_________________________________________________________________
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. 6, No. 1: January 13, 2005
_________________________________________________________________
Publisher: Employment, Labor, Compensation & Pension Law 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. 2005. All rights reserved.
Leading Social Science Research Delivered To Your Desktop
http://www.SSRN.Com/
___________________________________________________________
Topic of This Issue:
Current Issues
___________________________________________________________
SEARCHING THE SSRN ELECTRONIC LIBRARY
To search the entire SSRN Electronic Library by author, title,
JEL code, or full text of the abstracts in our database, please
visit http://papers.ssrn.com/
To browse all abstracts published in this journal, please visit
http://www.ssrn.com/link/benefits-compensation-pension-law.html
REDISTRIBUTION
Individual and professional subscriptions to the journal are for
single users. It is a violation of copyright to redistribute
this document electronically or otherwise without the explicit
permission of Social Science Electronic Publishing, Inc.
Site licenses for organizations are available by contacting
Mailto:Site@SSRN.Com
SIGN OFF
SUBSCRIPTION MANAGEMENT
You can change your journal subscriptions by going to the SSRN
User HeadQuarters at the following link: http://hq.ssrn.com
Please enter the email address where you received this email in
the "Your Email Address" field and click "Submit". Click on your
name on the next screen, and your User ID and Password will be
emailed to you. Once you have received your login information and
successfully logged in, you will be able to change your journal
selections. If you have questions or problems with this process,
please email UserSupport@SSRN.com or call 877-SSRNHelp (toll free
877.777.6435).
ALIGNMENT
If this document is misaligned, please set type face to a
non-proportional font such as Courier 10.
PAPER DOWNLOADS
If you need assistance downloading papers from our web site,
please contact Mailto:Support@SSRN.Com
T A B L E of C O N T E N T S
_________________________________________________________________
NEW and FORTHCOMING ARTICLES
"Pensions, Risk, and Race"
Washington and Lee Law Review, Vol. 61, 2004
DOROTHY ANDREA BROWN
Washington and Lee University School of Law
"Tracking Health Care Costs: Spending Growth Slowdown Stalls in
First Half of 2004"
EBRI Notes, Vol. 25, No. 12, December 2004
BRADLEY C. STRUNK
Center for Studying Health System Change
PAUL B. GINSBURG
Center for Studying Health System Change
WORKING PAPERS
"Salary or Benefits?"
PAUL E. OYER
Stanford Graduate School of Business
National Bureau of Economic Research (NBER)
"Who Wins and Who Loses? Public Transfer Accounts for US
Generations Born 1850 to 2090"
ANTOINE BOMMIER
University of Toulouse I
RONALD D. LEE
University of California, Berkeley
Department of Demography
National Bureau of Economic Research (NBER)
TIMOTHY MILLER
University of California, Berkeley
Department of Demography
STEPHANE ZUBER
Ecole Normale Superieure (ENS)
"The Social Security Retirement Earnings Test, Retirement and
Benefit Claiming"
ALAN L. GUSTMAN
Dartmouth College
Department of Economics
National Bureau of Economic Research (NBER)
THOMAS STEINMEIER
Texas Tech University
Department of Economics and Geography
"Individual Account Investment Options and Portfolio Choice:
Behavioral Lessons from 401(k) Plans"
JEFFREY R. BROWN
University of Illinois at Urbana-Champaign
Department of Finance
National Bureau of Economic Research (NBER)
SCOTT J. WEISBENNER
University of Illinois at Urbana-Champaign
Department of Finance
National Bureau of Economic Research (NBER)
"Stealth Compensation via Retirement Benefits"
LUCIAN ARYE BEBCHUK
Harvard Law School
National Bureau of Economic Research (NBER)
JESSE M. FRIED
University of California, Berkeley
School of Law (Boalt Hall)
S S R N I N F O R M A T I O N
_________________________________________________________________
* Partners in Publishing
* Administrative Information
- Missing issues & change of address
- Solicitation of abstracts
* Directors
* Subscription to SSRN Journals
_________________________________________________________________
ACQUIRING PAPERS
Download papers directly from the included web address or contact
the author or other contact person directly. Provide an address
to which the author or other contact person can send a paper
copy and mention that you saw the abstract in SSRN. Some of
SSRN's Partners in Publishing require a subscription or charge a
fee for electronic downloads.
