Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201

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Dallas L. Salisbury
CEO and President, EBRI
salisbury@ebri.org
202-775-6322

ERISA at 40 the state of retirement plans
Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
DC 1974 DOJ Pre ERISA, DOL and PBGC Age 24
2
EBRI Founding 1978 9/28/2013 was 35
th

Anniversary..Age 64
40 Years of Research
and Policy Analysis:
Retirement, Health, Savings, and
Other Employee Benefits
Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201

EBRI


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Descriptive Not Normative

Policy maker goals and objectives will determine their interpretation of whether
the numbers presented tell a good or bad story do not bias them

Let the data fall where it may (see last point)

Consider actual behavior and risks in assessing possible outcomes

Run multiple scenarios

Look at all scenarios/outcomes by multiple demographic variables

Try to avoid ever giving a single number which is almost always what
has been asked for - as the answer to a complex question

Disclose strengths and limitations of EBRI research and modeling and do
the same for research and modeling done by others



Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
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Employee Benefit Research Institute 2014 Employee Benefit Research Institute 2014
THE MOST COMMON
REQUEST WE GET:

GIVE ME ONE NUMBER
FOR..

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Employee Benefit Research Institute 2014 Employee Benefit Research Institute 2014
In Conclusion

82% Coverage

47% Coverage

28% Coverage
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Employee Benefit Research Institute 2014 Employee Benefit Research Institute 2014
Seriously.
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ERISA definition change: defined contribution plans are pensions and
a pension does not necessarily have to pay a life income stream

ERISA vesting change: every participant that spends a reasonable time in
a plan should get some benefit -- ideally vesting will be immediate and
the cash and accrual will be portable

ERISA funding change: the money should always be in the plan and mark
to market is the appropriate method of valuing assets and liabilities


Employee Benefit Research Institute 2014 Employee Benefit Research Institute 2014
Seriously.ERISA had consequences..
intended and unintended.
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ERISA definition change: defined contribution plans are pensions and
a pension does not necessarily have to pay a life income stream

ERISA vesting change: every participant that spends a reasonable time in
a plan should get some benefit -- ideally vesting will be immediate and
the cash and accrual will be portable

ERISA funding change: the money should always be in the plan and mark
to market is the appropriate method of valuing assets and liabilities


Employee Benefit Research Institute 2014 Employee Benefit Research Institute 2014
Seriously.ERISA had consequences..
intended and unintended.with key realities in most
defined contribution plans
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ERISA definition change: defined contribution plans are pensions and
a pension does not necessarily have to pay a life income stream

ERISA vesting change: every participant that spends a reasonable time in
a plan should get some benefit -- ideally vesting will be immediate and
the cash and accrual will be portable

ERISA funding change: the money should always be in the plan and mar
ppropriate method of valuing assets and liabilities


Voluntary decision on whether or not to sponsor a plan
Voluntary decision on how expensive a plan to adopt
Voluntary emphasis on allowing the worker to opt out
Of participation
Of fixed contribution amount
Of specified investment
Voluntary emphasis on allowing the worker to choose withdrawal timing
Voluntary emphasis on allowing the worker to choose benefit form
Employee Benefit Research Institute 2014 Employee Benefit Research Institute 2014
Seriously.ERISA had consequences..
intended and unintended.with key realities in most
defined contribution plans
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ERISA definition change: defined contribution plans are pensions and
a pension does not necessarily have to pay a life income stream

ERISA vesting change: every participant that spends a reasonable time in
a plan should get some benefit -- ideally vesting will be immediate and
the cash and accrual will be portable

ERISA funding change: the money should always be in the plan and mar
ppropriate method of valuing assets and liabilities


ERISA recognized that employers and workers have different ability to pay,
that one size does not fit all, that flexibility encourages sponsorship and
participation.

The form of the Affordable Care Act the variations in mandate by employer
size, the number of options vis level of plan cost and protection, the
amount/form of income related premium subsidies, the inclusion of Medicaid
for the poor.

