Retirement Incentives in the Twenty First Century: The Move Toward Employer Control of the ADEA

Retirement has become an increasingly important topic of public policy discussion in the United States, as well as an accepted, and even cherished, goal for many American workers. Consequently, it is not surprising that the Age Discrimination in Employment Act (ADEA) recognized, somewhat inartfully, the importance of retirement. When originally passed, the ADEA expressly provided an exemption for any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of the ADEA. In 1986, Congress amended the ADEA to eliminate mandatory retirement, but made clear in its legislative history that voluntary retirement was a valid employee choice. The interaction of retirement and the ADEA became more explicit when Congress amended the Act again in 1990 to allow employers to observe the terms of a voluntary early retirement plan consistent with the purposes of the ADEA. The 1990 amendments also expressly allowed waivers as part of retirement incentive plans. Consistent with this pattern of amendments under the ADEA, courts similarly have been solicitous to the interests of both employers and employees in providing retirement incentives, arguably to the extent of minimizing other goals of the ADEA such as promoting employment

Should I Stay or Should I Go Now? An Analysis of Pension Structure and Retirement Timing

Over the last two decades, twenty-two states have moved away from traditional defined benefit (DB) pension systems and toward pension plan structures like the defined contribution (DC) plans now prevalent in the private sector. Others are considering such a reform as it is seen as a means of limiting future pension funding risk. It is important to understand the implications of such reforms for end-of-career exit patterns and workforce composition. Empirical evidence on the relationship between pension plan structure and retirement timing is currently limited, primarily because, most state pension reforms are so new that few employees enrolled in those alternative plans have reached retirement age. An exception, and the subject of our analysis, is the teacher retirement system in Washington State, which introduced a hybrid DB-DC plan in 1996 and allowed employees in its traditional DB plan to transfer into the new plan. Our analysis focuses on a years-of-service threshold, the crossing of which grants employees early retirement eligibility and, in many cases, a large upward shift in retirement wealth. The financial implications of crossing this threshold are far greater under the state’s traditional DB plan than under the hybrid plan. We find that employees are responsive to crossing the years-of-service threshold, but we fail to find significant evidence that the propensity to exit the workforce varies according to plan enrollment

Determinants Of Financial And Retirement Planning: A Female Perspective

The good news is that only 6% of senior citizens in the United States live in poverty, however, the bad news is that 75% of seniors in poverty are women. The challenge for women is to develop an investment plan that will enable them to reach financial freedom by the time they are ready to enjoy retirement.  Early recognition of obstacles due to gender-differences is the first step towards financial nirvana.  Women need to understand that the best way to achieve their goals is by taking an active role in the financial planning process at an early age and staying the course.  The numerous financial education resources available can help women gain confidence to empower themselves to face the challenges of retirement planning with a renewed vigor

Millennials' Retirement Saving Behavior: Account Ownership and Balance

Postprint. Original article in Family and Consumer Sciences Research Journal, Volume 46, Issue 2, p. 110-128.Millennials is the largest population in the United States. Compared with their parents and grandparents, they have to shoulder more responsibilities to prepare financially for retirement. It is critical for Millennials to begin saving and investing for their retirements early in their careers. Few studies analyzed this generation’s retirement saving behavior. Using data from the 2013 Survey of Consumer Finances, this study is among the first ones to examine the state of Millennials’ retirement savings, including retirement account ownership and balance. Results show that only 37.2% of Millennials had any kind of account earmarked for retirement; and among those with a retirement account, the average accumulated amount was $21,333. Factors that affected retirement saving behavior included age; education; total household income and assets; job tenure; self-employment; having a retirement saving motive; having a defined benefit plan; overspending; and risk tolerance. This study provided initial insights that can help financial planners and educators, as well as policymakers understand Millennials’ current retirement savings behavior and help them achieve a financially comfortable retirement."This work was supported by the United States Department of Agriculture (USDA) National Institute of Food and Agriculture [Hatch project #1002789]."Authors' Note: Rui Yao, PhD, CFP, is an Associate Professor in the Department of Personal Financial Planning, University of Missouri. Guopeng Cheng, PhD candidate at Department of Personal Financial Planning, University of Missouri.Includes bibliographical references

What are the Potential Benefits of Universal Access to Retirement Savings?

National universal access policies could dramatically close the retirement savings access gap for millions of employees and provide larger annual incomes for retirees, according to new research from the Georgetown University Center for Retirement Initiatives (CRI) in collaboration with Econsult Solutions, Inc. (ESI) and supported by a grant from the Berggruen Institute's Future of Capitalism program.The CRI study examined several options for providing universal retirement savings access, including the effect of variables such as the type of account (payroll deduction Roth IRA or Roth 401(k)), exemptions for certain small employers, and voluntary versus mandatory employer contributions. These approaches would result in significant expansions of access and participation among the estimated 57.3 million private sector employees who are not offered any workplace retirement plan today. Modeling suggests that these approaches would increase the number of workers saving for retirement in the year 2040 by 28 to 40 million (depending on the chosen design features).The research demonstrates the importance of workers beginning to save early through easy access to savings options. A young worker with a modest income who simply follows default savings choices for 40 years could generate as much as $14,320 and, if Congress would enact a refundable Saver's Tax credit, as much as$21,300, per year in additional income at retirement. Under these models, the total retirement savings in the United States would grow by between $1.4 trillion and$1.9 trillion in the year 2040.The benefits of increased retirement savings go beyond individual savers and their families. The study found that universal access to retirement savings would add $72 to$96 billion to US GDP growth in the year 2040. Addressing the retirement savings crisis at a national level will also reduce the fiscal burden on government agencies that already face increased financial challenges because of the pandemic. Under the baseline Auto-IRA scenario considered, federal and state budgets could expect to see an annual savings of $8.7 billion in 2040 by reducing assistance needs for retirees without sufficient retirement income.Click "Download" to access this resource online

