A new research report published today by the Employee Benefit Research Institute (EBRI), J.P. Morgan Asset Management and National Association of Government Defined Contribution Administrators (NAGDCA) reviewing public-sector defined contribution (DC) accountholder data from the Public Retirement Research Lab (PRRL) Database found that participants who experienced unfunded spending “spikes” were more likely to have increased credit card debt and to have taken a DC plan loan. Furthermore, those with a higher percentage of their available credit card debt being used had lower contributions and lower account balances, on average.
Spending spikes are determined to occur when a household’s monthly spending is at least 25% or more than the previous 12 months’ median monthly spending and this spending cannot be covered by the household’s income and cash reserves (checking and savings accounts). Nearly one-third (29%) of the public sector DC plan participants were found to have these spikes in the study year, and they were not among just those with lower incomes as nearly one-quarter of those with incomes of $100,000 or more experienced a spike. These spending spikes have a clear impact on the likelihood of DC plan participants taking a plan loan and increasing their credit card debt in the year of the spike. Of those with a spending spike in the analysis year, 7% took a new plan loan and 31.7% increased their credit card debt, compared with 2.7% and 25.9, respectively, of those without a spending spike in the same year.
Other key findings in the new report, “How Financial Factors Outside of a Defined Contribution Plan Can Impact Retirement Readiness: An Examination of Public-Sector Participants,” include:
• On a dollar basis, among those with incomes of $150,000 or less who had a spike, 60% of these household observations had spikes larger than $2,500 aggregated over the year and 82% had spending not covered by income alone above this threshold.
• The likelihood of experiencing a spike increased with the spending ratio and beginning of the year credit card utilization. In contrast, the likelihood of a spike decreased as gross income increased. However, nearly one-quarter of the households with incomes of $100,000 or more had a spike.
• Households are more likely to take on additional credit card debt before taking the plan loan, as approximately one-third to one half of those with credit card utilization of less than 80% increased credit card debt, while less than 8% took a new plan loan with that level of credit card utilization. However, when credit card utilization reaches 80%, the likelihood of increasing credit card debt decreases to 22.4%, while the percentage taking a new plan loan increases to 11.5%.
“It is clear that spending, debt and saving for retirement are explicitly linked. This study builds on the prior J.P. Morgan/EBRI study that looked at the links between these actions among private sector DC plan participants to determine if the same links are found among public sector DC plan participants and found that the same relationships exist among these workers as well. These links between spending and debt suggests that retirement planning is not wholly different by place of employment, even where benefits availability may be dissimilar, but part of a broader holistic financial planning journey where all factors need to be incorporated. In fact, participating in a budget webinar has been found to be associated with higher DC plan contributions. Programs to help with workers’ overall finances could be indispensable. The decision to a take a plan loan is not just dependent on what happens in the plan but on the total financial profile of the participant,” said Craig Copeland, director, Wealth Benefits Research, EBRI.
The data analyzed for this research study came from the PRRL Database and JPMorgan Chase Bank, N.A. The PRRL Database is an opt-in collaboration among public retirement plan sponsors, EBRI and NAGDCA. The database includes information from two hundred and sixty-seven 457(b), 401(a), 401(k) and 403(b) defined contribution plans, representing 2.5 million state, county, city and subdivision government employees and incorporating over 3 million retirement accounts that is valued at $170 billion in assets (as of year-end 2021). The Chase data sample is restricted to the households in 2019–2021 who use Chase as their primary banking institution, and their total household spending through all payment mechanisms.
“Given the impact of participants’ overall finances, it is clear that prohibiting plan loans would not necessarily improve participants’ retirement security. Without the option, participants would seek loans outside the plan to fill spending gaps, and those loans may have terms more expensive than those available as part of the plan,” said Sharon Carson, executive director and retirement strategist, J.P. Morgan Asset Management. “The research found that, like private sector DC plan participants, public sector DC plan participants who lack income and cash reserves to support a spending spike are likely to end up with more credit card debt. This higher debt can have a long-lasting impact on retirement security, since higher credit card utilization is correlated with lower DC plan contributions and account balances, even when controlling for income. As a result, the availability of emergency savings to cover spending spikes can be a critical factor in preventing or stalling a cycle of increasing debt that can significantly impact retirement readiness, wherever the individual works.”
