PENSION PORTABILITY EBRI _ Dislfibulions are about55 L_percent e_ne _ forthosewithnoparticipation I ina supplemental i thriftplan,over 65 percentforthose workers all seeks plan to s, .use the Th In e vi share pens e 1w 986 of ion of Tax thro defined isR ll evidenc overs eform benefit to Act eim ,porta (T prove p R lans A) bilradica syste ity fell m5 ay .m 4 lly be portab perc ch of anged e increasing ntage ilityvesti an points d pre nconcern gstan se over rve dthe ards bdue ene sa fto o fits m rc e e .h mp pe anges Plorta riod oyees fb in rom ility p clovered an wou 34. provision 0ld be by assumedto be first hiredon ajob witha pensionat age 25 andworkeach year untilage 65. Assetswere C==:klsimts AFTERTEI_INATION OF EMf_OYMB_ single enhanced -employer Many if preretirement workers ,private-sector, have distributions rec defin eived ed are or benefit can saved expect plans. until to re Such receive tirement, changes, preretirement and ifeffectiv assets distributions. e held in plans untilyears retiIn rement 1 beginning 983, are some with a a pe nd ssu rcent societal 5med 0-pe to to The rcent 28.6 grow expectations reason pa pe arcent rtici t a rat many pati oe fabout on o all femployees and 7.5 plans re pe 78 tircent .rement percent can . Illustra income expect for those tions to butwith receive were nota because computed full lump-sum 6-pe job rcent for sdistributions ta fcontrib our bility different has, ution on from to wo average, arkers. prior supplemen jobs declined is tal . Statement of We liveina worldinwhichlumpsum-distributions alreadygo to manycurrentworkersand retirees. EmilyS. Andrews,Ph.D. usedfor retirementincome. ForDifferentWolta_s plan. a 6.6 fter million Decem Thus, work supple ber ers 31,said m 1en 988 that tawill lplans th ess eyhave had entially th rec ereduce e potential ivedathe distribution to earlier replace Employ from prere their ti ee rement Retiremen pension earnplan. ings tIncome at Clos raS te e es curi to in85 line type Act's with rcent Nonetheless, becauserelatively While some, thefew shi such workers ft towards as Pathave Choat, defined lifetime suggest bene employment. fitthat plans changes has Many notta been king younger consistent place work inthe ers ineconomy every usetheir yea will early r, orequire thyears er evidence more on ResearchDirector Mostof these distributions are smallandare spent uponreceipt. Althoughjob tenure hasnot become EmployeeBenefit Research Institute were re (ERISA) tirem for ent 10 amounts income -year vesting o goals f less such s th ta an nda as $5, rd th 000 to ose a . 5-year put How forwa thes vesting e rdpreretirement byprovision. the Cartercashouts Through Pensionthat Com were legisl m used ission. ation depe ,more nded workers on the dollar will fsugges the lexible job femployment ts orth The The experimenta at tit 1 ypical 986 represen Tax rela four-job ti Re tion, onships ts fa orm ch work long-run anging Act in er th (TR with e jobs trend. future Apension )be first fo Many to sought re m th coverage ae ey in mta ploy to find in maintain comp a eirs s ca entitl have e reer titivene pre ed add tha re to ttirement ed ss is, substan defin .The hope se ed distributions fti ully, al arguments contribution pe both nsion interes be by would plans nefits imposing ting predict at as and a shorter,pensionvestingstandardshave been reducedandmoreworkerscan expect to receivelump-sum th a be mount at entitled jobtenure ofPortability th to epensions distribution. will belegislation, short upon e Only rjob inth in change. 26 epart fpe uture. rc , in ent tends of pe torsons ensure receiving that preretire preretirement mentdistributions distributions areworth saved less forthan retire seconda financially 10-pe m rcent ent. ryrewarding. plans, pe A c nalty leria ca nd tax lwork many Other oner lump-sum employers wo workers uld rec distributions make e aive re now job $25,626 ch restructuring th anges ain t were bene latenot frits th on eir roll and tobe take ed a nefits over readvan tail-tr in toto a prepare ta an de ge pro IRA. offnew e for ss It ional is th opportunities. e too baby $early 106,4 boom's to 48. A distributions inthe future. Currentdata indicatethat defined contribution plansare becomingmore whacm_ $5, rde etiterm 000 rement. ine used Wh th Such e some en ext crrollovers e ent for dit to e sa d which vings. se fr rvi equently ce th Over is isaddition port s hal tem ab fle offro ,aye all ltax m ars pe dist has rsons ofributions achiev service receed iving fro credit thm at ca secondary e goal. sh d to outs one