- 4 - - -8 -7 - - 5 - - 2 - - 3 - - 6 - J PREPARE would require minimum benefits, therefore, for 14 million since social security has a substantial impact on total compensation workers not now participating in a plan but meeting the ERISA Conclusion oo Were one to assume that utilization by income group Employer o Of this sponsored non-agricultural plans hadERISA generated population $653 billion (25-1-1000) in and may adversely affect savings,and employer sponsored pension plans. Introduction standard, and about 34 million participants. The distribution of STATEMENT OF Retirement savings is highly desirable. Additional retirement was the same as at present, and that only non-agricultural o Refundable tax credits for individuals: available evidence o 74% From work 1950 for to employers 1980 the tax sponsoring cost of plans, social 68.3% securityparticipate, went from accumulated assets by the end of 1980. Private funds grew at I am Dallas L. Salisbury, Executive Director of the Employee non-participants is important DALLAS L. to SALISBURY an assessment of cost-impact savings is necessary if America,s elderly are to maintain pre- private sector workers ages 25-64 with one year of service and 55.7% are vested. indicates 3% of the that first such $3,000a provision in earningscould($6,000 increase in 1967 individual dollars), a 12.4% annual rate between 1950"1979; public funds at an 11.1% Benefit Research Institute (EBRI). I want to thank you for giving and the location of EXECUTIVE future retirement DIRECTOR savings: retirement standards of living. While it is possible that this o Whileand the working participation more than rate half grew time bywere 23% to between open IRA's, 1950-1979, 2.63 initiative, to 12.26% ofparticularly the first $25,900 for lower in earnings income individuals. (10,335 in 1967 Recent annual rate. The net inflow of funds in 1980 exceeded $16 billion us this opportunity to appear. EBRI was established in 1978 o approximately EMPLOYEE 67% work BENEFIT for employers RESEARCH INSTITUTE with fewer than goal cannot be achieved, progress can be made. The interrelationships million IRA's would come into existence. Assuming an participation in absolute numbers grew by 263%. surveys dollars). indicate that nearly 75% of workers would take and as present plans mature and new plans are formed this amount to meet the growing need for professional analysis and compre- i00 employees; MAY i, 1981 and complexity of our retirement savings programs, other private average contribution of only $750 per IRA would produce can be expected advantage toofgrow. such a savings opportunity. oThese Of those increases who have servebeento with (i) reduce their current employee employer dollars for available hensive, practical, objective research on employee benefits. In o approximately 48% work for employers with fewer than 25 The Future of Retirement Savings in America and public $1.97 programsbillion and the in total economyannual in general contributions. must be carefully Inclusion o Increased contribution limits: available evidence indicates for voluntary more thansavings 5 year_and 66%(2)are reduce vested; employer for more dollars than available 10 years, Dependent on whether one accepts research indicating a positive keeping with our role as a non-lobbying educational and research employees ; A Hearing of the explored, however, if we are to avoid unintended disruptions. of public sector workers could add several hundred thousand that such changes could be expected to have an immediate effect net savings 78% are contribution vested. With resulting time these from employer numbers will plan Move contributions towards for providing employee benefits or cash compensation. Additional organization, I will today review information on the potential o approximately 68% Select have Committee annual incomes on Aging below 15,000 dollars additional IRA's. EBRI hopes that its comprehensive research program will of 35% orfor80%those per with dollar,IRA's1980today, contributions particularlyrepresent if the a15% net test is increases are already in the law, and increasing benefits would 80% and 100% respectively. They will 0row as news plans scope of retirement savings in the future and potential implications per year ; U.S. House of Representatives As previously noted, however, there is evidence that some of eliminated. addition be able toto savings increase of understanding between $5.6 and of these $12.8 proposals billion dollars. and thus require are additional formed. revenues. Since research indicates that at best of pending proposals. o approximately 58%Ninety-Seventh have been withCongress their current employer this oexpansion Five yearwould vesting: be at PREPARE the expense suggests of existing a change plans in cliff and could lead to more effective decisions. social security does not increase savings (and may decrease savings), o Of those now participating in a plan 9.2% hold vested Retirement Savings Without Polic Z Change Individuals also make a First substantial Session direct contribution to less than 6 years. mitigate new employer plan formation. vesting from 10 years to 5 years. Such a change could be Thank you for giving us this opportunity to appear. I would