mmca»^»^»,tf.n(iMirrittiriiiirtiiiimf' LIBRARY OF THE UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGN 301.435 V./I-I5 The person charging this material is re- sponsible for its return to the library from which it was withdrawn on or before the Latest Date stamped below. Theft, mutilation, and underlining of books are reasons for disciplinary action and may result in dismissal from the University. UNIVERSITY OF ILLINOIS LIBRARY AT URBANA-CHAMPAIGN -^i^cJ^^/s) •78 m=^=^m- im\ L161 — O-1096 Background and Issues 1971 RETIREMENT 1971 WHITE HOUSE CONFERENCE ON AGING Mil ot\s^^ 0OA Rub John Laura Waltei George •Garson David N Luther ^ Thomas * Roger F. Noverre ^ •Bernard E. Melvin N. ^ n Rensselaer alters ers atkin, M.D. White, M.D. orth Wyman iteve Zumbach Executive Committee: Tiie Ciiairman, the V ice-Chairmen, and the members whose names are mari/ reduced acceptance by potential employers. In 1965 the nation was made aware of the extent and nature of discrimination toward older workers. In a report to the Congress, then Secretary of Labor Willard Wirtz (Wirtz, 1965) pointed out that the most obvious form of age discrimination in employment took the form of employers' policies not to hire any person over a certain age. At that time more than 50 percent of all employers were applying such limitations and, as a consequence, about half the available job openings were closed to applicants over 55 years of age (and 25 percent were closed to applicants over 45). Since June 12, 1968, the Age Discrimination in Employment Act has protected individuals between 40 and 65 from age discrimination in employment in matters of hiring, discharge, compensation, and other terms, conditions, or privileges of employment. The period of time since its enaction is too brief for an evaluation of its social and individual implications. 4. Social Security Retirement Test The purpose of the retirement test - when initially introduced — was to restrict benefits to persons without earnings in retirement. In the 1940's benefits were suspended for every month in which the beneficiary had earned more than $14.99 in employment. Consequently, many observers had the impression that the test discouraged workers from holding jobs because they did not want to lose benefits and that it was inconsistent with the initial intent of Congress, which had been to encourage aged workers to retire and thereby alleviate unemployment among younger workers. However, the original test has been liberalized. Its effect on the employed beneficiary has changed and is now less clear. At the present time no benefits are withheld for any month with earnings of $140 or less. Benefits are reduced $1 for each $2 of earnings between $1,680 to $2,880 annually and $1 for each $1 of earnings above $2,880 annually. At the age of 72 the test no longer applies. To determine the effect of the test on the work and earnings of retirees, Sander (1968) analyzed the Social Security Administration's "one percent continuous work history sample" of 1963. The 1963 test resembled the current test; however, the limits were $1,200 and $1,700, respectively, instead of $1,680 and $2,880. Sander found that the lower limit had a marked effect on beneficiaries' earnings. The income of 61 percent of all working beneficiaries aged 63 to 72 stayed under the lower limit; the majority of earnings were in the $1,000 to 27 $1 199 income group. Above the lower limit, no particular difference was found between thise below and those above the upper limit. Similar findings were reported by Gallaway ^^^^^^'Soth Gallaway and Sander pointed to the fact that the test has another adverse effect on the earnings level and marginal pay rate of those beneficiaries subject to it. Under the current provisions the disposable income can be increased by the after-tax amount of the first-earned $1 680. Above this amount up to $2,880, the 50 percent cut and taxes reduce the beneficiary's marginal pay rate by approximately half. Above $2,880, due to taxes and reduced benefits the beneficiary will find himself with less disposable income than he vvould have received if his earnings had stopped at $2,880 (i.e. he works at a negative marginal pay rate). This situation ends when a worker receives sufficiently large earnings to cause him to lose all entitlement to Social Security benefits. . . - ^ o* * * ^««c r^^t Unlike a number of foreign social security systems, the United States system does not directly encourage workers to continue working by paying permanently increaseo benefits to late retirees. Writing in support of such a provision, Pechman, etal. observe: The delayed retirement credit would provide direct, tangible, monetary incentives for aged persons to continue work. When jobs were available, an aged worker could enter the labor force with the knowledge that any temporary loss in OASDI benefits because of the earnings test would be fully compensated by higher benefits when he again left the labor force. If the delayed credit were effective in encouraging mobility in and out of the labor force, the cyclical flexibility of the total labor force in the economy would be enhanced. Aged workers would be a source of additional skilled manpower when labor was scarce, but