change can result in retention of employees whose productivity in their jobs is not a problem. E--Use of Early Retirement and Mandatory Retirement Policies in A Subcommittee member raised this issue with Department witnesses during the hearings. It goes very much to the heart of the pending legislation and problems raised about changing the age limits. 13 Witnesses before the House Select Committee on Aging--representing firms such as Exxon, CBS, the Bendix Corporation, and General Foods testified that a major reason for mandatory retirement in their organizations was that it treated everybody equally. That is, since all workers are subject to the age rule, be they executive or service worker, the procedure is fair and sound. This, indeed, is one way of looking at the matter. A representative from the Bankers Life and Casualty Company-which has no mandatory retirement rule--stated an opposite view. Workers should be assessed on an individual basis and in terms of their contributions to the company and their own self-interests in continuing work or retiring. Regardless of the merits of either system, one can note the arbitrary nature of the mandatory retirement rule. The good workers go with the bad--just on the basis of age. In fact, many of the mandatory systems admit to exceptions. CBS controls a subsidiary firm which manufactures pianos. Because of the lack of younger skilled workers in this division, the retirement rule of 65 has been waived. Other firms and organizations will retain particularly skilled or valued employees on a yearly review basis. In fact, an industry witness from Grumman Aerospace, who testified before this Subcommittee, described such a review policy and procedure extremely well. It appears that organizations already have the mechanism for dealing with retirement on flexible criteria. They simply have not apparently questioned the relevance of their retirement policy or developed alternate utilization patterns for older employees. The proposed legislation would cause both to happen. Early retirement options can be of great benefit to older workers who have alternate plans for leisure or second career activity. They can also be used by management as pressure points to adapt to reduction-in-force practices in the face of economic necessity. The real or perceived threat of job reassignment or salary downgrading can push older employees into an early retirement option at a current benefit level rather than suffer a job and salary cut which could lead to a sub14 stantially reduced benefit. There are several cases pending under the Age Act which involve these kinds of issues. 15 A report by the Industrial Conference Board, entitled Retirement: Reward or Rejection, cites an opposite and adverse effect of early retirement policies. In the late 1960's, early retirement incentive strategies were developed by certain industries. By these, workers could retire--generally after age 55 with some special benefit--even though annuities would be reduced by the early retirement. It was thought that incentives would tend to rid the organization of less productive, older workers. In many cases, however, skilled and productive workers took Early retirement policies, if not carefully thought out, can have unforeseen effects. the option. F--What are the Implications of Raising the Age Limits of the ADEA on the Social Security System? RESPONSE Social Security costs would be decreased by the number of workers between 65 and 70 who would not be forced to retire from the labor market before age 70. These savings would depend on the wage history of the individual according to the formula used by the Social Security Administration to calculate benefits. Benefit cal culations are complicated further by the marital status of the recipient. Nevertheless, if a very rough and approximate maximum benefit of $400 is allocated to each of the workers who could be expected to continue working beyond 65, then the cost savings would have been between $644 million and $832 million in 1976. If these workers remained in the labor force and paid the maximum Social Security tax, they would have added between $232 million and $300 million a year to Social Security revenues in 1976. All in all, these sums do not really represent great savings to the economy. OASDI receipts were $71 billion in 1976 and disbursements Thus, receipts would increase by at most four-tenths of a percent and disbursements decrease by about 1 percent. $74 billion. G--What are the Impacts of Raising the Age Cap on Pension Plans Financial pressure on private plans could be alleviated. Requiring an employer to permit a qualified employee to work until the Act's upper age limit, regardless of the pension plan's "normal retirement age," would result in cost savings to plans rather than increases. As an actuarial matter, the longer an employee works, the shorter the period retirement payments will have to be made, thus lowering the funding assumptions of the plan. Savings would of course come from the added years of accummulated interest on the fund. Savings would also stem from the fact that a plan need not provide for further accrual of benefits after the participant has reached the plan's "normal retirement age" and thus the added years of service need not increase the ultimate retirement benefit or the cost of providing it. Raising the upper age limit under the ADEA would not create any conflicts with repect to ERISA. Those responsible for administering ERISA in the Department of Labor are in complete agreement that there would be no interference with the relevant provisions of ERISA if the upper age limit under the ADEA were raised. Answers to technical questions regarding the Age Act and ERISA have been forwarded to the Subcommittee under a separate cover. H--Will the Proposed Amendments Conflict With Other Federal RESPONSE To the extent that federal laws provide early mandatory retirement ages, it represents Congressional judgment that after a certain age, the specific requirement of the job cannot be met by the older worker. Congress can always review these judgments on the basis of new evidence. It should also be noted that some of these laws prescribing early retirement have been called into question by litigation presently pending in the courts. Senator Javits expressed his view that the proposed legislation provides the basis for a new magna carta for older people in the world of work. In a way, this is very much the case. The legislation amounts to a firm step in strengthening a civil right for older people. Beyond that we are moving towards a time when we need a positive employment policy for older workers--one that looks to job retention as well as equitable retirement options. The following section of the report will provide further supportive information and data regarding our responses to the questions above. It will also point out new directions under exploration by the Department on ways to better utilize older workers. This Section of the Report will supplement Part I by providing additional information regarding the Department's enforcement activity under the Age Act and back-up information on issues raised in the Introduction and responses to the questions of Subcommittee members. A--The Department of Labor's Experience with the Age Discrimination in Employment Act. RESPONSE When the Act was passed in 1967, enforcement responsibility was placed in the Department of Labor. The Wage and Hour Division of the Employment Standards Administration was given the responsibility for carrying out investigations and conciliations under the Act's provisions. Located in 90 major offices across the country, the Wage and Hour Division is also responsible for carrying out other mandates such as the Fair Labor Standards Act and the Equal Pay Act. Litigation responsibilities under the Act which can follow investigation and conciliation activities are carried out by the Department's Solicitor's office. The Secretary is required by Section 13 of the Age Act to report to the Congress on an annual basis regarding progress made in enforcing the Act. The last report, covering 1976 activities, was sent to Congress in January of 1977. Since there are many cumulative tables illustrating activities under the Act, we call the report to the Subcommittee's attention. Furthermore, the nature and scope of recent litigation under the Act is also described as well as the progress made under the Section 5 study on the causes of involuntary retirement. Certain difficulties had to be met in enforcing the ADEA. Employers had to be familiarized with the Act. Age discrimination was and still is |