IRA ‘Junk’ Bunk

 There’s a “new” retirement crisis to fret about — and it involves so-called “junk” IRAs.

You may have seen the recent Wall Street Journal’s headline that proclaimed “Forgotten 401(k) Accounts Are Costing Americans Billions in Lost Investment Gains.” This particular assertion turns out to be another spurred by (yet another) proclamation from an IRA provider (PensionBee), though this one at least doesn’t manufacture quite as ludicrous a compounding of the size and number of those accounts as others[i] have done.

More precisely, the issue they raise is that smaller retirement plan balances can, and often are, legally expunged from the plan of their prior employer into an IRA.  

Now, retirement plan professionals know how this works — those who sever (or who are severed from) employment with less than a $1,000 balance will likely have that distributed to them in cash, those with balances above $7,000[ii] will generally have the option to leave that balance behind,[iii] and those with balances in between those two figures … well, if the employee doesn’t make a separate election, their former employer has the option[iv] to distribute out these “small” balances to an IRA.

Not just any IRA, mind you — the law (ERISA) requires a review and selection process that the plan fiduciary must enter into a written agreement with the IRA provider that — among other things — addresses the investment of the rollover funds and the fees and expenses to be charged to the account. With regard to the former, the rollover funds must be invested in a vehicle “designed to preserve principal, and provide a reasonable rate of return, whether or not such return is guaranteed, consistent with liquidity,” such as money market funds, interest-bearing savings accounts, certificates of deposit or other “stable value products.” 

With regard to the latter, the fees assessed against the IRA cannot exceed the amounts charged by the IRA provider for comparable IRAs established for rollover distributions that are not automatic rollovers. Sound like “junk” to you?

Oh — and participants are required to receive notice of this. 

So, what’s the big deal? Well, to put a “face” on this crisis, the Wall Street Journal manages to find a person who admits that she was told about this when she left her job, but “busy with her new job,” didn’t do anything about it. Only to find out (much later) that the IRA balance declined during that period — because the return on that IRA ($6.98) was less than the fees in the IRA ($15). This individual now says she feels “duped” — because she missed out on market returns (24% that year,[v] according to the WSJ) while “busy with her new job.” 

Well, cry me a river. 

So — how are these “junk” IRAs costing Americans billions? PensionBee leans on data from the Employee Benefit Research Institute (EBRI) to say that “By 2030, 13 million accounts worth $43 billion are projected to be swept into Safe Harbor IRAs through automatic rollovers.” Now, considering the size of the overall retirement savings market, that’s not a lot — but it IS, at least the purported “billions,” and from a credible source.

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But then the white paper that highlights the issue cautions about the “threat” posed by so-called “junk” IRAs — and by “junk,” they apparently mean IRAs other than the ones they offer.

Look, what this individual — and the “millions” of others like her — aren’t helped to appreciate by this article is that the provision here not only likely helped preserve their retirement savings, but spared them from paying the taxes and penalties that would have been assessed if they had simply taken that distribution in cash. Oh — and that they were told they had an opportunity to make a different decision, and just … didn’t.

That’s not the fault of the employer, the 401(k) plan, or the IRA she was invested in, despite the pejorative label a competing firm wants to apply to it.

The only folks being “duped” are the ones who fail to see what the real problem here is.

• Nevin E. Adams, JD

 

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[i] See Talking Points: Third Time No Charm in ‘Forgotten Account’ Fantasy

[ii] Previously $5,000 – SECURE 2.0 increased that to $7,000.

[iii] Of course, those have wound up being described by another IRA provider as “forgotten.”

[iv] The WSJ article acknowledges that most employers do so since the cost to administer small-balance accounts generally drives up the plan’s administrative expenses.

[v] One wonders what she would have thought if that balance had been invested in something other than the conservative investments required by law during a bear market. Maybe relieved? 

Looking Before You 'Leap'

As new rules about rollover disclosures kick in, a new report highlights an often unacknowledged risk of rollovers—high(er) fees.

That’s right—a new report from Pew Trusts seems to have stirred up a new awareness of that issue—all this attention just as PTE 2020-02 brings the written requirement of why a rollover is in the best interests of participants into play.

That difference shouldn’t come as a surprise to anyone who has ever compared the fees in their 401(k) to an IRA. Most 401(k)s benefit from institutional pricing, and if the menu of available investment options isn’t quite as broad as that in an IRA, they benefit from the selection and monitoring by ERISA fiduciaries. Yes, IRAs are just that—individual retirement accounts—smaller, generally speaking with more options—and yes, much more likely to be charged retail mutual fund fees—more expensive. In that sense the report—though it’s garnered headlines of late—doesn’t really tell us anything we didn’t know, if we’d only stop to acknowledge it. 

However, sure as I am willing to accept the conclusions based on both personal experience and professional acumen, I am a tad skeptical in the results of the analysis. The title is truer than one might expect. The title of the report speaks volumes as it says: “Small Differences in Mutual Fund Fees Can Cut Billions From Americans' Retirement Savings.” Because, after all, it surely could—but does it?

The report that is garnering so much attention now claims that, in the aggregate, the amount of retirement savings lost in such rollovers potentially reaches tens of billions of dollars. Citing data from the Investment Company Institute, the report notes that in 2018 alone, investors rolled $516.7 billion from employer retirement plans into traditional IRAs. They go on to assert that an analysis of fee differentials suggests that over a hypothetical retirement period of 25 years, those retail investors could see an aggregate reduction in savings of about $45.5 billion—just from that single year of rollovers.

Math ‘Problems’

The analysis—based on data from Survivor-Bias-Free U.S. Mutual Fund Database, Center for Research in Security Prices—though it relies on medians and averages for its fee conclusions—and, based on those, it asserts that annual expenses for median retail shares (ostensibly what you’d have access to in an IRA) were 0.34 percentage points higher than those for institutional shares (again, ostensibly what you’d have access to via your typical 401(k). Similar projections are presented for hybrid, and for what the analysis purports to be the smallest median fee difference. Having chosen these points of reference, the analysis simply does the math.[i]

Rollover Rationales

Regardless of the size of the differential—what role, if any, do fees play in these rollover decisions? Suffice it to say—not much. 

At least according to another report[ii] published last September by Pew, based on a survey of 1,125 older workers and recent retirees ages 55 to 75 between May 12 and June 5, 2020—roughly half currently and the rest working full time, though all had at least $30,000 in retirement savings. The survey asked participants a series of questions about whom they had consulted in deciding what to do with their retirement savings and how they planned to handle their savings (in the case of those still working), or what they had done with their savings (in the case of retirees).

