Table fi Defirm(JBermflt/l_firm(I ContribuUon PLznTab Treln e T TaUeZ a d 4b sle 5 Table Ta 4 (co bTa le n1 ble tinu 7ed) r Issu and eceith e ved se In go th Small eve ir distrib rnm Employer eu nt. tion Thpr e STATEMENT r Cov ior ear to e egaPS rage 1970 in report employ Table T Tabl OF a ed ble any 8 DALLAS 7 6 5e (continued) ( (conti c tax r-sponsor ontinued) -f n a ued) vor SALISBURY ed cov savin0s: _ erago in however, ,contrast,particularly 15 percentin 01the Pre P Ino_ lol ._N ie lon at M io An The ion Co n$in of numbe vcorag of rthe ea Ps a Growth if ng ro a hq on fn d ion worker u STATEMENT Partk mber B ofon6 De s of _I flt rfin eceivin work patlo s c_dCon ern g sOF p are tribution reret relyin DALLAS irePl m gent an on slu 40 mp-g S 1(k) AUu SBURY plan mdis ga trsibution theirprimary _ andthe employ amount er-ba o! sed oe.eurring2 . In fi_al lgg0, the numberof favorabledeterminationleffer_ i_sued regardingdefined liabilitig_.From lg77 to 1987, the funding_tatu=of _inolo-ornploy_d r ofinod Employment, Coverage, and PensiOn Plan Participation of the Civilian, Total Retirement Benefit Payments EBRI T-84 EMPLOYEE BENEFIT PR_RESEARCH INSTITUTE benefitplanshassignificantly improved,risingfrom an averageof 85 percent Proportion Proportion of of Pr Pre eret rstlire rement ment Lump-Sum Lump-Sum P.e Recipients dpkmts Reporting I:ioporting Var Vario iou us s Uses Uses for for All Any ofof their their Most MostRece Recent nt LSDs LSD; , Nonagricultural RProportion Wage ecipient and sProportion ofSalary Aggregate oWork f Re Lump-Sum cipi Aggregate Force, entsUsing Amounts 1989 Amount An), and oReport fTh 1990 eir e Ldly SD Ave Used fror: age Entirelyfor: Dietrlbution of ProretlrornentLump-Sum Recipients, Propor Aggr tion of _la Rte ecipi Amoun ents Uts sing of A Most ll of Their gocont LSD LSDs for: Proportion of Aggregate Amounta of Most "_._ 0Recent X C Preretirement LSDs Used Entirely for Selected Purposes,b thos small er ee mploy T ce hiving e number ertheir sector. lump of peA ns sum c ion los duri pl e a ens ng yeth hon as e p grown the eriod imp 1980-1984 significantly licationso reported fsince chang the som e,enactment esp e such ecially savings. of thERI e trSA eThe nd . towards From mon retirem eypaid e Emp ntplans, out loyer-sponsored inespecially these distributions 401 pension (k) participants ar plans e substantial. represent at small A an firms. larg import eproport The ant 1988 source ion Current ofo lump f retire Population sums ment are sapa vi Survey ng ids to for The The growth increasing of defined occurre contribution nceof prere plans tirement has lump-sum implications distributions for retirement inboth income defined securityin contribution terminations EMPLOYEE exceededthe BENEF-L numberissu T i_ed CH in response INSTITUTE to initialdefinedcontribution by Selected Demographic and Econo Tax- Insuranc mic Variables; e Civilian Workers Discre- AgedNondis- 16 or Over, Discr May e 1988 Nondis- Mixed fundedto 129 perce by ntSelected funded Tax- Demogmph on a termination io and Economi basis. c Variables, Di Available scre- Nondi evidence s- Mixed RecipientThe gap in private-sector pensioncoverage Percentage for workersappears Perce to be ntag largely e Aamong mount psmall er by Selected Demogr Retirement aphicBenefit and Economic Payments Variables, from Priva Civilia tsn Worker and Public s Aged Sources, 16 or Over, May 1988 (dollar Received, end Average Amounts Received, by Amount of LSD, Year of Receipt, end Selected SUMMARY Received BEFORE LSD Clvlllequali nTHE Workers annuity fiedLA_ Aged _R Tax- t 16 _-or _tBPOMMITTEE Over, Maytionary 1988a cretionarytionary- cret consump- ion- Rece Employer ivedLSD amounts Sponsors Selected qualireport fied Employ Years ed ine 1970-1990 c rSpo onstant nsors 1988 Employe dollars) tionary eInclud cret ed ionary Employee Included consump- Charsuggests acteristics that approximat In Thousa ely nd 85 sb perc of total ent ¢ of pension $ Billions plans b of arte ota curr lc ently Recipient fullyd Characteristics of Recipients; Civilian Workers Aged 16 or over, May 1988 (dollar amounts reported 1975 imposition define to d contribution 1988, undte hr eth total e Tax plans number Reaform ndof th Act te ax-q increasing ofu1 alifi 986ed (TRA emp occurr '86) ioyer- eof nc spen a e o 1f0sore lump percent dplans sum pedistri nalty (botht bu d ax efin tions, on ed some and benefit a care andful Americans. employeeben Accordin efitsuppl gto em EBRI ent(CPS tabulations EBS) found of thethat March mer 1e 9than 91 Current 49 perc Po ent pu of lat 401(k) ionSurvey, plan p in art March icipants work contribution that iteserves rsat relativ and to shift de ely fin the young edburden bene agfe Plan it s. plans, ofThis aresponsibility in allows which Proportion for work fo ampl Plan r retire ers a eof oppo rec me Re eci nt ive rt p income uniti ients their e Usin in s e to adequa ntire Plan g accumulat An bpens ),oc fy Th io planning e ne ir be ass LSD ne ein ffor: ts from itPlan ffor rom the b an Recipi applicat entionsfor thReceived e ffirst romtim Prio L eSD re Job ver. Th financial etwo or rewere tire Financial - quali equal fied infiscal Finan- 1991. consump- consump- Con- Consump- con- ary tion con- and- Recipient from PriorJob financial Financial consump- consump- Consump- tion and COMMITTEE ON In cLABOR onstant 1988 AI_ dollars) J-IUMAN RESOURCES 1 e9 m 88 ployers Earnings as demonstratedbythe figuresinTable 2. These lowratesare attributableto a numberof fundedon a terminationbasis,upfrom 45 percentin 1981. Insurance Discre Nondis- Recipient from PriorJob ment- financial cial sump- sump- sump- (percentage) Proportion (m ofillions) RecipientsUsing (pe All rcentage) of TheirLump-SumDistribution (millions) for: $1-$4,999 345 Proportionof 5% AggregateLump-Sum $3.0 Amounts 8%Reported $10 lyUsed ,500 Entirelyfor: Characteristics Sourceof Benefit a (billions) 1970 c savings 1975 d 19 savings 80 e 1985 Savings 1986 f tiong 1987 tion 1988 h tion 1989 i savings 1990 Characteristics (thousands) b savings U.S. c savings SENATE d Savings e tionf tiong tionh savings Employer-sponsored pensionplans representan importantsourceof Tax _ annuity --_'=_" Tax- cr_o=" =" Discre- Nondis- tionary- cretion- Mixed 1989 1990 1989 1990 1989 1990 1989 1990 d hand pr efi eretir ned on contribut eme adjustm ntlump ion ents sums plans that that