E E E E E E E E E E E E E E E E E E E E E EE E E E E E E E B B B B B B B B B B B B B B B B B B B B B BB B B B B B B B R R R R R R R R R R R R R R R R R R R R R RR R R R R R R R I I I I I I I I I I I I I I I I I I I I I I— — — — — — — — — — — — — — — — — — — — — — I I I I I I I I— — — — — — — — T- T- T- T- T- T- T- T- T- T- T- T- T- T- T- T- T- T- T- T- T- T- T- T- T- T- T- T- T- T- 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— 166— Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE Senate HE LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— LP Committee Hearing— Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, Oct. 7, 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— 2010— P P P P P P P P P P P P P P P P P P P P P PP P P P P P P P g g g g g g g g g g g g g g g g g g g g g g. . . . . . . . . . . . . . . . . . . . . . g g g g g g g g 19 11 26 21 22 10 17 34 24 20 27 29 18 32 16 28 30 15 25 31 23 33 . . . . . . . . 8 5 3 6 4 7 9 2 1629 a pla defi 2009 Part Retir and represent Whilne e th n e, d ment Savings with t ben e lae ck fi h of r icipation Levels t pe e percenta the addition nsions, de etirem Nee e ge nt ds al amount e partici fine income a d co patin ntribut deg i q au c na h member in that group icreasing on plans, an cy of the with educational a low d IRAs, the est income at-r ho wttainment o useholds sho isk perce uld need at to 66.6 ntage uage 65 to ld s woul be o perc fd ent o great be eliminate th ev f those concern, en larger eir Despite ___ The Appendix B: Brief Chronology report tota References for an likelihoo retirement. At partici Appendix C: Assumptions Used in RSP Endnotes (compar based upo __. second pa em p “ERISA ants i this, d e of d wit ploy n ls o the estimates o h n workers w er that aving their fh the other rt contains At 3 $ those 25, 20s wit 0000 don di : The not m d h –$ e extr o not a ins D 49 have r h fe sponsor a arried), t e the use o less than ,999 urance eme, 19 cline tirement done (12 of pr Priva a r pe hperc savi thr emiu ose f pla ea rc etirement e ent), tch type of ca ent of thos of RSPM n ngs n who e years o e-Sector m estimates, fell $5 partici into th eeds n 0,0 D e f tenure cal e e 00 e pd is M fi at wh rs calcu –$9 ned Be e cigroup). e n from ulation o have cluding Medi in 9,9 a with their l99 (1 the sur nefit ation defined incre don Yet, Pr 1 perce are more e i a omises and An a v fs current care Part contributio a mor eys above es with calculat nt), like e emp confi r $1 B ie on, c lstri n an 0 an y than t loyer to r 0,00 d e d mortality. nuity Paym ctive defi d Part enc tirement ompared w 0– eh $24 , an D ose $17 pr 9,9 nition d r pla 2,5 who ent The i emi e 99 (1 ith n t 55 is rement is pl u (compar : What have 39 ms for n 1 divi perc . All of ace T-166 not dual Will d ent e d Figure 14 23 10 Retirement Income Adequacy an 1 Figure 12 Fi Fi g gur d the Reliance on Employment- ure e 1 2 Figure 1 ® Appendix A: Brief Description VanDerhei (March 2006). of RSPM Figure 15 than that holdin expected deficits in retirem even mor g a graduate or without Social Sec e alarming is the prof ra esu sional degr e te at rity benefits. nt (which c which th ee. o ey wi uld be ll ra relati un “sho vely short p rt” of money. er As docum iod or could l ented ast decades). in VanDerhei and who is randomly on the to fee with t partici the elder savings goa percehave n hos lp con targete t), ants i It Mean? l and e y are assumed to not, think fwh i assigned to ld s n e tend to rise o do their $25 n dt that popul ”0,0 not), 60s who EBRI they they 00 or ation, tho each Issue Brie wi ne participate in w more (11 s so that only ed to th conf ill have be e who of t be a h save l ese b re f, ide p le no. en port to a e n four rc ce. e w with the curr P ss than 269 ent) (Fi o art B a they or t ccumula categori rkers who (Employee B g $2 nure d Part te heir es 50,0 the ent 9 w wit s )00 o . D, a p amount employer rk h the ous efor r full ne n e c fit d the pr like -time, eurrentl tirem Research they for lihoo fe a ull-yea emium is need for nt. y d t have least of Insti fa r, make llin be 30 y t retir det ute, May g i nefit e nt ear e $1 rmined ann o s ment. s (ther from a one 0,0 20 00 or of t 0Tw e 4 de by ). he enty u m effectively fin al fo o ly by t ere in -five ur d ben ann he e fitual Among the 154.2 million Americans who worked in 2009, 76.0 million worked for an employer or union that Along Copelan The origi with dn , C al rel version of rai atively lo g, and Jack Ret w sav Va ireings, many ment nDerh Securit ei. “Re wo y s Projection rkers continu tructuring Retirement Risk M Model e to be u (RSn Pawa M) w re a anagement in a Defined Con of s u how sed to muc anh al they yze th ne e f ed to uture save for tribution economi c TM Retirement Income and W Weal orkth As er Confide sumptions nc e in Ability to Accumulate EB ER BIR 2010 I Re R tiret eme iremen nt Rt e adin Read eis ns ess R Ratiat ng ingT (RR M (R RR ) R) 1 Amount of Savings Workers Think They Need EBRI 2010 Retirement Readiness RatingTM (RRR) 24 Workers Reporting They Pos tponed Their Expected Copeland (July 2010), 41 percent of early boomers in the lowest income quartile will run short of money within earnin eliminati Medicar plan percent of tho categori (com gs, an e es bas ng an program an pare d y capa s work for e d w e who d upon ith t bility have done a d is t hos the ane e fo h e e same nat who m r IRA rol stimated ployer do not calcu lwith overs probabiliti i)onal , lati and t 100 )o . ly with n report th or mor hos es of e an Figure 6 wh ea e inc e o ex ey c m h r are e ployees, on eve asing contri pect ve n to ha t. If ry c the olve acces nf ybution 5.5 individu iden millio t th from th s to a atn l th doe e w m e oe y ployer- rkers (or s individu w not ne ill be p ab rovi ed lon 11 al/fa le to ded perce mily on t g he -term n alth t) he sponsored a pension One of the Although on basic objectives e needor s to be retirof e extremely ca ment plan, RSPM is to a simulate the nreful in co d 61.0 millmp io percenta n ari part ng at ri icipat ge o sk ratings b ed f tin th he popu e plan lation etwe (Fi en a pro g that wi ure 4). ll g Th be ram “at is that is in translates risk” of well retireme -beinnt, w World,” g of t hich may he ret In Th ire e be l d Decl population eadin ining g to t Rol at th eh of em e Private to not state level. D accura efin T eh d Ben tely determine that r e Employe efit Pension e Benef Plans: it R etirement prospects. esearc Who h Institute Is Affected, a and th Less than nd How. e Milbank VanDerhei (September 2006) Full Testimony Submission to the Based Retirement Plans and Social Security Baseline (Status Quo for Social Security) vs. Social Needed Retirement Savings, by Doing a RSPM is based in part on a 13-year time series of administrative data from several million 401(k) participants The aggregate deficit Workers who num were ber with married th were e curr more ent Soci likely to al Sec partici urity retir pate in ement benefits a plan, whileis nestimated to ever-married workers be $4.6 had ___ The At the same __. savings ”The ti I goals cited by m me, workers pact of PPA 2003 workers w who ar on Reti and 2 e most rement 01 h0 o have B confid Income asel done ient ne for a r s abo ( 4 S eu t tirement 01(k a t t thei us ) r f Partici Qinanc n uo ee p fdo a is calcu ants.” rl security Soc EBRI liation al S in Issue Br ec r have i eu tirement ritn y) ief, crease no. also d over 3 ten 18 d time. to Retirement Confidence Base fli on r Re e (Sta tire tu me s Q nt uo , by fo rHous Socia e lh Se old cuInc rityo ) me vs. Social essence a 100 percent annuity program with one that Retirement Age in is increa Past 12 sin M go lynth providing lu s mp-sum distributions. 10 years Number of Workers Working for an Employer Who Does NOT Sponsor an would be i care, no having retir insurance (co bas accumulate is of t stoch heir n th e clu m i m e amount ncome. astic ex d epared with t ed amon nt income t penses For th they g th h he Me at is ina ose workin are nee ose who do diga d incurr , com de p qua e ins g p d. not). ar for an urance tEach year, ed e to cover with employ pr just 1 emiu b the er as m, it is 1 individu ic ex that percent pens di as d not al s of es um will a t sponsor a e h nd agai d a ose w pay ll o n h fface for u th o hav plan e th el ninsured health e derly . Of course, ese pro not don purc babiliti ehas a c a ealculation. e n care costs a M s (th other edi e way ga p into a s 25 ponsorship rate (the percentage of workers working for an employer or union that sponsored a plan) of Memorial half of worker Oxford University Press, 2010. Fund s (4 , worki 6 perce ng wit nt) report h the governo they a r of Or nd/or the ego ir nspouse have , set out to see trie id to c f this sit alculat uation e how mu could be a ch mo ddrney th essed for ey w ill Secur30 ity set to 0 vs. DB, DC and IRA set to 0 VanDerhei and Copeland (2008). Retirement Needs Calculation and tens of thousands of 401(k Senate Com ) plans, mittee as well  on He as a alth, time  Educa series of tion, sever  Labor al hu  and ndr  Pe ed pla nsio n descriptions ns  used to trillion the lowest withpro an ind babil ividu ity. aThe l av ehigh rage o er a f a n in ppdi roximately vidual’s earn 11 $48, in000. gs we Ire, t f Soc hial e more like Security lbe y he nef or she its wer part e to ici be p ated in eliminat a ed, expect to In the Unfortunate 20(Employe 0get 0 R By Jack Van ly, the t Ch S, 3 Pe e most out e B r EBRI c 1e nt perce enefit a/ICI ge D of n o Researc t said t erhei, Res popul database f retira ehey tment, h ion a Institute, do ne e t es not c arch Director, Employee Benefit Research Ins so that th rede isk*d f to or Jun u i accu na rrently eeir de 20 qua ac mulate at 08 cumulate provide t). e r etire leas m detail e d sav ntt $5 inc ed ings om 00, informatio e000 ,will by for ne ageed retirem c nohor on oth to stretch t (e bnt. ae sr ty e titute l T ine furt pe his s of defi her. ned 17 Security set to 0 vs. DB, DC and IRA set to 0 An Employment-Based Retirement Plan, by Various Demographic to look at t proba Not sur policy. A At the ot biliti p natio rising her ehis s o ex lfn last number is y bein treme, o al estimat , these tr g in th nly end ee is 1dif s 5 that der have cl percent fere ived from 89 percent of nt statu early of th sbeen a 20 es will ose w 05 re these wo h chan surv flect o hav ey e ge as th d e don in t do rkers with ne he e e i by T a calc annu ndivi tho hes al udual lation ar s treet.com that EBRI/M e character becom e GA R not es istics worked fo at e older t receiv irement all confi after ed Conf aver d rea ent r c iage d an hing age they will encquotes e 75 for the rema 49.3 2 percent Senate Committee on Health, E inder o and a pa f their rticipation lev lives once they el (fra r ction of etire. all Howev partiducation, Labor and Pensions c eipatin r, theg i EBRI n a plan re Retirement gard Rea less d of el iness Ratin igibility)g o ™ also f 39.6 Oregon. need to The a have saved by nalysis focuse the time th d primarily ey retir on e so that