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A non-profit, non-advocacy, fact tank

The Private Pension Story


Dallas Salisbury
Employee Benefit Research Institute
salisbury@ebri.org
202-775-6322

Employee Benefit Research Institute 201


2015

Background and Caveats


The Employee Benefit Research Institute is a nonprofit, nonpartisan,
education and research organization established in Washington, DC,
in 1978.
EBRI is a fact tank that does not take pro or con policy positions, nor
does it lobby, or make specific policy recommendations.
The views expressed in this presentation are solely those of Dallas
Salisbury and should not be attributed to the Employee Benefit
Research Institute (EBRI), the EBRI Education and Research Fund,
any of its programs, officers, trustees, sponsors, or other staff.

Employee Benefit Research Institute 201


2015

THE MOST COMMON


REQUEST WE GET:

GIVE ME ONE NUMBER


FOR..

Employee Benefit Research Institute 201


2015

Employee Benefit Research Institute 201


2015

The large majority say the benefits package is an


important factor in their decision to accept a job
When choosing a job, how important are the benefits that a potential employer offers in your decision to accept or
reject the job? (2014 n=1,517)

2013
45%

33%

2014

44%

32%

18%

19%

2%
Extremely important

Very important

Somewhat
important

4%
1%

1%

Not too important Not at all important

Source: Employee Benefit Research Institute and Greenwald & Associates, 2013-2014 Health and Voluntary Workplace Benefits
Surveys.

2 in 10 employees report having accepted or left jobs


because of the benefits package offered
Have you ever accepted, quit, or changed jobs because of the benefits, other than salary or wage level, that an
employer offered or failed to offer? (2014 n=1,517)

Percentage Yes
29%
25%

25%
21%

1999

2001

2013

2014

Source: Employee Benefit Research Institute, 1999 and 2001 Value of Benefits Surveys; Employee Benefit Research Institute and
Greenwald & Associates, 2013-2014 Health and Voluntary Workplace Benefits Surveys.

Macro: Retirement Assets (Trillions of Dollars)

Employee Benefit Research Institute 201


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Distribution of Retirement Income Plus Social Security Income, by Income Quartile and Source of
Retirement Income, Traditional and New Measures of Income in the Current Population Survey,
Individuals Ages 65 or Older, 2013
100%
90%
80%
70%
60%
50%

97.0%

97.0%

93.5%

93.1%

40%
71.9%

68.4%

30%
45.7%

20%

41.1%

10%
0%
Traditional

New

Traditional

1st Quartile

New

Traditional

2nd Quartile
Social Security

Company

State

New

Traditional

3rd Quartile
Federal

IRA, 401(k)

New

4th Quartile

Annuities

Other

Source: Employee Benefit Research Institute estimates of the March 2014 Current Population Survey
(Traditional and New Income Measures).
Employee Benefit Research Institute 2015

Percentage of Individuals Age 65 or Older With Income Who Have More


Than 90% of Their Total Income From Social Security Under the
Traditional and New Measures of Income in the Current Population
Survey, by Income Quartile, 2013
80%
71.0%
70%

Traditional Measure
68.3%

New Measure
60.7% 61.4%

60%
50%
40%

36.4% 35.7%

30%
20%
13.5%

11.9%

10%
0.5%

1.2%

0%
All

1st Quartile

2nd Quartile

3rd Quartile

4th Quartile

Source: Employee Benefit Research Institute estimates of the March 2014 Current Population Survey
(Traditional and New Income Measures).
Employee Benefit Research Institute 201
2015

Aggregate Retirement Income* for Individuals Ages 65 or Older Under the


Traditional and New Measures of Income in the Current Population Survey,
by Income Quartile, 2013
(in billions of dollars)
$350

