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Wednesday, December 15, 2010
Monday, December 13, 2010
EBRI: Job Tenure Ticks Up, Gender Gap Disappearing
The median length of time that full-time workers stay in their jobs ticked up slightly in 2010, to just over five years, continuing a slow increase in job tenure that began in 2004, according to a new report in the December 2010 EBRI Notes, by the nonpartisan Employee Benefit Research Institute (EBRI).
However, the EBRI analysis shows there are significantly different long-term trends by type of worker. For instance, job tenure for men has been falling since 1983, while women’s tenure has been rising over that period, to the point where the once-big gender gap in job tenure has almost closed. Because women’s tenure has been increasing while men’s tenure has been falling, the overall job tenure rate has been relatively stable.
EBRI also found that older workers appear to be staying in their jobs longer. But overall, the results show that the American work force over the past three decades has always had a high level of turnover—and probably will in the future as well.
“For the great majority of American workers, so-called ‘career jobs’ never existed, and they certainly do not exist today,” said Craig Copeland, EBRI senior research associate, and author of the study. “A distinct minority of workers have ever spent their entire working career at just one employer.”
The findings are published in the December EBRI Notes, “Job Tenure Trends, 1983–2010,” and are based on the latest data from the U.S. Census Bureau’s Current Population Survey.
The full report is online here. The press release is online here.
Media coverage:
Forbes
Kansas City Star
However, the EBRI analysis shows there are significantly different long-term trends by type of worker. For instance, job tenure for men has been falling since 1983, while women’s tenure has been rising over that period, to the point where the once-big gender gap in job tenure has almost closed. Because women’s tenure has been increasing while men’s tenure has been falling, the overall job tenure rate has been relatively stable.
EBRI also found that older workers appear to be staying in their jobs longer. But overall, the results show that the American work force over the past three decades has always had a high level of turnover—and probably will in the future as well.
“For the great majority of American workers, so-called ‘career jobs’ never existed, and they certainly do not exist today,” said Craig Copeland, EBRI senior research associate, and author of the study. “A distinct minority of workers have ever spent their entire working career at just one employer.”
The findings are published in the December EBRI Notes, “Job Tenure Trends, 1983–2010,” and are based on the latest data from the U.S. Census Bureau’s Current Population Survey.
The full report is online here. The press release is online here.
Media coverage:
Forbes
Kansas City Star
Monday, December 6, 2010
EBRI/ICI Database in WSJ Retirement Article
The Dec. 6 Wall Street Journal uses data from the EBRI/ICI 401(k) database to illustrate its story on older workers who are approaching retirement without sufficient savings.
The article is titled, "Retiring in Five-10 Years? Uh-oh," online here.
The EBRI/ICI-based databox used in the article is online here.
For instance, the grapic cites EBRI/ICI data showing that that the average 401(k) balance at year-end 2009 was $139,932 for workers in their 50s who had been in the plan for at least six years, and that 60 percent of 401(k) funds were invested in stocks at year-end 2009, through stock funds, balanced and target-date funds, and employer stock.
The article is titled, "Retiring in Five-10 Years? Uh-oh," online here.
The EBRI/ICI-based databox used in the article is online here.
For instance, the grapic cites EBRI/ICI data showing that that the average 401(k) balance at year-end 2009 was $139,932 for workers in their 50s who had been in the plan for at least six years, and that 60 percent of 401(k) funds were invested in stocks at year-end 2009, through stock funds, balanced and target-date funds, and employer stock.
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| Wall Street Journal, Dec. 6, 2010 |
Thursday, December 2, 2010
EBRI Survey Finds Consumer-Driven Health Plans Remain Small But Continue to Grow
The ranks of people enrolled in either a consumer-driven health plan (CDHP) or a high-deductible health plan (HDHP) reached 22 million in 2010, according to a report released today by the nonpartisan Employee Benefit Research Institute (EBRI). Participation in these account-based health care plans is low, but continues to grow, EBRI finds in its sixth annual Consumer Engagement in Health Care Survey.
The EBRI report found that enrollment in CDHPs rose to 5 percent of the privately insured population (5.7 million people) in 2010, up from 4 percent in 2009. Enrollment in HDHPs increased to 14 percent of the privately insured population (17.2 million people) in 2010, up from 13 percent in 2009.
The data are based on the 2010 Consumer Engagement in Health Care Survey (CEHCS), which analyzed the behavior and attitudes of 4,509 adults ages 21–64 with private health insurance coverage.
The survey is conducted by EBRI and Mathew Greenwald and Associates. “Findings From the 2010 EBRI/MGA Consumer Engagement in Health Care Survey” are published in the December 2010 EBRI Issue Brief, online here. The press release is online here.
The EBRI report found that enrollment in CDHPs rose to 5 percent of the privately insured population (5.7 million people) in 2010, up from 4 percent in 2009. Enrollment in HDHPs increased to 14 percent of the privately insured population (17.2 million people) in 2010, up from 13 percent in 2009.
The survey is conducted by EBRI and Mathew Greenwald and Associates. “Findings From the 2010 EBRI/MGA Consumer Engagement in Health Care Survey” are published in the December 2010 EBRI Issue Brief, online here. The press release is online here.
Tuesday, November 30, 2010
EBRI Update: Savings Needed for Health Care in Retirement
The December 2010 EBRI Issue Brief updates original EBRI research on the savings needed for Medicare-eligible persons to pay for health care expenses in retirement.