simulated retir they can live comfo ement wealtrtably i h with na compar retirement. ison to a This dis hoc comparabl e Approximately 1 in 10 eachA report ll Worker totals s Lof $ ess th25, an $3 000 5,00–$ 0 49,99 $35,000 9 (1 -$2 per 74,999cent), $7 5, $ 050,0 00 or M 00 ore –$99,999 (11 percent), 26 Percentage of population “at risk” for inadequate retirement income, by assumptions) provide a sample of the various defined benefit and defined contribution plan provisions applicable to plan The importa Saving for R the a plan. ggr Nearly egate n o c de e e ntirem of Social e-quarter ficit wou ent Sec of ld jump to those who urity retir $8.5 e ha me td an rnt bene illion nual and fits ca ear the ni n be see n average gs of $15,0 n wo by c uld 00–$ o increase mparin 19,999 g th to a pa e rtsecond set pprox icipate imately d in a of plan. $89, columns for 00 T0. his perce Workers who are contributio ntagen in pl creas ans nor very ed to 4 confi does i 3 d perce tent allow are more likely nt in ana 2l0 ysis of defi 05 and a than gne ain th d c to ose who o 54 ntributio percent are n le bal in ss confident t a 201 nces 0 that (Figur ma e o expect y have 13). to retire been left w befor ith e Copeland and VanDerhei (forthcomin and Emplo g). yer Characteristics, 2009 Holden, Sarah, and Jack VanDerhei. “The Influence of Automatic Enrollment, Catch-Up, and IRA Contributions Survey, which has measured Americans’ confidence in their ability to retire for 20 years. Sixteen percent of provides employer then a for Pla reach tg n hai eir infor F i that n at go n 47 states an mation on the distribution al, compar age did sponsor a 85) of ed bei d twith h n retireme e District. Th g in24 each o perce nt p of f t ln a e estimate the t of h ne in four status those likely 2009. nu s wh ar mber o o have e calc es. This ulated f not yea contin rs do based on befor ne a ues unti calcu e those a l ldeat atio 65-year-ol an. Over th or t risk “r h d femal e un sho all, nee 18 de perc rt of mo for lon . The ent o 2005 gney,” - f percent. thresholds to the percent for a retirement expen ges measured from ditures, 2003 bu –200 t the 9, results but is lo m wer t ade h it cl an t ear t he high hat major decisions lie ahead of 53 percent recorded in 2 if th 00 e 0 pre-retirement income quartile $10 0,000–$249,999 P 50 (1 er % 1 cent perag cent), e of an popu d $2 l5 at 0i,00 on “ 0a or t r more isk” for (11 inade percqua ent) te retirement income, by 100% _____. ” The EBRI Retirement Rea Wd oin rker ess s Rating Did calculat :™ Retir Fiio gure 9 n ement I Did n nocome Preparation t do calculation and Future participants. In addition, several public surveys based Hearing Oct. 7, 2010: on participants’ 25 self %-reported answers (the Survey of each i 27 number ncome incre quartile ased to in 68. Fi 5 gur percent o e 2 with f those the baseline earning at risk $50,000 or perce more. ntages just mention Furthermore, e fu d. Comparin ll-time, full-year workers g the 91 p age revious 60 an emp d thley are less lik oyers. RSPM uses self- ely to expect t reported hat they resp wi onse ll work s for wh for ether pay a an fte individu r they retir al has a e. Thdefi ey are also ned con more l tribution ikely While retireme on 401 nt conf (k) Acc ide umulations at nce was stabil Retireme izing, it nt.” did not a EBRI Issue ppear t Brie hat Am f, no. ericans w 283 (Em ep re loyee saving mor Benefits Research e to improve term care. workers in premium workers are leve the ve l is the 20 ry 10 conf RCS avera ide say they a nt, 38 perc ge of the 4 ent re 7ve sta ar ry et e avera confident t somewhat ge qu co hey otes nfident, a wil. The l hav 2 e n e d 44 percent 01 n0 o pr ugh emium money to are level not too live comfort was es or timat not at ably ed by all as well VanDe as th rhei (2 e percentage of 009). compensation they would ne ed in terms of additional sav 24 ings to % have a 50, 70, or state’s po (Figure 11). pulat ion is to have adequate resources in retirement. pre-retirement income quartile Total Savi100% ngs and Investments Reported by Workers, These numbers show that the national retirement income deficit is quite large—and it would be almost Working for an NOT Prospects.” EBRI Issue Brief, no. 344 (Employee Benefit Research Institute, July 2010). 3 Consumer Finances [SCF], the Current Population Survey [CPS], and the Survey of Income and Program perce were by nt of far the th lowest e most like incom ly te house ype to partic holds ipate in who woul a rd etibe rement at risk i plan. f th Those in ey had no Soc dividua ial ls workin Security r g i etirement n professional balanc to think t e to heir esti spen mate a dingpartici in retp irement ation mo will del be and t about he r the eport saed val me as ue befor is mo e tdele hey reti d asre. a function of age and tenure. 90% their retirem Institute, Ju ent financia ly 200 l pr 5). ospects. Alth ough the percentage of workers who reported they and/or their througho A brief descri ut their ret ption of the EBRI Retirem irement years. Forty-six ent Security percent ar Projectio e not too or n Mod not at el® (RSPM all confide ) is provid nt they will ed in havAppendix e enough 90 28 applyi confident t perc ng the ent hpr at aobabil nnual they w ity of gro ill be w ret th able to irates in rement accumula the incom Pae adequacy. rt B te the prem am iums from ount they nee 2006d thr by the oughtim 20e 10 th to ey retire (Figure 14). the average 2005 Hearing on: Among Those Providing a Response “The Wobbly Stool: Retirement (In)security Emplo yin er N  America” OT Participating   Retireme SUMMARY nt Confidence 90% twice as large without curr VanDerhei (2010 Early Boom ). ers (born ent-level Social Security benefits. 100% Participation [SIPP]) were used to model partici 40%pation, wages, and initial account balance information. benefits and relate with d oc th cupations e 76 perchad the ent of those who highest probabi are atlity of risk wi part th the curr icipating in ent benefits mean a retirement plan, at s that 15 60. perc 4 percent. ent of these In For those A followed by who chro havenolo a reg sulti y of its develop ng status of h ment and utili ome health ca zation in App re or nursingendix B. More techni home care, their duration cal d of etails care is 38% Subs spouse ha equent d sa toved the rele for ret asire e of ment in the Orego crease n s d tudy, it briefly in was 20 de 09 cide (75 d that percen the t), it approac now stan h cou ds at ld be ca 69 perc rriee dnt. to other While t he premium. money to l ive comfortably. (not including v While these ra alue tes have of primary fluct residence uated, they or defined hit their be low nefit est l plans) evels we have ever Characteristic(s) Spons between 1948–1954, now  oring a Plan In a Plan VanDerhei, Jack, Sarah Holden, an80% d Louis Alonso. “401(k) Plan Asset Allocation, Account Balances, and Loan 29 80% 36% The A dow Finally, proce n ther war dd ur e i terend fou s for mo considera del nd in ing ble the 2 room for partici 00 p8 ation a impr nd a 200 n ovement i d co 9 R ntributio etirem n pr e n nt Conf eparin behavior Figure 4 gide for r n an ce ed asset al tSurveys (RCS irement amon locat) in Am ion for g at least som defi ericans’ confi ned e of those dence VanD comparison, t rega households This mate rdi erhei, ng the Ja ar rial h ck. Testimony e saved from assumption ose worke first appea rs i s used in the r re n for the e farmi d in VanDe tirement U.S. n 90% g, inco fish 18 S model a re h % ing, a m nate ee ina i and Copel Special nd for r de e provided in App quac e stry occupat Committee on y by Soc and (July 201 ial ions had the Se endix C. Agin curity. 0). g H earin lowe g on st likelihoo Retireme d o nt Pla f nning: simulated bas The RCS provi ag e dd ees littl s 56– upon 62)e su . thepport for s distribution pecula of thtion that e durations work ofers who care fo do und in a r the etirement NNHS savi and ngs calc NHHCS. A ulatio ften r the are Appendix C describes how households (whose head Fig s are ur curre e 11ntly ages 36–62) are tracked through retirement states as wel percentage of l. Kansas an workers havi d M ng assachuse saved for tts re were tirement chos incre en aased f s the n rom 1 ext s9 tates 95–2 for a 000, it nalysis. Results o dec (m lined signific illions) f th ane Kansas tly in 2001 recorded in 2009. Mr. Chairman and members of the committee, I am Jack 30% VanDerhei, research director of the Employee Benefit “The Wobbly Stool: Retirement (In)security in America” Activity in 2008.” EBRI Issue Brief, no. 335, and ICI Perspective, Vol. 15, no. 2 (Employee Benefit This information is com 29% bined to mo By Jack VanDerhei and Craig Copeland del pa 70%rticipation and initial account balance information for all defined contributio in th who say t eir abh ility n ey plans that are to retire Percentage very confident. comf have 27% ortably a not ado of Various Work Forces Twenty-three percent p pted a pears to be utomatic enro stabiliz of ling W lment is ho Work for an Employer That Spo ve in ry20 con descri 10. fident Sibed in xteen workers ar perce VanDer ne not t of hei a workers i curre nd Copel ntln y nsored saving athe 2 nd (2 000 1for 08). 4 18 30 “Do We Have a Crisis in Am 70% erica? Results From the EBRI-ERF Retirement Security Projection Model,” participatin Total g i n a plan, at 13.7 percent. 78.2 93.2 age, a duration This a discouraged by the r pproac nd ho of ca w hre for is taken for their r a e etirem sults. nursin tew nt incom g Those o reason homewho stay o e/wealth s. ha First, sufficient r episode ve don is simu e a of re lath ti e quality F o rement nee d me hea igur for th data e 2 e lth c foll do dowing compo s calculation are, the not exist indivi for co ndual the matching ents: ntinue will have to be more aof retir prob like abi ee llity y 80% 2002 26 20 %05 2006 2007 2008 2009 2010 study were and Although on has hover presented to t e e need d aroW un s to be o d 7 r15 ker h 0e st % perce extremely ca s Hav ate’s Lon nt thro ing gu -T g reful in co erm Ca hout most Tried re to Ser of mp Cal the v ari ices Task ng at ri c 20 ul00s ate sk ratings b (Fi For How 28 gc % ure e on 8 M July ). u ech twe 11,en a pro M 200 on 2,ey and the results of g ram that is in The EBRI/ICI Participant-Directed Retirement Plan Data Collection Project is the largest, most Research Insti Lattute. EBRI e Boomers (b is a orn  nonpartisan institute that has been conducting original research on retirement Research Institute and Investment Company Institute, October 2009). 