Individual Account Retirement Plans: An Analysis of the 2013 Survey of Consumer Finances

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1 November 2014 No. 406 Individual Account Retirement Plans: An Analysis of the 2013 Survey of Consumer Finances By Craig Copeland, Ph.D., Employee Benefit Research Institute A T A G L A N C E The percentage of all families with an employment-based retirement plan from a current employer decreased from 38.8 percent in 1992 to 36.2 percent in 2013, according to the most recent data from the 2013 Survey of Consumer Finances (SCF), the Federal Reserve Board s triennial survey of wealth. While retirement plan ownership from a current employer among families declined from , the percentage of family heads who were eligible for defined contribution (DC) plans and chose to participate held essentially stable at 78.2 percent in 2010 to 78.7 percent in The percentage of families owning individual retirement accounts (IRAs) or Keoghs was also unchanged from 2010 (28.0 percent) to 2013 (28.1 percent). Furthermore, the percentage of families with an individual account retirement plan from a current employer or a previous employer or an IRA/Keogh declined from 50.4 percent in 2010 to 48.2 percent in However, when including defined benefit (pension) retirement plans, the percentage with any retirement plan was unchanged from 63.8 percent in 2010 to 63.5 percent in While ownership of employment-based plans and IRAs was unchanged to declining in 2013, the median (mid-point) account balance of those families owning an individual account retirement plan increased in 2013: The value was $22,992 in 1992, reached $38,608 in 2001, and increased to $59,000 in Individual account retirement plan assets were a clear majority of families total financial assets (among those owning such plans): 70.3 percent in 2013 at the median, unchanged from Across all demographic groups in 2013, these assets share at the median of total financial assets was at least 49.2 percent (when these accounts were owned). By IRA type, regular IRAs accounted for the largest percentage of IRA ownership, but rollover IRAs had a slightly larger share of assets than regular IRAs in The increase in IRA wealth is expected to continue in the future, as more workers will be in defined contribution plans and will be in them for a longer period of their working lives than in the past (since defined contribution plans did not become dominant until the 1990s). While the results of this study do not answer questions about what is needed for retirement, they show the continued growing importance of individual account retirement plans. Consequently, any policy that alters this system could have consequences either positive or negative for Americans ability to fund a comfortable retirement. A monthly research report from the EBRI Education and Research Fund 2014 Employee Benefit Research Institute

2 Craig Copeland is a senior research associate at the Employee Benefit Research Institute (EBRI). This Issue Brief was written with assistance from the Institute s research and editorial staffs. Any views expressed in this report are those of the author and should not be ascribed to the officers, trustees, or other sponsors of EBRI, EBRI-ERF, or their staffs. Neither EBRI nor EBRI-ERF lobbies or takes positions on specific policy proposals. EBRI invites comment on this research. Copyright Information: This report is copyrighted by the Employee Benefit Research Institute (EBRI). It may be used without permission but citation of the source is required. Recommended Citation: Craig Copeland, Individual Account Retirement Plans: An Analysis of the 2013 Survey of Consumer Finances, EBRI Issue Brief, no. 406, November Report availability: This report is available on the Internet at Table of Contents Introduction... 4 Trends in Individual Account Retirement Plan Ownership... 5 Employment-Based Retirement Plan from Current Employer... 6 Defined Contribution Plan Participation Rates of Family Heads... 6 IRA/Keogh Ownership... 6 Retirement Plans from Any Source... 8 Individual Account Retirement Plan Balances... 9 Average Values... 9 Median Values Percentage of Financial Assets from Individual Account Retirement Plans Distribution of Individual Account Retirement Plan Assets Distribution of IRA Types and Assets Conclusion References Endnotes Figures Figure 1, U.S. Private Sector Retirement Plan and IRA Assets, Figure 2, Percentage of all Families With an Employment-Based Retirement Plan From a Current Employer, by Various Demographic Categories, 1992, 2010, and Figure 3, Participation Rates of Family Heads Eligible for an Employment-Based Defined Contribution Plan, 1995, 2001, 2007, 2010, and Figure 4, Percentage of Families With an IRA/Keogh, by Various Demographic Categories, 1992, 2001, 2007, 2010, and Figure 5, Percentage of all Families With a Retirement Plan From a Current or Previous Employer or an IRA/KEOGH Plan, 2001, 2007, 2010, and ebri.org Issue Brief November 2014 No

3 Figure 6, Average Family IRA, Defined Contribution Plan, and Combined Balances for Those Families Owning These Accounts, by Various Demographic Categories, 1992, 2001, 2010, and Figure 7, Median Family IRA, Defined Contribution Plan, and Combined Balances for Those Families Owning These Accounts, by Various Demographic Categories, 1992, 2001, 2010, and Figure 8, Median Percentage of Financial Assets in Employment-Based Defined Contribution Plans and IRAs/Keoghs for Families With these Assets, by Various Categories, 1992, 2001, 2007, 2010, and Figure 9, Distribution of Families' Individual Account Plan Assets, by Various Categories, Figure 10, Percentage of Families' IRA Ownership, by IRA Type or Combination of IRA Types, Figure 11, Percentage of IRA Assets Owned by Families, by IRA Type or Combination of IRA Types, Figure 12, Percentage of Total IRA and Keogh Assets, by Keogh and IRA Type, Figure 13, Percentage of Total IRA Assets, by IRA Type, Figure 14, Distribution of Families' Individual Retirement Account (IRA) Assets, by Various Categories, Figure 15, Median and Average Net Worth and Home Ownership for Families With and Without an Individual Account (IA) Retirement Plan, by Family Income and Family Head Age, ebri.org Issue Brief November 2014 No

4 Individual Account Retirement Plans: An Analysis of the 2013 Survey of Consumer Finances By Craig Copeland, Ph.D., Employee Benefit Research Institute Introduction Individual account (IA) retirement plans continue to grow in importance as a source of retirement income for future retirees in both the public and private sectors. IA plans include employment-based retirement savings plans financed by employer contributions and workers own contributions (most notably, defined contribution (DC) plans such as 401(k) plans), as well as Keogh plans for the self-employed and certain non-employment-based plans like most types of individual retirement accounts (IRAs). Among public-sector employers, defined benefit (DB) pension plans remain the predominant type of retirement plan, although DC 401(k) plan-type options are increasing. Among private-sector employers, DB plans have been declining for many years, as DC plans have increased. Total private-sector DB pension assets were overtaken by DC assets and IRA assets in 1996 (Figure 1). Furthermore, many major corporations that still have DB plans have frozen them (for newly hired workers, and, in some cases, for existing workers as well), a trend that makes it increasingly important for most private-sector workers to build their retirement wealth through IA plans. 1 Consequently, the amount of assets currently accumulated in these accounts provides an indication of how prepared or unprepared workers will be to supplement any Social Security benefits they will receive in retirement. $7.0 Figure 1 U.S. Private Sector Retirement Plan and IRA Assets, ($ Trillions) Defined Benefit Defined Contribution IRA $6.52 $6.0 $5.56 $ Trillions $5.0 $4.0 $3.0 $2.0 $1.43 $1.63 $1.48 $1.61 $2.24 $2.15 $1.92 $2.49 $2.63 $1.98 $2.04 $2.53 $2.17 $2.79 $3.30 $2.36 $3.55 $4.21 $2.49 $3.81 $4.75 $2.57 $2.67 $3.68 $2.63 $3.34 $4.49 $2.84 $3.78 $5.03 $2.95 $3.77 $5.00 $3.02 $4.22 $3.09 $5.04 $1.0 $ Source: Board of Governors of the Federal Reserve System. Financial Accounts of the United States: Flow of Funds, Balance Sheets, and Integrated Macroeconomic Accounts , Tables L.117.b/c and L.226.i. This Issue Brief assesses the status of American families' accumulations in IA plans, both through the incidence of ownership and the amounts accumulated. The Survey of Consumer Finances (SCF), the Federal Reserve Board s triennial survey of wealth, is the basis for this study. SCF is a leading source of data on Americans wealth, as it provides information on the incidence of retirement plan ownership and account balances that families have ebri.org Issue Brief November 2014 No

