oversight

Unemployed Older Workers: Many Face Long-Term Joblessness and Reduced Retirement Security

Published by the Government Accountability Office on 2012-05-15.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                            United States Government Accountability Office

GAO                         Testimony
                            Before the Special Committee on Aging,
                            U.S. Senate


                            UNEMPLOYED OLDER
For Release on Delivery
Expected at 2:30 p.m. EDT
Tuesday, May 15, 2012

                            WORKERS
                            Many Face Long-Term
                            Joblessness and Reduced
                            Retirement Security
                            Statement of Charles A. Jeszeck, Director
                            Education, Workforce, and Income Security




GAO-12-724T
Chairman Kohl, Ranking Member Corker, and Members of the
Committee:

I am pleased to be here today to discuss the status of unemployed older
workers. The most recent recession, which began in 2007 and ended in
2009, was the worst since the Great Depression, and has been
characterized by historically high levels of long-term unemployment. 1
While it is crucial that the nation help people of all ages return to work,
long-term unemployment has particularly serious implications for older
workers (age 55 and over). Job loss for older workers threatens not only
their immediate financial security, but also their ability to support
themselves during retirement.

My remarks today summarize a report that we prepared for this
committee and released today. 2 My testimony will focus on (1) how the
employment status of older workers age 55 and over has changed since
the recession, (2) older workers’ challenges in finding new jobs, (3) how
periods of long-term unemployment might affect older workers’ retirement
income, and (4) what other policies might help unemployed older workers
regain employment and what steps the Department of Labor (Labor) has
taken to help unemployed older workers.

To examine changes in the employment status of older workers since the
start of the recession, we analyzed nationally representative
unemployment and demographic data from the Bureau of Labor Statistics
(BLS), including January 2007 through April 2012 data from the Current
Population Survey (CPS) and the 2008 and 2010 Displaced Worker
Supplement (DWS). To learn about older workers’ challenges in finding
new jobs, we conducted focus groups with unemployed older workers in
four metropolitan areas, and interviewed staff at one-stop career centers



1
 The recession of 2007-2009 started in December 2007 and ended in June 2009,
according to the Business Cycle Dating Committee of the National Bureau of Economic
Research (NBER). According to NBER, “a recession is a significant decline in economic
activity spread across the economy, lasting more than a few months, normally visible in
production, employment, real income, and other indicators. A recession begins when the
economy reaches a peak of activity and ends when the economy reaches its trough.” In
addition, this recession occurred in the context of a significant decline in major financial
markets, which dramatically reduced the value of major assets.
2
 GAO, Unemployed Older Workers: Many Experience Challenges Regaining Employment
and Face Reduced Retirement Security, GAO-12-445 (Washington, D.C.: April 25, 2012).




Page 1                                                                          GAO-12-724T
             in each of the four areas. 3 (For audio clips from GAO’s focus groups with
             unemployed older workers, use this link:
             http://www.gao.gov/multimedia/video/#video_id=590295.) Further, we
             interviewed experts on older workers’ issues and reviewed studies. To
             assess how periods of long-term unemployment might affect older
             workers’ retirement income, we used microsimulation models, and
             interviewed officials at the Social Security Administration (SSA). To
             identify what policies might help unemployed older workers regain
             employment and what Labor has done to help older workers, we
             interviewed experts on policy proposals previously identified through a
             review of the literature and interviewed Labor officials.

             We conducted this performance audit from October 2010 through April
             2012 in accordance with generally accepted government auditing
             standards. Those standards require that we plan and perform the audit to
             obtain sufficient, appropriate evidence to provide a reasonable basis for
             our findings and conclusions based on our audit objectives. We believe
             that the evidence we obtained provides a reasonable basis for our
             findings and conclusions based on our audit objectives.


