Jan. June 2000 RCS Feb. RCS EBRI Issue Brief (ISSN 0887-137X) is published monthly at $300 per year or is included as part of a membership subscription by the Employee Benefit Research Institute, 2121 K Street, NW, Suite 600, Washington, DC 20037-1896. Periodicals postage RETIREMENT EBRI 3 benefits from plan sponsorship that nonsponsors WHAT NEXT? Chart 1 Table 4 Table 11 Mar. RETIREMENT WHAT IS YOUR R —RETIREMENT rate paid in Washington, DC. POSTMASTER: Send address changes to: Table 3 EBRI Issue Brief, 2121 K Street, NW, Suite 600, Chart 4 Table 8 Table 6 Table 9 Chart 2 CONFIDENCE Chart 6 This Issue Brief was written by Dallas L. Salisbury, president and CEO of the Employee Benefit Research simply may not be aware of and therefore may Retirement Confidence Sur If you scored 0–5, you need to get started. But you are not alone; 9 percent of American workers fall Amount Accumulated for Retirement by Workers: 2000 Chart 7 vey 2000 EMPLOYEE Small Employer Reasons for Not Offering a Retirement Plan Worker Confidence in Ha ® ving Enough Money to Live Washington, DC 20037-1896. Copyright 2000 by Employee Benefit Research Institute. All rights reserved, No. 222. Schedule for Planning and Saving for Retirement: 2000 Expected and Actual Retirement Age: 2000 Percentage of W Minority Worker Confidence in Having Enough Money orkers Having Tried to Calculate How Much Money They Will CONFIDENCE Minority Worker Preparations for Retirement: 2000 The Choose to Save ® Forum on Retirement Security and Personal Saving Worker Confidence That Social Security Will Continue Familiarity of Retirement Plan Options Among Small Employers Without Retirement Plans SURVEY Institute (EBRI); Ruth Helman, senior research associate at Mathew Greenwald & Associates (MGA); Pamela Impact of Offering a Retirement Plan to Employees not have factored into their decision not to offer a Comfortably Throughout Retirement Apr. BENEFIT into this group. What should you do? Choose to save, now! Only 1 percent of Americans in this group ® to Live Comfortably Throughout Retirement: 2000 Need to SR ave for EADINESS Their Retirement RATING? PERSONALITY TYPES to Provide Benefits of Equal AND RETIREMENT Value SURVEY Planning Planning Planning Planning Planning for for for for for retirement retirement retirement retirement retirement is is is is is not not not not not a a a a a All one-size-fits-all one-size-fits-all one-size-fits-all one-size-fits-all one-size-fits-all Done Needs exercise. exercise. exercise. exercise. exercise. Not Done Needs The The The The The purpose purpose purpose purpose purpose of of of of of Ballpark Ballpark Ballpark Ballpark Ballpark All Done Needs Most Important Not Done Needs Major (Small Plan Sponsors) Expected Actual Ostuw, communications specialist at Watson Wyatt Worldwide; and Paul Yakoboski, director of policy research ® 60% All African- Hispanic- Asian- plan. Among small employers that do sponsor a 8% 2% RESEARCH The Choose to Save Forum on Retirement Security and Personal Saving, held April 4–6, 2000, in Washing- 43% 47% Workers Workers Calculation Calculation Calculation Calculation have begun to save for retirement, but one-half say that they could save $20 per week for retirement. 55 All African- Hispanic- Asian- (percentage (percentage Including Results from the RCS Minority Sur is is is is is simply simply simply simply simply to to to to to give give give give give you you you you you a a a a a basic basic basic basic basic 50% idea idea idea idea idea of of of of of the the the the the savings savings savings savings savings you’ll you’ll you’ll you’ll you’ll need need need need need when when when when when you you you you you retire. retire. retire. retire. retire. vey 60% Workers Americans Americans Americans 401(k) Employee-Related Reasons. May at the American Council of Life Insurers (ACLI). The views expressed in this report are those of the authors retirement plan, 47 percent report that plan Not Too Confident INSTITUTE ton, DC, brought together individuals to brainstorm and discuss initiatives to help Americans better prepare ® The Employee Benefit Research Institute (EBRI) was founded in 1978. Its mission is Workers Americans Americans Americans of workers) of retirees) Somewhat Confident 53% That’s over $1,000 per year, which could really add up over time. Assuming a modest 5 percent rate of Employees prefer wages and/or other benefits 21% 38% Nothing So let’s play ball! So let’s play ball! 10% 1% 22% 42 A Lot Ahead of Schedule 8% 45% So let’s play ball! So let’s play ball! So let’s play ball! 3% 4% 2% So you think you’re preparing well for your retirement, but are you really? Use this quiz to determine your and should not be ascribed to the officers, trustees, members, or other sponsors of EBRI, EBRI-ERF, or their ho we are 47% 22% 23% 47 sponsorship has had a major impact on their 50% to contribute to, to encourage, and to enhance the development of sound employee benefit W Household Has Saved for Retirement 80% 62% 52% 49% 73% financially for their retirement. Delegates participated in two separate breakout sessions: The first focused on A large portion of workers are seasonal, part time, or high turnover 18 40 39 Very Confident Less than $5,000 A Little Ahead of Schedule26% 5 4 24% 4 5 19% 6 2 31% return, saving $20 a week would result in more than $50,000 over 25 years! For information on getting Deferred Profit-Sharing Plan 3 3 Jun. Attitudes That Define Personality Types Age 54 or Younger 9% 14% and the Small Employer Retirement Sur Retirement Readiness Rating (R 50% ). Your R is an indicator of how good a job you’re actually doing in finan- vey programs and sound public policy through objective research and education. EBRI is the only private, nonprofit, staffs. Neither EBRI nor EBRI-ERF lobbies or takes positions on specific policy proposals. EBRI invites com- Vehicles Used to Save for Retirement 40% ability to hire and retain good employees (an Business-Related Reasons. Employer's Ability $5,000–$9,999 7 5 45% 9 increasing participation in retirement plans, and the latter focused on preserving assets saved for retirement. Somewhat Confident On Track 47 40 42 51 34 26 44 Age 55 to 59 13 19 If you are married, you and your spouse should each fill out your own Ballpark Estimate worksheet If you are married, you and your spouse should each fill out your own Ballpark Estimate worksheet If you are married, you and your spouse should each fill out your own Ballpark Estimate worksheet If you are married, you and your spouse should each fill out your own Ballpark Estimate worksheet If you are married, you and your spouse should each fill out your own Ballpark Estimate worksheet A 401(k) plan 10% 39% 77 68 20% 58 73 30% cial preparation for retirement. It may help you flag some action items that, up to now, you may have started, check out ASEC’s nonpartisan, Washington, DC-based organization committed exclusively to public policy research and education on The Power to Choose brochure (www.asec.org or 1-800-998-7542). 47% 40% 12% When it comes to planning and saving for retirement, there are five different personality types with dis- Revenue is too uncertain to commit to a plan to Hire and Retain 13 45 ment on this research. $10,000–$24,999 A Little Behind Schedule 10 25 8 23 12 26 additional 40 percent report a minor impact). 40% Not Too Confident 18 24 33 38 18 Delegates received agenda background materials prior to the forum to assist in their preparation for the 35% Age 60 12 6 taking your marital status into account when entering your Social Security benefit in number 2 below. taking your marital status into account when entering your Social Security benefit in number 2 below. taking your marital status into account when entering your Social Security benefit in number 2 below. taking your marital status into account when entering your Social Security benefit in number 2 below. taking your marital status into account when entering your Social Security benefit in number 2 below. Traditional Pension/Defined Benefit Plan Jul. A savings account or certificate of deposit Good Emplo 70 yees 65 61 66 economic security and employee benefit issues. EBRI’s membership includes a cross-section of pension funds, The business is too new 11 22 neglected or overlooked. And if you have, it provides some resources to point you in the right direction and Not At All Confident $25,000–$49,999 A Lot Behind Schedule 89 27 8 8 15 13 10 416 tinctly different attitudes toward spending, saving, investing, and retirement: Planners (27 percent of all Not At All Confident 40% Ages 61 to 64 10 31 by Dallas L. Salisbur One-third (34 percent) of small plan sponsors y, EBRI; Ruth Helman, MGA; Pamela Ostuw, An individual retirement account 57 36% 42 33 60 breakout discussions. Cost and Administration-Related Reasons. 35% 7% 35% 30% 42% Not Too 20% Confident 31% businesses, trade associations, labor unions, health care providers and insurers, government organizations, and $50,000–$99,999 14 17 10 34% 1. How much annual income will you want in retirement? (Figure 70% of your current annual gross income just to help you get started! Very Confident Age 65Major Impact Minor Imp 28 act No Imp 10act 32 If you scored 6–10, you have work to do. Nineteen percent of American workers fall into this group with Cash in a safe place Source: Employee Benefit Research Institute, American Savings Education Council, and 17 26 26 15 32% Americans), Savers (23 percent), Strugglers (16 percent), Impulsives (18 percent), and Deniers (15 percent). report that plan sponsorship has had a major Employee Stock Ownership Plan (ESOP) It costs too much to set up and administer Source: Employee Benefit Research Institute, American Savings Education Council, and Mathew 9 33 $ 30% Aug. service firms. $100,000 or More 21 31 8 26 maintain your current standard of living. Really.) Age 66 or Older 19 13 25% A 403(b) plan Mathew Greenwald & Associates, Inc., 2000 Minority Retirement Confidence Survey. 7 Table 4, Amount Accumulated for Retirement 6 9 7 Watson Wyatt Worldwide; and Paul Y Required company contributions are too expensive akoboski, ACLI 8 43 Greenwald & Associates, Inc., 2000 Retirement Confidence Survey. Don’t Know/Refused 25 26 22 21 Somewhat Confident impact on employee attitude and performance you. There’s a 60 percent chance you have begun to save. If not, choose to save! Fifty-six percent of 30% 11% 37% 19% 33% Five keynote speakers were featured throughout the course of the forum. Lawrence H. Summers, secretary of Never Retire 4 NA A Keogh account 6 4 6 8 Answer each question (truthfully!) and enter the points earned (indicated in parentheses) on the line pro- Too many government regulations 3 24 2. Subtract the income you expect to receive annually from: 19 Employee Attitude by Workers: 2000......................................................... 