#1. A Massive Swell of Retirees will Stretch your Administrative Capabilities to the Limit
This is the obvious one.
From 1946 to 1964, approximately 80 million children were born in America. These ‘baby boomers’ as they were called are now reaching retirement age. Given that life expectancy has increased by an average of about 15 years since 1940, boomers stand to make a big impact on public retirement systems.
Not only will public pension funds see a dramatic spike in administrative needs as these individuals retire, but this increased demand for pension services will be sustained over a longer period of time.
Going forward, public retirement systems can expect to see a dramatic rise in:
- Demand for financial planning
- Retirement estimates
- Application processing
- Payees (meaning more adjustments, account maintenance, withholding & tax reporting)
- Income verifications and means-based income evaluations
- Disability claims, appeals, reexaminations
- New enrollments
- Death processing, survivor benefits, and overpayments
- Higher internal turnover (as your employees join the ranks of pensioners themselves
#2. Managing the Memberships of Baby Boomers will be More Complicated
The Baby Boomers saw radical changes in societal norms throughout their lives. Social movements redefined the possibilities for large groups of Americans while individuals embraced revelations about personal freedom.
Divorce climbed from under 15% in 1940 to over 50% in 2000. During the same period, personal savings slipped from nearly 12% to under 1%. In short, some aspects of life got more complicated. As a result, retirement systems have a lot more administrative challenges to respond to, including:
- Frequent court orders and divisions of marital property
- More child support levies
- Demand for multiple life joint and survivorships
- Period-based beneficiaries (joint claims)
- Pension borrowing to reduce pre-retirement debt
- Postponed retirements due to high individual debt
- Requests for late-life breaks in service for elder care
- Faster adoption of means-tested reform
- Late-career sabbaticals
#3. Baby Boomers will Assume Greater Economic and Political Power
From Age Power: How the 21st Century Will be Ruled by the New Old by Ken Dychtwald comes this statement on the characteristics of retiring baby boomers:
“In the decades ahead, the boomers will complete America’s transformation into a gerontocracy as they take control of the nation’s social and economic power. From this demographically and politically dominant position, they will have the potential to realize their full intellectual, social, and political influence, not as baby-boomers but as elders.”
In their golden years, boomers have the potential to apply increased pressure on political and economic policy, the effects of which could trickle down into public pension funds. Possibilities for change include:
- Increased support for peripheral benefits such as life insurance, supplemental savings plans, health care savings plans, and long-term care
- Convergence of health care and pension benefits
- Labor negotiations shift toward pension benefits as their membership ages
- Blurred distinction between employment and pension benefits
- Changes to investment policy
#4. Retirement and Health Care will be Reformed
Ken Dychtwald continues:
“In their youth, boomers were self-indulgent in their priorities. In their late teens and twenties, many shared an idealistic commitment to society. During the past several decades of career building and child rearing, many of their earlier ideals have been submerged. As boomers shed the skin of youth, however, they could be migrating into the most powerful years of their lives.”
As the idealists of the 60s and 70s once again find themselves with the time and energy to dedicate to activism and volunteerism, they could affect big changes in the political landscape. America could be poised for major reforms as education, Social Security, Medicare, Health Care, long-term care, and pension policy all come into the crosshairs of this aging—and sizable—demographic. Any of the following could be possible as a result:
- Plan redesign: DROP, PLOP, War, partial retirement, ‘rehirements’, and others
- Multiple pension accounts and benefit accrual
- Increased demand and awareness for social investment policy
- Age discrimination lawsuits (e.g., Rule of 90)
- Benefit-based compensation packages in lieu of salary
- Raised age for full retirement
Exactly how the Age Wave will affect public pension systems remains to be seen, but when the water meets the shore be sure that the impact will be felt. With that being said, what are your thoughts on the Age Wave?
Do you agree/disagree with the suppositions above? What potential effects of the Age Wave do you foresee as having an effect on public pension systems? How is your organization preparing? What, if any, strategies are you employing to mitigate the foreseen risks?
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About Sagitec Solutions:
Sagitec Solutions, LLC designs and delivers tailor-made pension, provident fund, and unemployment insurance software solutions to clients of all sizes. Sagitec has the expertise necessary to help their clients achieve strategic business objectives, enhance service offerings, and lower operating costs. Find further information by visiting http://www.sagitec.com. For more information, contact Rick Deshler at (651) 335-3406 or at rick.deshler@Sagitec.com.