Retirement in review, 2012: Public sector defined contribution plans Looking at Defined Contribution plans and participants in Public Sector workplaces: State and Local Goverment Higher Education K-12 Education Healthcare
In this report Public Sector Workforce...2 Retirement in the Public Sector...4 Account Balance Growth...5 Age Wave...6 Gender Gap...8 Retirement in Review...9
The Public Sector Workforce In looking at America s retirement system, much has been written and analyzed about Defined Contribution plans with respect to the 401(k) arrangements typically offered to employees in the private sector workplaces. But employees in the public sector primarily government (state and local), education and healthcare comprise a significant, and growing portion of the (non-farm) U.S. workforce. U.S. Non-Agricultural Workforce In 2000... In 2010... Projected in 2020... Source: U.S. Census, 2010, dot.gov Public employees 1 represented 23% of the U.S. workforce in 2000, growing to 28% in 2010, and expected to grow to 29% in 2020. And in many instances, projected growth of the public sector workforce outpaces that of the overall workforce. The non-agricultural wage and salary workforce is projected (by the Bureau of Labor Statistics) to grow 1.4% annually from 2010 to 2020; annual growth for the workforce employed in Educational Services is projected to grow by 2.3% and the Healthcare and Social Assistance workforce is projected by grow by 3.0%. The State and Local Government workforce, on the other hand, is expected to grow by just 0.8% annually. 1. Data Source: 2010 U.S. Census. Public employees represent NAIC Codes 61 (Education services) and 62 (Healthcare and social assistance) and State and Local Government (no applicable NAIC). 02 I
Growth in U.S. Workforce, 2000-2020 2 n2000-2010 n2010-2020 Total U.S. (non-farm) Workforce At the turn of the (21st) century, State and Local Government workers made up more than half of the public sector workforce. Since then, that proportion/ percentage has dropped and is projected to drop further, as Healthcare workers increase as a percentage of the Public sector workforce (along with an aging population in likely to create an increased demand for healthcare services). Education services workers increase slightly as well. Evolution of U.S. Public Sector Workforce (2010-2020) 3 n Education Services n Healthcare and Social Assistance n State and Local Government 2. ibid. 3. ibid. I 03
Bureau of Labor Statistics data on State and local government employees show that 84% of workers in 2008 had a defined benefit plan available to them; in contrast, 22% of private industry workers had such a plan available to them in the same year. Conversely, 30% of government workers had a defined contribution plan available, while such plans were available to 62% of private industry workers. 4 Retirement in the Public Sector Traditionally, Public sector employers have been known for offering rich retirement benefits and for being significantly more likely (than employers in the Private sector) for offering Defined Benefit pension coverage. 5 Many Public employers also offer offered Defined Contribution (DC) retirement savings programs usually 403(b) or 457 Deferred Compensation that enable individuals to save for retirement via convenient payroll deductions. A host of factors make the role of individual saving in these plans increasingly important for public sector employees. Many public employers are challenged in meeting Defined Benefit pension obligations, and frequently must adjust pension eligibility and coverage for newer employees Longer life spans mean it s likely that employees will need to fund longer retirements, which may be more challenging on a fixed income, without additional savings Personal savings, even for those with generous pension and retiree benefits, remains an important bulwark against unexpected financial needs and demands The changing nature of the American workforce and workplace even in the Public sector mean more workers have more jobs during their working years, reducing tenure and potential pension eligibility and payments The Defined Contribution exhibits in this report represent the Voya Business Intelligence Competency Center s Voya-proprietary analysis of aggregated participant data representing 2.7 million Public sector participants, in approximately 27,000 Public Employer Sector plans administered by the Voya Financial family of companies. This report compares the various sub-types of employer within the Public sector, and identifies trends and gaps among the different types of employee/ participant experiences. All in all, it offers insights to the financial institutions, employers and others who strive to offer, implement and manage these critical savings opportunities for Public sector employees. 4. The Structure of State and Local Government Retirement Benefits, 2008, by William Wiatrowski, Bureau of Labor Statistics, published 2/25/2009 5. Employee Compensation in State and Local Governments, Chris Edwards, Director of Tax Policy Studies, Cato Institute, Cato Institute Tax & Budget Bulletin, #59, January 2010 04 I
