Retirement Benefits

-jt · Jan 21, 2003

American Journal of Nursing - November, 2002 - Volume 102, Issue 11

A Retirement Plan of One's Own

Nurses, ANA address issues surrounding retirement.

By Susan Trossman, RN

My children have said to me, 'You're just like the people they're talking about on the evening news,'" said Doris D'Errico, RN, CPAN, a staff nurse in an Ohio hospital PACU.

Like many people affected by downturns in the stock market, the Ohio Nurses Association member's retirement investments have taken quite a hit. But she still hopes to retire in about three years.

Lasca Beck, MS, RN, plans to retire from her administrative and faculty teaching positions at an Arizona university at the end of the current fall semester. She considers herself fortunate because the employee investment plan she fell into while working in Texas has been performing relatively well. Her only regret is not planning for retirement earlier.

"Hindsight is always better than foresight," said Beck, an Arizona Nurses Association (AzNA) member.

When to retire might not be the number one priority for nurses, but it's certainly a growing one as the RN workforce ages.

Betsey Snow, MPH, RN, director of the ANA's Workplace Advocacy program, said she and other staff frequently field calls from nurses who have a range of concerns about retirement. Some RNs would like to continue working past retirement age but don't know if they can under current workplace conditions that include long hours, lifting, and working short-staffed. Others are worried about their ability to pay for health care, particularly prescriptions, after retirement. And still others are worried about whether they can even afford to retire.

"Many nurses assume that their employer is going to take care of them," Snow said. "They don't worry about their retirement benefits until a year or two before they want to leave. Then they find out that they might not be able to retire when they thought they could."

CHANGING AGES, CHANGING TIMES

When D'Errico began working for her current employer 30 years ago, she asked fellow nurses why the pension plan was so inadequate. She was told that when they negotiated early contracts, nurses didn't view retirement benefits as a priority.

"At the time, the nurses were all young," D'Errico said. "Now our mean age is 47, so retirement benefits have become a priority. And we've gotten some good benefits into our contract."

Beck shared a similar recollection.

"Back in the '50s, nobody ever told us to plan for retirement," Beck explained. "And when you're young, you don't think you're going to get old." While Beck believes that younger nurses now are more sophisticated about financial matters, she said they still don't take full advantage of savings plans. She and other nurses believe that's because of both age and a changing economy.

In the past, nurses' earnings, like many women's, were viewed as a second income to be used for "extras."

"You've heard the term 'refrigerator nurses?'" D'Errico asked. "They'd work to buy the refrigerator."

But times have changed.

"The definition of a second income has changed in the past couple of decades," said Ray Kronenbitter, RN, an AzNA member, whose wife also is a nurse. "Now that second income is very much needed to pay for necessities."

WORKING FOR CHANGE

The ANA's Commission on Workplace Advocacy (CWPA) recently asked nurses at its annual policy-setting meeting about retirement issues they face in their various work settings. The CWPA is also designing a more detailed national survey that will be launched late this year. Specifically, the survey will explore nurses' concerns about retirement, including benefits, as well as workplace changes that might entice them to stay past retirement age to stem a critical nursing shortage. It also will address transition concerns of nurses who choose to retire.

The CWPA then wants to bring together nurse leaders and others concerned about the nursing workforce to address issues raised in the survey by RNs, Snow said.

Ann Minnick, PhD, RN, FAAN, associate dean of research at Rush University's College of Nursing in Chicago, also is interested in incentives to keep older, experienced nurses in the workforce. In an article she wrote on retirement and the nursing workforce, she cited data from the 1996 RN National Sample Survey, which showed that nurses start retiring in greater numbers at age 52 and then increasingly at ages 61, 62, and 65.

"Common sense tells us that there are barriers and incentives to staying in the workforce," Minnick said. One potential barrier, she suggests, is nurses working 12-hour, rotating shifts when they are in their late 50s and early 60s. Another is a system that makes it difficult to accrue pension benefits when working part time, changing jobs, or wanting to phase into retirement.

The ANA also is working on other efforts to improve the retirement outlook for nurses. For example, to help nurses become better financially informed, the ANA offered a financial planning seminar at its June convention. And it is gathering information about retirement benefits and phased-in retirement options offered in other countries through its participation in the International Council of Nurses.

