ƥ The State of US Retirement Plans

ƥ Dallas L. Salisbury
ƥ President and CEO
ƥ Employee Benefit Research Institute
ƥ Maxwell MPA, 1973 and ABD, 1976
ƥ www.ebri.org
ƥ NPF September 18, 2007
c
 EBRI

ƥ Founded 1978
ƥ Current Team of 15 and Budget of $4.5
million
ƥ No Change of Mission Since 1978
ƥ On Sixth Generation of Representatives
from Outside Organizations
ƥ www.ebri.org and www.choosetosave.org


 EBRI Mission: To contribute to, to encourage,
and to enhance the development of sound employee
benefit programs and sound public policy through
objective research and education.

EBRI Methods: Research, Publications,

Education, Web Tools and Dissemination, No Position
Advocacy or Solutions Advocacy ± A Neutral Source
for All Sides of a Debate ± ³Just the Facts´

'
 The EBRI Difference
ƥ Research and analysis without position
advocacy.
ƥ Primary focus on universe and national
data.
ƥ Use of results by organizations and
individuals on all sides of issues
because of non-
non-advocacy approach.
ƥ Broad
Broad--based financial support from
organizations across the spectrum of
interests/ideologies and all sectors.
þ
 Agenda

ƥ Public Policy Influence

ƥ Demographic Influence
ƥ Employer Directions
ƥ Implications
ƥ Can DC Plans Provide Adequacy?

ß
Public Policy Influence

o PPA of 2006 and shift from government desire for DB plans to neutral
o
o Government focus on the individual
à ³ownership society´

à SSA IA¶s

à ³universal´ IRA

à PPA automation of plans

±
 Demographic Influences

h
Population 2000

¢
Population 2100


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 Percentage of Older Long Tenure
Workers Drops From 23% to 19% -
Gold Watches?
Percentage of All Wage & Salary Workers w ith 25+ Years of Tenure,
by Cohort Ages 45+ (1983--2002)

25
23.3
22.7

20.5
20.2 20.1 20.1
20 19.9 19.8
19.4
18.4 18.8 18.7
17.5
17.0

15
Percentage

Ages 45 to 54
12.9 12.6 Ages 55 to 59
11.9 11.6 11.7
11.3 11.4 Ages 60 to 64
10

0
1983 1987 1991 1996 1998 2000 2002
Source: EBRI tabulations of data from the Bureau of Labor Statistics



 `
evity Builds
`
evity

Male Age 85 c 92
cc

Age 65
50% chance 25% chance

Fem le Age 
88 c 94 cc

Age 65
50% chance 25% chance

Couple Age 
c 92
97 cc

(Both Age 65)

50% chance 25% chance

of one surv vor of one surv vor

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Employer Directions

13
 Health Spending Up; Retirement
Contributions Down
 

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     National Income and Product
Accounts of the United States

14
 w gh Job Turnover Econom ± Part c pat on Gaps

1 No p an
ava
ab
e
Percent of Tota

Not
part c pat ng

3
Part c pat ng
1

<1 '1 - ' - '3 - ' - ' + a

1 . . 3 . .

Earn ngs (x$1, )

Emp
oyee Benef t Research Inst tute



 Pension Participation Rates
by Firm Size
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h Source: March 200± Current Population Survey tabulations.
 

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 Labor Market Trends
Mean Future Decline
Class Ret Med Dental Vision Drug
White C 61 58 42 24 52
Blue C 51 61 39 25 56
Service 22 27 17 12 25
FullTime 60 66 45 27 59
PartT 19 12 9 6 11
Union 85 83 67 51 77
Non--U
Non 46 49 33 19 44
1-99 37 43 24 14 37
100+ 67 65 51 32 61
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Individual Implications

1ð
 And increased health care costs have caused
many to have financial difficulties.

Percentage Say ng Yes

Decrease your contr but ons to

45
other sav ngs

wave d ff culty pay ng for other b lls 4

Use up all or most of your sav ngs 29

Decrease your contr but ons to a

ret rement plan such as a 40 (k) 26
40 (b) or 457 plan or an IRA

wave d ff culty pay ng for bas c

24
necess t es l ke food heat and hous ng

Borrow money 8

'
c
 Fixed 4.43% of Pay Plan Cost -
Entry age 30 ƛThe Price of pay
Equity
B C C t ff y C p
±

±















B C 
RR C 
RR C

RR

  Rp  t

'

 wow much do you need to save if
you work until 67?
ƥ Starting at age 20 
and saving c
consistently for 47 
years will support a c
long life at rates some  c
are now saving, c
c
without annuity c


purchase.

c
ƥ Waiting until 40 or 50
moves the numbers c
up.  c  c 
cc
ƥ A life income annuity
' helps keep them
p
     

