# Presentation: 746847

## 2005 White House Preconference on Aging

The Honorable Steve Gunderson
July 12, 2005

**2005 White House Preconference on Aging**
**The Honorable Steve Gunderson**
**July 12, 2005**

## Public pensions

Private pensions

Workforce demographics

- Public pensions
- Private pensions
- Workforce demographics

## Social Security
Federal Reserve, GAO, CBO all agree some form of benefit restructuring will be needed to overcome significant future cash shortfall
Medicare
Benefit costs already exceed program revenues  
New prescription drug benefit will exacerbate the cash crisis  
How will the Federal government respond?
Medicaid
Spiraling health care costs and a growing number of uninsured are forcing states to ration care
In 2003, for the first time ever Medicaid spending consumed a larger portion of state budgets than spending on K-12 education (NGA)

- Social Security
- Federal Reserve, GAO, CBO all agree some form of benefit restructuring will be needed to overcome significant future cash shortfall
- Medicare
- Benefit costs already exceed program revenues
- New prescription drug benefit will exacerbate the cash crisis
- How will the Federal government respond?
- Medicaid
- Spiraling health care costs and a growing number of uninsured are forcing states to ration care
- In 2003, for the first time ever Medicaid spending consumed a larger portion of state budgets than spending on K-12 education (NGA)

**Notes:**
Social Security:
Key dates:
2009: Social Security cash surpluses begin to shrink (FY 2004 cash surplus was $155 billion)
2017: Benefit costs exceed revenue (cash flow deficit begins)
2041: Trust Fund exhausted, annual income sufficient to pay 74-78% of promised benefits
Unfunded liability:
75- year closed group: 
Perpetuity:
Medicare:
Key dates:
Now: Part A outlays (hospital insurance) exceed cash income
2020: Trust Fund exhausted; annual income sufficient to pay ~79% of promised benefits
Medicare’s woes occur sooner and are much larger than Social Security’s
Funding base is smaller too (2.85% on all wages)
Unfunded liability (Part A): 

## Slide 4

## Private pensions: the changing landscape

- 1978:  128,000 plans covering 41% of the private sector workforce.
- Today:  26,000 plans covering 17% of the private sector workforce.
- Washington Post
- Oct. 12, 2004

## Between 2001 and 2003:  16 steel companies terminated their plans.

Today:  at least 4 airlines have suspended or modified funding their plans.

Pension benefit guarantee corporation deficits:		2003:   $11.2 billion             	2004:   $23.3 billion!  

- Today:  at least 4 airlines have suspended or modified funding their plans.
- Pension benefit guarantee corporation deficits:		2003:   $11.2 billion             	2004:   $23.3 billion!

**Private pensions: the changing landscape**

## Private pensions: the changing landscape 

- The growth of individual plans (IRA’s and 401k’s):
- 1978:  		314,592 plans.
- Today:		840,301 plans.
- Washington Post
- Oct. 12, 2004

## 
The value of these individual plans:

Grown by 17% since 1999
But for workers in their 50’s or older, they are down 9.3% since 1999.
Washington Post
Oct. 12, 2004

- The value of these individual plans:
- Grown by 17% since 1999
- But for workers in their 50’s or older, they are down 9.3% since 1999.
- Washington Post
- Oct. 12, 2004

## Retirement plans by industry:

- Source: BLS, 2004

|  | All Plans | Defined Benefit |
| --- | --- | --- |
| White Collar: | 69% | 24% |
| Blue Collar:	 | 59% | 26% |
| Service Occupations: | 31% | 6% |
| Full Time:	 | 68% | 25% |
| Part Time: | 27% | 9% |
| Union: | 84% | 70% |
| Non-union:	 | 56% | 16% |
| Avg. wage less than $15/hr: | 46% | 11% |
| Avg. wage more than $15/hr: | 77% | 35% |

## Private pensions: the changing landscape

- Individual plans and retirement security:
- Half households nearing retirement age have $10,000 or less in 401(k) or IRA.
- Quarter of those with opportunity to participate in such plans do not do so.
- Often, workers do not diversify their plans.
- When changing jobs, many cash out their retirement savings.
- Peter Orszag, Brookings
- Oct., 2004

