government-sponsored retirement savings plans: an analysis of policy proposals prepared by: william...
TRANSCRIPT
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.
Steven [email protected]
Stephanie [email protected]
John [email protected]
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%