Toward Improved Modeling of Retirement Income Policies Interim Report (1995) / Chapter Skim
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POLICY CONSIDERATIONS
POLICY CONSIDERATIONS
Pages 5-16
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From page 5... ...
Over the post-WorId War II period, U.S. workers also benefited from provisions of the federal income tax code that encouraged the expansion of private pension coverage.
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but not a specific retirement benefit. Hence, such plans transfer the risk of providing retirement income security from the employer (and from the Pension Benefit Guaranty Corporation, which ensures defined benefit plans)
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The decline was concentrated among private sector workers and appeared to stem largely from lower rates of provision of health care plans by employers rather than from higher rates of nonparticipation by workers at employers offering plans (Pension and Welfare Benefits Administration, 1994:4~. Data on trends in retiree health insurance coverage are harder to come by, but there are indications that a significant proportion of employers are dropping health insurance coverage for future retirees and requiring current retirees to pay more for continued coverage (see, e.g., Lohse, 1993~.
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From page 8... ...
· Fewer retirees have employer-financed pension income or health insurance coverage because more of them lacked long-term, full-time employment in industries that traditionally offer defined benefit pensions or because they took and spent pre-retirement lump sum distributions or because employers cut back on benefits. · Fewer retirees have personal savings other than a home (perhaps because more of them had to pay higher payroll taxes to finance even a reduced level of Social Security benefits)
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From page 9... ...
Treasury Department has sometimes conducted studies of the broader implications of tax law changes after these have been enacted see, for example, the 1991 study of the pension security effects of the 1987 Omnibus Budget Reconciliation Act legislation that limited prefunding of defined benefit pension plans.
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From page 10... ...
. We have identified a list of four areas and possible policy changes within each area that we believe may be considered in upcoming debates about retirement income security in the United States.
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Because changes in the retirement benefit component of the system may have effects on the disability and health insurance components of the system, we believe that models will likely need to address policy changes that more closely integrate Social Security with the other components. For example, without closer integration, an increase in the Social Security early retirement age will be less effective in restoring balance to the system if more people apply for and receive disability payments.
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From page 12... ...
Examples of policy changes that could increase retirement income security by altering the behavior of employers include the following: · equalizing the tax treatment of employee contributions in defined benefit versus defined contribution pension plans (currently, contributions to defined benefit plans are in before-tax dollars, whereas contributions to defined contribution plans can be made in after-tax dollars) ; · increasing protections for spousal benefits in pension plans; · raising the limits on the extent to which employers can prefund defined benefit pension plans; · changing the insurance rules for defined benefit pension plans; · changing nondiscrimination rules so as to encourage employers to establish and expand pension plans; · changing age-discrimination laws to encourage employers to retain older workers and provide them benefits (e.g., giving employers flexibility to alter compensation for older workers)
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From page 13... ...
Other Private Savings and Wealth Also important to address are policy changes that affect people's private savings other than their pension plan contributions. IRAs are one type of private savings that government policy has encouraged in order to increase retirement income security.
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From page 14... ...
Examining a range of outcome criteria is also important because policy changes can change behavior in ways that alter the original estimates of costs and benefits. To take an example, a policy change that is adopted to maintain the adequacy of income for future retirees by, say, requiring increased contributions to employer pension plans or in Social Security payroll taxes might induce workers to reduce work hours and thereby decrease their pension plan or payroll tax contributions.
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1OEmployers provide insurance principally through defined benefit pension plans (also through such benefits as disability insurance)
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From page 16... ...
Hence, one criterion for evaluating a proposed policy change is the extent to which it would increase national savings. For example, current restrictions on the extent to which employers can prefund defined benefit pension plans are designed to increase federal tax revenues in the short run.
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