counre t. “F eti rp re all ar m in te s g n S (88 p t i to nc cks o eme r : What ce to nt p fo W ay f r t ilh lo H e r t h ap hig e p s h en e imu to st in l R ate c eo ti d me r e ee x q s p'e In un ar s ce o ts il me ,e th ) b se ?u T n te h ar w e W e me s o trk il th l su e or Pe d c bst o rs mp an pe t u c iall te tive d y t ,h ” h P ig e p h re e e sr rce e t nh tat n an tag io tn h e fo o e p f ho r T ro h b u e ab s E eh c ilo o itn lie d o ss mic Cri th wat hens is ? An analysis based solely on current balances will not incorporate the impact of future employee activity (such T-175 E Appen R In n efe tr dn o renc d ouct te dis x e ion A: s Brief Chronology of the EBRI Retirement Security Projection w of 2008: W ould meeh t th at W at r ile l H qu ap ire pm en e to nt m Reo ti re re th esan ’ In a sp come ecsi? fie 2009 A d perce PP nA tag M eF o alf time l Confer s in e t nh ce e ( sN imu ove lati mb oe nr 2009 . ). voluntary enrollment is assumed. as potential cash-out behavior at job change) nor the impact of future financial market returns. Copeland, Craig, and Jack VanDerhei. “The Declining Role of Private Defined Benefit Pension Plans: Who Is Affected, and How.” ® ? A . T s e ex sti plmo ore n d y. J in t oi h n e t DOL June/S 2011 EC Pub EBR lic I I H ss eu ari e B nr gi o efn , T th arg e Re St Dat PM a e llso F w ue nd d re s. ti Hre ow me W n o tu -iln dc T oa me rget ad -Da eqte F uacy to und b s L ei kel ass ye Im sse pd a at r ct Fu eti tu rr ee ment Model Measuring retirement income adequacy is an extremely important and complex topic, and the Employee Benefit 1 T Th oe a s ssist In ec R oo t n b h d e e r rt Su o L w . Clark b in co t mm h an e gr it d tid O ee fo li via Mi in r i F tig s u e tc v re h alu 2 ellat ,p e rion d es sen ., o R fteo s th trh e ien e r o r ti e le nsu g o R lt f 401(k) p eti s w reme hen t nlan t Ris he t s h k Ma in re tsh hn e o a face ld gemen is in of t c t. rh e N e as e r w e ed Y tir t oe o rk me 70 p : O n xt fo e c rrd r cisis, e Un nt. E ive A BRI s rse ity Pre h xp as e u ctsed s e sd , See Appendix A for a brief chronology of the model. 401(k) Contributions? (T-160), June 2009. www.ebri.org/pdf/publications/testimony/t160.pdf ages later than 65 (VanDerhei and Copelan ® d, June 2011). Research Institute (EBRI) started to provide this type of measurement in the late 1990s with th 9e development of the EBRI ? The Retirement Security Projection Model (RSPM) grew out of a multi-year project to analyze the future economic well- 2 the pfo er r t ce hn et P ag ee n o sio f w n R oe rs ke earch Co rs able t un oc me il, 2010: 122 et this mo –136. re st ringent threshold decreases; the percentage of those in the lowest its RSPM to analyze the potential of 401(k) plans to produce “adequate” income replacement. The analysis provides This number is somewhat larger than the $4.3 trillion reported in VanDerhei (May 2012); however, the baseline assumptions . “The Expected Impact of Automatic Escalati 1on of 401(k) Contributions on Retirement Income.” EBRI Notes, no. 9 ? In a July 2011 EBRI Notes article (VanDerhei, July 2011), RSPM was used to provide preliminary evidence of the impact of Retirb ee m in eg n o t Se f th ce u re ritty ire Pr do p jec optu ion lati M ono at de th l® (R e stat SPM e le ) ve , al c . T oh mp e Eu mp ter lo s ye imu e B lat en ion efit mo Res d e e arch In l that p sti ro tu jec te ( ts E BR the I) fin anan d th cial o e Miu lb tc an ome k s for MacDonald, Bonnie-Jeanne, and Kevin D. Moore. 2011. “Moving Beyond the Limitations of Traditional Replacement Rates.” in prc o o b me abil q itu ie ar s to ilf su e wc itch e s ssfu uccl r essfu etire l r me etir ne t (d me en fitn s eu dn b de elow r th) b is a y nin alys co me is is n qu oar wt 90 p ile fo e rr b ce on th t. v A ogain luntar th y ean su d c a ce uss tomat percic e n etn ar ge oll s me for n t th e used in the 2010 analysis did not provide for the utilization of net housing equity to ensure retirement income adequacy. When (Employee Benefit Research Institute, September 2007): 2–8 the “20/20 caps” on projected retirement accumulations proposed by the National Commission on Fiscal Responsibility U.S. h Me ou mo seh rio al F lds uin nd r , w etir ork eme ingn w t. ith W th he en o w ffie ce mo of th st e re g co eve ntrn ly o mo r od f O elre ed g t oh ne , s Ba et o by ut i Bo no tme he lat rs e an 1990s d Gen to Xe se rs e if ear th liie s s r t itu his y atio en ar c ould be Society of Actuaries (September). Available at www.soa.org/research/research-projects/pension/researchmoving- second, third and fourth income quartiles are somewhat smaller, but none are less than 81 percent. 401(k) p the analylan sis i s. s re Giv pe eate n td h w at t ith h th e o eb s jec ame as tive o su f t m hp is a tion ns alys as u is is sedt i o n fo 201 cu0, s o th ne t agg he p ro eg te ate nt ial de ficit for 401(k) actually i pla nn cs retas o p es r to od $4.8 tri uce a th llr io en sh . old . “Measuring Retirement Income Adequacy: Calculating Realistic Income Replacement Rates.” EBRI Issue Brief, no. 297 and Reform. United States Senate Committee on Finance evaluated for the state. The resulting analysis (VanDerhei and Copeland, September 2001) focused primarily on simulated (2013) 3 , we found that their Retirement Readiness Ratings (or RRRs™, defined for public policy purposes as the beyond.aspx As a result of several requests to determine the impact of the financial and real estate market crises on overall retirement level o (Emp f inlc o o ye me e B re en pe lac fite R me ese narch In t at res tir titu eme te,n Ste , p tte he m a b n ealys r 2006 is is lim ). ited to those individuals who are simulated to have more ? The August 2011 EBRI Notes article (VanDerhei, August 2011) used RSPM to analyze the impact of defined benefit plans in Subcommittee on Social Security, Pensions, and Family Policy The tre hir tid re r m oe w n in t w te halt e Fi h w guir th e 1 a c grid omp sh ari osw on s to the ad imp hoac c th t o re f r sh aisin oldsg fo th r r ee tth irre eme sho nld t e fo xpre s nu dc itu cerss est . o 80 percent. At this point the probability of having adequate retirement income for standard retirement expenses—housing, food, etc.