could leave the labor force at will to receive retirement benefits when job prospects were less attractive. The delayed retirenient credit could be combined with exemption from OASDI payroll taxes after age 65 to make work for the aged much more remunerative than at present (Pechman, eLal., 1968). Liberalizing the retirement test has been condemned by many people as a reform that would help people with high incomes at the expense of those with little income. This is, of course true if one is talking about complete elimination of the test. It is not true if the test were to be liberalized in such a way as to allow only those persons with low or moderate earnings to work part-time in retirement to supplement their pension income. Alternatively, Pechman, e^l. (1968) have suggested that workers over age 65 be exempted from paying OASDI payroll taxes. Exempting the employee's share of the payroll tax would make work more attractive by raising his take-home pay. 28 IV. THE PRESENT SITUATION A. PUBLIC AND PRIVATE RETIREMENT PENSION PROGRAMS' During the postwar period significant changes in retirement security have taken place in the United States. Social Security eligibility has now been extended-along with higher benefits-to all but a very snnall minority of the regular work force; the number of people under private pension plans likewise has mushroomed, as have the assets of such plans, and Medicare has become a reality. In 1950, 21 percent of the population aged 65 and over were receiving Social Security benefits. By 1967 the percentage had risen to 90 percent and is expected to continue to rise. There are two major reasons for this. First, the number of aged workers-and their spouses-who retired in the thirties before becoming eligible for Social Security in covered industries is declining and is becoming a smaller proportion of the total aged population. Second is the series of Social Security amendments that went into effect in 1950, 1954, 1956, and 1965. These revisions extended coverage to regularly employed farm and household employees, self-employed persons (including physicians). State and local government workers, employees of nonprofit organizations (by special arrangement), farm operators, and members of the Armed Forces.^ More recently, in addition to this extended coverage. Social Security provisions have been changed to liberalize work requirements, creditable earnings, and the general benefit structure. Major changes have also taken place in the United States with regard to private pensions. In 1950, 9.8 million workers were covered by some type of private pension or deferred profit-sharing plan; in 1965, more than 25.4 million workers were covered. At the same time the number of private pension beneficiaries rose from 0.45 million to 2.75 million. By 1968 private pension coverage had been extended to 28.2 million and beneficiaries rose to 3.8 million (Kolodrubetz, 1970). Of course, the development and growth of pension plans in the United States has important implications for retirement and also for the transition into retirement. Pension plans often make it possible to retire and also affect satisfaction in retirement by providing a major substitute for the loss of earnings after full-time work stops. In addition, pension plans through various types of provisions, rules, program devices, etc. can either encourage or discourage workers from retiring at various ages. The sections below look at the present situation with regard to pension plans, surveying the extent to which they facilitate and thereby encourage retirement.'' 1. Pension Coverage and Benefit Levels Initial findings of the 1968 Survey of the Aged indicate the major role played by pension programs in providing income for the aged. Pension programs are also discussed in the Background Paper on "Income." The focus in the present paper is on how pensions influence the retirement decision. The adequacy of pension programs, and other aspects, are not discussed extensively. All gainfully employed workers are now covered by social security except (1) some government employees with other retirement coverage, (2) farm and domestic workers who are not regularly employed, and (3) self-employed persons who have very low incomes. v j ^ Pension program factors that encourage or force workers into retirement are discussed in Section III, H. Institutional Uonstrsjnts. 29 \\>yjii^i6am6imc^ Clearly benefits under the OASDHI program are crucial for the support of the aqed population. More than four-fifths of the aged units were drawing a regular benefit at the end of 1967 and another 5 percent drew a "special age-72" benefit. In aggregate, OASDHI benefits accounted for more than a fourth of the total money income received in 1967 by those aged 65 and older and their younger spouses, after account is taken of the estimated total income from assets and employment that was received by very high-income units. If the 1968 and 1970 benefit increases had been in effect and income from other sources had remained the same, OASDHI would have accounted for about 30 percent of an enlarged total (Bixby, 1970a). The data show that 19 percent of all married couples with one member aged 65 and over had private pension payments