Women retiring this year at 65 will need even more: between $88,000–$146,000 in savings if they are comfortable with a 50 percent chance of having enough money, and $143,000–$242,000 if they want a 90 percent chance.
These estimates are for Medicare beneficiaries age 65 and older: Anyone retiring early, before age 65, would need even more.
The press release is online here. The full report is online here.
Some media coverage of the report:
Even though the new health reform law will reduce some health costs in retirement for many people, retirees will still need a significant amount of savings to cover their out-of-pocket health expenses when they retire, according to the new EBRI analysis. Women in particular will need more savings than men because they tend to live longer.
For instance, EBRI finds that men retiring in this year (2010) at age 65 will need anywhere from $65,000–$109,000 in savings to cover health insurance premiums and out-of-pocket expenses in retirement if they want a 50–50 chance of being able to have enough money; to improve the odds to 90 percent, they’ll need between $124,000–$211,000.
Women retiring this year at 65 will need even more: between $88,000–$146,000 in savings if they are comfortable with a 50 percent chance of having enough money, and $143,000–$242,000 if they want a 90 percent chance.
These estimates are for Medicare beneficiaries age 65 and older: Anyone retiring early, before age 65, would need even more.
The press release is online here. The full report is online here.
Some media coverage of the report:
Monday, November 22, 2010
Latest EBRI/ICI 401(k) Database Update
The average 401(k) retirement account balance rose 31.9 percent in 2009, according to a report released today by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) analyzing a group of consistent participants. The rise in 2009 was in line with the 2003–2007 pattern of steady increase in account balances and in contrast to the 27.8 percent decline in 2008.
The EBRI/ICI report, 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2009, is based on the largest database of its kind, with records on 20.7 million participants at year-end 2009, including 4.3 million consistent participants—those who have had 401(k) accounts with the same 401(k) plan each year from year-end 2003 through year-end 2009.
The full report is being published simultaneously by EBRI and ICI and is on their websites (EBRI's is here, ICI's is here). The joint press release is here.
Some initial media coverage of the report:
* Bloomberg/ Business Week
* Reuters
* Minneapolis Star-Tribune
* Financial Planning
* PlanAdvisor
* MSNBC
The EBRI/ICI report, 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2009, is based on the largest database of its kind, with records on 20.7 million participants at year-end 2009, including 4.3 million consistent participants—those who have had 401(k) accounts with the same 401(k) plan each year from year-end 2003 through year-end 2009. 
The full report is being published simultaneously by EBRI and ICI and is on their websites (EBRI's is here, ICI's is here). The joint press release is here.
Some initial media coverage of the report:
* Bloomberg/ Business Week
* Reuters
* Minneapolis Star-Tribune
* Financial Planning
* PlanAdvisor
* MSNBC
Friday, November 12, 2010
EBRI in Newsweek Retirement Article
The Nov. 11, 2010 Newsweek has a good article using EBRI data on "What You Should Know Before You Retire--Experts share some of the best ways to plan for retirement in a post-recession world." A link to the full article is online here.
Tuesday, October 26, 2010
New York Times Economix: EBRI's Data on the Retirement Savings Shortfall
The New York Times Economix feature of Oct. 21 features EBRI's recent research on Americans' retirement savings shortfall. The full Economix article is online here. The complete EBRI report it is based on was published in our October 2010 EBRI Notes, online here.
Thursday, October 7, 2010
The National Retirement Income Adequacy Deficit: $4.6 Trillion
The total aggregate national deficit in U.S. retirement income adequacy is an estimated $4.6 trillion—or about $48,000 per-individual average, according to congressional testimony by the nonpartisan Employee Benefit Research Institute (EBRI).
“These numbers show that the national retirement income deficit—which is already quite large—would almost double without current-level Social Security benefits,” said Jack VanDerhei, EBRI research director, testifying at a hearing Oct. 7 by the Senate Committee on Health, Education, Labor and Pensions.
VanDerhei's full testimony is online here. The press release is online here. The Senate HELP Committee’s website for the hearing is online here.
EBRI’s analysis is based on its unique Retirement Income Security Projection Model (RSPM®), which EBRI has developed since the late 1990s to estimate how much money Americans will need for “basic” expenses (food, shelter, etc.) and uninsured health care costs in retirement, and what financial resources they are likely to have at retirement age. Earlier this year, EBRI released its 2010 Retirement Readiness Rating,™ (online here) which showed the degree to which Baby Boomers and GenXers are likely to be “at risk” of running short of money in retirement
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| EBRI Research Director Jack VanDerhei before the Senate HELP Committee Oct. 7 |
Reflecting the importance of Social Security, the EBRI analysis finds that if Social Security retirement benefits were eliminated, the aggregate retirement income deficit would almost double, to $8.5 trillion, or an individual average of approximately $89,000.
“These numbers show that the national retirement income deficit—which is already quite large—would almost double without current-level Social Security benefits,” said Jack VanDerhei, EBRI research director, testifying at a hearing Oct. 7 by the Senate Committee on Health, Education, Labor and Pensions.
VanDerhei's full testimony is online here. The press release is online here. The Senate HELP Committee’s website for the hearing is online here.
