Retirement in review: A look at 2012 defined contribution participant experience*

Transcription

1 Retirement in review: A look at 2012 defined contribution participant experience* * Based on a Voya Financial analysis of 5.1 million participants in Voya -administered Defined Contribution plans for Government, Healthcare, K-12 Education, Higher Education, Small-Mid Private Sector and Large-Private sector employers.

2 In this report Introduction...2 Key findings...3 Account balance activity...4 Loan and hardship withdrawal activity Participant demographics (age & gender) Retirement in review...21 ii I

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4 Defined Contribution (DC) plans come in many forms and sizes. Different segments of the American workforce are served by various types of DC plans. In this report, Voya looks at retirement plan experience and behaviors for 5.1 million investors in both public and private employment sector retirement programs. As a leading provider to employers across employment sectors, Voya is able to offer a view of retirement savings for the American workforce that encompasses Education, Healthcare, Government and for-profit sector workers and plan participants. All data in this report, unless otherwise indicated, represents Voya-proprietary data analyzed by the Voya Business Intelligence Competency Center (BICC) and are as of December 31, 2010, 2011, and This report is based on the BICC s analysis of approximately 5.1 million participants and 47,000 DC plans (401(k), Profit Sharing, 403(b) and 457). Cracking the (Internal Revenue) code Common Defined Contribution Plans 401(k) plans are generally offered in the private, for-profit sector. Voya differentiates between the largemega and small-mid sized employer plans 403(b) plans are generally offered to employees of not-for-profit entities, educational institutions and healthcare organizations 457 plans are generally offered to employees of state and local governments, which can also include municipally funded educational and healthcare institutions Retirement in Review looks at the following types of employers/ employees/plans: Small-Mid Private sector Large Private sector K-12 Education Higher Education Government (state and local) Healthcare 02 I

5 Looking at defined contribution plans for private and public sector employers Private Sector Small-Mid for profit / company plans Large for profit / company plans Key Findings: Participants in Large Private Sector plans have consistently higher balances than in other types of employers / plans; followed by participants in Higher Education plans Across employer types, there is a gender gap in retirement savings: Men have higher account balances than women The gender gap is highest in Healthcare employers plans The gender gap is lowest in K-12 employers plans Public Sector Government (state and local) plans Healthcare plans K-12 Education plans Higher Education plans Women are more likely (than men) to take a hardship withdrawal; men are more likely (than women) to take a loan K-12 Education plans have the oldest participants (average age 52.0 in 2012) Small- Mid Private employer plans have the youngest participants (average age 45.6 in 2012) Women are the large marjority of participants in K-12 and Healthcare plans Voya s Defined Contribution Participant Base: Healthcare, 6% Tax-Exempt/ Public 403(b) 401(a) 457 Government, 32% Small-Mid Private, 17% Private/For Profit/ Corporate 401(k) Profit Sharing Large Private, 31% Higher Education, 3% K-12 Education 12% I 03

6 Over all, Defined Contribution (DC) participant balances rose 10% from year-end 2010 to Account balance activity Change in account value, all defined contribution (DC) (As of December 31, 2012) $120,000 $80, % $60,000 But looking at overall DC balances only tells the beginning of the story. Average account balance can vary widely by employer type, with Large Private employer plans generally showing higher account balances than other sectors. Based on Voya s BICC analysis, Governmental (State and Local) plan account balances are generally lowest. $40,000 $20,000 Overall Change in account value by employer type (As of December 31, 2012) $120, % $80,000 +8% $60, % $40, % +3% +13% $20,000 Small-Mid Private Large Private K-12 Education Higher Education Government Healthcare 04 I

7 Change in average account value, 2012 from 2011 (As of December 31) 30% 25% 20% 15% 10% 5% 0% -5% 26% Small-Mid Private 13% Large Private K-12 Education 9% 9% Higher Education 5% 12% Government Healthcare 8% Overall Average account balances increased across all sectors in 2012, however Higher Education and Government balances dropped in Change in average account value, 2011 from 2010 (As of December 31) 30% 25% 20% 15% 10% 5% 0% -5% 2% Small-Mid Private 7% 4% Large Private K-12 Education -1% Higher Education 1% -2% Government Healthcare 2% Overall I 05

