government-sponsored retirement savings plans: an analysis of policy proposals prepared by: william...

 Government-Sponsored Retirement Savings Plans: An Analysis of Policy 

ProposalsPrepared by:

William Dernbach Jr.Da Huo

Steven KuligStephanie MabreyJohn Wilson-Tepeli

Background

Lack of Preparedness

Insufficient Savings

Other Financial Priorities

Lack of Information

Problematic Features

Lack of Access

Background

Lack of Preparedness

Insufficient Savings

Other Financial Priorities

Lack of Information

Problematic Features

Lack of Access

Background

Lack of Preparedness

Insufficient Savings

Other Financial Priorities

Lack of Information

Problematic Features

Lack of Access

Research Questions

• What are the salient features of recent retirement savings proposals at the state and federal level?

• How do the federal automatic IRA, myRA, USA Retirement Funds, and the California Secure Choice

compare with status quo when assessed based on criteria that address barriers to adequate retirement savings for individuals 45 years old and under?

Research Questions

• What are the salient features of recent retirement savings proposals at the state and federal level?

• How do the federal automatic IRA, myRA, USA Retirement Funds, and the California Secure Choice

compare with status quo when assessed based on criteria that address barriers to adequate retirement savings for individuals 45 years old and under?

Retirement Proposals

• Considered

• Researched• Plan Features

• Analyzed

myRAUSA RetirementAutomatic IRA

Retirement Proposals

myRAUSA RetirementAutomatic IRA

• Considered

• Researched

• Plan Features

• Analyzed

Retirement Plans

• Considered

• Researched• Plan Features

• Analyzed

• Defined benefit vs. defined contribution

• Default levels of contribution

• How funds are invested

• Unique tax incentives

• Thresholds

• Political status

Retirement Plans: Plan FeaturesUSA Funds

Auto IRA MyRA CA MA IL VA IN WA

DB vs DC DC DC DC DC DC DC DC DC DC

Retirement Plans: Plan FeaturesUSA Funds

Auto IRA MyRA CA MA IL VA IN WA

DB vs DC DC DC DC DC DC DC DC DC DC

Contribution Level

Default 6%

3% or <= 6%

Min >= $5/pay period

Default 3%

10% per pay period or 1% gross income

3% None None None

Retirement Plans: Plan FeaturesUSA Funds

Auto IRA MyRA CA MA IL VA IN WA

DB vs DC DC DC DC DC DC DC DC DC DC

Contribution Level

Default 6%

3% or <= 6%

Min >= $5/pay period

Default 3%

10% per pay period or 1% gross income

3% None None None

Investment Options Menu Menu Treasury

SecuritiesBoard Invest Menu Menu Menu Menu Menu

Retirement Plans: Plan FeaturesUSA Funds

Auto IRA MyRA CA MA IL VA IN WA

DB vs DC DC DC DC DC DC DC DC DC DC

Contribution Level

Default 6%

3% or <= 6%

Min >= $5/pay period

Default 3%

10% per pay period or 1% gross income

3% None None None

Investment Options Menu Menu Treasury

SecuritiesBoard Invest Menu Menu Menu Menu Menu

Additional Tax 

IncentivesYes Yes No No No No No Yes No

Retirement Plans: Plan FeaturesUSA Funds

Auto IRA MyRA CA MA IL VA IN WA

DB vs DC DC DC DC DC DC DC DC DC DC

Contribution Level

Default 6%

3% or <= 6%

Min >= $5/pay period

Default 3%

10% per pay period or 1% gross income

3% None None None

Investment Options Menu Menu Treasury

SecuritiesBoard Invest Menu Menu Menu Menu Menu

Additional Tax 

IncentivesYes Yes No No No No No Yes No

Employee Threshold >=10 >10 None >5 <20 >10 <50 None <100

Retirement Plans: Plan FeaturesUSA Funds

Auto IRA MyRA CA MA IL VA IN WA

DB vs DC DC DC DC DC DC DC DC DC DC

Contribution Level

Default 6%

3% or <= 6%

Min >= $5/pay period

Default 3%

10% per pay period or 1% gross income

3% None None None

Investment Options Menu Menu Treasury

SecuritiesBoard Invest Menu Menu Menu Menu Menu

Additional Tax 

IncentivesYes Yes No No No No No Yes No

Employee Threshold >=10 >10 None >5 <20 >10 <50 None <100

Enacted No No No Yes Yes No No No No

Retirement Proposals

• Considered

• Researched

• Plan Features

• Analyzed

myRAUSA RetirementAutomatic IRA

Research Questions

• What are the salient features of recent retirement savings proposals at the state and federal level?

• How do the federal automatic IRA, myRA, USA Retirement Funds, and the California Secure Choice

compare with status quo when assessed based on criteria that address barriers to adequate retirement savings for individuals 45 years old and under?

Criteria

• Ease of Access

• Minimization of Cost

• Minimization of Risk

• Implications of Plan Portability

• Implications for Adequacy of Overall Savings

Criteria

• Ease of Access

• Minimization of Cost

• Minimization of Risk

• Implications of Plan Portability

• Implications for Adequacy of Overall Savings

•To what extent would the policy increase ease of access to retirement saving options?