Underlines why moving to mandatory private savings programs has not
happenedand
Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
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Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
Total Participants By Plan Type (Active, Vested, Retired)
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Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
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Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
% Sponsorship, Participation and Vesting
1940 2012
0
10
20
30
40
50
60
70
1940 1950 1960 1970 1974 1979 1988 1998 2009 2012
Sponsorship Participation % Vested %
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U.S. Bureau of the Census, various datasets, 19402013.
Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
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Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
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Employee Benefit Research Institute 2014
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Public Pension Debate - Replays ERISA Reform Debate
Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
For Many State and Local Workers Public Pensions
Offer Little Retirement Security, Urban Institute Study
Shows
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The traditional pension plans generally
provide lucrative retirement incomes to
long-term employees but offer little
retirement security to workers who change
employers several times over their career,

Traditional plans tend to encourage older
employees to retire early, a problematic
feature as the work force grows older.
These plans may complicate government
efforts to recruit younger employers and
retain older ones.
Richard Johnson, Urban Institute,
Director ,Program on Retirement Policy
Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
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Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
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Employee Benefit Research Institute 2014
Male Prime-Age (25-64) Workers Median
Tenure Trends, By Age, 1951-2010
3.5
2.7 2.7
4.5
7.6
6.0
6.7
7.3
6.5
6.1
5.5
5.3 5.2 5.2 5.3
7.6
11.4
11.5
11.8
10.1
9.4 9.5
9.6
8.1
8.2
8.5
9.3
13.0
14.5 14.6
15.3
14.5
13.4
10.5
11.2
10.2 10.2
9.8
9.5
10.1
10.4
3.2
2.8 2.9 3.0
2.8
2.7 2.8 2.8
3.2 3.2 3.1 3.1 3.0
5.1
7.0
5.0
6.9
8.8
11.0
12.8
9.1
11.2
14.7
0
2
4
6
8
10
12
14
16
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1951 1963 1966 1973 1978 1983 1987 1991 1996 1998 2000 2002 2004 2006 2008 2010
Year
Y
e
a
r
s

o
f

T
e
n
u
r
e
Ages 25-34
Ages 35-44
Ages 45-54
Ages 55-64
Source: Data (for 1951, 1963, 1966, 1973, and 1978) from the Monthly Labor Review (September 1952, October 1963, January 1967,
December 1974, and December 1979); from press releases (for 1983, 1987, 1991, 1996, 1998, 2000, 2002, 2004, 2006, 2008, 2010) from the
U.S. Department of Labor, Bureau of Labor Statistics.
Employee Benefit Research Institute 2014
Female Prime-Age (25-64) Workers Median Tenure
Trends, by Age, 1951-2012
1.8
2.0
1.9
2.2
1.6
3.0
3.1 3.1
3.6
3.5
3.6 3.6
4.1
4.4
4.3
4.2
4.9
5.2
6.1
5.7
5.9 5.9
6.3
7.0
7.2
7.3
7.0
7.1
7.3
4.5
7.8
8.8
8.5
9.8
9.7
9.9
10.0
9.6
9.9
9.6
9.8
9.7
10.0
2.6
2.5 2.5 2.5
2.8 2.8
2.8
2.6 2.7
2.7
4.7
4.5
4.6
4.8
4.5 4.5
6.7
4.0
6.8
6.7
6.5
6.4
9.2
9.2
9.0
0
2
4
6
8
10
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1951 1963 1966 1973 1978 1983 1987 1991 1996 1998 2000 2002 2004 2006 2008 2010 2012
Year
Y
e
a
r
s

o
f

T
e
n
u
r
e
Ages 25-34
Ages 35-44
Ages 45-54
Ages 55-64
Source: Data (for 1951, 1963, 1966, 1973, and 1978) from the Monthly Labor Review (September 1952, October 1963, January 1967,
December 1974, and December 1979); from press releases (for 1983, 1987, 1991, 1996, 1998, 2000, 2002, 2004, 2006, 2008, 2010, and 2012)
from the U.S. Department of Labor, Bureau of Labor Statistics.
Employee Benefit Research Institute 2014
Percentage of Wage and Salary Workers Ages 45-64 Who Had 25
or More Years of Tenure, by Age and Sector, 2004-2012
10.0%
9.5%
17.4%
15.1%
19.4%
15.4%
17.9% 18.0%
18.3%
25.4%
8.8%
8.9%
9.3%
13.2% 13.3%
12.8%
15.0%
16.4%
15.4%
15.3%
16.1%
24.3%
22.6%
25.8%
23.2%
15.2%
26.5%
23.5%
24.9%
21.8%
8%
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
2004 2006 2008 2010 2012
Ages 45 to 54-Private Sector Ages 45 to 54-Public Sector Ages 55 to 59-Private Sector
Ages 55 to 59-Public Sector Ages 60 to 64-Private Sector Ages 60 to 64-Public Sector
Source: Employee Benefit Research Institute estimates from the January 2004, 2006, 2008, 2010, and 2012 Current Population Surveys.
Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
Systemic Reality: Many workers do not leave work by choice
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Employee Benefit Research Institute 2014
People Retire Early for a Variety of Reasons, Though Over
Half of Retirees Cite Health Problems as a Factor
Why did you retire earlier than you had planned? (2013 Retirees retiring earlier than
planned n=127, percent yes)
55%
32%
23%
20%
20%
19%
9%
You had a health problem or disability
You could afford to retire earlier
You had to care for a spouse or another family
member
Changes at your company
You had another work-related reason
You wanted to do something else
Changes in the skills required for your job
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Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc.,
1993-2013 Retirement Confidence Surveys.
Employee Benefit Research Institute 2014 Employee Benefit Research Institute 2014
EBRI strives to move others away from:

