Medicare Program Takes On More Income- Related Features, p. 1 Retirement Accounts and Wealth, 2001, p. 5 Washington Update, p. 13

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1 E B R I Notes E M P L O Y E E B E N E F I T R E S E A R C H I N S T I T U T E May 2004, Vol. 25, No. 5 Medicare Program Takes On More Income- Related Features, p. 1 Retirement Accounts and Wealth, 2001, p. 5 Washington Update, p. 13 g Medicare Program Takes On More Income-Related Features by Paul Fronstin, Jim Jaffe, and Dallas Salisbury, EBRI When Medicare was enacted in 1965 it was financed in a manner similar to Social Security. Workers and employers were required to pay the same tax rate for Medicare Part A (Hospital Insurance), up to the Social Security wage base, and beneficiaries paid the same premium for Medicare Part B (Supplemental Medical Insurance), when opted. All beneficiaries received the same benefits. Legislation in 1988 eliminated the first of these commonalities: The Qualified Medicare Beneficiary (QMB) program covers Medicare cost sharing and Part B premiums for anyone with income below the poverty level. In 1990, legislation created a separate, higher, cap on the amount of income to be taxed for financing Part A. The cap was eliminated entirely in Legislation enacted in 2003 (the Medicare Prescription Drug, Improvement and Modernization Act), which added a prescription drug benefit, also moved away from the principal of commonality as it eliminated the flat Part B premium for all beneficiaries. Today, the highest-paid workers pay higher payroll taxes and starting in 2007 the highest-income beneficiaries will pay a higher Part B premium. Otherwise, all Medicare beneficiaries will have access to the same benefits, regardless of income. This latest change has received very little attention since it only affects the highly paid, but it may be indicative of changes that will become necessary in the future to keep Medicare solvent. The Medicare Program Medicare is the primary payer of health care services for persons who are age 65 and older. This program consists of two parts: Part A covers inpatient services, skilled nursing facility (SNF) benefits following a hospital stay, home health visits following a hospital or SNF stay, hospice care, and blood. Part B covers doctors services, outpatient care, diagnostic tests, ambulatory services, durable medical equipment, outpatient physical and occupational therapy, mental health services, clinical laboratory services, limited home health care, outpatient hospital services, and blood provided on an outpatient basis. Individuals eligible for Social Security are automatically eligible for Medicare Part A. Medicare Part B is a voluntary program, although nearly all Medicare beneficiaries are enrolled in it. A monthly newsletter from the EBRI Education and Research Fund 2004 EBRI

2 EBRI Notes May 2004 Vol. 25, No. 5 Medicare Financing Finances for Medicare Parts A and B come from a number of different sources. Today s retirees are not currently paying for Medicare Part A coverage, as it is financed through a payroll tax on both workers and employers. Each contributes 1.45 percent of salary. Payment over time of this payroll tax qualifies workers for Medicare when they reach age 65. Finances for Part B come from two sources: First, retirees who enroll in Part B are required to pay a premium to receive those benefits (currently, retirees pay 25 percent of the cost of Medicare Part B), and second, general revenues are used to pay the 75 percent of the cost of Medicare Part B that is not covered by retiree premiums. The rules regarding funding sources have changed over time. The payroll tax contribution rate used to fund Medicare Part A has been increased a number of times since In 1966, workers and employers each paid 0.35 percent of pay; since 1994, both pay 1.45 percent. The maximum taxable amount of annual earnings has increased over this period as well. In 1966, workers and employers were taxed on only the first $6,600 of annual earnings. The maximum taxable amount of annual earnings gradually increased between 1966 and In 1991, the maximum taxable amount of annual earnings was increased to $125,000 for Medicare, and was indexed for inflation. The maximum taxable limit was eliminated altogether in Low-income workers have always paid less for Medicare Part A than high-income workers. A worker earning $25,000 a year will pay $363 in 2004 in taxes for Medicare Part A, while in contrast, a worker earning $200,000 a year will pay $2,900 in 2004 in taxes for the same Medicare Part A benefits. While technically not a means test, this graduated financing of the Part A benefit relies on higher taxes for high-income individuals in order to provide the same level of benefits. 3 In each case, the employer matches the employee payment, so the combined worker and employer Part A payments are $726 and $5,800 per worker at these two income levels. Premiums required to enroll in Medicare Part B also will be related to income starting in By 2011, the changes to Part B premiums as they relate to income will be fully phased in. Medicare beneficiaries with income under $80,000 ($160,000 for a married couple) will continue to be required to pay 25 percent of the cost of Part B. However, beneficiaries with income between $80,000 and $100,000 will be required to pay 35 percent of the premium, and beneficiaries with income of at least $200,000 will be responsible for 80 percent of the premium to enroll in Part B (Figure 1). These income levels will also be indexed to general inflation. Figure 1 Future Medicare Part B Premium Percentage of Premium Paid by Medicare Beneficiaries for Part B Benefits Income Levels in 2007 a <$80,000 25% 25% 25% 25% 25% $80,000 $99, $100,000 $149, $150,000 $199, $200,000 or more Source: Employee Benefit Research Institute. a Income levels are doubled for married couples. Income levels are indexed to inflation after Currently, the Medicare Part B premium is $66.60 per month. The Congressional Budget Office (CBO) projects that it will reach $99.70 per month in However, individuals with income of between $80,000 and $100,000 will be required to pay $ per month in 2011, while individuals with income of at least $200,000 in 2011 will be required to pay $319 per month for Part B benefits 2

