f 15 512 13 89 EBRI CONTENTS II I0 STATEMENT 14 Section Pa_e Ta NOTES ble 3 Table 1 COSTS TO EMPLOYERS OF CONTINUED ACCRUALS 33.1 provisi PLAN percent PRO onsVISoION fin SERISA 1960 FOR th Pto OST at16.3 -a65 llowEpercent MPempl LOYMoy ENT ers Tab in l1984. e to2exclude A recent employees study by hired thewithin INTRODU However, CTION if individuals value their pensions correctly, they willi retire T-51 INTRODUCTION hig p inc that ensi rh eer aseonthe cobsts ene fADEA ully .fitsAmendments In reflm ecath ts yesbe e estimat q thudid eitesho enim so rtt epo r alter rpensi tape nt rioondexisting tocow tsts hoerkers pare arti ERISA cipant aff estimated eprovisions cted dby rawstothe b ballowing e enef legisl ne its,arlyatio the n two Fears can lose from 4 percent to 23 percent of the present value of Percent of Lifetime Pension Benefits 1 See Phillip L.Estim Rones, ated "UsEffe ing cttheof CPost PS t-o65trac Pensi k o retirement n Accruals trends among Full-time Participants in Private Pension PLAN PROVISIONS FOR POST-65 EMPLOYMENT 3 Department five years of of Labor the plan's has shown normalthat retirement men born age. in each successive year between when the present value of their pensions is at its highest. By this argument, increasing f pemployers ou artici r pant times to as the receives freeze high present for pension thedis workers same counted accruals lifetime age v65 alue after to beof n69 efitslifetime the as they plan's (the are be same nefits normal forpresent those by retirement 15age discou to n50 4ted 5 age, to accrued lifetime benefits compared to normal retirement unless the benefits Lost Due to Delaying Retirement 1985 older men," PlMonthly ans by LPabor rovision Review, for 1985, Servicepp.Credit 46-49. After Age 65, until Age 67 and 70 2 As reported in the May 1983 EBRI/Health and Human Services Current in Medium and Large Firms, 1984 EMPLOYMENT AND PARTICIPATION: THE EFFECT OF POST-65 ACCRUALS 4 those 1903Within Since and who 1923 have the a fr have present anot mework had retired value lower in whi atof clabor hthpension amtanyforce point maybenefits be must participation still have differs working somerates other according at at careason reer practically to to Post-65 pension accruals primarily are an issue for defined benefit and valueMr. ofChairman, benefits) my atname the is delayed Emily retirement Andrews. Iage am as research at the director normal retireme at the nt 49 are pwhich e.rcent 3actuarially P.is ension frequently Thosecosts adj recuesifor tset ved ingemployees at topost-65 age make65. upacc agefor These ruals 65delayed toprovisions would 69, retirement. inhcav luding e were theirpost-65 intended reti An remployee ement acc toruals income under Alternative Plan Provisions Population Survey pension supplement. Statement on I 3Provision The primary methodological differences are in the estimated Percent number of Participants of Older Workers a PARTICIPANT LOSSES AT LATER RETIREMENT AGES 6 every employment, targetagebenefit from how55 p many riva tote older 74.pension Among workers pmen lans. would bornInbein defined affected 1903, benefit 11.9 by percent standards plans,were the to no require employer continue retirementtheir age,employment. pension accruals They may for particularly employees continuing enjoy their to work work after or they agemay 65 Employee and enhanced actuarially Benefit when theequi Research y left valentthInstitute ebenefit labor for in (EBRI). ccreases, e. Some I are am worpleased kmore ers might thanto 20 appear decpercent ide before to higher retire a_e encourage even though employers that to retiree hire 's and exp retain ected older life span workers. will be Employees shorter. under In other 18 delaying retirement for five years can lose from I0 percent to up to half the ABe at Retirement participants affected by the provision and the percentage of salary needed Pension Accruals for Older Workers Plan Pcovision 67 70 to fund the pension. More participants were assumed in our first estimate No adjustment 5_O0 longer continued COSTS Tin O EMPLOYERS the pension laboraccruals Oforce F CONTINUED byonage theA60. CC worker's RUALS Among 65th men born birthday? 