OpinionResearchon RetirementSecurityandthe AutomaticIRA September2009
Opinion Research on Retirement Security and the Automatic IRA Data Collected and Report Written by Hart Research Associates and Public Opinion Strategies Copyright 2009 AARP Knowledge Management 601 E Street, NW Washington, DC 20049 http://research.aarp.org Reprinting with Permission
AARP is a nonprofit, nonpartisan membership organization that helps people 50+ have independence, choice and control in ways that are beneficial and affordable to them and society as a whole. AARP neither endorses candidates for public office nor makes political contributions. We produce AARP The Magazine, published bimonthly; AARP Bulletin, our monthly newspaper; AARP Segunda Juventud, our bimonthly magazine in Spanish and English; NRTA Live & Learn, our quarterly newsletter for 50+ educators; and our website, www.aarp.org. AARP Foundation is our affiliated charity that provides security, protection, and empowerment to older persons in need with support from thousands of volunteers, donors, and sponsors. We have staffed offices in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Acknowledgements AARP commissioned this study. Hart Research Associates of Washington, DC, and Public Opinion Strategies of Alexandria, VA, conducted the survey and wrote the report. All media inquiries about this report should be directed to Alejandra Owens at (202) 434-2560. All other inquiries about this report should be directed to Colette Thayer at cthayer@aarp.org or (202) 434-6294.
Introduction Americans want Congress and the president to place a high priority on helping people save for retirement, a view that has been intensified by the economic problems of the past year. Specifically, they embrace the Auto IRA proposal that would require employers to offer employees the option to deposit earnings into an IRA, and would automatically enroll employees unless they opt out. People believe the Auto IRA would result in workers saving more for retirement, and a significant proportion indicate that they would be more likely to vote for candidates who support the proposal. The public also supports the expansion of a Saver s Credit, which provides a refundable tax credit for retirement savings to those with incomes less than $65,000, although many people express concern about the cost of this program at a time of high budget deficits. Americans also voice support for several proposed regulations of financial products that people might use for retirement savings, expressing a strong desire for more information, transparency, and disclosure. However, Americans clearly have mixed views about expanding the role of the federal government in financial regulation, and in the retirement savings area more generally. As a result, the public is most enthusiastic about policies that encourage individual initiative and personal responsibility. Methodology The study was commissioned by AARP. The nationally representative survey of 1,001 adults age 25 and older throughout the country was a joint venture by Hart Research Associates and Public Opinion Strategies. Interviewing was conducted by telephone from June 19 to 28, 2009. The survey has a margin of error of ±3.1 percentage points. This report reviews the survey s main findings.
Helping People Save For Retirement Americans say that Congress and the president should place a high priority today on helping people save for retirement. When asked to compare this issue with other issues confronting national policymakers, fully 78% of adults say it should be a high priority, including 41% who say very high priority. Support for promoting retirement savings is quite broad, encompassing more than 70% in all regions of the nation, both men and women, and all age groups. Significantly, support cuts across partisan lines, as two-thirds of Republicans (67%) join with independents (75%) and Democrats (88%) in telling Congress and the president to make retirement savings a high priority issue. Helping People Save For Retirement Is Priority Compared to other issues, how high a priority should Congress and the President place on helping people save for retirement? Non-retired adults 79% Retired adults 73% 52% of the public believes our current economic problems have made it more important for Congress to act on this; just 7% say the economy has made it less important. High priority 20% Very high priority 40% Not priority 12% Not high priority Very high priority 43% High priority 22% Not priority 15% Not high priority The public s sense of urgency about enhancing retirement security has been magnified by the current economic downturn. By seven to one, Americans report that current economic problems have made them feel it is more important (52%) for Congress to pass laws that help Americans save for retirement rather than less important (7%). Although many people may have seen the value of their investments decline, the data suggest that they Page 2