incl may are uded be not )nec inc rolled Tax- reas essary ed ove from to r(e ke ff311,000 e ect p iv iteon for to course tax 730,000, year Discre- should 1987) and assure gro may Nondis- sshave particip a sou bolster nd ation pension edthis Mixed 1990, repo $5,000-$9,999 rt66.0 edthat mill this ionwas civilian their workers, prima616 ryor employer 55.3 -,._pe - rce pens 9nt of ion all plan. such Among wo 1.8 rkers, 401wo (k) ork pa ed 5rticipants for an employer working 3,300 that for Workers r e Characteristics e mp tire loyer me 1988 nt to ifthe lump Earnings em (thousands) sums ployee are . Employer roll a eIRA dover-s into po plan nsor qualed ifsavin iprograms edre gtirem s b savin are ent g arrang moving s c Savin etoward m gs e dntstion and more eprindividual eserv tionf eduntil cho tiong ice employer Th in eon nature e paym of th ent e ,re impli evaluation esfurth Reo cipients efrthe shifrol tsto eo ind f th ividual e traditio re Aggregate sponsibility naldefin Amount edfo bren re etirem fit plan ent Average to sec the ur newer ity. factors,includingcomplexity,lackof flexibility, AUGUST econo4, mic 1992 forces,andpossiblylack of accessto retirementincom Received efLSD or Americans. or retire- In qualified 1990, privat Finan- epensionretirement Con- con- benefary itscon- Pensionasset Receiv reversions edLSD have qualifi large ed lystopped. Total tionary reversions cretionary peakedin consump- $10,000-$14,999 $1-$9,999 $4.8 954 25% 1358% 74% 3.0 12% 8 4% 3,600 17% 9% ReceivedLSD qualified tionary cretionary consump- R 1988 ecipient Earnings Percentage Percentage Amountper ($ billions) __ _ _ o. _._. R All ec Workers ipient from Prior 54.2% Job 55.3% ment- 64,6 financiali! 66.0cial 42.7% 42.9% sump- sump- 50.9 sump- 51.2 Rec $10,000-$14, $15,000-$19,999 ipient of $141 9 billion 99 from account Prio 3.0 rJob 1ed ,113 for financial 10 31 percent 15 Financial 25 of the 56 $457 4.7consump- billion 17 in 13 consump total 15 re-tirement Consump 5,100 32 - tion 11and Recipient 1988 $1-$9,999 1 Earnings 985, when $6.1 fromPr 96 billion io 1r Jobwas financial recover 6% Financ e 28% d,and ial hav 54% e declin consump- 26% edsince consu 9% that mp- tim Consump- 36% e. tion9% and- future. tre r (active etirem nd. Tw workers, ent ent . y perc separat ent ofed those vestred eceivi ,survivors, ngtheira lu nd mp retirees) sumsduring insuc 1987 hplare ns ported rosefrom some 45tax m-favor illionto ed 78 Characteristics sponsor a end mploy responsibility, eed rsa with pension 250 away or plan, mo from re i.e., In e"paternalism." Thousands mploy they were ees, b43.5 cover of Decisions perc total edc by entahad regarding plan $ aBillions primary (defined part b 401 benefit icipation, of (k); total this and c how proportion /or defin mu Recipient ch ed curre increased d ntpay Currently,it isthe individual'sdecisionwhetherto rollover a lumpsumdistributionintoan individual defined benefitanddefinedcontributionplanshasbeen a sourceof continued analysis.Expertsoffer information.(For a completediscussionof the issuessurrounding pensionsand small employers, Chara $ $15,000-$19,999 $ 20,00H24,99 1-$9,999 cteristics9 (thousands) 9614.7 a 1,04 IRA 6% 5 24 plan 1% 14savir 417% _sb savin 77 32% g4. s c6Savin 1 63% 1 _]s d13 45% tion 5e 35% tio 5,000 18 nf tiong 1%5 $10,000-$14,999 954 5 19 52 31 11 42 4 C, Pd haracteristics vate Pensions (thousandsl $7.4 b savin(js $15.9 c $36.4 savings $97.7 d Savings $120.2 e tion $1 f20.8 tiong $124.1 tion $133.6 h savings $141.2 benefitpayments. Bycomparison,privatepensionbenefitstotaled$7.4 billion Total Characteristics (billionslC 8,478savings d 100% savings e Savings $48.1 f tiong100%tionh $6,800 tioni savings Thisdeclinefollowedimpositionby Congressof a continuallyincreasing Sectorc Total 8,478 11% _ 13% 35% 65% 40=/0 30'/0 11% $20,000-$24,999 $25,000-$29,999 $10,000-$14,999 9544.6 818 6 21 2 11 348 63 24 4.6 56 20 13 466 36,400 428 1 9 $15,000-$19,999 1,113 11 26 62 22 9 32 5 Federal EmployeeRetirement b 6.2 14.5 28.0 41.1 42.2 44.9 48.1 50.6 53.9 in 1970. (Table 1) savi million Private excise ng,over up The from the tax Census s 18 on ame per ass Bureau pe cent riod. e 54.6 tin reversions, will (T 198 ab 6. once leHow 3)55.6 again Th ewith ver, e ass colle th 56.7 the ets e ma ct icurrent nrgin pe thes nsion 58.1 for e pl e tax rror a data ns 43.2 rate grew in in thes April ranging from e esti 1993 $260 43 ma .4fthat rom tes billis ion will 20 too 44.9 in allow large 1975a to to 45.4 to to contribut defer, 79.5 perc In how ioMay n.) ent the Nearly 1988, for fu40 nd 43 1 11 s(k) spe ho ppa erce uld rc rtic ent nt be ipa of oinvest fnt all lump-sum swo ined e rk stablish ers, ,and re or w cipi he 51.2 me e the nts nts million rw ito nd ith save icat fewer wo ed deferrals rk that ers, than th actually 10 ey for plac employe retire participat ed at me eleast s. ntor ed some spe in an ndof retirementaccount (IRA)or anothertax qualifiedretirementsavingsvehicle uponjob change. varying $30,000-$49,999 $25,000-$29,999 $15,000-$19,999 observationson 1,113 the 4.6 possible 1,761 11 re 11 asons: 1 24 res28 po 12nseto56 the 31 lower 8.8 average 22 68 25 ag 37 1e 1 of the27 work 6,200 33 force 1 11 Total $20,000-$24,999 8,478 1,045 10 11% 30% 31 5 56 9% 25% 28 8% 9 3 38 4% 5% 6 Total $48.1 22% 44% 70% 15% 5% 21% 9% Amount see StateEBRI, and of Loc Most Pension alRece Employe nt Policy LSD e and Small Employers: At What Price Coverage?, 1989.) I am pleased to appear before you this rnomingto discussthe health of the privatepension Sex manufacturing 66.2 66.9 14.2 14.2 56.1 56,7 12.1 12.0 $5 $30,000-$49,999 $20,000-$24,999 per 0,000 ce ornt more to 50 p1,045 erce 8nt. .8 PBGC 11 561 27estimat 1 8 54 e 12 sonly$100 735 2 4.million 9 62 18 in 14 total 444 reve 34 10,300 rsions 22 1 5 $25,000-$29,999 818 9 30 60 19 15 34 5 Retirement 4.0 8.2 15.1 25.5 28.4 31.2 34.1 36.6 39.2 $1-$499 1,042 15 0.3 1 300 Male nonmanufacturing 4,597 51.5 12 52.73 42.415 43.9 36 39.867 40.0 38 2 32.8 9 6 33.3 S $2.0 e$50,000 x$25,000-$29,999 trillioor nin more 1990. 