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. 17: September 20, 2001
_________________________________________________________________

Publisher:     LSN Subject Matter Journals
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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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                      Topic of This Issue:
                      The Future of ERISA?
   ___________________________________________________________
 

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T A B L E   of   C O N T E N T S
_________________________________________________________________
 

NEW and FORTHCOMING ARTICLES

"The Changing Face of Private Retirement Plans"
      EBRI Issue Brief, No. 232, April 2001
     JACK VANDERHEI
        Temple University
        Department of Risk, Insurance and Healthcare
        Management
     CRAIG COPELAND
        Employee Benefit Research Institute (EBRI)
 

"ERISA at 25 - and Its Most Persistent Problem"
      Kansas Law Review, Vol. 48, P. 285
     JEFFREY A. BRAUCH
        Regent University School of Law

WORKING PAPERS

"The Taxation of Retirement Saving: Choosing Between Front-Loaded
 and Back-Loaded Options"
     LEONARD E. BURMAN
        Urban Institute
     WILLIAM G. GALE
        The Brookings Institution
     DAVID WEINER
        Congressional Budget Office
 

"ERISA at 50: A New Model for the Private Pension System"
     PAMELA J. PERUN
        Urban Institute
     C. EUGENE STEUERLE
        Urban Institute
 

"The Consequences of Population Aging on Private Pension Fund
 Saving and Asset Markets"
     SYLVESTER J. SCHIEBER
        Watson Wyatt Worldwide
     JOHN B. SHOVEN
        Stanford University
        Department of Economics
        National Bureau of Economic Research (NBER)
 

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EDITORIAL POLICIES
 To provide the broadest coverage of research in Employee
 Benefits, Compensation and Pension Law we do not referee working
 papers. We accept abstracts of working papers in Employee
 Benefits, Compensation and Pension Law whose topics suit the
 coverage of the journal and which are part of the worldwide
 scholarly discourse.
 

N E W   and   F O R T H C O M I N G   Articles
_________________________________________________________________

"The Changing Face of Private Retirement Plans"
      EBRI Issue Brief, No. 232, April 2001

      BY:  JACK VANDERHEI
              Temple University
              Department of Risk, Insurance and Healthcare
              Management
           CRAIG COPELAND
              Employee Benefit Research Institute (EBRI)

Document:  Available from the SSRN Electronic Paper Collection:
           http://papers.ssrn.com/paper.taf?abstract_id=267501

 Contact:  JACK VANDERHEI
   Email:  Mailto:temple@vanderhei.com
  Postal:  Temple University
           Department of Risk, Insurance and Healthcare
           Management
           489 Ritter Annex
           Fox School of Business and Management
           Philadelphia, PA 19122  USA
   Phone:  610-525-6139
     Fax:  435-603-1422
 Co-Auth:  CRAIG COPELAND
   Email:  Mailto:copeland@ebri.org
  Postal:  Employee Benefit Research Institute (EBRI)
           Suite 600
           2121 K Street, NW
           Washington, DC 20037-1896  USA

Paper Requests:
 Contact Alicia Willis at Mailto:willis@ebri.org, or 2121 K St.,
 NW, Suite 600, Washington, DC 20037-1896. Phone:(202)775-9132,
 Fax:(202)775-6312. Full-Text downloads are available from SSRN
 Online for $7.50.

ABSTRACT:
 This Issue Brief examines the changes in private pension plan
 participation for defined benefit and defined contribution plans
 and the impact of these changes on the sources of retirement
 income. The Employee Benefit Research Institute's Retirement
 Income Projection Model is used to quantify how much the
 importance of individual account plans is expected to increase
 because of these changes. The report compares results of the
 model by gender for cohorts born between 1936 and 1964 in order
 to estimate the percentage of retirees' retirement wealth that
 will be derived from defined benefit plans versus defined
 contribution plans and individual retirement accounts (IRAs)
 over the next three decades. Under the model's baseline
 assumptions, both males and females are found to have an
 appreciable drop in the percentage of private retirement income
 that is attributable to defined benefit plans (other than cash
 balance plans). In addition, results show a clear increase in
 the amount of retirement assets that retirees will have to
 manage themselves.

