Conclusions EBRI T-62 Potential Portability Portability Improvements Losses Act, distributions would not be permitted from port held poss aibility b bly yCredit def'med may , preser nPortability ot contribut vwork. e bene ion On fits, the plan imp oth srov has er e h in S aEP n cre d,s asm ed an an ddatory chelp onsiderably smal rolUovers employ overwould e the rs. past average, declined. Nonetheless, some, such as Pat Choat, suggest that PORTABILITY, PRESERVATION | i PORTABILITY, PRESERVATION any pension W Inha order t plan con to clexcept us de ion termi s as n can ea lifetime po betential drawn annuit benefit from y r(or es lo ess aequivalent r ech s iffin bene dinfi gs ts stream aa bre outsp oft eh nt e T 5 certainly he years third Afrom sbi preserve econd ll,29 the .9type P percent benefits ens of ion portabili of Port until trusteed abilit ty retirement. y is that funds Improv ofin ec But m redi 1 en 9t 82. t workers edAc Def se trvice. ( in H would ed .R. contribution 2 When 643 loseantd he changes taking place in the economy will require more flexible nee pa rather plans yd ments) for are than inc expected r saved, eased a p to or simulation c ta ontinue bility an to model dplay bene wa an fi AND tsincr p used rese easrv ing to atio constru n? role in c W t e financ examples liveia in l a world of the c S. flexibility redited 1349) ase lsrv o toiseeks cuse e is the tportable, oirim funds proveyears for pens oth io of er n sepurposes rv por icta e bic lredited ity,they preserve determine to one bplan enefi to ts ar be ean in d employment relationships in the future to maintain competitiveness. These AND markets. in economic which lump consequences sum-distrib of utio pens nsionalrp ea ortability. dy go to m The any following current wor gener kers al and m enc arguments thaintained eir ourb aest ge in S would even teres EPs.ts upon .A predi llHence, th job cr teeth cb hange. at Congress ills job hav tenure e For s must im instan ila will r decide cc be e, once shorter even r w ns. hetif her the E in ach th th employee e eseeks need future. to for has THE RETIREMENT INCOME SYSTEM as resum tirees. ptions Most are ofus these ed todan istr aliyze butioc ns ashouts are sm from all an def'med d are spen contribution t upon rece plan ipt. s. not ens higur hmet er e tretire hat the lvest u m m ent p in -sg um instandard, com die strib (be utio years itns for are of day-to-day psa articipation ved until living ret would iror emcrises en be t. carried An such d ea ach over s Jobs and Job Tenure THE RETIREMENT INCOME SYSTEM seeks to ensure that assets held until retirement are used for retirement A Workers lthough are job as tenu sum re edhas to n be ot first become hired shon ortea r,job pens wi io th n avp es en tin sion g stan atd age ards25 and in long-te to the rm next care)justify employer's restrict plan and ing would choice. count Thattow decision ard themay, employee's in turn, What Plans Are Provided7 Summary of Statement of The need for portability and preservation legislation is integrally The Prevalence of Lump-sum Distributions7 income. work have b each een r ye ed ar uce unt d il anag d e mor 65. e wor Theke em rs pcan loyeeexpect stays to with recethe ive flir ust mpem -sum ployer pension depend on on the the in next creasin job.g Multie prevalence mployer of lump-sum pension plans payments are often and used the future to EmilySS. tatement Andrewo s,f Ph.D related to the way the labor market functions. Benefits are more likely to While Neitherchanges career pattern in job tenure s nor the andpr mod ovisiio ficat n iof ons benin efits the ostruct perate urewithin of a distributions in the future. CurrentRese data arch in D d irec icat to er that defmed contribution for 5 years, then moves to a new job that lasts 10 years; the third job is also illustrate structure se ofrvthe ice ret portability. irement and Inhe this althcase, careemployees systems. may change jobs Emily S. Andrews, Ph.D be dissipated if workers change jobs many times over a career. American stati pension c environment. plans and plan Portabi provisions lity anwill d preservation substantiallyissues affectbecome future more benefit Employee Benefit Research Institute for plan10 s ar years e beco an min d g a fourth more jimportant