8 On a percentage basis, private employer plan account values grew most from yearend 2010 to year-end 2012; governmental employers plans grew least. Account balance activity The relative account balance trends by employer type are consistent, period after period, on a monthly basis. Peaks and valleys (dips) are most pronounced on a real dollar basis for large private plan accounts. Average participant account balance (12/31/10-12/31/12) Small-Mid Private Large Private K-12 Higher Education Government Healthcare $120,000 $80,000 $60,000 $40,000 $20, Percent change in participant account balance (12/31/10-12/31/12) Small-Mid Private Large Private K-12 Higher Education Government Healthcare 30% 20% 10% 0% -10% 0.00% % 21.77% 13.06% 12.92% 8.07% 3.24% 06 I

9 At very early ages, there is little substantive difference in account values across employer types and Private employer balances are lower than both K-12 and Higher Education up to age 25. Balances for most types of employer plan accounts continue to rise through participants 60 s with the exception of government participants. Governmental balances begin to decline after age 65. Age progression and growing gaps Differences between employer types begin to widen for participants in their late twenties, and widen markedly with age progression. Youngest, Age I 07

10 By age 50, in 2012, participant balances in Large Private employer DC plans were nearly ; and only half that for participants in Small-Mid Private and Higher Education Plans. Average account balance by age and sector (younger than 50) Small Small-Mid and Mid Private Private Large Large Private Private $50,000 $50, K-12 Higher Education $50, K Higher Education 2012 $50, Government Government Healthcare Healthcare $50,000 $50, I

11 Account balances for Higher Education participants in their sixties and older reached or exceeded the mark by 2012, while those in K-12, Healthcare and Government plans did not. In 2012, balances for older (age 65+) participants in Small-Mid-Private employers plans topped. After age 50, participants in plans for Larger Private employers exceeded in average account balance, and reached or exceeded the $200,000 mark, in 2012, for those aged 70 and older. Average account balance by age and sector (age 50+) (as of December 31) Small Mid-Private Small-Mid Private Large Private Large Private $200,000 $200, K-12 Higher Education 2010 K Higher 2011 Education 2012 $200,000 $200, Government Healthcare Government Healthcare $200,000 $200, I 09

12 In all types of employer plans, there is a savings gap between men and women: Universally, men have higher account balances. In terms of dollars, this gap is widest in Large Private employer plans, where balances overall are higher. It s lowest in K-12 plans (which are dominated by female participants). Account balance by age and gender Women s Average Account Balances (As of December 31) $120,000 $70,000 $20, Men s Average Account Balances (As of December 31) $120,000 $70,000 $20, Account balances dropped slightly for the youngest investors (age 20-29) and oldest investors (age 70+), 2010 to For most, account balances dropped slightly in 2011, but rose in 2012 to above 2010 levels. 10 I

13 Average account balances by gender and employer type (As of December 31) Small-Mid Small-Mid Private Private Large Private K-12 K-12 Women Men Women Men Women Men $50,000 $50,000 $50,000 Higher Higher Education Government Healthcare Women Men Women Men Women Men $50,000 $50,000 $50,000 I 11

14 The Gender gap is highest overall and rising in Healthcare plans (which are also dominated by female participants). The gap is overall lowest, and stable, in K-12 plans, the other employer type that is strongly female. In private employer plans, and governmental plans, the gap has been shrinking in the past three years, but is still substantial. For participants in the largest private employer plans, the gap has closed most substantially. Gender gap (men s average account balances are this percent higher than women s) (As of December 31) The gap between mens and women s DC savings get wider with age, although the actual size of the gap within each age group has decreased slightly for the middle age ranges. For youngest and oldest participants, however, the gap has widened, Women age 70 and older have less than half the account balance in their DC accounts than do men of the same age. 74% Women, lowest gap 76% Women, highest gap Gender gap by age (As of December 31) 25% 30% 38% 41% 39% 39% 57% 53% 55% 79% 75% 74% 91% 85% 82% 97% 110% 107% 100+% gap means that men age 70+ have acount balances more than double that of women the same age in 2011 and I