 Keywords: Asset allocation, Defined benefit plans, Defined
 contribution plans, Employment-based benefits, Individual
 retirement accounts, Pension plan assets, Pension plan
 participation, Retirement income
 

JEL Classification: D31, J32
______________________________

"ERISA at 25 - and Its Most Persistent Problem"
      Kansas Law Review, Vol. 48, P. 285

      BY:  JEFFREY A. BRAUCH
              Regent University School of Law

 Contact:  JEFFREY A. BRAUCH
   Email:  Mailto:jeffbra@regent.edu
  Postal:  Regent University School of Law
           Virginia Beach, VA 23464  USA

ABSTRACT:
 Twenty-five years after ERISA's enactment, federal courts are
 still struggling with how to handle the situation in which a
 promise is made that is inconsistent with the terms of a written
 plan. Part of the problem is that state law claims that would
 normally address the situation are generally preempted under
 ERISA's provisions. The other part of the problem is that none
 of ERISA's federally provided remedies specifically addresses
 the situation. In dealing with this problem, some courts have
 concluded that plaintiffs to whom promises were made are left
 without a remedy. Other courts have tried to fashion various
 remedies under state law or under ERISA itself, such as alleging
 the creation of an informal ERISA plan, estoppel, or breach of
 fiduciary duty. Each attempted solution, however, has either
 misread the text and purposes of ERISA or has wrongfully
 allocated power to federal courts that belongs in the hands of
 Congress.

 With an unwavering focus on ERISA's purposes, provisions, and
 statutory framework, the article examines the problem of "the
 inconsistent promise." It also examines several approaches that
 courts have tried to use to address the issue in light of the
 narrow framework of remedies allowed within the legislation. The
 article includes an explanation as to why each "solution" has
 failed or is improper. Finally, the article proposes that
 Congress amend ERISA's civil remedies provision to include an
 estoppel claim such that a remedy is available for some
 inconsistent promises in a manner that is consistent with the
 framework and purposes of ERISA.

 Various Court Approaches:

 1) *State Law Claims
 Even after the Supreme Court significantly narrowed preemption
 in New York State Conference of Blue Cross & Blue Shield Plans
 v. Travelers Insurance Co., in the context of "inconsistent
 promises," state law claims simply cannot stand under ERISA's
 preemption clauses. In essence, the plaintiff's claim is that
 plan terms were misrepresented. Thus, resolution of the claim
 both depends on an interpretation of the plan and has a direct
 impact on the operation and administration of the plan such that
 the claim "relates to" the plan and is preempted.

 2) *Informal ERISA Plan Claims
 Despite ERISA's requirement that the plan be in writing, it is
 now generally accepted that informal benefit plans can be
 created without a formal written instrument. However, in
 inconsistent promise cases, the claim has failed for two
 reasons. First, several courts refuse to apply the informal plan
 doctrine when the alleged informal plan would merely contradict
 the terms of an existing written plan. Second, it is very rare
 that the alleged promise meets the requirements of the test set
 forth in Donovan v. Dillingham such that an informal plan can be
 said to have been created.

 3) *Estoppel Claims
 In the classic estoppel claim, the participant or beneficiary
 asks the court to bar the plan and its fiduciaries from
 enforcing those written plan terms and to enforce the promise
 instead. Because ERISA does not explicitly provide an estoppel
 claim, courts have turned to ERISA's federal common law to
 create one. The circuit courts have fashioned dramatically
 different answers. Estoppel claims are inappropriate for two
 reasons. First, the claims improperly create federal common law
 and interfere with Congress' very clear policy choices about
 which rights, obligations, and remedies to create. Second, the
 circuits' wide variety of approaches to estoppel has resulted in
 nonuniform and inconsistent laws and regulations of ERISA plans,
 something that Congress expressly sought to avoid by enacting
 ERISA.

