EBRI Issue Brief
Under the Dome — A Closer Look at Legislative Proposals Impacting Retirement
The EBRI Retirement Security Projection Model® was developed to provide an assessment of national retirement adequacy prospects. The baseline analysis shows the current state of the employer-based retirement system and its ability to allow workers to sufficiently cover simulated expenses — including uninsured health expenses — during retirement. However, the model also has the flexibility to quantify the impact of potential changes to the retirement system on projected retirement deficits. In this Issue Brief, we examine several legislative proposals, including ones geared to improve coverage, reduce plan leakage, increase utilization of guaranteed income for life solutions, and delay and/or reduce required minimum distributions (RMDs). We find that:
- Expanding retirement plan eligibility by requiring a plan for all employers except those with fewer than 10 employees would make a substantial impact on the youngest employees simulated (ages 35–39), even though we assume that all new plans take the form of an auto-IRA with lower contribution limits and no employer contributions.This modification is simulated to decrease the retirement deficit for this age cohort by 15.2 percent.When the auto-escalation cap for the auto-IRAs is increased from 10 percent to 15 percent, the average retirement deficit is simulated to decrease by 17.0 percent.If, in addition to these provisions, all non-excludable employees are covered by the plan, the average retirement deficit for this cohort is simulated to decrease by 17.3 percent. If, in addition to the coverage enhancements mentioned above, a full auto portability scenario is assumed, the average retirement deficit is simulated to decrease by 27.1 percent.
- There is an overall positive impact in using half of 401(k) or 403(b) balances at age 65 to purchase an immediate annuity.The results vary with the simulated date of death, but overall, a single premium immediate annuity purchase amounting to 50 percent of 401(k) or 403(b) balances at age 65 would decrease average retirement deficits by $985.
- Open multiple employer plans (MEPs) are simulated to result in a significant reduction in retirement deficits for those who would have spent a considerable portion of their work career without eligibility for an employer-sponsored retirement plan.When we look at reductions in retirement deficits as a function of the number of years an employee would have been without eligibility for an employer-sponsored retirement plan in lieu of an open MEP, we find those with the least amount of eligibility would have a decrease in their average retirement deficit of 26.7 percent.
The one-time impact on individual retirement account (IRA) distributions for those ages 71–100 under several combinations of increases in RMD life expectancy and/or increases in the start date of RMDs ranges from as small as 0.2 percent to as much as 8.4 percent.