## Public perception: “The under-funding of defined-benefit plans is a pervasive and sizeable phenomenon” (CBO)
DB plans are under-funded by an estimated $600 billion (CBO)
71% of Fortune 1000 firms with DB plans have assets covering less than 90% of promised benefits; half have assets that would cover 80% or less of what the plans have promised (Watson Wyatt Worldwide)

Financial condition of PBGC complicates legislative opportunities to enhance the regulatory environment for DB plans
Current deficit: $23.3 billion
Shortfall could triple in the next decade to $71 billion (CBO)
PBGC’s finances are part of the federal budget.  Future operating cash deficits (which are a virtual certainty) will have to compete with other funding priorities

PBGC legislation: balance between solvency and continued use of private plans

- Public perception: “The under-funding of defined-benefit plans is a pervasive and sizeable phenomenon” (CBO)
- DB plans are under-funded by an estimated $600 billion (CBO)
- 71% of Fortune 1000 firms with DB plans have assets covering less than 90% of promised benefits; half have assets that would cover 80% or less of what the plans have promised (Watson Wyatt Worldwide)
- Financial condition of PBGC complicates legislative opportunities to enhance the regulatory environment for DB plans
- Current deficit: $23.3 billion
- Shortfall could triple in the next decade to $71 billion (CBO)
- PBGC’s finances are part of the federal budget.  Future operating cash deficits (which are a virtual certainty) will have to compete with other funding priorities
- PBGC legislation: balance between solvency and continued use of private plans

## Health care expenditures, some perspective:
Medicare expenditures
FY 2004: $297 billion
FY 2016 (est.): $766 billion (nearly 160% increase)
Total US health care expenditures (2002): $1.6 trillion 

Employers may not wish to maintain increasingly costly benefits for retirees, especially since health spending for retirees does not contribute directly to a productive workforce (compared to health insurance for current employees)

Threats to retiree health benefits: rising health care costs, growing retiree populations, uncertain business profitability, federal regulations that limit opportunities for funding retiree medical benefits

- Health care expenditures, some perspective:
- Medicare expenditures
- FY 2004: $297 billion
- FY 2016 (est.): $766 billion (nearly 160% increase)
- Total US health care expenditures (2002): $1.6 trillion
- Employers may not wish to maintain increasingly costly benefits for retirees, especially since health spending for retirees does not contribute directly to a productive workforce (compared to health insurance for current employees)
- Threats to retiree health benefits: rising health care costs, growing retiree populations, uncertain business profitability, federal regulations that limit opportunities for funding retiree medical benefits

## GM retirees outnumber workers 2-to-1

Health care costs add nearly $1,500 to the cost of every car GM builds

In 2004, retirees accounted for about 70 percent of GM's total health care bill (or $3.6 billion)

Recently, GM posted largest ever quarterly loss, $1.1 billion

Result: GM is pushing UAW to accept retiree health benefit concessions

- GM retirees outnumber workers 2-to-1
- Health care costs add nearly $1,500 to the cost of every car GM builds
- In 2004, retirees accounted for about 70 percent of GM's total health care bill (or $3.6 billion)
- Recently, GM posted largest ever quarterly loss, $1.1 billion
- Result: GM is pushing UAW to accept retiree health benefit concessions

## Workforce is more mobile

Workforce is aging

Minorities are an increasing proportion of the workforce

Workforce faces a serious skill shortage

- Workforce is more mobile
- Workforce is aging
- Minorities are an increasing proportion of the workforce
- Workforce faces a serious skill shortage

## BLS predicts that today’s graduating students will have between 10 and 14 various careers in their lifetimes

Global economy means US companies must compete internationally for talented workers

- BLS predicts that today’s graduating students will have between 10 and 14 various careers in their lifetimes
- Global economy means US companies must compete internationally for talented workers

## One out of 8 Americans working today is over 55 years of age

In the next decade, the number of workers age 55 and over will grow 4 times faster than the overall workforce

By 2030: 
	76m Baby Boomers retired
 -	46m replacement workers 
	30m worker shortage