Now, there are many reasons underlying the distribution decision—fees, convenience, investment options—but when the workers weighed in they said they were most motivated to stay in their current plan because they preferred the investment options—a reason cited by 50% of respondents as the most important reason, and mentioned by nearly three-quarters (73%) as at least one reason why they intend to leave their savings in their current plan when they retire. Not surprisingly—since those surveyed had at least $30,000 in savings—more than half felt that staying in their current plan would be convenient.

On the other hand, only about 3 in 10 were motivated to plan on keeping their savings in their current plan because they thought it would have lower fees than other options, and a mere 15% said lower fees in their current plan was the most important reason for planning to leave their savings where they are.

‘Control’ Voice

Near-retirees planning to roll their savings into an IRA at retirement were similarly motivated by convenience and investment options, according to the report. However, the strongest motivating factor for those respondents was the ability to have greater control over their investments, with more than 6 in 10 (63%) saying that was one reason that they planned to roll their workplace savings into an IRA, while for nearly 4 in 10 it was the most important reason. Roughly a quarter said that investment performance was behind their plan to move their savings into an IRA when they retired, and the same number actually said it was because the IRA had lower fees. 

Control was most important among retirees as well; about 18% of retirees cited lower fees as a reason for rolling over their savings, slightly less than the 25% of near retirees who cited fees as a reason—more specifically that the IRA had lower fees than their current plan. Only 4% of retirees said it was the most important reason, nearly identical to the 3% of near retirees who said the same.

Said another way, fees were not a major consideration in the rollover decision—and when it did manifest itself as a reason, it was because the IRA fees were believed to be lower than their current plan. Which, again, in view of certain market realities, suggests that those workers didn’t appreciate/understand the fees paid in their 401(k).  

The reality is, a small difference in mutual fund fees can cut billions from Americans’ savings—an impact that, unfortunately, many of those contemplating a rollover may not realize[iii] or prioritize in their decisions. 

That said, while those new disclosures documenting why a rollover is in the participants’ best interest may not solve the problem—they should make it easier for advisors to help them better understand what they may be giving up. And perhaps all of this attention to this important issue will help participants who aren't working with an advisor to "look" before they simply leap... 

- Nevin E. Adams, JD

[i] While the comparisons are certainly “directionally” accurate assuming the math is correct, the size and scope of the impact surely suffer from the imprecision of the markers employed. But considering the sheer size of the rollover market (it now outpaces that of the 401(k), it’s surely a significant amount.

[ii] Pew Survey Explores Consumer Trend to Roll Over Workplace Savings Into IRA Plans

[iii] The Pew report notes that “although few said that they would continue a rollover into an IRA with higher fees than their workplace plan, previous research by Pew has shown that many people struggle to fully understand their investment fees. Just 25% of workers in an earlier Pew survey said that they had read and understood the fee disclosure of their retirement account. 

6 Things People Who Need to Save for Retirement Need to Know About Saving for Retirement

When it comes to retirement, Americans seem to be a pretty insecure bunch. But then maybe it’s because they don’t know all the things they need to know.

This, of course, is National Retirement Security Week, a week devoted to making employees more aware of how critical it is to save now for their financial future, promoting the benefits of getting started saving for retirement today, and encouraging employees to take full advantage of their employer-sponsored plans by increasing their contributions.

In the spirit of the week, here are six things that people who need to save for retirement (and who doesn’t?) need to know about saving for retirement.

You should save to at least the level of the employer match.

Many employers choose to encourage your decision to save for retirement by providing the financial incentive of an employer matching contribution. That match is often referred to as “free money” because you get it just for saving for retirement. That match is not actually “free” of course – but it is free for you. If it’s 25 cents for every dollar you save, it’s like getting a 25% return on your investment.

You should save to at least the level of the employer match – especially if your plan’s default savings rate is lower.

While most education materials provided with your 401(k) emphasize the benefit of the employer match (generally referencing that you don’t want to leave “free money” on the table), a growing number try to make it easier for you by automatically enrolling you in the plan. That’s the good news.

The bad news? That default savings rate (generally 3%) will almost certainly be less than you need to save to get the full employer match (see above). And it will almost certainly be less than you need to achieve your retirement goals/needs (also see above).

So, if you do take advantage of the convenience of the default, make sure that you remember to make the change to the savings rate at the first opportunity.

You can save more than the match.

A lot of people save only as much as they need to receive the full employer match. That’s certainly a good starting point, but it may not be the right amount for you. There are a number of factors that go into determining the amount and level of the match; how much you need to set aside for your own personal retirement goals is almost certainly not one of those factors. That said, you certainly don’t want to leave any of that match on the table by not contributing to at least that level. But if that’s where you stop saving, you’re probably going to come up short.

Uncle Sam will help.

Beyond the tax advantages to saving for retirement on a pre-tax basis – the ability to watch those savings grow without paying taxes until they are actually withdrawn – there is another savings incentive with which many are not as familiar. It’s the Saver’s Credit, and it’s available to low- to moderate-income workers who are saving for retirement. For those who qualify, in addition to the customary benefits of workplace retirement savings, it could mean a $1,000 break on your taxes – twice that if you are married and file a joint return!

That said, just 24% of American workers with annual household incomes of less than $50,000 are aware of the credit, according to the 15th Annual Transamerica Retirement Survey. However, that’s twice as many as found by the 11th Annual Transamerica Retirement Survey. You can find out more about the Saver’s Credit here.

Older workers can save more.

Thanks to a provision in the tax code, individuals who are age 50 or older at the end of the calendar year can make what are called annual “catch-up” contributions. In 2016, up to $6,000 in catch-up contributions may be allowed by 401(k)s, 403(b)s, governmental 457s, and SARSEPs (you can do this with IRAs as well, but the limits are much smaller).

The bottom line: If you haven’t saved enough, these catch-up provisions can help. You can find out more here.

Even if you’re capped in your 401(k), you can still save more.

There’s little question that saving for retirement at work is the way to go – there are tax advantages, the support of the employer matching contributions, and access to investment choices that are screened and reviewed on a regular basis by the plan fiduciaries. However, there are certain legally imposed annual limits on how much you can save in your 401(k). If you hit those limits (and most don’t), there’s nothing that says you have to limit yourself to saving there.

But you’d be foolish not to take full advantage of your workplace savings opportunity first.

