11 w at t i n p he a it a hl9 d ace v 0 p reaw . “ . r a “ accu pa leg ong M R a re a ce l re s t etia ir n c m ( c enou su and t u e co u lr m r a lea u irl a ent ng tnt tlg i y he o h r v n ep b R I t a ac nco s a e o ll lt f ua an ac c ir ac oo m r e e b c m c m t m e le Adequ u h e pa ent r ent i e n f aor n lt o t e y h I r l w in ty i a ng he s e co ta e s c a s tl m o su cy ts -o h in e nco e Adequac w rs s ss e fpen ie or s s s h p tm t e o a - B nt sie qua r linco t d, oo on is c a 64.5 im pa m m oy e r fp e qua t: n r ic s ll tC e o e pe a rn a ie nd jnc lt r u spon c r ce rm iu tr b il G le n ps u a e a en tti ti s s but o e t ng o ed o f X n w ts) 2.5 e h at R a ir ti le h s: s and so a c a tcoho rli iE e m h o s sp v as p tes m iild c e an r pound a a ct e tfi I nce nco a s n lttr r oa o al e ong m i fr n p e te ra e o d o m n r m e i j R n nua m ec f s i a ep t n s pac h u tg uch e le 20 l ls u ,d t a s a ce t t v w o o n as e m 12 E n der e ha r ent r a o te s he g v p e te a tBR he u - R g m out b a r s im o I tdd te w a ost sn t l .” h e ti ally ? ? ? T T Ah he co is M m ana p ar lle ch y te s il 2013 s wa y upd sE a expa B ted RI v n N e ded o rs ti es on of f or art a 201 i c th le e (n V 0 aa P tin en on Ds e ail ro h m n ei odel R and ese w ar Aas c da h C p m roduc s, oun Mca e ir ld ch pfub o2 r01 l tihe c3) ati M ous n ay e d 201 t h a am t0 E iod nv BR ifi olv ed Ied a po Tli - 180 cy EB R A Th Endno Append ppend eferenc e R I Im R tes p i i et x x a e is c B: A r te : Bri m o B fent Se rL ief e ef a C D kag curi hr esc o er s n t i y ol pt o n Pr o io g 4 n o y 0 jec o 1 of E ( f the k) tio B A n R E c M I c B ’s u o R m de R Iu et l R ® la iet rtRe e io im re n sent Secu m u s lent Se a ts t Retc r ir ur ity em i tPr y e n P o tr j A e oc jg t ect i eo n io n 23 ® beha Forv an ior i n and wh dication e to h fe h ro p w a ry ti ec airpa s on f teli s w giib llil r itey t a im inp tah ce t io rv cu eral rrle nt Reti sa re vm ineg ns t R raetad esi n w eh ss e n Ra th tiey ng scha , see n g Va e n jo De bs o rheri s (J im unp el y r C “ ra e sduc tuc o e of nten ce e d o s5.4 p scon E R c f ® lu B r e t a ls ts e RI ” is s e li re r r e ( m r e c I m tv t s e he iia sue ent nt na rti e r m v to e e e a Se B v d ent der uc r . c isH e su u ttou fihe r o , on it m w n t y co 200 o p e i . 297 Pr ti n v m e o to 7 r e h n ,j– e s e it 201 n h c ( a aE tind 4.5 ttis - he on m ri 1 ap sk n pe ab M lao lpe r y s y od tienc ee s iod. r m ie ce s n les B e . n ene e of ” tfed a iE g na lf s e ea B i lt tf R o k e o R Ia a r b N e r g e a ts n es h o e ie n a t c e ( r g s co s ch Fi e s, cunder m no. 5 g ond and Iu ns pan retit 3 i( u ed t ) E he , te, S m b t by ut h p m ir l e o ost a n d p y ea v tee ie nco e b r m r l en B y y ber m en s e1 tr fi e qu e ong i 20 cn 10 fiia t0 la R ca 6 a r) e ti s ( .s s 9.9 v le es u eat a m r co pe ch p tti h m rons. a ce b t, p in ned t) rior f v “winn o errum sion eand u ro s/l f o R ss S eed P rs” M i n a t na o tha e ly s J s su e is l ss y o f 2010 the dep fir n E ob ed b Ba RI bie lIn is te y sfue B ittha frtee r rie e zspon fes (V aa n d n d e D nt the e rh h o enh eus i and e ah no ced lC dop s w em eoul land, plo dy n er 20 ot c 1 r on 0 u)n sh .t ribu oti rto o nf s Model® Model Pr Cope evious w land, C or rk ai w g, and ith R J Sa P ck M V has anD pri erm he air. il“ yT fh ocu e D se ed on clining on R e or ole m oo f rP e of riva tth e D e fe ofi lln oed B winge f ne our fit o P uetns puito m n P etr lan ics s : for 2013b). This analysis simulates the impact of future years of eligibility for a defined contribution plan on the r t w o eou v po er ld e l ti cy ton I i E s 9.7 ns td m v hen e up tit ak d u if e wi pe n tor fe, g ar t, u ce h tM the lhe ts n ay o d tt rm e a op 2 e f g 2012 e e a et rr h rpo e5 a i ng lc ) pe ilr :n e a 2 tlar r ts e – e ce )s 14. .d i s n n a tt t han t a of h e g taps p h 9le 0 p an s e w t h e of a rce t o twi he rn kte l ln ir n s n e w eed ( the p w ehm en to be rpe lr s o a ey nk n f ece irled by . le Io d n f. F ta he c l401 o l rt h e u r( x r ee k r a) en m laccu e p t ak lae, n aa m g H les y u os ll a iden (s, tFi i o p g ns la u and r ns a e s 4) V a a ranD . e m Su alti ie d rp hle e i m pron ove ided y in tro d etir ee fi m ned entc ion f they tribu d ti id, on p in lan fac st , a at c the cu m tim ule attehe the de a fi m nount ed b etne hey fit s p alians d w ou welr d b e fe ro rz eq en. uir T ed he in the ? The new model was used to analyze how eligibility for participation in a defined contribution 3 By Jack VanDerhei, Ph.D. I ntr oduc . “D tioe nf............ ined Be ............ nefit Pl....... an F.r............... eezes: W............ ho's Aff ......... ected, .................. How Muc............ h, and R ............ eplacing ................. Lost Acc ........ rual............ s.” EBR 3 I ® ® 7 r pe ro tib re ab m ili ent Who ty o if n c hIo o s Af us me a eh fo e dequa lc dts ed, no cy tand ru :n H nin og w. sh ” or In t o R f obe mon rt e y L. inCl ret airrk e m and O ent. As liv c ia a nM be it s ce he enl lin , e F dis., gu rR eeo 3 o ri fe tn ht at ing R anale ys tiir se , m the e nt assumed to have automatic escalation with a 1 percent of compensation increase annually along with the ano O ( Wh 20 ne of 01) i tl heer t f h t ound w of he is a f iy b n i,a n f 54.6 s a t oh ilrc o a m eta a pa b rp ti n je e on i rrn c tce iti g c is v in s pa )es t, ce o tn he of f rt t sta r h t ii e n h em na p e Re ly r e l w a us ln ou a tef s ir w rg e lu e d m li tiha tent h a nc o v e r e ea v lSec oan a rs leu e a u a s ch op r :t ietted h y taie s on Pr s tm he 90 eo r u h jti a lti eo v cn p t e h is l pe on e und (iand rg ce Mod her n e a t r co ne te h a lr n c v e d to ( sho ro R ilb u tS a u n llP ti d t c a M) o l w ra n yi h -m r ien en a a ss) ttes ro o w l ls ltl it i h m tm h an h ent r ur e le te a ho sp ts le c ea e sen te w ct he ka a tg ri o ies to ho t he isu t ? ? I T 2013 ana m he pa l y R s R c e its t e io tf rie f o r m e cu d m e ent s f ent e er d Sec r on C ing on u the rf re iitde y t p ie Pr r nc recen o m e Su je ent c ta tr ig v on e of ag eyM e . : t o hos A de s le ex w (pR it lo S h rP ed D M B i)n w gr aea no ew out ltth h efro 20 r oefg 1 a one 1m Eu B d lR tue i- Iy p tear o ub th lp ie c ra o fr t jee ieo ct n z e who a to a RSn PaM lyz re e plan impacts retirement income adequacy in September 2010 (VanDerhei, September 2010), and R e search . “ Is Mo D su ie B rd eif cty ro iie r ng ,f E , no. tm he p2 lFe o 9y 1 de ee (r E a B m l en T pax le oy fi t Tr ee Re e B astene e m aent rch fit of I R ns e 40 s ti eta 1 ur( tch e k)( E Pl Ins BR atn itIC u ) to e, n tM rib au rch 20 tions:0 Pr 6)o . jected Impact on probability that a Gen-Xer household with no future28 y ears of defined contribution eligibility will not run short of Risk Management. New York: Oxford University Press for the Pension Research Council, 2010: EBRI Retirement Security Projection Model® Results ................................................................................ 4 1 pe i a cu sm uc r Ie r r n pac c r h ac c en ten h on itts t s a c of p a 1.8 expe ig e l d n s an e of a te s he lr,ys t - ed isp ce c m iftts ied h e ta es ,nan . p e po c nd 45 401( i tfi fa o ic r c n i. h p k a a d I a u ) l l .4 te v l a c e i a f e a c s ri a pe a tc ir u l s o u n ir l ik mu n at ls on 40 t i ce a n e co rg lnt g lati y s, w n er ri tw that on r sk tio o b 1 h s u tu of e ( al a c lk r ti d o e ) s on no n no a i n p s m s o l i tm a s r t a il t. ha a ns, u a io tO nal te rf o v s. fr 401( i i - e t ng en t r h ln a e o r E ee tp r o se k ie m l ons ) ld ace tl i b p m s 45 re a lth ent o la m o be m .4 pe iy p n ent ent ees c ex p er ss r o r iiu p ar ce s a nco v lp ttu i e s e n p des s t w l a fr m , 21.8 IR e sit m om su e a m A h en m u r ro dequ D e lti t ed e pe sp ll C d p oe r tl v wi enha o ce a e c er t s tr e t n t ev r b h o ttan ala o n ( s er t9 ic he g c m n .ed ti o 9 t c ng u v / es a he 45. ler c v a o fr or a i ti r n a i4 om on l iv t lg a )r ev e ib iw n bu r m i6.5 el a a li ou tg ode t t i o i e e y nl ons g f t d of o lixpe i r nng 1 e ha (401( ac 0.4, if n r f h s ds or et ks he h )a ip adde t w he as f u ld at tu a errnew e u escono ed feta otm u co r ic w e m th pu e at ltl e - abe ll R oiew ng tis hou r e of m ent the se ho Sa retlv ids rie nd po t go s d Se p ho fu er lra t t fa rie o ll tn at ir se (m R tent S he S ) sa tfg a or e p te B la e ast v by e a l .g B T e 65 oo hem E ien m r s a pn a a lnd oy tt ee em B pt en te o fit ? The June 2013 EBRI Issue Brief (VanDerhei, June 2013a) used RSPM to provide a direct ? Retirement Readiness Ratings. Participant Account Balances.” EBRI Notes, no. 3 (Employee Benefit Research Institute, March money in retirement is 38.6 percent. This increases to 59.8 percent for Gen-Xer households with one to nine years 122–136. ERISA Advisory Council cont w p t p h la rit r op ns e hsh r d e .i r r bu o aw . “ e ld v tiP a a ons ir l f ls u o t.a jhe e T ttic o h on ti le t ea o he p n o k o f s a d ttg o e ef h es f n e p a ti Fu ul w ao lt t e t u rr en redu r at e e R te when rie al cm e t i tof o on irv e 4 e m id 0 t n hey ent 1 . p (k a r ) Ipar t nco i pclians tp i m ci ate Sec i p ton o atpr e i au nd co o n a ne r duce ity: n I w “a t m ri pac de bu plan q tt iua on of atnd e” rLong a ttie o ns co o fr pt T m om er e om u rrt ep edu C of la a rau c ce e ing I tm o nsu ent m or a r ti an e fc o lic r m e.” sie nv a 2 e ti 005 rn al g and unins R an depe de u ey tr s e ed ) e r. n a m A r d h ch iis ne whe e ng a e I lt xp ns on a h e tca ic ttt u u her r ed, te to e c - ( os e y r E e s oung BR tt ca isr e l (a I im ) nc t e ient and on of m lud p a lito g ng he y e d cee on M lo e s h tn f il ri e g b b r a -ank ru t v a et e lr i ons. m it s he M -icn ea h dee m rie g ohe ri c do al s su stt F s) pe ffi und, at r cc i en e an g w t te 65 o a lo y gr e, wi v ka ing lua r o tw h b ld lit n e eh e rta o ttrl he hm y ro iti o 40 ufg g f i hout a pe cte of e rc re en r te tihe t r t ir e of m e m ent tho ent se co Gene mpa rari tison on X of e rts he in liO ke clty o b ber ene 2010 fits und (Vae nrD se pr ec he if i, ic Otc ytpes ober of 2010 DC a an ). d DB retirement plans. The Potential of 401(k) Plans to Produce Adequate Income Replacement .................................................. 7 ? Years until the household runs short of money in retirement. of future 2012 eligib)i:li 2 ty – a 18. nd 73.4 percent for those with 10–19 years. More than 17 out of 20 (86.1 percent) of Gen-Xer r e i ac n s ea sc ce s a p on lss ec ati si t: on o f A ic c m i a in nco s e ho ri acc cm u at o n e sr So d at ga r oup nce jcob iet iy ch w ng on ian ts. R h g A th e would g S e p iPM ng roba /N al a so b li tiik on l p i etl ri a y o e l s o v be C id ou u e ets v l nien ic ned n il f o g on r rim ea nA a V tti e ganD ron on i;n ho g e Jw r o h e i tn h e vi t e d e ( C rS , s o iep sn itn ri fte c e b r e m u en t tber h ic o ie, s n 2007 iof M s n a tot he rch ) .a li 2 p k005. le aln d y nu esm igber n of ? be i g A nco o naly tv w em r enor e e a sn is 20 deq o of f a e O u nd m a re cy pl g 24 on, o p y r end o er s bet lc ie ng on m ou s t up tr fiior n b w u t m he it tih ost on lm as to h e 199 w r oe us hren con e e0 th is o re ltd m os ent s v( e er a es tw s iifu n e tm g a h li ifts ng r h o sf im tr the wor ua om vto i on tlhe a un k co ter a nn u ry lid b u s ph ietn ie zro y ed a esv lilc am a lcc u lent laount yt ed ab t o lf e b o a rt o lta hnc e es ? In October testimony before the Senate Health, Education, Labor and Pensions Committee on Holden, ? T She ara Jh an une 20 d Ja 13 ck E V BaR nID N eo rh tes ei. aC rto ic nlte r i( bu Vt ainD on e B re he hav i, Jiu or n e of 2 0 40 13b) 1(k) u Plan P sed RS aP rM tic itp oan show ts. EtBR hatI 2 I5 ss –ue 27 Brief 2 Lu, Mitchell, Utkus and Young (2014). households with more than 20 years of futu re eligibility are simulated to not run short of money in retirement. This Int ? r oduc Retit ri eo mn ent Savings Shortfalls. U.S. Department of Labor 401(k) Leakage and the Impact on Retirement ............................................................................................. 