Implications Mr. Chairmen and members of the Committees: I am Dallas L. Salisbury, President and CEO of the Employee Benefit Research Institute (EBRI), a nonprofit research and education organization in W Figure 10 Figure 3 ashington, DC. I also Figure 1 Figure 8 The findings of the first ever Small Employer Retirement Survey indicate that effective public policy must educate Actions Resulting from Employer-Provided Information on Retirement Saving and Planning Impact of Offering a Retirement Plan to Employees serve as Chairman and CEO of the American Savings Education Council (ASEC), a coalition of private- and Figure 6 Workers’ Confidence in Investing Retirement Savings Wisely Benefits Offered to Employees by Small Employers American workers regarding the need to make retirement planning and saving a priority, in addition to address- Workers Personally Saving for Retirement public-sector organizations that aims to raise public awareness about what is needed to ensure long-term personal Among small employers with a retirement plan ing employer concerns about offering plans. In fact, there appears to be a need to educate many small employers Among workers who were provided information Among those who have saved for retirement financial independence. ASEC is an affiliate of the EBRI Education and Research Fund. I am accompanied by about the true costs of offering a retirement plan and about the potential benefits for them as well as for their 99% Have you personally saved any money for retirement, not including Social Security taxes or employer-provided money? Mathew Greenwald, President of Mathew Greenwald & Associates (MGA), a survey research firm in Washington, EBRI Paid Vacation workers. But unless small employers feel that a retirement plan is something that their workers want and value, 88% DC. EBRI, ASEC, and MGA sponsor the annual Retirement Confidence Survey, and this year, for the first time, EMPLOYEE they are unlikely to take advantage of whatever “simplified” vehicles are made available. 97% Employee’s Ability to Prepare Financially for sponsored the Small Employer Retirement Survey Employees’ Ability to Prepare Financially for 70 . It is our pleasure to be here today to release to the Congress 47% 50 50 46% BENEFIT 36% 7% Health Insurance 54% Retirement Retirement these full surveys. In the interest of time, we will concentrate on the Small Employer Retirement Survey. I ask 70% 69% T-114 RESEARCH Individuals and Retirement Savings 43% 40 43% that my full statement and attachments be entered into the written record. 60 40 72% 64% 41% 43% INSTITUTE ® 63% 62% 43% Paid Sick Leave 61% 41% The 1998 Retirement Confidence Survey (RCS) provides further evidence of the need to educate Americans 47% 30 Company’s Ability to Hire and Retain Good 30 regarding the need to make retirement planning and saving a priority. Sixty-three percent of Americans have 50 35% 44% 79% 19% Employees begun to save on their own for retirement (figure 6). While this is good news in that most Small Employers and Retirement Plans Life Insurance Americans are saving for 20 38% 20 retirement, it also means that one-third are not. Furthermore, these figures have remained essentially unchanged No 40 Contrary to the perception of some, small employers do sponsor employee benefit programs for their workers 62% since the question was first asked in 1994. 10 Disability (figure 1). The most commonly offered benefits tend to cover near-term worker needs, namely paid time off and 10 Yes Changed Amount 38% 38% Changed Allocation of Began to Contribute 5% 38% Employee Attitude and Performance 30 30% 51% 18% 2% health insurance. Benefits whose receipt is further in the future and/or whose use is subject to a greater degree of Money in a Plan Contributed to a Plan 36% Statement Plan Even among those who are saving, it is fair to say that most have absolutely no idea how much it is that they need 34% 42% Education Assistance uncertainty are less commonly offered. For example, according to the 1998 Small Employer Retirement Survey 0 , 31% to save by the time they retire to fund their retirement. Less than one-half (45 percent) of all workers have tried to 26% 20 Very Confident Somewhat Confident Not Too Confident Not At All Confident No Plan among small employers that do offer retirement plans, 99 percent also offer paid vacation, 97 percent offer health Source: 1998 Retirement Confidence Survey. figure out how much they need to save (figure 7). 0% 10% Among retirement savers, the figure is somewhat higher at Before the 20% 30% 40% 50% 60% 70% 80% 90% 100% 12% insurance, 79 percent offer life insurance, 72 percent offer paid sick leave, and 62 percent offer disability insur- Child Care 57 percent. Therefore, even with most Americans saving for retirement, they are in a sense flying blind and hoping Source: 1998 Retirement Confidence Survey. 