- Nevin E. Adams, JD

"Repeat" Performance

A few months back, I was intrigued to catch several episodes of “Cosmos,” an updated version of the classic 1980 Carl Sagan series.  Along with the significantly expanded and enhanced visuals and (to me, anyway, generally annoying) animations, the series recounted the work, travails and accomplishments of Edmond Halley, who, even today, is probably best remembered for the comet whose 75-year cycle he identified and which still, as Halley’s Comet, bears his name.

Halley wasn’t the first to see the comet, of course – in fact, it had been recorded by Chinese astronomers as far back as 240 BC, noted subsequently in Babylonian records, and perhaps most famously shortly before the 1066 invasion of England by William the Conqueror (who claimed the comet’s appearance foretold his success).  Halley noted appearances by the comet in 1531, 1607 and 1682, and based on those prior observations – and the application of the work and mathematical formulas of his friend Isaac Newton – predicted the return of the comet in 1758, which it did, albeit 16 years after his death in 1742.

Of course, the importance of repeated, measured observations isn’t restricted to celestial phenomena.  Consider that individual retirement accounts (IRAs) currently represent about a quarter of the nation’s retirement assets; and yet, despite an ongoing focus on the accumulations in defined benefit (pension) and 401(k) plans that have, via rollovers, fueled a significant amount of this growth, a detailed understanding as to how these funds are actually used during retirement has, to date, not been as well understood.

To address this knowledge shortfall, the Employee Benefit Research Institute has developed the EBRI IRA Database, which includes a wealth of data on IRAs including withdrawals or distributions, both by calendar year and longitudinally, which provides a unique ability to analyze a large cross-sectional segment of this vital retirement savings component, both at a point in time and as the individual ages and either changes jobs or retires.  Indeed, as a recent EBRI publication notes, the rate of withdrawals from these IRAs is important in determining the likelihood of having sufficient funds for the duration of an individual’s life, certainly where these balances are a primary source of post-retirement income.

Previous EBRI reports[i] have explored this activity for particular points in time, but a recent EBRI analysis[ii] looked for trends in the withdrawal patterns of a longitudinal three-year sample of individual post-retirement withdrawal activity, specifically those age 70 or older (in 2010), the point at which individuals are required by law to begin withdrawing money from their IRAS.

The EBRI analysis concluded that, when looking at the withdrawal rates for those ages 70 or older, the median of the average withdrawal rates over a three-year period indicated that most individuals are withdrawing at a rate that not only approximates what they are required by law to withdraw, but at a rate that is likely to be able to sustain some level of post-retirement income from IRAs as the individual continues to age.

Furthermore, the report notes that an examination of these trends over this period suggests that, based on the resulting distribution of average withdrawal rates over time as a function of the initial-year withdrawal rate, the initial withdrawal rate for those in this age group appeared to be one that these individuals are likely to continue to make the next year.

Of course, while the median withdrawal rates suggest many individuals would be able to maintain the IRA as an ongoing source of income throughout retirement, further study is needed to see if these individuals are maintaining those withdrawal rates over longer periods of time.  Moreover, the integration of IRA data with data from employment-based defined contribution retirement accounts currently underway as part of initiatives associated with EBRI’s Center for Research on Retirement Income (CRI) will allow for an even more comprehensive picture of what those who may have multiple types of retirement accounts do as they age through retirement.

And we won’t have to wait 75 years to see how it turns out.

• Nevin E. Adams, JD

[i] See “IRA Withdrawals, 2011” online here.   See also ““Take it or Leave it? The Disposition of DC Accounts: Who Rolls Over into an IRA? Who Leaves Money in the Plan and Who Withdraws Cash?” online here. 
[ii] See “IRA Withdrawals in 2012 and Longitudinal Results, 2010–2012” online here. 

The "Hassle" Factor

Much is made these days of the application of behavioral finance and the implications for plan design, as well as the role of choice architecture in helping workers make “better” (if not more informed) benefit decisions.  Valuable as these insights have been, I think much of human behavior (or lack thereof) in these matters can be more simply explained.

What’s at work is a concept a friend of mine described to me more than 20 years ago – something he called “the hassle factor.”  It was a philosophy he routinely applied in many aspects of his personal and professional life.  Simply stated, presented with a choice between doing something that is hard, time-consuming, complicated, or even inconvenient, and doing something else, my friend – and, in fairness, human beings generally seem to be – inclined to opt for the latter.

Of course, the “hassle factor” CAN be trumped by exterior needs or forces, as anyone who has endured the long lines at the DMV or sat through the background music on an interminably long customer service line can attest.  That said, things like an unduly complicated 401(k) enrollment form/process can certainly serve as a barrier to plan entry, and there’s every reason to expect that the same might apply when it comes time to exit the plan.

Job change is a point in time at which a lot of important decisions are made—some voluntary and some forced upon us—and the disposition of one’s retirement savings account certainly looms large among them.  A recent EBRI Notes article examined what workers age 50 and above did with their defined contribution account balances at the point of job change, looking at data from the Health and Retirement Study (HRS), a study of a nationally representative sample of U.S. households with individuals age 50 and over.  EBRI analyzed responses from 2008 and 2010 for this study.

In terms of demographic characteristics, no significant difference was found between men and women in terms of their DC account balances and what they chose to do with them at job change.  And while married or partnered individuals were less likely to withdraw their assets and more likely to roll them over into an IRA than singles, the differences were small.

The EBRI analysis did find that a decision to take a withdrawal in cash declined with higher account balances, higher incomes, existing ownership of an IRA, and higher financial wealth. Not surprisingly, the decision to cash out rose with individual debt levels.

However, among those who left their employer but remained in the workforce, the most common outcome was to leave their retirement account balance with their prior employer’s plan.  The EBRI report notes that, unlike the outcomes detailed above, there was no clear trend between the financial variables, and the decision to leave those DC balances in the prior employer plans.

As for what might explain that outcome, the report noted that it might simply be a decision to postpone taking the money until it was needed, or that there “may be behavioral factors, such as inertia, driving what might be seen as a ‘non-decision.’”

Or, as my friend might have been inclined to say, a non-decision based on the “hassle factor.”

• Nevin E. Adams, JD

“Take it or Leave it? The Disposition of DC Accounts: Who Rolls Over into an IRA? Who Leaves Money in the Plan and Who Withdraws Cash?” is published in the EBRI May Notes, available here.

Source "Spots"

Individual retirement accounts (IRAs) have been around a long time – since the Employee Retirement Income Security Act of 1974 (ERISA), in fact[i].

