importance of understanding the relative role of each component of this three-tier system.

There has been little in the way of comprehensive projections of these three components over time. A key research topic, therefore, should be a projection of the benefits that will be produced by the existing systems over the next 20 to 30 years. Such projections are needed to assess the likeihood that inadequacy of retirement income will be a major problem in the long run and under what circumstances. The current system could prove more adequate for future generations of retirees than we suspect. On the other hand, projections may indicate a socially unacceptable outcome with some workers receiving large benefits while others with similar earnings receive little. Such projections would greatly enhance our knowledge of the expected outcomes for persons under the existing mix of retirement income sources. Without this knowledge, intelligent decisions as to the continuance of the existing system or adoption of major system reforms cannot be made.

Projections of this type are well suited to DYNASIM (with the use of existing or proposed data bases), since the model can make long-term projections and simulates social security, private pensions and the needs-tested transfer programs.

2. INTERACTIONS OF PENSION AND UNEMPLOYMENT BENEFITS

This topic involves two central questions: (1) How does the availability of unemployment benefits alter the retirement patterns of older workers; and (2) to what extent are pension recipients also receiving unemployment benefits.

Older workers do not generally experience more spells of unemployment than do their younger counterparts; however, the duration of the spells which they do incur is generally much more prolonged. There is evidence to suggest that many older workers who are receiving unemployment compensation benefits actually consider themselves partially or fully retired. In many cases, the availability of unemployment compensation benefits is treated by recipients as a form of early retirement. This, of course, is not the intent of the unemployment compensation program, and such benefit availability may undermine the retirement incentive structure built into the pension plans.

In a related manner, many elderly individuals simultaneously receive benefits under both unemployment compensation and private pension plans, also contrary to the intent of these two programs. Prevention of such overlaps is a current issue in Congress. An assessment of the extent of interaction and overlap across these two programs is essential if an accurate picture of the employment and retirement income problems of the elderly is to be obtained. Once again, DYNASIM, which can model the operation of the unemployment compensation program, could be a valuable tool in the conduct of such an analysis.

3. IMPACTS OF EXTENDING AN ERISA-TYPE LAW TO STATE AND LOCAL EMPLOYEE PENSION PLANS

Enacted in 1974 to improve the reliability and adequacy of the private pension system, ERISA applies Federal standards to plans with respect to vesting rules, funding standards, financial reporting

and disclosure, and portfolio management, and establishes a system of insurance protection for participants in terminated plans. Legislation to establish ERISA-like Federal standards for public employee pensions has been introduced in the U.S. House of Representatives. A topic of prime concern, therefore, is the impact such a law might have on State and local pension plans. An analysis of the anticipated impact upon program costs, vesting provisions, funding options and plan terminations is necessary if an informed decision is to be reached. Proposed surveys of pension plan coverage and benefit receipt coupled with existing data on individual plan designs should provide sufficient data to evaluate the impact.

4. IMPACT OF TAX REFORMS ON PRIVATE SAVINGS

Various tax incentives have been legislated to induce greater levels of private savings for purposes of providing retirement income, and new proposals abound. Self-employed individuals are extended tax privileges to set up Keogh retirement plans, and individuals employed in firms which do not have a pension plan are accorded similar tax privileges in establishing individual retirement accounts (IRA's). Information about the impact of these plans is scarce. There is little knowledge of what proportion of the eligible population has actually established an account, the composition of the subgroup which has done so, and the long-range impact these plans may have on pension plan offerings. More information is needed on other nonpension forms of retirement savings as well, such as company thrift plans and employee stock ownership and profit-sharing plans.

An assessment of the extent and nature of participation in these alternatives to pensions is necessary if the effectiveness of tax incentives in inducing personal savings, their effectiveness in providing adequate retirement income and their relative role in the multitiered system of retirement income and benefit programs is to be evaluated. Such a study could be undertaken with the use of data obtained from the survey sponsored by the President's Commission on Pension Policy and the employer/employee survey sponsored by the Department of Labor.

5. IMPLEMENTATION OF CHANGES IN RETIREMENT INCOME SYSTEMS

While numerous broad-sweeping reform proposals have been offered (e.g., universal social security coverage) insufficient attention has been paid to the means by which such wide-ranging changes could be implemented. The key issues involved in assessing the appropriate implementation methodology include: (1) Selection of a method which insures the least administrative cost and beneficiary financial loss for different transition periods; (2) analysis of the costs inherent in alternative transition proposals; and (3) analysis of the distributional impacts which would occur under alternative schemes. If serious consideration is to be given to altering the existing mix of pensions, social security and needs-tested benefit programs, then serious consideration must also be given to the appropriate means for effecting such a change. DYNASIM could be used to perform such an analysis.

