1. Presentation to the Oregon Retirement Security Board Anek Belbase and Geoffrey Sanzenbacher Center for Retirement Research at Boston College March 2015 Market Analysis: What We Know and Do Not Yet Know

2. 1 Introduction “…to produce first-class research and educational tools and forge a strong link between the academic community and decision-makers in the public and private sectors…” Anek Belbase Alicia H. Munnell Geoffrey Sanzenbacher

3. 2 State initiatives will help close a growing retirement savings gap. The National Retirement Risk Index, 1983-2013 Source: Munnell, Hou, and Webb (2016).

4. 3 Market analysis will answer key questions. Which workers and employers will be affected by the mandate? What share of affected Oregon workers will participate and how will it vary by plan design and communication? How will participation and account balances change over time? What costs will employers face for enrolling workers?

5. 4 Which workers will gain coverage and which employers will be affected?

6. 5 What we know The number and characteristics of uncovered workers. The number and characteristics of employers that do not offer coverage. What we do not know Who will be considered an eligible employer in the program.

7. 6 834,000 Oregon workers have no retirement plan at work. Number of Oregon Workers Without a Retirement Plan at Work, by Location Source: CRR calculations from the U.S. Census Bureau. Current Population March Supplement (2015).

8. 7 An additional 220,000 workers do have a plan at work, but are not included. Number of Oregon Workers Not Included in Retirement Plan Offered at Work, by Location Source: CRR calculations from the U.S. Census Bureau. Current Population March Supplement (2015).

9. 8 Uncovered workers tend to work for small businesses and for fewer hours. Share of Oregon Workers without Plan at Work by Hours Worked Share of Oregon Workers without Plan at Work by Firm Size Source: CRR calculations from the U.S. Census Bureau. Current Population March Supplement (2015).

10. 9 Access to state plan would be reduced if some employers not covered by the mandate. Approximate Share of Oregon Workers at Firms Not Covered by Mandate Under Various State Rules Source: CRR calculations from the U.S. Census Bureau. Longitudinal Business Database (2013).

11. 10 What share of workers will participate and how affected by design/communication?

12. 11 What we know The share of workers likely to participate under standard plan designs. How Oregon demographics alter this share. What we do not know Whether Oregon workers will respond differently. How communication alters participation.

13. 12 Participation in retirement savings plans under auto-enrollment is well documented. Connecticut conducted a nationwide survey of uncovered workers to determine participation under various plan designs. California conducted research into how its uncovered population responds to different default contribution rates. Research exists on the behavior of covered workers auto- enrolled in 401(k)s.

14. 13 This research consistently finds that auto- enrollment results in high participation rates. Participation Rates under Various Contribution Rates Sources: Overture Financial (2016); State of Connecticut Retirement Security Board (2016); and Madrian and Shea (2001).

15. 14 This research also shows participation varies by demographics. Change in Participation Associated with Various Demographic Groups Source: CRR calculations from Knowledge Networks Nationwide Survey (2015).

16. 15 But the variation translates to very small geographical differences across Oregon. Predicted Participation Rates in Oregon by Metro Area, 6-percent Contribution Rate Source: CRR calculations from Knowledge Networks Nationwide Survey (2015).

17. 16 To examine the effects of plan design, helpful to start with a “base case.” 6-percent contribution rate Roth IRA Target date fund One contribution change per year No annuity

18. 17 Beyond auto-enrollment, plan design choices have a small impact on participation. Predicted Oregon Participation Rates under Various Plan Designs Source: CRR calculations from Knowledge Networks Nationwide Survey (2015).

19. 18 But choosing the right default is important, since auto-enrolled workers stick to them. Workers auto-enrolled at 3-percent tend to remain there, while workers not auto-enrolled choose higher rates. Workers also stick with default investment options, even if they have low returns, like a money market fund.

20. 19 Will Oregonians react differently to an auto-IRA than rest of nation? Existing data can be used to see if Oregonians with similar demographics behave differently than others: o Survey of Income and Program Participation; and o 401(k) industry data on low-income Oregonians’ 401(k) participation.

21. 20 Can communication reduce opt-out? CRR will identify best practices from existing literature and from industry: o the UK’s NEST; and o 401(k) industry research on communication and participation.

22. 21 How will participation and account balances change over time?

23. 22 What we know 401(k) participants do not typically opt out. Leakages for 401(k) covered workers are a problem. What we do not know Whether uncovered workers will behave similarly to 401(k) participants over time.

24. 23 Auto-enrolled workers in 401(k) plans remain enrolled over time. Source: Choi et al. (2004).

25. 24 About 1.5 percent of 401(k) assets leak out each year. Note: Numbers were scaled up by 25 percent to reflect the fact that household surveys of leakages typically suggest higher rates than Vanguard data. Source: Munnell and Webb (2015), based on Vanguard (2014). Annual Leakages out of Vanguard Accounts as a Percentage of Assets, 2013 Post 59½

26. 25 It is unclear whether these patterns will apply to auto-IRA participants. Compared to 401(k) participants, workers may be more likely to leave program due to hardship or less likely to leave because the default is to remain enrolled. As far as leakages, they will not cash out balances when they switch jobs, but may be more likely to need money. o This behavior will also be affected by issues of program design (e.g., Roth versus Traditional IRA).

27. 26 CRR will work to estimate program exit and leakages using existing data. CRR working with record keepers to obtain data on low-income 401(k) participants, who may be similar to uncovered workers. Publicly available data can be used to identify how often participants may leave program due to unemployment.

28. 27 What costs will employers face for enrolling workers in the plan?

29. 28 The effect of mandate depends on whether firms manage own payroll. Use payroll provider (e.g, ADP, Paychex) Manage own payroll (e.g., Intuit, accountant) Mandate

30. 29 What we know Those using a payroll provider will face only modest additional costs. What we do not know The share of Oregon employers that manage their own payroll. The monetary and administrative burdens for these employers.

31. 30 Understanding costs to employers who manage own payroll requires three steps. 1.Number of employers who do manage own payroll can be obtained from payroll providers (and potentially state agencies). 2.CRR will work with Segal to show these employers the steps they would have to take to enroll workers. 3.Interviews will assess the time/money and reaction associated with these steps.

32. 31 Next steps Collect and analyze data and complete review of literature. Write draft of market analysis based on the outlined research. Get input from stakeholders on the draft market report. Revise report. Present approach for financial analysis.