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I want to thank the Committee for the opportunity to testify today and invite you to call on
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providing the benefits they would like to provide or fundingo them as well as they would like to. This
no A promise telling It is fact of important aisspecific that 50 tobenefit percent note how at of the important men endaged of Tethe stimony involvement 55 day. to 64 Summary In have other by spent institutions words, 12 years investment like or less the gains government with T-#102 their and the present and risk
employers to do this, and large employers have also generally sponsored defined contribution
• allow Few of them the baby to meet boomers' the goalparents of maintaining Osaved forfinal theiremployment own retirement. income This throughout is contraryretirement, to the
Testimony of Dallas L. Salisbury
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President, Employee Benefit Research Institute (EBRI)
EBRI and ASEC in the future. The baby boom generation is beginning to save, but only one-third
Mr. Chairman and members of the Committee, my name is Dallas Salisbury. It is a pleasure to be here this morning to discuss "Retiring
has reduced the baby boomers' retirement income prospects from employer plans. Table 2 shows
of loss rest with the individual. Since Congress acted in 1978 to allow tax_teferred contributions by
employer, and 50 percent of women in this group have spent 10 years or less. Table 4 provides
employers without can be. using The real data estate already to produce provided income. indicate how important the mandatory system of
savings and 401(k) plans to assist both long-service and shorter-service employees. Small
implicit suggestion Chair, that today's American retirees Savings are allEducation on cruise Council ships and (ASEC) the golf courses, having saved
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Baby Boomers: Meeting the Challenges." I ask that my full submission be made a part of the record of the hearing.
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Member, National Commission on Retirement Policy (CSIS)
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have yet done an estimate of how much they need to save for retirement. Employers are doing more
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both the similar The number the mission news, employer of of the with plans Employee and'the only by type, 12.4 Benefit employee, percent participants, Researchboth of Institute those the and (EBRI) number aged primary is 55 toof to contribute plans. defined 64 reporting As to,contribution to the encourage, law 30 or shortened more and plans to enhance years and vesting of participants theservice, deve:opment of
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Social employers Security never and voluntary sponsored set plans asides on a ofwidespread employer pensions basis, buthave havebeen doneinso providing since theincome advent to of
Should the timing and value of Social Security benefits, Medicare, and employer-
for retirement. Income from assets is important to a small minority of retirees today, and baby
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sound employee benefit programs and sound public policy through objective research and education. EBRI does not lobby and does not take
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now positions than forever or again c_ before st legislative to raise propo this _ sals. number. The goal _ of Employers the American _ _4 recognize Savings Education o that while Council this (ASEC) is aishigher to make saving and planning a vital
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requirements, it was understood that the role of defined contribution plans would become more
have and grown this number steadily. is dropping as well, even though it takes 30 years to achieve a maximum pension
today's based retirees. defined Tablebenefit 6 shows andparticipation retiree medical in individual benefits continue retirement to be accounts reduced,(IRAs) the levels relative of to
concern of tax_teferred Americans and recognized individual as insalary the economic reduction interestsplans of employers such . as 401(k) plans (1981) and the Federal
boomers _- are 0 doing better than 0 their elders at building retirement assets. Employers can afford to
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Mr. Chairman and members of the Committee, my name is Dallas Salisbury. It is a pleasure
proportion than among today's retirees, it leaves much room for improvement. Workers, like
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I was asked to comment this morning on "the ability of private employers to provide retiree health and pension benefits comparable to
important. buildup.This A _One highlights system Census with the Bureau cash thirdbenefit c survey hallenge portability found related thatcan to nearly the dealbaby 80 with percent boomers this issue. of ." federal understanding Chart employees, 8 underlines what o_ for plans the
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employer pensions and 401 (k) plans. In 1992, 8.1 percent of workers contributed to an IRA (6.3
necessary saving will increase, not decline. Should the movement toward voluntary pension
Employee sponsor a retirement Thrift Plan savings (1984). plan Significant . and. when legalstable changes and in profitable, terms === of they vesting, can funding, afford to and make tax
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current levels for the baby boom generation when it enters retirement in 2010 and after Nc_," _and on >_ other challenges faced by the baby boom
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to be here _,_[_this _morning to r0 discuss _ o ° "Retiring _ _'- 00too Baby coc0oo Boomers: coo coco _QC9 Meeting o oo the Challenges." _o c_ I ask that my
generation as it approaches retirement.
