted. >> darlene miler from minnesota and going to be testifying next, in the next panel president of permac industry in byrnesville, and talking about being a small business owner and have a plan on raufly 30 employees and darlene is helping her employees prepare for retirement and setting the right example for other businesses but she has concerns that the proposed rule will jeopardize her ability to provide this important benefit to employees going forward. can you assure us you will work with business owners like darlene to make sure that these rules don't have unintended consequences? >> i welcome the opportunity. i read miss miller's testimony and she's a very successful business owner not to mention a minnesotan and we've spent time with small business owners. small business owners what they tell me most frequently is i'm an expert at making my prod urkt my widget. i have ten or 15 people. i don't have expertise in 401(k)s, but i know i want to offer it because i want to attract the best and the brightest and what we have done in this proposal is include a number of carve-outs for small businesses so that they can continue to do that. and actually what we do to help protect people like miss miller is we're changing the status quo, because the status quo right now and she's had a good experience with her adviser, and others haven't. and when you have a bad experience with your adviser, under the status quo, if litigation ensues the defendant is the business, not the visser, because under the current status quo, the person providing the advice is actually off the hook. i think that is kind of perverse. and i think it doesn't help people like miss miller so i would like to sit down and explain to her the carve-outs that help her and other small business owners as to why the status quo presented challenges for small business owners and we look forward to doing that with her and other small business owners. >> okay. running out of time. but let me end with this. some have said this proposed rule may limit their ability to market their services and products to clients and limit small business employers and employees from access to education and financial advice. how would you briefly respond to that? >> sure. we've sought to clarify the line between education and advice. education is critical. the educated consumer is the best customer. and what we've done here is clarify that, for instance if you want advice on how to apportion your portfolio how much is index fund or -- >> asset allocation. >> that is total education. can you run simulations about different asset allocation models and that is education. those are the critical nuts and bolts of advice. and what we've told people who have said to us, we feel the line between education and advice is either blurred or should be drawn differently, again, our response is how would you do it better and what ideas do you have? and so we've heard feedback to that effect. we attempted to be responsive the first time around and our proposed rule is quite different from the 2010 rule in the education-advice context and we continue to look forward to hearing more advice. >> okay. thank you. >> for the benefit of the panelists who are going to testify, i'm going to be strict on the five minute rule sand i appreciate you holding your answers to a concise answer so we can get to five minutes because we are at a definite hard stop at 4:00 and i don't want to run out of time. >> senator scott. >> thank you. >> good to see you. >> thank you. good to see you too. over the last years s.e.c. has been the regulator of broker-dealers and investment advisers and that is why dodd frank involved them in revisiting the standards of care for security transactions and your department has now stepped and i would suggest overstepped into the area of regulation. last month at a house hearing you used the phrase dramatic and extensive coordination to describe the relationship between d.o.l. and chair wide on rule making and referred to pages and pages of documentation about meetings and calls between d.o.l. staff and chair white's staff. now it is one thing to coordination but that doesn't tell us the whole story. i realize you cannot speak for chair white. she can speak for herself. but based on your private coordination meetings with chair white and the s.e.c., is it your impression there is no daylight between your thinking and their thinking on this issue? >> well i can't speak for chair white on this. what i can certainly say is that the feedback from chair white and the career staff there has been extensive. we've been talking to the housework force committee and given them i think 800 pages of documents showing the extent of the coordination. in short i think the proposed rule is a better proposal as a result of our coordination. i would node we have some overlap. we are the agency that congress hassen charged with enforcing arissa for over 40 years and while we have overlap we have distinct jurisdictional responsibilities and that is why it is in our lane and we've gotten good feedback from them and continue to incorporate it and we continue to have that responsibility. >> and that you guys are on the same page or you can't suggest you are on the same page at this point? >> what i've heard from chair white and she stated this i think a couple of times they shes that -- she thinks that the best interest standard is the right standard for the s.e.c. purposes. the definition of best interest that we used in the proposed rule is taken from the 2011 s.e.c. report that was prepared in the follow-up to the dod frank law and was done because we heard feedback we should try to harmonize to the best extent possible the work between the d.o.l. and the s.e.c. and in fact, the key definition is taken in large measure from that 2011 report. >> on the fee structure that you mentioned on the example that you gave on the person who had $700,000 and had -- what would be an appropriate fee structure for an investment with a proper risk allocation -- asset allocation. >> i wouldn't be able to answer that question because i don't know all of the facts about their risk tolerance threshold and what they told their client. >> i'm sorry. >> pardon. >> so you can't really answer that question. do you have any idea what went into the actual fee structure in the product sold? was it a mutual fund or was it -- >> it was a variable annuity. a complex instrument. >> did it had a lifetime income factored in the fee structure. >> it did. and it was given to a person in his mid to late 70s and who kept copious records. and what i have seen senator. >> did it had a life insurance component. >> i don't know if it did. what variable annuities help guard against the risk and give you more reward and what i've seen in the outreach we have done is that we've had a number of significant challenges in the variable annuity context and this family, $50,000 is what they lost. and i believe the son-in-law came and testified because mr. tofl passed away a few months ago and there was a hearing in one of the committees here and it was a sad story and avoidable i believe. >> and while i believe we do have an opportunity today to discuss the success or failures of a representative that in the most part so many americans will be dependent on social security than on funds because they will have fewer advisers in the market and i find you'll have fewer folks playing at the most important level of access which is the minimum level of access, smash around the $100,000 to $200,000 accounts and i think you'll have more folks making investment decisions on the internet where they can have help there. but too many people make their opinion on expertise but on who they hope is a good decision. >> and i disagree and there is a witness on the next panel who is doing a lot of work -- >> happy to continue the discussion. >> senator murray. >> thank you chairman isakson and senator franken for holding this important hearing. thank you to the secretary for coming to testify and our second panel. it seems to me that families have a lot to worry about today and questioning the advice that they get for their retirement account shouldn't have to be one of those things so we should all be concerned that workers are losing money out of their pensions that they were counting on for secure retirement and making sure retirement advisers are working in the best interest of their customers is essential for advisers and brokers and this best interest standard is best for the economy to make sure seniors have access to a secure retirement. so it is absolutely important that we get this rule right and i hope all sides will participate in this process and submit their comments and we make sure that the final rule reflects the important feedback that you have heard and i hope that our debate can really center on how to get the final language of this rule right. i know there has been an enormous amount of work put into this since the original version of 2010 and i've heard some critics say that the new rule is worse than that or we didn't learn from the 2010 version so i wanted to ask you while you were here, can you walk us through some of the changes you've made since the 2010 proposal to make this one better? >> sure. one of the critiques we heard is that there wasn't sufficiently