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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. 5, No. 20: October 21, 2004
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Publisher: LSN Employment, Labor, Compensation & Pension Journals
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Editor: PAMELA PERUN
Urban Institute
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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
"The Impact of Tax-Financed Pensions on Poverty Reduction in
Latin America: Evidence from Argentina, Brazil, Chile, Costa Rica
and Uruguay"
International Social Security Review, Vol. 57, No. 4, pp.
3-18, September 2004
FABIO M. BERTRANOU
International Labour Office
Headquarters, Geneva
WOUTER VAN GINNEKEN
International Labour Office
Headquarters, Geneva
CARMEN SOLORIO
International Labour Office
Headquarters, Geneva
"Measuring Retirement Income Adequacy, Part One: Traditional
Replacement Ratios and Results for Workers at Large Companies"
EBRI Notes, Vol. 25, No. 9, September 2004
JACK VANDERHEI
Temple University
Risk Management & Insurance & Actuarial Science
Employee Benefit Research Institute (EBRI)
WORKING PAPERS
"Health, Longevity, and Optimal Retirement"
DAVID E. BLOOM
Harvard University
Harvard School of Public Health
National Bureau of Economic Research (NBER)
DAVID CANNING
Harvard University
Harvard School of Public Health
MICHAEL JOHN MOORE
Queen's University Belfast
School of Management and Economics
"Incentive Effects of Bonus Payments: Evidence from an
International Company"
AXEL ENGELLANDT
University of Basel
REGINA T. RIPHAHN
University of Basel
Institute for the Study of Labor (IZA)
Centre for Economic Policy Research (CEPR)
"Understanding 401(k) Plans"
RAMON P. DEGENNARO
Federal Reserve Bank of Atlanta
University of Tennessee, Knoxville
Department of Finance
DEBORAH MURPHY
University of Tennessee, Knoxville
Department of Finance
"The Determinants of Investment in Private Equity and Venture
Capital: Evidence from American and Canadian Pension Funds"
GILLES CHEMLA
CNRS - THEMA
Centre for Economic Policy Research (CEPR)
University of British Columbia
Sauder School of Business
"Supply or Demand: Why is the Market for Long-Term Care Insurance
So Small?"
JEFFREY R. BROWN
University of Illinois at Urbana-Champaign
Department of Finance
National Bureau of Economic Research (NBER)
AMY FINKELSTEIN
National Bureau of Economic Research (NBER)
Massachusetts Institute of Technology (MIT)
Department of Economics
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N E W and F O R T H C O M I N G Articles
_________________________________________________________________
"The Impact of Tax-Financed Pensions on Poverty Reduction in
Latin America: Evidence from Argentina, Brazil, Chile, Costa Rica
and Uruguay"
International Social Security Review, Vol. 57, No. 4, pp.
3-18, September 2004
BY: FABIO M. BERTRANOU
International Labour Office
Headquarters, Geneva
WOUTER VAN GINNEKEN
International Labour Office
Headquarters, Geneva
CARMEN SOLORIO
International Labour Office
Headquarters, Geneva
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=591485
Contact: FABIO M. BERTRANOU
Email: Mailto:bertranou@ilo.org
Postal: International Labour Office
Headquarters, Geneva
4, route des Morillons
CH-1211 Geneva 22, SWITZERLAND
Phone: 56 2 7565300
Co-Auth: WOUTER VAN GINNEKEN
Email: Mailto:ginneken@ilo.org
Postal: International Labour Office
Headquarters, Geneva
4, route des Morillons
CH-1211 Geneva 22, SWITZERLAND
Co-Auth: CARMEN SOLORIO
Email: Mailto:solorio@ilo.org
Postal: International Labour Office
Headquarters, Geneva
4, route des Morillons
CH-1211 Geneva 22, SWITZERLAND
ABSTRACT:
In many Latin American countries, tax-financed pensions (TFPs)
have expanded, mainly resulting from growing informalization of
employment and stagnating or declining pension insurance
coverage. In the five countries examined in this article, TFPs
have generally been effective in reducing poverty and indigence.
In Brazil rural social assistance pensions cut the incidence of
destitution among poor older people by 95 per cent. In Chile
TFPs considerably improved their poverty reduction effectiveness
between 1990 and 2000. Tax-financed pensions have therefore been
seen as an instrument to supplement contributory pension
coverage and boost overall social security coverage. A key
challenge is to increase pension insurance coverage through
existing statutory pension insurance or special contributory
schemes targeted on workers in the informal economy. Otherwise,
TFPs could become financially and socially unsustainable in the
future. There are also various ways to improve the financing,
administration and eligibility criteria of TFPs, particularly
because it is necessary to define consistent structure and
benefit policies between these and contributory schemes.
