Retirement Security: Older Women Remain at Risk

Published by the Government Accountability Office on 2012-07-25.

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

                            RETIREMENT SECURITY
For Release on Delivery
Expected at 2:00 p.m. EST
Wednesday, July 25, 2012

                            Older Women Remain at
                            Statement of Barbara D. Bovbjerg, Managing Director
                            Education, Workforce, and Income Security

Chairman Kohl, Ranking Member Corker, and Members of the

I am pleased to be here to discuss the challenges women face in
attaining a secure retirement. Historically, elderly women have been at
greater risk than men of living in poverty for several reasons. As our
previous work has shown, women continue to have lower average
earnings than men, despite their increasing participation in the labor force
over the last half of the 20th century.1 They are also more likely than men
to take time out of the workforce to care for family members and tend to
live longer. Moreover, recent economic trends, including the economic
downturn, reductions in public sector pensions, and the ongoing shift from
a defined benefit pension system to a defined contribution system could
exacerbate the risks women face in attaining a secure retirement.

Over the past quarter-century, the percentage of private sector workers
participating in employer-sponsored pension plans has held steady at
about 50 percent. The majority of workers that do not participate in an
employer plan lack access to one. In addition, over the last 3 decades,
the U.S. retirement system has undergone a major transition from one
based primarily on defined benefit plans to one based on defined
contribution plans. This transition, in turn, generally shifted the burden of
saving and decision-making to the individual worker and also increased
workers’ exposure to economic volatility. This transition also has
implications for the financial security of spouses. For instance, under
defined benefit plans, the qualified joint and survivor annuity required by
law may only be waived through a written spousal consent. However,
under most defined contribution plans, an employee may withdraw funds
from his or her account without spousal consent.

Today’s testimony examines women’s retirement income security in light of
these circumstances. It is based on a GAO report being released today.2 In
the report, we examined (1) how women’s access to and participation in
employer-sponsored retirement plans compare to men’s and how they

 GAO, Retirement Security: Women Face Challenges in Ensuring Financial Security in
Retirement, GAO-08-105 (Washington, D.C.: Oct. 11, 2007) and GAO, Gender Pay
Differences: Progress Made, but Women Remain Overrepresented among Low-Wage
Workers, GAO-12-10 (Washington, D.C.: Oct 12, 2011).
 GAO, Retirement Security: Women Still Face Challenges, GAO-12-699 (Washington
D.C.: July 19, 2012).

Page 1                                                                   GAO-12-825T
have changed over time; (2) how women’s retirement income compares to
men’s and how the composition of their income—the proportion of income
coming from different sources—changed with economic conditions and
trends in pension design; (3) how later-in-life events affect women’s
retirement income security; and (4) what policy options are available to help
increase women’s retirement income security.

To address these questions, we analyzed two nationally representative
datasets, conducted an extensive literature review, and consulted with
numerous experts. For our first two objectives, we analyzed data from the
Survey of Income and Program Participation (SIPP), a nationally
representative dataset.3 For our third objective, we developed a statistical
model to estimate the effects of events occurring later in life, such as a
decline in health and widowhood, on income and assets using data from
the Health and Retirement Study (HRS), a nationally representative
dataset that tracks Americans age 51 years or older over time.4 We
assessed the reliability of selected SIPP and HRS data and found that, for
the purposes of our analysis, the data that we analyzed were sufficiently
reliable. Finally, to identify policy options that could increase retirement
income security among women, we conducted an extensive literature
review and interviewed a range of experts in the area of retirement
income security.5

We conducted this performance audit from March 2011 through July 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.

 Specifically we used data from the 1996, 2001, 2004, and 2008 SIPP panel surveys,
which are administered over a period of several years.
 We used all years of HRS data, including early release data for 2010. For more details on
our methods, see GAO-12-699.
 To ensure that we obtained a balanced perspective, we interviewed experts with a range
of perspectives and from different types of organizations including government, academia,
advocacy groups, and the private sector. See the full report for more details.

Page 2                                                                       GAO-12-825T
Mr. Chairman, the following summarizes our findings on each of the four
issues discussed in our report:

Over the last decade, working women’s access to and participation in
employer-sponsored retirement plans have improved relative to men.6 In
fact, from 1998 to 2009, women surpassed men in their likelihood of
working for an employer that offered a pension plan—largely because the
proportion of men covered by a plan declined (see fig. 1). Furthermore, as
employers have continued to terminate their defined benefit plans and
switch to defined contribution plans, the proportion of women who worked
for employers that offered a defined contribution plan increased.
Women’s higher rates of pension coverage may be due to the fact that
they are more likely to work in the public and nonprofit sectors and
industries that offer coverage, such as health and education.

Figure 1: Proportion of Working Women and Men with Employers That Offered Any
Type of Pension Plan and Defined Contribution Plans Specifically

Note: Percentage estimates in this figure have 95 percent confidence intervals that are within +/- 1
percent of the estimate itself.

