The Retirement Report, Spring 2022

Q&A—Issue Brief Examines Reform Options for Social Security Retirement Age

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In a public policy issue brief, Raising the Social Security Retirement Age, the Academy’s Social Security Committee—which has reviewed a broad array of reform options—looks at the potential effect of raising the Social Security normal retirement age, the earliest age at which unreduced benefits are paid.

Even with the currently scheduled increase in the normal retirement age to 67 in 2027 (up from the original age 65), increased longevity is among the root causes of Social Security’s financial problems suggests that raising the normal retirement age is a likely, perhaps even necessary, component of any package of program changes that addresses them. Program solvency must be ensured so that the system can continue to provide the promised level of benefits, the issue brief states.

The 2022 Social Security Trustees Report is expected to be issued soon. [This Q&A was done earlier this year, prior to the report’s release.] Can you describe the impact of the expected depletion of the trust fund reserves by 2034 if Congress doesn’t act to reform the system before then?

It is by now fairly common knowledge that the system’s cash outflows for benefits are beginning to exceed cash inflows from all sources (including payroll taxes, taxes on benefits, and trust fund income). Thus, the trust fund balance—the combined Old Age, Survivors, and Disability Income (OASDI) Trust Fund—which has peaked at almost $3 trillion, is expected to be depleted by around 2034. During the development of this issue brief, last year’s Trustees Report indicated the amount payable from current system income at that point is expected to be about 78%.

Why did the committee focus on raising the Social Security normal retirement age (NRA) in this issue brief?

The Social Security Committee has published a number of issue briefs on a variety of subjects around Social Security, including potential elements of system “reform” that might comprise a solution to the system’s projected insolvency. The retirement age issue is among the more complex system reform elements because the age at which working individuals retire has an impact not only on government-related benefit programs but also on employer-provided benefit programs, the general labor environment, and the macroeconomy. So, it calls for a closer look and the committee decided to devote a single issue brief that allows a deeper dive into the broad array of issues that should be considered in evaluating a potential change in normal retirement age.

The issue brief discusses longevity increases not being uniform across the population. The committee looked at studies on the variation in expected longevity by socioeconomic group. What did you conclude from those studies?

It is broadly recognized that longevity expectations have increased over time for the great majority of the population. Unfortunately, this historic pattern was interrupted to a great degree by the COVID-19-related mortality experience of 2020–2021. However, it is still generally expected that we will return to the prevailing pattern of improving mortality going forward.

And it is important to be aware that, in evaluating potential increases in the unreduced retirement age, we should probably be focusing on longevity expectations 10, 20, or 30 years from now rather than today. That’s because the current retirement age phase-in period doesn’t end until 2027, so from a practical standpoint the earliest that any substantial additional impact from a change in retirement age once implemented is a number of years beyond that.

It’s also important to realize that longevity expectations are not uniform across the population. It’s long been true that mortality/longevity expectations have been connected to individuals’ income and education levels. More recently, some evidence has emerged that these variations may be expanding to some extent over time. So far, the variations in mortality experience by income have been increasing mostly at mid-life ages (e.g., 35-50), a situation which is being attributed to emerging experience with lifestyle-related diseases (such as obesity and substance abuse). Whether the divergence in mortality experience will follow that same demographic cohort as they age into the retirement zone is still a question at this point.

Regardless of whether the existing variations further increase or not, there is still a very significant issue as to whether individuals in the lowest-income cohort and those with the most rigorous physically demanding jobs—and there is of course much overlap here—are able to continue work to the same later ages as might be expected of the broader population. So, any policy approach based on a presumption of longer working lives and later retirement will need to consider addressing concerns over the differing needs of this more vulnerable cohort.

COVID-19 has affected expected retirement patterns. What have the retirement age trends been, and how do you think they will change?

