employer with holding percentages

Transcription

SESSION/SÉANCE :
Session 34 • DC Plan Member Behavior—Key Information for Better Design
and Consulting
SPEAKER(S)/CONFÉRENCIER(S) :
Jack L. VanDerhei, Ph.D.
Research Director
Employee Benefit Research Institute
[email protected]
Key points from today’s presentation
•
Asset allocation
•
•
•
•
Plan design
•
•
•
•
•
Automatic enrollment
Default rates
Leakages
Move to once a year employer contributions
Retirement Security Projection Model®
•
•
•
Background
Impact of target date funds
Trends in company stock concentration
Retirement Readiness Ratings
Retirement Savings Shortfalls
Other
•
•
Value of a financial advisor
Impact of low interest rate environment
® Employee Benefit Research Institute 2013
EBRI/ICI 401(k) database
•Annual administrative records from a number of EBRI
members since 1996
– As of year-end 2011:
• 24 million 401(k) plan participants, in
• 64,000 employer-sponsored 401(k) plans, holding
• $1.4 trillion in assets.
– Database is longitudinal
• Started developing “consistent sample” in 1999 to counter the bias
inherent in simply reporting cross-sectional averages.
– Database can now be tracked across data providers
• Extremely secure standardized encryption algorithm.
• Allows us to combine 401(k) accounts across existing and former
plan/provider combinations.
3
401(k) Plan Assets Are Concentrated in Equities
401(k) plan average asset allocation, percentage of total assets,a selected years
53%
48%
1999
40%
41%
2002
2007
Year
2008
2009
2010
2011
42%
39%
37%
21%
18%
19%
17%
16%
16%
15% 15%
12%
11%
10%
11%
9%
9%
11% 12%12% 11%
15%
13%
11%
10% 11%
8%
8% 8% 7%
Equity Funds
Company Stock b
Balanced Funds
7%
6%
5%
4%
Bond Funds
Investment Category
GICs
b,c
and Other StableValue Funds
4%
5%
Money Funds
Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project.
a Minor investment options are not shown; therefore, percentages do not add to 100 percent. Percentages are dollar-weighted averages.
b Not all participants are offered this investment option. See Figure 22.
c GICs are guaranteed investment contracts.
Note: “Funds” include mutual funds, bank collective trusts, life insurance separate accounts, and any pooled investment product primarily invested in the security
indicated.
Source: VanDerhei, Holden, Alonso and
Bass (2012)
© Employee Benefit Research Institute 2013
4% 4%
Figure 21
Average Asset Allocation of 401(k) Accounts, by Participant Age
a
Percentage of account balances, 2011
Non-Target-date
Equity Target-date Balanced
Bond
Funds
Funds b
Funds
Funds
Money GICs c,d/Stable- Company
Funds Value Funds Stockd Other Unknow n
Totala
20s
32.8%
31.3%
11.2%
7.4%
2.3%
3.9%
6.4%
1.9%
2.8%
100%
30s
43.8%
19.4%
7.9%
9.0%
3.0%
4.9%
7.0%
2.5%
2.6%
100%
40s
45.5%
13.8%
7.0%
10.0%
3.5%
6.8%
8.2%
3.0%
2.2%
100%
50s
37.9%
11.9%
7.1%
12.5%
4.5%
11.6%
9.1%
3.4%
2.0%
100%
60s
31.8%
11.0%
6.8%
15.0%
6.1%
17.0%
7.3%
3.1%
2.0%
100%
All
39.2%
13.3%
7.2%
11.9%
4.4%
10.8%
8.2%
3.1%
1.9%
100%
Age Group
Row percentages may not add to 100 percent because of rounding. Percentages are dollar-weighted averages.
b
A target-date fund typically rebalances its portfolio to become less focused on growth and more focused on income as it approaches and passes the
target date of the fund, which is usually included in the fund’s name.
c
GICs are guaranteed investment contracts.
d
Not all participants are offered this investment option. See Figure 22.
a
Note: “ Funds” include mutual funds, bank collective trusts, life insurance separate accounts, and any pooled investment product primarily invested in
the security indicated.
