EXTENDING PRIVATE PENSION COVERAGE

A Report of the Subcommittee on Employment and Retirement Incomes to the Senate Special Committee on Aging

INTRODUCTION

Private pensions are one of the most important sources of retirement income for our Nation's senior citizens. They are currently paying nearly $2,750,000,000 annually to almost 2,500,000 beneficiaries. They cover about 25 million Americans who have not yet retired, constituting an estimated half of the employees in private nonfarm employment.2

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While there have been private pension plans in the United States for many years, it is only in recent years that they have blossomed into a major source of retirement incomes. The following statistics of the Institute of Life Insurance indicate the growth of private pension plans in the United States since 1930:

Looking to the future, the report of the President's Committee estimates that by 1980, the number of employees covered by retirement plans will have increased to 42 million, or three out of five employees then in private nonfarm employment, and that by 1980 6,500,000 Americans will be receiving private pension benefits totaling around $9 billion annually.4

Bright as the private pension picture appears from these statistics, there is a darker side which must also be noted.

The 2,500,000 who now receive private pension benefits constitute a small fraction of the 18 million Americans estimated by the Census Bureau to be over 65.

The percentage of the incomes of Americans over 65 which in 1963 came from private pensions was only 3 percent, according to the report of the Social Security Administration on its 1963 survey of the aged.

1 "Public Policy and Private Pension Programs," report to the President by the President's Committee on Corporate Pension Funds and Other Private Retirement and Welfare Programs, p. i. Hereafter, this document will be cited as "Public Policy and Private Pension Programs."

Ibid.

The plan established by the American Express Co. in 1875 is generally considered to have been the first major plan established. "Public Policy and Private Pension Programs," p. vi.

This compares unfavorably with incomes from other sources, as shown by its tabulation which follows:

While some improvement is forecast by 1980, the 6,500,000 Americans who will be receiving private pension benefits in 1980 will still be a minority of those over 65 at that time. And there will still be 40 percent of the nonfarm work force without private pension coverage at that time, unless improved techniques for extending such coverage are found and put into practice.

The hearings and studies upon which this report was based were conducted for the purpose of discovering and recommending appropriate actions which might be taken to bring more Americans under private pension coverage in the years to come, to the end that full advantage may be taken of the opportunities presented by America's private pension system for enhancing retirement incomes of our Nation's future senior citizens. Four hearing sessions were conducted in Washington, D.C., which are presented in two volumes of hearings, as follows:

Part 1-10 a.m., Thursday, March 4, 1965.

2:15 p.m., Thursday, March 4, 1965.

Part 2-10 a.m., Friday, March 5, 1965.

10 a.m., Wednesday, March 10, 1965.

A wide range of viewpoints and interest groups were represented by the witnesses at these hearings, including the Federal departments and agencies concerned with private pensions and retirement incomes, labor unions and employer organizations, educators, and professional organizations and other self-employed groups.

Based upon the testimony at those hearings and other information reaching the subcommittee's attention, it presents its findings and recommendations outlined in the remainder of this report.

Due to rounding, the total of the percentages is only 99.

FINDINGS

Finding No. 1. Action by the Federal Government to extend private pension coverage to more of its citizens and to increase the amount of private pension income received in retirement is unquestionably constitutional and is well within the traditional Federal role in the American scheme of government.

To make adequate provision for the needs of older Americans, the Federal Government has adopted such programs as old-age, survivors, and disability insurance; old-age assistance; and medical assistance for the aged. There is little, if any, dissent throughout the Nation that these are proper activities for the Federal Government under its power and responsibility to "promote the general welfare." Pension plans "promote the general welfare" not only by helping to meet the individual's material needs in old age but also by making the Nation's elderly a positive force in the economy rather than a drag upon it. The old-age, survivors, and disability insurance program was intended to provide a floor for retirement incomes. It has not provided and probably could not provide adequate retirement incomes without supplementation. The private pension system is one of the most important means of supplementing OASDI, and, as such, helps carry out a Federal responsibility. In a memorandum submitted for the record, the General Counsel of the Treasury discussed the constitutional basis of present Federal tax provisions relating to private pensions, and concluded that these provisions "have a sound constitutional foundation.” 6

Hearings entitled "Extending Private Pension Coverage," before Subcommittee on Employment and Retirement Incomes, Senate Special Committee on Aging, 89th Cong., 1st sess., p. 109. Hereafter, referred to as "hearings."

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