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Statement Before
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retirees, underestimate how long they will live once retired, but they want to retire early. Education
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example, view the Federal Employee Thrift Plan as their primary retirement plan, not the defined
Given they importance limited have available timeof this tenure morning to patterns them, , I wanthow torelative use todata take to toemphasize advantage pension a vesting, few ofpoints themthat because , and put the that rates situation anyrose plan of the dramatically is baby better boomers than as inno perspective theplan law .
percent participation _,._ of those without and :5.__ an lump-sum employer _ _ distributions __-o'o' plan). r-.-'W_-_" Thiscontinue, compares" increases to- 43.7 _" percent in participation _ of_all workers rates _ and who rates are in
rates have made defined benefit plans COCqmuch P-.- more expensive q) yet difficult to advance fund.
employer contributions as well. They can communicate the need to save in these plans for all
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relat:ve to present retirees. The03data C1 03 show _ that there is a great deal of mythol _ ogy in _ the retirement discussion. Notably, the data show that:
full submitted q;testimony be placed in the record of the hearing. 0_'_
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is focusing on this as well. This combination of factors tells us that baby o. o.boomers are on a better
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The U.S. Senate Special Committee on Aging
moved vesting requirements down to 10 years and then 5 years. As a result of these new
benefit Plan plan. type Chart is less 3 shows important why this thanisittrue. used The to be. way This in which is due benefit both to value the legal builds requirement in the twothat types
an employer o plan,®and _._64.9 percent of those workers given the option of participation in a_,_ 401(k)
rj of rollover will be necessary to achieve the income levels projected by today's studies."
• Social Security has never provided an adequate income. With changes already enacted to increase the retirement age, and assuming no
Employers spending needs, can, tu_o in including the absence retiree C) of amedical dramaticexpenses, drop in the baby markets boomers or aneed dramatic to save runmore, of high and they
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payroll tax increases, the baby boomers' benefits will be an average of just under 30 percent of income instead of today's 42 percent. Tb_s
I entered L. _ the retirement tincome ..O field in 1975 with the U.S. Department of Labor and also
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savings path than today's retirees, and they have the tools and the opportunity to do even better.
wilt require individuals to work longer and to save more. Private employers are beginning to communicate these facts to employees in o"der
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of plans would cause any worker with less that about 25 years of service to receive more benefit
requirements _1 , ¢M while pension participation O) remained steady, actual entitlement tobenefits rose
all plans pay some benefits in the form of a lump-sum distribution and to accelerated vesting
plan.
I was asked to comment _D_ this morning onHearing "the ability on of private employers to provide -retiree --
inflation, need to preserve afford to lump-sum continue defined distributions benefitonplans job change. now in existence. This will require However, education for demographic, and
to encourage them to save more.
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served at the Pensionjj Benefit Guaranty Corporation. Since 1978, I have been with the Employee
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The primary challenge for employers and the government is to provide individuals the education to
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•from Few a ',4,-,- of defined the baby contribution boomers" parentsplan had full than careers from m ' witha one defined employer. benefit Pensions plan. '_0 formed in the years prior to 1980 focused on the
requirements. sharply. In addition, Chart 3the shows growth the of pattern defined of benefit contribution growth plans under xlikethe the defined Federalcontribution Fanployee Thrift and Plan
health and E pension Nbenefits comparable to current _levels for g the baby boom generation when it enters
workThis force highlights omobility, the and fifth employee challenge preference related to reasons, the baby _N c:: they ooboomers:finding ,:::[o omay o _ choose notways to dotoso. get Private them to
understanding. 0 They are on a positive\ track in growing numbers, and withsavings and co planning e
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"Retiring Baby Boomers: Meeting the Challenges?.