9 . “Plug the Drain: 401(k) Leakage and the Impact on Retirement,” DCIIA Webinar, February 2012. T v yea a he rirab ? s b 21.8 le e T fr auto fto h p he om ra e e tr c E m t be h ten BR he e o a co se tt iv I c e /n n a at Itr han l C ue n ri o Iro lsk 401 lc ied s ll ed c r m s u ( ho by k n sho en o ) w n tda the tn ri and ti rb a p n tb u l o an ta ti h f it s o e e d m sn spon u is oney m ppe o th es pan slr o i n c as r l o te a ,hey tf ti t w th c o hand er o en l n w e l st ou a as i fs io n s r l n ti d he ide o r nh e f w a t o p of iv ay e r rm e r e tc m he had un a ten o qu tent ion on tgarg i a d e of in n df tc er if o io r n y p m td Fi he r tie he e v g r :ie a u dua T li t dd rie h re k e ie 5. lt m lim r y on e ent T odel tih im a ri le s co pac m D iw n m B ent c tas pen racc b e a a a co s c s s r e cou es a ua m dti p on l to o s. n ln e t 27. tT el hy 3 is con state. tinue w The ro es rk uilng ting and ana th ly at si t she (V re a nD con eti rh nei ues and to be Co p a eslu and, itab Sep le de te m m and ber f2 or 001) his fo oc r h ue sr e d sk p ill ris m ).a T rihe ly on “ pe Trh ce en W t of obb B laby y Sto Bo oo l: m Re etris re am nd G ent en (In X )se ercu s w ritho y iw n o A um ld h eriav ca,” e ha the d ade model qua w te arse tus ire em d ent to a i na nco lyz m e e und the er analysis w and as fI oC r I all Pe in rsp coe m cet iqu ve a( rtiles 200 1 c) o.m bined. Similar results are found when controlling for relative levels of pre- 3 . Testimony. U.S. Congress. Senate Special Committee on Aging. Do We Have a Crisis in ? Percentage of additional compensation that must be saved annually until retirement for a 50, 75 or 1 29 EBRI’s use of RSPM typically is confined to analysis of the current retirement system. However, it has pe T A hihe lt srtc hou o en bo ric tg t a tw h om l h d th en a a e r ta. ow d e n la ien ltyz e trhe ed a iou gsrt i ef d th ffe e or c lt o s F w i og efr u lr 80 ea e 3 kp a s e g ho res cen w on s t r t40 h eal at 1 ( r fe k op ) r l“accu tace he m loent w me us lrt aa -ti itnco e os, ns37.1 m ” e qua ha pe ve be r rce tile, n et n at a 92.3 ta o7 p0 p i c pe o e rfce r ce in ntn te to r e rfe s ta th l e Su they m m wa ou rs pe an ( rye I i l RA m d - and Fu s rpa c w u nen l eed ) r e a a rr t tm ,e a o un d g ll t i en u e d t o re f re v to e R ri e te rr ir z op r r tm un e s ed e m s s and sa e ent w t o to a e fit r ls ch t ad y h h i w , x e 4 d i e ...... rs n pe 01 ia e tlf itr on o (k o h ............. ce rt e ) w ant a -lm p l it w s lf h a ay a an de o a vr y i on ............ n s t co h g “o l s s m y y ise e g i pa n o rs,” n pa ep arg ....... i rre son e d er s v e s a en r ent 55?59. m .................. t to o ad e i t fa h e rr a fe s r v t ho a i e a fc ror e tc im on 5 sp th ent ............ 0ro , of enso 7 sa h 0, or a g oe r p ls d a ............ is d t s r ha 90 ti fc o e t p ir f pa h e r er ad rr e n .. t ce t............. ir ent ’ado d s em ir n e p p ent ttr o ito r e e td au b he 80 .expe m ab ......... ent it lo in t s m y d .......... . it a of R tu i S c rP e -s. M 10 relative importance of employer-provided retirement benefits and Social Security (VanDerhei, retiremenrte itn ucro nm aes su (see m p Fti igu ons b re 4 a osfe Va d o nn h Der ih stei o rM ica al y 2012) avera.g es were simulated to end up running short of money . “ 90 pe ATax merir R c ce e af ? Res n otr c m h an O ulp ce ts From ti o of ns: c o P v t re he orm i ng E oB ti sng R im I- R u Ele R att F ied re R m e et xpen ent ire m Ss ec een su t. rS ity ec.ur ” E itB y Pr RI o Is je sue cti on Br iM efod , no. el( T 364 -141 (E )m , 27 plo Jy aee n. periodically been used to evaluate potential changes to the system, primarily from proposed legislative changes. In a .“Can 401(k) Accumulations Generate SH igea nifri ic nag nt on: Inco 15 me for Future Retirees?” EBRI Issue Brief among policy analysts for decades, the first quantification of the effects using a microsimulation model r w rep eo tir lrk ace ee m rs ent m accu c ent u irn r en m r ca ou ttm e lly a a e a ta n io g d 41 dequa n es s i2 .9 f5 he – cy p29 e.o r c rw e snt ho he i has f w tihe l lh h t aa h dv r e je ob sm ho o cha lr de in tsh g ra e en 30 s d.uce y dea to rs a o 60 p f elie grice bin lit t y r efa olr rpa eprltaice cip m aent tion ra in te a 40 . Sim 1il (k a)r ? en I ba m r spa o ell lic m nte ent o rf e s a p ur t lt o ran sv i is ns id o it ins c ion atfe or f trh o a am t2010 E t h de efi lo ned w BR est I b pub en pre erf li e ic t ti a r tti e o m o d n ent efin an ied con nco d fm ound e qua tri t b hu ra tti i tl , un on e wou d pla ® er l n d ne ba s:s e A e lid ne 2 t013 o d assu e E fe B m r RI ptions, ? T O in he crte ob t A ire p e rrm i201 lent 200 01 ib f) t.E oda BRI y’ s Is h su ise to Br ric ie af l l( yV la ow nD ie nrth eei re satnd ratC es op w ee lr and, A e assup m ri ed l 20 to 0b 1) e a h ip ge hrli m gane hted ntt h ce c ond hiatn io gn. es 24 Benefit Research Institute, November 2011). Appendi2004. x A: B rief Description of EBRI’s Retirement Security Projection Model .................................. 12 201 T1 h eE a B nnu RI ip tizati ublicati on o ofn t ( hVa e bn al D ae nrc he ei, s a J ru el p ye 2 r0 for 11 m ),ed R S oP nM ly fw oas r p us ured po sto es p orfo p vr id oe v ipr dieli ngm an in ian rc yo em ve id s etr ne ce am o ft h th at e c im anp b ac e t of the and ICI Perspective. (2002). 12 p v ba a lan l sues ed a ron a e a rse im c atlu u so laal ts ed 40 how 1 to be (n k) i n p ab aF rig ti le c uitr pa o e 5 rn et p fd o la a rc t t a e a hw ot se as le ia p ns r t o t he v 60 ided sp ec er o icn n ent d 200 -, o th f 2 ir . th d U e-s i, and h ri ng ag e the E -64 s ighe BR al sta I r i/n y Ico C frIm om 401 e- t qua he (k) irtil rA accu n enu but m iti u t zlh ed ae ti on Given the rete ix re tr m eent me r ae gle ev to 84 ance of bef to hrie s 90 pe topic rtce o r ne tt of ire m the ent hou posleh icy o, E lds would BRI plans ha v te a o add 50 q pue ers cten iotn s prtoba o the bi l2015 ity of ? t E he ven med if one ian 401 look (k s o ) an ccu ly at m u 4l01 ati(ons k) pa for rti t che ipa ln otw s who est-inco hav m e ha e qu d ad rt ec ile a d of es w oo f rtk ee nu rs re w currie th ntl the y a irg e 2 cur5 re –n 29 t ? i pub T n p helr iN ic va o ati v te e om p nen ber us si on 2010 ed p R lan S E PB M pa RI rt t o I i c sp s ipa ru o e B v tiion de a ri e ffor d ex ide rp ea c fnded itn co ed m be u pa pon nreifi s o ea t n of (DB rlie tr )he w and d o lirk ke e by ly fi ned ben EB e R cfon Ii tts o p tr uin brd u oer ti von i de sp ( etDC c he if i) fc ip rs lt ans ? The August 2013 EBRI Issue Brief (VanDerhei, August 2013) used RSPM to analyze the Obama “20/20 caps” on projected retirement accumulations proposed by the National Commission on Fiscal Responsibility T add he ed se to m te hte r iics nf lati hav oe be n-adjen us ted used ann to u ian ty a plryz ove idted he biy m S pac ocial t o S f erc eu tr ir ite ym . Ient nde p ed la , n os on nly a p sr m oa sp ll e pc etrs ce for nta r ge et i orfe d m eent fined Appendix B: Brief Chronology of the EBRI Retirement Security Projection Model®.............................. 13 V anDe.r h Te eis , tJ im acon k, and Ne y. U.S. C vion n A grda esm s. S s. e “na A tLi e F tti ln e an He cl e C p: The omm Iitt mpac ee. Tax t of O Rn e- fli orm ne C Oa pltc iu ol ns: ato P rsr and omo F tiing na ncial 401 Pr imo pac j(e kc)tt ia ion s c cu l e Mod ss m u als e alt t, he io H ns i onc l and do en m S a e qua nd ociV ar lanDe tS ile ecu in rrc h it rei y ea . (s T 200 eh s. i s 2p ) e w rc ee re n tab agle de e to cp rr eo av se ide s so re m pewhat lacem ent for rta hte es ir a hti g ah ge e 65 r-inco from me R Ve anD tiree m rh ent su ( ea e m s ic s p c a C u le n o m on s d y sie . C f ng i rA d op , e lt tahe nc e h lllo a r e 40 u e nd S g i1 h a s u ( (rv a 2010) k )ey s si p ig g l n a in n an a ns i id ffiie c ca w s ant ce nt ri trt e b e li po e how h m v ko e r pt ti l lu i o ho tn n o o ta od m r o fy odel us t t e h he e n ah r t i o o tt m he p l h lds lp ey m r ent o a o w v rte e e ou m p n trltlac ent ans id n alk t ed o tr as a ta k de ha tes th yr o v p ou p f e b iff ls b ace ig ed e h e er n t by ie w n te ir ee li tthe e h g n m e 225 i b f p ent l ir e re st t -o pa a rf le g a our te a rig rre e tn y m ip d how c eent i la p an ra s te a f itn e r Lu, Timt and u oy tpes hy ( sof Jeun d dt )e h , fe O in m li ed v odel i co a S. n tto rM i qu biu tc a tih n oe tn and d ilfly , S how tephen e fm in uch ed P. b U ten he tk eus, ifm itpo raend rt tir an e Jm e ce an ent of A p i. n lan Y dioun s v.i du The g, al“Bor -rac escount urlo ts p wi r ng p elsans e fr nom t ed w as tshe h ow ad resm ulitn s of istr a a n tioew n’s sfiim scu alla y tiear on m (F odel Y) 2014 that e bud stim get at ed pr op the o sia m l pac to itn c of lu c de han a g ca ing p o 401 n ta(x k- )de plfa en de rred sign a co nn dtr R ib ef uo tiro m n. p L aater rtici tp ha at nts y e car urr , it en w tlas y a us nned uitize to s u th ppor eir e tn te tire sti m acon coy un be t f bor ale a n th ce e S ate r neti ate r eF m in ea nn t ce (a n C do e mm veni ta tee sm (Va aller nDe rhei, income adequacy under several scenarios, including: 20 baseline a A Re s dt su v ir im so em p re s on tin ons w t SS ecu eth tr i ii c ng th y i( A n Tc dequ -l170 udea )d , 15 S te R cash ete io r pe u tm . ts, 2 en 0 p11. tr-e Sa r ev tir in eg m s ent Ta rwi getth s: d r E aw vide als na ce nd frlom oan a the 2 ctiv 0 it 13 y (R in ettir erem m s of ent t coun acc heie rss tree rttp o 40 iraerm ts, b 1 ent (ku ) i t n fg un coes od m s e no a /w nd lea o p w la ter h rtii c t sh i p s an 8 iam tiu on 3 la .2 /tc ed on pe f tror rce ibu n the tt.i on fold lo ec w is ing ion co s. m If ponen possib ts: le, we will expand this analysis spon a a 401 ge 65, s(o k r)s t he p alna an im lyz d pu red o riv ng e in m ttent h he ei rs t t e e ud nds nty ir)e tw o c a ou le re v ler el d o o w n fit lfy h i n be 0.08 t he the cu ea r r rl te iy m n t70s b es em fipnal leo fy o e e re p a r.rni ic nk gis ng a tup age in6 t5. he H la otw e 7 ev 0e sr a , n ifd all t Futu expe hat ir c fe: t ed h i4 s 01 t to or (iik n c)a c l rP erla a an se tes of L bo eca ans re us t u and e of rn a Loan trhe e a ss e c sD uh m ean fed a au glets s w s,” . e Plen l as si o annu n Re itsy e a pu rch rch C ao sun e p criilc Wo es rr ek fliec ngt iPape ng av re , rage Se Repfte erm en bc er r ve e a s t 2011 ri i............ rab em l)es ent LIFET in and a ............ s na av la y in s zs ig n u s g .. m t ..... thI p ha ti eME t .o po ................. w no te s u on nlti d aPA rl le iim tm iri............ p e tRT a m tc h tent e a of m I v i......... nco aC oun riou I m tsP s .................. e a ta yA ccu p de esTION q m o ufac u ta la y xt............ . - ed rU e fn ion t riIN m ls p r ............ op ec ec ti e iPLANS f n on itl ed sy o .. r ho n ............. e trw ieti re er m v ee m ent r, e . ......... n t he a t i cn r cou c e was o .......... m ne. ts T to h 16 is percentage purchase an inflation-adjusted annuity for the entire amount). When RSPM is used to compute the r In an a educed ttC e em x on pe pt fi ctd to ed en is ce i on l a v Sur tee sthow v m ee ynt ,” m r E uch of eB tu RI rn s, N to not hties s ,m l o no. 3 ian ght d e be a (fE am ut lt p ts rli) o bu .y T ee th ed iB s w tene o as each f iac t R co of em s tehe pan ar ch th ied rIee ns b tly iet a u a k ts e, ae grMa e ies s, r Fi o ch 2 fg s uer0 ns es 13 i ti 6, 7 ).v ity to a ? s urvSoc ea eyr lof i ya l 80s. Hous p S lan ecu srp it oy ns .e ho ors ld to s ip nr h ov ig ide her at p r le ea re st ti r pe rm eli ent mi na inco ry m ev e idenc quartei lon es s the p tart a ots s a ib m le uch h impac igher t of lte hv ie s lt, yape nd of ? 