The Public Retirement Research Lab is a retirement industry collaborative effort of the EBRI and NAGDCA. The PRRL analyzes data from its the plan but on the total financial profile of the participant,” said Craig Copeland, director, Wealth Benefits Research, Public Retirement Research Database, the first-ever database specific to public-sector defined contribution data, to produce unbiased, EBRI. NEWS FROM THE EMPLOYEE BENEFIT RESEARCH INSTITUTE actionable research aimed at enhancing understanding of the design and utilization of public-sector defined contribution retirement plans to better inform public plan design, management, innovation and legislation. For more information, visit www.prrl.org. The data analyzed for this research study came from the PRRL Database and JPMorgan Chase Bank, N.A. The PRRL New Research Study of Public Defined Contribution Plan Participants Finds That Spending A Dbo atut abJas .P.e Mor is an gan o A p st s-et inMana collab geo mrent ati on among public retirement plan sponsors, EBRI and NAGDCA. The database “Spikes” Are Associated With Increased Credit Card Debt and DC Plan Loans J.P. Morgan Asset Management, with assets under management of $3.3 trillion, as of June 30, 2024, is a global leader in investment includes information from two hundred and sixty-seven 457(b), 401(a), 401(k) and 403(b) defined contribution plans, management. J.P. Morgan Asset Management's clients include institutions, retail investors and high net worth individuals in every major representing 2.5 million state, county, city and subdivision government employees and incorporating over 3 million market throughout the world. J.P. Morgan Asset Management offers global investment management in equities, fixed income, real estate, - Higher credit card obligations are also associated with lower contributions and account balances retirement accounts that is valued at $170 billion in assets (as of year-end 2021). The Chase data sample is hedge funds, private equity and liquidity. For more information: www.jpmorganassetmanagement.com. J.P. Morgan Asset Management is similar to what private-sector participants experience - restricted to the households in 2019–2021 who use Chase as their primary banking institution, and their total the marketing name for the asset management businesses of JPMorgan Chase & Co., and its affiliates worldwide. h ousehold spending through all payment mechanisms. This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to For immediate release: 9/5/24 be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor “ FG or iv m en o r te he inifmp orma act ti o ofn p : ar Ro ti n c iD pr an estn ser ’ o verall finances, it is clear that prohibiting plan loans would not necessarily is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. d imp resrn oer ve @ peb arti ric .o ip ran g ts’ retirement security. Without the option, participants would seek loans outside the plan to fill Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to s pending gaps, and those loans may have terms more expensive than those available as part of the plan,” said support an investment decision, and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In Sh (War as o h n in C gar tosn o,n D , .e Cx .ec ) –u A tiv ne ew di r rect esea orr c an h d rep reti orrteme pubn lits h sted rat t eg od is aty , J. bP y. tM he or Eg mp an lAs oys ee et B M en an efi ag t eme Resea ntr .c h “T In hs e tirtes utea e (E rcB hRI fo )u , n J.d P. addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. M tho at r,g lan ike As pr sie vt a t M e an sect ago eme r DC n p t lan and p N aa rti tic oin pa an l As ts,s p ou ci b alti ico s n ect ofo G r o D vC er p n lan ment parD tiefi cip n an ed t sC w on hto r ilb ack uti o in nc Ad ome mian nisd tr c aas toh rs r (N eser AG vD es C A) to Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or r sev upip ew oritn a g s pp uen blid ci-n sg ect sp oir k e defi are ned likel co y n tt or ien bud ti u op n (DC with ) acc moo re un cr ted hoilt d c ear r d da d ta eb fr to . m Th t is h e hiP gu hb er li c d eb Reti t c reme an ha nv t e Res a lea onr g c-h las Lab tin g investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market (PR impRL) act D oa nt ab reti as reme e fou nn t d s ecu thar ti t p y a , r sti in cc ip e an hit gsh w er h c or ed exp ite c rar ien dc u ed til iu za nti fu on nd ied s c o sr pren ela dtied ng w “sip th ik le o s” w er wer De C mo plan re clo ik n el tr yib tu oti ho an vs e and conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of acc incro ea un sed t b al cr an ed cies t c,ar ev den deb wth an end c t oo n t hra ov ll e in tg ak fo en r ia nc D oC me. plan As lo a an res . Fu ult r,t h th er e mo avai re lab , th ilo its ye ow f eme ith a rh gien ghc er y s p aer vic ne gn s ttag o e co