® Employee Benefit Research Institute 2014® Employee Benefit Research Institute Discussion of: How Automatic Enrollment Affects the Likelihood and Distribution of 401(k) Contributions: Evidence from a National Survey Retirement Research Consortium August 7, 2014 Jack VanDerhei EBRI Research Director

® Employee Benefit Research Institute 2014® Employee Benefit Research Institute 201 Overview What are you missing with a sample aged 55+? Impact of automatic enrollment (AE) on participation rates by age What are you missing if you treat all AE plans the same? Default contribution rates Auto escalation What happens when you combine the increase in participation rates under AE with the new behavior in employee contributions? Percentage of workers eligible for AE with a larger simulated employee contribution under Voluntary Enrollment (VE), by tenure What does it mean in the long run? Percentage of Successful Simulated Retirements by Income Quartile: VE vs. AE 401(k) Plans Some potential data/methodological considerations Time permitting 2

® Employee Benefit Research Institute 2014® Employee Benefit Research Institute 201 Impact of plan design on participation rates by age 3 Source: Stephen P. Utkus and Jean A. Young. “How America Saves 2014, A Report On Vanguard 2013 Defined Contribution Plan Data.” Sample limited to ages 55 to 69

® Employee Benefit Research Institute 2014® Employee Benefit Research Institute 201 Importance of AE plan design variables for employee contributions : Ratio of median contributions for plans with 6 percent default and auto- escalation vs. those with 3 percent default and no auto-escalation By age By age-specific salary quartiles 4 Conditional upon participation Limited to employees with 4 or less years of tenure and at least $10k in salary Filters out plans that implemented AE between 1/2/2008 and 12/31/2011

® Employee Benefit Research Institute 2014® Employee Benefit Research Institute 201 Percentage of workers eligible for AE with a larger simulated employee contribution under VE, by tenure 5 Source: Author’s simulations for WSJ, May 2011

® Employee Benefit Research Institute 2014® Employee Benefit Research Institute 201 Percentage of Simulated Successful* Retirements by Income Quartile: Voluntary Enrollment vs. Automatic Enrollment 401(k) Plans 6 Plans are assumed to have automatic escalation with a 1 percent of annual compensation increase and plan-specific default contribution rates. Employees are assumed to retain their previous level of contributions when they participate in a new plan and opt-out of automatic escalation in accordance with the probabilities in VanDerhei (September 2007)

® Employee Benefit Research Institute 2014® Employee Benefit Research Institute 201 Potential data/methodological considerations Only applies to those and 2010 data does not allow one to observe the importance of auto-escalation (primarily post-PPA) Definition of AE used in the study Is it possible that this is picking up employees who started prior to the plan’s AE implementation date? Several industry surveys have continued to show that AE provisions are typically NOT applied retroactively The disparity between AE participation rates (relative to VE) for this study and those in industry and academic studies may suggest that respondents are answering the AE question in the affirmative when they shouldn’t Is the “automatic enrollment” feature of DB a potential confusion here? 7

® Employee Benefit Research Institute 2014® Employee Benefit Research Institute 201 References Utkus, Stephen P. and Jean A. Young. “How America Saves 2014, A Report On Vanguard 2013 Defined Contribution Plan Data.” VanDerhei, Jack (January 2014), The Role of Social Security, Defined Benefits, and Private Retirement Accounts in the Face of the Retirement Crisis, EBRI Notes VanDerhei, Jack (October 2011), What Do You Call A Glass That Is 60– 85% Full? Pension Section News, Society of Actuaries. VanDerhei, Jack (September 2007). The Expected Impact of Automatic Escalation of 401(k) Contributions on Retirement Income EBRI Notes. VanDerhei, Jack and Lori Lucas (November 2010), The Impact of Auto- enrollment and Automatic Contribution Escalation on Retirement Income Adequacy, EBRI Issue Brief 8