robust economic analysis. there is a much more robust economic analysis. one of the concerns that was echoed was about a provision we had to regulate esops and appraisals and we heard from people that should be removed. that has been removed from the proposed rule. we heard that we need to establish a vehicle to enforce the best interest requirement and so the best interest contract vehicle is that vehicle. it was not there in the 2010 rule. we made a number of changes in response to feedback that we got from people about where the line between education and advice should be. and so that is another example senator. and there are others. but in the interest of time i'll cite those four. and again, what we've said is so give us feedback on how this works for you and how we can effectively implement it and if there are changes we're all ears. >> and senator franken asked you about what you were hearing and you cited a number of things monkey, data enrollment, point of sale discussion and a lot of things and i assume you are remaining open to making appropriate and necessary adjustments to the rule to ensure that both works and workable as you get comments back at the end -- >> absolutely. and again we've gotten great feedback from all stakeholders but we've had probably 50 meetings since the proposed rule came out and i've been impressed by the get to yes attitude and others have said this is the right thing to do and they have questions and concerns about how to do it and given us great feedback. >> and i want to also just ask the current rule was established about 40 years ago. how has retirement market changed? if you could define that for us since then that we should be conscious of -- >> in the ozzie and harriet world of yetteryer, people worked 30 years and at the end of it, they had their pension party and it was a defined benefit plan and now the world is shrinking and it is 20% of the market. you have defined contributions between iras and 401(k) that is $11 trillion market and roughly $2.8 trillion in the d.b. market and in a year from now that disparity will continue to widen. and so people have to own in the modern family universe, they have to own these decisions and that is why a rule established 40 years ago when 401(k) was a rural highway in the midwest and ira was your elderly uncle, told those are part of our lexicon and that is why today's rule -- today's consumer protection framework needs to reflect today's realities. >> thank you. thank you for all of your hard work on this and for your continuing work to make the rule work at the end of the day, i really do appreciate it mr. chairman. i will yield back my time. i know you have a second channel. >> senator baldwin. >> thank you, mr. chairman. >> i was told you weren't ready. are you ready now? senator baldwin. >> thank you, senator, for yielding and i want to thank the chairman and ranking member for convening today's discussion. secretary, you just outlined some of the significant changes in the retirement market place. if you think about the ways in which it has changed since a rissa was passed in 1985 it is quite significant. i worry about what the future looks like for those trying to achieve the american dream, living in the middle class, worked hard their entire life but perhaps in the recession lost work, needed to dip into savings, needed to do so for sending their kids to college all that would have otherwise gone toward retirement in addition to any pension plan they had but isn't available any more. we know that workers are not saving enough for their retirement. we know, as you've 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. you've 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 i'm 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 he's 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 customer's 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 we've seen, and not at northwest mutual but one thing we've 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 i've heard about the trip to the master's. and when that person walks in to give me advice i don't want them looking at me thinking you're the only thing between me and hawaii with my family. that is when you have a misalignment of in sentives and that is what we're 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 don't 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 broker-dealer 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 one-third of americans on the edge of retirement have zero savings and another third have less than a year's 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 customer's interest first and that is creating a hole creating $17 billion a year in retirement savings, money into an investment adviser's 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 don't realize that the investment advisers aren't 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 can't do any better. that is an example of putting our -- >> even though he won't make money off. >> even though he didn't 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 don't get is how do it turn out to be legal? what went wrong. why is that legal mr. secretary? >> well it shouldn't be and that is why we're trying to change it. because i think the suitability standard is -- >> when was the last time we updated these laws? >> we haven't updated the laws in -- in earnest in 40 years. >> so we've got a problem with outdated laws loopholes in the laws and that's how we end up with two different standards. >> again. we didn't think about iras and 401(k)s back in '75. we were in the defined benefit world. this stuff just didn't matter because people had a guaranteed pension. >> so you've 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 i'll say two points. number one, i've been heartened by the remarkably constructive conversations i've 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 no-brainer 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 shouldn't have to compete against those unethical advisers who don't. i understand why we're in this fight. i understand there are people making money from keeping the game rigged but we don't 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 we'll have time to hear from everybody. senator cassidy. >> good afternoon. >> good to see you. >> i don't 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, he's 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 i'm giving them. is that true or not? i don't know. i'm asking. >> i don't 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 don't 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 won't have clarity -- in terms of how he conducts himself, would he say, okay, i want you to sit here and i'm 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 won't cross the line. >> sounds great. and i'm 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 don't 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 morphys 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 i'm 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 you'll 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 he's 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 i've heard from companies who are major providers of services to incestors 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 wasn't 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 we're getting to the right place. >> very good. thank you very much. and i'm well within my two minutes, mr. chairman. >> let the record reflect that sheldon whitehouse was brief. [ laughter ] >> you don't 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 i'm 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 prosignificance small part machines to other industries. permac was smalled 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. i've 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 public-private 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 becomed 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 come plished 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. electonin, you should be first. >> thank you for that kind introduction. >> turn your mic on. throw the little switch there. >> where is it? >> so i'm thanking everybody again for their kind introductions and so forth, okay. senator roberts, i don't want you to choke on these words but i'm a life-long democrat and a former clinton administration official. but very proud to be have kansas. >> well that doesn't 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 i'm 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 long-term investor can make. and also helping clients rebalance their proefls over time. when these fact yois 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 broke rerz 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 vissers can help -- advisers can help an e-mail 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 long-term 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 let's just stipulate that as far as i'm concerned. let's not argument -- argue about that. it is the way we enforce it. by class-action litigation or a body we have established to oversee the brokerage industry which is fi nif ra. 