U.S. Trails Other Nations in Retirement Income as Percent of Working Salery
Private and public systems worldwide stressed as boomers near retirement

Submitted by Towers Perrin

Americans who retire today with a final base pay of $100,000 can count on a post-retirement income of only $65,000, which puts them behind comparable retiring workers in more than seven other nations, according to a new report released by global management-consulting firm Towers Perrin.

At all income levels, American retirees and their companies, as well as those in the 16 countries included in the study, face an uncertain future. According to the report, "Retirement Income Around the World," private retirement-plan assets already control nearly one-quarter of the total world equity capitalization, while the unfunded liabilities of public-retirement programs run into the trillions of dollars. As in many countries, the U.S. Social Security system is under financial pressure, creating significant cost and intergenerational equity issues as the baby-boomer generation nears retirement.

"By the year 1040, there will be fewer than three U.S. workers paying into the system for every retiree," says Stephen Kerstein, head of Towers Perrin's international consulting practice, which conducted the research in 17 countries in North and South America, Europe, Asia and Australia. "This will cause significant financial strain that will most likely be passed on to the private sector."

Global Dilemma

Facing the same demographic problem, governments worldwide are becoming unwilling or unable to bridge the cost gap and are fueling dramatic changes in public and private retirement programs. Among the changes in private programs are the following:

• The uncoupling of traditional, defined benefit pension plans from today's shrinking Social Security-type systems.

• Managing pension assets more aggressively to maximize returns.

• Redefining retirement philosophies to encourage a greater sense of shared responsibility between employer and employee.
• Placing added emphasis on retirement plans that target capital accumulation.

The report provides worldwide data and aims to inform the American debate on the direction and nature of the nation's private and government retirement systems as Congress struggles with finding ways to ensure Social Security's viability. The United States is not alone in the problem it faces with its retirement system, according to the report, which details approaches other nations are taking to deal with the dilemma.

The study examined the current state of Social Security systems and private-retirement programs, as well as emerging issues facing employers in the United States and worldwide. It measured and compared income-replacement ratios (the ratio of retirement benefits to pre-retirement earnings) provided by public and private retirement programs.

The research shows that as other nations also face a shrinking ratio of workers to retirees, governments are modifying traditional Social Security programs--forcing greater reliance on private employer-sponsored retirement plans and individual savings.

The United States ranks fifth among nations where private plans contribute the highest percentages of total retirement incomes, based on a final base pay of $100,000. The ranking is shown in Table 1.

Current U.S. law calls for the normal retirement age for Social Security benefits to increase gradually to age 67 by 2013. However, with the ratio of workers to retirees (currently nearly four workers supporting each Social Security recipient) projected to decline by 2040 to two-to-one, the system faces an estimated deficit of $4 trillion or more over the long­term. Such projections have sparked a host of proposals to "fix" Social Security, including further increases in the normal retirement age, reductions in the current indexing formula, increases in contribution rates and even privatization of part or all of the system. Thus far, however, no consensus on solutions to Social Security's financing problems has emerged.

In other countries, Canada is responding to the added strain on its Social Security system by continuing to revise the program to strike a better balance between benefits and contributions. These changes, in turn, raise ongoing plan-design issues for employer-sponsored retirement plans, particularly for plans integrated with the Canada Pension Plan. The United Kingdom faces long-term demographic and budgetary pressures after making significant reductions in earnings-related benefits under Social Security in 1988. Although these were positioned as amendments to the benefit formula, the net impact was a reduction in benefits in the order of 20 percent.

Japan's interlocking system of public and private pension programs is one of the world's unique, highly regulated and--thanks in large part to demographic forces--most troubled retirement systems. Many private employer-sponsored pension plans are also on shaky financial ground--primarily due to largely final-pay-related liabilities, a depressed economy and investment opportunities and, until recently, a regulatory framework that required plan assets to be invested with a limited number of Japanese life insurers and trust banks. Plan sponsors in Japan have missed out on much of the strong asset performance experiences in many parts of the world in recent years.

Nations topping the United States for employees retiring in 1998 in retirement income as a percentage of final base pay of $100,000 are shown in table 2.

Towers Perrin is one of the world's largest management and human-resource consulting firms, positioned to help organizations improve performance and manage their investments in people, advising on human-resource strategy and management, organization effectiveness, compensation, benefits and communications. The firm has nearly 8,000 employees and 82 offices in 75 cities worldwide. For more information about the company, or to receive a free copy of the Towers Perrin research report on "Retirement Income Around the World," call (800) 525-6741.

Table 1

Table 2

The WMF Group, a commercial-mortgage, finance-service company based in Vienna, Va., announced that it formed a strategic business partnership with Greenwich Capital, a subsidiary of National Westminster Bank, to originate, service and securitize commercial loans. Greenwich Capital currently serves as lender for Commercial Mortgage Investment Trust Inc., a mortgage REIT managed by WMF Carbon Mesa Advisors Inc. As a result of the agreement, WMF formed WMF Funding, a new division of WMF Washington Mortgage Corp., which will be headquartered in Charlotte, N.C., and will serve as a vehicle for bringing together WMF's loan origination franchise and systems with Greenwich Capital's balance-sheet management capability and capital markets expertise. For more information, call (704) 370-5555.