believe more savings are needed; not that saving for the future is a bad strategy. Underlying this desire for help from the federal government is the public s recognition that they might not be saving enough to provide financial security in retirement. Only about half of Americans 53% of all adults and 51% of non-retired adults feel satisfied with the amount they have saved for retirement. Among non-retired adults, high dissatisfaction with current savings is registered among women (48%), those age 50 to 64 who are nearing retirement (52%), those without a college education (54%), and particularly those with incomes less than $40,000 (67%). More generally, fully 40% of Americans now say that they are not confident they will have enough money to live comfortably throughout their retirement years. As recently as 2007, this figure was just 27%. Clearly, anxiety about retirement security has grown significantly over the past few years. Here again, women (48%), those without a college education (48%), and lower-income households (59%) report a distinct lack of confidence about retirement. These high levels of concern may in part reflect the fairly modest level of savings many people how have. More than four in 10 (42%) adults who are not retired say they have less than $25,000 in savings and investments, including both personal savings and any employer-sponsored savings plan such as a 401(k). Among those with only a high school education this figure climbs to 51%, and for those with annual incomes less than $40,000, 79% report having less than $25,000 in savings and investments. Among all adults, fully 58% have saved less than $100,000, while just 20% report total savings above $100,000 (another 22% cannot or will not disclose their savings). Although savings increases with age, even those close to retirement age often report low levels of savings. For example, among non-retired adults ages 50 to 64, about three in 10 (29%) have less than $25,000 in total savings. Page 3
While Americans want to see federal policymakers take action on the retirement savings front, they simultaneously indicate reservations about too much government involvement in this area. Just 33% say that they want to see government more involved in this issue, 25% want government less involved, and 35% are satisfied with the current level of government involvement. As might be expected, Democrats are more likely to favor more government involvement (45%) while the same proportion of Republicans favor less government involvement. Independents are fairly evenly divided (32% more involved, 29% less involved). Reactions To Auto IRA Proposal The vast majority of the public supports the Auto IRA proposal, and this support is expressed across the political spectrum. Nearly four in five (79%) adults support the Auto IRA proposal that would require employers to offer workers the option to regularly save a part of their paycheck in a personal individual retirement account, with just 18% opposing this plan. Support for the plan is wide and deep, spanning across all subgroups, from Democrats (84%) to Republicans (76%); 25- to 34-year-olds (84%) to seniors (73%); households with incomes less than $40,000 (80%) to those with incomes more than $75,000 (82%); and from the Northeast (85%) to the South (75%). Somewhat surprisingly, those who do not have a retirement savings plan at work are somewhat less supportive of the Auto IRA proposal (72%) than those who do (83%). Page 4
Support For Auto IRA Favor % Oppose % Difference ± All adults 79 18 +61 Registered voters 80 18 +62 Men 79 20 +59 Women 79 16 +63 Age: 25 to 34 84 15 +69 Age: 35 to 49 79 19 +60 Age: 50 and over 77 18 +59 Whites 79 19 +60 Blacks 75 18 +57 Hispanics 77 17 +60 Democrats 84 13 +71 Independents 75 21 +54 Republicans 76 22 +54 Northeast 85 14 +71 South 75 20 +55 Midwest 80 18 +62 West 78 18 +60 Less than $40,000 80 15 +65 $40,000 to $75,000 84 14 +70 More than $75,000 82 18 +64 High school or less 79 17 +62 Some college 79 18 +61 College graduates 81 17 +64 AARP members 79 17 +62 Small business owners 73 23 +50 Retirement plan at work 83 15 +68 No retirement plan at work 72 24 +48 Underlying support for the Auto IRA proposal is the widespread perception that workers are more likely to save for retirement at their workplace rather than on their own. Six in seven (85%) adults say that workers are more likely to save for retirement at work rather than outside the workplace (12%). This highlights how critical it is for a retirement savings plan to be available at the workplace. By two to one (62% to 31%), Americans say that employers should be required to provide a retirement savings plan for their employees. On this Page 5
measure, majorities of Democrats (76%) and independents (56%) believe that employers should be required to provide a retirement savings plan for their employees, while Republicans are divided, with a slim plurality saying that employers should be required to provide a retirement savings plan (47%) and 44% saying they should not be required to do so. Interestingly, people who work at a company with more than 100 employees believe employers should be required to provide a retirement savings plan by 64% to 30%, but just 48% of those who work at a smaller company say employers should be required to offer a retirement plan, while 45% disagree. Work Is Best Place For Retirement Savings Are workers more likely to save for retirement at their workplace, with money directly deposited from their paycheck into a retirement account, or outside the workplace, where they deposit money on their own? At workplace 85% Outside workplace 12% Should employers be required to provide a retirement savings plan? Employers should 62% be required Employers should NOT be required 31% Respondents were read a number of features that may be included as part of the Auto IRA proposal. Reactions to each of the aspects made respondents more favorable rather than less favorable to the overall Auto IRA proposal. Adults are most favorable to the idea that the account would be portable and would stay with the employee when they changed jobs. More than three in four (77%) adults say that portability would make them more favorable to the overall plan, while just 9% say it would make them less favorable. By 62% to 18% adults say the fact that employers would place 3% of an employee s paycheck in a retirement account unless the Page 6
