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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
& P E N S I O N L A W
Vol. 3, No. 16: August 29, 2002
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Publisher: LSN Employment, Labor, Compensation & Pension Journals
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Editor: PAMELA PERUN
Urban Institute
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Copyright: SSEP, Inc. 2002. All rights reserved.
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Contemporary Issues
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T A B L E of C O N T E N T S
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NEW and FORTHCOMING ARTICLES
"Defined Contribution Plans With Rate-of-Return Guarantees"
EBRI Notes, Vol. 23, No. 5, May 2002
DAVID RAJNES
Employee Benefit Research Institute (EBRI)
"What Enron Means for the Management and Control of the Modern
Business Corporation: Some Initial Reflections"
Forthcoming, University of Chicago Law Review, Summer 2002
JEFFREY N. GORDON
Columbia Law School
WORKING PAPERS
"Annuities for an Ageing World"
OLIVIA S. MITCHELL
University of Pennsylvania, Wharton School
National Bureau of Economic Research (NBER)
DAVID GLEN MCCARTHY
University of Pennsylvania
The Wharton School
"Is Retirement Depressing?: Labor Force Inactivity and
Psychological Well-Being in Later Life"
KERWIN K. CHARLES
University of Michigan - Department of Economics &
Ford School
National Bureau of Economic Research (NBER)
"Compensation and Recruiting: Private Universities Versus Private
Corporations"
BRADFORD CORNELL
University of California, Los Angeles
Anderson School of Management
"Does It Pay to Work?"
JAGADEESH GOKHALE
Federal Reserve Bank of Cleveland
LAURENCE J. KOTLIKOFF
Boston University
National Bureau of Economic Research (NBER)
ALEXI SLUCHYNSKY
Kosovo Ministry of Economy and Finance
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N E W and F O R T H C O M I N G Articles
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"Defined Contribution Plans With Rate-of-Return Guarantees"
EBRI Notes, Vol. 23, No. 5, May 2002
BY: DAVID RAJNES
Employee Benefit Research Institute (EBRI)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=314461
Contact: DAVID RAJNES
Email: Mailto:rajnes@ebri.org
Postal: Employee Benefit Research Institute (EBRI)
Suite 600
2121 K Street, NW
Washington, DC 20037-1896 UNITED STATES
Phone: 202-775-6329
Fax: 202-775-6312
Paper Requests:
Contact Alicia Willis at Mailto:publications@ebri.org, or 2121 K
St., NW, Suite 600, Washington, DC 20037-1896.
Phone:(202)572-7422, Fax:(202)775-6312. Full-Text downloads are
available from SSRN Online for $7.50.
ABSTRACT:
A notable development in retirement income security over the
past 20 years is the growing share of defined contribution (DC)
plans among retirement systems throughout the world. Because
participants' benefits in these plans are directly related to
investment returns, concern about the risk borne by workers in
DC plans has grown. One of the strategies suggested to address
this issue is to adopt some type of rate-of-return guarantee
feature in the retirement plan design. This article examines the
operation of rate-of-return guarantees in both mandatory and
voluntary DC plans throughout the world. The range of guarantee
features surveyed suggests a wide variety of conditions and
motivating factors at work in the United States and in other
countries. The article's conclusions link the discussion to the
current debate in Congress over limiting investment flexibility
in American workers' 401(k) accounts.
Keywords: Defined contribution plans, Employment-based
benefits, Pension plan design
JEL Classification: J32
______________________________
"What Enron Means for the Management and Control of the Modern
Business Corporation: Some Initial Reflections"
Forthcoming, University of Chicago Law Review, Summer 2002
BY: JEFFREY N. GORDON
Columbia Law School
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=305343
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Paper ID: Columbia Law and Economics Working Paper No. 203
Contact: JEFFREY N. GORDON
Email: Mailto:JGORDON@LAW.COLUMBIA.EDU
Postal: Columbia Law School
Ctr. for Law and Economic Studies
435 West 116th Street
New York, NY 10027 UNITED STATES
Phone: 212-854-2316
Fax: 212-854-7946
Paper Requests:
Contact Thelma Twyman: Center for Law and Economic Studies,
Columbia Law School, 435 West 116th St., New York, NY
10027-7201. Phone:(212)854-3739. Fax:(212) 854-0221.
