_________________________________________________________________
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. 17: September 11, 2003
_________________________________________________________________
Publisher: LSN Employment, Labor, Compensation & Pension Journals
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Editor: PAMELA PERUN
Urban Institute
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Copyright: SSEP, Inc. 2003. All rights reserved.
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Topic of This Issue:
Retirement Issues
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T A B L E of C O N T E N T S
_________________________________________________________________
NEW and FORTHCOMING ARTICLES
"Individual Account Retirement Plans: An Analysis of the 2001
Survey of Consumer Finances"
EBRI Issue Brief, No. 259, July 2003
CRAIG COPELAND
Employee Benefit Research Institute (EBRI)
"The Impact of Pension Funding on State Government Finances"
State Tax Notes, Vol. 29, No. 7, August 18, 2003
J. FRED GIERTZ
University of Illinois at Urbana-Champaign
Institute of Government and Public Affairs (IGPA)
"Dividing Retirement Assets in Divorce"
Journal of Taxation of Investments, Vol. 20, No. 3, Summer
2003
LINDA RUSSANO MORRA
Brucker & Morra
WORKING PAPERS
"Pension Fund Governance and the Choice Between Defined Benefit
and Defined Contribution Plans"
TIMOTHY J. BESLEY
University of London
Department of Economics
National Bureau of Economic Research (NBER)
Centre for Economic Policy Research (CEPR)
ANDREA PRAT
University of London
Suntory and Toyota International Centres for
Economics and Related Disciplines (STICERD)
Centre for Economic Policy Research (CEPR)
Tilburg University, CentER
"Utility Evaluation of Risk in Retirement Saving Accounts"
JAMES M. POTERBA
Massachusetts Institute of Technology (MIT)
Department of Economics
National Bureau of Economic Research (NBER)
JOSHUA RAUH
Massachusetts Institute of Technology (MIT)
Department of Economics
STEVEN F. VENTI
Dartmouth College
Department of Economics
National Bureau of Economic Research (NBER)
DAVID A. WISE
National Bureau of Economic Research (NBER)
Harvard University
John F. Kennedy School of Government
"Pension Reform in Germany: The Impact on Retirement Decisions"
AXEL H. BöRSCH-SUPAN
Universität Mannheim
Department of Economics
Centre for Economic Policy Research (CEPR)
National Bureau of Economic Research (NBER)
BARBARA BERKEL
Universität Mannheim
Mannheim Research Institut for the Economics of
Aging (MEA)
"The Early Retirement Burden: Assessing the Costs of the
Continued Prevalence of Early Retirement in OECD Countries"
TRYGGVI THOR HERBERTSSON
University of Iceland
Institute of Economic Studies
J. MICHAEL ORSZAG
Watson Wyatt Worldwide
Reigate, Surrey Office
Institute for the Study of Labor (IZA)
"Changes in the Process of Aging During the Twentieth Century:
Findings and Procedures of the Early Indicators Project"
ROBERT W. FOGEL
University of Chicago
Graduate School of Business
National Bureau of Economic Research (NBER)
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N E W and F O R T H C O M I N G Articles
_________________________________________________________________
"Individual Account Retirement Plans: An Analysis of the 2001
Survey of Consumer Finances"
EBRI Issue Brief, No. 259, July 2003
BY: CRAIG COPELAND
Employee Benefit Research Institute (EBRI)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=434762
Other Electronic Document Delivery:
http://www.ebri.org
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Contact: CRAIG COPELAND
Email: Mailto:copeland@ebri.org
Postal: Employee Benefit Research Institute (EBRI)
Suite 600
2121 K Street, NW
Washington, DC 20037-1896 UNITED STATES
Phone: 202-775-6356
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:
This Issue Brief updates the work done on previous versions of
the Survey of Consumer Finances (SCF) by the Employee Benefit
Research Institute (EBRI) with results from the 2001 SCF, which
provides the most recent estimates of Americans' entire
portfolio of wealth. The SCF not only includes levels of
participation in all employment-based retirement plans and
individual retirement accounts (IRAs) by families, but also the
amount in these accounts. In addition, it has data on families'
total assets (not just retirement assets), so the level of
importance that these plans represent can be determined.