5 accumulated along with all the other assets that families may have. 2 Building on previous research by the Employee Benefit Research Institute (EBRI) using prior SCF surveys (i.e., Copeland 2012; Copeland 2009; Copeland 2006b; Copeland 2003; Copeland and VanDerhei 2000), this study focuses specifically on IA retirement plan assets. 3 Using results from the prior studies, this report shows the changes in IA retirement plan assets as well as changes in the incidence of these individual account plans both inside and outside of employment-based arrangements. 4 Furthermore, particular attention is paid to ownership of IRAs, as the questions in SCF allow for estimates of the distribution of IRA assets across types regular, rollover, and Roth IRAs. 5 The 2013 SCF shows that the median (midpoint) net worth of American families decreased by 2 percent from 2010 to 2013, and the median value of family income decreased from 2010 to 2013 by 5 percent. In the prior survey study period, American families median net worth decreased 38.8 percent from 2007 to In contrast, families median net worth increased 17.7 percent from 2004 to 2007, following increases of 1.5 percent from , 10.4 percent from , and 17.6 percent from However, from 2010 to 2013, the debt level decreased more than the decrease in income, leading to lower relative debt payments-to-income ratio for American families. 6 While asset accumulation is a vital component of assessing retirement preparedness, it is not the only factor that will determine financial security in retirement. The second vital component is the use of accumulated funds such that retirees do not outlive their assets. Even for workers with DB plans, which are increasingly offering lump-sum distributions both at preretirement termination of employment and on formal retirement from the work force, how and when these assets are spent remains an important decision especially when the lump-sum option is chosen. 7 Because of the growing prevalence of lump-sum distributions from employment-based retirement plans, increasing numbers of workers and retired workers will have the responsibility of managing their assets themselves, rather than having the lifetime income of an annuity in retirement, as DB plans historically have paid out. Thus, although this Issue Brie focuses on ownership of IA retirement plans, it must be stressed that this is only an indicator of future potential financial security because individuals financial security in retirement will ultimately be determined by the source and amount of retirement resources, how distributions are taken from these sources, how individuals invest them in the interim, and how fast assets are spent, along with individuals health status and life span. This Issue Brief investigates the percentage of families who own various types of retirement plans, including IRAs. Next, it provides both median and average estimates of the value of the assets in these accounts, as well as the proportion of total financial assets represented and their relative percentages within the IA retirement plan universe. It then focuses on the value of IRA rollovers as part of the total IRA market, in order to glean a sense of the full contribution that the employment-based, retirement-plan system makes to total retirement assets. Trends in Individual Account Retirement Plan Ownership Employment-based plans are generally categorized as either defined benefit plans (pensions traditional or cash balance) or defined contribution plans (401(k)-type plans). Generally, traditional defined benefit plans provide benefits according to a formula based on the worker s tenure and salary history, and are not directly affected by the changes in the investment returns of the plan assets. Contributions to these plans are generally made by the employer and in some cases (most notably in the public sector) also by the individual participant. So-called hybrid defined benefit plans, most commonly cash balance plans, provide benefits that are generally based on contributions by the sponsor and a credit rate set by the plan. The benefits to the individual cannot be reduced because of negative market returns. 8 By contrast, defined contribution plans provide benefits that are determined by the level of contributions (both from the worker and the employer) and any asset returns on these contributions. Workers not eligible for a plan through employment, and in some cases workers wanting to augment employment-based plans, as well as nonworking spouses, can set up an individual retirement account; and many self-employed workers can establish a Keogh plan to save for retirement. ebri.org Issue Brief November 2014 No

6 Employment-Based Retirement Plan from Current Employer In the 2013 SCF, 36.2 percent of all families have an employment-based retirement plan (either a DB or DC plan) from a current employer (Figure 2). This is down from 37.9 percent in 2010, and below the 1992 level of 38.8 percent. 9,10 Among the families with a plan from a current employer, a significant shift occurred from 1992 to 2013; the percentage having only a defined benefit plan decreased from 40.0 percent to 15.3 percent. On the other hand, the percentage of those families having only a defined contribution plan surged, rising from 37.5 percent in 1992 to 66.7 percent in The percentage of families with both types of plans decreased from 22.5 percent in 1992 to 18.0 percent in Having an employment-based retirement plan from a current employer is strongly linked to family income and the family head s educational level and race. In 2013, only 2.6 percent of families with annual income less than $10,000 had a plan from a current job, compared with 67.1 percent of the families with income of $100,000 or more. Among families with a head who had not attained a high school diploma, 12.2 percent had a plan. In contrast, among families with a head who had obtained a college degree or higher, 50.8 percent had a plan. Similar differences also existed in 1992 and Furthermore, families with a white, non-hispanic head were more likely to have a plan from a current employer than families with a nonwhite head. In terms of net worth, families with net worth in the top half of all families net worth were more likely to have a retirement plan from a current employer in 2013 than those in the lower half. The likelihoods of having a current employer retirement plan varied in a narrow range among those in the top half of net worth from 44.0 percent to 46.6 percent. Those families in the lowest quartile of net worth were significantly less likely to have a current employer retirement plan at 18.1 percent compared with 36.8 percent (second quartile of net worth) or more (top half of net worth) for those families in the highest three quartiles of net worth. Defined Contribution Plan Participation Rates of Family Heads Overall in 2013, 78.7 percent of defined contribution plan-eligible family heads chose to participate in the offered plan (conversely, nearly a quarter of eligible family heads chose not to participate). This was essentially unchanged from 78.2 percent in 2010 (Figure 3). 13 A number of demographic differences have persisted over the five survey periods: the increased likelihood of plan participation with higher levels of family income, net worth, and educational attainment. 14 For example, in 2013, the participation rate was just 49.5 percent of family heads with annual family income of $10,000 $24,999, compared with 91.2 percent for those with annual family income of $100,000 or more. Additionally, racial disparities were noted; white family heads were more likely to participate when eligible than nonwhite family heads. In 2013, 81.1 percent of white family heads who were eligible participated compared with 72.9 percent for nonwhite family heads. The age of family head was not a strong factor among those of prime working ages (35 64), but for family heads younger or older than that, the likelihood of participating was lower, except in 2013 where those ages were more likely than those ages to participant when eligible. IRA/Keogh Ownership The percentage of families who owned either an IRA or a Keogh plan was essentially unchanged in 2013 at 28.1 percent from 28.0 percent in This ownership rate is in the mid-range of historical rates going back to 1992 where the rate was 26.1 percent with a peak rate of 31.4 percent in 2001 (Figure 4). Ownership of an IRA/Keogh increased with family income, the family head s educational level, and the family s net worth. Of families with less than $10,000 a year in income, just 6.1 percent owned an IRA/Keogh in 2013, compared with 58.7 percent of families with income of $100,000 or more. Not surprisingly, the percentage owning an IRA/Keogh increased even more substantially when measured by net worth: in 2013, only 4.5 percent of those in the lowest 25 th percentile of net worth owned an IRA/Keogh, compared with 78.2 percent of those in the top 10 percent. These differences were consistent over the years of the study. ebri.org Issue Brief November 2014 No