8184.9 10 21 2 42 11 65 35 66 12 391 2213 2 21 Sex new support $30,000-$49,999 for look the 1991. at conclusion manyof the that 1,761 issues the us addressed eof t14 ax-favor inthis edstatement 34 savingsalt 59 . ernatives 30by lump-sum 5 recipients 36 4 employer them their A mo sooner, growing stplan. recent are Coverage p distribut shifti erce ng ntage away and ioninpa o an fro frt f m IRA utur ici plan pa (Tabl te io s retire n po rates en 5). soe rs, were Mor swill toward ethus than rec pa up e 2rtic iv p from e e ipants. rcent private their ind 1989 icat pension ed levels thatth ben ofe54.2 y transferred efits. percent R$500-$999 ecentlyenactedchanges inthe955 tax withholdi13 ngof lumpsum distri 0.7 butionsar1e likelyto increase 700 the experiencedinthe 1980s; a desire byemployersto get positive motivationfrom sponsored plans;a Public 88.4 88.8 5.0 4.9 82.1 80,7 4.7 4.5 system. FemaleMy name is3,881 Dallas Salisbury 10 .I2am president 11 of 34 the Employee 62 Benefit 41 Resear 30 ch Institute 5 $30,000-$49,999 1,761 14 3 16 38 63 40 32 2 Source Male Male $50,000 Not repo : Em or rted plmore oyee Benefit 4,Research 597 561 12.7 32.9 Institute 22 24 1 19 2 tabulations 49 4 30 45 4ofthe May 7 71 61 69 6 1988 Curre 24 16 13 14 ntPopulat 3 4 5 8 ionSurvey 19 2 32 16 1 11 6 7 9 Subtotal 17.6 38.6 79.5 164.3 190.8 196.9 206.3 220.8 234.3 The proportionately higheradministrative costsfaced bysmallerfirms might be alleviatedby $1,000-$2,499 1,627 23 2.7 6 1,200 Accordingto the AdvisoryCouncilon SocialSecurity,the percentageof Other 29.8 32.2 2.8 3.0 14.0 4.5 1.3 0.4 $50,000 or more 561 20 6 25 55 78 30 22 1 emp Female Female loyeebenefitsupplem 3,881 ent 15.1 (CPS EBS).29 10 46 30 68 57 26 18 16 0 26 36 5 6 $2,500-$4,999 1,220 17 4.4 9 3,600 iHealth ncreasof ed Defin the followi Defined edbe ng nefit TRA Benefit pl '86. ansSystem havehistoricallybeenthe cornerstoneof the privatepension system. a so nd m42.7 e poA rt perce io defined n ofnt th ,respectively. e be di nef stri itbu plan tion promises to an insurance the Statement participa annuity nta or specified otherretire monthly mentplan. benefit Thi upo rtee nn retire percme ent nt, of d amou esire eld nt by e of rly emo mploy families neye pr rs e for srec erv easi ee diving ly for und retir in erstood e co mm ent. e and from Toco pa mmunicat rt employ iallyoffset e ed r-sponsored the plans; cost increased of thepensions unemploy regulatio is me no nt f benefit Race Legislativeandregulatorychangessince 1974 havesignificantly increased Workers 1987 Family Income 1987 Family Income Social aAggregat (EBRI), $5,000- Security a -$9,999 e nonprof andOld-Age average it,nonpartisan, amountsm 1,114 ay public be under polic st y ated. 16 research Whileorganization 8.5 millio 7.9 nworkers based ar 16 in e e Washington stimatedto7,100 have ,DC. Firm simplif Sizic e ation.Yet, simplifiedemployerpensions(SEPs) remainunpopular--just1 percentof full-time $1 Wh -$_e 14,999 7,9414.4 11 14 2 28 14 58 36 65 15 40 12 3027 10 16 Race 1987e Family xpected Incom to eincreasefromthe current40 percentto 76 percentby 2018. Ra $1 ce -$14,999 757 6 19 49 23 14 37 10 and be Survivors nefitportability. Insurance Today, nearlyalldefinedcontributionplansprovidefor received LSDsas of May 1988, data onthe amountof the mostrecent LSD receivedare onlyavailablefor $10,000-$14,999 449 6 5.4 11 12,000 Fewerthan 25 workers 18.5 18.6 5.2 5.3 13.6 13.6 3.8 3.9 Elevenpercentof lump-sumrecipientsreportedonlytax-qualifiedfinancialsavingsusesfor Since $15,000-$19 $1-$ regul 14,999 Coverage Inthe atory ,999 aggregate, cla and rifica part 757 tion the ic 4.7 ipat of defined thio e 8nRevenue rates b4 enef in 1c itrease A system ct of 26 with 1978, 8isfirm quand it 58 e 24 size healthy itsa 401 nd 59 (k) 20 despite earnings provisions, th 47 .e In 6existen firms there 32 wc it 30 ha e hof s fewer be some en 1 a 12 the recB ipie size lack nt of sre wh po ic rt hed typ usi ically ng 426 at depe least nd6 some supon ofsalary their h di and stribut / 6oryears ionfo 24 rof tax-qual servic 59 e. ified Und savings er 42 a defined 4. At 35 least benef some itplan, 0 trad ext White $15,000-$19,999 White eitio nsnal ionin deH.R. fined5260, bene7,941 1,198 fit Co plans; 46.5 ngress increas approv 22 11 6ed ed administrat a provis 45 3 23 1 ion iv that eco 70 56 59 st would dueto impose 26 25 1 regulation; 5 a 2010 p 5 9 aemobil rcentw e37 34 21 wo ithholdi rk forc ng e9 5 6 7.1 millionof these individuals.Therefore,the aggregateamountof mostrecentLSDs receivedexcludes Bene $15,000 fitPayments --$19,999c $28.8 211 $58.5 $105 3.1 $167.2 $176 3.6 .8 $183.6 7 $195.5 16,900 $208.0 $223.0 lumpsum distributions uponjob change. Over40 percentof privatedefined 25-99 work EBRI ers has long been 38.3 committ 41.2 edto the6.5 accurate statisti 6.8 29.4 calanalysis31.2 of public po 5.0 licy benefits 5.1 $20,000-$24,999 3.1 14 36 73 14 2 16 11 Black $20,000-$24,999 $15,000--$19,999 1,198 426 735 6 4 8 1 26 217 61 52 28 28 2 62 4 436 6 3236 30 2 7 9 wo Black rkersat small establishments 1.1 (with more 4 thanone 18 emplo 49 yee) partic 20 ipatedin1 1990--sugge 0 31 sting that 15 Other 110 17 h 17 26 76 24 18 0 the $20,000-$49,999 LSDsreceivedby the remaining 335 1.4 millionwork5 ers,leadingto an understatem 9.7 20 ent of aggregate 29,100 Before the Senate Labor and Human Resources Employer-sponsoredpensionsare also building for a growing number of 100-499 workers 57.8 59.5 10.5 10.9 45.8 45.6 8.3 8.4 benefitplansprovideforlumpsums,andthe numberis growingeach year. $25,000-$29,999 3.5 17 32 64 20 7 37 7 $25,000-$29,999 $20,000-$24,999 735 975 8 8 2 25 10 59 30 27 70 399 3037 1 4 Other 110 9 24 76 18 5 24 i th general Total than underfund amounts Other eirdistributions. 25 wo tre receiv nd rk ed ers, itoward nd ed ividual .18.6 (Tabl However, the pe plans ercent estab 6)0. ifThirty 4 $46.4 co no of lishment nc systematic workers e perce nt$97.1 rated 34 of nt (5.3 suppleme rwithin re e$184.6 lat ported million) ionship 57 several only $331.5 nt exists were aldefin financial ind 69 be co ustries. $367.6 tween ed vered, co savings, nt the ribut a 23 The nd $380.5 amount 13.6 overall ioa n nd plans o per 59 f 7 L $401.8 defined SD ce p among e nt rc rec (3.9 ee nt benefit ived 30 $428.8 large re million) po and rted$4J 57.3 savi the $5s 0,000 ng po snsor _broadly or mor is res e d po efined nsible 5 for _v maki ere 160 re ng po co rtntri edby bu65 tions 2 per tocent the plan's of rec 13.5 ipients. fund and Some choosi 28 consumption ngwhere 67,200 pens 6 was ion t that ax on may lump-sum be better distributions served with that a "cash are no balance* t directly or rolled definover edcont into ribu qualifi tionplans; edretir employers' ementaccounts. desireto The 500--999 workers 69.9 70.9 5.1 5.0 54.8 54.6 4.0 3.8 Subcommittee on Labor workingAmericans. Accordingto EBRI tabulationsof the March 1991 Current issues. $,30,000-$34,999 $30,000-$34,999 $25,000-$29,999 Through our resear 9804 754.c 6h,we 8 strive 23 11 to 1 contribute 44 289 to the 66 60 28formulation 24 29 63 of effe 414 6 ctiveand 3128 35 responsible 1 4 4 Marital Individuals, Status however,generallydo notrolloverdistributions intotax-qualified whetheror notthe amountis reported,distributionsand averages willnotbe affected. (Withoutevidenceof simplificationalone is not sufficientto spursponsorship. 