Social Security is the nation's retirement-income base, exactly as envisioned by President Roosevelt 50 years ago when he proposed its creation, providing retirees on the average with roughly one-third to three-fifths of their living costs.
But private pensions, which grew enormously after World War II, government employe pensions, the tax-free Individual Retirement Accounts (IRAs) and tax-deferred wage savings plans -- the new 401(k)s -- are expected to occupy a larger role as time goes on. Congress is trying to decide which of these retirement plans to encourage through favorable tax treatment.
According to Social Security Administration figures, about 90 percent of the 19.9 million households with people 65 and over in 1982 were receiving Social Security benefits, 15 percent were receiving other public pensions, 23 percent were receiving private pensions or annuities and 66 percent received income from assets.
Overall, 40 percent of the cash income of aged households in 1980 came from Social Security and railroad retirement, 7 percent from government employe pensions, 7 percent from private pensions, 19 percent from earnings, and 22 percent from income from stocks, bonds, rents and other assets.
Government statistics show that lower-income families depend mainly on Social Security; it is the middle and upper-income families that tend to have substantial pensions from other sources plus asset income.
Recent studies suggest that a larger percentage of retired persons will receive non-Social Security pensions as time goes on and many of these recently started pension systems begin pumping out benefits to new retirees.
Although only about 38 percent of retiree households in 1980 received public or private pensions or annuities, the figure for newly retired workers in 1982 was much higher -- 56 percent of couples and 42 percent of single persons were receiving some public or private pension other than Social Security.
The growth of Social Security and public and private pensions has improved the income of the aged so much in recent decades that the proportion of people 65 and over with incomes below the government's official poverty line is now 12.4 percent, a low figure compared with the overall national poverty rate of 14.4 percent. The aged were once the poorest segment of society. Even so, there are still substantial income gaps for many elderly, particularly widows, and it is not clear how they will be filled.
On Capitol Hill, the focus is on how to strengthen the network of private pensions and pension-like financial instruments so that most future retirees will have supplementary pension income to add to the Social Security base.
According to the Employee Benefit Research Institute (EBRI), a nonprofit research organization, 1982-84 statistics indicate that private pension systems and related financial plans had the following coverage for workers not yet retired:
*The private pension system in the United States had more than $900 billion in assets; new contributions of about $65 billion were made in 1983.
But only about one-half (36.5 million) of the nation's privately employed nonfarm labor force in 1983 was in firms with an employer pension system. That proportion has remained relatively constant since the decades of explosive pension plan expansion. One of the main reasons the proportion has failed to grow is that most larger firms already have pension systems, and the gaps in coverage are largely in the poorer and smaller ones.
*About 83 percent (13.1 million) of federal, state and local government employes were in agencies with pension systems; many of these systems were considered seriously underfunded by actuarial experts.
*The IRS reported in 1983 that IRAs were noted on 13.7 million tax returns. EBRI said that the actual number of persons with IRA contributions was probably a few million higher because some of these returns were joint husband-wife filings, and both might have IRAs. Contributions that year totalled $32.3 billion. Total assets in IRAs and employer Keogh plans were estimated at $202 billion in 1982. EBRI said that the number of people investing in IRAs, while still growing slightly, appears to have more or less levelled off.
*The new 401(k) plans -- under which workers may set aside a portion of their pay as deferred income and pay no tax on it until retirement -- apparently are growing like wildfire, particularly among higher-income workers. In 1983, the total number of workers in these plans was estimated at less than 2 million, but EBRI President Dallas Salisbury recently estimated that this already may have risen to as much as 10 million.
Another form of retirement income is Employee Stock Option Plans, in which businesses give workers stock. The National Center for Employee Ownership, a research organization, said that between about 1.5 million and 2 million workers are participating in these plans and asserted that they are growing.
Salisbury presented data to the House Ways and Means Committee showing that IRAs -- and, to a lesser extent, 401(k)s -- are heavily skewed toward higher-income workers because many lower-income workers apparently do not buy them. In 1983, only one-fifth of workers making less than $10,000 a year participated in 401(k)s in jobs where they were available and only about 7 percent making less than $10,000 bought IRA's; but three-fifths of workers making $50,000 or more were joining 401(k)s where available in their jobs and buying IRAs.
These figures have led Karen Ferguson of the Pension Rights Center, plus many labor unions, to argue that the gap in pension coverage for low-income workers in small firms simply cannot be solved by 401(k)s and IRAs.
The Ways and Means Committee and the administration are supporting limits on tax-deferred contributions to 401(k)s as part of the tax-reform bill, but largely as a method of reducing Treasury revenue losses from special tax breaks.
Several other major pieces of private-pension legislation also are on the table this year. The reconciliation bill includes provisions to increase from $2.60 to $8.10 per covered worker the annual fee charged by the government for insuring private pension benefits of so-called single-employer pension plans against default. Otherwise, it is feared that one or two major defaults could bankrupt the insurance fund.
Several members of Congress are pushing legislation to improve the existing system of private pensions.
Among the provisions in one or both of these bills are:
*Reducing the time required for vesting in a private pension plan from the normal 10 years to five.
*Barring employers from excluding certain large categories of their part-time, seasonal and paid-by-the-hour employes from pension coverage.
*Barring employers from offering pension plans that are "integrated" with Social Security in a way that leaves the worker with nothing but Social Security upon retirement.
Rep. Edward Roybal (D-Calif.) has taken a leading role in yet another issue: an attempt to stop "reversions." That describes a situation in which an employer who needs cash for business purposes or to fight a takeover cashes out a purportedly overfunded pension plan. He pays off the pension obligations by giving the workers annuities or other financial instruments to cover their vested benefits, pockets the overfunded amount and sometimes creates a new retirement plan, often less favorable.
Roybal, Ferguson and others have charged that reversions often are essentially raids on money set aside for worker benefits and that the purported overfunding is simply an actuarial glitch. The Ways and Means Committee has included a provision in its tax-reform proposal imposing a 10 percent federal excise tax on any overfunded amounts that the employer gets back as the result of a reversion.