3 EBRI Notes May 2004 Vol. 25, No. 5 (Figure 2). It has been estimated that 3 percent of Part B enrollees will be affected by these higher premiums in 2007, increasing to 6 percent in Figure 2 Monthly Medicare Part B Premium, a Income Levels in 2007 b Monthly Premium Paid by Medicare Beneficiaries for Part B Benefits <$80,000 $80.10 $ $ $ $ $80,000 $99, $100,000 $149, $150,000 $199, $200,000 or more Source: Employee Benefit Research Institute. Based on CBO projections. b Income levels are doubled for married couples. Income levels are indexed to inflation after Implications for Retiree Health Benefits Most retirees with health insurance to supplement Medicare pay most of the cost themselves. A small proportion of employers that provide retiree health insurance pay the Part B premium. 4 But, many of those employers initially paid most of the monthly premium and paid more each year as premiums rose. That has changed in recent years as employers have hit the caps they imposed on payment, so that the retiree is paying all of the annual increases. Combined with the need now to pay higher Part B premiums, and also Part D premiums for those who opt into the new prescription program beginning in 2006, the cost of maintaining health insurance in retirement is increasing rapidly for retirees as a result of both inflation and program design changes. The importance of factoring retiree health cost projections into the cost of retirement, and thus what needs to be saved for retirement, has never been more essential. And it will become increasingly essential in the decades ahead. 5 Political Implications The issue of Medicare changes that require higher payments by higher income workers and retirees is a potentially thorny one that cuts in ways that often seem counterintuitive. Republicans generally favor lower taxes on the rich and have worked toward this goal consistently since President Bush took office in But they also believe that those with higher incomes should pay more for government services and have long sought an income-related Medicare Part B financing structure. They point out that Part A has required those with higher earnings to pay more since the program s inception. But a strong negative reaction from upper-income individuals, who tend to vote Republican, could force legislators to reconsider their position on the issue. Legislators in both parties recall that such upper-income seniors were largely responsible for the dissatisfaction that led to the embarrassing repeal of the Medicare catastrophic program which included prescription drug benefits in One complaint then was a income-related premium structure. If they detect the repeal train coming toward them again, they re not about to stand in its way But this situation doesn t replicate that of There are two important differences: The first is that the new drug benefit is optional and may not be particularly attractive to the most affluent who are the most likely to already have good drug coverage. The second (and potentially more explosive difference) is that participants in Part B, which includes nearly the entire beneficiary population, will be subjected to the income-related premium whether they elect the drug benefit or not. In other words, the most affluent seniors may find the cost of Part B coverage more than tripling quickly, and then going to higher multiples, while they are getting no added benefit in return. 3

4 EBRI Notes May 2004 Vol. 25, No. 5 Whether the amount of money involved is substantial enough on its own to make them unhappy enough to become politically active is an open question but when taken together with all other health cost increases, it well could be enough in future decades. Equally interesting is the Democratic position. Democrats have long considered such incomerelated premiums as a means test (although technically they are not. A means test involves a binary test of whether a person is poor enough to be eligible for a benefit). Using this logic, Democrats have habitually rejected plans that would have the rich pay premiums to fund benefits that would be enjoyed by the traditionally low-income Democratic constituency. That s because Democrats fear that such distinctions would undermine broad public support for such universal plans and ultimately stigmatize them as welfare plans limited to the poor. Welfare programs tend to be politically vulnerable. Moreover, many Democrats remain opposed to the new Medicare prescription drug plan for a variety of reasons and would welcome the opportunity to embarrass the opposition by overturning it. If the opportunity presented itself, they would be quick to ally themselves with disaffected highincome seniors who do not want to pay the higher premium. From the Democratic perspective, there are major differences between Part A and Part B financing. Because the former is mandatory, it is seen as a tax and the Democrats generally back progressive taxation that shifts the burden toward the rich. But the latter is optional (as is the new Part D drug benefit), and is seen as a premium which means that an income-related premium is viewed as a means test. Democrats opposing the plan could attempt to create a coalition consisting of poor seniors unhappy about the value of the benefit package and rich ones dissatisfied with the cost of the increase in the Part B premium. Saving for Retiree Health Will Have to Become a Priority Regardless of the politics of particular retiree health issues, the combination of the erosion of retiree health benefits and limited benefits from Medicare means that beneficiaries at all income levels should expect to pay a significant amount of money for health insurance and health care services. Premiums for retiree health benefits, Medicare Part B and Part D, and out-of-pocket costs all add up to retirees having to spend more of their income (potentially a lot more) on health insurance and health care services. Individuals wishing to have a long retirement with a reasonable standard of living have a stake in saving more today to pay for health care tomorrow. Endnotes 1 The Omnibus Budget Reconciliation Act of 1990 (OBRA 90) called for raising the maximum taxable amount for annual earnings for Medicare to $125,000 (indexed). Prior to passage of OBRA 90, the maximum taxable amount of annual earnings for the Medicare program was the same as the maximum taxable amount for the Social Security program. 2 The Omnibus Budget Reconciliation Act of 1993 (OBRA 93) completely removed any wage base limit for the 1.45 percent Medicare portion of the FICA tax, effective Jan. 1, In the conference report, it was reported that there was concern in the Senate that the payroll tax for Medicare paid by high-income workers would bear little relation to benefit such workers could expect to receive, and that this made the program look more like a welfare program than a social insurance program. Congress has never revisited this issue. See House of Representatives, Omnibus Budget Reconciliation Act of 1993, Conference Report to accompany H.R. 2264, Report , Aug. 4, Data from Hewitt Associates show that 4 percent of employers reimburse (formerly salaried) retirees for at least part of the Medicare Part B premium. In addition, 26 percent of union employers reimburse for at least part of the Medicare Part B premium (personal communication). 5 See Paul Fronstin, and Dallas Salisbury, Retiree Health Benefits: Savings Needed to Fund Health Care in Retirement, EBRI Issue Brief no. 254 (Employee Benefit Research Institute, February 2003). 4