8 20% SIMPLE Plan 16% 34%16 49% Sep. T (an additional 49 percent report a minor impact) able of nonsavers in this group say they could put away $20 per week. Assuming a modest 5 percent rate of 20% Have Other Savings or Investments 47 39 28 42 Source: Employee Benefit Research Institute, American Savings Education Council, and Planners and PerformanceSavers Strugglers Impulsives Deniers Treasury, announced plans for the National Partners for Financial Empowerment (NPFE). U.S. Reps. Ben- 1 Other Reasons. vided. EBRI’s work advances knowledge and understanding of employee benefits and their conditions will allow them to start a plan within the next they expect to work for pay after they retire. Sixty-seven money they will decreases, while expected reliance on Social Security special report on the minorities data collection was of full-time employ- Nearly half of today’s workers expect to retire at age 65 One implication of these findings is that The year 2000 th cent indicate they began saving because they wanted to 100 full-time workers) regarding retirement plans and retirement. confident about having very retirement plans. households have confident and are most likely to say (18 percent) think 16 percent). Likewise, 6 percent are workers are not confident about this aspect of retire- Table 5, Retirement Readiness Rating by Worker and SEPs—the savings incentive match plan for employ- The 2000 SERS data collection was funded by • Social Security—If you make under $25,000, enter $8,000; between $25,000 - $40,000, enter $12,000; Source: Employee Benefit Research Institute, American Savings Education The year 2000 represents the 10 anniversary of the Retirement Confidence Survey Household Has Done a Retirement 4% 30% 20% 47% hat we do Vesting requirements cause too much money to go to short-term employees Mathew Greenwald & Associates, Inc., 2000 Retirement Confidence Survey. 15% 3 35 savers say they automatically save a predetermined (chart 7). (7 percent). W 20% 18 18 jamin L. Cardin (D-MD) and Rob J. Portman (R-OH), discussed the prospects for pension reform legislation return, saving $20 a week would result in more than $50,000 over 25 years! For information on getting importance to the nation’s economy among policymakers, the news media and the public. Council, and Mathew Greenwald & Associates, Inc., 2000 Retirement over $40,000, enter $14,500 (For married couples - the lower earning spouse should enter either their percent of Hispanic-Americans, 62 percent of Asian- need to have saved couple of years. increases as age increases. In comparison with actual funded by grants from 13 organizations, with staff time progress is being made at the individual worker level, or later, a proportion that has seen little change since ees participated in represents the ment. Just 18 percent of Asian-Americans are not • live comfortably in retirement and not fear being poor. grants from 10 organizations, with staff time donated by related issues. The survey was conducted within the The normal retirement age for full Social Security enough money for less than one-half Therefore, some attempted to do this they would cut back on very confident (up from 3 percent in that money from an KEOGH Plan Savings Needs Calculation Very Confident 57 ees and simplified employer pension). These results 44 31 50 Confidence in Having Enough Money for Oct. (RCS), and the third year for the Minority RCS and Small Employer Retirement Survey Don’t know where to go for information on starting a plan 2 5 (Percentages saying statement describes them very well or well.) By comparison, among nonsponsors, only -$ 7 amount each pay period or each month (67 percent), but It does this by conducting and publishing policy research, analysis, and special reports on employee benefits issues; 10% 10% • Thinking it is just common sense to save (7 percent). Confidence Survey. own benefit based on their income or 50% of the higher earning spouse’s benefit, whichever is higher) 1. Have you (or your spouse) personally saved any money for retirement? Do not include Social Security and implications for retirement security and personal savings. Kenneth S. Apfel, commissioner of the Social Contents th started, check out ASEC’s Savers Who Could Save Another The Power to Choose brochure (www.asec.org or 1-800-998-7542). Once you’re The benefits for the owner are too small 3 23 experience reported by the youngest retirees, current were small employers may calculation. Savers somewhat Americans, and 58 percent of African-Americans think by the time they donated by EBRI, ASEC, and MGA. RCS materials and dining out or entertain- but much work remains. In particular, the data indicate 1995) and 29 percent are somewhat employer will be 1991 (45 percent in 1991; 47 percent in 2000). In contrast an employment- What would lead to increased plan coverage? 10 anniver- confident they will have enough money to take care of Roughly 1 in 10 each cite advice from family or friends EBRI, ASEC, and MGA. SERS materials and a list of United States between Jan. 3 and Feb. 4, 2000, through highlight the need for education of employers in order to benefits is rising from age 65 to 67, but 54 percent of retirement appear 4% 26% 16% Retirement: 2000 ......................................................... 54% 8 (SERS). holding educational briefings for EBRI members, congressional and federal agency staff, and the news media; and 11 percent report that not offering a retirement EBRI $20 per Week for Retirement 69 73 3 69 8 77 others cite less systematic methods as the primary taxes or employer-provided money. Saving could include money you put into a plan at work, such as a • Traditional Employer Pension – a plan that pays a set dollar amount for life, where the dollar amount Owner has a deferred compensation arrangement 1 3 I am disciplined at saving. Security Administration, discussed Social Security in the context of Internet-based information and services. 93% 82% 69% 47% 34 Simplified Emplo 10% yee Pension (SEP) 5% Not At All Confident 0% 20% 40% 60% 80% 100% Nov. saving (or if you already are), get a plan. Only 12 percent of this group has tried to figure out how much 6 workers age 55 and over are more likely to anticipate sary for the (9 percent), not being able to count on Social Security confident that be making a prema- were asked if they retire (35 percent they will work for pay in retirement. Two-thirds of all Nonsponsors were read a list of items and asked if any a list of underwriters may be accessed at the EBRI Web ment. Even at conservative rates of return, saving $20 that future educational efforts need to include a focus on confident (up from 18 percent) that the their most important to these expectations, however, most retirees report based retirement basic expenses during their retirement. Similarly, likely to be falsely confident. Table 6, Expected and Actual Retirement Age: 2000 underwriters may be accessed at the EBRI Web site: 15-minute telephone interviews with 300 companies with expand plan sponsorship. workers expect to be eligible for full benefits before .... 9 Introduction sponsoring public opinion surveys on employee benefit issues. EBRI’s Education and Research Fund -$ (EBRI-ERF) Nonsavers Who Could Save $20 depends on salary and years of service (in today’s dollars) Other reasons 6 6 strategy they use to save for retirement. Almost 1 in 10 plan has had a major impact on their ability to I always research and plan for a big purchase. 401(k). 91 89 Nonsavers are most likely to say having no 85 81 28 0 Frank Sesno, senior vice president and Washington bureau chief of CNN, discussed the role of the news media 4% 18% 18% Source: Emplo last 11–19 years. One-fourth think their retirement will yee Benefit Research Institute 59% , American Savings Education Council, and Mathew workers from the RCS indicate they expect to work for that Social Security will be their most important source in 1993; 53 percent would make them seriously consider sponsoring a site: www.ebri.org/rcs. getting workers to calculate how much they need to save plan in 1997. actual retirement ages younger than age 65 (table 6). per Week for Retirement Retirement 0 51 22 percent of African-Americans are not confident. (9 percent), and realizing that time was running out www.ebri.org/sers. a retirement plan and 300 companies without a retire- they actually will be, and 17 percent admit they do not 55 60 61 they were doing a ture decision not to thought it would be per week can compound to a significant nest-egg over Medicare system will continue to source of retirement they need to save. Take 10 minutes to do the performs the charitable, educational, and scientific functions of the Institute. EBRI-ERF is a tax-exempt organization Ballpark Estimate The message from the surveys’ results is clear: worksheet (www.asec.org or 1-800-998- Text Table 7, Expected and Actual Most Important Source E I pay off my credit cards at the end of every month. MPLOYEE Key RCS findings over the past 10 years include: 91 89 12 10 -$ 29 • Part-time income 1993 1994 1995 1996 1997 1998 1999 2000 Yes (4) No (0) _____ points hire and retain good employees (58 percent Greenwald & Associates, Inc., 2000 Small Employer Retirement Survey. each indicate they save whatever is left over at the end Thrift Savings Plan income or not being able to afford it (23 percent) and Dec. with regard to savings issues. 1992 1993 1994 1995 1996 1997 1998 1999 2000 0 supported by contributions and grants. last 20–24 years (25 percent), 9 per-cent believe it will of income (28 percent versus 16 percent) and less likely Over the long run, 10 to 20 years, I believe stocks good job of prepar- sponsor a plan, reasonably possible in 2000). pay in retirement (67 percent). retirement plan. Percentages who say the following time. and accumulate for retirement. Such an exercise appears provide benefits of at least equal value. income. However, retire- For many retirees, this earlier retirement was Confidence However, 41 percent of Hispanic-Americans respond that (8 percent). A large percentage of Asian-American savers ment plan. Within each sample, quotas were established More and better education programs should be part of know when they will be eligible. -$ 7542) and establish a savings goal! Source: Employee Benefit Research Institute, American Savings Education Council, and Mathew of Retirement Income: 2000........................................ 9 21 • The fraction of workers saving for retirement has trended upward, and today Worker Expectations • Other report no impact at all), and 6 percent report that BENEFIT Source: Employee Benefit Research Institute, American Savings Education Council, and Mathew having too many current financial responsibilities of the pay period or the end of the month (9 percent) and 1993 3% 1994 11% 1995 21% 1996 1997 1998 65% 1999 2000 Introduction in general will be a very good investment. ..................................................................... 