This Issue Brief examines why policymakers are concerned about the trend toward early retirement and how it relates to Social Security, Medicare, and employee health and retirement benefits. It reviews the rationale for the effects of economic incentives on early retirement decisions and includes a summary of empirical literature on the retirement process. It presents data on how employee benefits influence workers' expected retirement patterns. Finally, it examines the implications of public policies to reverse early-retirement trends and raise the eligibility age for Social Security and Medicare.
Behind the various proposals for privatizing Social Security, in whole or in part, is one seductive assumption. By investing their savings individually in financial markets, rather than collectively relying on the Social Security system, workers supposedly will get a greater return. This premise is the basis of the proposals by two factions of the Social Security Advisory Council for government-mandated individual savings. It seems a reasonable belief, particularly given the stock market's stellar growth in recent years.But it turns out the claim is based on inconsistent assumptions about economic growth and stock market returns. The Social Security Advisory Council's own projections of growth are far too pessimistic to justify the projections for the stock market. An accurate comparison of all the costs and returns of private savings plans with the costs and returns of the existing Social Security system shows that a mandated savings plan, in which retirees invested their money individually, would simply not generate higher retirement income than the present Social Security system.
America is engaged in difficult and complex policy debates over critical issues. There are conflicting claims and disagreements over the meaning of the facts and figures relating to health care, poverty, tax reform, Social Security, and block grants. The Twentieth Century Fund hopes to help clarify these issues by collecting the best available information and presenting it in a series of pamphlets called "The Basics."The intent of this series is in keeping with the Fund's mandate. Since 1919, the Twentieth Century Fund has sponsored and supervised research on economic, social, and political issues. As a nonpartisan, but not neutral organization, our underlying philosophy regards government as an instrument, not an enemy, of the people, and therefore we strive, in the words of our bylaws, for the "improvement of economic, industrial, civic, cultural, and educational conditions."
The Pension Benefit Guaranty Corporation (PBGC) today announced the availability of a new publication, Pension Insurance Data Book 1996, which tracks the experience of the single-employer pension insurance program and the defined benefit pension plans it protects."This useful reference tool can contribute to informed analyses that can help ensure a sound pension system and protect the retirement income of America's working men and women," said PBGC Executive Director David M. Strauss.
The data book supplements the PBGC Annual Report to Congress by presenting more detailed statistics on the single-employer insurance program, the larger of PBGC's two insurance programs, which covers about 33 million participants in 48,000 defined benefit pension plans.
The publication provides data on the pension plans insured by PBGC's single-employer program and the underfunded pension plans that were terminated and are now the responsibility of PBGC.
Here's a link to the Pension Insurance Data Book 1996, in PDF format. (Requires Adobe Acrobat to view.)
By Albert B. Crenshaw
Washington Post Staff Writer
Thursday, August 7, 1997; Page E01
The Washington Post
The future of the pension system for United Parcel Service workers is a major sticking point in the dispute between the package carrier and the Teamsters.UPS wants to withdraw from the Teamsters' multi-employer fund and substitute a single-employer fund run by the company. For the union, the issue extends beyond its UPS members. It involves the union's ability to continue to provide pension benefits for all its members through the multi-employer system it now operates.
For the company, it is an opportunity to take advantage of the special characteristics of its work force -- which is on average much younger and, among part-timers at least, has much higher turnover than other Teamster units -- to cut costs and perhaps drive a wedge between UPS workers and the rest of the union.
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Pursuant to a congressional request, GAO responded to a series of questions about federal pension costs and retirement policy, focusing on: (1) the number of federal retirees, if any, whose pensions have come to exceed the final salaries that they earned while working; (2) why these retirees' pensions came to exceed their final salaries; (3) the difference, if any, in these retirees' pension amounts if current cost-of-living-adjustment (COLA) policy that is, the COLA policy enacted in 1984, which established the formula and schedule used today by the office of Personnel Management (OPM), had been in effect without interruption since 1962; and (4) any difference in the number of retirees whose pensions would have exceeded their final salaries.GAO noted that: (1) an estimated 459,000 (or about 27 percent) of the 1.7 million retirees who were on the federal pension rolls as of October 1, 1995, were receiving pensions that had come to exceed their final salaries when these salaries were not adjusted for inflation; (2) however, when their salaries were adjusted for inflation --i.e., expressed in constant dollars, no retiree was receiving a pension that was larger than his or her final salary; (3) as a general rule, using constant dollars provides a more meaningful way to compare monetary values across time, because the use of constant dollars corrects for the effects of inflation or deflation; (4) although no retiree's pension exceeded his or her final salary in constant dollar terms, GAO's analysis confirmed that three factors played an important role in explaining why the retirees' pensions came to exceed their unadjusted final salaries: the number and size of COLAs that retirees received, the number of years that they had been retired, and the number of years of their federal service; (5) GAO's analysis of the effects that COLA policies have had on retiree pensions suggests that the policies have played an important role in maintaining the purchasing power of retiree pensions since automatic COLAs began; (6) it also suggests that the effects COLA policies actually have had on retiree pension amounts cannot be summarized easily because of numerous changes that have been made in COLA policies over the past 35 years; (7) COLA policy changes have affected individual retirees differently, depending on when their retirements began; (8) if current COLA policy, that is, the policy that was enacted in 1984, had been in effect without interruption since automatic COLAs began in 1962 the pensions of some of the sample retirees would have been smaller than the pension that they actually received, and the pensions of other retirees would have been larger; (9) GAO's comparison of the effects of current and historical COLA policy on pension amounts suggests that other factors being equal, a majority of those who retired before 1970 would have received smaller pensions had current COLA policy been continuously in effect during their retirement, and about 90 percent of those who retired after 1970 would have received larger pensions; and (10) the changes that would have occurred in the sample retirees' pension amounts under current policy were enough to cause about a 3 percentage point (3.0) increase in the number of retirees whose pensions would have come to exceed their unadjusted final salaries.
State and local retirement systems currently manage in excess of $1 trillion in assets for the benefit of participants and beneficiaries. The well-known federal law regulating the management of retirement funds, the Employee Retirement Income Security Act (ERISA), does not apply to these systems. ERISA 3(32), 4(b), 29 U.S.C. 1002(32), 1003(b) (1994). Instead, the systems are regulated by law in each State. That law varies considerably across States and has often failed to keep pace with modern investment practices. The Management of Public Employee Retirement Systems Act (MPERS Act) will modernize, clarify, and make uniform the rules governing the management of public retirement systems.
The Commission was created by President Clinton to "advise the President on changes occurring in the health care system and recommend such measures as may be necessary to promote and assure health care quality and value, and protect consumers and workers in the health care system."The Commission is comprised of 32 members, selected from the private sector. Members include representatives of consumers, institutional health care providers, health care professionals, other health care workers, health care insurers, health care purchasers, State and local government representatives, and experts in health care quality, financing, and administration. The Commission is Co-Chaired by the Secretary of Health and Human Services, Donna E. Shalala, and the Secretary of Labor, Alexis M. Herman.
The President has asked the Commission to develop a "Consumer Bill of Rights" in health care and to provide him with recommendations to enforce those rights at the Federal, State, and local level. The Commission's final report is due to the President by March 30, 1998.