Today IRAs represent nearly $6 trillion in assets, approximately a quarter of the $23.7 trillion in retirement plan assets in the nation. As an account type, they currently hold the largest single share of U.S. retirement plan assets with, as a recent EBRI publication notes, a substantial (and growing) portion of these IRA assets having originated in other tax-qualified retirement plans, such as defined benefit (pension) and 401(k) plans. Recognizing not only the significant growth but the increasing importance of these accounts to individual retirement security, the Department of Labor has proposed expanding ERISA’s fiduciary protections to these accounts.

To help better understand the trends driving this critical retirement savings component, the EBRI IRA Database, an ongoing project that collects data from IRA plan administrators across the nation, was created. For year-end 2012, it contained information on 25.3 million accounts owned by 19.9 million unique individuals, with total assets of $2.09 trillion. The EBRI IRA Database is unique in its ability to track individual IRA owners with more than one account, thereby providing a more accurate measure of how much they have accumulated in IRAs.

For example, a recent EBRI analysis[ii] notes that the average IRA account balance in 2012 in the EBRI IRA database was $81,660, while the average IRA individual balance (all accounts from the same person combined) was $105,001. Overall, the cumulative IRA average balance was 29 percent larger than the unique account balance.

While almost 2.4 million accounts in the EBRI IRA database received contributions in 2012, compared with the 1.3 million accounts that received rollovers for that year, the amount added to IRAs through rollovers was 10 times the amount from contributions.

However, an annual-snapshot percentage of IRA contributions doesn’t show whether the same individuals were contributing over time, or if different people contributed in different years. Taking advantage of the ability to look at multiple years across multiple accounts of individual owners across the EBRI IRA database, the report notes that while approximately 10 percent of traditional IRA owners contributed at some point during the three-year period, only 6 percent contributed to their IRA each year. On the other hand, while approximately 25 percent contributed to their Roth IRA in any one year, 35 percent did so at some point over the three-year period.

Looking at the pace of contribution activity, the EBRI analysis found that among those who contributed to their IRA in each of the three years, the pattern seemed pretty consistent: 12.1 percent did so in 2010, 13.2 percent in 2011, and 13.1 percent in 2012. Looking at the specific sources of those contributions, among traditional IRAs, we find that the percentage that contributed to them rose from 5.2 percent in 2010 to 6.6 percent in 2012 – but among Roth IRA owners, 24.0 percent contributed in 2010, 26.0 percent in 2011, and 25.1 percent in 2012.

Consider too that, among traditional IRA owners, only 3.0 percent contributed all three years, compared with 15.0 percent of Roth IRA owners who did so. Moreover, Roth IRA owners ages 25–29 were the most likely to contribute in any year and all three years (56.1 percent and 24.3 percent, respectively). Indeed, more than 4 in 10 (43 percent) Roth owners ages 25–29 contributed to their Roth in 2012.

The EBRI analysis found significant differences in the distribution patterns among older IRA owners, specifically those ages 70 or older, due to the required minimum distribution (RMD) rules. Those rules require individuals to begin making withdrawals from traditional IRAs starting April 1 of the year following the calendar year in which they reach age 70½. However, the RMD rules do not apply to Roth IRAs, a factor that likely explains the continued increases in account balances for Roth owners in that age group.

In sum, while the gross accumulations of retirement savings in IRAs provide value in terms of quantifying an increasingly significant component of the nation’s retirement security, a focus that takes into account only aggregate movements, or isolated account holdings, one that ignores the original source(s) of the money in the account, and/or the accompanying restrictions, runs the risk of overlooking significant undercurrents.

Undercurrents that may provide a better understanding of the growth trends in this important savings vehicle and ultimately, of course, explain how – and when – these retirement savings are withdrawn.

• Nevin E. Adams, JD

[i] Originally designed as a means to provide workers who did not have employment-based pensions an opportunity to save for retirement on a tax-deferred basis, IRAs have undergone a number of changes over time. The Economic Recovery Tax Act of 1981 (ERTA) extended the availability of IRAs to all workers with earned income (including those with pension coverage), while the Tax Reform Act of 1986 (TRA ’86) brought with it some restrictions on the tax deductibility (and, in some cases, availability) of IRA contributions. A decade later the Taxpayer Relief Act of 1997 (TRA ’97) created a new type of nondeductible IRA—the Roth IRA—and allowed nonworking spouses to contribute to an IRA, subject to certain income restrictions.

[ii] The May 2014 EBRI Issue Brief, “Individual Retirement Account Balances, Contributions, and Rollovers, 2012; With Longitudinal Results 2010–2012: The EBRI IRA Database,” is available online here.

Pet "Smart"

I’ve had both cats and dogs in my family over the years, and while each of our individual pets has had a unique personality, there are some attributes that seem to apply to each species, regardless of the individual animal. One of the most obvious is their approach to food.  For example, you can leave your cat alone in an apartment for a weekend with a supply of food and water sufficient to last for a few days, and odds are when you return home, there will still be some left.  But leave your dog alone in the same apartment with the same additional allotment of food and water, chances are it won’t last 30 minutes.  And in those circumstances, if you have both a cat and a dog in that apartment, odds are the latter will eat the former’s food as well.

Animal psychologists have a variety of explanations for why dogs and cats approach food the way they do, generally citing either a confidence of its future availability, or a concern that if it’s not consumed now, it will disappear.

Experts have long been worried about how quickly individuals would spend through their savings in retirement, whether those rates of spending would too rapidly deplete savings, and if those rates would be sufficient to sustain a reasonable post-retirement lifestyle.

A recent analysis[i] of activity within the EBRI IRA database[ii] found that just over 16 percent of traditional and Roth IRA accounts had a withdrawal in 2011, including 20.5 percent of traditional accounts.  The report notes that this percentage was largely driven by activity among traditional IRAs owned by individuals ages 70½ or older where the individuals were required by law to make withdrawals from their tax qualified accounts or pay significant tax penalties.

Significantly, for those at the RMD age, the withdrawal rates at the median appeared close to the amount required by law to be withdrawn, though some were significantly more. And while the highest 25 percent did appear to be taking out amounts in excess of those required by law, the report notes that some of these accounts could be the focus of the owners’ withdrawals instead of other accounts owned by them.

A separate EBRI analysis[iii] of the University of Michigan’s Health and Retirement Study (HRS) found that at age 61, only 22.2 percent of households with an individual retirement account (IRA) said that they took a withdrawal from that account, but that the pace slowly increased to 40.5 percent by age 69 before jumping to 77 percent at age 71.  That EBRI analysis also found that the percentage of households with an IRA making a withdrawal from that account not only increased with age, but also spiked around ages 70 and 71, a trend that, the report explains, appears to be a direct result of the required minimum distribution (RMD) rules in the Internal Revenue Code.

