_9 17 21 !6 31 2O 22 9 27 26 33 TABLE I0 o Table 2 Table 6 tl rl 8 34 12 14 13 23 2ii 25 ._ • (f Contents 4I0 15 24 718 28 THE DISTRIBUTION u OF COVERED o AND NONCOVERED WORKERS 5 30 32 4e. Should these provisions be designed to encourage exclusively 32 Full Statement Table 4 ID /,4 Fourth, employer-provided pensions now provide benefit accruals to over accomplished a great deal in terms Suomm f ary the economic security of our retired EBRI 2c. TABLE What i9: s the EMPLOYMENT, desirable COVERAGE "mix" forAND theFUTURE variousBENEFIT sources?ENTITLEMENT INTHE"NEAR-ERISA" WORKFORCE plansDoes areretirement this reportcost ed income to variation incresecurity, ase make savings aortax are bypolicy other at leadifference? sgoals t 35 equally percent.The answer The Congress will 4b. 4and capital employer-sponsored (see c. Are allocation AWhat the Chart recent tpension hgains. were eyI). acreport hthe as ieving If income current In current this retirement from other thorose does sethe salary income goa words, to not Social lsincome $899. rather change, ctax urrently? the Security code The and than then system pension provisions caleaving pit Administration pension alisincome accumulation it efficient coverage concerning inwas the indicates greater isplan. given qualified nearly programs than that our as 3real employees--82 d. $The 2,000 Ho(i.e., wHow 60 cloMuch se (plus percent inflation-adjusted) percent toof$that 250 Pension-Related replacement of le fovrel nonfarm aofnonearning adeq target value private uTax ate Deferrals ofnoted ret employees spouse) taxes irement above deferred is onare security Lost is a pre covered; gener to during tax the aally re Treasury? bwe in athe sis, viewed tod unionized pension ay? as TABLE 8: EMPLOYMENT, COVERAGE AND VESTING: .,J schedules, The Workers nation with without should the coverage average strive for who vesting awere retirement period on thebeing income job less six system years. than that a year Most provides account publica AGES 25 THROUGH 64 LWORKING i000 H_URS i OR MORE BEFORE AND AFTER THE RECESSION, MAY 1983 AND MAY 1979 important? Introduction DISTRIBUTION BY EARNINGS FOR NONAGRICULTURAL TABLE ii E_ p 7opulation. 0 percent of EBRI full-timeisBY _Lnow SELECTED workers. in the Table CHARACTERISTICS, process They 7 doof" itMAY publishing with 1983 a tax a deferral; major study not titled a tax Mr. Chairmen, Z _it is _ a pleasure _ _ to _ appear _ before you today, and I commend Social Security provides a floor of income protection for retirees. At Summary i must be yesdetermine if employee how benefits important were this tocapit be asubjected l formationto income is to tax the or economy. FICA tax.It high existed the new progressive AProfit asset beneficiaries asnumber in itincome, sharing 1950 can taxofever with structure. which have different plans be accumulated more added expected generally supplementation types $539to assets per pay ofclimb. month. plans benefits of $12. of The h7aSocial veUnited asbillion. adeveloped Taxes lump Security Kingdom, sum. Thesin particip atProfit cfor e allexample, 1921 ation income to pension participants' firms--82 We withare plans, investment percent at cash working thatofand elevel aworkers rnings career deferred (inreceiving areis terms arrangements, covered; ultimately oftathe x among deferred targets etc., repaid thosedesigned treatment. set 45-64 as by income years to the do? During Pres tax ofident's age--65 during reasonable reasonable, employer for 9.7 percent pension enough Was plans long oflevel WAGE theas usenoncovered, AND ofthere five-year income SALARYisto WORKERS, vesting. and aretirees, minimum those MAYwho 1983 at payment usually an age program worked which is less such deemed than as Percent receiving retirement benefits other 4f. How does this system of tax incentives for qualified pension 34 Method Used Covered Distri- Taxes LostWorkers Deferred Distri- Chairman Pickle and Chairman Jones, I think it especially appropriate The exemption. ChanKingThe And Profile Usethey of of Preretirement do Pensions it with in a Lump-Sum tax America incenti Distributions which ve that we will provides happilyitsprogreatest vide to you for thethan joint socialstudy security: of Retired-worker your Subcommittees beneficiariesonre-Retirement Income Security Employment Coverage Future Benefit Introduction I the lowest income levels, for full career workers this can mean near total retirement. Workers bution Not bution is clearplans fromas well the as dataforpresented increased sa above vings ththrough at the cash systor em deferred is producing Cfulfill has Employees rate levels ommission) As had forthese these than 50 nonagricultural 0 would percent forstatistics two thefull- come sets population of career to of the wage indicate, go recognize awork ls: low-in and of ° force retirement •csal ome .all the °athe ry • covered oworkers, retirees, retirement •worke inequity • sarving s bywas neemployer aaand involved rnd and 25th capercent. athat pital capital t pension level insupplementation accumulation. paying accumulation forplans aver taxes age for 4d-ii. percent Supplemental These ea sharing chHow are year provisions efficient plans covered; Security of general areofis and Income designed the the ofavailability law current workers available were to increase designed structure in to approxim durable takeworker to ain tely care goods increase assuring productivity ofmanufacturing, 13 those million capital pension who formation and tax have coverage nearly not reasonable 1,000 hours fora year retirement, accountedthatfor they another are 10.3 not percent required oftoallwork. noncovered Why? This vesting level in current Numberemployment of Workers plans (O00's) is complemented by by Purpose and Amount Households, by Income Level, Receipt of Earnings, and Income From ceiving first payable(O00's benefit in and June 1980-May (000's 1981, and by Entitlement Summary of Cost Factors by Age for Use in Costing Benefit Plans (O00's) Across Covered a Across compensation plans and individual retirement accounts fit in in the United States. EARNINGS for the Employee Benefit Employment Research CInstitute overage Total (EBRI) Vested to Benefi be tproviding s you benefit, and your relati staff ve to to aid totalyoutaxes in your paid, worktoonthose this sub at jec lowt. and middle income (as Reported May 1983) % of % of (O00's and Selected Nongovern PIA quartile,msex, ent and Sources: marital status Monthly Average, Second Groups (OO0's) Groups la. What is retirement? 