Bass (2012)
Bass (2012)
Figure 35
Many Recently Hired 401(k) Plan Participants Hold Target-Date a Balanced Funds
Percentage of recently hired participants, 2006‒2011
Age
Group
20s
30s
40s
50s
60s
All
2006
48.5%
47.9%
46.6%
47.8%
45.5%
47.6%
Holding Balanced Funds
2007 2008 2009 2010
51.1% 63.6% 64.1% 69.6%
54.2% 59.6% 61.2% 63.0%
52.8% 57.8% 59.3% 59.9%
53.4% 58.0% 58.7% 59.1%
50.1% 53.9% 53.6% 55.2%
52.7% 59.9% 60.9% 63.0%
2011
72.0%
68.1%
65.0%
64.2%
60.7%
67.5%
2006
29.4%
28.5%
27.4%
28.1%
26.1%
28.3%
Holding Target-Date Fundsa
2007 2008 2009 2010
31.7% 46.5% 48.5% 52.0%
35.1% 43.5% 47.3% 47.8%
34.2% 41.8% 45.5% 45.3%
34.9% 42.2% 45.2% 45.0%
32.1% 38.4% 41.0% 41.7%
33.8% 43.6% 46.6% 47.6%
2011
53.6%
52.1%
49.5%
49.2%
46.5%
51.2%
2006
22.5%
22.5%
21.3%
21.4%
19.8%
21.9%
Holding Non-Target-Date Fundsa
2007 2008 2009 2010
21.8% 19.3% 17.7% 19.0%
22.2% 18.8% 16.4% 16.9%
21.4% 18.3% 16.1% 16.1%
21.2% 18.1% 15.5% 15.5%
20.3% 17.3% 14.2% 14.5%
21.7% 18.7% 16.5% 17.0%
2011
19.5%
17.6%
17.1%
16.5%
15.4%
17.8%
a
A target-date fund typically rebalances its portfolio to become less focused on growth and more focused on income as it approaches and passes the target date of the fund, which is usually included in the fund’s
Note: The analysis includes the 3.4 million recently hired participants (those with two or fewer years of tenure) in 2011, the 3.2 million recently hired participants in 2010, the 3.1million recently hired participants in
2009, the 4.0 million recently hired participants in 2008, the 3.8 million recently hired participants in 2007, and the 2.8 million recently hired participants in 2006.
"Funds" include mutual funds, bank collective trusts, life insurance separate accounts, and any pooled investment product primarily invested in the security indicated.
Bass (2012)
Figure 37
Many Recently Hired 401(k) Participants Hold
High Concentrations in Target-Date Fundsa
Percentage of recently hired 401(k) participants
holding the type of fund indicated, b, c 2011
Percentage of A ccount Balance Invested in Balanced Funds
A ge Group
20s
30s
40s
50s
60s
A ll
>0–50 percent
11.6%
16.8%
18.4%
18.2%
17.6%
15.8%
>50–90 percent
10.2%
10.4%
10.3%
9.9%
8.9%
10.2%
>90 percent
78.2%
72.7%
71.2%
71.8%
73.5%
74.0%
Percentage of A ccount Balance Invested in Target-date Funds a
A ge Group
20s
30s
40s
50s
60s
A ll
>0–50 percent
9.0%
14.0%
15.2%
14.6%
13.7%
12.8%
>50–90 percent
10.4%
10.4%
10.2%
9.6%
8.2%
10.1%
>90 percent
80.6%
75.6%
74.5%
75.8%
78.1%
77.0%
Percentage of A ccount Balance Invested in Non-Target-date Balanced Funds
A ge Group
20s
30s
40s
50s
60s
A ll
>0–50 percent
24.6%
34.9%
37.2%
38.7%
37.7%
32.7%
>50–90 percent
9.2%
9.2%
9.3%
9.6%
10.0%
9.3%
>90 percent
66.2%
55.8%
53.5%
51.8%
52.3%
58.0%
So urce: Tabulatio ns fro m EB RI/ICI P articipant-Directed Retirement P lan Data Co llectio n P ro ject.
A target-date fund typically rebalances its po rtfo lio to beco me less fo cused o n gro wth and mo re fo cused o n
inco me as it appro aches and passes the target date o f the fund, which is usually included in the fund’ s name.
b
The analysis includes the 2.3 millio n recently hired participants (tho se with two o r fewer years o f tenure) ho lding
balanced funds in 2011, the 1.7 millio n recently hired participants ho lding target-date funds in 2011; and the 0.6 millio n
recently hired participants ho lding no n-target-date balanced funds in 2011.
a
c
Ro w percentages may no t add to 100 percent because o f ro unding.
No te: “ Funds” include mutual funds, bank co llective trusts, life insurance separate acco unts, and any po o led
investment pro duct primarily invested in the security indicated.
