24 Compensation and Working Conditions Summer 1999

Improving

Retirement Security

for Women

Employee Benefits Survey

Among recent proposals to change retirement

plans are those designed to improve benefits for

women. They involve crediting service during

periods of leave under the Family and Medical

Leave Act, and expanding the options available

for survivor pensions.

WILLIAM J. WIATROWSKI

William J. Wiatrowski is an economist in the Division of Compensation Data

Analysis and Planning, Bureau of Labor Statistics.

Telephone: (202) 606-6255

E-mail: Wiatrowski_W@bls.gov

To protect employee retirement benefits, employer-provided

retirement plans contain a wide array of provisions, including some required by law. For example, plans are required

by law to include vesting provisions, which dictate that after a certain time period a covered employee earns a nonforfeitable right to future benefits, regardless of whether or

not the employee continues employment under that plan.1

Policymakers have recently discussed proposals for increasing retirement plan protection for women,2 making it easier

to satisfy plan vesting requirements, and offering more options for survivor benefits. This article examines the current law regarding these topics and how employer-provided

plans are presently handling these issues.

These potential changes in retirement plans are not limited to female employees, although they are more likely to

affect women than men. The first type of proposal involves

the calculation of time at work for purposes of determining

vested benefits—the nonforfeitable right to future benefits.

In one example, time taken off under the Family and Medical Leave Act would count toward meeting vesting service

requirements. Because data indicate that women are more

likely than men to take time out of the labor force for child

raising or other care-giving responsibilities, the availability of family leave and the proposal to credit service during

that leave will better meet their particular needs.3 The second type of proposal involves expanding the options available under the survivor protections of certain retirement

plans to allow larger payments for widows and widowers.

This change would also more likely benefit women because

a greater proportion of men have employer pensions, meaning a greater proportion of women rely on survivor benefits. In addition, women have a longer life expectancy

than men, making them more reliant on survivor benefits.4

Crediting service

The length of service an employee has with the employer

or under an employer plan is an important determinant of

future benefits. Length of service determines when an employee can join a plan, when the individual becomes vested,

and when benefits may be paid. In general, 1 year of work

yields 1 year of credited service toward retirement, although

some plans use a threshold of total hours worked in a year.

Individuals taking time off for family or medical reasons

may not meet the minimum requirements for service in a

year.5

The Family and Medical Leave Act applies to employers who have 50 or more workers. Under the Act, employees who have worked for an employer for at least 1 year are

entitled to take up to 12 workweeks of unpaid leave each

year for the birth of a child, placement of a child for adoption or foster care, care of an immediate family member

with a serious health condition, or care of a personal health

condition. Employers are required to continue to provide

health insurance coverage during the period of leave, and

are required to place a returning employee in the same or

an equivalent job. The law does not, however, address the

issue of crediting service toward tenure with the employer

or crediting service under a benefit plan, such as a retirement income plan.6

If individuals on leave under the Act are not continuing
 Compensation and Working Conditions Summer 1999 25

Improving Retirement Security

to accrue credited service toward a retirement income plan,

break-in-service rules may take effect. By law, a retirement

plan does not have to credit service during periods of nonwork. In addition, if the period of non-work exceeds certain thresholds, a retirement plan may require that returning employees once again meet certain service requirements

before rejoining the plan. In general, these rules vary by

the amount of service under the plan prior to the break and

the length of the break. For example, a plan may state,

“service before a one-year break in service can be disregarded until the participant has completed one year of service after the break.”7 Further, if the individual was not

vested prior to the break in service, if the break is longer

than the prior service, that prior service may be disregarded.

Special provisions designed to avoid breaks in service

exist under certain circumstances. For example, certain

periods of absence for maternity or paternity reasons must

be treated as though the individual was at work.

Survivor protection

While the credited service proposal would apply to both

defined contribution and defined benefit retirement plans,

the second proposal, to expand the options for survivor protection, is specifically geared toward defined benefit plans.

Defined contribution plans specify employer and employee

contributions; future benefits are determined by the amount

of those contributions and earnings on those funds. Benefits are not guaranteed. Payments are usually made in a

lump sum at retirement, although employees may have the

option to receive payments over time. In contrast, a defined benefit plan specifies a formula for determining future benefit amounts, typically based on earnings and years

of service. Employers make sufficient contributions to the

plan to pay for future benefits. The Federal Government

maintains an insurance system to guarantee benefits from

these plans. Payments are generally in the form of a monthly

benefit for life, with a variety of options designed to provide survivor protection.

The law required survivor options in defined benefit pension plans for the first time in 1974, with the passage of the

Employee Retirement Income Security Act (ERISA). At

that time, defined benefit plans were required to include a

joint-and-survivor option for benefit payments. Under such

an option, a retiring employee could choose to receive a

full benefit or could choose to take a reduced benefit in

return for the continuation of benefits for a survivor following the death of the retiree. Plans were required to offer a

50-percent joint-and-survivor option. Under such an arrangement, the retiree and spouse received a reduced benefit upon retirement (the “joint” benefit), and the surviving

spouse received 50 percent of that reduced benefit upon the

death of the retiree (the “survivor” benefit).8 Chart 1 provides an example of the level of benefits that might be received under such an arrangement. The amount of the reduction varies by the age of the retiree and spouse. In the

example shown, the reduction is 10 percent of the full benefit. This is typical of benefits paid to a retiree age 65 with

a spouse also age 65.