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approximately _, 2_0 percent of workers who spent a full career with one employer."_ Defined ::3._ benefit pensions4vere sponsored by most large
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Benefit Research Institute (EBRI), now serving as its President and CEO, and-on its Board of
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assure private thatemployers they become to do this planners, , and large employers savers, and have investors, also generallyas sponsored we have defined moved contribution from a savings system and focused 401(k) plans to ass:st both
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and It 401(k)s is important is very to note important that today's to the baby retirees boomers, did not as save. theseAs plans shown allow by them charts to4build and 5real and value table in 3,
defined benefit plan approaches. It makes clear that for the mobile worker - that is, about 75 percent
save on a tar-effective °_ _ basis when they are given the opportunity. _
retirement in 2010 and after," and on other challenges faced by the baby boom generation as its
long-service employers campaigns and shorter-service provide like thatmore of employees. the retirement American Small employers savings Savingsnever for Education the sponsored average plans Council, baby on a widespread boomer and government basis than but they have partners have since the to like the advent of tax-
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deferred individual salary reduction plans like 4tlltk) plans (1981) and the Federal Employeei Thrift Plan (1984). Significant legal changes in
Trustees. During 1995, we also established a new organization, the American Savings Education
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primarily on the few who work for one employer for a full career to one focused on all workers.
terms of vesting I'-- -,,,, funding, and tax rates, have made Defined Benefit plans much more expensive yet difficult to advance fund. Employers can,
Social Security is the primary source of income for most retirees. These retirees were told that
of spite workers .- of "_ job movement. the o_ defined contribution 1 _ plan can lead to higher retirement asset accumulations. _ This _
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members approach retirement.
average It is retiree important today. to factor retiree medical expenses into consideration when thinking about the
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the Departments of Labor and Treasury, the Federal Reserve, and the SEC, many successes will
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in the absence of a dramatic drop in the markets or a dramatic run of high inflation, afford to continue defined benefit plans now in existence.
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Council (ASEC), which I serve as Chairman and CEO.
_ _ _ _=
Testimony of Dallas L. Salisbury
However, for demographic, work force mobility, and employee preference reasons, they may choose not to do so. Private employers provide
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more _ retirement (3") savings for the average baby boomer than they have to the average retiree today. -- _nc_
makes Social Ththe is _>. highlights Security pointo_,--_o_o that benefits the both seco plan would nd types bab _ allow y can boomer them servechallenge to valuable retire. atpurposes, making age 62 or certain but 65,one yet that plan they youtype were save does not each given not and fitmuch every all.
babybeboomers. recorded. Chart 11 shows the degree to which retirees depend upon Medicare and, to a lesser
•Given Fewlimited of the0time 4004 baby this boomers' 03 -- morning, LO retired CD U9I want t_-parents CDto (3) usehave (%1 data income to emphasize _ from_ Oaatraditional few points defined that putbenefit the
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President, Employee Benefit Research Institute (EBRI)
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EBRI's .1_ 0 mission _, _'- is _" to "_"contribute _._._ "-- to, to encourage, and to enhance the development of sound
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0 • __ Fewm of the _ baby boomers' _Chair, _ retiredAmerican parents have income Savings _ _._ from\aEducation traditional \\ defined \ Council benefit pension (ASEC) plan or employer paid retiree medical
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information on what Social Security benefits would be. The implication was that benefits would
year toChart ensure 9 provides that your aemployer 1990 dataprovides snapshot a of defined pension contribution benefit payments. savings opportunity The chart. shows that a
situation of the baby boomers in perspective relative to present retirees. The data show that there is
extent, on employer provision. Retirees have acted on their own to purchase supplementation of
pension It is important plan or to employe_paid note that the private retiree employer medical benefits. pension This system is contrary is in solidtofinancial much of condition. what is
benefits. This is contrary to much of what is written without attention to the available data, but 24 percent of refirees reporting private pension
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Member, National Commission on Retirement Policy (CSIS)
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income, employee and 10 benefit percent reporting programs fullyand emplsound oyer paid public Medi-gap policy protection through , cannot objective be presented research as a panacea and . It education. is very important EBRI to those
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who have it, but when considering the cost and implications for the baby boomers, it should not be overstated. Employers have shown that
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be adequate. 0 Today, we knowrY> the income replacement rates _0'_0 are 0 modest for most, and that the
somewhat It is important startling to $107.2 note billion that the was increasing paid in diversity lump sums of in the1990, pension compared system to is $127.1 good news, billion notinbad,
Medicare where employers have not provided the benefit. Charts 12, 13, and 14 show that 45
a great •-•"t"deal 0 of mythology in the retirement _ discussion. Notably _ the data shows that:
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written without attention to the available data. However, 24 percent of retirees reporting private
As Chart 1 shows, asset growth in the system has been steady. NChart 2 highlights the assets resulting
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they cannot, on a widespread basis, afford to pay for retiree medical benefits pre or post 65. They do not today; they will not tomorrow.
