Average 2019 Retirement Savings Shortfalls,* by 13 Age Cohort: Baseline vs. No IRA Rollovers L Doan elthe ays D ir for eou faults tst Ini an tia din l Plan g loan P s.art icipation $70,000 401(k) Cashout Leakage Estimates 18 $120 • • The Loan se d are efa d ults efioc nec d ua r wh s de eln a ys a p in la in n p itial art p ica ipan rticipat t borr ion ows a of one gain to five st his or yeah rs e.r sa vings account and 14 • Black and Hispanic workers have higher rates of loans and loan defaults than White workers. does not repay the loan. $60,000 About 12 percent of Black 401(k) plan participants borrowed money from their retirement • This is less common (relative to other leakage types) due to the ever-increasing prevalence of Workplac $100 e Retirement Account Leakage: By the Numbers accounts, compared with approximately 5 percent of Wh EBRI ite 2018 participants wh Aligh o t t (Poo PTsk ) 20 40 191(k) • a At uto yea -er n-rollm end 20 en19 t in , DC appro plx aim ns. ately 18 No partic pe urc lae r s nt tudy of a lh l 40 as b 1(ek) p en con artic duc ipan ted on ts wht oh we is tre yp eli e of le gible a for kage $50,000 15 9 loans. loa yet. n s had taken loans against their DC plan accounts. Boston Research Tech. 2013 $40,000 Leakage refers to the loss of retirement savings from workplace retirement accounts prior to $80 Alight (Assets) 2019 Few 401(k) Participants H ad Ou Van ts gutard an 20 d 18 ing 401(k) retirement used for non-retirement purposes and not subsequently saved in individual retirement Loans; Loans Tended to Be Small Hardship Withdrawals accounts. $30,000 Fidelity 2010 Selected years • Hardsh $6ip with 0 drawals are defined as withdrawals permitted by 401(k) plans in connection with Auto Portability Sim. 2017 certain unforeseen emergencies and other life events while still employed. $20,000 Percentage of Eligible 401(k) Participants With Types of Leakage 100% Outstanding 401(k) Loans $40 • There were $9 billion in hardship withdrawals in 2006, accounting for 8.3 percent of the total • Cashouts: $ 10 Pre ,000 retirement withdrawals from defined contribution (DC) retirement plans at or Loan as a Percentage of the Remaining 401(k) le 90a %kage (GAO analysis of DOL and Census Bureau data, 2009 - Estimated Total Amounts in Plan Account Balance after leaving employment and not rolled into an individual retirement account (IRA) or another 2008 dollars of leakage reported by 401(k) participants, ages 15 to 60). $- employer’s plan. $20 80% 35–39 40–44 45–49 50–54 55–59 60–64 2019 Without IRA 16 $71,786 $66,751 $63,145 $61,268 $61,666 $58,893 • The following hardship w GAO 20 ithdra 19 wal percentages were reported in Vanguard DC plans: 70% Rollovers • Hardship withdrawals: Withdrawals permitted by employment-based retirement plans due to 2019 $49,182 $44,052 $43,004 $42,681 $44,186 $44,055 $0 certain unforeseen emergencies or life events while still working. 60% 0 1 2 3 4 5 6 7 8 ® Sources: EBRI Retirement Security Projection Model versions 3501 and 3459. Millions of Participants 2017 2018 2019 2020 2021 * The Retirement Savings Shortfalls (RSS) are determined as a present value of retirement deficits at age 65. • Loan defaults: Borrowing against retirement accounts and not repaying the loan. 50% Hardship Withdrawals 1.80% 1.90% 2.30% 1.70% 2.10% Note: GAO uses the SIPP survey (SIPP 2014 Panel and Form 5500 Data), which only inquired about the lump-sum distributions that are greater than $1,000. Omission of this balance segment could explain the gap between the GAO’s and other studies estimates. • Most cashou Cts or on (6av 3 pe irusrc D ein stt) ribu are tion not s made for emergency purposes 5.. 70% The biggest culprit in 40% • Delays for initial plan participation: Delaying or not participating in retirement plans when 7 driving cashouts is “friction (unfamiliar rollover procedures by the participants).” eligible. 30% • SPWG also reported that between 33 percent and 47 percent of plan participants withdraw 21% 21% 21% 8 20% 19% 19% 19% 19% • DC participants with small balances were most likely to cash out. . According to Alight 18% 18% 18% 18% 318% 18% 17% 20% part or all of their retirement plan assets following a job change. 16% 16% 16% 15% 14% 13% 13% Solutions (2019), 80 percent of people with balances of le 12% ss than $1,0 12%00 cash out their entire 12% 11% Cashouts: 11% 10% • Individuals with at least one hardship withdrawal have an increase of $11,857 (36 percent) in 8% 9% 10% bala nce, compared with only 2 percent of people with balances of $250,000 or more. ®17 o The lost savings due to cashouts amount to between $60 billion and $105 billion retirement deficits based on RSPM. • Cashout leakage is defined as a lump-sum distribution received by an employee at job 4 (1.4 percent to 2.4 percent of total DC assets ) annually. 