15 Loan and hardship withdrawal activity The percentage of plan participants taking loans is rising, with seasonal peaks (in August) and valleys (in February). Interestingly, average loan amount rises during the valleys in loan activity. In February loan activity declines, while loan amounts tend to be higher. (The reverse is not the case; loan activity peaks do not regularly correlate with lower average loan amounts.) In March, loan amounts and activity increase; loan amounts are highest in March. The percent of participants taking loans is also rising, while the average loan amount trend has been stable for the past three years. % Of participants taking loans 0.35% 0.30% 0.25% 0.20% 0.15% 0.10% 0.05% 0.00% Average Loan Amount $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 I 13

16 Hardship withdrawal activity was lowest (of the period) in early There is also a seasonality of heavier and lighter activity. The overall trend has been that they are dropping slightly in the past three years. Loan and hardship withdrawal activity continued Like loans, hardship withdrawals are highest in average amount when activity is lowest in terms of volume: February. % Taking hardship withdrawals 0.16% 0.14% 0.12% 0.10% 0.08% 0.06% 0.04% 0.02% 0.00% Average hardship withdrawal amount $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 Loans and Hardship withdrawals represent ways in which participants can access a Defined Contribution investment prior to retirement, or at ages younger than 59½, depending on plan design provisions. Loans represent a temporary withdrawal of assets and are taken with an obligation to repay them. Hardship withdrawals are permanent and immediately taxable events, usually subject to additional early withdrawal penalties. Additionally, taking a hardship withdrawal usually means the participant is blocked from making additional contributions for six months. The percent of participants taking loans is trending slightly upward, 2010 through The percent taking hardship withdrawals is trending slightly downward. Both loans and hardship withdrawals share consistent peaks in August and valleys (dips) in February. 14 I

17 % Taking loans 0.35% 0.30% 0.25% 0.20% 0.15% 0.10% 0.05% 0.00% % Taking hardship withdrawals 0.16% 0.14% 0.12% 0.10% 0.08% 0.06% 0.04% 0.02% 0.00% Participants are twice as likely to take loans as hardship withdrawals Both loans and hardship withdrawals are most common in larger private employer plans, and least in Higher Education plans. Generally, loans are much more common than hardship withdrawals. (This could, to some degree, be a result of plan design decisions at the plan sponsor level about whether to offer certain features.) Loans Small-Mid Private Large Private K-12 Education Higher Education Government Healthcare 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 12/31/ /31/ /31/ /31/2012 Hardship withdrawals Small-Mid Private Large Private K-12 Education Higher Education Government Healthcare 0.30% 0.25% 0.20% 0.15% 0.10% 0.05% 0.00% 12/31/ /31/ /31/ /31/2012 I 15

18 Loans and hardship withdrawals Participants in the accumulation phase of their Defined Contribution experience, under age 50, are most likely to take both loans and Hardship Withdrawals. Loans by age (All DC) < % 0.30% 0.20% 0.10% 0.00% Hardship withdrawal by age (All DC) < % 0.15% 0.10% 0.05% 0.00% Other financial goals and priorities may be competing more strongly with retirement for individuals who are younger than 50, (which is supported by Voya s Retirement Revealed report, Retirement Across the Ages ). Participants older than 59 are the least likely to take either a loan or a hardship withdrawal likely because many plans allow for in-service withdrawals beginning at age 59½. 16 I

19 0.40% 0.30% 0.20% Women Men While participants overall are more likely to take loans, men are more likely to take a loan than are women, while women are more likely than men to take hardship withdrawals. 0.10% 0.00% Percent of participant taking hardship withdrawals Women Men 0.20% 0.15% 0.10% 0.05% 0.00% I 17

