_________________________________________________________________
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. 21: November 6, 2003
_________________________________________________________________
Publisher: LSN Employment, Labor, Compensation & Pension Journals
a division of
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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:
Pension Plans
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T A B L E of C O N T E N T S
_________________________________________________________________
NEW and FORTHCOMING ARTICLES
"Cash Balance Plans and the Distribution of Pension Wealth"
Industrial Relations, Vol. 42, pp. 745-773, October 2003
RICHARD W. JOHNSON
Urban Institute
CORI E. UCCELLO
Urban Institute
"EBRI Research Highlights: Retirement Benefits"
EBRI Issue Brief, No. 258, June 2003
KENNETH J. MCDONNELL
Employee Benefit Research Institute (EBRI)
CRAIG COPELAND
Employee Benefit Research Institute (EBRI)
"Regulation for Conservatives: Behavioral Economics and the Case
for 'Asymmetric Paternalism'"
University of Pennsylvania Law Review, June 2003
COLIN F. CAMERER
California Institute of Technology
Division of the Humanities and Social Sciences
SAMUEL ISSACHAROFF
Columbia Law School
GEORGE F. LOEWENSTEIN
Carnegie Mellon University
Department of Social and Decision Sciences
TED O'DONOGHUE
Cornell University
Department of Economics
MATTHEW RABIN
University of California, Berkeley
Department of Economics
"Findings from the 2003 Retirement Confidence Survey (RCS) and
Minority RCS"
EBRI Notes, Vol. 21, No. 9, July 2003
VARINY PALADINO
American Savings Education Council
RUTH HELMAN
Mathew Greenwald & Associates
WORKING PAPERS
"Defined Contribution Pension Plans: Determinants of
Participation and Contributions Rates"
GUR HUBERMAN
Columbia Business School - Department of Finance &
Economics
SHEENA SETHI-IYENGAR
Columbia Business School - Management Division
WEI JIANG
Columbia Business School - Finance and Economics
Division
"Retirement and the Evolution of Pension Structure"
LEORA FRIEDBERG
University of Virginia
Department of Economics
National Bureau of Economic Research (NBER)
ANTHONY WEBB
International Longevity Center
"Company Stock in 401(k) Plans"
GUR HUBERMAN
Columbia Business School - Department of Finance &
Economics
PAUL F. SENGMUELLER
Columbia University
Department of Economics
Universiteit van Amsterdam (UVA)
"Phasing Into Retirement"
STEVEN G. ALLEN
North Carolina State University
College of Management
National Bureau of Economic Research (NBER)
ROBERT L. CLARK
North Carolina State University
College of Management
LINDA GHENT
Eastern Illinois University
Department of Economics
"Did Pension Plan Accounting Contribute to a Stock Market
Bubble?"
JULIA LYNN CORONADO
Federal Reserve Board - Research & Statistics
STEVEN A. SHARPE
Federal Reserve Board - Research & Statistics
S S R N I N F O R M A T I O N
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EDITORIAL POLICIES
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Benefits, Compensation & Pension Law we do not referee working
papers. We accept abstracts of working papers in Employee
Benefits, Compensation & Pension Law whose topics suit the
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scholarly discourse.
N E W and F O R T H C O M I N G Articles
_________________________________________________________________
"Cash Balance Plans and the Distribution of Pension Wealth"
Industrial Relations, Vol. 42, pp. 745-773, October 2003
BY: RICHARD W. JOHNSON
Urban Institute
CORI E. UCCELLO
Urban Institute
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=447344
Contact: RICHARD W. JOHNSON
Email: Mailto:Rjohnson@ui.urban.org
Postal: Urban Institute
2100 M Street, NW
Washington, DC 20037 UNITED STATES
Phone: 202-261-5541
Fax: 202-833-4388
Co-Auth: CORI E. UCCELLO
Email: Mailto:Cuccello@ui.urban.org
Postal: Urban Institute
2100 M Street, NW
Washington, DC 20037 UNITED STATES
ABSTRACT:
Recent pension plan conversions by numerous large employers have
sparked debate about the merits of cash balance plans. This
article compares pension wealth in traditional defined benefit
(DB) plans and cash balance plans for a national sample of
covered Americans aged 51 to 61. The simulations indicate that
replacing DB plans with cash balance plans would redistribute
pension wealth from those with long-term jobs to those with
multiple short-term jobs and from those with substantial pension
benefits to those with more limited benefits. Perhaps
unexpectedly, women at midlife in 1992 with DB coverage would
lose wealth in cash balance plans, but future cohorts of women
are likely to fare better.