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 i'll 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 sub-committee, i appreciate being home run today. the department of labor of proposed rule is enorm usa 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 we've made some headway. we ensure 4 million lives with our term life insurance. this year we'll 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 ancial one. we've helped our clients save almost $50 billion in our investment accounts. most offous 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 can't 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. and even that amount is hard to 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 face-to-face 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 wineman's study just released found that advised individuals accumulate 38% more assets than the nonvizzed, 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 debt-free 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 principal-based 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 to 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 bio rhythms, 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 won't 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 client's best interest. but inadequate retirement savings is the overriding issue facing the middle class and this rule is another obstacle. don't 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 senate is involved with this issue. thank you very much for listening to me. >> thank you. ms. miller. >> thank you chairman. i thank you ranking member franken and thank you for the kind introduction, and members of the subcommittee and the full committee. i'm here representing myself and my employees and also the chamber of commerce of which i'm a board member and i chair the u.s. chamber small business consult. we hopened in 1966 and i purchased it in 1993 and 1994. we started with seven employees. we now have almost 30 and we're looking to expand. in order to expand, my company must be able to compete with muj larger companies for talented employees. one way we're able to do so is offering employee benefits, including a retirement savings plan. as an owner of a business i am very focused on the details of my core business function and i use outside professionals to help me with supplemental business functions. for example, i use a cpa to assist me with tax issues an attorney to assist me with legal issues and a financial adviser to help me with my retirement savings plan. in 1999, we implemented a star step now known as the star accept ira. the plan was recommended to me by an adviser who i had worked with previously to provide medical benefits for my employees. in several years later my adviser advised me i was in danger of violating the 25 employee limit for the step. so at that point i worked with him to determine how to continue to provide retirement benefits for my employees. we decided the 401(k) plan is the best option for my company, and in 2008, we implemented that plan. we have a 96% enrollment rate in our plan almost all of our employees participate in that plan, of the eligible ones there's only one who is close to retirement who does not participate or couple that are part time or are not quite yet 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 in just as important is we provide substantial investment education to all of our employees. i look forward to continuing to provide competitive benefits. my current employees are like family to me and i want to be able to help them especially with their retirement. just as importantly, i want to be able to attract new employees. 82% of our association pmpa, precision machine products association, say that they also need to be able to provide this benefit to their prospective new employees. i am very concerned that the proposed rule will impact our ability to do so. last week the chamber submitted a comment letter to the department of labor enumerating many ways in which the proposed rule is unworkable. in my testimony, i would like to highlight three issues that will have a particularly negative impact in small business plans. first, the sellers carve out discriminates against small businesses and will decrease access to much needed guidance. under the proposal there's a carve-out for the advisers who raselling or marketing materials. however, that carve-out does not apply to advisers to small businesses. the dol seems to believe that small business owners such as myself are not as sophisticated as large businesses and therefore need additional protection. when i work with my financial adviser, i'm aware that he is providing a service for a fee, and selling a product. i wouldn't be able to run a successful business if i were not able to understand what i'm involved in a sales discussion. second, the changes to the education carve-out will restrict access to investment education for both small business owners and their employees. my employees really truly value the investment education provided to them. specifically, providing investment recommendation in various asset classes. this information allows them to make informed investment decisions. and many of my employees could not afford to pay for this investment education separately and might be discouraged from investing in the plan at all if my company did not provide this benefit. and third, the best interest contract exemption will increase the cost to services to small businesses. and possibly eliminate access. there's some question about whether advisers to small business plans are even able to use the big exemption. even assuming there are, that they are, there is certain to be additional costs associated with the changes. as a business owner who relies on outside professionals to manage my plan any additional cost imposed by the regulation will be passed on to me. in conclusion i'm very concerned that the proposal will not achieve the department's goal of better protecting workers and retirees but will make it harder for small business employers and employees to access the financial advice and increase their retirement services. thank you for the opportunity to testify before you today. and i look forward to any questions you might have. >> thank you ms. miller. before we go on, i want to apologize. senator roberts and i have a committee hearing which volveinvolves nobody on the dies at 4:00. but we have to be here. showing the good natured person i am i'm going to turn over the rest of the hearing to ranking member al franken. >> good grief. unprecedented. >> mr. acting chairman, i don't know what to say. you again. may i help you. >> okay this is a whole jack benny thing. let's just go to mr. perez. >> thank you, chairman ranking member franken, members of the subcommittee for this opportunity to provide our views about the department of labor's proposed conflict of interest rule. i'm the cofounder and manager director of rebalance ira, my firm is a registered investment adviser with approximately $275 million of assets under management and we serve about approximately 500 clients. rebalance ira is a relatively new national investment adviser firm that combined top quality retirement investment advisers, real human beings with low cost, highly diversified retirement portfolios for everyday americans. they include a luminary from princeton, dr. charlie ellis and jay viven who managed ibm's 100 billion dollar corporate pension fund. we embrace a legal standard and always put the interest of our clients front and center. we provide retirement investment advice without commissions and what conflicts. this makes it easy to embrace the standard. rebalance ira is part of a broad trend of firms that seek to provide consumers with a fundamentally better set of retirement investment options. this new generation of firms is offering retirement investment advise to clients at all income levels for very modest fees. a group of innovators include new firms such as my own, rebalance ira, well front and personal cap taw. also includes established industry players such as vanguard and schwab. this trend of retooling the financial service industry is about three years old and has met with considerable success in the marketplace. tens of thousands of clients have switched over. this group of investment innovators is growing very fast and manages over $15 billion of client assets. imagine what would happen if there was a level playing field. imagine. these investment innovators have three common features. first, we harness technology to make the process more efficient. second, we harness new business models and finally we deploy new investment vehicles, typically best proven endowment style investment portfolios of low cost. the results are considerable. lower cost, pure asset allocation allocation, pure investment transparency and finally, we're building profitable successful business models. at rebalance ira, our clients seek our help because they need advise on how to manage their savings and how to better understand the increasingly complex world of products. our clients come from all walks of life nurses, school teachers, farmers lawyers, welders, professors fireman regular americans. we're in the marketplace every day dealing with everyday americans as they struggle to find the best way to manage their retirement investment savings. if you will we see how the sausage is made. and sometimes