             Social Security retirement benefits are paid to eligible workers under the
Background   Old-Age, Survivors, and Disability Insurance (OASDI) program
             administered by SSA. The level of monthly retirement benefits an
             individual will receive depends on factors such as work and earnings
             history and the age at which the beneficiary chooses to begin receiving
             benefits. 4 Generally, individuals may begin receiving Social Security
             retirement benefits at age 62; however, the payments will be lower than if
             they wait to receive benefits at their full retirement age, which varies from
             65 to 67, depending on the individual’s birth year. 5 Social Security also
             provides benefits to eligible workers who become disabled before




             3
              The Workforce Investment Act of 1998 provided for the establishment of local one-stop
             centers to provide access to employment and training services under a number of
             programs, including those administered by the Departments of Labor, Education, Health
             and Human Services, and Housing and Urban Development. Pub. L. No. 105-220, § 121,
             112 Stat. 936, 963.
             4
             42 U.S.C. §§ 402, 415.
             5
             42 U.S.C. § 402(q)(1); 20 C.F.R. §§ 404.409 to 404.410.




             Page 2                                                                    GAO-12-724T
                      reaching retirement age, as well as children, spouses, and widow(er)s of
                      eligible workers.

                      Employer-sponsored retirement plans fall into two broad categories:
                      defined benefit (DB) plans and defined contribution (DC) plans. DB plans
                      promise to provide a benefit that is determined by a formula based on
                      particular factors specified by the plan, such as salary or years of service.
                      Typically, DB plans provide annuity payments to retirees on a monthly
                      basis that continue as long as the recipient lives. 6 Under DC plans,
                      workers and employers may make contributions into individual accounts. 7
                      At retirement, participants’ distribution options vary depending on the
                      plan, but often include leaving their money in the plan or taking a full or
                      partial distribution. In order to preserve the tax benefits from their DC plan
                      savings, many participants choose to roll plan savings into an individual
                      retirement account (IRA). IRAs are personal retirement savings
                      arrangements that allow individuals to make contributions to an individual
                      account and receive favorable tax treatment. 8


                      Unemployment rates for workers of all ages have risen dramatically since
Long-Term             the start of the recent recession in December 2007, and workers age 55
Unemployment for      and over have faced particularly long periods of unemployment. As
                      shown in figure 1, the seasonally unadjusted unemployment rate for older
Older Workers Has     workers increased from 3.1 percent in December 2007 to a high of 7.6
Increased             percent in February 2010, before it decreased to 6.0 percent in April
Substantially since
the Start of the
Recession
                      6
                       A DB plan may also provide benefits to a surviving spouse, if the plan participant is
                      married and took these benefits.
                      7
                       The most common type of DC plan is the 401(k) plan, which typically allows workers to
                      choose to contribute a portion of their pretax compensation to the plan. Some 401(k) plans
                      may also provide for employer contributions, and Roth 401(k) plans may accept after-tax
                      employee contributions.
                      8
                       The tax treatment differs depending on the type of IRA. For example, with traditional
                      IRAs, individuals who meet certain conditions can take an income tax deduction on some
                      or all of the contributions they make to their IRAs, but they must pay taxes on amounts
                      they withdraw from the IRA. Individuals below certain income limits may also contribute to
                      Roth IRAs, which do not provide an income tax deduction on contributions, but permit tax-
                      free withdrawals.




                      Page 3                                                                         GAO-12-724T
                                       2012. 9 As in prior recessions, smaller percentages of workers age 55 and
                                       over became unemployed in comparison with younger workers. Some
                                       researchers attribute older workers’ lower unemployment rates to the fact
                                       that older workers tend to have longer job tenure, and are consequently
                                       less likely to be laid off than younger workers. 10

Figure 1: Estimated Unemployment Rates by Age, January 2007 to April 2012




                                       Notes: Estimates have 95 percent confidence intervals within plus or minus 0.5 percentage points of
                                       the estimate itself. Recession dates obtained from the NBER estimates are not seasonally adjusted.