EDITORIAL POLICIES
To provide the broadest coverage of research in Employee
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
coverage of the journal and which are part of the worldwide
scholarly discourse.
N E W and F O R T H C O M I N G Articles
_________________________________________________________________
"Pensions, Risk, and Race"
Washington and Lee Law Review, Vol. 61, 2004
BY: DOROTHY ANDREA BROWN
Washington and Lee University School of Law
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=616844
Paper ID: Washington & Lee Legal Studies Paper No. 04-19
Contact: DOROTHY ANDREA BROWN
Email: Mailto:brownda@wlu.edu
Postal: Washington and Lee University School of Law
Sydney Lewis Hall
Lexington, VA 24450 UNITED STATES
Phone: 540-458-8192
Fax: 540-458-8488
ABSTRACT:
Foregone revenues as a result of the tax advantages associated
with employer provided pension plans are estimated to be almost
$95 billion in 2004. An analysis of those workers who are
eligible to receive the benefits and those that are not is
warranted. This Article provides such an analysis and identifies
two distinct problems.
First, even though the majority of private sector workers are
not participating in their pension plans, every study confirms
the following observation: White workers are the most likely to
participate and Hispanic workers are the least likely to
participate in their pension plans. Second, even for those
workers who do participate in their pension plans, with the
proliferation of defined contribution plans which place the
investment decision making on the worker, workers make different
investment decisions based upon their race and/or ethnic
background. As a result, in order to increase the likelihood
that workers of color retire with similar pension account
balances as their White counterparts they will not only need to
be encouraged to participate, but they will need to receive
education about various investment vehicles. Given that the
majority of all private sector workers are not participating in
their pension plans, this presents a unique opportunity to
encourage all workers to increase their participation in pension
plans - and maximize the investment of those funds.
______________________________
"Tracking Health Care Costs: Spending Growth Slowdown Stalls in
First Half of 2004"
EBRI Notes, Vol. 25, No. 12, December 2004
BY: BRADLEY C. STRUNK
Center for Studying Health System Change
PAUL B. GINSBURG
Center for Studying Health System Change
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=636521
Contact: BRADLEY C. STRUNK
Email: Mailto:bstrunk@hschange.org
Postal: Center for Studying Health System Change
600 Maryland Ave., SW
Suite 550
Washington, DC 20024-2512 UNITED STATES
Co-Auth: PAUL B. GINSBURG
Email: Mailto:pginsburg@hschange.org
Postal: Center for Studying Health System Change
600 Maryland Ave, SW #550
Washington, DC 20024 UNITED STATES
ABSTRACT:
This paper provides a mid-year update on health care spending in
the United States, and finds that the brief respite from
faster-growing health care costs sputtered in the first half of
2004 as health costs per privately insured American grew 7.5
percent - virtually the same rate as in 2003. Private-sector
spending on health care constitutes more than half of all health
care spending, and both the private and public sectors are
subject to similar cost pressures. The study analyzes per capita
spending on health care services - inpatient and outpatient
hospital care, physician services, and prescription drugs -
commonly covered by private insurance. Per capita health care
spending trends - also often referred to as cost trends - are
important because they largely determine future health insurance
premium trends. The study's findings were released jointly by
the Center for Studying Health System Change (HSC) and the
Employee Benefit Research Institute (EBRI).
JEL Classification: I1, J3
______________________________
W O R K I N G P A P E R Abstracts
_________________________________________________________________
"Salary or Benefits?"
BY: PAUL E. OYER
Stanford 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=632862
Date: December 2004
Contact: PAUL E. OYER
Email: Mailto:pauloyer@stanford.edu
Postal: Stanford Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015 UNITED STATES
Phone: 650-736-1047
Fax: 650-725-0468
ABSTRACT:
Employer-provided benefits are a large and growing share of
compensation costs. In this paper, I consider three factors that
can affect the value created by employer-sponsored benefits.
First, firms have a comparative advantage (for example, due to
scale economies or tax treatment) in purchasing relative to
employees. This advantage can vary across firms based on size
and other differences in cost structure. Second, employees
differ in their valuations of benefits and it is costly for
workers to match with firms that offer the benefits they value.
