Improving Women’s Retirement Security

By Anna Rappaport
Anna Rappaport is an actuary and internationally-recognized expert on the impact of change on retirement systems and workforce issues. She is also past President of the Society of Actuaries. Following a long career with Mercer Human Resource Consulting, Rappaport has established her own firm specializing in strategies for better retirement systems.

Older women confront many retirement security challenges. For one thing, women live longer than do men, so their money must stretch farther. For another, many average fewer years in the paid workforce and, when they do work, their average pay is often lower. Additionally, they are more likely to work part-time, for a lower salary. These factors all translate into lower retirement accumulations, smaller retirement payouts, and higher poverty rates in old age, as reported in a recent Society of Actuaries 2014 study “Impact of Retirement Risk on Women.”

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To help address some of these challenges, Senator Patty Murray (D-WA) recently introduced the Women’s Pension Protection Act of 2015, with co-sponsors including several Democratic women and Bernie Sanders. This is an important bill, because it makes three key recommendations:

  1. Require spousal consent for lump sum distributions from defined contribution retirement plans.The Act would improve the rights of spouses to marital retirement savings in employer-sponsored retirement savings plans like 401(k)s. The Act would also strengthen spousal rights over 401(k) account balances by requiring a spouse to consent to funds being distributed at retirement or when the employed spouse changes jobs.
  2. Expand coverage rules to require more coverage of part-time works. The Act would help long-term part-time workers to save for retirement at work, by requiring employers to make long-term part-time employees eligible to participate in defined contribution plans like 401(k)s.
  3. Provide women with information and advice to make the critical financial and investment decisions shaping their retirement security.

I believe it unlikely that this bill will be enacted in its present form, and the outlook for sensible pension reform addressing major retirement security issues is bleak in the current environment.

Nevertheless, this legislative proposal should encourage us to focus on and discuss important issues regarding retirement security. It also should remind us to identify feasible steps in the near term.

These include:

Improving spousal rights: Retirement savings earned during a marriage often comprise the couple’s most important marital asset, and often, wives end up relying more on their spouses’ savings than do husbands. Traditional defined benefit plans required spousal consent if benefits were paid in a form other than life income with continued payments to the surviving spouse after the first spouse died. Under those requirements, the continued payment was required to be at least 50% of the income payable when both were alive.

But those rules do not apply to lump sum distributions from 401(k) and other defined contribution plans unless the plan offers annuity options (and unfortunately, few do). So today, when married workers leave their jobs with defined contribution plans, they often can make unilateral decisions about their 401(k) funds. Sen. Murray’s proposed provision therefore addresses an important element of spousal protection and also removes an important barrier to offering lifetime income options.

Since women usually have lower account balances in their own pensions, it is important to have a fair sharing of the couple’s 401(k) account balances in divorce. It is also important that the household be managed so that decision making about these assets is shared.

Expanding pension coverage: Many women work part-time during some of their working years, because of family responsibilities, availability of jobs, or personal preferences. While employers often prefer part-time workers because they are less costly, they frequently do not receive retirement saving accounts. Existing U.S. federal pension legislation mandates including those persons employed at least 1000 hours per year. The Senator’s proposed bill would reduce that requirement to 500 hours a year.

Such a change would give more people access to employer-sponsored savings, but they still would need to decide to save and preserve assets for retirement. Many households have more demands on their resources than can be met, making it important to set priorities and focus on both the long and short term. Individual Retirement Accounts (IRAs) are one way people lacking employer plans can save, but they still require the discipline and future focus to establish individual accounts. A fine option for starting savers is the MyRA, a new Federal system providing a very good option for those without a plan to get started, and then eventually transitioning them into Individual Retirement Accounts.

The MyRA website includes tools and retirement calculator. Women’s Institute for a Secure Retirement also offers numerous resources to help women with modest means learn about retirement.


This piece was originally posted on January 5, 2016, on the Pension Research Council’s curated Forbes blog. To view the original posting, click here.
Views of our Guest Bloggers are theirs alone, and not of the Pension Research Council, the Wharton School, or the University of Pennsylvania.