1,000 or moreworkers 76.7 78.0 37.3 38.0 61.3 61.5 29.8 30.0 $35,000-$49,999 $30,000-$34,999 804 11.1 11 20 2 44 13 734 4 63 14 395 3219 1 7 $35,000-$49,999 2,241 13 33 62 25 8 32 4 Year Mar Mar itPopulation al inStatus ri Which ed MostSurvey, Recent 6,043 inMarch 12 199 20, 66.0 14million 36 civilian 66 workers, 38 or 55.3 30 6 Mar theitnature alStatus of sucha relationship, the effecton estimatedaveragesis ambiguous.) Inaddition,inthe May retirementvehicles. Amongworkersin 1988, (perce m ntage oreothan f total)8 millionhad employers pa only assets pension rtic savi ipat are system ng ed a invest snd in broadly an prima currently ed emp so de ry lo that defin fyer inhas ethe -d. spon ed $1.3 Noneth fund co so nt trill r ribution has ed e io plan le n sufficie ss, in in 34 plans, assets 1990. pe ntrcent assets as toBy co opposed iver nd co to icat mparison, $900 cover ed toonly defin bill the io in consumption promised n ed in establishme benefit liabilit benef ies plans, for . Therefore, nt ittheir s s w awhen mo ith ng 1,000 due. while or reportedby 40 percentof all recipients,while30 percentreportedsome discretionaryconsumption 7. bill giv $50,000-$74,999 $35,000-$49,999 e wou invld estm also ent lib discr eraliz e 2,241 te io curr nto 6.0 e ent mploy p 12 ension ee 34 s; rol a3cont iover ract rul 64 15 e ios. nor slower 77 39 growth 66 6 of sect 37 ors 4 of the 28e 10 conomy 3 12 $50,000-$74,999 682 17 39 63 26 5 31 5 Married 6,043 11 31 61 26 7 33 5 1988 L Married SD Separat CPS Wased R EBS ecepublic ived use 242 d38. ata1bas 10 e,all L 2SDs 2 1reported 47 11 to be gre 73 20 aterthan $99,999 62 15 in33 no 4minaldollars 2619 have 0 8 health, welfare, and retirement policies. Consistentwith our charter, we do not lobbyor advocate percentof all workers,workedforan employerthat sponsoreda pensionplan, Hours rec Wo eiv rked edpreretirementlump-sumdistributions.The amountthey received $75,000 $50,000-$74,999 or more 6829.8 16 31 4 56 18 745 5 68 15 363 2918 1 7 $75,000 or more 818 18 44 63 22 9 32 4 Total Widowed/divorced 1,211 100.0 8% 100.02 % 100.010 % 100.0% 27 100.0% 58 100.0% 45 100.028 % 100.0% 2 100.0% been Separat top-cod ed edat $99,9992 . 42 An estimated 11 36,800 work 14 ers hadrec 59eived LSDs 22 equalto or 7 in excess 31of this 2 1985-1988 Small e firmsmay resistSEPs 3,391 inpart be41 cause SEPs offer 19.7 littleflexibility 41 regarding6,500 the Part timed 30.5 32.4 7.6 8.1 11.7 12.5 2.9 3.1 Separated 1.1 8 9 72 12 9 22 J i.e., theywere covered bya plan. Nearly43 percentof allworkers, or 51.2 $75,000 or more 818 17 7 on 23 48 68 37 26 1 distributions, medaveraged iumand smell and $6,800 25 employers. percent and re totaled po Anrtied ncronly eased mor discr e number than etionary $48 of defined co billion. nsump be tio nefit Slightly n. Five terminations, pe more rcentthan indic a slower ated oneso rate of me of more there Never wo is$31 rk marr ers, bill ied 78 ion per inunderfu ce982 nt ofwo ndrk i13 ng ers wit(38.0 hin ind 2mill ivid ioual n)15 were plans, cothere vered 42 are andalso 64 61.5 suffi perc 46 cient entresour (30.0 33 million) cesavailable 2 With Widow a defin Tax edo- red favor divorc cont ed ed ribut savi 1,211 io ng nplan, swere ea generally ch partici 8cr mo pant sthas 23 prevalent an acc 53 (a ount nd c to onsumption whi 25 chthe e least 15 mplo prevalent) yerand 40 /oramong 4 (iamount ncluding as Accordi h of eavily Mayng 1988. unionized to EBRI There ta abu fnd ore, lat older both ionsag iof nd gregate the ustri May aland se1988 ctaverag ors) CPS ine which amou EBS, nt trad in s may May itional be 1988, understat defin 20 edmill ben edto io eth n fitcivilian eplan Widow 1980-1ed 984 or divorced 5.6 2,403 22 29 32 54 13.8 23 29 11 6,600 34 11 Fulltimee 60.5 61.4 56.9 57.9 50.9 51.0 47.8 48.1 specificpolicy solutions. Nemillion ver married workers,actually 982 part13 icipatedin 37an employ 54 erplan. 23 Cov12 erageand 35 11 Private May 1998 Pensions PensionStatusI 16.0 16.4 19.7 29.5 32.7 31.8 30.9 31.2 30.9 May degr e 1988 ee very that Pension ten the amounts re Status cipik e rece nts ived roll by ed these their wo e rk ntir ers actual edistribution lyexceeded into this amount. anotherretirement Never 1975-19 marri 79 ed 3.3 1,191 28 14 51 60 7.5 11 16 4 7, 18 700 22 allocationof benefitsamongworkers. Flexibilitymight fostersponsorship, but mightfrustrateefforts Amountof Most May Nonpa 1988 rticipan Pensio ts n Status k 21.5 21 41 70 14 7 20 9 Nonparticipants 3,978 108 _.28 _ _ 58 _ _._ 38 _ 12 _o._ 51_ 6 defin 197 pa ed 0-1974 rt be icipation nefitplanrates formation, were and thus 579 fund up ame from ntal7rth ede esign ir 1989 of trad le3.4 v ite ional lso"ffinal 54.2 7 pay pe "defined rcentand 7,200 benefit w blndiv mix pa Fed itrtic hin eral ofiid pa the savi Emp ual ted defin itng ems lo . yee Amo sand ed may R be ng e consu not tnef ithose readd m itesystem mp nt to earning b tion. total 13.4itself because $10,000-24,999 1 to 4.9 cso over me 1this respond 5.2 uper nd 12.4 erfu eyear, ntsdid nd56.9 ing not 11.5 .rFurthermore, e percent portsom 11.8 (24.5 e chara from mill ct 12 e io .1977 rist 0n)were icsto o11 f 1987, .8 11.8 wo emp rk arrangement lo ers yee neari may ng contribute retire (usu ment depe alage lyan nd when iIRA). ng on they the Thr rec spec ee eivif ed in icthe s ten of di the us stri plan e bu dtion; th . The eworkers entire particdistr ipant receiving generally ibution larger for co wo verag rkerse ag ised most 16 or firmly over establish (or 17 percent ed;federal of all tax such laws wo that rkers) hav re epo created rted having incentives beenfpa orrt new icipants defined ina Age Amount Recantof LSD Most _ _ _ __- Nonparticipants 2,672 10 1 11 33 64 40 8 1 the Participants mselvesorof their LSDs. 26.6 22 47 69 17 4 22 9 Pa 196 rt0- icipants 1969 4,500 558 12 • 7 32 60 2.7 19 6 7 _6,600 27 _- 5 Amoun State and tofLocal Most Employee 42.7 percent,respectively.