—plus Utkus, Stephen P., and Jean A. Young. 2013. How America Saves 2013, A Report On Vanguard 2012 Defined Contribution Plan income adequacy, EBRI conducted another analysis in 2011 that found the percentage of households that would not have been t han 30 y . “De e fin are s d o B f e en lie gi fi b t Plan ility fo Fr r p eear zets ic : Who ipatin 'sg (w Affe h ce te th de , H r o or w n Mu ot t ch he , an y ac d R tu eally c placin hg o L oo se t st A oc p cru arals tic. ip ” at EBR e in I I eac ssue B h o rif t ef,h n oo se year . 291 s) by achieving retirement income adequacy for Baby Boomers and Gen Xers. b ? eneT fi h te fo Ar p mu ril 2001 E la in So BR cial S I Isse uc eu B rri ite yf c (au Van ses t Derh he e lo i an w d e Co st in peclo an m de , A qp urar il 20 tile 01) to h hiav ghe lig a h mu ts th ce h c h h igh ang ee r sp in ro p bri ab vate ility po ef su nsioc n c p ess lan(85 uninsured health care costs10 , including long-term care) was between 55-58 percent. Not surprisingly, lower-income Data “at risk” without the 2008–2009 crisis but that ended up “at risk” varies from a low of 3.8 percent to a high of 14.3 percent. See (Employee Benefit Research Institute, March 2006). the time they reach age 65. ? In September, it was used to support testimony before the Senate Finance Committee (VanDerhei, September 2011) in perce pn art t) t ich ip an ati t oh ne fo hr D ighB est an in d DC p come la q ns u an artd il u e (73 ses t p he er mo cen dte ). l to quantify how much the importance of individual account plans is V ho an uDe seh rh oe ld i,s Jac hav k. e H mu ow Mu ch lo ch w W ero R uRRs ld it: T Take he 2013 ? Achi e bvin ase gli R ne et iRRRs reme n ra t I nn ge co fr me om 1 Equ 6 p ivale ern ce cy b nt e fo tw r t eh ee n h Fo inu aseh l-Ave old rag s e in -Pa thy De e low fin ee st d- VanDerhei (February 2011) for more detail . “Projections of Future Retirement Income Security: Impact of Long Term Care Insurance.” 2005 American Society on analyzing the potential impact of various types of tax-reform options on retirement income. This was expanded in the 4 expected to increase because of these changes. Figure 1 summarizes the projections for the percentage of “su ccessful retirements” for 401(k) participants by income income Ben q eu fit ar P tlil an e (me Accru an als in an g th dat V o 16 p lunte ary E rcen ntro olf t lme he n s t 401(k) imulat P ed lan lifse ip nat th he s P fo rir vate that S d ec e to mo r.”gra EBR ph I No ic a tes, re p nro o.jec 12 ( teE d mp no lo t ye toe r B ue nn se h fit or t See VanDerhei (August 2011) for more detail. It should be noted that the huge impact on retirement income adequacy of Aging/National Council on Aging Joint Conference, March 2005. November 2011 EBRI Issue Brief (VanDerhei, November 2011). TM ? With the assistance of the Kansas Insurance Department, EBRI was able to create the EBRI Retirement Readiness Rating quart Ril ee s fo earch In r those sti tu cutr e r,e De ntly ce mb agee s r 20 25-13): 11 29 in a– v 23. olu ntary enrollment 401(k) plan. Workers are assumed to retire at age 65 Imp of fund ac s in t r o etf ira eme Pn o tt ) e tont 86ia pel R rcen e td fou r c tht ei o ho n i useh n oS ldo s c inial the Se high c eu str in it co y me R e qu tar ir til e em . ent Benefits having a defined benefit plan accrual at age 65 may be a bit misleading given that any participant changing jobs prior to age 65 . Testimony. U.S. Congress. Senate Special Committe He ea on rin Agg ing o . Do n: We Have a Crisis in America? Results From the EBRI- ? A March 2012 EBRI Notes article (VanDerhei, March 2012) used new survey results to update the analysis of the potential 11 (RRR) based on a full stochastic decumulation model that took into account the household’s longevity risk, post-retirement . “The Impact of a Retirement Savings Account Cap,” EBRI Issue Brief, no. 389, (Employee Benefit Research Institute, and all balances are converted into an inflation-adjusted annuity at an annuity purchase price of 18.62. The annual is assumed to receive a lump sum distribution instead of a terminated vested annuity if the present value of the accrual falls ERF Retirement Security Projection Model (T-141), 27 Jan. 2004. impact of various types of tax-reform options on retirement income. In 2010, EBRI calculated the accumulated retirement adequacy deficits by age, family status, and gender for Baby investment risk, and exposure to potentially catastrophic nursing-home and home-health-care risks. The first state-level The analysis presented in both Figures 1 and 2 assumes that the computation of Social Security retirement benefits August 2013). income provided by these annuities in the first year of retirement is added to the simulated Social Security retirement below statutory thresholds. Although the “defined benefit vs. defined contribution” debate has produced a substantial amount VanDerhei, Jack, and Nevin Adams. “A Little Help: The Impact of On-line Calculators and Financial Advisors on Setting Adequate ? The May 2012 EBRI Notes article (VanDerhei, May 2012) provided 2012 updates for the previously published RRRs as well BooT me he rs R , t oh le o o se b f S oo rn c ib ae lt S we ec eu nr 1948 a ity, Def ndi 1964, ned Ban en de G fie ts n, Xe an rs d , Pr thoise b vate Ret orn beit rw ee men en 1965 a t Accn od u 1974 nts in . T t hh ee a Fa ggrc ee gat oe f the defic it RSPM results were presented to the Kansas’ Long-Term Care Services Task Force on July 11, 2002 (VanDerhei and u nde r . c “R ue rr ali en ty Ch t law ec w ks o : u Ald Co nmp ot b arati e mo ved A ifn ie aly d. s Ho is ow f F eu vtu erre , t B he en ce u fit rrs e f n ro t S m P ocial S rivate ec -u Se rit cto y T r, rV ust ole ue n’ tary s Re -E pn oro rtl lp me ron jec t 401(k) ts that P tlh an es O vs. ASDI o bf c eno en fije t p ctu ro re vid in e re d fo cer n t t ye he w ars o ,r a c ker are (sfu po l u an sa aly l bse is n o ef th fits e ar ae b n ilio ty to t in c glu en de erate d) a n “ad d te h q e u c ate omb ” re in tie re dme retn ir t i en m ce on me t in uc n o d me er e is e ithe xp r t ryp essed e of as