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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. 6, No. 20: October 21, 2005
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Publisher: Employment, Labor, Compensation & Pension Law Journals
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Topic of This Issue:
New thoughts on Saving
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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 Tyranny of Consumer Choice in Section 529 Plans: Differences
Lead to Complexity and Confusion"
State Tax Notes, Vol. 37, No. 6, August 8, 2005
RAQUEL MEYER ALEXANDER
University of Kansas
School of Business
LEANN LUNA
University of Tennessee, Knoxville
Center for Business and Economic Research
"Institutions and Inclusion in Saving Policy"
BUILDING ASSETS, BUILDING WEALTH; CREATING WEALTH IN
LOW-INCOME COMMUNITIES, N. Retsinas and E. Belsky, eds.,
Brookings Press, 2005
MICHAEL S. BARR
University of Michigan Law School
MICHAEL W. SHERRADEN
Washington University, St. Louis
George Warren Brown School of Social Work
"Splitting Tax Refunds and Building Savings: An Empirical Test"
Tax Policy and the Economy, Forthcoming
SONDRA BEVERLY
University of Kansas
PETER TUFANO
Harvard Business School
National Bureau of Economic Research (NBER)
DANIEL J. SCHNEIDER
Harvard Business School
"Good Hybrids/Bad Hybrids"
Tax Notes, June 27, pp. 1699-1709, June 2005
EDWARD J. MCCAFFERY
University of Southern California
Law School
California Institute of Technology
WORKING PAPERS
"Reinventing Savings Bonds"
PETER TUFANO
Harvard Business School
National Bureau of Economic Research (NBER)
DANIEL J. SCHNEIDER
Harvard Business School
"$100 Bills on the Sidewalk: Suboptimal Saving in 401(k) Plans"
JAMES J. CHOI
Yale University
School of Management
National Bureau of Economic Research (NBER)
DAVID I. LAIBSON
Harvard University
Department of Economics
National Bureau of Economic Research (NBER)
BRIGITTE MADRIAN
University of Pennsylvania
The Wharton School
National Bureau of Economic Research (NBER)
"The Stakeholder Pension Lottery: An Analysis of the Default
Funds in UK Stakeholder Pension Schemes"
DAVID P. BLAKE ALISTAIR BYRNE
University of Strathclyde in Glasgow
Strathclyde Business School
ANDREW J. G. CAIRNS
Department of Actuarial Science & Statistics -
Heriot-Watt University
KEVIN DOWD
University of Nottingham
Nottingham University Business School (NUBS)
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N E W and F O R T H C O M I N G Articles
_________________________________________________________________
"The Tyranny of Consumer Choice in Section 529 Plans: Differences
Lead to Complexity and Confusion"
State Tax Notes, Vol. 37, No. 6, August 8, 2005
BY: RAQUEL MEYER ALEXANDER
University of Kansas
School of Business
LEANN LUNA
University of Tennessee, Knoxville
Center for Business and Economic Research
Contact: RAQUEL MEYER ALEXANDER
Email: Mailto:raquela@ku.edu
Postal: University of Kansas
School of Business
Lawrence, KS 66045 UNITED STATES
Co-Auth: LEANN LUNA
Email: Mailto:leann@utk.edu
Postal: University of Tennessee, Knoxville
Center for Business and Economic Research
Temple Court, Suite 100
804 Volunteer Blvd.
Knoxville, TN 37996-4334 UNITED STATES
ABSTRACT:
The authors look at the effects of state-level and plan-level
differences in state tax exemptions for college saving section
529 plans. Some states are considering extending their tax
deductions to out-of-state plan contributions. That change would
make some investors much better off than others, the authors
say.
______________________________
"Institutions and Inclusion in Saving Policy"
BUILDING ASSETS, BUILDING WEALTH; CREATING WEALTH IN
LOW-INCOME COMMUNITIES, N. Retsinas and E. Belsky, eds.,
Brookings Press, 2005
BY: MICHAEL S. BARR
University of Michigan Law School
MICHAEL W. SHERRADEN
Washington University, St. Louis
George Warren Brown School of Social Work
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=722616
Contact: MICHAEL S. BARR
Email: Mailto:msbarr@umich.edu
Postal: University of Michigan Law School
625 South State Street
Ann Arbor, MI 48109-1215 UNITED STATES
Phone: 734-936-2878
Fax: 734-936-7514
Co-Auth: MICHAEL W. SHERRADEN
Email: Mailto:SHERRAD@WUSTL.EDU
Postal: Washington University, St. Louis
George Warren Brown School of Social Work
St. Louis, MO 63130 UNITED STATES
ABSTRACT:
The poor must save, not only to qualify for and pay off credit,
but also for key purchases such as clothing for the start of a
child's school year; life course events, such as births,
weddings, and funerals; and emergencies, such as car repair,
illness, or job loss. Recent applied research has contributed to
our understanding of the potential importance of saving by
low-income households. Yet saving by the poor is a largely
overlooked topic in the United States, and public policy has
largely ignored or marginalized saving policy for the poor. This
is particularly striking given the recent rhetoric of the Bush
administration about the ownership society. In this chapter we
first develop an institutional theory of saving, which is
provisional and in need of more empirical testing. We then
explore in practice how existing institutions promote dis-saving
among the poor. We also look at how policies to change these
institutional structures could promote saving among these
households. We also analyze current proposals that move in the
opposite direction, largely benefiting the highest-income
taxpayers whose net saving behavior is least likely to be
influenced by the policies. Instead of focusing on additional
saving proposals that benefit the upper end of the income scale,
public policy should focus on building wealth among the least
well-off. A sound policy would aim for inclusion of everyone in
saving and asset accumulation.