QUOTING A SINGLE NUMBER AS INDICATIVE
OF STATUS OR SUCCESS OR FAILURE OF A
COMPLEX SYSTEM FOR A DIVERSE
POPULATION.
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Employee Benefit Research Institute 2014 Employee Benefit Research Institute 2014
A COMMON SINGLE NUMBER:

USING A SINGLE NUMBER AS INDICATIVE OF
SUFFICIENT SAVINGS OR INCOME - SUCH AS
AN 80% REPLACEMENT RATE - WHEN THE
REAL NUMBER/% DIFFERS BASED UPON
INDIVIDUAL CIRCUMSTANCES. AND, WHEN
THE 80% CAN APPLY TO DIFFERENT
OBJECTIVE MEASURES

DOES IT APPLY TO LIFETIME INCOME, OR
FINAL INCOME, OR BASIC EXPENSE NEEDS,
OR ???????????????
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Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
The reporter or marketing brochure or though leader
might say the Boston College CRR reports that 54.7%
of workers will not be able to maintain their pre-
retirement standard of living using an 80% of income
threshold.

Implication or sometimes stated conclusion:
The current voluntary system is not successful.
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Employee Benefit Research Institute 2014 Employee Benefit Research Institute 2014
A COMMON MISTAKE:

ACCEPTING AS TRUTH WHAT OTHERS SAY
OR WRITE WITHOUT INVESTIGATION,

LEADING TO MYTHOLOGY AND MISTAKES.

As Ronald Reagan said, Trust but Verify.
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Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
What does the one number not tell you?
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How does the result vary by income or age or tenure?
No, the sample is too small for that level of detail, it is a macro model
Does the number assume future contributions to plans?
No, it does not, it uses a constant income to wealth ratio until each person
turns age 65 (in this simulation)
How does it deal with longevity and long term care
It assumes that everyone turns their assets into a life income annuity and
that everyone has long term care insurance


Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
Probability of NOT running short of money in retirement depends on the
number of future years of eligibility for a defined contribution plan
(Gen Xers with Long Term Care and Home Health costs included)
Zero 1-9 10-19 20+
80 percent 19% 13% 10% 5%
90 percent 11% 10% 9% 6%
100 percent 40% 61% 73% 86%
0%
20%
40%
60%
80%
100%
2014
EBRI
Retirement
Readiness
Ratings
Percent of
simulated
expenses
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Source: Employee Benefit Research Institute Retirement
Security Projection Model Version 1995

Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
Probability of NOT running short of money in retirement depends
on relative pre-retirement income level and the expense threshold
(Boomers and Gen Xers with and without Long Term Care and Home Health costs included)
Lowest
quartile
with
LTC
Second
quartile
with
LTC
Third
quartile
with
LTC
Highest
quartile
with
LTC
Lowest
quartile
without
LTC
Second
quartile
without
LTC
Third
quartile
without
LTC
Highest
quartile
without
LTC
80 percent 25% 17% 11% 5% 25% 6% 2% 0%
90 percent 13% 13% 10% 7% 14% 11% 4% 0%
100 percent 17% 53% 72% 86% 30% 80% 94% 99%
0%
20%
40%
60%
80%
100%
2014
EBRI
Retirement
Readiness
Ratings
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Source: Employee Benefit Research Institute Retirement
Security Projection Model Version 1995

Percent of
simulated
expenses
Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
What (Some) Experts SayThe tax preferences for
pensions are upside down - - not by all definitions


IF you overlook the
actual impact of
nondiscrimination
tests and
contribution
limitsand ignore
the data that show
that balances stay
in close proportion
to compensation


