Under the policy of Social Security integration, employers may provide their more highly paid employees with a more generous retirement benefit than their lower-paid employees to reflect the fact that Social Security’s replacement rates decline as incomes increase. The result is that total retirement benefits (including Social Security) replace a more uniform percentage of final pay for all employees. However, benefit reductions due to integration (up to 50 percent of Social Security for service starting in 1989, and up to 100 percent for service before that date) make it more difficult for lower-income workers to attain retirement income security. The majority of these workers are women and people from racial and ethnic groups that have experienced discrimination.
Retirement benefit integration should be limited further, including through the extension of limits to pre-1989 service and by disallowing integration for simplified employee pensions.
Employers should be required to notify their employees if their retirement plan is integrated and if integration could affect the value of future retirement benefits.
Participants should be informed about the effects of integration on benefit levels in both defined-benefit and defined-contribution plans and about the amount of fees they are paying in defined-contribution plans, including 401(k) plans. They should receive this information when hired, subsequently on an annual basis, and when they leave employment.