© Employee Benefit Research Institute 2009

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The Markets, Savers and Savings Plans

Dallas L. Salisburysalisbury@ebri.org

President & CEOEmployee Benefit Research InstituteChairman,American Savings Education Council

www.choosetosave.org

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Social Security Is Not Enough

© Employee Benefit Research Institute 2009

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Replacement rate

0%

20%

40%

60%

80%

100%

1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

0%

20%

40%

60%

80%

100%

Replacement rate obtained from personal retirement account of worker who contributes 4 percent of his annual salary over a 40-year career

Last year in worker’s career

100% stocks

89% (1999)

27% (2008)

Source: Gary Burtless, Brookings Institution

© Employee Benefit Research Institute 2009

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Replacement rate

0%

20%

40%

60%

80%

100%

1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

0%

20%

40%

60%

80%

100%

Replacement rate obtained from personal retirement account of worker who contributes 4 percent of his annual salary over a 40-year career

Last year in worker’s career

100% bonds

50% stocks /50% bonds

100% stocks

Source: Gary Burtless, Brookings Institution

© Employee Benefit Research Institute 2009

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Change In Average Account Balances From Jan. 1, 2008 (S&P 1418) – Jan. 20, 2009 (S&P 805), Among 401(k) Participants with Account Balances as of Dec. 31, 2007

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

< $10,000 $50,000–$100,000 > $200,000

Sources: 2007 Account Balances: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project; 2008 and 2009 Account Balances: EBRI estimates. The analysis is based on all participants with account balances at the end of 2007 and contribution information for that year.

Account Balance

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Change In Average Account Balances From Jan. 1, 2008 – Jan. 20, 2009, Among 401(k) Participants with Account Balances as of Dec. 31, 2007

-30%

-20%

-10%

0%

10%

20%

30%

25-34 35-44 45-54 55-64

1-4

5-9

10-19

20-29

30 or more

Sources: 2007 Account Balances: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project; 2008 and 2009 Account Balances: EBRI estimates. The analysis is based on all participants with account balances at the end of 2007 and contribution information for that year.

Age

Tenure Matters a Great Deal in Account Growth and DeclineShort Term Account Movement

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Change In Average Account Balances Among a Consistent Sample of 401(k) Participants, by Age and Tenure, Jan. 1, 2000 through Nov. 26, 2008

0%

100%

200%

300%

400%

500%

600%

up to 35 36–45 46–55 56–65

Age

6–10

11–20

21–30

Tenure (in years)

Sources: 1999 and 2006 Account Balances: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project; 2007 and 2008 Account Balances: EBRI estimates. The analysis is based on a consistent sample of 2.2 million participants with account balances at the end of each year from 1999 through 2006.

Long Term Account Movement

© Employee Benefit Research Institute 2009

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Figure 4. Time Needed to Recover From 2008 401(k) Losses, Using Various Equity Return Assumptions

0

2

4

6

8

10

12

14

16

18

20

-10% -10% -5% -5% 0% 0% 5% 5% 10% 10%

median 70thpercentile

median 70thpercentile

median 70thpercentile

median 70thpercentile

median 70thpercentile

Equity return and percentile distribution

Year

s 1–4

5–9

10–19

20–29

72.3 years

Source: Author's calculations based on year-end 2007 data from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project.NB: Losses are defined as the difference betw een year-end 2007 and 2008 account balances. This is NOT limited to investment loss.

Tenure

Time Needed to Recover from 2008 401(k) Losses, Using Various Equity Return Assumptions

© Employee Benefit Research Institute 2009

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Figure 6. Median "excess" returns from Target Date funds by Participant Age and Investment Style : 2000-2006

The "excess" is calculated by comparing the projected account balances generated by target date funds to actual account balances

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

21-35 36-45 46-55 56-65 21-35 36-45 46-55 56-65 21-35 36-45 46-55 56-65

average average average average mostaggressive

mostaggressive

mostaggressive

mostaggressive

mostconservative

mostconservative

mostconservative

mostconservativeNotes:

1. All asset allocations for target date funds are based on 2007 data.2. Due to inconsistencies in plan loan data provision, there is a slight negative bias to the computed value of the "excess" returns. This w ill be quantif ied at a later stage.Source: Author's calculations based on consistent sample data from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project.

