Chapter 22 Additional topics for future research1
Archived Content
Information identified as archived is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please "contact us" to request a format other than those available.
Unfunded liabilities and other major pension plan issues
Preparedness to bear a new level of personal responsibility for adequacy of income in retirement
Workplace and labor-market environments
Retirement as part of a matrix of later-life transitions
Concluding comment
Bibliography
Chapter One of this book advocates the development of an awareness of the variety of ways in which the institution of retirement is changing in the twenty-first century. This closing chapter calls attention to some key aspects of the changes that were not focuses of the discussion in the preceding chapters.
The text that follows will consider the following topics: the problem of unfunded liabilities and other major pension plan issues, preparedness of the population to shoulder an increased level of personal responsibility for adequacy of income in retirement, workplace environments of older workers, and the linkages of retirement with other important later-life transitions. All of these topics received some mention in the preceding chapters; but the systematic commentary they deserve is missing.
Unfunded liabilities and other major pension plan issues
A recent Consultation Paper of Finance Canada states that "In recent years, there have been growing concerns that defined benefit pension plans have had to deal with adverse market conditions, funding deficits, legal rulings creating uncertainty, some lack of clarity regarding pension rights under insolvency and questions regarding the impact of pension accounting rules. . [although] the current situation [is] stable and manageable." (Finance Canada 2005)
The Conference Board of Canada adds that: "Corporate Canada confronts a pension crisis. . despite several years of economic upturn and robust stock market returns, as well as catch-up payments made by many plan sponsors, the country's defined benefit pension plans remain substantially underfunded. As of May 2005, the average defined benefit (DB) plan was only 85% -funded-a sharp drop from over 110% - funded five years earlier." (Conference Board of Canada 2005a)
The Mercer Canadian Pension Health Index provides a monthly measure of the impact of economic market conditions on the solvency position of a typical, unindexed Canadian pension plan. The chart 22.1 shows the index from January 1998 to mid-2005.
"The Index shows the ratio of assets to liabilities for a model pension plan. The ratio has been arbitrarily set to 100% at the beginning of the period. The Index assumes contributions equal to current service cost and no plan improvements." (Mercer Human Resource Consulting 2005)
The Index had a strong upward trend throughout the late 1990s. However, during the year 2000 the ratio began to fall after achieving a maximum index of approximately 120%. It descended below the 100% level in 2001. The index continued a downward trend until 2003, where it appears to have stabilized between 80% and 90%.
In the USA, the funding problems faced by defined benefit pension plans have received much attention. In recent testimony presented to the Committee on Finance of the United States Senate, the Director of the Congressional Budget Office (CBO) states that: "At present, the underfunding of defined-benefit pension plans is a pervasive and sizable phenomenon. PBGC estimates that the vast majority of plans are currently underfunded to some degree." (Holtz-Aiken 2005)
In addition to the impact of recent changes in the financial markets, a new demographic force has complicated the picture. Actuarial calculations are based on average life expectancy, and with longer life expectancy, pensions will be paying out income for longer than expected. The effect of this improvement in life expectancy will be compounded by the huge size of the Baby Boom generation. Thus, declining investment returns coupled with key demographic changes are creating unprecedented challenges for employer pension plans.
The response to these challenges has tended to focus upon technical topics concerning the operations of the defined-benefit (DB) plans. These include accounting and actuarial assumptions, insurance for pension plans, disposition of pension surpluses, response to company bankruptcies or other threats to pension plan defaults, etc. (see Holtz-Aiken 2005, Grillo 2004, and Schroeder 2005).
However, two topics in the area of institutional behavior also merit attention. The population is increasingly confronted with a mix of DB and defined-contribution (DC) plans, and many families will rely upon incomes from both kinds of plans for many years into the future. (See Holtz-Aiken 2005, and Finance Canada 2005, Table 2.) Corporate and employee behavior, as well as attitudes, concerning the choice between these kinds of plans deserve more data gathering and analysis.