 The statistics we present on employer-plan coverage, eligibility, and participation; income
levels and composition; and poverty rates are point estimates computed from the SIPP

Page 3                                                                                   GAO-12-825T
Despite women’s greater likelihood of having an employer that offered a
pension plan, they were slightly less likely to be eligible for and to
participate in those plans. Although women’s eligibility rates generally
increased over time, by 2009 there remained a 4 percentage point gap
between men and women in terms of eligibility. Of those who were
eligible to participate in their employer’s pension plan, women had lower
rates of participation than men. This gap, however, diminished over time
as men’s participation rates declined (see fig. 2). Women who were
eligible to participate in a defined contribution plan were less likely to
participate for a variety of reasons, including that they made less money,
on average, were more likely to work part-time, and were more likely to
be single parents. Finally, women who participated in a defined
contribution plan contributed to their plans at lower levels than men.

Figure 2: The Proportion of Eligible Women and Men That Participated in Any Type
of Employer-Sponsored Pension Plan or in Defined Contribution Plans (among the
Population That Was Eligible for a Plan)

Note: Percentage estimates in this figure have 95 percent confidence intervals that are within +/-2
percent of the estimate itself.

Women age 65 and over consistently had less retirement income on
average and had higher rates of poverty when compared to men despite
the fact that the composition of their income did not vary greatly over time.
Specifically, the share of household income women received from earnings
increased from 14 percent in 1998 to 16 percent in 2010, but was
consistently lower than the share of household income men received from

Page 4                                                                                  GAO-12-825T
earnings. Moreover, women’s median income was approximately 25
percent lower than men’s over the last decade, and the poverty rate for
women in this age group was nearly two times higher than men’s in 2010.
Income levels and poverty rates did, however, vary by demographic group.
Groups with the lowest median incomes and highest poverty rates included
women who were not married, over the age of 80, and non-White (see fig.
3). The composition of women’s income varied only slightly over time, in
part, because their main sources of income—Social Security and defined
benefit plans—were shielded from fluctuations in the market.

Figure 3: Poverty Rates by Demographic Categories in 2010 for Women and Men
Age 65 and Over

Note: Estimates for men and women include spousal income. Percentage estimates of poverty rates
have 95 percent confidence intervals that are within +/-1 percent for the category for the entire U.S.;
+/-1 percent for married, +/-2 percent for widowed, +/-3 percent for divorced, +/-12 percent for
separated, and +/-6 percent for never married individuals; +/-2 percent for all age-categories; +/-1
percent for Whites, +/-4 percent for Blacks, +/-5 percent for Hispanics, and +/-8 percent for Asians.

Page 5                                                                                    GAO-12-825T
Divorce, the death of a spouse, and unemployment all had detrimental
effects on the total household assets and income for men and women
nearing or in retirement (see table 1), and divorce and widowhood had
more pronounced effects for women than for men.7 For example, after a
divorce or separation, women’s household income fell by 41 percent, on
average, almost twice the size of the decline that men experienced. As a
result of becoming widowed, women’s household income fell by 37
percent while men’s only fell by 22 percent. These effects may help
explain why elderly women have lower average incomes than men and
are more likely to live in poverty. We also found, not surprisingly, that a
decline in health after age 50 had a negative effect on household assets
and income, for both men and women.

Table 1: Estimated Effects of Life Events on Household Assets and Income by

Percent change
                                       Total household assets              Total household income
                                           Women                 Men           Women                 Men
                                                        a            a                a,b
    Became divorced or                            -41            -39              -41               -23a,b
    Became widowed                               -32a,b         -27a,b            -37a,b            -22a,b
                                                        a            a                  a
    Became unemployed                              -7              -7                -9                -7a
    Health declined                                -8a           -10a                -4a               -3a
Source: GAO analysis of HRS data.

Notes: We used statistical models to estimate the percent change in total household assets and
income that occurs for an individual after a life event, relative to an individual that did not experience
that life event. Total assets and income for the household were applied to each individual in the
household. The estimated effects represent the average percent difference in household assets and
income between all survey periods in which the household does experience an event and all survey
periods in which the household does not experience an event. The event may have occurred in any
year after the household entered the survey. Individuals in our sample were over age 50.
Estimate is significantly different from zero.
Difference between women and men is statistically significant.

 We estimated these effects using fixed-effects panel regressions with HRS data.
Because this analysis pertains to individuals over the age of 50, these effects may not be
generalizable to younger cohorts as women’s labor force participation and,
correspondingly, their assets and income, have changed over the last several decades.
Our report also examined the effects of helping parents financially or with personal
activities, but did not find statistically significant negative relationships.

