PREFACE

In September 1994, the Bureau of the Census conducted a survey on retiree pension and health benefits. The survey, conducted as a supplement to the Current Population Survey (CPS), asked a series of questions of persons ages 40 and over about receipt of pension annuity and lump sum benefits based on former employment and about continuation of employment based health coverage during retirement. The survey combined questions asked in two earlier separate CPS supplements on pension benefit amounts (conducted in December 1989) and retiree health coverage (conducted in August 1988). The September 1994 CPS supplement, as well as the earlier supplements, were sponsored by the Department of Labor.

This report presents the findings on the pension benefits and health coverage data collected in the September 1994 CPS supplement. The analysis focuses on benefits received based on private sector employment. Comparisons with findings from the earlier CPS retiree benefits supplement are also included.

The traditional view of pensioners as persons who spend 30 or more years in the workforce before retiring with a lifetime pension annuity is rapidly changing. It is now common practice for workers changing jobs or temporarily leaving the labor force to receive lump sum distributions from their pension plans. Relatively low minimum vesting requirements now enable many workers with short tenure to receive at least some pension benefits. The number of older workers who "retire" from a job with a pension annuity and then return to the workforce is also increasing.

These changes in labor force patterns and forms of pension payments present challenges in determining how to measure benefit receipt rates of retirees and wage replacement rates of pensions. It is difficult to infer retirement status on people who continue to work and it can be misleading to include as retirees those with short job tenure.

Existing data on pension benefits is derived primarily from the annual March CPS income supplements. The pension system evolved toward the use of lump sums. The March CPS data present a somewhat limited picture of pension benefit income because it does not collect information on these types of benefits.

The September CPS supplement was specifically designed to address these issues by asking detailed questions on both annuity and lump sum benefits, and by collecting additional data related to pension receipt such as the age of initial benefit receipt, pre-retirement income amounts, years of service, and the type of plan providing benefits. Data from the September CPS supplement show both fewer private sector annuity recipients and higher benefit levels than the March CPS. This may result from the inadvertent reporting of lump sum payments by some respondents to the March question on pension income. This report focuses primarily on the benefit receipt rate of retirees. Retirees are defined here as persons ages 55 and older who have withdrawn from the labor force and who formerly worked for the same employer for five years or more or who have received, currently receive, or expect to receive pension benefits based on former employment. Five years is generally what is required by many plans to obtain an irrevocable right to pension benefits.

This subset of former workers provides a broad population for analysis. Most of these retirees received pension coverage on one or more jobs during their working careers. This report provides overall benefit receipt rates for this group, and variation in receipt rates by such demographic and economic variables as pre-retirement wage levels, firm size, and education levels.

Data presented here on the total number of recipients receiving annuities and lump sum pension benefits, pension benefit amounts, and wage replacement rates are generally based on all persons ages 40 and over receiving benefits accrued during prior employment in the private sector.

In addition to the profound changes occurring in the private pension system, the high costs of health insurance have led many employers to either eliminate health plan coverage for retirees or shift more of the costs of premium payments to retirees. The combined changes in the employment based pension and health care systems have shifted more of both the costs and responsibilities of retirement planning to workers. The findings from this survey indicate that while a substantial minority of retirees enjoy a high degree of financial security based on employer provided benefits, the majority remain dependent on Social Security and Medicare to meet all or most of their retirement income and health care needs.

This report was prepared by Dan Beller and Richard Hinz of the Pension and Welfare Benefits Administration, and Celia Dahlman of CHD Research Associates. Angelique Larsen and Carrie Cyphart of Graphic Visions Associates, Inc. and the staff of Fu Associates, Ltd. prepared the layout and design.