Elder Law Prof Blog

GAO report highlights need for PBGC reforms

Summary:  Corporation (PBGC) insures the retirement future of nearly 44 million people in over 29,000 private-sector defined benefit pension plans.  In July 2003, GAO designated PBGC’s single-employer pension insurance program—its largest insurance program—as “high risk,” including it on GAO’s list of major programs that need urgent Congressional attention and agency action. The program remains on the list today with a financial deficit of just over $11 billion, as of September 2008. The committee asked GAO to discuss our recent work on PBGC. Specifically, this testimony addresses two issues: (1) PBGC’s financial vulnerabilities, and (2) the governance, oversight, and management challenges PBGC faces.

To address these objectives, we are relying on our prior work assessing PBGC’s long-term financial challenges, and several reports that we have published over the last two years on PBGC governance and management. GAO has made a number of recommendations and identified matters for Congressional consideration in these reports, and PBGC is implementing some of these  ecommendations. No new recommendations are being made as part of this testimony.

Full report:  http://www.gao.gov/new.items/d09702t.pdf

SANDELL GRANT PROGRAM DEADLINE REMINDER: Jan. 30

ANDELL GRANT PROGRAM DEADLINE REMINDER

The Center for Retirement Research at Boston College is currently accepting submissions for the 2009 Steven H. Sandell Grant Program.

    * The Sandell Program provides the opportunity for junior scholars from a wide variety of academic disciplines and senior scholars working in a new area to pursue quality scholarship on retirement income and disability insurance policy issues.
    * Up to eight grants of $45,000 will be awarded for one-year projects.
    * The submission deadline for grant proposals is 5:00 pm (EST) January 30, 2009. Visit the Sandell Program website to view the proposal guidelines and apply online.  Grant award recipients will be announced in March 2009.

For questions, please contact:  Kara Sullivan, Assistant Director of Communications, kara.sullivan@bc.edu

OECD chief says we must encourage older workers to stay in the job force

"In an era of rapid population aging, we can no longer afford policies, employment practices and attitudes that discourage work at an older age. They not only deny older workers the choice of when and how they should retire, but are costly for business, the economy and society.

The key message that emerges from the OECD's work on population aging is that it is both a challenge and an opportunity. If nothing is done, population aging poses serious economic and social challenges. But it is also raises the prospect of longer, more prosperous lives, if increases in longevity are matched by longer working lives.

We are living longer and healthier lives on average than previous generations. If we have the courage to change our outdated policies, attitudes and employment practices with respect to work at an older age, we should be able to enter a virtuous circle where longevity promotes activity, and activity, in turn, promotes wealth and well-being.

But if nothing is done to promote better employment prospects for older workers, the number of retirees per worker will double over the next 50 years in OECD countries. This will place severe strains on the financing of social protection systems. Labor force growth has been an important contributor to economic growth in the past; but this will slow considerably over the next 50 years and in some OECD countries the labor force could even shrink. We have projected that Japan's total labor force could shrink by over one-third between now and 2050. Recruitment difficulties will also increase. In Europe, the number of workers retiring each year is likely to exceed the number of younger people entering the workforce by more than one million from around 2020 onwards. Employers may face even greater recruitment difficulties in the future in specific sectors such as health care.

To help meet these daunting challenges, work needs to be made a more attractive and rewarding proposition compared with the siren songs of early retirement. But how can this be achieved? The OECD's 2006 report, Live Longer, Work Longer, offers some answers based on its 4-year study of aging and employment policies in 21 OECD countries. It shows that there are three key factors discouraging older people from work, which need to be tackled urgently."

Source and more:  AARP International, http://www.aarpinternational.org/resourcelibrary/resourcelibrary_show.htm?doc_id=727357

Economic worries drive Japanese elders to crime

Via Bloomberg (and Neal Axton)

More senior citizens are picking pockets and shoplifting in Japan to cope with cuts in government welfare spending and rising health-care costs in a fast-ageing society.  Criminal offences by people 65 or older doubled to 48,605 in the five years to 2008, the most since police began compiling national statistics in 1978, a Ministry of Justice report said.   Theft is the most common crime of senior citizens, many of whom face declining health, low incomes and a sense of isolation, the report said. Elderly crime may increase in parallel with poverty rates as Japan enters another recession and the budget deficit makes it harder for the government to provide a safety net for people on the fringes of society.