20 years Outlater, of an928.4 estimated agrees to provide a specified monthly benefit at retirement which is usually receive will notother necessarily benefitsincrease which offset employers' the decre pension ased costs value compared of their to pensions. the costsIf this than Subcommittee those needed during for workits ers consideration age 60 to 65.of Assuming pension accruals defined band enefit the plan older at words Fears later , of theages age partici and be pc aa ntuse those of does working this notbenefit fewer lose any than indu ofc1,000 ement the . asset hours The value in impa any ctofyear of thecontinued also pensiondo not value of pension benefits accrued at age 65 in present value terms because of at lower Affecte per parti d cworkers ipant costs. Pension deferred with no change in amount 49 Before the United States Senate Lifetime Pension Benefits Lost 4 See EBRI Issue Brief #39 (February 1985) for an analysis of the effects of Pension begins at age 65 I percent 365,000 CONCLUSIONS nonfarm were no pl longer an parti Committee working cipantsby on age in Labor the 60.and priThe vHuman ateaverage seResources ctor age in of 1985, workers 182,000 i0 are worker. tied to the employee's earnings and length of service. A target benefit plan continued they wouldpension have incurred accrualshadchange the worker the ageretired at which at the age present 65. Of value course,ofmany a contri ccruals butions for paofrti5cular to I0 wor perkcer ent s woofuldearnings, depend onestimated salary, aycetuarial ars of secosts rvice,for annuity. have to be Legislation included in currently the firm'sbeinpension g proposed plan. would credit service to those the shorter payout period expected at later retirement ages. (Percent) the Retirement Equity Act. Participants 182,000 Subcommittee on Aging Pe NOTES nsion adjusted actuarially 12 _6 receiving likely to Social be in Entitled plans Security that to benefits benefits do not chas urrently declined 151,000 accrue substantially benefits past since 65 the economists is a defined suggest contrithat butionpension plan plans in whicare h contributions specifically are designed scaledwith to meet that a pension benefits peaks, more older workers can be expected to stay on the job. numbEBRI er ofwasyears formed working in 1978 afteas r no a rnonprofit, mal retirement nonpartisan, age and the public particular policy 1 working 985 After range pastthe from normal Equal $638 retirement Employment million to age Opportunity $I.3butbillion would Cormnissions (ta notble require 2). (EEOC) that be assumed nefits be The participant's losses are lowest in terms of the present value of Benefits frozen at age 65 19 to 23 41 to 47 Pension deferred only 5 Hearings on Pension Accrual and Pension deferred and all service credited b 1 the Older TABLESWorker beginning (table 2).ofOfthethese, program. only In 151,000 1940, are men entitled were first to benefits. awarded Social This Security relatively result specified in mind retirement in orderbenefit. to encourage Post-65 retirement benefit aat ccruals normal are retirement not usuall age. y an Unanticipated later retirement would reduce the pension costs to employers. research pro actuar visions iThese ally organization costs of adjusted the could planto to .be ensure conduct While less int that hresearch epraccost ti their ce.ofand discou thAbout is educ ntedlegislation ational 55 per value cent programs. bemaof yequal be defined hig or EBRI h better for is lifetime _urisdictionbenefits over if thethe administration plan credits of both ADEA, additional it started servito ce review and salar ally DOL Additional service credited only 14 to 19 30 to 41 Service credited to maximum age or service a October 17, 1985 Illustrative Estimates of Annual Costs b retirement small group benefits would beahelped t an aver by(mililons age post-65 age ofof acc68 dollars ru.a8ls . )ByThose 1980,whotheareaver paarti gecip age ating of Tab issue le Ifor Full-time other defined Participants contribution in Privaplans te Pension in whichPlafuture ns by benefits are But Post-65 to that employer accruals receivedcostsrequire atfor normal other increased retirement. benefitsemployer may bepension higher costs for older for workers. those employees For committed bsome enefitemplo plans by yerscharter are who integrated emplo to the y apremise large with per Sothat cial centage the Security; nation of workcis eontributions rsserved age 65inand social forover older ,andon a in interpretations creases in determining of the Act. the amount In earlyof 1985, the pension the EEOCbenefit approved(tabdraft le 3). This is Additional service and salary Credit for service with no actuarial increase 45 Provision for Service Credit After Age 65 in Medium and increases credited 4 to 8 I0 to 18 Pension deferred and increased by percent award for men was reduced to 63.9 years.of but have not qualified for vested benefits are unlikely to be affected since working instance, determined past Large nowbynormal that Fir thems,em TEFRA retirement, plo 19y8ers 4requires annual howe that vcer, ontributions ancompared employer's , to health the pensions plan bethat 13primary would to economic nationwide workers While eterms arning half basis, by ofbelthe using all ow existence the partici the pSoc ants hial ighof est Seemployee ciu nor rity medium lowest taxa benefit and ble of our large maximum programs. estimates