An Overview of the U.S. Pension System

Knowledge for getting the most from the advinda Premium goNorth America Pension & Insurance Package.

Population: 318.9 million

Pension system design

The U.S. pension system consists of three pillars:

  1. public pension
  2. occupational pensions
  3. private pensions

Public Pension

  • OASDI – Old-Age, Survivors, and Disability Insurance program: largest income-maintenance program in the United States (96% of jobs covered)
  • Workers finance program through a payroll tax; revenues are deposited in two trust funds (the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund) which pay benefits and the operating expenses of the program
  • Eligibility and benefit amounts determined by workers’ contributions
  • Employers match employee contributions, self-employed workers pay an amount equal to the combined employer-employee contributions
  • “Social security retirement credits” are collected during working life, maximum 4 credits per year, in 2017 receipt of one credit for each USD 1,300 earnings
  • 40 credits in total necessary to receive full retirement benefits
  • Supplemental Security Income (SSI): Federal income supplement program funded by general tax revenues (not Social Security taxes): designed to help aged, blind and disabled people with little or no income; provides cash to meet basic needs.

The statutory retirement age depends on the retiree’s year of birth and lies between 65 (people born 1937 or earlier) and 67 (born 1960 or later). However, benefits can be received from 62 to 70.

Occupational Pensions

  • Are voluntary and managed through the employment relationship
  • Many employers provide individual “401(k)” plans allowing employers and employees to pay no tax on money that is saved in the fund until an employee retires
  • In private industry 60% of the workforce has access to retirement plans
  • 51% of the total workforce is integrated into any kind of pension plan; the entire sum is less than the individual items because some employees participate in both types of plans
  • Lump-sum payments, installment payments for a fixed number of months and annuities are available distribution methods. It is also possible to defer any payment until a certain age.

Private pensions

Private pension investments equivalent to: 132.9% of GDP (2015)

Private pension assets 2015: $23,860,553.0 million USD (all forms of private investment with a value associated to a pension plan over which ownership rights are enforced by institutional units, individually or collectively. This indicator is measured in millions of USD; source: OECD)

 Pension funds’ assets 2015: $14,248,586.0 million USD (assets bought with the contributions to a pension plan for the exclusive purpose of financing pension plan benefits. The pension fund is a pool of assets forming an independent legal entity. This indicator is measured in millions of USD; source: OECD)

Net pension replacement rate 2014: 44.8% (individual net pension entitlement divided by net pre-retirement earnings; measures how effectively a pension system provides a retirement income to replace earnings. This indicator is measured in percentage of pre-retirement earnings by gender; source: OECD)

Sources:

The Organisation for Economic Co-operation and Development (OECD) – http://www.oecd.org

U.S. Government – https://www.usa.gov/retirement

U.S. Social Security Administration – https://www.ssa.gov/

Wikipedia – https://en.wikipedia.org/wiki/United_States_labor_law#Pensions

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