``The elderly are turning to shoplifting as an increasing number of them lack assets and children to depend on,'' Masahiro Yamada, a sociology professor at Chuo University in Tokyo and an author of books on income disparity in Japan, said in an interview yesterday. ``We won't see the decline of elderly crimes as long as the income gap continues to rise.''  Crime rates among the elderly are rising as the overall rate for Japan has fallen for five consecutive years after peaking in 2002. Over 60s accounted for 18.9 percent of all crimes last year compared with 3.1 percent in 1978, with shoplifting accounting for 80 percent of the total, the report said.   The trend has captivated Japan's media, which include regular accounts of the latest thief or pickpocket as well as undercover footage of people shoplifting food in convenience stores and supermarkets.

Source: http://www.bloomberg.com/apps/news?pid=20601101&sid=as80aWlHdA1M&refer=japan

New pension rule may affect payouts for some retirees

A growing number of defined-benefit pension plans, especially small- to-mid-sized plans, could be in trouble this year because of the struggling stock market combined with a little-known provision in the Pension Protection Act of 2006.  Under PPA, firms with defined-benefit plans have to use something called the Adjusted Funding Target Attainment Percentage, or AFTAP, when calculating pension distributions for newly retiring workers.
The AFTAP, in essence, measures a plan's funded status. A plan that can pay out all that it owes its retiring workers is 100% funded. In days of yore, employers would typically offer retiring workers the option of taking their pension either in a lump sum or an annuity. But starting in 2008, the law requires employers tell workers if their plan does not have sufficient funds to pay out all of the employees, according to Brett Goldstein, pension administrator and president of the Pension Department, a consulting firm in Plainview, N.Y.  If the pension plan does not have enough money to pay at least 80% of the employees, then the notice states that employees can only get 50% of their pension as a lump sum and the remainder as an annuity. If the pension plan does not have enough money to pay at least 60% of the employees, then the notice states that employees can't get their benefit as a lump sum, only as an annuity.

Given the big decline in the stock market this year, the AFTAP will likely come into play, especially for would-be retirees at many small- to mid-sized firms, Goldstein said. Goldstein estimates that workers at some 25% of small- to mid-sized firms will be offered the "under-funded" payout options when they retire in 2008 instead of the traditional full lump sum or annuity options. And that could lead to financial distress for some households, he said.

Source/more:  Market Watch

WEBCAST OCT. 30 on the Economic Crisis -- what we can do about it

The Economic Crisis Webcast
Thursday, October 30, 2008 at 2:30 PM - 4:00 PM EDT / 11:30 AM - 1:00 PM PDT

Click here to register now

• How we got into this mess.

• What we as a nation and as advocates can do about it.

Financial meltdown, credit crunch, the burst housing bubble, rising unemployment: the economic situation is tumultuous and scary. Between the finance jargon and the finger-pointing about blame, it is pretty hard to understand what's going on and, most important, how to evaluate the solutions being proposed. This webcast is for people who care about rebuilding our economy in a way that includes low- and moderate-income people, both protecting them and recognizing that the only sustainable prosperity is shared prosperity.

You'll learn from experts what you need to know about the current crisis in the economy and in housing, and what Congress and a new Administration may do about it.

Presenters

Jared Bernstein, Economic Policy Institute, author of Crunch: Why Do I Feel So Squeezed? (And Other Unsolved Economic Mysteries)

Jared is famous for plain-English explanations and wit. His quotes and advice are widely sought out by press, candidates, and public officials.

Barry Zigas, Consumer Federation of America

Barry is Housing Policy Director at the Consumer Federation of America, and is a leading expert on low-income housing policy, with previous experience at Fannie Mae and the National Low Income Housing Coalition.

Deborah Weinstein, Coalition on Human Needs

Debbie is Executive Director of CHN. What Congress is considering; practical suggestions about how you can help shape the agenda.

We're Trying Something New!

This event will be webcast live from the Economic Policy Institute in Washington, DC. DC-based advocates will attend. Advocates not based in DC can tune in and watch on their computers. We will leave plenty of time for questions, taking them both from those in the room and from participants watching from undisclosed locations all around the country.

If you can join us in person: please RSVP to Maricela Donahue at mdonahue@chn.orgThis e-mail address is being protected from spam bots, you need JavaScript enabled to view it or at:
Economic Policy Institute
1333 H Street, NW
Suite 300
Washington, DC.