(Table2) Under25 years 32.1 33.0 7.5 7.4 12.8 12.4 3.0 2.8 financialsavings(includingretirementplanrollovers,savingsaccounts, RecentLSD Source: toRetireme distribute ParticEmploye ipants nttax preferences eBenefit 5,806 Research broadly 8.6 12 Institut by 8.4 leavi etabulations 3 ng som 8.2 14 e ofwo the 7.7 rk May ers 361988 without 7.7 Current 65 substantial 8 Population .2 40 benef 8 Survey .523 its. 8.5 6 8.6 Source: Be $1-$499 foreE 1960 mployeeBenefit 1,042 The Research Health 136 3 Institut of the etabulat i Private 2ions3 of Pension the May 211988 0.5 System Current 50 Population 1 50 Survey 45,40 1 0 1 RecentLSD CBasesof percentagesexcluderespondents for whom recipientand LSDcharacteristicswere notreported. plans 25-44 into B ye e"cash ars cause bala larger nce" distribut 1 58 defined .7 ions benef are 60.0 more itplans lik 36.7 suggests elyto be3saved 7. that 8 Uon .47. S.a 9 employers tax-qualified 48. are 2 basis reevaluating 29 than .9 smaller the 30.4 determines co the ver fued nding andho status 44.2 w the pe ofc rce si ontri ng ntle (19.0 bu -emp tions mill loare yer ioto defin n)pa bert ed invest icipat benef ed ed it ..plans By A participant's comparison, hassignificantly pens among ion improved, those benefit earni then risi ng c ng onsists $50,000 froman of p cont ension stocks, ributor ion re arra e tirem tc.), nge eand nt me plan nts; six at and in a prior th teenlow job. usee o ri A d ng th total oe f ba e ontir fsic _ 8.5 incom e_ mill amount r_tio _e n two ax _ rk rates, for e eo- ro rs _ som (7 _ which percent ekind has _.o © reduced o f all f savings wo o rk the ers) _o -o_ em $ployee 1-$499benefitsupplement. 1,042 3 21 50 41 9 49 1 Source: EmployeeBenefitResearchInstitutetabulationsof the May 1988 CurrentPopulationSurvey employeebenefitsupplement. $$500-$999 1-$499 9550.3 6 3 1 196 48 31 42 62 409 2950 1 1 Current and Future Pension Receipts dRoundedto nearest$100. 45-64 years 63.8 64.0 18.8 19.1 57.3 56.7 16.8 16.9 $500 Privat --$999e-sectorpension 955 coverag 6 evarie28 ssignif59 icantlyby 26 employ11 ersize. Th 37 e 3 Subtotal employee benefitsupplement. 37.9 39.8 43.1 49.6 51.9 51.8 51.3 51.5 51.2 aAggr Sex $1 (including ,000-$2, agateamounts 499 financial are1,627 understat savings, ed 8by an hom unknown 1epurchas amount. 8 eWhile ,sta 28rt 8ing .5 million or 62buying workers 43a are busin estimated 34ess, to hav 2e $500-$999 0.7 7 28 57 27 12 39 3 aFor purposesof determiningexclusiveusesof LSDs, "don'tknow"and missingresponseswere taken as "no" 65 years and over 42.4 43.4 1.6 1.6 28.4 27.9 1.1 1.0 eBecausethe surveywas conductedin May 1988, it includesonlyLSDs receivedinthe firstfourto five type on $1,000-$2,499 es, of the plans prothey portion wish of 1,627 lump-sum to sponsomo r. nies 7 used by for24 tax-qual56 ifiedsaving 29is largerthan 9 the pro 38portionof5 I q the distribut or average ual me cif ontributions ire edS pe savi of io ma ns; r85 year, ll-fir and ng per sm w and wo 78 ce e plan re nt .rk 3investme fu e r pe e sponsorship rs nded po rce wrted itnt hto higher (6.5 nt by 129 returns 36 mill is per earni perce also ioce of n)nt ng were these int mpe fu s, of nded family those d co co ed ver ntributions. on by inco ed receiving relatively a,terminat a me nds, 74.0 and The lu low mp io pe ed n employe pay basis. sums ru cent cation levels, (6.2 at Available eage levels. be million) wh ars 55 icthe h or Some ev suggest parti over, id risk entax- c of ce ipated. a poor less alnd eff rec Male e $2,500-$4,999 eiv ctiv ividual ed etLax it SDs ems incent as may of iv May not e1,2 for add 1988, 2plans. 0to data total 4,597 16on becaus the ae mo 1 sount me 54 o re f spondents th 17 e mostre did 3c 9ent 32.9 not LSD report r 68 eceived some 68ar 37 information. e availabl 25 e 8,600 for only 7.1 2 report $1,000-$2,499 latest edhavi data ngreceiv indica edtat e2.7 that leastover on__ e lu 61 7 mppercent sum from 23 osuch f employees _ 57 a_. plan;, 1.1 29 in million compani __i_. work 9 ers eshad with __ 38 received 10_ 00, 5 responses. For example, a workerwhoseonly "yes"response wasto the IRA optionwas classifiedhere as using anddebt payment). Justoverone-thirdspentthe entiredistribution(on living monthso Private f 1988. pensionsare an importantsourceof retirementincomeand are expected to grow. $2,500-$4,999 1,220 14 33 62 20 10 31 5 millionof these individuals.Therefore,the aggregateamountof mostrecent LSDs receivedexcludesthe LSDs Social $2,500-$4,999 Female $5,000-$9,999 Security Old-Age1,1144.4 3,881 17 15 4 46 34 21 63 46 15.2 2 71 4 31 33 10 24,600 531 1 5 bhis Inc or ludes herIRAs, entireinsurance LSDfor "tax annu qual ities, ified and savings" otherreven etirement iftheprograms. worker'sresponseto one or more nontax-qualified Annual orEarnings moreemployeesparticipatein retirementplans,while,bycontrast,less expenses, education,cars, or otheruses). (Table 6) Recently enacted $5,000-$9,999 andSurvivors Insurance 1,114 18 36 67 19 6 25 7 rec $10,000-$19,999 eivedby the remaining 660 1.4 million 23workers.5Inadditio 28 n,inthe May 56 1988 CPS 80 EBS 33 publicuse22 data base,1 all LSDs opt $5,000-$9 ionswas ,999 "don_know"or m 7.9 issing. Som 1e 7workers did 35notrespond 68 "yes"to 17 any of the use 6 options; 24therefore,8 r su ecgg ipients ests In that re 1975, po arti pp there ng roximately such were savi 103,000 85 ng.pa In rcent cont defin of rast, ed pension be the nef 11 it plans pe plans rcent are wit o cu h f lump-sum 33 rrently million fully gross re fu cipi ndparti ed ents on w cipants ho a terminat report and ed $186 ion (Table co skilled investment L m ess pathan r 2) and ed with possibly $10,000 returns 4 peand rc less ent gains attach o27 f those .9the edreward wo rece rk29.1 ivi force. of nggood lump Lower 10.7 returns. sums earners at10.7 ageand 16-24. 