Unequal same-sex retirement benefits hurt you--or do they?

Overview:

THE IMPACT OF INEQUALITY FOR SAME-SEX PARTNERS IN EMPLOYER-SPONSORED RETIREMENT PLANS

Description:

THE IMPACT OF INEQUALITY FOR SAME-SEX PARTNERS IN EMPLOYER-SPONSORED RETIREMENT PLANS
Executive Summary
Planning for retirement is a universal concern of American workers, regardless of their ages. But certain groups of workers must plan for the financial challenges of retirement in a context of unequal access to the institutions and public programs that help workers save for and manage that phase of their lives. Gay, lesbian, and bisexual employees (among other disadvantaged groups) face challenges that reflect employer practices and legal institutions that create a context of inequality. In particular, the lack of legal recognition for the same-sex partners of employees results in unequal treatment in employers’ retirement plans.
This report analyzes the impact of unequal treatment of same-sex partners in the context of retirement plans and estimates the cost for employers of adopting a policy of equal treatment. The focus of this report is retirement income rather than health care provision for retirees and their families. Our goal is to address several key issues for same-sex couples as they plan for retirement. We find that same-sex couples face inequalities when it comes to their ability to accumulate wealth, plan for their futures, and pass on wealth.
The characteristics of all same-sex couples provide a mixed picture for predicting their retirement savings and wealth. While some of the characteristics indicate that they would have less retirement savings and wealth than different-sex married couples, other indicate they would have more. Current research suggests:
 Same-sex couples are less likely to own their homes than are different-sex married couples, and homes comprise the largest component of wealth for most Americans during retirement.
 Individuals in same-sex couples may have longer employment histories which would suggest greater retirement income. In particular women in same-sex couples have longer work histories than women in different-sex married couples.
 Individuals in same-sex couples have high levels of education. Because education is related to retirement savings and wealth, this would suggest that same-sex are more likely to save for retirement and have higher overall savings.
Women in same-sex couples are disadvantaged in terms of employment that provides employer-sponsored pension plans.
 Only 50% percent of female same-sex couples have at least one member eligible for an employer-sponsored retirement plan compared to 56% of different-sex married couples and 79% of male same-sex couples.
 Rates of participation in employer-sponsored plans also vary by couple type: only 46% of female same-sex couples have at least one member participating in an employer-sponsored plan compared to 52% of different-sex married couples and 69% of male same-sex couples.
Female same-sex couples over 65 have almost 20% ($12,000) less income than different-sex married couples. The gender gap in wages and retirement savings compared to men means that female same-sex couples are severely disadvantaged when compared to different-sex couples and male same-sex couples. Using data from the Survey of Consumer Finance and the American Community
Survey, we find that female same-sex couples over 65 are disadvantaged in each of the three main sources of retirement income for most Americans – social security, retirement plans, and income from interest, rentals, and dividends.
 Female same-sex couples rely most heavily on social security income as a percent of their overall income. For couples in which both members are ages 65 and older, social security comprises 36% of female same-sex couples’ income, 33% of different-sex married couples’ income, and 31% of male same-sex couples’ income.
 On average, female same-sex couples over 65 receive 15% less ($2,800) in social security benefits than different-sex married couples.
 They are also 10% less likely than different-sex married couples over 65 to have any income from retirement plans or accounts. On average, their income from these sources is almost 27% less ($3,575) than different sex-married couples over 65.
 They are 21% less likely to have any income from interest, rentals and dividends than different-sex married couples over 65.
As a result, elderly female same-sex couples rely more on public benefit programs and continuing to work to maintain their household incomes.
 Female same-sex couples over 65 are 70 to 80% more likely to have income from SSI and public assistance than different-sex married couples.
 Female same-sex couples also rely more heavily on wage income than do other couples.
Male same-sex couples have higher income during retirement, but are less likely to have income from retirement plans and are more likely to have wage income and interest income.
 Male same-sex couples with at least one member age 65 or older are 21% less likely to have retirement income than are different-sex married couples.
 Male same-sex couples are 60% more likely to have wage income than different-sex married couples.
Same-sex couples are unable to access social security spousal and survivor benefits. Because the federal government does not recognize same-sex relationships, same-sex couples are not eligible for spousal or survivor benefits from social security. Surviving same-sex partners who have lower benefits than their deceased same-sex partner lose out on more than $5,700 each year in survivor benefits that different-sex married couples are able to access.
Same-sex couples are treated differently than different-sex married couples in terms of employer-sponsored retirement plans. Because the federal government does not recognize the same-sex partners of employees as spouses, employees with same-sex partners are treated like their single counterparts. For those employees with defined benefit plans, employees with same-sex partners do not have the option of selecting a Qualified Pre-Retirement Survivor Annuity (QPSA) or a Qualified Joint and Survivor Annuity (QJSA) to provide benefits to their partners in the case of their death.
The costs to employers of treating same-sex couples equally in retirement plans are minimal.
 For employers offering defined benefit plans, the costs of allowing employees with same-sex partners to opt for survivor benefits are small, primarily the administrative costs of amending plan and associated documents and of longer payout schedules.
 In the case of a defined contribution plan, the only costs associated with treating same-sex partners equally is the cost of amending the plan and any associated documents.
The Pension Protection Act (PPA) has moved the treatment of same-sex couples closer to the treatment of married couples in the context of the taxation of retirement assets, but inequalities still exist. The PPA permits withdrawals from retirement savings for hardships experienced by any designated beneficiary of certain kinds of retirement accounts, including a same-sex
partner. It also created a new mechanism for passing eligible retirement plan assets from individuals to nonspouses, including same-sex partners. However, same-sex partners are still disadvantaged:
 Spousal beneficiaries are permitted to wait until they reach age 70½ to begin making withdrawals from their deceased spouse’s retirement account. Nonspousal beneficiaries, including same-sex partners, on the other hand, must begin taking withdrawals immediately upon the death of their partner.
 The PPA did not make hardship withdrawals for nonspousal beneficiaries mandatory, so some employers may not offer these to their employees.
The inequalities facing same-sex couples are substantial when it comes to their ability to accumulate wealth, plan for their futures, and pass on wealth. These inequalities are particularly significant for female same-sex couples. Existing inequalities in income as well as structural mechanisms that reinforce discrimination have long-term implications for same-sex couples and their families. Until state and federal laws, including the Defense of Marriage Act, change to protect same-sex couples from discrimination both in the workplace and in the tax system, couples may need to take extra caution when planning their financial futures.

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Date added:

Wednesday, 10 Mar 2010