“REFORM” OF THE UNITED STATES AND BRAZILIAN RETIREMENT SYSTEMS FOR FEDERAL EMPLOYEES

Recently, Brazil made changes to its retirement system as it concerned public sector workers, changes which in certain ways were similar to those which occurred for most federal workers in the United States somewhat over a quarter of a century ago. Broadly speaking it involved the conversion of a purely pay-as-you-go defined benefit plans to a hybrid of a reduced pay-as-you-go defined benefit plan with a funded defined contribution plan. In theUnited States, the latter is called the Thrift Savings Plan which now has over 4.5 million participants and nearly $400 billion in assets.This paper offers a brief history of the origins of the U.S. system up until the changes in question were made, what were among the major factors or considerations which appear to have spurred the changes, a little bit about the constituencies which seem to have driven or resisted change as the case may be, the modifications that were envisioned, and expectations as to the difference that was expected to be wrought from those alterations. It canvases the differences between the then “old” and the “new” systems in relation to what was ostensibly sought to be achieved. It then draws on what is a surprisingly thin literature to describe the outcomes of the changes more than 25 years later with an eye to hoped-for or anticipated results at the outset. We then detail important elements of the new Brazilian system – which is at an early stage – with an eye to similarities and differences between it and the one we have described with a focus on how the outcomes of the system in theU.S.might bear on thinking inBrazilas it moves forward with its own. We conclude briefly with thoughts on the nature and merits of further pursuing the comparison and inquiry

Better Benefits: Reforming Teacher Pensions for a Changing Work Force

Explains how defined-benefit pension plans create barriers to attracting, retaining, and distributing effective teachers equitably. Proposes reforms including changing the benefit formula or structure, limiting political pressure, and phasing in changes

Friends without Benefits: How States Systematically Shortchange Teachers' Retirement and Threaten Their Retirement Security

Americans are often reminded that it's never too soon to start saving for retirement. Many of the nation's public school teachers are doing just that -- buying into their state pension system with plans to retire comfortably. However, this new study estimates that nearly 50 percent of all public school teachers will not qualify for even a minimal pension benefit, and less than 20 percent will stay in the profession long enough to earn a normal retirement benefit.This Joyce-funded report demonstrates the consequences of poorly structured state and city policies that can exacerbate retirement insecurity for our nation's teachers. For example, an individual teacher could forfeit up to 6.5 percent of her annual salary for one year, or, due to compound interest, 22.6 percent of her annual salary after three years according to Bellwether's analysis. To put these penalties in dollar terms, a hypothetical teacher earning $40,000 a year could face a savings penalty of$2,601 for teaching only one year and $9,035 if she left after three years. This money stays with the pension funds and is used to supplement the pensions of the remaining teachers.Tackling the pension system is critical for reducing teacher turnover and retaining the profession's most talented educators. Several policy solutions are offered

Empirical analyses on the effects of economic incentives on teacher retention and teacher quality

This study conducts empirical analysis on the effects of economic incentives on retaining teachers, both in the late-career and early-career, and improving teacher quality in public schools. The first chapter analyzes whether a large pension enhancement helps to retain late-career teachers in an urban district, St. Louis City in Missouri. Many states enhanced pension benefits of public school teachers during the 1990s. St. Louis followed this trend with a major benefit enhancement in 1999. Descriptive analysis of administrative panel data and simple regression analysis suggest that senior teachers were highly responsive: teaching careers were shortened, and the likelihood of retirement increased. To gain further insight into the long run effect of the plan changes, and the differential effects of various components of the change, I estimate a dynamic structural model, which provides good in-sample and out-of-sample fit. Simulations of retirement behavior based on the estimated model under different pension rules imply a large long-run reduction in the labor supply of senior teachers. The expected years of additional teaching for the current cohort of senior teachers would be increased by nearly 27 percent if they were operating under the pre-enhancement pension rules. The second chapter analyzes late-career teacher turnover induced by pension incentives. Using longitudinal data with performance measures for Tennessee public school teachers, we find higher quality teachers are less likely to retire conditional on age and experience. To quantify the effects of pension incentives, we estimate a structural model for retirement and find that high quality teachers have a lower disutility for teaching relative to retirement. We use the structural estimates to simulate the effect of changes in retirement incentives. Enhancements to traditional plans accelerate teacher retirement, whereas targeted retention bonuses delay retirement and retain high quality teachers at a relatively modest cost. The third chapter focuses on the joint dynamics of attrition behaviors and teaching effectiveness of early-career teachers. Using data from a comprehensive evaluation system in Tennessee, I analyze the factors of attrition, the dynamics of teacher quality, and the retention policies for retaining high-quality teachers. The data suggest teacher attrition is negatively correlated with teacher quality. A sequential probit model of binary attrition and binary rating produces good fits for both survival rate and quality distribution. The model shows the quality of novice teachers increases in experience, salary and education level. Increase in salaries of novice teacher could reduce attrition and improve quality.Includes bibliographical reference

Innovations and Trends in Pension Plan Coverage, Pension Type and Plan Design

In this paper, we outline recent trends in employer pension pIan structure in the United States, focusing on plan coverage, plan type and pension plan design. We then identify the key factors that we believe will shape company-sponsored pension design in the future, drawing conclusions from a review of recent research and practice. Finally, we offer a cautious prognosis about the future of pension pIan coverage, pIan type and pIan design, focusing on the role of labor force aging, as well as anticipated developments in the business environment and anticipated changes in public policy