3 86 61 57 77 46 Source: Employee Benefit Research Institute, American Savings Education Council, and Mathew Greenwald Greenwald & Associates, Inc., 2000 Small Employer Retirement Survey. Source: Employee Benefit Research Institute, American Savings Education Council, and Mathew Greenwald to cite money from an employer-funded retirement plan also say they do not know what motivated them to begin last 25–29 years, and 2 in 10 expect it to last 30 years or ing financially. In based on incomplete for them to save $20 would lead them to consider plan coverage are: to motivate positive behavior changes among many The majority of workers, however, are ment plan not by design. More than one-third of today’s retirees say Survey (RCS), and the third year for the Minority RCS Other Asian- they are not confident they will have enough money for • Table 8, Minority Worker Confidence in Having to ensure adequate representation by size of business. The fraction of workers who have attempted to any long-term efforts focused on improving the retire- 2. Have you (or your spouse) tried to figure out how much money you will need to have saved by the time Greenwald & Associates, Inc., 2000 Minority Retirement Confidence Survey. 80 percent of households report that they have begun to save. 403(b) 2000 I enjoy financial planning. & Associates, Inc., 2000 Retirement Confidence Surve 84 y. 63 60 62 =$ 19 save when they feel they can afford to (8 percent). Three not offering a plan has had a major impact on & Associates, Inc., 2000 Retirement Confidence Surve (22 percent) are the reasons they do not save for retire- y. This is how much you need to make up for each retirement year: This is how much you need to make up for each retirement year: This is how much you need to make up for each retirement year: This is how much you need to make up for each retirement year: This is how much you need to make up for each retirement year: 2000 RCS At the end of the forum, delegates were presented with a menu of initiatives that emerged from the previous .......................................................................... 3 Source: Employee Benefit Research Institute, American Savings Education Council, and Mathew Greenwald & Associates, Inc., RESEARCH Many of today’s workers will not be eligible to receive more (19 percent). Sixteen percent are unable to say how • (21 percent versus 39 percent). As the population ages, findings weaken workers. Furthermore, while all workers may not do this they retired earlier than planned (36 percent). Based on participation is An increase in business profits and Small Employer Retirement Survey (SERS). A clear 69% basic expenses in retirement (14 percent of all workers saving for retirement (15 percent). Asian-American calculate how much they need to save for retirement In theory, each sample of 1,000 yields a statisti- 2000, 3 in 10 are information. more per week than not confident that these programs will Americans also cite you retire so that you can live comfortably in retirement? ment income security prospects of American workers. EBRI Issue Briefs Enough Money to Live Comfortably Throughout are monthly periodicals providing expert evaluations of Saving Motivators The Retir I think anyone can have a comfortable retirement, if they just ement Readiness Rating If you scored 11–15, you’ve taken the first big step. Now take the second! Twenty-eight percent of 1% 7% 22% 70% 2000 Retirement Confidence Survey. employee attitude and performance (67 percent percent save unanticipated income or gifts as their ment. Other reasons workers give for not saving are: day’s breakout sessions and from Treasury’s outline of objectives for NPFE. Delegates were first asked to rank ur publications Retirement Confidence ............................................... 4 full benefits from Social Security until they are age 67, plan and save. 82 long they expect to be retired. 67 79 63 47 reality sinks in. Yes (3) employee benefit issues and trends, as well as critical analyses of employee No (0) _____ points very confident, they are currently these positive • successfully, the mere act of trying can itself be an continue to provide benefits equivalent personal savings, past RCS surveys, this is typically due to negative notably lower among small employers. According to BLS Business tax credits for starting a plan message running through the findings of these surveys O Money Purch • ase Plan The fraction of workers who have attempted to calculate how much they need to save 65 are not confident). nonsavers are most likely to say that they have not cal precision of plus or minus 3 percentage points (with has risen noticeably over the past several years. Furthermore, education of potential plan sponsors about Retirement: 2000 ....................................................... 10 INSTITUTE Now you want a ballpark estimate of how much money you’ll need in the bank the day you ® American workers are in this group, and 90 percent of them have begun to save for their retirement. report no impact at all) (chart 8). It is likely that • It takes too much time and effort (15 percent). primary strategy, and 10 percent use some other strat- I am willing to take substantial financial risk for substantial Chart 8 Preparing for Retirement the initiatives (on a scale of 1 to 9, with 9 being the highest) based on how likely each is to achieve maximum 5 benefit policies and proposals. Each issue, ranging in length from 16–28 pages, thoroughly explores one topic. ........................................... 5 EBRI The top reason African-Americans savers begin saving but most continue to be unaware of this phased increase The Retirement Readiness Rating is designed to indicate is the value of education and information. The RCS While just 7 percent of workers expect to rely on 46 percent of full-time workers in small private while half are somewhat confident (table 1). The propor- saved because lots of time remains until retirement saving for retirement. A large majority of savers in each Today’s retirees are most likely to rely on Social trends, however. The amounts that workers have • educational process and involve a certain degree of to those received today (71 percent not circumstances beyond their control, such as health money provided by an employer, and Social Security data, A plan with reduced administrative retire. So the accountants went to work and devised this simple formula. For the record, for retirement has risen noticeably over the past several years. Today, 56 percent of Table 9, Minority Worker Preparations for 95 percent certainty) of what the results would be if all plan sponsorship options and benefits is every bit as Today, 56 percent of households report that they have When asked about confidence in having enough Obstacles to Plan Sponsorship financial gain. 53 17 22 56 21 egy. such positive impacts from plan sponsorship Impact of Not Offering a Retirement Pl • Health problems (8 percent). an to Employees 3. Do you have an investing or savings strategy for your retirement? However, less than half have tried to figure out how much they need to save. Take 10 minutes to do the Notes is a monthly periodical providing current information on a variety of employee benefit topics. Chart 3 EBRI’s Washington 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Saving—and Not Saving—for Retirement results with minimum resources. The original menu of items (with initial average score): ................. 6 they figure you’ll realize a constant real rate of return of 3% after inflation, you’ll live to for retirement is they realize time is running out to how well individual workers are preparing for retire- in the Social Security normal retirement age from 65 to Security or employer-provided money as their most employment for their most important source of retire- accumulated for retirement are generally low, and many than those who have not to feel confident about having information gathering. This likely explains the finding establishments participated in an employment-based problems or changes at their company. The youngest requirements shows a continuing upward trend in the proportion of 52 money to take care of medical expenses in retirement, tion of workers saying they are confident of having (24 percent). Fewer cite not being able to afford to save thirds in 1994 to three-fourths in 2000 (chart 5). A Americans age 25 and over were surveyed with complete attempted the calculation. of the minority groups indicate that they could. Individu- confident in Social Security; 64 percent most often as their most important source of retirement households report that they have attempted the calculation. important as education of workers regarding the need to I thought that if I just save(ed) some money each month, I Retirement: 2000 ....................................................... 11 (Small Plan Nonsponsors) Bulletin provides sponsors with short, timely updates on major federal developments in employee benefits. Worker Confidence That Medicare Will EBRI’s would not exist for some of these employers, but Yes (2) No (0) _____ points A number of different factors motivate people to • Lots of time remains until retirement (5 percent). A.Ballpark Estimate Create a national media campaign to raise public awareness age 87, and you’ll begin to receive income from Social Security at age 65. worksheet (www.asec.org or 1-800-998-7542) and establish a savings goal! As Yogi (6.9) prepare for retirement (25 percent). Somewhat fewer cite The Retirement Readiness Rating ............................. 8 67. More than half expect to reach full eligibility sooner There are a number of reasons why more small employ- ment. The scale runs from 0 to 25, with those scoring 25 will/would be fine in my retirement. 36 important source of income in retirement (table 7). Just 66 66 27 27 ment income, two-thirds indicate they expect it to be a enough money to pay for medical expenses during als without any personal retirement savings were also people appear to be falsely confident about their retire- • enough money for retirement (table 2). that workers who have attempted such a calculation not confident in Medicare). retirement plan in 1996. retirees—those born in 1933 or later—are especially income. In comparison with other groups, however, Availability of easy-to-understand information workers who have tried to determine how much they 50 36 percent of African-Americans and 37 percent of Asian- • for retirement (19 percent) and it takes too much time slightly larger proportion indicate that they or their accuracy. In theory, each sample of 200 yields a statisti- One-half of workers who have attempted to calculate improve planning for workers’ retirement. This Issue Table 10, Schedule for Planning and Saving for Very Familiar Somewhat Familiar Not Too Familiar Never Heard Of Fundamentals of Employee Benefit Programs offers a straightforward, basic explanation of employee benefit programs Continue to Provide Benefits of Equal Value it is also possible that some of these employers save for retirement. Motivators cited most often are: I am more of a saver than an investor. 30 86 94 12 37 Worker Expectations B. Create and maintain a Web site ................................................... 