E M P L O Y E E B E N E F I T S , C O
M P E N S A T I O N
A N D P E N S I O N L A W
Vol. 2, No. 6: March 29, 2001
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Publisher: Legal Scholarship Network
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Editor: PAMELA J. PERUN
Urban Institute
Mailto:pamela@planetnow.com
Copyright: SSEP, Inc. 2001. All rights reserved.
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T A B L E of C O N T E N T S
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WORKING PAPERS
"Do Pension Plans with Participant Investment Choice Teach
Households to Hold More Equity?"
SCOTT J. WEISBENNER
Board of Governors of the
Federal Reserve System
Massachusetts Institute
of Technology (MIT)
Department of Economics
"The Limits of Saving"
PAMELA J. PERUN
Urban Institute
NEW and FORTHCOMING ARTICLES
"Cash Balance Pension Plan Conversions"
Oklahoma City University Law Review,
Vol. 25, Nos. 1 and 2,
Pp. 379-434, 2000
JONATHAN BARRY FORMAN
University of Oklahoma College
of Law
AMY NIXON
Williams Companies, Inc.
"Age Discrimination in Cash Balance Plans: Another View"
Virginia Tax Review, Vol. 19, P. 763,
2000
MICHAEL J. FRANCESE
Covington & Burling
ROBERT S. NEWMAN
Covington & Burling
RICHARD C. SHEA
Covington & Burling
"Fiduciary Status as an Employer's Shield: The Perversity of
ERISA Fiduciary Law"
University of Pennsylvania Journal of
Labor and Employment
Law, Vol. 2, Pp. 391-462, 2000
DANA M. MUIR
University of Michigan
"Estimates of the Tax Subsidy for Employment-Related Health
Insurance"
National Tax Journal, Vol. 53, No. 4,
Part 1, December 2000
THOMAS M. SELDEN
Agency for Health Care Policy
& Research, DHHS, USA
JOHN F. MOELLER
AHCPR, Agency for Health
Care Policy & Research,
DHHS, USA
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W O R K I N G P A P E R Abstracts
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"Do Pension Plans with Participant Investment Choice Teach
Households to Hold More Equity?"
BY: SCOTT J. WEISBENNER
Board of Governors of the Federal Reserve System
Massachusetts Institute of Technology (MIT)
Department of Economics
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=205035
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Paper ID: FEDS Working Paper No. 99-61
Date: November 16, 1999
Contact: SCOTT J. WEISBENNER
Email: Mailto:sweisbenner@frb.gov
Postal: Board of Governors of the Federal Reserve System
20th and
C Streets, NW
Washington,
DC 20551 USA
Phone: 202-452-3080
Paper Requests:
Please indicate the title and the FEDS paper number. Single
copies of FEDS papers may be obtained upon request from Ms.
Karen Blackwell, Mailto:fedspapers@frb.gov Postal: Mail Stop
77,
Federal Reserve Board, Washington, DC 20551. Phone:(202)
452-2900. Fax:(202) 452-3819.
ABSTRACT:
Some retirement plans allow the participant to choose how funds
are invested. Having to direct investments may provide the
participant with financial education. This paper finds that
households covered by pension plans in which the employee
chooses investments are significantly more apt to hold stock
outside of their retirement plan relative to households with
pension plans offering no such choice. The effect of investment
choice upon non-pension asset allocation cannot be explained
by
portfolio rebalancing or differences in income and saving
preferences across households. This provides some evidence that
the design of a pension plan can impact an employee's financial
decisions.
JEL Classification: H31, J33, G11
______________________________
"The Limits of Saving"
BY: PAMELA J. PERUN
Urban Institute
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=250592
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Paper ID: UI, The Retirement Project, Occasional Paper No. 7
Date: August 2000
Contact: PAMELA J. PERUN
Email: Mailto:pamela@planetnow.com
Postal: Urban Institute
2100 M
Street, NW
Washington,
DC 20037 USA
Phone: 202 261-5320
Paper Requests:
All Urban Institute publications (books, policy briefs, etc)
and
Urban Institute Press books may be ordered from: Urban Institute
Press, P.O. Box 7273, Dept. C., Washington, DC 20044
Fax:202-467-5775; Toll-free:877-UIPRESS (847-7377);
Mailto:pubs@ui.urban.org http://newfederalism.urban.org/
ABSTRACT:
Congress has proposed raising the legal limits on contributions
to defined contribution plans in the private pension system to
increase the amount people can save for retirement. Using a
model of hypothetical lifetime savings, this paper analyzes the
current proposals in a sample of defined contribution plans
which permit individuals to choose how much to save every year.