in 1967. Seven percent of the married-couple units in the survey received supplements to their OASDHI benefits through other public retirement programs (railroad or government employee plans); only 3 percent of the married couples received retirement benefits solely from such public retirement plans. Thus, for 62 percent of the married couples OASDHI was their only source of periodic retirement benefit. About 10 percent of the units did not receive retirement benefits of any type but relied mostly on employment as their source of income. The same general pattern of source of retirement benefits prevailed for aged single men and women (Kolodrubetz, 1970). c^ i Beneficiaries that also received a pension as a former employee of a Federal, State or local government or under the railroad retirement system appear to have been in a 'slightly better income position than those who drew a supplementary private pension . . The significant difference, however, is between those with more than one pension and those with no pension or survivor benefit other than OASDHI [italics, mine]. The income distribution for beneficiaries with no other pension was very similar to that for beneficiaries with no work experience in 1967 (Bixby, 1970a). Thus the picture that one gets from the 1968 Survey of the Aged is one of a continued rising importance for pension income and, as would be expected, a steady upward trend in the nroportion of aged persons with income from a second pension. The significance of the rise in second pensions should not be underestimated. Table 18 shows, for example, that there is a TABLE 18.-T0TAL MONEY INCOME OF OASDHI MARRIED COUPLE BENEFICIARIES. TYPE OF PENSION BENEFIT RECEIVED AND INCOME GROUP, 1967 [Percentage distribution] $2,000 or less 2,000-2,999 3,000-4,999 5,000-9,999 10,000 or more .... Total Number reporting (in thousands) . . . Source: Adapted from Bixby, 1970. OASDHI only OASDHI and Public Private 29 27 26 14 3 100 5 14 49 27 6 100 2 17 48 27 5 100 2,665 299 692 30 striking contrast between the money income of OASDHI beneficiary couples with and without a second pension. For example, 44 percent of the couples with only OASDHI had incomes below $2,500, but only 7 percent of couples with OASDHI plus a private pension benefit had incomes this low. However, the growing role of private pensions in facilitating retirement by improving the adequacy of retirement income raises a serious problem: While private pension plan coverage has grown rapidly and covers a little over half the employees in private non-agricultural industry, there is a sharp limit to their ultimate extension. There are large segments of industry for which it is hazardous to predict the establishment of pension plans. Small employers and highly competitive, marginal enterprises may feel that they lack the ability to pay for pensions; if their workers are unorganized, they may never set up plans. In many industries, job turnover may make individual employer pension plans virtually meaningless. Without a union to force the establishment of an industry-wide arrangement, it is difficult to imagine an unorganized construction worker being covered by a pension plan. Employment conditions in agriculture would have to be revolutionized before pension plans could be considered there as realistic possibilities (Tilove, 1968). There has been some slowdown in the rates of growth of private pension coverage since 1960. This slackening indicates that a large proportion of the employed labor force is having difficulty in securing supplemental retirement protection, under the existing structure and operation of private pension plans. The most accessible groups are already covered, and future expansion must be in industries in which small business are prevalent. Current trends indicate that the vast majority of newly established plans are in this category. The pension potential of workers currently without coverage has been classified by the U.S. Special Committee on Aging (1970a). The classification is shown in Table 19. The segment of the work force where efforts to expand pension coverage appear most urgent is the private industry wage and salary worker group. Not only does this group represent nearly two thirds of all persons currently without coverage, it also is the category most likely to serve as the conduit through which the unemployed can utitimately be brought under private plans. TABLE 19.-P0TEI\ITIALS FOR PRIVATE PENSIOIM COVERAGE GROWTH Pension potential Poor Number of workers Description Fair Good Excellent 5,322,000 Unemployed and unpaid family workers. As long as pension coverage is confined to the employment relationship, these groups are automatically excluded. Agricultural workers. This is perhaps the least likely of all working groups to attain pension coverage. 26,187,000 Wage and salary workers in private non-agricultural industries. Prospects for coverage actually range from "poor" to "excellent," but as a group their potential is only "fair" for reasons to be explored in later comments. 1,987,000 Government workers. The mechanism for coverage is generally in operation, and it is only a matter of time before the group attains optimum coverage. 