Page 6                                                                                      GAO-12-825T
Experts we interviewed identified 22 existing policy options that could
address some of the challenges women face in attaining a secure
retirement and help decrease the risk of elderly women living in poverty.8
These policies can be categorized into six broad policy goals (see table
2). For example, one set of options would expand the use of existing tax
incentives, such as the automatic IRA, to encourage women to save more
for retirement during their working years. Another set of options would
help ensure income adequacy in retirement by, for example, providing an
additional Social Security benefit to beneficiaries over the age of 80 or 85.
All of these options could benefit men as well. At the same time, however,
all of the options have cost implications that would need to be considered
before they are implemented. For example, as with any federal spending
program, any option that results in reduced or deferred federal tax
revenue may require an offset, such as raising revenue elsewhere or
cutting spending. While the federal government could bear some of these
costs, workers and plan sponsors could be responsible for others. Lastly,
some options may require legislative changes.

Table 2: Policy Goals for Enhancing Women’s Retirement Income Security

 Expand the use of existing tax Incentives to save for retirement
 Expand eligibility and opportunities to accumulate Social Security credits
 Expand access to retirement savings and strengthen spousal protections
 Expand opportunities for saving later in life and delay Social Security benefit receipt
 Ensure lifetime income
 Ensure income adequacy
Source: GAO analysis of literature and expert interviews.

In conclusion, retirement security continues to be a national dilemma for
both women and men. Recent economic volatility, coupled with the
continued shift toward defined contribution plans, exposes all workers to
more financial risk than in previous generations. Our work highlights,
however, that women face a unique set of circumstances that warrant
special attention. Women may have a more difficult time saving for
retirement and avoiding poverty late in life, partly due to the fact that they
have a greater likelihood of being single, living longer, taking time out of
the workforce to care for family members, and having lower average

 For a detailed list of policy options, see the full report, GAO-12-699.

Page 7                                                                           GAO-12-825T
earnings when they are in the workforce. Further, our findings show that
for recent generations of older women, late-in-life events, such as
widowhood and divorce, can have devastating effects on women’s
income and asset levels. According to the experts we consulted, many
options exist for addressing the challenges women face, ranging from
changes to Social Security to altering the pension system. While each
option would require trade-offs and difficult choices, they could benefit
both women and men and ultimately provide opportunities to improve the
retirement security of many Americans.

Chairman Kohl, Ranking Member Corker, and Members of the
Committee, this concludes my prepared statement. I would be happy to
answer any questions you or other members of the committee may have
at this time.

Page 8                                                         GAO-12-825T
Appendix I: GAO Contact and Staff
                  Appendix I: GAO Contact and Staff


                  Barbara D. Bovbjerg (202) 512-5491 or bovbjergb@gao.gov
GAO Contact
                  In addition to above, Charles Jeszeck, Michael Collins, Erin M. Godtland,
Staff             Jennifer Gregory, Alicia Atkinson, Kathy D. Leslie, James Rebbe, and
Acknowledgments   Shana Wallace made valuable contributions to this testimony.

                  Page 1                                                         GAO-12-825T
This is a work of the U.S. government and is not subject to copyright protection in the
United States. The published product may be reproduced and distributed in its entirety
without further permission from GAO. However, because this work may contain
copyrighted images or other material, permission from the copyright holder may be
necessary if you wish to reproduce this material separately.
GAO’s Mission         The Government Accountability Office, the audit, evaluation, and
                      investigative arm of Congress, exists to support Congress in meeting its
                      constitutional responsibilities and to help improve the performance and
                      accountability of the federal government for the American people. GAO
                      examines the use of public funds; evaluates federal programs and
                      policies; and provides analyses, recommendations, and other assistance
                      to help Congress make informed oversight, policy, and funding decisions.
                      GAO’s commitment to good government is reflected in its core values of
                      accountability, integrity, and reliability.

                      The fastest and easiest way to obtain copies of GAO documents at no
Obtaining Copies of   cost is through GAO’s website (www.gao.gov). Each weekday afternoon,
GAO Reports and       GAO posts on its website newly released reports, testimony, and
                      correspondence. To have GAO e-mail you a list of newly posted products,
Testimony             go to www.gao.gov and select “E-mail Updates.”

Order by Phone        The price of each GAO publication reflects GAO’s actual cost of
                      production and distribution and depends on the number of pages in the
                      publication and whether the publication is printed in color or black and
                      white. Pricing and ordering information is posted on GAO’s website,
                      Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
                      TDD (202) 512-2537.
                      Orders may be paid for using American Express, Discover Card,
                      MasterCard, Visa, check, or money order. Call for additional information.
                      Connect with GAO on Facebook, Flickr, Twitter, and YouTube.
Connect with GAO      Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts.
                      Visit GAO on the web at www.gao.gov.
To Report Fraud,
Waste, and Abuse in   Website: www.gao.gov/fraudnet/fraudnet.htm
                      E-mail: fraudnet@gao.gov
Federal Programs      Automated answering system: (800) 424-5454 or (202) 512-7470

                      Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-
Congressional         4400, U.S. Government Accountability Office, 441 G Street NW, Room
Relations             7125, Washington, DC 20548

                      Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800
Public Affairs        U.S. Government Accountability Office, 441 G Street NW, Room 7149
                      Washington, DC 20548

                        Please Print on Recycled Paper.