Trends in Retirement Programs and Income Dallas Salisbury, President & CEO Employee Benefit Research Institute June 10, 2008

V308 1 Retirement Plan Trends: Number of Plans

V308 2 Retirement Total Participation Trends: Including Multiple-Plan Counting

V308 3 Retirement Active Participation Trends: Including Multiple Plan Counting

V308 4 Retirement Asset Trends

V308 5 Retirement Plan Contribution Trends

V308 6 Retirement Plan Net “Contribution” Trends

V308 7 What Employers Spend on Benefits

V308 8 Factors  How much is being saved

V308 9 Actual Contributions Versus Needed Contributions FactorAll WorkersBaby Boomers % on track to replace 80 % with SSA included 15% Saving rate3.5%4.1% Needed rate12% - 19%18%-27% Source: Fidelity RI Retirement Index, March 2007

V Income quartile at age 65 Percent of final five-year average salary * The 401(k) accumulation includes 401(k) balances at employer(s) and rollover IRA balances. Source: Tabulations from the EBRI/ICI 401(k) accumulation projection model BaselineDon't always have a 401(k) Median Replacement Rates for 401(k) Accumulations* for Participants Reaching Age 65 Between 2030 & 2039

V Factors  How much is being saved  How much is needed

V  SSA replaces 27% of salary at the maximum wage base and 39% at the average income  Medicare pays for about 50% of retiree health costs 2005SSAMed Male243,174130,586 Female306,263152,963 Couple515,532283,549 Avg LEM 81F 85 Source: Urban Institute, 2006 r e t i r e m e n t t r e n d s Matching the Value of SSA and Medicare to Average Life Expectancy

V Risk Acceptance % MD$194,000$325,000 75% MD$253,000$424,000 90% MD$305,000$511,000 90% Drugs$654,000$1,064,000 Savings Needed for Retiree Health Benefits: Age 65 in 2008 and 2018 (couples)

V  Starting at age 20 and saving consistently for 47 years will support a long life at rates many are now saving.  Waiting until 40 or 50 moves the numbers to the stars unless retirement is delayed. How much do you need to save if you work until 67? Responsibility for Longevity Risk Requires Greater Individual Savings

V Target Final Earnings Multiples: High Income Probability of Retirement Adequacy Male Retiring at 65 Female Retiring at 65 50% % % Source: EBRI Issue Brief September 2006 Single retiree less than $40,450

V Target Final Earnings Multiples: Low Income Single retiree less than $15,000 Probability of Retirement Adequacy Male Retiring at 65 Female Retiring at 65 50% % % Source: EBRI Issue Brief September 2006

V Factors  How much is being saved  How much is needed  Longevity

V Source: Annuity 2000 Mortality Table, American Society of Actuaries. Figures assume you are in good health. Couple (Both Age 65) Female Age 65 Age 92 50% chance of one survivor Male Age 65 Age Age % chance25% chance 50% chance 25% chance of one survivor People Are Likely to Live Longer Than They Think!

V “I think you should be more explicit here in Step Two.”

V Factors  How much is being saved  How much is needed  Longevity  Probability of not running out desired

V Income Annuity – Fully Indexed Confirmation Code: 19NXXX2B5SAZ08C001 Primary Annuitant -- Birth date: 04/01/1947 Sex: M Quote Expiration Date: 03/18/2008 Benefit Commencement Date: 05/01/2008 State of Residence: AZ Payments per Year: 12 Total Premium Amount: $200, Initial Payment Amount for Fixed Single Life Annuity with inflation adjustments: $ Cancellation Option Selected: No Qualified Assets: Yes Source:

V How Much Does Portfolio Matter at 90% Confidence level? $200,000 at age 60 – 90% chance of income for 20 and 40 years Portfolio D is a 40/40/20 mix (equity/bond/cash) Source:www3.troweprice.com/ric/RIC/

V How much does probability matter? $200,000 at age 60 – 90% chance of income for 20 and 40 years Portfolio D is a 40/40/20 mix (equity/bond/cash) Source:www3.troweprice.com/ric/RIC/

V Worker Knowledge a Concern

V Percentage of Income, by Age, for the Retired Population, 1977 and 2007

V Financial Literacy  Low  Not a priority in schools or later  Efforts offset by spend and borrow consumption culture  Not high for participants  Essential if income is not annuitized and there are assets to manage

V Principles of Retirement Readiness  Early participation, consistent high contributions, and preservation  Early ballpark e$timate® of savings needed and annual update  Diversified asset allocation with reasonable costs and risk/age based re-balancing  Ongoing total life financial education, planning and implementation  Employer recognition of value to short term and long term productivity and profitability

V Helping Participants Navigate  How much can you afford to save?  Might you borrow this money?  How long do you think you will be with this employer?  Might you cash out at job change?  Is this your only savings?  Would you sell if the market dropped?  How willing are you to lose money?

V Getting Participation Up  Default enrollment with matching contribution highest rates  Default enrollment with no match near tie  Voluntary enrollment with match near tie  Voluntary enrollment with no match next  Voluntary IRA with payroll deduction next  Voluntary IRA on own lowest

V Getting Contributions Up  Automatic employer contribution best  Default contribution next  Auto escalation essential feature over long term – or less will be saved

V Preservation A Growing Focus  Job change and low balance losses  Loan and hardship losses  Employers increasingly seek to keep funds in the pla n at job change  Employers increasingly focused on at retirement with drawal method and options

V Public Policy – 2008 and Beyond  Social Security and Medicare as Focus  Mandatory savings considered but unlikely  Due to low incomes, tax loads, and health costs  Employer plans and IRA’s likely to be put to effectiveness test – tax restrictions? Fee rules?  Later retirement ages for those able to work  Low disability and SSA incomes for those not healthy enough to work

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V Dallas L. Salisbury President and CEO Employee Benefit Research Institute and

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