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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. 4, No. 7: April 10, 2003
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Publisher: LSN Employment, Labor, Compensation & Pension Journals
a division of
Social Science Electronic Publishing, Inc. (SSEP)
and Social Science Research Network (SSRN)
Editor: PAMELA PERUN
Urban Institute
Mailto:pamela@planetnow.com
Copyright: SSEP, Inc. 2003. All rights reserved.
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Topic of This Issue:
Papers from the Society of Actuaries, Part I
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T A B L E of C O N T E N T S
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WORKING PAPERS
"Protecting Participants and Beneficiaries in a Phased Retirement
World"
PATRICIA SCAHILL
Ernst & Young, LLP
JONATHAN BARRY FORMAN
University of Oklahoma College of Law
"What Can Americans Do About Aging?"
THORNTON PARKER
Independent
"Financial Education and Retirement Savings"
ROBERT L. CLARK
North Carolina State University
MADELEINE D'AMBROSIO
Teachers Insurance and Annuity Association,
TIAA-CREF Institute
"Qualified Pension Plans and Health Care for the Elderly: The
Perfect Macroeconomic Immunized Portfolio"
ROBERT L. BROWN
University of Waterloo
Statistics and Actuarial Science
"A Dynamic Social Security System in Unison with Demographic and
Lifestyle Changes"
CHIU-CHENG CHANG
Chang Gung University
Graduate Institute of Management
"Can Latin American Experience Teach us Something about
Privatized Pensions with Individual Accounts?"
TAPEN SINHA
Instituto Tecnologico Autonomo de Mexico (ITAM)
Division of Mathematics & Statistics
S S R N I N F O R M A T I O N
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W O R K I N G P A P E R Abstracts
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"Protecting Participants and Beneficiaries in a Phased Retirement
World"
BY: PATRICIA SCAHILL
Ernst & Young, LLP
JONATHAN BARRY FORMAN
University of Oklahoma College of Law
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=390360
Contact: JONATHAN BARRY FORMAN
Email: Mailto:JFORMAN@OU.EDU
Postal: University of Oklahoma College of Law
300 Timberdell Road
Norman, OK 73019 UNITED STATES
Phone: 405-325-4779
Fax: 405-325-6282
Co-Auth: PATRICIA SCAHILL
Email: Mailto:pscahill@ix.netcom.com
Postal: Ernst & Young, LLP
111 Monument Circle, Suite 2600
Indianapolis, IN 46204-2094 UNITED STATES
ABSTRACT:
The U.S. society is aging. The nature of work is changing from
work that requires physical strength to work based on knowledge.
As a result, workers are beginning to phase into retirement
rather than going directly from full-time work to full
retirement. From a retirement income perspective, many final
average pay defined-benefit plans have features that make phased
retirement difficult at best and detrimental at worst. U.S.
pension law and regulations present barriers to phased
retirement if the phased retiree wants to receive a portion of
available pension benefits during phased retirement.
This paper discusses the reasons for the trend toward phased
retirement and looks at the legal and actuarial aspects of
phased retirement as they apply to a simple defined-benefit
plan. The calculation of final average pay is critical to the
impact of phased retirement on the ultimate pension benefit. The
plan's early retirement reduction and late retirement increase
can be set to maintain actuarial equity throughout phased
retirement, and this paper demonstrates one way of achieving
this equity. Phased retirement can impact participant and
spousal protections.
This paper discusses some of those impacts and suggests
possible safeguards. The tables in the Appendix show various
retirement patterns and their impact on retirement benefits.
They also show the impact of various final average pay
definitions on the phased retiree's retirement benefits.
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"What Can Americans Do About Aging?"
BY: THORNTON PARKER
Independent
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=390624
Contact: THORNTON PARKER
Email: Mailto:tipparker@aol.com
Postal: Independent
No Address Available,
ABSTRACT:
The scope of papers discussed at this conference shows that
nothing is making the job of actuaries much easier. Most
Americans can expect to live longer than earlier generations, so
their needs, capabilities, assets, family circumstances, and
desires will become increasingly diverse. But despite glowing
claims for retirement plans, many baby boomers will not have
enough money to retire comfortably.
Just changing blanket provisions such as retirement
eligibility ages for large groups of people will not be
adequate. The country should develop new ways to identify and
meet the widely differing needs of individuals and help them
adapt to their changing situations. This should be done in the
context of what the country will be able to do in the future.
This paper starts at opposite poles and works toward the
middle. The first pole is based on the environmental notion of
carrying capacity - how many retired adults the nation and its
working population can support. The second pole is the growing
diversity of needs and desires of older people and employers.
These two poles - the limits to what the country can do in
relation to what individuals, employers, and communities want or
need - will frame the issues of aging for decades. The issues
will require finding acceptable blends of political,
administrative, free market, and individual choices.
Finding these blends will require a high level of thinking
that will involve far more than abstract philosophy. The country
may be approaching a period like the one that followed May 15,
1776, when the Continental Congress advised the thirteen
colonies to develop their own ways to govern themselves to
replace the English governors and appointees. We can learn from
how they handled that unprecedented task.
