Data & Research January 5, 2016

Retiring Later Could Hinge on Socioeconomic Factors

People may be living longer and planning to work more years, but that may not hold true for all workers.
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As longevity rises, many policy experts contend that people’s working lives will also lengthen. But this argument assumes all workers have experienced the same increase in life expectancy—without factoring in socioeconomic status.

“Does a Uniform Retirement Age Make Sense?,” just released by the Center for Retirement Research at Boston College, examines data on mortality and income. The brief finds that life expectancies for low socioeconomic status individuals have been improving more slowly than for individuals in a higher socioeconomic bracket in recent decades, causing the life expectancy gap to grow.

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The brief estimates trends in mortality (the flip side of life expectancy) from 1979 to 2011 by education, a common measure of socioeconomic status. These estimates are then used to see how much longer each educational group can work today if the goal is to maintain the same ratio of retirement years to working years as existed in 1979.

Data from the National Longitudinal Mortality Study (NLMS) was used to estimate the increase in mortality inequality between 1979 and 2011. That study consists of individual-level observations from the Current Population Survey (CPS) matched to data from death certificates from the National Center for Health Statistics. For each individual, demographic and socioeconomic characteristics are obtained at the time of their CPS interview. Individuals are then followed from CPS interview through 2011. If they die, additional information on date, cause, and location of death is collected from death certificates.

The sample used in this study consists of individuals ages 25 or older in their sample year and includes 1.5 million observations. The study defines education by quartiles of educational attainment. Assigning individuals to any one quartile can be difficult. For example, individuals with exactly 12 years of education represent roughly the 40th to 60th percentiles of the education distribution and could be assigned to either the second quartile (25th to 50th percentile) or the third quartile (50th to 75th percentile).

NEXT: How does socioeconomic status impact mortality?

To address this problem, a regression-based approach assigns people to a quartile based on characteristics that are correlated with education level in the overall population (e.g., earnings, industry of employment, race, and family income). To estimate how mortality has changed over time across the education quartiles, the analysis adopts two assumptions. The first is that mortality increases exponentially with age. This assumption is based on research going back almost 200 years and is true until advanced ages.

The second assumption is that, within each gender and socioeconomic group, all ages experience the same annual percentage changes in their mortality rates. These two assumptions make it possible to estimate regressions to find out how much, on average, mortality has improved by socioeconomic status over the last three decades.

Two key findings emerged from the research. First, the expected pattern of growing mortality inequality by socioeconomic status exists: the least educated men and women saw improvements from 1979 to 2011 of 1.5% and 0.5% per year, respectively, compared with 2.5% and 1.2% per year for the most educated. Second, mortality has improved more for men than for women.

While mortality inequality is increasing, the analysis suggests that workers in all socioeconomic groups are likely to live longer today than in the past. As a result, assuming a reasonable health status is maintained, people can work longer while still spending similar proportions of time working and in retirement as those who retired 30 years earlier. Still, policies seeking to extend work lives that treat all workers the same will tend to cut into the retirement of low socioeconomic workers more than high socioeconomic workers. As a result, policymakers seeking to encourage working longer should be cautious about the potential effects that such policies could have on inequality.

The center’s full brief can be accessed online.

In Practice January 5, 2016

Cetera Finds New Independence Amid RCS Debt Deal

Among the many business units of the stressed RCS Capital Corp. is Cetera Financial Group, which provides investment and brokerage services for a significant number of U.S. retirement plan advisers.
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Form 8-K SEC fillings from RCS Capital Corporation show the company has successfully negotiated an agreement to restructure as much as $500 million in debt via Chapter 11 bankruptcy.

As part of the deal, the firm says it’s also reached an agreement in principle with the majority of first- and second-lien lenders to invest another $150 million toward one of its subsidiary companies, Cetera Financial Group, which will be reestablished post-bankruptcy under a new company heading.

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RCS expects the restructuring and additional investment to position Cetera for “long-term profitable growth under its existing senior management team,” which will continue to be led by R. Lawrence Roth as CEO. The filings suggest Cetera’s member broker/dealer firms “will not be involved with the contemplated Chapter 11 filing.” Further, the firm says it will implement a “retention program for Cetera Financial Group-affiliated advisers and key employees made up of cash and equity in restructured RCS Capital.”

On the downside of the debt deal, RCS Capital investors are facing the prospect of a “reduction of indebtedness and preferred stock in excess of $500 million,” highlighting the significant difficulties that have emerged for the RCS parent company in the year or so since it first scooped up Cetera in a bid to create one of the largest broker/dealer networks in existence. Followers of financial industry media will have read of the firm’s lasting difficulties in overcoming allegations of accounting malpractice that emerged shortly thereafter.

RCS Capital further announces in the 8-K filing the sale of its Hatteras business unit, “continuing progress toward sale or wind-down of remaining non-core assets.” The firm says its senior secured lenders have agreed to pursue an expedited schedule for the company’s emergence from Chapter 11.

According to the filing, “RCS Capital’s expectation is that Cetera’s current employees, advisers and trade vendors will not be affected by RCS Capital’s bankruptcy. As such, it is expected to remain business-as-usual for Cetera’s employees as well as the advisers and the institutions that Cetera supports.”

NEXT: Implications and effects downplayed 

In a statement accompanying the filing, Roth says his goal as CEO of the reemerged Cetera company will be to leverage the $150 million in new investments to enhance technology, drive ongoing adviser growth and deliver service enhancements within the Cetera platform. The filing notes Cetera and RCS Capital’s lenders “have agreed in principle that the reorganization will protect the current deferred compensation arrangements.”

The restructuring and new investment is still subject to the negotiation and execution of definitive documentation, regulatory, court and other approvals, but the firm says obtaining the approval of the requisite first- and second lien-lenders is “expected to be completed during the second quarter of 2016.” 

Roth concludes that the restructuring plan “defines the path for transforming Cetera into a private, independently run organization that is dedicated exclusively to the financial advisers and financial institutions we support. The restructuring marks a fresh start that will place the issues of the past months firmly behind Cetera, while providing the financial adviser network with the capital and operational structure to profitably grow its market leadership.

“Thanks to its autonomous operating and financial structure within the RCS Capital framework, Cetera has generated sufficient capital funding and solid cash flows from our well-established broker/dealer firms,” he adds. “We expect to use the anticipated $150 million of new working capital obtained through this agreement to further cement Cetera’s market position as a dynamic, forward-thinking, and adviser- and client-driven provider of investment advice to retail clients. Given this important context, we emphasize to the advisers and institutions we support that we do not expect the proposed restructuring of RCS Capital to impact the existing deferred compensation plans or other related compensation plans at Cetera, which are expected to remain in effect in their current form.”

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