7 Figure 2 Percentage of All Families With an Employment-Based Retirement Plan From a Current Employer, by Various Demographic Categories, 1992, 2010, and Of Those Participating in a Plan Of Those Participating in a Plan Of Those Participating in a Plan Defined Defined Both Defined Defined Both Defined Defined Both Any Benefit Contribution Plan Any Benefit Contribution Plan Any Benefit Contribution Plan Plan Only Only Types Plan Only Only Types Plan Only Only Types Total 38.8% 40.0% 37.5% 22.5% 37.9% 17.9% 61.3% 20.8% 36.2% 15.3% 66.7% 18.0% Family Income Less than $10, a a a 5.0 a a a 2.6 a a a $10,000 $24, $25,000 $49, $50,000 $99, $100,000 or more Age of Head < a a a Education of Head Below HS diploma HS diploma Some college College degree Race White non-hispanic Nonwhite Working Status of Head Someone else Self-employed Retired Other nonwork Net Worth Percentile Bottom 25% Top 10% Source: Employee Benefit Research Institute (EBRI) estimates of the 1992, 2010, and 2013 Survey of Consumer Finances (SCF). Note: All income values are in 2013 $s. The 2010 and 2013 participation levels are not directly comparable to 1992 because of changes in the survey that began in a Sample size is too small for a reliable estimate. ebri.org Issue Brief November 2014 No

8 The ownership of IRA/Keoghs also increased with the family head s age through age 64, but families with the oldest heads had a lower likelihood of owning an IRA/Keogh than those whose heads were ages Families with a white family head were significantly more likely to own an IRA/Keogh in 2013 than those with nonwhite heads (35.4 percent versus 13.1 percent), and have been since Retirement Plans from Any Source Figure 3 Participation Rates of Family Heads Eligible for an Employment-Based Defined Contribution Plan, 1995, 2001, 2007, 2010, and Total 73.8% 74.8% 78.8% 78.2% 78.7% Family Income Less than $10, $10,000 $24, $25,000 $49, $50,000 $99, $100,000 or more Age of Head < Education of Head Below HS diploma HS diploma Some college College degree Race White non-hispanic Nonw hite Net Worth Percentile Bottom 25% Top 10% Source: Employee Benefit Research Institute (EBRI) estimates of the 1995, 2001, 2007, 2010, and 2013 Survey of Consumer Finances (SCF). Note: All income values are in 2013 $s. In 2013, 63.5 percent of families had a current or previous employer s retirement plan (including DB plans) or an IRA/Keogh (Figure 5). For families with an individual account retirement plan (excluding DB plans), this number declines to 48.2 percent. The percentage with these plans (including DBs) increased with family income, net worth, and educational level of the family head. Families with a white family head were more likely to own one of these plans. Less than 50 percent of families with a head under age 35 had one of these plans, though this increased to 74.0 percent for families with a head ages 65 74, before decreasing to 65.8 percent of families with a head ages 75 or older. 15 In 2001, 66.6 percent of all families had a current or previous employer s retirement plan (including DB plans) or an IRA/Keogh the highest from The highest year for ownership of IA retirement plans was 2007 at, 53.0 percent of all families. The same differences across demographic groups discussed above for 2013 were also present in the 2001 and 2007 SCFs. In most cases, the 2001 and 2007 levels of ownership in these plans were higher than they were in ebri.org Issue Brief November 2014 No

9 Figure 4 Percentage of Families With an IRA/Keogh, by Various Demographic Categories, 1992, 2001, 2007, 2010, and 2013 Percentage With IRA/Keogh Total 26.1% 31.4% 30.6% 28.0% 28.1% Family Income Less than $10, $10,000 $24, $25,000 $49, $50,000 $99, $100,000 or more Age of Head < Education of Head Below HS diploma HS diploma Some college College degree Race White non-hispanic Nonw hite Working Status of Head Someone else Self-employed Retired Other nonw ork Net Worth Percentile Bottom 25% Top 10% Source: Employee Benefit Research Institute (EBRI) estimates of the 1992, 2001, 2007, 2010, and 2013 Survey of Consumer Finances (SCF). Note: All income values are in 2013 $s. Individual Account Retirement Plan Balances Average Values Among families with an IRA/Keogh plan, the average value of their account holdings was $193,904 in 2013, a 22 percent real increase from $159,425 in 2010 (Figure 6). 16, 17 From , the average IRA/Keogh balance increased 222 percent, from $60,272 (in 2013 dollars) in The factors related to higher average IRA/Keogh balances were higher family income ($50,000 or more), older family head, higher educational level of the family head, white family head, and higher net worth. For example, among families with a head below age 35 who also owned an IRA/Keogh, the average plan balance was $22,868 in 2013 compared with $339,763 among those IRA/Keogh owning families with heads ages 65 or older. In general, the same results for 2013 among the categories held true in the prior survey years. ebri.org Issue Brief November 2014 No

10 Figure 5 Percentage of All Families with a Retirement Plan From a Current or Previous Employer or an IRA/KEOGH Plan, 2001, 2007, 2010, and Excluding Including Excluding Including Excluding Including Excluding Including Defined Benefit Defined Benefit Defined Benefit Defined Benefit Defined Benefit Defined Benefit Defined Benefit Defined Benefit Total 52.8% 66.6% 53.0% 66.2% 50.4% 63.8% 48.2% 63.5% Family Income Less than $10, $10,000 $24, $25,000 $49, $50,000 $99, $100,000 or more Age of Head < Education of Head Below HS diploma HS diploma Some college College degree Race White non-hispanic Nonwhite Working Status of Head Someone else Self-employed Retired Other nonwork Net Worth Percentile Bottom 25% Top 10% Source: Employee Benefit Research Institute (EBRI) estimates of the 2001, 2007, 2010, and 2013 Survey of Consumer Finances (SCF). Note: All income values are in 2013 $s. ebri.org Issue Brief November 2014 No