For online participation, click here to register.

GAO Report recommends stronger oversight of PBGC

Summary of the report: 

The Pension Benefit Guaranty Corporation (PBGC) insures the retirement future of over 44 million people. As a federal guarantor of private defined benefit plans, PBGC finances its operations through insurance premiums, investment income, and funds from terminated pension plans. PBGC is governed by a board of directors comprised of the Secretaries of Commerce, Labor, and Treasury, who are responsible for providing policy direction and oversight but often rely on board representatives. In 2004, PBGC began reviewing its investment policy biennially and recently decided to broaden the range of asset classes in which it invests.

GAO reviewed PBGC’s procedures for developing and implementing its investment policies, and examined PBGC’s most recent investment policy. To address these issues, GAO reviewed and analyzed PBGC policies and data, assessed the analysis informing the recent policy change, and interviewed agency officials and other experts.

What GAO Recommends

GAO recommends (1) improvements to the way that PBGC’s board monitors progress in achieving investment policy goals, and (2) additional analyses on the new investment policy. In response, PBGC’s board stated its informal guidance is appropriate oversight. GAO states this type of guidance is not strong enough for investing $68 billion. Further, PBGC is conducting additional analysis on the new policy.

Get the report.

Prof. Kaplan (IL) on planning for retirement

Dick Kaplan's article entitled “A Guide to Starting Social Security Benefits,” has just appeared in the Journal of Retirement Planning (July-Aug. 2008) and is available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1192902

Abstract:  When a person should begin taking Social Security retirement benefits is a critical question for planning one’s retirement. This article explains the various factors at play in determining the optimum starting point, including: longevity considerations; spousal implications, whether for a previously employed or a previously unemployed spouse; the impact of post-retirement employment; the availability of health insurance prior to Medicare eligibility for the worker and the worker’s spouse; alternative sources of retirement income, including distributions from retirement savings plan assets and lifetime liquidation of nonretirement assets (and the pertinent income tax ramifications); and anticipated investment strategies.

Dick rules!

 

Predicted costs of retirement are creeping higher

With medical care and other costs soaring, the portion of their pre-retirement pay that Americans will need in retirement to keep the same standard of living is rising, financial planners say.  For years, a common projection was that workers needed to replace 70 percent to 90 percent of their pre-retirement pay to maintain the same living standard in retirement. But now, as medical costs grow, life spans lengthen and fewer retirees receive pensions, financial planners say you'll need more. Hewitt Associates is more pessimistic than most. New research released by the consulting company projects that workers will need to replace, on average, 126 percent of their final pay in retirement.  The study, based on 1.8 million employees with 401(k) plans that Hewitt administers, says only 19 percent of participants are on track to meet their retirement needs. About 67 percent of workers are expected to have less than 80 percent of their projected needs.  Sheryl Garrett, founder of the Garrett Planning Network, agrees that typical retirement replacement guidelines "just don't go far enough when you factor in the huge health-care responsibility that is shifting from the employer's shoulders to ours at retirement.

Source/more:  Indianapolis Star, http://www.indystar.com/apps/pbcs.dll/article?AID=/20080713/BUSINESS/807130330

Korea is "least ready" for retirement as its boomers age

Koreans are the least prepared financially for retirement among countries worldwide. It is time to take this seriously and prepare by investing in a variety of assets, instead of relying solely on property, said Fidelity International, a global asset manager. Announcing the retirement readiness index Tuesday, Fidelity Korea noted that the country's retirement income replacement ratio stands at 41 percent of the average income before retirement, far below that of Taiwan, Japan, Britain and the United States. The ratio is a measure of the actual income after retirement to the income just before retirement.   Assuming that the annual income of a Korean household is 10 million won, the actual expected income after retirement would be 4.1 million won. However, the desirable ratio for post-retirement life should be 62 percent, or 6.2 million won under the assumption, said Fidelity.  The asset management firm and Seoul National University's retirement planning support center calculated the ratio, utilizing data from the statistical office and Koreans' indirect investment patterns. The measure of the index includes assessing expected pension, severance payment and savings.

Source/more:
Korea Times, http://www.koreatimes.co.kr/www/news/nation/2008/07/123_26858.html