                                       9
                                        This figure, along with all others describing characteristics of workers, is based on
                                       sample data and subject to sampling error. For example, we are 95 percent confident that
                                       the unemployment rate for workers age 55 and older was between 5.5 and 6.4 percent in
                                       December 2011. Estimated labor force statistics in this report are based on analysis of
                                       microdata, which beginning in January 2011 may diverge slightly from BLS published
                                       estimates. Because we analyzed a variety of labor force outcomes for several subgroups
                                       of the population that had small sample sizes, we did not attempt to seasonally adjust any
                                       of the estimates.
                                       10
                                         A recent study, however, suggests that older workers with less than 4.6 years of tenure
                                       are actually more likely to be laid off than their otherwise similar younger counterparts.
                                       See Richard Johnson and Corinna Mommaerts, Age Differences in Job Loss, Job Search,
                                       and Reemployment, the Urban Institute (Washington D.C.: January 2011).




                                       Page 4                                                                                GAO-12-724T
Although older workers are less likely than younger workers to lose their
jobs, it generally takes older job seekers longer to find new work. Since
2007, many job seekers of all ages have experienced long-term
unemployment, but individuals age 55 and over have consistently
experienced longer durations of unemployment than younger workers. 11
Moreover, the median length of unemployment has more than tripled for
older workers since the recession started, increasing at a greater rate
than that of younger workers. Prior to the recession, the median duration
of unemployment for job seekers age 55 and over was 10 weeks
compared with 9 weeks for job seekers aged 25-54. By 2011, the median
duration of unemployment for older job seekers had increased to 35
weeks compared with 26 weeks for younger job seekers. In 2007, less
than a quarter of unemployed older workers were unemployed for longer
than 27 weeks, as shown in figure 2. By 2011, this number had increased
to 55 percent. Moreover, by 2011 over one-third of all unemployed older
workers had been unemployed for over a year.




11
  BLS defines long-term unemployment as being unemployed for more than half a year
(27 weeks or more).




Page 5                                                                   GAO-12-724T
Figure 2: Growth in Estimated Long-Term Unemployment of Older Workers (55 and Over), 2007-2011




                                       Note: All estimates in this figure have 95 percent confidence intervals within plus or minus 3
                                       percentage points of the estimate itself. There was a statistically significant change between 2007
                                       and 2011 in the proportion of unemployed older workers in each of the categories shown in the figure.
                                       Specifically, (1) the proportion of unemployed older workers who were unemployed for under 5
                                       weeks, for 5-14 weeks, and for 15-26 weeks each declined significantly from 2007 to 2011, and (2)
                                       the proportion of unemployed older workers who were unemployed for 27 weeks to a year, and for
                                       more than 1 year, each increased significantly from 2007 to 2011. Some bars do not sum to 100
                                       percent because of rounding.


                                       Rates of unemployment for older workers varied across demographic
                                       groups. Unemployment rates for older men were comparable to those of
                                       women in 2007 but were significantly higher for men by 2011. 12 In
                                       addition, black and Hispanic older workers had significantly higher
                                       unemployment rates than white older workers in both 2007 and 2011.
                                       Regarding education level, older workers without a high school diploma
                                       were more likely to be unemployed before and after the recession than




                                       12
                                         One possible explanation for men’s greater increase in unemployment since 2007 is the
                                       particularly steep increase in unemployment in the manufacturing and construction
                                       industries, which tend to employ higher percentages of men than women.




                                       Page 6                                                                                 GAO-12-724T
those with a high school diploma. 13 However, the unemployment rate for
workers with at least a bachelor’s degree approximately doubled by 2011
from its 2007 level, just as it did for those older workers with less
education.

Across several different demographic groups, once unemployed, older
workers were similarly likely to remain unemployed for more than half a
year (27 weeks or more) in 2011. For example, in 2011 older unemployed
workers with at least a bachelor’s degree were similarly likely to face
long-term unemployment as those older workers with less education. In
addition, older workers in each racial or ethnic group who became
unemployed were equally likely to face long-term unemployment in 2011.
Even older women—who in 2007 had lower rates of long-term
unemployment than men—were similarly likely to face long-term
unemployment after the recession.

