View Research by Author - Norma B. Coe

Citation URL: http://www.urban.org/NormaBCoe

We examine pre-retirement lump-sum distributions from pension plans, which have grown significantly in recent years. Most LSD recipients do not roll over the funds into qualified accounts, but the likelihood of rollover rises for larger distributions. We find that tax penalties imposed in 1986 on non-rollovers by people younger than 55 raised the likelihood of rollovers among this group, but had less effect on the likelihood that such households saved the funds, where saving includes investing in taxable assets and paying off debt. Simple calculations indicate that cash-outs reduce annual retirement income by $1,000 to $3,000. These calculations almost surely overstate the pension loss. Nevertheless, pension loss may be quite important among the affected households, who are likely to have accumulated less retirement wealth than average.

This brief focuses on how current state welfare programs, food stamps, the Earned Income Tax Credit (EITC), and tax payments affect a low-income mother's financial incentives to work. The central finding is that work pays.

This analysis finds that working 20 hours per week at minimum wage increases income by an average of 50 percent over cash assistance in the 12 states studied. Public Policy contributes much to making work pay. The interaction of programs such as the Earned Income Tax Credit, and state decisions on cash benefits, earnings disregards, Food Stamps, access to child care, and health insurance create powerful economic incentives to work.

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