_________________________________________________________________
SOCIAL SCIENCE RESEARCH NETWORK
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. 7, No. 28: October 6, 2006
Editors: PAMELA J. PERUN
Urban Institute
PAMELA@PLANETNOW.COM
_________________________________________________________________
BROWSE all abstracts in this subject:
http://www.ssrn.com/link/benefits-compensation-pension-law.html
SEARCH entire eLibrary at: http://ssrn.com/search
If this document is misaligned, please set type face to a
non-proportional font such as Courier 10.
_________________________________________________________________
Topic of This Issue:
Defined Contribution Saving
_________________________________________________________________
T A B L E O F C O N T E N T S
"The Tradeoff between Mortgage Prepayments and Tax-Deferred
Retirement Savings"
JENNIFER C. HUANG
University of Texas at Austin - Department of Finance
GENE AMROMIN
Federal Reserve Bank of Chicago
CLEMENS SIALM
University of Michigan - Stephen M. Ross School of
Business, National Bureau of Economic Research (NBER)
"Do Highly Compensated Participants Influence the Management of
Qualified Pension Plans?"
SHARAD ASTHANA
University of Texas-San Antonio
"401(k) Plan Asset Allocation, Account Balances, and Loan
Activity in 2005"
SARAH HOLDEN
Investment Company Institute
JACK VANDERHEI
Temple University - Risk Management & Insurance &
Actuarial Science, Employee Benefit Research Institute
(EBRI)
"Regret, Portfolio Choice, and Guarantees in Defined Contribution
Schemes"
ALEXANDER MUERMANN
University of Pennsylvania - Insurance & Risk Management
Department
OLIVIA S. MITCHELL
University of Pennsylvania - Insurance & Risk Management
Department, National Bureau of Economic Research (NBER)
JACQUELINE VOLKMAN
University of Pennsylvania - The Wharton School
"Roth 401(k) and 403(b) Contributions Addressed in Proposed and
Final IRS Regulations"
DAVID N. LEVINE
Groom Law Group
"What Kinds of Stock Ownership Plans Should There Be? Of ESOPs,
Other SOPs and 'Ownership Societies'"
ROBERT C. HOCKETT
Cornell University - School of Law
"Britain's Answer for Future Retirement Income: Possible Lessons
for the United States"
JOHN A. MACDONALD
Employee Benefit Research Institute (EBRI)
_________________________________________________________________
"The Tradeoff between Mortgage Prepayments and Tax-Deferred
Retirement Savings"
Contact: JENNIFER C. HUANG
University of Texas at Austin - Department of
Finance
Email: jennifer.huang@mccombs.utexas.edu
Auth-Page: http://ssrn.com/author=110766
Co-Author: GENE AMROMIN
Federal Reserve Bank of Chicago
Email: gamromin@frbchi.org
Auth-Page: http://ssrn.com/author=327203
Co-Author: CLEMENS SIALM
University of Michigan - Stephen M. Ross School of
Business, National Bureau of Economic Research
(NBER)
Email: sialm@umich.edu
Auth-Page: http://ssrn.com/author=173528
Full Text: http://ssrn.com/abstract=891546
ABSTRACT: We show that a significant number of households can
perform a tax arbitrage by cutting back on their additional
mortgage payments and increasing their contributions to
tax-deferred accounts (TDA). Using data from the Survey of
Consumer Finances, we show that about 38% of U.S. households that
are accelerating their mortgage payments instead of saving in
tax-deferred accounts are making the wrong choice. For these
households, reallocating their savings can yield a mean benefit
of 11 to 17 cents per dollar, depending on the choice of
investment assets in the TDA. In the aggregate, these
mis-allocated savings are costing U.S. households as much as 1.5
billion dollars per year. Finally, we show empirically that this
inefficient behavior is unlikely to be driven by liquidity
considerations and that self-reported debt aversion and risk
aversion variables explain to some extent the preference for
paying off debt obligations early and hence the propensity to
forgo our proposed tax arbitrage.
______________________________
"Do Highly Compensated Participants Influence the Management of
Qualified Pension Plans?"
Contact: SHARAD ASTHANA
University of Texas-San Antonio
Email: mail@sasthana.com
Auth-Page: http://ssrn.com/author=52307
Full Text: http://ssrn.com/abstract=902003
ABSTRACT: This paper presents evidence of favorable management of
qualified pension plans with large proportion of highly
compensated employees. Defined-benefit pension plans that are
dominated by highly compensated employees tend to contribute
beyond the minimum amount required under Internal Revenue Code
(flow effect) resulting in overfunded plans (stock effect) and
then use aggressive actuarial assumptions to disguise the
overfunding to avoid visibility costs (reporting effect). This
favored treatment is less likely when the sponsoring firm has an
active labor union (monitoring effect). These actions contradict
the provisions under the Employee Retirement Income Security Act
and the Internal Revenue Code, which prohibit favorable treatment
for highly compensated employees.
______________________________
"401(k) Plan Asset Allocation, Account Balances, and Loan
Activity in 2005"
EBRI Notes, No. 296, August 2006
Contact: SARAH HOLDEN
Investment Company Institute
Email: sholden@ici.org
Auth-Page: http://ssrn.com/author=262754
Co-Author: JACK VANDERHEI
Temple University - Risk Management & Insurance &
Actuarial Science, Employee Benefit Research
Institute (EBRI)
Email: TEMPLE@VANDERHEI.COM
Auth-Page: http://ssrn.com/author=265706
Full Text: http://ssrn.com/abstract=926348
ABSTRACT: Over the past two decades, 401(k) plans have grown to
be the most common type of employer-sponsored retirement plan in
the United States, and now serve as the most popular defined
contribution (DC) plan, as measured by number of participants and
assets. In 2005, 47 million American workers were active 401(k)
plan participants. By year-end 2005, 401(k) plan assets had grown
to represent 17 percent of all retirement assets, with $2.4
trillion in assets. In an ongoing collaborative effort, the
Employee Benefit Research Institute (EBRI) and the Investment
Company Institute (ICI) collect annual data on millions of 401(k)
plan participants as a means to accurately portray how these
participants manage their accounts. This paper serves as an
update of EBRI and ICI's ongoing research into 401(k) plan
participants' activity through year-end 2005. The report includes
two sections: The first focuses on account balance information
for participants who consistently maintained accounts between
1999 and 2005. The second provides a snapshot of all 401(k)
participants at year-end 2005, and reviews their account
balances, asset allocations, and loan activity.