ob lasts 15 both years. in numbers Assets ar an e dassumed in the asto sets grow theyat among Portability a number of participat of Values ing employers and continue to credit their Research Director PORTABILITY, PRESERVATION work paymen ersts,exhibit lump-sum many d patterns istributioof ns lifet atime retirement labor forc and e upon participation. job changeSom are e important as lump-sum distributions become more prevalent and are called 2121 K St. NW, Suite 600 a cora mm teand. of 7.5Def per inc ed ent.contribution Illustrationsplans werearc eomputed most likely forto four provide workelump-sum rs: (1) a service Just to their as re pension. cent portab Wi il th itydef' propo medsals benefi seek t pl to anpre s, when serve cr prere edited tirement service Employee Benefit Research Institute individuals have held their job Washing with the ton, sam DC e 200 com 37 pany for their entire ex uptr on emely to provide important a greater even fra today. ction Information of retirementonincome. current distributions An expansion in female clerical worker in the service sector; (2) a female professional in distributions upon job change. These facts AND suggest that portability will be is distributio not portable ns for acret ross irement, employe th rse, 1vested 986 Tax benefits ReformarA e ct frozen sought when to achieve (202) 775-6353 lifetime; in the future, others will to do the same. But many workers have provides baseline data to help understand the future. the role of lump-sum distributions can stem from the greater prevalence of retail of incre trade; asing (3) importance a male produ to tomo ctionrrow's worker retin irees. manufa But cturing; the aiman of d pension (4) a this employees goal bych im an pos geinjg obsa before 10-percent retirement. penalty tax Furthermore, on lump-sum nonvested distributions years many jobs. Women have more irregular careers than men and have defined contribution plans and from greater asset accumulation within What is Portability? THE RETIREMENT INCOME SYSTEM m policy ale profession is alwaysal the worker delivery in the of benefi financts ial ans d ecnot tor. thBenefi e policy ts were in andmade of itself. th ofat participation were not rolled yieldover no future into an benefit IRA.s It atis all. too early to determine the What is Portability Preretirement Distributions shorter job tenure. Nevertheless, certain overall career patterns have those plans. Lump-sum distributions could become a more common option Portability involves the transfer of pension benefits from one extent equiv Thus,alproje ent to Portability which ct toions those ith nvo of islworke v addition fu estur the e rstr retirement al an wisth fe tax r four ofhpensi asjobs in achieved o come n bene woulcan fi d tth s f re at rprovide o ce m go ive on ale . if pe The further they nsionthree had plain n si to been ghts. The problems inherent in proposing a system of service-credit important implications for portability. in definMan ed bene y worke fit prs lans. have For rec th eived e moment, or canthe expect expan to sion receiv ofedef prer inedetirement another. pension Th plan is test to imony another. focusesIfon all issem uespth loyees at relatespend to enhanc their ing ent their por e ta careers bility of cash covered on each job by a defined benefit plan typical to their industry and portability, current portabili however, ty propos are al evident s differ in in the the situation extent to of which the form they er Bell would keep distributions. In 1983, some 6.6 million workers said that they had contribution plans seems the more significant trend. distributions. Cash distributions are portable when directly transferred to the employee workingFuture for only Retirem one employer, ent Benefits portability would not be an issue. All occupation. th System. e decision After to divestiture, rollover funds thein Defi the cit han Redu ds of ction the employee. Act of 1984 required that re leac vin eived g th Lif e a sponsor eti distribution me ing Ecomp mploym an from y eor ntth tra en ir sferred pension direcpl tlyan to. another Close retirem to 85 enper t arra cent ngemen were t. pensions would be based on full-career service. Similarly, if pensions were Earlier work has shown that today's retirees have