11 Figure 6 Average Family IRA, Defined Contribution Plan, and Combined Balances for Those Families Owning These Accounts, by Various Demographic Categories, 1992, 2001, 2010, and Defined Defined Defined Defined IRA Contribution Combined IRA Contribution Combined IRA Contribution Combined IRA Contribution Combined Total $60,272 $56,812 $73,029 $127,860 $93,359 $137,701 $159,425 $140,104 $185,713 $193,904 $130,749 $202,346 Family Income $10,000 $24,999 20,104 11,077 17,541 31,040 14,963 25,399 57,159 21,735 45,171 91,360 32,573 68,114 $25,000 $49,999 32,546 8,385 23,143 59,462 30,513 49, ,415 31,973 70,829 87,286 26,677 61,329 $50,000 $99,999 40,130 33,238 44,258 85,689 49,285 78, ,825 62,403 95, ,168 72, ,566 $100,000 or more 98, , , , , , , , , , , ,226 Age of Head <35 17,195 20,382 22,913 19,791 20,861 24,776 21,035 26,596 29,172 22,868 24,247 28, ,207 34,761 45,136 56,279 71,397 85,054 69,784 73,176 91,400 73,531 95, , ,709 98, , , , , , , , , , , , , , , , , , , , , , , or older 89,237 40,274 90, , , , , , , , , ,478 Education of Head Below HS Diploma 30,476 15,776 25,378 48,778 41,055 47,864 46,468 30,983 37,772 29,556 40,876 39,050 HS diploma 47,748 32,216 45,803 71,917 44,889 65,184 80,916 65,538 81,513 86,491 67,128 87,134 Some College 41,444 31,533 45,218 80,944 70,141 89,273 90,627 70,738 92, ,192 92, ,238 College Degree 75,134 85, , , , , , , , , , ,720 Race White Non-Hispanic 63,126 61,329 78, , , , , , , , , ,029 Nonwhite 35,173 35,059 41,035 45,853 52,227 60, ,465 75,236 98,393 68,273 69,317 80,741 Net Worth Percentile Bottom 25% 4,953 3,040 3,548 5,039 4,497 4,921 8,932 12,174 12,420 8,648 9,917 10, ,928 10,091 10,891 14,720 17,202 18,670 15,572 18,239 19,506 15,199 16,888 18, ,561 26,070 31,708 35,341 51,942 56,044 38,190 58,118 60,450 42,167 64,979 69, ,511 67,508 69,900 94, , , , , , , , ,906 Top 10% 142, , , , , , , , , , , ,397 Source: Employee Benefit Research Institute (EBRI) estimates of the 1992, 2001, 2010, and 2013 Survey of Consumer Finances (SCF). Note: All income and asset values are in 2013 $s. Families with incomes below $10,000 did not have a sufficient sample size of observations to present a reliable estimate ebri.org Issue Brief November 2014 No

12 Among families with a DC plan, the average balance in 2013 was $130,749. This is a real decrease of 6.7 percent from $140,104 in In contrast, the average combined balance of those families with at least one IRA/Keogh or DC account increased 9.0 percent from $185,713 in 2010 to $202,346 in While the overall average combined balance increased, families in specific categories had declines in their average balances from 2010 to In particular, families with heads ages or below age 35, incomes between $25,000 $49,999, non-white heads, and net worth in the bottom two quartiles had their average combined balances decline from 2010 to Despite the noted declines in the combined balances from 2010 to 2013, the same trends within the various category breaks that were found in IRA/Keoghs were found in the combined balances for Median Values Among all families with an IRA/Keogh in 2013, the median (mid-point) balance was $50,000 (Figure 7). 19 This is a 103 percent increase from the 1992 value of $24,635 and a 17 percent increase from the 2010 value of $42,868. The median IRA/Keogh balance increased in 2013 with family income, family head age, and family net worth a pattern that held true in 1992, 2001 and Families with a white family head had a higher median balance. In 2013, the median balance of families with a white family head that had IRA/Keoghs was higher than the median balance for families with a nonwhite head, $59,000 compared with $20,000. Similar differences were seen in earlier years. The median IRA/Keogh balance increased in 2013 with the educational attainment of the family head. However, this was not the case for prior years of the survey, where those families with a head who had a college degree had higher median balances in each year, but median balances were found to vary for families with a head with less than a college degree. The median DC balance and median combined balance (IRA/Keogh and/or DC plan balance) for those owning these accounts also increased from 2010 to The median DC balance increased 8 percent from $34,294 to $37,000, 20 while the median combined balance increased 25 percent from $47,155 to $59,000. However, just as with the average balances, families with certain characteristics had declines from For example, families with incomes below $50,000, families in the lower half of net worth, and families with heads ages had median combined individual account balances in 2013 below what they were for those groups in Lastly, the trends within the characteristics for the combined balances were the same in 2013 as the trends described for IRA/Keoghs in Percentage of Financial Assets from Individual Account Retirement Plans The importance of IA plans to the wealth of families with these plans can be measured by the percentage of financial assets 21 that these IA plan assets represent. In 2013, the median percentage of financial assets that the combined IA plan assets represented of those having such assets was 70.3 percent unchanged from 2010, but a 6.1 percentage point increase from 2007 and a 26.0 percentage point increase from 1992 (Figure 8). Consequently, as defined contribution plans have proliferated in the private sector, the assets accumulated in them or rolled over to IRAs have become a very important source of financial assets for American families. Groups deriving a larger percentage of their financial assets from IA retirement plans include families with incomes of $25,000 $99,999, a family head ages 35 64, and net worth in the lower three quartiles. Families with the highest net worth and incomes have lower percentages of financial assets from these IA retirement plans. Thus, for those with the middle to lower levels of assets who have IA retirement plan assets, these plans are a very important source of financial assets. For example, in 2013, IA retirement plan assets represented at the median 78.2 percent of total financial assets for those families with net worth in the third quartile, compared with 49.2 percent for families with net worth in the top 10 percent. Furthermore, among families with heads ages with IA retirement plan assets, the IA assets accounted for at the median 79.1 percent of total assets, compared with a median of 53.3 percent for families with heads ages 65 or older. ebri.org Issue Brief November 2014 No

