To deal with the costs of aging, many countries have initiated significant pension reforms, aiming largely at containing the growth in the number of pensioners--typically by increasing retirement ages or tightening eligibility rules--and reducing the size of pensions, usually by adjusting benefit formulas
. Since the 1980s, public pension expenditure per elderly person as a percent of income per capita--the so-called economic replacement rate--has been about 35%.
IRS Told to Look at Cash Balance Plan Benefit Formulas
In 2010, the amount of money being spent began to exceed the amount of money being taken in and it's now estimated that the trust funds will be depleted by 2034, or earlier, unless Congress changes the benefit formulas
, raises the payroll tax or makes other changes, such as raising the cap on taxable wages above $118,500.
In a small number of cases where CAFR data is unavailable, I estimate the benefits payable to new public retirees using salary data and benefit formulas
available in pensions' annual actuarial valuations.
In the advanced economies these consist mainly of parametric reforms to existing systems, such as extending the statutory retirement age to reflect increasing life expectancies, reducing eligibility and adjusting benefit formulas
by reducing accrual rates, tightening eligibility rules and altering indexing rules.
Generally, the changes involved: 1) increasing employee contributions; 2) lowering benefit formulas
for newly hired employees; and 3) reducing postretirement cost-of-living adjustments.
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Legislators can change eligibility requirements, adjust benefit formulas
, or modify other factors on the margins to impact spending on mandatory programs.
Among women, the more highly-educated work longer, as do those with employer-provided pensions or health insurance, though having a defined benefit pension is associated with earlier retirement, likely because of the incentives imbedded in the benefit formulas
. Job characteristics such as stress or physical demands do not predict exit.
Department of Agriculture's (USDA) total outlays of about $129 billion was used to fund mandatory spending programs--programs with at least some spending that is controlled through eligibility rules, benefit formulas
, and other parameters that are set in law other than appropriations acts.
We use the benefit formulas
of pension plans to estimate the pension wealth of individual teachers.
However, these conversions are generally detrimental to older employees, since they occur just as these workers are reaching the age where the defined benefit formulas
began to sharply raise the value of their future pension payouts.