Mailto:ttwyman@law.columbia.edu
ABSTRACT:
The Enron case challenges some of the core beliefs and practices
that have underpinned various positions in the debates about
corporate law and governance, including mergers and
acquisitions, since the 1980s. In particular, Enron raises at
least the following problems for the received model of corporate
governance:
First, it provides another set of reasons to question the
strength of the efficient market hypothesis, here, the company's
dizzyingly high stock price despite transparently irrational
reliance on its auditors' compromised certification.
Second, it undermines faith in the corporate governance
mechanism - the monitoring board - that has been offered as a
substitute for unfettered shareholder access to the market for
corporate control. In particular, the board's capacity to
protect the integrity of financial disclosure has not kept pace
with the increasing reliance on stock price performance in
measuring and rewarding managerial performance.
Third, it suggests the existence of tradeoffs in the use of
stock options in executive compensation because of the potential
pathologies of the risk-preferring management team.
Fourth, it shows the poor fit between stock-based employee
compensation and employee retirement planning. More generally,
it raises questions about the shift in retirement planning
towards defined contribution plans, which make employees risk
bearers and financial planners, and away from defined benefit
plans, which impose some of the risk and fiduciary planning
obligations on firms.
Although the disclosure, monitoring and other failures may
lead to useful reforms, Enron also reminds us that there is a
problem that cannot be solved but can only be contained in the
tension between imperfectly fashioned incentives and
self-restraint.
Keywords: Enron, corporate governance, efficient market,
accountants, directors, stock options, pensions
JEL Classification: G14, G34, K22, L14, M52
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W O R K I N G P A P E R Abstracts
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"Annuities for an Ageing World"
BY: OLIVIA S. MITCHELL
University of Pennsylvania, Wharton School
National Bureau of Economic Research (NBER)
DAVID GLEN MCCARTHY
University of Pennsylvania
The Wharton School
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=321358
Paper ID: NBER Working Paper No. W9092
Date: August 2002
Contact: OLIVIA S. MITCHELL
Email: Mailto:mitchelo@wharton.upenn.edu
Postal: University of Pennsylvania, Wharton School
Wharton Financial Institutions Center
3641 Locust Walk
Philadelphia, PA 19104-6365 UNITED STATES
Phone: 215-746-5706
Fax: 215-898-0310
Co-Auth: DAVID GLEN MCCARTHY
Email: Mailto:DMCCARTH@WHARTON.UPENN.EDU
Postal: University of Pennsylvania
The Wharton School
Philadelphia, PA 19104-6365 UNITED STATES
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
Substantial research attention has been devoted to the pension
accumulation process, whereby employees and those advising them
work to accumulate funds for retirement. Until recently, less
analysis has been devoted to the pension decumulation process -
the process by which retirees finance their consumption during
retirement. This gap has recently begun to be filled by an
active group of researchers examining key aspects of the pension
payout market. One of the areas of most interesting
investigation has been in the area of annuities, which are
financial products intended to cover the risk of retirees
outliving their assets. This paper reviews and extends recent
research examining the role of annuities in helping finance
retirement consumption. We also examine key market and
regulatory factors.
JEL Classification: G2, H4, J1
______________________________
"Is Retirement Depressing?: Labor Force Inactivity and
Psychological Well-Being in Later Life"
BY: KERWIN K. CHARLES
University of Michigan - Department of Economics &
Ford School
National Bureau of Economic Research (NBER)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=317618
Paper ID: NBER Working Paper No. W9033
Date: June 2002
Contact: KERWIN K. CHARLES
Email: Mailto:kcharles@umich.edu
Postal: University of Michigan - Department of Economics & Ford
School
611 Tappan Street
Ann Arbor, MI 48109-1220 UNITED STATES
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
This paper assesses how retirement - defined as permanent labor
force non-participation in a man's mature years - affects
psychological welfare. The raw correlation between retirement
and well-being is negative. But this does not imply causation.
In particular, people with idiosyncratically low well-being, or
people facing transitory shocks which adversely affect
well-being might disproportionately select into retirement.
Discontinuous retirement incentives in the Social Security
System, and changes in laws affecting mandatory retirement and
Social Security benefits allows the exogenous effect of
retirement on happiness to be estimated. The paper finds that
the direct effect of retirement on well-being is positive once
the fact that retirement and well being are simultaneously
determined is accounted for.
