Investment Company Institute Issues Report Entitled 'American Views on Defined Contribution Plan Saving, 2020'

WASHINGTON, Feb. 25 -- The Investment Company Institute has issued a 36-page report dated February 2021 entitled: "American Views on Defined Contribution Plan Saving, 2020".

The report was prepared by Sarah Holden, senior director of retirement and investor research; Daniel Schrass, economist; Jason Seligman, senior economist; and Michael Bogdan, associate economist.

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Contents

1 Executive Summary

4 Introduction

5 Views on Defined Contribution Plan Accounts

5 Views on Features of Defined Contribution Plan Saving

9 Views on Proposed Changes to Defined Contribution Plan Accounts

17 Confidence in Defined Contribution Plan Accounts

19 Conclusion

20 Appendix: Additional Data on American Views on Defined Contribution Plan Saving

25 Notes

28 References

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Executive Summary

With millions of US households personally directing their retirement savings, the Investment Company Institute (ICI) has sought to track retirement savers' actions/1 and sentiment. This report, the 13th in this series, summarizes results from a nationally representative survey of Americans aged 18 or older. The survey was designed by ICI research staff and administered by NORC at the University of Chicago using the AmeriSpeak(R) probability-based panel./2

This report presents survey results that reflect individuals' responses collected during November and December 2020./3

The survey polled respondents about their views on defined contribution (DC) retirement account saving and their confidence in 401(k) and other DC plan accounts. Survey responses indicated that Americans value the discipline and investment opportunity that 401(k) plans represent and that individuals were largely opposed to changing the tax preferences or investment control in those accounts. A majority of respondents also affirmed a preference for control of their retirement accounts and opposed proposals to require a portion of retirement accounts to be converted into a fair contract promising them income for life from either the government or an insurance company.

Views on Defined Contribution Plan Accounts

Respondents expressed favorable impressions of DC plan accounts in fall 2020:

* Seventy-six percent of Americans had favorable impressions of 401(k) and similar retirement plan accounts in fall 2020, in line with 76 percent in fall 2019 and 75 percent in fall 2018.

* Among individuals expressing an opinion, 88 percent had favorable impressions of 401(k) plans, with 41 percent agreeing that they had a "very favorable" impression.

Views on Features of Defined Contribution Plan Saving

Survey responses in fall 2020 indicated that individuals whose households own DC accounts appreciate key features of DC plans, an outcome that is similar to the previous survey results.

* More than nine out of 10 DC-owning individuals agreed that these plans helped them think about the long term and made it easier to save. Nearly five out of 10 (46 percent) DC-owning individuals indicated that they probably would not be saving for retirement if not for their DC plans. In addition, saving paycheck-by-paycheck made more than eight out of 10 DC-owning individuals surveyed less worried about the short-term performance of their investments./4

* Nearly nine out of 10 (86 percent) DC-owning individuals agreed that the tax treatment of their retirement plans was a big incentive to contribute.

* Nearly all DC-owning individuals agreed that it was important to have choice in, and control of, the investments in their DC plans. Almost nine out of 10 indicated that their DC plan offered a good lineup of investment options.

Views on Proposed Changes to Defined Contribution Plan Accounts

In addition, Americans' views on policy changes revealed a strong preference for preserving retirement account features and flexibility.

* A strong majority of Americans disagreed with proposals to remove or reduce tax incentives for retirement savings.

* In fall 2020, nearly nine out of 10 (87 percent) disagreed that the government should take away the tax advantages of DC accounts, and about nine out of 10 (89 percent) disagreed with reducing the amount that individuals can contribute to DC accounts.

* Support for the tax treatment of DC accounts was widespread among individuals whose households did not own DC accounts or individual retirement accounts (IRAs). In fall 2020, about eight out of 10 (79 percent) individuals without DC accounts or IRAs rejected the idea of taking away the tax treatment of DC accounts.

* About nine out of 10 (89 percent) individuals surveyed disagreed with the idea of not allowing individuals to make investment decisions in their DC accounts, and eight out of 10 disagreed with investing all retirement accounts in an investment option selected by a government-appointed board of experts.