Retirement-Savings Targets: Evidence from the 2013 Retirement Confidence Survey,” EBRI Notes, no. 3 (Employee Benefit 2 as the RSS. 17 numb Co er p,e a lan ssu dmi , Ju n ly 2002) g curre,n an t So d th cial S e re e sc u u lts rit o y f th rete ir Ma eme ssn ac t b hu es n e e tt fit s s s, tu is e dy st wim ere a p te re d t se on b te ed $4.6 on De trc il. 1, lion 2002 ( withV a an n in Ded rh ivid ei a un al a d verage Stylized, Final-Average-Pay Defined Benefit and Ca Reti sh B re alan men ce t Pla Cn ri ss ”i E sBR I Issue Brief, no. 387 (Employee Benefit Research fund will be exhausted by 2033. Left unaddressed, while this would not result in Social Security retirement benefits a rep tie re rc m ee nn tage t plan of t ne he e d s salar to in y ctlh ue d e w p o ro rke pe rr d wata a as sim nd u me late td h t od os h to av s e im ear ulate ned fut atu a re ge jo 64. b ch anges and employee behavior at that time Research Institute, March 2013). ? The June 2012 EBRI Notes article (VanDerhei, June 2012) introduced severity categories in the RSS projections for Gen of apCo prp oe xi lan mat d,e De ly $48, cemb 000. er 2002 Th)e . se numbers are present values at retirement age and represent the additional amount Institute, June 2013a). being eliminated, it would seem to require a reduction in benefits for at least some cohorts of retirees. For purposes of as well as future participation, contribution and asset allocation d ecisions by defined contribution participants. See VanDerhei VanDerhei, Jack, and Craig Copeland. “The Impact of Deferring Retirement Age on Retirement Income Adequacy.” EBRI Issue Xers. One difficulty in evaluating the potential of any type of retirement income source is the determination of the threshold e ? achR me SPM w mbe as r in ex tp h an atd gr ed o to up a nat wouild on n ae l mo ed a dt e a l -- ge th 65 t e fir o s el t nim atiin on at al, mic e their ro ex -sip mu eclt ati ed o d n,e re fic ti it rs eme in r n e tt -ir ine cme ome n tad (w eh qiu cac h c y mo ould d b ele , b a uilt . “What a Sustained Low-yield Rate Environment Means for Retirement Income Adequacy: Results From the 2013 EBRI ( tJu he n a e 2013a) nalysis in an Fi d V gu an re De s 3 a rhe nid (De 4, i ct e w mb as e a r 2013 ssume ) fo dr an that e a xam pro pp leo o rt f t io h n is al (a typn ed o f c peo rman mparati entve ) 24 anp alys ercie s.n t reduction would be Brief, no. 358 (Employee Benefit Research Institute, June 2011). 12 ® ? The August 2012 EBRI Notes article (VanDerhei, August 2012) provided additional evidence on whether deferring 5 r fo er lat “su ivel in p cc y art esh ss”. fro or m admi tW pe hr iliod e t n h o is etr rr c e at o h iu ve av ld 401( e last be d k e) n d e a cata. T ad nu emb s). he S e in o r o c iti ia f at al S l re t e e c smp u ulrts it t w y s t b e o e r q e n p e ufi a re t ns ste if ar n y te et,h d o is in at t f co h t u e h r E se, a e p BR as I De n t in ; ct ,e t e mb gra hee rl c e r 20 a op mp 03 p peo ar n os e lin c to y fo t b oe f t ru lit h m is tle Retirement Security Projection Model. ” EBRI Notes, no. 3 (Employee Benefit Research Institute, June 2013b): 2–12. p r So ev ei V de an dDe torh th ee i, H So oc ld ial S en,e A clu or n it sy o a re ntd ir B eme ass n (De t bc e e n m eb fit es r 2013 for all ) fo sim r tu hle at mo eds w t r o ercke en rt r s. e sults. . “The Changing Face of Private Retirement Plans.” EBRI Issue Brief, no. 232 ((Employee Benefit Research Institute, April 13 retirement to age 70 would provide retirement income ade quacy for the vast majority of Baby Boomers and Gen Xers. 6 (VanDerhei and Copeland, 2003). consensus on the appropriate level(s). Therefore the analysis in this article uses three alternative “success” thresholds: equat . “A ionl. l o If So r Nocth ial S inge ?c A un rit Ey xp ban end ee fi d t P s e w re sp re e ctti ov b ee o e nli R mi eti n re at m ed en , t t R he e ad agg inre e sgat s.” e E d BR eI No ficittes, wo u no ld . 11 ( jump Emp tol $8.5 t oyee Bre iln lie ofn it Res ande tarc he h VanDerhei, Holden, Alonso and Bass (October 2013). 2001). ? The September 2012 EBRI Notes article (VanDerhei, September 2012) analyzed the impact of increasing the default- A 7 s expected, the simulated reduction in Social S TM ecurity retirement benefits would have a much larger impact on the ? The basic model was subsequentW ly mo edn de ifie sd da to y q , Dec uanti e fy th mbe e b r 1 en8 e, fi 2 ci0 al i 1mp 3, 1 ac 0 t o :0f a 0 AM mand atory contribution of 5 percent of attain In in sti g t60, ute,70 an Noved mb 80 p er 2012 erce)n : 11 t, r– e2 sp 3. e ctively, of the pre-retirement income replaced by the combination of the average would increase to approximately $89,000. The proposed regulations for 401(k) plans were first introduced in November of 1981 and it took several years for many . “The EBRI Retirement Readiness Rating: Retirement Income Preparation and Future Prospects.” EBRI Issue Brief, no. contribution rate for automatic enrollment 401(k) 14 plans with automatic escalation of contributions. lowec ro in mp coe me nsati qu oar n fo tilr t e; e ts h te imo pen ry fo cenr t tage he o Se f t nh ate e lo Sp w ee cs ial Co t inco mmit me q te u e ar ot n il e A u gin ng d ( eV r an voDe lun rh tar ei,y Janu enro ary 2004). llment 401(k) plans with an 80 an nuit . “In izec dre vas alu in e g o De f tfaul he 401(k) a t Deferral Ra ccumu teslat inion Auto s mati comb c Ein nro ed ll w me itn h t t 401(k) he prim Plan ary s: T So hc e ial S Imp eac cu t o ritn y R be eti nre efi me t amo nt Savin unts g.s Success in 215 Dirksen Senate Office Building sponsors to introduce the plans. Moreover, many plans that were originally introduced as supplemental plans to existing 344 (Employee Benefit Research Institute, July 2010). The 2010 analysis noted above incorporated the impact of the crisis in financial and housing markets in the 2007 though ? The November 2012 EBRI Notes article (VanDerhei, November 2012) reclassified the RRRs to provide additional ? p erce Tn ht e mo thre dsh el w old as d e rn oh pan s 17 p ced to erc all en otw ag an e p an oin alys ts, is fr o o f th m 67 p e imp eac rce t o nt f