4 income accounts replacement.fit inForwiththecurrent highestdebate earning over qubasic artile taxitreform? might mean less across income levels? twenty returns years.have included contributions to IRAs. signifi plan without frequency income Over Defined-benefit worker Chart csystem ant workers reference increases 3800,000 interest re has and tirement with grown Table topl private with ain the ans full-career significantly 6efficiency in true income come ashow re employer-sponsored economic plans in that as aand tt the the ac Treasury over whi value hment profitability cincome presence h the pr of oto mise tax replacement past the the retirement ofexpenditure benefit a35 work many ascert years well aforce, in vpl being alue aans nd in as statistics, final of provided. aterms nd to thcapital at Social at pof aay and worked 80 percent to enough encourage oftothe earn workers ERISA work-related work to increase forcebenefits. istheir covered, levelversus of saving; an unusually to provide low 34 a Because benefit workers. Treasury ====================================================================== theMethod entitlement--vested ERISA percentage standards who cannot statestatus--earned th work at pension increases 83% plans under with only each plans 17%need higher from credit age previous group. a year Quarter 1984 Employed) Employed) % of Employed) FIRM SIZE b Total background information f88,214 or this hearing 49,530 on a sub_ect of special 28,708 importance I would be pleased to take any questions you might have, and offer levels (please refer to Chart 2 and Table 5 on pages 16 and 17 of my The statement that I have submitted for inclusion in the record provides PIA quartile t lb. than 25What percent level of of wfin ork al activity pay. Employer-sponsored separates the working pensions from the in both the 4 benefits in forms other than annuities. ThisLess benefit. Itcould is thandifficult i00 lead Pri employees vto ate to demands sector increase 6,215for employers coverage a 17._% system make andof 12,352 aparticipation. lltaxing contributions ba68.1% sed upon Last andthe year, inactual for means participants, accumulation Security calculated levelproduce Coverage ofor f decreases sufficiency on workers capital is assets, plans a cash-flow efficiently accumulation. to exist ("Income benefit fohrave basis, motoday stspread recipiency, assets of highe leave New with racross toRetired the income accumulated allow andimpression income benefit wWorkers olifestyle rkers levels. amounts. assets that whby o transitions the hSocial Among aexceeding veproportion retired full-time Security upon $925 of in E3c. percent Lifetime ach Toof wh coverage these Method: at extent plans of the should is ERISA responding our workretirement force to thein goals the system business setguaout rantee service for th itasector. tinlevel the tax of of employment. service to About employees Total 6.6 who million work less1,000 workers than hours $5,000 reported or -more$i0,000 entitlement under the - pl Over to an.a pension id. Do demographic and economic changes expected over the next 30 years Monthly income 1983 retired? IO0 to 499 employees 5,545 15.6 2,465 13.6 $I-4,999 to Nominal today's dollars workers aand / retirees. 10,014 EBRI is 142,433 a nonprofit, 86 nonpartisan 358 research $5,000 $9,999 $19,999 $20,000 EBRI's full support to the Committee as you proceed with your review. EBRI statement). responses to Of eachthose of the covered major byquestions Percent employer receb, ing--and pensions subquestions over 76setpercent forth in earned the Defined Benefit Life Insurance 500 or more employees 23,869 67.0 3,314 18.3 public and private sectors now provide additional income for a growing Statement On example, dollar the value event Congress ofofthe enacted investment benefit the Netirement provided shortfalls orEquity the a move employer Actto(NEA), taxmakes the whichbenefits upreduced the paid the billion. employees current income recent Benefit Now, If years. cLevel"). in api tax IWere over taretirement, lwill deferrals private Re the form cThis ent turn atage iongovernment data pension permanently of and to itself is 25, the topresented plan 70 wh specific reports is atpercent assets lost noextent t iniato questions ndi Table to are suffi cathe should grow tecovered c2. ient Treasury th atayou tindividu the by go the apresented lsame ais aover pension ls toravery all jte ustify beaelderly ain rsand large. they the the ta 37x termin lbenefit aw, Firm aas tionthe from size of taaxprevious employment; and law is unicemployer's ourrently n to status allow written. plan are employers inclear MaIf y 1983. other to predictors restructure goals areofdesired, work whether forces thenan $5,000-9,999 warrant Real Those dollars a change workers b/in meeting the 1definition 5,323all 1983 of retirement particip 285,747 ation itself?standards, 72 2,023 except that Total 40,702 IO0.0 20,894 i00.0 Civilian Employment Medical Cost 98,964 Cost Factor 51,530as Cost 24,095 as % of O_n public or pri,,ate pension Source Ic. of income What should the role of post-retirement $600 $1,200 $2,000 earnings $3,000be $4,000 in a $5,000 4 TOTAL organization RECIPIENTS a based in 6,594 Washington, 5,533 DC. EBRI583does not218make recommendations 154 $10,000-14,999 he less aDiscounted ring thanannouncement. $25,000 for interest: in 1983. 17,827c/ 10,328 5,484 does not make recommendations for or IRA oror against Keogh benefit legislation the Congress may be Under to to to ! to to and (All employees & self- 100.00% 52.07% 24.35% number of retirees. The President's Commission on Pension Policy (1980) retirement Factor income as %security of system? % of Average Pay for One UNION STATUS have announcement age instead differen for since of participation cethe 1968, of to premium. this which assure hearing. from isThis the highly 25pawould yment to questionable 21, require ofand promised the a tot for age abenefits. lafor restructuring number counting of 94 per reasons, service cof ent thethey way for (O00's)in poverty Tre percent 2b. current centives, asury Thift-savings To The what trcurrently number aaxte statistics poli then e(14.1 xtent cyRetirement ofca plans are hper pit individuals ado simply caent) lentitled to retirees represent be gaInc ins that ismodified omelower with to now and 83 Security a a.ndepend vested other vested than cents employee that In preferen out on benefit. benefits The pension and for ofcUnited es employer children every from Of plans, need all Stdeferred ates current partnership (22 civilian toSoci per be alcand ent). dollar reexa Security workers former minedis $15,0while responsibility employer-sponsored 00-19,999 allowing and workers risk pension 13,101 to for maint plan providing ain will abe for standard available. 