Overview of Retirement in the Private Sector (Dallas Salisbury)

8/6/2019 Overview of Retirement in the Private Sector (Dallas Salisbury)

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Employee Benefit Research Institute 2011

Is There a Future for Retirement?in aWorld of Individual Decisions?

Dallas L. Salisbury

President

Employee Benefit Research InstituteJune 13, 2011


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Percentage of Private Sector Workers Participating in anEmployment-Based Retirement Plan by Plan Type, 1979-2009*

Source: DoL Form 5500 Summaries through 1998.*EBRI estimates 1999-2009


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Defined Benefit Plans in Transition

1/3 of private DB now hybrid with LSD option

of private DB offer LSD at retirement and job change

Most private DB offer LSD on pre-retirement job change

Five states have now begun shift to plans that offer LSD

Pressure to move to DC from DB in public sector would likely includemove to individual direction and LSD options

Introduces many individual decisions with the most important beingwhether or not to take any life income since the older you get themore longevity risk becomes your biggest risk (and running out ofmoney before you run out of life)


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Active Participants in 401(k) Plans, 1984-2008(millions)

Source: DoL Pension Plan Bulletin, Historical Tables, 1975-2008.*In 2004, the DoL counted active participants differently causing a one year jump in the number of active participants.


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Number of 401(k) Plans, 1984-2008

Source: DoL Pension Plan Bulletin, Historical Tables, 1975-2008.


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Brief Chronology of the Development of the 401(k) plan in the US

Genesis -- 1978

Section 401(k) added to IRC Expansion to salary deferrals -- November 1981

Proposed regulations

Constraints added in the 1980s* 402(g) limit

ADP/ACP nondiscrimination tests

Restrictions on hardship withdrawals

Flexibility added in the 1990s Safe-harbor plans (might want to mention SIMPLE plans too but I dont think you will have enough time)

Automatic enrollment

The last ten years Catch up contributions

Roth 401(k)

PPA and the mitigation of administrative concerns for automatic enrollment

Increase in percentage of 401(k) plans using automatic enrollment and auto escalation ofcontributions

QDIA regulations

The rise of TDFs

2008/9 market crises

Enron and the appropriateness of company stock

*mention that 415(c) was decreased but that applied to all DC plans


8/40 Employee Benefit Research Institute 2011

Employee contributions for men by age as a percentage of annualcompensation for various combinations of initial match rate andmaximum amount of compensation matched

Source: VanDerhei, J. L. Copeland, C.

A Behavioral Model for Predicting Employee Contributions to 401(k) Plans.NorthAmerican Actuarial Journal(2001).
http://www.google.com/url?q=http://www.soa.org/library/journals/north-american-actuarial-journal/2001/january/naaj0101_6.pdf&sa=D&sntz=1&usg=AFQjCNGRoTdpGYoZyLrIdUjEAvW6pO-1hghttp://www.google.com/url?q=http://www.soa.org/library/journals/north-american-actuarial-journal/2001/january/naaj0101_6.pdf&sa=D&sntz=1&usg=AFQjCNGRoTdpGYoZyLrIdUjEAvW6pO-1hg



Predicted Contributions for Selected Persons and Plans

Source: VanDerhei, J. L. Copeland, C.

A Behavioral Model for Predicting Employee Contributions to 401(k) Plans.NorthAmerican Actuarial Journal(2001).
http://www.google.com/url?q=http://www.soa.org/library/journals/north-american-actuarial-journal/2001/january/naaj0101_6.pdf&sa=D&sntz=1&usg=AFQjCNGRoTdpGYoZyLrIdUjEAvW6pO-1hghttp://www.google.com/url?q=http://www.soa.org/library/journals/north-american-actuarial-journal/2001/january/naaj0101_6.pdf&sa=D&sntz=1&usg=AFQjCNGRoTdpGYoZyLrIdUjEAvW6pO-1hg


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Impact of suspending employer contributions:Percentage of 401(k) participants continuing to contribute in 2008after a suspension in employer contributions by match rate proxy

Note: tabulations from 401(k) plans with more than $100,000 in employercontributions in 2007 and none in 2008.