The in pla defin Portable thn eare $5 ed ,000 mai co Pension ntribution n to tai $9,999 ned Plan eplans. ve range, Act n upon produc retirement. And,of tcourse, ion work Employers er some would individuals ha accrue ve found $52,9 become tha07 t younger a unemployed nd a pro workers fess or ion o decide fa ba lin by fin to boom ancial leave age services the react labor wo favorably force uld have forto pe $1 defin rsonal 45,664 ed (allin _kttt Pl=rmAle Pmuklled? importantbothin numbersand inthe assetsthey command. Defined contributionplansare mostlikelyto Portabilityinvolvesthe transferof pensionbenefits PORTA from BIone LITY pensionplan to another. If all Thes job would s 1987 pechange. nt, e dollars). allow supplements rather preretirement For than instanc sa m vay ed e,,have so lump-sum even me th or if ethe all poten distributions o employee f th tie alto distribution. inc hia rfeas s thnot eepe re m Thus, nalty pla et cem the tax a substantial ent vwe esting ra rete paid s stand beyond b proportion ut ard, would those years require ofcurrently of benefits participation defined fo provid recast. ed cont reaso ribution ns. Inplans a semin because alstudy, they Robert can see Hallused an imm Census ediate da current ta to show cashth va at lue. both Inaddition, menandwomen employers typire caa lly lize hold providelump-sum Neithercar distributions eer patterns upo nor njob thechange. provision Thes of be enefits facts suggest operatewithin that portability a static environment. will be of increasing TERMINATIONOF EMPLOYIJENT employeesspendtheir entirecareersworkingfor onlyoneemployer,portability would notbe an issue. All On co would byntribution employer thebe one carded hand, plans -spoover nsored to little accept into is plans known the rollovers next bef ao bo employer reut retirement from the efficacy other 's pla are plans. n and of never further would translated volunta count tow into ryin ard retirement cethe ntives. emplVolun inco oyee' m stary e. peFurthermore, n in sion centives onthe th 10 at or defin 11jobs ed Thes co over ntribution esums a lifetime. would plans By only are age be no 24, alonger vath ilable e average simply at reti an rement wo extra rkeriwill emolu f pension have meheld a nt ccrua . The the ls be first fro ne m fo fit ea ur buildups ch jobs ofout the are o three ftoo a tota earlier gre l o aft Portability importance and to tomorrow preservati 's on retirees. issuesbecome BUtsincmore ethe aim important of pensio as lump-sum npolicyisdistr the delivery ibutionso become f benefits, more pensionswould be basedonfull-careerservice. Similarly,if pensionswere onlypaidthroughSocial A secondconcem isto ensurethat retirementbenefitsare availablefor retirementincome. Justas m next among ay job. not work work. Multiemployer ersOn who the met oth pen ERISA er hand, sionst plans m andards andatory are often forrollovers plan used participation to wo illustr uld pre ate in se service 1983, rve be 21 portability nefits percent until .ore fHowever, thos tirem ee entitled ntb the utwo torkers jo and 10 bs . The th we ere ba next main by boom's 15 ta years inedretireme in will theco plan ntribut ntor is too roll ean costly. ed oover therfo Thus, into ur jobs. an defined IRA Consequently (orcont other ribution employer most plans e plan) ma ployees reand becoming swill aved not . an Ifhave the integral vested projections of futureretirementincomecan providefurtherinsights. prevalentandare called uponto providea greaterfractionof retirementincome. Anexpansioninthe role of Securityorsomeothernationwideplan,benefitswould be fullyportablebetweenjobs,and allyearsof distrib wo current recognition prere inth uld eir tilose ut rement plans vest ions th of e w e du d th distributions eflexibility be re ri eng nefits many spe their nt, and problems to th early u e m se 57 re ay work ti th pe be rement eir involved rcent sfu years. pent nds in offcom or for th in ose current iother e mple losses entitl m purposes co enting ed would nsumption to pa servi be th stey vest co ce-credit ansiderable. de t retirement, e te drmine bepo nerta fto its, The bi be lu lity re m in po cleri p-sum has th rteir th ca tem ose retirement be lwork pe st be red in er nefits te co ares cti uld we v ts e.re partof retirementincomeplanning.To the extent that cashdistributions fromthese plansare spent before F-ulu_ Re_ BeheSts lump-sumdistributions can stemfromthe greaterprevalence of definedcontributionplansand from greater Statementof service wouldbe creditedby the plan. Inour society,mostemployeeschangejobs and manyemployers legislationinthis area. Hence, distributions receiv retireme ed Co nt or ngress ,retireme could maymust be bent s receiv pent be decide nefits ea edrly as whether will in abe retirement lum lost p th -sum e need distribution. reducing for highe retirement rretireme inco nt income mein lajustifies tervulnerable restricting years choice. . This lose$18,29 This 0 and hyp the oth retail-trade esisis reinfo pro rced fessional by data co on uld thlose e proportions $75,740. o The f wage proand ducti salary onwork work er in ers manu withfa five cturing years EmilyS. Andrews,Ph.D.