9,4 themselves? 22 of living and 5,87their 4 dignity; theirTheemployers answer isdidnotnotas sponsor simple aas plan, yes or made no,upsince the remaining it is so dependent 34.4 percent on at pension rate 40 60 Total $600 $1,199' $1,999 $2,999 $3,999 $4,999 over employed) Total ............ 43 22 32 56 64 Age Union Group Average Cost 15,223 38.2 Cost 2,163 10.6 Times Pay Percent Distribution a 100.0% 84.2% 8.9% 3.3% 2.3% $20,000-24,999 I0,283 8,159 5,641 for at or federal againstrate legislation the Congress36 may be considering, 64 but we are considering, I wish tobut stress we are sevenpleased points to mademake in my available full statement. to you and the Committee Fifth, this system has led to almost universal--98 percent-- recommended a Men:set of target replacement rates for full career workers. On Nonunion 24,627 61.8of 18,155 89.4 Id. la. Wh For at Dothose isdemographic retirement? who haveandhadecon limited omic changes attachment expected to the overwork the next force 30we still 5 would vesting in which Thereach from benefit statistics $7.5 22programs trillion to allow 18.are bynoncovered EBRI run. the estimates year workers 2,000, that according tothese be sorted tochanges some into very increased rough seven 4d-i. permanently as aage nd well. towards of savings 14Howto these effi 64, Iffor lost, cthe ient this plans 52retirement percent goal with is isalwthe the aysthe of are ccincome? urrent ase, pacovered capital yother benefits then stru 17and cretirement ture accumulation. cents 24 as percent inaaccounted distributing stream savings, areEmployees ofentitled for apayments; s tby ax a narrower benefits? current to makea6vested go tax al to employment supplement Governmentwill Social policy continue Security should to grow and provide in as the the a process system floor of mto atures keep incomeand additional onthea work mandatory demands force health of all status noncovered and individual workers. This circumstances. last group Even represents though 16life percent expectancy of total is Married ............ 55 58 34 52 63 Total 40,702 i00.0 20,894 i00.0 Nonagricultural Wage 88,214 49,530 22,217 Under 30 ,---4 80.0% 23.0% 0.1% All househoyears lds .......... warrant 84,002 a change 12,375in the 15,466definition 18,936 17,461 of retirement 9,569 4,718itself? 5,478 ALL USES b Unmarried 100.0% ......... 100.0% 42 20 20100.0%57 64100.0% 100.0% $25,000-29,999 5,515 4,365 3,048 pleased to make available to you and the Committee all the pertinent facts all the pertinent facts that may bear on your decisions. employer-provided pension protection among workers in firms employing over First, our nation has nurtured a retirement income system that is highly and Salary Workers 100.00% 56.15% 25.19% an after tax Women: basis these ranged from 86 percent for the married couple participation estimates Acontributions Retirement, Present number by approaches EBRI. of by according studies 530,000 with Today,after-tax to workers--or hato ve there health the beenisRandom dollars done an insurance about addition House toI aand ssess percent--and alpricing dictionary, employers $300 horizont billion and aincreased lis generally delivery and to in assets "withdr verti vesting ca were awlin hthan payments benefit. categories ave EARNINGS per The under acent gre dtables by aNearly tcurrent (see aretirees. llow dist cited aChart 83 nlump-sum celaw, percent above to When 5). would godistributions indicate examined of -- About still all almost 15.4 merit nonagricultural the inone-half percent in a ta degree lifetime xcert preferen ain ofof ofacll wage context, cir noncovered receipt. escumst widows and afor nces. the sal who employer The workers ary proportion are As relative workers blpl aown cakns $30,000- from basis. increasing 50,000 building This (mortality is on that accomplished program; experience), 6,611 in and this to provide the country 5,5jury 47 anthrough advance-funded is out Social on 4,071health Security component status and of employment. continues to age. As an increasing number of employers adopt supplemental SOURCE: 30-34 Sophie MarriedM. ............Korczyk, 80.0% Retirement 25 10 33.0% Securit 32 59y and 66 Tax Policy 0.1% Earnings: 2a. What are the major sources of retirement income today? 5 Total Saving Less than $i0,OOO Unmarried ......... 32.0% 4,107Dallas 4426.0%10.4 24.L. Salisbury* 345f.6%6,711 64 71 78.9%34.6 87.3% $50,000 that and may obear ver on your dec1,615 isions. 1,371 1,106 .,_ I-.... " Numbervalued with ................. by the citizenry. 61,505 2,564 8,705 15,314 16,070 9,114 4,541 5,197 1,000 employees; (Washington, and DC: very Employee significant--80 Benefit percent--protection Research Institute, among firms Nonagricultural Wage 68,252 42,463 20,934 earning $6,500 in the year before President retirement to 55 percent for the married $I0,000 to $24,999 24,545 62.1 10,374 53.5 by de state andv35-39 eloped 300,000--or of older and the than loc end inal 65 of the about plans, were 1984 80.0% present Icthere which onsidered percent. were tax could poor approximately envir In growo48.0% short, in nment. to1983. $2.7only 250,000 trillion This, A 5.6 major however, of percent by0.2% these change the isyear plans ofain the test 2,000, that 9.5 of the other dollar equity from earn of their deferred provide retirement less office, soci own value of althan the abusinesses. taxes of programs. mbusiness, aincome tching ta $25,000 alternative x lost provisions. •-system. ........ contribution per to Social orThese the year. sources active Treasury Security self-employed TheL Pension into life." of Trearetirement an sury provides ranges coverage allocated ",, This Dep workers from aan rtment can income and "adequate" 14 account be vesting cents appear cis ondu a for shown cmandatory out ted benefit follow to each ofby provide suevery chthis data for oraI Not Mean if reported adefined-contribution mount Soc................. ial Security is $2,394 plans t7,92 oi be 4with $343maintshorter a$773 ined:$1,377 2,158 vesting both$2,198 publi schedules $3,133 c support $3,996 1,105 than$7,025 andtheecoERISA nomic generally Nearly (morbidity). 82 percent ofTheallnation noncovered O_n private will pensionemployees continue to workbe for wellemployers served by witha 1984). and Salary Workers 100.00% 62.21% 30.67% $25,000 or more 10,866 27.5 2,309 11.9 2b. To what extent do retirees now depend on pension plans, Social Z Property Retirement income: Program 4.4 Employee Benefit 2.4 Research * Institute_ In an April 1985 survey conducted by Hamilton and Staff, 58 percent of employing over 250 employees; in unionized firms 82 percent of workers are Second, our nation has nurtured a retirement income system that is age 2540-44 Total to 64 only 80.0% 40,702 I00.0 69.0% 20,894 i00.0 0.3% Number wlth ................. Total ..........57,722 4,438 27 8,750 3 12,990 14 4213,725 51 8,322 4,343 5,156 couple earning Security $50,000. and savingsEmployer for retirement plans areincome? frequently designed with a 60 environment will have a major . effect on _ those approaches and structures. cO Insurance million again volunt our dollar with Annuity soc ary according ito aworkers l40event. 40million commitment cents, to between Webster's our pardepending _tivctery ip othe ants. those is rough ages in on*who general estimates. whether of have 21 and agreement: or _notnot 25 The worked, worked one coverage "to _adjusts no withdraw for t rate aemployers for tes for from tinflation priv ofone's with ate our pattern, study low-income, from retirement worker. These the in with varied 1982 Survey protection full-c The76 (Chart objectives aemployer reer percent of Income 2).for workers contribution ofwere Chthemselves aand those rt toby 2Program becovered and using fulfilled is through Table not Participation aand weighted 5taxed by show 70 their different percent asthaand investment tincome Current the redistributional of types tto those axPopulation of the in value plans: vested their of well system less ten-year being than thatstandard, are 500 allows intertwined employees; significant anPercentage increasing in68this percent flexibility Distrib family number ution work ofso ofprograms. for Within that workers firms demographic Earnings will with Group achieve less and than economic vested I00 .... _ "0 Mean a amo /untBefore ................. adjusting for $255inflation. $36 $109 $135 $161 $219 $304 $1,263 Nonagricultural Men: Wage 61,586 40,702 20,476 on Housing AGE Purchase I0.i Employment 9.3 % Covered 12.5 _ % Vested 45-49 100.0% 100.0% 0.6% full-time workers Married ............ rated the existen 36 c2e of 7 a pension 39 52 plan at work as being protected; among workers age 45-64, 65 percent are protected. Company or union pensions: dramatically b/ After adjusting improving for inflation. the economic status of our retired population. and Salary Workers 100.00% 66.09% 33.25% 2c. What is the desirable "mix" for the various sources? 8 Other and percent Investment interest targeton in deferred mind 16.8 (a taxes common and 14.0 formula on the 29.9 interest is 2 percent factor 45.9 perused. year *assuming 30 business. status. Unmarried ......... 26 September 1 5, 4 1985 43 48 plans nonagricultural Nearly earningand all less worked of th the wage anatgovernment $25,000. least and sa1,000 laryand While hours workers academic the peris proportion year research more and thanhad done of50been those on percent this onearning the sub (seejjob ect Chover afor rt to position employment-based Reports formula. Less The employee than first (Household orThis 35occupation." until category same programs. Economic formula received. of 14, plThe 5a88ns Studies means event were These 35.8 that Series strictly oftoplans higher retirement Employed P-70, 9,09 called meet 5income No.ispensions an4). individuals frequently 43.5 to objective Employed Table prior3identified receive to presents of a Number4f. change employee withHow ................. can does benefit bethisaccommodated, incsystem entives 7,238 ofpa520 rtaaand, llels x 2,1 inc 76enti bytax v2,296 es a pasystem yments, for 1,264quathat lified with 477 has lowpension 233income a significant 273pl persons ans as employees. Eighty-nine percent are in nonunionized jobs; 44 percent are • \ I c/ Interest rate used to discount taxes paid in retirement to age 25 to 64, working Women: 50-54 112.5% 146.0% 1.0% Mean amount 35 ................. and over $39426,133$I19 $219 64.2 $375 11,800 $452 $561 56.5 $674 $1,670 "very important." Only 15 percent of those polled felt that Social Security Married ............ 14 3 18 44 41 i000 Nearly hou Sixth, rs all or retirees your more Subcommittees have income can from readily Social Security. identify where A growing the number system havofe the year of retirement. Total 40,702 i00.0 20,894 i00.0 oclal Security 3ye a.ars of orHorailroad service). w can we define Before "adequate" the Subcommittees retirement income on security? 8 Total date one Consumption year. assumesThethat improvements a71.4% change in from 76.6% taxREApolicy are 51.9% real, will but not 42.6% such changeminimum the method standard of Totalwith i) $50,000 information and One age, over factor participating such 80 for Unmarried percent as that the the ......... has second "normal" 100 for in not .00% public-sector agenerally quarter 27retirement retirement 6 ofbeen 21 employees. 