Is the Retirement Crisis a Mirage? (Part 2)

In a Wall Street Journal op-ed last month, Sylvester Schieber and Andrew Biggs said that census data failed to capture much of the income Americans derive from 401(k) and IRA plans. Though no one denies that the data don’t include some distributions from retirement accounts, the extent of the under-reporting is under dispute, with Biggs and Schieber claiming census data ignore 60% or more of the money that seniors receive.

In an earlier blog post, I noted that Schieber and Biggs may be basing this attention-grabbing claim on Internal Revenue Service measures that count rollovers from one retirement account to another as “income.” At an American Enterprise Institute event today, Paul Van de Water of the Center on Budget and Policy Priorities, who first brought the rollover issue to my attention, asked Schieber whether he based his claims on IRS measures of total or taxable income from retirement plans. Whereas taxable income measures exclude Roth IRA distributions, total income measures include these distributions, but also rollovers. As Federal Reserve and IRS researchers have explained, rollovers are included in some IRS income measures even if taxes aren’t owed on the amounts (and whether or not households report the transactions) because financial service providers report them to the IRS.

So, which measures are Schieber and Biggs using—total or taxable income from retirement plans? Schieber wasn’t able to answer, deferring to a coauthor, Billie Jean Miller, who wasn’t present. This should raise eyebrows, since Schieber has been making the same point for years and Social Security Administration researcher John Woods raised the rollover issue back in 1996.

Without claiming any familiarity with IRS data, it appears to me that Schieber and Miller are using measures of total income from these accounts, at least with respect to pension and annuity income. In Exhibit 5 of their Journal of Retirement article, for example, Schieber and Miller cite an IRS measure of pension and annuity income of $812 billion for 2008. According to summary statistics published by the IRS, total pension and annuity income was $845 billion in 2008, whereas taxable pension and annuity income was $506 billion (all figures have been rounded). Though Schieber and Miller’s figure is somewhat smaller than the IRS measure of total pension and annuity income, the difference could be due to revisions or differences between the internal IRS data and micro-data made available for public use.