EBRI’s analysis is based on its unique Retirement Income Security Projection Model (RSPM®), which EBRI has developed since the late 1990s to estimate how much money Americans will need for “basic” expenses (food, shelter, etc.) and uninsured health care costs in retirement, and what financial resources they are likely to have at retirement age. Earlier this year, EBRI released its 2010 Retirement Readiness Rating,™ (online here) which showed the degree to which Baby Boomers and GenXers are likely to be “at risk” of running short of money in retirement
Tuesday, September 21, 2010
New EBRI IRA Database Finds Owners With Multiple IRAs Raise Average Balance by 25%
A new and unique EBRI database on individual retirement accounts (IRAs) -- just released -- for the first time will allow researchers to more accurately measure IRA assets and ownership across multiple data providers, and to track retirement assets as they move through different types of retirement plans.
For instance, the EBRI IRA DatabaseTM finds that when owners of more than one IRA are identified and their assets are combined, their total IRA balance is about 25 percent higher than the unaggregated account average within the database.
The press release is online here. The full report is published in the September 2010 EBRI Issue Brief, “IRA Balances and Contributions: An Overview of the EBRI IRA Database,TM” and is online here.
The EBRI IRA DatabaseTM is unique in that it can link the accounts of individuals with more than one account in the database, thus aggregating total IRA assets and giving a more realistic picture of their IRA-based retirement savings. Not only will EBRI be able to link individuals within and across data providers in the database, but in the near future it will also be able to link the data with participants in 401(k) plans, allowing retirement funds to be tracked as they are generated, rolled over, and ultimately used. The data security techniques used by data providers assure that EBRI has no ability to identify individuals so that all privacy is assured.
“IRAs are an incredibly important piece of the retirement puzzle, since they hold the largest single share of the $13 trillion in U.S. retirement assets,” said Craig Copeland, senior research associate at EBRI and author of the study. “This new database will allow us to generate unique and extremely valuable information about how Americans are using IRAs, including rollover IRAs which hold funds that were accumulated in employment-based defined benefit and defined contribution plans, for retirement.”
The full report provides data on the four major types of IRAs, average and mean balances (including by gender) contributions and rollovers, and on owners who max out on their IRA contributions.
For instance, the EBRI IRA DatabaseTM finds that when owners of more than one IRA are identified and their assets are combined, their total IRA balance is about 25 percent higher than the unaggregated account average within the database.
The press release is online here. The full report is published in the September 2010 EBRI Issue Brief, “IRA Balances and Contributions: An Overview of the EBRI IRA Database,TM” and is online here.
The EBRI IRA DatabaseTM is unique in that it can link the accounts of individuals with more than one account in the database, thus aggregating total IRA assets and giving a more realistic picture of their IRA-based retirement savings. Not only will EBRI be able to link individuals within and across data providers in the database, but in the near future it will also be able to link the data with participants in 401(k) plans, allowing retirement funds to be tracked as they are generated, rolled over, and ultimately used. The data security techniques used by data providers assure that EBRI has no ability to identify individuals so that all privacy is assured.
“IRAs are an incredibly important piece of the retirement puzzle, since they hold the largest single share of the $13 trillion in U.S. retirement assets,” said Craig Copeland, senior research associate at EBRI and author of the study. “This new database will allow us to generate unique and extremely valuable information about how Americans are using IRAs, including rollover IRAs which hold funds that were accumulated in employment-based defined benefit and defined contribution plans, for retirement.”
The full report provides data on the four major types of IRAs, average and mean balances (including by gender) contributions and rollovers, and on owners who max out on their IRA contributions.
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| IRA Balances by Type and Gender |
Monday, September 13, 2010
“America's Retirement Problem: Should We Ditch 401(k) Plans?”
EBRI President Dallas Salisbury was a panelist on “Ideas in Action,” a new weekly public policy TV program that made its debut in the Washington, DC, market Sunday, Sept. 5. During the program, Salisbury laid out facts on how the employment-based 401(k) retirement system has performed for most American workers.
The full 30-minute program can be seen online here.
The Sept. 5 program, “America's Retirement Problem: Should We Ditch 401(k) Plans?” examines the idea of replacing the current 401(k) retirement savings system with a government-guaranteed alternative retirement plan. Appearing on the program with Salisbury were Teresa Ghilarducci, professor at the New School for Social Research and the author of one such proposal, and Alex Brill of The American Enterprise Institute, who was chief economist to the House Ways and Means Committee.
“Ideas in Action” is a new program hosted by Jim Glassman, and will air on two public TV stations in Washington: WHUT Channel 32 and Maryland Public TV (MPT). Glassman describes the series as “geared to viewers who are looking for real insight into the big ideas and issues of our day…It's intelligent TV for people interested in important ideas and their consequences.”
The program launched in February 2010 and is currently carried by more than 90 public television stations. Videos, transcripts, and extensive resources are available on the series’ website, http://www.ideasinactiontv.com/ Glassman was a weekly columnist for the Washington Post, former publisher of The New Republic, and former co-owner and editor of Roll Call, the newspaper about Capitol Hill. His TV credits include hosting the series TechnoPolitics for PBS, MoneyPolitics for WJLA (Washington DC 's ABC affiliate), and Capital Gang Sunday for CNN.
The Sept. 5 program, “America's Retirement Problem: Should We Ditch 401(k) Plans?” examines the idea of replacing the current 401(k) retirement savings system with a government-guaranteed alternative retirement plan. Appearing on the program with Salisbury were Teresa Ghilarducci, professor at the New School for Social Research and the author of one such proposal, and Alex Brill of The American Enterprise Institute, who was chief economist to the House Ways and Means Committee.