The average retirement age has been rising over the past 15 years, but then, of course, the labor force disruption related to COVID-19 disrupted this pattern some. The rate of labor force participation declined across the board, including for age 60+ individuals near the retirement age zone. A number of rationales have been offered as to the cause of this change, including likely-temporary health concerns, an emerging “life is short” mentality, and the availability of new funding from government stimulus programs and increases in capital and real estate values.

There is at least some speculation that a large number of these individuals who left the workforce might not return. Beyond that is a larger question as to whether anything about the labor force environment has permanently changed. What I’m referring to here is the participation of the older age group in the workforce. We increasingly need to draw a distinction between that and the rate of benefit election at various ages. The average age for benefit election remained high, at least through 2020. So, it would appear that at least some individuals who could have elected to initiate Social Security benefits after ceasing work have decided to defer.

Any changes to the Social Security NRA will have macroeconomic impacts. How would you recommend those impacts be considered as members of Congress work on reforms to the system to ensure long-term solvency?

There are a number of reasons why the issues related to retirement age have impact beyond the financial solvency of the Social Security program. With our country’s maturing demographic, the ratio of workers paying into the system to retirees claiming benefits is worsening. This pattern will continue due to lengthening life expectancies even after the baby boom-related demographic blip has cycled out. This worsening dependency ratio has a broad society-wide impact.

An aging U.S. population is also straining the country’s ability to fund the Medicare program – where trust fund depletion is projected later this decade. Addressing the financing of both retirement benefit programs through tax increases alone would add a very significant burden on continuing workers. But even beyond the issues we’ll see in financing these government benefit programs, the demands for goods and services of an expanding retiree group may strain the productive abilities of that relatively smaller working population. We’ll need to anticipate broad effects on capital markets and the economy as dynamics shift between spending, earning, and saving.

Some Members of Congress have included proposed changes to the NRA in a number over the years. What were some of the different proposals?

The Social Security actuaries maintain a tabulation of proposals that have been offered and priced over the years; 12 of these involve proposed changes to the unreduced retirement age. These have typically provided for an increase in the unreduced retirement age to age 69, though there are others that stop at age 68 or age 70, and still others that provide for an ongoing indexing mechanism. The five proposals that involve increasing NRA to age 69 would have provided phase-in periods that extend to 2032 to 2077—i.e., a range from very quick to very slow transitions. The average of all the transition periods offered would have the age 69 NRA fully effective for retirees in 2045.

Given the length of these proposed phase-in periods, it is important to realize that we are not talking about potential retirees with today’s mortality and longevity expectations being expected to work longer and retire later, but rather those who enter the retirement age zone 10 or more years from now.

The issue brief includes a number of concerns to be considered in addressing raising the NRA if part of a reform package, as some parts of the workforce have lesser ability and opportunity to work longer. How could Congress craft a reform package that takes into account this potential disparate impact?

An increase in normal retirement age means that those continuing to retire at the earliest ages will receive greater benefit cuts. Varying expectations for health and life expectancies across the population, as well as varying work demands, implies some workers may be forced to cease work earlier and thus be more adversely affected by these retirement income cuts. Congress could make other system changes that address the benefit situation for these workers. This could be done either by improving the basic benefit formula for lower-wage workers overall, or by providing a liberalized definition of disability that would facilitate providing sufficient benefits for those needing to retire earlier.

What other materials have the committee and the Academy produced that may be of interest to those wanting to learn more about these issues?

In addition to the resources below that are listed at the end of the issue brief, the Academy’s Social Security Essential Elements pension offerings include “Securing Social Security” (2021), “Creating a National Retirement Policy” (2019), “Income to Last a Lifetime” (2018), and “Raising Social Security’s Retirement Age” (2017).

Individual Equity and Social Adequacy in the U.S. Social Security System (2021)

Social Security Reform Options (2014);

Social Security—Automatic Adjustments (2018)

Save the Date: Academy Annual Meeting Is Nov. 2–3

Are you ready to envision tomorrow with us? Save the date for the Academy’s Envision Tomorrow: 2022 Annual Meeting, which will be held Nov. 2–3 at the Metro Center Marriott in Washington, D.C. Attendees to engage directly with national policymakers and thought leaders on today’s top issues while enjoying the many wonderful destinations and attractions in the nation’s capital. Look for agenda details to be unveiled in the coming weeks, including breakout sessions exploring top pension issues. Learn more.