______________________________
"EBRI Research Highlights: Retirement Benefits"
EBRI Issue Brief, No. 258, June 2003
BY: KENNETH J. MCDONNELL
Employee Benefit Research Institute (EBRI)
CRAIG COPELAND
Employee Benefit Research Institute (EBRI)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=425941
Other Electronic Document Delivery:
http://www.ebri.org
SSRN only offers technical support for papers
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Contact: KENNETH J. MCDONNELL
Email: Mailto:MCDONNELL@EBRI.ORG
Postal: Employee Benefit Research Institute (EBRI)
Suite 600
2121 K Street, NW
Washington, DC 20037-1896 UNITED STATES
Phone: (202) 775-6342
Fax: (202) 775-6312
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 UNITED STATES
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:
The Employee Benefit Research Institute (EBRI) is a nonpartisan,
nonprofit public policy research organization based in
Washington, DC, that has been researching economic security
issues for almost 25 years. This EBRI Issue Brief synthesizes
highlights of recent EBRI research on retirement benefits.
Retirement data in this document include: Basics of
employment-based benefits; Assets in retirement plans;
Participants in retirement plans; 401(k) plan trends; Individual
retirement accounts; Social Security; Lump-sum distributions;
Public opinion on retirement; and, Small employers and
retirement plans.
Keywords: Employment-based benefits, Retirement plans,
Retirement attitudes and opinions, Social Security
JEL Classification: J26, J33
______________________________
"Regulation for Conservatives: Behavioral Economics and the Case
for 'Asymmetric Paternalism'"