• Low and middle-income individuals

Ease of Access

Proposal Feature

USA Retirement Funds Automatic enrollment, self-employed eligible

Federal Automatic IRA Automatic enrollment

California Secure Choice Automatic enrollment

myRA Opt-in enrollment

Ease of Access

Criteria

• Ease of Access

• Minimization of Cost

• Minimization of Risk

• Implications of Plan Portability

• Implications for Adequacy of Overall Savings

Cost

•What parties would administrative costs?

• Plan providers

• Low and middle-income employees

Cost

Proposal Employees Plan Provider

USA Retirement Funds Low Low

Federal Automatic IRA

Low to Moderate Low

California Secure Choice Low Low

myRA Low Low

Criteria

• Ease of Access

• Minimization of Cost

• Minimization of Risk

• Implications of Plan Portability

• Implications for Adequacy of Overall Savings

Minimization of Risk

•What would be the change in anticipated risk associated with adoption of the policy?

• To employees

• To plan providers

Minimization of Risk: Employees

Risk type Mitigation strategy

Sophistication riskAutomatic enrollment,

default contribution rates

Market risk Risk pooling

Longevity risk Risk pooling

Minimization of Risk: Plan Provider

• Defined benefit (higher provider risk)

• Financial liability for benefits

• Defined contribution (lower provider risk)

• No financial liability for benefits

Minimization of Risk

•What would be the change in anticipated risk associated with adoption of the policy?

• Automatic enrollment, default contribution levels, risk pooling, reinsurance, adjustable benefit

Criteria

• Ease of Access

• Minimization of Cost

• Minimization of Risk

• Implications of Plan Portability

• Implications for Adequacy of Overall Savings

Implications of Plan Portability

•To what extent would the plan’s level of portability impact employer competitiveness and employee labor market decision-making?

Implications of Plan Portability:Employees

•Increased mobility

•Reduced likelihood of multiple plans

•Reduced likelihood of early withdrawal penalties

Implications of Plan Portability:Employers

•Potential for decreased competitive advantage in the labor market

Implications of Plan Portability

•An inherent tradeoff between employee and employer benefit

•Tradeoff should be carefully considered by policymakers in plan design

Criteria

• Ease of Access

• Minimization of Cost

• Minimization of Risk

• Implications of Plan Portability

• Implications for Adequacy of Overall Savings

Implications for Adequacy of Overall Savings

•To what extent would the policy increase overall levels of retirement savings?

Implications for Adequacy of Overall Savings

•Set contribution rate

•Plan with overall contribution limit less effective

Key Features and Limitations

Key features:

•Automatic enrollment

•Risk pooling

•Default contribution level

Key Features and Limitations

Key features:

•Automatic enrollment

•Risk pooling

•Default contribution level

Limitations:

•Inherent tradeoffs

•Uncertainty regarding proposals

Thank YouWilliam Dernbach Jr.

dernbachw@yahoo.com

Da Huodhuo2@wisc.edu

Steven Kuligshkulig@gmail.com

Stephanie Mabreysmabrey@wisc.edu

John Wilson-Tepelijcwilson3@wisc.edu

Reference Slides

California Secure Choice

USA Retirement Funds MyRA

Federal Automatic 

IRAEase of Access High High Low High

Minimize Cost

Employees Low Low Low Low-Moderate

Plan Providers Low Low Low Low

Minimize Risk

Market Low Low Low ModerateLongevity Low Low High LowSophisti-

cation Low Low Moderate ModeratePlan

Provider High Low Unknown Low

Plan Portability

Employer &

EmployeeSignificant Significant Significant Significant

Adequacy of Savings Unknown Significant Significant Significant

USA Funds

Auto IRA MyRA CA MA IL VA IN WA

Automatic Enrollment Yes Yes No Yes No Yes No No No

Employee Threshold >=10 >10 None >5 <20 >10 <50 None <100

Investment Options Menu Menu Treasury

SecuritiesDefault

Plan Menu Menu Menu Menu Menu

Admin Fees Unknown Unknown Unknown <1%

<0.08% annual fee assessed quarterly

Unknown Unknown Unknow

n Unknown

Contribution Level

Default 6%

3% or <= 6%

Min >= $5/pay period

Default 3%10% per pay period or 1%

gross income

3% None None None

Max Employee Contributio

n

$10,000/year

$5,500/year

$15,000 total

$5,500/year

$17,500/year

$17,500/year

$17,500/year

$5,500/year

Tier 1: $5,500/year,

Tier 2: $17,500/yea

r

Enacted No No No Yes Yes No No No No

Lowest Quartile Second Quartile Third Quartile Highest Quartile

40%

70%

80%89%

22%

54%

68%

80%

Access Participation

Plan Access and Participation by Income Level, All Workers

Source: Bureau of Labor Statistics, 2013

Retirement Plan Participation Rates, Private Sector by Plan Over Time

Source: Bureau of Labor Statistics, 2006

1992-93 1996-97 2000 2005

35%

40%

36%

42%

32% 27%

19% 21%

Defined Contribution Defined Benefit

Retirement Plan Participation by Plan Type in 2013, All Employees

Source: Bureau of Labor Statistics, 2006

Defined Benefit Defined Contribution

26%

38%