10. young 7 Twenty-nine emplo 10 yees .3 pm er ay ce 4.1 prefer ntof tho not se 3to .8 Clncludes tax qualifiedsavings,savings accounts,and otherfinancialinstruments. more than Many onemaintain lumpsum. that Agov mong ernment the 7.1 reg mill ulat ion io lump nhas sum made recipients definedwho benere fitpo plans rtedtoo thecostly, amount of Dallas L. Salisbury, than 14 percentof employeesincompanieswithfewer than25 employeesdo $10,000-$19,999 660 23 42 67 11 7 20 13 According changes to the inAdvisory the tax Coun withholding cilon Social of lump Security, sum thedist perc rientage butions ofar elderly e likfamilies elyto incre receiving ase Rac $20,000 e or more 495 22 10 29 62 81 30 22 1 mutually report $10,000-$1 Beneed fitto Payments -exclusive be 9,999 great horizo certhan nt$99,999 al8 per .9 62.1 centages in nominal 25 60.3 maydollars add 56.9 to 43 have lessthan 5 be 0.4 en 100 68 top-cod per 48.1 cent. ed11 at $99,999 48.3 . 7An 48. estimated 7 19 48.5 36,800 1348.8 $10,000-$24,999 57.2 56.9 24.7 24.5 45.6 44.2 19.7 19.0 dlncludesallfinancialsavings,purchaseof a house,paymentof a mortgage,and paymentof loansordebts. $20,000 or more 495 22 President 44 70 9 4 19 12 work so. ers (T had able receiv 2) edLSDs equalto or in excessof thisamountasof May 1988. Therefore, aggregateamountsare $20,000 White or more 23.2 7,941 26 94 53 75 46.5 13 97 2 6,900 16 9 the amountof moneypreservedfor retirement. blndividual $25,000-$49,999 itemsmay notadd 77 to .5 totalbecaus 78.e 0some 23.3 r.,,res _ pondents 24.3 did not 71 re .6 portsome71.2 characteristi 21.6 cs. 22.2 only bill basis, iotn ax in up -q assets. from ualified 45In us percent 1988, es accou there in1981, nted were for and 22 146,000 38 pepercent rcesuch nt ofhad the plans, total assets down amount infrom excess distribut theof pe 150 ak ed of (Table per 175,000 cent 7). of The plans liability 34 in for rec defer eiving paData Pa y,distribut and rtici on pa sma nts the io llns in firms in of defined co $20,000 me may replaceme c be ontribution or relu mo ct re ant nt sav plans to level ed add at tend provid benef least toed pa it me srt to by nage of salary private that their a for mo fu pensions perceiv unt ndson conservatively, a ed tax-deferred on lyshorter-term an individual basis, by e their lnclud most espurcha recent selump of a csum, ar, edu the cats io endistri expen _ bu se tio s_ e ns xpe ao mo nses u _ nted incurred _to_ $48 during °_billa ioperiod n,or _ an of _ average unemploy om f a ent, bout and g other promptingplansponsorsto offerno pensionplan orto shiftto generallyless burdensomedefined und Bla erc st katedto the degree thatthe amounts 426 received 5by these workers1.1 actuallyexce2 ededthisamount. 3,600 Source: AgeWheEmployee nMo= Rece Bene nt fitResearchInstitutetabulationsbased on U.S. Departmentof Commerce,Bureau income $50,000 from ande over mployer-spo 77 nsor .1 edpensions 78.3 is expect 5.9 edto6.5 increase 73.1 fromthe current 74.0 40 per 5.6centto 76 6.2 c IncludesIRAs, insuranceannu Employee ities,andother Benefit retirement Research program Institute s. uses. Age LSDWasRec When Most eivRec ed ent Other 110 1 0.4 1 4,000 of EconomicAnalysis,Survey of Current Business, January 1992 (Washington,DC: U.S. Age bForWhen purposes Most ofR determining ecent exclusiveusesof LSDs, "don'tknow"and missingresponseswere taken as "no" The numberof pensionplanshas grownsignificantly sincethe enactmentof dlncludes LSD Was tax Rece qual ivif ed iedsavings,savingsaccounts,andotherfinancialinstruments. accru The edbene empl fitoy s. ment-basedpensionsystemis largerand strongerthan at any perce 1982 16-24 and ntof1983. recipie The ntsnum re 1,225 pobe rting rof on gross ly 3 consumption partic 1ipantaccounted shas 4 remained fo 24r 21 inpercent the 51 40-41 of total million 50 distribut range 37 io sins. nce 2 e flnclud ipreferring nd LSD mp ividual lo Was yees. es Gov purchase R basis loe e w Therefore, c rnment e -risk, ived are oflo a Pnot w ri car, nt -return substa ing generally and Office, other invest ntial 1992); uses available. inc me reases .nt T ._ s. he . In Nati Typically, in r_. •ec o pa nal ent rticipat -- _ _Inc surveys, _ oprivate me ioand nat 401 Q _ Pr small defin O o(k) ducts Q) _._ ed ",,I firms plan _Accounts benefit pa m _ig rticipants ht .1 _ plans _require of _ ¢ the _ are descri United large targeted bed to as Gend did er6 percentof those receivingdistributionsof lessthan$2,500. Some portionof distributions $6,800 cont responses. ribut per ion r For plans ecipi example, e(see nt,inEBRI, co a nsta workWhat er ntwhose 1988 is the dollars. only Future "yes" 3 rof esponse Defined was Bene to thfit e IRA Pension option P was /ans? classified , 1989).here as using percent bythe year 2018. 16-24 1,225 4 23 49 34 13 47 2 elncludes the Employ allfinancial ee savings, Retire purchase mentIn ofco a house, meSe payment curityA ofct a m (ERISA). ortgage,andFrom payment 1975 of loans to or 1988, debts. 25-34 3,755 9 2 10 32 67 39 29 5 16-24 othertimein ournation's 2.3 histo 6o ry. Chang _ 1o 7_esin3rec 8 o e_ntyears 38 have o_ 18served5to 7 3 Age his Me or in n May her Stentire at 1988 es: S LSD tatistical for "tax Supplement, 56.1 qualifiedsavings" 1959 57.- 21988 even ,34.8 Vol. if the 2worker's (Washington, 35.5 respo 44 DC: nse .6 U.S. to onG eov or 46 e more .rn 9 ment non Printing 27 tax .7-qualifie 29.1 d glncludeseducationexpenses,and expensesincurredduringa periodof unemployment. 0 25-34 3,755 9 28 61 24 9 33 6 16-24 35-44 2,042 13 161 2 2 15 38 0.1 66 0 39 32 800 2 25-34 13.3 13 28 65 16 9 26 9 flndudes options Women thewas Off total purchase ice, "do1992); number n'tof know" aand car or o and U.S. f 52.1 missing. tax-quali other Department us Som es. 53.3 fe ied o workers f Health employ 29did .a 6nd not e Human r-sponsored res 30.5 poS nd erv "yes ices, 38."5 to plans Social any oS f(both the ec 38.6 urity use de Administration, options; fin 21.9 edtherefore, 22.1 subsidies. 