income that is service Th cre edits Portable be recPension ognized Plan for em Act ployee requ s ires moving employers amongtocom make panie ds irectof More Defined Contribution Plans for amoun The ts reof ason lessm th an an y $ employee 5,000. s How canthese expect preretirement to receive lump-sum cashouts were The IssuesBeing Addressed only paid through Social Security or State some meo nth toer f nationwide plan, benefits For Different Workers roughly equivalent to that of the rest of the population. Projections using a transfe the form rser to Bell portabili system. ty maintenance The 11 former accoun Bell ts, comp suchan as iesdefaffe ined cted contribution codified distributio used depended Thr ns ee bifrom llson introduc th prior e doll edjobs ar in Congr am is ount be ess cause over of th relatively th ee past distribution. two few yearsworkers arTwenty-six e intended have to improve The number of defined contribution plans has grown since 1974 would be fully portable between jobs, and all years of service would be Emily S. Andrews, Ph.D.* microsimul Theation typical mod four-job el indicate worker thatwith the baby pension boom cover can age expie sct entitled higher to th plans eir obligatio or IRAs. ns Def'med to their cemployees ontribution (as plan of s Dec do ember not have 31, to 1ac 983) ceptin a pension portability. In particular, the Pension Portability Act (H.R. 1961) seeks to l percent ifetime of emplo perso ym ns ent. receiv Min an gy preretirement younger worked rs istributions use their e worth arly years less th on anthe from an estimated 245,000 in 1974 to 606,000 in 1986. Over 70 percent credited by the plan. In our society, Research most Director employees change jobs and many levels of retirement income than current retirees. Couples can expect substa increase nti cover al pe age nsand ion imp benefits rove systat emretirement. portability andTh bene e clerical fit preserv worker ation bywould discouraging d do isc tributions ument known fromas oth th er e M plans, andatory however. Portability Defined Agreement. contribution It took plans nemust arly $5,000 used some for savings compared to 87 percent of persons receiving of joball for plexperi ans arm e entation, defined contribution changing jobs planbefore s. Defin thed ey fbenefit ind a career plans a th cat tually is, prer employers etirement supplement cash outs and the encou ir remployees' aging the use So of a cnnu ial ity Security provisions bene . fits through Employee Benefit Research Institute receive income of $25$,626 14,300 in benefits annually from from her pens pl ions an an and d thSocial e retail- Str ecurity. ade profession Single al one offeryear transfe for rsthe upon comjob panies termto ination resolvebut most def'of med the benefit major plans issues need related not.to distributions hopefully, both worth interesting more than and $20,000. financiallyOver rewar ha dlin f g. of all Other persons worke receiv rs make ing account for the majority of plan participants, however, since many defined employer-sponsored plans. Jobs and Job Tenure retire Th $106, e bil A. eslAc 8. m an ak Th es expe e it production ctmore $11,3 difficult 00 worker a year for . employees wo Much uld accrue of thes to ed $ir 5 in 2,90 ec co tly me 7 re from gain ceive shis cand anfour be crediting service and transferring assets. Since the agreement, concerns c job ashchanges outs in later the $5 on ,000 to take to $9adv ,999 antage range,ofspent, new opportunities. rather than saved, And,some of or contribution plans are pension and profit sharing plans sponsored by small In a pension system characterized by a diversity of benefits tailor- Benefits are more likely to be dissipated if workers change jobs many times over a attributed to the increased receipt of benefits from employer-sponsored j have obs an bed enthe raised profession about al rein cognition financial ofservi prior cesservi would ce, ret have iree$145,66 medica 4l (all in spend their preretirement distributions. Only SEPs and IRAs would be cou all rs ofe,thesome distribution. individualsThbecome us, a substanti unemployed al proportion or decide of to benefi leave ts th provided e labor employers,. Moreover, many participants in defined contribution plans career. American