Account Balance Growth Participants in Higher Education plans have significantly higher account balances than other Public sector workplace plans. This is likely due, in part, to the higher percentage of Higher Education employers who offer a matching contribution to employees own contributions. 6 Healthcare and Government employer plans, on the other hand, have lower average account balances, but these employers are more likely than other sectors to also offer a traditional, Defined Benefit pension. It s an important note, here, that as more employers in all sectors freeze, convert or otherwise reduce traditional pension coverage, an individual s retirement readiness is increasingly reliant on their own savings. Average Account Balance Public Sector Plans (As of December 31, 2012) Across Public employer sectors, Defined Contribution balances have grown in the past couple of years. While much of the growth occurred in 2012, average balances of participants in Higher Education and Government plans dropped slightly in 2011. Average Account Balance 2010-2012 (As of December 31) n 2010 n 2011 n 2012 % Change in Average Account Balance 2011 & 2012 (As of December 31) n 2011 n 2012 6. Exploring 403(b) Plan Practices and Trends: Healthcare and Higher Education, LIMRA, Alison Salka, PhD and Cecilia Shiner, FFSI, ALMO, ACS, May, 2013 I 05
Age Wave Looking at participant age can add additional context when looking at DC account balances. What might be an admirable account balance for a 25-year-old may be woefully 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 employees, generally, are younger. The K-12 workforce is oldest, and more than half of Higher Education workers are age 50 and older. Healthcare and Government are equally split between workers under and over age 50. Worker age is trending higher in all employer types, most dramatically in governmental employers. The upward trend suggests that more older participants are remaining in plans, and the workforce, than younger workers are entering / joining. Average Worker Age (As of December 31) n 2010 n 2011 n 2012 Participants in K-12 Educational plans are significantly older than other Public employer plans nearly two thirds are age 50 or older, versus closer to half for other parts of the Public employer sector. Average Participant Age (As of December 31, 2012) nunder 50 n50+ 06 I
It s not surprising that account balances increase for older participants. In all Public employment sectors except for Government plans, balances increase steadily with age. For Government plans, balances begin to decrease as participants approach and pass age 65, and sharply decrease after age 70 a possible result of earlier retirements in this sector. For youngest participants, Higher Education and K-12 participants have higher balances than Government and Healthcare participants. By their thirties, however, balances for Healthcare and Government participants overtake those of K-12 participants. By their 50s, balances for Healthcare participants outpace those of Government participants. Balances in Higher Education plans are highest of all Public employer sectors regardless of participant age. Average Account Balances by Age (As of December 31, 2012) n K-12 n Higher Education n Government n Healthcare Average Account Balance by Age and Employer Type (As of December 31) n 2010 n 2011 n 2012 K-12 Government Higher Education Healthcare I 07
Gender Gap For women, the risk of an under-funded retirement is intensified. A number of factors, including lower relative wages and 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 participant bases are overwhelmingly female, Government and Higher Education populations are more evenly divided. Gender Distribution (As of December 31, 2012) n Female n Male In all Public Sector plans, there is a savings gap between men and women. Universally, men have higher account balances. This gap when measured in dollars is widest in Higher Education plans and lowest in K-12 plans. 08 I
Average Account Balances (As of December 31) K-12 n Women n Men Government Higher Education Healthcare In terms of percentages, the gender gap is lowest and most stable in K-12 plans and highest in Healthcare plans. (It s interesting to note that these two employer types are the most heavily populated with female employees.) Gender Gap Men s Average Account Balances are 71% Higher than Women s (As of December 31) n 2010 n 2011 n 2012 For example, in 2012, men s average balances in Healthcare plans were 71% higher than women s average balances. I 09
Retirement in Review Understanding retirement consumers experience and behaviors within employer sponsored retirement plans 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. 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 may also be gained by examining age and gender patterns. We offer and use this analysis and data to help form the basis for how we can expand upon the Defined Contribution system in a new era in which individual responsibility and individual savings increasingly form the foundation for retirement security across all employment sectors. 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 and ultimately to help us improve how Americans in all employer sectors, take control of their financial futures and take advantage of the savings opportunities available to them. Additional copies of this report can be downloaded at the Voya Retirement Research Institute www.voyaretirementresearchinstitute.com. Not FDIC/NCUA/NCUSIF Insured I Not a Deposit of a Bank/Credit Union I May Lose Value I Not Bank/Credit Union Guaranteed I Not Insured by Any Federal Government Agency 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. 167552 3027475.X.G-2 2012 Voya Services Company. All rights reserved. CN0703-19830-0816 Voya.com