Assessing Policies for Retirement Income Needs for Data, Research, and Models (1997) / Chapter Skim
Currently Skimming:
3 Key Research Issues
3 Key Research Issues
Pages 39-60
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From page 39... ...
Government policies and programs constrain and shape all these individual and employer decisions. Consequently, projecting the implications for retirement income security of proposed changes in government policy requires basic research knowledge about the likely behavioral responses of people and employers and a capability for using it to estimate future outcomes.
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From page 40... ...
We thus look at research about factors and trends in basic demographic processes, particularly mortality, that will affect the size and makeup of the population of workers and retirees at future times; the health status of workers and retirees that will determine their needs for health care services and affect their decisions about work and savings; and health care costs and financing arrangements that will affect retirees' living standards. Our reviews of these areas are also brief.2 Finally, we touch on factors and trends in 1 The papers by Lumsdaine, Parsons, and Poterba review the literature on labor supply, employer behavior, and savings and consumption, respectively; the paper by Gustman and Juster looks at the distribution and sources of income and wealth of households with retired workers and reviews analytical models of labor supply, savings, and pension decisions that contribute to income and wealth at retirement.
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From page 41... ...
Employers play an important role in the provision of retirement income security through their decisions about personnel and benefits. Moreover, their behavior can change rapidly, as evidenced by the marked increase in recent years in the number of employers offering managed care health insurance plans.
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From page 42... ...
depend on several factors: · expected benefits in terms of work force productivity, worker recruitment and retention, and retirement of older workers; · federal tax law provisions, such as tax deductions for qualified plans, which are an incentive to provide benefits, and nondiscrimination rules for qualified plans, which are a disincentive; · other government policies, including those for Social Security and Medicare, pension insurance laws and regulations, and antidiscrimination laws with respect to age and disability; · employers' financial objectives and concerns, including tax liabilities, administrative costs, and costs of compliance with regulations; · trends in benefit policies by similar employers; and · the demand for benefits by employees. There are a large number of competing theories about why employers offer pension plans, which differ in the importance accorded to the various factors listed above.
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From page 43... ...
Nor does the research yet provide agreed-upon values of behavioral parameters that could be used to estimate the strength of employer responses to policy and other changes: for example, what degree of reduction in plan administrative costs or in regulatory burden would induce a specified percentage of small employers to set up pension plans of a particular type. Employer demand for older workers is also affected by many factors, includ ~ng: · desired work force characteristics, in terms of retention, skill levels, productivity, and other attributes; .
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From page 44... ...
Department of Labor, which characterizes employer benefit plans from annual filings to the Internal Revenue Service, does not cover public employers; it also does not provide information on the full range of private employer benefits, which include nonqualified as well as qualified pension plans, retirement window opportunities, retiree health insurance, disability insurance, and other relevant benefits. The Form 5500 database also contains limited information for analyzing differences in benefit packages as a function of employer or work force characteristics.
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From page 45... ...
Yet such analysis is critically important given the prominent role of employer pensions and other benefits in retirement income security and the evidence that employer behavior with regard to the extent and type of such benefits is dynamic and sensitive to public policies as well as broader economic factors. Finally, there are almost no data with which to analyze employer demand for older workers.
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From page 46... ...
. All three types of analytical models fit reasonably well with cross-sectional data on the distribution of wealth at retirement, and there is no basis as yet to choose among them or to determine whether and what kind of mixed-motive model best explains savings behavior.
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From page 47... ...
. What are the effects of changing the form of retirement benefits lump sums as opposed to annuities, or nominal annuities as opposed to indexed annuities on income security over retirees' life spans?
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From page 48... ...
. More detailed information on pension plan provisions of workers would also be helpful in determining factors that influence savings behavior.
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From page 49... ...
The lack of agreement on the most appropriate analytical model constrains the ability of projection models to estimate the likely effects of policy changes on personal savings. In the absence of clear directions from research, it will be very important for projection models to provide sensitivity analyses under alternative behavioral assumptions.
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From page 50... ...
Factors that influence age at retirement include the availability of employer pensions and retiree health insurance coverage, Social Security provisions, eligibility for Medicare, and the individual's health status. There is general agreement among researchers that Social Security and Medicare provisions have important effects on retirement behavior, at least for the subset of workers who are not at the upper tail of the income and wealth distribution and whose Social Security benefits are not dwarfed by employer pensions.
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From page 51... ...
Finally, it is important to determine the applicability of complex structural models for policy use. At present, it may not be feasible to incorporate a fullblown behavioral dynamic programming model of retirement into a microsimulation projection model for estimating the likely effects of alternative Social Security and employer pension policies on retirement income security.
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From page 52... ...
They also affect the viability of employer pension plans. Simulations by the Social Security actuary show 75-year trust fund balance projections to be more sensitive to assumptions about the future course of mortality than to any other demographic or economic variable in the actuary's cost model (see Board of Trustees [OASDIi, 1994:131-132~.
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From page 53... ...
For many policy purposes, it would be highly useful to carry out research that could support projections of mortality rates for other characteristics on which mortality is known to vary, in addition to age and sex. In particular, in order to answer distributional questions, such as the retirement income security of widows relative to married couples or of low versus high earners, it is important to have mortality projections by such characteristics as marital status, income level and other indicators of socioeconomic status, and health or disability status.
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From page 54... ...
Another way in which people's family histories affect retirement income security is through the effects on kinship networks. An important policy concern is whether the baby boom generation, which exhibited higher ages at first marriage and lower fertility rates than the previous generation, will be supported by as many kin (own children and other relatives)
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From page 55... ...
While the direction of causality is not established, it is clearly important to have indicators of health and disability status to understand the distributional consequences for retirement income security of many kinds of proposed policy changes. Unfortunately, the identification of health and disability status, whether crosssectionally or longitudinally, is beset with measurement problems and ambiguities of classification.
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From page 56... ...
To the extent that older Americans face rising health care costs that they must finance through some combination of higher health insurance premiums, taxes, and direct out-of-pocket outlays, then a retirement income stream that would have been adequate in the past to cover other needed consumption in addition to medical care may no longer be adequate. Projections of likely future trends in aggregate medical care costs and in the availability of medical care benefits are subject to extreme uncertainty, given the large number of actors whose behavior must be modeled federal and state agencies, private health insurers, employers, medical care providers, medical care technology developers, and medical care consumers and the complexities of the interactions among them.
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From page 57... ...
CONCLUSION This discussion has touched on an array of important topics for understanding and projecting retirement income security and has identified many gaps in basic research knowledge. In some areas, such as employer benefit plan decisions, employer demand for older workers, and savings and consumption choices of individuals, there is no agreement on the underlying behavioral phenomena.
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From page 58... ...
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From page 59... ...
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Key Terms
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