workers tend to hold 10 or 11jobs over a lifetime. Recently observed made to the specific industry, the company, and the work force, automatic 1987 dollars). These sums would only be available at retirement if pension plans and from higher benefit amounts from those plans. But the total allowed coverage to anmake d the dassumption irect particip of anunfunded t transfers.liabilities. Furtherm F ore urthe , the rmore, penalty tax by force declemployer-spo ines for inpe job rston enu al ns re, ored reaso howev ns er plans ., aIn re before en a t semi irelynal retire a result stu m dy, of ent cha Robert ar ng eesnever in th Hall e di translated stribut used iCe onnsus oin f to also are in def'med benefit plans. pension credit transfers are difficult to attain. One employer may have a accruals from each of the three e Hea arlier ring jobs befo were re thma e intained in the plan or pension replacement rate in retirement -- the ratio of pension and Social on adm preret inistration irementis c reported ashouts to would be costly be incre and ased time- from consu10 min to g. 20 percent Recognition as a of workers by age and sex. Thus, concerns about portability can be related to changes in plan data to show that both men and women typically hold 10 or 11 jobs over a retirement income. Furthermore, among workers who met ERISA The proportion of defined contribution plans has increased since the defined contribution plan and the other a defined benefit plan. Benefit and rolled over into an IRA (or other employer plan) and saved. If the provi Security sions ben and e efi xp tsectto ation pr seret about irement retirement earn inco ings me -- butwill not to ha actual ve fallen changes from in labo 49r force so further many in problems centive toinpreserve a favorable early situation pension may distributions have tempered until ret act ir ive ement. standar lifetime.ds By for age plan24, parti the cipation average in worker 1983, 21 willper have cent held of thth ose e fir entitled st 4 jobs to out enactment of ERISA but not necessarily as a direct result of that legislation. retirement provisions may vary considerably among plans, and plan stability. U.S. House of Representatives distributions were spent, the retirement income losses would be percent for the current generation of retirees to 45 percent for the baby- legislative The Pension interest Portabili inty thisIm ar provements ea. Act takes these provisions one step of current a total vested of 10. benef The itsnext and157 5 years percent willofcontribute those entitled anoth to erpas 4jobs. t vested Many believed that ERISA's changes -- including minimum funding contribution rates may differ as well. Wh cons at iderable. Plans AreTh Pr eovided femaleCommi clerical ttee worker on Ways could and lose Means $18,290 and the boom cohort. Part of this decline represents the realignment of Social further. Distributions would not be permitted from any pension plan benefi standards Consequently ts, re an po drtmost mthose andated employees benefi insur ts anc were will e not for recdef eived have ined vested orbenefit could in th be pl ea ir re nsc pla eived --n would s duri as a n result g The Define benefi d cont ts ribution of dive pla rs ns ityhavin e bpension ecome moprov re pre isvalent ions in include recent ye ret ars ir.ement As a result, Subcommittee on Oversight retail- Securitr ty ade Portability benprofession efits provided of al Values could by th lose e 19$ 83 75,Soci 740.al Th Secu e ri produ ty Amend ction me worker nts. in before retirement except in the form of an annuity. In other words, th in lump-sum eir a siearly gnificant dwork istribution. decrease years. in the number of def'med benefit plans. Contrary the share of defined benefit plans declined from 34.0 percent in 1976 to 28.6 percent in practices that directly enhance the productivity of the company and that are distributions would not be available before retirement. These rates are based on the assumption that workers will spend their manufacturing could lose $37,031 and the financial professional could give Portability of accrued current values (cash distributions) refers to 1986. Defined contribution plans also represent an increasing share of assets held in This hypothesis is reinforced