20 Participant age is a key determinant of savings adequacy. Adding the filter of age adds context to a view of savings. Participant demographics: age wave Participant age is a key determinant of retirement savings adequacy. Looking at average DC balances overall can be illuminating, especially when comparing by different employer types and potential types of plan and employer environmental factors, but it is the added filter of participant age that can offer real context. What might be an admirable account balance for a 25-year-old may be inadequate for a participant on the cusp of retirement. And just as we see segment patterns with respect to account balance, so are certain segments relatively older or younger. Private sector participants, generally, are younger. The K-12 participant base/workforce is oldest, and more than half of Higher Education participants average age 50 and older. The average ages of Healthcare and Government are equally split between participants under and over age 50. Average age is trending higher in all employer types, most dramatically in governmental plans. The upward trend suggests that more older participants may be remaining in plans, and the workforce, than younger workers are entering/joining. Average participant age by employer type (As of December 31) Small-Mid Private Large Private K-12 Education Higher Education Government Healthcare Over the past several years, the age composition of the DC participant base has grown older: The percent of participants age 50 and older has increased, while the percent of participants age has dropped by almost the same amount. Participants under age 30 have also decreased, suggesting that younger participants are not entering plans at a rate that offsets the aging of older participants as a portion of DC investors. 18 I

21 Participant age distribution, % 50.0% 40.0% 48.1% 41.7% < to % 45.2% Percentage of younger participants going down 30.0% 20.0% Percentage of older participants going up 10.0% 0.0% 10.3% 8.9% Nearly 2/3 of the K-12 participant base is over age 50; nearly the same percentage of the Small-Mid Private participant base is younger than age 50. The Government, Healthcare and Higher Education participant bases are more evenly split between older (50+) and younger (<50). % Of participants over/under age 50 Under Healthcare 51% 49% Government 49% 51% Higher Education 47% 53% K-12 is the oldest sector K-12 Education 38% 62% Large Private 57% 43% Small- Mid-Private is the youngest sector Small-Mid Private 61% 39% I 19

22 Overall, Voya s participant base has remained steady at 53% Female and 47% Male, from 2010 to Participant demographics: gender gap For women, the risk of an under-funded retirement is intensified. A number of factors, including lower relative wages, time taken from the workplace to attend to caretaker duties, can mean that women who generally live longer than men tend to have less saved and will likely receive lower Social Security benefits. Year-over-year, the distribution of men and women in the different employer types (of plans) remains stable. The distribution among employer types, however, varies greatly. Healthcare and K-12 plans are overwhelmingly female, Small to Mid sized private employers are strongly male. Government, Higher Education and Large Private employers are more evenly divided. 20 I

23 Retirement in review Understanding retirement consumers experience and behaviors within employer sponsored retirement plans in aggregate and across employer sectors is important to helping to improve those behaviors. In general, it is widely recognized that individuals do not save enough and do not have enough saved to adequately meet their increasing responsibility in funding their own retirement. (Download the Voya State of Savings reports and other Voya Retirement Research Institute publications and studies, as well as more information about current savings patterns, habits and attitudes of American workers, at Clearly, there are both common trends and differences among the different types of employers, their Defined Contribution plans, and their employees experience within those plans. Important insights can also be gained by examining age and gender patterns. Voya s depth and breadth of Defined Contribution experience enables us to examine Defined Contribution investors with a holistic approach that encompasses the broad spectrum of employer-sponsored retirement savings opportunities and at the same time segment that examination based on the often significant differences among various employer sectors and their Defined Contribution plans. The Voya Retirement Research Institute conducts a wide variety of qualitative and quantitative research to help us better understand retirement consumers,their experience, their behaviors, and their mindsets to help build tools and solutions that will encourage and enable these individuals to improve their retirement planning behaviors, interactions and potential results. I 21

24 Additional copies of this report can be downloaded at the Voya Retirement Research Institute This paper has been prepared by the Voya Retirement Research Institute for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in purchasing or selling any security. Any opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults, (5) changes in laws and regulations and (6) changes in the policies of governments and/or regulatory authorities. The opinions, views and information expressed in this commentary are subject to change without notice based on market conditions and other factors. The information provided is not a recommendation to buy or sell any security. Products and services offered through the Voya Financial family of companies X.G Voya Services Company. All rights reserved. CN Voya.com