PPC Hosts ‘Hill Visits’ With Federal Officials in Nation’s Capital

Khawar in an April 26 ‘Hill Visit’ session

The Pension Practice Council (PPC) hosted “Hill Visits” April 25 and 26—virtual meetings with policymakers on Capitol Hill and federal agencies in the nation’s capital. Almost two dozen volunteers and Academy staff participated in about 20 meetings, and the members of the PPC and its committees discussed their work and shared their expertise on issues of interest to legislators and policymakers including Social Security, retirement policy, and pension plan reforms.

While the Academy is in touch with agencies and congressional staff throughout the year, these annual visits allow more volunteers to actively participate in discussions with federal public policymakers to hear directly from them on issues of importance to them including active legislation and regulatory rulemaking. In addition to solvency concerns and reform proposals involving Social Security, diversity, equity & inclusion implications stemming from both Social Security and private pension plans were discussed as well as specific topics relating to multiemployer pension plan relief, single-employer pension new plan designs, and the pending SECURE 2.0 bill before Congress.

“The PPC has a broad array of talent to contribute in several areas of focus—including private plans, multiemployer plans, Social Security, and beyond—and we made use of all this experience and knowledge of our volunteers in the Hill Visits with congressional staff and federal regulators and policymakers,” said Academy Pension Vice President Sherry Chan. “In the two days of these productive meetings actuaries covered a lot of ground, offering an actuarial voice in important public policy pension issues.”

PPC and committee volunteers, along with Academy staff, met with congressional staff from the House Ways and Means Committee and several of its subcommittees; the Senate Health, Education, Labor, and Pensions (HELP) Committee; and the Senate Finance Committee. They also met with representatives from the Congressional Research Service, the Government Accountability Office, and the Department of Labor’s Employee Benefits Security Administration (EBSA), including with EBSA Acting Assistant Secretary Ali Khawar, who also presented in an Academy pension webinar in March.

“It was very helpful to hear from the Congressional committees of jurisdiction on retirement policy as they shared their perspectives of what provisions might be included in bipartisan legislation to be acted on this year as the Academy’s Retirement System Assessment and Policy Committee, or RSAP, has been focused on actions to increase retirement security,” said RSAP Chairperson Claire Wolkoff.

Issue Brief Examines Funding Requirements for Single-Employer Plans

The Pension Committee published an issue brief, Public Policy Considerations for Changing Single Employer Pension Plan Funding Rules, which offers public policymakers a concise, actuarially informed look at the complex considerations involved in modifying minimum funding requirements for single-employer defined benefit plans.

“This new resource draws on actuarial expertise to provide policymakers with key factors to evaluate the different available options for modifying the requirements, and to understand the interests, needs, and potential impacts on plan participants, sponsors, taxpayers, shareholders, and the Pension Benefit Guaranty Corporation,” said committee Vice Chairperson Grace Lattyak.

Read the Academy news release.

Webinar Examines ASOP No. 4 Revision

The Academy hosted a webinar, “The Revised ASOP No. 4: What You Need to Know”—an examination of Actuarial Standard of Practice (ASOP) No. 4, Measuring Pension Obligations and Determining Pension Plan Costs or Contributions, for which the Actuarial Standards Board (ASB) approved a revision, and which will take effect Feb. 15, 2023. Presenters were ASB member Chris Noble and ASB Pension Committee member Matthew Smith. Grace Lattyak, vice chairperson of the Academy’s Pension Committee, moderated.