8 (5.1) needing to save in order to retire (13 percent) and a Berra once said, “If you don’t know where you’re going, you will end up somewhere else.” than they actually will (55 percent). Many of these ers do not offer retirement plans—it is not simply a apparently doing the best job of preparation. The items • One-half of workers who have attempted such a calculation report that it has changed $ major (18 percent) or minor (50 percent) source of need to save for retirement While all workers may not In addition, 6 in 10 of those who have done a The third annual Small Employer Retirement and effort (13 percent). Another 15 percent of Asian- retirement has increased from more than half in 1993 to spouse have saved for retirement (80 percent in 2000). 2 in 10 retirees find that their personal savings are their asked if they thought it would be reasonably possible for ment security. Workers may also find that their • appear to be doing a better job of preparing for retire- likely to report retiring before age 60 or retiring earlier Asian-Americans are more likely to indicate personal Demand from employees 49 Americans say they are not confident. Thirty-one percent cal precision of plus or minus 7 percentage points (with Brief their retirement saving needs report that it has Retirement: Minority Workers discusses the key findings from the 2000 RCS, the ................................. 11 in the private and public sectors. The EBRI Databook on Employee Benefits is a statistical reference volume on employee 4. Have you thought about insurance coverage for long-term care or nursing home needs? 3. To determine the amount you’ll need to save, multiply the amount you need to make up by the factor below. I am not willing to take any financial risks, no matter what the gain. 50% 13 65 32 14 45 • may simply be unaware of the potential business Realizing that time was running out to prepare for Half of workers who are not currently saving for Minority Findings C. Form local-level partnerships ..................................................... 10 (4.4) Source: Employee Benefit Research Institute, American Savings Education Council, and Mathew Greenwald & Associates, Inc., 2000 matter of administrative cost and burden. Cost and Small family event, such as a marriage, birth of a child, or used to compute the score for each worker include saving benefit programs and work force related issues. their behavior, such as saving more and/or changing where they invest their retirement incorrectly expect to be eligible for full retirement most important source of income. In contrast, more than income. This contrasts sharply with the experience of retirement planning has been inadequate because they • needs calculation say they are either ahead of schedule ment. Survey (SERS) provides insights into the challenge than expected. If current workers follow the pattern set Allowing key executives to accumulate more do this successfully, the mere act of trying is in itself an of all workers are not confident of having enough money 7 in 10 in 2000. At the same time, the proportion saying American nonsavers are unable to say why they have not 95 percent certainty) of what the results would be if all resulted in a change in their behavior, such as saving them to save $20 per week for retirement, and more than Not THowever, the amounts accumulated for retire- oo Confident savings will be most important (58 percent) and less 2000 Minority RCS, and the 2000 SERS. I frequently spend money when I do not plan to buy anything. Age you expect to retire: 55 Yes (2) 12 No (0) Your factor is: Table 11, Small Employer Reasons for Not Offering 29 21.0 22 35 _____ points 43 Preparing for Retirement Employer Retirement Survey. benefits of plan sponsorship. retirement (22 percent). 45% Employer's Ability to retirement say that it is reasonably possible for them to D. Inform consumers how to use credit wisely (5.6) parent’s retirement (11 percent), as reasons they began Minority Income in Retirement I find/found it harder to save for retirement than other things. ................................ 10 12 benefits at age 65 (32 percent of all workers), but some administration-related issues do matter, but for many 43 50 32 63 for retirement, completing a savings needs calculation, savings. Workers who have done the calculation appear to be in better shape regarding 60 half of current workers expect personal savings to be 18.9 retirees, just 2 in 10 of whom report that employment is If you scored 16–20, you’re off to a good start. Thirty-five percent of working Americans are in this they are confident of having enough money to take care one-half in each group said they could (table 9). hold false expectations about the age at which they will or on track when it comes to planning and saving for presented by the small employer market. SERS results likely to say Social Security will be most important by today’s retirees, many are also likely to retire earlier in a retirement plan educational process and involves a certain degree of Another implication is that educational efforts 35 to take care of medical expenses, and 50 percent of saved for retirement. ment by workers as a whole are generally unimpressive. members of each minority group age 25 and over were more and/or changing where they invest their retire- a Retirement Plan 11% ..................................................... 58% 13 to Hire and Retain 39 29% 38 • Needing to save in order to retire or to be independent Reinforcing evidence is provided when save $20 per week for retirement (51 percent). In addi- Just when I think I have a handle on my finances, something 40% 5. Minority Preparations When it comes to planning and saving for retirement, would you say that you are on track, a little E. Bring more “unbanked” individuals into the mainstream .............................................. 65 11 16.4 (3.9) saving. The top reason for not saving for retirement Good Emplo believe they will be eligible even before age 65 (22 per- small employers they take a back seat to other issues yees establishment of an investing or savings strategy for The increasing confidence that workers their retirement finances. • be eligible for full Social Security retirement benefits, a major (4 percent) or minor (15 percent) source of retirement (61 percent), while two-thirds of those who focused on small employers should not only inform them show that the lack of retirement plan sponsorship is not than planned and for reasons beyond their control. Lengthening of vesting requirements information gathering. This helps explain the finding 27 of basic expenses remains relatively stable. In addition, The majority of those who are able to provide an amount surveyed with complete accuracy. ment savings. Workers who have done the calculation their most important source of income in retirement Regardless of whether or not they saved, respon- In theory, each sample Key questions (7 percent). Eighteen percent report that money from an Hispanic-Americans are not confident. All groups are Table 12, Most Important Reasons Why Small group—99 percent have begun to save and 91 percent have tried to figure out how much they Contact EBRI Publications, (202) 659-0670; fax publication orders to need to always happens to set me back from my financial goals. 10 44 73 71 71 small plan sponsors were asked why they offer a in retirement (11 percent). 70 tion, 7 in 10 workers who are already saving report that 13.6 ahead of schedule, a lot ahead of schedule, a little behind schedule, or a lot behind schedule? ubscriptions/orders Saving Motivators F. Education materials tailored to low-income immigrant cultures ..................................................... 12 (4.3) S (table 11). given by African-Americans who are not saving is that retirement, and attitudes toward various aspects of feel about various financial aspects of 35% cent of all workers). Almost 2 in 10 workers say they do (table 7). Only 2 in 10 workers expect to rely most on 38 retirement income. Current workers age 55 and over are the age they will retire and the length of their retire- • have not done this calculation feel they are behind about their plan options and what the various options simply an issue of administrative cost and burden Other that workers who have attempted such a calculation Many workers—particularly those who plan to 6 (202) 775-6312. Subscriptions to least likely to be confident of having enough money to the increase in the proportion of workers who are very have accumulated less than $50,000, and almost one- of 300 yields a statistical precision of plus or minus also appear to be in better shape regarding their dents were asked whether they thought they were on EBRI Issue Briefs are included as part of have been used Low plan employer will be their most important source of income. It is pointless to plan for retirement because it is too far away Major Impact Minor Impact No Impact Plan Sponsors Offer a Plan ...................................... 15 save. But are you on target? Seventy-four percent say they could save another $20 per week for retire- government regulations.” Therefore, 20 percent of potential business advantages resulting from plan plan. The top two reasons reported as most • Feeling they could not count on Social Security A lot ahead of schedule (2) A little ahead/On track (1) it is possible for them to save an additional $20 per week Behind Schedule (0) _____ points29 G. Promote consumer financial literacy in grades K–12 (7.0) 2000 RCS Underwriters • Worker confidence in the ability of Social Security to maintain benefit levels bottomed +$ 4. If you expect to retire before age 65, multiply your Social Security benefit from line 2 by the factor below. they cannot afford to do so (23 percent). Eighteen percent The Small Employer Challenge to know what I will need. EBRI membership, or as part of a $199 annual subscription to .................................... 12 4 not know when they will be eligible to receive full 25 Twenty-one percent say employee preferences for EBRI Notes 17 and EBRI Issue Briefs. 3 Individual copies are 49 preparing for retirement. their retirement may be the result of employer-provided money, and only 1 in 10 expect Social more likely to say they expect to work in retirement confident in their overall retirement income prospects track, ahead of schedule, or behind schedule when it ment, and the sources of their income in retirement. This schedule (68 percent) (table 3). entail in terms of cost and administration, but they involved in establishing and running a plan; it also work the longest and, therefore, may be more at risk for appear to be doing a better job of preparing for retire- pay for long-term care, such as nursing home or home fourth of all workers have saved less than $10,000 6 percentage points (with 95 percent certainty) of what retirement finances and preparation. to track trends sponsorship 30% nonsponsors cite a ment. So if you are not on target, put a little more away. Forty-three percent of this group have not cost and/or administration-related sponsorship, may lead some small employers to a prema- Small Employer important are 1) competitive advantage for the (10 percent). I think preparing for retirement takes too much time and effort. 