24% contribution participants, as well as Em contri 60% ployee Benefit Research Institute bution behavior 14% for non-401(k) defined contribution plans. Asset The value of Social Sa Re ecurity tiremen retirement t Plan, and the Percen 23% benefits to the low in tag come e Who Par households ticipated in a Plan, 2009 will not come as a surprise to retireme The RCS say th proce nt, 4 Self-Emplo dey ur4 e are perc for mo very yed ( ent del confi N have ot Wage and S ing 25%d contributio less than ent they alar wil $5 n yl )0, behavior have e 000 inn savings ough (with money to and , and 3 24witho % 3 live perce ut acomfortably utomatic escal nt have not 9.2 throughout done a ation of retir contri their e9.4 m retirem butions) for ent need es nt Figure 1 19 0 Jan. 27, 2004 (T-141). of bein medical than those who have not to Again, g full care disch det (be ails are arged to o atsw well een 1955– as on o th n 1964, e u e of the other th r we  say they ar gene now bsite, rosity of but e ve ree status many of and cos ry conf t th ide oes fe t n fi h b t ndin e covera a about sed u gs are p havin on ge the gr ) a gi nd M m enough mon dis : Those ce har digap g who e estimates from p eo y for a say they licy us 24% comfor e to are va NNHS a rious saving has table nd rep essen resc entativ e a 10e repo 0 percent an sitory of information nuity program with one that Average I about individ ndi20 vi %dualual 401 Ret is be iremen comin (k) pla g increa n t partici Inco singly p me Def pant accou roviding lum icintts. As , of Decembe p sum r the Massachusetts study were presented on Dec. 1, 2002. With the assistance of the Kansas Insurance 60% They Need 70% to Save for a Comfortable Re20% tirement and health benefits for the past 32 years. EBRI does not take policy positions and does not lobby. Less than $1,000 20% 27% allocation info Net Wage and S ag rmation es 46–55).is bas alare y d on previously published results of the EBRI/ICI Partic 69.0 ipant-Direct83.8 ed Retirement Employer Charac anyone who has studie teris d th ticis issue s and Partici but 50% wha pation t may be startl ing is the extent to which the other three income years (statistic calculation. 401(k) plans is d Inally e addition, escribe quival d in 13 ent percent of V to the anDer lo hew of i very (2010). 13 confi pe Asset allo rc dent ent workers who mecation for asured in 2009). auto are offered a matic enro Forty-six percent 20% ret llm irement ent plans is savin are assumed to no gs pla t too n or by not ? Social Security. 17% Wage and Private-Sector Public-Sector Full-Time, Full-Year distributions. Worker Confidence 16% That Retirement Savings Are Invested 31, 2008, the not grown. The percenta database in ge clof work uded statistical informatio ers who reported they and/or t n about: 19%heir spouse had saved for retirement characteristics NHHCS, r retirement espe (22ctively. T of t perc hent vs. e elderly. he st 1ochastic ex 0 Secon percent d, th ). pe M e nses incurr h oe reover, those alth status o ed are th who f the el en think derly dete the rat myined by the a needg to e o the acc f l 65 i e ungth mulate s not known, l of the at l stay/num east $1 m et alon illion ber e 18% by Gender, Mar ital Status and Age Cohort (in 2010 $s) Department, EBRI was able to create 14% Retirement Readiness Ratings based on a full stochastic decumulation 39% 35% 36% Under 21 Years 13% Old 6.7 8.4 13% 60% ___ Plan __. Data Co “Measuring Ret llection Project, and em irement Incom 50% ployee contributio e A 40% dequacy, Part nOne: behavior Tradit to 13ion % 40 al Re 1(k)plac plans is emen provided by 13 t Ratios an % d an Re expa sults for nsion quartiles also benefit from this pro All gram. Salary Workers If one compares the at risk Wage and Salary percentages Wage and Salary with an 15% d without Social Wage and Salary their c follow avera at all confi urrent deg e ne age-a t they mployer a will ppro hav re pri nate tar e o eno t contributin ug gh et-dat mon g e funds e to the y to liv plan. as de e com scribed i Workers may fortablyn (statis VanDerhei be t tically e hinkin (2009). I quival g abe out these n nvestment r t to the fai 44l percent e uturns are res in 5 Generation Xers (born  Today’s t over the of days increased in retirement o ent e f ca briefly in stimony wil irr s e eavings ar course times 2009 W t l of he deal ie six s th (75 perc e pe leir rem with t y r di times as like , A em cha m h ent ainin e o follo )n , it rg g ge n wing topics: llT iy as those o fe. es h w stands timate os Thus, e Ha d by a at who for vi 69 perc ssuming ev the n think ng S u they rsing ho ent. While ave eryone on ne d ed f me care an or less than the perc Re e h tias a rd h e $ entage m standar 250, oe me hea nt 00 of 0 to d wor l lth c ebe ve kers a l of very re, having Mr. Chairma $140,000.00 n and members of the committee, thank you for your invitation to testify today on retirement model that took into account the household’s longevity risk, post-retirement investment risk, and exp 19 9%16 osure to Wage a ? Defined contri nd salary wo 65 Year $1,bution 00 Old or 0– rkers includ $9 bal Older ,999 ances. e all workers who work Respo 50%ndent 52% Respondent fo a r so nd/omeo r Spouse ne else as 3.6 4.3 well as those who are self- ? 24.0 million 401(k) plan participants, in The probability of a worker participating in an employment-based retirement 9% plan increased signi 8% ficantly with Worke 11%rs Ages 21–64 Worke 8% rs Ages 21–64 Workers Ages 21–64 Workers Ages 21–64 of a method developed in VanDerhei and Copeland (2008) and further refined in VanDerhei (2010). Security r Workers at etirement La benefits, rge Com the perc panie 50% s.” enta 30% EBRI N ge ootes f hoFi usehol , no. 9 gure 8 ds that (Emploare sa yee Be ved nefit from at Research Institut risk status is 24-26 percent e, September preparation observed in based on those use when t 2009). h d Overal ey co in Park nsider t l retireme (200h 9). e nt co possibility of becomi nfidence has fluctuated over ng financially the 2 depen 0d y ent ears o on fothers in the RCS, their reac old age: hing its saved for retirement increased from 1995–2000, it declined signi 6%ficantly in 20 6%01 and has hovered around 70 confident (36 percent coverage respectively. employed a elim n Not Full-Time, d in are in ates tryin co vs. rpo g F 6 percent). to ur ll- ated. Thu di Year ffer 40% entiat s, the uni e among a ncll orpo possible cov rated self-em erage p types as loyed are no 32.7 well t include as determ d. inin 40.5 g whether security in America . I am Jack VanDerhei, research director of t 5% he Employee B 4% enefit Research Institute. Craig potentially catastrophic nursing home and home health care risks. This was followed by the expansion of ? Sponsorship and participation in employment-based retirement plans. the size of his or her employer (Figure 5). For workers at employers with fewer than 10 employees, 13.6 Workers Having Saved Money for Retirement Without Social Security (millions) ? 200 54,765 em 4): 2 -12. plo yer-spo Vernsore y Som d 401(k) plan ewhat Not Ts, holdin oo Not At g All Don't Know/Refused for the oth ? IRA ba er t lances. hree groups 20% 25 perc highest leve ent ols f workers among Full-time, part- worker who are s in year very 200 confi 7 (27 dent perce about nt very ha c ving onfident enou) gh , 2money for 005 (25 percent reti12.1 14.8 rement ) and 2 and 3 000 4 (2 percent 5 percent of) 40% $10,000–$24,999 14 13 13 13 11 6 the sick or percent thro healthy have th ughout most of the 2000s. e coverage. Therefore, averaging of the expenses over the entire population should Copelan $120,000. d, 00 a senior research associate at EBRI co-authored the written testimony and is with me today. RSPM, as well as the Retirement Readiness Ratings produced by it, to a national model and the presentation of Thursday, Oct. 7, 2010 percent partici Social Secur A combinat A worker, wh ion of ipty Ben o is at least 2 ated Form ine a pla 5500 data fits n, 1 years of ag compar and self-rep ed with 53. e, has on orted 1 perc results was also e year of tenure, and works ent of those working used to estimate defined benefit for anm employer ore than 2,0 with0 1,000 or 0 hours in a Worker Category Total 154.2 30% 128.8 107.6 21.2 89.0 Part-time, full-year 10.1 12.5 10% With Social Security Finally, and its For any workers who the low person wit e ret st level in 20 are irement somewhat hout t savin h 09 e confi need for g (Figure 7). s calcu den l lon ation t a d gmit they -term care, appears to worry this be about a partic process r bein ularly e g f pei nancially a effective tool ts annual depe ly. T for chan ndent he process re on gin othe g re peats for rs duri tirement ng ? $1.092 trillion in assets. 30% have offsetting effects in the aggregate. ? ?Defi T ned bene he nation fial t annu and in ities a dividn ud/or al re lump-su tirementm distri adequa bution cy def s. icits6% . 5% year, in gene the first microral, must be covered by an -simulation retirement 53% incomemploye e adequacy m r who offers a p odel built inr ivate-secto part from admi r reti nistrative 401(k) data at rement plan to its Works for an employer Under $250,000 $250,000- $500,000- $1,000,000- $1,500,000 or Don't know/Don't participation models; howe 6% ver, it appears informat 8% ion in the latter is rather unreliable with respect to more em ___ The__. value Project ployees. The secto of em ions of ployment Part-time, pa Futu ba re rt-year r and in sed accum Retirement I dustry ulat n of t come Sec ions can he employ also uritybe se er also : Impact en had an in of Lo Figure impact ng- Term Car 2 by foc on t10.6 13.2 u hsing o e likeli e Insuranc nh th ood of e th e, A irpartici d set o merican pfatin g Social Security’s current-law benefits are assumed to be paid and received by those qualifying for the benefits In addition to the lack $25,000 of – im $49,99 provement 9 in 0% the 13 perce 13ntage saving, 12 the 10 perce 1n 2tage of 11 workers w 12 ho have virtually plann their r individ ing beha e uals r tiremeecnt. vior. eiving home Forty-fo Very co h nfur percent ide ealth c nt $499 20% are or ,999 of S R o em sp n workers w ewh ond ursing aen t$ 999, ct onf99 home idR en 9 h eo c t spo alculate c nd are at en $1, Nto an 499 t to d/ the en ,o d a 9 or 99 co S go n p fid ou en al amount d of t se t mor heir e Not dur in at t all ati 9% hco re e on of stay/car mem n200 fiden ber 8 t RCS report e and having EBRI is a nonpartisan research institute20 that has been focusing on retirement and health benefits for the past sponsoring a plan 76.0 70.1 52.9 17.3 55.0 workers (IRC Sec. 401(a) 26). Typically, public-sector employers follow similar rules, despite not being the EBR $100,000. I D 00 ecember 2003 policy forum. 20% The basic Low10:00 a.m es model t was the . 2 n modified fo 3 r Senate Agi Highes ng testim t ony in Less than $5,000 12 in annual earnings 15% 4710.4 12.8 % The 2008 database covered 48 percent of the universe of 11% active 401(k) plan participants, 12 p 46% ercent of in a estimating cur planSociety on . Public-sector rent a Agi nd/or future accr ng/Natio workers wer nal Co eue uncil o sid gnif benef icantly more n Aig ts. Th ing joint eref liore, a conf kely to ere data partici nce, Marc base of pate t h 2 defin h0 an 05. priv e d benef 44 ate-sector % it planwor prokvers. isions for columns for each income group. This sho 44% ws that if one were to eliminate the expected retirement income ? Net housing equity. under the baseline scenario. This funding could either be from an increase in 43% the payroll tax or from a general made c The subsequ no money total he an ntly dete in ges savings an irministic e f to their r not reced e iving the xtirement pe invnses for t estments has i specia plann he lize ing as a r elderly d n car creased over e individu a e 43% sult. gain a at Most often, these work l the t or he family ar pas ir nex t ye t b ar. e irt then t Amon hday.h T e sum g RC ers say they started hose S w of the workers ho ar valu e si provi mu es i la saving d nt ing all ed this t the o or d ie, 32 y Participating in ? e ars. EBR The importa I does a plan n not tak ce of Social e61.0 policy Sec pos urity. itions 57.7 and does 42% not lob 42% 42.2 by. 15.5 21 48.4 governed by all of the sam EBRI RRR Baseline e 2010 statutes as those fo 76% r private-secto 51%r42% employers. 