We analyzed the earnings of workers who regained employment after
being displaced from their jobs from 2007 to 2009 and found that older
workers generally sustained greater earnings losses than younger
workers. 14 When comparing earnings before and after displacement, the
median earnings replacement rate for workers aged 55-64 who were
displaced from 2007 to 2009 was only 85 percent, compared with
approximately 95 percent for workers aged 25-54 and over 100 percent
for workers aged 20-24. 15 Further, an estimated 70 percent of reemployed
displaced older workers sustained earnings losses (an earnings



13
  One possible explanation of the increase in unemployment among less educated older
workers is that unemployment rates in manufacturing and construction increased
dramatically in the recent recession, and these industries tend to employ a higher
percentage of less educated workers than do many other industries. Also, a recent study
of the long-term unemployed aged 18-64 also found that the long-term unemployed are
less likely to hold a college degree. Kaiser Family Foundation/NPR Long-Term
Unemployed Survey.
14
  Displaced workers are those who indicated that they lost a job for economic reasons
(such as plant closures or their position being eliminated) during the previous 3 calendar
years. Displaced workers are surveyed by the Census Bureau every 2 years, with the
most recent survey interviewing people who lost their jobs during the recession period
(January 2007-December 2009), and the previous survey interviewing people who
predominantly lost their jobs prior to the recent recession (January 2005-December 2007).
15
  This analysis is restricted to long-tenured displaced workers (workers with 3 or more
years of tenure on the job they lost or left) who lost full-time, salaried jobs and were
reemployed in full-time, salaried jobs at the time of the survey.




Page 7                                                                         GAO-12-724T
                         replacement rate of less than 100 percent) compared with 53 percent of
                         reemployed individuals aged 25-54.


                         Focus group participants told us that they believed employer reluctance to
Employer Reluctance      hire older workers was their primary reemployment challenge, and
to Hire Older Workers    several cited job interview experiences that convinced them that age
                         discrimination was limiting their ability to find a new job. Moreover, many
Is Perceived as One of   experts, one-stop career center staff, and other workforce professionals
Several                  we interviewed said that some employers are reluctant to hire older
Reemployment             workers. Because of legal prohibitions against age discrimination,
                         employers are unlikely to explicitly express a lack of interest in hiring
Challenges for Older     older workers; 16 however, one workforce professional told us that local
Workers                  employers had asked her to screen out all applicants over the age of 40. 17

                         According to experts we interviewed, a key reason employers are
                         reluctant to hire older workers is that employers expect providing health
                         benefits to older workers would be costly. Several surveys of employers
                         corroborate this concern. 18 A few focus group participants we spoke to
                         who had handled their previous employer’s health insurance or had been
                         involved in hiring decisions said they had seen that older workers
                         substantially increased insurance costs, which provided a disincentive to
                         hire older workers. For example, one focus group participant told us that
                         his prior employer had told him not to hire anyone older than him. In
                         addition to increased health insurance costs, according to experts,
                         workforce professionals, and our focus group participants, some
                         employers may be hesitant to hire older workers because of the higher




                         16
                           The Age Discrimination in Employment Act of 1967, as amended, prohibits employment
                         practices that discriminate against people who are age 40 or older. Pub. L. No. 90-202, 81
                         Stat. 602, codified at 29 U.S.C. §§ 621-634.
                         17
                           For information about evidence that employers discriminate against older job applicants,
                         see Joanna N. Lahey, “Do Older Workers Face Discrimination?” Center for Retirement
                         Research at Boston College, Issue Brief Number 33, July 2005.
                         18
                           See Marcie Pitt-Catsouphes, Michael A. Smyer, Christina Matz-Costa, and Katherine
                         Kane, “The National Study Report: Phase II of the National Study of Business Strategy
                         and Workforce Development,” Center on Aging and Work/Workplace Flexibility at Boston
                         College Research Highlight 04, March, 2007, 21. Also, see The Real Talent Debate: Will
                         Aging Boomers Deplete the Workforce? A WorldatWork Research Report, April 2007, 4.




