Who Gets To Decide When You Should Retire?

In their September 22, 2017 Wall Street Journal essay, University of Chicago Law School professors Saul Levmore and Martha Nussbaum assert “Let’s Agree on an Age to Retire”.   

Several assertions were simply wrong:

• They propose: “Let’s Agree on an Age to Retire”.  As football coach Marv Levy once said: “Age is inevitable.  Aging isn’t.” Americans are a diverse group – with variations in health, occupational, marital, financial, and family status.  One retirement age won’t fit everyone.  For example, many argue that the uniform ages for Social Security and Medicare benefits should be changed to counter increases in mortality inequality. 
• They assert: “Retirees maximize Social Security benefits by retiring at age 68.”  In fact, monthly Social Security benefit amounts are increased 8% for every year after normal retirement up to age 70.  Maximizing the present value of benefits to the beneficiary (and if married, his or her spouse) depends on so many factors (taxation, inflation, mortality, investment returns, etc.) that no one can determine it in advance.   
• They state: “Their employer or union makes (retiring earlier) irresistible through a “defined-benefit” pension plan … Virtually all such plans encourage timely retirement by requiring contributions from those who continue to work and reducing their benefits if they stay on the job past a certain age.”  In fact, most defined benefit pension plans are non-contributory.  More importantly, benefit laws prohibit reductions to private sector defined benefit pension plans.   
• They claim: “Defined-benefit plans were once ubiquitous in the U.S.” Ubiquitous means widespread, being everywhere at the same time, constantly encountered.  Only a minority of workers were covered by a defined benefit pension plan (DB) at any one time – the maximum was 38% in the late 70’s.  That percentage has declined since the Employee Retirement Income Security Act of 1974 took effect.  The decline in DB coverage accelerated once limits on benefits were added by the Tax Equity and Fiscal Responsibility Act of 1982 and once new funding rules were added by the Pension Protection Act of 2006.  Don’t forget, coverage ≠ benefits – that 38% coverage number overstates the percentage who actually receive benefits.  Back then, most plans vested workers in their accrued benefit at or after 10 years of service – while the median tenure of American workers has been about 5.5 years for decades.     

Their proposals are neither practical nor reasonable.  They propose relaxing the age-discrimination laws so employers can insist on a maximum period of employment as of the date of hire – as if anyone age 21 today could commit to retirement nearly 50 years in the future.  They also recommend Social Security benefit penalties for continuing employment after Social Security Normal Retirement Age - actions that would likely reduce the number of older Americans who work and increase the number receiving benefits, potentially worsening already dramatic funding deficits in Social Security and Medicare.   

The Plan Sponsor Council of America (PSCA) represents hundreds of plan sponsors and millions of current and future retirees.  We recognize retirement is more likely when workers are prepared for their financial future. Instead of a mandatory retirement age, if the goal is a more paced and predictable rate of retirement, we encourage policy makers to pilot some or all of the following modest changes designed to enable/facilitate transitions to retirement:  

1. Amend the Age Discrimination in Employment Act (ADEA) to permit formal, voluntary, phased retirement processes similar to the voluntary early retirement window process added by the Older Worker Benefits Protection Act of 1990 (OWBPA).
2. Confirm employers can apply the same “equal cost, equal benefit” regulations to health coverage that have applied to life insurance and long-term disability coverage since the 1990s.
3. Permit Health Savings Account-qualifying health insurance as a Medicare Part C option so older workers and retirees can save on a tax favored basis for post-employment health premiums and expenses. 
4. Encourage adoption of employer-sponsored savings plans with automatic enrollment, escalation and investment features.   

I suspect President Trump and the 44 (out of 100) US Senators who are age 65 or older today don’t see age as an impediment.  So, don’t expect them to approve legislation to re-implement a mandatory retirement scheme.  Instead, I’m pretty sure most would agree with the quote often attributed to ageless baseball pitching great Satchel Page: “Age is a case of mind over matter.  If you don’t mind, it don’t matter.”