* Earlierwork has shownthat today'sretireeshave incomethat is roughlyequivalentto that of the assetaccumulationwithinthose plans. Lump-sumdistributions couldbecomea morecommonoptionin Research Director supplementtheir employees'SocialSecurity benefitsthroughemployer-sponsoredplans. _at_ EmployeeBenefit ResearchInstitute The Amets kt Defined Conln'bulimt Plans That concem decdovetails ision Portability may, the inoturn, fRe accru tirement deed pend current Equity onthvalues e Aincreasing ct of (1984 cashp wh distributions) reich valence requires of re lu th fm ers at p-sum bo toth the s pa po cash yuses ments value agree andothe fin vest writing futu ed re to co oruld more lose on$37, the job 031-and a rough the financial proxyfopro r ves feting ssional standards couldgive after up tax $1re 03,462. form. Only Poten 7.3 tiape llosses rcento off over workers 70 under defined restof the bene population fitplans. .For Projections the moment, using tha e micr expansion osimula oftion defined model contribution indicatethat plans the baby seem boom s the m can ore expect In a pensionsystem characterizedby a diversityol=benefitstailor-madeto the specificindustry, pe stru be any rce nefits. ct be nt ure ne offof Distributions Current Defin it be distrib the nefits ed reti contribution ut retirees repre rem ions are ent in se and o are po nt thrtable a er less plans health substan thalikely when nrepresent the catia re to joint directly lfsystems. have rac and an tion tr received increasing su ans ofrv retirement fivor erred lump-sum form. portion to the income Concern employee o distributions f assets for athese bout leaving inthe all th illustrative an pfri o th va rm future ete s opo ftrusteed distribution work nsoring retirees. ers. pension was age 25 hadfive ormoreyearsof tenurein 1983. Thisfigureincreasedto 37 percentof those age 25to 35 signifi highercant levels trend. of retirementincomethan currentretirees. Muchof these incomegainscan be attributedto Headng before the the company,andthe workforce, automaticpensioncredittransfersare difficultto attain. One employer ForSmal _ fco Defined mo unds. m tipa vated ny Acco co or by ntribution trans rd evidence ingfto erred plans EBRI tha directly t data we wid refow to rom less s another usu the prevalent aOuar lly re have titer rement th _an significantly Pensi tharrangement. ey onare Inv today lower estment (or income The are Rep first likely or thsitua an t (QPIR), to marr ti be on in ied is total th couples. by e ffuture) ar asse thets .Recent min Most ost andcontinuedincreasinggraduallyso that over 75percentof all nonfarmworkers age 55 to 59 ended up Mo_ De.ted Conldbulicm Plans the increasedreceiptof benefits fromemployer-sponsoredplansand from higherbenefitamounts from United States Senate FinanceCommittee may have a definedcontributionplanandthe other a defined benefitplan. Benefit and retirementprovisions common. with trust co reti ncerns rees five eed rec pe or Many are nsion more eiv also ed early years pe fu m nds nsion otivated caon sh amounted be the outs nefits by job. a th re e to in Thes fknowl or $ th1e sums .2 e form figures billion edge oof fth less an by at demonstra th annuity. older tha e end n re $3o ti ,5 And rees te f 00 th why e . many o first This fmany tenquart represen have employers work elower rers of 1 ts ca 988. reg the in nco co a value rded me De unt fthan in defin on o ed f a pe co younger ccrued ed nsion ntribution SubcommitteeonTaxationandDebt Management thoseplans. TheBut num the betotal rof defined pension cont repla ribution cement plans rate has in grown retirement since - th 1974 e rafti rom o ofan pees nsion timated and Social 245,000 Se in curity 1974 mayvary considerablyamongplans,and plancontributionratesmaydifferas well. retirees. plans be contribution nefits held at Cash $410 re plans tirement distributions billion as savings .o They f those are al plans so assets m sugg ost not o es