A related topic is the extent and quality of information disclosure to employees made by plan sponsors concerning the status of the plans relative to funding and liability issues. How many plan members actually are provided with this kind of information regularly? In what kinds of plans, industries and occupations is the flow of this kind of information very good (at one extreme) or very poor (at the other extreme)? In the USA, this issue has been highlighted by Holtz-Aiken as follows:
"The transparency of the risks within the defined-benefit pension system is another important consideration. . . The current pension system does not do a very good job of providing the kind of information that would be helpful to investors and plan participants as well as to policymakers and taxpayers. . In many cases, companies use a higher interest rate to calculate their plans' liabilities for corporate financial reports than they use to report liabilities to government agencies or to the plan's participants. The higher discount rate makes pension liabilities appear smaller to those who use annual reports to value companies on the basis of their assets and liabilities." (Holtz-Aiken 2005)
Preparedness to bear a new level of personal responsibility for adequacy of income in retirement
Even when employees are provided with adequate information concerning their pension plans, whether they have been well prepared to understand key technical aspects of that information is an issue. This brings up the following general question. To what extent are workers prepared to shoulder an increased level of personal responsibility for adequacy of income in retirement? What are the distributions of the amount and of the quality of this personal knowledge in the adult population, and in what key population subgroups do these aspects of the knowledge (amount and quality) exist at a high level, or, in contrast, at a low level?
These questions have been mentioned, at least indirectly, in the chapters of Baldwin, Rein and Townson. And they emerge as central issues in the context of the on-going mutations of the social institution of retirement, which were discussed in the Chapter One.
The importance of these questions arises in part because of a trend that has been highlighted at various points in this book. As employers move away from defined benefit pension plans, while offering employees access to defined contribution plans and Group RRSPs, they send to employees the implicit message that they are now in charge of their own financial futures. A rising proportion of non-standard jobs also serves to send that message to the population. The message is further reinforced by the state when it increasingly limits its distribution of after-tax transfer income to those who are manifestly in need of income support to purchase basic necessities and who have resided in the country for a minimum period measured in decades.
Thus, today's workers, including all generations in the workplace, face a new challenge. Their challenge is to gain a better understanding of how to plan financially, and then to actually do something about it. And doing something about it means understanding how government pensions work, what kinds of pension or retirement savings plans they have or can join, what risks are associated with these plans, what is the financial health of any plan of which they are a member and how to effectively manage personal savings, not to mention debt.
The good news is that there are a number of factors that should have a positive impact on the preparedness of today's workers to take charge of their own financial futures. Average educational levels, for example, are higher than ever. Financial planning is complex and technical. The better educated the individual, the greater the potential for good choices and planning to take place.
Secondly, most Canadian workers are aware of the government vehicles available to them for tax-deferred savings because these programs have been in place for several decades. It would be difficult for a modern worker not to know about these programs given the kind of promotion surrounding them in the early months of each calendar year!
Thirdly, studies, mostly out of the U.S., have documented the fact that many boomers plan to work after they begin receiving retirement-related income, thus generating income that will supplement pension income. Many of these boomers say that they will work because they want to, not because they have to.
Fourthly, more households than ever before will experience retirement income from two former workers, not just one. Women in large numbers will be retiring with pension incomes, albeit not as large as those of their male counterparts as noted in Townson's chapter. In these households, knowledge of financial planning, priority setting and actual savings decisions are being shared. In theory, this should increase the likelihood that sound financial decisions will be made in general and in relation to retirement in particular.
Lastly, the generations coming after the boomers understand perhaps better than any other workers that they are in charge of their own careers and their own financial futures. They know that their employers have re-written the implicit social contract about the exchange of loyalty between employer and employee. More than previous generations, they will move from job to job and in and out of the workforce with quality of life a high priority. Many are also aware of the importance of financial security, having lived through the corporate and government downsizing in the 1990s, or having been bystanders relative their parents' experiences.
Despite the tendency of the factors just cited to facilitate adequate preparedness to do personal financial planning, there remain important questions that need to be raised. Will the pre-retirees of today and tomorrow adequately prepare in order to make the right decisions in taking charge of their own financial futures? To what extent will institutional arrangements, cultural values and personal motivation facilitate acquiring the minimum capacity to execute that effort with competence? Will employers make greater efforts to educate their employees in order to equip them with the knowledge they need to make the right financial decisions, to say nothing of understanding and evaluating corporate pension and savings programs? Will more Canadian workers seek financial planning advice from the experts? Will more women seek out such advice, since we know that currently they do so at a much lower rate than do men, even though they are more financially vulnerable in retirement? Among today's pre-retirees, what are the pertinent attitudes, how do they plan to fund their retirements, and what kind of help do they need to do this effectively? The answers to such questions require new data and research.
At least two studies in Canada have provided information that is useful in developing answers to the questions cited above. Morisette and Zhang (2004) have dealt with the extent of employees' knowledge about employer-sponsored pension plans. Kemp, Rosenthal and Denton (2004) have dealt with factors that help or hinder the commencement of financial planning relative to income in the later years of life. Morisette and Zhang found that 4% of full-time employees with indeterminate jobs had incorrect knowledge about the existence of their pension plan. Among immigrants the figure rose to 9%. Kemp, Rosenthal and Denton found that
"Catalytic financial influences included employer programs and enrolment in retirement courses, while job loss and unforeseen expenses were viewed as constraints. . Participants' locations in the social structure influenced the onset of financial preparation, however, subjective perceptions of life circumstances were also pivotal."