* In fall 2020, more than nine out of 10 (91 percent) Americans agreed that retirees should be able to make their own decisions about how to manage their own retirement assets and income and about eight out of 10 individuals disagreed that retirees should be required to trade a portion of their retirement accounts for a fair contract promising them income for life.

Confidence in Defined Contribution Plan Accounts

Americans--whether or not their households had retirement accounts--were confident in the ability of DC plans to help individuals meet their retirement goals.

* Among individuals whose households owned DC accounts or IRAs, more than eight out of 10 (83 percent) indicated that they were confident that DC plan accounts could help people meet their retirement goals.

* Among individuals whose households did not own DC accounts or IRAs, seven out of 10 expressed confidence that DC plan accounts can help people meet their retirement goals

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Conclusion

In late fall 2020, Americans expressed favorable impressions of DC plans. These plans have become a common feature of the US retirement landscape with millions of US households now holding a portion of their assets in them. As such, it is important to know how these plans are viewed and whether policy proposals are likely to increase or decrease the value of these plans for those looking to save for retirement during their working years. Americans valued current plan design features, and their views on policy changes revealed a strong preference for preserving retirement account features and flexibility. This was especially true for individuals who use the plans and for those most in need of them to supplement Social Security. In addition, those not currently using the plans were still strongly in favor of them, suggesting a value for their place in household planning over a longer time span.

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Footnotes:

1/ ICI conducts a separate survey of DC plan recordkeepers on a cumulative quarterly basis. For the most recent annual results from that survey, see Holden and Schrass 2020; for results for the three quarters of 2020, see Holden, Schrass, and Chism 2020.

2/ The 2020 survey was conducted using the AmeriSpeak(R) research panel, a probability-based panel designed and operated by NORC at the University of Chicago. The AmeriSpeak(R) panel is designed to be representative of individuals aged 18 or older in the United States. Initially, randomly selected US households are sampled with a known, non-zero probability of selection from the NORC National Frame; they are then contacted by US mail, telephone interviewers, overnight express mailers, or field interviewers (face-to-face). The NORC National Frame is representative of more than 97 percent of US households and includes additional coverage of population segments that are hard to survey, such as rural and low-income households. Panelists may participate in two or three AmeriSpeak(R) panel studies per month by phone or online (by computer, tablet, or smartphone).

3/ For the earlier reports, see Reid and Holden 2008; Holden, Sabelhaus, and Reid 2010; Holden, Bass, and Reid 2011; Holden and Bass 2012; Holden and Bass 2013; Burham, Bogdan, and Schrass 2014; Schrass, Holden, and Bogdan 2015; Holden et al. 2016; Holden, Schrass, and Bogdan 2017; Holden et al. 2018; Holden et al. 2019; and Holden et al. 2020. The fall 2014, 2015, 2016, 2017, 2018, 2019, and 2020 surveys were online surveys; the prior surveys were conducted over the phone. The fall 2018, fall 2019, and fall 2020 surveys were conducted using the NORC AmeriSpeak(R) panel, which uses a mixed-mode data collection methodology (see note 2 for additional detail). The fall 2018 survey includes 1,771 surveys completed online and 270 surveys conducted over the phone. The fall 2019 survey includes 1,848 surveys completed online and 180 surveys conducted over the phone. The fall 2020 survey includes 1,920 surveys completed online and 172 surveys conducted over the phone. Results are weighted to be representative of US individuals aged 18 or older; prior reports were weighted on the basis of US households.

4/ The wording of this question was changed in the 2017 survey to read "Knowing that I'm saving from every paycheck makes me less worried about the short-term performance of my investments." In prior years, the statement in question was "Knowing that I'm saving from every paycheck makes me less worried about the stock market's performance." See note 14 and Holden, Schrass, and Bogdan 2017.

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The full report can be viewed at: https://www.ici.org/pdf/21_ppr_dc_plan_saving.pdf

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