or fas ten t34.4 tha aassociated nt int many pee rcent gral work part owith f ers th of edistrib wi tota retire ll accu l. m ut Defin e ions m ntul income ed from ate benefit pe defin nsions security plans edco from ntribution .accounted None more ththan ele plans for ss one ,55.2 but benefitsthat employerscan, at theirdiscretion,distributeto employeeswhochangejobs. Allthe cash outs to be6 ne 06, fits 000 to preretirement in 1986. Overeami 70 percent ngs - will of all have plans fallen arefd rom efined 49 pe contribution rcentfor th plans. e current Defined generation benefit ofplans retireesto Tuesday July 12, 1988 The benefitsof diversityin pensionprovisionsincluderetirementpracticesthat directlyenhance job. The issueis whether these benefitswill be maintaineduntilretirement. ca percent may even lculated apply among ofUnder in to trust work th ce ertain ethe cler d ers fund Pension defin ica retiring a lwork ss ed ets er be in Portability and 1982, ne exfit amultiemployer mple plans lump-sum Act, are as joint less well. distributions a th pl nd M an ans os su $3 tfrv or defin ,5 ivor 00 10 at ..3 ed distrib retirement Ipe fcontribution arc hypothe e ut nt. ions The were wo tic plans uld share aquite lemployee be distribute held required comby m received on. defin vest for Among SEPs ed ed th and ose a 45 ctually perce account nt forthe for bab the y-boom majority cohort. of plan Th participants, eserates are however, basedon since the assump manyde tifined onthat contribution workers will plans spend are their the productivityof the company and that are appropriateto the financialstatusof the firm. In addition, Tmndlsin,JobTetture distributions po contribution be reti nefits rtable rees,in nearly peth nsion o plans effe orm 10 xa plans has ctly pe ofrcent a increased $3 .cash Annuity ,5 o 00 f all lu at m men pa e considerably p a-yments ch sum with job distr pe change, wo nsion ibution, uld over be co and th or verage provid e"ca th pa at sh stsum ed ffive rom out unless " were years any upojob specifi n index job from thchange ey ed 29.9 ca worked flly orwaiv pe infl and rcen ati on ed at on, tre by reti oth fpo the trust re erttota m e pa d e ereceiving nt rtici ed l value . fu Ifpant nds of pe prere nsion tirement and profit distributions sharingplans just as sponsored they do today. by smallemployers. Moreover,manyparticipantsindefined differencesinpensionplanprovisionscan better meetthe needs ofdifferentworkers for their own a and preretirement lump-sum the partici distribution ca pa sh nt's outs spou fare rom se invested, th . e primary the plan funds onwi thll eir co last ntinue job.to The earn ma edian mark value et return of th until at re retire tirement ment,which, th inose 1982. cash Defined Some outsare at contribution age interested 65would plans inbe augmenting $ a21 re,expected 254 (in pension 1987 to continue dollars) portability to under play becau aan 7.5 se increasing percent of the percep inrol terest ein tion financial ass that ump work tima on. ers rkIe fnow the ts. Belter Be_ wilh P_ contributionplansalso are indefinedbenefit plans. retirementincome. The cost of this diversity,however,is the relativebenefit lossthat may take place for distribution was $20,000. Another 4 percentof male beneficiariescovered by a pensionplanreceiveda $3 on chang ,5 average, 00efigure jobswould more werefbe requently not roughly indexed th equiv an forth infl a ey lent ati used on, to wh th to. e atvalue U.S. the employ Ce ofthos nsus ee eBure $ wo 3,5 uld a 00 uhav da unindex ta edo receiv indi eded ca cate fsh rom th outs at thth ewo e plan average uld at stillreach job JobsandJob Tenure The _ The If port pro of ability po Lump-aura rtion legisla of defined ti D on mw ln el_ co re l_ ntr enact ns ibution ed that plans ensured has increased that prere sin tire cem thent e enactment distributions ofwe ERIS re saved Abut not until employeeswhoswitchplans. lump-sumbenefit fromthe primary planontheir longestjob (otherthantheir lastjob). The medianvalueof $ te retirement 15 nure ,766 of(in wo .1 A rking 98 loss 7 dollars) men inretirement fell by be the tween time bene 1th 963 fits e pe occurs and rson 1987 reach ifth from e distr ed5. age 7 ibution y65 ears . fIn ro too m 5. th 0 the er yea wo plan rs rds, . is Bsmall ut used alm cash fos ortcur all outs o rent f this would decbe line necess retirement, arily While The replacement asneed achanges direct forresult portability ra in te job so wo fte th uld nure at and be legisla pres ahigher. nd modi e tirva on.ti The fMany