                         Page 8                                                                       GAO-12-724T
wages that many older workers earned in their previous jobs. 19 Also,
according to experts we interviewed, employers may believe that an older
worker who previously held a high-level position will be overqualified and
therefore unhappy in a lower-level position.

Another challenge that some older workers face in finding new jobs is that
they may lack up-to-date computer skills. Some noted that after a long
spell of unemployment, even those older workers who had previously
been proficient with computer technology might find their technology skills
outdated. Some experts we interviewed said that employers might
hesitate to hire and retrain older workers because they assume that older
workers will not want to work much longer, so the employer would not get
a good return on the training investment.

According to workforce professionals, an ongoing trend among
employers—to require job seekers to submit all applications and résumés
online—creates difficulties for many older workers, particularly those with
few or no computer skills. Further, workforce professionals told us that
many online job applications require applicants to disclose information
that readily reveals the applicant’s age—such as the year the job seeker
graduated from high school—and that applications cannot be submitted
until such fields are completed. Workforce professionals also said that
even workers seeking jobs that require little or no computer use could get
those jobs only by completing a long online application. For example,
workforce professionals told us that individuals seeking positions as
maids and janitors in national chain hotels could apply for those positions
only online and that the older workers seeking those positions were often
unfamiliar with such applications.




19
  A recent study using data from the Survey of Income and Program Participation found
that between 1996 and 2007, the median hourly wage for reemployed displaced workers
was lower at ages 50 to 61 than at ages 35 to 49. The authors of the study suggest that
“concern over the expense of hiring older workers may be overblown.” See Johnson and
Mommaerts, Age Differences in Job Loss, Job Search, and Reemployment.




Page 9                                                                      GAO-12-724T
                        Job loss can result in fewer years of work over a worker’s lifetime, which
Job Loss Can Lead to    can lower the worker’s retirement income in several ways. For example,
Lower Private           fewer years of work can prevent a worker who is covered by a traditional
                        DB plan from having enough years of work with an employer to vest in
Retirement Income,      (that is, earn a nonforfeitable right to receive) employer-funded retirement
Early Social Security   benefits. 20 And even if a worker who is covered by a traditional DB plan
Claims, and             has enough years of work to earn a right to the benefits, fewer years of
                        work can reduce a worker’s final retirement benefit if the number of years
Exhaustion of           worked is used in the formula for calculating retirement benefits. For
Retirement Savings      workers with DC plans, having fewer years of work can limit the amount
                        of yearly employee and employer contributions that accumulate in a
                        worker’s account. Moreover, Social Security retirement benefits may be
                        reduced as a result of fewer years of work because the benefits are
                        based, in part, on a calculation of the worker’s average monthly earnings
                        over 35 years. The 35 years used for the calculation are those with the
                        worker’s highest earnings, adjusted for changes in wage levels. If a
                        worker has less than 35 years of earnings, then zeros would be used for
                        earnings in the missing years, and this will result in a lower calculated
                        benefit. 21

                        At the same time, long-term unemployment can motivate older workers to
                        file for early Social Security retirement benefits. Many unemployed older
                        workers in our focus groups said that they were planning to claim Social
                        Security retirement benefits as soon as they were eligible or had already
                        done so because they needed a source of income to help pay for living
                        expenses. Moreover, a 2012 study found that high unemployment
                        increases Social Security retirement claims among men with limited