3 (69 percent). Among those who say they could save this 27 11 5 37 available with prepayment for $25 each (for printed copies) or for $7.50 (as an e-mailed electronic file) by calling Employee Attitude Not At All Confident Obstacles to Plan Sponsorship H. Help employees with financial retirement planning Age you expect to retire: out in 1994 and 1995. Workers today are just as confident as they were in 1992, ................................. 55 13 Your factor is: 8.8 (6.3) do not save because they have too many current financial © 2000. benefits from Social Security (17 percent). Only 18 per- wages and/or other benefits are the most important changes in the way they are preparing Based on the results of this scale, fewer than 6% 26% 67% (59 percent) than retirees under age 66 are to indicate will be particularly true if current workers follow the should also focus on the potential business benefits that involves the financial reality of running a small busi- an unplanned early retirement—may be preparing for an ment: One-half have altered their saving behavior as a In this year’s survey, half of those who have • may be the result of positive changes in planning and toward retirement. While respondents age 35 and over Char the results would be if all businesses with five to 100 Security will provide their most important source of Regarding overall retirement confidence, Hispanic- comes to planning and saving for retirement. Fewer than ts in retirement rates health care, should they need it during retirement. Fifty- Minority Preparations 2000 RCS 6. How confident are you (and your spouse) about the following issues related to retirement? Would Interesting and Performance reason as the most important reason for not offering a 25% ture decision not to offer a plan. The 2000 Retirement Confidence Survey was underwritten by grants from the following organizations: AARP, thought about long-term care insurance. Have you? EBRI or from www.ebri.org. Change of Address: EBRI, 2121 K Street, NW, Suite 600, Washington, DC 20037, (202) • business in employee recruitment and retention Advice from family and friends (9 percent). 60 $20 per week, 19 percent say they would not have to give 4.7 although the majority remain not confident in Social Security. Employee Is Knowledge (or Lack of Knowledge) an Issue? I. Encourage more employers to offer retirement plans ..... 14 (6.5) reason for not sponsoring a plan. Having a large portion 26 responsibilities, and 10 percent say it takes too much 1 in 10 American workers appears to be doing a very for it, as many American workers have cent are able to give the correct age at which they income. This strongly suggests an absence of under- pattern set by today’s retirees. (See box on p. 20 for that they actually worked (30 percent). Looking at the attempted to do the calculation say that they have made can result from plan sponsorship. Given such informa- ness—revenue streams that are uncertain and/or a unrealistically short retirement. Half of men reaching result of attempting such a calculation, they are more eight percent of Hispanic-Americans are not confident of saving behavior as shown later. have generally accumulated more than younger respon- full-time workers were surveyed with complete accuracy. Americans tend to be the least confident among the 1 in 10 in each minority group say they are ahead of confidence and among you say that you are very confident, somewhat confident, not too confident, or not at all confident… 775-9132; fax number, (202) 775-6312; e-mail: Publications Subscriptions@ebri.org. Membership Information: Inquir- plan. American Academy of Actuaries, American Council of Life Insurers, American General Retirement Services/ trends emerged Many nonsponsors are unfamiliar with the (35 percent), and 2) positive effect on employee 20% • Asian-American respondents are most likely to say that The availability of a retirement plan at work Challenge up anything to do so. Those who would have to sacrifice Benefit J. Publish best practices in personal financial literacy Chart 1, Worker Confidence in Having Enough (4.2) time and effort. An additional 13 percent of African- Potential Motivators for Retirement Plan will be eligible for full retirement benefits and 6 percent of workers who are seasonal, part-time, or high turnover 5. Multiply your savings to date by the factor below (include money accumulated in a 401(k), IRA, or similar good job of preparing for retirement (8 percent with score become more proactive in their retire- standing of what will be needed in retirement by most earliest years in which this question was asked, respon- schedule (table 10). Forty percent of Asian-Americans, Confidence in Social Security and Medicare has Personality Types and Retirement.) changes in their retirement planning as a result (51 per- tion, some small employers may actually ask themselves business that is too new to consider a plan. In addition, it age 65 can expect to be alive at 82, and some will make it likely to be saving for retirement and tend to haveth having enough money to pay for this type of care, while dents, just one-fourth of those age 35 and over report surveyed minority groups that they will have enough There are other possible sources of error in all retirement small a. …that you are doing a good job of preparing financially for your retirement? ies regarding EBRI membership, and/or contributions to EBRI-ERF should be directed to EBRI President Dallas Somewhat Confident from the 10 VALIC, Aon Consulting, AT&T, Barclays Global Investors, Charles Schwab, CIGNA Corporation, Fidelity So, while cost and administrative issues do different retirement plan types available to them as attitude and performance (21 percent) (table 12). • Regarding overall retirement confidence, Hispanic-Americans tend to be the least 18 Research they and/or their spouse are saving for retirement, retirement plan). If you scored 21–25, you are among the few. Only 8 percent of working Americans scored at this level. Money to Live Comfortably Throughout Preparations for Retirement Sponsorship K. Promote “negative election” as a default 401(k) design feature ........................................................... 15%15 (6.8) American nonsavers are unable to say why they have not believe they will be eligible later than they actually is cited by 18 percent. Therefore, 38 percent of those of 21–25) (table 5). More than 3 in 10, with a score of ment planning and preparation. -$ dents have consistently said they expected to work in cent). Among them, 54 percent say they have started to if they can afford involves work force issues—employees with preferences to 100 and older, while half of women reaching age 65 accumulated larger amounts, they are more likely to Salisbury at the above address, (202) 659-0670; e-mail: salisbury@ebri.org not to sponsor a retirement plan. 46 percent of all workers, 46 percent of African-Ameri- fluctuated over time, reaching its lowest levels in 1995 having saved at least $100,000 for retirement (24 percent planning behavior for much of the 10 years of the RCS, surveys, however, that may be more serious than theo- money to live comfortably throughout their retirement Americans; this misunderstanding may be mitigated by 34 percent of African-Americans, and 26 percent of employers Very confident (2) Somewhat confident (1) Not too/not at all confident (0) _____ points Conclusion annual RCS: matter, they are not the primary reasons for low plan potential plan sponsors, especially the options created Institutional Retirement Services Co., Financial Engines, Hewitt Associates, John Hancock Mutual Life Institute-If you want to retire in: confident among the surveyed minority groups that they will have enough money to live 10 years Your factor is: Very Confident 1.3 followed by African-Americans (table 9). More than half 0% 20% 40% 60% 80% 100% Retirement ................................................................... 4 Conclusion L.You are saving, you have tried to determine how much you need to save, and you have a savings and/or Promote accessibility to financial planning and investment advice for individuals ...................................................................... 16 (6.2) Planners are the clear leaders in their preparations for retirement, followed closely by savers. Deniers are without plans cite some sort of employee-related reason saved for retirement. 16–20, appear to be doing a good job (35 percent), and Seven in 10 workers in the will be. the annual mailing of Social Security benefit statements, retirement at far higher rates than they actually have save more, and 26 percent have changed the allocation of for cash and nonretirement benefits and/or employees can expect to be alive at 86, and some will make it to 100 report being on schedule or ahead of schedule with their 10% cans, and 43 percent of Asian-Americans are not (chart 2 and chart 3). Currently, 7 percent of workers are of those ages ages 35–44; 27 percent of those ages 45–54; is an issue that policymakers have continually revisited retical calculations of sampling error. These include even though numerous changes have been made in the years. Hispanic-Americans indicate they are on track, while Chart 5 Retirement Confidence 6 sponsorship rates among small employers. In fact, based Insurance, Lucent Technologies, Milliman & Robertson, Inc., mPower/401k Forum, National Council of La 15 years • The fraction specifically for small employers and designed to be less 1.6 Education comfortably throughout their retirement years. of Hispanic-American households have begun saving for Source: Employee Benefit Research Institute, American Savings Education Council, and Mathew Potential Motivators for Retir M. Promote retirement asset preservation/rollover through use of waivers recognizing forgone ement Chart 2, Worker Confidence That Social Security b. …that you will have enough money to take care of your medical expenses when you retire? 2 RCS and SERS Methodology Among Hispanic-American savers, 23 percent ........................................ 17 as the most important reason for not offering a plan. almost 3 in 10 appear to be doing an okay job (28 percent 2000 survey say they have a savings or investing strategy for your retirement. Evaluate your progress periodically to make sure you stay on Percentage of Workers Sawhich began in 1999. ving for Retirement worked. furthest behind—and least confident—about their retirement. very confident that the Social Security system will 66 percent of Hispanic-Americans, 55 percent of African- their money, while who are largely seasonal, part time, or high turnover. and older. Yet almost 2 in 10 workers expect that their retirement saving, and they have a greater degree of confident of having enough money to pay for long-term over time, and yet the gap persists. refusals to be interviewed and other forms of questionnaire. The picture portrayed by these trends is 3 and 25 per-cent of According to data Editorial Board: Dallas L. Salisbury, publisher; Steve Blakely, managing editor; Cindy O’Connor, production and distribution. Any 20 years 5% 1.8 RCS and SERS Methodology Greenwald & Associates, Inc., 2000 Small Employer Retirement Survey. of workers who and Research on small employer responses, they are not the Raza, Nationwide Financial, OppenheimerFunds, Principal Financial Group, Prudential Retirement Services, most costly to establish and administer (chart 6). One-third retirement. Savers use a number of different vehicles for Very confident (2) Somewhat confident (1) Not too/not at all confident (0) Will Continue to Provide Benefits of Equal _____ points 2000 RCS Underwriters future accumulation ................................................ 