frequently, it is not a pretty sight. over 30% of our clients come to us directly from having, for lack of a better phrase a suboptimal relationship with a brokerage firm. we sometimes refer to them as brokerage refugees. the story we see over and over again is all too familiar. a client at a brokerage firm who is stunned to find out that their so-called trusted retirement investor adviser does not have a fiduciary responsibility. in addition, to vast majority of these clients are surprised shocked, to discover that there is almost always a second layer of fees at the investment management level which frequently added 1% or more to the fee burden. the brokerage refugees average 2.37% of fees all in per year. now, that may not sound like a lot of money, but for over several decades that extra fee burden can eat away at over half, half of a consumer's retirement nest egg. over half. when rebalance ira takes on the brokerage refugees as clients of our firm we immediately reduce the fee structure by an average of 68%. in addition, we put in place for the clients a comprehensive retirement plan and provide our clients with best endowment style retirement investment portfolios and finally, we pair all our clients with highly qualified, two-person real heartbeat, retirement investment team. american inventiveness and entrepreneureral spirit are alive and well in the financial services industry. but for all consumers to reap the full benefit of this extraordinary, truly extraordinary surge of innovation, there needs to be three things. greater transparency, greater flow of information, particularly regarding cost and a greater alignment of economic interests. we believe that regulatory level playing field will dramatically accelerate the retooling of the financial services industry and provide everyday americans with a fundamentally better way to save for retirement. it's time to hold all financial professionals accountable by consistently requiring them to act in the best interest of their clients and establish a level playing field. this is what the department of labor's rule can do. americans struggling to save for a dignified retirement should no longer be subjected to the conflicts of interest that drain their investments, and if the traditional brokerage firms can't live by a simple standard so be it. other firms who embrace this client first approach -- >> i would ask you to wrap up. >> all americans at all income levels prepare for a secure retirement. thank you. >> thank you. since i'm, i guess the acting chairman now, i will be here until the end, so i'll go to senator warren to ask her your questions. >> thank you mr. acting chairman. as we have discussed it is now perfectly legal for a retirement adviser to give advice that boosts their own income by selling lousy products to their clients. and according to the best available data that are not bayed for by the industry this costs americans about $17 billion a year. the department of labor has proposed a rule to put a stop to this retirement savings drain and require all investment advisers to put their customers first. level playing field. mr. schneider, you're the ceo of primareerica primerica, a large investment advisory firm, and you testified today that the department of labor pfsz rule is, and i think these are your words, complex and burdensome, and you have said that one thing that's quote, critical to your success, is that primerica always operates in its clients' best interest. i was interested to read a news report this morning that outlined lawsuits brought against advisers in florida. according to the article at least 238 firefighters, teachers and other career public workers who are near retirement age, accused your company of providing bad advice that drains their retirement savings. you did it by advising them to move their savings out of a guarantees government pension into riskier private investments. now, primerica 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 pensions. so, i want to understand your company's advice in these cases. do you believe that people like these firefighters from florida who are near retirement and have secure pensions 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'm actually the president of the company, not the ceo. >> okay. >> i'm familiar with the matter of which you speak. it doesn't have any application actually to the rule before the committee because in that particular case, none of those individuals were clients of primerica. >> whoa, whoa. >> they paid us no compensation. but let me go -- >> wait wait. no, no let's stop right there, mr. schneider. the article didn't say they were your retirement clients. it says you gave them bad advice. here exactly is the quote, once these workers retired and moved ult of thar plans, primerica agents stood to profit from managing their retirement assets. had they stayed in the pension program, retirees would have simply collected their monthly payments, leaving nothing for primerica to manage and no commissions for primerica agents to harvest. now, 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. >> so senator, in that particular matter, first of all regulators looked at that. they found the firm acted properly. >> i'm going to stop you right there. the question is not regulators. it's is it legal to do that. that's the problem we have got. it is legal to do that. and i think that's what the regulators say. it's 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? >> each situation is really very different. if you are in a defined benefit plan and you're 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 have no ability to leave your money to your loved ones. >> these 238 people were weeks away from dying and that's why they got this advice? >> senator the courts dismissed those cases. and frankly -- >> illegal activity. i think we have established 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 we're 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 you've entered into a contract with the client, and they can sue you and you can lose the benefit of the exemption. >> i understand, mr. schneider, that you don't want to be sued. i totally get that. but the question i keep trying to ask is whether it's 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 investments. let me ask you that question, mr. perez. the managing director of rebalance ira. you have a large investment management firm. would you advice 50-year-old, 60-year-old clients to cash out of a defined benefit pension plan and move money into an ira managed by your company? >> as a general rule, the answer is no. >> you would say no. why not? >> in a traditional pension, a defined benefit plan there's safety and predictability. my answer would be different if it was a defined contribution plan. >> we have a defined benefit plan that guarantees these people are going to be covered for their entire lives. is that right? so there's 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 from the rest of their lives to a much riskier plan? >> there are circumstances but they're very rare. >> so you would describe them as very rare. well, i must say i took a look at the research on this, and i wanted to get more expert opinion on this. it seems to me the research is pretty clear. alicia minel, the director of the center for retirement research in college has said, and i'll 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 isn't obvious because, as she puts it, even sick people may live longer than they think. so 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 interest of the client? as primerica clients? i didn't think so. so frankly the suggestion that it's 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 were targeted by primerica shouldn't have to worry about whether their financial advisers are going to get rich by playing roulette with their customers' savings. hard working customers shouldn't have to compete with these schemes. i'm glad that the department of labor is working to fix this problem. thank you, mr. chairman. >> thank you senator. mr. purets, in both of your spoken testimony and written thome, you refer to something called a brokerage refugee. i think that is someone who fled a brokerage and had a bad experience, i guess, right? okay. you have mentioned in your written testimony married 37-year-old mother of three who is paying excessive fees on a new mutual fund recommended by a broker she inherited from her family. how do the services your provide and the fees you charge under your duty as a fiduciary differ from those this woman experienced with her inherited broker, by that, her family had been using this broker for years or something. okay. and what does that mean for retirement investors' nest egg or their ability to retire after, say, 30 years of working? she literally means raising the microphone to your mouth. not to your lips. >> thank you. >> there you go. >> senator, thank you. an excellent question. and really gets to the heart of this matter from an economic point of view, from a return point of view. the example that we said of the client we're talking about an extra fee burden. so 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 what's the big deal. we paid 15% for tips 20% if you're generous. 