Retirement crises looms

USA Today (Society for the Advancement of Education), August, 1996

Many of today's retirees are finding it difficult to make ends meet, and the future looks even bleaker. Economic, demographic, and regulatory trends suggest that a growing number of tomorrow's retirees will not receive adequate income and/or medical coverage, according to the Society for Human Resource Management (SHRM).

"We are staring directly in the face of a retirement crisis unless we take action now," warns SHRM board chair Bruce R. Ellig. "It is essential that we redraw national policies on income, tax laws, and health care funding for retirees to keep up with changing times." Without comprehensive national action, several significant trends point toward a retirement crisis: * A declining ratio of workers to retirees. The Labor Department projects that, by 2050, 20% of the population will e 65 or older. This will place increasing burdens on Social Security, Medicare, and Medicaid. * Increased worker mobility. Today's employees are more likely to change jobs several times during a career. They are less likely to have adequate retirement income or health care benefits since there traditionally are based on length of service. Moreover, vested benefits for shorter terms of service often are paid out in cash and not saved for retirement. * Small firms and the self-employed create most new jobs. AT businesses with fewer than 25 employees, 19% of the workers are covered by an employer-sponsored retirement plan, compared with 78% at companies with 1,000 or more employees. Similarly, 18% of smaller firms provide employer-sponsored retiree medical coverage, compared with 44% of larger companies. * A shift to defined benefit contribution programs such as 401(k) plans. There "generally allow participants more investment discretion, and uniformed participants often choose investments with low risk and low return, according to several studies," Ellig points out. * When leaving a job, many employees do not roll over lump sum distributions. According to the Employee Benefit Research Institute, just 22% are rolled over into other qualified plans. Most are used to fund current expenses. * Accounting standards deter employers from sponsoring retiree health care. Because they must report financial liabilities for retiree medical programs, many businesses have opted to reduce or eliminate retirement medical coverage. * Social Security and Medicare are underfunded. The Federal Old Age and Survivors Insurance Trust Fund can pay benefits for about 36 years, according to a 1995 report by the Social Security Trust Fund. Funding of the Medicare Trust will be depleted within seven years, according to trustees. * A growing national deficit. To subsidize government spending, some lawmakers seek reductions in tax breaks for employee benefit plans.