The Employee Benefit Research Institute (EBRI) analyzed proposed changes to the retirement system and how they potentially could reduce the size of retirement deficits.
“The addition of auto portability of retirement accounts resulted in a further double-digit reduction in savings shortfall across all races examined.”
Combining automatic contribution provisions with an enhanced Saver’s Credit in 401ks and DC plans would reduce retirement savings shortfalls by 17% to 26%, depending on race, according to the EBRI study.
It would generally require employers with more than five employees to maintain some sort of Automatic Contribution Plan/Arrangement (ACPA), with a few exceptions for grandfathered plans.
In addition, the existing Saver’s Credit would be replaced with a simple 50% government match on 401k- and IRA-type contributions of up to $1,000 per year, under certain conditions.
The study also examined adding retirement plan employer matching contributions for student loan debt repayments or using the “Skinny” 401(k) for ACPA. The latter would involve replacing the auto-IRA feature with a simplified 401(k) plan.
These modifications also reduced retirement deficits—but by smaller amounts.
The addition of auto portability of retirement accounts resulted in a further double-digit reduction in savings shortfall across all races examined. Under this scenario, a participant’s account from a former employer’s retirement plan would be automatically combined with their active account in a new employer’s plan.
THE FULL REPORT IS FOUND HERE
This would help keep the defined contribution assets in the retirement system and—in theory—eliminate leakage from cash-outs upon employment termination.
“U.S. households ages 35-64 are on track to face an aggregate retirement savings shortfall of $3.68 trillion,” Jack VanDerhei, EBRI Research Director and author of the report, said in a statement. “This research shows that provisions such as ACPA and an enhanced Saver’s Credit can significantly reduce that deficit across races. However, we see the greatest improvements when it comes to net retirement savings outcomes—which include both decreased savings deficits and increased savings surpluses—of Black and Hispanic workers. This is an important finding for those searching for parity in retirement security for all Americans.”