35% 20% Less than $10,00 2002 0 in annual earni 20ngs 05 2008 200918.6 22.9 2010 plans, and 47 percent of 401(k) plan assets. The EBRI/ICI project is unique because it includes data 2004 to quantify the beneficial impact of a 10% mandatory contribution of 5 percent of compensation. salary-related plans was constructed 10% to estimate benefit accruals. Workers i generatedn by th e manu defined factur benefi int pla g industry an ns, define d th d contri 38% e trans butio por n tation, util plans andities IRA , informat s that theion, impand act on at financial risk i n perce dustry ha ntages d Changing Expectations About Retireme $50,000–$99,999 15 11 nt Ages 12 13 12 12 11 revenue transfer. The EBRI RRR ben 2010 ew fi itts are h Social S pr ecojecte urity = 0d for each cohort assuming the intermediate assumptions within the type of information, 54 percent report that the tota 91%l value of th77% eir household’s savi 61% ngs and i 44% nvestments, investing mor expense c of course, are ategories for Less than 10 e not furt (59 Sour percent ce: E her famil m 0 e pl simulated. oy m ee Benef ). Othe ployee y size a its Resear r actio n d fam ch In nst s reporte ily income itute and Matd hew lev incl Gre eenw ul of de: al the d & Ass in oci divi at (percentage es,dual Inc., 2010 or f Ret ) amily.39.4 42.9 irement Th Conf ese e idence xpenses make up 7 provided by a wide variety of plan recordkeepers and, therefore, portrays the activity of participants in 47% 78% SD-430 Dirksen Senate Office Building 4 _____. “Defined Benefit Plan Freezes: Who's Affected, How Much, and Replacing Lost Accruals.” EBRI Issue An employment-ba $80,000.00 sed retirement plan can be sponsored by an employer or by a union. “Employer A household is conside Survey. red to run short of money in this model if aggregate resource 75% s in retirement are not the highest probabil EB SR ou I rRRR city of e: E 2m 01 pl pa 0oy wi erticipatin te h DB Ben,e DC fit Re and I g, sear R wh cA h = Inile those stitute and M in ath th ew e other Greenwald servic & Associes industry ha ates, Inc., 2010 Retire d th mente lo Confwest idence probability. would be even larger than that projected for Social Security. 0% ? Americans’ ret Fewer than 10 e irement m confi ployee 0% dence. s 18.8 19.6 2009 OAS Many workers Worker Catego DI Trustee’s R rare a y Total djusting epor 100.0% some of t t. A secon hd eir alt 100.0% expectations ernative is used about r wher 100.0% etirement, perhaps e all recipients’ 72%ben ine 100.0% fits are c response to ut 24 their reduc percent on 100.0% ed the exclu basic an ding thnu e value o al (recurri f thng eir ) primary hom expenses fore t 72 and a he i % ndivi n 93% y dual defin o erd family. ben90% efit Howe plans, is less tha ver, if 83 the % inn di $ vidual or family meet t 25,076% 00. Moreover, 27 h e 401(k) plans of varying sizes—from very large co 71%Fi rpgur orations to sma e 7 70% ll businesses—with a variety of The first major modification Survey. of the model o 69% ccurred for the EBRI May 2004 policy forum. In an analysis to 0 69% sponsored” is used in this study for brevity, but EarlLow y Boom es it shoul ters68%d be und 69% Lat 2 ersto e Boomod that it also ers 3 54% means u Gen Xers H n ighes ion .t Combinatio Brief, ns S of self no. ource: 29 E-re m 1 p(Employe lp oyorte ee Bene d resu fit e B Reslts we e e arc nefit h Ins re Researc ti used to i tute and Mat h Institute, hew nitiali Greze IRA enwal Mar d & accou Asc sh 2 ociat0 en 0 st ,6 s. Futur Inc ).. , 2002–20 e IRA 10 Ret contributions irement Confidencewere ? Changing their investment mix (20 percent). $100,000–$249,999 15 12 11 15 66%15 12 11 sufficient to meet aggregate minimum retirement expenditures, which are define2d as a combination of 10–24 employees 10.4 11.4 As with t Works for an e he basic healt mployer h car e expenses, the qua 51%lification of Medicai d by income and asset levels is considered the level o date t f coh nfi at t dence he OAS about DI Trust their ret Fun ireme d is de nt pl financ eted ( es. 2037 Tw ). e nty-eight percent of workers in the 2010 RCS say the investment o percent say th p Su ey have tions. rveys. less thW an or $1,0 ker0 Conf 0 in savings (up fr idence in Hav om 20 ing Enough M percent in one 2009 y). to income and asset tests for Med EBRI RRR Basel icaid ine 2003 , Medicaid is assumed to cov54% er the basic health care expenses (both parts), EBRI RRR Baseline 2010 59% 55% 57% determine the impact of annuitizing defined contri 76% bution and IRA 51% balances at ret35% irement age, Van 20% Derhei and 8 51% Testimony by modeled from SIPP data, while future rollover activity was assumed to flow from future separation from While knowing the percentage of households that will be at risk for inadequate retirement income is important spon $60,000. so0 ring a 0 plan 25–99 employee 49.3 s 54.4 49.1 10.2 11.9 81.3 61.8 deterministic e xpenses from the Consumer Expenditure Survey (as a function of income), and some health This includes the 78.2 million who worked for employer/union that did not sponsor a plan plus 15.0 to see how much of the stochastic expenses must be covered by the individual to determine the individual’s Retireme 31 nt Income Adequ EBRI RRLi R B v as e Comf eline 2010or acy and the Reliance on Empl tably Thr 47% oughout Their Ret 44% irement Yoyment Based ears 45% age at which they expect to retire has changed in the past year. Of those, the vast majority (87 percent) not the in Edividual or BRI RRR 2010 family. with So c Furthe ial Secur rmore, ity = 0 Part D and Part B premium relief for the low-income elderly (not 39% 91% 77% 61% 44% Copelan _____. "Me d (200 asuring Ret 4) were a irem ble t ent Incom o demonstrate e Adequacy: Cal that for a ho culatin usehold s g Realisti eekin c Income g a 75 p Re ercent placement probabi Rate lity of s." retirement EBRI Issue The mod ? Reduc el is currently pro ing debt or speg ndi ramm ng (7 ed to allow the em percent).37% ployee to participate in a nonintegrated career Participating in a plan $250,000 or m 39.6 ore 7 44.8 11 12 39.2 14 12 12 72.9 11 54.4 employment in S those ource: EBR cases I Retiremin w ent Shich ecurity the Projec etim on M ployee odel ™ was versions partici 100504e patin and 1g i 00930e n a defined contribution plan sponsored Financial Ad Number Without a Plan million who worked for an employer t for public policvice y analysis, per haps equal hat sponsored a ly important is kn plan but did not parti owing just how large the cipate in the plan for whatever accumulated deficits are Expenditure Assumptions insurance an d out-o 32% f-pocket 32% health-related 32% expenses, plus stochastic expenses from nursing home and home final The pro expe pensit nditures for y to guess or the cado th re. Only eir o those wn calculation expenditur may es hel attributa p to ex ble plai ton w theh in y the dividual amounts that ?not the Medicaid workers say report t Retireme hat th EBRI nt Plans and Social Security eir expected r RRR 2010 with DB e,tirement DC and IR a Ag =e has increased. This means that 24 percent of all workers planned to qualifying Wage and Salary, Full-Year, Age for Medicaid) is also incorps o 21-64, rated. average plan; Brief, no. an integrate 297 (Employe d care e B er ave enefitr Researc age plan; a h Institute, five-yea Se r final a ptember verage pl 2006). an without integration; a income a Source: Employee dequ Sour acy, the Benefi ces: EtB Research RI additi Retirem onal savin ent Institu Sec te ur estimates fr ity Pg ros t jecJack VanDerhei, Ph.D. th ion at wo om the Model 201 uld oth ™ v0 March ersions erw 100504e Curren ise ne t P and ed to be opula 100930e tion Survey. . set asi   de each year until retir ement 93% 90% 83% 76% by the reason. pr evious employer. Industry data are used to estimate the relative likelihood that the balances are rolled likely to be. Figure 3 provides information on the average individual retirement income deficits by age cohort 2009 Sponsorship and Participation Levels health An importa $40, care 000.00 n ex t policy to penses (at pic r 0lea esulting from st until the poi ann analysis o t they aref pi em ckployment ed up by M -ba esdicai ed ret d). ireme Thisnt pla version of n partici thep a model tion is th is e Most workers they need to abeli ccumulate for eve they are gettin a comforta g alble l the i retirement nformation ap pear to they nee be rat d to her lo make sound f w. Twenty-nin inanciale decisio percent of ns for their The program expen ?d are itu * Sr econsidere es used in e text for defid ni th as tion e model of expenses to t "at risk" for the el he iderly ndivi co dual nsi asnt of two d as a resu com lt pin any onents—dete of the “defic rministic an it” calcu d s la tochastic tions. $5,000 or more in annual earnings, 10 or more employees 29.5 37.3 three postpone ? -year fin Enrolling in theira retirem l averag Source: a Er e m e nt e pl pltirement oyee in an witho Benefi 2010. savi t Research Insti While ungs plan t integratio sitmilar to ute and M at n; a five-yea w ao thew th rk (5 e Greenw le percent vel re ald r final a & porte Assoc ). iates, Inc., d i vn erage pl 20 2002–2010 09, this r an Reti with cove erem presents a su ent red bstantial The concept of measuring retirement 45% security – or retirement income adequacy – is an extremely important to achiev e this objective wou Ve ld rydecre So am se ewh by a me at Ndian ot too amount of Not at al 3 l 0 per Don' cent. Additio t know/Refused nal refinements were 9 74% over to an IRA, left with the previous employer, transferred to a new employer, or used for other purposes. as well as family status an Confidence Surveys. d gender for baby boomers a Figu nd reGe 1n Xers. 3 These numbers are present values at 68% constructed to number First, a Brian K. Bucks, Arthu quick of wo lrkers who ook at the simulate "basic" r are nu r B. Kennickell, Tr mbers not parti etireme willc tell ipa nt nt 67 you wh income a % s aci L. Ma , as wel ere l as t d the re cq h, u nation he n aand Kevin B. Moor cy; how umbe is toda erver, fory whe altern those n e, “Ch ative v who it com w a e o e n rsions of th rk for a s to Americ ges in n U.S. Family em e aployer/union model ns’ allow Stochastic E Wage and Salary, Full-Year, Age xpenses 65s % 21-64, 32% retirement. workers say th Twenty-nin ey need to sa