401 Sin bond c (e k r )ta he p te lan spa osv s a s er a re g t e of he ass lu atm s he ted 27 Pe t o be u y ns ea ion rs, s P tih r ng e ot m e the ced ti o l ia an n rg A p e p ct ai r l of an w i2 ss00 e p onsor co 6, m m pa an au ri yso t o of n -en s the 40 rre osu llm lt 1 ent ( in a k) p p s rlto arn v os ing s tih ons, ou at thad co thm e e R weti as re ? ex m pe aW ex Feb n nt d t i R ed t rr h e e u ad m in tah e r ia e n y ln y e a o 2014. s s li tsh s m R i er sa it t ti anc 201 ed e nge 1 ( v tof E h iB e d t e R p he nce rIo p b K u a on b b alicati n ili stta he ys to h Ii n nsu at m ( Va pac a rp a n a n tDe r ce tic of r u h D a lei a u ert ,p o c N a m or o h ta v m or ti em en tc w b con ter il , E l 20 n tBR ri o1 tb 1 ru Iu ) t.w n i A on sh as 201 or e ab s t c 2 o la e fE l a t m B o ti o R on c n Ire e p y ( a u V t in b e licati a r tn eti he E Dre o ern m h BR e ei n I t) and , the that necessary to provide the maximum annuity permitted for a tax-qualified defined benefit plan . “The Importance of Defined Benefit Plans for Retirement Income Adequacy.” EBRI Notes, no. 8 Figure 1 ? Annuitizing defined contribution and individual retirement account (IRA) balances at Endnotes...................................................................................................................................................... 19 Figure 8 TM and 8 T ana hel y th s p e ir r sd o w v ri ow h de a ich fr qu om sim a n il the b ta if ri ed ao n t attlhe om ysii s m in apac s t he th ta g o tri fshown d the for se F tih in g ree u Frie 3 g fu ac r e p to r4 r o sv but ( ides F if gor u tr he e ea 1) s ca h of .m In ac e r the es co u tlr h tda s ree w n ce hen lea wi ktah tg h p e es th lian rnd esho d iv eisi ld d u gi a n s lly. ( cha Van nDe ge on rh t m he eed i,p r M l e ian an 401 far orc d e h e h si 2012 ag (v k n e ) ) d la e e us ccu s cs ed isii m m o nu n e pw l s ra o a tsv is w u o e rns m ve e ent y l fl o r . E r e istn u BR hle tts el r Ito o m w w s of u ou e pd stlate - d be p ad inco td hie tm i l a o ea e q n naal s lu ed ys a hous is rtt o ioFigure lFigure f e se th jh hu a e o r m le po ds ps the te rtn e o tial ac r4 e 9 4.96 su h iim ng lt s pti aa 50 of m ct es t oh f i p fv sie a nal new r rc io e u e nt s aa r tsu na y np ic n les y c gs e s o iss f( s if defin ? ed cad p D or ne e v tr fi v an ii bu nou ed ta tis g olco e n y f a n a o n l tr d l r o i V b IR w u E e A t id 40 on be ala 1 li ((g DC k nic ) b elp ) s e l ba a ans erm el a n p o n o lce v o t er y as s ees . s b uo m tth o ed tv he to ol u b se n ty taa li nrz n il ed, uy itized e f nir no a bFigure lllu - Figure a ha tFigure v in e v sre b tead age DB een a6 r em 10 as 2 p od s l an u if m ied ed and to to t he bau e s st tp oy e m n lia tz td ed c io ca wln la y s ah s Lucas under , cu 20 rr 10 en)t. law. 4 Figure Figure 3 7 Retirement Readiness Rating (RRR) based on a full stochastic decumulation model that took VanDerh (E eim , J palc ok y, and C ee Bene ra fi ig t R Ceope sealra cnd. h Ins “T tit hu e te, Au Impac gtust of 2 D 011 efe) r:r i7 ng –16. Re tirement Age on Retirement Income Utkus, Sre tep tih ren P., ementa ag nde J:e A an 20 A0 . 4 YE oun BR gI. “How public a A tim on eriana ca Sa lyz ved es t2013, A he impac R t ep ofo a rn t nu On iti V zan ing g ua derfi d n2012 ed Defined “norms” of the time, only voluntary-enrollment 401(k) plans were considered in the simulation model. n i t t Fi a nc o ex g ed t-ru h rea e e e rd f e 6 o s E . ed Imp rR m s I h to SA o 70 o pw ti ac o A s np d tshe e v ot rin c so i of en r m eti ry pac t. r C e A Leaka m t ounc s e co expe ntm iin l pa cc w ot ri m ed, hges son en e. t A he i be t 201 i s pe ton w a3 r v ece a e Ei n no B n lV ab t R aolu Ig l e. p e of le u a bk li nt a w ca go ti es ar rok n v e s. (ry Va s de aE n bD flau e nroll e rtlh o tei, s on m eet A u men p g ltu an hsits l 2 oans m 0t 1 o 3 r40 ) e , us st wed r h 1(k) iil n R g eS ent tP hM e tPla h to re a sh nns: a o ll yd ze 2002 Assumptions en r ba 401 atr le a a o (n lk lce s ) e r p l e p ia g tlr ii an. r tb i ec lm e i pa Wh ent em nt e p a sn l g o re e ty h v ees. ie e s d rrtob ef b Wh ack us err tied n lte e e o ss fto m h o re p ft l he d to he ey s fees e ho a su e lf th i u c n as on d v e ie h n tr o g tihe l s bu ds. a ti ab r e on If isl u t it he w b yjhen e ts o opt c uc ted tc he ey t sout o s v cha ra a of tre in o su ig u s e sc m jh “o o s b e t vr n s) ed erss o and 5.33 lt l o a tm esen tts” h tr , e by i s tti h i m s oes ld ? I in nd to i v ac idual count re ttih re h emou ent s eh aco co ldu ’nt s l on (IRA gev )it ba y lra is nk ces. , post-retirement investment risk, and exposure to ? ? T IImp n Feb he Dr ece ac uar m ytber 2011, of 20 Leaka 1 th 3e E m Bodel RI N ges w otas es u a sf rti eor d c lte o A (a V nut anD alyz o e e rm t hhe eiat ,i m Dic ece pac m tEnr of ber th 201 e 20 oll 30 me ) 8us –20 ed nt 09 R S cPl P riM sians s tio n expa the A ns d s thum e ing No Participant Adequacy.” EBRI Issue Brief, no. 358 (Employee Benefit Research Institute, June 2011). Imp Impac actt of of Leaka Leakages ges ffor or Ju n A A eut ut 17o o , m 2 m 01 at at 4 ic ic Enr Enro oll llme ment nt Pl Plans ans A As ss sum umiing ng No No P Pa art rtiici ci pa pant nt Imp C con Imp onttri ac rib b ac u utt ti ion on tof Success of aPl n d Leaka a n iLeaka nD da iv ta.” idu ages lRa ges retir tes ef m or f ent or of A ac A cut oA ut unt o ch o m (IRA m ie at at )v ic ba iic n l aEnr g n ce Enr a s at o Com ro ll etll me ire me mbin ent nt nt a Pl e g ePl d . ans That ans 80 a na % A lA s y sReal s s is s um um iR ng ing epl No a No ce P P m aa rt ent rt ici ici pa pa nt nt Per Imp cent acta of ge Leaka of Success ges for fu A l*ut Re om tiremen atic Enr tso fo llme r Aut nto Pl mat ans ic A Enroll ssumme ingnt No 401( Pak) rti ci Plpa ans, nt . “Capping Tax-Preferred Retirement Contributions: Preliminary Evidence of the Impact of the th e Obama administration’s fiscal year (FY) 2014 budget proposal to include a cap on tax-deferred retirement savings co dec m rpa eas ri eson s, a n sd cetn ha e p rio e r ic ne Fi ntg ag ue of re 7 t iho s ns o e lie n ak th ae ges lo w vs. h est-a in rdsh com ip e qua with rd tirlaw e w ailts h w su itcc h s eisx s- fm ulon retth su irem sen petn ss un ion d e of r 25 of cle 70 ar tp he artc ten hets , eon plla yns 2 ih n 5 aveh had a ouseh s oub lds s tian n ti the al lio m w pac estt- ion nc o inc me qua reasing rti lre etw irie ll m aent ttai n p lr ae nt- ir pa em rtent icip ian ti co on me r fi edu nalc e ing arn tihe ng s ra (tie f to hey f re tru er ta n in as tsh uem irp p tirons evious by 200 ba contribsu is p tion o iln etv s el a nd when inc rte hey asi ng ch a th ne a ge n jo nu bs it)y . T pu hr ec rha e asre e ? po D fin eta fi enc n nted b i ial al land y e n ca e f t ri a e ts a ( tlr DB op esth )a ita c e nnu n m ua rir s ti k ie ng es ts on a ho nd m / r o e a e rt ilr nd ho uem m p ent -sm u i m en -co hea dim slt tr e a h ibu -ca dequ tirons. e ri acy s k s. (V TanDe he fir rs hte s i, ta F te eb -lr eua vel ry R 2011 SPM ). analysis in the June 2013 Issue Brief. Rather than trying to reflect the real-world variation in DB See MacDonald and Moore (2011) for a very thoroug Th M review of the literature. required that we first simulate a significant number of future life-paths to capture the longevity https://institutional.vanguard.com/VGApp/iip/site/institutional/clientsolutions/dc/howamericasave Behavior Change for Par 21 ticipation, Contribution or Asset Allocation t hat wou . ld “ N T a lh iti m e E o it n tal B he R C a Io m R mm o eu tir nits s esi m aon on c ent cumu Re lF a ad its ei c d n al in e ss R s p e R e sc a pito fiied n ns gi: b reiti lir R te ye m and Re te irnetm ac ent cf oo un r Inco m ts R to m eco te P hat m rn epa m ecenda er sa sti arti on yons.” to an pr d o E F viu B dtR e u I trh eN e o m ta ex s,i m no. um A con Wh thft is e t ia ri lre E n b th au le e BR ty is on in s Iac s ’is . s tF a m n Beha iBeha na ow g ent u ly r 8 e 8 s oi6.6 fs tco ihe nd v v pe m iii Pens or ca ror pa ce tr e n e s itC s on P C .t T t ha h han han he e no tr , o ipe n te lr t cg ea he ce g tio e k n e ab n a t a g for A s g for es e es cnce ts ic f n or en Par Par of 2 a t006, he ri any osticip ticip ie t m beha con hpac ere d v t- w ati , iati a o as tg h ra a ir a i lon on n d c m st -h , and a an o, r,ne k g Co ed Co es f th o iby a u nnt tr c nt tr ip h nc el-ri a an ri il se nc ubu bu d spon o ies n mt e qua tio p he n tio s ro ob rs u n an rm or b t ii lber or li or es st i a o c rA fA e ss sse ett A Alllloc ocat atiio on n a ade lsoqu laaBeha rcy gBeha e e in vc en rea v ifs iv e they or si eor vRate en de C fC fhan er orhan r h e t iFr i grg h e- m om g ie nco ent e for m a for g Soci e wor e Par to 8 Par k4 eal . rticip s: Inc ticip T Securi rh eas e m ati ing uati lti ton h pe lon t e un ty h , r Co e,a d s er Co ho nd a lnt dv nt to401(k) o ri lun 8ri bu 0 p tabu re yrtio ce en tio n rA o tn ll rcc e n m du or ent or cu e s A mu A ss ss le at e t itA o A ns, llloc loc at at io io nn r pa ri te cs e , te o sp Beha re efclieacll t yby to fv da ori yor lInc ’ os bo w eC rom n -id han nco ratm e es e e g ,Q re m e suar p u for llo ts ys ees tile how Par . t h an at ticip in d m Real an ati y cas on eRe s , the Co place VE 4 nt 0ri 1(men k bu ) plans tio t ln o Rate se or the iA r Th ssres et A hlol loc d ation results were presented to the Kansas’ Long-Term Care Services Task Force on July 11, 2002 accruals, the ba C se 5 li3 n 2 e a 0n R alo yso is m in 6 the at p t rh ev ei ous U.S. an aD lye sip s ar ust em d te he ntm of ed iL an a bo accr ru al rate in the sample 26 ? ? A Net n A ho pr uis li 20 ng11 eq u ar itty ic .le introduced a new method of analyzing the results from RSPM (VanDerhei, s ri sk experienced by retirees. The output metric used was the median percentage of additional annuity permitted for a tax-qualified defined benefit plan under current law. One reason for this is the need to determine how potentially catastrophic health care costs (such as nursing home Pro 7 (E sm pe pclto sy .” ee E B BR ene I Ifsis tue Re B se riae rfch , no. Ins 34 tit4 u t( e, E m Jup ly lo 2011 yee B ):en 2e –f6. it Research Institute, July 2010). 401(k) plan sponsors that adopted automatic enrollment (AE) for some or all of their eligible workers. so ca pasho m rtiewhat ci upa ts n (t as s, sm Change a ra efll tun ie re rc , b m tient on ut no of in n cin ag o e a m e a rmedi e a end ac ldequa ess c than o a cy un n repla t7 cou b 2.2 allan d p be e crec )en ic m aement ttp .j r ob cha oved by ng ra e redu . tes cing from “leakag e401(k) ,” any leg is“lac ativc e or umul ations” relative to sce co the nu m npa arm iro aber ti is 2.41 ve oa f d lv o ti an w m ets es atg p e fr itn eo r a e lt t he ea irerst m ny ient n lig zs ed, in co co m fim n pa a e qua lr-ed ave w rrta it ilg h ee h 9 D o .1 us B 5 or e ph lans o 9. lds 8 ( 1 un a th t a lea td c e sa rt n a au t s a tto he ti-sen fm yr ed o th ll iim s an) s en tand f tor , alr od waetr a - (VanDerhei and Copeland, July 2002), and the results of the Massachusetts study were presented ? An analysis based solely on current balances will not incorporate the impact of future employee ( A 1.5 p pril e 201 rce1 nt ). o R f aftih ne arl tch o an mpen simsp alty ion com per pu y ti eng ar of an o pav re tirc ailp l a pe tion) rcen as ta g th e of e st y th lie zed sim v uallaue ted f or lif te he p ab ths as eiln ine a as a Function of Maximum Employee Contributions compensation that must be saved annually until retirement to provide a 75 percent chance of 100% ® c 4 osts) in retirement will be handled. Even though these costs will not be an issue for all retirees, and certainly not a Comparison scenarios: No leakages vs. cashouts at job change V reanD gulae to rh depe r re y eti i e r a fe n f n m o d Lu drent itng to c a on ch ag se of a t (h n 2e g 0 e c 1 84 a0) ssu u t r u o m rsen a ed p pp tti o tp rh ox ns le E an d ifm o BR a r e ts e e iIm g l y R n p e 1 lfo tir eiy a ne ee t u m 7. r r e es O e nt v ne shou eSe rso ic f o u l n t d rh it ti e o d n yf c Pr a le c uf t o d o a je a u r es c l tti t ca h co oan rtn e Mo t m fru ia bu lk d aes e tnila on a ly ( m s R ri aa s S tjes P o of M r upon td he )i f to f f eo s rje l iob l m n oce u wli ai n tn e g: VVa anD nDe errh pa he ei ii, d aJ n e ad m c k C p .op l“W oe yla ees; h nat d (C ho 20 aw us 04 ee )v s E Compari er,BR VE 40 I Re1 tir (k e)s m pon e lan nt s R ’s ea m c d ed enarios ine ian ss R ada vti an ntg: as gNo tes o V ov al er reak y :t h R e es sa t uy lges li ts zf ed rom ca