Finally, some benefits can reduce the marginal cost to an
employee of extra working time. I develop a simple model that
integrates these factors. I then generate empirical implications
of the model and use data from the National Longitudinal Survey
of Youth to test these implications. I examine access to
employer-provided meals, child-care, dental insurance, and
health insurance. I also study how benefits are grouped together
and differences between benefits packages at for-profit,
not-for-profit, and government employers. The empirical analysis
provides evidence consistent with all three factors in the model
contributing to firms' decisions about which benefits to offer.
JEL Classification: J32, J33, M52
______________________________
"Who Wins and Who Loses? Public Transfer Accounts for US
Generations Born 1850 to 2090"
BY: ANTOINE BOMMIER
University of Toulouse I
RONALD D. LEE
University of California, Berkeley
Department of Demography
National Bureau of Economic Research (NBER)
TIMOTHY MILLER
University of California, Berkeley
Department of Demography
STEPHANE ZUBER
Ecole Normale Superieure (ENS)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=633630
Paper ID: NBER Working Paper No. W10969
Date: December 2004
Contact: RONALD D. LEE
Email: Mailto:rlee@demog.berkeley.edu
Postal: University of California, Berkeley
Department of Demography
2232 Piedmont Avenue
Berkeley, CA 94720-2120 UNITED STATES
Co-Auth: ANTOINE BOMMIER
Email: Mailto:Antoine.Bommier@ens.fr
Postal: University of Toulouse I
Place Anatole France
F-31042 Toulouse Cedex, FRANCE
Co-Auth: TIMOTHY MILLER
Email: Mailto:tmiller@demog.berkeley.edu
Postal: University of California, Berkeley
Department of Demography
2232 Piedmont Avenue
Berkeley, CA 94720-2120 UNITED STATES
Co-Auth: STEPHANE ZUBER
Email: Mailto:stephane.zuber@ens.fr
Postal: Ecole Normale Superieure (ENS)
45, rue d’Ulm
F-75230 Paris Cedex 05, FRANCE
ABSTRACT:
Public transfer programs in industrial nations have massive long
term fiscal imbalances, and apparently permit the elderly to
benefit through pension and health care programs at the cost of
the young and future generations. However, the intergenerational
picture is turned upside down when public education is included
in generational accounts along with pensions and health care. We
calculate the net present value (NPV) of benefits received minus
taxes paid for US generations born 1850 to 2090, and find that
all generations born from 1950 to 2050 are net gainers, while
many of today's old people are net losers. Windfall gains for
early generations when Social Security and Medicare started up
partially offset windfall losses when public education was
started, roughly consistent with the Becker-Murphy theory.
JEL Classification: H0
______________________________
"The Social Security Retirement Earnings Test, Retirement and
Benefit Claiming"
BY: ALAN L. GUSTMAN
Dartmouth College
Department of Economics
National Bureau of Economic Research (NBER)
THOMAS STEINMEIER
Texas Tech University
Department of Economics and Geography
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=618523
Paper ID: NBER Working Paper No. W10905
Date: November 2004
Contact: ALAN L. GUSTMAN
Email: Mailto:Alan.L.Gustman@dartmouth.edu
Postal: Dartmouth College
Department of Economics
6106 Rockefeller Center
Hanover, NH 03755 UNITED STATES
Phone: 603-646-2641
Fax: 603-646-2122
Co-Auth: THOMAS STEINMEIER
Email: Mailto:thomas.steinmeier@ttu.edu
Postal: Texas Tech University
Department of Economics and Geography
Lubbock, TX 79409-2101 UNITED STATES
ABSTRACT:
This paper introduces the age at which Social Security benefits
are claimed as an additional outcome in a structural model of
retirement and wealth. The model is then used to simulate the
effects of abolishing the remainder of the Social Security
earnings test, between age 62 and the full retirement age.
Estimates are based on data for married men from the first six
waves of the Health and Retirement Study. From age 62 through
the full retirement age, the earnings test reduces the share of
married men who work full time by about four percentage points,
which entails a reduction of about ten percent in the number of
married men of that age at full time work. In terms of the cash
flow of the system, abolishing the earnings test would have an
adverse effect, at least initially. If the earnings test were
abolished between the early and full retirement ages, the share
of married men claiming Social Security benefits would increase
by about 10 percentage points, and the average benefit payments
would increase by about $1,800 per recipient. The initial
increase in benefit payments would eventually be reversed, over
a time span of decades, because the annual benefit amounts would
eventually be reduced by more than an actuarially fair amount
due to the earlier collection of benefits. One can increase the
employment of older persons either by abolishing the earnings
test or by increasing the early entitlement age under Social
Security. A major difference on the funding side is that
abolishing the earning test results in an earlier flow of
benefit payments from Social Security, worsening the cash-flow
problems of the system, while increasing the early entitlement
age delays the flow of benefit payments from the system,
improving its liquidity.