while individual and pension contributions do increase savings, the rights in another plan from previous employment. Through social security, individual efforts, and employer retirement savings. Through IRA's and thrift-savings plans PREPARE would create new costs for employers who do not now expected to increase vesting for those with 5 or more years be pleased to respond to any questions. impact of policy changes could be significant. o Of those not now covered by an employer plan 14.3% sponsored programs, retirement income security is sought. To PREPARE suggests a number of changes to encourage individual additional billions of dollars have been set aside. Present trends have plans partially offset by tax credits. of service from the present level of 66% to approximately o PREPARE would expand IRA eligibility to those covered by employer hold vested rights from previous employment° meet the objective of that security there must be a careful initiative in saving for retirement and employer incentives for indicatePREPARE that would the IRAincrease is increasingly plan costs being for almost used andallthat existing the 80%. The change would increase total benefit payments, but sponsored plans: the effect of this change could be balance between benefits and costs, and concentration on the plan creation. The interrelationships of these changest w_th other o Pension plan growth was dra_.atic prior to ERISA, but thrift-savings plan is becoming extremely popular. Research indicates defined benefit plans -- approximately 30 million of 34 million for those leaving at just over 5 years values would be low. substantial. avoidance of mis-allocating scarce dollars. provisions of PREPARE should be carefully explored. In addition that the following utilization passage of thrift-savings net new plan creations plans is relatively dropped from consta 54,601 nt participants -- due to the nature of present funding practices. The effect on retirement savings would depend upon whether oo IRA's would become available to at least 8.7 million The "PREPARE" package of proposals authored by Chairman Pepper there are implications for total government revenue and expenditures across income groups, including very low earners. This is attributed in 1974 to 3,494 in 1976. The initial negative response to This would occur since the 4% contribution rate would generally the costs of faster vesting were met by long term contribution workers who are presently covered by an employer presents a broad range of changes intended to strengthen all of the to be understood. Without making a judgement on appropriateness ERISA appears to have been overcome, however, with 56,063 toexceed the fact today's that contributions all employees for receive employees the same below degree age 50of inemployer defined increases or benefit reductions. sponsored plan but do not participate. noted components of the system. certain net observations new plans on created PREPAREin are 1980.possible. matching. In the future, the role of such vehicles will continue to benefit plans. oo IRA's would become available to at least 43.5 million o Minimum private benefits: PREPARE would provide a minimum PREPARE maintains the minimum participation standard established o Tax credits for employers: Since present trends indicate grow. Based While upon this both is desirable, short and long its impact terms trends on employer employersponsored sponsoredplans The effect of such a minimum benefit proposal on existing workers who presently participate in an employer private benefit to all participants, or the 49.7 million by ERISA in 1974. The protection provided by employer sponsored that new plan formation is occurring and can be expected to deserves coverage, more participation study. There and is evidence vesting Can that beIRA's expected cause toa increase reduction in plans would have to be carefully assessed: ERISA experience indicates sponsored plan. workers who would meet the ERISA participation standards if plans, and the expansion that might occur with PREPARE, are both substantially occur in the in the future, future. tax credits should increase plan creation participation if that option exists. that termination of many defined benefit plans might result. The adverse important. their employer had a plan. This acceptance of the ERISA rates. It should be understood, however, that several hundred effect on the present high rate of new plan creations could also Retirement Savings and Proposed Leqislative Changes standard recognizes the ten years of study that led Congress thousand businesses report no profits in early years of growth. be significant. And, the effect on the development of other PREPARE includes a number of proposals which could increase to exclude very young and mobile workers from mandatory For such firms a non-refundable tax credit would not have an employee benefit programs, employment levels, firm bankruptcies the cost of the social security program. When evaluating these participation in employer sponsored plans. incentive effect. and formations, and other issues should be explored. Regrettably, changes the effect on other retirement programs should be explored, we have no such research to point the Committee towards.