0% separation that is not rolled over into another employer-sponsored retirement account or an Percentage of Participants by Balance Size and Distribution Category 1996 2000 2002 2005 2007 2008 2009 2012 2013 2014 2015 2016 2017 2018 2019 Increase in "Adjusted" Retirement Deficits as a Result of IRA. o Approximately 4.5 to 6.4 million participants cash out annually, which is Remain in Plan Rollover Cashout Combination Type of Leakage for the Intermediate Assumptions approx 1imately 6.5 percent to 9.5 percent of 401(k) plan participants. • Vanguard (2022) reported the following immediate lump-sum cashout with participants who $250,000+ 37% 44% 2% 17% Dollar-Value Percentage Increase Relative to Current Average Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project term Typ in ea o ted em f Leakploy age ment in the years below: ® 5 • Based on EBRI’s Retirement Security Projection Model (RSPM), it is estimated that the Increase Retirement Deficit • The average unpaid 401(k) loan balance was $7,142 among the participants with outstanding $100,000-$249,999 28% 47% 5% 19% baseline average retirement deficit for the 35–64 age cohort of $49,182 would increase by At Least One Loan 10 loans. $2,522 8% neD arly ha efaultlf (46 percent) to $71,786 in the year 2019, if all workers cash out their DC account 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 $50,000-$99,999 24% 45% 12% 19% bala Atn Lceeass a t t Ojob ne H ch ara dn sge hip . (See the figure below for the average 2019 retirement savings • Loan defaults amounted to $25 billion in 2006, accounting for 23.1 percent of the total Percentage of Participants $11,857 36% 6 11 Withdrawal shortfall differences by age cohort. ) leakage. () Choosing Lump-Sum 29% 28% 28% 28% 30% 30% 33% 34% 31% 29% $25,000-$49,999 22% 39% 22% 17% Cashout At Least One Cashout $17,537 53% 12 • Deloitte reported that although many participants repay their loans as intended, around 10 $10,000-$24,999 18% 31% 37% 13% per Ac lle T nh t rof loa ee Son us d rcee sfa ou f lt each year. Among those participants who defaulted on their loans, 2 $24,848 75% • The Savings Preservation Working Group (SPWG) conducted a summary of cashouts across about Leak 66 ag e per at c Leen at sof t Othe ncem also cashed out the entire account balance. $5,000-$9,999 16% 24% 51% 9% multiple studies by several large recordkeepers. (The following chart from SPWG shows the variation between these studies; some are participant weighted, while others are asset • Among participants terminating employment with outstanding loans, 86 percent failed to repay 13 Lu, T., $1 Mit ,00 c0-$4,9 hell, O. 99 S., Utkus, S. P., & Young, J. A. (2017). Borrowing from the future? 401 (K) plan loans and loan 10% 21% 62% 6% weighted.) defaults. National Tax Journal, 70(1), 77-109. 9 Holden, Sarah, Steven Bass, and Craig Copeland, “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in <$1,000 6% 11% 80% 3% 3 14 2019 Sa Fevllow ,ings P ” EB es, Ma RI re Ise sstrue tv, aa tB ion Wor nd rieK f,a no. ty kW ing 55 ille 7. G m roup in, “ The 2019 Re . tirement Breach in Defined Contribution Plans,” Hello Wallet, January 2013. 10 4 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% I I CbIid : Qua . rterly Retirement Market Data, "Quarterly Retirement Market Data". Investment Company Institute, 2022, 15 ht tC pha s:/r/ww les Sc w.ic hw i.or ab g(/r 20 e21 sea ), rc “h N/s ew ta tA sr/r ieelt -ir Sc ehw mea nt b. B Ala cc ce k ss Inv ede st 28 or Oc Sur t 20 ve22 y Show . s Black Americans Continue to Trail Their 11 GAO analysis of DOL and Census Bureau data, 2009 - Estimated Total Amounts in (2008 dollars) of Leakage White Counterparts in Building Wealth,” https://www.aboutschwab.com/ariel-schwab-black-investor-survey-2021. 5 1 7 ® Re C Using Va p or or ngua m te ie RSP drr , d bW yM ( 20 a 40 r, r22 1( eEn J B k ), ) RI ., “PH a e “ow r E st tlim ic im ipa Aina a m tnt e ets t ring s, A icha a Fr g Sa te ic ts 15 t v he te ion a s.” ago Re gnd r60 e trgL i.e a ev ta e ek d rs in A e 13 tir eO m m ce teob nt ric ed are ’ s D 20 fic22 it e fin i, s $3.8 fr ed om C ont 3 trrill ibut ion f ion Sys or U.S. tem hous ,” Be ost hold on s he Resea aderd ch by 16 ht G those r tVa oup ps:/ ngua , b/ie A ns tp w rrtd il 25, 201 e it e ut (20 n th iona 22 e)l.v .a 3. g ae ngua s of r35 d.c a om nd /c 64 ont . ent/dam/inst/vanguard-has/insights-pdfs/22_TL_HAS_FullReport_2022.pdf. 12 Deloitte, “Loan leakage: How can w e keep loan defaults from draining $2 trillion from America’s 401(k) 18 8 2 6 17 a c E Sa A c E C m light ount m op vp ings P p loy eloy la s? 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I10 tss ina s , - ue A no. tion b B B 97 r36 ie /0 e f3. , ha 0 v 00 ol. vi4 or -1, a , t20 tOc ac 08 thm ob –2017 e ent r 29 -1.p , , Rob 20 df19 . A.u stin, Anthony DePalma, and MacKenzie Lucas. Billians of Dollars