5 EBRI Notes May 2004 Vol. 25, No. 5 g Retirement Accounts and Wealth, 2001 by Craig Copeland, EBRI There is a growing expectation that Americans should be more responsible for financing an increasing share of their expenses in retirement. In addition, the Board of Trustees of the Social Security and Medicare programs are both projecting a 75-year actuarial deficit for these programs. 1 However, given these expectations and challenges facing the programs designed for the elderly, there is skepticism about whether many Americans are capable of accumulating enough assets to support their accustomed lifestyle in retirement, given their proclivity to spend or at least their inability to accumulate assets. 2 The two main savings vehicles designed for accumulating assets for retirement are individual retirement accounts (IRAs) and employment-based retirement savings plans such as 401(k) plans. This article examines the ownership of IRAs (in aggregate, but not by type) 3 and 401(k)-type plans by Americans age 21 or older, as well as the average balances in these plans. The article also investigates the number of years that owners of these plans have contributed to them, as continuing to contribute to these plans is key to building assets within them. Although IRAs and 401(k)-type plans are designed for accumulating assets for retirement, not all Americans have access to 401(k)-type plans or use either of these plans to save. Therefore, this article examines the wealth of American households that both do and do not own IRAs or 401(k)- type plans in order to provide an indication of the asset levels that these households have or may have available to use in retirement and the potential effect of plan ownership on overall wealth. This study s results are derived from the U.S. Census Bureau s 2001 Panel of the Survey of Income and Program Participation (SIPP) Wave 3 Topical Module on wealth. This is a survey principally designed to collect information on income, labor force participation, and participation in various government programs across general demographic characteristics of Americans. 4 The 2001 Panel of SIPP started in February of 2001 and follows the same 36,700 households over a three-year period to observe changes in the variables studied. In addition to a core set of questions asked at four-month intervals, topical modules were included that involve more detail about certain topics of interest to the goals of the survey. Respondents were divided into four rotation groups, so that onefourth of the respondents were interviewed every month. Consequently, the topical module results are for the last month of the four-month period being surveyed, so that for the entire set of respondents the data of interest were collected over a four-month period. For this study, the findings were those for the last four months (September December) of For comparisons with IRA and 401(k)-type plan ownership and average balances in previous years, this study uses results from the 1996 Panel of SIPP. Individual Retirement Account Ownership By the last quarter of 2001, 17.6 percent of all Americans age 21 or older owned an IRA and 18.8 percent of all workers this age owned an IRA (Figure 3). The percentage owning an IRA was up relative to the late 1997/early 1998 rates of 15.8 percent for Americans and 16.8 percent for workers. The average balance for an IRA owner in the last quarter of 2001 was $37,015. While this average balance was higher than it was in early 1998 ($30,180), it was down from the early 2000 level of $40, The median (mid-point) balances also followed the same trend, increasing from $14,000 in early 1998 to $17,000 in early 2000 before declining to $15,000 by the end of This is consistent with the trend in the overall level of IRA assets found in previous studies for this time period. 6 IRA ownership varies across many different demographic characteristics. The likelihood of ownership increases with age, family income, and educational attainment. Furthermore, whites, males, and retirees are more likely to own an IRA than individuals in their comparison groups. The average balances of those owning IRAs also increased with age (through 70) and educational attain- 5

