Government-Sponsored Retirement Savings Plans: An Analysis of Policy Proposals Prepared by: William Dernbach Jr. Da Huo Steven Kulig Stephanie Mabrey John 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 myRA USA Retirement Automatic IRA

Retirement Proposals myRA USA Retirement Automatic 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 Features USA Funds Auto IRAMyRACAMAILVAINWA DB vs DCDC

Retirement Plans: Plan Features USA Funds Auto IRAMyRACAMAILVAINWA DB vs DCDC Contribution Level Default 6% 3% or <= 6% Min >= $5/pay period Default 3% 10% per pay period or 1% gross income 3%None

Retirement Plans: Plan Features USA Funds Auto IRAMyRACAMAILVAINWA DB vs DCDC Contribution Level Default 6% 3% or <= 6% Min >= $5/pay period Default 3% 10% per pay period or 1% gross income 3%None Investment Options Menu Treasury Securities Board Invest Menu

Retirement Plans: Plan Features USA Funds Auto IRAMyRACAMAILVAINWA DB vs DCDC Contribution Level Default 6% 3% or <= 6% Min >= $5/pay period Default 3% 10% per pay period or 1% gross income 3%None Investment Options Menu Treasury Securities Board Invest Menu Additional Tax Incentives Yes No YesNo

Retirement Plans: Plan Features USA Funds Auto IRAMyRACAMAILVAINWA DB vs DCDC Contribution Level Default 6% 3% or <= 6% Min >= $5/pay period Default 3% 10% per pay period or 1% gross income 3%None Investment Options Menu Treasury Securities Board Invest Menu Additional Tax Incentives Yes No YesNo Employee Threshold >=10>10None>5<20>10<50None<100

Retirement Plans: Plan Features USA Funds Auto IRAMyRACAMAILVAINWA DB vs DCDC Contribution Level Default 6% 3% or <= 6% Min >= $5/pay period Default 3% 10% per pay period or 1% gross income 3%None Investment Options Menu Treasury Securities Board Invest Menu Additional Tax Incentives Yes No YesNo Employee Threshold >=10>10None>5<20>10<50None<100 EnactedNo Yes No

Retirement Proposals Considered Researched Plan Features Analyzed myRA USA Retirement Automatic 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

ProposalFeature USA Retirement Funds Automatic enrollment, self-employed eligible Federal Automatic IRAAutomatic enrollment California Secure ChoiceAutomatic enrollment myRAOpt-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 ProposalEmployees Plan Provider USA Retirement Funds Low Federal Automatic IRA Low to Moderate Low California Secure Choice Low myRALow

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 typeMitigation strategy Sophistication risk Automatic enrollment, default contribution rates Market riskRisk pooling Longevity riskRisk 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 You William Dernbach Jr. Da Huo Steven Kulig Stephanie Mabrey John Wilson-Tepeli

Reference Slides

California Secure Choice USA Retirement FundsMyRA Federal Automatic IRA Ease of Access High LowHigh Minimize Cost Employees Low Low- Moderate Plan Providers Low Minimize Risk Market Low Moderate Longevity Low HighLow Sophisti- cation Low Moderate Plan Provider HighLowUnknownLow Plan Portability Employer & Employee Significant Adequacy of Savings UnknownSignificant

USA Funds Auto IRAMyRACAMAILVAINWA Automatic Enrollment Yes NoYesNoYesNo Employee Threshold >=10>10None>5<20>10<50None<100 Investment Options Menu Treasury Securities Default Plan Menu Admin Fees Unknow n <1% <0.08% annual fee assessed quarterly Unknow n Contributio n Level Default 6% 3% or <= 6% Min >= $5/pay period Default 3% 10% per pay period or 1% gross income 3%None Max Employee Contributio n $10,000/ year $5,500/ye ar $15,000 total $5,500/ye ar $17,500/yea r $5,500/y ear Tier 1: $5,500/year, Tier 2: $17,500/yea r EnactedNo Yes No

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

Retirement Plan Participation by Plan Type in 2013, All Employees Source: Bureau of Labor Statistics, 2006