IRAs are, of course, a vital component of U.S. retirement savings, holding more than 25 percent of all retirement assets in the nation, according a recent EBRI report. A substantial and growing portion of these IRA assets originated in other employment-based tax-qualified retirement plans, such as defined benefit (pension) and 401(k) plans.

While the median withdrawal rates evident in the proprietary EBRI IRA database suggest that many individuals are highly likely to maintain the IRA as a source of income throughout retirement, further study is needed to see if these rates hold up over time as their owners age further into retirement, and to evaluate whether those rates, in conjunction with other resources, are adequate to provide a reasonable, if not comfortable, post-retirement lifestyle. 

In the months ahead, we’ll not only be looking at this withdrawal behavior over time, but, as part of EBRI’s Center for Research on Retirement Income (CRI), we’ll be examining how IRA owners with a 401(k) plan draw down those assets across accounts, leveraging the unique ability of EBRI’s databases to link individuals’ IRAs and 401(k) accounts.

After all, it’s not just pets that consume more wisely when they have confidence in the future of that next meal.

Nevin E. Adams, JD

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[i] See “IRA Withdrawals, 2011” online here.
 

[ii] The EBRI IRA Database, an ongoing project that collects data from IRA plan administrators, contains information for2011 on 20.5 million accounts with total assets of $1.456 trillion.  In this particular analysis, only withdrawals from the accounts identified as traditional or Roth IRAs in the database are examined, a total of 15.3 million accounts with $1.11 trillion in assets.  More information on the database, and EBRI’s research centers is online here.

[iii] See “IRA Withdrawals: How Much, When, and Other Saving Behavior” online here.

Take It or Leave It?

While each situation is different, in my experience leaving a job brings with it nearly as much paperwork as joining a new employer. Granted, you’re not asked to wade through a kit of enrollment materials, and the number of options are generally fewer, but you do have to make certain benefits-related decisions, including the determination of what to do with your retirement plan distribution(s).

Unfortunately, even in the most amicable of partings, workers have traditionally lacked the particulars to facilitate a rollover to either an individual retirement account (IRA) or a subsequent employer’s retirement plan—and thus, the easiest thing to do was simply to request that distribution be paid to him or her in cash.

Over the years, a number of changes have been made to discourage the “leakage” of retirement savings at job change: Legal thresholds for mandatory distributions have been set; a requirement established that distributions between $1,000 and $5,000 on which instructions are not received either be rolled over into an IRA or left in the plan; and even the requirement that a 20 percent tax withholding would be applied to an eligible rollover distribution—unless the recipient elected to have the distribution paid in a direct rollover to an eligible retirement plan, including an IRA. All these have doubtless served to at least give pause to that individual distribution “calculus” at job change.

Indeed, a recent EBRI analysis¹ indicates that workers now taking a retirement plan distribution are doing a better job at holding on to those retirement savings than had those in the past. Among those who reported in 2012 ever having received a distribution, 48.1 percent reported rolling over at least some of their most recent distribution into another tax-qualified savings vehicle, and among those who received their most recent distribution through 2012, the percentage who used any portion of it for consumption was also lower, at 15.7 percent (compared with 25.2 percent of those whose most recent distribution was received through 2003, and 38.3 percent through 1993).

As you might expect with the struggling economy, there was an uptick in the percentage of recipients through 2012 who used their lump sum for debts, business, and home expenses, and a decrease in the percentage saving in nontax-qualified vehicles relative to distributions through 2006. However, the EBRI analysis found that the percentage of lump-sum recipients who used the entire amount of their most recent distribution for tax-qualified savings has increased sharply since 1993: Well over 4 in 10 (45.2 percent) of those who received their most recent distribution through 2012 did so, compared with 19.3 percent of those who received their most recent distribution through 1993.

The EBRI report also notes that an important factor in the change in the relative percentages between the 1993 and 2012 data is the percentage of lump sums that were used for a single purpose. Consider that among those who received their most recent distribution through 2012, nearly all (94.0 percent) of those who rolled over at least some² of their most recent distribution did so for the entire amount.

There is both encouraging and disappointing news in the EBRI report findings: The data show that improvement has been made in the percentage of employment-based retirement plan participants rolling over all of their LSDs on job change, along with less frequent pure-consumption use of any of the distributions. However, the data also show that approximately 55 percent of those who took a lump-sum payment did not roll all of it into tax-qualified savings.

In common parlance, “Take it or leave it” is an ultimatum—an “either/or” proposition that frequently comes at the end, not the beginning, of a decision process. However, as the EBRI analysis indicates, for retirement plan participants it is a decision that can (certainly for younger workers, or those with significant balances) have a dramatic impact on their financial futures.

Nevin E. Adams, JD

 

¹ The November 2013 EBRI Notes article, “Lump-Sum Distributions at Job Change, Distributions Through 2012,” is online here. 

 

² Two important factors in whether a lump-sum distribution is used exclusively for tax-qualified savings appear to be the age of the recipient and the size of the distribution. The likelihood of the distribution being rolled over entirely to tax-qualified savings increased with the age of the recipient at the time of receipt until age 64. Similarly, the larger the distribution, the more likely it was kept entirely in tax-qualified savings.

Connecting the Dots

One of my favorite works of art is “A Sunday Afternoon on the Island of La Grande Jatte,” by Georges-Pierre Seurat. I was introduced to this painting in college via an art appreciation class at the Art Institute in Chicago (it even makes a brief appearance in the film “Ferris Bueller’s Day Off”).

The subject matter isn’t really extraordinary―just a group of individuals scattered about a park taking in the scenery. But what amazed me the first time I got close to the painting―and does to this day―is that Seurat created these images, and the marvelous color shadings in these images, through the use of thousands (perhaps millions: the painting itself measures 7 by 10 ft.) of individual dots.

Individual retirement accounts (IRAs) are a vital component of U.S. retirement savings, representing more than 25 percent of all retirement assets in the nation, with a substantial portion of these IRA assets originating in employment-based retirement plans, including defined benefit (pension) and 401(k) plans. Little wonder that those accounts have been a focus of the pending fiduciary regulation re-proposal.

Despite IRAs’ importance in the U.S. retirement system, there is a limited amount of knowledge about the behavior of individuals who own IRAs, alone or in combination with employment-based defined contribution (DC) plans.

Consequently, the Employee Benefit Research Institute (EBRI) created the EBRI IRA Database, which for 2011 contained information on 20.5 million accounts with total assets of $1.456 trillion. When looking across the entire EBRI IRA Database, as of year-end 2011, 44.4 percent of the assets were in equities, 10.7 percent in balanced funds, 18.0 percent in bonds, 13.0 percent in money, and 13.8 percent in other assets―an allocation spread roughly comparable to that found for 401(ks) in the EBRI/ICI 401(k) database at a comparable point in time.