firmswould, receive Webe additional are smaaware some ller. type what. regulations the EEOCthat and would proposed require post-65 continued pension pension accrual contributions, legislation would and hence do. for each additional year of service c 2 At average annual cost ofc Emily S. Andrews Benefits actuarially adjusted 0 0 All service credited b 25 be the Table paid most (_le 2Among without half pre Estimated valent of allcontinued defined workers Effe vesting ct benefit 65 of accruals. standard years Post-65 Research plan ofunder Pension age parti Director and acipants defined Acc over ruals(in in ,benefit cmedium luding 1985 plan and the is large 14lO-year firms Medicare costs arepayments, minimal. employer-provided health insurance costs and benefits are that of pension there may adjustme be ntlimits forto pwhat ost-65 can empand loymeshould nt, many be provided elderly are and em that ployedchanges by O£he larger r plans monthlylimitretirement the numberbenefits, of years forof employees credited service who work allowed beyond and normal may have Proposed legislation does not demand that benefits be made actuarially "fair," Service credited to maximum age 17 Employee Benefit Research Institute $3,500 per participant $638 Service credited to maximum years of Table 3 Percent of Lifetime Pension Benefits Lost Due to self-employed), cliff vesting. only Those 1.2 whomillion are not persons vested worked at age 1,000 65 arehours quite orunlikely more during ever the to are It covcould ered bbe y plans arguedwhich that requirements offer some type to of continue provision pension for post-65 accruals ser for vice, greater for older workers. In addition, life insurance costs are likely to be in n smaller uaximum the Becsystem aubenefit firms. se relati mayNearly provisions be velynecessary few 28. percent emplo These toyees ensure ofpractices em are ployees benefit affecwould ted 65adequacy. and sin also ce older tend mostConsequently, partici to older plower atingworkcosts. ersEBRI in a retirement age. that is, that retirees sustain no losses in present value terms no matter Source:service EBRI calculations based on data presented in "Equal Employmenta Delaying Retirement until Age 67 and 70 under $7,000 per participant $1,276 Opportunity Commission Staff Analysis on Proposal to Require Pension Alternative Plan Provisions 15 year meet whether and a lO-ye had in athe rworked vform esting aof t stand least credits ard. one for yearpost-65 for their servicurrent ce, actuarial employer. adjustments In general, to additional service simply reduce the size of the employer windfall. higher for workers past 65. Consequently, if post-65 accruals are made undertakes ha pensio ve nretired planstudies by are age employed and 65,provides it bycould firms statistics be with argued fewer so that that thantheinformed 100 legislation employees decisions ought compared can to be be to Even theirLegislation given retirement these has provisos, age.alsoIf been servi contributions cproposed e and salary tofor amend post-65 increases the ADEA accruals aretocredited, require could total post-65 the Accrual After Normal Retirement Age," Daily Labor Reporter, June 27, Source: EBRI tabulations based on U.S. Department of Labor, Bureau of Labor 1984. Statistics, Employee Benefits in Medium and Larse Fivms_ 1984, 1985, ERISAOutrequires of 2.9 million that an workers employee 65 whoyears meetsofthese age and criteria over, and considerably is more than lessfive Alternati the benefit vely, earned it canatberetirement argued ,thatorthe bothemployer (table does I). About not recei 45 vper e caent windfall, of all mandatory, younger workers could argue that older workers are receiving more made $I evaluated billion upon the primaril in assessment 1985y orfrom onlyof a about cdocumented ivil rights 1.5 percent costs perspecti and of vbenefits. the e. $65Nevbillion ertheless, in pension the nearly accruals.18 perce On ntAprilof 4, those 1984 unRepresentative der age 65. Older Mario workers Biaggi are (D-NY) also introduced more likely employee retiring at age 67 loses only 4 to 8 percent of the present value of p. 53. years than I0younger percentthawould n thebenefit plan's normal from post-65 retirement accruaage ls. musOut t beofin25.2 cluded million in the SOURCE: but thanthat their EBRI thefair estimates reduction share ofin based compens pension onaMay tion. costs 1983just More EBRI/compensates likely, HHS CPS employers Pension the employer Supplement could ease for and the the plans surveyed credit post-65 service (although they make no actuarial My conunents are set within this framework. They should not be construed contributions secondar tolegislation be employed y effects which made by of smaller would bypost private-sector require -65 firmsaccruals than post-65 