Retirement savings deficits would drop sharply if an OregonSaves-like auto-IRA program or a 401(k) safe harbor plan expansion were extended nationally, according to a new analysis by EBRI.
The issue brief, “What if OregonSaves Went National: A Look at the Impact on Retirement Income Adequacy,” projects that if the same design parameters of OregonSaves were established on a federal basis, retirement savings deficits would be reduced by 12% or $456 billion, including a 16.3% reduction in retirement deficits for those aged 35-39.
The study also finds, however, that a nationwide 401(k) safe harbor plan expansion would reduce retirement deficits even further, particularly for the youngest cohort.
According to the analysis, for those aged 35-39, retirement deficits would drop by an additional 8.8 percentage points, for an overall reduction of more than 25%. EBRI notes that the additional reduction for those ages 40-44 would be even higher, at 9.2 percentage points, but for ages 60-64, the additional reduction would only be 2.5 percentage points.
Overall, EBRI estimates that this scenario would reduce the simulated retirement deficits by $645 billion, or 17% of the projected $3.83 trillion baseline retirement deficit for all U.S. households between the ages of 35 and 64.
The $3.83 trillion figure is based on EBRI’s Retirement Security Projection Model, which simulates the aggregate national retirement deficit or Retirement Savings Shortfalls (RSS) for U.S. households headed by those between the ages of 35 and 64. The model’s accumulation module reflects the real-world behavior of 27 million 401(k) participants, as well as 20 million individuals with IRAs.
“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,” notes 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 offsetting, or even eliminating, retirement deficits.”
Auto Portability Further Bridges Gap
Meanwhile, if a full auto-portability scenario were added to both access expansion scenarios, retirement deficits would be reduced even further, according to EBRI’s analysis. Under the “national” OregonSaves plan with a full auto-portability scenario, simulated retirement deficits would be reduced by nearly $760 billion or 20% of the $3.83 trillion RSS baseline assumption.
Similarly, under the 401(k) safe harbor plan expansion with full auto-portability, simulated retirement deficits would be reduced by more than $1 trillion, or 27% of the $3.83 trillion baseline.
OregonSaves has been open to participation since July 2017 to provide DC plan coverage for those workers in the state who are not currently eligible for an employer-sponsored plan. Since then, it has been made available to those workers gradually in waves based on employer size and was expanded late last year to allow individual Oregonians, such as self-employed or gig economy workers, to join the program.
In general, the program requires employers to automatically enroll workers into a post-tax IRA, with a default contribution rate of 5% and automatic contribution increases of 1% each year until they reach 10% (unless the employee opts out).