But these two studies merely scratch the surface of the range of research that is needed to build up policy-relevant knowledge in this field. Even on the questions that they address, there is much room for new research.
Workplace and labor-market environments
Results of the Rethinking Work 2004 Survey indicate that high job stress and job dissatisfaction tend to lower the age of departure from the career job. "Workers who experienced frequent job stress or who were dissatisfied with their job planned to retire at least a year earlier than their co-workers who lad low or moderate levels of stress or who were satisfied with their jobs". (Lowe 2005:18)
However, there was at best a weak indication that lowering job stress and increasing job satisfaction would be key factors in decisions to delay retirement beyond the moment it would normally be taken. "Positive conditions of low stress and job satisfaction do not, in themselves, contribute to postponing retirement beyond the national norm." (Lowe 2005:19)
Lowe's finding does suggest, however, that the national norm might be different if key aspects of the workplace environment were friendlier to older workers. These aspects include the sense of being discriminated against (including being denied due considerations and respect) because of one's age, as well as more mundane aspects of ergonomics in the physical environment.
Moreover, relevant workplace environment issues go beyond those pertaining to an older worker's prospects of remaining with a current employer. Perhaps of equal, if not greater, importance is the labor-market environment that confronts the older person seeking work opportunity, including self-employment. Various dimensions of possible employer hostility or receptivity arise in this connection.
Irrespective of whether the workplace environment affects the age of retirement, there remain key questions about how it influences certain aspects of the transition to retirement, including especially the preparatory steps. This topic seems to be one of the few where Canada has not been the venue of a great deal of theory and research.
In the USA, there are suggestions of a very low level of employer awareness and concern about the possible links between workplace environment factors and transitions to retirement among their older employees. Shellenbarger (2005) recently reported on some results of a related AARP project in this area as follows:
"What if you held a contest for best workplace and no one applied? AARP invited employers to compete for a listing in its Modern Maturity magazine as one of the 'best employers for workers over 50.' Aware that other workplace contests draw hundreds of applicants, the 35 million-member nonprofit mailed invitations to 10,000 companies.
Total applicants: 14.
"The best places for older workers? Gee, we hadn't even thought about that,' was the reaction at many companies, says Deborah Russell, an AARP senior program coordinator. 'Older workers are just one of those areas that haven't been particularly big on the radar screen of employers.'
But most companies have a long way to go to attract and retain top-flight older workers. Age bias is a deep-seated barrier, of course. And there are cost obstacles. Too many pension plans require the largest employer contributions as workers approach retirement, making older workers more expensive.
Beyond that, many employers need to fine-tune work-life conditions, an element of workplace quality that's more important to many older workers than to younger ones."
The situation in Canada may be better; but probably not by a wide margin. Recently, the Conference Board of Canada provided the following overview of findings from a survey of employers:
"Although some industries are already facing problems associated with finding enough people with the right skills to fill their workforces and many managers in other sectors realize that the retirement of their older workers will have serious implications for their organizations, the study amply demonstrates that not a lot of action is being undertaken by employers to remedy the situation. At present, other corporate priorities having a more immediate operational or financial influence will usually take precedence over questions of an aging workforce. Nevertheless, if Canadian companies are to be ready for the oncoming changes in their employee populations, awareness has to be turned into action through strategic planning, effective HR practice development, and partnerships between employers and employees." (Conference Board of Canada 2005b)
Yet links between workplace environment factors and aspects of transitions to retirement could become very important to a wide range of employers as the baby boom's retirement wave gets underway. Why this is so has been pointed out in the said Conference Board of Canada report:
- retaining leadership talent;
- minimizing degradation in corporate knowledge and memory (that is, effectiveness of intergenerational knowledge transfer as regards key aspects of corporate memory and know-how);
- the need to develop separate recruiting strategies for different segments of the population, including older people, to fill the holes left by retiring employees.
