Pension & Benefits News EBRI survey looks at effect of SECURE Act on retirement security of American workers
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Monday, March 23, 2020

EBRI survey looks at effect of SECURE Act on retirement security of American workers

By Pension and Benefits Editorial Staff

Certain key provisions of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), enacted as part of the Further Consolidated Appropriations Act, 2020 (P.L. 116-94), could reduce the U.S. retirement deficit by 3 percent or $115 billion for households between ages 35 and 64, according to new EBRI study. For workers currently ages 35-39, the percentage reduction increases to 5.3 percent and further increases to 10.7 percent if they work for small employers (fewer than 100 employees).

The Issue Brief, “Impact of the SECURE Act on Retirement Income Adequacy,” uses EBRI’s Retirement Security Projection Model® (RSPM) to evaluate the impact of provisions in the SECURE Act on retirement income adequacy on a national basis, including greater access by allowing providers to offer open multiple employee plans (MEPs), raising the cap under which plan sponsors can automatically enroll workers in “safe harbor” 401(k) plans from 10 percent to 15 percent of wages, and requiring the coverage of long-term part-time employees in 401(k) plans.

“It is important to note that any analysis focusing exclusively on retirement savings deficits is limited to households who are expected to run short of money in retirement. Therefore, we also look at retirement savings surplus to better understand the full impact of the new legislation,” said Jack VanDerhei, Director of Research, EBRI, and author of the report.

Open MEPs. Assuming adoption of open MEPs at approximately one-third and a non-participation rate of zero (everyone who is eligible chooses to participate), the survey found an overall 1.8 percent reduction in retirement savings deficit across all age cohorts. Younger age cohorts would experience a larger impact from open MEPs given the longer time for which they may potentially benefit from the increased coverage. Overall, there is a 3.2 percent reduction in retirement deficit for those ages 35-39, according to the survey.

With approximately a one-third adoption rate and 25 percent non-participation, the reduction in retirement savings deficit is 1.4 percent overall and 2.4 percent for those ages 35-39.

Increased cap on contribution escalation. Also taking into account the increased cap, the overall reduction in retirement savings deficit is 2.6 percent and 4.5 percent for those ages 35-39.

Coverage of long-term part-time employees. Adding in the requirement for coverage of long-term part-time employees, the reduction in retirement savings deficit is 3.0 percent overall and 5.3 percent for those ages 35-39.

Effect of opt-out rates on reduction of retirement deficit. Assuming that all open MEPs under the SECURE Act are designed with automatic enrollment, an automatic contribution escalation cap of 15 percent, coverage of long-term part-time employees, and an opt-out rate of 10 percent (typical of automatic enrollment plans):

  • The reduction in retirement savings deficit is 3.3 percent overall and 5.8 percent for those ages 35-39.
  •  The increase in retirement savings surplus is 6.1 percent overall and 15.3 percent for those ages 35-39.
  •  The increase in net retirement savings surplus is 6.9 percent overall and 18.6 percent for those ages 35-39.

If the non-participation rate is 40 percent (usual with voluntary enrollment plans):

  •  The reduction in retirement savings deficit is 2.8 percent overall and 4.9 percent for those ages 35-39.
  •  The increase in retirement savings surplus is 5.6 percent overall and 13.9 percent for those ages 35-39.
  •  The increase in net retirement savings surplus is 6.3 percent overall and 16.8 percent for those ages 35-39.

The survey tested the impact of different adoption rates on the overall reduction in the retirement deficit based on if open MEPs are available, the cap on the automatic escalation of contributions in the 401(k) testing safe harbor is 15 percent, long-term part-time employees are covered, and non-participation rates are 25 percent of eligible employees.

In the survey’s most aggressive scenario, EBRI assumes all employers with fewer than 500 employees that do not currently sponsor a retirement plan adopt an open MEP. The survey determined that:

  •  The reduction in retirement savings deficit is now 5.6 percent overall and 9.2 percent for those ages 35-39.
  •  The increase in retirement savings surplus is 8.7 percent overall and 20.2 percent for those ages 35-39.
  •  The increase in net retirement savings surplus is 9.9 percent overall and 24.8 percent for those ages 35-39.

In a “worst-case scenario,” the survey assumes a 7 percent adoption of open MEPs. The survey found:

  •  The reduction in retirement savings deficit is 2.0 percent overall and 3.5 percent for those ages 35-39.
  •  The increase in retirement savings surplus is 4.9 percent overall and 12.3 percent for those ages 35-39.
  •  The increase in net retirement savings surplus is 5.4 percent overall and 14.8 percent for those ages 35-39.

Source: EBRI Issue Brief.

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