a to n 50 p nuitize in rc ge d ne tfin , w eh dil c eo tn h tr ei h bu ig tih oe nst an in dc IR ome A b alan quar ct eil se at – which Plans With Automatic Escalation.” EBRI Notes, no. 9 (Employee Benefit Research Institute, September 2012): 12–22. defined benefit plans have been modified to provide more generous employer con 15 tributions at the time the defined benefit . “The Impact of PPA on Retirement Income for 401(k) Part icipants.” EBRI Issue Brief, no. 318 (Employee Benefit Research The top row in the grid for Figure 1 shows that for the lowest income quartile 86 percent of the workers currently ages 2009 p info er rmati iod. E on v o en n w thit oh se t s hu eb se stan finti an alc ly abo ial shve oc th ks e t th o rre etsir he ome ld; clo nt s sa ev to in th gs, ew th ere fo sh uo nld d t ; a hn at d, so uv be sr tan all,ti t al hle y b Ba eb loy wBo tho eme thre rs san hod ld G . en retirement age (VanDerhei and Copeland, 2004). receives l . “Is W ess ork pr in og p to ort A ion geat 70 R e be eal ne ly th fits efr A o n m Soc swer fo ial S r Ret eciu rr eit me y -n o t I nn ly d come rop A sd b ey qu nac ine y? p ”e E rBR cen I No tage tes, p o nin o. 8 ( ts, fr Emp om 59 p loyee B ee rn ce en fit t t o 50 plans were frozen (VanDerhei, April 2010). Institute, June 2008). Xe ? 8 25 - r29 w s T w he er h March e o s w igil nl h if 2013 ic av an et mo E ly b BRre I No et t te htes ran o f art 30 y f in ic 2010 t le ear (V s an oh f e De an li rh gi w e bh iil a e it n n y d w fo Ae d r p ams, March fir ar stt r ic an ip t at h ion e2013) n in at a ion 401(k) ual mo sed a m d pe lan o l in d a ifi 2003 r ee d s ver im . T s uilat o hn e o e p d f R r t im o S b PM to are y a re b ass as le t oo e ns r fo se tp r h t lac eh is e ? p erce R An e dt s d (cf e iti arch In o F nig al r ur s ee ti fis tu n1 a e tme e,n A d n u 3). ts g w us e t 2012): re intro 10 du– c21. ed to evaluate the impact of purchasing long-term care insurance on retirement See Figure 23 of Utkus and Young (2013) for recent evidence. . “ERISA At 30: The Decline of Private-Sector Defined Benefit Promises and Annuity Payments: What Will It Mean?” EBRI at leas pro t 60 p babile ity th rcenat r t of t esh pe oir nd a ege nt 64 sa house lar hoy ld fr s w om t oulh de n ir o an t ru nn u it sh iz o e rt d o 4f m 01(k) a oney in ccu re mu tilat reme ion ns t i an f th d e Sy d ocial S id, in e c fac urt, a ity. c T cu h mu is p late erc th ene t age c 9hange was the adoption of automatic enrollment by a growing number of 401(k) plans (often accompanied by the in . “Re come tire ad me eq nu t Rea acy (d Vian neDe ss R rh ae tiin , 20 gs a 05). nd R etirement Savings Shortfalls for Gen Xers: The Impact of Eligibility for Participation Additional details on RSPM and the assumptions used in 2013 can be found in VanDerhei (June 2013b). The financial market Issue Brief, no. 269 (Employee Benefit Research Institute, May 2004). 3 A similar, but less pronounced, impact is found for the automatic enrollment plans (cf Figures 2 and 4). In this case, the amount they said would be required in the 2013 Retirement Confidence Survey. decreases somewhat for their higher income counterparts, but goes no lower than 83 percent. ® adoption of automatic escalation of contributions) described later in this statement. ? i T n h a 401( e modk) P el w lan as u .”s E eBR d to I No evalu tes,at no e. 6 ( theE imp mplac oye t o ef de Ben fie nfit ed R b ee sn ee arch In fit free sz tie tu s o ten , Ju part nei 2012) cipants : 9 b– y s 21. im ulating the minimum results are generated from stochastic annual returns with a log-normal distribution and an arithmetic mean of 8.6-percent real . “Can America Afford Tomorrow's Retirees: Results From the EBRI-ERF Retirement Security Projection Model. ” EBRI Issue p ? erce Tn ht eage Jun o e 2013 f the lo EBR we I I st ss in ue B com rief e q (V uan art De ilerh w eit i,h Ju sn ue c 2013a) cessful r ue st eir de R me SPn M to ts at p a ro nvid 80 p e a di ercre en ct t co thmp resh ari os ld o n d o ro f th ps e 9 p like er ly ce bn et n age efit s e . “Re mplo tiye rer me -co n n t I trn ib cu oti me on A rat dee q th uac at y fo wor Bo uld b ome e ne rs e an ded d G to e fin n Xe an rc si: aE llvid y in ed ne cmn e fro ify t m th hee e 2012 E mploye BR esI R foe r t tire heme red nu t c Sti eo cu nri in ty Pro their jection return for stocks and 2.6 percent real return for bonds. Brief, no. 263 (Employee Benefit Research Institute, November 2003). The second row in the grid for Figure 1 provides the same results when the threshold is increased to 70 percent. As An EBRI analysis in 2011 showed the treme Statemen ndous importt an for ce o f d the Re efined b cor enefi d t pension plans in achieving retirement ® point u s n(d fr eo r s m 85 p pecific typ ercee ns t o to f de 76 p fine ed rc c eo nn ttr ) w ibit uh ti t on h ( eDC) potan end tial der fin ed eu dc b tie o n n e in fit ( SDB) ocial S retie re cu me ritn yt p relt an ire sme . nt benefits, while the 10 Mo expd ee cte l. d ” r Ee BR tire I No me te ns, t i n no co . 5 ( me E u mp nd lo er vari yee Bo eu ns e rate fit Re -of se-arch In return a sti st su ute m,p May 2012): 2 tions (VanDerh –14. ei, March 2006). For an indication of how years of eligibility impact overall Retirement Readiness Ratings, see VanDerhei (June 2013b). This . “Kansas Future Retirement Income Assessment Project.” A project of the EBRI Education and Research Fund and the expected, the percentage of workers able to meet a more stringent threshold decreases and the percentage of those in income adequacy for Baby Boomers and Gen Xers that have access to such programs. Overall, the presence of a defined ® h ? ighe Tst he in Ju cn oe me 2013 quar EBR tile I No drtes ops art on ic ly leb (y Van 7 p De errh ce e n i,t Ju age ne p 2013b oints fr ) u osm 73 p ed RSPM to erce s nh t t oo w 67 p that e 25 rc– e27 p nt. e rcent of Baby Boomers and . “Modifying the Federal Tax Treatment of 401(k) Plan Contributions: Projected Impact on Participant Account Balances.” ? Later that year, an updated version of the model was developed to enhance the EBRI interactive Ballpark E$timate by analysis simulates