University of Pennsylvania Law Review, June 2003
BY: COLIN F. CAMERER
California Institute of Technology
Division of the Humanities and Social Sciences
SAMUEL ISSACHAROFF
Columbia Law School
GEORGE F. LOEWENSTEIN
Carnegie Mellon University
Department of Social and Decision Sciences
TED O'DONOGHUE
Cornell University
Department of Economics
MATTHEW RABIN
University of California, Berkeley
Department of Economics
Paper ID: Columbia Law and Economics Working Paper No. 225
Date: April 2003
Contact: SAMUEL ISSACHAROFF
Email: Mailto:si74@columbia.edu
Postal: Columbia Law School
435 West 116th Street
New York, NY 10027 UNITED STATES
Phone: 212-854-2527
Fax: 212-854-7946
Co-Auth: COLIN F. CAMERER
Email: Mailto:camerer@hss.caltech.edu
Postal: California Institute of Technology
Division of the Humanities and Social Sciences
1200 East California Blvd.
Pasadena, CA 91125 UNITED STATES
Co-Auth: GEORGE F. LOEWENSTEIN
Email: Mailto:GL20@andrew.cmu.edu
Postal: Carnegie Mellon University
Department of Social and Decision Sciences
Pittsburgh, PA 15213-3890 UNITED STATES
Co-Auth: TED O'DONOGHUE
Email: Mailto:EDO1@CORNELL.EDU
Postal: Cornell University
Department of Economics
414 Uris Hall
Ithaca, NY 14853-7601 UNITED STATES
Co-Auth: MATTHEW RABIN
Email: Mailto:rabin@econ.berkeley.edu
Postal: University of California, Berkeley
Department of Economics
549 Evans Hall #3880
Berkeley, CA 94720-3880 UNITED STATES
ABSTRACT:
This paper examines the regulatory implications of behavioral
economic insights. The central effect of behavioral economics in
the legal literature to date has been to challenge the premise
of formal economic theory that individuals understand their
preferences and work to maximize these preferences. Behavioral
economics has gathered increased attention in the economic
analysis of law because of its demonstration that individual
decisionmaking is prone to numerous biases and heuristics, and
that as a result individuals may not act to realize their best
interests. Part of the enthusiasm for behavioral economics in
the legal literature has come from the apparent compatibility of
the behavioral insights with proposals for paternalistic
regulation. By pointing out some of the ways that human behavior
falls short of perfect rationality, behavioral economics can
potentially expand the scope of beneficial paternalistic
policies that constrain individual choice. However, such
policies should be implemented cautiously, given differences in
opinion about what behaviors are irrational and concerns about
costs imposed on people who are rational. In response to these
concerns, we propose a principle for developing and evaluating
regulatory policies that we term "asymmetric paternalism."
Asymmetrically paternalistic regulations benefit those who would
otherwise make poor decisions, but impose little or no costs on
those who behave optimally. As such, they challenges both
opponents and supporters of regulation by setting forth a
disciplined set of criteria by which to judge the costs and
benefits of regulatory proposals. The article explores the
application of this principle to several specific sources of
flawed decision making identified by behavioral economics in
such diverse areas as retirement savings, consumer protection,
and family law, and suggests examples of already existing
regulations in these fields that seem to embody the principle of
asymmetric paternalism.
Keywords: behavioral economics, regulation, paternalism
JEL Classification: K00, K10, D11, D81, D90
______________________________
"Findings from the 2003 Retirement Confidence Survey (RCS) and
Minority RCS"
EBRI Notes, Vol. 21, No. 9, July 2003
BY: VARINY PALADINO
American Savings Education Council
RUTH HELMAN
Mathew Greenwald & Associates
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=434781
Other Electronic Document Delivery:
http://www.ebri.org
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.
Contact: VARINY PALADINO
Email: Mailto:paladino@asec.org
Postal: American Savings Education Council
Washington, DC 20037 UNITED STATES
Phone: 202-775-6321
Fax: 202-775-6360
Co-Auth: RUTH HELMAN
Email: Mailto:RUTHHELMAN@GREENWALDRESEARCH.COM
Postal: Mathew Greenwald & Associates
4201 Connecticut Ave., NW
Suite 620
Washington, DC 20008 UNITED STATES
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:
The 2003 Retirement Confidence Survey finds that, despite
continuing financial uncertainty and wavering consumer
confidence, American workers' confidence in having enough money
to live comfortably throughout their retirement has decreased
only slightly, from 23 percent in 2002 to 21 percent in 2003.
The survey points to several reasons for this stability, while
revealing an underlying and growing unease among some Americans
about specific aspects of their retirement. It also finds that
African-Americans and Hispanic-Americans tend to have lower
levels of confidence and that their preparations for retirement
are behind those of workers nationally.
Keywords: Minority Groups, Retirement Attitudes and Opinions
JEL Classification: J26
______________________________
W O R K I N G P A P E R Abstracts
_________________________________________________________________
"Defined Contribution Pension Plans: Determinants of
Participation and Contributions Rates"
BY: GUR HUBERMAN
Columbia Business School - Department of Finance &
Economics
SHEENA SETHI-IYENGAR
Columbia Business School - Management Division
WEI JIANG
Columbia Business School - Finance and Economics
Division
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=421020
Other Electronic Document Delivery:
http://www.columbia.edu/~wj2006/Vanguard_PartContr.pdf
SSRN only offers technical support for papers
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them into your browser eliminating all spaces.