JEL Classification: H55, J26, J14, J32, E21, D31, D91, I3
______________________________
"Individual Account Investment Options and Portfolio Choice:
Behavioral Lessons from 401(k) Plans"
BY: JEFFREY R. BROWN
University of Illinois at Urbana-Champaign
Department of Finance
National Bureau of Economic Research (NBER)
SCOTT J. WEISBENNER
University of Illinois at Urbana-Champaign
Department of Finance
National Bureau of Economic Research (NBER)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=631886
Date: December 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: SCOTT J. WEISBENNER
Email: Mailto:weisbenn@uiuc.edu
Postal: University of Illinois at Urbana-Champaign
Department of Finance
1206 South Sixth Street
Champaign, IL 61820 UNITED STATES
ABSTRACT:
This paper examines how the menu of investment options made
available to workers influences portfolio choice. Using a unique
panel data set of 401(k) plans, we examine four aspects of
investment behavior. First, we show that the share of investment
options in a particular asset class (i.e., company stock,
equities, fixed income, and balanced funds) has a significant
effect on participant portfolio allocations across these asset
classes. For example, our estimates suggest that by increasing
the share of equity funds from 1/3 to 1/2 (such as by adding an
additional equity fund option to a plan that already offers
company stock, one equity fund, and one fixed income fund),
overall participant allocations to equity funds increase by
nearly 6 percentage points. Second, we show that investment
restrictions - such as requiring a match in company stock or
placing a ceiling on the fraction of assets that can be held in
a particular asset - can change the overall risk/return profile
of the portfolio much more than would be expected in a standard
portfolio model. For example, restricting investment in company
stock is associated with an overall reduction in all equities,
not just company stock. This finding is consistent with a view
that participants view such restrictions as a form of implicit
investment advice. Third, we find that investors respond to past
asset returns, such as by allocating a higher fraction of
contributions to equities when past 5-year returns on equities
have been high. Finally, we provide strong evidence of inertia
in investment behavior, as it takes several years for
participant contributions to fully adjust to the addition of a
new fund. Each of these findings has important implications for
the design of any individual account based investment program,
including one that would be part of Social Security.
JEL Classification: G11, J30, J32
______________________________
"Stealth Compensation via Retirement Benefits"
BY: LUCIAN ARYE BEBCHUK
Harvard Law School
National Bureau of Economic Research (NBER)
JESSE M. FRIED
University of California, Berkeley
School of Law (Boalt Hall)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=583861
Paper ID: Harvard Law and Economics Discussion Paper No. 487;
and UC Berkeley Public Law Research Paper No. 583861
Date: December 2004
Contact: LUCIAN ARYE BEBCHUK
Email: Mailto:bebchuk@law.harvard.edu
Postal: Harvard Law School
1563 Massachusetts Avenue
Cambridge, MA 02138 UNITED STATES
Phone: 617-495-3138
Fax: 617-496-3119
Co-Auth: JESSE M. FRIED
Email: Mailto:FRIEDJ@MAIL.LAW.BERKELEY.EDU
Postal: University of California, Berkeley
School of Law (Boalt Hall)
Boalt Hall
Berkeley, CA 94720-7200 UNITED STATES
ABSTRACT:
This Article analyzes an important form of "stealth
compensation" provided to managers of public companies. We show
how boards have been able to camouflage large amounts of
executive compensation through the use of retirement benefits
and payments. Our study illustrates the significant role that
camouflage and stealth compensation play in the design of
compensation arrangements. It also highlights the importance of
having information about compensation arrangements not only
publicly available but also communicated in a way that is
transparent and accessible to outsiders.
To improve the transparency of executives' retirement payments
and benefits, we propose several changes in current disclosure
requirements. Among other things, firms should be required to
report to investors each year the dollar value of all the
retirement benefits to which their executives become entitled.
For example, firms should disclose to investors the annual
buildup in the actuarial value of executives' retirement plans,
as well as the tax savings reaped by executives at the company's
expense through the use of deferred compensation arrangements.
Firms should also disclose to investors each year the present
value of all the retirement benefits their top executives have
accumulated.