6 EBRI Notes May 2004 Vol. 25, No. 5 ment, but not with family income. This can be at least partially explained by the fact that retirees, who have lower incomes and have had a longer time to accumulate assets, are more likely to own an IRA than workers. Whites, retirees, and males also had higher average balances. These trends were consistent over the nearly four-year period studied. 401(k)-Type Plan Ownership The ownership of 401(k)-type plans also increased by the end of 2001, to 25.3 percent of Americans ages and to 30.4 percent of workers ages up from 21.1 percent and 25.5 percent, respectively, in late 1997/early 1998 (Figure 4). 7, 8 The average balance for all those owning a 401(k)-type plan decreased from the early 2000 level of $40,957 to $36,244 by the end of 2001, a level still higher than the early 1998 amount ($30,771). 9 The median balances also showed the same pattern, decreasing from a high of $16,300 in early 2000 to $15,000 by the end of 2001, after increasing from $12,000 in early 1998 to the early 2000 high. Again, the average and median 401(k)-type plan balances followed the trend in overall 401(k)-type plan assets over this same period, mimicking (and reflecting) the stock market returns over this time frame. Ownership of a 401(k)-type plan increased with age (through age 54), family income, and educational attainment and is higher for whites, males, and workers. Average balances also increased with age and educational attainment and were higher for whites and males. The average balance increases with family income among families with $10,000 or more of income, but the relatively high value of the average balance of those with family income less than $10,000 was apparently driven by the high average retiree balance relative to the worker balance. Years Contributing to These Plans The average number of years that plan owners contributed to each of these accounts (IRAs and 401(k)-type plans) increased by about one year from November 1997 February 1998 to September December 2001 (Figure 5). However, the median number of years remained unchanged for 401(k)- type plans at five years, while for IRAs the median increased from five years to six years. The distribution of the number of years owners contributed to their plans suggests that some individuals do persist in contributing, as the percentage who contributed for more than 10 years grew significantly over the time frame studied. 10 These data indicate that if individuals start to contribute to a retirement plan, they appear to be highly likely to continue to do so in the future. 11 Figures 4 and 5 show the average number of years contributed to each of these plans, respectively, across various demographic characteristics. There do not appear to be any significant differences except for an individual s age and age-related characteristics, such as being widowed or retired. Wealth Many individuals do not use retirement accounts despite their value as vehicles for accumulating assets for retirement, while others supplement their use with savings outside of these accounts. Therefore, total household wealth is an important statistic in understanding the level of assets individuals will have available to finance their retirement years. According to SIPP, the median total (financial and housing) household wealth of Americans age 21 or older was $73,708 by the end of 2001 (Figure 6). 12 When this wealth amount is examined in terms of households with or without a retirement account, a substantial difference emerges. The median household wealth of individuals with a retirement account was $171,225, but it was only $41,117 for those without one. 13 This significant difference prevails across all demographic categories. 14 Those who use these retirement accounts clearly have the most wealth. As with IRA and 401(k)-type plan participation, wealth increases with age (through age 69), family income, and educational attainment. Furthermore, white, married, male, and retired individuals have more household wealth than those in their comparison groups. 6

7 EBRI Notes May 2004 Vol. 25, No. 5 Conclusion While there has been much discussion in policy circles about the necessity for individuals to save for retirement, only a minority of the adult population owns at least one of the two main savings vehicles designed for this purpose. However, from late 1997 to late 2001, there was an increase in the ownership of these types of plans. Granted, some of this increase could be attributable to the popularity of 401(k)-type plans relative to defined benefit pension plans in the employment-based retirement system; unfortunately, the extent of this effect cannot be determined using the data in this study. Regardless of the cause of the increase in ownership, Americans had a relatively high probability of continuing to contribute to these plans once they initially opened one. There was an increase in the percentage of those contributing to both IRAs and 401(k)-type plans for 10 or more years from 1997 to 2001, even taking into account the increase in ownership. Substantial changes in behavior come slowly to most Americans. Thus, it should not be expected that they would rapidly change their savings behavior. However, it appears that a larger number and a larger percentage of Americans are using tax-advantaged retirement accounts, and they accumulated more assets in these plans over the four-year period studied, despite a dip from the 2000 level. Yet, the amount they have accumulated does not appear to be nearly sufficient to provide a significant retirement income by itself, especially among those close to retirement. Consequently, many Americans may have to make some changes in their lives. Whether they understand this is an open question, as what Americans hope to have in retirement and what they need to get there do not appear to be aligned. 15 Endnotes 1 See Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, The 2004 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (Washington, DC: Board of Trustees, Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, 2004) available at (accessed March 31, 2004); and Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, The 2004 Annual Report of the Board of Trustees of Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (Washington, DC: Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 2004) available at (accessed March 31, 2004). 2 See Jack VanDerhei and Craig Copeland, Can America Afford Tomorrow s Retirees: Results From the EBRI-ERF Retirement Security Projection Model, EBRI Issue Brief no. 263 (Employee Benefit Research Institute, November 2003) for more on the sufficiency of assets accumulated in retirement plans to fund the same level of expenses over the entire retirement of Americans. 3 The survey does not ask about the type of IRA, but only if one is owned. See Craig Copeland, IRA and Keogh Assets, EBRI Notes, no. 2 (Employee Benefit Research Institute, February 2004): 1 7 for a breakdown of IRA owners into IRA types by assets, as well as a brief description of each IRA type. 4 For more information about the Survey of Income and Program Participation (SIPP), see (accessed March 29, 2004). 5 In Craig Copeland, Individual Account Retirement Plans: An Analysis of the 2001 Survey of Consumer Finances, EBRI Issue Brief no. 259 (Employee Benefit Research Institute, July 2003), household IRA balances averages are presented that are significantly larger than those presented here. There are two primary reasons for this difference: First, the household basis combines spouses IRAs into one amount, while the individual number would have them as a separate number. Second, SIPP topcodes the IRA balances at a relatively low amount of $250,000, compared with the household averages in the study cited above. 6 See Copeland, 2004, op. cit. 7