18 3 (6.7) This year’s survey reveals that almost 3 in 4 workers are say realizing time was running out to prepare for views expressed in this publication and those of the authors should not be ascribed to the officers, trustees, members, or othe Thirteen percent of nonsponsors say that the r with score of 11–15). Two in 10 appear to be doing a poor investing strategy for their retirement 25 years 2.1 smaller percentages retirement will last for 10 years or less (18 percent), and Plan Sponsorship confidence in their overall retirement income prospects. track. Is there anything you might have missed? Almost 20 percent of this group have not thought Furthermore, it is just as important to note what care. Key findings from the third annual SERS include: continue to provide benefits of at least equal value to the from the Bureau of Labor Statistics (BLS), generally optimistic—slight upswings in retirement nonresponse, the effects of question wording and ques- Americans, and 44 percent of Asian-Americans feel they Expected reliance on personal savings as the those ages 55 and in a com- are Fund. very confident in their overall retirement income 80% important reasons for the majority of nonsponsors: 0 (33 percent) of nonsponsors say they have never heard of 76% Society for Human Resource Management, TIAA-CREF, T. Rowe Price Associates, The Vanguard Group, and Key SERS findings include: this purpose. Majorities of retirement savers in each sponsors of the Employee Benefit Research Institute, the EBRI Education and Research Fund, or their staffs. Nothing herein is Table 2 to 30 years Value ............................................................................ 2.4 5 2000 Minority RCS Underwriters N. Require automatic rollover of lump sums as a default design feature ................................ 18 (6.7) most important reason for not offering a plan is that confident of having enough money to live comfortably retirement was the reason they started to save for job (19 percent with score of 6–10) and 1 in 10 seems to (70 percent), and 4 in 10 have thought The RCS is a survey that gauges the views and attitudes Planners most important source of income increases as age Savers Strugglers Impulsives Deniers have made other small employers an additional 15 percent believe their retirement will These and other findings in the RCS support the point without plans do not know about plan • benefits received by retirees today (up from 3 percent in pletely voluntary system (on the part of employers) that tion order, and screening. While attempts are made to confidence are backed by significant changes in retire- There are multiple reasons why most small employers are behind schedule. over). about long-term care insurance. Have you? Minority Findings 1992 1993 1994 1995 1996 70% 1997 1998 1999 2000 All rights 7. How well does each of the following statements describe you? Would you say it describes you Employee-related reasons are most often cited as the prospects increased from 19 percent in 1993 to 26 per- WorldatWork. be construed as an attempt to aid or hinder the adoption of any pending legislation, regulation, or interpretative rule, or as the savings incentive match plan for employees 69% legal, Worker Confidence in Financial Aspects of Retirement 35 years 2.8 • While cost and administrative issues do matter to small employers, they are not the minority group report having used 401(k) plans and The potential exists for increased plan sponsor- O. Promote financial planning tools and Web sites through SSA benefit statement mailings Chart 3, Worker Confidence That Medicare Will Table 5 (6.9) 4 retirement, and 21 percent report the fact that they need throughout their retirement years. This is almost 2000 SERS Underwriters of working and retired Americans regarding retirement, .............................................. 18 revenue is too uncertain for the company to commit to a be doing a very poor job (9 percent with a score of 0–5). about insurance coverage for long-term 70% 1995), and 21 percent are somewhat confident (up from Many individuals in each minority group say changes. (See sponsorship. Small employers that that expanding financial literacy must be a national goal accounting, actuarial, or other such professional advice. do sponsor a retire- involves a number of rules and regulations, ment planning and saving activities. minimize these factors, it is difficult or impossible to do not offer a retirement plan. Some are employee- Respondents 79 percent reserved. 64% very well, well, not too well, or not at all? By Calculation of Retirement Savings Needs: 2000 Minority Income in Retirement cent in 2000 (there was a corresponding decrease in 40 years 3.3 most important factor for not offering a plan, and Workers and Retirees (SIMPLE), and an additional 19 percent report that they 63% For the third year, additional respondents in three ® primary reasons for low plan sponsorship rates. Employee-related reasons are most 62% Source: Employee Benefit Research Institute Retirement Readiness Rating by Worker , American Savings Education Council, and Mathew Greenwald savings accounts or certificates of deposit. Also used to ship among small employers. Sixteen percent of Continue to Provide Benefits of Equal Value ............ 5 The Choose to Save Forum on Retirement Security 61% identical to the proportion of workers expressing confi- to save if they want to retire motivated them. Somewhat their preparations for retirement, their confidence with plan. Having a business that is too new is cited by Not surprisingly, those with household income of $75,000 care or nursing home needs (41 per- Ballpark Estimate, ment plan report that offering a plan has a positive if Americans are to achieve economic security in their quantify the errors that may result from them. related, and others are business-related or cost and Over the past eight years, the proportion of reporting that they or a. I am disciplined at saving. Very/somewhat confident will have enough money to take & Associates, Inc., 2000 Retirement Confidence Survey. those who are somewhat confident, from 55 percent to Confidence in Having Enough Money business-related reasons, such as profitability, are also a are not too familiar with SIMPLE plans. The same holds minority groups (African-Americans, Hispanic-Ameri- EBRI Issue Brief often cited as the most important factor for not offering a retirement plan. Business- is registered in the U.S. Patent and Trademark Office. ISSN: 0887-137X 0887-137X/90 $ .50+.50 African-Americans are most likely to expect that per- =$ Total additional savings needed at retirement: Total additional savings needed at retirement: Total additional savings needed at retirement: Total additional savings needed at retirement: Total additional savings needed at retirement: save for retirement by large proportions of respondents 2000 Minority RCS Under 60% writers companies without a retirement plan say they Chart 4, Percentage of Workers Having Tried to and Personal Saving The delegates then re-ranked the top five initiatives emerging from the first-round voting (six in practice, ................................................. 19 Very Table 7 Somewhat Not Too Not at All Table 10 11 percent. Therefore, 24 percent of those without plans Table 12 dence in 1993, the first year this question was asked. fewer indicate a family event, such as a marriage, birth or more are more likely to score highly, but those who regard to various aspects of retirement, and related cent). More than half say that they care of basic expenses in retirement. 96% 88% 84% 84% 70 % p. 21.) impact on both their ability to attract and retain quality retirement years. workers who are very confident of having enough money administration-related. The RCS, Minority RCS, and SERS were co- their spouse have Very well (2) Well (1) Not too well (0) Not at all (0) _____ points for Retirement: 2000 main decision-driver. This may explain why plan spon- 47 percent over the same period). for simplified employee pensions (SEPs); 54 percent of Table 1 Confident Confident Confident Confident cans, and Asian-Americans) were surveyed as part of the related reasons, such as profitability, are also a main decision-driver. are individual retirement accounts (IRAs) and cash in a Very/somewhat confident are doing/did a good job preparing Expected and Actual Most Important Source of Retirement Income: 2000 sonal savings will be their most important source of 2 Most Important Reasons Why Small Plan Schedule for Planning and Saving are very likely to start offering a plan in the next since there was a tie for the no. five spot), after a period of discussion on their relative merits and shortcom- Calculate How Much Money They Will Need to of a child, or parent’s retirement motivated them to Personality Types and Retirement ............................... 20 Most recently, the Small Business Job Protection Act of 1996 created the cite some sort of business-related reason as the most However, in comparison with 1993, workers today are are married, those who receive retirement savings personally have tried to calculate how issues. The 2000 survey was conducted in January and employees and on the attitude and performance of their The SERS makes clear the value of information • sponsored by the Employee Benefit Research Institute to live comfortably throughout their retirement years Most small employers without plans are largely done a needs calcula- Don’t panic. Don’t panic. Don’t panic. Don’t panic. Don’t panic. 50% Those same accountants devised another formula to show you how much to Worker Confidence in Financial Aspects • W The 2000 Minority Retirement Confidence Survey was underwritten by grants from the following organizations: orker confidence in the ability of Social Security to sorship rates remain low despite repeated legislative financially for retirement. 96 nonsponsors report that that they have never heard of 83 for Retirement: Minority Workers 76 73 53 Sponsors Offer a Plan Minority RCS. Results of the survey show similarities as Nothing contained herein is to be construed as an attempt to provide legal, accounting, actuarial, savings incentive match plan for employees (SIMPLE), a simplified retirement safe place at home or safe deposit box. All respondents income in retirement (43 percent). This includes both two years, and an additional 23 percent are Save for Their Retirement Have Enough Money for Retirement .......................................... 