Source: Jack VanDerhei, Falling Stocks: What Will Happen

to Retirees' Incomes? The Worker Perspective, Presentation forThe Economic Crisis of 2008: What Will Happen to Retirees


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Have you (or your spouse) tried to figure out how much money you will need to have saved by

the time you retire so that you can live comfortably in retirement? (2011 Workers n=1004)

The percentage of workers doing a retirement needscalculation.

: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc.,11 Retirement Confidence Surveys.


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Where Are Account Balances?



401(k) Account Balancesa Among 401(k) ParticipantsPresent From Year-End 1999 Through May 1, 2011b

Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project.a Account balances are participant account balances held in 401(k) plans at the participants' current employers and are net of plan loans.Retirement savings held in plans at previous employers or rolled over into IRAs are not included.b The analysis for 1999 through 2009 is based on a group of 1.6 million participants with account balances at the end of each year from 1999through 2009. The values for 2010 and May 1, 2011 are EBRI estimates


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Figure 2: Change In Average Account Balances (by Age andTenure) From January 1, 2010 June 1, 2011 Among 401(k)Participants with Account Balances as of Dec. 31, 2009

Sources: 2009 Account Balances: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data CollectionProject; 2011 Account Balances: EBRI estimates. The analysis is based on all participants with account balances at theend of 2009 and contribution information for that year.


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See EBRI April 2010 Issue Brief for more detail


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EBRI Retirement Readiness Rating - where is the baseline today?



EBRI 2010 Retirement Readiness Ratings

Sources: EBRI/ERF Retirement Security Projection Model version 100504e; The NationalRetirement Risk Index: After the Crash, Center for Retirement Research at Boston College, October

2009; Long-term Care Costs and the National Retirement Risk Index, Center for RetirementResearch at Boston College, March 2009



Impact of salary on at risk probability

Source: EBRI/ERF Retirement Security Projection Model version 100504e


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Impact of age and future years of eligibility for participation ina defined contribution plan on at risk probabilities

Source: EBRI/ERF Retirement Security Projection Model version 100504e


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Analyzing the importance of retirement age

Figures 20-22 of the EBRI July 2010 Issue Brief presents additionalsavings (expressed as a percent of compensation) needed toachieve various probabilities of success for retirement age at 65

Unfortunately, the results for many combinations of age/income cohorts wouldbe too high to be feasible

We have always known that the other possibility may be to deferretirement age Assumes this is feasible

I.E., no health problems for worker or spouse, job still available

The Retirement Confidence Survey has consistently found that alarge percentage of retirees leave the work force earlier thanplanned

45 percent in 2011

Easy to do stylized examples, but what would the impact be for babyboomers and gen Xers?


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HOW MUCH DO WE NEEDWHEN WE CONSIDER HEALTHCOSTS?


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Multiple of Final Earnings for a 90% Chance of Adequacy

Males Retiring at Age 65 in the Lowest-Income Category: Final Earnings of $16,932

Building Block 2: Investment and longevity stochastic, health care expenses deterministic

Source: Simuations from Ballpark E$timate Monte Carlo, Employee Benefit

Longevity annuity

Immediate annuity

Degree of Annuitization



20%

16x & 17X Fin Ern


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Multiple of Final Earnings for a 90% Chance of Adequacy

Males Retiring at Age 65 in the Lowest-Income Category: Final Earnings of $16,932

Building Block 3: Investment, longevity stochastic, and health care expenses stochastic

Source: Simuations from Ballpark E$timate Monte Carlo, Employee Benefit

Longevity annuity

Immediate annuity



30x Fin Ern

21% & 18%


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The Impact of Modifying the Exclusion of EmployeeContributions for Retirement Savings Plans From

Taxable Income


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Is There a Future for Retirement?in aWorld of Individual Decisions?


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In most cases: TheIndividual Will

Decide!


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DiscussionDiscussion

Dallas SalisburyDallas Salisbury www.ebri.org

www.choosetosave.orgwww.choosetosave.org
http://www.ebri.org/http://www.ebri.org/


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Overview of Retirement in the Private Sector (Dallas Salisbury)