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Employee Benefit Research Institute 2014
Bad news sells papers. It also
sells market research.
-Professor Byron Sharp
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Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
Percentage of Those Age 65 or Older With Any DB
Pension Annuity Income, 1975-2011
25.2%
24.9%
26.7%
26.9%
29.6%
30.7%
33.2%
35.1%
37.0%
37.4%
35.3%
35.9%
34.9%
34.8%
35.4%
35.4%
35.4%
35.0%
34.5%
34.8%
22%
24%
26%
28%
30%
32%
34%
36%
38%
40%
1975 1977 1979 1980 1983 1985 1987 1989 1991 1993 1996 1998 2000 2002 2004 2006 2008 2009 2010 2011
Source: EBRI tabulations of the 1976-2012 Current Population Survey.
Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
Percentage of Income Attributable to Pension
Income for Those Age 65 or Older, 1975-2011
14.4%
14.6%
14.8%
15.3%
15.8%
15.6%
17.7%
17.7%
19.5%
20.8%
19.6%
19.9%
19.1%
20.2%
20.8%
19.3%
19.7%
19.2%
19.7%
19.8%
12%
13%
14%
15%
16%
17%
18%
19%
20%
21%
22%
1975 1977 1979 1980 1983 1985 1987 1989 1991 1993 1996 1998 2000 2002 2004 2006 2008 2009 2010 2011
Source: EBRI tabulations of the 1976-2012 Current Population Survey.
Employee Benefit Research Institute 2014
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Use of a single average or a single median to judge the success or failure of SSA,
voluntary savings, etc. will always mislead policy makers and skew perceptions.
Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
Quintiles of LSD equivalents from 2010 defined benefit
participants ages 65-70 from CPS
p20 p40 p60 p80
defined benefit $63,086 $145,714 $257,143 $445,714
$-
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
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Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
Quintiles of 2010 year end 401(k) balances for ages 60-65
by tenure category
p20 p40 p60 p80
10-20 $7,919.32 $24,339.53 $58,232.72 $139,737.29
20-30 $13,198.78 $51,365.58 $115,854.63 $252,965.72
>30 $13,804.18 $62,219.10 $147,473.53 $320,820.65
$-
$50,000.00
$100,000.00
$150,000.00
$200,000.00
$250,000.00
$300,000.00
$350,000.00
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Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
Quintiles of 2010 year end combined 401(k) and IRA
balances for ages 60-65 by tenure category (for 401(k)
participants with at least one IRA)
p20 p40 p60 p80
10-20 $46,831 $111,094 $206,883 $370,688
20-30 $77,049 $180,400 $318,403 $533,853
>30 $121,739 $260,186 $437,827 $735,813
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
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Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
Average Employer Expenditures for Retirement Plans - % of
Total Compensation Civilian Workers
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
1959 1970 1980 1990 2004 2010 2013
Total
DB
DC
42
Source: Authors Compilation from BLS.gov
Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
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PAYABLE Monthly Benefit Levels as Percent of Career-
Average Earnings by Year of Retirement at age 62
0
10
20
30
40
50
60
70
1960 1980 2000 2020 2040 2060 2080
Low Earner ($19,388 in 2010; 25th percentile)
Medium Earner ($43,084 in 2010; 56th percentile)
High Earner ($68,934 in 2010; 81st percentile)
Max Earner ($106,800 in 2010; 100th percentile)
Source: 2010 OASDI Trustees Report
Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
Takeaways
There is not a retirement crisis for the nation
If there is deemed to be one today, there has been one for the history
of the nation, a continuous crisis
There have always been savings, income and care shortfalls for the
largest segment of the population
World experience is that a universal mandatory system is the lowest
cost and most effective, but funding has never failed to be a
problem/challenge for any nation
World experience is that annuity based programs are the most cost
effective, but increasingly people want their money for their control
in all nations
US DB plans have moved to lump sums for 40 years, and DC have
always resulted in lump sums, responding to individual choice, but
making good across society outcomes more difficult and expensive
ChooseTo $ave and $ave Four Your Future get more important
with each passing day, week, month, year.

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Employee Benefit Research Institute 2014 Employee Benefit Research Institute 201
DC 1974 DOJ Pre ERISA, DOL and PBGC Age 24
45
EBRI Founding 1978 9/28/2013 was 35
th

Anniversary..Age 64
40 Years of Research
and Policy Analysis:
Retirement, Health, Savings, and
Other Employee Benefits
Employee Benefit Research Institute 2014 Employee Benefit Research Institute 2014
EBRI : Just the Facts

www.ebri.org
www.choosetosave.org