Familiar ‘Grounds’?

A recent report by the GAO paints a pretty bleak picture of American retirement. Is it accurate?

For the most part, the report covered familiar ground, bemoaning the “marked shift” away from the traditional defined benefit pension plan (glossing over how few private sector workers were covered by these plans, even in their heyday, and the fraction of those who received a full pension), and highlighting low savings rates, the pervasive lack of broad-based access to workplace retirement plans and the daunting challenges confronting even those who do enjoy that access.

The report also spends several of its 173 pages chronicling (with pictures) the ways in which “leakage” also undermines retirement savings. And for good measure, it invokes the findings of the Melbourne Mercer Global Pension Index  — which the GAO calls the “most comprehensive” — that ranks the U.S. retirement system 20th out of 25 countries surveyed (and gives us a “C” grade). Indeed, the report treads such familiar ground in such a familiar way that it hardly seems controversial.

In fairness, having seen, studied and even commented on the data, reports and surveys cited in the GAO report, the authors can hardly be faulted for their air of pessimism. As they explain in their introduction, “More and more people are retiring, and many are living longer in retirement. Health care costs are rising, Social Security is stretched to the limit, and debt — both personal and public — is a threat to financial security.” But in retreading this “familiar” ground, they also restate as fact some things that have been drawn into question — and gloss over some more recent findings that provide valuable context.

‘Over’ Looked?

For example, the 2013 Survey of Consumer Finance (SCF) is a widely cited report, and is invoked repeatedly by the GAO in its assessment of the resources available to American workers in retirement. This is a reputable and well-regarded source of consumer information, drawn from a sampling of about 6,000 households (different ones every cycle). That said, the information contained is “self-reported,” which is to say that it tells you what individuals think they have (or perhaps wish they had), but not necessarily what they actually have. Now, the GAO has previously relied on this data — and in fact recalls a 2015 report by the GAO that claimed (and was titled) “Most Households Approaching Retirement Have Low Savings.”

The rationale for the “most” in the 2015 report headline appears to come from its focus on households age 55 and older, where the GAO noted that (only) 48% had some retirement savings, and thus one might reasonably assume that the remaining 52% had no retirement savings — and that would seem to be the case. However, 23% of that 52% said they had a defined benefit plan. Now, that assessment may be inaccurate (see above), but if they do, in fact, have a DB plan, that plus Social Security might well be sufficient. So, “most” have no savings, but about half of that “most” might not need savings. Admittedly, that distinction makes for a clumsy headline. Among those age 55-64 with no retirement savings, the median net worth was $21,000 (about half of these had no wage or salary income), while among those in the same age bracket with any retirement savings, their median net worth was $337,000. Compared to those with retirement savings, these households (those aged 55-64 with no retirement savings) have about one-third of the median income and about one-fifteenth of the median net worth, and are less likely to be covered by a DB plan. The bottom line is that, even accepting the self-reported data of these individuals, there is a considerable disparity, and one that suggests that a more targeted analysis (and dare I suggest remedy) might be more in order.

In evaluating things like retirement income and coverage, the GAO report draws on information from, among other sources, the Current Population Survey (and in some cases other reports based on that information). While it is one of the most-cited sources of income data for those whose ages are associated with being retired (typically ages 65 or older), and has also been used to provide annual estimates of employment-based retirement plan participation, a 2014 redesign of the questionnaire has resulted in much lower estimates of the percentages of workers who participate in an employment-based retirement plan. In fact, the non-partisan Employee Benefit Research Institute (EBRI) has cautioned that it has resulted in historically “sharp and significant” reductions in the levels of worker participation in employment-based retirement plans.

Missed ‘Out’?

Not mentioned in the GAO report (but cited in a recent Forbes article by Andrew Biggs of the American Enterprise Institute) is an analysis by Census Bureau economists Adam Bee and Joshua Mitchell, who used IRS data to measure the share of new retirees receiving benefits from private retirement plans. Biggs notes that in 1984, only 23% of new retirees received any sort of private pension benefits, but by 2007, 45% of new retirees received private pension benefits.

As for the aforementioned ranking of the U.S. retirement system, it’s really hard to compare apples to oranges, as such comparisons inevitably do. But in the Forbes article noted above, Biggs reminds us that Mercer measures adequacy by virtue of things like tax preferences for retirement savings, ages at which participants can access their savings, whether savings must be annuitized, etc. As things to consider, perhaps — but a ranking based on subjective weightings and criteria that includes certain qualitative factors doesn’t necessarily produce an objective result.

‘Post’ Retirement

Another recent analysis, “Using Panel Tax Data to Examine the Transition to Retirement” — conducted by Peter J. Brady and Steven Bass of the Investment Company Institute and Jessica Holland and Kevin Pierce of the IRS — found that most individuals were able to maintain their inflation‐adjusted net work‐related income after claiming Social Security. Looking only at how much individuals reported as net income on their taxes the year before they started drawing Social Security benefits, compared with the three years after they began that draw, they found that, looking at working individuals age 55 to 61 in 1999 who did not receive Social Security benefits that year, three years after they started claiming Social Security (which could be viewed as a proxy of sorts for entering retirement) that median ratio of net work‐related income at that point compared to net work‐related income one year before claiming was 103% — which means, of course, that three years later, they are actually reporting (slightly) higher income levels than they were prior to retirement. Does that mean they will still be doing so a decade later? No — but why not even an acknowledgement that such results have been documented with actual IRS data?