the impact of future years of eligibility for a defined contribution plan on the probability of households NOT Milbank Memorial Fund. July 16, 2002. b th ee n lo efi w t a es ct c in ruc al o me at a q ge u 65 in artile c w re ita hses t succ he essfu prol r bab etir ilit eme y of n nts ou t r nu dn en r in thg sh is an oalys rt of mo is is n no ew y 76 p in ret e ir re ce me ntn . tT b hy e p 11.6 p ercen et rage cens tage for t he Gen Xers who would have had adequate retirement income under return assumptions based on historical averages are EBRI Notes, no. 3 (Employee Benefit Research I Ja nc sti k V tute an , March Derhe 20 i, 12): 2 Ph.D. –18. providing Monte Carlo simulations of the replacement rates needed for specific probabilities of retirement-income running short of money in retirement. As can be seen in Figure 3 of that analysis, the probability that a Gen Xer household with . “Massachusetts Future Retirement Income Assessment Project.” A project of the EBRI Education and Research Fund and second, third and fourth income quartiles are somewhat smaller but none are less than 73 percent. points. The defined benefit plan advantage is particularly valuable for the lowest-income quartile but also has a strong simulated to end up running short of money in retirement if today’s historically low interest rates are assumed to be a . “Tax Reform Options: Promoting Retirement Security.” EBRI Issue Brief, no. 364 (Employee Benefit Research Institute, adequacy under alternative-risk-management treatments (VanDerhei, September 2006). no future years of defined contribution eligibility will Rese not ruar n s ch D hort o irf m ect oo nr e y in retirement is 38.6 percent. This increases to the Milbank Memorial F4 und. December 1, 2002. impact on the middle class. permanent condition. November 2011). ? RSPM was significantly enhanced for the May 2008 EBRI policy forum by allowing automatic enrollment of 401(k) T 59.8 p he the ir rce d r n o t fo w in r G te hn e Xe Figu r hro eu 1 se grid hold il slu wst ith rat 1e -9 ye s thars e imp of f ac ut tu o re f e inlc ig rie bas ility an ing th de 73.4 p thresh erce old n t fo for s r t uh co cs ee ss w tio th 80 p 10-19 ye ercen ars t. . Mo At th re is than . “Oregon Future Retirement Income Assessment Project.” A project of the EBRI Education and Research Fund and the Employee Benefit Research Institute (EBRI) Summary ? The August 2013 EBRI Issue Brief (VanDerhei, August 2013) used RSPM to analyze the Obama administration’s FY 2014 . Testimony. U.S. Congress. Senate Finance Committee. Tax Reform Options: Promoting Retirement Security (T-170), 15 participants with the potential for automatic escalation of contributions to be included (VanDerhei and Copeland, 2008). p 17 o oinu t t t o hf 20 ( e pro86.1 p gressive n ercen at t) o urf Ge e of n t Xe he rb h eo nu esfi eth fo old rmu s wla in ith mo So re cial S than e 20 ye curityars cau oses t f futu hre e lo elw igie bst ili in ty are com se imu qular ate til d e to to n h ot av ru e a n s mu hort ch o f Milbank Memorial Fund. 2001a. Since 2003 EBRI research has documented and quantified the role of Social Security, defined benefit and private budget proposal to include a cap on tax-deferred retirement savings that would limit the amounts accumulated in Sept. 2011. mo ? ne A y in ddi re tioti nre al mo men dt. T ifica hiti so an nsa w lys eirse w ad as d fo edr al for a P l inco eme nsio q n u R art esie le arch Co s combu in n e cd il. S pre imi seln ar r tati eo su nl t ts h ar at i en fo vo uln ve dd w a “ hew n w inn ee c rs o/ nltr os o e l fo rs”r r an ealys lative is h ighe. “A r pr B ob eh ab avio ility ral o Mo f sud ce ce l fo ss r Pr (67 p ede icrti cn eg n E t) t mp han loye th ee Co hig ntr hie bst ut in ion co s me to 401( quar k) P tile lan (59 s.”p N eo rr cth en A t). m erican Actuarial Journal (2001b). r etire sme pecn ifie t d a re cco tiu re nme ts o nn t ac rec tir ou en me ts to nt in thc ao t n me ec a es dse ary to quac p y ro fovid r Ba e th by e Bo ma ome ximu rs m an and G nu e ity n Xers permi in t t te h d e fo Ur a ta nitedx St -qu at al eis. fie T d h dis efined . “The Importance of Defined Benefit Plans for Retirement Income Adequacy.” EBRI Notes, no. 8 (Employee Benefit levels o o f de f pr fin e-e re dti b re en me efit n fre t inc eo ze me s an (sd e th e Fe ig e un rh ea 4 o nce f V d e an m De plrh oye eir co May 2 ntri012). butio n s provided to defined contribution plans at the time Th VanDe e rh Po ei, Jac ten k, Sti arah al H o old fe 401 n, Luis A (k) lonso Pl , an a dn Sts eve to Pr n Bass. “4 od 01uce (k) Plan Adeq Asset Aua llocati te onI , A nc ccoo un me R t Balancepla es, and L ceme oan Actint vity 11 stateb me enn ef ti t p summ lan u ar nd ize er cu s thrat re r ne t s law ear . ch, and presents new evidence on the importance of 401(k) plans for workers Figure 2 presents a similar type of analysis as Figure 1, but in this case the automatic enrollment type of 401(k) plan is Research Institute, August 2011): 7–16. The th an e d ne ufin itize ati d b oe nn o e f th fit p el b an ala s w nc ee re s are froz p ee nrfo (Co rme peld an od n an ly fo d V r p an ur De po rh se e si o , 2 f pr 010). ovid ing an income stream that can be added to the in 2012.” EBRI Issue Brief, no. 394, and ICI Research Perspective , Vol. 19, no. 12 (December 2013). The annual EBRI/ICI 401(k) database has been used to provide annual reports based on actual account balances of large ? c simu u rre T lat n . “Cap hte e ly en De d rp c at t ie n e h mb g re T in re t ax g t r 2013 h-an h Pre e w tfer h E o ere BR r v kfo d o I N R lu re c n oe ti te tar . re s A arti y me ssu en n cr t Co mi lo ell ( n me V n g c an trn iu De b tru t rrh ti e yp n o e n t e i So ,s , De w : Pr c h c ial S e e elr mb imi e e en c e mp u ary E r 201 rit loy y vid 3) b ee e u e n s n se e mu c fi d et R o sst S f th ar mak PM to ee n Im o et e a r px ac p e p d o an t o u sit c d f th e ive th d,e e el b N an ee ati tw c al to e ys ion n eial Co n s t 83 a in o t p mmis har e n J d tic u 86 p n s ip ie oat 2013 n o e er in n c e nt ? in flati A o ls no -ad inj 2009, usted an a n n eu w ity su p b ro ro vid