Income Data for Policy Analysis: A Comparative Assessment of Eight Surveys. Retirement Income

12/23/2008

Traditional employer-provided pension plans, known as defined benefit plans, are giving way to other forms of retirement plans, in which an employer may pay a pre-tax contribution to an employee retirement account (a defined contribution plan) or match an employee’s own contributions. In addition, a number of retirement savings vehicles have been established by Congress to allow individuals to provide for their retirement separately from what their employers may provide. While many of these non-traditional plans have been around for decades, surveys that collect income data have been slow to develop ways to capture income from such plans. It is notable, for example, that none of the eight surveys collects information on defined contribution retirement benefits that compares with the information collected on income received from traditional pension plans. In part this can be traced to divided opinions among economists on how to treat the deferred income that retirees will obtain from these sources.

The CPS income concept includes regular withdrawals from Individual Retirement Accounts (IRAs) as well as Keogh and 401(k) accounts but excludes lump-sum payments from these or other types of retirement plans.54 The CPS captures a modest $3.3 billion from this source. SIPP collects both regular and lump-sum payments from IRA, Keogh, and 401(k) accounts in separate items and also collects lump-sum retirement payments. We have included only the regular payments in SIPP income for comparative purposes, but it is possible to examine how much additional income would be added if lump-sum payments were included and how this income would affect the distribution of persons by poverty class.

MEPS requests income from payments from IRA, Keogh, or 401(k) accounts without differentiating between regular and lump-sum payments. We did not include this component of MEPS income in our comparative analysis because the amount of income captured by the MEPS variable was nearly 20 times the $3.3 billion in regular IRA withdrawals captured in the CPS, suggesting that nearly all of the income captured in the MEPS variable was outside the CPS concept. However, we can examine how much additional income would be added if we included this additional source and, like SIPP, how it would affect the distribution of persons by poverty class.

The regular IRA, Keogh, and 401(k) payments picked up by SIPP and which we include in SIPP income add $18.7 billion to the total (Table V.16). Adding lump-sum payments from these same sources would add another $12.6 billion. Adding lump-sum payments from other pension or retirement plans would add only $4.1 billion. Including regular IRA, Keogh, and 401(k) payments has a very small effect on the number of poor. The number of poor is reduced by 30,000 (.03 million) compared to the number we would observe if this source were excluded. Were we to include lump-sum payments from IRA, Keogh, and 401(k) accounts as well as pension and retirement plans in SIPP income, the number of poor would be reduced by only another 30,000 while the number of people at 400 percent of poverty or more would be increased by 400,000.

MEPS captures more than twice as much income from IRA, Keogh, and 401(k) accounts as SIPP:  $65.6 billion (Table V.17). If income from this source were to be included in MEPS income, the estimated number of poor would be reduced by 410,000 while the number of persons with family incomes above 400 percent of poverty would be increased by 1.83 million. These effects are substantially larger than what we estimated for SIPP. Nevertheless, the estimated poverty rate would be reduced by only 0.1 percent.

TABLE V.16: IMPACT OF INCLUDING NON-REGULAR IRA AND LUMP-SUM PENSION INCOME IN TOTAL INCOME: SIPP
Income Definition <100% 100% to <200% 200% to <400% 400% or More Total
Number of Persons (Millions)
Excluding all IRA/Keogh/401(k) Income 33.28 56.53 98.57 92.70 281.08
With Regular IRA/Keogh/401(k) Payments1 33.25 56.25 98.37 93.22 281.08
Adding Remaining IRA/Keogh/401(k) Payments 33.24 56.11 98.21 93.52 281.08
Adding Lump Sum Pension/Retirement Income2 33.22 55.99 98.25 93.62 281.08
Incremental Impact on Number of Persons (Millions)
Excluding all IRA/Keogh/401(k) I ncome 0.00 0.00 0.00 0.00 0.00
With Regular IRA/Keogh/401(k) Payments1 -0.03 -0.28 -0.21 0.52 0.00
Adding Remaining IRA/Keogh/401(k) Payments -0.01 -0.14 -0.15 0.30 0.00
Adding Lump Sum Pension/Retirement Income2 -0.02 -0.12 0.03 0.10 0.00
Total Income ($Billions)
Excluding all IRA/Keogh/401(k) Income 113.8 482.6 1,608.2 3,542.8 5,747.5
With Regular IRA/Keogh/401(k) Payments1 113.7 479.9 1,605.6 3,566.9 5,766.2
Adding Remaining IRA/Keogh/401(k) Payments 113.7 478.6 1,603.9 3,582.7 5,778.8
Adding Lump Sum Pension/Retireme= nt Income2 113.6 477.6 1,603.4 3,588.3 5,782.9
Incremental Impact on Total Income ($Billions)
Excluding all IRA/Keogh/401(k) Income 0.0 0.0 0.0 0.0 0.0
With Regular IRA/Keogh/401(k) Payments1 -0.13 -2.70 -2.60 24.14 18.71
Adding Remaining IRA/Keogh/401(k) Payments -0.04 -1.32 -1.71 15.72 12.64
Adding Lump Sum Pension/Retirement Income2 -0.07 -0.97 -0.51 5.68 4.12

Source:   Mathematica Policy Research, from tabulations of calendar year 2002 income from the 2001 SIPP panel

1.Corresponds to SIPP estimates in comparative tables.

2.Regular pension and retirement income is included in all of the estimates.

TABLE V.17: IMPACT OF ADDITION OF IRA INCOME TO TOTAL INCOME: MEPS
Estimate < 100% 100% to <200% 200% to <400% 400% or More Total
Number of Persons (millions) Without IRA Income 35.35 52.14 89.80 106.02 283.30
With IRA Income 34.93 51.31 89.20 107.85 283.30
Difference -0.41 -0.82 -0.60 1.83 0.00
Percent of Persons Without IRA Income 12.5 18.4 31.7 37.4 100.0
With IRA Income 12.3 18.1 31.5 38.1 100.0
Difference -0.1 -0.3 -0.2 0.6 0.0
Billions of Dollars Without IRA Income 110.0 458.7 1,473.2 4,215.8 6,257.7
With IRA Income 108.6 451.1 1,463.3 4,300.3 6,323.4
Difference -1.4 -7.5 -9.9 84.5 65.6

Source: Mathematica Policy Research from tabulations of calendar year 2002 income from the 2002 Full-year Consolidated MEPS-HC.

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