employers you could nger accruals; lead workers into 1983. newa (64 de legislation crease Whether percent in to additional the with 39 salaries accrued benefits, however, while the employee retiring at age 70 loses only I0 a Less than 0.5 percent. The viewsestimates expressed ofinactthis uarial statement costs from are Anna solelyM.those Rappapof orttheandauthor Malcolm and M. b Credit computed under the plan's regular benefit formula. persons age 65 and over, less than I percent would benefit. In sum, a very should higher pension not costs Morrison, planbeof ifattributed one other theisbenefits Costs offered. to the of Employing orEmployee for theBenefit Older reduced Workers Research productivity (Washington, Institute, of theD.its Colder .: pressure adjustmentof to other ensure benefit thatcosts the present for anyvalue particular of benefits older re worker ceivedbyovreducing er acontributions of s endorsing some workers any would oparticular ver beage made 65.policy by Salar any to yparticular redu encourage ctionsplan or would discourage wouldprobdepend ablypension beuponimplemented how plan additional provisions regarding plan participation provisions for older percent) although they are nearly as likely to be covered by a plan. A lack to 18 percent compared to the present value of benefits that would have been c Credit computed by a method that is not part of the plan's regular officers, trustees, sponsors, or other staff. The Employee Benefit Research Employee Benefit Research Institute and U.S. Senate Special Committee benefit formula. smallElderly percentemployees age of thewith popul pension ation 6cover 5 years age and oftenolder appeais r to likely be working to be affe forcted Institute workers. accruals retirementfor In iswill older aanynonprofit, bcase, eworkers. theabstracting same nonpartisan, for later frompublic retirement plan practices, policyagesresearch evemployer en though organization. costs lifefor the salary on Aging, share of 1984). compensation. As long as such adjustments are possible, retirement of throug workers informatio h was redu n ages cintroduced ed about were salary the factored in byc preases revale Representative nin ce at before of salar post-65 accruals yBiaggi revieaccruals won were time. Junerequired amo II, Furt ng1985. hethese rand more,whether In smaller if the received had retirement taken place at the plan's normal retirement age. by their continuing career employer. pension accru Most alsolder primarily workersbecause worked the formaj their oritycurrent of workers employer added accruals for those retiring past normal retirement age can be calculated the expeeffect ctanciesof are continued shorteraccru forals those on who the compensation retire later).package Host or parti oncipants employment incenti Theves issuetowards of whether later employer-sponsored retirement found in pension the 1983 plans Social should Secube rityrequired addition, on July hi 1985 Senator Charles E. Grassley (R-IA) introduced plan actuarial Withosut will constudy tin aff ued ectindicated accru the aals, ccuracy that these o retirement f ou losses r estimates are age mushould choflarger. the be ext treated ent todifferently which Emily S. Andrews earned her Ph.D. in economics from the University of more retirethawell n three before years theyandrea80 ch percent that age. worked Since forthis theiriscurrent the case, employer the keyfor under Pennsylvseveral ania. reasonable Before joining assumptions EBRI shetoheld produce policya range research of cost positions estimates at the on a cannot receivebecredits fully evaluated. for all years Nevertheless, of service or thefor employment service to effects a maximum are not age and aAccording to continuetopension the Bureau contributions of Labor Statistics beyond normal one-half retirement of all age plans hascredit received Amendments were eventually ratified by private sector initiatives which also parti after legislation cipants post-65 toreaccruals camend eive cthe ontinuing were ADEArequired. toacc ensure ruals. Actual continuedollar pension contributions accruals under would both If the plan credits only additional service and not salary increases, the Social Security Administration and the U.S. Department of Labor. service after age 65 but without an actuarial increase so benefits do not nationwide more statistical than five basis issue years. assuming appears Thisthat tolatter bethe thegroup late effect retirees isof most suchcontinue likely accruato lstobeonretire continuing the income at thewith of likely to be large given the tendency towards earlier and earlier retirement. number of years. Seventeen percent of participants receive credits only to a increase increasing after attention age 65. over Estimates the pastof two those years. affected Afterby