2 3 4 Retirement Income Adequacy Study Table 2 shows that for the youngest 401(k) Table 1: Salary Breakout s contributors (ages 25 to 34), 43 percent would be impacted by the $2,400 threshold. This number inc New frreases for older participants. om EBRI For those 55-64, For the past several months, EBRI has been working on a major study of the projected impact of 64 percent would be impacted . Salary Percent of those Percent of Average employee certain tax reform changes on retirement income adequacy, using EBRI’s Retirement Security range (in contributing employee contribution th 1100 13 St. NW ? Suite 878 ? Washington, DC 20005 Projection Model®. $1,000s) that exceed contributions Table 2 also shows the percentage of 2015 contributions that would be impacted by the $2,400 (202) 659-0670 ? www.ebri.org ? Fax: (202) 775-6312 $2,400 that exceed threshold. For the youngest 401(k) contributors (ages 25-34), 53 percent of the contributions This study examines the projected impact of mandatory, full Rothification of 401(k) employee $2,400 would be above $2,400 and thus subject to mandatory Rothification. This number increases for contributions, as well as analysis of a “full package” including mandatory, full Rothification plus 10-24,999 38% 58% $ 3,203 O older participants. ctober 23, 2017 [F For inathose ages l] 55-64, 75 percent of the contributions would be subject to an enhanced Saver’s Credit and an increase in the 402(g)/catch up elective contribution limits on mandatory Rothification 25-49,999. 32% 51% $ 2,710 several retirement income adequacy measures. The analysis will consider how the tax changes m ight affect future employee contributions, plan terminations, pre-retirement distributions, and 50-74,999 60% 58% $ 4,197 401(k) Employee Contributions Above $2,400, other behavioral items. And the retirement income adequacy measures will focus on retirement Conclusion 75-99,999 76% 70% $ 6,622 savings shortages and surpluses as well as after-tax balances at retirement ages. In addition, we A Possible Rothification Threshold will examine the impact of these potential changes on assets under management. 100+ 87% 80% $ 11,112 The information provided above describes which 2015 401(k) contributors would be affected by Over the last week or so, there have been several press and other reports that some tax reform Source: EBRI tabulations from the EBRI/ICI Participant-Directed a $2,400 Rothification proposal and what portion of their contributions would be above $2,400 We expect to be ready to release the results of the study in an EBRI Policy Forum in early- or Retirement Plan Data Collection Project proposals might modify the tax treatment of 401(k) employee contributions to require that 401(k) and thus subject to mandatory Rothification. Of course, this information does not describe how mid-November. In addition, in light of the recent reports, EBRI hopes to be able to add to the employee contributions greater than a specified threshold be treated as so-called Roth Rothification - with or without the $2,400 threshold - would impact retirement income adequacy. study the impact of the $2,400 Rothification threshold on retirement income adequacy. Table 1 shows that even at the lowest wage levels ($10,000 to $25,000), 38 percent of the 401(k) contributions. In light of this possibility, several members of the Employee Benefit Research As noted above, we are examining what the employee and employer behavioral reactions and the contributors would be impacted by the $2,400 threshold. This number drops slightly for those Institute (EBRI) and others have asked EBRI to share its most recent information about the retirement income adequacy impacts might be to various tax reform proposals, and we hope to be We will broadly share information on the date, time, and location of the Policy Forum once with wages of $25,000 to $50,000 but then increases substantially. For those with more than distribution of 401(k) employee contributions around the specified threshold, broken out by able to share the results at an EBRI Policy Forum in early- or mid-November. we’ve made those decisions. If you’d like to receive this info, provide us with your contact $100,000 in wages, 87 percent would be impacted. salary and by age. information at https://www.surveymonkey.com/r/RetirementIncomeAdequacyPolicyForum. _____________________________________________________________________________ Table 1 also shows the percentage of 2015 contributions that would be impacted by the $2,400 This release provides that information. And it provides background on a major study that EBRI EB Who Would be Affected by the $2,400 Threshold RI’s Retirement Security Projection Model® is a micro simulation