How Would Defined Contribution Participants React to Lifetime Income Illustrations? Evidence from the 2014 Retirement Confidence Survey
16 Pages Posted: 27 Mar 2014
Date Written: March 2014
Abstract
In May 2013, the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) published an advance notice of proposed rulemaking (ANPRM) focusing on lifetime income illustrations. Since the concept of lifetime income illustrations on 401(k) statements is a relatively new innovation, little empirical evidence exists regarding how plan participants would respond. To find out, the Employee Benefit Research Institute’s new 2014 Retirement Confidence Survey (RCS) included a series of questions concerning monthly income illustrations similar in many respects to those provided by the EBSA’s online Lifetime Income Calculator. This paper presents an analysis of these survey results, which indicated that the vast majority of respondents (for this analysis, only workers who were currently contributing to an employer plan were included) found the information useful; more than 1 in 3 (36 percent) of the respondents thought that it was very useful to hear an estimate of the monthly retirement income they might expect from their plan, and another 49 percent thought it was somewhat useful. More than half (58 percent) thought the estimated monthly income was in line with their expectations. Perhaps because of that, relatively few (only 17 percent of the respondents) said they would increase their retirement savings contributions as a result of hearing the monthly income estimate. However, of those responding that their illustrated value was much less or somewhat less than expected, more than a third (35 percent) indicated they would increase their contributions. It is, of course, possible that these respondents’ current participation in employment-based plans has already provided them the education and information necessary for an appreciation both of the projected total and the monthly income estimate, and thus a greater alignment of those projections with their expectations.
The PDF for the above title, published in the March 2014 issue of EBRI Notes, also contains the fulltext of another March 2014 EBRI Notes article abstracted on SSRN: "Brand-Name and Generic Prescription Drug Use After Adoption of a Full-Replacement, Consumer-Directed Health Plan With a Health Savings Account."
Keywords: Defined contribution plans, Employment-based benefits, Pension plan contributions, Pension plan participation, Retirement age, Retirement attitudes and opinions, Retirement income, Retirement planning
JEL Classification: D91, J26, J33
Suggested Citation: Suggested Citation