e percent o ve less tha f workers say this describes t n $250,000, and another h 17 em pe ve rcent me ry well. ntion Anot a goal her 44 perc of $250 ent ,000 of workers – comp expenses. T ensatio he n det as the integ erministicr expenses in ation level; a clu three-ye de t 29% hose e ar final avera xpenses that th ge p e lan with covered com elderly incur in their basic pensa daily li tion as the fe, ___ increase ov __. “Retirement Incom er previous years, wh e Adequacy Aft en less th ean 20 r PPA and FA percent Ss 158: P aid they ha art On d epos -Plan tpone Spd th onsors' Reactio eir anticipate ns.” d reEBRI Issue tirement topic. EBRI started a major 58% project to provide this type of measur 24% ement in the late 1990s for several states 57% Research Director introduced in 2005 to evaluate the impact of purchasing long-term care insurance on retirement income 7 Total Expen retirement agditures e an1993 d re present the addition 1995 2000 2001 2002 al amount 2003 Fi eac 2g 004 ur he in  23 005 dividual 2006 in 2that gro 007 2008 up wo 2009 uld 201 need 0 at age 65 to Finances fro $5,000 o m 2004 to 20 r more in annual earni 07: Evidence ngs, 25 from the Surv or more employee ey of Consu s mer Finances,” Fede23.3 30.6 ral Reserve similar analysi that does not sponsor s for replac Amount a plan em o ent rat .f T Sav his section es, stan ings W dard-of- investigates t orkers livin T g calculations, a hhink ese n Tu h mbe ey rs to show Need nd othe fo r w a r Ret dh h er oe pot c ir threshol ement entialds. le , gislation integratio partici $20, p000. ation n le 00 in vel; a five-ye a retirement a pla r final avera n. Among ge plan all of the with 154 a PIA offset; million Americ a three ans who -year f work inal avera ed in 2009, ge plan with a almost half— feel $49 it 9,9 ? des 99. Deciding c T ribe we s them nty-fo to wur somewhat ork perc longer (3 ent thi we nk th perce ll. Only ey nt). need 27 percent to save of $50 workers say 0,000–$99it 9 does ,999, whil not e a desc bout ribe1 i them. n 10 A eam ch b ong elieve while the stochastic expenses in this model are exclusively health-event related—such as an admission to a Brief, 22 no. 6%307 (Employe 8% e Benefit Research Institute, July 2007). The age (Figure 15 second component ). of he10% alth expendit 10 ures is th % e result of simulated health events that would require long- Defin that w ed B ere con enc efit Plans erned wheth er their residents would have sufficient income w 10%hen they reached retirement age. Source: EBRI Retirement Security Projection Model ™ versions 100504e and 100930e adequacy. 13% However, this measure of the work force contains the 16% unincorporate 14% d self-employed and those typically with a Bulletin, Vol. Wage and Salary, Full-Time, Age 95 (February 2009): A1-A5 s 21-64, 5. Average Individual Retirement Income De 17f %icit by Gender, Marital  Status  eliminate their expected deficits in r 17 etirem % ent (which Ficould gure 16 be a relatively short 16% period or could last decades). PIA offset; a cash balance plan, or a flat benefit plan. just over 49 may exclude percent—wo workers, or t Among rked for hT e num hose Do an ber em of w in ployer or u o g rkers who a Retnion irement ar e that sponsored already bei Savin ng g a s Needs rea pe ched, by certain demo nsion or Ca retirem lculatio e 22 nt %pl ngraphic an, and and The elderly individuals’ or families’ expenses are then the sum of their assumed deterministic e 22% xpenses based workers, thos they need to s e w ave $ ho 1 partici million pate in –$1.49 an millio empl noyer-sponsore (8 percent) or d $1. ret5 mi irement s llion or more avings plan (9 p ar ercent). e particularly Howe l ver, savings ikely to say nursing home or the commencement of an episode of home health care—that occur only for a portion, if ever, term care in a nursing home or home-based setting for the elderly. Neither of these simulated types of care After con $5,000 o ducting stu r more in annual earni dies for 1998Oregon, Employee Benefit Research Institute (EBRI) Kans ngs, 10 as and Massac or mo 2002 re employee husetts, we s 2009 expanded the31.5 39.6 si 201 mulation mo 0 del to a full- looser connection to t 19% he work force—individuals under age 21 and older than age 64. Therefore, a different A stochastic job 10 duration algorithm was estimated and applied to each individual in RSPM to predict the The Among th version o e refasons given the Sour mode ce: E19 mpl % l us o fo yeeed r the chan Benefi for th t Resear e a ge by work chn In asltysis in this itute and Mathe ers postponin w testimony assumes all Greenwald &g r Asse octire iatesment in , Inc., 1993–2 workers th 010 e 2 Reti 010 rretire em RCS ent at a are: ge 65 and 32 ? Researching other ways to s 18% ave for and retir  Age ement  Coho(3 rt per  (inc  20 ent). 10  $) 19% employer characteristics, annual earnings, employer size, and work status (full 19% -time/part-time). ___ upon almost 40 per This mate __. their “The reti Expect rial cent rement first appea partici ed Impa incom T pat rre end ct of A ed e plus any d in VanDe in aiutomati n plan. For W simulated stochas o rc Escalation o hrek i and Copel fer ull-time, f s’ Exfull-yea pe 40 tand (July 201 ic ex 1(k cte pe r wage ) Co nses t d ntri Re and butions o hat they 0). tir salary em ma n R e wo nt y etrkers have i irement Ag ages e ncurred. Incom 21–64—those In e.” each EBRI it des These fin goals tend to cribes d $-in tgs h increase as em are simi very or lar to ho somewhat usehold incom some other well. estimates of Am Th e rises. e likelihoo d of erican indichouseh ating they rec old assets. Q eive allu the antifi inform able dat ation they a from t he durin BLS informat g retirement, not ion wa on s utilized to cod an annual or cer e the distrib tain basis. uti on 18%of generosity parameters for flat benefit plans. Wage and Salary, Full-Time, Ages 21-64, 17% 5 The would mode be rl eim was next burs Coned fid used in enc by e Su Me rvey dicare March o s. becaus f 200e they 6 to evaluate would be the im for cpact o ustodifal (not re defined be habili neftative) it freezes on care. par The i ticipants ncidence by blown national model in 2003 and earlier this year 17%updated it to several significant changes including the The aggregate deficit number with the current Social Security retir 17% ement benefits is estimated to be $4.6 measure o number of jobs held an f the work force i d ags e at examin eached: job wage change. Each and salary time th workers e in a divi ges dual 21– starts 64. For th a new job is grou , RSPM p, the simulates immediat $140,ely 000.00 b egin to withdraw money from their individual accounts (defined contribution and cash balance 18% 21% Early Late Boomers Gen Xers Early Late Boomers Gen Xers Early Late Boomers Gen Xers 11 most likely to Notesbe o , no. S1 ou 99 ffer 9 rc4 e: (Employee e Ed reti 1 m 9pl 95 oyeerement 2B 00 en0 efBen it R 2e 00 sbenefi e e1 ar fit ch Ins 2 Research 00 ts— 54 t2 itute 20 an03 d Ma I perc n the 2stitute, S 00 w Gr en 4 ee t of t 20 nw05 alde h &pte ese 2 A00 ssm oc 6wor iber ates 20,k 07 I20 ners partici c., 07 120 99): 0 8–2 8 1 01 - 20 0 p 8. R 09 at e tired em 20 enin a 10 t Conf retir idence ement plan. Retirement Adequacy Defici subsequ ? e The poor $5,000 o nt year of economy (29 r more in annual earni life, the total ex perc pe ent). ngs, 25 nditu ts ror mo es are re agai employee n calculate s d in this mann24.9 32.5 er. The base year’s ex penditure need also 33 2007 Survey o incre fases wit Consume h a r g Fie, e nances ducation, (condu and cted househol by the d income. U.S. Feder al Reserve Board) found that the median simulating the of the The nomin nursing home al co minimum st of these and ho emme he ployer co expenditu alth c ntribution rat ar re es increa and th www.ebri.org e r e th se es wit su at woul lting ex h comp d be pen ne one dit eures on nt-spe ded to ci the fina fic inflati nci caa re are lly in on assum demn estimat ify pe the tio d from th ns. See e impact of defined Boom be ernef s it plan freezes, automatic enrol Boomers lment provisions for 40B1(k oom)e plans rs 22% and 24 the % recent crises While the medical Surveys.consumer price index only accounts for the increases in prices of the health care sponsorship ra trillion with an ind te incr ividu eases to al average o 54.4 percent f approximately and t 2000 he 2005 $4 fracti 8,000. o200 n part 8 If Soc icipat 2009 ial ing increases Security 2010 benef to 44.8 its werperc e to ent. be eliminat When ed, whether or not it will result in coverage in a defined benefit plan, a defined contribution plan, both, or neither. plans, as In 2009, 7 wel 8.2l as IRAs) million worker whens worked for ever th e sum a of the n employer ir basic /un expenses an ion that did d no uninsure t sponsor a d me retirement dical expenses plan exc and eed th 93.2 e Deterministic Expenses 9 Wage and Salary, Full-Year, Ages 21-64, 43% 23 value estimates excluding the health 3care expenses are adjusting annually using the assumed general inflation (midpoint) level of household assets of 1991 al 19 l 95 Americans 2000 wh2005 o have an ass 2008 et is 2009$221,500. 2010 This includes the value the appendix for more details. Measuring retirement income adequacy is an extremely important and complex topic, and EBRI star ted to employees 199 servi 9 a ?c e nd sA , it does not a 20 for chan 04 the ge in e National reduction m c ployment cou Nur in t n sing Home t for the cha heir situation (2 expec Sunge rvey (NNHS) ted 2 per s in the retirem cent). en a nt u nd t income mbe he r and/o 20 un 00 der a r intensity of service nd various rat 2007 Natio e-o nal Home f-return assu s obtai anned. Thu dmptions. Hospices , in the financ 13 ial and housing markets. 8 the aggregate deficit would M ar jump to ried $8.5 trillion and the S ing average le Female would increase to approx Single imately Male $89,000. separatin If covera $120,ge g th 000 in .00ese wa   a defin ge edand salary workers benefit plan is pred into the publ icted, time sic e and pr ries informati ivate so en from ctors, the the B per ucentages part reau of Labor Statistics icipating million worker after-tax $10,000 o annu s did al incom not r mo parti re in annual earn e fro cipate in m Social a Sec ings, 10 or more plau nrity and defi (Figure 6). employee ne Focus d bene s infit g in pla on ns (if employ any) ees27.8 35.0 . If w th ho ere diis suf d not wor ficient money k for an to ___ The__. likeli How Woul hood of a worker d Target-Date Fun participatin ds g in a Likely n em Impact ploy ment Future -based r 401(ke ) C tirem ontributio ent plan ns. T goes estimony befo up sharply re the with joint One-third of workers (33 percent) report they have sought investment advice from a professional financial The rate of 12 det 2. ermini 8 perstic ex cent from th penses e are broken 2009 OASD do I T wn i rustees Re nto seve po n rt categori , while t es—food, a he health car ppar e expenses are el and servicesadjus (dry cleani ted ng, of the primary home, which had a median value of $200,000 for those who owned a home. Since then, home provide this type of measu with increased longevity, the rate of he rement in the late 1990 alth care exp s.enditure growth will be sig When we modeled the Bab nificantly highe y Boomers an r than the d Gen Xers Later that y Care S urvey e(NHHCS). ar, an update NNH d S is a version of 47% nation the wi de sam model p was le 31 su de rv velope ey of d to nursin en ghance homes, th 43% the EBR eir current I intera reside ctive Bnts and allpark 14 Net hou Wage and Salary, Full-Year, Age sing equity is introduced into th s 21-64, 47e model in three different m % echanisms (explained bel ow). 