______________________________
"Measuring Retirement Income Adequacy, Part One: Traditional
Replacement Ratios and Results for Workers at Large Companies"
EBRI Notes, Vol. 25, No. 9, September 2004
BY: JACK VANDERHEI
Temple University
Risk Management & Insurance & Actuarial Science
Employee Benefit Research Institute (EBRI)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=599966
Contact: JACK VANDERHEI
Email: Mailto:TEMPLE@VANDERHEI.COM
Postal: Temple University
Risk Management & Insurance & Actuarial Science
489 Ritter Annex
Fox School of Business and Management
1301 Cecil B. Moore Ave.
Philadelphia, PA 19122 UNITED STATES
Phone: 610-525-6139
Fax: 435-603-1422
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 paper is the first of a two-part series intended to sort
through some of the issues and variations in determining whether
the post-World War II baby boom generation is likely to achieve
an "acceptable" standard of living in retirement. A recent study
by Hewitt Associates shows that the typical 401(k) participant
is well-positioned to replace 85-95 percent of preretirement
income when current Social Security, existing profit-sharing,
and defined benefit plans are taken into account. The study
examined the projected preretirement income replacement levels
across 62 large companies of the 960,000 employees who were
actively participating in their 401(k) plans as of January 1,
2003. The overall average replacement ratio for the Hewitt
analysis drops from 95 percent under the high medical coverage
assumption to 83 percent under the medium assumption and 80
percent under the low medical coverage assumption. This is true
for employees retiring at a "normal" retirement age of 65, and
who are relying primarily on Medicare for their health care
benefits. Employees retiring at an earlier age will experience
an even larger financial setback.
JEL Classification: D31, D91, J14
______________________________
W O R K I N G P A P E R Abstracts
_________________________________________________________________
"Health, Longevity, and Optimal Retirement"
BY: DAVID E. BLOOM
Harvard University
Harvard School of Public Health
National Bureau of Economic Research (NBER)
DAVID CANNING
Harvard University
Harvard School of Public Health
MICHAEL JOHN MOORE
Queen's University Belfast
School of Management and Economics
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=594801
Date: August 2004
Contact: MICHAEL JOHN MOORE
Email: Mailto:m.moore@qub.ac.uk
Postal: Queen's University Belfast
School of Management and Economics
Belfast BT7 1JP, IRELAND
Phone: +44 28 90273208
Fax: +44 28 90335156
Co-Auth: DAVID E. BLOOM
Email: Mailto:dbloom@hsph.harvard.edu
Postal: Harvard University
Harvard School of Public Health
677 Huntington Avenue
Boston, MA 02115 UNITED STATES
Co-Auth: DAVID CANNING
Email: Mailto:dcanning@hsph.harvard.edu
Postal: Harvard University
Harvard School of Public Health
677 Huntington Avenue
Boston, MA 02115 UNITED STATES
ABSTRACT:
We develop a life-cycle model of optimal retirement and savings
behavior under complete markets. Our model explains the long-run
decline in the age of retirement as an income level effect, with
higher wage growth and lower interest rates tending to increase
the retirement age. We show that improvements in health and
longevity tend to increase the desired retirement age, but less
than proportionately, while, contrary to conventional views,
reducing savings rates. These results suggest that social
security systems should respond to population aging by raising
the retirement age and not by increasing people's contributions
or reducing their benefit rates.
JEL Classification: J26, D91
______________________________
"Incentive Effects of Bonus Payments: Evidence from an
International Company"
BY: AXEL ENGELLANDT
University of Basel
REGINA T. RIPHAHN
University of Basel
Institute for the Study of Labor (IZA)
Centre for Economic Policy Research (CEPR)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=571725
Paper ID: IZA Discussion Paper No. 1229
Date: July 2004
Contact: REGINA T. RIPHAHN
Email: Mailto:regina.riphahn@unibas.ch
Postal: University of Basel
Petersplatz 1
CH-4003 Basel, SWITZERLAND
Phone: +41 61 267 3367
Fax: +41 61 267 3351
Co-Auth: AXEL ENGELLANDT
Email: Mailto:Axel.Engellandt@unibas.ch
Postal: University of Basel
Petersplatz 1
CH-4003 Basel, SWITZERLAND
ABSTRACT:
This study uses panel data describing about 6,500 employees in a
large international company to study the incentive effects of
performance related pay. The company uses two performance
related remuneration mechanisms. One is an individual surprise
bonus payment. The other is a more structured system, where part
of the salary is determined by individual performance
evaluations. We hypothesize that effort is higher in departments
where (i) performance evaluation results are more spread out,
(ii) person-specific performance evaluations are more flexible
over time, (iii) surprise bonuses are used more frequently.
These hypotheses are tested using days of absence and overtime
work as effort indicators. The tests yield that hypotheses (ii)
and (iii) are supported, and that (i) cannot be tested reliably
due to possible simultaneity bias in our data. We investigate
and confirm the robustness of these findings. They suggest that
surprise bonus payments and flexibility in the evaluation of
individual performances over time provide effective incentives
for employee effort.