                        20
                          The terms of an employer-sponsored retirement plan may specify when the employee
                        has earned a nonforfeitable right to employer-funded benefits (called vesting), typically
                        after the employee reaches a certain age or has completed a certain period of service.
                        Federal vesting requirements may apply to some plans. For example, to qualify for
                        favorable tax treatment, private sector DB plans are generally required to vest their
                        employees within a maximum of 7 years if they use graded vesting, in which the employee
                        is vested in an increasing percentage of the benefits over time. If the plan does not use
                        graded vesting, employees must be 100 percent vested within 5 years. In addition,
                        employees must be vested upon reaching retirement age (typically age 65 or earlier, if
                        defined by the plan), and federal law limits the ability of plans to disregard an employee’s
                        prior years of service after breaks in service of less than 5 years. 29 U.S.C. § 1053(a)-(b).
                        However, plans sponsored by public sector employers are not generally subject to these
                        requirements, although state laws may apply.
                        21
                          For more information on how Social Security retirement benefits are calculated, see
                        online illustration at http://www.ssa.gov/oact/ProgData/retirebenefit1.html.




                        Page 10                                                                         GAO-12-724T
education. 22 The spike in claims for Social Security retirement benefits
that occurred in 2009 after large increases in unemployment rates offers
support for the study’s findings. According to estimates from SSA’s Office
of the Chief Actuary, in fiscal year 2009 about 139,500 (about 6 percent)
more older workers applied for Social Security retirement benefits than
would have been expected in the absence of a recession. 23 Because
Social Security retirement benefits claimed before full retirement age are
reduced to account for the longer period of time that the benefits will be
received, early claiming will cause individuals and their survivors to have
lower monthly retirement benefits for the rest of their lives.

The recession also led to an increase in applications for disability benefits
from the Social Security Disability Insurance program. In turn, the
percentage of individuals in the population age 50 and over who have
been awarded disability benefits has increased since the recession
started. 24 Older workers who lost their jobs in the recession and had
significant injuries or health problems, and were not old enough to claim
Social Security retirement benefits, have strong incentive to apply for
Social Security disability benefits. If they are awarded benefits, they will
receive monthly payments and, after a 24-month waiting period, they will
be eligible for health insurance from the Medicare program. 25 Also,


22
  The researchers estimate that the recession of 2007-2009 increased Social Security
retirement claiming for men with limited education by about 40 percent. See Owen Haaga
and Richard W. Johnson, Social Security Claiming: Trends and Business Cycle Effects,
Center for Retirement Research at Boston College (Chestnut Hill, MA: February 2012).
23
  When the Office of the Chief Actuary made estimates in December 2008 for the number
of retirement benefit claims SSA would receive in fiscal year 2009, it did not factor
recessionary effects into the estimates because, at that time, it did not know if the
recession would increase or reduce the number of applications SSA would receive for
retirement benefits. Therefore, according to the Office of the Chief Actuary, comparing the
estimates for retirement benefits applications for fiscal year 2009 that were made in
December 2008 with the actual number of applications received in fiscal year 2009
provides a reasonable estimate of the effect of the recession on Social Security
applications in fiscal year 2009.
24
  According to the Office of the Chief Actuary, applications did not increase as a result of
the recession for Aged benefits under the Social Security Supplemental Security Income
(SSI) program. To be eligible for SSI Aged benefits, individuals must be 65 or over and
have very low income and few assets. Such individuals may have already been
unemployed before the recession, which could help explain why the recession did not
increase applications for SSI Aged benefits.
25
  Receipt of disability benefits is generally subject to a 5-month waiting period beginning
with the month the applicant was both insured for disability and disabled, as defined by
statute. 42 U.S.C. § 423, 20 C.F.R. § 404.315.




Page 11                                                                         GAO-12-724T
receiving Social Security disability benefits gives unemployed older
workers an alternative to claiming Social Security retirement benefits
early.