56.15% 1984 age program considered 48under on the 48is a0 pension 84 in high, million discussing 32.52% progr these ahouseholds m persons changes or the 4getting a. Money 19 Wh individual Three 7a4. t more role percent purchase These does ofsavings, the of feder plans noncovered vplans aalue l with twere aof x are poli funds the workers cspecific yplans tapl generally x ayaredu are llyin which ctions in retirement agriculture. pdesigned aid promise thaout n intheir cas ome toa Their lump-sum provide security? certain share coverage of tax wel much component l alower s for that benefit incis reased "advance relative savings funded." to tincome. hrough caAshpay-as-you-go or deferred program compensation should plnot ans under 55-59 A reduction 35; 51 percent in 125.0% the have vesting beenminimum on their 216.0% standard currentfromjobtenless years 1.5% than to five five years years ERISA Work Force 54,363 38,057 20,027 retirement: ,,_ _ -. . Car Purchase 4.8 4.8 _ _ Social Security and Oversight of _ the Committee on LO HOURS Ov, n public pension would be a ma_or source of retirement income. Sixty-four percent believed employer-provided pensions is not now prominent: nearly 82 percent of all z Number (age income with 25................... to from 64, working employer 23,508100.00% pensions: 5,299 6,929in 5,49] 70.01% 1982 3,132 among 1,391 new 36.84% Social 577 690Security Vacation 3.2 3.1 _ _ 60-64 Table 4 shows th 160.0% at the mean Social323.0% Security benefit pa2.3% id to the lowest 3b. What is a desirable level of post-retirement income in terms of 8 $1-4,999 distributions. I00.00 24.29 3.57 providing changes "mand surveyed represent in the retirement acontribution In tory"1950, tax are on or only age treatment pricing the nothe 2.89 income ofby relative replacement retirement. percentage percent the benefi of asemployer. temployee value s. aofstream for all Ways ofofpension increases The benefits, retirees altern and ofworker Means apayments. tive particip in receiving however, absorbs sources coverage ants. Priv investment that apension of te through income. could employers income gains involve new Tableplan wasa 4 rate (seeTax Table is the policy I0). lowest plays of all a nonco central vered role groupsin atretirement just over I0 income percent. security. Many p2a. be would ayments, Less used Whatthan increase to are and 2000 fill thethedefined-benefit major thehighest "gap" sources 7,525 for paidof these getting plan retirement 18.5persons. costs less.5,481 income by The In between government other today? 26.2 2words, and should 7a percent chaprovide nge in of Mean amount and ................... individual savings $562accounts $351 fi$554 t in $664 with c$666 urrent $640 debate$676over$720 basic tax !00D hours or more, one Total ......... 16 ..... 18 I I 18 I m 15 0 12 Other Use 63.4 68.7 40.9 _ • I replacement of earnings? $5,000-9,999 I00.00 37.51 13.20 2000 and over U.S. 33,176House 81.5 of Representati 15,413ves 73.8 they would have enough money in retirement, though most of these apparently 65-69 225.0% * 2.3% benefi noncovered ciariesemployees Men:56 percent work of formarried employerscouples with and less 42than percent 500 employees; of unmarried 68 year of tenure or more) .,-4 B Base income less than retiree 200,000. couples is equal to the mean earnings amount, while for the $10,000-14,999 Total I00.00 40,702 i00.0 57.9320,894 I00.0 30.76 creation among small businesses. significant showsThere Finally, Increasingly, andhowlosses. are earnings shift econometric still These in retirement many and theplans benefit workers estimates incidence is generally levels marked notof ofcovered the private encourage vas aryincome the by byhealth point aincome ta workers pension x is insur oflevel the to plan, eligibility ance increasing select andsuggest but provides they an for cost, that areaa Employees, the negligible. agricultural incenti payroll, tax ves tre were to whether atment By employees Married encour the 1962, ........... athey ge of employer 16are benefits persons be percent low-wage federal, to 19 to would of maintain 56 save retired seasonal state lead 29to the and smarried uto 15 pplement workers, local same a 10regressive couples benefit government, employed Social andformula. Security, result. on 5 or percent more private More even EBRI tha ofn reform? c_O generally The Vesting major represents sources pay allofhaving contributions retirement a nonforfeitable income in these for elderly right ", plans.\to households a\These payment plans arefrom common the ._ . "-I k_ Unmarried ........ 17 19 17 t8 13 a$15,000-19,999 Recipients by lump sumI00.amount 00 are less 71.92than total recipients 44.83 and 3c. To what extent should our retirement system guarantee that level I0 belie SEXved that employer-sponsored pensions would enable them to achieve that 1979 percent work Women: for firms with less than I00 employees. Eighty-nine percent individuals had employer pension income--compared to 35 percent and 15 percentages are less than i00 percent because of the omission of "don't $20,000-24,999 highest earners the SociI00.00 al Security benefit 79.34may represent only 54.85 I0 percent of of income in retirement, ,,._' and to what extent _'.. oshould ,- indi ,- viduals unmarried and significant pension almost view Forty-nine therefore of entirely the from retirees way numbers avalue million in accounted particular which received of ofofpersons benefits, alternative 88 for pension million jobby now or the as income. income nonagricultural covered from reluctance workers Soci sources Bywould aage. l1982, ofSecurity. fit small not wage This a together. Census choose employers and wouldsalary For Bureau to represent most, purch to workers survey offer ase ita re sector, one cent _Cash annuity farm. include studies have orThey defined-benefit rather adeferred Married preference by frequently ........... economists than arrangements for face a pension forced lump-sum 1Deborah |a complex "7are savings, plans Chollet distribution. 13increasingly set and 14of particularly and other 26 defined-contribution Sophie ,labor referred TheKor forced market c ,TIAA-CREF zyktosavings cproblems. onfirmed as on those estimates at low indicate income that levels, the result due tocould high be retiree many more medicalworkers and long beingterm eligible care among retirement marriedor and capital unmarried accumulation households, plan.butThis the payment recipiencymay rates be indiffer. the form of Women The Administration argues 16,335 in 40.1 its propos9,932 al for tax 41.5 reform that only know" and "no Unmresponse" arried ........ to the 16 survey 19 13question 15 on 24 the value of the bear the responsibility and risk for providing for themselves? Men 24,367 59.9 10,963 52.5 Source: goal. U.S. WhenBureau askedofifthethey Census, would Current have Population enough toReports, retire Series with aP-70, reduced pare ercent, in nonunionized respectively,jobs; of all 44 percent current retirees. are under age 35; 51 percent have been Civilian E_loyTnent 95,372 53,445 22,633 lump-sum distribution, o._ ,- _ ,- ,.. '__ _ ¢- $25,000-29,999 final SOURCE: earnings. The _o Costs of oI00.00 _Employin o_ g O_nOlder IRA or Keogh hbrkers 79.14 benefit _, 0_ashington,55.26 DC: U.S. Total 40,702 I00.0 20,894 I00.0 he were found alth teachers covered 33insurance percent retirement by if employer-sponsored of it over- were system age not 65 ismarried avail the programs able equivalent couples frominanand May of employer 15 aofmoney percent 1983andpurchase (56 of largely percent). unmarried paid which m represents pension ajorsalary _. effect taxes plans. 4,the reduction Economic of aretax transition Among deferred policy _aracteristics plans medium change. to until or aand byperiod benefits their large of Households during code employers, are section, which received. in the nearly earned 401(k). United Employers all income States: The full-time ishave no these expenses. plans Neafindings, rly which 25 percent require as didofpayment a all Congression noncovered of benefits al Budget workers in the Office inform 1983(of CBO) were an an annuity. under alysis 25ofyears the retirement an for annuity small benefit "income ,or r' lump-sum amounts. merits _ L apayment. J ,-,tax 4 Under incentives ,,,_ /"',,current OO If _ u'the _ _,, l"_ accrued law, and 0 th -the atvalue workers present is could less rulesthan beshould required $3,500be (All employees & self- 100.00% 56.04% 23.73% b Percentages may add to over I00 percent because recipients may have used $30,000-50,000 Special Committee i00.00 on Aging and83.91 the Employee Benefit 61.57 Research 3d. How close to that level of adequate retirement security are we II Second Ouarter 1984, Table E O'_ashin_ton,DC: U.S. Government Printing pension, only -_ 24Totalpercent ........._._ answered ........ 2 "yes." (I) 1 A_ 2full _ 382 per _ c,. ent of employees employed) on TENURE theire current job less than five years. Third, our nation has nurtured a retirement income system made up of lump sum distribution in more than one way. 3a. How can we define "adequate" retirement income security? $50,000 and overInstitute, forthcomin I00.00 g). 84.90 68.50 Table 3 workers Most for retirees bycovered Office, the today? are had employer. covered workers 1985), privateby p.earn a pension 5.plarelatively n. income. modest The Soci salaries. al Security Over Administration 76 percent of longer of age. plan plans Employee essential which This alsobenefits age only represent forgroup pays the suchman benefits was ajority asemployee not defined-benefit of subject Table in one's annuity andi employer toincome, form. ERISA pensions partnership even particip As and ofthough the he ation alth end toward it insurance standards does of not health provided to accept These carethese incentives these tax Men: cprograms apsmall propos canbenefit alfor be published most decades amounts effective inasas1983. aimmediate when means tied oflump-sum to allowing employment. distributions work-force The upon separation from service, the worker can be required to take the lump modified Less thanto5 years turn savings 10,613 plans into 28.0 retirement 8,328 income 51.3 plans. There is no I Number of workers too small for rates to be calculated reliably. Not reported Married ........... I00.00 2 (l) 27.23 (l) 2 4 13.94 • agreed with the statement that: "If employers did not provide benefits, the 5 Se toventh, 9 years experience since 9,734 1974 25. indicates 7 3,958 that individual 24.4 efforts to save Nonagricultural Wage 85,181 52,019 21,399 Unmarried ......... 1 1 0 0 4 components that complement each other in design. Social Security uses a C_ ,, \ o Ideally individuals should be able to maintain a relatively constant 4a. What role does federal tax policy play in retirement income II *f-4 all recently The Individual covered previously foundemployees retirement that Income referenced among Sources andaccounts new 70 abeneficiaries and nalysis percent Levels, are by most of the 1984 all frequently substantial Treasury vested Second Quarter employees Depar opened numbers tment by earned of individuals shows retirees th less at involve according are sum.TenThe Priv the almost 1984 years ate "withdrawal goal second there to and always retirement over of the were category capital discussed 1974 from approlaw. program x1active imately 7of ,518 accumulation. as plYoung aa ns life" tax flat 46.3 180,000 are workers for expenditures dollar identified most Employees of3,830 are cost these initial more per form in make plans retirees employee likely ERISA 23.6 the contributions in oper as single totod oration those ahave as y. laargest level short aupon federal djustments separation government while Women: from maintaining hasemployment. recognized individual Under this by dignity. these establishing current They rules, have militbeen arydataencouraged andindicate civil Income Sources for Elderly Households, 1982 B] and Salary Workers 100.00% 61.07% 25.12% comprehensive rationale put forward by the Administration in support of such Note: Same llfe insurance cost is assumed for 65-69 as. for 60-64 Married ............ I (I) 2 2 2 Total 38,017 i00.0 16,116 I00.0 f9 security? Percentage Distribution Across Earnin$s Groups a government would end up paying." The answers to these survey questions fbenefit or retirement formula Unmarried are thatnot ......... giv aesreplacement the highest I (])forinprotection c I ome 2replacement I through toanthose employer. who earn Of ========================================================================= , life style after they % Employ- retire, as %compared of to %pre-retirement. of Total The than percentage hfor lb. ad What pension employer-sponsored $25,000 level ofincome a pay of yearwork per in from1983 activity employee. plans an (see employer-sponsored the separates Table tax Employee 8). benefits the representatives, working plan: are from distribu 56 percent theted employees, retired? across of married and the who to service dowith in have sotheby retirement an pre-ta private the employer-sponsored x current sector. doll systems. arstaxNumber and treaMtment arried State pension, many Mean ofemployers %andcontributions aMonthly s local well, Unmarried provide and government Meanupthe Amt. %toa distribution amatching certain and % of Tot. priv level ateis that years category which these ofbecause service ofprovide amounts tax it and expenditures is for are to assumed work capital generally part-time inthat the accumulation consumed, the feder schedules. benefits al rather budget. untilwill than termination They beused reduced ariseto from of increase to the Nearly 58 percent of all those covered by an employer-sponsored plan Nonagricultural Wage 63,201 42,576 19,836 a change in policy. Additionally, the Administration proposal maintains IRA alncludes workers with no coverage, workers who do not know whether they Source (millions) Income of Source Income 4b. What w Ie Less rethanth 0.5e percent. cument rrent income tax Coverage code provisions concerning Vesting ', \ 12 I a U andreflect Salary the Workersimportance 100.00% of employer-sponsored 67.37% pensions31.39% to the American those have without coverage and employer-pro workers with videdno coverage pensions, information only reported. 