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In response to a congressional request, GAO prepared information on retirement programs in the nonfederal sector by estimating the levels of benefits at retirement that selected nonfederal programs provide to employees by age, years of service, and salary levels. GAO found that benefit formulas for nonfederal pension plans vary considerably; therefore, it calculated the benefit amounts produced by the formulas as a percentage of final salary. GAO found little difference in the average pension plan benefits available to retirees at age 65 and age 62 when years of service and salary levels were equal. Pension plan benefits for employees retiring at age 55 with 30 years of service ranged from 72 to 84 percent of the benefits they would have received if they had retired at age 62 with the same years of service and salary levels. In state government pension plans, age 55 benefits were about 85 percent of the benefit amounts at age 62 with the same years of service and salary levels. In addition, GAO found that state government pension plans provided higher average benefits than private sector pension plans. Finally, GAO found that the capital accumulation plan component of a typical private sector retirement program can add substantial retirement benefits to participating employees. A 30-year career employee who contributes to the plan can supplement his pension and social security benefits by 16 percent or more of his final annual salary. Since states generally do not match employee contributions in their plans, GAO did not calculate any thrift plans for them. Therefore, the combined benefits for state employees were less than those received by private sector employees who participate in thrift plans.
Features of Nonfederal Retirement Programs
In response to a congressional request, GAO obtained information on retirement programs in the nonfederal sector to assist in the design of a new civil service retirement system. Using selected surveys, GAO analyzed the pension and capital accumulation portions of nonfederal programs. In reviewing surveys of private sector pension plans, GAO found that vesting usually occurs at 10 years of service. The prevailing private sector practice is to coordinate or integrate the pension plan with social security. In contrast, most states add pension plan benefits to social security with no integration. The method most often used when pension plans are integrated with social security is to offset the amounts that the plans would otherwise pay by some portion of social security benefits. Some nonfederal sector pension plans provide the same benefit amounts for each year of service to all employees. However, the majority of employees are in plans that apply benefit formulas to the average salary earned in the employees' final years of employment to calculate benefit amounts. Very few private sector pension plans require employee contributions. By contrast, state plans generally require employee contributions. Overall, the studies showed that the earliest age at which the majority of employees retired in the private sector with unreduced pension benefits was age 62. In addition, nonfederal employers also provide cost-of-living increases to retirees' pensions and may also provide disability and survivor benefits. The studies showed that most private sector employers provide capital accumulation plans as part of their retirement income program. Finally, GAO found that tax-sheltered deferred compensation plans authorized by the Internal Revenue Code are achieving popularity in the private sector.