Unemployed older workers who have a retirement account may also end
up using some or all of those savings to cover living expenses while
unemployed. Indeed, just over half of the older workers in our focus
groups who reported having retirement savings in an IRA or a DC plan
also reported that they had used some or all of these savings to pay for
expenses while they were unemployed. More specifically, focus group
participants described using retirement savings to cover expenses such
as mortgage and car payments, medical bills, a child’s college tuition, and
moving to more affordable housing. A survey of unemployed workers
conducted in March 2010 also found that a high percentage of individuals
55 and over reported using savings set aside for retirement or other
purposes to help make ends meet. 26 In addition, an October 2010 survey
of workers age 50 and over found that nearly a quarter reported that they
had used all their savings in the previous 3 years. 27

These recent developments are particularly troubling considering the fact
that the earlier a worker stops working and cashes out DC plan savings,
the lower the savings will be and the shorter the period that the savings
are likely to last. Depending on the level of savings, the length of time the
worker spends unemployed, and the worker’s other financial resources, a
worker may be at risk of using a large percentage of DC plan savings
during unemployment. If, however, the worker is fortunate enough to find
another job that includes an employer-sponsored retirement plan or pays
enough to enable the worker to save some earnings in an IRA, the worker
may be able to resume saving for retirement. Figure 3 illustrates how a
worker’s retirement savings of $70,000 in a 401(k) plan could change
after 2 years of unemployment, depending on how much the worker




26
  Maria Heidkamp, Nicole Corre, and Carl E. Van Horn, The “New Unemployables” Older
Jobseekers Struggle to Find Work During the Great Recession, Sloan Center on Aging
and Work, Boston College (Chestnut Hill, MA: 2010).
27
  Sara E. Rix, AARP Public Policy Institute, “Recovering from the Great Recession: Long
Struggle Ahead for Older Americans” (Washington, D.C.: May 2011). This study surveyed
adults aged 50 and over who had been in the labor force at some point during the
previous 3 years.




Page 12                                                                    GAO-12-724T
withdrew from the account while unemployed. 28 The figure also shows
how the account value could increase if the worker became reemployed
and resumed saving for retirement. As shown in figure 3, if the worker did
not make any withdrawals during the period of unemployment, savings
could have reached nearly $110,000 by age 62, after becoming
reemployed. On the other hand, if the worker withdrew 50 percent of the
retirement account balance while unemployed and became reemployed
at age 57, the worker would need to work past age 62 before the account
balance got back to the level it was when the worker was 55.




28
  We used $70,000 as the starting point for this illustration because it is about the median
level of DC plan savings for employed workers age 55 and over who have a DC plan
account from a current or past employer. For purposes of this illustration, we decided to
round this median to the nearest $10,000. Based on 2007 Survey of Consumer Finances
data, the estimated median is $70,800 and its 95 percent confidence interval is within plus
or minus $13,204, or between $57,596 and $84,004.




Page 13                                                                        GAO-12-724T
Figure 3: How Drawdowns from Retirement Savings during Unemployment Can Affect Amounts Saved at Time of Retirement
if a Worker Became Reemployed and Resumed Saving




                                      Note: This illustration is based on an individual who was born at the beginning of 1953, turned 55 in
                                      2008, and retires at 62 in 2015. To calculate changes in the account balance over time, we used the
                                      interest and rate-of-return assumptions as reported in past and projected under the intermediate cost
                                      assumptions in the 2011 Annual Report of the Board of Trustees of the Federal Old-Age and
                                      Survivors Insurance and Federal Disability Insurance Trust Funds (also known as the OASDI
                                      Trustees’ Report). We used scaled earnings for medium annual earners as reported in past and
                                      projected in the 2011 OASDI Trustees’ Report. We assumed the employee contributions to the
                                      retirement account are 6 percent of the individual’s wages and that the individual received a 3 percent
                                      employer matching contribution.



