description- – This paper addresses the relationship between defined benefit pension plans and corporate profits and examines the outlook for defined benefit plans in the wake of the bear market. Due to a soaring stock market during the extended bull market of 1982-2000, together with federal regulations and legislation that shifted funding requirements forward, pension contributions virtually disappeared as a corporate expense for much of the previous two decades. Our analysis suggests that in the absence of the stock market boom and the regulatory and legislative changes that reduced funding, the average firm's contribution to its pension plan would have been 50 percent higher during the 1982-2001 period - 9.9 percent of payroll instead of 6.6 percent of payroll. The downturn in contributions had a significant impact on corporate profits. Lower pension contributions, all else equal, will produce a dollar-for-dollar increase in before-tax profits. Our analysis implies that corporate profits were roughly 5 percent higher than they would have been otherwise. Higher profits produce a feedback effect as they lead to further capital gains and further reductions in contributions. Given the current bear market and an aging workforce, the feedback now goes in the opposite direction. Now that the stock market bubble has burst, our analysis suggests that contributions relative to wages would return to their pre-1982 levels of about 10 percent. This implies that - on a permanent basis - contributions would double from their current level of $40 billion to $80 billion. Assuming that investors view the increase as permanent, the feedback effect would lower the value of equities held by pension funds by $20 billion. In short, as the economy emerges from recession and the bear market draws to a close, firms and investors must be prepared to contend with a strong headwind from pension funding obligations that could slow the recovery.
collectiondatepublishercreatorformat description- – This paper estimates how much people actually receive in retirement relative to earnings before retirement when all sources of income, including income generated by homeownership, are combined. Previous studies find that middle class people need between 70 and 75 percent of their pre-retirement earnings to maintain their life style once they stop working. The objective of this study is to determine what people are actually receiving in retirement.Regardless of how retirement income and pre-retirement income are defined, households with pensions appear to meet the threshold of adequacy. Those without pensions do not fare as well, and some must be really struggling. Taking into account a comprehensive measure of income both before and after retirement - including housing - produces replacement rates for those with pensions of 79 percent for couples and 89 percent for single person households. Those without pensions have replacement rates of 62 percent for couples and 63 percent for singles. These replacement rates drop about 15 percentage points, however, when recent earnings (the highest five years of the last ten) are used as the benchmark. The overall the picture is good.But today is in some sense the"golden age"of retirement income. Today's retirees are claiming Social Security benefits before the extension in the retirement age to 66 and then 67, which is equivalent to an across-the-board cut in benefits. Today's retirees also do not face the huge deductions in their Social Security check to cover Medicare premiums for Part B and Part D that tomorrow's retirees will. And today, the average retiree does not pay personal income tax on his Social Security benefits, whereas future retirees will increasingly see a portion of their benefits subject to taxation. Finally, most of today's retirees are covered primarily by a defined benefit plan and do not face the uncertainty associated with the inadequate lump-sum payments from 401(k) plans. The comfortable circumstances of today's retirees make it very hard to call attention to the challenges that future retirees will face.
subjectcollectiondatepublishercreatorformat description- – The employment of older workers into their mid-60s will be critical to their ability to ensure a secure retirement. One of the risks threatening the ability to work to older ages is being "displaced," with displacement defined as the elimination of the worker's job due to a shift in the demand for labor. Displacement can easily throw 50-year-old workers off course, disrupt their retirement saving plans, and lead to premature retirement. This paper explores the relationship between job loss and age over the period 1984-2004 using the biennial Displaced Worker Supplement to the Current Population Survey. It finds that no major trends in the displacement of older workers have occurred over the 11 Displaced Worker Surveys conducted during the period. Re-employment rates for older workers appear to have improved. And the earnings loss associated with the displacement of older workers has not changed significantly. Two other significant findings relate to tenure and education. First, the historical protection that older workers appeared to have against displacement was due to tenure not to age per se. Controlling for tenure, the probability of displacement increases with age. Second, college education is no longer a source of significant protection in the world of displacement, and its importance has declined sharply for re-employment.
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