The Portland office of FINOVA Realty Capital arranged a $6.8 million loan for the construction of an assisted-living facility in California. The LIBOR-based financing was arranged for a Vancouver, Wash.-based development group for the construction of Grass Valley Assisted Living, a 100-unit facility, in Grass Valley, Calif. The loan was arranged by FINOVA's Michael Wenzlick and provided through one of the company's correspondent lenders. For more information, call (877) 825-4810; Web www.finova.com.

Allied Healthcare Products Inc., a manufacturer of respiratory-care products, medical gas equipment and emergency medical products, reported a net loss, excluding a charge for a previously announced product recall, of $1 million, or 13 cents per share, for the second fiscal quarter ended Dec. 31. Including the recall, the company reported a loss of $1.9 million. Revenues for the second quarter of this fiscal year were $17.1 million, compared to $24 million in the prior-year period. For more information, call (314) 771-2400.

CareMatrix Corp., a fully integrated, assisted-living company based in New York City, announced that its board of directors has authorized a share repurchase program in which the company will offer to purchase up to one million shares of its outstanding common stock from time to time in open-market transactions. The company also announced record fourth-quarter and year-end financial results, indicating doubled revenues and nearly tripled earnings compared to 1997. CareMatrix is a provider of senior-housing services. For more information, call (212) 850-5600.

Cambridge Realty Capital LLC, a Chicago-based merchant-banking firm and a senior-housing and healthcare lender, funded a $2 million permanent mortgage loan for The Glendale, a 50-unit, assisted-living facility, in Toledo, Ohio. The 40-year HUD 232/223(a)(7) loan at 7.4 percent was provided for Chelmsford Apartment Ltd. of Toledo.

In addition, the company reported closing a record number of transactions in the fourth quarter of 1998. In the final three months of the year, the company closed 13 separate transactions totaling $32.8 million. In 1997 and 1998, Cambridge closed loans for 68 separate facilities totaling 9,811 beds. Loan volume for the company topped $266 million over this 24-month period.

In it's quarterly Healthcare & Senior Housing Finance Scorecard report, Cambridge reported that capital markets stabilized and interest rates for healthcare and senior-housing borrowers nudged closer to record lows in the closing quarter of 1998, identifying rates as low as 6.5 percent for congregate-care retirement apartments and continuing-care retirement communities. For more information, call (312) 357-1601; Web www.cambridgecap.com.

New Developments

GerAssist Inc., a provider of comprehensive, integrated healthcare services for seniors, announced the acquisition of Colleton Manor, an assisted-living facility, in Walterboro, S.C. Colleton Manor was acquired from Coastal Care Corp. and Marlin Enterprises, both of Walterboro. Marlin Enterprises is the developer of the property while Coastal has been responsible for management. Effective March 1, GerAssist changed the name of the facility to Colleton Place. Furthermore, the company will expand the number of units it currently offers. For more information, visit the company's Web site at www.gerassist.com.

Gioffre Construction Inc., a Dublin, Ohio-based general contractor specializing in commercial construction, has been contracted by Marriott International to construct Marriott Hearthside, in Clayton, Ohio. The approximately $5 million contract consists of the construction of six single-story patient buildings and one recreational building with a full-service kitchen. For more information, call (614) 764-0032.

Fountains Continuum of Care Inc. (The Fountains), an owner and manager of retirement communities, has purchased Logan Square East, a luxury high-rise retirement community located in Philadelphia. The Fountains offered $26.6 million for the 486-unit community, which has been through two bankruptcies in the past 15 years. Over the past 10 years, the company has specialized in turning around distressed retirement communities through financial restructuring, capital infusion, strong business management and market innovation.

In other news, Fountains Senior Properties of California Inc., a Fountains affiliate, purchased The Carlotta in Palm Desert, Calif. The Fountains at Carlotta, as it will now be called, is comprised of 109 retirement apartments, 22 assisted-living apartments and a health center. For more information, call June Hussey at (800) 635-9457; Web www.thefountains.com.

Walken Development Co., a Chicago-based, full-service, real-estate firm that specializes in senior and residential housing, commercial offices, retail and hotels, recently completed 65 assisted-living facilities for Assisted Living Concepts Inc. (ALC). Walken has supported ALC's national roll-out program consisting of the development of 70 assisted-living projects in six states, including Indiana, Ohio, South Carolina, New Jersey and Georgia. The company has completed development of 65 of these projects in the past three years, with at least five additional projects currently in development. Based in Portland, Ore., ALC operates more than 190 assisted-living centers in 12 states, and owns, develops and operates one of the largest assisted-living networks in North America. For more information, call (312) 346-2474.

BBL Medical Facilities, a growing national provider of construction services to the medical community, recently broke ground on the final phase of Thornton Oaks, a full-service retirement community, in Brunswick, Maine. BBL has overseen the construction of the project since its early stages. Thornton Oaks opened in 1990 and is currently home to more than 150 residents. The new project will add a fourth wing and 26 apartments. Completion is scheduled for the fall of this year. BBL is a member of the Barry, Bette & Led Duke family of companies, a full-service construction firm offering construction solutions to a variety of industries. For more information, call (518) 452-8200, ext. 248.

Click here to purchase reprints

e-mail: alsuccess@vpico.com
Copyright © 2007 by Virgo Publishing.
Please read our legal page before using this site.