What are the Most Significant ERISA Developments Affecting Retirement Plans?
What are some of the most significant developments affecting retirement plans, and what role has ERISA played in allowing for the continued evolution and innovation of providing benefits?
Barbara Marder, President and CEO of the Employee Benefit Research Institute (EBRI) asked the important question of panelists during a presentation of the ERISA 50th Research Project at a symposium in Washington, D.C., on Thursday, honoring the golden anniversary of the law’s passage.
Sudipto Banerjee, Director of Retirement Thought Leadership with T. Rowe Price, discussed the paper he submitted to the event’s research committee.
“I think we have made tremendous progress in the last 50 years,” Banerjee said, “When I think about measuring that progress, I looked at three key areas. First is access and participation, second is savings rates, and third is investment allocation.”
He noted that private sector access to retirement plans was 57% in 2003 and increased to 70% in 2023.
“I think that’s tremendous progress for a voluntary system in just 20 years,” Banerjee added. “At the same time, the improvement in participation rates has been much slower. During that same 20-year period, it went from just 49% to 53%. There’s a big gap between access and participation right now, and I think that is an area of immediate opportunity for us.”
He argued that recent changes, like the introduction of MEPs and PEPs, new auto-enrollment mandates for new plans in SECURE 2.0, and the state auto-IRA plans will make a difference, but more can be done to close the gap between access and participation.
“A lot of great steps were taken with savings rates, as well, with the introduction of default saving rates, auto-escalation, and so on,” he said. But the huge movement in saving rates has been stable, but it has been slow.”
Citing T. Rowe Price recordkeeping data of over 2 million participants, he said that in 2007, the average savings rate was 7.3%. It then fell due to the financial crisis and has slowly recovered since, but is slow, at 7.8% in 2023.
“I think it is trending in the right direction, but we need to take more steps to help improve the saving rate,” he said. “Where I think we have made the most progress is investment allocation thanks to the Pension Protection Act of 2006 and the introduction of QDIAs. If you look at EBRI and ICI data, in 2007, right after PPA, just 49% of participants in their 20s had a high allocation to equities, 80% and higher. Fast forward to 2022, that 49% went up to 91%. So, I can’t overstate how important that is.”
To give it context, he said someone who started working in 1984 at 25 and retired last month and invested $1,000 in the S&P 500 would have just over $80,000 from that one investment.
“That is the power of exposure to equities,” Banerjee concluded. “I think we have made really good progress in some areas, and in other areas, we need to do more work. Overall, I’m very optimistic that we’ll keep improving the system.”