What if OregonSaves were a national program?
That’s a question the Employee Benefit Research Institute (EBRI) posed in a recently published issue brief, seeking to find out how it would impact the retirement security of American workers.
What did they find? Overall, adopting OregonSaves nationally would reduce the simulated retirement deficits by $456 billion, or 12% of the $3.83 trillion aggregate retirement savings deficit under the baseline assumptions.
Additionally, EBRI found that a “national” OregonSaves plan would provide a 16.3% reduction in retirement deficits for the youngest age group simulated (those currently ages 35-39). The reduction would be smaller for those closer to age 65, with the reduction being only 3.1% for those currently ages 60-64.
“One of the major contributors to retirement deficits is generated by workers who spend a large portion of their careers working for employers who do not sponsor retirement plans,” said Jack VanDerhei, EBRI’s Director of Research and author of the study. “A program that would allow all Americans to access a retirement plan that could be funded through payroll deductions could be an important tool for off-setting, or even eliminating, retirement deficits.”
Oregon was the first state to implement an auto-IRA program for its residents. The OregonSaves program began in July 2017 to provide defined contribution (DC) plan coverage for workers who are not currently eligible for an employer-sponsored DC plan.
The program requires employers to automatically enroll workers into a post-tax individual retirement account (IRA). The program’s default contribution rate is 5%; contributions automatically increase by 1% each year until they reach 10% (unless the employee opts out of automatic increases).
Employees can opt out of the program or choose a savings rate of as little as 1% and as much as 100% of gross pay, up to annual Roth IRA contribution limits.
OregonSaves vs. 401k safe harbor plans
EBRI also took it a step further by asking how a national version of OregonSaves would compare with nationwide implementation of 401k safe harbor plans among employers who do not currently offer a defined benefit (DB) or DC plan.
Both options were examined using EBRI’s Retirement Security Projection Model (RSPM). The incremental benefit of including a full auto portability system in addition to these changes was also simulated. RSPM simulates retirement income adequacy for all U.S. households between the ages of 35 and 64. The model’s accumulation module reflects the real-world behavior of 27 million 401k participants as well as 20 million individuals with IRAs.
The 401k safe harbor plan expansion, EBRI found, would reduce the retirement deficits for the youngest age group (ages 35-39) by an additional 8.8 percentage points, for an overall reduction of 25.2%. The additional reduction for those ages 40-44 would be slightly higher (9.2 percentage points), but by ages 60-64 the additional reduction would only be 2.5 percentage points.
Overall, the 401k safe harbor plan expansion scenario would reduce the simulated retirement deficits by $645 billion, or 17% of the $3.83 trillion under the baseline assumptions.
When you add in a full auto portability scenario to both of the access expansion scenarios, EBRI found that under the “national” OregonSaves plan, simulated retirement deficits would be reduced by $759 billion, or 20% of the $3.83 trillion under the baseline assumptions.
Under the 401k safe harbor plan expansion with a full auto portability scenario, simulated retirement deficits would be reduced by $1,031 billion, or 27% of the $3.83 trillion.
The full study, “What if OregonSaves Went National: A Look at the Impact on Retirement Income Adequacy” is available at www.ebri.org.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