Keywords: Demographics, Employment-based Benefits, Pension
Plan Assets, Pension Plan Participation, Retirement Plans,
Wealth
JEL Classification: D31, H31
______________________________
"The Impact of Pension Funding on State Government Finances"
State Tax Notes, Vol. 29, No. 7, August 18, 2003
BY: J. FRED GIERTZ
University of Illinois at Urbana-Champaign
Institute of Government and Public Affairs (IGPA)
Contact: J. FRED GIERTZ
Email: Mailto:j-giertz@uiuc.edu
Postal: University of Illinois at Urbana-Champaign
Institute of Government and Public Affairs
(IGPA)
Urbana, IL 61801 UNITED STATES
ABSTRACT:
The author writes that state pension funding is no sounder today
than it was in the early 1990s. Pension funding issues must be
considered when states address long-term structural imbalance
problems, the author says.
______________________________
"Dividing Retirement Assets in Divorce"
Journal of Taxation of Investments, Vol. 20, No. 3, Summer
2003
BY: LINDA RUSSANO MORRA
Brucker & Morra
Contact: LINDA RUSSANO MORRA
Email: Mailto:morra@pensionlawyers.com
Postal: Brucker & Morra
10880 Wilshire Boulevard, Suite 2210
Los Angeles, CA 90024 UNITED STATES
ABSTRACT:
Executives with substantial income can accumulate sizeable
benefits under qualified retirement plans and individual
retirement accounts. Workers with moderate income also can
accumulate large account balances in 401(k) plans as well as
pensions in traditional defined benefit pension plans. Thus, it
is no surprise that pension assets often represent a significant
part of the marital estate to be divided in cases of divorce or
legal separation. Although practitioners in the matrimonial area
traditionally practice under state law, these benefits are
creations of federal law and are subject to federal regulation.
Consequently a thorough knowledge of the federal laws regarding
assignment of these benefits is essential to effectively divide
them and at the same time, take full advantage of the favorable
tax treatment afforded these benefits. This article reviews the
issues and requirements involved, and recent developments.
______________________________
W O R K I N G P A P E R Abstracts
_________________________________________________________________
"Pension Fund Governance and the Choice Between Defined Benefit
and Defined Contribution Plans"
BY: TIMOTHY J. BESLEY
University of London
Department of Economics
National Bureau of Economic Research (NBER)
Centre for Economic Policy Research (CEPR)
ANDREA PRAT
University of London
Suntory and Toyota International Centres for
Economics and Related Disciplines (STICERD)
Centre for Economic Policy Research (CEPR)
Tilburg University, CentER
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=436991
Paper ID: CEPR Discussion Paper No. 3955
Date: June 2003
Contact: TIMOTHY J. BESLEY
Email: Mailto:t.besley@lse.ac.uk
Postal: University of London
Department of Economics
Houghton Street
London WC2A 2AE, UNITED KINGDOM
Phone: +44 20 7955 6702
Fax: +44 20 7955 6951
Co-Auth: ANDREA PRAT
Email: Mailto:a.prat@lse.ac.uk
Postal: University of London
Suntory and Toyota International Centres for
Economics and Related Disciplines (STICERD)
Houghton Street
London WC2A 2AE, UNITED KINGDOM
Paper Requests:
Contact CEPR Discussion papers, 90-98 Goswell Road, London EC1V
7RR, UK. Phone:(44 20)7878 2900. Fax:(44 20) 7878 2999.
Mailto:orders@cepr.org Fee: 5 (British Pound Sterling) /US $5 /8
euros per paper. Payment in advance is requested. Postage and
packing additional.
ABSTRACT:
Recent events in several countries have underscored the
importance of good governance in private occupational pension
plans. The present Paper uses contract theory to analyse the
interplay of residual claims and control rights in private
pensions. The residual claimant is the plan sponsor in a defined
benefit (DB) plan and the pool of beneficiaries in a defined
contribution (DC) plan. The main control rights we examine
relate to decisions on funding, asset allocation, and asset
management. Under complete contracting, governance can be shown
to be neutral: DC and DB plans differ only on risk allocation.
If instead contracts are incomplete, a DB (DC) plan should: (1)
Assign more vigilance responsibility to the sponsor
(beneficiaries); (2) Rely less (more) on trustees; (3) Tend to
employ trustees that are professional experts (caring insiders);
(4) Assign asset allocation rights to the sponsor
(beneficiaries); (5) have strict funding requirements.