The upshot of all these remarks is simple and compelling. New data, theory and research are urgently needed to help Canadian institutions confront the implications of the up-coming wave of baby boomer retirements, especially as regards the workplace and labor-market environments in which older workers find themselves. On this point, the Conference Board of Canada concludes as follows:
"Hopefully, more and more employers will acknowledge the necessity of confronting the inevitable demographic challenge before it becomes economically debilitating. Only by commencing the crucial planning that will lead to effective and timely solutions for their aging workforces will we avoid a loss of national competitive position and a much reduced standard of living." (Conference Board of Canada 2005b)
Retirement as part of a matrix of later-life transitions
Our last topic is weak in links to practical business or government policy concerns. Yet it is important for the development of high-quality knowledge about the social institution of retirement. The quality of this knowledge in turn feeds back on the degree of enrichment of the useful practical information that social science can provide to support the activities of those who are preoccupied with strategic business and policy questions. As the social institution of retirement changes and becomes more complex, the importance of attending to this topic increases. For example, retirement trajectories are becoming more diverse, and their increased diversity is related to the linkages between retirement and other later-life transitions.
The general issue about which we advocate improved development of knowledge is the manner in which retirement processes relate to other later-life transitions in two directions of influence. First, other life course changes affect aspects of retirement processes. In turn, those changes are affected by retirement processes. (For example, once initiated, the retirement process influences the quality of marital life, aspects of one's roles, identity and sense of control.) No doubt, the time sequencing of these two-way influences is very complex; but its importance in advancing understanding of retirement is such that we need to signal the need for systematic theory and research in this area.
Among the other life-course transitions that deserve attention are changes in parenting roles, in responsibilities for care giving relative to others in the same or older generations, in partners' retirement planning and behavior, in economic status, in health status and functional capacity, and in self-concept. Any of these changes has the potential to become a key factor in retirement decision-making and in the pattern of transition to the state of being retired. Let us consider two of these linked life-course transitions, for the purposes of illustration.
Parenting roles
Among the most important later-life changes that one can link to retirement involve adult children. Two notable examples of such challenges pertain to children who delay their launch into independence or return to the empty nest in early adulthood, and to those who, in the wake of divorce, return to their parents' home bringing their own children with them. If children are financially dependent on their parents, the latter face 'prolonged parenting' and tend to delay departure from their career jobs, and thus are less likely to seek a bridge job or to exit the labor force (Palkovitz and Daly 2003).
Care giving responsibilities
Adult children must often assume responsibility for the care of elderly family members, compounding changes in parental roles for individuals in later-life and ultimately affecting retirement timing. Due to their additional responsibilities, changes in work patterns were required for 27% of female and 14% of male care givers aged 45 to 54 (Cranswick 2003). Such changes included working split shifts, leaving early and making up the time later, reducing the number of work hours, turning down a promotion, leaves of absence, and semi or full retirement.
Care giving shapes men's and women's retirement timing in vastly different ways due to their fundamentally different responses to care giving duties. Women tend to remain home to provide care, whereas men delay their retirement and work to shoulder the financial burden associated with disability. Caring for a spouse has the strongest impact on retirement timing. Women caring for their husbands are five times more likely to retire than their female peers not engaged in care giving. Men caring for their wives, on the other hand, are 50% slower to retire (Detinger and Clarkberg 2002). Even as we witness more men involved in care giving than in the past, there remain significant gender differences in men and women's care giving activities and retirement timing decisions based on these responsibilities.
Concluding comment
In closing, we have merely touched on four important topics that represent gaps in the earlier discussion in the book. These are all topics that need development in confronting the major issues connected with retirement in the twenty-first century. They all require innovations across three fronts: theory, data gathering and data analysis.
The topics that were discussed at much more length in the book almost all need further work that involves innovations across those same three fronts. Many findings presented above are seriously incomplete or give rise to new questions that need to be addressed. However, space shortage prevents any effort here to make a listing of these findings, and the reader is invited to review the authors' closing comments in the chapters presented earlier.
Bibliography
Achley, R. 1992. "Retirement and marital satisfaction." Pp. 145 to 158 in Families and Retirement. M. Szinovacz, D. Ekerdt and B. Vinick (eds.). Newbury Park, CA. Sage.
Chan, S. and A.H. Stevens. 1999. Job Loss and Retirement Behaviour of Older Men. Working Paper No. 6920. Cambridge, MA. National Bureau of Economic Research, Inc.
Conference Board of Canada. 2005a. The Pension Plan Crisis: Canada's CFOs are Worried - With Good Reason. (accessed December 12, 2005).
Conference Board of Canada. 2005b. Work to Retirement: An Emerging Business Challenge. Paper presented at Work-to-Retirement Transition National Discussion Forum. November 23 and 24. Ottawa.
Cranswick, K. 2003. General Social Survey Cycle 16: Caring for an Aging Society, 2002. Catalogue no. 89-582-XIE. Ottawa. Statistics Canada.