The analysis demonstrates first that the current limits
comfortably accommodate reasonable, plausible savings rates.
The
proposals only benefit individuals who can save at extremely
high rates. Second, the proposals do not increase the average
or
marginal tax subsidies for savings available through the private
pension system and may well decrease them for individuals at
the
lowest income levels. Third, the proposals will, however,
increase the absolute amount of dollars received in tax
subsidies but the distribution pattern of those dollars across
income groups will remain the same. The paper concludes that
these proposals fail to deliver the fundamental reform needed
by
the private pension system. It suggests that any reform efforts
should focus more on incentives and subsidies for those who are
left out and left behind in the current system rather than for
those who don't need them to save.
Keywords: Private pension system, defined contribution plans,
saving, reform, retirement, subsidies, incentives
______________________________
N E W and F O R T H C O M I N G
Articles
_________________________________________________________________
"Cash Balance Pension Plan Conversions"
Oklahoma City University Law Review,
Vol. 25, Nos. 1 and 2,
Pp. 379-434, 2000
BY: JONATHAN BARRY FORMAN
University of Oklahoma College of Law
AMY NIXON
Williams Companies, Inc.
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=255159
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Document Delivery:
http://paine.law.ou.edu/jforman/Forman-OCUfinal.pdf
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Contact: JONATHAN BARRY FORMAN
Email: Mailto:jforman@ou.edu
Postal: University of Oklahoma College of Law
300 Timberdell
Road
Norman,
OK 73019 USA
Phone: 405-325-4779
Fax: 405-325-6282
Co-Auth: AMY NIXON
Email: Mailto:Amy.Nixon@williams.com
Postal: Williams Companies, Inc.
One Williams
Center
Tulsa,
OK 74172 USA
ABSTRACT:
One of the hottest issues in the pension world today involves
companies replacing their traditional pension plans with cash
balance plans. A cash balance plan is a pension plan that looks
like a bank account or a 401(k) plan. The problem is that
replacing a traditional pension plan with a cash balance plan
will reduce the expected pension benefits of older workers. As
a
result, older workers can see their future pensions cut - in
some cases deeply. Not surprisingly, many of these older workers
have felt cheated, and they have filed a number of lawsuits to
stop these so-called cash balance conversions.
This Article considers the various legal issues that are raised
by cash balance conversions. In particular, this Article
considers whether these conversions violate the Employee
Retirement Income Security Act (ERISA) or the Age Discrimination
in Employment Act (ADEA). The Article concludes that the typical
cash balance conversion will not violate these laws. As long
as
the conversion protects the already-accrued benefits of older
workers, ERISA will be satisfied. And, as long as
post-conversion benefit allocations are nondiscriminatory, ADEA
should be satisfied.
______________________________
"Age Discrimination in Cash Balance Plans: Another View"
Virginia Tax Review, Vol. 19, P. 763,
2000
BY: MICHAEL J. FRANCESE
Covington & Burling
ROBERT
S. NEWMAN
Covington & Burling
RICHARD
C. SHEA
Covington & Burling
Contact: RICHARD C. SHEA
Email: Mailto:Rshea@cov.com
Postal: Covington & Burling
1201 Pennsylvania
Avenue, N.W.
Washington,
DC 20044 USA
Phone: (202) 662-6000
Co-Auth: MICHAEL J. FRANCESE
Email: Mailto:Mfrancese@cov.com
Postal: Covington & Burling
1201 Pennsylvania
Avenue, N.W.
Washington,
DC 20044 USA
Co-Auth: ROBERT S. NEWMAN
Email: Mailto:Rnewman@cov.com
Postal: Covington & Burling
1201 Pennsylvania
Avenue, N.W.
Washington,
DC 20044 USA
ABSTRACT:
This article responds to the argument raised by Professor
Zelinsky and other commentators that cash balance plans
inherently violate the age discrimination laws. These laws
prohibit defined benefit pension plans from reducing the rate
of
an employee's benefit accrual on account of the attainment of
any age. Professor Zelinsky argues that when the "rate of
benefit accrual" is measured as the change in an annuity
beginning when a participant attains normal retirement age, the
rate of benefit accrual under a cash balance plan decreases as
a
participant ages. This article illustrates that the age
discrimination statutes were never intended to and, in fact,
do
not prohibit the pattern of benefit accruals under a cash
balance plan.