JEL Classification: J33, M12, J24, J41, M50, C25
______________________________
"Understanding 401(k) Plans"
BY: RAMON P. DEGENNARO
Federal Reserve Bank of Atlanta
University of Tennessee, Knoxville
Department of Finance
DEBORAH MURPHY
University of Tennessee, Knoxville
Department of Finance
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=594402
Paper ID: FRB of Atlanta Working Paper No. 2004-21
Date: September 2004
Contact: RAMON P. DEGENNARO
Email: Mailto:rdegenna@utk.edu
Postal: Federal Reserve Bank of Atlanta
1000 Peachtree Street N.E.
Atlanta, GA 30309-4470 UNITED STATES
Co-Auth: DEBORAH MURPHY
Email: Mailto:dgunthor@utk.edu
Postal: University of Tennessee, Knoxville
Department of Finance
Knoxville, TN 37996 UNITED STATES
ABSTRACT:
Questions about the future of the Social Security system
continue to surface. As a result, interest in employer-sponsored
retirement plans and other retirement investment options
increases. But the restrictions and rules associated with
various defined benefit plans such as 401(k), 403 (b), and 457
plans can be confusing, and these plans have risks of their own.
The authors explore these plans and explain the need to view
retirement savings as only one part of a portfolio.
JEL Classification: G11, G20, G29
______________________________
"The Determinants of Investment in Private Equity and Venture
Capital: Evidence from American and Canadian Pension Funds"
BY: GILLES CHEMLA
CNRS - THEMA
Centre for Economic Policy Research (CEPR)
University of British Columbia
Sauder School of Business
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=556421
Date: June 8, 2004
Contact: GILLES CHEMLA
Email: Mailto:gilles.chemla@u-paris10.fr
Postal: CNRS - THEMA
33 boulevard du port
F-95011 Cergy-Pontoise Cedex, FRANCE
Phone: 331 4574 6785
ABSTRACT:
This paper provides a comparative analysis of pension plan
allocations to private equity and to venture capital in the
United States and in Canada. Although the assets of American
funds in our data are worth 10 times those of Canadian funds,
their investment in private equity is about 20 times larger. In
both countries, asset size is an important determinant of both
the decision to invest in private equity and of how much to
invest in that asset class. However, asset size does not appear
as a significant determinant of investment in venture capital.
The difference in pension fund asset sizes appears to explain
well the differences in the decision to invest in private
equity, but it is not sufficient to explain the differences in
the amount invested in this type of assets. We examine other
possible explanatory factors, such as geographical location, the
institutional environment, and regulatory constraints.
JEL Classification: G23, G24, G11
______________________________
"Supply or Demand: Why is the Market for Long-Term Care Insurance
So Small?"
BY: JEFFREY R. BROWN
University of Illinois at Urbana-Champaign
Department of Finance
National Bureau of Economic Research (NBER)
AMY FINKELSTEIN
National Bureau of Economic Research (NBER)
Massachusetts Institute of Technology (MIT)
Department of Economics
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=593466
Paper ID: NBER Working Paper No. W10782
Date: September 2004
Contact: JEFFREY R. BROWN
Email: Mailto:brownjr@uiuc.edu
Postal: University of Illinois at Urbana-Champaign
Department of Finance
1206 South Sixth Street
Champaign, IL 61820 UNITED STATES
Co-Auth: AMY FINKELSTEIN
Email: Mailto:afinkels@nber.org
Postal: National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138 UNITED STATES
Paper Requests:
Full-Text downloads are free to persons at institutions that
subscribe to the NBER Working Paper Series. Other persons can
download the paper from SSRN for a $5 charge.
ABSTRACT:
Long-term care represents one of the largest uninsured financial
risks facing the elderly in the United States. Whether the small
size of this market is driven primarily by supply side market
imperfections or by limitations to demand, however, is
unresolved, largely due to the paucity of data about the
structure of the private market. We provide what is to our
knowledge the first empirical evidence on the pricing and
benefit structure of long-term care insurance policies. We
estimate that the typical policy purchased by a 65-year old has
an average pricing load of about 18 percent and has a very
limited benefit structure, covering only one-third of the
expected present discounted value of long-term care
expenditures. These findings are consistent with the presence of
supply side market imperfections. However, we also find enormous
gender differences in pricing - typical loads are 44 cents on
the dollar for men but better than actuarially fair for women -
that do not translate into differences in coverage. And,
although purchased policies provide limited benefits, we
demonstrate that more comprehensive policies are
widely-available at similar loads, but are rarely purchased.
These findings suggest that while supply-side market
imperfections exist, they are not the primary cause of the small
size of the private long-term care insurance market.