“Ideas in Action” is a new program hosted by Jim Glassman, and will air on two public TV stations in Washington: WHUT Channel 32 and Maryland Public TV (MPT). Glassman describes the series as “geared to viewers who are looking for real insight into the big ideas and issues of our day…It's intelligent TV for people interested in important ideas and their consequences.”
The program launched in February 2010 and is currently carried by more than 90 public television stations. Videos, transcripts, and extensive resources are available on the series’ website, http://www.ideasinactiontv.com/ Glassman was a weekly columnist for the Washington Post, former publisher of The New Republic, and former co-owner and editor of Roll Call, the newspaper about Capitol Hill. His TV credits include hosting the series TechnoPolitics for PBS, MoneyPolitics for WJLA (Washington DC 's ABC affiliate), and Capital Gang Sunday for CNN.
Friday, August 6, 2010
EBRI's Jack VanDerhei Interviewed in PIMCO Dialogue
The July 2010 issue of PIMCO’s DC Dialogue features an extensive interview with Jack VanDerhei, research director of the Employee Benefit Research Institute, on worker retirement-income adequacy and confidence. The full interview is online here.
VanDerhei notes a significant decline in workers’ confidence in their ability to retire successfully since the recent market crisis. While many younger workers regained lost ground in their account values, some longer-tenured employees have yet to recover their losses. VanDerhei believes many of these longer-tenured workers are permanently shaken.
In this environment, VanDerhei underscores the need to increase contribution rates in DC plans, encouraging auto enrollment and more rapid contribution escalation – measures that can help workers achieve their retirement goals.
In the article, “All Shook Up,” VanDerhei shares that only a small percentage of workers enjoyed the “good-old days” of defined benefit (DB) pension plans, and that, going forward, he anticipates defined contribution (DC) plans likely will replace a higher percentage of final pay for more people than DB plans have to date.
VanDerhei notes a significant decline in workers’ confidence in their ability to retire successfully since the recent market crisis. While many younger workers regained lost ground in their account values, some longer-tenured employees have yet to recover their losses. VanDerhei believes many of these longer-tenured workers are permanently shaken. In this environment, VanDerhei underscores the need to increase contribution rates in DC plans, encouraging auto enrollment and more rapid contribution escalation – measures that can help workers achieve their retirement goals.
Tuesday, July 13, 2010
EBRI's Retirement Readiness Rating: Retirement Income Preparation and Future Prospects
EBRI today published ground-breaking research on retirement income adequacy, in the July 2010 EBRI Issue Brief.
With Americans living longer in retirement, the 2010 EBRI Retirement Readiness Rating™ shows dramatically high percentages of Americans—even in the upper-income categories—are likely to run short of money after 10 or 20 years of retirement. The new analysis by EBRI finds that almost two-thirds (64 percent) of Americans in the two lowest preretirement income levels will be running short after 10 years in retirement. However, the EBRI study also finds that after 20 years of retirement, almost a third (29 percent) of those in the next-to-highest income level will run short of money, as will more than 1 in 10 (13 percent) of those in the highest-income level.
The full report is online here. The press release is online here. A full list of media articles covering the Retirement Readiness Rating™ report is online here; major-media coverage worth noting is listed below:
The July 13 Wall Street Journal write-up of the EBRI report is online here.
Today Show interview (July 13) with Jean Chatzky on the EBRI report is online here.
Washington Post story (July 13) is online here. The Post's "Color of Money" personal finance column based on the EBRI report (July 15) is online here.
USAToday (Associated Press) story, July 14, is online here.
CNN Money report on the EBRI analysis (July 14) is online here.
The EBRI Retirement Readiness Rating™ is based on EBRI’s Retirement Security Projection Model® (RSPM), which the institute first used in 2003 to evaluate national retirement income adequacy. The newest version of the model factors in many new retirement plan changes, such as auto-enrollment and auto-escalation of contributions in 401(k) plans, as well as updates for financial market performance and employee behavior (based on a database of 24 million 401(k) participants).
This is the first time a national retirement model has been able to project when different cohorts of Americans, based on age and income, are likely to exhaust their retirement savings. In addition, it finds that nearly half of early Baby Boomers—those on the verge of retirement, currently ages 56 to 62—are at risk of not having sufficient income to pay for basic retirement expenditures and uninsured medical expenses, and nearly the same fraction of “Generation Xers” are in a similar position.
Among other things, the analysis provides the most detailed estimates yet published of how age, relative level of preretirement income, and eligibility for participation in a defined contribution plan (principally a 401(k) plan) affect the prospects of running short of money in retirement. It also shows how long early boomers’ resources are likely to last in retirement.
With Americans living longer in retirement, the 2010 EBRI Retirement Readiness Rating™ shows dramatically high percentages of Americans—even in the upper-income categories—are likely to run short of money after 10 or 20 years of retirement. The new analysis by EBRI finds that almost two-thirds (64 percent) of Americans in the two lowest preretirement income levels will be running short after 10 years in retirement. However, the EBRI study also finds that after 20 years of retirement, almost a third (29 percent) of those in the next-to-highest income level will run short of money, as will more than 1 in 10 (13 percent) of those in the highest-income level.
The July 13 Wall Street Journal write-up of the EBRI report is online here.
Today Show interview (July 13) with Jean Chatzky on the EBRI report is online here.