JEL Classification: D10, D60, G21, I38, K20, O16
______________________________
"Splitting Tax Refunds and Building Savings: An Empirical Test"
Tax Policy and the Economy, Forthcoming
BY: SONDRA BEVERLY
University of Kansas
PETER TUFANO
Harvard Business School
National Bureau of Economic Research (NBER)
DANIEL J. SCHNEIDER
Harvard Business School
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=814007
Paper ID: HBS Finance Working Paper No. 06-018
Contact: PETER TUFANO
Email: Mailto:PTUFANO@HBS.EDU
Postal: Harvard Business School
Boston, MA 02163 UNITED STATES
Phone: 617-495-6855
Fax: 617-496-8443
Co-Auth: SONDRA BEVERLY
Email: Mailto:sbeverly@ku.edu
Postal: University of Kansas
Lawrence, KS 66045 UNITED STATES
Co-Auth: DANIEL J. SCHNEIDER
Email: Mailto:dschneider@hbs.edu
Postal: Harvard Business School
Soldiers Field
Boston, MA 02163 UNITED STATES
ABSTRACT:
Families are more likely to save if they can commit to savings
before funds are in-hand (and subject to spending temptations).
For low- and moderate-income U.S. families, an important savings
opportunity arises annually, during income tax season. We study
a group of low-income individuals in Tulsa, Oklahoma, who, at
the time of tax filing, were encouraged to save parts of their
federal refunds. Those who agreed directed a portion of their
refund to a savings account, and arranged to have the rest sent
to them in the form of a check. Eligible individuals could also
open low-cost savings accounts. We document the demand for these
services, the characteristics of those who sought to
participate, the savings goals of those who participated, the
immediate savings generated by the program, and the disposition
of savings a few months after receipt. This pilot study suggests
that there may be demand among low-income families for a
refund-splitting program that supports emergency needs as well
as asset building, especially if a basic savings product is
available to all at the time of tax filing.
JEL Classification: I3, D1
______________________________
"Good Hybrids/Bad Hybrids"
Tax Notes, June 27, pp. 1699-1709, June 2005
BY: EDWARD J. MCCAFFERY
University of Southern California
Law School
California Institute of Technology
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=757310
Paper ID: USC Law and Economics Research Paper No. 05-14; and
USC CLEO Research Paper No. C05-6
Contact: EDWARD J. MCCAFFERY
Email: Mailto:emccaffe@law.usc.edu
Postal: University of Southern California
Law School
699 Exposition Boulevard
Los Angeles, CA 90089 UNITED STATES
Phone: 213-740-2567
Fax: 213-740-5502
ABSTRACT:
Hybrid income-consumption taxes seek to tax some but not all
savings, the treatment of savings being the principal difference
between an income and a consumption tax. Some hybrids, however,
simply move the tax system towards a prepaid consumption or wage
tax; others, by allowing arbitrage, risk making all taxation
voluntary. A consistent, progressive postpaid consumption tax,
in contrast, gets matters just right, by design: it allows
ordinary savings, for times of retirement or medical or
educational needs, to lower the burden of taxation, while
falling on the yield to savings when it is used to elevate
lifestyles. It is, in short, a good hybrid.
______________________________
W O R K I N G P A P E R Abstracts
_________________________________________________________________
"Reinventing Savings Bonds"
BY: PETER TUFANO
Harvard Business School
National Bureau of Economic Research (NBER)
DANIEL J. SCHNEIDER
Harvard Business School
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=814029
Paper ID: HBS Finance Working Paper No. 06-017
Date: September 27, 2005
Contact: PETER TUFANO
Email: Mailto:PTUFANO@HBS.EDU
Postal: Harvard Business School
Boston, MA 02163 UNITED STATES
Phone: 617-495-6855
Fax: 617-496-8443
Co-Auth: DANIEL J. SCHNEIDER
Email: Mailto:dschneider@hbs.edu
Postal: Harvard Business School
Soldiers Field
Boston, MA 02163 UNITED STATES
ABSTRACT:
Savings Bonds have always served multiple objectives: funding
the U. S. government, democratizing national financing, and
enabling families to save. Increasingly, this last goal has been
ignored. A series of efficiency measures introduced in 2003 make
these bonds less attractive and less accessible to savers.
