WASHINGTON – If legislation passes that would allow Americans to direct a portion of their payroll taxes in accounts as part of Social Security reform, credit unions might see a significant increase in their Individual Retirement Account activity. Speaking on behalf of CUNA, David Brock, president/CEO of Community Educators Credit Union, recently told members at a House hearing on Social Security reform that based on a "conservative" estimated increase of 10% of current IRA balances, which stood at $270 billion at year-end 2004, credit unions could see a roughly $5 billion increase, based on their current 18% share of the IRA market. Brock also said credit unions pay "very favorable" interest rates on savings accounts with the industry having $575 billion invested at year-end 2004. Of this total, 22% was held in share certificate accounts; 18% in money market deposit shares; 8% in IRAs; and the remainder in other short-term liquid accounts. "The widely-acknowledged challenges facing the Social Security system are compounded by the fact that U.S. consumers generally save very little and specifically put very little aside in private retirement accounts," Brock told members of the House Subcommittee on Financial Institutions and Consumer Credit. Brock emphasized that CUNA has taken no formal position on whether any plan to fix Social Security should include private accounts. "However, if legislative changes allow workers to direct part of their payroll taxes into individual accounts, we believe it makes sense to include all financial institutions as one option for participants," Brock said. "Sound personal financial planning dictates that retirement funds for those nearing retirement be distributed, in part, in lower-risk, safe, liquid investments. Financial institutions offer such accounts." Brock acknowledged that it is difficult to project the potential effect of allowing consumers to invest Social Security funds in financial institution savings accounts such as certificate accounts and because such accounts would provide "a relatively low, albeit safe, return on the investment, it is likely that it would be used more by those approaching retirement than by younger workers." "This certainly would be consistent with the savings trends in IRAs at my credit union, where IRA savings are significantly concentrated in those in higher age categories," he said. Besides including credit unions as an option for retirement accounts, Brock said the industry can also help to turn around the declining savings rate. From 1975-1984, personal savings as a percent of personal disposable income averaged nearly 10%, but fell to an average of 7% over the 1985-1994 period, and to an average of less than 3% in the 1995-2004 period, he told House members. The personal savings rate at the end of April 2005 was just 0.41% – near its historic low. Brock also cited a recent Brookings Institution Policy Brief which found that only about half of workers participate in an employer-based pension plan in any given year, and participation rates in IRAs are substantially lower and many households approach retirement with meager defined contribution balances. "Financial institutions can help close this gap. And credit unions in particular are uniquely positioned to assist consumers in doing so," Brock said. Credit unions currently have a 12% share of household savings held in depository institutions, according to CUNA. "Financial institutions have extensive experience in providing retirement-related accounts," Brock said. "And financial institution accounts provide a level of liquidity and safety that is not available through other sources." [email protected]