utie nd e b w y S aso ad cial deS d e to cu all rity. I own sd imu eed lati , oo nn ly a small s of vario p ue srce styl ne tag s o e f targ of de efti-n de at d c e fun ontr d ib s fo utir a c on p o art mp icari ipan sots n w ith . “401(k) Participants in the Wake of the Financial Cr 5 isis: Changes in Account Balances, 2007–2011,” EBRI Issue Brief, no. cross-sections of 401(k) plan participants since 1996. Looking at consistent participants in the EBRI/ICI 401(k) database F Isis su ca el B Rri ee sp f. o R ns ath ibie lity a r than nd tr Re yfo ing rm R to re ec fle ommen ct the re dati alo -w ns o .” rl d E va BRI No riatites, on i n n DB a o. 7 (c Ec mp ruals loye , th e B e b en as ee fit lin R ee an search In alysis in sti th tu e te p,r Ju evio ly 2011) us : t oh f w e p olan rke . r I s n w a it dh d mo ition re , t th he an s 30 y imulat ear ed s a on f e alys ligiis fo bilitr y Fi ingu a rv e o 2 luas ntsu ary me en s rt o hll at me 401(k) nt 401(k) p sponso lan rs aad reo sp im tin ug au lated to tmat o hav ic en e su ro ffi llc me ien ntt currep nart tly a icin pn an uit ti -d ze ir t eh ce te ir e d in nti ve re stm ace co nu ts n ( t b Van alan Dec rh e at r ei, Ju eti nre e 2009) ment (a . nd even a smaller percentage purchase an inflation-adjusted 391 and ICI Research Perspective, Vol. 19, no. 7 October 2013. in the wake of the financial crisis (over the four-year period from year-end 2007 to year-end 2011) a joint EBRI/ICI 2 an –alys 6. is used the median accrual rate in the sample (1.5 percent of final compensation per year of participation) as the 401(k) a provision cc s u also mulat adion opt s a th uat to, mat whe icn e c sc oala mbtin ion ed o w f c ito hn S to rib cial S ution ecs. u rit Ny o r te e t tir he at me wn htil b e e an ue tf o it mat s, w ic ill en be r a oll bme le tn ot r p elan plac s e h a av te l b eas ee t 60 n in annuity for the entire amount). When RSPM is used to compute Retirement Readiness Ratings (the probability that a particular V ? anDe Inrh Ae piri , Jac l 2010, k, an th d L e mo ori L d u eclas w. “ asT ch o e mp Imlp ete aclt o y re f A -p u aram to-en ero telri lme zed n w t a ith nd 40 Au 1( to k) mati -plan c Co den str igin b u pt arame ion Est ce alati rs fo or s n o pn o R ns e o ti rs re th me at nh t In adc ome 6 analysis found that the average 401(k) account balance fell 34.8 percent in 2008, then rose from 2009 to 2011. Overall, s. “Re tylize ti d re va me lun et I fo n rc th ome e b A as d e e liq nu eac co y: A unte lte rfac rnati tu ve al T sih mu res lati hoo ld nss an . Th de th ne e Im w re po se rtarch ancec o of F mp uu tu te re s th Elie g iac bit liu ty i al f ni De nalfi -aver ned Co agen DB a tribu cti co ru nal p plac erce e fo nt o r a f t n h u e mb ir ae ge r o 64 f ye w ar age s, s th a e n rd e s halar as b ye o en n a an s in ubfl st at an ion tial in -adjc urst eas ede b in as t is. he p Wrh oe pn o t rt hion e th in re csh oro pld or f ao tin r a g fi so nme anc t iall ypy e o suf an ccessfu l cohort will not run short of money in retirement), the defined contribution and IRA balances are not assumed to be annuitized A ad do ep qte uac d au y.”to EBR mati I Iss c-u ee B nrorlilef me , n no t p . 3 ro 49 ( visE io mp ns ( lo V ye an eDe Be rh ne efit i, A R p e rs ile 2010) arch I.n stitute, November 2010); and DCIIA Research Report the average account balance in this consistent sample increased at a compound annual average growth rate of 5.4 R th eat tire wm ou eln dt Plan be res q .” u iE re BR d to I No ptes, rovid no e an . 4 ( e Eq mp ual amo loyee B un et o nefit f re Rti erse eme arch I nt in nscti otme ute at age , April 2011) 65 as w : 10 ou –l19. d be produced by the retirement is increased to 70 percent replacement of age 64 income, 73 to 76 p ercent of these workers will still meet au but i ton mat (N ste ove a ic d es mb are c e alat as r 2010 sion ume ) fe . d to atu b re e s as pe a n r t d esu ow ltn o as n f the ee P de en dsio . n Protection Act of 2006. However, it will be a number of years ? A completely updated version of the national model was produced for the May 2010 EBRI policy forum and used in the July 12 perce an . “ nt n T o u hiv e te i Im zr e t d p h va ac e 2007 t o luef Mo of th –20 de ifyin 11 p pro gje e th r ciod te e E d.x s cu lu m o siof th n of E e 401( mplo k) a yee n Co d IR nA tr ro ibu llti ov oe nr b s fo alan r Ret ceis re . ment Savings Plans From Taxable Income: b th e See at fo r te h MacDo t re hsh ese old n p ald ,r r oe v a lyin ision nd Mo g o s h n oav ly re o e ( b n 201 e 401(k) a e1) n in fo p r a ve lac nd So ery t lo cn h ial S g e oro n e uc o gu u hr gh re ity t vie c oo a w mb c o cf th u in rat ee de li . ly a t A eratu t a ssess n 80 p re.p ar et ric ce ip nan t re t p re lac spe o me nse nt w rit at he r,e 69 p spec etr t co e it nte o ms f 2010 Issue Brief (VanDerhei and Copeland, 2010). 13 Results From the 2011 Retirement Confidence Survey.” EBRI Notes, no. 3 (Employee Benefit Research Institute, March One reason for this is the need to determine how potentially catastrophic health care costs (such as nursing home costs) in t su he ch lo a w s e osp tt in -oc u o tme be q ha u var ior til a en w dil w l st he iltl m her e e pt ar th tic eip th an retsh s w old ill r ; h et oa w in e t vh ee r t irh c eu p rr e e rn ct e n sa tage vings of rat the os se i wh ne tn h t eh h eig y h ce hst an in ge c j oo me bs q , o u rar tile ? The new model was used to analyze how eligibility for participation in a defined contribution plan impacts retirement While this information is certainly useful to evaluate assertions (and anecdotal claims) with respect to the impact of the 2011): 2–10. retirement will be handled. Even though these costs will not be an issue for all retirees, and certainly not a problem in every simp deeme ily ncd ro e t me v o e b r ad te t “su o eq tu h c ac e c d e y in ssfu efe Srl” e rp al r r te elyi m atb n ee in g o r 2 t n 010 ( h ju e p stlan V tan h o e De se t f t rh hw e ei n o , r S ee e w p t ir te e e mp mb me loy e n r 2010 t c ero . mp In ), t an o hn ed e c w nu tr s as rslip e lat nts e a r u t n oalys 59 p sedis, to e c p rc lan o e mp ns t.u ar te e a Re ssu tire me me dn tt S o h avin ave g s financial crisis on 401(k) plans, it needs to be supplemented with simulation modeling for a proper evaluation of the . “A Post-Crisis Assessment of Retirement Income Adequacy for Baby Boomers and Gen Xers.” EBRI Issue Brief, no. 354 year of retirement, a multi-year stay in a nursing home in retirement may deplete the retirement savings of a household to the Shortfalls (RSS) for Baby Boomers and Generation Xers in October 2010 (VanDerhei, October 2010a). automatic escalation with a 1 percent of annual compensation increase along with the current plan-specific default potential of 401(k) plans to produce “adequate” income replac ement for several reasons: (Employee Benefit Research Institute, February 2011). 