Bass (2012)
Bass (2012)
Plan design issues
Success* Rates of Achieving a Combined 80% Real Replacement
Rate From Social Security and Automatic Enrollment 401(k) Plans with Automatic
Escalation, as a Function of Maximum Employee Contributions
90%
80%
70%
60%
Probability
50%
40%
30%
20%
10%
Maximum Employee Contributions
0%
Lowest,
Optimistic
Highest,
Optimistic
Lowest,
Pessimistic
Highest,
Pessimistic
6%
9%
12%
15%
48.9%
64.2%
73.5%
79.2%
28.9%
41.0%
53.0%
64.0%
45.7%
56.4%
61.0%
62.1%
27.0%
34.1%
38.8%
41.1%
Source: VanDerhei and Lucas (November 2010)
* "Success" is defined as achieving an 80 percent real replacement rate from
Social Security and 401(k) accumulations combined. 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.
•Unlike the more traditional type of 401(k) plan,
automatic enrollment plans (especially those with
automatic escalation of contributions) are relatively new
•Simulating success rates under these plans requires
several types of behavioral assumptions
• A total of 16 different scenarios have been
modeled but this graph shows only the most
optimistic and most pessimistic set of
assumptions
•Looking at workers currently ages 25–29 who will have
more than 30 years of simulated eligibility for
participation in a 401(k) plan:
• workers in the highest income quartile:
between 41 and 64 percent are expected to
have at least an 80 percent real replacement
rate when 401(k) accumulations are combined
with Social Security benefits
• Given their higher relative levels of Social
Security benefits, the percentages are even
higher for workers in the lowest income
quartile– between 62 and 79 percent
11
The impact of increasing the default contribution rate
to 6% for AE plans with auto escalation of contributions
• A plan design often suggested as a way to improve retirement income
adequacy for 401(k) participants is increasing the initial default deferral
rate.
• Under a set of specified behavioral assumptions, 25.6 percent of those in
the lowest-income quartile who had previously NOT been successful
under actual default contribution rates were found to be successful as a
result of the change in deferral percentage.
• When employees in the highest-income quartile were analyzed under the
same set of assumptions, the percentage of those who had NOT
previously been successful (under the actual default contribution rates)
that now ARE successful as a result of the change in deferral rate was 18.4
percent
Source: VanDerhei, Jack (September 2012) Increasing Default
Deferral Rates in Automatic Enrollment 401(k) Plans: The
Impact on Retirement Savings Success in Plans With Automatic
Escalation, EBRI Notes
Impact of Leakages on Voluntary Enrollment 401(k)
Plans: 2002 assumptions
Change in median replacement rates from 401(k) “accumulations” relative to baseline
model for participants reaching age 65 between 2030 and 2039
Percentage Points
Highest income
Lowest income
4.7
Never cash out balance at job change
13.3
3.8
Preretirement withdrawals are never taken from
401(k) plan
Loans are never taken from 401(k) plan
6.7
0.3
0.4
*Median replacement rates = 50.7 and 67.2 percent for
lowest and highest income quartiles respectively.
Source: Holden and VanDerhei (2002).
1
Impact of Leakages for Automatic Enrollment Plans:
Lowest Income Quartile
Percentage point decrease in probability of success* from various forms of leakages and
participant behavior: under the all-optimistic auto feature assumptions
No leakages (82.9% prob. of success)
Cashouts
Hardship Withdrawals (HW)
HW and 6 month suspension
Loans, fixed income first, no defaults
Cashouts, HW 6 month, Loans
Cashouts, HW 6, Loans (w defaults)
Delay = 1 year
Delay = 5 years
0.0%
5.1%
1.9%
2.5%
3.7%
1.0%
6.1%
7.1%
0.6%
5.9%
Source: EBRI Retirement Security Projection Model, version 120209.
* "Success" is defined as achieving an 80 percent real replacement rate from Social
Security and 401(k) accumulations combined as defined in VanDerhei and Lucas
(2010). The population simulated consists of workers currently ages 25–29 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.
1
Impact of Leakages for Automatic Enrollment Plans:
Highest Income Quartile
Percentage point decrease in probability of success* from various forms of leakages and
participant behavior: under the all-optimistic auto feature assumptions
No leakages (65.2% prob. of success)
Cashouts
Hardship Withdrawals (HW)
Loans, fixed income first, no defaults
Cashouts, HW 6 month, Loans
Cashouts, HW 6, Loans (w defaults)
Delay = 1 year
Delay = 5 years
0.0%
4.7%
2.1%
2.7%
5.0%
1.2%
6.3%
8.2%
2.1%
14.1%
Source: EBRI Retirement Security Projection Model, version 120209.