Washington Post story (July 13) is online here. The Post's "Color of Money" personal finance column based on the EBRI report (July 15) is online here.
USAToday (Associated Press) story, July 14, is online here.
CNN Money report on the EBRI analysis (July 14) is online here.
The EBRI Retirement Readiness Rating™ is based on EBRI’s Retirement Security Projection Model® (RSPM), which the institute first used in 2003 to evaluate national retirement income adequacy. The newest version of the model factors in many new retirement plan changes, such as auto-enrollment and auto-escalation of contributions in 401(k) plans, as well as updates for financial market performance and employee behavior (based on a database of 24 million 401(k) participants).
This is the first time a national retirement model has been able to project when different cohorts of Americans, based on age and income, are likely to exhaust their retirement savings. In addition, it finds that nearly half of early Baby Boomers—those on the verge of retirement, currently ages 56 to 62—are at risk of not having sufficient income to pay for basic retirement expenditures and uninsured medical expenses, and nearly the same fraction of “Generation Xers” are in a similar position.
Among other things, the analysis provides the most detailed estimates yet published of how age, relative level of preretirement income, and eligibility for participation in a defined contribution plan (principally a 401(k) plan) affect the prospects of running short of money in retirement. It also shows how long early boomers’ resources are likely to last in retirement.
Friday, June 11, 2010
New York Times: EBRI's Data on Income of the Elderly
The New York Times today (June 11), in its "Economix" column, reproduces several key graphs from the June 2010 EBRI Notes, on "Income of the Elderly Population Age 65 and Over, 2008." The article and figures are on the Time's website here.
The article notes that EBRI's data reveal "one particular challenge to cutting entitlements...older Americans gets the lion’s share of their income — nearly 40 percent — from Social Security, a share that an aging populace will likely be loath to shrink." The full EBRI Notes article is online here.
Monday, June 7, 2010
The Early Retiree Reinsurance Program: $5 Billion Will Last About Two Years
An advance release of EBRI's July 2010 Notes is now online at www.ebri.org, and finds that a $5 billion temporary reinsurance program designed to help employers maintain health benefits for early retirees likely will be exhausted within two years—well before the 2014 termination date for the program.
Key points of the analsysis:
PPACA’S EARLY RETIREE REINSURANCE PROGRAM: The Patient Protection and Affordable Care Act (PPACA) of 2010 created a temporary reinsurance program for sponsors of employment-based health plans that provide retiree health benefits to retirees who are over age 55 and not yet eligible for the Medicare program. The program provides an 80 percent subsidy for retiree claims of between $15,000 and $90,000. Congress appropriated $5 billion for the program, which is effective June 1, 2010, and the subsidy will be available through the earlier of Jan. 1, 2014, or the date when the funds are exhausted.
EMPLOYER INCENTIVE: One goal of the program is to provide an incentive for employers to maintain retiree health benefits and assist retirees with their costs for health coverage. Under the early retiree reinsurance program, plan sponsors must be able to show that the subsidies were not used to reduce their level of support for the plan. Subsidies can be used to reduce retiree costs, and sponsors must also show that the subsidies were used to generate savings or had the potential to generate savings.
EXHAUSTION LIKELY WITHIN TWO YEARS: An important question is whether the $5 billion will be exhausted before 2014. This article finds that if the subsidy were drawn down for all early retirees and their dependents, $2.5 billion of the $5 billion available would be exhausted in the first year of the program. The $5 billion would last no more than two years and would not be available in 2012 or 2013.
Key points of the analsysis:
PPACA’S EARLY RETIREE REINSURANCE PROGRAM: The Patient Protection and Affordable Care Act (PPACA) of 2010 created a temporary reinsurance program for sponsors of employment-based health plans that provide retiree health benefits to retirees who are over age 55 and not yet eligible for the Medicare program. The program provides an 80 percent subsidy for retiree claims of between $15,000 and $90,000. Congress appropriated $5 billion for the program, which is effective June 1, 2010, and the subsidy will be available through the earlier of Jan. 1, 2014, or the date when the funds are exhausted.
EMPLOYER INCENTIVE: One goal of the program is to provide an incentive for employers to maintain retiree health benefits and assist retirees with their costs for health coverage. Under the early retiree reinsurance program, plan sponsors must be able to show that the subsidies were not used to reduce their level of support for the plan. Subsidies can be used to reduce retiree costs, and sponsors must also show that the subsidies were used to generate savings or had the potential to generate savings.
EXHAUSTION LIKELY WITHIN TWO YEARS: An important question is whether the $5 billion will be exhausted before 2014. This article finds that if the subsidy were drawn down for all early retirees and their dependents, $2.5 billion of the $5 billion available would be exhausted in the first year of the program. The $5 billion would last no more than two years and would not be available in 2012 or 2013.
Thursday, May 20, 2010
EBRI’s Spring 2010 Policy Forum: Retirement Income Adequacy
EBRI’s semi-annual policy forum, titled “Retirement Income Adequacy: How Big Is the Gap and How Might the Market Respond?” was held May 13 in Washington. This was EBRI's 66th policy forum.
EBRI Research Director Jack VanDerhei presented new research on retirement income adequacy for current workers using an updated version of the Retirement Security Project Model. The presentation included estimates of the percentage of workers at risk for various demographic groups as well as the additional amount of savings that would be required for a 50 percent, 75 percent, and 90 percent probability of having “adequate” income in retirement.