by data on the proportions of wage and to expectations, the absolute number of defined benefit plans has grown appropriate to the financial status of the firm. In addition, differences in The Portable Pension Plan Act, which would continue to allow pr th up eer $103,462 c eash tirem val ent ueofd of is his tributio vested future ns bepension. nef jus its t . asDistributio th These ey do losses today. ns are arepeven ortable greater whenthd an irectly those private trusteed pension funds. Defined contribution plans held $410 billion of assets or Distributions at Retirement salary workers with 5 years or more on the job -- a rough proxy for every year (expect 1976 and 1984). According to EBRI's plan-count pension plan provisions can better meet the needs of different workers for Tuesday July 12, 1988 workers would forego if they had spent distributions from comparable tran 34.4sferred percent of toththe e totemployee al. If cash dileav stribu in tg ions the from spo th ns ese oring plans care ompany spent before or tran retsferred irement, preretirement lump-sum distributions if the penalty tax were paid, requires vest statis in ti gcs, Current sta def ndards ined retbenefit ir after ees ta are x plans less reform. gr likely ew Only at toan have 7.3 aver percent re ag ce eived annu oflal um worke rate p-sum rs of under 5.6 age benefits will be lost. their own retirement income. The cost of this diversity, however, is the Better Benefits with Preservation de def fin ined ed benefit contribution plans.plAccrued ans to accept benefits rollove from rs def from ined othbenefit er plans. plans Byare directly to another retirement arrangement. The f'wst situation is by far distributions than future retirees. Defined contribution plans were less per 25 c had ent 5 between or more 1years 976 an of d tenure 1986. in But, 198 as 3. a Th propo is figure rtion of incre allas pl ed ans, toth 3e 7 relative benefit loss that may take place for employees who switch plans. the most common. The Prevalence of Lump-Sum Distributions contr weighted ast, If p th tow ortability e ar Portable ds later leg Pension is years lationwhen Plan weredef Ae ct n in acted ed requ benefit irth esatthe ens plans U.S. ured have G th ener at f'mal p al rerepay tirement sh percent prev are alent of of def than those inedthag benefit eye ar 25 e to today plan 35s an fell (or d c ar 5 ont .4 e in p lier k ued ely centage to incr be eas p in in oints g the gr future). over adually the sa Most som that e Close Whiletoth 8e 5 percent basic cof ona cep ll preret t ofirem a fully ent dis portable tributionspens rece ion ived by is ework asy e to rs from a formulas. Cash distributions are most often associated with distributions from distributions were saved until retirement, replacement rates would be Accounting Office to study ways for def'med contribution plans to accept ret over irees 75 received percent of pension all nonf benefi arm ts worke in th rse ag form e 55 ofto an59 annui ended ty. up And with many 5 or period from 34.0 percent to 28.6 percent of all plans. pension plan were for amounts of less than $5,000. Only twenty-six percent of persons understand, it is considerably more complex to categorize the ways in rollovers. Of course, gains or losses in defined contribution plans depend upon def high ine ed r. c Th ontribution e gains wou plans ld de but pend may upon apply how to portab certain ility defin w ed as e benefit nsured,plans be itas more receivi employe n years g Wh rs pril er reg e et on ithe r ar emen th ded eshift job. t def dist tow in rThese ibu ed ards tiocontribution nsfigures def forin leed ss th de benefit am np onstrate $5,000 lanspl as used ansav swhy h so in as m gs e m not for an plans y been savi worke nnot g. consistent as L rsump- an can which our diversified system fails to meet full portability. To do so, the the actual yield of the investments. Individuals can do better or worse than well. through Most voluntary defined in cc ontribution entives or m plans andatory distribute rollovvested ers. Whil benefi e ts no in data theare form sum distributions at retirement were quite common among workers retiring in 1982. in in count tegr eveal ry onp ye pe art ar ns ,of ion other ret benefi irement eviden ts at cinc e ret