13 Figure 7 Median Family IRA, Defined Contribution Plan, and Combined Balances for Those Families Owning These Accounts, by Various Demographic Categories, 1992, 2001, 2010, and Defined Defined Defined Defined IRA Contribution Combined IRA Contribution Combined IRA Contribution Combined IRA Contribution Combined Total $24,635 $13,138 $22,992 $35,456 $26,264 $38,608 $42,868 $34,294 $47,155 $50,000 $37,000 $59,000 Family Income $10,000-$24,999 8,540 2,463 6,569 15,758 3,940 7,485 21,434 5,037 12,860 25,000 4,900 10,300 $25,000-$49,999 16,423 3,285 9,854 19,698 7,879 12,081 25,721 9,431 18,219 26,000 10,000 18,000 $50,000-$99,999 19,708 11,496 19,708 30,204 22,324 32,830 32,151 26,793 34,294 40,700 28,000 45,000 $100,000 or more 41,058 41,056 63,885 59,094 65,660 98,490 93, , ,257 80, , ,000 Age of Head <35 8,376 4,927 7,653 9,192 7,879 9,192 10,717 10,717 11,360 10,000 10,000 12, ,065 9,854 14,781 19,698 31,517 37,426 20,362 32,151 33,223 25,000 36,100 42, ,740 32,846 42,700 52,528 39,396 63,034 42,868 53,585 64,302 46,000 73,000 87, ,773 29,561 49,269 60,407 66,317 72,226 64,302 81, ,170 70,000 75, , or older 32,846 8,212 32,846 72,226 65,660 74,852 75,019 81,442 76, ,000 61, ,000 Education of Head Below HS diploma 13,138 4,927 11,496 23,638 7,879 13,132 34,294 11,789 17,469 20,000 10,000 13,000 HS diploma 21,350 7,062 16,423 23,638 15,758 23,638 25,721 21,434 26,793 35,000 24,000 33,200 Some college 19,708 10,346 19,708 22,324 23,638 26,264 32,151 22,870 28,936 40,000 29,400 41,000 College degree 29,561 22,992 35,309 47,275 39,396 65,660 59,051 56,800 82,521 62,000 57,000 92,000 Race White non-hispanic 24,635 13,138 24,635 39,396 32,830 45,962 49,298 41,796 57,872 59,000 50,000 76,000 Nonwhite 13,960 9,854 13,138 11,818 13,132 13,132 27,864 24,649 26,793 20,000 20,200 23,000 Net Worth Percentile Bottom 25% 3,613 1,642 1,642 3,909 2,495 2,626 5,359 5,359 5,359 3,200 4,120 4, ,569 5,912 6,898 7,223 9,849 9,849 9,645 11,789 12,806 10,000 11,100 12, ,423 15,766 21,843 20,486 36,770 39,396 23,577 42,868 43,940 26,000 50,000 52, ,561 42,700 48,119 56,468 81, ,743 64, , ,680 80, , ,000 Top 10% 65, , , , , , , , , , , ,000 Source: Employee Benefit Research Institute (EBRI) estimates of the 1992, 2001, 2010, and 2013 Survey of Consumer Finances (SCF). Note: All income and asset values are in 2013 $s. Families with incomes below $10,000 did not have a sufficient sample size of observations to present a reliable estimate. ebri.org Issue Brief November 2014 No

14 Figure 8 Median Percentage of Financial Assets in Employment-Based Defined Contribution Plans* and IRAs/Keoghs for Families With these Assets, by Various Categories, 1992, 2001, 2007, 2010, and Total 44.3% 50.6% 64.2% 70.3% 70.3% Family Income less than $10, $10,000-$24, $25,000-$49, $50,000-$99, $100,000 or more Age of Head < Education of Head Below HS Diploma HS diploma Some College College Degree Race White Non-Hispanic Nonw hite Working Status of Head Someone else Self-employed Retired Other nonw ork Net Worth Percentile Bottom 25% Top 10% Source: Employee Benefit Research Institute (EBRI) estimates of the 1992, 2001, 2007, 2010, and 2013 Survey of Consumer Finances (SCF). * Includes DC balances from both current and previous employers. Note: All income values are in 2013 $s. Distribution of Individual Account Retirement Plan Assets IRA/Keoghs accounted for 54.7 percent overall of all the IA retirement plan assets in 2013, while current-employer DC plan assets accounted for 36.7 percent, and previous-employer DC plan assets 8.6 percent (Figure 9). However, this distribution is significantly different based on the families net worth and income and age of the family head. For example, for families in the lowest net worth quartile, 67.2 percent of IA assets were in current employer DC plans, 11.2 percent in previous employer DC plans, and 21.6 percent in IRA/Keoghs. For comparison, among families in the top 10 percent of net worth, 28.7 percent of IA assets were in current-employer DC plans, 8.1 percent in previousemployer DC plans, and 63.2 percent in IRA/Keoghs. Furthermore, for families with a head ages 35 44, 60.2 percent of IA assets were in current-employer DC plans, 10.3 percent in previous-employer DC plans, and 29.5 percent in IRA/Keoghs; while for families with a head ages 65 or older, the respective percentages are 12.1 percent, 8.6 percent, and 79.3 percent. ebri.org Issue Brief November 2014 No

15 Figure 9 Distribution of Families' Individual Account Plan Assets, by Various Categories, 2013 Composition of Indvidual Account Plans Defined Defined Contribution Contribution Current Employer Previous Employer IRA/Keogh Total 36.7% 8.6% 54.7% Family Income-Percentile Bottom 25% % Age of Head < Net Worth Percentile Bottom 25% Top 10% Source: Employee Benefit Research Institute (EBRI) estimates of the 2013 Survey of Consumer Finances (SCF). Distribution of IRA Types and Assets SCF categorizes IRA assets into three types Roth, rollover, and regular IRAs. 22 Measuring the amount of IRA assets attributable to rollovers is important in ascertaining the full impact of wealth generated within the employment-based retirement plan system, because rollover IRAs are primarily funded by assets generated in other types of retirement plans (notably DB plans or 401(k) plans). This section analyzes the categorization of the IRA assets to see the relative asset values by types. The analysis starts by examining family ownership of an IRA to determine what type of plans or combination of plans the families own. The most commonly owned IRA type was the regular IRA: 34.5 percent of the families who owned an IRA owned only that type (Figure 10). The next most commonly owned IRA type was the rollover, at 21.0 percent, and the third most common type was the Roth IRA, at 20.5 percent. In terms of combined holdings, Roth and regular IRAs owned together accounted for 8.7 percent of IRAs held by families; rollover and regular IRAs accounted for 6.9 percent; Roth and rollover IRAs, 5.1 percent; and rollover, regular, and Roth IRAs, 3.3 percent. When the breakdown of IRA types is done by the amount of assets held in each type, the relative percentages differ significantly from the ownership percentages. The regular IRA-only type still has the largest percentage, but on an asset basis it is lower, at 26.6 percent (Figure 11). The rollover IRAs-only percentage was 19.8 percent while the percentage for rollover and regular IRAs grows tremendously, relative to ownership, to 17.3 percent on an asset basis. 23 The Roth IRAs-only have a decline on an asset basis, making up only 5.7 percent of assets, compared with the 20.5 percent of ownership. For families who own either an IRA or a Keogh, 98.4 percent of the assets are from IRAs (Figure 12). When focusing just on the IRA assets, 13.3 percent were in Roths, 43.7 percent in rollovers, and 43.0 percent in regular IRAs (Figure 13). Again, the distributions of assets by IRA type are different across families by net worth, income, and age of the family head. For families with incomes in the lowest quartile, 3.7 percent of their IRA assets were in Roths, 52.1 percent in rollovers, and 44.2 percent in regular IRAs (Figure 14). In contrast, families with incomes in the third quartile had ebri.org Issue Brief November 2014 No