* "Success" is defined as achieving an 80 percent real replacement rate from Social
Security and 401(k) accumulations combined as defined in VanDerhei and Lucas
(2010). The population simulated consists of workers currently ages 25–29 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.
1
EBRI’s Retirement Security Projection Model®
•Accumulation phase
•
Simulates retirement income/wealth for Boomers and Gen Xers from defined
contribution, defined benefit, IRA, Social Security and net housing equity
• Pension plan parameters coded from a time series of several hundred plans.
• 401(k) asset allocation and contribution behavior based on individual administrative
records
o Annual linked records dating back to 1996
o More than 24 million employees in 60,000 plans.
•Retirement phase
•
•
•
Simulates 1,000 alternative life-paths for each household starting at 65
Deterministic modeling of food, apparel and services, transportation, entertainment,
reading and education, housing, and basic health expenditures.
Stochastic modeling of longevity risk, investment risk, nursing facility care and home
based health care.
•Produces a Retirement Readiness Rating™
•
Percentage of simulated life-paths that do NOT run short of money in retirement
1
Source: VanDerhei (April 2012)
Years in Retirement Before Early Boomers Run Out
of Money,* by Preretirement Income Quartile
70%
60%
Income Quartile
Lowest
2
3
Highest
Cumulative Probability
50%
40%
30%
20%
10%
0%
0
5
10
15
20
25
30
Years in Retirement (Assuming retirement at age 65)
35
40
Source: EBRI/ERF Retirement Security Projection Model® version 100610e.
* An individual or family is considered to be “at risk” in this version of the model if their aggregate resources in retirement are not sufficient to meet aggregate
minimum retirement expenditures defined as a combination of deterministic expenses from the Consumer Expenditure Survey (as a function of income) and
some health insurance and out-of-pocket health-related expenses, plus stochastic expenses from nursing home and home health care expenses (at least until
the point they are picked up by Medicaid). The resources in retirement will consist of Social Security (either status quo or one of the specified reform
alternatives), account balances from defined contribution plans, IRAs and/or cash balance plans, annuities from defined benefit plans (unless the lump-sum
distribution scenario is chosen), and (in some cases) net housing equity (either in the form of an annuity or as a lump-sum distribution). This version of the
model is constructed to simulate "basic" retirement income adequacy; however, alternative versions of the model allow similar analysis for replacement rates,
standard-of-living, and other ad hoc thresholds.
Source: VanDerhei and Copeland (2010)
45
Value of a Financial Advisor
Source: VanDerhei and Adams (March 2013), The Impact of Online Calculators and Financial Advisors on Setting Adequate
Retirement-Savings Targets: Evidence from the 2013 Retirement
Confidence Survey, EBRI Notes
Impact of a low interest rate environment
Impact of low-interest rate scenarios on Retirement Readiness
Ratings(TM) by age cohort
Percentage of simulated life paths that will NOT run short of money in
retirement at various thresholds
Enough to cover
80% of simulated
expenses
90%
80%
70%
Enough to cover
90% of simulated
expenses
60%
50%
40%
Enough
retirement
resources to
cover 100% of
simulated
expenses
30%
20%
10%
0%
8.6/2.6
6/0
4.6/-1.4
8.6/2.6
Early Boomers
Historical averages
6/0
4.6/-1.4
8.6/2.6
Late Boomers
6/0
4.6/-1.4
Gen Xers
0.8
15%
19%
21%
14%
18%
20%
14%
17%
19%
0.9
11%
15%
17%
11%
15%
16%
10%
12%
12%
1
55%
45%
40%
57%
47%
42%
57%
47%
43%
Real bond ror = 0
5-year TIPS (1/1/13)
Source: EBRI Retirement Security Projection Model® Versions 1750, 1755 and 1760
Return assumptions are presented as arithmetic means for equities and bonds as real returns. Fees are not incorporated in this
version of the model.
Source: VanDerhei (2013)
26
Summary
References (available for free download at
www.ebri.org)
•Holden and VanDerhei (November 2002), Can 401(k) Accumulations Generate Significant
Income for Future Retirees? EBRI Issue Brief and ICI Perspective
•VanDerhei (March 2012). Testimony before the Senate Banking Committee, on "Retirement
(In)security: Examining the Retirement Savings Deficit"
•VanDerhei (April 2012), Tax Reform and Tax‐Favored Retirement Accounts,” Testimony for
the House Committee on Ways and Means.