Other Points

The GAO report does remind us that where you work matters (in 2016, 89% of workers in information services had access to an employer-sponsored plan, compared with 32% of workers in the leisure and hospitality industry), and how you work matters (“one reason lower-income workers lack access to employer-sponsored retirement plans is that they struggle to meet plan eligibility requirements related to sufficient tenure and hours worked”) in terms of having access to a retirement plan, and how much you make really matters (“…workers in the lowest income quartile were nearly four times less likely to work for an employer that offered a retirement plan, based on our analysis of 2012 SIPP data, controlling for other factors”). And it highlights the critical importance of, and the very real danger posed to the nation’s retirement security by the projected shortfalls in Social Security.

On the other hand, for some reason the GAO report cites the creation of the QDIA safe harbor as a failure of sorts, in that no surge in new plan adoption accompanied it (completely disregarding the huge boost to diversified savings and increased participation via automatic enrollment that has resulted). Ditto the demise of the MyRA, whose dismal take-up rate stood in some contrast to its shockingly high cost. It had a different — and more sympathetic — perspective on the state-run programs for private sector workers, decrying the uncertain status of such offerings after the signing of legislation that overturned the safe harbor rule from the Obama administration.

Ultimately, the GAO report makes one very simple recommendation: the appointment of an independent commission to “comprehensively examine the U.S. retirement system and make recommendations to clarify key policy goals for the system and improve how the nation can promote more stable retirement security.” All well and good.

But here’s hoping that, should such a committee be formed, it will look beyond the all-too-familiar ground that the GAO chose to tread.

Add Your Comments


  1. Dallas Salisbury
    Posted November 28, 2017 at 11:18 am | Permalink

    Mr. Adams,
    Your reporting abilities – including the analytic approach and extensive review of relevant data – have made me an admirer of your work for decades!

    One other item of relevance in the Mercer Global Index – one of the “must check the box” criteria is that the nation have a MANDATORY UNIVERSAL PRIVATE system, in addition to any mandatory public system. Ironically, even if the current system in the United States did produce the best asset/income results in world, it would be rated as inferior.

    Today, there are mandatory public systems around the world that report a smaller percentage of the entire government reported workforce as being participants due to antiquated/ineffective tax, employment tracking and enforcement systems, tied to a huge underground economy of informal work. Why, because so much of the total work done in nation’s like Chile are counted to be “off-book” or “casual” workers who avoid participation in both public and private mandatory systems.

    The GAO report includes a list of the experts they enlisted for their discussions that informed the content of their study. The majority of them have spoken and written that the US system needs massive change, including private mandates, and have frequently belittled the very data and facts that you point out GAO did not have room for in this advocacy research and report.

    Extensive research from EBRI analyzes and quantifies all of those issues and points related to the limitations/successes of a private defined benefit system that did quite well (for a short window of history) for long career workers, in private companies/organizations, that included unionized workforces, as well as the positive outcomes that would be the result of a multi-factor mandatory private retirement system, even with individual opt-out, in a solid economy and a highly structured workforce that continues to be obedient in paying taxes to the US and to social insurance programs, with any “gig” workforce continuing to do the same, and the ongoing absence of the non reporting, non tax paying (including payroll), cash economy workers, that dominate many other nations.

    Commissions sometimes can do a good job of building the system that might have done a better job in the past, where you know exactly what the world was, but are unlikely to reach a consensus on the policy framework that would actually produce the desired/expected outcomes in the dynamic and rapidly changing world of work and technology in which we actually live.

    In the meantime, maybe “Savingsman” – ( http://www.choosetosave.org ) – type public and worker education to move everyone closer to financial wellness – even if only a fractional inch at a time – or even to restrain backward movement induced by a consumer economy getting better and better at invading every nook and cranny of our lives, to help us spend money and buy and buy and buy (the magic of Facebook ads, Google ads, big data, cyber, IA, etc.) – and making it easier and easier to pay with the flip of a cheap – or high priced – phone. Instead of children thinking “money comes from the cash machine” or the “plastic card”, they will know that in comes from the magic phone! But there will be something else after the magic phone. If a GAO Commission can foresee and get the nation out in front of the human, employment, income, workforce and old age implications of what IA will bring, and then what next, and structure programs that can last, by all means, appoint it tomorrow! I will await the report with baited breath!

    So, as I fully retire from EBRI on December 31, 2017, 39 years and 27 days after having opened its first office doors at 1800 M Street, I leave with the knowledge – relative to the GAO report single recommendation – somewhat ironic knowledge that it was the White House announcement by President James Earl Carter that he would appoint a Presidential Commission on Pension Policy that led a small group of actuarial/employee benefit consulting firms to commit to three year funding of, and creation of, the Employee Benefit Research Institute. More ironic still: the other job I interviewed for during that September and October of 1978 as one of two “finalists”, that I was not offered, was to be Executive Director of that Commission.

    Keep up the good analysis and the good writing! I shall continue to make your work a daily staple in retirement.

    Save for your future! And Choose to $ave! As my Dad used to tell me, “if you cannot count on yourself, you can count on no one.”

    Thank you for making life better!
    Dallas Salisbury, Washington, D.C.

  2. Nevin E. Adams, JD
    Posted November 29, 2017 at 7:53 am | Permalink

    No higher praise could be given, and from one who has given (and taught me so much) over the years. And still does. Thanks for all you have done – and continue to do. After all, those who (mis)remember the past are doomed to repeat it…

  3. url url'>Robb Smith
    Posted November 29, 2017 at 9:14 am | Permalink

    Excellent analysis, Nevin!

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