employee opted out would make them more favorable rather than less favorable to the Auto IRA proposal. This presumption of participation does not appear to trouble the majority of Americans. More than half of the public (57%) says the fact that the accounts would be inexpensive with low fees would make them more favorable to the overall Auto IRA proposal, while 56% say that they would be more favorable to the plan if money in the accounts would automatically be invested in conservative, low-risk investments, unless the employee decides to make other investments. Only one potential feature of the Auto IRA proposal increases support for the policy among less than half the population: just 45% have a favorable response to a provision exempting new and small businesses from the requirement to offer employees a savings option. Moreover, 27% actually say this feature reduces their support for the policy, the highest proportion for any feature. While the small/new business exemption is not a strong selling point for the Auto IRA in general, the response is more favorable among conservative Republicans (52% more favorable, 15% less favorable). Appeal Of Auto IRA Provisions Makes me more favorable to proposal Makes me less favorable to proposal One account per person, goes with person when change jobs 3% of paycheck unless employee wants higher deduction or opts out Accounts would be inexpensive with low fees Conservative, low-risk investments unless you choose other options Employer exempt if less than 10 employees/in business less than 2 yrs 9% 18% 12% 19% 27% 45% 57% 56% 62% 77% Page 7
The vast majority of the public believes that Americans would save more money for retirement if the Auto IRA plan were adopted. Five in six (84%) adults say it is very (42%) or fairly (42%) likely that if this plan were adopted Americans would save more for retirement. This belief is held across the political spectrum, including 89% of Democrats, 80% of independents, and 81% of Republicans. Not only do adults believe that Americans would save more money for retirement if the Auto IRA plan were adopted, but significant proportions of working Americans report they do not currently have a retirement savings account through their employer. Consider that 24% of working Americans report their employer does not offer either a 401(k)/403(b) or traditional pension plan. This proportion nearly doubles to 46% among workers who work at companies that employ 100 employees or less. In electoral terms, by more than four to one (41% to 9%) Americans say that if their member of Congress supported this Auto IRA plan it would make them more likely rather than less likely to vote for their member of Congress in the next election. This is another instance where Democrats tend to be more supportive than Republicans, but there is no sharp partisan divide Democrats (49% to 3%), independents (40% to 11%), and Republicans (31% to 14%) all say that this would make them more likely rather than less likely to support their member of Congress re-election if they supported this Auto IRA plan. Response To Auto IRA Messages Survey respondents rated the persuasiveness of messages both in support of the Auto IRA proposal and in opposition to the proposal. After hearing these messages support for the proposal still is widespread. 1 The most persuasive message in support of the Auto IRA proposal focuses on the portability of the account and the idea that it enables workers to help themselves. Promoting personal responsibility is a 1 Each respondent heard three messages in favor and three messages in opposition to the proposal. Page 8
persuasive message in support of the Auto IRA. Another strong message highlights the cost to all Americans in the future if we do not encourage people to save for retirement now. Democrats are more likely to find specific reasons very convincing, though in general, the rank ordering of each message is uniform across partisan lines. Reactions To Messages In Support Of Auto IRA Proportion Who Say Very Convincing The Automatic IRA enables workers to help themselves save for retirement. And the account will follow them from job to job, so they do not have to create a new account every time they start a new job. 64 Roughly half of American workers have no workplace retirement savings account. If we do not act now and provide these workers with access to their own retirement accounts, we all will be paying the price when they retire because they will rely heavily on government programs to help them meet their retirement costs. 54 Currently, about half of American workers have no access to a retirement plan at their workplace. The Automatic IRA will encourage 50 million workers to save for retirement. 47 Many lower-income workers have no retirement savings and many of them are not aware of the financial options for retirement that are available. Requiring employers to set up retirement accounts will help introduce lower-income workers to options for retirement saving. 44 The Automatic IRA is a simple and practical way for workers to save for retirement. They do not have to be an expert on retirement plans or investment decisions. 