Highlights

HIGHLIGHTS

Receipt of Employment Based Pension and Health Benefits

In 1994, 48% of retirees ages 55 and older reported employer provided pension benefits, either in the form of a lifetime annuity or a lump sum distribution taken in 1994 or earlier and used for retirement.

Thirty-four percent of retirees reported current coverage under the health plan of their former employer. Thirty percent of retirees indicated that this coverage could be continued for life.

Pension benefits were received by 57% of all male retirees ages 55 and over and employer health coverage that could be continued for life by 39%. In contrast, only 38% of women retirees received pension benefits and 21% received health coverage that could be continued for life.

Among Federal, state, and local government retirees, 66% received pension benefits and 49% received employer health coverage that could be continued for life. Among private sector retirees, 42% received pension benefits and 24% had employment based health coverage that could be continued for life.

Pension Benefits

The receipt of private pension benefits is unevenly distributed among retirees. There is a direct association between income levels, firm size and other related characteristics and the incidence of pension receipt.

Only 12% of retirees who had earnings of less than $10,000 per year have received a pension while 68% of those who earned more than $40,000 in their last year of work have received pension benefits.

Only 11% of retirees from firms with fewer than 25 workers report the receipt of a pension while 68% of retirees from firms with more than 1,000 workers report that they have received a pension benefit.

Amounts and Uses of Lump Sum Distributions

Among private pension plan participants, an increasing percentage are receiving benefits in the form of a lump sum rather than an annuity, with many recipients receiving the lump sum when changing jobs rather than at retirement.

In 1989, 7.5 million retirees and workers ages 40 and over were receiving lifetime annuity benefits and 6 million had received lump sum payments from pension plans in 1989 or earlier. In 1994, the number of annuity recipients had decreased by 4% to 7.2 million, while the number of lump sum recipients had increased by 50% to 9.1 million.

From 1989 to 1994, the percentage of pension recipients ages 40 and over receiving both an annuity and lump sum benefit increased from 8% to 10%, the percentage receiving benefits only in the form of a lump sum increased from 40% to 51%, and the percentage receiving only annuity benefits decreased from 52% to 38%.

The shift toward payment of pension benefits in the form of lump sums parallels the shift in pension coverage occurring over the past two decades from defined benefit to defined contribution plans. Defined benefit plans generally provide benefits in the form of an annuity while defined contribution plans usually provide lump sum distributions of benefits.

Women pension recipients are more likely than their male counterparts to receive benefits as lump sums rather than annuities, with 63% of all women pension recipients reporting receipt of benefits only in the form of a lump sum distribution compared to 44% of men.

Median lump sum distributions to retirees and workers in 1994 or earlier averaged (in 1994 dollars) $7,710 and mean distributions averaged $22,309.

Median lump sum distributions made in 1993 and 1994 were $8,200 and mean distributions were $23,460.

Among retirees and workers age 40 and over who received lump sum distributions from pension plans, 26% rolled the entire amount over into retirement savings; 14% put it all into other savings or investments; 16% put it into a business, house or paid off debts; and 20% spent the distribution.

For those receiving distributions of $3,500 or less, 13% put the lump sums into retirement savings and 36% spent the distribution. For those receiving lump sums of $50,000 or more, 48% rolled the distribution over into retirement and 3% spent the distribution.

About .9 million workers and retirees have vested account balances in the defined contribution plan of a prior employer. This group with retirement savings accumulating in a former plan, when added to those who received lump sum distributions and rolled the distributions over into retirement savings, increases the percentage of those with funds used for retirement from 26% to 33%.

Receipt of Private Pension Annuity Benefits

In 1994, private pension plan recipients received median annual annuity benefits of $6,000 and mean annual benefits of $9,714.

Annuity recipients who first began receiving benefits in 1993 or 1994 reported median annual benefits of $8,400 and mean annual benefits of $12,107.

Among new pensioners in 1993-94, men received median annual benefits of $9,600 and mean annual benefits of $14,654, while women received median annual benefits of $4,800 and mean annual benefits of $6,748.

The gap in median pension amounts received by men and women which had widened from 1978 to 1989, has narrowed in recent years. In 1988-89 the median annuity benefits received by women were 37% of those received by men. In 1993-94 the median of women's benefits for new pensioners had risen to 50% of those received by men.

Median annual annuity benefits for new pensioners in 1993-94 were (in 1994 dollars) 27% higher than benefits paid to new pensioners in 1988-89 and mean benefits were 32% higher.

The higher average benefit levels of new pensioners in 1993-94 are related in part to the large number of terminations of defined benefit plans among small employers, which increased the percentage of recipients receiving annuities from large plans. In 1993-94, 79% of new pensioners received benefits from firms employing 500 or more workers, an increase from 73% in 1988-89.

Annuity benefits paid by large firms average almost twice as much as benefits paid by small firms. Pension recipients in large firms have higher average pre-retirement wage levels, more years of pension credited service, and higher replacement rates per year of service than pension recipients in small firms.

While the gap in median benefits received by men and women has narrowed, the percentage of all new private annuity recipients who were women decreased from 35% in 1989 to 31% in 1994. Much of this decrease resulted from the shift in pension annuities toward large firms, whose work force is made up of a smaller percentage of women than in small firms.

About 54% of married private pension plan recipients have selected a joint and survivor (J & S) option, which, in the event of their death, will continue to provide benefits to their spouse.

A J & S option was selected by 62% of men and 28% of women. Overall, 59% of married pensioners receive a benefit with a J & S option compared to 7% of divorced pensioners.

For all private sector workers receiving both annuity and Social Security benefits in 1994, the combined benefits replaced about two-thirds of pre-retirement wages. However, if the pre-retirement earnings are adjusted to 1994 price levels the replacement rate averages 45%.

Only about 30% of private pension recipients have ever received cost of living increases, with these increases averaging about 2.1% per year.

For pensioners who retired in 1979, the replacement value of their annuities has declined from an initial average of 23% to 11% of the real value of their pre-retirement earnings.

Retiree Health Benefits

The proportion of retirees ages 55 and over currently receiving health benefits from their prior employer declined from 44% to 34% from 1988 to 1994. This represents a 23% decline in the coverage rate over the six year period.

The decline in coverage is associated with a lower rate of pre-retirement coverage (from 69% to 65%) as well as a decrease in the propensity of retirees to elect coverage, which appears to be associated with cost issues.

Twenty-seven percent (27%) of retirees who were covered by their employer while working stated that they dropped coverage because it was too expensive. Only 21% did not elect to continue coverage in 1988 due to cost.

Retirees with employer sponsored health coverage report their share of the median annual premium to be $960 in 1994. This represents a 10% increase in real cost since 1988.

Employers paid all of the premiums for only 37% of retirees with health benefits. This rate declined from the 42% reported by retirees with coverage in 1988.

Receipt of retiree health benefits is associated with a range of demographic and economic factors. While 45% of retired men report employer sponsored health coverage only about 24% of women have such coverage.

Retiree health coverage is directly associated with the size of the firm from which the worker retired, pre-retirement earnings, and other related factors such as educational attainment.

Retirees covered by a collective bargaining agreement while working had a health benefits receipt rate (41%) more than twice that of other retirees (19%).

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