16 14.2 percent in Roths, 33.8 percent in rollovers, and 52.0 percent in regular IRAs. Families with younger family heads had more assets in Roths than families with older family heads, while families with older heads had more assets in rollover and regular IRAs than families with younger heads. Conclusion This analysis of various SCF survey years found that the percentage of all families with an employment-based retirement plan from a current employer decreased from 38.8 percent in 1992 to 37.9 percent in 2010 to 36.2 percent in While retirement plan ownership from a current employer among families declined from , the percentage of family heads who were eligible for DC plans and chose to participate held essentially stable at 78.2 percent in 2010 to 78.7 percent in The percentage of families owning IRA/Keoghs was also unchanged from 2010 at 28.0 to 28.1 percent in Furthermore, the percentage of families with an IA retirement plan from a current employer or a previous employer or an IRA/Keogh declined from 50.4 percent in 2010 to 48.2 percent in However, when including DB retirement plans, the percentage with any retirement plan was unchanged from 63.8 percent in 2010 to 63.5 percent in While ownership of employment-based plans and IRAs was unchanged to declining in 2013, the median account balances of those families owning an IA retirement plan increased in The value was $22,992 in 1992, reached $38,608 in 2001, and increased to $59,000 in The median percentage of families total financial assets comprised by IA retirement plan assets (assuming the family had any) was unchanged from 2010 to 2013 but still accounted for a clear majority of these assets: The median IA retirement plan assets share of financial assets increased from 44.3 percent in 1992 to 70.3 percent in 2010, where it remained in Across all demographic groups in 2013, these assets share at the median of total financial assets was at least 49.2 percent. Lastly, a breakdown of IRA ownership by families was examined to determine the relative importance of rollover IRAs. While regular IRAs account for the largest percentage of IRA ownership, rollover IRAs had a slightly larger share of assets than regular IRAs in The increase in IRA wealth is expected to continue in the future, as more workers will be in defined contribution plans and will be in them for a longer period of their working lives (because defined contribution plans did not become dominant until the 1990s). As VanDerhei and Copeland (2001) showed, IRAs will likely be the main source of retirement income for future generations of Americans. While this Issue Brief cannot determine whether the balances accumulated are sufficient to fund a comfortable retirement, other studies completed by EBRI have attempted to answer this question. In particular, VanDerhei and Copeland (2008) showed that 401(k) plans can generate significant multiples of workers preretirement income, if workers have access to them and contribute to them during a large portion of their working lives. Furthermore, VanDerhei (February 2014) determined the EBRI Retirement Readiness Rating for future American retirees by comparing simulated retirement income and simulated expenditures in retirement for the American population, concluding that about percent of Baby Boomers and Gen Xers were at risk for inadequate income in retirement. While the results of this study do not answer questions about what is needed for retirement, they show the continued growing importance of individual account plans. Consequently, any policy that alters this system could have consequences either positive or negative for Americans ability to fund a comfortable retirement. 25 Furthermore, in Figure 15, a comparison of the mean and median net worth across family income and family head age shows that families with an individual account retirement plan have substantially larger amounts of wealth and higher ebri.org Issue Brief November 2014 No

17 probabilities of home ownership across each group. In particular, the employment-based system is generating much of this wealth from IA retirement plans, because it includes, obviously, all of the DC assets (especially from 401(k)s) as well as the estimated 44 percent of IRA wealth (Figure 13). As stated previously, this study provides estimates of asset levels in IA retirement accounts, but does not answer questions about ultimate financial security. Consequently, this analysis is only an initial step in determining how families and individuals will do financially in retirement. EBRI is continuing its modeling work of financial adequacy for future retirees by performing simulations on a national basis using data results (such as those in this report and use of its own databases) as components of more comprehensive studies (i.e., VanDerhei and Copeland (2011) and VanDerhei (February 2014 and August 2014)). These EBRI studies on financial adequacy show that many Americans are facing the likelihood of not having sufficient income in retirement unless they increase their savings, work longer, 26 or significantly decrease their expenditures in retirement if they hope to maintain their same financial standard of living. Obviously, from the results of this study, Americans have work to do to ensure financial security in retirement after any potentially significant loss of wealth in However, some optimism is warranted, as most eligible individuals who have access to an IA plan through employment continue to contribute and are in a position to accumulate more assets as they approach retirement. A word of caution when using SCF results: While the SCF provides the best data on American families wealth, it has a relatively small size to produce those results. This limits the types of breaks (smaller age categories, income groups, etc.) that can be done on the data due to the effects of outliers on the averages of small samples. The SCF has just over 6,000 observations with less than half having IA accounts, whereas the EBRI databases have millions of observations which allows it to look at more detailed groups of IA plan owners without the averages being affected by outliers. Furthermore, the EBRI databases allow for IA plan owners to be tracked from year to year to see what consistent owners of these plans do within their accounts and how the accounts grow. The SCF gives the big-picture results, while more expansive databases like EBRI s fill in the detail around specific assets. ebri.org Issue Brief November 2014 No

18 Figure 10 Percentage of Families' IRA Ownership, by IRA Type or Combination of IRA Types, 2013 Rollover and Regular IRAs 6.9% Rollover, Regular, and Roth IRAs 3.3% Roth and Regular IRAs 8.7% Regular IRA Only 34.5% Roth and Rollover IRAs 5.1% Roth IRA Only 20.5% Rollover IRA Only 21.0% Source: Employee Benefit Research Institute (EBRI) estimates of the 2013 Survey of Consumer Finances (SCF). Figure 11 Percentage of IRA Assets Owned by Families, by IRA Type or Combination of IRA Types, 2013 Rollover, Regular, and Roth IRAs 10.3% Regular IRA Only 26.6% Rollover and Regular IRAs 17.3% Roth and Regular IRAs 12.5% Rollover IRA Only 19.8% Roth and Rollover IRAs 7.8% Roth IRA Only 5.7% Source: Employee Benefit Research Institute (EBRI) estimates of the 2013 Survey of Consumer Finances (SCF). ebri.org Issue Brief November 2014 No

19 Figure 12 Percentage of Total IRA and Keogh Assets, by Keogh and IRA Type, 2013 Roth IRA 13.1% Keogh 1.6% Regular IRA 42.3% Rollover IRA 43.0% Source: Employee Benefit Research Institute (EBRI) estimates of the 2013 Survey of Consumer Finances (SCF). Figure 13 Percentage of Total IRA Assets, by IRA Type, 2013 Roth IRA 13.3% Regular IRA 43.0% Rollover IRA 43.7% Source: Employee Benefit Research Institute (EBRI) estimates of the 2013 Survey of Consumer Finances (SCF). ebri.org Issue Brief November 2014 No