$324.42

Traditional Measure
New Measure

$300
$253.57

$250

$236.14

$200

$177.96

$150
$100
$63.22

$74.91

$50
$2.32

$2.29

$10.07 $11.08

$0
All

1st Quartile

2nd Quartile

3rd Quartile

4th Quartile

*Retirement Income includes pension income from public and private sector employers, draws from IRAs and 401 (k)
type plans, annuities and paid up life insurance, and other income for retirement.
Source: Employee Benefit Research Institute estimates of the March 2014 Current Population Survey
(Traditional and New Income Measures).
Employee Benefit Research Institute 201
2015

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Aggregate IRA, DC Income for Individuals Ages 65 or Older Under the


Traditional and New Measures of Income in the Current Population Survey,
by Income Quartile, 2013
(in billions of dollars)
$60.00
Traditional Measure

New Measure

$49.56

$50.00

$40.00
$34.67

$30.00

$20.00
$14.08
$12.12

$12.30

$10.00
$0.15

$0.58

$2.18
$0.21

$1.42

$0.00
All

1st Quartile

2nd Quartile

3rd Quartile

4th Quartile

Source: Employee Benefit Research Institute estimates of the March 2014 Current Population Survey
(Traditional and New Income Measures).
Employee Benefit Research Institute 201
2015

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Percentage of Individuals Age 65 or Older With IRA, DC Income Under the


Traditional and New Measures of Income in the Current Population
Survey, by Income Quartile, 2013
20%

Traditional Measure
18%

17.8%

New Measure

16%

15.1%

14%
12%
10.3%
10%
8%

6.2%
6%
4.0%

4%
2%

2.1%

1.7%
0.4%

1.7%
0.5%

0%
All

1st Quartile

2nd Quartile

3rd Quartile

4th Quartile

Source: Employee Benefit Research Institute estimates of the March 2014 Current Population Survey
(Traditional and New Income Measures).
Employee Benefit Research Institute 201
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WHAT DOES THE VOLUNTARY


SYSTEM LOOK LIKE BEFORE
ERISA, THEN, NOW, AND IN
BETWEEN

IS THE V.S. MORE SUCCESSFUL


TODAY THAN IN 1975?

Employee Benefit Research Institute 201


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Employee Benefit Research Institute 201


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Employee Benefit Research Institute 201


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% Sponsorship, Participation and Vesting


1940 2012
70
60
50
40
30
20
10
0
1940

1950

1960

1970

Sponsorship

1974

1979

1988

Participation %

1998

2009

2012

Vested %

U.S. Bureau of the Census, various datasets, 19402013.

Employee Benefit Research Institute 201


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Employee Benefit Research Institute 201


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Employee Benefit Research Institute 201


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Percentage of Various Work Forces Who Participated


in an Employment-Based Retirement Plan, 19872011
80%
75%
75.6%

76.1%
74.5%

76.7%

77.2% 77.3%

75.8%

74.8%

75.4%

74.5%

70%

72.9%

71.9%

73.2%

54.4%

54.5%

53.7%

44.8%

44.9%

44.6%

39.6%

39.8%

65%
60%

58.4%

60.3%

59.5%

57.1%

57.7% 57.9%

55%
50%
46.1%

47.4%

46.2%

47.8%

51.0%

51.6%

46.1%

46.7%

48.4%

54.8%

55.3%

47.0%

47.4%

43.2%

45%
41.3%
39.8%

40.1%

40%

35%

59.8%

42.2%
43.6%

42.0%

41.0%
37.6%
1987

39.0%

39.0%

1990

1993

1995

1998

41.7%

44.4%

2000

2003

42.0%

40.9%

41.5%

2005

2007

54.8%

46.0%
40.7%
40.4%
2008

39.2%
2009

39.2%

39.5% 39.7%
2010

All Workers

All Wage and Salary Workers Ages 2164

Full-Time, Full-Year Wage and Salary Workers Ages 2164

Private-Sector Wage and Salary Workers Ages 2164

2011

Public-Sector Wage and Salary Workers Ages 2164

Source: Employee Benefit Research Institute estimates from the 19882012 March Current Population Surveys.