o vfer th eir production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that s ia n p v ves ai en ltab d mie n le nt g c s in r p ed vo ikles i vtes c c ar ran isd ks b d , e the eb a tv c b al riei ue tin co al gf u if n a s ves ed cto t m h r ad e in nts p lo r an ev wd er en the c ti o in nc n gto r o m ib r e u st f ti r a o o lm ln in s them g a a nd c m y lo c alw y e fl er o uc f acc tua incte o rea u in n st acc i n bg a o r ld an da eb n cc t es e th wi , a o th t n c m a an v ar e k s ret ag igc n e. o ifi ndi can tiot ns ly an imp d act taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators retirement readiness, wherever the individual works.” of current and future results. Sp ending spikes are determined to occur when a household’s monthly spending is at least 25% or more than the p To rev view iou st h 1e 2 c mo omp ntl h et s’e medi repo an rt, mo “Ho nw th Fi lyn sa pn en cia dli n Fg act an od rs t Ou his ts sp id en e d oifn a g D can efin no ed t b C e oc no tr vier bu ed tio b ny P tlh an e h Co an us Ieh mp oact ld’s R in eti co rme eme an ntd DATA PRIVACY: We have a number of security protocols in place which are designed to ensure all customer data are kept confidential and c Ras eah d irn es es er s:v An es (c Ex hami eckn ina g ti an ond o sfa Pu vin bg lisc - acc Sec otu on r tP sar ). ti Nc ea ipran ly t o sn ,” ev -t is hiitr d h tt (2 p9 s% :/) /w of w tw he .eb pu rib .o lir cg s /ect pub olr ic D aC ti o pn lan s/r p es ar ea tir cc ip han - ts were secure. We use reasonable physical, electronic, and procedural safeguards that are designed to comply with federal standards to protect f p o u u b n lid c a tti o o hn as v/e ist sh ues e-e brsip eifk ses /co in nt t en he t/ sh tu od w y- fi yn ea an r,c an iald -f a th ct ey or s w -o er ue tsn id oe t -amo of-a- n d ge ju fin sed t th -c o o sn e tr w ib itu hti lo on w -er pla in nc -c o an me -is mp asact nea - rly one- and limit access to personal information. There are several key controls and policies in place which are designed to ensure customer data are safe, secure and anonymous: (1) Before J.P. Morgan Asset Management (JPMAM) receives the data, all selected data is highly r qeti uar reme ter o n ft t -r hea osd e in w es ith s. incomes of $100,000 or more experienced a spike. These spending spikes have a clear impact aggregated and all unique identifiable information, including names, account numbers, addresses, dates of birth and Social Security on the likelihood of DC plan participants taking a plan loan and increasing their credit card debt in the year of the numbers, is removed. (2) JPMAM has put privacy protocols for its researchers in place. Researchers are obligated to use the data solely for spike. Of ( M thE oD se IAw NO ithT a E: s p To en rd eicei ngv se p itk he ei co n tm he pl an etal e y re sisea s yea rch r, r 7 e % p or toto , k co a n n tew act p Rlon an lD or an esn an er d a 3 t1 d .7 re % sn in ec rr @ebr eased i. or thg ei ). r credit approved research and are obligated not to re-identify any individual represented in the data. (3) JPMAM does not allow the publication of card debt, compared with 2.7% and 25.9, respectively, of those without a spending spike in the same year. any information about an individual or entity. Any data point included in any publication based on customer data may only reflect aggregate i A nf bo or ut mthe ation. EB ( R 4 I) / JT Phe MC da Rta es ear are csh to red on a secure server and can be accessed only under strict security procedures. Researchers are not per This m pa itt per ed to is ba exs po ed rt othe n res da ear ta c o h uts fro id m e o a fc J o .P ll.ab Mor orati gan on Co ha f E sm e's pl (o JP yMC ee B ) enefit system R ses . Tear he c sh ysIte nsm titu co te m(p ElB ies RI )wi , wi th th alm l Jo Pr MC e tha Inf n of ro m ur ati dec on ad Tec es hno of lro es gy ear Ric sh k Other key findings in the new report, “How Financial Factors Outside of a Defined Contribution Plan Can Impact 1 o Mana n reti grem ement ent rpo equ lic ir ye , m an en d J ts P Mor for the ganm Co ha ni sto e r Bian ngk, an N d .A sec . (C uha rity se o )f . da The ta.l at (5es ) JP t MA resear M pr ch oc vo ides llab o val rati ua obl n e betw insig ee hts n J to .P .po Mor licy gm an ak Ae sr ss et , bus Mana ineg ss em es ent and Retirement Readiness: An Examination of Public-Sector Participants,” include: 2 an fina d nc the ialE pr mo pfles oys ee io na Be lnefi s, but t R thes esear e c ins h Iins ght tis tu cte, anno whi t c co h m lev e er atag the es e da xpens ta acr e o os fs c 2 o9 ns m um illier on pr Cha ivas ce y.ho Wus e t ehol ake ds ever an y d pr2 ec .5au mti ilo lin on to pu ens bliur c s e ec the tor defined • On a dollar basis, among those with incomes of $150,000 or less who had a spike, 