An Evaluation of the Adequacy and Structure of Current U.S. Voluntary Retirement Plans, with Special Emphasis on 401(K) Plans

This paper reviews the results of many empirical and simulation studies EBRI has undertaken to determine whether future cohorts of retirees in the US are likely to have retirement income adequacy and the extent to which the voluntary retirement system is contributing to this objective in its current form as well as possible modifications that may increase its efficiency.

The Declining Role of Private Defined Benefit Pension Plans: Who is Affected, and How

This chapter analyzes the impact of future freezes among corporate defined benefit (DB) pension plans. We simulate the impact on expected future pension wealth by assuming all existing private DB plans immediately freeze accruals for new employees. While this indicates the potential reduction in retirement wealth attributable to such plans, it does not recognize that sponsors freezing accruals may increase employer contributions to existing defined contribution (DC) plans or establish new DC plans. Using an empirical distribution of enhanced contributions to DC plans from sponsors freezing their DB plans, we simulate the nominal annuity that could be purchased at retirement age from these enhanced contributions. We then back out the net pension loss experienced by employees in the future.

How Would Target-Date Funds Likely Impact Future 401(K) Accumulations?

As part of EBRI’s 2008 analysis of the likely impact of the Pension Protection Act’s safe harbor automatic enrollment and automatic escalation provisions, we developed a stochastic simulation model to project future 401(k) balances as a function of various plan design variables as well as assumptions with respect to various employee behavioral responses. In this paper I report on the results I obtained using the EBRI simulation model to determine how target-date funds (TDFs) would likely impact 401(k) participants assumed to be automatically enrolled. I realize that TDF use in 401(k) plans is not limited to those automatically enrolled; however, based on our simulation results, it appears that this 401(k) auto-enrollment will represent the majority of TDF use in the future and hence I will concentrate my analysis on those results. Results are reported both at the time of retirement as well as at the time of job change for those who are assumed to cash out. Several scenarios are presented in terms of alternative rates of return as well as several different types of target date funds.