38 Small businesses that cannot afford to contribute money to a retirement savings plan will still be able to provide their employees with an attractive option for retirement savings, helping them compete with larger firms that can afford to offer retirement benefits. 33 Respondents also heard messages in opposition to the Auto IRA. Significantly, these ratings are much lower, and the most persuasive message in opposition to the Auto IRA proposal is not as convincing as the least persuasive message in support of the proposal. Two messages that focus on government s involvement in the retirement savings plan are the most convincing (see table on following page). Just 28% say that government will eventually require employers to contribute to the accounts, and 26% believe that government should not require employers to set up these accounts in the first place. Partisan differences exist when it comes to reasons to oppose the Auto IRA proposal. Republicans are more likely than independents and Democrats Page 9
to find reasons to oppose the proposal to be very convincing. However, political independents generally rate these messages as not that convincing. Reactions To Messages In Opposition To Auto IRA Proportion Who Say Very Convincing While supporters now say that employers only have to set up these retirement accounts, once these accounts are set up, the government will require that employers contribute to the retirement savings plan and this would hurt small businesses and our economy 28 The government should not require businesses to offer a retirement savings plan. That decision should be left up to individual employers. Retirement benefits are nice to offer, but not every employer should be required to do so 26 The government bureaucracy involved in reporting and administration of the accounts will be time consuming and too burdensome for employers 18 The truth is that many workers just cannot or will not save for retirement. Most workers who do not already have an IRA would not use these new accounts, and employers would end up spending valuable resources creating accounts that will not be used 18 After hearing reasons to support and oppose the Auto IRA proposal, respondents were asked again for their opinion on the proposal. By 75% to 23%, respondents say that they favor the proposal. This is virtually unchanged from the initial support of 79%. Among those who initially favored the proposal, they stay strongly on that side 84% favor, 15% oppose. Saver s Tax Credit Americans support expanding a tax credit for retirement savings. Two in three (65%) favor the following proposal to expand existing retirement tax benefits, with only 28% opposed: One proposal for helping people save for retirement is to expand an existing tax benefit to refund up to $500 dollars in federal taxes to match what people save for themselves. Households with incomes up to $65,000 would be eligible. Support is solid across key subgroups and all ages: 68% among 25- to 34- year-olds; 67% among 35-49-year-olds; and 62% among those age 50 and over. Additionally, both men (64%) and women (65%) favor expansion of the saver s tax credit. There also is strong support across all regions: 67% in the Northeast, 63% in the South, 65% in the Midwest, and 65% in the Page 10
West. By partisanship, Democrats overwhelmingly favor (77%) expanding the saver s tax credit, with a majority of independents (55%) and Republicans (57%) also in favor. Of note, a majority of both Obama voters (74%) and McCain voters (57%) support expanding the credit. Support For Expanding Saver s Tax Credit Favor % Oppose % Difference ± All adults 65 28 +37 Registered voters 64 29 +35 Men 64 32 +32 Women 65 24 +41 Age: 25 to 34 68 27 +41 Age: 35 to 49 67 29 +38 Age: 50 and over 62 27 +35 Whites 64 30 +34 Blacks 66 22 +44 Hispanics 73 22 +51 Democrats 77 17 +60 Independents 55 35 +20 Republicans 57 38 +19 Obama voters 74 20 +54 McCain voters 57 36 +21 High school or less 63 28 +35 Some college 70 23 +47 College graduates 64 32 +32 AARP Members 64 25 +39 Americans who would be most affected by the tax credit strongly support expanding it. Fully 69% of those currently in the workforce support the plan. Support also is high among those who do not have a retirement savings plan at their work (67%) and those who are employed and earn less than $75,000 (71%). However, concern about government s ability to fund these credits given the current federal budget deficit is evident. Respondents heard three different messages in support of expanding the savers credit matched up against the same opposition message, which focused on its fiscal impact. Page 11