But when you look inside the IRA database, certain interesting aspects emerge. For example, the asset allocation differences between genders were minimal: bond, equity, and money allocations were virtually identical. Moreover, in looking across IRA types, the average equity allocation at each age group was higher for owners of Roth IRAs than for owners of other IRA types―this is perhaps not surprising when you consider that a separate EBRI analysis also revealed that individuals contributing to Roth IRAs tended to be younger. Additionally, as the most recent report reveals, balanced funds have by far the largest asset allocations among young (under age 45) Roth IRA owners.

One might not be surprised to discover that both genders’ average allocations to bonds increased with age (starting at age 25), although the average amount allocated to balanced funds decreased as the age of both genders increased after age 25―with the exception of men ages 75–84. And while equity allocations for genders peaked and then plateaued for those ages 45−54, it then proceeded to INCREASE for male owners age 85 or older.

Of course, an IRA could be only part of an individual’s portfolio of retirement assets: That’s why the goal of the integration of the EBRI databases is to be able to look at the two largest sources of retirement assets (IRAs and DC plans) to examine owner behavior across (as well as within) the accounts to provide a better understanding of the decisions Americans make with their retirement savings.

Because sometimes you need to see the big picture―and sometimes the better understanding of the big picture comes from connecting the dots.

- Nevin E. Adams, JD

The October EBRI Notes article, “IRA Asset Allocation, 2011” is online here. 

Also see “The Generation in Roth IRA Contributions,” online here. 

The Bigger Picture

Over the weekend, my daughter shared with us an insurance quote she’d received.  It had been a while since I had focused on such things, but I was struck first by how much it was.  It was for insurance in a different state, so we worked through the particulars, trying to be certain that we understood what was covered, matched that against her needs.  Ultimately, while much of the quote made sense, there were a couple of items that seemed too high.

As we probed those items, my daughter explained that the agent had made an effort to match those levels against her current coverage.  A logical enough inquiry and starting point, but one that (apparently) failed to take into account that her current coverage – as part of our family policy – would be quite different from what she needed on her own.  The agent got an accurate response to the question he asked – but it wasn’t the right question.

Individual Retirement Accounts, or IRAs, hold more than 25 percent of all retirement assets in the United States, which makes them a vital component of the nation’s retirement savings.  In fact, as an account type, IRAs currently hold the largest single share of U.S. retirement plan assets.  There are, however, different types of IRAs, and, according to a recent EBRI analysis[i], they differ in a number of ways.

For example, in the EBRI IRA Database[ii], which contains data collected from various IRA plan administrators on 20.5 million accounts, with total assets of $1.456 trillion, most of the new IRA contributions go into Roth IRAs, but most of the assets are held in traditional IRAs, where, as noted above, the money frequently originated from a rollover from other tax-qualified retirement plans (such as 401(k) plans).  In fact, the latest report from the EBRI IRA Database finds that 26 percent of Roth IRA owners contributed to their accounts in 2011, compared with just 6 percent of traditional IRA owners.

On the other hand, individuals with a traditional IRA originating from rollovers had the highest average and median (mid-point) balances ($110,918 and $31,944, respectively, compared with Roth average and median balances at $25,228 and $11,344) – and in the 2011 EBRI IRA Database, almost 13 times the amount of dollars were added to IRAs through rollovers as from new contributions.

Roth IRAs had a higher percentage of younger individuals contribute to them: 23.8 percent of the Roth accounts receiving contributions were owned by individuals ages 25–34, compared with 8.9 percent for traditional IRAs.  Moreover, Roth IRA owners were both more likely to contribute to their IRA and more likely to contribute in subsequent years – and those who are younger and own a Roth IRA were more likely to contribute to it than older Roth IRA owners.

While they account for nearly one in five of the accounts in the EBRI IRA Database, Roth IRAs represented only 7 percent of the $1.456 trillion in assets at year-end 2011.  Still, it’s easy to imagine how the trend differences highlighted above could, over time, impact key trends in terms of contributions, asset allocation, and withdrawal patterns[iii].

Research sometimes suffers from a tendency to extrapolate big conclusions from remarkably small samples.

On the other hand, the EBRI IRA database, with millions of individual account records drawn from multiple account providers, allows us to see the big picture, as well as the details that underlie, and perhaps shape, the longer-term trends.

Nevin E. Adams, JD

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[i] See Individual Retirement Account Balances, Contributions, and Rollovers, 2011: The EBRI IRA Database.
 

[ii] The EBRI IRA Database contains data collected from various IRA plan administrators on 20.5 million accounts owned by 16.6 million unique individuals with total assets of $1.456 trillion. EBRI is building a database that will allow it to track the flow of retirement assets saved in 401(k) plans and other tax-qualified plans and transferred to IRAs and spent in retirement as people leave the work force.

[iii] The EBRI IRA Database is also unique in its ability to track people who own multiple IRAs, providing a measure of individuals’ consolidated IRA holdings. For instance, it shows that the overall cumulative IRA average balance was 24 percent larger than the unique account balance, providing a far more accurate picture of the assets held in these accounts by individuals.

Balancing "Acts"

Last week we looked at how the trends in employment-based retirement plans and employment-based health plans seem to be heading in opposite directions: fewer choices for workers to make in the former, more in the latter (see Consumer “Driven,” online here.  Recent EBRI research suggests a potential divergence in other areas as well.

According to the EBRI/MGA Consumer Engagement in Health Care Survey, 26–40 percent of respondents reported some type of access-to-health-care issue for either themselves or family members last year. “Access” in this case refers not to availability, per se, but is broadly defined as not filling prescriptions due to cost, skipping doses to make medication last longer, or delaying or avoiding getting health care due to cost.

Not surprisingly, access is more of a problem among those with lower incomes, who appear to be forgoing spending on health care. In fact, regardless of health plan type, individuals in households with less than $50,000 in annual income were more likely than those in households with $50,000 or more in annual income to report access issues. In sum, a number of individuals, notably lower-income workers, were restricting their spending on healthcare.¹

Another recent EBRI analysis  found that lower-income workers were withdrawing money from their individual retirement accounts in much greater numbers, earlier, and at much larger percentages, than other workers. In fact, the report noted that nearly half (48 percent) of the bottom-income quartile of those between the ages of 61 and 70 had made such an IRA withdrawal, and that their average annual percentage of account balance withdrawn (17.4 percent) was higher than the rest of the income distribution. In sum, a number of individuals, again, notably lower-income workers, were withdrawing more from their retirement savings accounts than those in higher income groups.