5% ance. Among small employers without a retirement plan, 88 percent offer paid vacations, 70 percent offer health 10 Major Impact Minor Impact No Impact that things work out in the end. In addition, less than one-half of retirement savers are very confident that they Senate Special Committee on Aging insurance, 47 percent offer paid sick leave, and 38 percent offer disability insurance. 0 102030405060 708090 100 are investing their retirement savings wisely (46 percent) (figure 8). Forty-seven percent are somewhat confident. 0 Percentage Offering Benefit It appears that many retirement savers think that they are investing their funds wisely Source: 1998 Small Employer Retirement Survey. , but they are not really 1994 and the Retirement plan sponsorship does lag among small employers. T 1995 wenty-nine percent of workers at employers with 1996 1997 1998 sure. Therefore, many are saving but they do not know if they are saving enough, and many think they are doing a under 100 employees are covered by a retirement plan at work, and 21 percent actually participate in a plan at Source: 1998 Small Employer Retirement Survey. good job of investing their money but are not really sure. Source: 1998 Retirement Confidence Survey. work. This means that out of 35 million employees at small employers, 25 million do not have access to a retire- Subcommittee on Employer-Employee Relations of the House Figure 4 ment plan at work. By comparison, at employers with 100 or more employees, 83 percent of workers are covered Committee on Education and the Workforce What motivates workers to begin saving for retirement? The 1998 RCS asked savers just this question (figure 9). Likelihood of Business Starting a Retirement Plan by a plan and 64 percent actually participate in a retirement plan. The number one motivator was having seen people not prepare and then struggle in retirement. Almost one-half Figure 11 Among small employers without a retirement plan (48 percent) said this provided a lot of motivation, and an additional 36 percent said it provided some motivation. by Could You Save $20 Per Week More for Retirement? Why don’t more small employers sponsor retirement plans? The knee-jerk response is typically “administrative Figure 9 The second biggest motivator was realizing that time was running out. Thirty-seven percent said this provided a costs and burdens.” While this is an important reason, the actual picture is more complex (figure 2). The three How likely is it that your business will start a retirement plan for employees in the next two years? Motivational Factors in Saving for Retirement—Workers lot of motivation, and 42 percent said it provided some motivation. Therefore, the two biggest motivators were in Dallas L. Salisbury main reasons cited by small employers for not offering a retirement plan are: some sense negative events, indicating a need for more proactive efforts designed to get through to workers earlier 40 Among workers who have saved for retirement President and CEO, Employee Benefit Research Institute Among workers who have saved for retirement Among workers who have not saved for retirement • employee preferences for wages and/or other benefits over retirement benefits, with the retirement savings message. It should be noted that the third ranked motivator was the availability of a Chairman and CEO, American Savings Education Council • administrative costs, and Don’t Know 5% Don’t Know 2% 30 retirement plan at work. Figure 2 • uncertain revenue, making it difficult to commit to a plan. 32% 100 Most Important Reason for NOT Offering a Retirement Plan 20 Figure 7 The good news in the 1998 RCS is the evidence that education can have a real impact at the individual level 25% 15% 37% 18% 17% 33% 25% 48% 24% So, while administrative issues matter, other factors that are just as important are also at work, and these also Retirement Needs Calculation—Workers 2121 K Street NW, Suite 600 (figure 10). Among workers who had received educational material or attended seminars about retirement plan- Among small employers without a retirement plan 17% need to be taken into account when discussing policy options. 10 80 Washington, DC 20037 ning and savings in the past year, 43 percent reported that the material led them to change the amount they 41% 29% 52% Voice: 202/775-6322 contributed to a retirement savings plan, and 43 percent changed the allocation of their money in a retirement 0 22% In addition, it appears that there is a fair amount of misunderstanding about retirement plans among small Have you 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? 32% Employees Prefer Wages/Benefits savings plan as a result. In addition, 41 percent said it was such information that led them to begin contributing Fax: 202/775-6312 Very Likely Somewhat Likely Not Too Likely Not At All Likely employers who do not sponsor one, especially as regards expenses. Sponsoring a plan does not have to be as 60 39% 16% to a retirement savings plan. Revenue is Too Uncertain Don’t Know 1% Internet: http://www.ebri.org 42% expensive and administratively burdensome as many small employers apparently assume. For example, many do Source: 1998 Small Employer Retirement Survey. 