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As its name suggests, the Setting Every Community Up for Retirement Enhancement Act is designed to improve the country's retirement prospects. Time will tell if or how much the SECURE Act succeeds, but in the interim, new analysis from the Employee Benefit Research Institute models a range of potential outcomes that deliver modest to significant reductions in savings deficits.
EBRI's analysis isolates three provisions of the bill—the creation of Open Multiple Employer Plans, the increase of the cap on auto-escalation from 10 percent to 15 percent, and a new mandate to include part-time employees in workplace retirement plans.
Open MEPS, the cornerstone of the bill that was signed into law last December, have the greatest impact on outcomes of the three provisions, said Jack VanDerhei, director of research at EBRI and the author of How Much More Secure Does the SECURE Act Make American Workers.
"The youngest age cohort—35 to 39—working for employers with less than 100 employees stand to benefit the most," said VanDerhei. "Their retirement deficit will decrease by 10.7 percent, primarily because of Open MEPs. If you are on the verge of retirement, you won't have enough time to benefit as much."
VanDerhei applied EBRI's Retirement Security Projection Model (RSPM), which calculates the necessary savings rates for different ages of men and women needed to cover retirement expenses, to a series of assumed take up rates in Open MEPs and different plan designs.
Four Open MEP adoption rates by employers that do not sponsor a plan were assumed, from the low end of 7.3 percent, to the high end of 100 percent. VanDerhei used a take-up rate of 30 to 31 percent as the baseline assumption, based on a 2016 Prudential survey of employers with fewer than 500 workers that would be likely to join an Open MEP.
He then used different participation rates based on automatic enrollment and voluntary enrollment, and a baseline blended rate that assumes a 75 percent participation rate.
From there, he accounted for the impact of increased automatic escalation, and the enrollment of part-time workers into retirement plans.
|$3.83 trillion retirement deficit
For all households age 35 to 64, the RSPM puts the country's total retirement savings deficit at $3.83 trillion.
Under EBRI's baseline assumptions—a 30 percent Open MEP take-up rate among employers that don't already sponsor a retirement plan, and a 25 percent opt-out rate among employees—the country's overall retirement deficit would be reduced by 3 percent, or $115 billion for households age 35 to 64.
Workers at smaller firms would experience slightly better improvement: a 5.6 percent reduction in the deficit for workers in firms with fewer than 100 employees; a 5.2 percent reduction for workers in firms with 100 to 500 employees.
But for those that have more time to benefit from the SECURE Act's policies, the potential improvement in retirement readiness is "considerable," said VanDerhei.
For savers employed by firms with fewer than 100 workers, those ages 35 to 39 would see their aggregate savings deficit reduced by 10.7 percent. Those ages 40 to 44 would see an 8.3 percent reduction; those between 45 and 49 would see a 5.4 percent reduction.
Older workers ages 60 to 64 would see a negligible deficit reduction of 0.8 percent.
Firms with 100 to 500 workers would see an 8.6 deficit reduction among ages 35 to 39, and an 8.3 percent and 5.4 percent reduction for those ages 40 to 44 and ages 45 to 49, respectively.
|Important steps, but still room to improve
VanDerhei said he wasn't surprised by the numbers his modeling produced.
"There is still room for improvement, and certainly if Congress passed Chair Neal's bill on top of the SECURE Act, there would be an even bigger reduction of the overall deficit," he said, referencing the Automatic Retirement Plan Act (ARPA), sponsored by Ways and Means Chairman Rep. Richard Neal, D-MA.
ARPA, first introduced in 2017, would require all private sector employers with more than 10 employees to establish a defined contribution savings plan. Employers would not be required to contribute to the plans. Employees would be automatically enrolled at a 6 percent deferral rate.
Think Advisor, BenefitsPRO's sister publication, reported that Chair Neal intends to reintroduce ARPA as part of SECURE Act 2.0 legislative package.
"The bill would go a long way to cover the remaining savings gap," said VanDerhei. "So far, no one is clamoring for me to run a simulation of the bill at this point."
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