The article explains the term "rate of benefit accrual" is not
defined in the age discrimination statutes, and it is
inconsistent with the purpose of the age discrimination laws
to
require that this rate be measured by reference to annuities
beginning at normal retirement age. Congress intended to
eliminate the common practice of reducing or ceasing benefit
accruals after normal retirement age. The article points out
that this purpose can be realized merely by examining the plan
document to determine if the formula specifies an age at which
benefit accruals decrease or cease. Alternatively, congressional
intent can be realized by measuring benefit accruals in the form
promised under the plan. In the case of a cash balance plan,
benefits are promised in the form of an immediate lump sum; the
change in this lump sum (or in the actuarially equivalent
immediate annuity) is therefore the appropriate rate of benefit
accrual to examine under the age discrimination laws. By
contrast, measuring the change in the accrued benefit expressed
as an annuity beginning at normal retirement age would cause
retirement plans that Congress clearly approved of to violate
the age discrimination laws. These plans include virtually all
career and final average pay plans and virtually all
contributory defined benefit plans.
Finally, the article points out that, even if Professor
Zelinsky defines the rate of benefit accrual correctly, any
reduction in the rate of benefit accrual that occurs in a cash
balance plan under his definition does not occur "because of
the
attainment of any age." The reduction in the rate of benefit
accrual that Professor Zelinsky observes is solely the result
of
inflation protection provided by a cash balance plan in the form
of guaranteed interest credits. The article concludes that
legislative intent and sound policy concerns are served best
by
a conclusion that a cash balance plan design does not produce
a
reduction in the rate of benefit accrual on account of the
attainment of any age.
______________________________
"Fiduciary Status as an Employer's Shield: The Perversity of
ERISA Fiduciary Law"
University of Pennsylvania Journal of
Labor and Employment
Law, Vol. 2, Pp. 391-462, 2000
BY: DANA M. MUIR
University of Michigan
Contact: DANA M. MUIR
Email: Mailto:dmuir@umich.edu
Postal: University of Michigan
701 Tappan
Street
Ann Arbor,
MI 48109-1234 USA
Phone: 313-763-3091
Fax: 313-936-8715
ABSTRACT:
This article argues that current jurisprudence enables employers
to rely on four spheres of fiduciary obligation to protect
themselves from liability for benefit plan actions. It discusses
those four spheres and shows how they intersect. The article
also draws a distinction, not explicitly drawn before by courts
or commentators, between asset administration and benefits
administration. The distinction has currency in understanding
the unexpected operation of ERISA's fiduciary regime in benefits
administration and the way it contrasts with the generally
effective nature of the fiduciary regime in asset
administration.
The article also analyzes how and why the existing
jurisprudence provides no significant incentive for appropriate
decision-making by those responsible for benefits
administration. It then offers a new, statutory-based argument
that would increase the liability of benefit plan actors who
engage in opportunistic decision-making. A thorough and careful
review of the legislative history supports my interpretation
of
ambiguous statutory language. And, the article demonstrates that
adoption of its suggested interpretation would discourage
opportunistic decision-making and increase the quality of ex
ante benefit determinations.
______________________________
"Estimates of the Tax Subsidy for Employment-Related Health
Insurance"
National Tax Journal, Vol. 53, No. 4,
Part 1, December 2000
BY: THOMAS M. SELDEN
Agency for Health Care Policy & Research, DHHS, USA
JOHN F.
MOELLER
AHCPR, Agency for Health Care Policy & Research,
DHHS, USA
Contact: THOMAS M. SELDEN
Email: Mailto:tselden@ahrq.gov
Postal: Agency for Health Care Policy & Research,
DHHS, USA
2101 E.
Jefferson St., Suite 500
Rockville,
MD 20852 USA
Phone: 301-594-1406 (x1476)
Co-Auth: JOHN F. MOELLER
Email: Mailto:jmoeller@ahrq.gov
Postal: AHCPR, Agency for Health Care Policy & Research,
DHHS, USA
Hubert
H. Humphrey Building
Washington,
DC 20201 USA
ABSTRACT:
This paper uses the MEDSIM health care microsimulation model
developed by researchers at the Agency for Healthcare Research
and Quality to compute the magnitude and distribution of the
tax
subsidy for employment-related health insurance premiums. We
also present estimates of the revenue gain that would be
associated with a variety of caps on the amount of contributions
that can be excluded from the tax base.