1983, enhanc and Th A sta there e foregoi e nd ben ard was terminat e ng $912 fit evid sec billion enc u iori n eof ty sugg in a aassets nd defined ests the that in security be 1988 a ne relatively fit . plan Over ofoccurs a the small sse same ts. when proAs time port aon ion plan per e of io watches sponsor total d,the lump-sum number dec pres ides of amounts e to nt the paid provide hNom obs to selves one-fourth e60 rvations percent as co in nservative of category. repla all rec cement ipi investors entsfor earni high who ng$50,000 earners prefertoor and direct me 80 re their pe inr 1988 c own entwas for investments low saved earners on toward a tax-quali after insuran 30 fyears iedce of Table 4 summarizesthe distri Washington, butionof lump-sum D.C.recipientsand amountsby selected One of the mostsignificanttrendsinpensioncoveragehas beenthe tremendousgrowthof 35-44 2,042 13 30 60 27 6 33 6 45-54 850 22 5 26 50 70 35 22 1 35-44 25-34 In 1990, private pe 15.2 nsion 2,348 benef 20its of $141 28 41.2 billio67 n accounted 6.0 21 for12 31 roo, per 3_ cent of 2,900 _ 24 the "a $457.3 9 1991 Annual Report of the Board of Trustees of the Federal O/d-Age and Survivors Insurance and mutually-exclusive horizontalpercentagesmayaddto lessthan 100 percent. u1 glncludeseducationexpensesand expensesincurredduringa periodof unemployment. benefitanddefinedcontributionplans)increasedfrom311,000 to 730,000, iL45-54 ess athan ctions 0.5 pe atrcent. the stat 850 e and local 20 levelsbrought 41 on 62bytight 18 budgets, 9andact 27 ions 8 55 or over 385 31 7 36 61 75 29 25 0 45-54 10.1 25 55 78 4 3 7 15 35-44 3,149 o 37 _- o< o 14.7 _ 31 5,500'=I Disability Insurance TrustFunds (Baltimore,MD: SocialSecurityAdministration,1991). Source: Clndividual Employee items may Benot nefit add Res to etotal archbecaus Institute etabulations some respo ofndents the March did not 1990 repo and rtsome March chara 1991 ctCurr eristics. entPopulation hlncludesdiscretionary and nondiscretionary consumption. 55 or over 385 28 53 70 19 3 23 6 defin are curr edcont ently ribut pres io en rv plans edonincreas a tax-favor edfrom edbasis. 208,000 Larger to 584,000 distribu . tions The num and tbe horsof e rec gross eived part later icipants ina JB serv basis, t ae nd rminat ecau and bank ice, wh se in th e gro e co aco r ee d surv nt as mbinat e ss racts. fin 7e participation ed p ywas erc be io Res n e n co nt w enduct it fit pond o hfplan r Social ec ents ed ipi and (activ in eSe to May ntb s a c u e n urity. e ys 1988, aEBRI work rn annuiti ing Large includ /lGallup e ess rs, es than e employers s co son e publ vparat e ly $10,000 ring LSDs icopinion th ed that e rec v pa re e e provide ived port rtic st survey e ipants' e in d, dth su such both e co first rv b nd eivors, saving. a n u four e defin ct fit ed s. toand in fiv ed If April th ebe months enef plan 1990 it a of nd 1988. 55 or over 6.8 41 75 82 13 1 14 3 charact 401 45-54 (k) beplans ing edstics. cont ove Most re th mplat elump pasted d sums e by ca1,666 d th w e.e erMore Congre e of small thanss 20 a 27.5 mo tounts, mill deny io bu n$25 wo t larger rk 12.2 ers million lump werein sums co25 sch veraccou eed dby ul401 nt eed d(k) 9,200 for plans a large in alncludasonly employment-basedretirementbenefits. Survey. billion in Finally, total retirement smallemployers benefitmig payments. ht lack easy Byaccess compato rison, pens private ioninformation. pension be Private nefitsm totaled arketing $7.4 dlncludesIRAs,insuranceannuities,andother retirementprograms. iLessthan0.5 percent. Ye55-59 ar inWhichMostRecent 545 6 7.7 16 18,900 kA work retir eree is co s) nsider insuch edto be plans a pens ros ione pa from rticipa45 nt if h million e orsheto reported 78 million inclusio ov nine arpe thnsion, e sam retir e ement,profit- _ _ _ _ _. _ _._ _ _ _ • contributionsto the Districtof ColumbiaRetirementSystemand to force the blncludescivilianand militaryemployees. aEmployeesreportingthat theiremployer had a pensionplan or a retirementplan for any of its employees at anyjob Year inWhichMost Recent elncludestaxqualifiedsavings,savingsaccounts, August and4, other 1992 financialinstruments. LSD Was Received Y JBecau e60 ar in orWhich over se the survey Most Rec was ent conductedin 608 May 1988, includes 7 onlyLSDs rec 7.4 eived inthe 15 firstfourto five 15,600 monthsof 1988. inc sharing, reased stock, from or 12 401 million (k)-type toplan 37 million at a wag ine1 and 986, sala and ryjob, remained or report ated that a se level lf-emin ploy 1988. edjob The andamount contributions of to an careerare more likelyto be investedintax-qualifiedretirementarrangements. However,the fact that a holds express defined ass Changes ed econt ts a pr ineference ribution excess in theof plan law for thmaking e pe traditionally be rtaini neftheir itng sow toown pr ed have e ,retireme those investme notassets included ntlu ntde mp may c-sum isions any bedistri defined rand ecovered bu said tions co they by ntri may the bu were tion have employer me be increased re nefit inc . lin in ed the Clnclud period. es payments Theto assets retiredworkers inthes and eplans theirwiv gr es, ehusbands, w from$and 260 childr billion en. in 1975 to $2.0 May proportio 1988, nof up the from total 7.1mo mill ney ion rin ecMay eived 1983. .One-ha The ifsof e fig lump uresum srepr re ecipients sented24.2 reporting percent indic and ate 7.1 dthat percent their they allo held ca intion 1989o af nd $2 1990. 10 millionin UnitedMineWorker pensiondollarsto pay retiree LSD Was Received effortsare oftengiven partialcreditforthe historicalpopularityof IRAs and, at largefirms,401(k) flndu billion LSDdo Win s as all 1970. Rece finan ived ci Combined alsavings,w purchase ith benefits of a hou paid se by , pay the mf eed nt o eral f a mo civilian rtgage, and and mil paym itary ent retirement of loansor system debts. and IRA 198 or _Keogh. 451 18 5 23 46 74 31 25 0 kA worker is consideredto be a pensionparticipantif he or she reported inclusionina pension,retirement,profit- trillionin 1990. (Table3) bEmployeesreportingthat they participatedin a pensionplan or a retirementplan at any job they held in 1989 and 1988J medicalbenefits,451 onecan only 21 be pleas 43edthat 69private21 plansare 5well fund 26 ed. 5 Ag sharing, 1988 e 1987 When k stock, Mostor Recent 401(k)-ty 1,22 pe 02plan .5 at 18a wage 36 and 3 salary 59 20 job or report 746 1 eda se2 72 lf5 -employed 37job 1 and3 co 126 ntributions 1 to 3an glncludespurchaseof a car andother uses. assets 1990. in suchplansincreasedfrom$74 billionto $592 billionbetween 1975 and 1988. (Table 3) to you calculation, Such choose ngre erco recipi lo ve but w ri-e e risk s this nt are s/a lo nd is known wal return tho sose beginning as investments. w"asset ith lowrev e to rearni ce hange. rsions." This ngprefere sAs are Total aleresult, ss nc rev lik efor ee rsions future ly le to ss opt risky p formulas efor ake a pres d nd inlower in e 1985, rvat defined return io when nmay be investments $6.1 nef indicate it plans the popularityof tax-favoreduses. IRAs,firstestablishedunder ERISA in 1974, havegrownin o mo f all stwo recrk ent ers, lump respe sum ctiv amou ely.Pa ntrtic edto ipation lessthan grew$2,500. from2.7 Just million 7 pe wo rcent rkers had (2.7 received percent $20,000 of all wo or rkmo ers) re. in LSD 1987Was Received 1,220 16 39 61 22 5 27 11 IRA 1986 or Keogh. 