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does not lobby and does not take positions for or against legislative proposals. ASEC's goal is to
Private employers are communicating the retirement income and retiree medical savings need more heavily that at any time in the past so that
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maximum family benefit does not exceed $25,000. Those with employer pensions do better than
the annuity for baby the boomer payments. majority has an of opportunity, Chart workers 10with due shows employer to job why assistance, turnover this raises topatterns. be issues better prepared Table for the in2baby retirement showed boomers than the today's relative retirement retiree. existence futures: and
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Washington, D.C.
percent • Social of have Security access has to retiree never health provided insurance, an adequate with wide income. variation With in changes wh_.t the already employer enacted wilttopay.
from pension the development income, r- andof10 both percent defined reporting e_ benefitfully plans employer (the • employer paid Medi-gap promises protection, a given benefit cannot and be ,_ is
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make saving _-°_ and planning _._8_a vital _°o ° _- concern _-_°_®'_'__ of Americans .a and _'_ recognized E _ -_,-as_in the _ economic _ -o _-_ interests
• Few of the baby boomer' parents saved for their own retirement. This is contrary to the implicit suggestion that today's retirees are all on
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participation others, but levels individual of defined savingsbenefit have never and defined been high contribution for most Americans. plans between Chart 1975 4 provides and 1993.a
44 percent of _ the dollars paid in _ lump-sum distributions _ _ are_o_ not saved \ _'= for retirement, O and EK 70 _ percent
Only increase 10 percent the retirement to 15 percent age, of andbaby assuming boomers no being payrollpromised tax _o00E increases, full ,_ employer benefits will payment be anfor average Medigap of
cruise presented ships and theas golf a courses, panacea. having It saved is very for retirement. important Income to those fromwho assets have is important it, but to when a small minority considering of retirees thetoday, cost and bah_
responsible for funding it) and defined contribution retirement plans (the employer sponsors a plan
March 6, 1997
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boomers of employers. are doing better than their elders at building retirement assets. Employers can afford to sponsor a retirement savings plan, and _hen
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stable and profitable, they can afford to make employer G) contributions as well. They can communicate the need to save in these >. plans for alI
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picture of the relative role of income sources.
of policies. Defined the people benefit whoplans get them are primarily do c_ not ._ save sponsored them ._ for byretirement. the largest c._Table cemployers ¢_ _ 5 shows . in the simulations nation, both of what public baby and
just _" under 30 percent of income instead of today's 42 percent. This will require individuals (D to
for and the employee implicationsto save for the onbaby a pre-tax boomers, basis, itand should maynot also becontribute). overstated. Employers Babyboom have retirees shown will that do
spending E needs, including reJiree medical expenses. Baby boomers need to save more, and they need to preserve lump-sum distributions o on
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EBRI published an Issue Brief in 1994 titled "Baby Boomers in Retirement - What Are There
job change. This will require education and understanding. They are on a positive track in growing numbers, and with savings and ptanning
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boomer This retirement highlights income the first would baby boomer look like chif allenge: all lump-sum getting distributions good information were rolled on what over Social and saved
campaigns private. like Since that ofemployment the American Savings in organizations Education Council with andmore government that partners 1,000 employees like the Department has been of Labor relatively and Treasuw, the
workThis longer highlights and to the save sixth more. challenge Private remployers elated to the arebaby beginning boomers: to communicate focusing on these the implications facts to
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better theythan cannot, today's on retirees a widespread as a group rY b_sis _ , and afford as individuals to pay for retiree due tomedical this growing benefits "hybrid" pre or retirement post 65.
Federal Reserve, and the SEC, many successes _ ill be recorded.
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