Date: June 2003
Contact: WEI JIANG
Email: Mailto:wj2006@columbia.edu
Postal: Columbia Business School - Finance and Economics Division
3022 Broadway
New York, NY 10027 UNITED STATES
Phone: 212-854-9679
Fax: 212-316-9180
Co-Auth: GUR HUBERMAN
Email: Mailto:gh16@columbia.edu
Postal: Columbia Business School - Department of Finance &
Economics
807 Uris Hall
3022 Broadway
New York, NY 10027 UNITED STATES
Co-Auth: SHEENA SETHI-IYENGAR
Email: Mailto:ss957@columbia.edu
Postal: Columbia Business School - Management Division
3022 Broadway
New York, NY 10027 UNITED STATES
ABSTRACT:
Records of 793, 794 employees eligible to participate in 647
defined contribution pension plans are studied. About 71% of
them choose to participate in the plans, and of the
participants, 12% choose to contribute the maximum allowed,
$10,500. The main findings are (other things equal) (i)
participation rates, contributions and (most remarkably) savings
rates increase with compensation; on average, a $10,000 increase
in compensation is associated with a 3.7% higher participation
probability and $900 higher contribution; (ii) women's
participation probability is 6.5% higher than men's and they
contribute almost $500 more than men; (iii) participation
probabilities are similar for employees covered and not covered
by DB plans, but those covered by DB plans contribute more to
the DC plans; (iv) the availability of a match by the employer
increases employees' participation and contributions; the effect
is strongest for low-income employees; (v) participation rates,
especially among low-income employees, are higher when company
stock is an investable fund.
Keywords: Retirement Saving, Defined Contribution Plans
JEL Classification: D14, D91, G23
______________________________
"Retirement and the Evolution of Pension Structure"
BY: LEORA FRIEDBERG
University of Virginia
Department of Economics
National Bureau of Economic Research (NBER)
ANTHONY WEBB
International Longevity Center
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=450900
Paper ID: NBER Working Paper No. W9999
Date: September 2003
Contact: LEORA FRIEDBERG
Email: Mailto:lfriedberg@virginia.edu
Postal: University of Virginia
Department of Economics
P.O. Box 400182
Charlottesville, VA 22904-4182 UNITED STATES
Phone: 804-924-3225
Co-Auth: ANTHONY WEBB
Email: Mailto:tonyw@ilcusa.org
Postal: International Longevity Center
60 E. 86th Street
New York, NY 10028 UNITED STATES
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
Defined benefit pension plans have become considerably less
common since the early 1980s, while defined contribution plans
have spread. Previous research showed that defined benefit
plans, with sharp incentives encouraging retirement after a
certain point, contributed to the striking postwar decline in
American retirement ages. In this paper we find that the absence
of age-related incentives in defined contribution plans leads
workers to retire almost two years later on average, compared to
workers with defined benefit plans. Thus, the evolution of
pension structure can help explain recent increases in
employment among people in their 60s, after decades of decline.
JEL Classification: J14, J26, J32
______________________________
"Company Stock in 401(k) Plans"
BY: GUR HUBERMAN
Columbia Business School - Department of Finance &
Economics
PAUL F. SENGMUELLER
Columbia University
Department of Economics
Universiteit van Amsterdam (UVA)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=423992
Paper ID: EFA 2003 Annual Conference Paper No. 659
Date: October 1, 2002
Contact: PAUL F. SENGMUELLER
Email: Mailto:pfs11@columbia.edu
Postal: Columbia University
Department of Economics
420 W. 118th Street
New York, NY 10027 UNITED STATES
Co-Auth: GUR HUBERMAN
Email: Mailto:gh16@columbia.edu
Postal: Columbia Business School - Department of Finance &
Economics
807 Uris Hall
3022 Broadway
New York, NY 10027 UNITED STATES
ABSTRACT:
Investors in 401(k) plans violate basic principles of
diversification by holding a significant fraction of their
savings in the form of their employers' equity. This paper
characterizes investors' active changes to their company stock
investment over time by analyzing new inflows and transfers.
Investors seem to base active changes on salient information,
paying attention to past returns, volatility, and business
performance. Past returns, over a three-year horizon, predict
higher inflow allocations and transfers, whereas volatility and
business performance only have a weak effect. The sensitivity to
past returns is asymmetric, with investors reacting more
strongly to positive and above - S&P500 returns.
