Category Archives: Retirement

Social Security Programs and Retirement Around the World: Disability Insurance Programs and Retirement – Introduction and Summary

Source: Courtney Coile, Kevin Milligan, David A. Wise, National Bureau of Economic Research (NBER), NBER Working Paper No. w20120, May 2014
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From the abstract:
This is the introduction and summary to the sixth phase of an ongoing project on Social Security Programs and Retirement Around the World. The first phase described the retirement incentives inherent in plan provisions and documented the strong relationship across countries between social security incentives to retire and the proportion of older persons out of the labor force. The second phase documented the large effects that changing plan provisions would have on the labor force participation of older workers. The third phase demonstrated the consequent fiscal implications that extending labor force participation would have on net program costs – reducing government social security benefit payments and increasing government tax revenues. The fourth phase presented analyses of the relationship between the labor force participation of older persons and the labor force participation of younger persons in twelve countries. We found no evidence that increasing the employment of older persons will reduce the employment opportunities of youth and no evidence that increasing the employment of older persons will increase the unemployment of youth. The fifth phase on “Historical Trends in Mortality and Health, Employment, and Disability Insurance Participation and Reforms” was intended to set the stage for this current phase.This sixth phase of the ongoing ISS project is particularly related to the fifth phase (Wise, 2012) and the second phase (Gruber and Wise, 2004) of the project. This volume continues the focus of the previous volume on DI programs while extending the methodology to study retirement behavior used in the second phase to focus in particular on the effects of the DI programs. The key question this volume seeks to address is: given health status, to what extent are differences in labor force participation across countries determined by the provisions of disability insurance programs?

State and Local Government Workforce: 2014 Trends

Source: Center for State and Local Government Excellence, May 2014

From the summary:
Local and state governments continue their hiring trend although their workforces are still smaller since the 2008 economic downturn; recruitment and retention continue to be challenges; and pressure on benefits continues, particularly health care.
This annual survey was conducted by the Center, International Public Management Association for Human Resources, and National Association of State Personnel Executives of human resource professionals. Two hundred ninety-eight (298) IPMA-HR and NASPE members took part in the survey, which was conducted in March and April 2014.
∙ 66 percent of respondents reported hiring employees in the past year.
∙ 55 percent reported hiring more than they did in 2012.
∙ One-third reported hiring contract or temporary workers.

At the same time, the pace of retirements quickened:
∙ 49 percent reported higher levels of retirement in 2013 than 2012.
∙ 22 percent reported employees had accelerated their retirement.

Changes to benefits continue:
∙ 61 percent reported their government made changes to health benefits for both active and retired employees.
∙ The most common changes were to shift more costs from the employer to employees (53 percent) and to institute wellness programs (31 percent).
∙ 35 percent reported their government altered retirement benefits over the last year.
∙ About one-fourth required increased contributions to pensions from both current and new employees.

Looking ahead, the majority of respondents say their top concerns are:
∙ recruiting and retaining qualified personnel
∙ staff development
∙ succession planning
∙ employee morale
∙ competitive compensation packages
∙ public perception of government workers
∙ reducing employee health care costs
∙ dealing with increased employee workloads

State and Local Government Finance: The New Fiscal Ice Age

Source: D. Roderick Kiewiet and Mathew D. McCubbins, Annual Review of Political Science, Vol. 17, May 2014
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From the abstract:
The Great Recession that began in late 2007 had devastating consequences for the fiscal health of state and local governments, and many remain in a precarious financial position. Several cities have declared bankruptcy, and more will do so in coming years. The future, however, promises no long-term relief. Due primarily to the aging population of the United States, state and local governments are allocating large and increasing shares of their budgets to expenditures on Medicaid and on retirement benefits that they have promised to their past and current employees. As these expenditures consume more of their budgets, there is less to spend on transportation, parks and recreation, education, public safety, and all the other services that these governments provide. We are thus experiencing the onset of a New Fiscal Ice Age, a period in which a given level of tax revenue purchases a considerably lower level of current services.
Related:
Research Findings

Perspectives: Immigrants and Retirement Resources

Source: Purvi Sevak and Lucie Schmidt, Social Security Administration, Social Security Bulletin, Vol. 74 No. 1, 2014

The extensive literature documenting differences in wages between immigrant and native-born workers suggests that immigrants may enter retirement at a significant financial disadvantage relative to workers born in the United States. However, little work has examined differences in retirement resources and retirement security between immigrants and natives. In this article, we use data from the Health and Retirement Study linked with restricted data from the Social Security Administration to compare retirement resources of immigrants and natives. Our results suggest that while immigrants have lower levels of Social Security benefits than natives, when holding demographic characteristics constant, immigrants have higher levels of net worth. The estimated immigrant differentials vary a great deal by number of years in the United States, with the most recent immigrants being the least prepared for retirement.

Worker Participation in Employer-Sponsored Pensions: A Fact Sheet

Source: John J. Topoleski, Congressional Research Service (CRS), CRS Report for Congress, R43439, March 26, 2014

This fact sheet provides data on the percentage of American workers who have access to and who participate in employer-sponsored pension plans. The data are from the National Compensation Survey (NCS), which is conducted by the Bureau of Labor Statistics (BLS). The NCS provides data on occupational earnings and the availability of employee benefits among U.S. workers.

