Savings Plan Participation – Are DOE Assumptions Realistic?

The DOE evaluation of the Oak Ridge Pension Plans (See Erbschloe) has never been satisfactorily explained and the pension plans office has denied detailed knowledge of the computations. The Social Security Benefit is explained by the Social Security Administration and the Defined Benefit (alias Pension Benefit) is defined in the 'multiplier formula' though some of the parameters used are not explicitly stated. However, the nature of the Defined Contribution (alias Savings Plan) is not defined but it appears from its magnitude and verbal comments that it assumes a retirement age of 65 as well as 100 % participation by all employees to the fullest extent possible. Setting aside whether or not it is appropriate to include an undefined, lump sum equivalent as part of a monthly pension payment, the following references place grave doubt on the either or both of these assumptions.

Note: We have received the description of the Erbschloe histograms in dribs and drabs from diverse sources. We still have no substantive answers to our requests to DOE. This is most likely the last information we will receive unless there is an epiphany. While the description is still incomplete, there is sufficient to issue a meaningful critique consolidating the many current pieces; it will happen.

(1) Social Security, cited by Newsweek, April ?, 2006 says that only 32%, not 100% as assumed by DOE, of employees work to age 65 before retiring.

(2) Steven Nyce, Wharton Business School, in Pension Research Council Working Paper PRC WP 2005-3, surveyed 48 firms for the period October 2000-March 2001 (http://prc.wharton.upenn.edu/prc/PRC/WP/WP2005-3.pdf). He found that 74.7% of employees participated in their company's 401(k) during that 6-month period (Table 3). Of those participating employees, only 8.3% had maximum participation (Table 4). Therefore, only 6.2% (74.7% x 8.3%) of total employees had full participation for that 6 month period -- and substantially less than 6.2% would likely have had full participation throughout their employment, instead of 100% assumed by DOE for Oak Ridge.

If I had known that such deviations from reality were acceptable to the management, I never would have spent hours ensuring that the computations performed for them were correct.