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"Financial Education and Retirement Savings"
BY: ROBERT L. CLARK
North Carolina State University
MADELEINE D'AMBROSIO
Teachers Insurance and Annuity Association,
TIAA-CREF Institute
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=390642
Contact: ROBERT L. CLARK
Email: Mailto:ROBERT_CLARK@NCSU.EDU
Postal: North Carolina State University
College of Management
Raleigh, NC 27695 UNITED STATES
Phone: 919-515-5560
Fax: 919-515-5564
Co-Auth: MADELEINE D'AMBROSIO
Email: Mailto:mdambrosio@tiaa-cref.org
Postal: Teachers Insurance and Annuity Association, TIAA-CREF
Institute
730 Third Avenue
New York, NY 10017-3206 UNITED STATES
ABSTRACT:
We acknowledge the cooperation of numerous consultants in
TIAA-CREF Consulting Services who administered the surveys in
conjunction with seminars around the country. We would like to
thank Pirie McIndoe, Al Gonzalez, and Brian Usischon, TIAA-CREF
Raleigh-Durham Office, for their assistance in pretesting the
survey and Robert Romano, TIAA-CREF Sales Support, for his
efforts in coordinating the integration of the surveys with the
financial education seminars. Paul Mulvey played a major role in
the design of the survey, and Kshama Sawant provided important
data analysis assistance for the project. Juanita Kreps
contributed to the development of the overall project. Professor
Clark's research on this project is supported by a grant from
the TIAA-CREF Institute.
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"Qualified Pension Plans and Health Care for the Elderly: The
Perfect Macroeconomic Immunized Portfolio"
BY: ROBERT L. BROWN
University of Waterloo
Statistics and Actuarial Science
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=390702
Contact: ROBERT L. BROWN
Email: Mailto:rlbrown@uwaterloo.ca
Postal: University of Waterloo
Statistics and Actuarial Science
Waterloo, Ontario N2L 3G1 CANADA
ABSTRACT:
Politicians and the public are all beginning to worry about how
people will be able to afford the health care demands of an
aging population, especially when the baby boomers retire.
Politicians are also worried about how much money is lost from
tax revenues today because of the tax advantages offered in
employer-sponsored Qualified Pension Plans (QPPs) and Individual
Retirement Accounts (IRAs), including 401(k) plans. Under these
schemes, contributions (for some plans, both employer and
employee) within limits are tax-deductible and investment income
accrues tax-free until the pension funds are taken as income.
Thus, there is significant taxpayer participation in these
schemes.
While it is true that these Qualified Plans cost the
government tax revenues today, it is also true that the same
schemes will create increased tax revenues for the government
when the baby boomers retire and turn their pension assets into
taxable retirement income.
This paper models the extent of the tax dollars being lost by
the government today because of QPPs and IRAs, then goes on to
project the extra revenue that will accrue to the government
from these same pension plans when the baby boomers retire. It
then points out that these extra pension income dollars of tax
revenue will arrive at exactly the time that the baby boomers
will need extra government support to pay for their increased
health care delivery.
In short, this paper shows that it is possible to create the
perfect macroeconomic immunized portfolio.
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"A Dynamic Social Security System in Unison with Demographic and
Lifestyle Changes"
BY: CHIU-CHENG CHANG
Chang Gung University
Graduate Institute of Management
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=390703
Contact: CHIU-CHENG CHANG
Email: Mailto:huilin@mail.cgu.edu.tw
Postal: Chang Gung University
Graduate Institute of Management
Tao Yuan, TAIWAN
Phone: 886 3 327 5108
Fax: 886 3 327 1304
ABSTRACT:
This paper describes changes in demographic, family, and
lifestyle patterns and anticipated major trends in further
changes. Facing these changes, we introduce a dynamic social
security system deemed most suitable for accommodating the
changes. The details of the operation of the system then are
described. All the desirable features of the system also are
emphasized. Finally, all the issues encountered by the existing
social security systems and questions with respect to the
synergies of pensions,long-term care and health care then are
answered under the system.
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"Can Latin American Experience Teach us Something about
Privatized Pensions with Individual Accounts?"
BY: TAPEN SINHA
Instituto Tecnologico Autonomo de Mexico (ITAM)
Division of Mathematics & Statistics
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=390720
Contact: TAPEN SINHA
Email: Mailto:TAPEN@GAUSS.RHON.ITAM.MX
Postal: Instituto Tecnologico Autonomo de Mexico (ITAM)
Division of Mathematics & Statistics
Rio Hondo No. 1, Tizapan
Rio Hondo #1 Col. Tizapan San Angel
C.P. 01000 Del. Alvaro Obregon, MEXICO
Phone: (52-5) 628-4083
Fax: (52-5) 628-4086
ABSTRACT:
Out of all the regions in the world, Latin America has
accumulated the most experience with pension privatization of
individual accounts (in the form of defined contribution plans).
Chile and seven other countries have privatized their pension
systems in different degrees (see, Tapen Sinha, Pension Reform
in Latin America and Its Lessons for International Policymakers,
Kluwer Academic Publishers, 2000). A number of policymakers
(especially in conservative think tanks) have hailed
privatization as a big success. In a rare move, the policymakers
in the U.S. and in other developed countries actually have
listened to these so-called success stories with a view toward
implementing privatization in their own countries. This paper
critically examines if there are lessons that could possibly
learned from the collective experience in Latin America.