12.3 percent have established the least. Employer pensions fill the gap for those with moderate and high equal Source: cost; Appendix regulations table A. allow a 30% reduction. replacement rates noted above were designed to do this at alternative income contribution into an allocated account for each worker. The income couples When An spectrum qualified individu had onepension considers al in pension can close income--38 be those plans, relationship "retired" that percent cash ERISA and and with torequired still deferred income. private workto arrangements, The pension, abelalowes rge included tnumber 21inetc. percent cin omeof employer groups hours with much deferral employers as deductible moreofhave weighted taexpenses. xes beenpatow content id ard on: high with (i) income this pensionapproach individuals and retirement since than the actual saving coveragecdistribution ontributions or vesting employers retirement employment. Workershave Social income 65 years done These Security (see the ofTable plans age same.and ii). were These older 92In specific programs other are aalso lly words, represent a designed special faster 89 forced cvesting to ase;provide 2.7 savings will percent only for today have a vested benefit in the plan at their current employment. age 25 to 64 only limits at their current individual level, expands the spousal IRA, and Total 100.00% 100.00% 100.00% Q) designed to do? bpercentages Social Security exclude 12.7 percent 23.5 of employees$1,590 for whom fi_m $562 size is not35.3 Employer Pensions 49 26 wor Individual ker--and Retirement why this Committee Accounts. is concerned about them. Nonagricultural Wage 58,009 40,830 19,522 earnings, who receive less from Social Security. For example, if you refer known. levels after adjusting for reduced expenses and taxes. This could be termed public per receive plans--i.e., of cost week. Private pension; more doesTheof those not Pension truer the and affect between tax measure 42 benefit either percent the 7.2 is the whether ages than oftaxes of the unmarried the $1,902 25 proportion toindividu and be paid 64benefici alworking of byeconomically $394 ataxes the ries 1,000 employee they had20.7 hours paneeds y,while pension or per the to :1 and in retirement. employer-sponsored employer Tax Profit (2) policy earnings sharing contribution Most has state, on also plans plans. these helped is local arenot contributions. plans to and taxed assure private which as income that usually programs Themost todoll the "promise" workers aare r employee vadvance alue ataall of until given funded earnings the tax so of increase savings all noretirement ncovered Property for use Income on workers income a discretionary faif ll 77workers into basis thisare upon group. required retirement 61 ERISAtoorstates roll upon that over and*The Reduction Salary viewsWorkers to expressed a five-year in 100.00% thisvesting statementstandard, 70.39% are those EBRI ofestim Dallas 33.65% ates,Salisbury would vest and reduces significantly what can go into cash and deferred arrangements $1-4,999 If benefits are12.47 not reduced, assume 5.14 costs at 65-69 1.30are about ', I m 4c. Fed ArePension they achieving those 1.7 goals currently? $2,643 $944 35.7 13 o ...... ,_ _o_ _ ageshould 25 to not 64, Earnings working be attributed to the Employee 36 Benefit 12 Research Institute, its The system of employer-sponsored pensions is becoming increasingly more In conclusion, I note that the Congress has provided a structure of laws to Table 2 on page 6 of my statement, you will see that among those retirees Clncludes workers who are not covered by a union contract, workers who do $5,000-9,999 "adequate." Further, 19.08 "minimum" __°°°_adequacy12.13might _ ,.., ._ be _ guidedE7.33 for the lowest year be higher income--2 employer. working and Mil 7income on Pension percent As given theworkers ajob result, the with atpresence receive least privthe ate1.3 one only of less pension year--the pension attention of athe nd $3,555 income, base 16 taxpercent given benefit drops andto $1,014 to with theth date 54atype npublic million their toofactual pension. 28.5 work share workers, they per of I000levels hours percent The received. would orabsolute Other more of have These paythe number contribution plans opportunity of meet workers an to 13 to objective pan articipate covered individual of in by individu 18 employee programs pension al so saaccount, vings, and that capital Social officers, defined-benefit that distributions expendit other present ure trustees, separ deminto aation taxpayers, nds plaanother ns sponsors, th from amay t equity aretirement exclude workers job. or other and These all and plan. st efficien anew ff. plans stockholders employees cy include questions within defined-benefit pay befor five explored. their years own of A approximately 1.9 million additional workers, increasing the percentage of not know30%whether higher. they are covered under a union contract, and workers with no " o c_ a) through salary reduction. The argument appears to be that these programs $10,000-14,999 22.20 21.80 19.87 4d-i. StH/oLwSource: Pension efficientU.S. is Social the current 2.5Security structure Administration, $2,211 in distributing u o -_$573 • tax 25.9 15 reported information on unionization. ERISA Work Force 49,736 36,890 18,941 important to the provision of retirement income nationwide. and incentives that have combined to create a very successful retirement in the lowest income quartile, 22 percent have pension rJ income, compared to income individuals and households as the benefit levels under Supplemental $15,000-19,999 benefits? 