Solving the Retirement Puzzle: The Potential of myRAs to Build a Personal Safety Net

Source: Reid Cramer, Justin King, Elliot Schreur, Aleta Sprague, New America Foundation, May 2014

From the summary:
The growing recognition that millions of Americans are ill-prepared for retirement has prompted a number of state and federal policy proposals to promote retirement security. Yet even the most promising proposals fail to acknowledge a prerequisite to sustaining long-term savings: access to flexible resources that can be tapped in an emergency or can support productive investments that can pay off over the long haul. One recently announced effort – the Obama Administration’s myRA program – is designed to facilitate access to a savings vehicles for the mostly low- and middle-income Americans who miss out on current savings opportunities. As currently designed, the program is unlikely to have a significant impact at scale on the long-term prospects of this group of workers. But with certain adjustments and policy reforms, myRAs could facilitate the creation of personal safety nets that would both provide short-term financial stability and lay the foundation for a secure retirement. Short-term, flexible savings are a crucial but overlooked piece required to solve the retirement puzzle.

Effects of Pension Plan Changes on Retirement Security

Source: Danielle Miller Wagner, Joshua Franzel, Elizabeth Kellar, Amy Mayers, Bonnie Faulk, Alex Brown, Keith Brainard, Jeannine Markoe Raymond, Dana Bilyeu, and Ady Dewey, Center for State and Local Government Excellence and National Association of State Retirement Administrators, April 2014

Key findings:
– Pension reforms reduced the amount of retirement income new employees can expect to receive compared with that of existing employees. Reductions ranged from less than 1 percent to 20 percent.
– New employees can expect to work longer and save more to reach the benefit level of previously hired employees.
– Hybrid plans adopted in five states produce a wide range of estimated retirement incomes. Holding investment returns constant, the determining factor in the size of the hybrid benefit is employee and employer contributions. For this analysis those states with higher required contributions produce a higher benefit than those whose statutory contribution rates are lower.
– Changes to retirement plans include an increase in the number of years included in the final average salary calculation (21 states); a reduction in the multiplier (12 states); and a change to both of these variables (nine states).

The report calculates the retirement income that state and local employees hired under the new benefit conditions can expect, and compares it with the retirement income they would have earned before the plan was changed. The report was produced with financial support from AARP.

Since 2009, 45 states have responded to fiscal constraints by making significant changes to their retirement plans, including increasing employee contributions, reducing benefits, or both. Other states have modified their plan design, choosing to transfer more of the risk associated with providing retirement benefits from the state and its political subdivisions to its employees.

The report also summarizes interviews conducted with public sector human resource executives and retirement experts from 10 states that have made significant pension plan changes (Alabama, California, Colorado, Hawaii, Missouri, Ohio, Pennsylvania, South Carolina, Tennessee, and Virginia).

Although newly hired employees will need to work longer or save more to have the level of retirement benefit that employees previously earned, state human resource officials say that wage stagnation and the increased cost of benefits for employees is a more immediate concern. To address the savings gap, many plan administrators are providing enhanced

The Hidden Nature of Executive Retirement Pay

Source: Robert J. Jackson Jr., Colleen Honigsberg, Columbia Law and Economics Working Paper No. 475, February 2, 2014

From the abstract:
There are two competing theories of why public companies pay executives generous retirement benefits. One is that retirement pay is easier to hide from shareholders than other forms of compensation. The other is that retirement benefits align executives’ interests with those of long-term creditors, since the executives may not receive their payouts if the firm goes bankrupt. The latter view depends on the assumption that retirement benefits put executives in a similar contractual position as the company’s creditors. Yet no previous work has tested that assumption.

This Article provides the first systematic study of the contractual structure of executive retirement payouts. Using retirement pay data for thousands of executives, we show that a large proportion of executives link the value of their payouts to the company’s stock price and receive the bulk of these payouts immediately following their departure — features that contradict the incentive-alignment theory of retirement pay. The evidence also shows that the full amount and structure of retirement pay are undisclosed — findings consistent with the camouflage theory. While the structure of some executives’ payouts can be reconciled with the incentive-alignment theory, current rules do not give investors the information they need to tell the difference between payouts that align incentives and those that camouflage compensation. Lawmakers should require companies to reveal the magnitude and structure of these payouts, and neither regulators nor commentators should assume that retirement benefits suppress top managers’ appetite for risk.

Walking a Tightrope: Are U.S. State and Local Governments on a Fiscally Sustainable Path?

Source: Bo Zhao and David Coyne, Federal Reserve Bank of Boston, Working Paper No. 13-18, December 2013

From the abstract:
This paper develops a new measure of state and local fiscal sustainability called the “trend gap,” which is based on socioeconomic and other fundamental factors and removes the short-term influence of the business cycle. The paper estimates the trend gap and finds that the nationwide per capita trend gap has been on a growing path over the past three decades, a different conclusion than found in previous studies. Social insurance and income maintenance programs have played a major role in the growth of the trend gap, while pension and other post-employment benefits (OPEB) plans have become increasingly important in driving it up. In addition, there are large and growing disparities in the trend gap across states.