Only one of the messages in support of the saver s credit enjoys a slight advantage over the message against it. When respondents were read the two statements on the following page, 47% said they are more likely to agree with the pro-saver s credit message that describes the credit as giving a hand up to those who save for retirement (Statement A), while 44% believe the federal budget deficit is more pressing (Statement B): Statement A: Only people who save money themselves will be eligible for the credit, so people are getting a hand up and not a hand out. Statement B: With the budget deficit over a trillion dollars, the government just cannot afford to significantly expand a tax credit at this time. The hand up message for supporting a retirement tax credit is somewhat more popular with the public than other reasons. For instance, opinion is evenly split (44% to 44%) between the budget deficit statement (Statement B, above) and the following counter statement: The costs involved in offering a tax credit are much less than the costs involved in supporting people who did not save for retirement and will become dependent on government programs. The weakest message for a tax credit given the current deficit is that the government should be more involved in retirement savings given what has happened to people s savings in this economic environment, with only 37% who agree. Financial Oversight As events of the past several years have demonstrated, retirement security and oversight of financial institutions are inextricably intertwined. Americans overwhelmingly support a number of government regulations designed to ensure transparency and maximize safety of consumer financial products. First and foremost, regulations requiring more transparency in financial institutions are particularly popular with the public each of these Page 12
regulations receives more than 80% support. Support is very high for requiring companies managing 401(k) plans to clearly explain their fees (95% support), as well as requiring investment firms to fully disclose financial product costs, risks, and benefits to consumers (95% support). Strong support also exists for regulations that would provide consumers with information on how to monitor their financial advisors and report possible misconduct (89% support), and allow them to check their investment advisor s records (93% support). Support For Financial Regulations Support % Oppose % Companies that manage 401(k) retirement plans should be required to clearly explain their fees on participants' annual statements. 95 3 Investment services firms should be required to offer transparency and full disclosure about the costs, risks, and benefits of all the financial products they market and sell using plain language and a user-friendly format. 95 2 Consumers should be able to check an investment advisor's record to see whether they have any prior violations or have been charged with professional misconduct. 93 5 Consumers should be provided with information on how to monitor investment advisors and report possible professional misconduct to regulators. 89 9 Consumers should be allowed to sue financial services companies when they believe that fraud has occurred. 88 10 Investment products such as mutual funds, bonds, and other financial products should be regulated by the federal government to ensure that they are responsibly managed. 70 26 Investment services firms may only be permitted to market and sell products that are suitable for the needs, objectives, overall financial situation, and risk tolerance of consumers. 69 19 Second, Americans strongly support regulations allowing consumers to sue financial services companies for fraud (88%). Interestingly, support for this item remains high across party affiliation, with 89% of Democrats, 88% of independents, and 87% of Republicans all in favor. Finally, there is significant support for government oversight of investment products. Fully 70% of adults believe that the federal government should regulate investment products, such as mutual funds and Page 13
bonds. More broadly, 69% believe that investment firms should only be permitted to sell products that are suitable for the needs, objectives, and risk tolerance of their consumers. Despite the popularity of individual proposals, the survey indicates that in this area Americans are somewhat reluctant to see a major expansion of government s role. Half (50%) of Americans believe that the government should be more involved in the oversight and regulation of the financial sector, while 42% believe that the government is already doing enough. The partisan differences are wide, as Democrats are largely supportive of greater government involvement (68% government more involved, 25% government is already doing enough) and Republicans are largely opposed to greater government involvement (25% government more involved, 66% government is already doing enough). Independents are only slightly more likely to believe that government should become more involved in the oversight and regulation of financial institutions (49% government more involved, 43% government already doing enough). Advocates of policy change must be mindful of this public concern. The public wants more transparency, honesty, and security in financial products, but they are not sure about government s role in delivering those improvements. Conclusion Americans want national policy makers to place greater priority than they have to date on the important issue of retirement savings. However, they also have reservations about expanding the federal government s role in this arena. The policies examined in this survey -- with a focus on increasing transparency in the financial system and helping those who save for their own retirement generally strike a good balance in the public s eye between these competing concerns. In particular, people strongly support the Auto IRA proposal that requires employers to offer employees the option to regularly deposit earnings in an IRA. The public also voices support for several proposed consumer protection regulations of financial products Page 14
commonly used for retirement savings. Americans want retirement policies that encourage personal initiative and responsibility, and that inform and empower financial consumers. Page 15