' lower as you only

 $$    
% 
&!
‡ Definition of basic expenses
± basic living expenses and any expense associated with an
episode of care in a nursing home or from a home health
care provider
‡ Next two slides shows results by:
± Birth cohort
± Income quartile
‡ Function of all future years of work, not just current
year or year prior to retirement
‡ We assume individuals want a better than ±0/±0 chance of
having ³sufficient´ retirement income to cover basic expenses
± Model both a ¢± and ð0 percent confidence level
23
 Median Percentage of Compensation That Must Be Saved Each
Year Until Retirement For a ¢± Confidence Level For Funds To
Cover Basic Expenses* When Combined With Simulated Retirement
Wealth by Birth Cohort and Income Quartile
(Limited to 2± ; assumes current Social Security and housing equity
is never liquidated) Income
quartile


c





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c 

c 

* Basic expenses = basic living expenses and any expense associated with
an episode of care in a nursing home or from a home health care provider
Source: EBRI-ERF Retirement Security Projection Model. 24
 Median Percentage of Compensation That Must Be Saved Each Year
Until Retirement For a ð0 Confidence Level For Funds To Cover
Basic Expenses* When Combined With Simulated Retirement Wealth
by Birth Cohort and Income Quartile
(Limited to 2± ; assumes current Social Security and housing equity
is never liquidated) Income
quartile


c





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c
     
 
 
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c 

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* Basic expenses = basic living expenses and any expense associated with
an episode of care in a nursing home or from a home health care provider
Source: EBRI-ERF Retirement Security Projection Model. 2±
 Percent of 65+ With Pension
and Annuity Income 1988-
1988-2002
c


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Source: EBRI CPS tabulations, EBRI Notes v24n12, 12/03

' 13 are from Public Employers
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 SSA Income Dominates
Sources of retiree income by ae
(2004)
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 SSA Grows in Importance With Age ƛ Income from Work
Persists
Percentage of total income by age for the retired
population (2004)

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 Public Policy Implications
ƥ Social Security Becomes More Important Not Less ƛ
Even for the wavesƞ
ƥ Medicare Becomes Primary Source for the wavesƞ
ƥ Growing Gap Between Public Worker (retiree) and
Private Worker (retiree) Benefits
ƥ As Employer Provision/Payment Declines Pressure on/for
Government Programs Grows
ƥ Re--Regulation? New Paternalism? National wealth
Re
Insurance? Mandated Savings? Trade Reversal?

'
 Can DC Plans Provide Adequacy?

þ
c
 Average Participant Before-Tax Contribution Rates by
Age and Salary, 1ððð
(percent of salary)

2 0 0 0 0 to 0 000 > 0 0 0 0 to 0 000 > 0 0 0 0 to 0 000

20s 0s 0s
Part c p an t e
Source: EBRI/ICI Part c pant-D rected Ret rement Plan Data Collect on Project (see wolden and 31
VanDerhe (October 200 ))
 Average Account Balance Among
401(k) Participants from Year-
Year-End 1999
Through Year-
Year-End 2006 by Age
È 
È 
È

È 

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Source: "ßc+,- Plan Asset Allocation, Account Balances, and Loan Activity in
'cch,³ August 'cc
þ
'
 wereƞs the retirement income the
current DC system may replace by the
2030ƞsƦfor continuous participants

56%
4 %
%
2 %

Lowest Quartile ' Quartile þ Highest

Income Income

All Eligible Wor,ers +Without Automatic Enrollment-

þ
þ
Sources: Tabulations from Holden and VanDerhei +'cc
-
 were is what miht be achieved -- with
two key reforms ƛ auto-
auto-enrollment and
lifecycle funds
6 %
55% 58% 7%
52%
5%
22%
29%
56%
4 %
%
2 %

Lowest Quartile ' Quartile þ Highest

Income Income
Increase from Automatic Enrollment +h Contribution Rate; Life-Cycle Fund-
All Eligible Wor,ers +Without Automatic Enrollment-
þ
ß
Sources: Tabulations from Holden and VanDerhei +'cc
-
 Combined with SSA-
SSA- Continuous
Participation and Preservation
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 Median Replacement Rates for 401(k) Accumulations* for
Participants Reaching Age 6± Between 2030 and 203ð
!      

Basel ne on t al ays have a 40 (k)

0 40
4
0 4
4

4
Income Quartile at Age h

UThe40 (k) accumulat on ncludes 40 (k) balances at employer(s) and rollover IRA balances 36
Source: Tabulat ons from the EBRI/ICI 40 (k) Accumulat on Project on Model
 Drivers of Gridlock
ƥ Concern over future funding and benefit levels of Social Security and
Medicare and Medicaid LTC
ƥ Long term fiscal imbalance and its implications for tax levels and for tax
incentives for health care and retirement savings
ƥ Decline of employer provision of retiree life income annuity streams and
retiree health
ƥ Implications for competitiveness of mandates on employers
ƥ Implications for economic growth and consumer spending of mandates on
employees
ƥ Lack of individual understanding of the magnitude of the savings needed
for retirement and the resulting lack of preparation
ƥ Absence of employee/employer/voter support for:
ƛ Mandated savings
ƛ Mandated life income streams
ƛ Increased taxes on Ơme/usơ to pay for programs (existing or new)
ƥ Absence of public trust in Ơgovernmentơ or Ơspecial interestsơ to be honest

þ
hat Does The Future wold?

Applies to firms, families, nations««.

*(
www.ebri.org and www.choosetosave.org

Dallas L. Salisbury
President and CEO
Employee Benefit Research Institute
www.ebri.org and www.choosetosave.org