Millennials Biggest Beneficiaries of Pension Protection Act

Survey says millennials will have more retirement income than boomers, Gen X.

Millennials are on track to replace more of their income than older generations, thanks in large part to the Pension Protection Act of 2006, according to a recent survey from the Empower Institute, a retirement plan record keeper.

The survey, which polled 4,000 working Americans aged 18 to 65 who are saving for retirement in a workplace plan, projected that millennials are on pace to replace 75% of their income in retirement, compared to 61% for Generation X workers, and 58% for baby boomers.

The study attributes the relatively high replacement rate for millennials, who it defines as anyone born after 1981, to the Pension Protection Act of 2006, which was enacted just as the group began entering the workforce. The reforms allow automatic enrollment of plan participants, automatic escalation of participants’ contributions, and requires employers to pay certain minimum required contributions.

In the 12 years since the legislation law was enacted, the reforms have made it possible for defined contribution plans to offer a new mix of innovative components, said the Empower Institute.

“New features such as auto enrollment and auto escalation have come a long way in making access to retirement savings programs easier for employees and in shaking off some of the concerns of the past with earlier DC plan designs,” Edmund Murphy, president of Empower Retirement, said in a release. “Millennials are the first generation in the workforce to fully benefit from changes in the law made in 2006.”

The survey found that 41% of millennials who responded are automatically enrolled in a defied contribution plan, compared to 38% of Generation Xers, and 33% of baby boomers. Additionally, 38% of millennials are enrolled in a plan with auto-escalation features. The survey found that people who participate in a plan with this feature achieve a median retirement income replacement of 107%, which is 27 percentage points higher than participants without it.

The Empower Institute said the survey also revealed that attitudes about retirement planning differ among the generations. For example, although Millennials have less investable assets compared to the older generations, they are seeking advice and have formal retirement plans in higher rates than baby boomers and Generation Xers.

Additionally, 24% of millennials say they have a formal retirement plan, compared to 19% of Generation X respondents, and 17% of baby boomers, which could explain why fewer millennials (40%) believe they will have to work at least part time in retirement than Gen Xers (44%) and baby boomers (48%). And there is a large discrepancy between millennials and the older generations when it comes to expectations for relying on Social Security for retirement income. Only 59% of millennials expect Social Security to be a source of income in retirement, compared to 88% of baby boomers and 73% of Generation X.

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