The Evolving Pension System: Trends, Effects, and Proposals for Reform
William G. Gale
John B. Shoven
Mark J. Warshawsky
https://www.jstor.org/stable/10.7864/j.ctt127xtm
The Evolving Pension System
The Evolving Pension System examines the foundations and the future of the private pension system. It provides a broad overview of the underlying assumptions, characteristics, and effects of existing pension policy, as well as alternative views on how public policy toward pensions should evolve in the future. Contributors include Robert Clark (North Carolina State University), Eric Engen (Federal Reserve Board), William G. Gale (Brookings Institution), Theodore Groom (Groom Law Group, Chartered), Daniel Halperin (Harvard), Alicia Munnell (Boston College), Leslie Papke (Michigan State University), Joseph Quinn (Boston College), Sylvester Schieber (Watson Wyatt), John B. Shoven (Stanford), and Jack Vanderhei (Temple University and EBRI). William G. Gale is the Joseph A. Pechman Fellow in the Economic Studies program at the Brookings Institution. John B. Shoven is Charles R. Schwab Professor at Stanford University. Mark J. Warshawsky is director of research at the TIAA-CREF Institute.
Subjects: Business, Finance
Strobe Talbott
Private pensions play a crucial role in today's economy. They provide a valuable second tier of retirement income for many retirees, supplementing the basic support provided by Social Security and Medicare, which were never intended to provide for all retirement needs. Private pensions help employers shape orderly personnel and turnover policies. They provide massive amounts of much-needed patient capital to finance long-term investments.
Despite these impressive credentials, the private pension system faces numerous problems. Coverage has stagnated at about 50 percent of the labor force for the last thirty years. Employees with low wages and those who work for small...
WILLIAM G. GALE, JOHN B. SHOVEN and MARK J. WARSHAWSKY
At least since World War II, retirement income in the United States has relied on the so-called three-legged stool: Social Security, employer-based pensions, and private saving. Along many dimensions, this system has generated remarkable success. The incidence of poverty among the elderly has fallen dramatically over the last several decades, even as people retired at younger ages and lived to older ages. Millions of Americans enjoy well-funded retirements fueled by a combination of public and private retirement income. The ability of the private and public sectors to provide well-financed, lengthy retirement periods at the end of working lives is a...
2 The Evolution and Implications of Federal Pension Regulation
SYLVESTER J. SCHIEBER
Passage of the federal Employee Retirement Income Security Act (ERISA) in 1974 was a landmark event in the evolution of employer-sponsored pensions, marking the shift from a period of laissez-faire regulation of retirement plans to a period of much more active government regulation. Although federal pension regulation was relatively lenient during the first three quarters of the twentieth century, the broader public policy environment that prevailed at least from the signing of the Social Security Act in 1935 until the passage of ERISA tended to encourage the creation of employer-sponsored pension plans and the proliferation of pension coverage. Nearly half...
3 The Shifting Structure of Private Pensions
WILLIAM G. GALE, LESLIE E. PAPKE and JACK VANDERHEI
Since the passage of the Employee Retirement Income Security Act in 1974, the private pension system has evolved along several dimensions. The single largest change has been a move away from defined benefit plans toward defined contribution plans. A second change has occurred within the universe of defined contribution plans, where 401(k) plans have emerged as the dominant form over the past twenty years. A third shift has occurred among the remaining defined benefit plans, a substantial number of which were converted to cash balance plans beginning in the mid-1990s.
These changes have drastically altered the nature of private pensions,...
4 Effects of Pensions on Labor Markets and Retirement
ROBERT L. CLARK and JOSEPH F. QUINN
Employer-provided pensions represent an important part of labor compensation at many firms. From 1950 until the enactment of the Employee Retirement Income Security Act (ERISA) in 1974, pension coverage rose from approximately 25 percent of the private work force to between 45 and 50 percent, with most workers participating in defined benefit plans. Since 1974 pension coverage has remained at about half of the labor force, but there has been a dramatic shift away from defined benefit plans toward defined contribution plans.¹
In this chapter we examine the effects pension plans have had on the labor market. In particular, we...
5 The Effect of Pensions and 401(k) Plans on Household Saving and Wealth
One of the most important and controversial aspects of the pension system is its effect on private saving, wealth accumulation, and retirement preparedness. Although traditional pensions and other tax-deferred vehicles, like 401(k) plans and individual retirement accounts (IRAs), clearly make up a sizable share of households' wealth in the pre-retirement years and during retirement, it is less clear how much of that wealth represents incremental balances that would not have existed in some other form in the absence of pensions.
The saving incentive programs mentioned above raise private saving to the extent that households finance their own contributions with reductions...
6 Deregulating the Private Pension System
THEODORE R. GROOM and JOHN B. SHOVEN
In the early part of the twentieth century, most workers died with their work boots on. Employee pensions were regarded as a "fringe" benefit in the true sense of the word. They were not considered to be fundamental to the basic employee-employer relationship but instead were viewed as gratuities or rewards for faithful long-term service and were often contingent on remaining with the same employer until retirement. At least as early as 1913, however, employee pensions were recognized as deferred compensation paid for entirely by the labor of employees, and today pension benefits paid under employer retirement plans are generally...
7 Ensuring Retirement Income for All Workers
DANIEL I. HALPERIN and ALICIA H. MUNNELL
The Employee Retirement Income Security Act (ERISA) of 1974 did what it was supposed to do—protect promised pension benefits under defined benefit plans offered by private employers. But ERISA did not address what has become the primary problem today, namely, gaps in coverage—the absence of promised benefits in the first place. It has become increasingly clear that private pension plans will never cover the entire work force; at any point in time more than 50 percent of American workers are not covered by a pension plan. Although more will be covered at some time during their work lives,...
8 From Fiduciary to Facilitator: Employers and Defined Contribution Plans
PAMELA PERUN and C. EUGENE STEUERLE
Although it represents a striking success in some ways, the private pension system suffers from at least two major flaws: it is too complicated and it covers too few workers. A vigorous debate on whether the best approach to fixing these problems is to expand or contract the role of the government in the pension system is exemplified by the papers in this volume by Groom and Shoven and by Halperin and Munnell.
We take a different—and complementary—approach to pension reform. Specifically, we focus on proposals that would alter the role of theemployerin the provision of...