the post-65 passage benefit of the 1978 en defined couragedbenefit later and retirem defined ent for contribution workers inplans. the baby boom, the number of probably not have to be increased for plans that never anticipated anyone participant's losses can range from 14 to 19 percent of present value of accruals are equal to 50% of the imputed number of all private sector same the the future sexpected ame employer retirees age. they affeworked cted, on for lbefore abor forage ce p65. articip Those ation, who have and on worked the firms less For instance, studies have show that even the recent 1983 Social Security specified maximum age or years of service. A small number receive credits nonagricultural Age EMPLOY Discrimination MENT ANDwage PARTin Iand CIPATION: Employment salary workers THE ActEFFE (ADEA) participating CT OFinPOST-65 1978, and which ACCRUALS entitled prevented to mandatory I plan to discuss four topics in my testimony today: working acc persons rued past benefits receivnormal ing retiring post retirement -65 accruals at ageage. 67,could and 30 increase to 41 o percent ver theretiring next 20 to at 40 age 70 retirement benefits under a pension plan in 1983. These figures are brought pro than based viding fivon e aye these adifferent rs benefits for their benefit . current formula. employer are likely to have changed jobs at EBRI's October 1984 Issue Brief provided an estimate of post-65 accrual provisions will not have much affect on retirement ages. retirement before age 70, the Department of Labor (DOL) was directed to issue forward to 1985 by assuming a i0.0 percent gain in employment for older years. In its debates over this issue, Congress will have to balance the compared to retirement at age 65. Losses are greatest in present value terms workerso over Howthe pension figuresplans for currently 1983. treat post-65 accruals; or after age 65. Those changing jobs at or near retirement would not be costs About under 5the percassumptions ent of planthat partithe cipants average recei wage ve for actuariall elderly y workers adjusted ispensions just bDoes comprehensive CONCLUSIONS not includeinterpretation administrativeof costs. the ADEA Amendments with respect to employee advantages Whate o How vertomany the older size workers workers of firm wouldfrom pro benefit vriding equiring from employment, acrequiring cruals against we post-65 know that these accruals; relati potential vely if benefits are frozen at age 65 with no service credits and no actuarial o How much workers may lose without continued accruals; CDerived from Appendix Exhibits A-l, A-6, and A-II, Anna M. Rappaport and PARTICIPANT LOSSES AT LATER RETIREMENT AGES affected by pending federal or legislative proposals, which provide pension under $14,000 and that the average pension costs is about 8 percent of at delayed retirement. These adjustments increase the participant's pension benefit o plans. What areInthe May nationwide 1979 the Labor costs Dep ofartment continuedissued accruals. a bulletin stating Malcolm few disadelderl vantages. M. Morrison, y choose EBRIthe tois work Costs currentl after of yEmploying age developing 65, and Older that a monograph Workers this proportion (Washington, on older has workD.C.: ers been adjustments. In this instance the participant can lose 19 to 23 percent of Employee Benefit Research Institute and U.S. Senate Special Committee on accruals only for continuing employees. Those changing jobs at or near payroll. This provides a minimum accrual cost of $280 million per year. EBRI payments so that the present value of the benefit at normal retirement age is Aging, whi decclining hCompared 1984). we will steadily Based toshare theon sin with 1984 capproxim e Retirement you Social aupon teSecurity pension completion. Equitywas costs Act, enafor cpost-65 tedparticipants 50 years accrualsago.aged benefit The65 labor to fewer total benefits retiring at age 67 and 41 to 47 percent retiring at age 70 69 in defined benefit plans earning between $I0,000 and $25,000 with employer 4 retirement Depending could on the stillplan's be excluded provisions, from parti an employee cipation delaying in the pl retirement an under the for estimates presented in The ChanKinK Profile of Pensions in America indicate the same as the value of the benefit at delayed retirement. If the actuarial contributions workers force parti at cpotentially ipation of 5 percent ratehigher and of men i0additional percent 65 and oof ver contrib total hasution declined salarycosts. costs. considerably, Dollar Increasedfrom compared to the present value of benefits . EMPLOYEE BENEFIT RESEARCH INSTITUTE values equal the number of participants affected times the per-participant 2121 K Street, NV_7/Suite 860 _Washington, DC 20037-212l/Te|ephone (202) 659-0670 cost.