After Work, What Then?

TWO YEARS ago horror stories about the elderly flooded the national media. Pictures of retirees heading for the dog food section of the supermarket surfaced and a cry went out that the nation's social security system was going bankrupt. The cries are mute now, but the state of the nation's retirement income system remains a primary concern for the federal government, the increasing numbers of recipients of old age benefits, and the future contributors to the system.

Joseph A. Califano, Secretary of Health, Education and Welfare, testifying on the Hill this summer warned of the changing dependency ratio in the United States--by the year 2000 one-fifth of the population will be over 65; three workers will support one retiree as opposed to the six that now support each senior citizen. There is no doubt that the social security system will have to undergo a major revamping in the upcoming years unless the next generation of the labor force is willing to accept an inordinate increase in social security taxation.

But even now the social security system depends on the complex of private and public pension plans to provide adequate security for the nation's elderly. But that system also has its drawbacks; Harvard's own pension plan exemplifies the failings of plans throughout the country.

Social security has historically been viewed as the source of retirement income--the guarantee extended by the federal government that retirement is a right; that the end of a lifetime of work does not spell sudden destitution. That vision has now become no more than an illusion--yes, retirees still receive social security payments, but the money is hardly enough to live on and in no way stretches to allow the majority of Americans to retire into their accustomed lifestyles.

And though the federal government can rationalize the low benefits provided in the form of a social security check by pointing to the supplementary income provided by pensions, one-half of all Americans are not currently covered by any type of pension plan. In addition, many of those who are covered never see a dime of the money they or those employers have put away for retirement, either because of the loopholes in the law or the inadequacies of the particular pension plans.

The Employment Retirement Income Security Act (ERISA) of 1976 has closed many of the gaps by formalizing requirements for pensions and guaranteeing a worker the nonforfeitable right to a pension after 10 years of continuous service (vesting rights). Harvard's pension plan, however, exemplifies the many inadequacies in the system that persist, especially for non-hourly unionized workers.

THOUGH Harvard allows hourly workers to "vest" before the federal minimum of 10 years, the University is by no means generous with its pension system. The University's plan is based on credited service and a final average base wage rate taking into account the worker's social security benefits. A worker who retires after 25 years of continuous service will receive 60 per cent of his "high-five pay" (the highest average of the worker's base wage rate during five consecutive years in the final ten years of service) minus 80 per cent of his social security income. The theory behind this "integrated" plan is that an employee should not receive in retirement more than 100 per cent of his wages while he was working. The University tells pension plan participants that they will receive 70 to 80 per cent of after-tax pay at the time of retirement if they work for 25 years before they retire, and 80 to 90 per cent if they work for 45 years.

What this and all social security-integrated pension plans fail to take into consideration is the continuing high level of inflation. Dianne Bennett, former attorney advisor with the office of tax legislative counsel at the Treasury Department, suggests that this is the main argument against any type of integrated plan. She says even if social security were subtracted from 100 per cent of the pre-retirement average high wage base, inflation would still discriminate against the integrated plan recipient.

WHAT makes this more serious is that the lowest paid workers are those saddled with integrated plans. Harvard's 80 per cent social security offset is the highest currently allowable by law. In his tax reform package presented to Congress last January, President Carter asked for a limit on social security integration. Bennett, who worked on the tax proposals, says she personally believes the integration proposal did not go far enough, but adds that Congress nixed integration reform from the package anyway due to pressure from employer organizations. The AFL-CIO has consistently opposed integration. AFL unions around the country will not permit it even to be considered during the collective bargaining process. As Lawrence Smedley of the AFL claims, only the small unions and non-union employees allow integration into their pension plans.

Harvard is one of those small union situations. And the average Harvard worker at the end of a quarter century service must struggle to survive. He or she will be expected to live on a pension of $208 a month plus $265 in social security--a total of $473 a month. The retired Harvard worker's yearly income will be less than $6000, or slightly above the national poverty level. Integration has become the cost-cutting tool that deprives the unprotected worker of the right to a secure retirement.