SOME SUGGESTIONS

Most nurses know they will not be able to live comfortably on Social Security benefits when they retire. Yet many still haven't determined how much money to save so that they can retire when they want. Therefore, nurses interviewed for this column encourage RNs to take the time to fully explore their retirement benefits. And they offered the following suggestions:

* Start thinking about and saving for retirement early in your career.

* Become knowledgeable about retirement benefits offered through your current or future employer. Find out specifics. Does the employer pension plan include health care coverage? Does your employer make a matching contribution to your retirement plan? How does part-time work affect retirement benefits?

* Seek the advice of a qualified financial planner who can help you look at the whole picture, including what to expect from Social Security, your employer pension plan, and other investments when you retire. Some employers offer the services of a financial planner, which can save you pricey consultation fees.

* Take an active role in managing your investments. Don't just look at the quarterly statements and toss them in the drawer.

* Work with your professional nurses association, colleagues, employers, and policymakers to improve retirement benefits--for both nurses who work full time and those who want to scale back their hours. Better benefits can help attract and retain people into the profession.

Changing Jobs Can Dramatically Affect Retirement Benefits

Fictional nurses Mary and George share many similarities. Both worked for 20 years, earning the same amount of pay throughout their careers. Both were covered under identical retirement programs--defined benefit pension plans that provided a benefit equal to 2% of their final pay for each year of service. They each had an annual salary of $60,000 before retirement.

But the similarities end there.

Mary had changed jobs every four years. She received no pension benefits, because all of the retirement plans under which she was covered required that she complete five years of service to become vested. On the other hand, George spent his entire career at one hospital and received a lifetime benefit equal to 40% of his final pay at retirement. That translates to a monthly income of $2,000 for life.

While this example is extreme, it illustrates how nurses can lose pension benefits when changing jobs, according to Aquil Ahmed, a Washington, DC-based senior retirement consultant for Mercer Human Resource Consulting. He suggests that nurses carefully evaluate the impact that job changes have on projected retirement incomes. To compensate for pension losses, nurses can set aside additional funds on their own, he said. Or they can try to negotiate higher salaries or bonuses to make up for any pension lost because of job changes.

Some Basic Definitions:

Defined benefit plan: Most defined benefit plans, or pension plans, are solely funded through employer contributions. Upon retirement, employees receive a set amount--such as 2% of their final salary multiplied by their years of service--every month until they die. In these plans, the employer bears the investment risk. Most private-sector defined benefit plans are insured by the Pension Benefit Guaranty Corporation (PBGC), a federal agency. If the employer's plan cannot provide pension benefits because of financial reasons, the PBGC will administer the plan, and employees, in most instances, will continue to receive their monthly benefit throughout their lives.

401(k) plan: This retirement plan lets employees defer a portion of their salary into an investment account on a pretax basis, thereby building a retirement fund while deferring a portion of their income taxes. Often, these plans include an employer-matching contribution. For example, if employees contribute 2% of their pay to the plan, their employer will contribute 2%. Employees usually have a choice of mutual funds--such as stocks or bonds--in which to invest their contributions. Under these plans, the employee bears the investment risks and rewards, and the PBGC does not insure the benefits. Funds can be withdrawn without penalty at age 59. If employees change jobs, they can take the vested account balance and transfer it to an IRA or another employer retirement plan.

403(b) plan: Under Section 403(b) of the Internal Revenue Code, employees of certain organizations, such as tax-exempt hospitals or universities, can defer part of their incomes into a special investment account on a pretax basis. Employees can direct their contributions toward mutual funds or other investment vehicles. Some 403(b) plans provide for employer-matching contributions. These plans are similar to 401(k) plans, and also are not insured by the PBGC.

Vesting: This refers to employees' right to receive the contributions or benefits that an employer has provided to their retirement plan--even if they terminate employment before retirement age. Most defined benefit plans provide for five-year vesting, entitling employees to a nonforfeitable right to their fully accrued benefits after five years of service.

Employee contributions in a 401(k) or 403(b) are fully vested when made. Employer contributions to these plans generally vest after two to three years of service.

Information provided by Aquil Ahmed, a Washington, DC-based senior retirement consultant for Mercer Human Resource Consulting. He is the enrolled actuary for the American Nurses Association Retirement Plan.

Susan Trossman, RN is the senior reporter for the American Nurse at the ANA.

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