Davey, A. and M. Szinovacz. 2004. "Dimensions of marital quality and retirement." Journal of Family Issues. 25, 4: 431-464.
Dentinger, E. and M. Clarkberg. 2002. "Informal caregiving and retirement timing among men and women." Journal of Family Issues. 23, 7: 857 to 879.
Finance Canada. 2005. Strengthening the Legislative and Regulatory Framework for Defined Benefit Pension Plans Registered Under the Pension Benefits Standards Act, 1985. Consultation Paper. Financial Sector Division. Ottawa. (accessed December 12, 2005).
Gomez, Rafael and Morley Gunderson. 2005. The Aging Workforce and Its Transitions to Retirement. Paper presented at Work-to-Retirement Transition National Discussion Forum. November 23 and 24. Ottawa.
Grillo, Jerry. 2004. Pension (Under) Funding: Changing the Rules, With Caution. (accessed December 13, 2005).
Henretta, J., A. O'Rand and C. Chan. 1993. "Joint role investments and synchronization of retirement: A sequential approach to couples' retirement timing." Social Forces. 71, 4: 981 to 1000.
Hilbourne, M. 1999. "Living together full time? Middle-class couples approaching retirement." Ageing and Society. 19: 161 to 183.
Holtz-Aiken, Douglas. 2005. Defined-Benefit Pension Plans: Current Problems and Future Challenges. Statement made before The Committee on Finance, United States Senate. June 7. Washington, DC. Congressional Budget Office.
Kemp, Candace L., Carolyn J. Rosenthal and Margaret Denton. 2004. "Financial planning for later life: Subjective understandings of catalysts and constraints." Quantitative Studies in Economics and Population Research Reports 389. McMaster University. (accessed December 13, 2005).
Kim, J. and P. Moen. 2001. "Late midlife work status and transitions." Pp. 498 to 527 in Handbook of Midlife Development. M.E. Lachman (ed.). New York. Wiley.
Lowe, Graham S. 2005. Work-Retirement Transitions: A Synthesis Report. Paper presented at Work-to-Retirement Transition National Discussion Forum. November 23 and 24. Ottawa.
Merser Human Resource Consulting. 2005. Pension Commentary - October 2005 - Pension Plans Turning the Corner?
Morisette, René and Xeulin Zhang. 2004. "Retirement plan awareness." Perspectives on Labour and Income. 5, 1, January: 11 to 18. Catalogue no. 75-001-XIE. Ottawa. Statistics Canada.
Myers, S. and A. Booth. 1996. "Men's retirement and marital quality." Journal of Family Issues. 17: 336 to 358.
Palkovitz, R. and K. Daly. 2003. "Eyeing the edges: Theoretical considerations of work and family for fathers in midlife development." Fathering. 2, 3: 215 to 233.
Schroeder, Michael. 2005. Wall Street Journal: Looking to Keep Pension Agency Solvent, Congress Fears Backlash. (accessed December 13, 2005).
Settersten, R. 1998. "Time, age, and the transition to retirement: New evidence on life-course flexibility?" International Journal on Aging and Human Development. 47, 3: 177 to 203.
Shellenbarger, Sue. 2005. Are Employers Out of Step with Older Employees?
Shultz, K., K. Morton and J. Weckerle. 1998. "The influence of push and pull factors on voluntary and involuntary early retirees' retirement decision and adjustment." Journal of Vocational Behaviour. 53: 45 to 57.
Siebert, D., E. Mutran and D. Reitzes. 1999. "Friendship and social support: The importance of role identity to aging adults." Social Work. 44, 6: 522 to 532.
Torregrosa, M., M. Boixadus, L. Valiente and J. Cruz. 2004. "Elite athletes' image of retirement: The way to relocation in sport." Psychology of Sport and Exercise. 5, 1: 35 to 43.
Shiller, Robert. 2000. Irrational Exuberance. Princeton. Princeton University Press.
Statistics Canada. 2003. Canada's Retirement Income Programs, 1991-2001. CD Rom. Ottawa.
Statistics Canada. 2000. Pension Plans in Canada. Catalogue no. 74-401-XIB. Ottawa.
World Bank. 1994. Averting the Old Age Crisis. Washington.
Note
- The authors thank the peer reviewers for their contributions to improving earlier drafts of this chapter. The comments of Brigitte Neumann and all the co-editors of the book were especially helpful. Assistance from Harpreet Kaur Randhawa is gratefully acknowledged. All opinions and errors herein are our sole responsibility.
- Date modified: