The Transition from Wife to Widow: The Importance of Survivor Benefits to Widows

Abstract

The Retirement Equity Act of 1984 is the latest attempt by the federal government to encourage married men who are eligible for pensions to choose the joint-and-lastsurvivor option. This paper examines the importance of that choice for the well-being of widows and then estimates the effect of making a survivor benefit universal. The Retirement Equity Act of 1984 (Public Law 98-397) is the latest attempt by the federal government to encourage married workers to choose a joint-and-last-survivor pension option. Under the Employee Retirement Income Security Act of 1974 pension plans were required to offer a choice of a single-life or a joint-and-survivor annuity to married workers upon retirement, with the latter being the default form unless the worker chose otherwise. The Retirement Equity Act now requires that the spouse also consent when the joint-and-survivor annuity is declined. Both pieces of legislation were designed to lead to a more equal sharing of resources across the life of both marriage partners, thus reducing the disproportionate burden of poverty carried by aged widows.' Pension regulation clearly can force greater use of joint-and-survivor annuities. Yet, despite a decade of legislation concerning this issue, little solid Assistant Professor, Department of Economics at Western Kentucky University. Professor, Department of Economics at Vanderbilt University. Senior Research Scientist, Institute for Research on Poverty at University of WisconsinMadison. This work was supported in part by grants from the U.S. Department of Health and Human Services (No. 84ASPE133A) and from the AARP Andrus Foundation. Additional support for computational work was provided by the Center for Demography and Ecology at the University of Wisconsin-Madison. All opinions expressed in this paper are solely those of the authors. 'Today the incidence of poverty is no greater among the aged than it is among the population as a whole (Danziger, van der Gaag, Smolensky, and Taussig, [5]). But over one-quarter of all widows aged 65 and over are poor (U.S. Bureau of the Census, [11]). Widows accounted for over one-half of all the aged poor, a large percentage of whom had not been poor while married (Holden, Burkhauser, and Myers, [7]). This content downloaded from 157.55.39.105 on Fri, 07 Oct 2016 04:26:54 UTC All use subject to http://about.jstor.org/terms The Transition from Wife to Widow 753 evidence is available to pinpoint either the degree to which couples willingly shared resources across time or the importance that joint-and-survivor annuities played in this sharing. For this reason it is difficult to evaluate the potential for either ERISA or REA to affect the well-being of widows. This paper traces the well-being of women before and after the death of their husbands and measures the difference that pension coverage and the choice of pension options made on their income and poverty incidence. To put into perspective the degree to which the regulation of the pension option choice would have affected the well-being of these women, a simulation is performed to measure the impact on income and poverty rates of the universal acceptance of a joint-and-survivor pension option.