7,086,000 Self-employed workers. Coverage for most of this group is a matter of self-determination. Source: U.S. Special Committee on Aging, 1970a. 31 It is with this problem in mind, for example, that the President's Task Force on the Aging (1970) recommended in its report that President Nixon create a new "Pension Commission" and that this commission be directed to give high priority to enlisting "The ingenuity of the financial community in designing as a companion to the Social Security System a portable voluntary pension system." 2. Vesting The adequacy of pension benefits in retirement, and hence the worker's ability and/or desire to retire, is influenced not only by whether he was covered by private pensions during his working life but by whether he actually receives a pension based upon such plan participation. Vesting refers to the provision in pension plans that guarantees those covered by the plan that they will receive all or part of the pension benefit for which they have qualified, whether or not they are working under the plan at the time of their retirement. Through vesting, the pension rights of otherwise qualified workers are protected whether the workers are discharged, furloughed, or quit voluntarily. Typically, plan provisions set minimum age and/or minimum length of service requirements as qualifications for vesting. A plan may thus require that a worker have 10 or 15 years of service and be over age 40 before he acquires any vested right to a pension benefit. Although there is great diversity among the vesting provisions of private plans, two major types may be identified. If a plan provides that an eligible worker retains full right to his accrued benefits once he meets the specified requirements - after age 40 and 10 years of service, let us say - then the plan is said to offer deferred full vesting. If a plan provides that a worker gains rights to a certain percentage of his pension benefits upon meeting the minimum age and/or service requirements and that his percentage of entitlement rises through the ensuing years of employment to an eventual 100 percent, the plan is said to offer deferred graded vesting. About 70 percent of those covered by plans with vesting have deferred full vesting (Landay and Davis, 1968). Nearly all the others covered by plans with vesting have deferred graded vesting; immediate full vesting is extremely rare. _ . In 1969 plans with vesting provisions covered 76 percent of all workers participating in plans with more than 25 participants (U.S. Bureau of Labor Statistics, 1970). This compares with 63 percent in 1967 and 59 percent in 1962. Table 20 shows the distribution of minimum age and service requirements prevailing among private plans in 1969. More than one-third of all plan participants could receive a nonforfeitable right to a vested or early retirement benefit at age 40 with 10 years of service. By age 55, all but about 10 percent of the workers covered by plans who had 15 or more years of service under the plan would have a right to either a vested or an early retirement benefit. The controversy over the adequacy of current vesting provisions and improvement trends continues. The arguments are illustrated by the following observations: (1) For the 3.3 million (1967) participants in contributory plans with vesting, the protection is pretty much illusory in view of the usual requirement that the exiting employee elect to leave his contributions behind, a choice seldom made. To those who argue that such an employee has no one to blame but himself I suggest: employees frequently do not know the greater value of the employer's contribution; the job-changing period often entails substantial needs for cash; and finally, if they think so highly of employee choice, let them try to run a fringe benefit program on a completely voluntary basis (Bernstein, 1970). (2) The overwhelming majority of those 45 million workers will not get a nickel of that money. No one will steal it from them; no one will trick them; and in most cases no one will terminate the pension plans prematurely. They will be out in the cold because the terms of their pension plans simply will not provide them with a pension. They will feel tricked because they were unwilling, and in most cases unable, to read 32 TABLE 20.-EARLIEST AGE AND ASSOCIATED SERVICE AT WHICH WORKERS CAN ACQUIRE A NONFORFEITABLE BENEFIT RIGHT UNDER THE NORMAL EARLY, OR VESTING PROVISIONS OF PRIVATE PENSION PLANS, 1969 Plan provision and minimum service requirement* Per- cent distri- bution Percent of active workers in plans with— Total No age require- ment Age requirement Total 40 or less Over 40 and under 50 50 and under 55 55 and under 60 60 and under 62 62 and under 65 Normal retirement, early retirement, and vesting Less than 5 years . . . 5 to 10 11 to 15 16 to 20 More than 20 years. . Normal retirement .... Less than 5 years . . . 5 to 10 11 to 15 16to20 More than 20 years. . Early retirement and vesting Less than 5 years . . . 5 to 10 11 to 15 16 to 20 More than 20 years. . Early retirement ..... Less than 5 years . . . 5 to 10 11 to 15 16 to 20 More than 20 years. . Vesting Less than 5 years . . . 5 to 10 11 to 15 1 6 to 20 More than 20 years. . Deferred full vesting . . . Less than 5 years . . . 