1% seems inconsequential. in the scenario we have run into consistently with clients who come from brokerage relationships, that extra fee burden is 2.37%. and if you treadline that out over 30 years, that's additional or that's what they're paying? >> that's what they're paying per year. >> okay, i got it. >> and in the current environment with plenty of good lower cost alternatives it's really unnecessary fee burden. >> what is that essentially? that's compounded? >> fees compound just like return, exactly. and over time, give you an example, if someone had $100,000, and they were in an all-growth stock which historically its returns are 7.2% a year. at that number, in a tax-deferred account it would double every 15 years. in a 30-year timeframe it would become $800,000 dollars. by contrast if you reduce it to 5%, which is really the fee delta that we see in the marketplace, that $100,000 only grows to $400,000 or half the amount of money. that's what's at stake here. it's a doubling of the return. >> okay so how are you able to provide your service at such a low -- my computations, 32% of 2.37% is about .75%. >> that's correct. >> correct? how do you do that? >> we use technology to make everything we do more productive. we use exclusively low-cost etfs. >> is that what is called disparagingly, i think robow? >> robo is a phrase for new generation of investment advisers who use technology. now, there are some advisers who are 100% computerized. that's where the term robo comes from. there are some very successful ones, including well front, that is the market leader. they're really targeting millennials and people in their 20s and 30s for whom -- >> they're flawith working -- >> they're familiar with computers and their retirement is a relatively small part of their overall life. their whole career is ahead of them. by contrast, there's other firms such as personal capital and my own firm rebalance ira where we have similar investment philosophies and similar use of technology, but we have realized investment advisers who will deal extensively with clients and match them with the right asset allocations low-cost underlying portfolios, very low cost, and discipline rebalancing. which is really an essential risk management and return tool. >> well -- >> does that answer your question? >> i have a lot of questions but i'll submit it for the record. we'll keep it open. i didn't come here thinking i would keepbe adjourning it. we will keep it open for a peer period of time. ten days? i'm right ten business days. i was in the majority at one point. thank you all for your testimony. and this hearing is adjourned. icist will be live thursday when secretary secretary of state jen kerry ernest moniz and jack lew testify on the iran nuclear agreement before the senate foreign relations committee at 10:00 a.m. eastern, 7:00 pacific. >> it's almost as if they were a matter. >> freedom breeds inequality. i'll say it a third time. >> twice now. >> always to the right and almost always in the wrong. >> in terms of anything complicated confuses him. >> filmmakers robert gordon and morgan neville talk about the 1968 debates between william s. buckley and gore vidal over war, politics, god, and sex. >> there's not someone in their ear, very unlike today. you know, today, i believe there's someone saying you know, the numbers are dwindling. talk about, you know hot topics, hot salacious topic number two. you know, whereas then, i don't think that was the norm in tv at the time. and i don't think these guys needed it, as morgan said, these guys didn't need that. >> the method of the moderator, who was really kind of embarrassed by this. he was moderating, but he disappears for sometimes five or more minutes at a time. today, you wouldn't have a moderator not jumping in every 30 seconds. so i think really, everybody at abc just stood back and let the fire burn. >> sunday night at 8:00 eastern and pacific on c-span's q & a. >> democrats on the house energy and commerce committee held a forum on climate change last friday at the u.s. naval academy in annapolis maryland. speakers included superintendent vice admiral walter carter. the forum examined the impact climate change has local coastal communities. this is about 1:45. >> let me first say i'm a congressman frank pallone from new jersey. i'm the ranking member of our house committee on energy and commerce. and we have some members of our committee that are here today joining us as well as one member who joined us from maryland who is not on the committee, but we are the committee that has jurisdiction over the issue of climate change. and we're very appreciative of the fact that the academy was willing to host us today for this field hearing on climate change at the bo water's edge, as we're terming it. first of all i want to thank -- each of them will make an opening statement, but i want to thank congressman john sarbanes to my left who is also a member of the energy and commerce committee and did all or most of the preparation with his staff to bring us here today. and to his left is congressman paul tonko from new york, who is the ranking member of our subcommittee on the environment and the economy. and to his left is congressman chris van hollen, who is not on the subcommittee but is in our house leadership and is from an adjoining congressional district. so that's the four of us that are up here today that are kuth conducting the field hearing. and then, of course, i want to thank vice admiral carter, the superintendent for hosting us here at the academy. i had the opportunity, as i mentioned to you admiral earlier this morning of actually having a wonderful tour by a couple of your staff. i shouldn't admit that after 27 years in congress that i had never been to the academy before, but i couldn't take -- i couldn't miss the opportunity to do the tour today. it was really interesting. thank you for hosting us and making all of the preparations. we also have the mayor of annapolis. of course mr. baker and dr. ekwurzel. i was going to leave it to john to introduce all of you but i wanted to thank you. yesterday the national oceanic and atmospheric administration, noaa, released its report on the state of the climate in 2014. this authoritative report was based on contributions from 430 scientists from 58 countries, using data from around the globe. the noaa report confirmed what we already know, that manmade climate change is real, it's happening now and the evidence for it is indisputable. according to noaa, and i quote, "four independent data sets confirm that 2014 was the warmest year on record and that the warmth was widespread across land areas. further more, 17 of the 18 warmest years on record have occurred in the last 18 years. the noaa report also noted that sea surface temperature were at a record high and global upper ocean heat content was a record high. global sea level was also at a record high. the arctic continued to warm and there was an above-average number of tropical cyclones. so the scientific consensus is clear, record-setting climate change continues unabated. record surface temperatures, record ocean temperatures record sea level rise all happened in 2014. this is no coincidence. it's the direct result of our continued emissions of green house gases. look at the united states noaa noted in the united states almost 40% of the population lives in relatively high population denlsty coastal areas where sea level plays a role in flooding, shore erosion, and houses from storms. in my home state of new jersey, hurricane sandy hit with devastating intensity, causing extensive damage and loss of life. in annapolis, tidal flooding is increasing at an exponential rate and annapolis is preparing for the next extreme storm like sandy. vice admiral carter can tell us about the extensive efforts the united states is undertaking to deal with extreme weather and flooding at its facility here. there are many that argue that the climate change is not happening or it's not caused by human activity. they argue in the face of scientific fact and they speak only on behalf of those who want to continue to profit from inaction. while some may find it economically advantageous to ignore climate change, in fact, the cost of inaction fall upon all of us, and they are enormous. they range from flooding and sea level rise to drought and impacts on food production, to increases in disease and increasing security risks. and equally important, when we ignore climate change we miss valuable opportunities to move forward toward a more economically sustainable future. one in which we are more competitive, more energy independent and more energy secure. we risk losing the lead on new technology and innovative energy solution and risk losing jobs. we need to heed the advice of the scientists of our best thinkers of our mayors and our military advisers and take action now to combat the ongoing threat of climate change. so again, i want to thank all the members for their participation. i look forward to the testimony of all of the witnesses and now i yield to your hometown congressman john sarbanes. >> thank you, congressman pallone. it is great to be here at the naval academy. i want to thank superintendent carter this is a perfect place to bring attention to this issue of climate change and the local communities, what you're doing here to combat the effects of climate