20 Figure 14 Distribution of Families' Individual Retirement Account (IRA) Assets, by Various Categories, 2013 Composition of IRAs Roth Rollover Regular Total 13.3% 43.7% 43.0% Family Income-Percentile Bottom 25% % Age of Head < Net Worth Percentile Bottom 25% Top 10% Source: Employee Benefit Research Institute (EBRI) estimates of the 2013 Survey of Consumer Finances (SCF). Figure 15 Median and Average Net Worth and Home Ownership for Families With and Without an Individual Account (IA) Retirement Plan, by Family Income and Family Head Age, 2013 Median Net Worth Average Net Worth Home Ownership With IA Plan Without IA Plan With IA Plan Without IA Plan With IA Plan Without IA Plan All $230,051 $17,900 $898,037 $173, % 50.7% Family Income-Percentile Bottom 25% 110,650 5, ,018 68, ,100 20, ,458 88, ,830 50, , , % 527, ,440 1,684,486 1,171, Age of Head <35 33,700 4, ,605 44, ,000 9, , , ,500 18, , , ,820 20,900 1,221, , , ,000 1,663, , Source: Employee Benefit Research Institute (EBRI) estimates of the 2013 Survey of Consumer Finances (SCF). ebri.org Issue Brief November 2014 No

21 References Bricker, Jesse, et al. Changes in U.S. Family Finances from 2010 to 2013: Evidence from the Survey of Consumer Finances. Federal Reserve Bulletin. vol. 100, no. 4 (September 2014): 1 40, Copeland, Craig. Individual Account Retirement Plans: An Analysis of the 2001 Survey of Consumer Finances. EBRI Issue Brief, no. 259 (Employee Benefit Research Institute, July 2003).. Retirement Plan Participation and Retirees Perception of Their Standard of Living. EBRI Issue Brief, no. 289 (Employee Benefit Research Institute, January 2006).. Individual Account Retirement Plans: An Analysis of the 2004 Survey of Consumer Finances." EBRI Issue Brief, no. 293 (Employee Benefit Research Institute, May 2006).. Individual Account Retirement Plans: An Analysis of the 2007 Survey of Consumer Finances, With Market Adjustments to June EBRI Issue Brief, no. 333 (Employee Benefit Research Institute, August 2009).. Individual Account Retirement Plans: An Analysis of the 2010 Survey of Consumer Finances. EBRI Issue Brief, no. 375 (Employee Benefit Research Institute, September 2012).. Individual Retirement Account Balances, Contributions, and Rollovers, 2012; With Longitudinal Results : The EBRI IRA Database. EBRI Issue Brief, no. 399 (Employee Benefit Research Institute, May 2014).. Employment-Based Retirement Plan Participation: Geographic Differences and Trends, EBRI Issue Brief, no. 405 (Employee Benefit Research Institute, October 2014). Copeland, Craig, and Jack VanDerhei. Personal Account Retirement Plans: An Analysis of the Survey of Consumer Finances. EBRI Issue Brief, no. 223 (Employee Benefit Research Institute, July 2000). Kennickell, Arthur B., and Annika E. Sundén. Pensions, Social Security, and the Distribution of Wealth. SCF Working Papers. Finance and Economics Discussion Series 55 (October 1997). Pension Benefit Guaranty Corporation Pension Insurance Data Tables. pbgc.gov/documents/2012-data-book- Tables.pdf Salisbury, Dallas, and Liz Buser. Many 401(k) Sponsors Suspending Matching Contributions Are Funding Defined Benefit Pension Plans. EBRI Notes, no. 6 (Employee Benefit Research Institute, June 2009): U.S. Department of Labor. Bureau of Labor Statistics. Employee Benefits in Medium and Large Private Establishments, 1995 (1998). Employee Benefits in Medium and Large Private Establishments, 1997 (1999). National Compensation Survey: Health and Retirement Provisions in Private Industry in the United States, 2010 (August 2011) VanDerhei, Jack. Defined Benefit Plan Freezes: Who's Affected, How Much, and Replacing Lost Accruals. EBRI Issue Brief, no. 291 (Employee Benefit Research Institute, March 2006).. What Causes EBRI Retirement Readiness Ratings to Vary: Results from the 2014 Retirement Security Projection Model. EBRI Issue Brief, no. 396 (Employee Benefit Research Institute, February 2014). ebri.org Issue Brief November 2014 No

22 . Contributory Negligence? The Impact of Future Contributions to Defined Contribution Plans on Retirement Income Adequacy for Gen Xers. EBRI Notes, no. 8 (Employee Benefit Research Institute, August 2014): VanDerhei, Jack, and Craig Copeland. The Changing Face of Private Retirement Plans. EBRI Issue Brief, no. 232 (Employee Benefit Research Institute, April 2001).. The Impact of PPA on Retirement Savings for 401(k) Participants. EBRI Issue Brief, no. 318 (Employee Benefit Research Institute, June 2008).. The Impact of Deferring Retirement Age on Retirement Income Adequacy. EBRI Issue Brief, no. 358 (Employee Benefit Research Institute, June 2011). VanDerhei, Jack, Sarah Holden, Luis Alonso, and Steven Bass. 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in EBRI Issue Brief, no. 394 (Employee Benefit Research Institute, December 2013).. What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Account Balances, EBRI Issue Brief, no. 402 (Employee Benefit Research Institute, July 2014). ebri.org Issue Brief November 2014 No

23 Endnotes 1 See VanDerhei (2006) for a discussion of the freezing of defined benefit plans in the private sector. Furthermore, this study calculates the additional percentage of compensation needed to replace the benefits not accrued by the freezing of the defined benefit plan that participants under various worker demographic scenarios would have to save or receive. Also, see Salisbury and Buser (2009) for links to lists of companies that have frozen pension plans as well as an estimate of the percentage of sponsors of a 401(k) plan that have suspended their matching contribution that also are funding a defined benefit plan. 2 The basis of this survey is what the Federal Reserve Board refers to as a primary economic unit (PEU), which is a subset of households and closely resembles families in its definition, although it is not precisely families. However, families are the closest concise terminology for the PEU, so families are used in this study. For further information about this issue as well as about SCF in general, see Bricker, et al. (2014). 3 This study also supplements other studies from EBRI on participation in the employment-based retirement plans and account balances in such plans as well as participation in IRAs and asset levels in IRAs from other data sources, most notably the EBRI IRA Database and the EBRI/ICI 401(k) database. For example, see Copeland (May 2014), and VanDerhei, Holden, Alonso, and Bass (2013). 4 SCF is not a longitudinal survey, so not the same families are surveyed each year. Therefore, the changes within the IA plans of those owning them year-to-year cannot be assessed. EBRI s databases on IRAs and 401(k) plans allow for longitudinal results of the same IA owners. See Copeland (May 2014) for longitudinal results on IRAs and VanDerhei, Holden, Alonso, and Bass (2014) for longitudinal results on 401(k) plans. 5 A regular (or traditional) individual retirement account allows individuals to contribute to an IRA and deduct the contribution from their taxes (depending on their adjusted gross income and employment-based participation status), investment earnings accrue on a tax-deferred basis, and withdrawals in retirement are taxed as ordinary income. In a Roth IRA, contributions are not tax-deductible, but investment earnings accumulate tax-free and remain tax-free upon distribution. Other types of retirement IRAs include the SEP IRA (Simplified Employee Pension) for self-employed workers, and the SIMPLE IRA (Savings Incentive Match Plan for Employees) aimed at small employers. See Copeland (May 2014) for more detail on these accounts. 6 See Bricker, et al. (2014) for a further discussion of the changes in overall net worth from 2010 to Lump-sum distributions are increasingly available in defined benefit (DB) plans. For example, in 2010, 46 percent of full-time employees in private-sector DB plans were eligible for a lump-sum distribution (U.S. Department of Labor, 2011). That compares with 1997 and 1995, when 76 percent and 85 percent, respectively, of full-time workers participating in a DB plan in a medium or large establishment were not offered a lump-sum distribution (U.S. Department of Labor, 1999, 1998). 8 According to the Pension Benefit Guaranty Corporation (PBGC), 37.9 percent of participants in a private-sector defined benefit plan are in a hybrid plan as of 2011 (PBGC). 9 The percentage of families with a participant in an employment-based retirement plan reached 41.6 percent in 2001 before falling to 40.3 percent in See Copeland (May 2006). 10 Using March Current Population Survey (CPS) data, Copeland (October 2014) found that the percentage of workers who participated in any type of employment-based retirement plan declined from 2007 to 2010 before increasing in In 2007, 41.5 percent of all workers participated in some type of employment-based retirement plan. This percentage was 39.8 percent in 2010, but in 2013 the percentage increased to 40.8 percent. However, these values are not directly comparable to the SCF results, because the CPS numbers are based on individual workers, while those in the SCF are based on families and include all families, specifically workers and retirees. Consequently, a higher percentage of families with retirees would drive down the percentage with a current employer retirement plan in the SCF relative to the cited CPS numbers which are only for workers. ebri.org Issue Brief November 2014 No