Keywords: Pension fund, governance, private pension
JEL Classification: G23
______________________________
"Utility Evaluation of Risk in Retirement Saving Accounts"
BY: JAMES M. POTERBA
Massachusetts Institute of Technology (MIT)
Department of Economics
National Bureau of Economic Research (NBER)
JOSHUA RAUH
Massachusetts Institute of Technology (MIT)
Department of Economics
STEVEN F. VENTI
Dartmouth College
Department of Economics
National Bureau of Economic Research (NBER)
DAVID A. WISE
National Bureau of Economic Research (NBER)
Harvard University
John F. Kennedy School of Government
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=435420
Paper ID: NBER Working Paper No. W9892
Date: August 2003
Contact: JAMES M. POTERBA
Email: Mailto:poterba@mit.edu
Postal: Massachusetts Institute of Technology (MIT)
Department of Economics
E52-350
50 Memorial Drive
Cambridge, MA 02142 UNITED STATES
Phone: 617-253-6673
Fax: 617-253-1330
Co-Auth: JOSHUA RAUH
Email: Mailto:rauh@mit.edu
Postal: Massachusetts Institute of Technology (MIT)
Department of Economics
50 Memorial Drive
Cambridge, MA 02142 UNITED STATES
Co-Auth: STEVEN F. VENTI
Email: Mailto:STEVEN.F.VENTI@DARTMOUTH.EDU
Postal: Dartmouth College
Department of Economics
6106 Rockefeller Center
Hanover, NH 03755 UNITED STATES
Co-Auth: DAVID A. WISE
Email: Mailto:DWISE@NBER.ORG
Postal: National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138 UNITED STATES
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
The shift from defined benefit to defined contribution plans in
the United States has drawn new attention to the effect of
participants' asset allocation decisions on their financial
resources for retirement. This paper develops a stochastic
simulation algorithm to evaluate the effect of holding a broadly
diversified portfolio of common stocks, or a portfolio of index
bonds, on the distribution of 401(k) account balances at
retirement. We compare the alternative distributions of
retirement wealth both by showing the empirical distribution of
potential wealth values, and by computing the expected utility
of these outcomes under standard assumptions about the structure
of household preferences. Our analysis highlights the critical
role of other sources of wealth, such as Social Security,
defined benefit pension annuities, and saving outside retirement
plans in determining the expected utility cost of holding
equities in the retirement account. Our findings also
demonstrate the importance of the equity premium in affecting
investors' utility from different retirement asset allocations.
Viewed from the beginning of a working career, and given the
historical pattern of returns on stocks and bonds, a household
that does not have extremely high risk aversion would achieve a
higher expected utility by holding a portfolio of stocks rather
than bonds.
JEL Classification: I0, H0
______________________________
"Pension Reform in Germany: The Impact on Retirement Decisions"
BY: AXEL H. BöRSCH-SUPAN
Universität Mannheim
Department of Economics
Centre for Economic Policy Research (CEPR)
National Bureau of Economic Research (NBER)
BARBARA BERKEL
Universität Mannheim
Mannheim Research Institut for the Economics of
Aging (MEA)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=437482
Paper ID: NBER Working Paper No. W9913
Date: August 2003
Contact: AXEL H. BöRSCH-SUPAN
Email: Mailto:abs@econ.uni-mannheim.de
Postal: Universität Mannheim
Department of Economics
68131 Mannheim, GERMANY
Phone: 49-621-181-1861
Fax: 49-621-292-5426
Co-Auth: BARBARA BERKEL
Email: Mailto:bberkel@gmx.net
Postal: Universität Mannheim
Mannheim Research Institut for the Economics of
Aging (MEA)
Building L13, 17
D-68131 Mannheim, GERMANY
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
The financing problems beleaguering the public pension system
have again shifted the spotlight onto the retirement age. This
paper examines the impact of various reform options on the
actual retirement choices of older workers. The paper focuses in
particular on the long-term implications of the changes
implemented in pension legislation since 1992 and the reform
options discussed by the German Social Security Reform
Commission installed in 2002, the so called 'Ruerup Commission'.
Our simulations show that the early-retirement pension
adjustment factors introduced by the 1992 pension reform will,
in the long term, raise the average effective age of retirement
for men by somewhat less than two years. The across-the-board
two-year increase in all the relevant age limits proposed by the
'Ruerup Commission' would raise the effective average age of
retirement of men by about eight months. If the actuarial
adjustment factor is increased from 3.6% to 6% per year, the
effective average retirement age rises by almost two years. The
effects are considerably weaker for women.
