A recently passed retirement security package could have a big impact in reducing the nation's retirement savings shortfall, according to new research from the Employee Benefit Research Institute.
EBRI used its Retirement Security Projection Model to examine three provisions within the Setting Every Community Up for Retirement Enhancement Act, better known as the SECURE Act: making it easier for employers to join multiple employer plans; increasing the cap under which plan sponsors can automatically enroll workers in "safe harbor" retirement plans, to 15% from 10%; and helping more part-time employees gain access to saving in their employer's 401(k) plan.
For people ages 35-64, EBRI found that the three provisions would reduce retirement deficits by $115 billion, or 3%. EBRI estimates the current retirement savings shortfall for households between the ages of 35 and 64 stands at $3.83 trillion.
If open MEPs are adopted by plan sponsors at a rate of about 33% and if the non-participation rate is zero, there would be an overall 1.8% reduction in the retirement savings deficit, EBRI found in its issue brief. "One would assume that younger age cohorts would experience a larger impact from open MEPs given the longer time for which they may potentially benefit from the increased coverage," the brief stated. "Indeed, this is what we find. Overall there is a 3.2% reduction in retirement deficit for those ages 35-39."
If all of the open MEPs are assumed to adopt an automatic enrollment plan, the overall retirement savings shortfalls reduction is 3.3% , or $126 billion, while if they are assumed to adopt a voluntary enrollment plan, the overall retirement savings shortfalls reduction is 2.8%, or $107 billion, EBRI found.
EBRI noted that the percentage reductions in retirement savings shortfalls aggregated across all age cohorts would be larger for employees working for smaller employers: 5.6% for employers with fewer than 100 employees and 5.2% for those with between 100 and 500 employees.
Also of note, EBRI said auto portability, which is not part of the SECURE Act, would further reduce retirement savings shortfalls. Auto portability upon employment termination, coupled with the three provisions and assuming a non-participation rate of 25% among eligible employees, would produce an overall reduction in retirement savings shortfalls of 10%, EBRI found.