Data & Research June 25, 2013

A Generation Gap for Roth IRAs

Roth IRAs skew toward younger contributors, according to a report from the nonpartisan Employee Benefit Research Institute (EBRI).
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A recent analysis of the EBRI database of individual retirement accounts (IRAs) revealed that nearly a quarter (24%) of the Roth accounts receiving contributions were owned by individuals ages 25 to 34. In contrast, only 8.9% of the traditional accounts that received contributions were owned by those in that age group.

IRA owners who are younger and own a Roth were more likely to contribute to it than older owners of the same type of account: 44% of Roth owners ages 25 to 29 made account contributions in 2011, compared with 21% of Roth owners ages 60 to 64.

Contributions to traditional IRA accounts did not significantly vary by age, as the percentage ranged from 9% to 6% for account owners up through age 64.

IRAs are a vital component of U.S. retirement savings, holding more than 25% of all retirement assets in the nation. A substantial and growing portion of these assets originated in other tax-qualified retirement plans, such as defined benefit (pension) and 401(k) plans. The EBRI IRA Database contains data from various IRA plan administrators on 20.5 million accounts owned by 17 million unique individuals with total assets of $1.456 trillion to study this ever-growing important source of retirement assets.

More information about “Individual Retirement Account Balances, Contributions, and Rollovers, 2011: The EBRI IRA Database” is available online here.  

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The Markets June 25, 2013

403(b) Plans Slowly Adopt Auto, Other Features

The number of 403(b) plans offering automatic enrollment is increasing, but the uptake is still slow, according to a source from The Principal Financial Group.
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Although it’s a bit disappointing that more plan sponsors are not using auto enrollment, it’s promising that when they do use the feature, few participants opt out of the plan, Aaron Friedman, national practice leader, tax exempt at The Principal Financial Group, said during a webinar about Plan Sponsor Council of America’s (PSCA’s) 2013 403(b) Plan Survey.

Plans with automatic enrollment grew from 11.5% in 2009 to 14.6% in 2012, according to the survey. Results showed that 11.8% of plans offering auto enrollment had a default deferral percentage of 1%. The most common default deferral percentage was 3% (38.2% of plans with auto enrollment). PSCA found that 16.9% of the plans with auto enrollment also offered auto escalation, while 18.2% offered voluntary escalation and 64.9% offered none.

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If a plan sponsor is going to have auto enrollment, Friedman said, they should consider having both auto enrollment and auto escalation features. “It certainly helps psychologically with participants,” he added.

Regarding loans in 403(b) plans, Friedman said there’s a trend away from hardship-only loans—they can now be taken for a number of reasons, and multiple loans can be issued at once. Despite these trends, “loan utilization is minimal,” he said.

According to PSCA’s survey, 36.8% of 403(b) plans in 2009 allowed multiple loans, compared with 44.1% allowing them in 2012. The survey found that 11.6% of 403(b) participants have loans and borrow, on average, $5,987.

In 2012, 403(b) plans made several changes, chief of which was altering their investment lineups (40% of plans). Other modifications included changing/adding plan design features (24%); changing employer or participant contributions (10.4%); adding auto enrollment (4%); changing or adding providers, advisers or consultants (16%); and other (5.6%).

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