24 11 The 2013 SCF completed 6,026 interviews of families. Therefore, caution should be used when interpreting the results regarding specific plan types and breaks in demographics, as the sample size for these groups can be small given the overall sample size of SCF. SCF does have the most in-depth questions on families wealth, but must offset the completeness of the survey for a smaller sample size. Furthermore, identification of specific plan types in self-reported surveys has been challenging; therefore, actual record kept data can provide better results for specific plans. However, SCF data gives the best picture of American families overall wealth. 12 In this Issue Brief, all income and asset values are in 2013 dollars. 13 The questions to determine participation rates for defined contribution plans were not added until the 1995 survey. 14 There is one exception to this trend 1.2 percentage point drop between those with a HS diploma and those with some college in In Copeland (January 2006), using SIPP data, 57.8 percent of all wage and salary workers ages 16 or older were found to be either currently in an employment-based retirement plan or have at some point participated in one. For those ages 51 60, 72.8 percent were found to be in or to have participated in such a plan. 16 To reiterate, all values of the account balances for all years in this study are expressed in 2013 dollars. 17 The average value for individuals from the EBRI IRA Database was $105,001 for year-end 2012 (Copeland, May 2014). This number was less than the SCF number due to the database number being an individual number, whereas the SCF number is a family. The family (SCF) number would add any spouse or domestic partner s assets to that of the family head to arrive at one sum for the family. The SCF IRA number also includes Keogh plan assets, while the EBRI database number consists of only IRAs. Furthermore, the SCF number is for the middle to the end of 2013, compared with end of year 2012 for the EBRI database number. 18 The average 401(k) plan balance from the EBRI/ICI 401(k) plan database was $63,929 for year-end 2012 (VanDerhei, Holden, Alonso, and Bass 2013). There are various reasons for the EBRI/ICI number to be lower, primarily because the EBRI/ICI number is based on individuals instead of the combination of all DC assets in the family for SCF. Consequently, the SCF number could have more than one account added together to get one observation, compared to the one account for each observation under EBRI/ICI. Also, more than just 401(k) plans are included in the SCF number, so there is a higher likelihood for supplemental defined contribution plans to be included in the SCF study. In addition, the EBRI/ICI number only includes current employer balances not previous employer balances like the SCF number does. Furthermore, the SCF number is for the middle to the end of year 2013, compared with end of year 2012 for the EBRI/ICI database number. 19 The median IRA balance from the EBRI IRA Database was $27,987 for year-end 2012 (Copeland, May 2014). See endnote 17 for a discussion of reasons for differences between the SCF numbers and the IRA database numbers. 20 The median 401(k) plan balance from the EBRI/ICI 401(k) plan database was $17,630 for year-end 2012 (VanDerhei, Holden, Alonso, and Bass 2013). See endnote 18 for a discussion of reasons for differences between the SCF numbers and the EBRI/ICI database numbers. 21 Financial assets include assets that are generally liquid such as equities, bonds, and money or are financial vehicles that include liquid assets such as mutual funds, individual account retirement plans, etc. They do not include homes, vehicles, or collectibles. 22 A Roth IRA is a tax-qualified account that is financed by after-tax contributions but qualified distributions are not taxed. A rollover IRA is a tax-qualified account that is established for the purpose of receiving a distribution from another tax-qualified retirement plan (such as an employment-based defined contribution plan). A regular IRA is a tax-qualified account that can be financed either by deductible contributions or by after-tax contributions and has investment earnings on these contributions not taxed until the funds are withdrawn. (The deductible contributions are taxed at withdrawal but the after-tax contributions ebri.org Issue Brief November 2014 No

25 are not taxed at withdrawal.) The primary difference between a Roth IRA and a regular IRA with after tax (nondeductible) contributions is that the investment earnings are taxed on withdrawal from a regular IRA but not from a Roth IRA. The eligibility criteria for a Roth IRA are more stringent than that for a nondeductible regular IRA. 23 In Copeland (2012), a similar estimate was done from the 2010 SCF. In that study, regular IRAs represented 44.1 percent of the total-family IRA assets, while rollover IRAs share was 44.5 percent and Roth IRAs 11.4 percent. See also Copeland (May 2014) for the EBRI IRA Database breakdown of IRA owners by IRA type. 24 While this Issue Brie focused on individual account retirement plans, families could have coverage under traditional and/or hybrid defined benefit pension plans and are most likely to have coverage under the Social Security program. Although some information on workers ownership of defined benefit plans is presented in this study, the value of this retirement income is difficult to determine because it depends on assumptions about unknown future events work decisions, earnings, inflation rates, plan changes, etc. Because of the lack of widely agreed-upon standards for these assumptions, this Issue Brief does not include a measure of the present value of such income in this analysis. However, the incidence of defined benefit plan ownership by families declined from 1992 to See Kennickell and Sundén (1997) for a description of one possible approach to using the SCF to value the entire retirement income portfolio for the family. 25 See VanDerhei (August 2014) to see the impact of future years of eligibility in a 401(k) plan on the at-risk rating among Gen Xers. For Gen Xers with no future years of 401(k) plan eligibility, 60.3 percent are at risk for inadequate income in retirement, compared with 14.5 percent for those with 20 or more years of future eligibility. 26 See VanDerhei and Copeland (2011) for the potential limited benefit of working longer in increasing the probability of having adequate income in retirement. Working into one s 80s may be necessary before a significant change results in the probability of having adequate income. ebri.org Issue Brief November 2014 No

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