 4) *Individual Claims for Breach of Fiduciary Duty
 Since ERISA preempts state claims, plaintiffs and courts are
 turning to ERISA's remedy of breach of fiduciary duty for
 fiduciary misrepresentation. However, the claim is inconsistent
 with ERISA's statutory scheme. In addition, the doctrine has two
 significant limitations. First, breach of fiduciary duty actions
 may be brought only against fiduciaries, so a fiduciary must
 have made the promise. Second, the relief available for breach
 of fiduciary duty is limited to "equitable relief" such as
 injunctions, mandamus, or restitution - none of which adequately
 deal with most plaintiffs' harm in inconsistent promise cases.

 *Proposed Solution
 The author proposes that Congress - not the courts - should
 amend ERISA's civil remedies provision to include a promissory
 estoppel claim. Congress should allow itself to be guided by two
 main principles in the drafting of the provision: first, that it
 must maintain a careful balance between the rights of individual
 plan participants and beneficiaries and the long-term interest
 of all participants and beneficiaries; and second, that any new
 remedy must not undermine the integrity of the written ERISA
 plan.

 The types of promises that should be enforced under the
 estoppel claim are those that bear sufficient indicia of
 reliability and formality, such as formal written communications
 from an employer (e.g., summary plan descriptions, written
 contracts between the parties) and formal communications to a
 large group of participants or beneficiaries. In both examples,
 the promises should be made by high-level persons associated
 with the plan so that a plan participant or beneficiary could
 have reasonably relied on the promise.

______________________________

W O R K I N G   P A P E R   Abstracts
_________________________________________________________________

"The Taxation of Retirement Saving: Choosing Between Front-Loaded
 and Back-Loaded Options"

      BY:  LEONARD E. BURMAN
              Urban Institute
           WILLIAM G. GALE
              The Brookings Institution
           DAVID WEINER
              Congressional Budget Office

Document:  Available from the SSRN Electronic Paper Collection:
           http://papers.ssrn.com/paper.taf?abstract_id=272145

    Date:  May 2001

 Contact:  WILLIAM G. GALE
   Email:  Mailto:wgale@brookings.edu
  Postal:  The Brookings Institution
           Economic Studies
           1775 Massachusetts Ave. NW
           Washington, DC 20036-2188  USA
   Phone:  202-797-6148
     Fax:  202-797-6181
 Co-Auth:  LEONARD E. BURMAN
   Email:  Mailto:lburman@ui.urban.org
  Postal:  Urban Institute
           2100 M Street, NW
           Washington, DC 20037  USA
 Co-Auth:  DAVID WEINER
   Email:  Mailto:davidw@cbo.gov
  Postal:  Congressional Budget Office
           House Annex 2, SW
           Washington, DC 20515  USA

    Note: This paper prints best in postscript.

ABSTRACT:
 We examine retirement savers' choices between front- and
 back-loaded tax incentives, such as traditional and Roth IRAs,
 respectively. With equal dollar contribution limits, back-loaded
 plans shelter more funds than front-loaded plans. This implies
 that Roth IRAs can be the preferred choice even for investors
 who expect their tax rates to fall in retirement. Empirically,
 we examine how marginal tax rates have varied between 1982 and
 1995 for a sample of taxpayers and calculate both ex ante and ex
 post effective tax rates on front-loaded IRAs. The average
 effective tax rate on traditional IRA contributions made in 1982
 and withdrawn in 1995 was negative 30 percent. Changes in tax
 law after 1982 reduced tax rates considerably. Holding tax law
 constant, the average effective tax rate on IRAs was about
 negative 11 percent. These results occur because the tax rate in
 retirement is lower for most people than the rate while working.
 In contrast, the effective tax rate on Roth IRAs is always zero.
 Despite the lower average effective tax rate on traditional
 IRAs, many taxpayers in the sample would have benefited from
 contributing to a Roth IRA instead of a traditional IRA, due to
 the difference in effective contribution limits.