JEL Classification: I0
______________________________
"The Early Retirement Burden: Assessing the Costs of the
Continued Prevalence of Early Retirement in OECD Countries"
BY: TRYGGVI THOR HERBERTSSON
University of Iceland
Institute of Economic Studies
J. MICHAEL ORSZAG
Watson Wyatt Worldwide
Reigate, Surrey Office
Institute for the Study of Labor (IZA)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=434522
Other Electronic Document Delivery:
ftp://ftp.iza.org/dps/dp816.pdf
SSRN only offers technical support for papers
downloaded from the SSRN Electronic Paper Collection
location. When URLs wrap, you must copy and paste
them into your browser eliminating all spaces.
Paper ID: IZA Discussion Paper No. 816
Date: July 2003
Contact: J. MICHAEL ORSZAG
Email: Mailto:Michael.Orszag@eu.watsonwyatt.com
Postal: Watson Wyatt Worldwide
Reigate, Surrey Office
Watson House
London Road
Reigate, Surrey RH2 9PQ, UNITED KINGDOM
Phone: +44 1737 241144
Fax: +44 1737 241496
Co-Auth: TRYGGVI THOR HERBERTSSON
Email: Mailto:tthh@hi.is
Postal: University of Iceland
Institute of Economic Studies
Aragata 14
IS-101 Reykjavik, ICELAND
Paper Requests:
Contact: Mark Fallak, Institute for the Study of Labor (IZA),
P.O. Box 7240, D-53072 Bonn, Germany. Phone:+49-228-3894-0 ext.
223. Fax:+ 49-228-3894-510. Mailto:Fallak@iza.org
ABSTRACT:
Despite substantial increases in longevity, the age of
retirement in the industrialized countries has steadily fallen
throughout most of the 20th century. In France, for instance,
the employment-population ratio of 55-64 year-old males fell
from 74% in 1970 to 38.5% in 2000. In most other OECD countries,
labor force participation rates for those 65 and above have
fallen significantly. The economic cost of low labor market
participation, in terms of lost output, benefit payments, and
lower tax base is substantial. However, part of the cost of low
labor market participation is cyclical or structural and hence
separate from the costs of early retirement. This paper develops
a simple framework to assess the specific costs of early
retirement and applies it using data from the OECD countries.
More significantly, we find that the costs associated with early
retirement are projected to rise considerably in the next ten
years from 7.6% of output in 2003 to 9.1% of output in 2010.
This projected rise in the costs of early retirement over the
course of the rest of the decade is slightly larger than the
percentage point rise in the costs of early retirement over the
twenty year period from 1982 to 2003. The projected rise in
costs over the course of the next decade is largely due to
population ageing, whereas the rise in costs over the past
twenty years was primarily due to lower labor force
participation of older workers.
Keywords: Early Retirement, Labor Supply/Demand, Foregone
Output
JEL Classification: H55, J14, J21, J26
______________________________
"Changes in the Process of Aging During the Twentieth Century:
Findings and Procedures of the Early Indicators Project"
BY: ROBERT W. FOGEL
University of Chicago
Graduate School of Business
National Bureau of Economic Research (NBER)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=439622
Paper ID: NBER Working Paper No. W9941
Date: September 2003
Contact: ROBERT W. FOGEL
Email: Mailto:rwf@cpe.uchicago.edu
Postal: University of Chicago
Graduate School of Business
Center for Population Economics
1101 East 58th Street
Chicago, IL 60637 UNITED STATES
Phone: 773-702-7709
Fax: 773-702-2901
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
The program project Early Indicators of Later Work Levels,
Disease and Death investigates how socioeconomic and
environmental factors in early life can shape health and work
levels in later life. Project researchers have approached this
problem by creating a life-cycle sample that permits a
longitudinal study of the aging of Union Army veterans, the
first cohort to reach age 65 during the twentieth century.
Comparing Union Army data with data from NHANES and NHIS has
shown that age-specific prevalence rates of specific chronic
diseases and disabilities were much higher in the century before
World War II among both young and old than today. Moreover, the
number of comorbidities at each age has fallen sharply. Also,
the average age at onset of chronic diseases was more than a
decade later at the end of the twentieth century than at the
beginning. The implications of these findings for several issues
in health economics are discussed.