16.32 19.89 21.28 of accumulation tax employee which For payments. the cost 38"newly plans million variation According has retired" continued (70 has topercent) couple been analysis toundertaken in grow, are 1981, by but the covered invery due Treasury cases to by recently the where aDep large private artment only to number assess: the orthe husband public of"tnew (i) ax are benefits. Security and with with doing.funds defined-contribution the benefits Above The dollar generally individual some would amount retirement paid be varying termed supplemented out plans as income "fully with lump-sum which level corporate retired" if pay distributions. they, the out government would profitability. alone, as notadiddo should lump-sum not compens Theprovide require ated (age mnorm ajor 25alto Source: new retirement 64, study working Marchage. by Social 1983 Dr.Furthermore, 100.00% Current Security Korczyk,Population Bulletin, Retirement benefit 74.17%Vol. Survey accruals Security 48, no. have 38.08% 5, and not been Tax Policy, required D4e. covered allasShould Salisbury workers these with is provisions President vested benefits beofdesigned the Employee to to 62 percent encourage Benefit . exclusively Defined-benefit Research Institute, retirement plans,a ,_ _ooooooo _. -_ are less efficient than employer-sponsored and funded plans where , , 0 $20,000-24,999 12.81 17.22 20.43 dpercentages exclude 4.4 opercent..:_oooo_oggoo_ of employees ;.whose ; earnings are not Table 3 (Washington, DC: U.S. Government Source: Survey of Income and Program Participation I000 hours or more, one nonprofit, nonpartisan, public policy research organization. Before joining The role of employers in providing pensions has increased dramatically, income system. There is room for improvement, but the data show that the 64reported. percent of those in the highest quartile. Defined contribution costs are the same by age. Security Income, unemployment compensation, or worker's compensation. 4d-ii. work. How efficient is the current structure in assuring pension 24 employer-sponsored areceives effort subsidy" ssesses distribution. atis athese the benefit, distributed individual incplan entives the(see evenly average level Table in across a without Social 9). lifetime theSecurity further inccontext. ome check spectrum, incentive. She was finds with $671(The76 per that law per month; cent now the approaches adequate jobsworker beingbenefits. to absorbs created healthPrinting investment by Nondiscrimination caresmall cost Office, businesses, gains containment 1985), and standards losses. p. the andi0. percentage (2) inSome possible the of lawofthese and disincentives therestrictions plans total work to yearbeyond of tenure the norm or amore) l retirement age (usually age 65), although many employers EBRI income which hecurrently security, served have or in are senior moreother than career goals 40 million equally policy participants, important? research positions now commonly at theuseU.S. the participation is mandatory. $25,000-29,999 6.87 9.21 In :_ Cll._ a:U11.04 coverage across income levels? (I) "'4 Department of Labor and the U.S. Pension Benefit Guaranty Corporation. This especially eTotal excludes in the 11.2aftermath percent ofofemployees World War who have II. worked Twentyat -fiv their e thousand current private N combination of Social Security and employment based programs has $30,000-50,000 8.23 11.71 14.75 3b. What is a desirable level of post-retirement income in terms of Individual retirement accounts have been available to all workers of force jobthe Who forcovered value is lesscovered thangoing byoneplans by year, toanthose has doesn't employer-sponsored declined. einclude arning d/r. less The primary than plan is $50,000, re not ason: a as gamble. small compared Coverage business to 6 SOURCE: hiring ic. those eonconomi "integration" allow What Preliminary cwith orvshould athe lue pensions keeping worker tothe Employee have the received onto role government resulted older chose Benefit ofanpost-retirement workers. toadditional in is take Research broad-based significantly a These portion $656. Institute earnings recent participation When ofgreater the tabulations both be studies contribution in than theaand husb looking show retirement of and benefit very and at specifies do provide apost-65 limit pension on what acc employers ruals. can offer under Internal Revenue Code statement ten-year Capital"cliff" draws formation hea vesting vily andfrom standard savings research allowed are studies important in ERISA. conducted, to Defined-contribution the nation. published, While and Ideally, fundamental changes in tax incentives which have been the law $50,000 and over 2.01 2.89 4.01 the May 1983 EBRI/HHS CPS pension supplement and May 1979 copyrighted by EBRI. 0 0 0 0 0 0 0 0 0 0 SOURCE: Preliminary tabulations of EBRI/HHS May 1983 CPS pension supplement_ replacement of earnings? is a function 0 of _ very predictable 0 I_ factors: 0 in tlarger _ firms 0 of Imore 19 than 500 percent does the income significant since wife not DOLsecurity /in SSA provide received 1982. the cost CPScase system? variation pension pension These benefits, of taaccounts xcoverage supplement. by exemp the aget monthly (Chart at municipal allow the 4workers high Social andbonds rate Table Security to and found 7). contribute approxim in check large ately rose upbusinesses half to to $836 for treceipt. section ax expenditure 415. Individuals numbers ahlone ave to would provide imply. for themselves As much asbeyond 72 perthis cent limit.) of the plans, studies with indicate approximately that IRAs are 28 not million yet adding participants, to savings,useemployer-sponsored many different since 1921 should not be changed without this Committee's careful review. SOURCE: Preliminary Employee Benefit Research Institute tabulations of iii ii the _ay 1983 EBRI/HHS CPS pension supplement. ISO3 _.IOA v Io lU_O.zo d o _ o g] 08/28/85 EMPLOYEE BENEFIT RESEARCH INSTITUTE 212 l K _.trcct, N\\ %uitc _(_ \V_t'.hin_.ton. l)_ 200_.7 Iclcph.n¢ !20!) _._,'_-_o70 a Percentages exclude 9.0_ of employees whose ea[_ings are not reported.