Public policy should go in the opposite direction: U.S. savings
bonds should be reinvigorated to help low and moderate income
(LMI) families build assets. More and more, these families'
saving needs are ignored by private sector asset managers and
marketers. With a few relatively modest changes, the Savings
Bond program can be reinvented to help these families save,
while still increasing the efficiency of the program as a debt
management device. Savings bonds provide market-rate returns,
with no transaction costs, and are a useful commitment savings
device. Our proposed changes include (a) allowing Federal
taxpayers to purchase bonds with tax refunds; (b) enabling LMI
families to redeem their bonds before twelve months; (c)
leveraging private sector organizations to market savings bonds;
and (d) contemplating a role for savings bonds in the life
cycles of LMI families.
JEL Classification: D1, E2, G2, H8, I3
______________________________
"$100 Bills on the Sidewalk: Suboptimal Saving in 401(k) Plans"
BY: JAMES J. CHOI
Yale University
School of Management
National Bureau of Economic Research (NBER)
DAVID I. LAIBSON
Harvard University
Department of Economics
National Bureau of Economic Research (NBER)
BRIGITTE MADRIAN
University of Pennsylvania
The Wharton School
National Bureau of Economic Research (NBER)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=785012
Paper ID: NBER Working Paper No. W11554
Date: August 2005
Contact: DAVID I. LAIBSON
Email: Mailto:dlaibson@harvard.edu
Postal: Harvard University
Department of Economics
Room M-14
Littauer Center
Cambridge, MA 02138 UNITED STATES
Phone: 617-496-3402
Fax: 617-495-8570
Co-Auth: JAMES J. CHOI
Email: Mailto:JAMES_CHOI@POST.HARVARD.EDU
Postal: Yale University
School of Management
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200 UNITED STATES
Co-Auth: BRIGITTE MADRIAN
Email: Mailto:bmadrian@wharton.upenn.edu
Postal: University of Pennsylvania
The Wharton School
3641 Locust Walk
Philadelphia, PA 19104-6365 UNITED STATES
ABSTRACT:
It is typically difficult to determine whether households save
optimally. But in some cases, savings incentives are strong
enough to imply sharp normative restrictions. We consider
employees who receive employer matching contributions in their
401(k) plan and are allowed to make discretionary, penalty-free,
in-service withdrawals. For these employees, contributing below
the match threshold is a dominated action. Nevertheless, half of
employees with these clear-cut incentives do contribute below
the match threshold, foregoing matching contributions that
average 1.3% of their annual pay. Providing these "undersavers"
with specific information about the free lunch they are giving
up fails to raise their contribution rates.
______________________________
"The Stakeholder Pension Lottery: An Analysis of the Default
Funds in UK Stakeholder Pension Schemes"
BY: DAVID P. BLAKE ALISTAIR BYRNE
University of Strathclyde in Glasgow
Strathclyde Business School
ANDREW J. G. CAIRNS
Department of Actuarial Science & Statistics -
Heriot-Watt University
KEVIN DOWD
University of Nottingham
Nottingham University Business School (NUBS)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=655884
Paper ID: EFA 2005 Moscow Meetings Paper
Date: December 22, 2004
Contact: ALISTAIR BYRNE
Email: Mailto:alistair.byrne@strath.ac.uk
Postal: University of Strathclyde in Glasgow
Strathclyde Business School
100 Cathedral Street
Glasgow G1 1XU, UNITED KINGDOM
Co-Auth: DAVID P. BLAKE
Email: Mailto:DBLAKE@ECON.BBK.AC.UK
Postal:
Co-Auth: ANDREW J. G. CAIRNS
Email: Mailto:a.cairns@ma.hw.ac.uk
Postal: Department of Actuarial Science & Statistics - Heriot-Watt
University
Edinburgh EH14 4AS Scotland, UNITED KINGDOM
Co-Auth: KEVIN DOWD
Email: Mailto:kevin.dowd@nottingham.ac.uk
Postal: University of Nottingham
Nottingham University Business School (NUBS)
Jubilee Campus
Wollaton Road
Nottingham NG8 1BB, UNITED KINGDOM
ABSTRACT:
We analyse the range of default funds offered by UK stakeholder
pension schemes, against the background of research that shows
the majority of pension scheme members passively accept the
default arrangements offered by the scheme sponsor. We find the
default funds vary substantially in their strategic asset
allocation and in their use of lifestyle profiles that switch
the member's assets to fixed-income investments as the planned
retirement date approaches. We use a stochastic simulation model
to demonstrate that the differences have a significant effect on
the distribution of retirement income outcomes. We also find a
wide range of outcomes for each type of fund, and that with
commonly observed contribution rates defined-contribution
pension schemes appear unlikely to replicate the levels of
retirement income produced by typical defined benefit schemes.