16 point where it eventually runs short of money in retirement. See VanDerhei (August 2012) for more detail. When the same analysis is conducted for automatic enrollment 401(k) plans (with an annual 1 percent automatic c ?o ntr In ib O ut cion tob r eat r te es. stimo Emp ny b loy efo ee re s th are e S ae ssu nat me e H d e t alt o r he , E tain duc t ati he oir n p , Lrab evo io r an us d le P ve en l o sif c ono s Co ntrmmit ibution tee s o w n h “ eT nh t e h W ey op bar bly S ticip toat ole : in a 14 . Testimony. U.S. Congress. Senate Health, Education, Labor and Pensions Committee. The Wobbly Stool: Retirement The phrase “401(k) accumulations” in this analysis denotes both accumulations in 401(k) accounts at retirement age as well escalation provision and empirically derived opt outs), the probability of success increases substantially: 88 to 94 percent R ? etire Tme he E nt (I BRI/ n)ICI sec u 401(k) rity in d Aat me ab rias ca, e” d th oe e mo s no d te c l w onas tain us in edfo to r an mat alyz ion e o th ne IRA rel r ati ove llo im ver p s oa rt n an d t ch e o erf emp eforel ma oyey r-o pro nly p vide ro dv ide new plan and to opt-out of automatic escalation in accordance with the probabilities outlined in VanDerhei (September (In)security in America (T-166), 7 Oct. 2010b. T as h IR e vie A ro wlsl e ove xprs re th sse at o d in ri t gh in is ate state d frme om n401(k) t are s p olle an ly th aco cu se mu of lati Jac ok V ns.an Derhei and should not be attributed to the Employee Benefit at a 60 p retire ein r m c fo e en n rmat t b t th er n ion e esh fi o ts on an ld a ; 81 t d fr S ac oc o tiion al S 90 p o ec f e u a rri c p ty ( ear ntV t a ic an tip a De an 70 p rh t’s eie r , O e rc te ir cto n et me b re e r 2010 n pt lac ac ecme b u)mu . ntl a at n ion d 73 t s if t oh 85 p ey he av rc e e h nt ad a tjo ab n c 80 p hane ge rcse . nt threshold. 2007). 15 . “Retirement Savings Shortfalls for Today’s Workers.” EBRI Notes, no. 10 (Employee Benefit Research Institute, October Re R se SPM n arch In ee sd tis tu to te u (s Ee BR inI) fo , th rmati e EB oR nI E du dri un cati g th oe n w an od rk R ee r’s se e arc nth ire Fu cn are d, e an r to y o d f its ete p rmi rog nrams e pre,- o re ff ti ic re eme rs, tr nt i us n te co eme s, s q po un art soirs le,s o (r o simil tha er t r so taff. ? The November Issue Brief expands upon earlier work by EBRI to provide the first results of a new simulation model that ? Even if one looks only at 401(k) participants who have had decades of tenure with the current employer, there 2010a): 2-9. T Ith w e E ou mp ld lap oye pe e B ar e n fre o fi m e t Res ve en arch I a cun rso stir tu y te co imp s a no ariso npn ro o fit f t , h no en rp eart sult iss an in , e Fi dgu ucr ati es o1 a n an nd d 2 ret sh eat arch o this t rgyp ane iz o ati f au on e to smat tabliic sh en edr in oll ment the AIME calculation for Social Security). This is explained in endnote 17 of VanDerhei and Copeland (2010). EBRI e loo stimate ks for sw th ar e d imp to a acssist t of c in hg t anh ge in Su g 401( bcok) pl mman itte d e e a sis gn th va ey ric ab on lets in an ue d t as he su irmp inv tie ost ns ig o at nion rets ire in me to t nh t i is e nco xt me re ad mee ly imp quacy. Un ortan tilt is a significant likelihood that they would not have been eligible to participate in a 401(k) plan during their 16 . “Retirement Income Adequacy for Today’s Workers: How Certain, How Much Will It Cost, and How Does Eligibility for Washington, DC, in 1978. EBRI does not take policy positions, nor does it lobby, advocate specific policy recommendations, or plan Van w De ou rh ld e ir ( eS su ep lt t in emb ad ed r 2012 itional ) sc imu ont late ribu dt t ion he im s su pffi acc t o 7ien f in t tco re p as ro in dg u th cee h cig uh rre er n p t p ro lan bab -sp ilit ec ie ific de s of su fac uc lt r ess ate th san (typ th ic eall vo y 3 p lunt ear rce y nt of publire c p ce on litl cy y h to op wic e.ve r, there was extremely limited evidence on the impact of automatic contribution escalation (VanDerhei entire career with the current employer. Participation in a Defined Contribution Plan Help?” EBRI Notes, no. 9 (Employee Benefit Research Institute, September c re oc mp eive en fed sati e o ral n) fu ton 6 p din e g rce . nt. Under a set of specified behavioral assumptions, more than a quarter of those in the lowest- enrollment 401(k) plans in all income quartiles. For example, the top grid of Figure 2 shows that 94 percent of the and Lucas, 2010). ? Since the passage of the Pension Protection Act of 2006, many of the 401(k) plans that had previously allowed 2010): 13–20. income quartile who had previously NOT been successful under actual default contribution rates were found to be successful as lowest income quartile of workers currently ages 25-29 who will have more than 30 years of eligibility for participation in ? In February the model was used to analyze the impact of the 2008–2009 crisis in the financial and real estate markets on eligible employees t th o voluntarily enroll have been modified to automatically enroll eligible employees. While . “The Impact of Automatic Enrollment in 401(k) Plans on Future Retirement Accumulations: A Simulation Study Based on a result of thE eBR chIan ge in 1100 13 deferra lS p t. N erce Wn # ta 800 ge. Washington, DC 20005 (202) 659-0670 www.ebri.org a 401(k) plan are simulated to be able to replace at least 60 percent of their age 64 salary in retirement from the retirement income adequacy (VanDerhei, February 2011). 