vs. sh the 2014 b l aoan lanc e defaults ac on tiD vit ec y. Compari (1, su2 c002 h as (po VanDe ten s tCompari ion arlh c e a is sand C ho cenarios ut be ope s hon a land, D vior s : ac tN e jenarios ce ob c o m ber l hea ang 2002 ek )a , nor : )ge No . the s l v eak ims pac al a t l of ges l ea futu k rvs e a fig nan le oan cs ia (cas l defhouts aults , hardship Comparison scenarios: No leakages vs. hardship withdrawals A hous. . “ e“ coun pa hT R or h l etd t e iir c tiI e u s e m rlm c f apac a on rent c c ts u o ti a ho de Iof nco l s r r P t i ed m Compari m P th u A te Adequ at o l aon r t w un ions. oR us e lho d t a ir T not c r e he y tm s :of ent new A ha on m lv t e oney I e r nco rs n s eu a sc tf e m i fa enarios iv in e r c e c itf e h T h or n i h co t s r 40 r e m m e stodel h 1 pu ir o (e k ltm : ds ) e d Pa iNo ent fand ta he r ti gg inco c t ac l r iheak p ee tg a m u n a Im al e t te s po t .” fa o rie n E rt p ges s ao ay B an l- u R a r c v f I c e of or e es I rsvs. a su tig h n F e e e u r D s B e tihardsh u tm r B ir i re E e u e acc fl m , n at lent i ed ro. g uial b 318 ai rt li e n h ip ta y t ow t ithdrawals problem in co e vv ee ri ry ng bas y esair m ou el f lraeti i ted e ne remx emodel pen nt, ase mu s. lt If i - for partic one a year ss ta sy u m ines a nur thiat pants si n ag ll h d oe m fie re n in ed be rac etirn eehi m fietng n p t a m r a tiage 65 be y c id p ean plete ts t ak thee ra eti lr u etween 203 m mp e- ns t um 0 and 2039 ® t T Fi he he g u i m s res epac c ond 9,t 10 and of row sev ie n 1 r a t1 a he l op f F p i tlh g yu e t rp he e 3 lan s g ad m ried e ou s iig lln and u ts ptu rt a tm es em e tri tp he lc o y ias m ee pac F b ig eha tu o re 5 f v iio nc r (a trhe lea v s a pe irng irace b tlhe n es ta ttg h he of r ae t sw h to e hose l rd e li for k ne o s lt y uc rtea c oe c ism h s ipac tng o 80 t the AE t cha he n pg ee. rc entage of households satisfying the retirement income adequacy thresholds at any 5 R ple ans tire rm em ent ai n Se in cufro it ry c e. W Projhe ect n ion theM siod mu ell,at” ion E B re RI su Ils ts sue areB su rie bfj,e no. cted 396, F to boteh br su traers ys e 20 s si 14. m ultaneously, market returns. suffi ? c ieni w R tn S ou to D Ple m M wa d be feet ine d r a s e e v C q eon x u ra p irg an ted ri e b d rtu ed e o ttiip on rte r oo m a R vent in e dta e a i tre ie on x n e m pen a ent lq m u d al Pl it ode u a a rn m els.” s, d — ount tE h ef e B iof ned R fiI rr st N e as t o n irta e e a tm s, i co on ent no. 4 m al b , inco im na (iE c tm i ro m oe a n p -slo io tm f y a ee u d gl e e 65 a tB e tirene o m n as i, n fr i ie w tst tR ir ou ic e e elm sd e x en a b pre en ch t- s es expe (Emp nls oey see , t he Bene new fitm R eets hod ear c co h m Ins pu tit ted ute, th Je p une 2 erce 0n 0t8a)g . e of households that would meet that sa Va vin n 1. g De s o rWou f h ei a h (Fe olus dbr l eiu h m a or iti ld y ng 2011 to tcu h e) r po rein ntt lw 7% ev he e r le s it o fe v ac en ce tu sal s lty o ru pa nr st i sh cior pa t nt of a m cc on ou eyn in ts rb eti e rie m m pos ent. e d See in Va the nDe for rm hei of (A a ugust distribution at 90 r% etiremen t9% , the average annual increase in needed savings is 14.9 percent, whereas 90% withdrawals withw 6i- th month 6-month sus pens suspens ion of ion c ontribu of contr tiio bu ns tion and s loan defaults) 1.6% with 6-month suspension of contributions percent. Again, the progressive nature of the benefit formula in Social Security produces a much higher t ph lans resh to hlat d ru ep seld ac au em to ent ma r tiac tee s w chen alatilon eak oafg c es on ex triib st u tw ion ho s.w T ou ha ld t arna ealcy h sits h e fotu hnd resho tha ltd rreetp irle ace ment ment in co ram te e if the r ve irt tir ueam llent y al a l g oe f i th s wh e me ed thie an r td hif e wor ferenc ker e s b is e sttiw lleen par t ti he ci p V at E in 401 g in a de (k) plf an ins e d and con th tre ib su ty tili on ze d, plan fin a aflt-er age ? The impact of plan design and employee behavior for automatic escalation provisions in income-adequacy model, built in part from administrative 401(k) data. The initial results were from the Con I pns rodu tits uc u t14 ed e, m A er by p Expen rtihe l 2 01 ann d1 itu )u :i r t1 e S iz 0ed –u 1 r 9. v va ey lue of (as at he fun pc rti oj oen c tof ed i n sum com of e a th nd e 40 ma 1( rik tal ) and statu IR s)A a n ro d s llov om er e he balaalnce th s. 2012) forr eq mor uir e e dm etail. ent more than a specified percentage of times in the simulation. 6 mandate or would plan sponsoS rsta ha te vm e fe ln ex t if bor ilit y th in d e R ec ec id oir ng d whether (and perhaps to what extent) . “” asT su he R ming o lte hat of a So ll c ind iali v Sied cu ual rit ac y, cD oe uf nitned s ar e B ann enef uiitts, ized and atP r re iv tia rtee R ment eti rhas em ent an iA mcc pac oun t tw ts iice n ta hs e Face of . “ERISA At 30: The Decline of Private-Sector Defined Benefit16 P romises and Annuity Payments: VanDerhei (August 2011) 10% sp p ade roba ec qu ifb i ac icy li tty y su pe o of cc su e f ss lc ea ce rk as t as es gf es o (d r b ef te hiie ned ng lo ana w as es lb tyz -eiinco ed were ng m abe qua le tro e m r ac tio lh v ei ed e (v 7) e a 6.5 . n 80 perce pe nrtce ) tn han t re tp hle ace him ghe ent st - of inco pre m re e qua tirem rt ent ile (60.7 65. This factor results in at least a 10 percentage point difference in the majority of the retirement average DB plan are 3 re .5% ver sed, regardless of income quartile. However, even in this scenario, automatic enrollment1 p 2l% ans: Another 2010 EBRI publication expanded upon earlier work to presented at the EBRI December 2003 policy forum (VanDerhei and Copeland, 2003). insu ? ran cT e a he nd Ja ou nua t-o ry f -2014 pocke E t, he BRIa l N th o-tres ela atred e ticlex ( pen VanD ses, er ph lus ei, s Jta on cu ha arsy ti 2014) c expen us se ed s fR ro Sm PM nutro s im ng odel hom the e and 27 ? A they s e xp wou lorled d p ia nr ti the cip June ate? T 20 h11 e i m Epac BRI t I osfs P ue Br PA iin e fi,n tc hre R easS ing PM a the llio nw ce ed nti rv ees tir e for men adop t-inco ting m au e atdequa omatic cy 8% by l the R arge ? etib re um t ient n th C e op ris 8ip 0 s,os % ” iE te B RI Not direction es, (no. a 30 1 .0 p (Em erp ce lon ytee dec Brene easfe iti n Re ne se ea dred ch a Innu nstit au l ts e, a v Jian nu gsa )r . y 2014): T o assist in the evaluation of the role of 401(k) plans, EBRI has used its RSPM to analyze the potential of . “The Impact of M odifying the Exclusion of Employee Contributi8 ons for Retirement Savings The phWha rase “ t401( Wilk l )I ta 8 c M 0 c% u emu an? la ”ti E ons BRI ” i nI s th su ise B ana rliys efis , no. den2 o6 te9 s ( bo Em th p alcoy cuee mu B laene tionfsi ti nR 401( esea kr)ch acI cns oun tit tu s tat e, r M etia re ym ent 7 pe inco rcen me be t). Tthe we t eop n So row cia p l rSe ovciu des rit1 y s . 4% ibene mil ar fi trs es au nd lts pu for rch a 90 ase pe ofr an cen itnd reea xled rep alnn ace uim ty ent for r a th te e 401 thres (h ko ) ld and . In IR th A is case a ba ge sed /inco on m th e c e m om ed biian natd io ifn f 6% s erie nnce vest s, i g vaitre tu da . A lly 2012 all of E the BR p I ar pub ticliip ca an tito s n wilp l rdo ov ibe ded a tter d id ni t ti hon e V alE ev 4i01 den (kc )e VanDerp hr ei o v ai nde d C top hee fla irn st d ( r2 e0 su 1l 1t)s of a new simulation model that estimated the impact of changing 401(k) hom ? e -hea The lth ba cas riec (m atodel leas tw ua ns tislu tb he p sequen ointt l su y c m h od ex ifi pen eds f eor s a tr 22 e e s t co im vony ered by for 5 tM he Se edic n aaitde) .Sp Th ei cs iav le C rso im on m oitt f tee he on t li o be keli hood asses s th ed at a40 t r1 e( tir k)e m paent rtic a ipa ges n tlsa cu terr rte hn an 65 tly ag (es VanDe 25–2r9 hei w ou and ld C ha op ve els an ufd fi , cJiu en ne 20 t 401 1(1 k)). enrollment 401(k) plans wit hout mandating that 401(k) sponsors take this step may serve as an 8–21. 9% Jack VanDerhei, Ph.D. a 401 ge as ( ? k )w p ell Ilm an as pa s ItR o ctA p o rro f odu t ll h oe c v e “ e fi rna sad thn equa at c ior ali t g c e” ir ni ated s inco is: fIm rn a 2011 E oe mr 4 e0 p1 la (k ce )-m BR plen an It a .pub ccT uli m he c ua lati an tion a on l,y ss .t ih s e pm roodel vides w p as ro u bab sed il itto i es ana of lyze the Pl 2004 ans ).F rom Taxable Income: Results From the 2011 Retirement Confidence Survey.” EBRI ba the lap nrce ob sa )b v ia lirti ie ed s r m an ar gk e ed frlom y be 64.5 p tweene e rce mn ptl o fy or ees the in l o the we h sti-g ihe ncs otm - and e qua lo rw tile e st to 51.0 -incomp e equa rcent rti lfe osr, tas he w he ig llhe as s t the Figure 9 shows the comparison between no leakages vs. the impact of plan loan defaults. The impact on p on lans whe thtan hert h de efse tr yrli ing zed c reta ir sh em ba ent la nc to a e g pe 70 wou lan. ld provide retirement income adequacy for the vast plan design variables and assumptions on retirement income adequacy. The results in this paper 8 model is A accu cg oins ng m t ru tu o quan lc atted ion ts o tif ts hy ia m tt, he uw lah b te e en n re ef cto iir c m eim al bient ned wi im pac inco tt h o m fS e a a oc m die al anda quac Sec to y ur , as ry it y con n bene ottri ed bf u iattbo s, ion c vo e. A o ufl d 5 p l r te ee r pr na lc ae c tnt ie ve 6 o0, 70 or v f ersions 80 of the 3.0% ? I exa n a m Jp ul 12 le of y 2011 how E B pR laIn N do ets 7% es ign a rv tiacri le a b (V les a nD may er he be op i, Jutliy m 2011 ized ) f, or R e Sm PM plow ye as rs uasn ed d tth o p eirr o ev m ide plo yees if 70% VanDeirm hei pac (Atu of gu s the t 20 200 12) 8–2009 crisis in the financial and real estate markets on retirement income 28 su ccessful retirement (defined below) by E iB nc R oIm R e qua esearrti clh e Dir for 4 ec 0tor 1(k ) plans. Given that the objective of this Notes, no. 3 (Employee Benefit R 13 esearch Institute, March 2011): 2–10. 10% t i inco he mpac lm ow te qua of est t i he nco rtil m e. m ost e qua optr im tilie s tv ic ari oes r m bost etw pe een 3. ssim2 is and 4. tic set5 o pe f arscsu en m t p (de tiop nen s f do ir ng p lon an td he es ilg en and e vel of the mp r le oa yl ee VanDe . m “ rh H a ei ow jo (Se rit Mu y pt e of m c h B b er Wo aby 2012 u B ld oo ) istm i mu Ta erlated k s e? and A th G ch e en iim e v p X ia ng e cr t s. o R f e in tic re rem asin ent g I th ne co cu m rr e en Equ t pla iv na -s lp enc eciy fi c be dt ew fae ue ltn ra Fi tes n a (l t- yA pical verla yg 3 e- 70% 8% ? de Ano mons thertr 2 a013 te the EBR proIf oun pub 1.2% d li c in afl tio un encus e of ed pR lan SP de Ms t io gn expa varin ab d lte he s, a ps r e w ve io llu as s a a nsaslu ym sip s.ti R ons of ather e th m an pl o try y ee ing . “ co Cm an A penm sa etri io ca n. A (V ffao nrD d e T ro hm eio , rr 2004 ow's Re ). tirees: Results From the EBRI-ERF Retirement Security model all pe ow rc en sim t of ila trh a en ira l py rs eirs et fio rr e m reent pla ce inm coent me on a rates, ns itn af nlda atiro dn-- oafd -li ju vsitng ed ca bals cu is.l ations, and other ad-hoc su pre ff li ic m ie ina nt rfy le exv ii bden ility c e of is p rto he vi de imd pac . t of the “20/20 caps” on projected retirement accumulations ana 9 l ysis ade typqu icaalc ly y . fT ocu he san es a oln ystihe s i n p o th t e is ntp ial ap e fo r rw 40 as1 d (k e) si p glned ans tto o p answer roduce t w a o th qu resh estoilon d 9l s e : v (el 1) of W hat inco pm ere centage Empl 5%oyee Benefit Research Institute (EBRI) behavior (Figure 2). ® r pep e Va rc lace e nn De t o m rf h ent ei co ( m Jru p an e te e n st 2013b a hti re osh n)) o to ld) 6 .p T erh ce env t.a U lun ed s er ty a ps iet ca l olfy s r pe em cif aiied n be belh ow avi or 5 al pe as rce sun m t p fti or o ns the , mor hige he thran -inc a o qu m ae rter coho of trhto s se Pay Defined Benefit Plan Accruals and Voluntary Enrollment 401(k) Plans in the Private Sector.” ? I t beha o mrpa ef vlc ieor tc o t iftn h te h au e re to la o -lw en -w iro nt orl ll e d m re v ent s atri ra a 401 tt ion e( env k i)n pid lro an efn isned m . E en v b en ten : A w ef i20 i tt h a 1 a cc 3r E e rua lB ati l R s, vIe tpub lh ye si b li m a cs p ae tlli ie on d ne