change. what is undertaken to address that. i do want, at the outset, want to acknowledge the tragic shooting that happened yesterday in chattanooga. that, i know that you have midshipmen that go on to become part of the officer corps of marine. so this community is probably feeling that loss, particularly acutely today and our thoughts and prayers go out to the families of the victims of that shooting that occurred yesterday. i also want to thank my colleagues for being here, paul tonko who serves on the energy and commerce committee, obviously, congressman pallone very focused, as our whole committee is on this issue of climate change. and chris van hollen who's a ranking member on the budget committee, within the democratic caucus. from that position, understands that addressing issues of climate change is about the values that we infuse in to the budgetary documents that we create in washington. i also want to thank the witnesses, who we will come back in a moment and introduce them. i want to acknowledge there are a lot of people in the audience that care deeply about this people. familiar faces who have worked long and hard. not just on the broader issue of climate change but in particular on the issue of the fortunes of the chesapeake bay, which marylanders hold very dear to our hearts. obviously, there are many that are part of the solution when it comes to the chesapeake bay since it begins up in new york actually. and there are 17 million residents within the chesapeake bay. watershed, 64,000 square miles and we have a special responsibility when it comes to leadership to make sure we are protecting and preserving the chesapeake bay. as was made clear, i think, yet again by the comments of congressman pallone with respect to this recently released noaa report, the consensus from the scientific community is overwhelming that climate change is happening and that human activity is the most significant cause of that. whatever debates we're having, whatever the issue may be, it's all happening inside of this larger reality of what's happening to the planet. and every issue we grapple with, that ought to be the baseline effort that we are undertaking to address climate change. so all of those other things don't become irrelevant over time. we're here in annapolis today, beautiful city of annapolis. we're going to see -- we're going to hear about the local effects of climate change on coastal communities. annapolis is really on the front lines when it comes to that. unfortunately sometimes in washington politics take over this conversation. it's good to be able to get out of washington and out in to the communities that are grappling with this issue where you do find, i think, a real consensus that this is a priority that has to be addressed. we've assembled a very strong panel of leaders on this issue that we're going to hear from today. there's no question, this is the challenge of our generation, addressing climate change. and the american public is as focused on it as our witnesses are and as we are. there's recent polling that shows that 70% of americans favor stronger limits on the amount of carbon that's emitted by power plants, over 80% of americans think the united states should take action to address climate change. so the public understands this. the experts understand this. the scientific community understands it. i think the united states congress needs to catch up with that. for a time there, we thought we were going to be able to put in place a super structure to address carbon emissions with economics being kind of a driver in that. that opportunity was missed. stepping in to the breach has been the environmental protection agency, the clean power plant, other efforts they have undertaken to address carbon emissions are really important, but congress has to get back to the task of being a leader when it comes to addressing this very, very important issue. we're going to hear testimony as well today that the lives, this notion there is a tradeoff between a strong economy and doing the right thing when it comes to the environment and climate change. in fact when you look at the chesapeake bay, the best way we can drive the economic engine of maryland and of this region is to make sure that the bay is healthy. so there's a direct link there. furthermore, if we develop clean power technologies because we're looking ahead to the future and learn how to manufacture and produce those technologies here in the united states, that will generate a tremendous amount of jobs. addressing climate change is a clear priorities. we have a wonderful panel assembled here. again, thank you, superintendent for hosting us and with that i'll yield back my time. >> thank you, congressman sarbanes. next we have congressman paul tonko who is from new york and is the ranking member of our environment and economy subcommittee. >> thank you. good morning, everyone. it is a pleasure to join with you here at this beautiful setting. thank you, superintendant carter, for hosting us thank you, mayor, for welcoming us to this wonderful city. i had a chance to cruise around town, hit the state house and visit the campus here. wonderful, warm feeling, and beautiful, beautiful space. thank you for all the good work that you do at the academy. we're thrilled to be working with you to appoint nominees to the various academies and it's a nice partnership. to all of our witnesses thank you for being here. mayor, we talked about the role that cities play in our resurgence as an economy, and i wish you well in that role and superintendent, again, for the wonderful tradition that is part of the academy and for the great work done to keep us a strong nation. thank you very much. your strengths are valuable. i am proud to represent a state that is part of the watershed community of the chesapeake bay, albeit a slight part but we love being part of that watershed and thank you for the work with that you do through the chesapeake foundation and dr. ekwurzel, thank you for offering your information our way so we can move forward in an academic way. i represent a district that is the confluence of the hudson and mohawk rivers. the capital region of new york, from sar uatoga to albany troy, and west into the erie canal territory. our coastal communities are plenty and they have been impacted by mother nature over the last years in very significant ways. so i think that this work that we're doing here today is very valuable to the outcome of public safety, economic stability and economic growth. certainly an environmental agenda that is positive and strong and reflective of our stewardship with our partnership with the environment. i am an engineer by background. i enjoy these technical assignments. i enjoy working with our rank of energy and commerce colleagues by the way, i'm thrilled to be sitting with three colleagues who absolutely get it. they are really stalwart in their effort to make a difference on behalf of our environment, and that's refreshing. as an engineer, i enjoy the technical assignments of energy and commerce. my rancorship on the subcommittee of environment and the economy and i also sit on science, space, and technology and i am amazed constantly about the kickback when it comes to science. people reject science that ought to be advancing the best policy that embraces science and what science is telling us. if not, listen to mother nature. she may be speaking more forcefully than science itself. we need to move forward with aggressive agenda, based in academics and understands, as representative sarbanes just mentioned stewardship of the environment and growth of the economy do not fight each other. they go hand in hand. and great jobs come about when we understand that partnership. before my days in congress, i served as president and ceo of the new york state energy and development authority. we did all sorts of innovation and invention as it relates to energy and the environment and i learned firsthand that great things were happening and we were growing jobs of the green type that enable us to strengthen the foundation of our economic recovery. i also believe in accepting the notion that 97% of the science community said, look, climate change is real and a human factor is very much a part of that concept. so that we can make fundamental change based on human activity. if we think carbon emission isn't a problem, wait until methane hits us. there are all sorts of efforts coming forward that need to address emissions in our society. the growth in the economy that can come, the impact we can avoid, you know, the orders of prevention are difficult to sell at times. we know that, just as an act of human nature but it is important that we move forward with those preventative measure. why, my district and all of new york, primarily the metro area are hit hard by mother nature with super storm sandy. before that, irene and lee ripped damage in to my district and the nomenclature of 100 year storms and 500-year storms were being embraced every other year. multiple times within a decade. so the nomenclature doesn't even fit. it's outmoded, it's outdated and we see time and time again threats to our waterfronts, erosion of prime farmland, closing of businesses from very small to larger, housing stock wrecked if not totally abandoned. and the most