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U.S. Department of Labor Futurework
  Trends and Challenges for Work in the 21st Century
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Opinions and views in these papers are those expressed by the author(s). They are not to be taken as expressions of support for particular positions by the Department of Labor. Please do not cite these papers without prior permission of the author(s).

Portability of Benefits, Job Changes, and the Role of Government Policies

by Robert L. Clark, Professor
College of Management North Carolina State University

Task Force Working Paper #WP12

Prepared for the May 25-26, 1999, conference
"Symposium on Changing Employment Relations and New Institutions of Representation"

September 1, 1999

This paper was presented at a symposium that was funded under a grant from the Office of the Assistant Secretary for Policy, U.S. Department of Labor. Opinions expressed in this paper are those of the author(s) and do not necessarily reflect the opinions of the U.S. Department of Labor.

Table of Contents

Section

Forward
Abstract

1. Introduction

2. Compensation, HR Policies, and Job Tenure

2.1 Portability of Pensions
2.2 Portability of Health Insurance

3. Retirement Plans

3.1 Pension Coverage
3.2 Defined Benefit and Defined Contribution Pension Plans
3.3 401(k) Retirement Plans
3.4 Inplication of Changes in Pension Coverage

4. Health Insurance for Active Workers

5. Retiree Health Insurance

6. Prospects for Increased Portability of Benefits

6.1 Pension Policies and Regulations
6.1 a Vesting
6.1 b Portability and Lump Sum Distributions
6.1 c Coverage
6.1 d Other Regulatory Changes
6.1 e Summary

6.2 Health Insurance


Foreword

The Task Force on Reconstructing America’s Labor Market Institutions

The world of work is changing, but the traditional structures governing the labor market, in place since the New Deal, no longer serve the needs of workers and their families or of corporations seeking to compete in a global economy.

The mandate of the Task Force on Reconstructing America’s Labor Market Institutions is to provide a body of evidence that helps policymakers and practitioners structure a national discussion on how to update the nation’s labor market institutions—resolving the mismatch between a fundamentally new economy and a set of inappropriate intermediaries, laws, and corporate practices.

The efforts of Task Force members are divided among three working groups, each charged with examining a particular aspect of this labor market mismatch: the Working Group on the Social Contract and the American Corporation, the Working Group on Low-Income Labor Markets, and the Working Group on America’s Next Generation Labor Market Institutions.

"Symposium on Changing Employment Relations and New Institutions of Representation," Task Force and U.S. Department of Labor Conference, May 25-26, 1999

As part of the U.S. Secretary of Labor’s project, "The Workforce/Workplace of the Future," the U.S. Department of Labor joined with the Task Force to sponsor a symposium on changing employment relations and new institutions of representation emerging in the new economy. The meeting was organized around several key questions:

·What new strategies and structures are being developed to better represent today’s workforce?

·How is the new social contract developing in selected "best practice" firms?

·How are industrial unions and corporations redefining their roles to meet the challenges of today’s economy and workforce

In addressing these questions, symposium participants discussed: the limits of enterprise-based social contracts; labor market institutions that are developing beyond the enterprise-including community-level strategies and alternative models such as professional organizations and social identity groups; and new union strategies for building capacity and rethinking structures.

This paper, written for the symposium by Robert Clark of North Carolina State University, informed the discussion of representation beyond the enterprise-specifically, labor market strategies for a mobile workforce in the form of portable pensions.

Abstract

Among the most important and valuable employee benefits are retirement plans and health insurance. Yet, changes in the industrial structure of the economy and the composition of the labor force raise questions about the future of long-term careers with a single company and about the need for the portability of benefits for employees. If the American workforce in the twenty-first century becomes characterized by less loyalty between workers and firms, more jobs in one person’s working career, and greater turnover, such trends will have a significant impact on how employers define compensation and the provision of benefits.

Written for the May 25-26, 1999, "Symposium on Changing Employment Relations and New Forms of Worker Representation"¾co-sponsored by the Task Force on Reconstructing America’s Labor Market Institutions at MIT and the U.S. Department of Labor¾this paper examines the portability of pension benefits and health insurance coverage, recent trends in these benefits, and the significant role of government regulations in the provision of portable employee benefits. It addresses questions such as: How will employee benefits evolve in a world of reduced job tenure and increased turnover? How are current trends in the characteristics and provision of pension plans and health insurance altering the portability of such benefits? How do current government policies affect the structure of pensions and health insurance and their portability? Finally, the paper ends with a discussion of the new benefit regulations and policies needed to provide for more portable benefits.

Introduction

n addition to cash wages and salary, employers provide a variety of benefits to their employees in exchange for their labor services. Among the most important and valuable employee benefits are retirement plans and health insurance. Workers who are fired, laid off, or who quit voluntarily often suffer substantial losses in the expected value of their pension benefits, may lose health insurance coverage, and may lose the promise of health insurance in retirement. As a result, job changers suffer capital losses in the lifetime value of these benefits. The prospect of such losses in lifetime welfare tends to reduce the likelihood that employees will change jobs and may alter the timing of retirement.

If the lack of portability of employee benefits impedes productivity improving job changes, individual and aggregate welfare may be reduced. Policy makers are concerned about the possibility of benefit-induced job lock and the role of government policies in the promoting the use of benefits that impose such costs on mobile workers. This paper examines the portability of pension benefits and health insurance coverage, recent trends in these benefits, and the significant role of government regulations in the provision of employee benefits.

The U.S. labor market is rapidly changing. Employment in the service sector is expanding while manufacturing is declining in relative importance. For example, employment in the service-producing sectors of the economy increased from 74.2 million workers in 1986 to 94.3 million in 1996 while employment in the goods-producing sectors actually fell slightly from 24.5 to 24.4 million workers. As a result, employment in the service sectors increased from 66.6 percent of total U.S. employment in 1986 to 71.2 percent in 1996 (Franklin, 1997). The significance of firm specific skills often associated with long career jobs may be diminishing in response to this change in the employment mix.

The composition of the labor force is also changing as women and minorities represent a larger share of all workers. In 1996, women accounted for 46.2 percent of the labor force compared to 40.5 percent in 1976. Nonwhites composed 15.6 percent of the labor force in 1996, an increase from only 11.8 percent in 1976 (Fullerton, 1997). These demographic groups have traditionally been associated with higher job turnover and lower tenure. As a result of these changes in the industrial structure of the economy and the composition of the labor force, the future of long careers with a single company is now being questioned. The American labor force in the twenty-first century may be characterized by less loyalty between workers and firms, more jobs per working career, and greater turnover.

Key questions concerning changes in the employment contract and the evolving characteristics of pension plans and health insurance include:

· How will employee benefits evolve in a world of reduced job tenure and increased turnover?

· How are current trends in the characteristics and provisions of pension plans and health insurance altering the portability of these benefits?

· What new strategies will firms develop to hire, retain, and replace a quality workforce?

· How do current government policies affect the structure of pensions and health insurance and the portability of these benefits?

· What new benefit regulations and policies are needed in the twenty-first century to provide for more portable employee benefits?

These important questions are examined in this paper as we seek to determine how organizations are redefining compensation to meet the challenges of the changing American labor force. The analysis will focus on the portability of pension and health plans and the need for new policies concerning the provision of more portable benefits.

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