ome sugges irement. securi ts that ty Th . ey it None represen alsothsuggest eless, ts a even long-run that ma amn ong ytrend. components of portability can be described in terms of: (1) vesting; (2) Preservation the market. Yet potential losses of over 70 percent of benefits represent a of c Am urr a on e cas nt g th lh yose lavailabl um ret p-s iree um e s, ne on dar isly ltribution, um 10 p-s percent um or d of isa tributions "ll cash men out with_pensi upon from onjob sec coondary ver ch age ange reported pl and ans,ata workers will accumulate pensions from more than one job. The issue is workers retiring in 1982, lump-sum distributions at retirement were quite Many employers have added defined contribution plans as secondary plans, credited service; and (3) accrued current values (cash distributions). receiving a lump-sum distribution from their last job. The median value of that distribution substantial fraction of retirement income for these illustrative workers. A second concern is to ensure that retirement benefits are available 1985 study conducted by the U.S. General Accounting Office suggested that retirement. If preretirement cash outs are invested, the funds will continue whether these benefits will be maintained until retirement. an common. d many employe Among rs those are ret now irees, restne ruct aruring ly 10 per thec ir ent benefi of al tsl men to prep withare pension for was $20,000. to earn a market return until retirement, which, on average, would be for savin ret gs irement plans could income. significantly Just as preret raise irement replacement distributions rates in may retirebe ment. spent th coverage e baby boom's from any retirement. job they worked Employe on rs reported have found receiv that ing younger a lump-sum workers PotentialVesting Portability Losses For Small Distributions That study presented calculations based on information from five different roughly for current equiv consumption alent to what at the retirement, employeelum would p-sumhave retirre ement ceiveddis from tributions the Trends in Job Tenure distribution from the primary plan on their last job. The median value of of baby boom age react favorably to def'med contribution plans because A simulation model was used to construct examples of the economic consequences Benefit portability is enhanced when vesting schedules are shorter. Many early cash outs are for sums of less than $3,500. This may organbe izations. spent ear Th lye in sturet dy irement indicated redu that cing forret employees irement inwho comeret in irelater at age 65 plan at retirement. A loss in retirement benefits occurs if the distribution that retirement Some aredin istribution terested in was augment $20,000. ing pAno ension ther portab 4 perc ilent ity of beca mal use e of the th ofey job cchan an ge seeon an peimmediate nsion entitlement. current Onecas exh amp val leue. indica In ted addition, that if a typi em cal ploye manufact rs uring Employees who leave company plans without meeting vesting standards represen with 20 ts years the of valcre ue dited of accrued servicebenefi and ts a $20,000 that employe salary rs, r can, eplac at ement their rates vulnerable from the plan years. is usThis ed for con cu crr ern ent dovetails expenditures with ra other ther equi than ty bein issues g saved related and to worker spent distributions from 3 out of 4 jobs, that worker could lose $37,000 out of beneficiaries covered by a pension plan received a lump-sum benefit from re perc alize eption that that definwork ed cers ontribution now chanp gle ans job ar semor no e longer freque simp ntlylytha an n extra they used forfeit all benefits that would have been earned had they stayed on the job. are d abo Th iscretion, ue about t vie $53ws ,000 55 distribute ex in p pre e re rcent ts irem sed efor nt to inben employees this tho ese fis ts ta .wi temen Many th who no tearly pa ar ch e rticipation c an s ao sge h lel outs y jobs. tho are se in fFor oa of r le supple tss in he stance, than au mtho $3,5 entr a a 00 land ll. th thrift If e a in spvested. ousal benefi This ts.portabi The lRet ity irloss ement has Equity been the Act foof cus19 of 84reexp cent anded congression ERISA al by to. U.S. Census Bureau data do indicate that the average job