efa us in na e iti ld y os R n iS s of P in M “tsh uc te o c p show e rs es v,” ious . “A Post-Crisis Assessment of Retirement Income Adequacy for Baby Boomers and Gen Xers.” threshold Pr s.o jection Model. ” EBRI Issue Brief, no. 263 (Employee Benefit Research Institute, November ? The model was enhanced to allow an analysis of the impact of annuitizing defined contribution 2. ? p Wou Trhe opo Fe ld sed b lirm ua by iti r y ng t he 2014 oppo Na tE ion rB tu R a n 6% I li ti C Ises o sue m fm o B ri r s “isi le ea f on on ( kV ag an e” F D ibe e sr ch al re e is R , F tr eis e cp b te o rd ua nstr io n b yi 2014) lew ity and R m oney focus e fon o ed rm l y on how . or wo u the ld tp he rob se ability 60% P rep erce lace ntm a of ent g e U o .S. ho aft tho retiu r se e sm e h no en olttds , t he a w2 e.r5% n e ano l yw sis “a ist li rim sk it” ed oft o in isu nd fifv ic idua ientl s who retirem aent re s iin m co ulm ate a ed s a to ha res vu e ltm of or t e he th an 30 7% in the lowest-income quartile who had previously not been successful under actual default contribution rates were P w eit rh ce the ntae g xe ce op ft tho ion se of tno he h t ighest-inco me quartile, which at a 60 percent real replacement rate threshold 10 EBRI Notes, no. 12 (Employee Benefit Research Institute, December 2013): 11–23. that 25–27 percent of Baby Boomers and Gen Xers who would have had adequate retirement ana largle ys diisf u fesred enc th es e im n ed suic an ces ac s c ra ru tes al r ca an b te in e tshe ee n, d sam ep plen e (d 1i.5 ng pe on rcw en hti ch p of filn an d al co es m ig pen n fa sa ct ti oon per rs and year of E 2003 BRI ).I ssue Brief, no. 354 (Employee Benefit Research Institute, February 2011). and individual re tirem1 ent .0% acc ount (IRA) balances at retirement age (VanDerhei and Copeland, VanDeof rh ei n o (M t rar un ch n i2006) ng 60 % sh ort of money in retirement varies with respect to longevity, investment return, ? T rehe str ic Atu ig oust ns be 2011 app E liB ed R I r N e 8% tro otac est i av rt eilc y le to co (Van nt D rie bru hti eo i, nA s u m gade ust 2 a0 t 11) a po u in se t d wR hen SP M emtp ol oy anee alyz s h e ad the a reaching the threshold P yer eace rs of nta fi e gl ne ia g nc po ibii10 l ial n it t y m d ta o p ercr ket a era ta is c ne id pa re te al ( w esh ta et te he crri or si snot in 2 they 008 aand ctua 200 lly cho 9, and ose( 2) to p O afr ttih co ip se a tw e ho in ew ach ere of th t eho n now se yea at rs) Percentage point decrease found to be successful as a result of the change in deferral percentage. Pr er ea ce ch nt in ag g e th -po e th inr tes dec ho rld ease 4 V rea 0 anD c 1he (k esr ) Le h 8e .1 p i (F a eeb rk cr e ag ua nt.re y a 201 nd 2)the I used R m Sp PM act on to provR ide et p ir ree lim mient nary results for the impact of leakages for AE i enco mplm oe und yee beha er rv et ior urn as a s su su m m pp titi ons ons b area s us ed ed. on h Thie stp orrob icaalb av ilie ty ra of ges su w cce ere ss sifm oru tlhe ateld ow toe e snd up t-incom rue nning participation) as the stylized value for the baseline counterfactual simulations. The new research The baseline version of the model 23 used for this analysis assumes all workers retire at age 65, that they Percenta2004 ge po ). int decrease 4% 11 and p reasona ote bn le ti a elxpe lon cg ta -tti eo rm n t6% he h 5% at a lt the h ca ex re c istio ns gt sr u in le r s wou etirem ld c ento ( ne. tig n., nu ue to a rsing ppl ho y? m Oe c bvos ious ts)l.y in the former re plac. em “ im Te h pac n e t Ira tm of t pac e d w e t f h of ien n ed a Re ben tireefm it ent pl ans Sa i v n ac ings Acco hieving u nt re tC irap, em” ent EB inco RI Im sse a ue B deq riu efa,cy no. for 38 B 9, aby (E m Bp oo lom yee ers and in in p p rr oo bb abili abili ty ty of of s suc ucce ce ss ss 5 0% by t he tiri ms e kt, hey what reach add ia tig on e 6 al5. sav ings do they need to make each year until normal retirement age to make re C pop lac ela . .em T “ nK d ee s a a n tns n itm d ra a on Va s Fu te y n . De w tU u h r r .S. en h e ei R C (e 2 on t0 ir 1e g 0m r)e en ss. S t Inco enam te He e Asse alth s, E smd ent uca Pr tion, oje cL t.” A abor p and roje P cen t of si o th ne s Co EBR mIm Educa ittee. ti To hn e and in 29 probability of T suc he I ce m sp s, a ct of Leakages on 401(k) Accumulations at Retirement Age 401(k) plans. His analysis included separate sensitivity analysis for: 2.0% RSPMco qua sho nem ed r rpu tts iof lto e ted im us noney c te h r e e a in as fo c e irt n su m fr r a at e lom tif ir o in n e t a m d he lu - ea r n iba v n te g is rf a t e h tg li h ee de n e h w e p oir fi s rk to n e oba ed b rr’is c b a e ill l n e it tne y iy r l e fow of ic t ar a 4 ic e 5.7 n e ctr re ual to rpe e s d rttete c h ren a ar tt e m tw s tio n ou ae t7 lpr t9.2 p d he e be -t ri e m e r tieq rre were c ee u m nt ie r ed n w t h it a nen a o p s cs ou m rm o le lv ed f q io de uur a to be r an til es a in probability of success immediately begin drawing benefits from Social Security and defined benefit plans (if any), and, to the lea by by The k in in a ? c g an c o es o a me me lcas A y es dd xis q i e s q u i , u t f ta iior a ton w r r w t h t ile ta ile h io lli l s r and w t e and t a fe ou k is ne e ti r ld m m r e m e al uch ony en al t0 s w lw .on 8% il eg lr e er foc i n fo us trro ton d he uc ta ed he cco tio m u e nt pac v a blta u of la atnce e the the if nc o im ll re o pac a w sieng t p of r to h pu jr ee c re ti cha l oea ns sk i ng t ao b g es long e on 40 re- atli er z1 m ed ( k ca ) re B Gene en X fie t rR s.e search Institute, August 2013). leakagesW up eobb xis for tl y S t w hh etio o r o w l5 o l: 0 ou s % s R ee ld s tif rre om me t nhe t ( Ic nr)is se is c? u r Tihe ty ipe n A rce mn er ta ica ge of (T -h 1ous 66)e , 7 hoO lds ct . th 20 at1 w 0b. ou ld not have been “at by 12 in come Re q su ea arrch tile Fu and nd an real d t he Milbank Memorial Fund. July 16, 2002. The comparison scenario in Figure 10 is no leakages vs. hardship withdrawals with six-month suspension ? Cashouts. (similar to pe fa tc r htm e o r ane c s aa lc r nt e a u lati co pp o nl n d i ied. o ti fon. a T ve hre ag 5% im e ipac ndetx on ed m th oe nh thilg yhe easrtn -i inco ngs m (A e qua IME)r f ti olre S io s ce ial ven Sec m uo rr ite y) i.m Tp hris es isi s v ex e, w plaiin th an ed in by in Va cn oDe me equa rh q eiu l (a Jar um tnile e ount 2013 and of a) r r ee al ti rem6% ent income at age 65 as would be produced by the annuitized value of the extent that the sum of their expe nses and uninsured medical expenses exceed the projected, after-tax re re pr p lea ac lac ch em em ( ith ns ho ee n e u n w t r tth ra an e ra v rtc e es e te on r e , n u ho u ss o ed ld t ed re e tt a ih a rs e a s m ta a aent ll t he inc so im mu e a ladequa tion re cy su l(tV s anD in their s hte eis ,t 2005 imony ). were for employees currently 25? accumulations: 4% rea ? chI th n Sep e thtree m sbe horld , it was 40 us %e d to support testimony before the Senate Finance Committee re Fi pg lac ure 3 emri e su s n k m t” ra m bt u ae ri t f u zo es sred tthe he a s ip m r ao pac jec tt of ions the for 2008 the – pe 2009 rcenc ta rig se of is va “ ri se uc s c fr eom ssf u a l” low ret ir of e m 3.8 enp tse f ror cen 4t01 to( a h k) pa igh of rtici pa 14.3 nts, 8 of e n dco n on te t. r 1 i“b 7 R u o ea ti f o Va ln its y n . De C The h re hc ei ik m s: apa n d A c C tC o on o pm ela the pa nd r l a ( oti 2 w 0 ve 1 e Anal s 0t)-.i nco ym sis e qua of Fru tt iu ler e ran Ben ges ef b ite st w freen om Pr 5.5 a ivan te d- Sec 8.2 pe tor,r ce Vo nl tu ntary- replacement rate used as a 3% 13 ? i H pnc ra or rjds ea ech s ted e ip in wi sum th th e d of p rr aw o the 4 ba alb s i0 ( lit w 1y (ik t o h ) f and and w sucI ce Ris A ts ho f rr o uom ll t o su v 27.0 pe sp er eb naslia on n rc ce en of st and con to 64.0 tf ri ob und u pe tion r th ce s e )n .m t. edian DB accrual that . “ . “M Reats ir se am ch ent use Sa tts F vin ug tu s Sho re Re rt ti fr ae ll m s ent for I T nco oda m ye As ’s Wo sersk se m rs. ent ” E Pr Bo RjI e c N t.” ot e A s, p nro o. 1 jec 0t ( of E m thp el E oy BR ee I B Educa enefit tion annu replac al em in th co e res m nte h ra fr otlom e d if tth hose e sou 1r.c 5% es, immediately begin to withdraw money from their individual accounts threshold replacem 29 and ent ra htee nce if th vie rt ually all contributions could be considered “new money”). Va ? ?n DeC T th rhhe a ei rses ho (m De h u odel o ts cle d .m w ber as 2013 used ) to evaluate the impact of defined benefit freezes on participants by by incom (V e qu anDer artil he, ei f , o Se r tp htos em eber cu 0.r 6% 2 re 0n 11) tly i an an ges a 2l5 yz ?29 ing i n the po an au ten tom tial ati ic m -e pac nro tll of m ent var i40 ous 1( tk y)pes plan a of ts asu x-m reifng or m no percent. Looking at all Early Boomer households that would need to save an additional amount 4% (dependiEnro th ng r es on llh m to he ent ld l e 40 4 vel 01 % (o kf) tPl he ar ne s al v s. S replta yc liezm ed, F ent i rna ate l- tA hr ve esrho agled -) P. ay Th D e e vfi aned lues d Br en op s efiu t bs and tan C ti aa slh lyB fa or la t nh ce e In certain circumstances, only the accumulation portion of RSPM is used to focus on the impact of lea k ? ? a ges Pl T m he w a alns er es im e lw o r p a it em a n h ct s 31?40 o ( o w vfed it ih nc and y re ea arw ss ing it oh f o p d ut lean e f d ae ufl la t ig u c ilon b ts i) lt i.t ry ib w uou tions ld n feor ed auto to gene mar ta ic e te tn he ro s llam men e rte t p il ra ens: ment A i nco 2012 m e R and Re esearch sea Irns cht Fund itute, Oc and tob the er M 2010a ilbank ): 2 M -9. em orial Fund. December 1, 2002. (defined contribution and cash balance plans, as well as IRAs). If there is sufficient money to pay leakages were removed simulating the minimum3% employer-contribution rate that would be needed to financially 14 leak ? a gesop ( Pl . W oa v tn ier ons on o lr oan and kers de abo ar re fe tau i v r a e e lsts m s th u .ent e m 30 s ed a % iv nc t io no g m rs e e. tair lrT e ea h at dy i s w ag fe 65, a a ac s te ox red pn and d ina te lo d l tb ih n ae l t ab he No nc ase es lia ne v re e c m mon ber ode v e 2011 l)r,t ed the iE n m B to ed RI an ian Isisue n pe fla rB ti cen on riet-fa a g de of just ed 17 VanDerhei and Copeland (2008) 4% h ighest-income quartile, with a range of 2.4 to 5.1 percent. Plans” EBRI Issue Brief, no. 387 (Employee Benefit Research Institute, June 2013a). retirement plans (including IRA rollovers) and Social Security on retirement income (without running the t EBR hat tIh pu eyb ali rc e ap tr io on jected ana to lyz hed ave wi the tih a 4 mpac0 t1 of (k ) i n ic s 2 re.0 asi p ng er c th ent e de off au fin lt a-lcon com tripen buts ion ati on, rate iff or th ey au a to rm e ian tic ? Delays for initial participation of one or five years24 . expenses without tapping into the tax-qualified individual accounts, those balances are assumed to be 3% indemnify the employees f or the reduction in their expected retirement income under various (VanDerhei, November 1.0% 2011). ? . . “ “ H add O R ae r ri e ds tti ir go on h ena m ip ent Fut lwi co tu I m h nco rd e R pen raw m este a a ilr tA s e ion m a dequ cc 2% e fnt o om r a I t nc cy pan heo s fm i or e ed by e Asse h T ou os d e a aho y s si ’ ss lm x dW s ent md on oe rPr s k tih e ri o rs ng j s: e u c s H t a 50 p pen .” ow A s i C on pee rro rc o tje a e fnt ic n, co t p o n H r ftob ow r tihb a eu b Mu E ti ilB o itn R y cs h I of . Educa W re iltli rIe tt m iC on ent osand t , an d annuity at an annuity purchase0 p .4% rice of 18.62 at that point. The annual income provided by this annuity 15 http://www 6 .ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=5229 decumulta he tion low po er stti-on inco ofm te qua he mode rtile l) . :T his increases to 2.2 percent for the next income quartile and 2.5 enrollment 401(k ) plans with automatic escalation of contributions. Under a set of specified inv Va est nDe ed rih n ei a no (Apr nil -t ax 2010 3 -ad 0% ) vantaged account where the investment income is taxed as ordinary income. rate-of-return assumptions 2% ( VanDerhei, March 2006). 