SOCIAL SECURITY, PENSIONS & RETIREMENT INCOME eJOURNAL
This paper examines the level of participation by workers in public- and private-sector, employment-based pension or retirement plans, based on the U.S. Census Bureau’s March 2012 Current Population Survey (CPS), the most recent data currently available. It begins with an overview of retirement-plan types and participation in these types of plans and describes the data used in this study, along with their relative strengths and weaknesses. From these data, results on participation in employment-based retirement plans are analyzed for 2011 across various worker and employer characteristics. The report then explores retirement plan participation across U.S. geographic regions, including comparisons by state and by certain consolidated statistical areas (CSAs). In addition to the results for 2011, trends from 1987-2011 in employment-based retirement plan participation are presented across many of the same worker and employer characteristics as used for 2011. Furthermore, an accounting of the number of workers who work for an employer that does not sponsor a plan and of workers who do not participate in a plan is provided by various demographic and employer characteristics.
In 2011, 39.7 percent of all workers, or 61.0 million Americans, participated in an employment-based retirement plan. Among full-time, full-year wage and salary workers ages 21 to 64 -- those with the strongest connection to the work force -- 53.7 percent participated. This percentage of participating workers varied significantly across various worker and employer characteristics. Being nonwhite, younger, female, never married; having lower educational attainment, lower earnings, poorer health status, no health insurance through one’s own employer; not working full time, full year, and working in service occupations or farming, fisheries, and forestry occupations were all associated with lower levels of participation in a retirement plan. In addition, those working for smaller firms, private-sector firms, or firms in the “other” (not professional) services industry were also less likely to participate. Another factor in the likelihood of workers’ participation in a retirement plan was their geographic location, with workers in the South and West less likely to participate than those in other regions of the country. The increase in the number of workers participating in 2011 halted the three-year decline from 2008-2010, leaving the percentage of workers participating in a retirement plan essentially unchanged from 2010, while some of the categories examined had increases in the probability of workers participating and others showed decreases. Many of the categories of workers remained near their 2009 levels of participation. The downturns in the economy and stock market in 2008 and into 2009 showed a two-year decline in both the number and percentage of workers participating in an employment-based retirement plan. The 2010 and 2011 levels stabilized as the economy was more stable but not experiencing strong growth. As things stand now, the current economic environment is likely to result in 2012 participation numbers that are essentially unchanged or decreasing, though many other underlying factors will continue to affect the future direction of this trend.
Past analysis using EBRI’s proprietary Retirement Security Projection Model® (RSPM) has found that roughly 44 percent of Baby Boomer and Gen X households are projected 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. However, that includes a wide range of personal circumstances, from individuals projected to run short by as little as a dollar to those projected to fall short by tens of thousands of dollars. This paper takes a closer look at where different types of people are likely to fall within the range of retirement income adequacy. Looking specifically at Gen X households (those born between 1965-1978, currently ages 34-47), EBRI’s RSPM analysis finds that (1) nearly one-half (49.1 percent) will have substantially more (at least 20 percent more) than the income threshold deemed adequate to afford basic retirement expenses and uninsured health care costs; (2) approximately one-third (31.4 percent) will be close to the threshold for retirement adequacy (between 80-120 percent) of the financial resources necessary to cover basic retirement expenses and uninsured health care costs; (3) about 1 in 5 (19.4 percent) are projected to be substantially below (less than 80 percent) of what is needed. EBRI also finds that a worker’s future years of eligibility in a defined contribution retirement plan makes a huge difference in his or her likelihood of having enough money to cover basic retirement expenses and uninsured health care costs. Among Gen Xer single females simulated to have no future years of defined-contribution-plan eligibility, nearly two-fifths (39 percent) are in the most vulnerable (less than 80 percent) category, although this shrinks to only 8 percent for those with 20 or more years of future eligibility in a defined contribution plan.
The PDF for the above title, published in the November 2012 issue of EBRI Notes, also contains the fulltext of another November 2012 EBRI Notes article abstracted on SSRN: “Self-Insured Health Plans: State Variation and Recent Trends by Firm Size.”