6 b. I am not willing to take any financial risks, no matter what the gain. ings. The final-rank ordering was: Will Have Enough Money to Live Comfortably more likely to be very confident and less likely to be begin saving (12 percent). The most common reason cited Ballpark Estimate February of 2000 through 20-minute telephone inter- ......................................................... 21 important reason for not offering a plan. information from an employer, and those who expect to much money they will need to have saved by the time who indicate they have tried to do a retirement needs employees. The survey results indicate that many small by highlighting the lack of knowledge among many Could we send a friend or colleague a complimentary save each year in order to reach your goal amount. They factor in compounding. That’s (EBRI), a private, nonprofit, nonpartisan public policy has increased slightly from less than 20 percent to more unaware of the plans that have been created specifi- Did you read this as a pass-along? Stay ahead of employee benefit tion are not only Have saved for retirement. 7 93 81 75 of Retirement 78 45 Expected Actual Saving—and AARP, WorldatWork, AT&T, Charles Schwab, CIGNA Corporation, Eli Lilly and Company, Hewitt Associates, plan with fewer administrative requirements, specifically for small busi- maintain benefit levels bottomed out in 1994 and efforts to boost them. • It is important to note what small employers without plans do not know about plan SEPs, and an additional 16 percent say they are not too well as differences between individuals in these groups. Throughout Their Retirement Years. personal savings for retirement through a plan at work were asked whether they currently had any other financial planning or other such professional advice. Any views expressed in this document should not somewhat likely. Twenty-nine percent of Very well (0) Well (0) Not too well (1)Chart 5, Percentage of Workers Saving for Not at all (2) _____ points Retirement Readiness Quiz 1. Create a national media campaign to raise public awareness. where your money not only makes interest, your interest starts making interest as well, .......................................... 22 issues with your own subscription to EBRI Issue Briefs for only $49/ Very/somewhat confident will have enough money to live 40% (percentage of workers) Nine percent say the most important reason is (percentage of retirees) somewhat confident of having enough money (chart 1). by Hispanic-American nonsavers for not saving is that rely primarily on personal savings (either through a views with 1,000 individuals (779 workers and 221 they retire so that they can live comfortably in retire- copy of EBRI Issue Brief? nesses. Employers with 100 or fewer employees on any day during the year calculation are unable to state the amount they will need All African- Hispanic- Asian- company nonsponsors may not be aware of such poten- small employers that do not sponsor a retirement plan. Competitive Advantage in Employee Recruitment and Retention than a quarter (19 percent in 1993; 26 percent in 2000). research organization; the American Savings Education cally for them (i.e., SIMPLE and SEP plans). more likely than 35% All Very Somewhat Not National Council of La Raza, Nationwide Financial, OppenheimerFunds, Principal Financial Group, T. Rowe Done needs calculation 38% 47% 12% 3% 1995. Workers today are just as confident in Social sponsorship. Small employers that familiar with SEPs. By comparison, very few do sponsor a retirement plan report that offering Not Saving— Regarding overall retirement confidence, His- Doing a Good Job Having Enough for Having Enough for savings or investments in addition to what they may comfortably throughout retirement years. creating a snowball effect. 92 and retirement savings outside of work. Sixteen percent and who do not maintain another employment-based retirement plan can year electronically e-mailed to you or $99/year printed and mailed. 81 71 Workers 70 Americans Americans 51 Americans nonsponsors report that they are not too likely to 2. Promote negative election as a default design feature. Positive Effect on Employee Attitude and Performance 3Retirement ................................................................... 21 7 be ascribed to the officers, trustees, members, or other sponsors of the Employee Benefit Research they have too many current financial responsibilities Rthat it costs too much to set up and administer a plan. Score Workers Confident Confident Confident Still, two-thirds of those who are confident in the 2000 retirement plan at work or outside of work) or employer- retirees) age 25 and over. Random digit dialing was used ment. This represents a sharp increase over the to save. Fifteen percent calculate that they need to save Not done needs calculation 10 49 26 15 tial business benefits from plan sponsorship. In addition, Most small employers with plans report real business • Council (ASEC), a partnership of more than 250 private- Larger increases are found among those who are very or Small employers that sponsor plans report direct those who have not to Security as they were in 1992, though the majority Price Associates, The Vanguard Group, and WorldatWork. Most important source of income will be/is Personal Savings (net) adopt SIMPLE plans, which can be either a SIMPLE individual retirement 53% Preparing Financially Medical Expenses 20% Basic Expenses c. If I just save some money each month, I will be fine in my retirement. a plan has a positive impact on both their ability to attract and retain quality nonsponsors say they have never heard of or are not too 30% Employers Have an Obligation to Provide a Plan for Workers For more information about subscriptions, visit our Web site at 13 panic-Americans tend to be the least confident that they Is Knowledge (or Lack of Knowledge) have put aside for retirement. Approximately 4 in 10 expect that money provided by an employer (i.e., a start a plan, and 31 percent are not at all likely. Chart 6, Familiarity of Retirement Plan Options for Retir 3. ement Promote consumer financial literacy in grades K–12. Will Have Enough Money to Take Care of (24 percent). Twenty-two percent say they are not saving survey are somewhat confident rather than very confi- to obtain a representative cross section of the U.S. Institute, the EBRI Education and Research Fund, the American Savings Education Council, Mathew Eight percent say the most important reason is that funded plans are also more likely to score highly. percentage of respondents who reported having tried to less than $250,000, 1 in 10 each figure they need to save TSend an issue to ables many nonsponsors are unaware of the plan options advantages from sponsoring a retirement plan for their account (IRA) or SIMPLE 401(k). and public-sector institutions dedicated to raising public somewhat confident that they are doing a good job of business benefits as a result, such as a positive impact be saving for retire- personal savings. Money respondent put into a retirement plan at work 62 37 32 43 55 5 23 A Lot Ahead of Schedule 3% 2% <0.5% <0.5% 6. To determine the ANNUAL amount you’ll need to save, multiply the TOTAL amount by the factor below. Tax Advantages for Employees 8 remain not confident. Very well (0) Well (0) Not too well (1) www.ebri.org or complete the form below and return it to EBRI. Not at all (2) employees and the attitude and performance of their employees. The survey results familiar with 401(k) plans. Very Good (21–25) 8% 24% 4% 1% Basic Expenses During Retirement. will have enough money to live comfortably throughout pension or an employer’s contribution to a retirement Asian-Americans and African-Americans report such =$ 6 Those likely to start a plan are more Among Small Employers Without Retirement 4. Most important source of income will be/is Social Security. Promote financial planning tools and Web sites through SSA benefit statement mailings. 6 18 1993 21 2000 1993 10 2000 34 1993 2000 an Issue? Other personal savings, not including work-related retirement plans required company contributions are too expensive; A Little Ahead of Schedule 20 4556 15 for dent—that is, they should have enough money to live because they cannot afford to do so, and 15 percent think do this calculation in the 1993 through 1997 surveys population. Minority RCS findings are based on addi- The Retirement Readiness Rating shows that 3 Employees Demand or Expect It between $250,000 and $499,999 (9 percent) and between 5 available to them, in particular the ones created specifi- workers, such as greater ability to recruit and retain Greenwald & Associates, Inc., or their staffs. awareness of what is needed to ensure long-term per- preparing for retirement (70 percent in 1993; 79 percent on recruiting and retaining good employees, and a ment (88 percent If you want to retire in: 20% 10 years Your factor is: Good (16–20) .085 35 59 35 11 See U.S. Department of Labor, Bureau of Labor Statistics, Employee Done needs calculation 57 38 3 2 • Organization Similar findings emerged for Medicare, with worker indicate that many small company nonsponsors may not be aware of such potential Furthermore, there are potential business The proportion of 2000 SERS Underwriters their retirement years (table 8). Hispanic-Americans also Workers Only Employer-Funded Plans 19 29 Table 1, Worker Confidence in Financial Aspects savings, while approximately 3 in 10 Hispanic-Ameri- account) will be their most important source of retire- On Track 40 34 26 40 likely than those that are not to report that the 5. Promote preservation/rollover through the use of waivers recognizing forgone future accumulations. Tax Advantages for Key Executives Plans .......................................................................... 5 14 it takes too much time and effort. Twenty percent of 15 years Benefits in Medium and Large Private Establishments, 1997 Okay (11–15) 3 percent, the most important reason is “too many .052 28 14 36 , Bulletin 2517 28 comfortably in retirement if everything goes right. many workers may be falsely confident regarding their (chart 4). tional oversamples of minority group workers, d. I think preparing for retirement takes too much time and effort. Not done needs calculation 25 $500,000 and $999,999 (12 percent), and 2 in 10 say they 50 13 12 cally for small employers, such as the SIMPLE and SEP good workers and/or a positive impact on employee Name in 2000) and those who are very or somewhat confident sonal financial independence, and part of the EBRI positive impact on employee attitude and perfor- versus 61 percent), Very Confident 23% 30% 22% 25% 40% 43% Have an investing or savings strategy for retirement. Social Security 89 68 11 62 38 74 41 confidence bottoming out in 1995 and 1996. In 2000, business benefits from plan sponsorship. Availability of an Employer Tax Deduction A Little Behind Schedule 25 22 20 2 27 respondents saying tend to be less confident than other groups about specific Nonsponsor responses indicate that revenue stability, (Washington, DC: U.S. Government Printing Office, 1999). Poor (6–10) 19 3 19 33 cans do so (table 9). of Retirement ............................................................... 