impacting human lives that have been lost because of these storms. so we know there is a way to come back and speak to a sound agenda that grows jobs, protects the environment, and allows us to anchor it -- yoocan i use that word here, mr. superintendent -- anchors it in policy and put together, mr. budgetman, resources that we need. it is my pleasure to be here today and thank you to my fellow colleagues and our panelists and for all for showing your interest in this issue. i will close by saying this, i hit the ice cream shop downtown. i'm not embarrassed to say i had a cone at 10:00 a.m. an i talked to a very young man at the counter, very young man and he said what are you here for and i said we are going to the academy. for what, for discussion on climate change and he said please do something. so maybe that young generation will push us. whatever it takes, let's do it. thank you. >> thank you. let me now yield to congressman chris van hollen who is mentioned as the ranking member of our budget committee and also a member of the house leadership. thank you, chris. >> thank you mr. pallone and that ice cream cone was melting way too fast because of the climate change. let me join my colleagues in thanking you superintendent carter and the witnesses for joining us this morning for this very important discussion. superintendent carter, i want to also, as my colleagues have done, thank you for your stewardship of this great institution that helps train and raise men and women who are serving our country. thank you for that. mr. mayor, thank you for your leadership and look forward to your testimony about this very important issue in the immediate impact climate change is having right here in the city of annapolis. to mr. baker, will baker, thank you for your incredible leadership on protecting the chesapeake bay. we have, as our motto here in maryland and surrounding areas, "save the bay." and mr. baker's head of the chesapeake bay foundation has been leading that effort here for a good long time. so thank you. and dr. ekwurzel, thank you for your great leadership your contributions to the scientific debate but also translating that scientific analysis in to sound public policy. i'm grateful for your efforts. i want to thank the leading democrat on the energy and commerce committee for bringing us here. thank you mr. pallone for your leadership on a lot of issues but very much with respect to climate change. to my good friend john sarbanes, who's been a leader on a lot of issues, but we have worked so closely together on chesapeake bay protection, he's worked very hard to encourage young people to appreciate the great outdoors because the more they can appreciate their surrounding environment, the more they will understand the importance of protecting it. to john, thank you for all of your leadership. and paul, who's helping new yorkers recognize that they are also part of that chesapeake bay watershed. one of the challenges we have had in maryland, frankly is we understand what a precious resource we have here in the bay. but as mr. sarbanes indicated, that bay watershed extends over multiple states, all the way up to new york and the drainage basin, you know, the ratio of land mass to water is huge. that's why it is such a challenge to make sure we continue to protect the bay. i just want to underscore a couple of points that have been raised and then add a couple of observations. look, i wish all members of congress were at the same level of understanding of the challenge and the threat as the american people clearly are. we do continue to have science deniers in the united states congress. people who somehow can stare the evidence in the face and still put their heads in the sand. the good news is that the american public is way ahead of the game because they recognize this is not some distant threat but it's here and now. they see it in the form of these disruptive weather events that are increasing the costs to the american public, to the citizens of the city of annapolis. they recognize that its putting lives at risk, as mr. tonko mentioned. so they are able to see with their own eyes what the scientists are telling us, that the data is indicating. and so we all know the cost of doing nothing are huge. we are going to hear testimony about how the costs are piling up because of lack of action in washington and other places around the world. i'm especially pleased we are here at the naval academy because the u.s. military has really been at the forefront of trying to sprainexplain this challenge and this threat. so for all the people who deny the evidence, i think they should ask the u.s. military who is charged in many ways with protecting this country about this threat, because the military has said that this is a threat multiplier. climate change is a threat multiplier. it takes existing threats and intensifies them around the world and obviously piles on the costs on top of that. rather than do nothing and allow the costs to pile up, we should take action. the president has put forward his climate action plan. and i salute him for doing it but the president would be the first to acknowledge, like all of us in this room, that there are probably better, more efficient ways of addressing climate change. including a legislative route. there have been proposals put forward on the table in the past. i put forward a cap and dividend proposal that i think would take us in the right direction. i'm pleased the union of concerned scientist have been supportive of that as have other organizations but the bottom line is we have to act. it's not just a question of cost avoidance. it's actually also a question of huge economic opportunity, as my colleagues have said. by investing in a clean energy economy, not only do we avoid the costs of the damage from climate change and save lives, we also create huge economic opportunities for the country in the process. so hopefully -- and i'm sure the testimony today will number one highlight the cost we're facing in the here and now and also highlight the opportunities we have as a country if we address the challenge in the right way. so thank you very much. mr. chairman? >> i'm going to turn it back over again to congressman sarbanes to introduce the panel and then we will have each of the panel members make a statement starting with the mayor on the left and then going to the right where with dr. ekwurzel. congressman. >> thank you very much. our first witness today is mayor michael pantelides. he was elected in november of 2013 as most recent mayor of annapolis. the city's first republican mayor since 1997. i mention that because as i indicated earlier, i think when we get outside of washington, where sometimes the politics can be pretty aggressive and out where people live, you find republicans and democrats working together on important issues like the ones we're going to be discussing today. the mayor is an member of the national sailing hall of fame a board member on the visitors bureau, he sits on the legislative committee for the maryland municipal league where we have a leadership position. he has rallied the people of annapolis around this very, very important issue recognizing there threat that tidal flooding in particular are presenting to this city of annapolis, there are episodes every day, even this morning, we had an event close by which i think sort of punctuates what the topic is for today's hearing. admiral carter is a native of rhode island. he graduated from the academy here in 1981. was designated a naval flight officer in '82 and graduated from the navy fighter weapons school, top gun in 1985. he completed air command and staff college course in the armed forces staff college in 2001. he completed the navy's nuclear power program. if i told you all of the various awards and recognitions that he's received, we wouldn't be able to hold the hearing today. needless to say, he's excelled in everything he has attempted. i will mention this -- admiral carter flew 125 combat missions in support of missions in bosnia, kosovo, kuwait, and iraq and accumulated 6,115 flight hours in f-4 f-14, and f-18 aircraft during his career and safely completed 2016 carrier arrested landings which is the record among all active and retired u.s. naval aviation designators. so that's quite an achievement. [ applause ] we look forward to your testimony today. will baker is a man on a mission. he began his career at the chesapeake bay foundation as an intern. obviously decided at that point in time he was going to take this operation over which he did. becoming president in 1982, leading now the largest nonprofit conservation organization dedicated solely to preserving and protecting and restoring the chesapeake. i want to thank him in particular for his efforts to help us spread the word on how we connect young people to the environment, promote environmental literacy across the country, and helped immensely in building a coalition behind the no child left inside act which i have been proud to author during my time in congress. we are blessed that will made the protection and preservation of the chisesapeake bay his life's work, because it's made a tremendous difference. i will say the chesapeake bay foundation has received many, many awards but that includes the nation's highest environmental honor, the 