SECURE Act Will Reduce Retirement Deficits By $115 Billion, EBRI Says

The SECURE Act could reduce the U.S. retirement deficit by 3% or $115 billion for those between 35 and 64 years old, according to the Employee Benefit Retirement Institute (EBRI).

For workers ages 35 to 39, who have longer to save before retirement, the reduction in retirement deficits rises to 5.3%, Jack VanDerhei, EBRI director of research, said in new issue brief entitled, “Impact of the SECURE Act on Retirement Income Adequacy.” It further increases to 10.7% if people work for small employers with fewer than 100 workers, EBRI said.

The SECURE Act can also increase retirement savings surplus to 6.1% overall and 15.3% for those ages 35–39 and increase net retirement savings surplus to 6.9% overall and 18.6% for the same age group, the group said.

To create the forecast, VanDerhei said he assumed that all open MEPs under the SECURE Act are designed with automatic enrollment, an automatic contribution escalation cap of 15%, coverage of long-term part-time employees and an opt-out rate of 10%, which is typical of automatic enrollment plans.

“It is important to note that any analysis focusing exclusively on retirement savings deficits is limited to households who are expected to run short of money in retirement. Therefore, we also look at retirement savings surplus to better understand the full impact of the new legislation,” VanDerhei said.

VanDerhei used EBRI’s retirement security projection model to simulate the impact three of the SECURE Act’s most important provisions will have on retirement income adequacy:

• Widening access to multiple employer plans (MEPs) through open MEPs.

• Increasing the cap under which plan sponsors can automatically enroll workers in “safe harbor” retirement plans, from 10% of wages to 15%.

• Covering long-term, part-time employees.

Lack of coverage is not the only consideration in determining how well workers will fare in America’s retirement savings system, VanDerhei said. Studies have found that plan leakage through cashouts upon termination is another key variable in determining retirement savings outcomes, especially among workers with low plan balances.

Auto portability, which seeks to address retirement plan cashouts by having terminated participants’ former employer accounts automatically combined with their active accounts in new employers’ plans, could reduce deficits further, VanDerhei said. Such auto portability could reduce the overall retirement savings shortfalls by 10.0%, he said.