8 EBRI Notes May 2004 Vol. 25, No. 5 7 SIPP asks if an individual owns a 401(k) plan or thrift plan, which includes at least plans provided by the private sector through 401(k) plans and by the federal government through the Thrift Savings Plan. Consequently, the term 401(k)-type plans is used because the question is broader than just 401(k) plans. 8 The age group is used in this portion because an individual must be a worker to actively participate in a 401(k)-type plan, which most people age 65 or older are not. For many years, in order to make a contribution to an IRA an individual must have had earned income, but that is no longer the case, as the Tax Reform Act of 1997 allowed nonworking spouses to make contributions to an IRA given certain family income and age conditions. See Paul Yakoboski and Bill Pierron, IRAs: It s a Whole New Ballgame, EBRI Notes no. 9 (Employee Benefit Research Institute, 1997): 1 4 for more details about the changes in IRAs under the Tax Reform Act of See Sarah Holden and Jack VanDerhei, 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2002, EBRI Issue Brief no. 261 (Employee Benefit Research Institute, September 2003) for a 401(k)-planonly average. Furthermore, Holden and VanDerhei present average balance changes for those in the same plan across years, which shows a different result depending upon the size of the account balance. This controls for workers beginning or leaving a plan as well as providing the current balance of the active plan. Again, the average balance presented in this study is significantly lower than in the Holden and VanDerhei study because of SIPP s topcoding of the balances at $240,000 as well as the previously mentioned differences in the populations examined. 10 Respondents who answered 30 or more years for IRA contributions must have been mistaken, as IRAs were not introduced until 1974, which eliminates the possibility of having made contributions for that many years through This is further supported by the relatively high likelihood of continuing to contribute over a three-year period, as found in Craig Copeland, IRA Assets and Characteristics of IRA Owners, EBRI Notes no. 12 (Employee Benefit Research Institute, 2002): Wealth includes financial and nonfinancial wealth, consisting of retirement account assets such as IRAs and 401(k) plans but not any defined benefit pension plan accruals or Social Security benefits. Furthermore, this is not individual wealth but the total household wealth of the individual s household. For example, each spouse s wealth is combined into one amount and is considered as one equal amount for each in the survey. 13 Since defined benefit plan accruals are not included in these wealth calculations, it is possible that those participating in a defined benefit plan have not also saved in retirement accounts, so that their relative wealth is biased downward. However, this is not likely to change the qualitative result indicating that those with retirement accounts have higher household wealth. This is supported by the fact that only just over 40 percent of the entire work force actively participates in any type of employment-based retirement plan, while this study shows approximately one-third of the U.S. population has a retirement account. Consequently, the intersection of these two groups would be quite large. Therefore, with defined benefit plan wealth included, the median wealth of those without a retirement account certainly would not increase to a level higher than that of the median for those with a retirement account, particularly since the 75 th percentile of the wealth of those without a retirement account is less than the median wealth ($137,354) of those with a retirement account. See Craig Copeland, Employment-Based Retirement and Pension Plan Participation: Declining Levels and Geographic Differences, Issue Brief no. 262 (Employee Benefit Research Institute, October 2003) for more on employment-based retirement plan participation levels. 14 In Copeland, July 2003, op. cit., similar results on wealth differences between those with and without retirement accounts were found in the Survey of Consumer Finances (SCF). 15 See Ruth Helman and Variny Paladino, Will Americans Ever Become Savers? The 14 th Annual Retirement Confidence Survey, 2004, EBRI Issue Brief no. 268 (Employee Benefit Research Institute, April 2004) for a discussion of Americans confidence about retirement and attitudes toward saving for it. 8