- One out of 8 Americans working today is over 55 years of age
- In the next decade, the number of workers age 55 and over will grow 4 times faster than the overall workforce
- By 2030:
- 	76m Baby Boomers retired
-  -	_46m replacement workers _
- 	30m worker shortage

|  | Population 
Age 24-44 | Population 
Age 45-64 | Population 
Age 65+ |
| --- | --- | --- | --- |
| 2010 | 26.8% | 26.2% | 13.0% |
| 2020 | 26.2% | 24.9% | 16.3% |
| 2030 | 25.2% | 22.6% | 19.7% |

## Minorities are an increasing proportion of the workforce

- Source: Bureau of Labor Statistics, May 2002

## Hispanics represent 49% of the nation’s growth since 2000

2010 workforce growth: 
Blacks +21%; 
Hispanics +43%

Half the Hispanic population is under 27 years; half the White population is over 40 years

- Hispanics represent 49% of the nation’s growth since 2000
- 2010 workforce growth:
- Blacks +21%;
- Hispanics +43%
- Half the Hispanic population is under 27 years; half the White population is over 40 years

| Annual Workforce Growth Rates
2002-2012 |  |
| --- | --- |
| White, Non-Hispanic | 0.3% |
| African American | 1.8% |
| Hispanic | 2.9% |
| Asian | 4.2% |

## America now ranks 10th among 30 industrialized nations in the percent of its population age 25-34 with high school degrees

75% of new job growth will require some level of post-secondary education, yet only 70% of all students in public high schools graduate

Between 1998 and 2008, US colleges will graduate 198,000 students in science and engineering to replace 2 million Baby Boomers retiring

- America now ranks 10th among 30 industrialized nations in the percent of its population age 25-34 with high school degrees
- 75% of new job growth will require some level of post-secondary education, yet only 70% of all students in public high schools graduate
- Between 1998 and 2008, US colleges will graduate 198,000 students in science and engineering to replace 2 million Baby Boomers retiring

| High School Graduation Rates, 2001 |  |
| --- | --- |
| US, Total | 70% |
| White | 72% |
| Black | 51% |
| Hispanic | 52% |
| Asian | 79% |

- Source: Center for Civic Innovation

## Major minorities lack necessary skills

| Highest Level of Education Attainment Persons Age 25 and Over: 2004 |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  | United States | White | Black | Hispanic | Asian |
| Less than high school | 14.8% | 10.0% | 19.4% | 41.6% | 13.2% |
| High school diploma | 32.0% | 32.8% | 36.0% | 27.7% | 19.8% |
| Some college, no degree | 17.0% | 17.6% | 19.2% | 13.2% | 10.3% |
| Associates degree | 8.4% | 9.0% | 7.8% | 5.4% | 7.3% |
| Bachelor’s degree | 18.1% | 19.8% | 12.3% | 8.8% | 29.9% |
| Graduate or professional | 9.6% | 10.75 | 5.4% | 3.3% | 19.6% |

- Source: Sallie Mae

## Our workforce is more mobile
Retirement benefits must be portable
Our workforce is aging
Benefits must reward, not penalize, post-retirement work
Minorities are an increasing proportion of the workforce
New savers need financial education
Low-income workers need incentives to save 
 US faces a serious skill shortage
	  -  The skilled will have high incomes and good private retirement plans.
	  -  The unskilled will have neither.

- Our workforce is more mobile
- Retirement benefits must be portable
- Our workforce is aging
- Benefits must reward, not penalize, post-retirement work
- Minorities are an increasing proportion of the workforce
- New savers need financial education
- Low-income workers need incentives to save
-  US faces a serious skill shortage
- 	  -  The skilled will have high incomes and good private retirement plans.
- 	  -  The unskilled will have neither.

## You can make a difference

All politics is local

Public opinion drives public policy

Everyone knows the problems, only leaders create the solutions

- You can make a difference
- All politics is local
- Public opinion drives public policy
- Everyone knows the problems, only leaders create the solutions

## Be practical – policy initiatives must be viable for both employers and public sector

Think strategically -- applications for policy recommendations beyond December conference

Prioritize

Communicate!  Communicate!  Communicate

- Be practical – policy initiatives must be viable for both employers and public sector
- Think strategically -- applications for policy recommendations beyond December conference
- Prioritize
- Communicate!  Communicate!  Communicate

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