Data and Research

PANC 2017: How Data Interpretation Affects Retirement Projections

Two leading retirement industry executives refute the claim that the nation faces a retirement crisis and point to several ways retirement plans can be strengthened.

By Lee Barney | October 13, 2017
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In the 2017 PLANADVISER National Conference panel “How Data Interpretation Affects Retirement Projections,” Wednesday, executives from two leading retirement trade associations that conduct research on the state of the industry discussed how current plan design tools could be optimized to avert a national retirement crisis. Each man also shared initiatives his organization is taking to make the system even stronger.

“There was a recent hit piece in the Washington Post describing the ‘retirement crisis,’ which was countered by an op-ed in the National Review saying it is more manageable [than what some pundits are saying],” noted Lew Minsky, president and CEO of the Defined Contribution Institutional Investment Association (DCIIA).

The Employee Benefit Research Institute (EBRI) recently studied the accumulation phase of people up to the age of 64, taking into account not only their defined contribution plans but also their defined benefit (DB) plans, individual retirement accounts (IRAs), Social Security, and housing equity, noted moderator Alison Cooke Mintzer, editor-in-chief of PLANADVISER.

EBRI’s 2014 data showed that 56.7% of Early Baby Boomers and 58.5% of Late Boomers will not run out of money in retirement, Minsky agreed. Nearly 90% (86.4%) of participants in the highest-income quartile, 71.7% of those in the third quartile, 52.6% in the second quartile and 16.8% in the lowest-income quartile will not run out of money, he continued.

Making plans available to employees is also critical, Minsky said. Participants who have been eligible to participate in their DC plan for 20 years or more, and have done so, are on a pretty solid trajectory to not run out of money in retirement, he said, observing that EBRI projects that 94.7% of these folks in the highest income quartile, 87.7% of those in the third quartile, 71.3% in the second quartile, and 35.9% in the lowest-income quartile will have adequate financial resources in retirement.

But plan design is critical to get participants to the finish line, Minsky said. DCIIA projects that participants in plans with voluntary enrollment throughout their working career and who retire at age 65 will have a portfolio 5.02 times their final salary, he noted. However, those in plans with automatic enrollment, “even if implemented imperfectly” at a 3% deferral rate without automatic escalation, will have 6.66 times their final salary, he continued. “Just that one modest change has a huge impact,” he said.

If auto-enrollment is paired with auto-escalation up to a 10% threshold, participants can retire with 7.85 times their final paycheck, Minsky said, and if that combines with no leakage, they can retire with 8.54 times their final salary.

NEXT: The call for 'thoughtful plan design'