One of the great hopes behind a growing emphasis on consumer-directed health plans is that individuals would make different, perhaps more efficient decisions about their health care. Of course, one of the looming concerns is that individuals would make ill-informed decisions influenced by short-term personal economic (rather than health) factors. Similarly, there have been concerns expressed that, left to their own devices, individuals will withdraw too much money too soon from their retirement accounts—that their decisions too will be motivated by short-term needs, rather than by a full appreciation for the longer-term consequences of those actions.

As previous EBRI research has documented, the availability of health insurance may not only affect retirement decisions, but the costs of health care and long-term care can have a very real impact on retirement income adequacy.² The trends highlighted in the EBRI analyses suggest that some—notably lower-income individuals—could be spending less on healthcare than they might, and perhaps drawing more from their retirement accounts than they should.

What’s not yet clear—and what future research may shed light on—is whether these actions are borne of necessity, are simply random and potentially ill-considered, or are the result of conscious (and perhaps conscientious) choice.

Nevin E. Adams, JD

¹ Some additional evidence of the trend was highlighted by EBRI research recently published in Health Affairs, specifically that consumer-directed health plans (CDHPs) were shown to reduce the long-term use of outpatient physician visits and prescription drugs. Link is online here.

² See Views on Health Coverage and Retirement: Findings from the 2012 Health Confidence Survey, and ‘Savings Needed for Health Expenses for People Eligible for Medicare: Some Rare Good News.” 
See also “Lessons From the Evolution of 401(k) Retirement Plans for Increased Consumerism in Health Care: An Application of Behavioral Research,” online here.

“Drawing” Board?

While drawing boards have been used by engineers and architects for more than two centuries, the phrase “back to the drawing board” is of much more recent origin, coined by the Peter Arno in a cartoon first published in the March 1, 1941 issue of New Yorker magazine.(1) The cartoon features a crashed plane in the background, a parachute in the distance, several military officials and rescue workers rushing to help/investigate—and one remarkably nonchalant individual, walking in the opposite direction with a rolled up document tucked under his arm as he comments, “Well, back to the old drawing board.”

For all the much-deserved focus on retirement savings accumulations, a growing amount of attention is now directed to how those already in (and fast-approaching) retirement are actually investing and drawing down those savings.

A recent EBRI analysis(2) found that at age 61, only 22.2 percent of households with an individual retirement account (IRA) took a withdrawal from that account. That pace slowly increases to 40.5 percent by age 69 before jumping to 54.1 percent at age 70, and by the age of 79, almost 85 percent of households with an IRA took a distribution.

IRAs are, of course, a vital component of U.S. retirement savings, holding more than 25 percent of all retirement assets in the nation, according a recent EBRI report. A substantial and growing portion of these IRA assets originated in other employment-based tax-qualified retirement plans, such as defined benefit (pension) and 401(k) plans.

The EBRI analysis also found that the percentage of households with an IRA making a withdrawal from that account not only increased with age, but also spiked around ages 70 and 71, a trend that appears to be a direct result of the required minimum distribution (RMD) rules in the Internal Revenue Code.(3) Those rules require that traditional IRA account holders begin to take at least a specific amount from their IRA no later than April 1 of the year following the year in which they reach age 70-½, or else suffer a fairly harsh tax penalty.

In fact, at age 71, 71.1 percent of households owning an IRA that took a withdrawal reported that they took only the RMD amount, increasing to 77.4 percent at age 75, 83.2 percent at age 80, and 91.1 percent by age 86.

However, the EBRI report noted that IRA-owning households not yet subject to the RMD—those headed by individuals between the ages of 61 and 70—made larger withdrawals than older households, both in absolute dollar amounts as well as a percentage of IRA account balance. Indeed, the bottom-income quartile of this age group had a very high percentage (48 percent) of households that made an IRA withdrawal—and their average annual percentage of account balance withdrawn (17.4 percent) was higher than the rest of the income distribution. Moreover, those younger households that made IRA withdrawals spent most of it.

While a significant percentage of those in the sample are drawing out only what the law mandates, the data indicate that more of those in the lower-income groups not only draw money out sooner, but also draw out a higher percentage of their savings—perhaps too early to sustain them throughout retirement.(4)

Planning and preparation matters—not only for retirement savings, but in retirement withdrawals. Because for those whose retirement resources run short too soon, it’s generally also too late to go “back to the drawing board.”

Nevin E. Adams, JD

(1) You can see the original cartoon online here.

(2) The data for this study come from the University of Michigan’s Health and Retirement Study (HRS), which is sponsored by the National Institute on Aging. See “IRA Withdrawals: How Much, When, and Other Saving Behavior,” online here.

(3) As noted in a previous post (see “Means Tested”), there are advantages to a drawdown strategy based on the schedule provided by the Internal Revenue Service (IRS) for required minimum distributions, or RMDs. See also Withdrawal “Symptoms.”

(4) The EBRI Retirement Readiness Ratings™ indicate that approximately 44 percent of the Baby Boomer and Gen-Xer households are simulated to be at-risk of running short of money in retirement, assuming they retire at age 65 and retain any net housing equity in retirement until other financial resources are depleted. Those individuals may well become part of the significant percentage of retirees who eventually must depend on Social Security for all of their retirement income. See “All or Nothing? An Expanded Perspective on Retirement Readiness.”

“Like” Minded?

Several weeks back, my wife and I sat down with a financial planner to review and update our financial plans. Doing so brought with it a bit of personal trepidation since, being “in the business” I not only had a working knowledge of what needed to be done, I also had a pretty good sense of what hadn’t been done, and what hadn’t been done the way it should have been done in some time. As I surrendered copies of the statements from my three separate 401(k) accounts, rollover IRA, traditional IRA, and SEP-IRA, I found myself wondering (again) why I hadn’t gotten around to consolidating some of those accounts.

More and more Americans are finding themselves with multiple savings accounts, not only because of the relatively consistent pattern of job change in the American economy (see “Tenure, Tracked”), but because those job changes frequently result in rollovers to individual retirement accounts. On the other hand, in recent years, it has gotten easier to simply leave your 401(k) with a prior employer’s plan, and, with the convenience of online access and/or call center support, and the allure of inertia, many have surely opted to forestall, if not postpone the decision.