A panel of experts then discussed VanDerhei’s findings. Two others panels discussed ways to fill the gaps in retirement income using the current voluntary system and policy implications of the gap for retirement plans.
A detailed account of the policy forum will appear in a future EBRI publication.
The policy forum agenda, with all presenters and speakers, as well as PowerPoint presentations, is on the EBRI website here.
EBRI Research Director Jack VanDerhei presented new research on retirement income adequacy for current workers using an updated version of the Retirement Security Project Model. The presentation included estimates of the percentage of workers at risk for various demographic groups as well as the additional amount of savings that would be required for a 50 percent, 75 percent, and 90 percent probability of having “adequate” income in retirement.
A panel of experts then discussed VanDerhei’s findings. Two others panels discussed ways to fill the gaps in retirement income using the current voluntary system and policy implications of the gap for retirement plans.
A detailed account of the policy forum will appear in a future EBRI publication.
The policy forum agenda, with all presenters and speakers, as well as PowerPoint presentations, is on the EBRI website here.
Wednesday, April 7, 2010
Wall Street Journal Special Supplement: Employee Benefits
The April 6, 2010, Wall Street Journal published a special section on employee benefits, with extensive content provided by EBRI. Dallas Salisbury, EBRI CEO, wrote two of the articles in the five-page section, on "Why the Employment-Based Retirement System Matters," and "Comfortable Retirement Within Reach," both highlighting recent EBRI research. Paul Fronstin, director of EBRI's Health Research and Education Program, is extensively quoted in the lead article.
This is the third year EBRI has provided content to the employee benefits supplement of the Journal. Our participation in this section is unpaid and by request. The full section is reprinted here, by permission of the Wall Street Journal.
This is the third year EBRI has provided content to the employee benefits supplement of the Journal. Our participation in this section is unpaid and by request. The full section is reprinted here, by permission of the Wall Street Journal.
Tuesday, March 23, 2010
Use of Fiduciary Benchmarks’ Retirement Readiness Index (FB-RRI) Could Lead To A Fiduciary Briar Patch
By Jack VanDerhei, EBRI Research Director
A recent news article (“Perceptions of Retirement Preparation,”) focused on differences in Americans’ expected preparations for retirement as presented by a recent for-profit start-up firm, Fiduciary Benchmarks, and the nonprofit Employee Benefit Research Institute (EBRI). This blog expands on several of the excellent points raised in that article.
EBRI has published work dealing with retirement readiness for decades. For example, the Retirement Confidence Survey (RCS) has allowed workers and retirees to provide opinion data on what they believe their status to be for 20 years. EBRI developed a Retirement Readiness Rating in 2000. The EBRI/ICI 401(k) Accumulation Projection Model was constructed in 2002 to provide an assessment of estimated retirement accumulations for 401(k) participants under a variety of scenarios, and the Ballpark E$timate® interactive tool at http://www.choosetosave.org/ offers the ability to provide individual input and get a deterministic view of whether you are on track to reach your retirement goal, and, if not, how much more needs to be saved to reach that goal by retirement age. The EBRI Retirement Security Projection Model (RSPM) was presented in the November 2003 and February 2004 EBRI Issue Briefs with data based assessments of retirement readiness. The newest Retirement Security Projection Model® Retirement Readiness Rating will be published in early summer 2010.
Before I provide a critique of the Fiduciary Benchmarks’ Retirement Readiness Index (FB-RRI), let me begin by stating that any comparison of RRI with the Retirement Confidence Survey (RCS) is not a legitimate comparison for the following reasons:
1. RCS is a survey of confidence among workers and retirees with respect to their perceived ability to having enough money for a comfortable retirement. In contrast, RRI alleges to be a measure of “how well workers are preparing for a secure retirement.”
2. Although RRI uses the word “workers,” it appears that they are (at least currently) limiting their analysis to participants of defined contribution retirement plans. RCS surveys all workers whether or not they are currently participating in a retirement plan. These are two very different groups.
Upon review, those that use the tool from Fiduciary Benchmarks could be opening themselves up to a fiduciary briar patch of problems by telling employers that their participants, or the participants themselves, are on track for a “secure retirement” when they are not.
With respect to the critique of FB-RRI, I will base my comments on the information provided by Fiduciary Benchmarks on page 7 of their description of the RRI, “How does the RRI work: key inputs”:
1. Required replacement ratio. While replacement ratios and similar targets (e.g., multiples of final earnings at retirement age) can be useful metrics for basic projections, they simply cannot deal with many of the risks inherent in retirement income adequacy. For a comprehensive explanation of why this is too limited to compute “retirement readiness” see VanDerhei (2006); briefly, all that replacement ratios typically attempt to do is compute the equivalent amount individuals will need in retirement after adjusting for the differences in pre- and post-retirement taxes, savings, and age-specific expenses (such as health care expenditures). This says little, if anything, about an individual’s readiness for retirement.
2. Retirement age. If I had to pick a single age, SSNRA (Social Security normal retirement age) may be the best available. However, a near majority retire ahead of the SSNRA and a significant percentage of those for health reasons.
3. Life expectancy. Using “life expectancy” (even the “conservative” assumption of a female employee) is far too risky. Saving enough for “life expectancy” in essence means that (with the exception of the rare occurrence of an employee annuitizing ALL their savings at retirement age) approximately 50 percent of the time, the individual will outlive their savings. For a full analysis of what needs to be included in a study to provide the employee with a better than a 50–50 chance of sufficient money, see VanDerhei and Copeland (2003).