6. IMPACT OF JOB MOBILITY ON PENSION ENTITLEMENT

Incomplete coverage of career earnings or final earnings by the combined credits earned under social security and employer pension plans is a problem faced by a good many workers and results in inadequate retirement incomes and inequities among workers when grouped by sex, race, and occupation. This incomplete coverage stems from four factors: (1) The ceiling on covered wages under social security; (2) the lack of private pension coverage for a large number of jobs; (3) the lack of portability of pension credits for those who change jobs; and (4) the lost value of credits earned in a job vacated before retirement age in systems where prior-year credits are not indexed up to the year when normal or early retirement age is reached. The latter two points are probably a more significant problem than the first two since they impact a huge proportion of the work force (viz, those who hold several different jobs over their lifetimes).

There is a need for a comprehensive study of the extent to which coverage of real wages will be incomplete in the future under the now mature systems of social security and private pensions. The methodology already exists for such projections and is in the process of being improved under a contract with the U.S. Department of Labor. Such projections could pinpoint the likely loss of retirement income owing to incomplete wage coverage by socioeconomic categories for a cohort of workers who will retire near the turn of the next century.

Chapter 4

POLICIES AFFECTING THE INCOME AND EMPLOYMENT OF OLDER AMERICANS: A REVIEW OF OPTIONS FOR CHANGE

In chapter 1, this information paper described the complex of major issues confronting policymakers concerned about the income and employment of older Americans. Basically, these policy issues may be categorized as issues of: (1) Benefit adequacy and fairness; (2) benefit financing; (3) employment and retirement; and (4) system coordination and design.

With these major issues in mind, a wide variety of sources has been reviewed to determine the policy options that have been devised to deal with the problems posed by the issues. This review has covered bills introduced in the 96th Congress, reports of various government agencies and study groups, papers prepared by members of the research community, and position papers of interest groups. The information which follows synthesizes this massive amount of material in order to present the full range of ideas for policy change and how they are interrelated.

Section I of this paper summarizes the policy options identified by several government task forces and private scholars who have recently prepared policy options or recommendations for some major segment of the retirement income system. Specifically, section I covers the work of the 1979 Social Security Advisory Council, the HEW Social Security Universal Coverage Study Group, the HEW Task Force on Women and Social Security, the House Pension Task Force, and the President's Commission on Military Compensation. Also described are the provisions of several bills introduced in the 96th Congress, and the policy options described in two books on social security written by Robert Ball and Alicia Munnell, respectively.

Section II presents, in the form of an annotated outline, the full range of policy options reviewed, organized according to the four major categories of benefit adequacy and fairness, benefit financing, employment and retirement, and system coordination and design. Section III describes the positions advocated recently by the various interest group organizations active in seeking policy improvements with respect to the income and employment of the aged.

In conclusion, section IV discusses the conflicting objectives inherent in the policy options identified, the strategic choice posed of structural reforms versus incremental changes, and the implications of different economic trends for the importance of the various issues and options. Areas are identified where the range of current policy options seems to be too limited.

Considering the large volume of source materials and the rapidity with which new proposals are emerging in this area, it is unlikely that this paper includes a complete representation of all options for change. An effort has been made to reflect as many different ideas as possible, though all the specific variations proposed for a particular approach may be omitted in the interest of brevity.

One caveat that should be borne in mind in reading this paper is that the individuals whose names are associated with policy options may not currently advocate implementation of such changes. Often, ideas for change are raised in the context of research reports or issue analyses as options not necessarily favored by authors but regarded as worthy of further investigation. Such ideas are included in the following discussion. Even bills introduced in Congress may include provisions no longer supported by all the bills' sponsors. Thus, the focus of this paper is more to describe the nature of the approaches available for policy change than to identify current support of specific proposals.

I. MAJOR POLICY OPTION PACKAGES

From time to time, both Congress and the executive branch have initiated comprehensive policy reviews of a program or programs resulting from public policy concerns regarding income and employment of the aged. Recent years have seen a plethora of such study groups formed, several of which still have investigations underway. This section presents the recommendations of, or options studied by, the following groups:

-1979 Social Security Advisory Council.

-HEW Social Security Universal Coverage Study Group. -HEW Task Force on Women and Social Security. -House Pension Task Force; and

-President's Commission on Military Compensation.

The work of two currently active commissions-the President's Pension Policy Commission and the National Commission on Social Security is not far enough along at this writing to describe the options those bodies will consider in their respective reports and recommendations due next year.

Also described in this section are several far-reaching proposals for social security reforms made by Members of Congress and by two private scholars. The congressional initiatives include: H.R. 14 (Conable); H.R. 764, H.R. 765 and H.R. 3588 (Stokes); H.R. 1851 (Frenzel); and H.R. 2650 (Green). The private studies reviewed here are Robert M. Ball's "Social Security Today and Tomorrow," and Alicia H. Munnell's "The Future of Social Security."

[NOTE: See end of this chapter for complete description of references.]

There are, of course, many other pieces of legislation, government studies, and academic papers that offer policy options for consideration. The options presented in these additional sources are outlined by