tenure of emol the prim ument. ary pl Th an e benefit on their buildups longest job are (o too ther great thananth d eth ire las baby t job). boom's The Em hypo pth loyees etical em chp an loging yee rec jobs eives after distribmeet utionin s g of exa vest ctin lyg$3,5 standards 00 at each ar ofethree entitled job changes to cash should outs not calc beul a ated ttributed in the toclerical the Employee worker Benefit exampleRese are arless ch Institute than $3,, 500. its If requiring in plterest. an, overThis th 65 at per testimony spoce usnt es for exp fo th licitly cus ose es wi sign-off on th is5 sues 0-pe on rc that ebenefit ntrelate participation dto istributio enhancing ns andmade 78 the in median value of that distribution was $10,000. working men fell between 1963 and 1987 from 5.7 years to 5.0 years. But retirement is too costly. Thus, defmed contribution plans are becoming an (indexed for inflation), the total value of these cashouts would be $21,000. unforfeitable pension rights. The 1986 Tax Reform Act (TRA) radically aofficers, hypothetical trustees, employee sponsoreceived rs,or other distributions staff. of exactly $3,500 at each job p per other ortability cent than forth of th eose ajcc oint rued with and c aurrent survivor full 6-p val erues. ce form. nt c(ERISA ontribution made to the a supplem joint and ental plan. almost all of this decline was a result of the changing age distribution of the integral Lp um art p-sum of retir distribution ement income amoun planning. ts received To th by e extent women thfrom at cas the h ir Conclusions changed vesting standards for employees covered by single-employer, Th chan us, ge,supplemental and that sum pla were ns have indexed the potentia for inflation, l to repla thecetotal preret valir ue ement of those survivor annuity the normal option for married couples.) Concern about work force. Among prime-age working men age 25 to 34, job tenure d primary istributio pe nsnsion from plans thesewere plans coar nse iderably spent before lowerret anir dement, their re retirement cipiency rates The aim of pension policy is the delivery of benefits. Thus projections of future private-sector, defined benefit plans. Such changes, effective in plans years cash earnin ou gsts at atrates age 65 in l would ine with be ret $21,2 irement 54 (in inco 1987 me doll goal ar ss)such under as those a 7.5 put percent the form of distribution was motivated by evidence that widows usually benefits will be lost incr retir eas ement ed incom from e c 3a .5 n pro years vide in fur1963 ther ins to igh 3 t.7 into years the issin ue of 19txl 87. rtab Tenur ility. U e sifor ng simul menation higher The Issues than those Being of A men. ddressed? Nearly 15 percent of all women with pension beginning after December 31, 1988 will essentially reduce the earlier in forw *terest Emily ard assumption. S. by An thedr C earter ws is If Pension Research the $3,5C 00 ommission. Difigure rector were of thenot Emindexed ployee B for enein fit flation, Research have significantly lower income than married couples. Recent concerns techniques, the baby boom can expect higher levels of retirement income than current c 35 over -44agav e Three er on aged an bill y 7. sre 6int port yrodu ears ed ced in jobbo in re thcC eived y ongre ears.ss a Men lum inp1987 ag sum e 4 are 5 dis to tribution. int 5e 4nd av ed erage to An d im other p 11.4 rove 4 Employee Retirement Income Security Act's (ERISA) 10-year vesting re the tire veal s.ue Butof thth e to ose tal p$3, ens5 ion 00 replac uninedexed ment rate cash in ret outs irement would -- the still ratio reach of pens $ion 15,766 and Institute Portabili (EBRty I). le EBR gislation, I is a nin onp part, rofitin , ten nonpa ds r to tisan ensur ,pu e th bli at c preretirement policy research are, in part, motivated by the knowledge that older retirees often have The Assets in Defined Contribution Plans years on the job in 1963 and 12.3 years in 1987. Job tenure for women p per ension cent of portabili women ty. covered The first, by a thpens e Pe ion nsion rep Portabili orted re ty ceiv A in ct g (H.R. a lump-sum 1962 and standard to a 5-year vesting provision. Five-year vesting will affect both Social Security benefits to preretirement earnings -- will have fallen