______________________________
"Phasing Into Retirement"
BY: STEVEN G. ALLEN
North Carolina State University
College of Management
National Bureau of Economic Research (NBER)
ROBERT L. CLARK
North Carolina State University
College of Management
LINDA GHENT
Eastern Illinois University
Department of Economics
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=416272
Paper ID: NBER Working Paper No. W9779
Date: June 2003
Contact: STEVEN G. ALLEN
Email: Mailto:STEVE_ALLEN@NCSU.EDU
Postal: North Carolina State University
College of Management
Raleigh, NC 27695-8614 UNITED STATES
Phone: 919-515-6941
Fax: 919-515-5073
Co-Auth: ROBERT L. CLARK
Email: Mailto:ROBERT_CLARK@NCSU.EDU
Postal: North Carolina State University
College of Management
Raleigh, NC 27695-8614 UNITED STATES
Co-Auth: LINDA GHENT
Email: Mailto:cflsg@eiu.edu
Postal: Eastern Illinois University
Department of Economics
Charleston, IL 61920-3099 UNITED STATES
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
Employers have been launching phased retirement programs to help
workers navigate the transition from work to retirement more
effectively. This paper examines the experience of the phased
retirement system for tenured faculty in the University of North
Carolina system. After phased retirement was introduced, there
was a sizable increase in the overall separation rate in the
system. A multinomial logit model of the retirement decision as
a function of pension incentives, employee performance,
demographics, and campus characteristics is developed. The key
empirical result is that the odds of entering phased retirement
are strongly and inversely related to employee performance, as
measured by recent pay increases.
JEL Classification: J1, J2, J4
______________________________
"Did Pension Plan Accounting Contribute to a Stock Market
Bubble?"
BY: JULIA LYNN CORONADO
Federal Reserve Board - Research & Statistics
STEVEN A. SHARPE
Federal Reserve Board - Research & Statistics
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=436823
Other Electronic Document Delivery:
http://www.federalreserve.gov/pubs/feds/2003/index.htm
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Paper ID: FEDS Working Paper No. 2003-38
Date: July 2003
Contact: JULIA LYNN CORONADO
Email: Mailto:JCORONADO@FRB.GOV
Postal: Federal Reserve Board - Research & Statistics
Washington, DC 20551 UNITED STATES
Phone: 202-452-3044
Fax: 202-872-4927
Co-Auth: STEVEN A. SHARPE
Email: Mailto:ssharpe@frb.gov
Postal: Federal Reserve Board - Research & Statistics
20th & C. St., N.W.
Washington, DC 20551 UNITED STATES
Paper Requests:
Contact Diane C. Linder, Working Paper Coordinator,
Mailto:dlinder@frb.gov Postal: Federal Reserve Board, Research &
Statistics, 20th & C St. N.W., Mailstop 80, Washington, DC 20551
USA. Phone:(202)452-3137. Fax:(202)872-4927.
ABSTRACT:
During the 1990s, the asset portfolios of defined benefit (DB)
pension plans ballooned with the booming stock market. Due to
current accounting guidelines, the robust growth in pension
assets resulted in a stealthy but substantial boost to the
profits of sponsoring corporations. This study assesses the
extent to which equity investors were fooled by pension
accounting. First, we test whether stock prices reflected the
fair market value of sponsoring firms' net pension assets
reported in footnotes to the 10-K or, instead, some
capitalization rate on the pension cost accruals embedded in the
income statement. The results strongly favor the latter view.
Additional tests indicate that the market does not value a
firm's "pension earnings" differently from its "core earnings",
suggesting that pension earnings are often overvalued.
Simulations show that a failure to differentiate between core
and pension earnings induces large valuation errors for many
firms, although this pension effect did not materially
contribute to aggregate overvaluation before 2000. However,
overvaluation from pension earnings reached 5 percent in the
aggregate in 2001 when the steep stock price decline and the
drop in interest rates had slashed pension net asset values but
not pension earnings.