9 Figure 3 Percentage of All Americans Age 21 or Older Who Own an Individual Retirement Account (IRA), Average Years Contributed to an IRA, and Average Balance For Those Owning an IRA, November 1997 Februrary 1998, November 1999 February 2000, and September December 2001 November 1997 Febraury 1998 November 1999 Febraury 2000 September December 2001 Number Own Average years Average Median Number Own Average years Average Median Number Own Average years Average Median (millions) IRA contributed balance balance (millions) IRA contributed balance balance (millions) IRA contributed balance balance All % 7.9 $30,180 $14, % 8.6 $40,960 $17, % 9.1 $37,015 $15,000 Age ,837 2, ,606 2, , ,747 4, ,044 4, ,477 5, ,673 10, ,597 12, ,441 10, ,949 14, ,442 18, ,735 16, ,026 20, ,469 25, ,146 24, ,480 24, ,402 30, ,169 25, or older ,759 21, ,879 28, ,079 24,000 Family Income Less than $10, ,251 12, ,313 16, ,193 12,000 $10,000 $19, ,337 13, ,332 18, ,687 18,800 $20,000 $29, ,302 12, ,873 17, ,427 15,000 $30,000 $39, ,249 13, ,303 17, ,128 14,000 $40,000 $49, ,749 12, ,279 14, ,049 14,000 $50,000 $74, ,537 12, ,532 13, ,986 14,000 $75,000 or more ,969 16, ,679 20, ,899 18,000 Education Level Less than HS diploma ,698 10, ,146 14, ,635 14,000 HS diploma ,828 12, ,644 17, ,452 12,800 Some college ,308 11, ,482 13, ,849 14,000 Bachelor's degree ,719 14, ,197 16, ,007 15,000 Graduate degree ,276 20, ,098 25, ,625 22,000 Race/Ethnicity White ,035 14, ,428 18, ,032 15,000 Black ,477 4, ,417 4, ,703 10,000 Hispanic ,030 8, ,671 10, ,520 8,000 Other ,848 10, ,957 10, ,501 11,000 Gender Male ,775 17, ,511 21, ,646 18,500 Female ,507 11, ,342 13, ,269 12,000 Work Status Retired ,994 21, ,333 28, ,002 25,000 Nonworker ,487 10, ,969 12, ,033 8,000 Worker ,236 12, ,350 14, ,763 13,000 Source: Employee Benefit Research Institute estimates of the 1996 Panel of the Survey of Income and Program Participation (SIPP) Waves 6 and 12 Topical Modules and the 2001 Panel of the Survey of Income and Program Participation (SIPP) Wave 3 Topical Module.

10 Figure 4 Percentage of All Americans Ages Who Own a 401(k)-Type Plan, Average Years Contributed to a 401(k)-Type Plan, and Average Balance For Those Owning a 401(k) Type Plan, November 1997 Februrary 1998, November 1999 February 2000, and September December 2001 November 1997 Febraury 1998 November 1999 Febraury 2000 September December 2001 Own Average Own Average Own Average Number 401(k)- years Average Median Number 401(k)- years Average Median Number 401(k)- years Average Median (millions) type plan contributed balance balance (millions) type plan contributed balance balance (millions) type plan contributed balance balance All % 6.1 $30,771 $12, % 6.8 $40,957 $16, % 7.2 $36,244 $15,000 Age ,980 1, ,624 3, ,895 2, ,831 5, ,771 6, ,587 5, ,161 15, ,976 19, ,653 15, ,457 20, ,383 27, ,924 21, ,260 30, ,525 36, ,438 30,000 Family Income Less than $10, ,051 4, ,865 13, ,450 12,700 $10,000 $19, ,151 4, ,968 5, ,653 5,000 $20,000 $29, ,752 4, ,830 6, ,047 5,500 $30,000 $39, ,419 8, ,262 8, ,652 8,000 $40,000 $49, ,478 8, ,313 12, ,554 10,000 $50,000 $74, ,737 13, ,552 15, ,041 14,000 $75,000 or more ,046 25, ,998 30, ,050 24,000 Education Level Less than HS diploma ,210 7, ,200 9, ,187 8,000 HS diploma ,410 8, ,013 12, ,054 10,000 Some college ,463 10, ,139 13, ,301 11,700 Bachelor's degree ,906 15, ,768 20, ,834 18,000 Graduate degree ,121 30, ,324 40, ,280 25,000 Race/Ethnicity White ,537 14, ,911 18, ,209 15,000 Black ,147 7, ,257 8, ,395 9,321 Hispanic ,824 8, ,166 10, ,925 8,453 Other ,047 10, ,056 16, ,648 12,000 Gender Male ,042 16, ,415 20, ,943 19,000 Female ,552 9, ,305 13, ,928 10,000 Work Status Retired ,583 36, ,530 40, ,648 55,000 Nonworker ,857 8, ,892 14, ,115 15,000 Worker ,400 12, ,990 16, ,192 14,000 Source: Employee Benefit Research Institute estimates of the 1996 Panel of the Survey of Income and Program Participation (SIPP) Waves 6 and 12 Topical Modules and the 2001 Panel of the Survey of Income and Program Participation (SIPP) Wave 3 Topical Module.

11 EBRI Notes May 2004 Vol. 25, No. 5 Figure 5 Average, Median, and Distribution of the Years Contributed to an Individual Retirement Account (IRA) or 401(k)-Type Plan by Those Who Own Them, November 1997 Februrary 1998, November 1999 February 2000, and September December 2001 Individual Retirement Account 401(k)-Type Plan Nov Nov Sept. Nov Nov Sept. Feb Feb Dec Feb Feb Dec Average Number of Years Median Number of Plans Years Contributed 1 year 15.6% 15.7% 14.2% 15.9% 13.9% 14.7% 2 5 years years years years years 1.0 Source: Employee Benefit Research Institute estimates of the 1996 Panel of the Survey of Income and Program Participation (SIPP) Waves 6 and 12 Topical Modules and the 2001 Panel of the Survey of Income and Program Participation (SIPP) Wave 3 Topical Module. 11

