The Employee Benefits Research Institute is getting ready to conduct its annual Retirement Confidence Survey, and barring any unforeseen crisis, the 2015 study should show a further slight gain in consumer confidence.
That certainly sounds like good news. But in reality, it only is for one type of respondent to the annual study, those American workers that have access to a retirement plan of some type. Too many still don’t, and for them, the retirement future still looks bleak, according to Jack VanDerhai, research director at the EBRI and co-author of the annual retirement study.
EBRI has been conducting the annual Retirement Confidence Survey for years, and for much of the recent period, the news hasn’t been good, VanDerhai explains. The percentage of workers confident about having enough money for a comfortable retirement reached record lows between 2009 and 2013, as workers watched the values in their retirement accounts plummet in the stock market and many lost jobs.
With the economy slowly rebounding, the picture began to improve in 2013, and even more so this year. Eighteen percent of those surveyed in 2014 said they were now very confident, up from 13 percent in 2013.
“For those that have retirement accounts, either employee contribution or IRAs, I think you find an increase in optimism as the market rebounded,” VanDerhai said. “The year isn’t over yet, but assuming that nothing particularly negative happens in the markets between now and then, I would assume that we have another overall increase in confidence, reflecting the fact that they’re seeing those account balances continue to increase.”
But for those American workers who are not fortunate enough to work for employers offering a retirement plan or 401k, or who haven’t invested in IRAs privately, don’t expect to see any increase in confidence, VanDerhai says. That is why he recommends that the public look at the EBRI study as a measurement of two distinctly different populations – the ‘haves’ and the ‘have-nots.’
“It really helps to start by [splitting] that question into those that work for employers that sponsor a retirement plan and those that don’t,” VanDerhai said. When you do that, you see very different results, he added.
Take the question of how much a typical worker has saved toward retirement. The public and the media are always quickly drawn to the results of those workers that lack a retirement plan. But that is only half the story.
“The column that always catches everyone’s attention is the incredibly large percentage of individuals with less than $1,000, less than $10,000 or less than $50,000 saved. When you break it out by those with or without a retirement plan of some sort, obviously you have a huge difference,” VanDerhei said.
It is important for professional retirement planners to understand this difference, VanDerhei said. There are many Americans that are not as badly prepared for retirement as a study’s bottom-line might suggest.
“I would say that the primary reason the numbers seen in the Retirement Confidence Survey are so low is because you’re including a large percentage of people who are not working for employers sponsoring a retirement plan,” VanDerhei said. That is why he always looks at the context behind the numbers in the survey.
“When you look at the database that we’ve had now since 1996 [maintained in conjunction with the Investment Company Institute , or ICI], the trend we see ever since the 2008 downturn is constantly increasing account balances, year-after-year-after-year. Again, split the population in half: those that are lucky enough to work for employers that sponsor these continue to do better-and-better-and-better since 2008. Those that don’t are doing very little to save on their own in IRAs,” VanDerhei said.
The other major trends that VanDerhei sees are the number of retirement plans being carried by employers declining, but the number of workers signing on for available plans increasing. There are three primary reasons: • An improved economy means more individual payroll can be invested for later • The value of plans accounts in the market has risen • More workers are getting the message about the need to save for retirement.
“You find that the number of plans decreased but the number of participants increased. It’s basically the smaller plans, it appears, that are in essence evaporating,” VanDerhei said. “To a large extent, what’s happening here is that these were plans that always had 401ks, but had been voluntary enrollment types. Now many employers are shifting to automatic enrollment types for the new employees.”
The result is that many lower-income employees who might never have signed on to a retirement plan in the past “are now going in on day one, and very few of them are opting out. Again, it’s not necessarily that more employers are getting involved, but those employers that are involved are restructuring their 401k plans to get higher participation rates,” VanDerhei said.
But despite the slightly good news about those with retirement plans, that still leaves the problem of the millions of workers that don’t. VanDerhei said there is a role for the U.S. government to play there.
“I can’t technically answer the ‘should’ part of that because we can’t take positions But as far as things they could do to improve the picture, I would say just about anything that would decrease the administrative burden on small employers would be a big help,” he said.
“Many small employers don’t have a separate person available to be in charge of employee benefits. If you have any administrative burden imposed by offering retirement benefits – whether it’s a simple IRA or what have you—in many cases an employer won’t think it’s worth the administrative difficulties of going ahead and setting this up. So anything that can make this easier in terms of the administration; in terms of having a safe harbor so there’s no fiduciary liability; whatever is going to make it simplified to the point where the employer’s not going to have to think twice once they throw the switch. That would be the biggest thing the government could do,” he said.