5to 10 1 1 to 1 5 16 to 20 More than 20 years. . Deferred graded vesting . Less than 5 years . . . 5 to 10 1 1 to 1 5 16 to 20 More than 20 years. . 65 and over ii 100 100 42 58 19 4 9 10 5 2 9 2 100 38 62 5 - 3 32 11 11 37 100 67 33 15 4 3 5 3 1 2 36 100 20 80 36 5 15 12 3 3 5 17 100 28 62 1 5 10 16 8 3 30 8 100 52 48 (*) (*) 7 9 17 2 13 100 100 6 94 .. __ .. 3 8 14 69 21 100 - 100 ~ - - - 3 2 95 35 100 100 - - 1 33 66 16 100 - 100 - - - (*) 3 5 92 18 100 1 99 - - - 12 30 2 55 11 100 50 50 -- -- -- 7 16 10 18 91 100 46 54 21 5 10 11 5 2 „ 1 100 43 57 5 - 4 36 11 - - 36 100 68 32 16 4 3 5 3 1 -- 34 100 21 79 38 5 16 12 3 3 - 11 100 43 57 2 8 15 20 9 3 - 7 100 61 37 (*) 1 8 10 17 2 - 87 100 9 91 - - 3 63 20 4 - 9 100 1 99 (*) 2 4 71 22 - - 25 100 (*) 100 n ~ 1 69 27 2 - 23 100 (*) 100 - 1 2 73 17 7 - 12 100 1 99 - ~ 3 64 19 13 - 18 100 43 57 ■- -- 7 37 11 1 - 77 100 51 49 25 5 8 10 - - .. 1 100 82 18 12 - 6 - - - - 34 100 74 26 17 5 3 2 - - - 30 100 26 74 44 5 19 6 - - - 9 100 43 57 2 9 16 29 - - - 2 100 66 34 1 2 13 19 - -- -- 67 100 50 50 27 6 9 9 - .. .. (•) 100 93 7 7 - - - - - - 29 100 73 27 17 5 7 3 - - - 26 100 24 76 50 6 13 7 - - - 9 100 43 57 2 9 16 30 - - -- 2 100 66 34 1 2 13 19 -- - ■- 10 100 62 38 9 3 4 22 - - - (*) 100 67 33 19 - 13 - - - - 5 100 77 23 15 2 6 - - - - 4 100 40 60 1 3 1 54 - - - (*) 100 69 31 - 31 - - - - - The term service as used in this table is defined to include preparticipation service. The distribution includes 1,010 plans, vuith 2.3 million workers, that provide vested rights as shown in the table only in the event of involuntary separation (including continuous layoff); almost all of these plans also provide for the attainment of nonforfeitable rights, prior to normal retirement, in the event of voluntary separation. In such cases, the eligibility requirements are typically more stringent than those for in- voluntary separation. Plans which provide for special early retirement— essentially those providing for early retirement at the employer's request with an unreduced or higher than normal retirement benefit are excluded from this table. * Less than 0.5 percent. NOTE; Because of rounding, sums of individual items may not equal totals. Source: Davis and Strasser, 1970. 33 and understand the terms of those plans — and I suggest to you that the supposition that additional disclosure requirements will somehow make them aware of their impending economic disaster is simply a delusion. Pensioners and pension participants are not stock brokers, not underwriters, not sophisticated investors (Frank Cummings, 1970). (3) If vesting were to be a matter of legislation, I feel sure it will slow down the establishment of new plans and the improvement of existing programs. It obviously will mean less flexibility, in that employees and employers will be forced to settle for vesting when perhaps other provisions such as early retirement would be more important. It will give an unfair advantage to the employer with an unfunded plan since the proposals probably cannot require vesting in such plans (Lane, 1970). (4) It is true that, by and large, the plans which burgeoned in the 1950's gave first attention to the needs of the superannuated and the older workers. That made good sense — the use of limited resources for the most urgent need. With successive waves of improvement, the next most important purposes are being served — vesting to meet the desires of the younger workers; survivors' pensions and other death benefits to meet the needs of widows. This is a simple history of first things first (Tilov, 1970). (5) . . .the fact that the percentage of actives eventually getting benefits is a very small number for some particular plans (it's only 2-3 percent in the case of group life insurance plans) is merely indicative of the flexibility of the pension tool under which a given sum of money can be allocated to as small a group of people as may be necessary or desirable in order to provide meaningful benefits. This doesn't prove that somebody is being cheated; it may suggest that the particular employer hasn't had his share of cost-plus government contracts (Jackson, 1970). Estimates indicate that some approaches to mandatory minimum vesting requirements would not be expensive. The President's Committee, for example, estimated that deferred full vesting after 20 years of service would seldom add more than 6 percent to the cost of providing normal retirement benefits at age 65. Deferred graded vesting, with at least half the accrued normal retirement benefit vested after 15 years of service and full benefits after 20 years, would seldom add more than 8 percent to plan costs. S.3421, which was considered by the 90th Congress, would have required full vesting of regular retirement benefits after 10 years of service, excluding years of service prior to age 25. The Department of Labor estimated in 1968 that this requirement, which would immediately cover some 10 million workers, would cost one-third of the private pension plans nothing or at most an additional 3 percent. About one-fourth of the plans would be faced with cost increases of between 3 and 6 percent. Less than half of the plans, most of which lack any vesting provisions, would incur costs greater