Those decisions have, of course, made it harder to assess the true accumulations in these plans. Indeed, today’s “average” 401(k) calculation suffers not only from being an average of widely varied tenure and age components, it increasingly represents the average of those balances with only a current employer plan.

But if you’re an individual worried about keeping up with all those accounts―or a regulator or policymaker concerned about the growing complexity of that task for those individuals―you might well wonder how those accounts are being managed? Are the investment allocations in those IRAs different from that of the 401(k)s?

New EBRI research (see “Retirement Plan Participation and Asset Allocation, 2010”) reveals that, in addition to demographic factors related to family heads, asset allocation within a family head’s retirement plan does seem to be affected by his or her ownership of other types of retirement plans.

According to the research, which was based on estimates from the Federal Reserve’s 2010 Survey of Consumer Finances,¹ those who own an IRA are more likely to be invested all in stocks if they also own a 401(k)-type of plan, and those who own a defined benefit (DB) plan and a 401(k)-type plan are also less likely to allocate the investments of that defined contribution plan to all interest-earning assets. Moreover, those family heads who are invested more heavily in stocks in their 401(k)-type plan and also own an IRA have a high probability of also being heavily invested in stocks in their IRA.

The bottom line? Participants in these plans generally invest them in similar manners, although some participants did have significantly different allocations across the two plan types. What we don’t know is if those similarities―and differences―are the result of conscious choice based on an awareness of these various plans, a consequence of investments in target-date or balanced funds, or mere coincidence.

Nevin E. Adams, JD

¹ It is worth noting that, while these results provide important information on behavior within retirement savings plans, it is self-reported data from a survey of a small sample of respondents, and does not include the type of detail on asset allocation within 401(k) plans that is provided by the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project or on IRAs that is provided by the EBRI IRA Database. However, these results do provide some evidence of how participants who own both types of retirement plans allocate their assets among both types of plans, and this can be evaluated with future results from the combined IRA and 401(k) database that EBRI is currently completing.

Out of Cite?

Our industry pays a lot of attention to the investment choices that retirement plan participants make; we fret about the type and number of choices on their investment menu, the efficacy of target-date funds, the utilization of active versus passive investment strategies, and the prudence of the asset allocation choices that individuals make—with or without the benefit of tools and/or professional guidance. Unfortunately, once they leave that part of our private retirement system, not so much.

A significant percentage of that retirement plan money winds up in individual retirement accounts, or IRAs. In fact, today IRAs represent more than a quarter of all retirement assets in the U.S., according to a recent EBRI Issue Brief. But there remains a limited amount of knowledge about the investment behavior of individuals who own IRAs, alone or in combination with employment-based retirement plans.

In order to fill this gap, EBRI has undertaken an initiative to study in depth this connection between DC plans and IRAs, and created the EBRI IRA Database,(1) which links individuals (both within and across data providers) in this IRA database and with participants in DC plans. The asset allocation across ages within each IRA type(2) had some minor differences, but, in general, the percentages allocated to equities and balanced funds declined as the owner became older, and the percentage allocated to bonds and other assets increased. Additionally, as the account balances increased, the percentages of assets in equities and balanced funds combined decreased, while bond and “other” assets’ shares increased.

While gender differences abound in many walks of life, male and female IRA owners had virtually identical allocations in bonds, equities, and money in the EBRI IRA database, though males were slightly more likely to have assets in the “other”(3) category, and females had a higher percentage of assets in balanced funds.

Among IRA categories, Roth IRAs had the highest share of assets in equities (59.1 percent) and balanced funds (15.5 percent). Of course, Roth owners are younger, on average, than rollover owners, and Roth IRAs tend to be supplemental savings funded by individual contributions only, whereas rollovers tend to be the main or primary retirement savings for workers nearing retirement or retirees.

Indeed, the most significant difference among IRA types is that Roth owners were much more likely to have 90 percent or more of their accounts invested in equities than in other asset types, and were correspondingly likely to have less than 10 percent of their assets in bonds and money combined. Once again, the likelihood of these “extreme” allocations was very similar across genders.

When comparing the overall percentage of 401(k) assets held in equities (equities, equity share in balanced funds, and company stock) from the EBRI/ICI 401(k) database, the number is relatively close to that found in the IRA accounts (60.0 percent in 401(k) plans and 52.1 percent in IRAs), although the bond and money percentages are higher for IRAs than 401(k) plans (19.9 percent and 11.6 percent, respectively, for bonds and 8.9 percent and 4.4 percent, respectively, for money), while balanced funds constitute more of the assets in 401(k) plans than in IRAs. In sum, while it wasn’t the focus on the study, the average asset allocation found for IRAs was similar to that in 401(k) plans.

Of course, those IRA balances likely aren’t the totality of the retirement savings for these individuals, and thus, whether that particular allocation—looked at in isolation—is “good” news or not, remains to be seen.(4)

- Nevin E. Adams, JD

(1) The Employee Benefit Research Institute’s retirement databases (the EBRI/ICI Participant-Directed Retirement Plan Database, the EBRI IRA Database, and the EBRI Integrated Defined Contribution/IRA Database) have been the subject of multiple independent security audits and have been certified to be fully compliant with the ISO-27002 Information Security Audit standard. Moreover, EBRI has obtained a legal opinion that the methodology used meets the privacy standards of the Gramm-Leach-Bliley Act. At no time has any nonpublic, personal information that is personally identifiable, such as Social Security number, been transferred to or shared with EBRI. None of the three databases allows identification of any individuals or plan sponsors.

(2) The report considered four types of IRAs: traditional-contributions (traditional IRAs originating from contributions, in which distributions are taxable); Roth (in which contributions are nondeductible and distributions are tax free); SEP (Simplified Employee Pension)/SIMPLE (Savings Incentive Match Plan for Employees); and traditional-rollovers (traditional IRAs originating from assets rolled over from other tax-qualified plans, such as an employment-based pension or DC plans, in which distributions are taxable)

(3) “Other” assets includes assets that do not fit into the categories of equities, bonds, money/cash equivalents, or balanced funds. This could include stable-value funds, real estate (both from investment trusts and directly purchased), fixed and variable annuities, etc.

(4) As the EBRI IRA Database expands, more elaborate studies are being conducted. Linked with defined contribution account data, the tracking of movements of money between multiple retirement saving accounts (DC plans and IRAs) is being studied to see what, if any, asset allocation changes are being made when assets are moved between accounts. Furthermore, once individuals have reached retirement, the withdrawal or “spend-down” of those assets over time can be studied based on the longitudinal data that will be available, offering the potential of a far greater understanding of the retirement preparation and post-retirement behavior of Americans as these databases mature.