Median “Excess” Returns from Target Date Funds,

by Participant Age and Investment Style: 2000–2006

© Employee Benefit Research Institute 2009

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Percentage of Target Date Fund Investors Having All of Their Assets in Target Date Funds, by Plan Size and Automatic Enrollment Status, 2007

52.1%50.0%

47.3% 46.3% 47.3% 47.2%

39.9%

46.6%

96.8% 97.1% 96.0% 96.4% 97.3% 98.1%

92.5% 92.0% 93.1%

79.4%

50.8%48.4% 47.4%

40.5% 42.1%

29.9%

34.0%

54.9%

44.0%

96.0%

36.0%

43.8%44.8% 44.1% 44.8%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1-10 11-25 26 - 50 51 - 100 101 - 250 251 - 500 501 -1,000

1,001 -2,500

2,501 -5,000

5,001 -10,000

> 10,000

All

Autoenrollees

Nonautoenrollees

Source: EBRI tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project.

© Employee Benefit Research Institute 2009

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Percentage of Target Date Fund Investors Having All of Their Assets in Target Date Funds, by Account Balance and Automatic Enrollment Status, 2007

67.3%

32.7%

26.3%22.1%

19.1%

90.3%

77.7% 77.9% 79.2% 79.1% 79.8% 81.1%79.0%

62.7%

39.4%

31.6%

21.7%18.8%

41.5%

11.2%15.6%25.7%

11.1%15.4%10%

20%

30%

40%

50%

60%

70%

80%

90%

<$5,000 $5,000-$9,999

$10,000-$19,999

$20,000-$39,999

$40,000-$59,999

$60,000-$99,999

$100,000-$199,999

$200,000 ormore

All

Autoenrollees

Nonautoenrollees

Source: EBRI tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project.

© Employee Benefit Research Institute 2009

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Equity Allocation of Ten Target Date Fund Families, by Year of Target Date Fund, End of Year 2007

15%

25%

35%

45%

55%

65%

75%

85%

95%

RetirementIncome

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

A B C D E

F G H I J

Source: Asset allocations of the target date funds as reported by Target Data Analytics from Morningstar Principia.Retirement Income would also represent Target Income, Target Today, Target Now, and other similar names used by Target Date Funds.

© Employee Benefit Research Institute 2009

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Employer Suspension of 401(k) Matches 2008-9

154 Companies

3.9 million workers

88% of workers employers have DB plans – open or frozen – that must be funded

12% of workers at firms with no open or frozen DB plans

Source: EBRI analysis of publicly reported employer actions

What can we learn from the last time employer’s suspended matches?

© Employee Benefit Research Institute 2009

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Impact of 2003 suspension of employer matches on employee contributions over time

0%

20%

40%

60%

80%

100%

120%

140%

2003 2004 2005 2006

average change

versus 2002 relative to

full consistent

sample

Source: EBRI tabulations from EBRI/ICI Consistent Sample, 1999-2006.Notes: A total of 15,476 employees who had contributed in 2002 and whose employer matches were frozen in 2003 are compared to 1.9 million employees who contributed in 2002 and did not have frozen matches in 2003.

© Employee Benefit Research Institute 2009

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Impact of 2003 suspension of employer matches on employee participation over time: all resumption periods combined

0%

50%

100%

150%

200%

250%

300%

2003 2004 2005 2006

percentage of 2002

contributors not

contributing in current

year relative to full

consistent sample

Source: Author's tabulations from EBRI/ICI Consistent Sample, 1999-2006.Notes: A total of 15,476 employees who had contributed in 2002 and whose employer matches were frozen in 2003 are compared to 1.9 million employees who contributed in 2002 and did not have frozen matches in 2003.

© Employee Benefit Research Institute 2009

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Major Issues Faced By Individuals

Will Savings Be Enough to Allow Retirement?

Will We Be Able to Work As Long As We Want/Need To?

Can Housing Value Be Included and Accessed for Income?

Will Health Care Reform Make Retiree Health Insurance Affordable?

Will Long Term Care Reform Make It Affordable?

Will A Continued Bias Towards Equities Make Sense?

Will a TIPS Fund Become The Safest Route to Real Rate of Return?

Will a Life Income Annuity Become A Core “Investment” Category

Will Longevity Insurance Become The Protection for Long Life?

Will “Moving in With the Kids” Become The Ultimate Retirement Plan?

© Employee Benefit Research Institute 2009

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© Employee Benefit Research Institute 2009

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