12 EBRI Notes May 2004 Vol. 25, No. 5 Figure 6 Median Household Wealth For All Americans Age 21 or Older With or Without a Retirement Account, a September December 2001 All With Retirement Account Without Retirement Account Median Median Median Number wealth Number wealth Number wealth (millions) (millions) (millions) All $73, $171, $41,117 Age , , , , , , , , , , , , , , , , , , or older , , ,181 Family Income Less than $10, , , ,369 $10,000 $19, , , ,522 $20,000 $29, , , ,654 $30,000 $39, , , ,554 $40,000 $49, , , ,981 $50,000 $74, , , ,250 $75,000 or more , , ,272 Education Level Less than HS diploma , , ,062 HS diploma , , ,350 Some college , , ,808 Bachelor's degree , , ,900 Graduate degree , , ,389 Race/Ethnicity White , , ,754 Black , , ,300 Hispanic , , ,200 Other , , ,354 Marital Status Married , , ,118 Widowed , , ,000 Divorced , , ,750 Separated 5.0 8, , ,602 Never married , , ,950 Gender Male , , ,250 Female , , ,900 Work Status Retired , , ,208 Nonworker , , ,650 Worker , , ,594 Source: Employee Benefit Research Institute estimates of the 2001 Panel of the Survey of Income and Program Participation (SIPP) Wave 3 Topical Module. a Retirement accounts include individual reitrement accounts (IRAs), Keoghs, and 401(k)-type plans but exclude defined benefit plans and Social Security as they are not included in the wealth calculations. 12

13 EBRI Notes May 2004 Vol. 25, No. 5 g Washington Update by Jim Jaffe, EBRI New Temporary Pension Interest Benchmark Enacted Just before the April 15 deadline, President Bush quickly signed into law legislation overwhelmingly approved by Congress that would set a new pension interest benchmark through the end of The new standard, which replaces another temporary two-year fix that expired at the end of 2003, would mandate use of a blended corporate bond interest rate. Failure to act prior to April 15 would have required plans to use a lower benchmark based on the 30-year-Treasury bond rate. But Congress still must confront some thorny issues before it agrees to a permanent solution, including a Treasury Department proposal that the duration of pension assets and liabilities be matched. There s no assurance that a long-term resolution will be enacted before the end of 2005, when the new fix expires. The new law also provides special relief to funds sponsored by ailing industries like airlines and steel. Some Democrats, who said the legislation failed to provide equal relief for multiemployer plans, vowed to focus on this issue later this year. Treasury Allows HSAs To Cover Preventive Benefits Last year s Medicare drug bill included a provision allowing the creation of new Health Security Accounts (HSAs), which would permit tax-deferred savings accumulations to buyers of new highdeductible health insurance coverage. As a rule, such plans would include a deductible of at least $1000 per person. The Bush administration is enthusiastic about HSAs. New guidance from the Treasury Department permits such insurance to reimburse for preventive care, including annual physicals and vaccinations, without regard to the deductible requirement. Treasury is asking for public comment on whether other benefits, including mental health and wellness services, are worthy of a similar carve out. Drug Import Controversy Continues Sen. Charles Grassley (R-IA), who chairs the Senate Finance Committee, gave new impetus to efforts to encourage the import of prescription drugs from abroad by proposing that firms in Canada and later in other nations be allowed to export such drugs to American users after registering with the Food and Drug Administration. The FDA has opposed import plans in the past by saying it lacks the resources to guarantee the safety of such imported drugs. Given the shortness of the remaining legislative season, action on the Grassley proposal is unlikely this year. But the fact that a prominent Republican is promoting the issue indicates that imports have broad bipartisan support. Iowa s Gov. Tom Vilsack, a Democrat, has been pushing Washington regulators to allow such imports. Campbell Named to EBSA Post Bradford P. Campbell, who joined the Department of Labor in 2001 after working as a congressional aide, is the new deputy assistant secretary for policy of the Employee Benefits Security Administration. He was previously senior legislative officer at Labor. During the late 1990s, he worked for Rep. Ernest Fletcher (R-KY) and Rep. Christopher Cox (R-CA). The press release announcing his new position can be found on the Internet at

14 EBRI EMPLOYEE BENEFIT RESEARCH INSTITUTE for employee benefits research The premier organization Established in 1978, the Employee Benefit Research Institute (EBRI) is the only nonprofit, nonpartisan organization committed to original public policy research and education on economic security and employee benefits. EBRI s overall goal is to promote soundly conceived employee benefit programs. EBRI does not lobby or endorse specific approaches. Rather, it provides balanced analysis of alternatives based on the facts. Through its activities, EBRI is able to fulfill its mission to advance the public s, the media s, and policymakers knowledge and understanding of employee benefits and their importance to our nation s economy. Since its inception, EBRI s membership has grown to represent a cross section of pension funds; businesses; trade associations; labor unions; health care providers and insurers; government organizations; and service firms, including actuarial firms, employee benefit consulting firms, law firms, accounting firms, and investment management firms. Today, EBRI is recognized as one of the most authoritative and objective resources in the world on employee benefit issues health care, pensions, and economic security. Employee Benefit Research Institute 2121 K Street, NW Suite 600 Washington, DC phone (202) Fax (202) EBRI Notes October