920 15 3 18 39 70 38 29 1 plans. 1987 If policies spurpens6.3 ionmarketi23 ngtowards 49 mallfirms, 65sponsorship 14 mightrise. 4 18 16 hlncludes state and edlocal ucation government expensesand employee expensesincurred retirement during systems, a period o employer f unemployment. payments of $234.3 billion 1986 920 15 32 61 22 8 30 9 CRefersto longestjob held duringthe year. 16-24 1985 800 1, 15 225 2 15 17 45 2.3 72 5 30 21 2,100 1 1986 5.8 26 36 58 19 4 23 19 Followingregulatoryclarification of the RevenueAct of 1978, and its401(k) ilnciudes Thediscret priva io te nary de and finnondiscretionary edbenefitsystem consumption. has the addedstrengthof pooledrisk 1985 800 15 39 69 19 8 27 3 Morerecent data fromthe InternalRevenueService's(IRS) Officeof EmployeePlansand are that bill may 25-34 io likely som mean nwas e to you having re provide covered, ngerless aless, ndamoney nd ioas wer- have suppleme e availab a 3,755 declined mingworkers le nt in al si defin retire nce45 are that ed me co no nt. tint me t ad In ri.bu e other This quately tionplans declin words, 13.3 planning prov emany follow id28 for eworkers more. ed th impos eirAs retirement may itio a c 4,100 n ase have by inless point, dE po 1985 m pu 1980-198 ploy larit ey es as 4 rea po vrt eing hicthat le2,403 for they tax 5.1 usually -favor 13 ed work lump-sum 14 ed3 fewerthan rol 615 1io 35 vers. hours Just 736 8 pe3 r w pee ercent k 66 at 7 this of job. lump-sum 389 recipi 2815 entswho 3 7 1983 Howeto ve15 r,thos .7 mill erio ec ne(13 iving .8 per less cent than of$2,500 all work accou ers) in nted 1988. for 8And, percent in 1988, of the the total major amo ity unt of 401(k) received, JL accounted ess provisions, than 0.5 for pe51 rcent. ther percent e has ofb total eenbenef a treitnd s in toward 1990. th Social e establishm Security bee nefits ntof de forfin retirees ed and their protectionthroughthe PensionBenefitGuarantyCorporation.Thisprotection 1980-1984 2,403 13 30 60 25 8 33 5 35-44 2,042 25 15.2 32 8,500 1980-1984 1975-1979 1,191 13.8 6 23 1 457 74 22 13 57 463 3618 2 8 eEmployeesreportingthat they usuallyworked 35 or morehoursper week atthisjob. kBecausethe surveywas conductedinMay 1988, includesonly LSDsreceivedinthe firstfour to five monthsof 4 19 5co -54 75-1979 ntributionplans 1,191 . By1988, 850 th 5 e numb 10 19 erof de 53 fined 10.1 contribution 31 21 10plans14 42 ,500 4 197 is0- not 1974 availableto 579 federal, 1 state or 1 localp 2 ension 25plans. 61 40 28 1 1975-1979 7.5 26 39 75 16 5 21 4 Co Exe ng mp ress tOrganizations of a continually indicates increasi that nga excise flatteni tax ng on of the asse defined treversions, contriw bu ith tion the tre current nd may tax berate presently s when retire ecurment it fy. ederal Whi inco le employees me furt than herresearch they were need given isunless needed thethey ,new it app dive "thri ears rsif ft" y that plan, away ththe e from re defined isthe a substantial optbe ions nefit the potential plan y currently was for made ffavor urthe less or r whil pa 1988. rtic etip ho ants se r eec arn eiv ed ing less $20,000 than$30,000. or more accountedfor 48 percent. Conclusion 1970-1974 579 1 21 59 26 12 38 2 55-59 214 3 4.7 10 26,800 spousesand dependentsaccountedforthe other49 percentof totalbenefits. (Table 1) 197 Before re 0-pres 1974 197e 0nted80 p 914 erc 3.4 ento 1f all14 plans, 2 up 47f3 rom67 78 25percent 49 11in 1975. 506Defin29 e17 d 1 5 E_ Before 1970 694 1 21 44 36 15 52 3 IA60 worker orover isconsideredto be a pension 171 participant if he 2 or she reported2i.nc 0 lusionina4pension,retir 15,400 ement,profit- Before 1970 3.2 J (continu 14 ed) 44 33 14 49 5 contributionplanassetsaccountedfor 39 percentof totalprivateplanassets retirementincomegainsfromenhanced preservation. It is likelythat preservationwillbe enhancedto c generous ra ong ntri ing bufrom tethan a much 20 the per larger old cent Civil to pro 50 Serv po percent. rtion ice Retirement of the PBGC ir income. estimates System. only$100 millionintotal reversionsfor 4IncludesIRAs, insuranceannuities,and other retirementprograms. sharing,stock,or401(k)-typeplan at a wage and salaryjob,or reporteda self-employedjob and contributionsto an (continued) (continued) The employment-basedpension system in the United States is a model for the rest of the (continued} in 1988, upfrom 28 percentin 1975. (Table3) C) IRAor Keogh. 5Includestax-qualifiedsavings,savingsaccounts,other financialinstruments,purchaseof a 1991. C somedegree bythe new 20 percent withholding provision. house, payment of a mortgage, and paymentof loansordebts. world. It has contributedto the high economic statusof the current generationof retireesand holds Private defined benefitplansare well funded. The overalldefined benefit Th 6Inc e views ludeex spu pressed rchas in eof this a car, statemen educat t areio so n le e ly xp th eose nses, of e thxpenses e author and incurred shouldduring not bea att pe ributed riodof to the 2When requested,the InternalRevenueService's(IRS) Officeof EmployeePlansand Exempt pension system currently has $1.3 trillion in assets to cover $900 billion in Employee u !nemp Cashloy balance Benefit ment, Research plans and otare he Institute, rlegally uses. its defin office ed rs,be trustees, nefit plans sponbu sors, t co omb r other ine features staff. Theof Employ bothee defined Benefit Organizationsissuesdeterminationlettersregardingthe tax-favoredstatusof privateplanswhen 3Only7.1 millionlumpsum recipientsreported the amount they received.All totals and averages great promisefor the future. It has provideda high returnon investmentfor employers,individuals, Re benef searchita Institute nd defin is ed a non cont profit, ributnonl ionx_r plans. tisan, public policy research organization. they are established,amended, and terminated. 7Includespurchaseof car, andotheruses. reportedhere arefor those recipientswho reported the amount. EMPLOYEE BENEFIT RESEARCH INSTITUTE 3 I1 1 2 4 50 6 2121 K Street, NW / Suite 600 /-7Washington, DC 20037-2121 Telephone 202-659-0670 FAX 202-775-6312