Discussing the reasons for the revisions, Noble said that “rather than increase contributions to state pension plans, some states have deferred funding by legislating methods and assumptions for actuarial contribution calculations that may not have been selected under appropriate actuarial practice. … The significant changes in ASOP 4 are primarily intended to ensure that the actuary’s report contains sufficient, objective information for intended users to make well-informed decisions concerning the plan’s funded status and appropriate contributions, even when the actuary may be required to calculate contribution amounts that dangerously defer funding.”

A recording of the webinar is available free to logged-in Academy members—listening to the recorded webinar can be counted toward the 3 hours of continuing education (CE) on professionalism topics required annually.

Capitol Forum Webinar Examines Retirement Issues

The Academy hosted “Capitol Forum: Dialogue with DOL on a National Retirement Income Policy,” a pension webinar focused on retirement issues that featured a conversation with Ali Khawar, U.S. Department of Labor (DOL) acting assistant secretary of the Employee Benefits Security Administration (EBSA).

In the March 10 webinar, Khawar offered EBSA’s perspective on retirement and lifetime income, and talked about DOL’s priorities, including a conflict-of-interest project and recent actions on cryptocurrency.

Former Retirement System Assessment and Policy (RSAP) Committee Chairperson Eric Keener moderated, and current RSAP Committee Chairperson Claire Wolkoff participated as a panelist.

Slides and audio are available free to logged-in Academy members.

Retirement Issue Brief Wraps Up ‘Guiding Principles Series’

A package of Retirement System Assessment and Policy Committee issue briefs on retirement issues includes the last of the series, published in March—Retirement Policy: Aligning Plan Design With Effective Employee Engagement, which explores how retirement program design can impact participants’ decisions with the goal of improving retirement security.

The previous issue briefs are National Retirement Policy & Principles (July 2019), Retirement Security Challenges: Portability and Retirement Income (April 2020), New Retirement Plan Designs: Degrees of Risk Sharing (October 2021), and Retirement Policy: Potential for Changing Roles of Employers in Retirement Programs (October 2021).

Intersector Group Releases PBGC Meeting Notes

The collaborative U.S.-based actuarial organizations’ Intersector Group released notes from its most recent virtual meeting with the Pension Benefit Guaranty Corporation.

‘Actuary Voices’ Features Pension VP Sherry Chan

A recent “Actuary Voices” episode features a conversation with Sherry Chan, who became vice president of the Pension Practice Council in November. A first-generation Asian-American, Chan traced her journey from Ohio to New York City, where she worked as the city’s chief actuary. “The actuarial profession has provided me a great springboard to analytics work that I use currently in my job,” she said, referencing her extensive volunteer work for the Academy and other actuarial groups. Last year, Chan co-founded Abacus Actuaries to assist Asian actuaries in their professional work, which she presented about at the Academy’s Annual Meeting and Public Policy Forum in November. Listen to the episode here or on your preferred podcast platform—and don’t forget to subscribe so you can listen to new episodes as they are released.

In This Issue

• Q&A—Issue Brief Examines Reform Options for Social Security Retirement Age
• PPC Hosts ‘Hill Visits’ With Federal Officials in Nation’s Capital
• Issue Brief Examines Funding Requirements for Single-Employer Plans
• Webinar Examines ASOP No. 4 Revision
• Capitol Forum Webinar Examines Retirement Issues
• Retirement Issue Brief Wraps Up ‘Guiding Principles Series’
• Intersector Group Releases PBGC Meeting Notes
• ‘Actuary Voices’ Features Pension VP Sherry Chan
• Legislative/Regulatory Activity
• In the News
• Coming Soon

Legislative/Regulatory Activity

The following is a roundup of recent state retirement-related legislative and regulatory activity.

West Virginia Gov. Jim Justice signed a bill authorizing creation of the Municipal Pensions Security Fund to help reduce the unfunded liability of certain pensions such as policemen and firemen. It also requires all policemen’s and firemen’s pensions to be evaluated annually by an actuary who will provide an actuarial valuation report.