4. Starting Age
5. Starting Wage
6. Starting Account Balance
All three of these “data points” share the same problem: they are only valid for a single stylized circumstance and will not even come close to representing the situation for the vast majority of actual participants in a plan. Perhaps the most troubling is the starting account balance. Since 1996, EBRI and ICI have published annual reports of tens of millions of INDIVIDUAL account balances (not simple plan averages), and it is quite obvious the distribution of balances are very skewed (even adjusting for age and tenure).
Moreover, the implicit assumption in this methodology appears to be that the “average” employee will continue to work with the same employer for the remainder of their career or at the very least have the quite unlikely prospect of changing jobs and ending up with another plan with exactly the same distribution. Also, as is well documented, when employees change jobs they often cash out their account balances instead of saving them.
7. Average participant and employer contributions
This also suffers from several limitations:
• Assuming the plan is NOT automatic enrollment (they do not seem to bifurcate the plans as any serious analysis would), we know from several studies that there is a wide distribution of contribution rates, that these rates tend to increase with age, and that many employees will stop contributing at least temporarily during their careers (especially if the employer suspends the matching contribution).
• If the plan IS automatic enrollment, there should be some type of recognition of the trend to automatic escalation of contributions.
8. Return on investments
I have no idea why “an analysis of more than 61,000 historical holding periods” would suggest that Treasury rates plus 50 basis points would be a realistic proxy for return on investments; however, EBRI/ICI analysis from 1996–2008 documents quite extensively the distribution of asset allocations of millions of 401(k) participants at all age ranges. Unless one is essentially assuming no equity premium and very low or zero volatility going forward, this would appear to be an ad hoc proxy with little, if any, empirical justification.
9. Inflation
I am not sure why one would use a “long-term inflation rate assumption” for wage growth. Even if we are willing to ignore all the empirical evidence for age/wage profiles, I still know of no credible forecasts that assume wage growth will be equal to inflation.
For additional information on how a study of 401(k) participants could be conducted that would correct for many of the limitations enumerated above, please see:
• Holden and VanDerhei (2002) for a pre-automatic enrollment analysis
• Holden and VanDerhei (2005) for an expansion of the techniques to include automatic enrollment
• VanDerhei (2007) for an expansion of the technique to include automatic escalation of contributions for automatic enrollment plans
As with RSPM, I assume that the FB-RRI is a work in progress and will change over time. As it does, I look forward to reviewing it.
—Jack VanDerhei, EBRI
References
• Buckner, Gail, “Perceptions of Retirement Preparation,” FoxBusiness, March 22, 2010.
• Fiduciary Benchmarks, Retirement Readiness Index, Portland, OR.
• Holden, Sarah and Jack VanDerhei (2002). “Can 401(k) Accumulations Generate Significant Income for Future Retirees?” EBRI Issue Brief no. 251 (November 2002).
• Holden, Sarah and Jack VanDerhei (2005). “The Influence of Automatic Enrollment, Catch-Up, and IRA Contributions on 401(k) Accumulations at Retirement.” EBRI Issue Brief no. 283 (July 2005).
• VanDerhei, Jack and Craig Copeland (2003). “Can America Afford Tomorrow's Retirees: Results From the EBRI-ERF Retirement Security Projection Model,” EBRI Issue Brief no. 263 (November 2003).
• VanDerhei, Jack.2006. “Measuring Retirement Income Adequacy: Calculating Realistic Income Replacement Rates,” EBRI Issue Brief, No. 297 (September 2006)
• VanDerhei, Jack.2007. “The Expected Impact of Automatic Escalation of 401(k) Contributions on Retirement Income.” EBRI Notes, September 2007 (pp. 1–8).
A recent news article (“Perceptions of Retirement Preparation,”) focused on differences in Americans’ expected preparations for retirement as presented by a recent for-profit start-up firm, Fiduciary Benchmarks, and the nonprofit Employee Benefit Research Institute (EBRI). This blog expands on several of the excellent points raised in that article.
EBRI has published work dealing with retirement readiness for decades. For example, the Retirement Confidence Survey (RCS) has allowed workers and retirees to provide opinion data on what they believe their status to be for 20 years. EBRI developed a Retirement Readiness Rating in 2000. The EBRI/ICI 401(k) Accumulation Projection Model was constructed in 2002 to provide an assessment of estimated retirement accumulations for 401(k) participants under a variety of scenarios, and the Ballpark E$timate® interactive tool at http://www.choosetosave.org/ offers the ability to provide individual input and get a deterministic view of whether you are on track to reach your retirement goal, and, if not, how much more needs to be saved to reach that goal by retirement age. The EBRI Retirement Security Projection Model (RSPM) was presented in the November 2003 and February 2004 EBRI Issue Briefs with data based assessments of retirement readiness. The newest Retirement Security Projection Model® Retirement Readiness Rating will be published in early summer 2010.
Before I provide a critique of the Fiduciary Benchmarks’ Retirement Readiness Index (FB-RRI), let me begin by stating that any comparison of RRI with the Retirement Confidence Survey (RCS) is not a legitimate comparison for the following reasons:
1. RCS is a survey of confidence among workers and retirees with respect to their perceived ability to having enough money for a comfortable retirement. In contrast, RRI alleges to be a measure of “how well workers are preparing for a secure retirement.”