JEL Classification: I310, J140, J170, J260
______________________________
"Compensation and Recruiting: Private Universities Versus Private
Corporations"
BY: BRADFORD CORNELL
University of California, Los Angeles
Anderson School of Management
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=312284
Paper ID: UCLA Finance Working Paper
Date: April 2002
Contact: BRADFORD CORNELL
Email: Mailto:brad.cornell@anderson.ucla.edu
Postal: University of California, Los Angeles
Anderson School of Management
110 Westwood Plaza
Los Angeles, CA 90095-1481 UNITED STATES
Phone: 310-825-2922
Fax: 310-206-5455
ABSTRACT:
This paper attempts to shed light on the continuing debate
regarding executive compensation by comparing the income of S&P
500 CEOs with that of the presidents of elite private
universities. The results reveal that university presidents are
paid only a fraction of what CEOs are paid -- less than 5% in
2000. Nonetheless, universities are able to attract leaders with
qualifications and accomplishments equivalent to that of the
most distinguished CEOs. Furthermore, university presidents
appear to be willing to work as hard and as much in the
interests of their constituents as corporate CEOs despite the
lack of any meaningful incentive clauses in their contracts.
These results suggest that the standard principal agent model
used in evaluating compensation needs to be extended
significantly before it can be applied to situations in which a
few select people are recruited for highly paid jobs that offer
the chance to lead major institutions.
JEL Classification: G32
______________________________
"Does It Pay to Work?"
BY: JAGADEESH GOKHALE
Federal Reserve Bank of Cleveland
LAURENCE J. KOTLIKOFF
Boston University
National Bureau of Economic Research (NBER)
ALEXI SLUCHYNSKY
Kosovo Ministry of Economy and Finance
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=321362
Paper ID: NBER Working Paper No. W9096
Date: August 2002
Contact: LAURENCE J. KOTLIKOFF
Email: Mailto:KOTLIKOF@BU.EDU
Postal: Boston University
Department of Economics
595 Commonwealth Avenue
Boston, MA 02215 UNITED STATES
Phone: 617-353-4002
Fax: 617-353-4449
Co-Auth: JAGADEESH GOKHALE
Email: Mailto:JGOKHALE@CLEV.FRB.ORG
Postal: Federal Reserve Bank of Cleveland
East 6th & Superior
Cleveland, OH 44101-1387 UNITED STATES
Co-Auth: ALEXI SLUCHYNSKY
Email: not available
Postal: Kosovo Ministry of Economy and Finance
Kosovo, YUGOSLAVIA
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
Does it pay to work? Given the number and complexity of federal
and state tax and transfer systems, this is a tough question to
answer. The problem is greatly compounded by the fact that what
one earns in one year alters not just current taxes and transfer
payments in that year, but in future years as well. Thus,
understanding the net effective tax on work and the changes in
this taxation associated with policy reforms requires an
intertemporal model capable of carefully determining tax and
transfer payments at each stage of the life cycle. This study
uses ESPlanner, a financial planning software program, to study
the net work tax levied on workers with different earnings
capacities. ESPlanner smooths households' living standards
subject to their capacities to borrow. In so doing, it makes
highly detailed, year-by-year federal and state income tax and
Social Security benefit calculations. To produce a comprehensive
net work tax measure, we added to ESPlanner all other major
transfer programs.
We focus on lifetime average and marginal net work-tax rates,
which are measured by comparing the present values of lifetime
spending from working through retirement both in the presence
and in the absence of all tax-transfer programs. We form these
tax rates for young stylized married workers. We report seven
findings. First, our fiscal system is highly progressive.
Households earning the minimum wage receive 18 cents in benefits
net of taxes for every dollar they earn. In contrast, households
with million dollar salaries pay 54 cents in taxes net of
benefits per dollar earned. Second, progressivity is primarily
restricted to the bottom end of the income distribution. Average
net work tax rates of middle class households are relatively
high compared with those of the rich. Third, while the poor face
negative average taxes, they face significant positive marginal
net taxes on working. Indeed, a minimum wage household that
chooses to work is forced to surrender 34 cents of every dollar
earned in net taxes. Those with earnings that exceed 1.5 times
the minimum wage face marginal net taxes on full-time work above
50 percent. Fourth, low-wage workers face confiscatory tax rates
on switching from part-time to full-time work. Fifth, the same
is true of secondary earning spouses in low-wage households.
Sixth, the marginal net tax on working is particularly high for
young households with low incomes. Seventh, average and marginal
net work tax rates are relatively insensitive to the assumed
rate of real wage growth and the discount rate. And eighth,
major tax reforms, such as switching from income to consumption
taxation, can have a significant affect on the fiscal system's
overall progressivity.
JEL Classification: H2