______________________________
"Regret, Portfolio Choice, and Guarantees in Defined Contribution
Schemes"
PRC Working Paper Series No. 2005-17
Insurance: Mathematics and Economics, Forthcoming
Contact: ALEXANDER MUERMANN
University of Pennsylvania - Insurance & Risk
Management Department
Email: muermann@wharton.upenn.edu
Auth-Page: http://ssrn.com/author=303029
Co-Author: OLIVIA S. MITCHELL
University of Pennsylvania - Insurance & Risk
Management Department, National Bureau of Economic
Research (NBER)
Email: mitchelo@wharton.upenn.edu
Auth-Page: http://ssrn.com/author=41556
Co-Author: JACQUELINE VOLKMAN
University of Pennsylvania - The Wharton School
Email: jvolkman@wharton.upenn.edu
Auth-Page: http://ssrn.com/author=342680
Abstract: http://ssrn.com/abstract=918025
ABSTRACT: We model how asset allocation decisions in a defined
contribution (DC) pension plan might vary with participants'
attitudes about risk and regret. We show that anticipated
disutility from regret can have a potent effect on investment
choices. Compared to a risk-averse investor, the investor who
takes regret into account will hold more stock when the equity
premium is low but less stock when the equity premium is high.
We also assess how regret can influence a DC plan participant's
view of rate-of-return guarantees, as measured by his
willingness-to-pay. We find that regret increases the
regret-averse investor's willingness to pay for a guarantee when
the portfolio is relatively risky but decreases it when the
portfolio is relatively safe.
______________________________
"Roth 401(k) and 403(b) Contributions Addressed in Proposed and
Final IRS Regulations"
Journal of Taxation of Investments, p. 193, Spring 2006
Contact: DAVID N. LEVINE
Groom Law Group
Email: dnl@groom.com
Auth-Page: http://ssrn.com/author=561597
Abstract: http://ssrn.com/abstract=924933
ABSTRACT: The article summarizes the recently issued proposed and
final IRS regulations on Roth 401(k) and 403(b) contributions and
discusses a number of issues facing plan sponsors and service
providers who are considering adding after-tax Roth-style
contributions in their 401(k) and 403(b) plans.
______________________________
"What Kinds of Stock Ownership Plans Should There Be? Of ESOPs,
Other SOPs and 'Ownership Societies'"
Cornell Law Review, Forthcoming
Cornell Law School Legal Studies Research Paper Series
Contact: ROBERT C. HOCKETT
Cornell University - School of Law
Email: robert-hockett@postoffice.law.cornell.edu
Auth-Page: http://ssrn.com/author=602726
Full Text: http://ssrn.com/abstract=931049
ABSTRACT: Present-day advocates of an ownership society (OS) do
not seem to have noticed the means we have already employed to
become an OS where homes and human capital (higher education) are
concerned. Nor do they appear to have considered whether these
same means - which amount to publicly enhanced private credit
markets - might be employed to spread shares in business firms,
with a view to completing our OS. This article, the third in a
series, seeks tentatively to fill that gap. It does so first by
demonstrating how the Employee Stock Ownership Plan, or ESOP, in
effect replicates our home and education spreading programs in
piecemeal fashion. But piecemeal replication, the article shows,
is not sufficient; a completed OS requires complete replication.
So the article, second, generalizes from the ESOP along two
salient dimensions - what it labels the patronage and credit
dimensions - in order both to complete SOP-financing's
replication of our federal home- and higher education-finance
programs, and with that our OS itself. Our OS is, in effect, a
three-legged stool that awaits its third leg.
______________________________
"Britain's Answer for Future Retirement Income: Possible Lessons
for the United States"
EBRI Notes, Vol. 27, No. 8, August 2006
Contact: JOHN A. MACDONALD
Employee Benefit Research Institute (EBRI)
Email: macdonald@ebri.org
Auth-Page: http://ssrn.com/author=510965
Full Text: http://ssrn.com/abstract=926350
ABSTRACT: Both the United Kingdom and the United States face
similar budget pressures over their national retirement programs,
shortfalls in individual savings, and a rapid decline of
traditional private defined benefit pension plans. In both the
U.K. and the U.S., major stumbling blocks to reform have been
whether the government can afford the changes and how employers
might be hurt by a national mandate to contribute to their
workers' retirement accounts. Although Congress is not about to
overhaul U.S. retirement policy, Britain has very significant
changes on the table, with the prospect of action later this
year: The government is moving to raise the eligibility age for
state pensions, create a new mandatory system of private savings
accounts, and require both employer and worker contributions to
the accounts. John Hutton, British secretary of state for work
and pensions, outlined the British proposal for pension reform at
a June 14, 2006, meeting in Washington, DC, organized by the
Retirement Security Project. This paper summarizes his
presentation and initial reaction by U.S. experts.
The PDF for the above title, published in the August 2006 issue
of EBRI Notes, also contains the full text of another August 2006
EBRI Notes article abstracted on SSRN: "An American Perspective
on the Chinese Pension System."