2. Although RRI uses the word “workers,” it appears that they are (at least currently) limiting their analysis to participants of defined contribution retirement plans. RCS surveys all workers whether or not they are currently participating in a retirement plan. These are two very different groups.
Upon review, those that use the tool from Fiduciary Benchmarks could be opening themselves up to a fiduciary briar patch of problems by telling employers that their participants, or the participants themselves, are on track for a “secure retirement” when they are not.
With respect to the critique of FB-RRI, I will base my comments on the information provided by Fiduciary Benchmarks on page 7 of their description of the RRI, “How does the RRI work: key inputs”:
1. Required replacement ratio. While replacement ratios and similar targets (e.g., multiples of final earnings at retirement age) can be useful metrics for basic projections, they simply cannot deal with many of the risks inherent in retirement income adequacy. For a comprehensive explanation of why this is too limited to compute “retirement readiness” see VanDerhei (2006); briefly, all that replacement ratios typically attempt to do is compute the equivalent amount individuals will need in retirement after adjusting for the differences in pre- and post-retirement taxes, savings, and age-specific expenses (such as health care expenditures). This says little, if anything, about an individual’s readiness for retirement.
2. Retirement age. If I had to pick a single age, SSNRA (Social Security normal retirement age) may be the best available. However, a near majority retire ahead of the SSNRA and a significant percentage of those for health reasons.
3. Life expectancy. Using “life expectancy” (even the “conservative” assumption of a female employee) is far too risky. Saving enough for “life expectancy” in essence means that (with the exception of the rare occurrence of an employee annuitizing ALL their savings at retirement age) approximately 50 percent of the time, the individual will outlive their savings. For a full analysis of what needs to be included in a study to provide the employee with a better than a 50–50 chance of sufficient money, see VanDerhei and Copeland (2003).
4. Starting Age
5. Starting Wage
6. Starting Account Balance
All three of these “data points” share the same problem: they are only valid for a single stylized circumstance and will not even come close to representing the situation for the vast majority of actual participants in a plan. Perhaps the most troubling is the starting account balance. Since 1996, EBRI and ICI have published annual reports of tens of millions of INDIVIDUAL account balances (not simple plan averages), and it is quite obvious the distribution of balances are very skewed (even adjusting for age and tenure).
Moreover, the implicit assumption in this methodology appears to be that the “average” employee will continue to work with the same employer for the remainder of their career or at the very least have the quite unlikely prospect of changing jobs and ending up with another plan with exactly the same distribution. Also, as is well documented, when employees change jobs they often cash out their account balances instead of saving them.
7. Average participant and employer contributions
This also suffers from several limitations:
• Assuming the plan is NOT automatic enrollment (they do not seem to bifurcate the plans as any serious analysis would), we know from several studies that there is a wide distribution of contribution rates, that these rates tend to increase with age, and that many employees will stop contributing at least temporarily during their careers (especially if the employer suspends the matching contribution).
• If the plan IS automatic enrollment, there should be some type of recognition of the trend to automatic escalation of contributions.
8. Return on investments
I have no idea why “an analysis of more than 61,000 historical holding periods” would suggest that Treasury rates plus 50 basis points would be a realistic proxy for return on investments; however, EBRI/ICI analysis from 1996–2008 documents quite extensively the distribution of asset allocations of millions of 401(k) participants at all age ranges. Unless one is essentially assuming no equity premium and very low or zero volatility going forward, this would appear to be an ad hoc proxy with little, if any, empirical justification.
9. Inflation
I am not sure why one would use a “long-term inflation rate assumption” for wage growth. Even if we are willing to ignore all the empirical evidence for age/wage profiles, I still know of no credible forecasts that assume wage growth will be equal to inflation.
For additional information on how a study of 401(k) participants could be conducted that would correct for many of the limitations enumerated above, please see:
• Holden and VanDerhei (2002) for a pre-automatic enrollment analysis
• Holden and VanDerhei (2005) for an expansion of the techniques to include automatic enrollment
• VanDerhei (2007) for an expansion of the technique to include automatic escalation of contributions for automatic enrollment plans
As with RSPM, I assume that the FB-RRI is a work in progress and will change over time. As it does, I look forward to reviewing it.
—Jack VanDerhei, EBRI
References
• Buckner, Gail, “Perceptions of Retirement Preparation,” FoxBusiness, March 22, 2010.
• Fiduciary Benchmarks, Retirement Readiness Index, Portland, OR.
• Holden, Sarah and Jack VanDerhei (2002). “Can 401(k) Accumulations Generate Significant Income for Future Retirees?” EBRI Issue Brief no. 251 (November 2002).
• Holden, Sarah and Jack VanDerhei (2005). “The Influence of Automatic Enrollment, Catch-Up, and IRA Contributions on 401(k) Accumulations at Retirement.” EBRI Issue Brief no. 283 (July 2005).
• VanDerhei, Jack and Craig Copeland (2003). “Can America Afford Tomorrow's Retirees: Results From the EBRI-ERF Retirement Security Projection Model,” EBRI Issue Brief no. 263 (November 2003).
• VanDerhei, Jack.2006. “Measuring Retirement Income Adequacy: Calculating Realistic Income Replacement Rates,” EBRI Issue Brief, No. 297 (September 2006)
• VanDerhei, Jack.2007. “The Expected Impact of Automatic Escalation of 401(k) Contributions on Retirement Income.” EBRI Notes, September 2007 (pp. 1–8).
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