Employee Benefit Research Institute 201


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$35,803

$20,257

$17,794

$15,711

$15,471

$15,190

$11,471

$15,000

$12,796

$28,457

$20,000

$11,344

$25,000

$23,785

$30,000

$25,296

$35,000

$32,647

$27,987

$40,000

$32,179

$45,000

$40,996

Median IRA Account Balances, Full Samples, by IRA Type, 2010-2013

$10,000
$5,000
$0
All
Source: EBRI IRA Database.

Traditional

2010

2011

Roth

2012

SEP/SIMPLE

2013

Employee Benefit Research Institute 201


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401(k) Account Balances Increase With Participant Age


and Tenure
Average 401(k) account balance, by age and tenure, 2013
$300,000

$250,000
02
>25
>510
>1020
>2030
>30

$200,000
$150,000
$100,000
$50,000
$0
20s

30s

40s

50s

60s

Source: VanDerhei, J. , Holden, S., Alonso, L., Bass, S., Pino, A. (December
2014). 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in
2013 December 2014, EBRI Issue Brief
Employee Benefit Research Institute 201
2015

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Quintiles of 2010 year end combined 401(k) and IRA


balances for ages 60-65 by tenure category (for 401(k)
participants with at least one IRA)
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000

$100,000
$-

10-20
20-30
>30

p20
$46,831
$77,049
$121,739

p40
$111,094
$180,400
$260,186

p60
$206,883
$318,403
$437,827

p80
$370,688
$533,853
$735,813

Employee Benefit Research Institute 201


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New Retirement Data Warehouse:


o

Flexibility, efficiency & growth: data types, sources, formats

DC Retirement Plan / IRA Databases:


o EOY 2000 401k:
35K plans, 11.8mm participants, $580 billion in assets
o EOY 2013 401k:
73k plans, 26.4mm participants, $1.9 trillion in assets
o EOY 2013 DC estimate:
91k plans, 36mm participants, $2.3 trillion in assets *
o EOY 2013 IRA:
20.7mm individuals, 26mm accounts, $2.5 trillion in assets
o EOY 2013 Total Retirement Database:
56.7mm individuals, $4.8 trillion in assets, 26mm ira
accounts, 91k DC plans
* includes inactive accounts

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Employee Benefit Research Institute 2015

2014 Baseline Retirement Readiness Ratings from Ages 35-64:


With and Without Long-Term Care Costs
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%

35-39
Including LTC costs
56.7%
Assuming no LTC costs 79.6%

40-44
58.8%
79.3%

45-49
58.9%
76.6%

50-54
58.6%
75.2%

55-59
57.0%
72.7%

60-64
56.5%
72.1%

Source: EBRI Retirement Security Projection Model


Versions 2103a and 2163a.
Employee Benefit Research Institute 201
2015

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Percentage of all* Boomer and Gen X households with


adequate retirement income depends on assumptions re
who is responsible for long-term care costs
2014 Retirement Readiness Ratings With and
Without Nursing Home and Home Health Costs, by
Age Cohort
Percentage of 100.0%
Simulated
80.0%
Life-Paths
60.0%
That
Will Not Run 40.0%
20.0%
Short of
Money
0.0%
in Retirement
Without LTC
With LTC

Early
Boomers
71.9%
56.7%

Late
Boomers
75.6%
57.7%

Gen Xers
79.0%
58.5%

*NB: This includes all households regardless of eligibility for employer-sponsored retirement plans. See
subsequent slides for the impact of plan eligibility on retirement income adequacy.

Source: Jack VanDerhei, Why Does Retirement Readiness Vary: Results


from EBRIs 2014 Retirement Security Projection Model, The Journal of
25
Retirement (April 2014)
Employee Benefit Research Institute 201
2015

Employee Benefit Research Institute 2015

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Reduction in Average Retirement Savings Shortfalls by Age


from Introducing Automatic IRAs: 3 vs. 6 Percent of
Compensation
Assumes No Opt-out and 100 Percent Autocorrelation for
Employer Size
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%

4.0%
2.0%
0.0%
6 percent contribution
3 percent contribution

35-39
17.9%
10.6%

40-44
17.7%
9.9%

45-49
15.1%
7.9%

50-54
9.8%
5.1%

55-59
6.2%
3.1%

60-64
3.8%
1.8%

Source: EBRI Retirement Security Projection Model, version 2258.


