Older Workers’ Pension Plan and Ira Coverage

Introduction

Coverage by pension and retirement plans is especially important for older workers, defined here as those aged 55 and older. These workers are very close to retirement and will soon be counting on income from their pensions and savings to supplement their Social Security benefits.

Age 55 is also significant because it is a common age for early retirement under many employer-sponsored pension plans and a point at which many individuals begin leaving the labor force. Evidence indicates that eligibility to receive a pension benefit significantly affects the decision to leave the labor force. In addition, the type of pension coverage a worker has is important to this decision: workers with defined benefit (DB) plans are more likely to exit the labor force when they are eligible for benefits than are workers with defined contribution (DC) plans.1 Older workers are more likely to be covered by a DB plan than by a DC plan.2

The Survey of Income and Program Participation (SIPP)

This paper examines the pension and retirement plan coverage of workers approaching retirement; it uses data from the "Retirement Expectations and Pension Coverage" topical module (Wave 7) of the 1996 Survey of Income and Program Participation (SIPP) released by the U.S. Census Bureau in February 2002 (the data collected are for the period from March to June 1998). This SIPP dataset includes the most recent and detailed data available on pension and retirement plans for a large representative sample of the U.S. population.

The SIPP data permit a broad-gauged examination of retirement plan coverage, i.e., they capture any retirement plan coverage obtained by workers during their careers. Most analyses of retirement plan coverage look at current primary job coverage only. Consequently, they produce estimates of aggregate pension coverage for older workers that are biased downward. Retirement plan coverage is defined here as (1) employer pension plan coverage obtained at any time during a worker's career (i.e., current primary job, current secondary job, and any previous jobs), or (2) having an Individual Retirement Account (IRA), or (3) both. Inclusion of IRAs acknowledges the blurring of the distinction between employer-provided DC pension benefits and personal retirement savings.

In 1998, 17.6 million or 13.3 percent of all workers who had a job or owned a business were older workers (Table 1).3 As expected, there is a dramatic drop-off in the working population after age 64. In 1998, there were only 4.4 million workers aged 65 and older. This means that by age 65, three-fourths of all older workers (i.e., 13.2 million) have left the labor force (see Table 1).

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