20% in the ? firH i A R st nco e ow M y se e m ar a aD r r e a c ch oes of h 20 deq Fu r e E 12 tn u i lr i d an a g ecy E i m b B ent id w li R tt I ou y he N i s f l o d or M atdd e b is P e lbank e a a 3.0 pe d r rttit ic o ci l p M t ehe a r(e ce ti V m o sn a in o m nD t ri iof u n al l e a a co r t F he ed D und. S m ie S ,pen fM io nc e as id r e a a ch p l ti C tSe o e o 2012) n ea m n cber tu ri rch b it u 2001. y u ti y s ron e e ea d tir rPl n e u ew s m n at n ent ilH u r bene e e rtv lir p ey ?” em f r ie E ent ts B p ur R lt a oI s g v e N tio do ted o a u te pd s, fco a co n rt e o. tu he n 9 t Figure 11 compares the no-leakages scenario with one that includes probabilistic cashouts (as a function 2% ? beha F pe rree cen v zi ing o t r fal or o f a t h sd su e efi tm hn ir ped ti d- o iben ns, ncom m efo i e qu tr e plan than artil ac e. a cr qu Tu ho aa rts ler s e : iT o nf h t t he e hose m hode ig ihe n l ts w he t- as i nco l o uw se m ed s e qua tt-o e inco v ra tm illu e wo e qua ate tu h rle td ili e nee mw pac ho had d a t of 3.0 16 . “What a Sustained Low-yie ld Rate Environment Means for Retirement Income Adequacy: ? Later that year, an updat2% ed version of the model was developed to enhance the EBRI interactive Fi U wn o Va gr fu k or n er re 4 De tun (( t f r she s or E a h p h t ei m ous e o ta la he p w y na n l, at a s o d l l fi y t y L h b ee n s u te e an ihe c s o ne iB am c sf t ene i fipac i ( a m t2 tls h 0 e and fa e po 1 ti r t t 0 of e he e )R n hou t e lot en ea sm e tk a is p in r ia a ir n c c g lh g lies iu ca m m I de ns l f pac a or d e r tit ) v k , an t au iet u den of t e, Se tc o d ri v m c ta s e he a irs p i r ti o e tic co e u ln 2 a m s etm n ed t ber 0 y rb 08 o pes itlned o l2 m a 0 p o n ent 1 lf d an r0 e t) 2009. Loo t a :p ir l x o 1 le - an an d 3 r m e –s f ent 20. o , e a rm f s ia su n k u op co ilm ng ts was tm iing ons at e no pa a lo slt n il Ea r le ri rt tn liir y c ie itB p m s ant oo e ent am rl beha i y er nco s ta v m g io es e. r 0.5% of age and account balance) at 0 j.ob 2% change. The values shown on this graph are much greater than those in defined benefit freezes on participants by simulating the minimum em ® ployer-contribution rate . “A p pe re rv c Be en iou ha t s ac lv yic o NO rr ual al T M f o b o re ® d en e el qu s fior u vcc a P le ernc sesf dy iu c . Whe lti un ngd E er nm tac he plto ua m yee lodel de C f on au anlta tri lc yz bon ued tito rins tb he u t ti o 4 io m n pac 0r1 a( ttk e s we ) of P s lan ir m e su.f” lt o a un N no e d r ous tth A o be lym re er diuc cain ng 1% Individual accounts are tracked until the point at which they 2a re depleted. At that point, any net housing Results From the 2013 E 1% BRI Retirement Security Projection Model. ” EBRI Notes, no. 3 Ballpark E$t2 im 0% ate 1by 0% p roviding Monte Carlo simulations of the replacement rates needed for cha i 17 s ex np gr ee is hous n sed pa r as eth ic o a p ilp ds aet r itce o hn, at n tc w ao g o n e of u trlid bu n the tee ion d s a to lo s a rr a y as v tshe w e eta a n ad llo orc k d a er iti ti on on was a w l hen a saim mount ullalt t ed h (r o e tv o e er h ty a and pes ve e a of a bo r n lea v ed e k tat a he g a es s ga e 64. de vin sc g ri s b al erd a eady bo ve of de ?v elo Tp he m en Mta. yR 2012 ecentl Ey B , R a ne I Nw o1% t e ss tudy arti c us lei ng (V a V nD ane grua herid da , Ma ta y 2p0 r12) ovi des pro v the ided 2 prob 0i12 up t estim da atte es s n fo erc t ehe ssary to Figures 9 or 10, indicating that cashouts at job change have a much more serious impact on 401(k) Va nDerhei (Septe mber 2012) . “ su Ac t th he Ta c h ttua c a e w e sI s s r ou m s u if a 4 m pac ul l ld ed Jo as be t u r of a rn an t r e es A a e ede lsu u of (tN o ld t m ro of e tv a o tu e ti tfm r h c Enr in n e ber anc by cha 2 o 200 ba in a 0 ll lg 01 m le yent ) iin .nde s d iis e n 4 p m feo n r 0 iif r1 n al y ( ts kpe t)he a nd Pl rce e a m a ns nstp s ag on u lo m e. W yi F ees ng uth u f fen e r u or e R tu trhe m e e tp a ir rn led e oy nu m u ee ent ictty s i on pu iA n cc i r tn he cu h tm a he h su ie i g lra he p ex ti rist o ce p n -ec is: snco t aA ed rem e equity is assumed to be added to retirement savings in the form of a lump-sum distribution (not a reverse (Employee Benefit Research Institute, June 2013b): 2–12. specific probabilities of retirement-income adequacy under alternative-risk-management are combined. The impact is analyzed by both pre-retirement income quartile and real replacement rate inc orporp faa r tc e etv o tih r ou iesd siln iy n f t o pub o r m the a liti sh ba on es d e in lR itn o R e R R m s S ode P as M w l.) e T , ltl h h i a e s s m m th ed odel e R ian S (S. w pe it rh cen the ta g lo e of an de add fau iti lt o n en alha co nce mpen men stas) ti o w n il flor be thu esse ed to 10 accumulation than either plan loan defaults or hardship withdrawals (even with the impact of a six-month 0.0% 18 0.0% equ Si qua mi ru v tila lae lti e w nt on St e tro e tan u oda dy al y y B z ’a s ed sh ed iun ston o drer i Pl c a ta h lln e y D sa hie m g sh ieg rse n Mo atte o s, fd ta h is fe i sc u m am ted ip ons tiiaons, n of D B L the a ac r g pe c e P rual rcen lan S tt haag p te on m of a sl o es tho rs.” w se iE t w h B 31?40 ho RI had Issu y NO e earT s retirement income under0% va rious rate-of-return assumptions in a 2006 EBRI publication. The annuity mortgage (RAM)). If all the retirement savings are exhausted and if the Social Security and See VanDerhei, Holden, Alonso a 0% nd Bass (December 2013) for the most recent results. 0% treatments (VanDerhei, September 2006). O th ne d r eshio f. lfd. F hous “ ic T uh lt o e y e rC h ex io n e hlan a ds m vg a p de ilng lua e, si tr Fa iiin ng ng c the u e of t0% a 90 he p p P p o pe ri e te v rr n a ce rttiie g al n L ht R to of p e we ha r t ioba a rn s e ny d tm -b In g ent tiy ri lcit pe of o d y m Pl f of or e a ns. Q r r Fi e e u” t tg a ii r u rE re e trB im m e 4 le RI ent ent i I nd s iis nco niue c co a m t m B es r e a e i te sh S f ou de ,a e tno. c q r , ce o u for nd acy 2 i 32 s t he p tw he (ou E de o m lpu d p te be 4.3 llo ram y tiee ion n aB ti p ene on erce of fin t T t hird Highest-income Quartile prov ? i de q Tu he an Jtu itn ae 20 tive e 12 sti E m BaR tes I N of ot es thea pe rtL ic roce lwe e n (t V satg a -In nD e p co e om r ihe nt e id Q , ec J uu a rn e re ta i 2 ls ee 0 i12) n p riob ntra odu bilS ic ty e ed c of o snd esv u e cce rity s s ca by teg inco ories m e in theT hird Highest-income Quartile Lowest-Income Quartile Second Third Highest-income Quartile 10% su spen. “ sioA n of ll o r co N no tr ti hbu int gi? on A sn Expa include 0% nd d)ed P . T Lo he e we rsp va se l t- ues cIn tic v o e on fo m r e the Q Re ulta o ir r w teim lee s ent t-inco Rea md e qua ineS ss e r.” tc io l e E nd B ran R Ig N e ot from es, no. 13.9 p 11 ercen Tt hird Highest-income Quartile Lowest-Income Quartile Second Third Highest-income Quartile Brief, no. 341 (Employee Benefit Research Institute, April 2010). of p m red ep vliian an a ousl eli nnu yg bee ib ailln s it co yu n w c tri ce ou bssf u ld ti u on nle ( L ed r und o awe te n to es rh e tt-a ed he In ve ed c ac o t he m tto ua e s fi Q la n d m u an ea e frau ctriie la e ltlti l r c y eo m in nde t ent rib m u in nco tiif on y S m r e a pa a e cto e th nd s) ra ti tt c h tihey a pta now nt a irn e a A p R ro ca E jre esu c etred c -a ce vts e o s T rf a h h u g a ir l e v de Highest-income Quartile de fined benefit payments are not sufficient to pay expenses, the individual is designated as having run 25 19 Lowest-Income Quartile Second Third Highest-income Quartile ? RSPM was significantly enhanced for the May 2008 EBRI policy forum by allowing automatic qua ana the lr tyz h tir led e e sof R o h( fo e w co s e ld e a oa ch m rfr k or ch pen eo r“ f s I su ns s tch a u c e ti trr ce io tle u ea n. Loo sn ts. e, Ap tl k” a y g Wh a e g k rf es i iac il ng l e 2 2 t o 0 t5 on h 01 r– s e29 lri) y e n . at h w is a ho o E vle be a arl t w iy on il en a B l and ha oo v m ne u ier n co m m ber o hou rm e of b s than eho ina att tl30 ie d o m s ny tp . h ea tIat s ns r t s o qua w tead of ou s lof d in m tn iu u eed fs y la i ng tth ed tio s on e s ili a n ly v g te a i h an 80 b ei p n lit ay s tp f,o er rcent RSS projections for Gen9 X 0% er s. 1.4% 1.2% 0.9% 1.2% VanDerhei, Holden, Alonso and9 B 0ass % (October 2013) 3.2% . 2.3% 1.8% 1.2% (Employee Benefit Rese9 a0 rc % h Institute, No 9.v 9% em ber 2012): 11–23. 8.0% 7.0% 6.5% at the 90 percent real replacement threshold to 38.3 percent at the 60 percent threshold. Not surprisingly, 90% 8.2% 5.5% 3.8% 2.4% h wtt itp h :/a /www 401(.k eb ) r pil.an org i/spub 1.1 l9 ip ca 0e % ti rce on nst/ io bf/ if nid ne ax. l3 co .c9% fm m? pen fa= siab ti D oin sp , i& f con they ten arte _iid 3 n=4 . 0% the 495 lo west-income quartil1 e.. 9% 2.4% de as fa ined resub l t en of e ftihe t pe cha nsin og n p e in la de n w fe hose rral rp altan w e was a s 1f 8.4 roz pe en rc in e n 2006 t. would be about 7 percent, assuming short of money at 2 that point. 90% 64.5% 26 61.3% 54.9% 51.0% Real replacement r pa ea rlt irce iR p pl ea aen a tce ilo r r n o m ep ll ient n m l a a 4 ent cre a0 m to e 1f e (t k n h 40 ) r t ep 1 sh l (a ko n )l )d pa , 9.9 ar9 s ti 0 ic% n p ipan et r he ce t s 2012 n tw of it h tan he tha 5 e p ll.o y 7% w so is es te , n tt- he ti inco als i fm or mu e qua au lattio on m rt a irlte e is c e 4 u01 ltss ca 5 (f k .o l0% )a r tp i ta o h rn itsi o c te f ip sca ti on n m tt s who ony ribu w tio il w n lo s a u tllo so d be 4. 4% 4.3% there appe add aris ti t oo na be l alm ittount le co ns (ov eer ns u as o nd abo n the v e ap the prop sarv ia in te g s leavle re l(ady s). fa Tch to er re ed fo irn et, ot h the is an baasle ylsiine s u m se ode s fo l) u, r that had 20 ?Real T he re p A lac ugust eme 2n 012 t EBRI N 80 o% tes article (Va1 n.D 0% er hei, August 2012) prov 0i.ded 9% additional evidence on 1.4% 1.3% the im R pac ealt riep s slm ac ae llm ere a ns t the level of income increase. The range for the highest income quartile is 8.1 Real replacement 88 00 % % 28 .0% .8% 28 .0% .2% 17 .6% .7% 17 .3% .0% VanDR eea rhe l ir,ep Jalc ak c, Sa eme ra nh t Holden, Luis Alonso, and Steven Bass. “401(k) Plan Asset Allocation, Account The propo an 8 p This sed re e rp rec rgu e es nt lati e n r0% ta on st e a 4 s of fo5 r r 401( pe etu rr ce n. k)n A p t la r e con ndu s w c tri e tirb on eu ft iif ro r som n t in ra tr tthe 2.0 p od e of uc e ad bo in er u N tce 15 pe ont ve m va b rl ce er ue un n otf w 1981 d ou erl ,d co t a he nd ba v iter s too e tlh ik n r e e a se ev -s qua es ru alm rt yp e eti r as rons. s of Real replacement 8 80 0% % 84 .0% .2% 63 .7% .3% 4.4 3% .0% 3.3 2% .2% . “ ra Inc te rth ears es ing h o D ld ef ault D 80 e% fe rral Rates in 76 A .5% uto matic Enrollment 4017 (2 k.2% ) Plan s: The Impact on 65.7% 60.7% con a ha l t v ee s rn ider ra ea t . “ ii ac v c n a F e “ hed c lcou a tle luded su li r n t ng n he c a tce ti b St v ( 9 a sV e 0 p s” l oa anD c tnc h k te h rs: r e es rce sh e eW r sin h h o n th e o l d d at r il e d s e and a .f s W l i: ned ra i ep lC tt l a ope H lcon i an a ce ippen ng la m tri nd, ent b 60, 70, u tt20 o iron a R 0 te e 8 p t) 80 tilh .r a r e n e es as s nho 'a d 90 p Ind nc ldo IiRA m f e n e rone ce s s ? an T s w to he (fr e e tW l h sp le a o ets r c hk ti e rer e x ve pos e P lly e er ) ak u sp of re ae g ttc es o hti e p t v h w e,” e r ee r rr e e p P e atrlir e re s e es en s m te aent n tta e t t i on ra ra te te th th res res hho old ld 80% 6% 5.9% 9% 5.2% 12% 5 .0% 14 5.% 5% whether deferring retirement to age 70 would provide retirement income adequacy for the vast percentr at ate the th 90 res p ho erlce d nt real replacement threshold to 23.9 percent at the 60 percent threshold. 70% 0.6% 0.8% 1.3% 1.2% for m ra ate ny r B a t ste h p ao r l an e n ts h sor ho c re e ss s l , to d ho and Lo il nd tr odu acn e A thc e7 t p i0 v la % it ns y .i M n 2012.” oreover ,E 1 m B .2% aR nI y Ip sla su ne s tB hr at iew f, no. ere or 3i94, ginal (E l1 ym . 