Note: Husband's Employer Size is Used to Categorize Employer Size for Married HH

Employee Benefit Research Institute 2015

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Impact of Leakages for Automatic Enrollment Plans


Assuming No Participant Behavior Change for Participation,
Contribution or Asset Allocation
30.0%
Percentage of
those not
reaching the
threshold
replacement rate
when leakages
exist who would
reach an 80
percent real
replacement rate
if the leakages
were removed

25.0%

20.0%
15.0%
10.0%
5.0%
0.0%

Loan Defaults
Hardship WD w 6 mo
suspension
Cashouts
All

Lowest
income
quartile
4.2%

Second
income
quartile
3.3%

Third
income
quartile
4.0%

Highest
income
quartile
3.2%

8.0%

6.7%

4.3%

3.2%

20.0%
27.3%

15.9%
22.7%

12.7%
18.3%

10.3%
15.2%

The population simulated


consists of workers currently
ages 2529 who will have
more than 30 years of
simulated eligibility for
participation in a 401(k) plan.
Workers are assumed to
retire at age 65 and all 401(k)
balances are converted into a
real annuity at an annuity
purchase price of 18.62.
Plans are assumed to have
automatic escalation with a 1
percent of annual
compensation increase and 3
percent default contribution
rates.
Employees are assumed to
revert their level of
contributions to the default
rate when they participate in
a new plan and opt-out of
automatic escalation in
accordance with the
probabilities in VanDerhei
(September 2007)

Source: Jack VanDerhei, "The Impact of Leakages on 401(k)


Accumulations at Retirement Age" Testimony for the ERISA Advisory
Committee, June 17, 2014.
Employee Benefit Research Institute 201
2015

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Financial distress of Social Security


Impact of Pro-Rata Reductions in Social Security Retirement Benefits
(Starting in 2033) for Gen Xers on 2014 Retirement Readiness Ratings,TM
by Preretirement Wage Quartile
90%
80%
70%
60%
Percentage of Simulated
Life-Paths That
Will Not Run
Short of Money
in Retirement

50%
40%
30%
20%
10%
0%

Social Security Benefits Reduced


No Social Security Reduction

Lowest-Income Quartile
10.3%
20.9%

Second
45.5%
53.5%

Third
64.3%
70.1%

Highest-Income Quartile
79.6%
83.1%

Source: EBRI Retirement Security Projection Model Versions 1995 and 1997.
Note: The values in this figure represent the percentages of simulated life-paths that will not run short of money in retirement assuming that 100 percent
of simulated retirement expenses are paid. Additional information on the percentages that would be able to satisfy less stringent thresholds (viz., 80 and
90 percent of simulated expenses) is provided in Appendix B.

Source: Jack VanDerhei, Why Does Retirement Readiness Vary: Results


from EBRIs 2014 Retirement Security Projection Model, The Journal of
29
Retirement (April 2014)
Employee Benefit Research Institute 2015

2014 Retirement Savings Shortfalls* by Scenario (includes LTC


Costs)
Trillions of 2014 Dollars
Baseline

4.13

Baseline with universal IRA at 3 percent, no optout

Baseline with universal IRA at 6 percent , no optout

Baseline with universal IRA at 3 percent, 25% optout

Baseline with universal IRA at 3 percent, 50% optout

Baseline with universal IRA at 3 percent, 75% optout

3.86

3.64

3.93

4.00

4.06

Source: EBRI Retirement Security Projection Model, version 2258.


*Retirement Savings Shortfalls represent the present value (at age 65) of all simulated deficits in retirement for households where the
head of household is 35-64.

Employee Benefit Research Institute 2015

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OTHER ISSUES // COMMENTS // QUESTIONS

Employee Benefit Research Institute 2015

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EBRI : Just the Facts

www.ebri.org
www.choosetosave.org

Employee Benefit Research Institute 201


2015

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