For instance, the EBRI analysis finds: ? In the best-case participation scenario (assuming no opt outs), the introduction of an auto-IRA for News from EBRI households currently ages 35 ?39 working for small employers would increase the probability of a “successful” retirement (as measured by the RRR) by 8.4 percent; this declines as employer size th 1100 13 St. NW ? Suite 878 ? Washington, DC 20005 increases, since larger employers are more likely to sponsor a retirement plan. Even when a 75 (202) 659-0670 ? www.ebri.org ? Fax: (202) 775-6312 percent opt-out rate is assumed there is a small increase in RRR: only 2.2 percent for those working for small employers and 1.1 percent for those with large employers. ? Looking at the potential impact on the estimated $4.13 trillion national retirement savings deficit, FOR IMMEDIATE RELEASE: June 16, 2015 among households where the family head is ages 35–64, adding auto-IRAs with no opt outs Contact: Stephen Blakely, EBRI, 202/775-6341, blakely@ebri.org would reduce the savings deficit to $3.86 trillion (or a 6.5 percent decrease). As opt-out rates rise, Jack VanDerhei, EBRI (author), 202/775-6327, vanderhei@ebri.org there is progressively less reduction in the aggregate deficits; at a 75 percent opt-out rate, the New Research from EBRI: aggregate deficit is $4.06 trillion (only a 1.7 percent decrease). How Much Would Auto-IRAs Help? The full report, “Auto-IRAs: How Much Would They Increase the Probability of “Successful” Retirements and Decrease Retirement Deficits? Preliminary Evidence from EBRI’s Retirement Security Depends on Age, Contribution and Opt-Out Rates ® Projection Model, ” is published in the June 2015 EBRI Notes, online at www.ebri.org WASHINGTON—If “automatic IRAs” (individual retirement accounts) were made universal, how The Employee Benefit Research Institute is a private, nonpartisan, nonprofit research institute based in significant could their impact be for increasing retirement readiness and reducing the national retirement Washington, DC, that focuses on health, savings, retirement, and economic security issues. EBRI does savings deficit? not lobby and does not take policy positions. The work of EBRI is made possible by funding from its members and sponsors, which include a broad range of public, private, for-profit and nonprofit That depends largely on age, the default contribution rate and the opt-out rate (the percentage of eligible organizations. For more information go to www.ebri.org or www.asec.org employees who choose not to participate), according to new research by the non-advocacy Employee Benefit Research Institute (EBRI), a Washington, D.C. based fact tank. IRAs, authorized by Congress in 1974, were designed to provide a tax-deferred way to save for retirement by people who do not have access to a work-place retirement plan (especially for those at small employers, which tend not to sponsor retirement plans). While IRAs have been shown to produce significant retirement accumulations by those who contribute to them, the vast majority of people who do not have a tax-qualified retirement plan at work also do not take advantage of an IRA. In response, proponents of auto-IRAs have been pushing for legislation which would require certain employers without retirement plans to automatically invest a designated amount of each employee’s compensation to an IRA, unless the employee changes the amount of the contribution or opts out of the arrangement. Employer contributions are not generally required in these arrangements; rather, an employer’s payroll system would be used to regularly deduct the savings from each paycheck. The Obama administration has called for federal legislation on auto-IRAs, bills have been introduced in Congress, and a few states (notably Illinois) have enacted or are considering their own auto-IRA laws in an attempt to increase retirement savings. To measure what difference auto-IRAs might make, EBRI used its proprietary Retirement Security ® Projection Model (RSPM) to analyze the potential of a generic auto-IRA plan to increase the probability of a “successful” retirement and decrease the national retirement savings deficit. The model produces so- called Retirement Readiness Ratings (RRRs), which measure the likelihood of workers not running out of money in retirement and Retirement Savings Shortfalls (RSS), which measure the present value of the retirement deficit at age 65. “The ability of auto IRAs to reduce retirement deficits obviously depends on the age of the employee as well as the opt out rates assumed,” said Jack VanDerhei, EBRI research director and author of the report. “For example, among those households ages 35 ?39, the average RSS is reduced by 10.6 percent assuming PR 11 no opt outs (s 28 ee figure below). This value drops to 9.7 percent at if there is a 10 percent opt out and falls EBRI on Twitter: @EBRI or http://twitter.com/EBRI Blog: https://ebriorg.wordpress.com/ EBRI RSS: http://feeds.feedburner.com/EBRI-RSS to only 2.7 percent at a 75 percent opt out.”