than 6 percent (U.S. Committee on Labor and Public Welfare, 1968). It has long been contended that many workers change jobs unaware that they have gained vested rights to a pension benefit. When they qualify for its payment by reason of age, perhaps many years later, they may fail to apply for their pension benefit. This failure to collect their vested benefit may improve the actuarial status of the private pension fund and slightly lower the plan's true costs, but it works a hardship on the retiree and perhaps increases the need for Old-Age Assistance or other similar payments. A solution, which has been proposed as far back as the 1961 White House Conference on Aging, would be to require private plans to report acquisition of vested benefits to the Social Security Administration when, for example, wage payments and tax collections are reported. The fact of vesting could then be noted on the individual wage records maintained by the Social Security Administratibn and then reported to the worker when he applies for his public retirement benefit. This procedure would, of course, amount to the designation of the Social Security Administration as a clearinghouse for information about eligibility for private pensions and would thus be a step toward full portability of pensions. 34 3. Survivors Benefits A task force report, "Economics of Aging: Toward a Full Share in Abundance," emphasized that widows and other aged women living alone are currently a particularly economically disadvantaged group. "Six out of every 10 of them have incomes below the poverty line. In fact, the number of poor women living alone has actually increased over the years— from 1.8 million in 1959 to 2.1 million in 1966— a reflection of the increasing number who live independently even at the prime of proverty" (U.S. Special Committee on Aging, 1969). The key role that could be played by public and private survivor benefits is indicated by a recent study (Loren and Barker, 1968). The study surveyed UAW union members and their survivors and found that total resources available to survivors were inadequate for long-term needs. More importantly, they found that without group survivors benefits, vast numbers of survivors would be virtually destitute. About 75 percent of the surveyed UAW families had financial resources at the worker's death of less than $3,000; approximately half of the dependent surviving units had little or no net assets to supplement survivor benefits or work income. Detailed data on the operation of group plans other than that for UAW employees are sparse; the general information that does exist clearly suggests that private pension plans are contributing very little to the income maintenance of persons who survive after a worker's death. In' some private plans the worker himself must directly bear the entire burden of protecting his spouse; he must elect a reduction in his retirement pension to cover the actuarial cost of a survivor's benefit for his spouse. Apparently few workers, for various reasons, exercise this option. Other plans automatically continue benefits to survivors after the death of, In some cases, the active worker or in other cases, the retired worker. A Bureau of Labor Statistics study of plans that had the automatic survivors feature in effect during the winter 1962-1963, found the following: Death benefit provisions. . .were found in a third of the pension plans covering slightly more than a third of the workers. . .while about equal proportions of single-employer and multi-employer plans had them, a somewhat higher percentage of workers in multi-ernployer plans had this added protection. . . . The industry patterns of death benefit provisions showed wide differences. Plans in manufacturing industries had the lowest prevalence of death benefits; less than 30 percent of the plans and workers. . . .In contrast, in communications and public utilities, a third of the plans with over two-thirds of the workers had them, chiefly because they were provided by all of the telephone company plans. Because several large Teamster plans had death benefits, almost 30 percent of the plans with over half the workers in the transportation industry had this protection. In finance, over half the plans with a slightly lower proportion of workers had a death benefit. In the mining industry, because the Mine Workers' plan provides death benefits from another part of the welfare and retirement fund, only a limited number of workers were in plans with survivor protection. While only 30 to 40 percent of the workers in construction, trade, and service industry plans were in plans with death benefits, the proportion was greater than in plans in manufacturing industries (U.S. Bureau of Labor Statistics, 1966). In the Bureau of Labor Statistics Digest of 1 00 Selected Pension Plans Under Collective Bargaining (Spring 1968) we find more up-to-date information on a smaller group of plans, which "were selected because they illustrated different approaches to pension planning, or because of widespread interest in the plan, as manifested in inquiries received by the Bureau." Of the 100 plans surveyed, 44 percent made provision for a death benefit before retirement and 43 percent after