A change in the ERISA joint-and-survivor law in 1984

made the 50-percent joint-and-survivor benefit the standard

benefit for married individuals. In the past, the retiree could

choose to provide survivor benefits; under the revised law,

written consent of the spouse is needed to decline the 50-

percent joint-and-survivor benefit.9

Although the law requires defined benefit pension plans

to offer the option of a 50-percent joint-and-survivor benefit, there is no restriction on other options. One proposal

that has been debated would require that all defined benefit

pension plans offer an option that pays a survivor at least

75 percent of the joint benefit. Under such an option, at

retirement the retiree and spouse would take a greater reduction in their joint benefit than under a 50-percent jointand-survivor benefit. In return, at the death of the retiree,

the spouse would receive 75 percent of the joint benefit.

Providing multiple options for survivor benefits is not a

new idea. In fact, two-thirds of full-time employees in medium and large private establishments in 1995 who were

covered by a defined benefit pension plan had a choice of

Chart 1. Benefits under a 50 percent joint and 

survivor option

0

10

20

30

40

50

60

70

80

90

100

Full benefit 50 percent joint

benefit

50 percent

survivor benefit

Percent

Other

Choice of 

allocation

size

One-half of 

retiree's 

pension 

l

Chart 2. Share of covered workers in plans offering various

survivor options, defined pension plans, full-time workers,

medium and large private establishments, 1995

Chart 1. Benefits under a 50-percent joint and survivor

options

Choice of

allocation

size

One-half of

retiree's

pension

Other
26 Compensation and Working Conditions Summer 1999

survivor protection levels. (See chart 2.) Typically, such

plans offer 50- and 100-percent joint-and-survivor options.

Under the 100-percent option, the joint benefit is reduced

more than under the 50-percent option, but there is no reduction in benefits after the retiree dies, that is, the surviving spouse receives 100 percent of the joint benefit. Other

survivor options include 67 and 75 percent, with corresponding reductions in the joint benefit. Data for full-time employees in small private establishments in 1992 also indicate that two-thirds of those covered by a defined benefit

pension plan had a choice of more than one survivor option.10

Employee benefits data

The Bureau of Labor Statistics produces a regular series

of data on the incidence and provisions of employerprovided benefits. These data are frequently used to

provide background information to policymakers regarding changes in benefit and tax law. Data from these

surveys provide details on current practices regarding

crediting service and survivor benefits, as these reform

proposals are considered. Additional information can be

obtained at http://stats.bls.gov/ebshome.htm, the Bureau

of Labor Statistics' Internet site.

1

 For a detailed discussion of vesting provisions in employer-provided

retirement plans, see Avy D. Graham, “How Has Vesting Changed Since Passage of Employee Retirement Income Security Act?,” Monthly Labor Review, August 1988, pp. 20-25.

2

 For example, see “Remarks at Roundtable Discussion on Women and

Retirement Security,” White House news release, October 27, 1998. 3

 The Family and Medical Leave Act of 1993 created a commission

charged with examining the effect of the new law on workers and employers. The report of that commission may be found in A Workable Balance:

Report to Congress on Family and Medical Leave Policies (Commission

on Family and Medical Leave, 1996). This report includes information on

the need for and use of family leave. Data from the Social Security Administration, Office of the Chief Actuary, demonstrate that women often take

time out of the labor force: Of those workers retiring in 1996, the median

length of time worked was 27 years for women, compared with 39 years for

men.4

 Current life expectancy data indicate that women age 65 can expect to

live about 20 years, while men at the same age can expect to live about 16

years. For further information on life expectancy, see U.S. Department of

Health and Human Services, Public Health Service, Health United States

1994 (Washington, D.C.: U.S. Government Printing Office, 1995). More

information on retirement benefits for men and women may be found in Report

on the American Workforce (U.S. Department of Labor, 1997) chapter 3. 5

 Rules for crediting service for employer retirement plans are very complex, and include a number of exceptions and alternative methods of calculation. For more information, see Dan M. McGill and Donald S. Grubbs, Jr.,

Fundamentals of Private Pensions (Homewood, Illinois: Irwin, 1989). 6

 For more details on the provisions of the Family and Medical Leave

Act, see A Workable Balance: Report to Congress on Family and Medical

Leave Policies. 7

 McGill and Grubbs, Fundamentals of Private Pensions, pp. 160-61. 8

 The full benefit is reduced to account for the availability of a survivor

benefit. 9

 For a discussion of survivor benefits under defined benefit pension plans,

see Donald Bell and Avy Graham, “Surviving Spouse’s Benefits in Private

Pension Plans,” Monthly Labor Review, April 1984, pp. 23-31. For information on benefit amounts payable under different defined benefit plan options,

see William J. Wiatrowski, “New Survey Data on Pension Benefits,” Monthly

Labor Review, August 1991, pp. 8-22. 10 Complete results of these surveys may be found in Employee Benefits

in Medium and Large Private Establishments, 1995, Bulletin 2496 (Bureau of Labor Statistics, April 1998); and Employee Benefits in Small Private Establishments, 1992, Bulletin 2441 (Bureau of Labor Statistics, May

1994).