15 Welcome to the Employee Benefit Research Institute On-Line Back Forward Home Reload Images Open Print Find Stop What s New? What s Cool? Destinations Net Search People Software Check Out EBRI s Web Site! EBRI EMPLOYEE BENEFIT RESEARCH INSTITUTE About EBRI Benefit Fundamentals Fellows How to Join EBRI Media Members Only Programs Publications What's New Employee Benefit Research Institute To contribute to, to encourage, and to enhance the development of sound employee benefit programs and sound public policy through objective research and education. Site Map Search Now it s easier than ever to find exactly what you re looking for with our extensive search engine and site map. Just type in the key words and let us do the work for you. And, you can order many of our publications online with delivery within 48 hours! It s as easy as clicking a button! EBRI Members check out the special password-protected area where you have access to hundreds of EBRI publications and research online! EBRI Periodicals subscribers also have a password that allows them to access all online EBRI Issue Briefs and/or Notes! Visit EBRI on-line today: EBRI Notes December

16 EBRI Notes i EBRI Notes (ISSN ) is published monthly at $300 per year or is included as part of a membership subscription by the Employee Benefit Research Institute, 2121 K Street, NW, Suite 600, Washington, DC Periodicals postage rate paid in Washington, DC. POSTMASTER: Send address changes to: EBRI Notes, 2121 K Street, NW, Suite 600, Washington, DC Copyright 2004 by Employee Benefit Research Institute. All rights reserved, Vol. 25, no. 5. Who we are What we do Our publications Orders/ subscriptions The Employee Benefit Research Institute (EBRI) was founded in Its mission is to contribute to, to encourage, and to enhance the development of sound employee benefit programs and sound public policy through objective research and education. EBRI is the only private, nonprofit, nonpartisan, Washington, DC-based organization committed exclusively to public policy research and education on economic security and employee benefit issues. EBRI s membership includes a cross-section of pension funds; businesses; trade associations; labor unions; health care providers and insurers; government organizations; and service firms. EBRI s work advances knowledge and understanding of employee benefits and their importance to the nation s economy among policymakers, the news media, and the public. It does this by conducting and publishing policy research, analysis, and special reports on employee benefits issues; holding educational briefings for EBRI members, congressional and federal agency staff, and the news media; and sponsoring public opinion surveys on employee benefit issues. EBRI s Education and Research Fund (EBRI-ERF) performs the charitable, educational, and scientific functions of the Institute. EBRI-ERF is a tax-exempt organization supported by contributions and grants. EBRI Issue Briefs are periodicals providing expert evaluations of employee benefit issues and trends, as well as critical analyses of employee benefit policies and proposals. EBRI Notes is a monthly periodical providing current information on a variety of employee benefit topics. EBRI s Pension Investment Report provides detailed financial information on the universe of defined benefit, defined contribution, and 401(k) plans. EBRI Fundamentals of Employee Benefit Programs offers a straightforward, basic explanation of employee benefit programs in the private and public sectors. EBRI Databook on Employee Benefits is a statistical reference volume on employee benefit programs and work force related issues. Contact EBRI Publications, (202) ; fax publication orders to (202) Subscriptions to EBRI Issue Briefs are included as part of EBRI membership, or as part of a $199 annual subscription to EBRI Notes and EBRI Issue Briefs. Individual copies are available with prepayment for $25 each (for printed copies) or for $7.50 (as an ed electronic file) by calling EBRI or from Change of Address: EBRI, 2121 K Street, NW, Suite 600, Washington, DC 20037, (202) ; fax number, (202) ; Publications Subscriptions@ebri.org. Membership Information: Inquiries regarding EBRI membership and/or contributions to EBRI-ERF should be directed to EBRI President/ASEC Chairman Dallas Salisbury at the above address, (202) ; salisbury@ebri.org Editorial Board: Dallas L. Salisbury, publisher; Steve Blakely, editor. Any views expressed in this publication and those of the authors should not be ascribed to the officers, trustees, members, or other sponsors of the Employee Benefit Research Institute, the EBRI Education and Research Fund, or their staffs. Nothing herein is to be construed as an attempt to aid or hinder the adoption of any pending legislation, regulation, or interpretative rule, or as legal, accounting, actuarial, or other such professional advice. EBRI Notes is registered in the U.S. Patent and Trademark Office. ISSN: /90 $ Did you read this as a pass-along? Stay ahead of employee benefit issues with your own subscription to EBRI Notes for only $49/year electronically ed to you or $99/year printed and mailed. For more information about subscriptions, visit our Web site at or complete the form below and return it to EBRI. Name Organization Address City/State/ZIP Mail to: EBRI, 2121 K Street, NW, Suite 600, Washington, DC or Fax to: (202) , Employee Benefit Research Institute Education and Research Fund. All rights reserved.