•VanDerhei (September 2012). Increasing Default Deferral Rates in Automatic Enrollment
401(k) Plans: The Impact on Retirement Savings Success in Plans With Automatic Escalation.
EBRI Notes
•VanDerhei (June 2013). What a sustained low-yield rate environment means for retirement
income adequacy: Results from the 2013 EBRI Retirement Security Projection Model® EBRI
Notes
•VanDerhei, J., Copeland, C. (July 2010). The EBRI Retirement Readiness Rating:™ Retirement
Income Preparation and Future Prospects. EBRI Issue Brief.
•VanDerhei, Holden, Alonso and Bass (December 2012), “401(k) Plan Asset Allocation,
Account Balances, and Loan Activity in 2011.” EBRI Issue Brief and ICI Perspective
•VanDerhei and Lucas (November 2010), The Impact of Auto-enrollment and Automatic
Contribution Escalation on Retirement Income Adequacy, EBRI Issue Brief
2
Appendix: Brief Chronology of the EBRI
Retirement Security Projection Model®
•2001, Oregon
o
Simulated retirement wealth vs. ad hoc thresholds for
retirement expenses
•2002, Kansas and Massachusetts
o
Full stochastic retiree model: Investment and Longevity
risk, Nursing home and home health care costs
o
Net housing equity
•2003, National model
o
Expanded to full national sample
•2004, Senate Aging testimony (January)
o
Impact of everyone saving another 5 percent of
compensation
•2004, EBRI Policy forum (May)
o
Impact of annuitizing defined contribution/IRA balances
•2006, EBRI Issue Brief (March)
o
Evaluation of defined benefit freezes on participants
•2006, EBRI Issue Brief (September)
o
Converted into a streamlined individual version for the
ballpark estimate Monte Carlo
•2008, EBRI policy forum (May)
o
Impact of converting 401(k) plans to automatic
enrollment
•2009, Pension Research Council
o
Winners/losers analysis of defined benefit
freezes and enhanced defined contribution
employer contributions provided as a quid pro
quo
•2010, EBRI Issue Brief (April)
o
Impact of modification of employer
contributions when they convert to automatic
enrollment for 401(k) plans
o2010, EBRI Issue Brief (July)
o
Updated model to 2010, included automatic
enrollment for 401(k) plans
o2010, EBRI Notes (September)
o
Analyzes how eligibility for participation in a DC
plan impacts retirement income adequacy
o2010, EBRI Notes (October)
o
Computes Retirement Savings Shortfalls for
Boomers and Gen Xers
o2010, Senate HELP testimony (October)
o
Analyzes the relative importance of employerprovided retirement benefits and Social Security
o2010, EBRI Issue Brief (November)
o
The Impact of Auto-enrollment and Automatic
Contribution Escalation on Retirement Income
Adequacy
Appendix (continued)
2011, February EBRI Issue Brief
•
Analyzes the impact of the 2008/9 crisis in the
financial and real estate markets on retirement
income adequacy
2011, EBRI policy forum (May)
•
Analyzes impact of deferring retirement age
2011, July EBRI Notes article
•
Analyzes the impact of the 20/20 limit
recommended by the National Commission on
Fiscal Responsibility and Reform
2011, August EBRI Notes article
•
Analyzes value of defined benefit plans
2011, Senate Finance Hearing (September)
•
Analyzes the impact of modifying tax incentives for
defined contribution plans
2012, Urban Institute Presentation (February)
•
Analyzes whether Boomer and Gen X women will
be able to afford retirement at age 65
2012, March EBRI Notes article
•
Analyzes employer and employee reaction to
proposal to modify tax incentives for defined
contribution plans and simulates the expected
impact on account balances at retirement age
2012, June EBRI Notes article
• Analyzes the impact of eligibility for participation in
a 401(k) plan on Gen Xers
August 2012 EBRI Notes article
• Provided additional evidence on whether deferring
retirement to age 70 would provide retirement
income adequacy for the vast majority of Baby
Boomers and Gen Xers.
September 2012 EBRI Notes article
• Analyzed the impact of increasing the default
contribution rate for automatic enrollment 401(k)
plans with automatic escalation of contributions.
November 2012 EBRI Notes article
• Reclassified the RRRs to provide additional
information on those substantially above the
threshold; close to the threshold; and substantially
below the threshold
March 2013 EBRI Notes article
• Quantifies the value of financial advisors and the
use of online calculators for estimating adequate
retirement targets
30
Bass (2012)

employer with holding percentages

Transcription

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