What Moves the Retirement Readiness Needle : Quantification of Risk and Evaluation of New Proposals

With the United States facing an estimated national retirement savings shortfall of $4.13 trillion, how can more Americans be brought into a retirement savings plan, and how can they be persuaded to save enough to cover simulated costs in retirement? Those questions were explored by a panel of retirement experts at EBRI's 77th policy forum held Dec. 10, 2015, focusing on policy proposals aimed at increasing private-sector retirement plan coverage and possible improvements to retirement plan designs by sponsors of retirement plans. The session also included a short presentation of the demographic forces in the United States that underpin the issue, in particular the fact that more Americans than ever are living longer, will spend more time in retirement, and face the potential crisis of outliving their savings. This paper summarizes the presentations at that forum. The first expert presentation focused on ways to increase the number of employees offered some type of retirement savings option, leakages from the defined contribution system, modifying the employer incentives to increase employee contributions to higher levels, and what happens when the equity market turns down and investment returns suffer. The second expert presentation focused on the policy implications of the data and possible unintended consequences of new retirement income policies. The third expert presenter focused on how investment menus for their 401(k) participants have evolved. He noted research has also shown that workers who get some sort of investment help -- such as through managed accounts, the use of target-date funds or professional investment advice -- tend to have better annualized returns on their investments than do the “do-it-yourselfers.” The final expert presentation provided an actuarial perspective on retirement policy issues and focused in particular on “longevity risk.” The presenter defined longevity risk as the risk that life expectancies exceed assumptions, resulting in greater-than-anticipated retirement cash flow -- by individuals, by pension plans and by insurance companies that write life-annuity policies