7% in ptr lo o y dee uc eB d en as e sf uipp t R le em se ea nrta ch l 1.9% 1.4% the employees in this type 70 % of plan. The m 7ed .9% ian contribution rate for a 7.f6% ina l-average plan is 8.1% 7.4% ? Assessment of automatic enrollment 401(k) plans relative to voluntary enrol 27 lm ent plans: rate threshold 70% 7.9% 9.1% 7.8% 4.7% Retirement Savings Succ 7e0 s% s i n Plans Wit4 h .5% Aut omatic Escalation.” EB 4.RI N 7% otes, no. 9 (Employee 5.4% 4.1% for The Economic Cr 7i0 s% is of 2008: Wh 86a.6% t W ill Happen to Retirees8 ’3 I.2% ncom es? 2009 APPAM F 7a7 ll .5% 72.2% w inco oul m ?d ha e rc A e v rp idd e a s li as ic t led i io n on w by 2a e 008 lr m trhe eod al a nd c irf o e im c 2009 pa lb ace ti ina ons m sh tient on w ow e o rs a re f a ta te he dd m in ed ed at nnu ih an p f e p or it ria P e e zrs ed c ee e n n n v cs ta e of a ilo g ue of n e R a for le l s ttof ea he hr r ee 5.6 401 ch le C p ( ak e oun kr )a ce a gccu c e nistl. f p m T o rr he e u s a le a p 5 n tir 0 p to oba an tis e on r bc i co ent li th ty m a tp of b iri n ob ned wi v su o ac lb v ce ied a listts y h Lom we ajso t, r it O yp of tim B isatiby c B oo m e r s a nd 4G 8.9 en% Xe rs. 64.2% 73.5% 79.2% 70% 5.9% 14 5.4% 5.4% 5.2% plans to existing defined benefit plans have been modified to provide more generous employer contributions at the Institute, December 2013); and ICI Research Perspective , Vol. 19, no. 12 (December 2013). slightly larger: 8 percent6 (0 a% ss uming an 8 percent return); a con tribution rate of 16 percent would The Potential of 401(k) 6P 0% la ns to Produ 0.3% ce Adequate Incom 0.e R 4% eplacement 0.6% 1.5% RSPM wa s significantly6 en 0% hanc ed for a 2 0.5% 008 E BRI publication by 0 .a 6% llo wing automatic 0.9% 0.9% Benefit Research Institute, September 205 12 .6% ): 1 2–22. 6.0% 6.6% 7.2% 0 60% 60% 5.5% 6.6% 7.3% 5.1% The next“winn C son ecfte ion r een rso /l cfe o t s( h e N irs s” o tv e e a sna m tim ber ly ony s i20 s o p 0 fr9 o de )v . ifdes ined b a bern ie e3 ff .io 2% t v fe ree rvz iew of p es and trhe ev ienh ous R anced SPM 4 .e1% m res p lu oly ts er on con rettriirb eu m tient ons 4.4% 8.1% dec the rp ea rim ses and 6.7 ar ty o Soc 8.8 ip p ae l e rr S c ce en ent cu t rfof it oy r t a he ben 6 90 0 l% o e pe f w ite r a st ce m nt ioun nco prm to s. b e qu abila it ry ti lof e 4 r01 eti(rk e) m pa ent rt iic nico pam nte a s ifdequ we o an cy ly impose an 80 percent 92.3% 90.9% 87.9% 83.2% ? The September 2012 EBRI Notes article (VanDerhei, September 2012) analyzed the impact of time the defined benefit plans were frozen (VanDerhei, April 2010). Highest, OptimistL ico an s * are n 6 0 % ev er 28 tak .9% en f rom 40 1( k ) 4 Pr 1e .0 r% etirem e n t w ith dra w al s a re 53.0% Nev er c as h out b 6 al4 a.0% nce at job The views expressed in this statement are solely t 4ho .8% se of Jack VanDerhei and 4 .sh 8% ou ld not be attributed to 5.2% 5.3% cover three-quarters of the workers in this type of plan. For workers in hybrid pension (cash enrollment of 401(k) participants with the potential for automatic escalation of contributions to be 6 . “401(k) Participants in the Wake of the Financial Crisis: Changes in Account Balances, 2007– i rnco eal m ree a plp adeq ce rov m u ided ent acy r . ta o d T te hie ts h f i rined e s sh foo ll c lo on dw , ta e rtid by b au 7 ti0 p o an a n p erlce n an an ls y t s at tih s rt e he of sh tti o he po m ld e itt he tde en c d tr ie e afi a l s n oe ed fs 40 fb u1 e rne t (h ke )f r ip t t lp o 7.9 aln ans s to p pe we r rr c odu e en fr tc oa e a z nd en da et qu a a60 te The ? E BR Im I/Ipa CIc 401 t of( d k) e fi da nted aba bsen e h eas fit b plan een u s:s A edno to p ther ro 2 v011 E ide ann BR ual I pub repo lirc ta s b tio an sed on used aR ct S uP aM l a c to cou ana ntl yz bae latn he ces . “ inc Is rW eao sr ing king the to de Afg ae u l70 t-con Rea trlilbu y tthe A ion ra ntswer e for fau ort R om eta ir ti ec meent nro I lnco lment n m ee Adequac v 40 er1 t(a kk )e p n f lay r n?” o s w m E 4 iB t0 hRI No 1( au k) to p m tle an a st, i no. c 8 change 21 Su mmary and Future Resear pl ch an . Testimony. Joint DOL/SEC Public Hearing on Target Dates Funds. How Would Target-Date the Em Lp oba lwe oy la s ee n t,c B P e) e en ss pe lan ifm its iR s , tte ih c se e a m r ch ed iIa ns n tcon i tu t4 teri 5 (b .7% E uBR tion I) , r a tt he e wo E B u R l d I Educa be about ti o n and 3 p 56.e4% rce Rn ets ;e a c a rc o h Fund, any n tri bu tion r a of te iof t s 6 1 4.5 .0% 62.1% included. The results showed that the median 401(k) accumulations for the lowest-income See Figure 23 of Utkus and Young (2013) for rece ®n t evidence. ® 18 ® ® ® ® Source: EBRI Retirement Security Projection Model, ®v ersion 2107?2115. Sourc2011,” e: EBRI R EB etR ire I m Ise su nte Se Br ciu eri f,t yno Pro . 391 jectio (E n m Mp odel loy,ee v e B rs en ioe nf 2107?2115. it Research Institute, October 2013); and ICI T r pe So So So So ehe triu u u u c r e rc rc rc rc en sm ie e e e m t::::ent tu ( EB EB EB EB h C lr a ope e i RI R RI R RI R RI R tn ed sc ho o lan an e e e e m ld ttttiiiie a re re re re d o l iy m m m m n and n s le e e e y its n n n n he 5.6 ttttV f Se Se Se Se or a anD b pe c c c c Fi s u u u ue ri ri ri ri r g e nce c ttttu r y y y y en h r P P P P e 3 e tro ro ro ro of i ,a jjjj 2010 r e e e e a p e c c c c sl ti ti ti ti s an im u o o o on n n n m ) pac l .e M M M M es aodel odel odel odel k tte a h d. g at ,,,,e s4 v v . v v 0 e e T e ers rs 1 rs rs h (k iiio o iis o o) n n n n s spon 2107?2115. 2107?2115. e 2107?2115. 2107?2115. rves so as rs a a d ba op se tilng ine au tot o the ma next tic-en sr eo cll tim on ent w here the of So lu arc rg ee c : i EB m ross pac RI R s t e eof c tire ti d o m e ns f ein n o ted f Se t h ben ce u ri 401 e tyf iP t( ro k p)lj ans ep clti an o in n ac p M aodel rth ii ce i,v pian ng vetrs u re in oti n iv r 2107. e em rse ent s i n inco ce 19 me a 96.deq Loo uacy ki n for g at B aby cons B isoo ten m t ers and ( eE sc m ap lalti oy on ee of B ene conf tirti bu Re ts ion ear sc . h Institute, August 2012): 10–21. Lowes Funds L t income ik ely Impact Future 401 0.4 (k) Accumulations? (T-160), 18 June 2009. 6.7 13.3 programpe s, o rcfen ficte w rs, o u trlu ds co tee vser , spon three so -qua rs, or rte o rs o thefr ts hte wor aff. Tk he e E rs,m ba pl so ed on c yee Bene urren fitt R in etse erar esch t cr Ins edtit itsu . tI en a is a ll of these quartile of these workers (assuming all 401(k) plans were voluntary enrollment) would only be 22 Highest, Pessimistic 27.0% 34.1% 38.8% 41.1% * "Success" is defined as achieving an X percent real replacement rate from Social Security and 401(k) accumulations combined as defined in VanDerhei T * * * * he " " " "Su Su Su Su * "sSu c c c c ic c c c m e e e e cu s s s s cl s s s s e a " " " "s ti iiiis s s s s on " d d d d is e e e e rfi fi fi fi d en n n n e su e e e e fid d d d n lt e a a a a sd s s s s f a or a a a as c c c c h h h h a th iiiic e e e ei h v v v v siin in in in etv e g g g gin s a a a a ti g n n n nm a X X X X n ony per per per per X per c c c c sug en en en en ctttten g re re re re ets a a a a re tllll tre re re re a hla p p p p re t lllla a a a ,p c c c c a le e e e a sm m m m su ce e e e em m n n n ntttte i ng ra ra ra ra nttttt e e e e ra no pa fro fro fro fro te m m m m fro r So So So So m ti c So c c c ciiiiip a a a ac a llll int Se Se Se Se al Se c c c c be u u u uri ri ri ri ha cttttu y y y yri v an an an an tiy or d d d d an c 4 4 4 4d h 0 0 0 0 an 1 1 1 1 4(k (k (k (k 0g 1 ) ) ) )e (k a a a af c c c c ) or c c c c au u u u c m m m m cu u u u um lllla a a au ttttion ion ion ion lation s s s s c c c cs o o o o m m m m co b b b bm iiiin n n nb e e e eid d d d n e a a a ad s s s s a d d d ds e e e e fi fi fi fi dn n n n ee e e e fid d d d n e iiiin n n n d Va Va Va Va in Va n n n nD D D Dn e e e eD rh rh rh rhee e e erh iiii ei i p * m r"o pac Su vic stc i ons e of Rese ss 4 "a 01 il sso a d (rk e ch P a ) fi do n lea ep d ek t r a a s an sg p a es e a c cu h ta iitv e r oe a e, v m in a V g nti a o a c lln yz .a X 19, no. 7 nnu eper d. a T clen h ee stc fre O a in la c a a ltt lob re i on sp ec el r a o ti c 2 fon p e 0 co m 13. e nn rt o tr ira v biu td eti e fro s a onm s. No b So rief cti a e su l tSe m hat m c u w ari rh ty yi lof an e a d the u 4t0 o1 c m u (k a r)ti r en a cc-c t u an ma ulla ytsion is s combined as defined in VanDerhei paA rtdd i ? c iitio paA G n nen l t al s so d iX n etai in e the r20 ls. s E 09, o T n BR h R i a n sS I a /P Irew M C tiI c a l401 sub n e ds h tr ( ho o k ew u ) a ti da s sn stu e was t he aba m p tr ti s e on e m aid s endous n ded u tsh ed e w t in o a i a 2 m k l0 le of ow po 13 rc ts ta ahe in nc m b u e f ei l n a o fo ti an fun o dc n e d is o fi a in ln c f ed b V ri v as a n iri s De e o n (u ov e rh f s iei er t s t p ( y t J llhe a un es ns e fo ou 2013 ifn a tra-r c y b g h ear ) e i.e t T -v da pe h ing e tre i od ? The November 2012 EBRI Notes article (VanDerhei, November 2012) reclassified the RRRs to nonprofis www tc , no ena n .eb rpa ios, ri rt. it o she a rg n, /rpd a ed te fu / of pu ca t b rie lon itca ura ti nn ons on d re /itn see v sa e ti rst m ch m on o en r yg t /t s an 160. has iza p ta idf on e m ajor sta ibm lipac shed t on in Wa the s ch on ing tri ton, butiDC on r , aitn 197 e; low 8er . and Hi Lgh uca es s t (2 inc 01om 0) w eher e X = 60, 70, 80 or 90 0.3 . T he population simulated consists of workers c 3.8 urre ntly ages 25–29 who will have more than 30 4.7 year s of and Lu 0.1 cast i(2 m0 es 10 fi ) n wa her l ee a rX n i= n60 gs , a70 t ag , 8e 65 0 or 90 (th . iT sh ie s p la or pg ue la ly ti odue n si m to u lta he te d f a cc otn t sh is at ts 41 p of wo erk rce ernt s co ufrre wn otlry k e age rs— s 25 as –29 who will have more than 30 years of an an an an d d d d L L L Lu u u u. “ c c c ca a a as s s s R (2 (2 (2 (2 et0 0 0 0 ir 1 1 1 1e 0 0 0 0m ) ) ) ) w w w w ent her her her her R e e e ee X X X X ad = = = = ine 60 60 60 60s ,,,, s 70 70 70 70 R ,,,, a 8 8 8 8t0 0 0 0 in o o o o gr r r rs 90 90 90 90 and .... T T T Th h h h R e e e e ep p p p tio o o orp p p p eu u u u m lllla a a a eti ti ti tin o o o otn n n n Sa s s s siiiim m m m viu u u u nlllla a a a gte te te te s Sho d d d d c c c co o o on n n n rtf s s s siiiia s s s sl tttts s s s ls o o o offfffor w w w w o o o oG rk rk rk rke e e e en r r r rs s s sX c c c ce u u u urrre rre rre rre s: n n n n T tl tl tl tlh y y y ye age age age age Ims s s s pac 25 25 25 25– – – – t 2 2 2 2 o9 9 9 9 f w w w wh h h ho o o o w w w wil il il illlll ha ha ha hav v v ve e e e m m m mo o o or r r re e e e th th th tha a a an n n n 3 3 3 30 0 0 0 y y y year ear ear ears s s s o o o of f f f pa anrd ti L ci up ca ats i o (2 n, c 010 o)n w tri her bu et iX on = or 60 ,a 70 sse , t8 a 0l l oo r c 90 at.i o Tn he r e psou plu tilng atio fr n om sim u redu lated c ed conascc iste sss o f tw o o4 rk 0e 1r(sk c ) u ba rre lanc ntly e age s, rs e t25 ire –m 29 ent wh o will have more than 30 years of financial-market results are generated from stochastic annual returns with a log-normal distribution and an and o Fi fr en om g ro ull r e 5 y u m ea tlent i n r s-h es end 2007 o p w lp ans ls ans th ha e for s vta e be o m fu y e ea tu en im rre - pac iend 2011 n rep ste l ace as arch. t h fo ) at , a r p a nu r je os in e m n t ber tE ed BR i on f I / Fi y In ea g vu e rs, r st e m t4 hent , b ere u C th to as hm i s b pany e tien a me It ns sub he tit o su u ta tte n pt u (iItal C m Ii)e n tri ana cre ca lise y ss t ihe is n ftoun he d f runds etirem for ent a ico ncm om pa e a rison dequa wic th pa y for r tB icaby ipan B t-oo dirm ec etre s d aind nve G sen Xer tments s( . V OanD vera elrlh , e th i,e June pres e 2n 009 ce of ). a defined provide additional information on those substantially above the threshold; close to the threshold; s V i m anD ulate erdh eligibil ei, Jac itk y, and L for parti o crii p a Lucas tion in. a “ T 4he 01(k Im ) plan pact. W ofor A ku etro s -ar en er o as llsm um ent ed and A to retiru et o am t ag ate ic Con 65 ant dri al blu 4 ti 0on 1(k ) balances are converted into a real annuity at an E s s s sB iiiim m m m s R u u u u im I lllla a a a u does te te te te la r d d d dte a eligibil eligibil eligibil eligibil td es not eligibil w t o it it it it au y y y yk lit fo fo fo fo e po d yr r r r r fo p p p p eq a a a a rl ir r r rp u cy ti ti ti tia ir c c c criiii e ti