The Social Security Act currently provides secondary benefits to the wives or widows of covered workers who retire, become disabled, or die. To qualify, a woman must have been married to the worker for a short period and must be old (sixty-two, dropping to sixty in the case of a widow, fifty in the case of a disabled widow) or caring for children under sixteen. If a wife’s or widow’s primary retired-worker or disability benefits equal or exceed her secondary benefit entitlement, she receives only the primary benefits. However, if her secondary benefit amount is greater she receives both her primary benefit and enough of the secondary benefit to bring the total up to its level.
Men can also qualify for benefits based solely on their status as husband or widower of a worker; but spouse benefits go overwhelmingly to women.
No additional payroll tax is levied on the employee-spouse to cover spouse benefits nor do they constitute a shift in the payout pattern between spouses of a set amount of benefits. These are quite simply additional payments based on marriage.
Appended to Social Security in 1939 and dramatically liberalized since, spouse benefits represent a discrete and increasingly problematic feature of the program. At a time when analysts and politicians of nearly all persuasions agree that the long-term fiscal health of Social Security calls for legislative revision, one might expect serious proposals for spouse benefit reform, but so far that has not occurred. No doubt, that is because any prospective reduction in spouse benefits that promised to contribute to Social Security’s long-term fiscal balance would, standing alone, quite properly be perceived as having a negative impact on women. Costly, outdated, and inequitable, these marriage-based benefits may be, but unless supplanted by some less arbitrary way to connect Social Security to families and alternative measures to assure adequate retirement income for women they cannot be got rid of. On the other hand, any package of Social Security reforms that fails to rethink and revise the spouse-benefit provisions will miss a rare opportunity to improve the fairness and adequacy of the program’s benefits for women and run the risk of disadvantaging them as a group.
The article traces the history of the provisions governing entitlement to and the amount of spouse benefits, exploring why a program addition that seemed so attractive in the program’s early years has become a source of disturbing arbitrariness and inequity and how a measure specifically designed to improve retirement income for women has become less and less effective. The deficiencies of the present system are illuminated through comparison with alternative methods of connecting a family’s covered earnings with later benefits modeled on state marital property regimes and the law’s treatment of other forms of spousal retirement income. The article concludes with a survey of the challenges, administrative and political, that would confront any serious effort to pursue so dramatic a reform.
"Automatic Enrollment, Employee Compensation, and Retirement Security"
Center for Retirement Research at Boston College Working Paper No. 2012-25
This study uses restricted microdata from the National Compensation Survey to examine the impact of auto enrollment on employee compensation. By boosting plan participation, automatic enrollment likely increases employer costs when previously unenrolled workers receive matching retirement plan contributions. Our data show significant negative correlation between employer match rates and automatic enrollment provision. We find no evidence that total costs differ between firms with and without automatic enrollment, and no evidence that defined contribution costs crowd out other forms of compensation, suggesting that firms might be lowering their potential and/or default match rates enough to completely offset the higher costs of automatic enrollment without needing to reduce other compensation costs.
"Changing Sources of Income Among the Aged Population"
Center for Retirement Research at Boston College Working Paper No. 2012-27
This paper focuses on an explanation for the large shift over the past two decades in the composition of the income of the aged (65 ), increasing the role of earned income and reducing the importance of income from their own assets. We find that the pattern of change is consistently reported in all of the major household surveys. The increase in the importance of labor income can be attributed to delayed exit from the labor force by workers at older ages. We attribute the increase in work time to a rise in the proportion of more educated workers who choose to continue working, changes within the pension system that previously encouraged early retirement, and a decline in the availability of retiree health insurance. The increase in work time is concentrated among the highest income groups and those with the most education, suggesting that it is largely voluntary. The fall in asset income can be traced to lower interest rates and a reduced propensity for the aged to convert their wealth to annuities. It does not reflect reduced wealth at older ages. A measure of the annuity equivalent of their wealth holdings suggests that there has been no decline for aged units. We also find only a weak relationship between changes in asset income and the decision to remain in the workforce.
"An Insurer's Accountability for Variable Pension Annuity"
The IUP Journal of Applied Economics, Vol. XI, No. 4, pp. 60-71, October 2012
The purpose of this research is to investigate the insurer’s accountability effort associated with the sale of variable pension annuities. For the purpose of the study, a very simple model is built and two propositions are derived. The success probability of the investment exceeding a certain value is the necessary condition for selling the variable pension annuities. An increase in this success probability always increases the level of equilibrium pension premium, but not necessarily the level of equilibrium accountability effort.