14% not know that they could establish a retirement plan for less than $2,000. Many assume that they are always Costs Too Much to Set Up/Administer 52% 36% The 1998 RCS also reveals that most working Americans could do more in terms of saving for retirement 40 No 40% legally required to match employee contributions to a plan. And many do not know that they can share plan 43% No 41% 12% 42% Company Contributions Too Expensive (figure 11). Fifty-seven percent of workers who have begun to save for their retirement say that it is reasonably Yes 45% Yes 55% administrative costs with their employees. Yes 57% possible for them to save $20 per week more than they are currently saving. Among non-savers, 55 percent say it 9% Vesting Requirements 31% 28% 20 is reasonably possible for them to save $20 per week for retirement. While $20 per week may not seem like a lot of Figure 5 On the other side, small employers that do sponsor a retirement plan for their workers see real benefits, both for 4% Too Many Government Regulations 21% 2 June 1998 money Source: 1998 Retirement Confidence Survey. , it is over $1,000 per year, and over the years this savings could make a real difference. The power of No 54% What Might Lead to Retirement Plan Sponsorship 15% themselves and for their workers, in doing so (figure 3). Thirty-five percent report a major impact on their ability 3% compound interest will help a 25-year-old saving $20 a week, assuming a 5 percent annual return over 40 years, Benefits for Owner Too Small to hire and retain good employees, and 30 percent report a major impact on employee attitude and performance. In 0 Among small employers without a retirement plan build a $132,000 nest egg. With a 10 percent annual rate of return, $20 per week for 40 years will compound into Advice Have Seen Availability Family Professional Things Read in Realized Too Much Paperwork 2% addition, over one-half (54 percent) report a major impact on their employees’ ability to prepare for retirement. from Friend People of a Event Financial Newspaper/ Time Was over $500,000. Things that would make business seriously consider offering a plan to employees or Family Not Prepared Retirement Plan Advisor Magazine Running Out Don’t Know Where to Start 2% There are reasons to be optimistic about prospects for increased plan sponsorship among small employers. First of <1% Increase in Company Profits Does Not Reward Performance 66% all, two-thirds (68 percent) of those without a plan do not think their employees are well prepared for retirement. No Motivation At All Some Motivation A Lot of Motivation Implications Second, one-half of those without a plan have seriously considered offering one in the past. Finally 12% , 17 percent say Other Reason 64% Business Tax Credits for Starting Plan Business Tax Credits for Starting Americans appear to be more focused on retirement than they have been previously they are very likely to start a plan in the next two years, and an additional 25 percent say they are somewhat , but this focus has not trans- Source: 1998 Retirement Confidence Survey. 0 2 4 6 8 1012 1416 1820 22 Source: 1998 Retirement Confidence Survey. likely (figure 4). lated into increased confidence. This increased focus has likely resulted in a cold slap in the face with reality for Plan with Reduced Administration 50% Percentage Reporting as Most Important many. Now is the time to reach Americans with more and better information about planning and saving for Allow Key Executives to Save More 49% retirement. While many are saving, most have no idea how much they need to save, and many are not very In fact, we asked small employers without plans what changes would lead them to seriously consider offering a Source: 1998 Small Employer Retirement Survey. retirement plan (figure 5). In order of reported importance, they reported: confident in how they are investing their money. The majority of all workers, whether already saving or not, admit 49% Demand from Employees they could do more. These findings indicate the time is right for the National SA • increased business profits and a business tax credit for starting a plan, followed by VER Summit. 40% Easing of Vesting Requirements • reduced administrative requirements, demand from employees, and allowing key executives to save more in the The views expressed in this statement are solely those of the author and should not be attributed to the plan. Employee Benefit Research Institute, or the EBRI Education and Research Fund, its officers, trustees, 10% Something Else sponsors, or other staff, or to the EBRI-ERF American Savings Education Council. The Employee Benefit Research Institute is a nonprofit, nonpartisan, public policy research organization that does not lobby or 0 1020304050 6070 Percentage take positions on legislative proposals. Source: 1998 Small Employer Retirement Survey. 6 4 3 1 7 2 5 Percentage Percentage Percentage of Workers Percentage Percentage No Yes