from 49 to 45 percent lower institute. income than recent retirees. distributions are saved for retirement. Such rollovers frequently stem (in 1987 dollars) by the time the person reached age 65. In other words, increased overall with gains particularly noticeable among women 35 years d S. istribution 944) seeksfrom to incr the easp erima cover ry ag pension e and pl im an prove on thp eortab ir longest ility through job; that a new Defined contribution plans represent an increasing portion of assets by the time the baby boom retires. If portability legislation were enacted, replacement rates defined benefit and defined contribution plans, although defined small from d cash istributio outsns would from bese worth condary a sizable definedpercenta contribution ge of, for plans instance, . These the Under the Pension Portability Act, joint and survivor distributions of dist coul age r dibution bean higher. d old only e Th r.eraver e Th are us ag ,tra ed obs de-offs $2,000. erved betw deen eclin diff es erent in job porta teb niure lity proposa are ent lsire , how ly ea ver. in typall e of private retirement trusteed plan pension and throu fun gh ds. changes Accordin in g Sim to p EBRI lified da Employee ta from the contribution plans typically had shorter vesting schedules even prior to full $25,633 cash value of pension benefits that a female clerical worker supplements may have the potential to increase replacement rates beyond would be required for SEPs and portable pension plans. Annuity payments Voluntary incentives may not work. Mandatory roUoverswould preserve benefits but Pe result nsions of Thcese (SEPs). hanges figures in It th also unde e distribution see rreks portto us the eofp pension rev work alen ers crollovers e by ofage luman p to -sum dimp sex. rove distributions, Women system Quarterly Pension Investment Report (QPIR), total assets in trusteed TRA. Projections indicate that because of 5-year vesting, over 70 percent wo wor ul kers d receive would losat e th ret e ir fle ement. xibility toIt use wo th ul ed ir funds also represent for other pua rpo signific ses. Thu ans, t the policy those currently forecast. There are trade-offs between the different would be provided unless specifically waived by the participant and the have shorter tenure than men and younger workers have shorter tenure however, as they only report distributions from primary plans and not pension portability funds andam benefit ountedprese to $1. rvation. 2 billion Thby e pthe ropos end al of was th ,e in firp st art, quarter a of of the baby-boom cohort will have pension income at retirement from decision may depend on the increasing prevalence of lump-sum payments and on the future proportion portability proposa of the $52,937 ls, howebenefit ver. On (in the 1987 one dollars) hand, littl accrued e is kno by wna m about ale the participant's spouse. Under the Portable Pension Plan Act, the normal than older workers. In view of this evidence, portability may be of re from 19in 88. trodu se Def condary ctin ion ed of contribution plans. the 19Furthe 85 Ret plrm ir ans ement ore, held how U.S.A. $410 retbillion irees propos spof end al.those Th the eirapension sse distributions ts or 34.4 structure of the retirement and health care systems. employer-sponsored pension plans. effi production cacy of fu worker rther voluntary who held four incentives. jobs between The Ta ag xes Refo 25rm andA6 ct 5's . 10-percent benefit option would be a stream of payments for life unless another form increas is not ing report con ed.cern due to changes in plan provision and societal p per ortability cent of the act tot was al. als Def o in reintrodu ed benefit ced pl inan 1s988 accounted (H.R.1961). for 55.2 Theper seccond ent of bill, of surc distribution harge on ca were sh ourequested ts has yet by to be both eval spouse uated.s. Voluntary Under the in Pension centives trusted the expectations Portable fund Pe assets about nsionan red tire Plan multiemployer ment Act income (H.IL 199 but pl 2) an not s seeks for becaus to 10.3 en e p c job er our cent. ag sta ebili pe Th tyns eion h sh asar , eon EMPLOYEE BENEFIT RESEARCH INSTITUTE 2121 K Street, NW / Suite 600 / Washington, DC 20037-2121 8 4 6 7 Telephone 202-659-0670 FAX3 2 9 202-775-6312