1992 presidential medal for environmental excellence in recognition of its environmental education program. but that in many ways is a recognition of will baker and but that was a recognition of will baker and his commitment to these issues for so many years and we're looking forward to his testimony about the effects on the eco-system of the chesapeake bay, of climate change. our last witness dr. brenda ekwurzel is a senior climb scientist at the union of concerned scientists. she is leading the science education work for sound u.s. climate policies. prior to joining ucs she was on the faculty of the university of arizona hydrology and water resources with the geosciences department. in her career she was a hydrologist working with communities to protect ground water sources at the connecticut department of environmental protection. she holds a hpd in isotope gio kmemry from columbia university earth observatory and conducted post ---al research at lawrence livermore laboratory in california. in other words she's an expert. so we're looking forward to hearing from her today and with that i yield back. >> thank you. so we'll start with the mayor. thank you. >> good morning, congress van hollen hollen, sarbanes tonko and thank you and welcome to annapolis. we appreciate you choosing our city to show the impact of climate change on local communities and using today's discussion to create policies for congress. it is a pleasure to work alongside of carter from the united states naval academy, will baker from the chesapeake bay foundation and dr. brenda ekwurzel from the union of concerned scientists. thank you for being here. annapolis saw the greatest increase into nuisance flooding in the last 50 years. it measured per day increased by 925%. from an average of four floods per year to more than 40. of the top ten areas based on percentage increases annapolis had the largest number of nuisance floods at 40 a year with washington, d.c. a distant second at 30. to this end, the city of annapolis has been meeting with local and state entities since september 2014 to address flooding in our historic city. the city of annapolis recently presented a weather together town hall focused on protecting our important sea port and i'll go off script for a second. as congress sarbanes said you have to rally the community behind this. we sent out postcards to 4,000 people came to this event and at a council meeting not typically people show up and we have one person show up on the budget and we have 140 people that surprised up on this and that surprised us. it is a multi nation initiative that the city has to develop a plan and implement a strategy to reduce the risk and loss of private and public sector properties most vulnerable to the effects of climate change. this is an 18 month planning effort between the city state, federal agencies, private and nonprofit partners. that is one of the things i've learned in my short time is that anything you do, you need to build partnerships and relations ships and we can't address flooding without help from congress and naval academy and partners as well. in the survey we asked who is responsible for reducing flood potential in the historic district? 32% said it was the local government. 32% put it on the state. the good news is, we all have been doing work to address nuisance flooding and preparing for the next hurricane sandy and isabel. we are working to develop a cultural resource hazard mitigation plan design which is a model resiliency and response for our historic properties. along with that, we're working on the regulatory response to sea level rise and storm surge induction. meanwhile, we're also current le working on a sea level rise strategic plan and designing a cultural resource resiliency plan and these are major projects that the city dedicated money toward and i want to thank the partners who have dedicated money to these endeavors over time. while we have completed a number of state funded planning documents including the sea level rise, strategic plan phase one and the vulnerability assessment and the east port area, there is still more to do which means critical dollars are needed. and to follow up, i think a lot of times people think of sea level climb and climate change effecting just downtown but there are other ports just just now -- not just now but planning for the future 30, 40, 50 years down the road. still to date we have secured funding for $172,998 and we understand more money is needed. the annapolis planning holds a price tag of $1 million. money for flood legislation was the number one ask in 2015 when we go to the state to ask for money to lobby and i'm sure you're familiar with the local municipality asking you for money and it was the largest ask last year and will be for this year for projects going forward. as we look for funding opportunities in 2015 we hope for an additional $45,000 from the national center for preservation technology and training and in 2016 we are turning to the maryland emergency management agency for funding to complete and adopt our cultural resource hazard mitigation plan and to update the city of annapolis natural hazard mitigation plan. we're also seeking assistance from the maryland historic trust and the rockefeller 100 resiliency city organization. part of our goal is to be a model nationwide on how cities deal with this. the city of analyst is still a model for cultural resource hazard mitigation planning. that is no other historic district has attempted to develop a full-scale fema mitigation plan to address sea level rise and tidal flooding. given the importance of the historic district and the water front, the annapolis response to sea level rise must focus on protecting existing structures and infrastructure. future planning can evaluate the need and options for protecting historic structures, flood-proofing the extent feasible and preserving the historic exterior of the building. throughout my time in office flood mitigation has been a top priority and i appreciate the administration's close work with the united states naval academy and the anne arundel county executive. thank you for this opportunity to testify and i wish you much success in your future outcome and your hearings. >> thank you, mayor. admiral. >> well good morning distinguished panel and thank you for allowing us the privilege of hosting this important hearing here today. before i make my prepared remarks, i would also like to say how saddened and how much we would like to send our prayers to the naval marine corp family in chattanooga, tennessee after the tragedy events of yesterday and congressman sarbanes thanks now your thoughts on that. and as you know and we got to walk around we call it the yard here at the naval academy today this is a historic site. we started here on october 10th, 1845, so this year will be entering into the 170th year of being a partner here with the city of annapolis. it started out as only 10 acres and today we represent 238 acres of the upper and lower yard so it is still a relatively small campus but one of which we are proud. as congress sarbanes said this morning, you would see the two roads behind me where we are doing our testimony were covered in two inches of water from a nuisance tide sometimes called a king tide. again with no rain, that happened over the last two days so that is not an unusual occurrence and you can see the remnants of it on mcnair road right behind me. so this is something we deal with. mr. chairman, distinguished members for the community, thank you for appearing before you on behalf of the entire united states naval academy. i'm pleased to report solid progress with respect to flood prevention, response and preparing for the effects of riding sea levels here at the naval academy. before discussing the possibility effects of rising sea levels i would like to address the recent and ongoing efforts to manage the combination of heavy rain and high tides. our institutional agility in dealing with conventional flooding will directly impact our success in measuring dramatic short and long-term climate events. we can handle a drastic sea level rise if we can manage surges caused by heavy rainfall and high tides. to control nuisance flooding we have several projects in various stages of implementation. first the completed cooper road storm water management project was using underground reservoirs to capture storm water it. remains in the reservoirs until the water table can naturally absorb it. the cooper road project has been very effective at managing storm water that once caused regular flooding and will serve as a model for other areas on the yard. next we now utilize door jams at the ground floor openings on building in the floodfloodplain. we've installed gates and identified existing exterior walls for use as flood walls. and our up coming cyber building will be located on the corner of the yard where we occasionally experience nuisance flooding and for awareness this cyber builting will be located -- building will be located between the library of nimitz and the engineering facility. it will be a 200,000 plus square-feet building and the building is going to be designed to act as a flood wall for the corner of the yard. next i would like to discuss the

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