Contributory 'Negligence?' The Impact of Future Contributions to Defined Contribution Plans on Retirement Income Adequacy for Gen Xers
28 Pages Posted: 17 Aug 2014
Date Written: August 1, 2014
Abstract
One of the major findings in each of the last five annual retirement income adequacy studies by EBRI was that the retirement income adequacy prospects for Gen Xers were approximately the same as for Baby Boomers. However, recent studies by other organizations suggest Gen Xers will fare much worse than the Boomers; namely, a 2013 study published by the Pew Charitable Trusts and a 2012 study published by the Center for Retirement Research (CRR) at Boston College. Unfortunately, these studies appear to be plagued by either explicitly ignoring future contributions to defined contribution plans or failing to account for the recent changes in many defined contribution plans to incorporate automatic enrollment features (including automatic escalation of contributions). Ignoring future contributions exaggerates the percentage of Gen-X workers simulated to run short of money in retirement by roughly 10 to 12 percentage points among all but the lowest-income group. By comparison, EBRI’s Retirement Security Projection Model® (RSPM) incorporates the crucial factor of future worker contributions to defined contribution retirement plans -- as well as the impact of auto-enrollment and auto escalation in 401(k) plans. One of the major findings in each of the annual EBRI RSPM studies since 2010 (which differs sharply from both the Pew and CRR conclusions) was that the overall retirement income adequacy prospects for Gen Xers were approximately the same as for Early Boomers and Late Boomers. This paper compares the EBRI model results in detail to both the Pew and CRR reports.
The PDF for the above title, published in the August 2014 issue of EBRI Notes, also contains the fulltext of another August 2014 EBRI Notes article abstracted on SSRN: “Satisfaction With Health Coverage and Care: Findings from the 2013 EBRI/Greenwald & Associates Consumer Engagement in Health Care Survey.”
Keywords: 401(k) plans, Automatic contribution escalation, Automatic enrollment, Defined contribution plans, Demographics, Employment-based benefits, Pension plan contributions, Pension plan coverage, Pension plan design, Retirement income adequacy
JEL Classification: D31, D91, J11, J26, J33
Suggested Citation: Suggested Citation