60% of these household c co onfi ntrdenc ibutie on an pd lan sec pa ur rti ity cipa of nt our rec acc oro ds unt , pr ho eslents ders 'a pr new ivatwa e inf y o or fm thi ati nk oin ng . about this critical – but still elusive – subject. Chase data includes a observations had spikes larger than $2,500 aggregated over the year and 82% had spending not covered by income comprehensive view of total household spending through all payment mechanisms (select credit card, debit card, cash and checking) and 3 al soo ur n ce esab of o inc ve om th e is in t ch lud res ing h o So ld ci.al Security, annuity, pensions, etc. f# or ar # o und 21 million customer households. • The likelihood of experiencing a spike increased with the spending ratio and beginning of the year credit card About the EBRI/NAGDCA Research u tilization. In contrast, the likelihood of a spike decreased as gross income increased. However, nearly one-quarter The public sector DC plan data for this paper is from the PRRL Database, the first-ever resource specific to public-sector defined contribution o f the households with incomes of $100,000 or more had a spike. data, to produce unbiased, actionable research aimed at enhancing understanding of the design and utilization of public-sector defined • Households are more likely to take on additional credit card debt before taking the plan loan, as approximately contribution retirement plans to better inform public plan design, management, innovation and legislation. 1 Chase serves nearly half of America’s households with a broad range of financial services, including personal banking, credit cards, mortgages, auto financing, investment o ne-third to one half of those with credit card utilization of less than 80% increased credit card debt, while less than advice, small business loans and payment processing. For more information about Chase, visit the following website: https://www.chase.com/digital/resources/about-chase. 2 Commitment to Privacy and Security 8 Th % ist no um ok be r a re n pew resen p tsl tan he nlu o m an ber w of ihto h u se th ho at lds l sev harel ed w oif th c Er BR ed I tiot c c on ar dud ct u thtei lain zaat lysiio s. n In. th H is o aw naev lysis, er th ,e w Chh aen se d ac ta r ed sam it p le c ar refe d re u nct ei lhie zrat eini o is n re str rea icte cdh to es th 8 e 0%, households in 2019-2021 who use Chase as their primary banking institution, and their total household spending through all payment mechanisms (including select credit and No PRRL data was transferred to JPMorgan Chase Asset Management, and the data privacy of participants and contractual relationships the likelihood of increasing credit card debt decreases to 22.4%, while the percentage taking a new plan loan debit card transactions, electronic payment transactions, check and cash payments) and sources of income including wage income, Social Security, annuity, pensions, etc. can with recordkeepers have been carefully protected. EBRI has no access to personally identifiable information. be linked to the PRRL Database. For more information about Chase, visit the following website: https://www.chase.com/digital/resources/about-chase. increases to 11.5%. 3 Data privacy and contractual relationships with recordkeepers have been carefully protected. About EBRI “It is clear that spending, debt and saving for retirement are explicitly linked. This study builds on the prior J.P. The Employee Benefit Research Institute was founded in 1978. Its mission is to contribute, encourage and enhance the development of sound employee benefit programs and sound public policy through objective research and education. The EBRI is the only nonprofit, Morgan/EBRI study that looked at the links between these actions among private sector DC plan participants to nonpartisan, Washington, D.C.-based organization committed exclusively to public policy research and education about economic security determine if the same links are found among public sector DC plan participants and found that the same and employee benefit issues. relationships exist among these workers as well. These links between spending and debt suggests that retirement planning is not wholly different by place of employment, even where benefits availability may be dissimilar, but part The EBRI's membership includes a cross-section of pension funds, businesses, trade associations, labor unions, health care providers and of a broader holistic financial planning journey where all factors need to be incorporated. In fact, participating in a insurers, government organizations and service firms. budget webinar has been found to be associated with higher DC plan contributions. Programs to help with workers’ overall finances could be indispensable. The decision to a take a plan loan is not just dependent on what happens in