                                      Experts GAO interviewed selected various policies that have been
Federal Government                    proposed to help address unemployed older workers’ reemployment
Policy Options and                    challenges. Experts selected these policies from a broad list of policies
                                      that GAO compiled from previous academic studies. For example, two of
Actions Labor Has                     the policies that experts selected would provide incentives such as
Taken to Help                         temporary wage or training subsidies for employers to hire long-term
Unemployed Older                      unemployed older workers. Another policy experts selected would require
                                      long-term unemployed workers to enroll in training to remain eligible for
Workers                               unemployment insurance benefits. In the current context of high



                                      Page 14                                                                                 GAO-12-724T
               unemployment and slow job creation, the impact of such policies is likely
               to be muted by limited job openings.

               In 2006, Labor convened an interagency Taskforce on the Aging of the
               American Workforce (the Taskforce), in part, in response to a request
               from this committee and its current chairman, Senator Herb Kohl. 29 After
               the Taskforce issued its report in 2008, Labor implemented several
               strategies the report recommended. For example, in 2008, Labor
               expanded a demonstration project designed to assist individuals in
               creating or expanding their own businesses. Also, in 2009, Labor
               awarded approximately $10 million in grants to 10 organizations to test
               new ways of providing training and other services to connect older
               Americans with employment opportunities in high-growth, high-demand
               industries. According to Labor officials, the onset of the 2007-2009
               recession shifted Labor’s focus away from implementing strategies
               recommended in the Taskforce report to responding to greatly increased
               demand for services.


               Although long-term unemployment hurts job seekers of all ages, it poses
Concluding     particular challenges for older workers. Older workers tend to be out of
Observations   work longer than younger workers, threatening their retirement savings
               during a period of their lives when they have may have less opportunity to
               rebuild them. Even when they are able to obtain reemployment, they
               often do so at lower wages, making it even more difficult to replenish the
               lost earnings and reduced retirement savings that they suffered. For
               those long term unemployed workers who cannot find work, they may
               leave the labor market altogether and claim Social Security retirement
               benefits earlier than they would have otherwise, leaving them with less
               retirement income each month for the rest of their lives. As such, the
               effects of the recent recession highlight the limitations of our current
               retirement security system.

               While Labor took steps to implement some of the 2008 Taskforce
               recommendations, Labor officials understandably shifted their focus away



               29
                Labor also convened the Taskforce to respond to GAO recommendations in two reports:
               GAO, Older Workers: Demographic Trends Pose Challenges for Employers and Workers,
               GAO-02-85 (Washington, D.C.: Nov. 16, 2001), and Older Workers: Labor Can Help
               Employers and Employees Plan Better for the Future, GAO-06-80 (Washington, D.C.:
               Dec. 5, 2005).




               Page 15                                                                 GAO-12-724T
                  from the report’s findings when the recent recession caused a dramatic
                  increase in demand for workforce services. Still, older workers remain a
                  critical and growing segment of the workforce, and a renewed focus is
                  now needed to identify strategies to help address older workers’
                  significant reemployment challenges. In our report, we recommended that
                  Labor consider what strategies are needed to address the unique needs
                  of older job seekers, in light of recent economic and technological
                  changes. In its comments on our draft report, Labor agreed with our
                  recommendation.


                  Chairman Kohl, Ranking Member Corker, and Members of the
                  Committee, this completes my prepared statement. I would be happy to
                  respond to any questions you may have at this time.


                  Charles Jeszeck (202) 512-7215 or jeszeckc@gao.gov
GAO Contact
                  In addition to the above, Laura J. Heald, Lucas Alvarez, Laurel E.
Staff             Beedon, James E. Bennett, Amy Buck, David M. Chrisinger, William
Acknowledgments   Colvin, Sarah C. Cornetto, Cynthia L. Grant, Gene G. Kuehneman Jr.,
                  Kathy D. Leslie, Douglas A. Manor, Jaclyn Nidoh, Rhiannon Patterson,
                  Kathy Peyman, Mark F. Ramage, David M. Reed, Nyree M. Ryder Tee,
                  Aron E. Szapiro, Frank Todisco, and Walter K. Vance made key
                  contributions to this testimony.




(131174)
                  Page 16                                                       GAO-12-724T
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