4 ment income. The same percentage (16 percent) say they most important reason they do not currently Will Have Enough Money to Take Care of 20 years Chart 7, Impact of Offering a Retirement Plan to .036 Address 6. Require automatic rollover of lump sums as a default design feature. 10% these Hispanic-Americans are unable to say why they specifically African-Americans, Hispanic-Americans, and The increase in the proportion of workers saying Very well (0) Well (0) Not too well (1) Not at all (2) _____ points retirement prospects. Although those who are very However, 28 percent of the 2000 respondents need to save $1,000,000 or more (21 percent). attitude and performance. However, their peers without Have tried to figure out how much money they will need to Somewhat Confident in having enough money to pay for medical expenses Education and Research Fund; and Mathew Greenwald mance. 46 49 33 they also tend to 44 43 43 The 2000 Small Employer Retirement Survey was underwritten by grants from the following organizations: Employment A Lot Behind Schedule 7 27 2 32 46 17 worker confidence in the ability of Medicare to main- Very Poor (0–5) 9 0 5 27 that they have Medical Expenses During Retirement. 25 years 4 Organization .027 financial aspects of retirement. Forty-five percent of work force issues, and cost and administration concerns expect Social Security to be most important. Half of Asian-American households and more Table 2, Worker Confidence in Financial Aspects of have a plan is because their business is too new. ASEC/EBRI-ERF The Employee Retirement Income Security Act of 1974 (ERISA) is the Employees (Small Plan Sponsors) ............................ 15 have saved by the time they retire. Sale of Home or Business 77 Not Too Confident 52 4 18 54 13 58 3 24 19 25 11 8 7 Don’t Know 1 2 2 10 have not saved for retirement. they are very confident of having enough money for their confident about having enough money for retirement are Asian-Americans (200 interviews were conducted within Source: Employee Benefit Research Institute, American Savings The large amounts that need to be saved do not 5plans appear largely unaware of these direct potential • The Small Business Job Protection Act of 1996 created a simplified during retirement (55 percent in 1993; 68 percent in & Associates, Inc. (MGA), a Washington, DC-based 6 It appears that many small nonsponsors are unaware have accumulated City/State/ZIP WorldatWork, American Society of Pension Actuaries, Charles Schwab, CIGNA Corporation, Nationwide Done needs calculation 33 Plans exist in which employers as plan sponsors are not legally required to 49 13 4 See U.S. Department of Labor, Bureau of Labor Statistics, • In addition, many nonsponsors are unaware of the plan options available to them, in 30 years Employee .020 Suite 600 tain benefit levels is above that of 1992. 0% federal law that governs the operation of private retirement plans. For a full personally saved for Have thought about insurance coverage for long-term care ® Not At All Confident 11 8 18 12 5 6 Hispanic-Americans are not confident that they are are all major factors in their decision not to currently Other Government Programs 3 3 than 4 in 10 African-American households have tried to Retirement, by Calculation of Retirement Savings Education Council, and Mathew Greenwald & Associates, Inc., 2000 Small Hispanic-Americans cite personal savings most They are less likely to say it is because a large For full information on the Choose to Save Forum on Retirement Security and Personal Saving, go online at retirement plan for small business (100 or fewer employees) called the savings Chart 8, Impact of Not Offering a Retirement Plan to Source: Employee Benefit Research Institute, American Savings Education ASEC Seventeen percent of Asian-American savers say Address make contributions. For example, employer contributions are not required retirement may be the result of small, but significant, more likely than others to score highly, only one-fourth each of the three groups). Benefits in Small Private Establishments, 1996 2121 K Street NW Not done needs calculation , Bulletin 2507 (Washington, 14 seem to discourage workers about their retirement 37 26 21 1994 35 years 1995 1996 1997 1998 .016 1999 2000 business benefits, and furthermore are largely ignorant Financial, OppenheimerFunds, Principal Financial Group, Transamerica Insurance & Investments, T. Rowe discussion, see Paul Yakoboski, “Overview of the U.S. Employment-Based 2000). Workers are also more likely than in previous market research firm. of these potential business benefits from retirement larger amounts or nursing home needs. particular the ones created specifically for small employers, such as SIMPLE and SEP 53 33 46 42 23 Source: Employee Benefit Research Institute, American Savings Education • The fraction of workers saving for retirement has 1 incentive match plan for employees (SIMPLE). A SIMPLE plan can be either Employer Retirement Survey. retirement has sponsor a retirement plan. In addition, however, there is doing a good job of preparing financially for their retire- Your Name How did you do? Add up your points and see page 23 to see how you stack up Under current law, the normal retirement age is being phased up from age 65 Washington, DC Council, and Mathew Greenwald & Associates, Inc., 2000 Retirement Confidence with a 401(k) plan—the sponsor could choose not to match participant Total Score: _____ points figure out how much money they will need to have saved DC: U.S. Government Printing Office, 1999). Needs: 2000 ................................................................. 6 often as their expected most important source of income portion of their workers are seasonal, part time, www.choosetosave.org 40 years Retirement Income System,” Employee Benefit Research Institute Policy .013 increases in confidence about various financial aspects of they started saving for retirement because they need to The SERS was designed to gauge the views and Employees (Small Non Plan Sponsors) .................... 15 receive scores in the 21–25 point range (table 5). Source: Employee Benefit Research Institute, American Savings Education Council, prospects. In fact, those who report they or their spouse of the options that have been created in law specifically Source: Employee Benefit Research Institute, American Savings Education Council, and Mathew Greenwald & Associates, years to be saving for retirement (61 percent in 1994; plan sponsorship. The 2000 RCS data collection was funded by (table 4). Price Associates, The Vanguard Group, and WorldatWork. Source: Employee Benefit Research Institute, American Savings Education Council, and Mathew Greenwald & Associates, Inc., an individual retirement account (IRA) for each employee or a 401(k) plan. It Council, and Mathew Greenwald & Associates, Inc., 2000 Minority 20037-1896 to age 67. In effect, this is a cut in future benefits from current levels for Source: Employee Benefit Research Institute, American Savings Education Council, and Mathew retirement plans. Therefore, some small employers may be making a premature City/State/ZIP Survey. contributions and to pass the administrative costs on to the plan. However, if trended upward over time, and today 80 percent of AMERICAN increased over time Forum, The Next 25 Years of ERISA: The Future of Private Retirement Plans ment. In comparison, 27 percent of African-Americans, the possibility that a lack of familiarity with available in retirement (32 percent). Twenty percent expect Social by the time they retire so that they can live comfortably Table 3, Schedule for Planning and Saving for or high turnover. It therefore appears that they 2000 Retirement Confidence Survey. Mathew Greenwald & Associates, Inc., 2000 Retirement Confidence Survey. Inc., 2000 Retirement Confidence Survey. is too soon to fairly evaluate the impact of SIMPLE plans on the small Retirement Confidence Survey. retirement. In 1993, less than one-fourth of workers were save in order to be able to retire. An additional 15 per- attitudes of America’s small employers (with five to affected individuals. Therefore, many of the workers who say they are Greenwald & Associates, Inc., 2000 Retirement Confidence Survey. the 401(k) is established as a SIMPLE plan, then company contributions are have done a retirement needs calculation are more likely for them as potential plan sponsors (i.e., SIMPLE plans See? See? See? See? See? It’s not impossible or even particularly painful. It just takes planning. And the sooner you start, the better off you’ll b 76 percent in 2000) and to have calculated how much grants from 26 public and private organizations, and the Two-thirds of e. 202-775-9130 or (Washington, DC, Dec. 1, 1999). decision not to sponsor a plan based on incomplete information. Source: 2000 Retirement Confidence Survey. households report that they have begun to save for Sfrom almost two- AVINGS employer market. 24 percent of Asian-Americans, and 21 percent of all plan options, along with a lack of awareness of the in retirement (table 9). Three in 10 Hispanic-American Retirement: 2000 ......................................................... 7 Security to be most important, and almost as many required. feel continued improvement in their business Mail to: EBRI, 2121 K Street, NW, Suite 600, Washington, DC 20037 202-659-0670 This worksheet simplifies several retirement planning issues such as projected Social Security benefits and earnings assumptions on savings. Fax 202-775-6360 Mail to: EBRI, 2121 K Street, NW, Suite 600, Washington, DC 20037 or Fax to: (202) 775-6312 EDUCATION It also reflects today’s dollars; therefore you will need to re-calculate your retirement needs annually and as your salary and circumstances www.asec.org or Fax to: (202) 775-6312 change. You may want to consider doing further analysis, either by yourself using a more detailed worksheet or computer software or with ® www.ebri.org COUNCIL EBRI Issue Brief Number 222 • June 2000 • © 2000. EBRI the assistance of a financial professional. ©Copyright, American Savings Education Council of the EBRI-ERF. All rights reserved. 8 4 14 10 12 20 6 18 22 2 16 24 June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief 5/00 June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief June 2000 • EBRI Issue Brief 11 17 23 19 21 15 13 7 9 3 1 5 Issue Brief Issue Brief Percentage of Workers Percentage of Workers Percentage of Workers Percentage of Workers Percentage of Workers

Volume 222

Pages 24

EBRI Issue Brief

Dallas Salisbury

Ruth Helman

Pamela Ostuw

Paul Yakoboski

Retirement