on ications legisla gains believ in wo ti the on uld ed is structure th de integrally atpe ERISA's ndof upo re pe lat n changes nsion how edto portability plans the - way including and the was plan labor ensured, minimum provisions market Typesof _ that distributionwas $10,000. expendituresratherthan beingsaved and invested. This portabilitylosshas beenthe focus of recent wo was rth aa result sizable of th pe erc changing entageof, age for distribution instance,the of the fullwork $25,633 force ca . sh Among value prime of pension -agework benefits ing men thaage t a fem 25 to ale 34, will ffbe unding unctions. itsubstantially through stand Benefits volun ards affect and ta are rymandat in fmore uture centilik ves be ed e ne insuran ly or fit to ma pa be nd ymen dissi ce atory for pa tsdefin rollovers. ,te lump difed work -be sum ne While ers distributions fitchange plans noda - ta jobs wo are at uld many retirement currently resu times lt inavailable a and over signifi upon a career ca on job nt lump-sum dec change . rease The views expressedinthis statementare solelythoseof the authorandshouldnotbe attributedto the EmployeeBenefit Research Institute,its officers,trustees, sponsors,or otherstaff. Whilethe basicconcept of a fully portable pensioniseasy to understand,it is considerablymore congressional job clerte ica nure lworker incre interest. wo ased uldfreceive rom This 3.5tat e years sretirement. timony in 1foc 963 us to Itewo s 3.on 7 uld yea iss also rs ues in represent that 1987. rela Tenure te a signifi to enhancing forca men ntproportion 35-44 the po averag rtability of thed e $5 o 7f.6 2,937 ay ccrued ears Potm_ Pedat_tyLoeaes in distributions A ame re thextremely eric number an work from o im ers f defined po seconda exhibit rtanteven be many ry ne plans, today. fitpa plans. tta erns In 1985 Contrary forma of li study fetime tion to on co expe labo nducted curre rc force tations, ntdistributions by pa th rtici th ee U.S. pa absol tion. General provides utSome enum Accoun ba be individuals se roline f defined ting da Offi ta have to ce be help held nefit complexto categorizethe waysinwhich our diversifiedsystemfails to meetfull portability.To doso, the currentvalues. *Emily S. Andrews is ResearchDirectorof the EmployeeBenefit ResearchInstitute(EBRI). EBRI is a be in both nefityears. (in 1987 Men dollars) age 45 accrued to 54 averag bya male ed 11 production .4 years work onther e job whin o held 1963 four and jo 1bs 2.3 between years inages 1987. 25 Job and tenure 65. understandthe future. suggested In tho at rdsa ervings to detplans ermine could potesigni ntialbe ficant nefit lylosses raise repla if benefits cement are rates spein ntretirement. rather thansav That ed study , a simulation th plans eir job has with grown the same every com yearpa (expect nyfortheir 1976 enti and re1 li984). fetime Acco ;inthrd e ing future, to EBRI's others plan-cou willto dont th statis e sam tie. cs,defined But many nonprofit,nonpartisan,publicpolicyresearchinstitute. componentsof portabilitycan be describedinterms of: (1) vesting; (2) creditedservice; and (3)accrued for womenincreasedoverallwithgainsparticularlynoticeableamongwomen35 yearsof age andolder. pre model sent was edca used lcula totions construct basedexa on in mples formation of thefrom economic five different conseqorganizations. uencesof pension Theportability. studyindica The ted fth ollowing at for bene worke fit rsplans havegr many ew at jo an bsaverage . Women annua havelm rate ore of irregular 5.6 percent careers between than m 19 e7 n6 and and have 1986. shorter But, as joba tepro nure. portion of currentvalues ThePension (cashdistributions) PortabilityAct .Current (H.R. 1po 96rtability 1) seeks proposals to increase only co co verage nsider an thd e improve first third po com rtability ponents. Thus,observeddeclinesinjobtenureare entirelya resultof changesinthe distributionof workers by age employ Neve general rtheless, ee assumptions swho ce retire rtainwe at overall re age used 65 cawith reer to analyz 2 pa 0tterns yea ers cashouts have of credit im from po edrtant se drvi efin im ce ed pli and cati contribution aons $20 for ,000 po plans. sa rtability. lary,Workers replacement wererates througha newtype of retirementplanandthroughchangesinSimplifiedEmployeePensions(SEPs). It also and sex. Womenhave shortertenurethan menand youngerworkers have shortertenurethan older EMPLOYEE BENEFIT RESEARCH INSTITUTE 2121 K Street, NW / Suite 600 / Washington, DC 20037-2121 Telephone 202-659-0670 FAX 202-775-6312 1 4 5 90