51% 44% 44% differ significantly. Almost S55 ource: % Employee7 B3 enefi pe t R rcent esearch (72. Instit9 p ute and ercent Mathew ) of t Greenw hal e d pub & Associ lic-sect ates, Inc., or workers 1994–2010 Retipar rement ticipate Confidence d in an (BLS ? ) is used t Inadeq ouat pre ed fict ina what nces or c typea of n’t pla afford to r n it will e be. tire (16 perc 40 ent % ). employer pay e employer xpeDOL/SEC H ns size. that es without sponsored For workers ear tap ing, a pin pl Tar ag into tan, 9. employ get the Da 2 mil te Fund Pu ers wi tax lion -quali wer th fefe wer blic ie sel d i Hearin than fndivi -em p dual 10 loyed—m g, J empl accounts uneoyees, less than 20 ean 09. ,ing t the excess is he worker 14 percent could hav assumed partici e to stbe invested arted pated in a a 45% advisor over the past year. Those with 41% higher levels of financial assets are more likely than those with lower ® annually 4.0 percent m using the edical inflation rate, as 4.0 percent medical h con as been the case in recent years. s 35% umer price index that corresponds to the average annual level from haircuts), values have tran decline sportation, ent Surveys. d nationwide. ertainment, reading and education, housing, and basic health expenditures. Each If I could direct your attention to Figure 1, you will see that when we modeled the Baby Boomers and Gen Xers in 2010, between 44–47 percent of th $10,000 or more in annual earnings, 25 or more e households employee were projected to be at ri s 21.9 28.7 43% sk of not having adequate E$timate dis charges tha wortk was sheet by cond pro uctv eidin d by th g Mont e Nati e Carlo simulati onal Center fo ons of th r Healthe Statis necessary replac tics from July ement rates through December needed for 1999 13 34% 15 employment $100,000.00 -based ret   irement plan, compared with 39.2 percent of the private-sector workers. plan in a non for -himse tax33 -ad lf/h vantaged acc erself without the ount w ne here ed f tho e inves r action tment income is ta from his/her emplo xed as or yer. Ther dinary efor income. e, the num Th ber e i of ndivi workers dual plan, The IRS tax tables from 20 likeli compared with Sour hc ood e: EBof do RI Reting a r ire 53 perc ment09 a e Sti ec ent of those working rement savi ur rie used to co ty Projection ngs nee Mode mpute l ™d vs calcu er for s the tax owed o ion a 10 n lemployer a 09 tion inc 30e rease wit n the amount hs 1,000 or mor with househ s reold i e ce em ived from defi nployees. come, 38% ed ucation, ned and levels of assets to seek this advice, but whether this is because higher-asset individuals fe 41% el a greater need of ? The need to make up for losses in the stock market (12 percent). 24 of these expenses is estima 2004 ?2009. Wage and Salary, Full-Time, Age ted for the s 21-64, elderly (65 or older) by family size (single or couple) and fa mily income in 2010 that between 44–47 percent of the households were projected to have inadequate retirement income retirement income for BASIC retirement expenses—housing, food, etc.—plus uninsured health care costs. and specific 2004. pro Th bae b NHHCS ilities of is a retir n 31% ea ment tionwi income de sample ade survey of quacy under a home h lternat ealth ive a risk mana nd hospice car gement treatm e agencies, th ents.eir curr ent While the BLS information provides significant detail on the generosity parameters for defined benefit plans, _____. “The Impact of Automatic Enrollment in 401(k) Plans on Future Retirement Accumulations: A benefit plans and Social Security (with the percentage of Social Security benefits subject to Federal who accounts are t financi worked f al asseto s racked r someone . In ad until dition, el th se that e poi married nt at did not work which they sponsor a ers (com are pared with pla den plete totale d unm ; i d f t 69.0 he arried wo Social S million rkers), t in ecurity and de 2009 h. ose age 35 a fined be nd ol nefit der investment a Older workers $10,000 o d ten vice or d to r mo beca report re in annual earn use pro higher fessional amoun ings, 10 or more advice ts of assets. incre employee ases Seventy-o the s likeli ne percent hood of building of wo29.6 37.2 rke asset levels is rs age 25–34 h unclear. ave total 28% (less than $20,000, $20,000–$39,999, and $40,000 or more in 2008 dollars) of the family/individual. for even BASIC retirement expenses plus uninsured health care costs. Even though this number is quite large, Even th ? ough Lack of this number i faith in Social s quite large, Security or gove the good n rnment e(7 ws is th percent at thi ). s is 11-12 percentage points LOWER and A more r dischar estric ge patients that tive definition was conducted of the work force, w by the hich Natio mo 26%nre closely al Center rese for Health St mbles the ty atistics from Au pes of workers gustwho 2000 preliminary analysis indicated that several of these provisions were likely to be highly correlated (especially for Now lookin Income T Simulation ag a x proxied a t the mor Stus d e a function of the y Based o than 78 mil n Plion lan Design workers who variou Mo s reti dificat di red ment inco ions of L NOT work arge me focomp r an Plan S employ one ponnts) as well as the sors.” er sponsoring a EBRI Issue Brie plan individual f, in no. $80,000.00  payments ar Wage and Salary, Full-Time, Age e not sufficient to pay basic s 21-64, expenses, th e entity is designated as having “run short of money” at Three in (compar 10 A ed wit m hericans a those age 25–34), ge 25 and over r retirem eport t ent savers 25h %ey 25%have not (compared with saved ann y money onsavers), an for retirement d participants (29 perc in aent o definfe d savings and investments of 24% less than $25,000, compared with 42 percent of workers age 45 and older. At the 26% 27% RSPM was significantly enhanced for the May 2008 EBRI policy forum by allowing automatic enrollment of the good news is that this is 11 25% –12 percentage points LOWER t 25% han what we found in 2003. than what we found in 2003. 23% 24% 24% through account withd December r23 awals. % 2000 and from Au 22% gust 2007 through February 2008. gene integrat rally m ed pl us an t be s). Therefore, a time series covere 21% d in accordance with t of sev h 21 e Em e% ral hu ployee R ndred def etireme ined bene nt Income Sec fit plans per urity Act year was (ERI c SA) oded for a to Of those 69. $10,000 o 0 million, r mo 6.7 re in annual earn million 24% werei u ngs, 25 or more nder the a 24% ge o employee f 21, a s nd 3.6 million were23.4 30.5 age 65 or older. 200 Overc 9, a ? onfid b341 The out (Em cost of e 1nce? 2 percent 18 p% loye livi e Be ng i wenef n r re self e it R tireme -em esearch Institut p nt wi loyell d. O be hi f tgh e, h April e r er tha em 2 ainin n e 010 xg 6 pect ). 9 m ed illi (7on worke percent) 18% rs w . ho were not offered 24% 21% 21% 24% 16% that time. workers an contributio n d r plean (compare tirees). Of td hese, 7 with nonpartic 9 percent of ipants) more workers say this is often report be tr cause th ying toey ca do a c nnot or alculation. could 25 not afford to The estimates are derived from the 2008 Consumer Expenditure Survey (CES) conducted 13%by the Bureau of same time, 18 percent of workers age 45 and older cite 23% assets of $250,000 or more (versus 4 percent of 22% 401(k) participants with the potential for automati 32c escalation of contributions to be included. Additional Importance of Social Security 22% 14 Wage and Salary, Full-Time, Full-Year, Ages 21-64, retirement plan offered 19% by a private-sector employer or union, is the work force of full-time, full-year wage and allow for assignment to the individuals i 21% n RSPM. retirement benefits, a Approximately 33 million lmost we10 re not perc ful ent l-tim were un e, full-y der e the a ar workers, and 1 ge of 21, and about 5 perc 8.5 million had ent annual were age earnin65 gs of or o less lder. $60,000.00 21% 21% Roth IRA and 401(k) accounts are not u 18% sed in this version of the model but will be incorporated into a Although save. Ne man vertheless, 31 percent of y workers may 17% have re-evalu workers who ated t have not heir conf saved idence i are n hve avi ry ng a or comforta somewhat ble confi retirem dent tha ent in t t they he will Labor Statistic workers a ? Needin ge 25–34). s of th g to pa e U.S. As o y current nDepartm e might suspect, total sa expenses first ent of Labor. (6 percent The vin survey targets t gs an ). d investments incr he total noninstitutionalized ease sharply with househol population d The improvement over the last seven years is largely due to the fact that in 2003 20% very few 401(k) sponsors Who is most at risk? Figur6e 1 shows t 16% hat, not surprisingly, lower-income households are MUCH more For modificat determi $5,000 o ions nin were g wheth r ad more in annual earni de er a d in i n 20 ndivi 09 for dual ngs, 10 a P has e t nsion Rese hes or mo e e re xemployee pe arc nses h Counc , the s follo il pres win entation g proces that 13.3 17.6 s is un involved dertaken. a win An n i ers/losers ndividual 19% 19% 19% VanD In additio erhei, n to Ja 16% ck, and Crai employment g -based ret Copelandi. Or rement pl egon Futur ans, Socia e Retirement l Security is a Income Assessment Project. A n extremely 16% important com project of t ponent of he 1993 1995 2000 200 15%1 2002 2003 2004 2005 2006 2007 2008 2009 2010 salary workers ages 21–64. Approximately 54 percent of these workers participated in a retirement plan. forthco than $10, ming EBRI 000. Furthermor publication. e, many of these workers (39.4 million) worked for employers with fewer than 100 Almost half The propensit –48 percent— y to guess or wedo th re not eir o fulw l-tim n ce, fu alculation ll-year may workers, 27 perc help to explaient ha n why the d annu am aounts that l earnings 14% of wor lekss than ers say 17% have e wake on f th ough e re money for cession an a c d th omfortable e accompanyi retirement. ng economic How t eu ver, this rmoil, many perc entage has workers still steadily provide co declin Witnfli houe t cti So dc from n ialg  Secur 4 ity 7 (urban and rural) of the United States and is the basic source of data for revisin 17%g the items 13%and weights in the used a income, utomati educ Wage and Salary, Full-Time, Full-Year, Age ac enrol tion, an lment d healt (AE) provisio h status. Wor ns and the kers who s 21-6 p 4 have , articipation done a rates a retirement savin mong the lo gw s needs