retirement. Thus we find even in this "unrepresentative" group of plans— a sample which overrepresents the bigger firms with the "better" pension programs— that only 44 out of 100 35 plans have automatic death benefits. More important, however, is the information summarized in Table 21, which shows the nature of the death benefit after retirement; survivor benefits paid when death occurs before retirement are not tabulated but are often similar. The most common kind of death benefit is to pay a monthly payment to the survivor but only for a 6 month to 5-year period. After that, benefits cease entirely, ignoring the fact that the survivor's living expenses continue and no doubt increase over time. Another common survivor's benefit is one that appears in plans where the employee has made previous contributions to the pension fund; usually this contribution is about 2 to 3 percent of his salary. The survivor benefit merely returns the employee's contribution to his survivor, together with the interest accrued on it. The third common type of survivor's benefit is a lump-sum payment. The^mount paid most frequently by firms using this plan is $1 ,000 to $3,500. The least common type of death benefit is one that gives the survivor a benefit that is some percentage of the normal retirement benefit of the retiree. Table 21 shows that three plans pay benefits that are 90 or 100 percent of the normal benefit. Even these generous death benefits, however, are usually reduced as a result of any previous benefits paid to the retiree before his death. In addition to survivor's benefits many firms also provide life insurance benefits to their employees. The value of this insurance at death varies widely, but based upon a selected group of plans surveyed by the Bureau of Labor Statistics, we see that the value of coverage varies from a low of about $1,000 to a high of $6,000, with a few exceptions below or above this range. Unfortunately a number of these insurance benefits are reduced substantially at age 65. For example, insurance in the auto industry (during 1966) is reduced 2 percent monthly until it equals 1% percent of the amount in effect immediately prior to initial reduction multiplied by the years of coverage up to 20 years. In another example, among many tobacco workers the life insurance benefit is reduced 10 percent at age 65 and reduced by a like amount on each of the next four succeeding birthdays. TABLE 21. -SUMMARY OF DEATH BENEFITS AFTER RETIREMENT Type benefit Number of firms A fixed period of payments: 5 years of monthly payments 8 3 to 4 years of montiniy payments .... 5 1/2 to 1 year of monthly payments ... 3 Worker's contributions plus interest. Lump-sum payment: $3,500 to $7,500 $1,000 to $3,500 $400 to $500 . . A percentage of normal benefits: 100 90 55 50 Other 11 2 5 2 2 1 1 2 2 ^ Usually less payments received. Many of these benefits are reduced for previous benefits paid. Source: U.S. Bureau of Labor Statistics, 1968. 36 4. Communications and Disclosure A great deal of discussion has taken place regarding employee expectations under the private pension system. Certainly what employees think they will get when they retire will influence the timing of retirement. There is very little factual evidence, however, about how much employees really know about and expect from their private pension plan. Certainly, as formal communication regarding pension plans has spread and become more sophisticated, individual workers' awareness of the plans and the provisions has increased, and their decisions have been and will be affected more strongly. But it cannot be assumed that participants in a pension plan have complete knowledge of their probability of receiving, say, a vested pension. One may reasonably ask the question as to whether the terminating worker knows that he is entitled to a vested pension and what conditions have to be met to protect this right or to achieve it. Certainly, based on documents and letters submitted by the Labor Department in the recent hearings on private pension plans, one would be led to believe that there are a substantial number of persons who do reach retirement age or terminate employment and who have then been disappointed to find that they do not qualify for a pension they anticipated or that there are no funds available (U.S. Committee on Labor and Public Welfare, 1968). The pension promise for plan members is usually explained in plan booklets that typically illustrate the simple and routine cases. Since pension plans and other benefit plans have grown even pnore complex, the statements of such pamphlets regarding the limitations of the pension plan may be understood by the insurers, actuaries, lawyers, consultants, employers, unions, etc., but they are probably a little hazy for the persons to whom the pension plan actually applies. B. PRERETIREMENT EDUCATION AND PLANNING PROGRAMS* Reacting to the U.S. Civil Service Commission's study Retirement Planning Programs (1968), William L. Mitchell remarked in testimony before the U.S. Senate Special Committee on Aging: While the Commission's study significantly advanced our knowledge on retire- ment planning, we still are in need of reliable data on certain aspects of the subject. We l