 Keywords: Taxation, tax policy, taxes and saving, taxes and
 retirement saving, saving incentives, tax-deferred accounts,
 Individual Retirement Accounts, Roth IRAs, front-loaded
 back-loaded, tax deferral
 

JEL Classification: H20, D12
______________________________

"ERISA at 50: A New Model for the Private Pension System"

      BY:  PAMELA J. PERUN
              Urban Institute
           C. EUGENE STEUERLE
              Urban Institute

Document:  Available from the SSRN Electronic Paper Collection:
           http://papers.ssrn.com/paper.taf?abstract_id=236838

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Paper ID:  The Urban Institute, The Retirement Project,
           Occasional Paper, No. 4
    Date:  March 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
 Co-Auth:  C. EUGENE STEUERLE
   Email:  Mailto:esteuerl@ui.urban.org
  Postal:  Urban Institute
           Senior Fellow
           2100 M Street, NW
           Washington, DC 20037  USA

Paper Requests:
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 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:
 In 1999, the Employee Retirement Income Security Act of 1974
 (ERISA), the primary law regulating the private pension system,
 turned 25. Since 1974, ERISA has expanded in unanticipated and
 often irrational ways. The private pension system is now
 burdened with overly complex rules, regulations, and plan types
 inhibiting its ability to generate adequate retirement income
 for millions of Americans. This paper proposes a new model for
 ERISA at 50 with vastly simplified plans and rules intended to
 make the private pension system more accessible by employers and
 employees alike. The center of the proposal is a single,
 standard defined contribution plan that would include a
 simplified option for employee savings. The role played by IRAs
 is also enhanced, enabling them to achieve parity with employer
 plans through a coordinated individual savings limit. The
 proposal also suggests ways in which defined benefit plans could
 be adapted for an aging workforce and alternatives for the
 nondiscrimination rules to increase benefit accruals by
 moderate-income workers. The paper then looks to ERISA at 65 and
 proposes replacing the employer-sponsored plan with individual
 defined contribution accounts offered through the financial
 services industry. It explains how removing the superstructure
 of a plan could simplify benefits law and enable employers to
 spend more of their employee benefit dollars directly on their
 own employees and less on the plan compliance industry.

 Keywords: ERISA, pension, IRA, defined contribution, defined
 benefit, nondiscrimination
 

JEL Classification: J26, J33, J38, K34
______________________________

"The Consequences of Population Aging on Private Pension Fund
 Saving and Asset Markets"

      BY:  SYLVESTER J. SCHIEBER
              Watson Wyatt Worldwide
           JOHN B. SHOVEN
              Stanford University
              Department of Economics
              National Bureau of Economic Research (NBER)

Document:  Available from the SSRN Electronic Paper Collection:
           http://papers.ssrn.com/paper.taf?abstract_id=226964

Paper ID:  NBER Working Paper No. W4665
    Date:  March 1994

 Contact:  SYLVESTER J. SCHIEBER
   Email:  Mailto:Syl_Schieber@watsonwyatt.com
  Postal:  Watson Wyatt Worldwide
           6707 Democracy Boulevard Suite 800
           Bethesda, MD 20817-1129  USA
 Co-Auth:  JOHN B. SHOVEN
   Email:  Mailto:shoven@stanford.edu
  Postal:  Stanford University
           Department of Economics
           Stanford, CA 94305-6072  USA

Paper Requests:
 Full-Text downloads are available from SSRN Online for $5.

ABSTRACT:
 This paper examines the impact of the aging demographic
 structure of the U.S. on its funded private pension system. A
 75-year outlook is produced for the pension system corresponding
 to the 75-year forecast of the Social Security system. The
 primary result is that the pension system will cease being a
 source of national saving in the third decade of the next
 century. The paper speculates about the impact this may have on
 asset prices.