model that EBRI has used to assess threshold. At the lowest wage levels ($10,000 to $25,000), 58 percent of the contributions from has undertaken to assess the projected impact of certain tax reform proposals on retirement the impact of policy and plan design modifications on US retirement income adequacy since 2003. It 401(k) contributors would be above $2,400 and thus subject to mandatory Rothification. This income adequacy, using EBRI’s Retirement Security Projection Model®. includes a detailed accumulation module that simulates, inter alia, the balances of 401(k) participants as In light of the recent reports, several EBRI members and others have asked EBRI to share its number drops slightly for those with wages of $25,000 to $50,000 but then increases well as the IRA balances attributed to 401(k) rollovers. At retirement age, the model simulates 1,000 most recent information about the distribution of 401(k) employee contributions around the For more information, please contact info@ebri.org or 202-659-0670. al substantially. ternative life p For those with more than $100,000 in wages, 80 percent would be aths for each household to include important post-retirement risks such impacted as longevi.t y risk, specified threshold, broken out by wage/income and by age. investment risk and long-term care risk. For links to several of the studies using the model, Table 2: Age breakouts Specific Proposal see: bit.ly/ebri-rspm . Accordingly, we are providing our most-current information on the percentage of 401(k) The Employee Benefit Research Institute is a private, nonpartisan, nonprofit research institute based in contributors who would likely Age P be impacted by the $2,400 threshold ercent of Percent of and the Average percentage of 401(k) Based on recent press reports, some tax reform packages might include a “mandatory, partial Washington, DC, that focuses on health, savings, retirement, and economic security issues. EBRI does range those employee employee employee contributions that would be above $2,400 and thus subject to mandatory Rothification. Rothification” proposal that would operate generally as follows: not lobby and does not take policy positions. The work of EBRI is made possible by funding from its contributions contributing contributions We provide this information below with breakouts by salary (Table 1) and age (Table 2). (Note: members and sponsors, which include a broad range of public, private, for-profit and nonprofit that exceed that exceed “401(k) contributors” includes only those individuals who are actually contributing; it does not • 401(k) employee contributions up to $2,400 for a year could be pre-tax or Roth (after- organizations. For more information go to www.ebri.org. $2,400 $2,400 include individuals who are eligible to contribute but choose not to.) tax) when made, depending on plan design and employee choice, 25-34 43% 53% $ 3,169 • 401(k) employee contributions greater than $2,400 would have to be made on a Roth (after-tax) basis, and 35-44 56% 66% $ 5,054 The information in the tables below are based on runs from the EBRI/ICI Participant-Directed • Employee contributions made on a pre-tax basis (and investment returns) would be Retirement Plan Data Collection Project incorporating information from millions of 45-54 62% 72% $ 6,488 taxable on subsequent distribution, and employee contributions made on a Roth basis administrative records from 401(k) recordkeepers. All contributions are based on year-end 2015 55-64 64% 75% $ 7,287 (and investment returns) would, in general, not be taxed on subsequent distribution. information. Information for individuals with reported salary less than $10,000 is excluded in an Source: EBRI tabulations from the EBRI/ICI Participant-Directed attempt to control for those employed by the plan sponsor for only a fraction of the year. Finally, Retirement Plan Data Collection Project it’s important to emphasize that the information set forth below does not directly or indirectly describe the retirement income adequacy impacts of the mandatory, partial Rothification approach using $2,400 as the threshold. Em Em Emp p pl l lo o oy y ye e ee e e B B Be e en n ne e ef f fi i it t t R R Re e es s se e ea a ar r rc c ch h h I I In n ns s st t ti i it t tu u ut t te e e: : : 401( 401( 401(k) k) k) E E Em m mpl pl ploye oye oyee e e C C Cont ont ontr r ri i ibut but buti i ions ons ons A A Above bove bove $2, $2, $2,400, 400, 400, A A A P P Po o os s ss s si i ib b bl l le e e R R Ro o ot t th h hi i if f fi i ic c ca a at t ti i io o on n n T T Th h hr r re e es s sh h ho o ol l ld d d, O , O , Oc c cto to tob b be e er r r 2 2 23 3 3, 2 , 2 , 20 0 01 1 17 7 7 [F [F [Fi i in n na a al l l] ] ]