Justice also signed a bill requiring the Municipal Pensions Oversight Board to contract an actuary once every five years to provide a report to the Legislature’s Joint Committee on Pensions and Retirement on the status of each active Deferred Retirement Option Plan (DROP).

Justice also signed a bill to update public retirement plans to comply with the Federal “Setting Every Community Up for Retirement Enhancement” (SECURE) Act of 2019. It updates the required beginning date from age 70.5 to age 72 and clarifies the statutes pertaining to the federal Minimum Distribution Incidental Benefit (MDIB) Regulations.

Wyoming Gov. Mark Gordon signed a bill relating to “firemen pensions” and the creation of the Fire A reserve account. This bill creates a backup fund to be used only if funds in the firemen’s pension account are insufficient to provide benefits.

Arizona Gov. Doug Ducey signed a bill that authorized the creation of a study committee to examine whether and how public-private partnership programs can assist in helping Arizonans to prepare for a secure retirement.

Hawaii Gov. David Ige received a bill passed by the state legislature that established the Hawaii Retirement Savings Program, which provides a state-facilitated payroll deduction individual retirement savings plan to private-sector employees who do not have access to employer-sponsored plans.

Florida Gov. Ron DeSantis received a bill passed by the state legislature related to individual retirement accounts. The measure would specify that certain interests received by a transferee after a divorce are exempt from claims of creditors after being received by the transferee.

Illinois Gov J.B. Pritzker signed a bill that includes extension of the pension buyout window for eligible state employees an extra two years, pushing it back until 2026, among other matters.

In the News

Academy Senior Pension Fellow Linda K. Stone provided an actuarial perspective to a CNBC personal finance column on rising interest rates and pensions. The column refers readers to the Academy’s Pension Assistance List for assistance with questions about their pension plans.

Plan Sponsor wrote about the Academy’s Essential Elements paper, “Clarifying Misunderstanding of Life Expectancy and COVID-19.” Business Insurance also wrote about the paper, citing Plan Adviser. Also, Government Executive mentioned the paper in its “Coronavirus Roundup.”

Advisor Magazine also wrote about the Essential Elements paper and the recent Pension Committee issue brief on the subject.

A letter to the editor published in the Daily Herald (Ill.) cited findings from the Academy’s issue brief, The 80% Pension Funding Myth.

Investment News, Retirement Income Journal, Think Advisor, Government Executive, Advisor Magazine, RedState, and the “Your Money & You” show on Pittsburgh radio KDKA-AM reported on the Academy’s issue brief examining the potential effects of increasing the Social Security normal retirement age. Academy Social Security Committee Chairperson Amy Kemp penned an op-ed published by MarketWatch describing the availability of public policy options to address the longevity impact on the program, drawing from the Academy’s issue brief. A web posting on the American Society of Pension Professionals & Actuaries website also discussed the issue brief.

An AARP story on strengthening Social Security quoted Social Security Committee Chairperson Amy Kemp on longevity increases as a factor impacting the system’s financial condition.

Bloomberg Law, BenefitsPRO, Retirement Income Journal, and InvestmentNews reported comments made by EBSA Acting Assistant Secretary Ali Khawar in the Academy’s Capitol Forum webinar.

Alpha Wealth Hour cited the Academy (appx. 31:30 mark) in discussing longevity as a factor in financial planning.

Plan Sponsor detailed four types of plan design discussed in the Retirement System and Assessment Policy Committee’s recently released final issue brief in its retirement policy and principles series.

Advisor Magazine reported on the Academy’s issue brief highlighting public policy considerations involved in potential modifications to single employer pension plan funding rules.

Coming Soon

Trustees’ reports webinar—Following the forthcoming release of the annual Medicare and Social Security trustees’ reports, the Academy will host a webinar featuring chairpersons of the Academy’s Medicare and Social Security Committees, who will summarize trustees’ findings. Chief actuaries from the two programs will provide a deeper dive into the assumptions used and how recent events—such as the COVID-19 pandemic and related economic downturn—are reflected in the projections.