17 employees have the ability to opt out of such enrollment, it is clear that these plans have had a substantial Plan Design Modifications of Large Plan Sponsors.” EBRI Issue Brief, no. 341 (Employee Benefit Research Institute, April The 2013 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability annuitized 401(k) accumulations and Social Security. Again, these numbers drop somewhat for their higher-income ? An April 2011 article introduced a new method of analyzing the results from RS 8PM (VanDerhei, April 2011). Rather than impact on participation rates, especially for lower income employees. 2010). Insurance Trust Funds simply computing an overall percentage of the simulated life paths in a particular cohort that would not have sufficient E E E E E E E EBR BR BR BR BR BR BR BRI S I S I S I S I S I S I S I State tate tate tate tate tate tate tateme me me me me me me men n n n n n n nt fo t fo t fo t fo t fo t fo t fo t for t r t r t r t r t r t r t r th h h h h h h he e e e e e e e R R R R R R R Re e e e e e e ec c c c c c c co o o o o o o ord rd rd rd rd rd rd rd -- -- -- -- -- -- -- -- S S S S S S S Su u u u u u u ub b b b b b b bc c c c c c c co o o o o o o ommit mmit mmit mmit mmit mmit mmit mmitte te te te te te te tee e e e e e e e o o o o o o o on n n n n n n n S S S S S S S So o o o o o o oc c c c c c c ci i i i i i i ial S al S al S al S al S al S al S al Se e e e e e e ec c c c c c c cu u u u u u u ur r r r r r r ri i i i i i i ity, P ty, P ty, P ty, P ty, P ty, P ty, P ty, Pe e e e e e e en n n n n n n ns s s s s s s si i i i i i i io o o o o o o on n n n n n n ns s s s s s s s a a a a a a a an n n n n n n nd d d d d d d d F F F F F F F Fami ami ami ami ami ami ami amil l l l l l l ly P y P y P y P y P y P y P y Po o o o o o o ol l l l l l l li i i i i i i ic c c c c c c cy y y y y y y y ( ( ( ( ( ( ( (De De De De De De De Dec c c c c c c c. 18, . 18, . 18, . 18, . 18, . 18, . 18, . 18, 2013) 2013) 2013) 2013) 2013) 2013) 2013) 2013) P P P P P P P Pa a a a a a a age ge ge ge ge ge ge ge 2 4 6 5 1 7 8 3 Figur Figure e 3 1 Percentage of successful* retirements for voluntary enrollment 401(k) plans by income quartile: Current Social Security retirement benefits Percentage of successful* retirements for voluntary enrollment 401(k) plans by income quartile: Current Social Security retirement benefits reduced by 24 percent 100% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% Lowest income quartile Second Third Highest income quartile 0% Lowest income quartile Second Third Highest income quartile 60 percent 73% 73% 75% 76% 60 percent 86% 83% 84% 83% 70 percent 63% 61% 61% 62% 70 percent 76% 75% 75% 73% 80 percent 50% 47% 48% 50% 80 percent 67% 63% 61% 59% Source: EBRI Retirement Security Projection Model, versions 1950 and 1951. Source: EBRI Retirement Security Projection Model, versions 1950 and 1951. * "Success" is defined as achieving an X percent real replacement rate from Social Security and 401(k) accumulations combined as * "Success" is defined as achieving an X percent real replacement rate from Social Security and 401(k) accumulations combined as defined in defined in VanDerhei and Lucas (2010) where X = 60, 70 or 80. The population simulated consists of workers currently ages 25–29 VanDerhei and Lucas (2010) where X = 60, 70 or 80. The population simulated consists of workers currently ages 25–29 who will have more who will have more than 30 years of simulated eligibility for participation in a 401(k) plan. Workers are assumed to retire at age than 30 years of simulated eligibility for participation in a 401(k) plan. Workers are assumed to retire at age 65 and all 401(k) balances are 65 and all 401(k) balances are converted into a real annuity at an annuity purchase price of 18.62. converted into a real annuity at an annuity purchase price of 18.62. Figur Figure e 4 2 Percentage of successful* retirements for automatic enrollment 401(k) plans with automatic escallation** by income quartile: Percentage of successful* retirements for automatic enrollment 401(k) plans with automatic escallation** by income quartile: Current Social Security retirement benefits reduced by 24 percent Current Social Security retirement benefits 100% 100% 90% 90% 80% 70% 80% 60% 70% 50% 60% 40% 50% 30% 40% 20% 30% 10% 20% 0% Lowest income quartile Second Third Highest income quartile 10% 60 percent 89% 88% 86% 83% 0% 70 percent Lowest income quartile Second Third Highest income quartile 83% 82% 79% 75% 60 pe 80 pe rcent rcent 9476 % % 92 7% 2% 91 70 % % 8 68 7% % 70 percent 90% 88% 86% 81% 80 percent 85% 83% 79% 73% Source: EBRI Retirement Security Projection Model, version 1976. Source: EBRI Retirement Security Projection Model, version 1976. * "Success" is defined as achieving an X percent real replacement rate from Social Security and 401(k) accumulations combined as * "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 (2010) where X = 60, 70 or 80. The population simulated consists of workers currently ages 25–29 who defined in VanDerhei and Lucas (2010) where X = 60, 70 or 80. The population simulated consists of workers currently ages 25–29 who will have more than 30 years of simulated eligibility for participation in a 401(k) plan. Workers are assumed to retire at age 65 and all will have more than 30 years 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 annuity purchase price of 18.62. 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 plan-specific default **Plans are assumed to have automatic escalation with a 1 percent of annual compensation increase and plan-specific default contribution rates. Employees are assumed to retain their previous level of contributions when they participate in a new plan and opt- contribution rates. Employees are assumed to retain their previous level of contributions when they participate in a new plan and opt- out of automatic escalation in accordance with the probabilities in VanDerhei (September 2007) out of automatic escalation in accordance with the probabilities in VanDerhei (September 2007)