p p p p pos c a a a a h iti ti ti ti p io o o o g a iti n n n n her ti o o iiiin n n n n ns, a a a a con in 4 4 4 4 n a 0 0 0 0o t1 1 1 1 4 ri r(k (k (k (k 0 b d 1 ) ) ) )u o (k plan plan plan plan tes i)on plan it ....s W W W W ltobb .o or or or or W o k k k kor ff y e e e e, ad r r r rs ks s s set er ar ar ar ar s v te e e e he ar oca a a a ae s s s s b s s s s t a ene e u u u u s m m m m s sp u e e e e fm ie d d d d tc e ttttlio o o o d o fi s re re re re tc o s ti ti ti ti po f re r r r rre e e e om ti l i a a a a rcy e tttt ag ag ag ag a a pe tr e e e e e ag co 6 6 6 6 n e 5 5 5 5 s m 6 ian an an an on 5 m d d d d an enda fal al al al rd ee llll al 4 4 4 4ti z 0 0 0 0 l e o 1 1 1 1 4.n (k (k (k (k 0 s, or 1 ) ) ) )(k b b b ba a a a ) llllb a a a aa n n n nlc c c c ae e e e ns s s s c e ar ar ar ar se e e e ar c c c ce o o o o n n n n cv v v v oe e e e nrte rte rte rte verte d d d d iiiin n n n dtttt o o o o in a a a a to re re re re aa a a a re llll annuit annuit annuit annuit al annuit y y y y a a a ay tttt an an an an at an simulateoppos d eligibil ed it yt o fop r a pratriti cc ip ipan atito sn — inw ae r 4e 01 a(k ss)u plan med . W to or hk ae vre s z ar ee r o a s bs au lm an ece dM tso axi at re a timu r g ee 65 a m t ag E ). m eH 6 p o 5lo w an y eve ee d al r , C l i4 o f 0 n 1 a t(k lrli )b 4 b u 01 atlion a (n kc )s es are converted into a real annuity at an 19 Eligibility for Participation in a 401(k) Plan.” EBRI Notes, no. 6 (Employee Benefit Research balances from 401(k) plans, and IRA rollovers originating in 401(k) plans, may be increased substantially a rit hmetic . “T m hee Ex an ofp 8 ec .6t ed pe rIcm en ptact rea lo rfet A uu rn to fm ora sti to c E ckss c an ad la 2 ti.6 on p e of rc 40 ent1 r(ek a)l C ret on urtnri fb ou r tbo ion nd s so . n Retirement Income.” pe t ph ra op rtc en to hre a t ti aon bene gv e of eo ra ff g ie tte 40 ho m ac p se c lo 1 r u no y (k a e) lr t s a ac r t e i n a c aco ch ount ge 65 r ing po b r tr a a he e ti lduce ang n th ce rso e sfs e m th he lo le l3 d t“ 4.8 p y a r pe of te-p rils e ak r ce c a ” pe e n au m nt ent ric tn o en rm 2008, atta ag e w tie by c- h t eh en se ca 11.6 pe n llea r ao tk ise on ag fr es r fce om ea e n tx t u a 2009 irst g e e p a w s a h o to o i n r w 2011 e ts. sou uThe lt l d .of r e d O ta h ev ch f e e ined r a the ll , ? In April 2010, the model was completely re-parameterized with 401(k)-plan design parameters annuity purchase price of 18.62. Plans are assumed to have automatic escalation with a 1 percent of annual compensation increase and 3 percent default annuit annuit annuit annuit annuit y y y y p p p py u u u u rc rc rc rc pu h h h hrc a a a as s s s he e e e a s p p p pe ri ri ri ri c c c c pe e e e ri c o o o oe f f f f 1 1 1 1 o8 8 8 8 f .6 .6 .6 .6 18 2 2 2 2.6 .... Pl Pl Pl Pl 2.a a a a Pl n n n ns s s s a n ar ar ar ar se e e e ar a a a ae s s s s s s s s au u u u sm m m m su e e e em d d d d e tttto o o o d ha ha ha ha to v v v v ha e e e e v a a a ae u u u u to to to to au m m m m to a a a am ti ti ti tic c c c a te e e e ic s s s s c c c c ea a a a sllllc a a a aa ti ti ti tilo o o o an n n n ti o w w w w nit it it it w h h h h a a a a ith 1 1 1 1 ap p p p 1 e e e erc rc rc rc pe e e e erc n n n ntttte o o o o nf f f f t annua annua annua annua of annua llll c c c co o o o l m m m m co p p p pm e e e en n n n ps s s s ea a a a ntttts iiiio o o o an n n n ti o iiiin n n n nc c c c ire re re re nc a a a are s s s se e e e a s an an an an e d d d d an 3 3 3 3d p p p p 3 e e e e rc rc rc rc pe e e e erc n n n ntttte d d d d ne e e e t fa fa fa fa de u u u ufa llllt t t t ult annuit y p and urchsa u sb es p tan rictei a oll f y 1 8 be .6l 2ow . Pl a the ns t ar he re a sh ss o ulm d.e d to have automatic escalation with a 1 percent of annual compensation increase and 3p ercent default receive So fEsca eu drc ere l al : at Hol f io un n dd e oi n n n and g R . et i Va ren m Dent erh e In i (2 co0m 02 e Adequac ). y.” EBRI Issue Brief, no. 349 (Employee Benefit plans are assumed to be using the auto-enrollment provisions under PPA, the median 401(k) Institute, June 2012): 9–21. for young employees with thirty or more years of eligibility if cashouts at job turnover, hardship EBRI Notes, no. 9 (Employee Benefit Research Institute, September 2007): 2–8 c t Pens o hn re tri sh b ion P u otlio d nr r ep o ra tte lec ast ce .i o Em m n ent A plo c t y r ee a of te s 2 iar 006. f e th a e sH l se u o a m w ke a ed g v es te or , re w itv e e wi re rt le th lli e be a m ir ile n v a ne tu e l m d o. fber c O on n of c tri e by a uea g tia or in s n s b u to e sf ith o ng r ee t d t he e hfa el se u olw t p ra e ro s te tv - w i is nco he ion ns m th e qua h ea yv p e be arrtti ic le e in p a te in a new plan and opt-out of contrib bene ution f ira t p te lan a s. Em dp vlan oyt ee ag se ar (as e a m sseasu umer ded by to rev e the rt th ge ap ir le bv ee tw l o efen con th tri e btu w tio on a st - to risk the pe derfa cen ultt ra ag te es w ) he is n they participate in a new plan and opt-out of c c c co o o on n n n tri tri tri trib b b bu u u uttttfiiiio o o o or n n n n spon ra ra ra ratttte e e es s s s....s Em Em Em Em ors p p p ptllllh o o o oa y y y ytee ee ee ee hs s s s a d ad ar ar ar are e e e a a a a os s s sp s s s stu u u u ed a m m m me e e ed d d d u t tttto o o o o m re re re rea v v v vti e e e ert rt rt rt c - th th th th en e e e eriiiir r r ro le le le le llm v v v ve e e eent llll o o o offff p c c c co o o o ro n n n nv tri tri tri triib b b b su u u u ions ti ti ti tio o o on n n n s s s s ( V tttto o o o anD th th th the e e e e d d d dr e e e eh fa fa fa fa eu u u u i, llllttttA ra ra ra ra p tttte e e e ri lw w w w 2010 he he he hen n n n tttth h h h ).e e e e y y y y p p p pa a a ar r r rti ti ti tic c c ciiiip p p pa a a atttte e e e iiiin n n n a a a a ne ne ne new w w w pla pla pla plan n n n an an an and d d d opt opt opt opt- - - -ou ou ou outttt o o o of f f f contribu *Lo tion a n ra d te es fa . u Em lts p alre oy n ee ot s in ar ce lu a ds es du in m e th di s to a re navly er sti sth . eir level of contributions to the default rate when they participate in a new plan and opt-out of Research Institute, November 2010); and DCIIA Research Report (November 2010). auto am uto atim c a eti sc c a els acta iola nt iin o n a c inc o ard cca on rd c tha e n w cit eh w th ith e th pro e b pa ro bb ilia tib eis li ti in e s V ian n V Dan erh De eirh (Se ei p (Se tem pte be m r b 2e 0r0 2 70 ) 07) a a a au u u uto to to tom m m ma a a ati ti ti tic c c c e e e es s s sc c c ca a a alllla a a attttiiiio o o on n n n iiiin n n n a a a ac c c cc c c co o o ord rd rd rda a a an n n nc c c ce e e e w w w wit it it ith h h h th th th the e e e p p p pro ro ro rob b b ba a a ab b b biiiilllliiiiti ti ti tie e e es s s s iiiin n n n V V V Van an an anD D D De e e erh rh rh rhe e e eiiii (Se (Se (Se (Sep p p pte te te tem m m mb b b be e e er r r r 2 2 2 20 0 0 00 0 0 07 7 7 7) ) ) ) automatic escalation in accordance with the probabilities in VanDerhei (September 2007) SoM urc ed ei:a Va n re nD p E le a BR rh ce I e m i •an e 1 n1 d t 0 r0 L a u 1 te 3 cs a = S st 5 .(2 N 0 0 W .7 1 0 # and 80 ). 0 6 • 7 . W 2as ph eir nc ge ton nt , fo DC r l 2o 0w 00 e 5st •a n (2 d0 2 h)i g 6h 59 e-s 0t6 7 in 0c o •m w ew q w u .e abrti ri.lor es g respectively. EB EB EB EB EB EB EB EB EB EB EB EB EB EB EB EB EB EB EB EBR R R R R R R R R R R R R R R R R R R RIIIIIIIIIIIIIIIIIIII T T T T T T T T T T T T T T T T T T T T- - - - - - - - - - - - - - - - - - - -18 18 18 18 18 18 18 18 18 18 18 18 18 18 18 18 18 18 18 180 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 E E E E E E E E E E E E E E E E E E E ERI RI RI RI RI RI RI RI RI RI RI RI RI RI RI RI RI RI RI RIS S S S S S S S S S S S S S S S S S S SA A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A Adv dv dv dv dv dv dv dv dv dv dv dv dv dv dv dv dv dv dv dviiiiiiiiiiiiiiiiiiiis s s s s s s s s s s s s s s s s s s sor or or or or or or or or or or or or or or or or or or ory y y y y y y y y y y y y y y y y y y y C C C C C C C C C C C C C C C C C C C Co o o o o o o o o o o o o o o o o o o ou u u u u u u u u u u u u u u u u u u un n n n n n n n n n n n n n n n n n n nc c c c c c c c c c c c c c c c c c c ciiiiiiiiiiiiiiiiiiiil, l, l, l, l, l, l, l, l, l, l, l, l, l, l, l, l, l, l, l, J J J J J J J J J J J J J J J J J J J Jun un un un un un un un un un un un un un un un un un un une e e e e e e e e e e e e e e e e e e e 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17,,,,,,,,,,,,,,,,,,,, 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 20 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 01 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 14 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 P P P P P P P P P P P P P P P P P P P Pag ag ag ag ag ag ag ag ag ag ag ag ag ag ag ag ag ag ag age e e e e e e e e e e e e e e e e e e e 4 11 5 20 18 6 7 12 13 2 8 10 3 19 16 17 14 15 9 1 Figure 11 Figure 5 Impact of Leakages for Automatic Enrollment Plans Assuming No Participant Impact of Leakages for Automatic Enrollment Plans Assuming No Participant Probability Percentage Points Behavior Change for Participation, Contribution or Asset Allocation Behavior Change for Participation, Contribution or Asset Allocation Comparison scenarios: No leakages vs cashouts at job change Comparison scenarios: No leakages vs. all leakages (cashouts, hardship 45% withdrawals with 6-month suspension of contributions and loan defaults) 40 45% % 40% 35% 35% 30% Percentage of those not Percentage of those not reaching the threshold 30% reaching the threshold 25% replacement rate when replacement rate when leakages exist who would 25% leakages exist who would reach the threshold 20% reach the threshold replacement rate if the 20% replacement rate if the leakages were removed 15% leakages were removed 15% 10% 10% 5% 5% 0% 0% Lowest-Income Quartile Second Third Highest-income Quartile Lowest-Income Quartile Second Third Highest-income Quartile 90% 21.8% 17.1% 13.5% 11.8% 90% 13.9% 11.5% 8.8% 8.1% Real replacement  80% 27.3% 22.7% 18.3% 15.2% Real replacement  80% 20.0% 15.9% 12.7% 10.3% rate threshold rate threshold 70% 37.1% 31.3% 26.5% 21.1% 70% 30.4% 24.3% 19.3% 15.6% 60% 41.9% 39.7% 35.2% 30.1% 60% 38.3% 34.5% 30.2% 23.9% ® ® Source: EBR Source: EBR I Re I tirement Security Retirement Security Projection Projection Model, Model, version 2107 version 2107 ?2115. - 2115. * "Success" is defined as achieving an X percent real replacement rate from Social Security and 401(k) accumulations combined as defined in VanDerhei * "Success" is defined as achieving an X percent real replacement rate from Social Security and 401(k) accumulations combined as defined in VanDerhei and Lucas and Lucas (2010) (2010) where where X = X 60, 70, 80 = 60, 70, 80 or 90. T or 90. T he population he population simula simula ted ted consists consists of w of w orkers currently orkers currently ages ages 25–29 w 25–29 w ho w ho ill w hav ill hav e mo e mo re than 30 y re than 30 y ears of ears of simulated eligibility for participation in a 401(k) plan. Workers are assumed to retire at age 65 and all 401(k) balances are converted into a real annuity at an simulated eligibility for participation in a 401(k) plan. Workers are assumed to retire at age 65 and all 401(k) balances are converted into a real annuity at an annuity purchase price of 18.62. Plans are assumed to have automatic escalation with a 1 percent of annual compensation increase and 3 percent default annuity purchase price of 18.62. Plans are assumed to have automatic escalation with a 1 percent of annual compensation increase and 3 percent default contribution contribution rates. rates. Employ Employ ees ees are assumed are assumed to rev to rev ert their lev ert their lev el of contributions el of contributions to the default to the default rate w rate w hen hen they they participate participate in ain a new new plan plan and and opt-out opt-out of of automatic escalation in accordance with the probabilities in VanDerhei (September 2007) automatic escalation in accordance with the probabilities in VanDerhei (September 2007)

Volume T-180

Pages 31

EBRI Testimony

June 17, 2014

Jack VanDerhei

Financial Wellbeing Retirement