Pension integration and retirement benefits

The issue of retiree income is important in a time of proposed Social Security reform. In 1996, for example, the shares of aggregate income for those aged 65 or older were, on average, 40.3 percent from Social Security, 18.5 percent from employer pensions, 20 percent from employment, and 21.1 percent from assets and other forms of income. Integration of pension income with Social Security income likely reduces benefits for many retirees, making research on income from integrated pensions critical. Previous research creates hypothetical earnings histories to simulate the effect of integration on actual plans. In one such simulation, Avy Graham finds that integration decreases replacement rates for low earners and increases them for middle and high earners, compared with those with nonintegrated pensions. By contrast, Keith Bender reports that recent survey data show only a slight correlation between higher replacement rates and higher income for integrated plans. The current article presents new evidence, using a combination of survey data on workers and on their actual pension plans.