income calcul emplo ation yees (those likely to be at risk for insufficient retirement income: The 2010 baseline at-risk ratings (the left-most reachin analysis of g thde e S fined bene ocial Security fit frnormal ret eezes and the irement a enhanc ge ed defi has a pro ned contri b13% ability o buti f bein on em g i 13% ployer c n one of fo ontributio ur possibl ns provided as a e assumed Although ? Wanting to m the Tax Reform 16% ake sure they Act of 1986 at l have enough east partia money to r lly modified the etire comforta constraints on i bly (6 perc ntegrat ent).ed pe nsion plans by 13% retirement inc EBRI Ed ome, an ucatiod h n an end R ce retir esearc ement h Fund i12% ncome a and thd e Mil equb aank M cy. The e im morial F 12% portance o 12% und, 2f001. Soc 12% ial Security retirement 11% 15 $10, employees, they need to a 00$4 0, an 0,000 in .d 00 cludi more than ccumulate for ng 10. hal 2 million f —57 a comforta p workin ercent ble g for —retirement worked employe for a remployers s wi ppear to th 25 be rat –9 wit 9 employees, h less tha her low. n Twenty-nin 10 100 em .4 mill ployees. ion e for t percent of hose with 10– 11% With Social Security $5,000 o 26 r more in annual earnings, 25 or more employees 11% 10.4 14.4 11% percent in responses wit Capital gai 2004, suggestin ns treatment is h respect to c g 10% o that work nfidence an not used ers a in this versi d retirem re incre ent asin on of the model. pr gl eparatio y recogn n. izin Thi g th s suggests th e need to save at at least some work at least some mon ers ey market bas (compared wit ket of co h those nsumer who hpurchas ave note )s te to nd be to have priced higher for the Consum levels of savi er Price I ngs. I nd ne a x. ddit Therefor ion, those e, an e who xpe have nse valu saved e most likely to be at risk) was quite low. With the adoption of AE in the past few years, these percentages have column) range from 76 percent for the lowest-income households, compared with only 20 percent of the “healt Work quid pro quo. h” statu er Chars Sacte es: ourc e:ristics a Employee Bnd Participa enefit Research Inst tiion tute and Mathew Greenwald & Associates, Inc.13 , 1% 993–2010 Retirement adding Sec. 401(l) to the Internal Revenue Code, it would appear that a significant percentage of defined benefits for low-income workers is shown in Figure 1: 91 percent of the lowest-income households would be at 24 employe Wage and Salary, Full-Time, Full-Year, Age es, and 18.8 million for those with f s 21-6 ewe4 r tha , n 10 employees. workers say they need to save less than $250,000, and another 17 percent mention a goal of $250,000– 7% 16 Confidence Surveys. themselves i may be overc f t oh nfident ey would like about their to ach like ieve ly fi a nancial sec financially secu urity in r re retir etirem ement. ent. A 11% general public opinion survey such is calculated using actual experience of the elderly for each family size and income level by averaging the At the same ti often increase for retirement me, 8 percent d are more to the high 80s 11% likel of y than t workers c or low hose 90s h who angin . have g thei not r rsaved to etirementhave age substantial in the past year (2 levels of savin percent 10% gsof all . In fact, 69 ___ highest inc __. Kansas Fut ome househol ure Retir ds. ement Incom e Assessment Project. A project of the EBRI Education and Research This material first appeared in VanDerhei and Copeland (July 201 10% 0). benefit sponsors have retained Primary Insurance Amount (PIA)-offset plans. In order to estimate the offset 9% What risk of i these nade $5,000 or more nu quate r mbers show etireme in annual earnin is nt incom the structural e igs, 100 f they ha reasons or mo d no re Soc employee why ial Se many America s curity retirement ns do not hav be7.8 11.3 nefits, compare e employment d with -base 76 d 9% 9%9% 9% $499,9$2 99. 0,000 T .00 w   enty-four percent think they need to save $500,000–$999,999, while about 1 in 10 each believe The as the A ne ? per w subrout Not re RCS ca centa ceivin gnnot provide e ine of g was a wa either ged an home ded to the a d de salary wo h finit ealth or ive a model rk n nursi er swer to s ages to allow ng w hom 21–64 simu hethe e car lations of various styles r workers partici e, patin are g in preparin a retirem g a of ta ed nt eq pla rget-date fu uately n in for 2009 i ret nds for a in rement, creased but workers) repo observed percent of tho expert they snses for t e who have not saved willh reti e elre sooner derly with for r than in ee a they tire ch cate ment hagory d say plan meetin their assets to ned, primar g the aily btal less tha ove crit due to eria. poor h n $1,000. The ealth or basic heal disath bility. 17 Fund and the Milbank Memorial Fund, July 16, 2002. 7% Wage and Salary, Full-Time, Full-Year, Ages 21-64, provided under the plan formulas, RSPM computes the employee’s Average Indexed Monthly Ear 6% nings, Primary retireme However, ma percent at nt be risk with n nefits: y of th curr They ese ent wor don’t Social S kers woul work f ecurity ull t d fall i benefits. me, they into ma wor ny of k at small these catfirm egori s, they are es simultaneo veryusly, such as low-income. bein g under The v VanDe iews expr rhei a essnd Co ed in thpelan is stated m(200 ent are 1). so lely those of Jack VanDerhei 6% and should not be attributed to the Employee Benefit Retirement Savings 27 they need to save $1 million–$1.49 million (8 percent) or $1.5 million or more (9 percent). However, savings Although there do not appear to be any major trends by age, if I could direct your attention to Figure 2 you But even mor the RCS does provide e significant i some strong s when in man dicatiyons. workers, especially low-income workers, will run “short” of with exp comparison end age. iture For c wi ath part those ag tegory icipa has es 2 a nt-directe dditio 1–24,nal 18 d.0 data invest perc needs m ent ents in partici besi 20 des pate 09 jus .d in t Most r the a pla CES. n, co ece nmpared tly, the mod with e5 l 3 w .4 as c perc omp ent o letefly those $10,000 or more in annual earnings, 10 or more employees 9.5 12.5 4% Research Insurance Am Institute (EBRI) ount, and cov , the EBRI Educa ered compens tion and Resear ation valu ch Fun es for the birt d, any of its prog h coho rams rt. , officers, trustees, sponsors, or other age 21, having less than $10,000 in annual earnings, and not being a full-time, full-year worker. Therefore, As woul 18 d be expected, worker confidence in having enough money for a comfortable retirement increases with 3% $- goals tend to increase as household income rises (Figure 12). ? Home health care patient, W will In additio One-third of hile VanDe see t worker resp hr n at, a hei a to workers who the lack snd Co I mentio onses to a pelan of im ne ha d d provement ve saved for q previously, t (July 20 uestion asking 02 in). h the re e low tirement the ag perce er-incom ne tage saving, (32 at w 2% e households percent) say t hich th the ey expe perce are MUCH mo hey are ct n to tage retir very of e ha c workers w re likely to os nfident t shown little hh o be at t have virtua at risk for h change ey are lly ___ money: Our r __. Massachusetts F Wage and Salary, Full-Time, Full-Year, Age esearch finds uturethat 41 Retireme percent of early Baby Boomers i nt Income Assessment Project. s 21-64, A p n the lowest-i roject of the EBRI ncome quar Education an tile will run d ages 55– reparamet 64. erized with Male workers were Under 401(k) plan $25 0, slightly more design 000- parameters $50 like 0,000- ly to fopartici r sponsors tha $1,000, pate 000- in a pla t have n $1, tha 500, ado n000 pfemales. Ho ted automat Don't Kn wever, fema ic enrollment ow/ le staff. The Employee Benefit Research Institute is a nonprofit, nonpartisan, education and research organization established in The other three higher-income quartiles also benefit from Social Security: Comparing the at-risk percentages Early  Late  Gen Xers Early  Late  Gen Xers Early  Late  Gen Xers the household inc bottom of ome. the Figure Worker 6 s confidence hows the number o also increases f work ers with savings who wouland investments, d remain in a targeted po educatiopulatio n, and im n, ifproved 0%0% Health $10,000 o 28 $250r , more in annual earni 000 $499,999ngs, 25 or mo $999,re 999 employee $1, s 499,999 or mor7.4 10.2 e Refused First, workers who are very confident that they will have enough money to live comfortably throughout their betw investing thei 19 een 2009 r retirem and 201 e0 nt sa , the ag vings w e ati w sely hic(up h worke from rs say 24 pethey plan to rcent in 200 r 9, etire but has cre down fro ptm upward inc the high o re f mentally ov 45 percent er insuffic Washington, DC no money ient in ret savings an i, in rement 1978. incom EBRI d investments has i e (even does not thou take po gh w n licy creased over e positions model our basic , n the or does i pas retir tt lobb yee ar. yment e , Amon advocate specif xpense g RCS si as a f workers c policy unction recom provi m of t de ing ndat h this e ions, or short Define of mon d Co Research ne ty within just 10 years ribution Pla Boom Fuen rsd an Bood t mns erhe M s ilbank Memoria of retirement. Boomers Bo l oFun me rsd, DecembB er 1, oomer 2 s 002. Boom ers workers were provisions. more likely to have participated in a plan than males among full-time, full-year workers. with VanDe and wit rhei a hout Social Sec nd Copelanu d rity retir (Decem ement benefits, ber 2002). 24-26 percent of households in the other three higher- exclusions are made for age, annual earnings, work status, and/or employer size. For example, if the health Workers ? Nursin status. who Wage and Salary, Full-Time, Full-Year, Age g hom have Those who e care patient, done a r he ave exper tirement savi ience ngs n d increases s 21-6 eeds 4 cal , in cula incom tion e also t (com epared w nd to hav ith t e h hiose w gher savings hose income in goals than 2009 do receive federal funding. retirement years appear to be better prepared, on average, than those who are somewhat confident. In turn, time. I household’s e measured in type of in n parti form 1x cular, th ation, 5 998 pect Befor ). ed retir e Anoth 60 4 e perc perc eement in r ent re entage of wor 54 percent 60-64 port t come). h ar at Th k the tota e ers who somewhat e 2 65 010 l val expect ba c s ue e of oline nfident t to retir th ratin 66-69 eir e gs household’s savi h a at t f(t te he l hr age eir savin 70 eft most or65 has oldg es ar rngs an co increased over e w lumn) ran Nev id i sely inv er n r vest eti ges re ments, ested from time, (Figu 76 from re The basic health expenditures are estimated using a somewhat different technique and are comprised of two 20 Married Single Female Single Male income Previous stu groud ps are saved fr ies on the EBRom at-risk stat I/ICI Participaus by Soc nt-Directeid al R Se etirement curity. Plan Data Collection Project have analyzed $10,000 or more in annual earnings, 100 or more employees 5.5 8.0 popul workers w was the VanDe ation o same rhei a h So ofurc i have not n or lowe e nd Co terest is : Emplopelan r tha y do eewa B ne e n ge an ne d the in fi(200 t 2 R calcul e 008 d salary se3) arc ) or f hatio Insti workers ages in tn. uancial assets te and Twe Mnty-e athew i 2 G ght percent r(compare e 1–6 enw4 who wor ald & Ad ss of owit ci ate workers w h k those s, I full nc. , time, 2000 whose h –2 o make 01 have 0 assets in Ja Re $5 tidone rem ,0 e00 nt a c or n alculation, more uary 2 in 010 ___ In preparation for this hearing, __. “Can America Afford Tomorrow's R EBRI has used our m etirees: Result os deling capab From the EBilities to calcu RI-ERF Retireme late the nt Security accumulated Projection those who Being white are or havin somewhat g attai co ne nfident d a high appear er educational to be better level prepared ov was also associated wit erall than those h a who are not co higher probabin lity of fident. For 11 perc perce 10). nt of ent in 199 the lowest 1 to-incom 14 percent e house in 199 holds 5, 19 perc at risk to on ent in 200 ly 20 perc 0, 24 perc ent forent thei hi n 2 ghest i 005, annd 33 come house percent ho in ld. th e 2010 excluding the value of their primary home and any defined benefit plans, is less than $25,000. Moreover, 27 parts. The first part uses the CES as above to estimate the elderly’s annual health expenditures that are paid Confidence Surveys. the aver ? Death, age a So ccount urce: Embalanc ployee Bes for enefit Re401(k search I) n spartici titute and pMat ants hew by age an Greenwald &d ten Assocu iare. R tes, Ince .,cently 1991–201 publ 0 Retished resu irement lts 21 annual earnings, and work for an employer with 10 or more employees, 31.5 million worked for an employer were compare thed sam with e or lo just 8 wer perce than n in t of January those wh 2008 o have ) ar not, es e moreti likely mate th to e ey n xpre ess confi ed to accumu dencel in ate at havin least g en$1 ough million money for exampl retirement e, co Sour Model.” cad nfi e: EB equacy deficits. Figure 2 dRenc IEBRI  Rete ire in m Issue ecreas nt Secue Brie ris as the repo ty Prf, oj no ection . 26  Mosh 3 derted tota (Employ lows  ™ versithe av on 10 ee B l 0930 of savings an er eene age retirem fit Research I d inv ent income def estments incr nstitute, Novem eicits by age, f ases. Further, ber 2003).a the mily partici VanDe patin rhei (Janua g in a retirem ry 2004 ent pla ). n. Among white workers, 49.4 percent participated in a plan, compared with RCS perce (Fi nt say th gure 1 Co 6 ey have nf ). iden Neverth ce S less t urveye s.le hss, the me an $1,000dia in n savings (up fr (midpoint) aom 20 ge at w percent hich wo in rkers ex 2009). pect Approximate to retire has r ly 1 ein 1 maine 0 each d Also, Figure out-of-pocket 1, or are focusin not g ofull n th ty reimbursed (or not co he third set of columns ver for eeach incom d) by Medicar e ge r oup and/or , shows just how private Mediga imp p h ortant the ealth Source: Employee Benefit Research Institute estimates from the 2010 March Current Population Survey. (VanDerhei, H EBRI 1100 olden and Alo 13 St. NW #800 nso, 2009) sh ow that Washington, DC 20005 the year-end 2008 av(202) 659-0670 erage balance ran www.ebri.o ged from $3, rg 237 for for a that di comforta d not sponsor a ret ble retireme irement nt. Others more often plan in 2008 (m con eani fident are men ng that 46 perce (compared with nt of the total n women onself-employ ), married workers ed working status, and g 22 ender for Baby Boomers and Gen Xers. These numbers are present values at retirement ag e 26.7 percent of Hispanic workers. Seventeen percent of workers without a high school diploma participated in stable at 65 since 1995. employment insurance. -based retirement system is: If you eliminated the expected retirement income generated by VanDerhei (2005). E EB BR RI I— —T- T-166— 166—Senate HE Senate HELP Committee Hearing— LP Committee Hearing—Oct. 7, Oct. 7, 2010— 2010—P Pg g. . 13 12 (cont'd.) Figure 5 Percentage of Various Work Forces Who Worked for an Employer That Sponsored a Retirement Plan Private- Sector Public- Sector Full- Time, Full-Year 64 21-64 21-64 21-64 All Wo and the Per rkers centage WorkersWh o Participate Ages 21-- d in a Plan, Workers by Various Charac Ages Woteris rkers tic Ages s, 2009 Workers Ages Sponso Number Sponsor- Percent- Number Sponsor- Percent- Number r- Percent- Number Sponsor- Percent- Number Sponsor- Percent- Private- Sector Public- Sector Full- Time, Full-Year of ship age of ship Age of ship age of ship age of ship age 64 21-64 21-64 21-64 All Workers participatin Workers Ages 21-- participatin Workers Ages participatin Workers Ages participat Workers Ages workers rate g workers rate g workers rate g workers rate ing workers rate participating Sponso Number Sponsor- Percent- Number Sponsor- Percent- Number r- Percent- Number Sponsor- Percent- Number Sponsor- Percent- (000s) (%) (%) (000s) (%) (%) (000s) (%) (%) (000s) (%) (%) (000s) (%) (%) of ship age of ship Age of ship age of ship age of ship age Annual Earnings participatin participatin participatin participat Less than $5,000 15,666 21.3 5.8 7,970 24.3 7.4 6,997 21.0 6.3 972 48.5 15.2 353 32.2 20.6 workers rate g workers rate g workers rate g workers rate ing workers rate participating $5,000–$9,999 12,103 24.6 8.7 8,370 26.7 9.9 7,421 22.6 7.9 949 58.5 25.8 941 21.5 11.4 (000s) (%) (%) (000s) (%) (%) (000s) (%) (%) (000s) (%) (%) (000s) (%) (%) $10,000–$14,999 12,590 28.7 14.8 9,785 30.6 16.2 8,656 25.7 12.6 1,129 68.1 44.4 3,111 29.2 18.3 Age $15,000–$19,999 11,642 34.6 21.9 9,895 36.9 23.7 8,862 32.8 20.1 1,033 72.4 54.7 5,642 35.7 24.1 20 or younger 8,963 23.0% 4.1% $20,000–$29,999 23,961 45.5 34.0 21,184 48.6 36.6 18,423 44.4 31.8 2,761 77.1 68.5 15,465 49.6 38.2 21–24 12,061 35.0 17.7 11,816 35.6% 18.0% 10,582 32.5% 15.9% 1,235 62.0% 35.7% 4,944 44.7% 30.6% $30,000–$39,999 20,466 56.0 47.5 18,567 59.0 50.1 15,334 53.9 44.2 3,233 83.4 78.1 15,553 60.4 51.7 25–34 33,177 47.8 36.5 31,792 49.6 37.9 27,394 45.1 33.2 4,397 77.4 67.2 21,258 57.1 47.1 $40,000–$49,999 15,429 65.0 58.6 14,302 67.7 61.0 11,085 62.2 54.4 3,217 86.7 83.8 12,578 68.1 61.9 35–44 32,926 53.4 45.2 30,854 56.5 47.9 25,961 51.4 42.7 4,893 83.5 75.7 22,764 62.8 55.7 $50,000 or more 42,342 70.0 65.4 38,769 73.2 68.5 30,815 69.0 63.7 7,954 89.5 87.0 35,396 73.9 69.5 45–54 35,666 55.6 49.1 32,895 59.5 52.5 26,901 54.0 46.7 5,993 83.7 78.7 24,810 65.4 60.0 Occupation 55–64 23,754 56.6 49.2 21,485 61.3 53.4 16,756 54.7 46.5 4,729 84.5 77.8 15,262 66.6 61.2 Management, business, and 65 or older 7,652 39.2 29.9 financial 22,111 57.5 51.3 18,732 64.0 57.4 16,325 60.8 53.9 2,406 85.6 81.1 15,818 66.8 61.4 Gender Professional and related 32,925 65.6 56.2 29,053 69.7 60.4 19,780 63.1 53.5 9,273 83.8 75.1 21,047 74.9 68.3 Male 81,218 48.3 39.4 67,070 53.7 45.0 58,085 49.3 40.4 8,985 82.3 74.1 49,253 60.1 53.2 Service 28,025 32.5 21.7 21,469 37.4 26.5 17,262 28.1 17.0 4,207 75.4 65.6 12,161 47.5 38.4 Female 72,981 50.3 39.7 61,771 55.2 44.6 49,509 48.9 37.8 12,262 80.6 72.1 39,785 63.9 55.8 Sales and related 17,445 39.3 27.4 13,332 44.8 33.3 13,141 44.3 32.9 191 74.2 61.1 8,748 51.7 43.5 Race/Ethnicity Office and admin. support 19,865 57.1 44.6 17,575 59.8 47.8 14,471 55.3 42.5 3,103 80.8 72.6 12,409 66.9 57.8 White 106,261 52.9 43.1 87,429 59.0 49.4 72,550 54.0 44.0 14,879 83.8 75.5 60,979 66.2 59.1 Farming, fishing, and forestry 1,335 15.9 11.6 987 17.7 13.7 942 15.3 11.3 45 68.4 64.9 501 25.6 21.2 Black 16,205 49.0 37.9 14,202 52.5 41.6 11,311 46.9 35.2 2,891 74.6 66.7 9,835 60.5 51.6 Construction and extraction 9,045 32.0 26.6 7,274 37.8 31.8 6,752 34.1 28.2 522 85.3 78.1 4,016 44.8 39.8 Hispanic 21,760 32.6 23.9 18,610 35.4 26.7 16,417 30.2 21.4 2,193 74.7 66.6 12,149 42.8 34.9 Installation, maintenance, repair 5,372 51.4 43.5 4,681 55.7 47.6 4,269 52.6 44.4 411 87.8 81.0 3,715 61.5 54.4 Other 9,973 47.8 38.3 8,600 51.9 42.4 7,316 47.1 38.0 1,284 78.7 67.7 6,076 58.2 50.6 Production 8,737 50.7 40.7 7,963 53.1 43.1 7,647 52.1 42.0 316 77.7 70.5 5,584 57.1 49.1 Education Transportation/material moving 9,338 43.6 31.9 7,778 47.0 35.8 7,004 44.4 33.2 774 70.6 59.4 5,039 53.6 44.3 No high school diploma 16,163 22.3 12.7 10,818 25.4 17.0 10,275 23.5 15.2 543 62.2 51.0 6,210 31.7 23.3 Employer Size High school diploma 44,259 43.8 33.6 36,930 48.3 37.8 32,627 44.5 33.8 4,303 77.2 68.5 24,863 55.4 46.4 Fewer than 10 employees 32,073 13.7 11.0 19,404 17.0 13.6 19,404 17.0 13.6 11,226 21.4 18.3 Some college 44,998 49.8 38.4 37,791 54.8 43.6 32,041 50.4 38.9 5,750 79.0 69.4 25,069 63.2 54.9 10–24 employees 14,690 28.0 21.6 12,698 29.7 23.6 12,698 29.7 23.6 8,067 35.4 30.4 Bachelor's degree 32,000 59.7 51.4 28,844 63.3 54.8 22,968 58.2 49.8 5,875 83.2 74.5 21,550 68.4 62.4 25–99 employees 17,645 41.6 31.8 15,605 43.7 34.2 15,605 43.7 34.2 10,832 49.7 41.5 Graduate/proven. degree 16,780 68.3 61.6 14,459 73.3 66.6 9,684 66.2 59.1 4,775 87.7 81.7 11,347 76.7 72.4 100–499 employees 16,413 53.4 41.6 14,955 55.2 43.8 14,955 55.2 43.8 10,537 61.3 51.8 Marital Status 500–999 employees 6,492 62.8 50.4 5,936 64.6 53.1 5,936 64.6 53.1 4,325 71.2 61.9 Married 85,564 54.4 46.9 74,636 58.9 51.0 61,234 53.3 45.2 13,402 84.1 77.7 54,553 64.7 58.7 1,000 or more employees 43,644 66.1 51.3 38,997 68.9 55.2 38,997 68.9 55.2 28,125 75.4 65.1 Widowed 3,182 47.4 36.7 1,959 56.8 45.5 1,586 50.5 39.2 373 83.7 72.3 1,299 64.8 56.6 Public sector 23,243 79.2 69.7 21,248 81.3 72.9 21,248 81.3 72.9 15,926 85.6 81.6 Divorced 16,367 50.6 40.3 14,080 55.0 44.2 11,676 49.7 37.9 2,404 80.9 75.0 10,054 61.6 52.4 Sector/Industry Separated 3,778 42.5 32.9 3,382 45.5 35.5 2,905 40.6 30.5 477 75.5 66.2 2,143 53.5 45.0 Private sector 130,956 44.0 34.2 107,594 49.1 39.2 107,594 49.1 39.2 73,113 56.6 48.5 Never married 45,308 39.9 26.1 34,784 45.5 32.4 30,192 41.2 28.4 4,592 73.8 58.6 20,989 55.0 44.8 agriculture, mining, and Work Status construction 14,127 27.9 23.1 10,566 34.2 28.6 10,566 34.2 28.6 6,173 39.9 34.9 Full-time, full-year 98,539 58.3 51.1 89,038 61.8 54.4 73,113 56.6 48.5 15,926 85.6 81.6 89,038 61.8 54.4 manufacturing 15,123 61.8 53.1 14,025 64.1 55.3 14,025 64.1 55.3 10,816 68.0 60.7 Full-time, part-year 22,046 39.9 27.3 18,611 42.9 29.8 16,099 37.8 25.0 2,512 75.8 60.5 wholesale and retail trade 22,042 45.1 30.3 17,913 49.0 35.0 17,913 49.0 35.0 11,875 55.8 44.9 Part-time, full-year 17,440 32.1 17.9 11,888 37.4 22.2 10,608 33.8 19.9 1,280 66.6 41.7 transportation, utilities, Part-time, part-year 16,174 25.4 9.0 9,305 28.8 11.5 7,775 23.0 8.1 1,530 58.2 29.0 information, and financial 19,411 54.2 45.8 16,919 59.0 50.4 16,919 59.0 50.4 13,090 64.3 57.4 professional services 38,996 47.9 38.0 32,773 52.7 42.3 32,773 52.7 42.3 22,561 60.1 51.2 (cont'd.) other services 21,258 24.2 14.7 15,397 27.4 18.0 15,397 27.4 18.0 8,598 34.5 26.8 Public sector 23,243 79.2 69.7 21,248 81.3 72.9 21,248 81.3 72.9 15,926 85.6 81.6 Source: Employee Benefit Research Institute estimates from the 2010 March Current Population Survey.

Volume T-166

Pages 34

EBRI Testimony

Oct 7, 2010

Jack VanDerhei

Financial Wellbeing Retirement