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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. 8, No. 1: January 12, 2007
Editor: PAMELA J. PERUN
Urban Institute
PAMELA@PLANETNOW.COM
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Topic of This Issue:
Pension Issues
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T A B L E O F C O N T E N T S
"The Effect of Subjective Survival Probabilities on Retirement
and Wealth in the United States"
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 MOORE
Queen's University (Belfast) - School of Management and
Economics
YOUNGHWAN SONG
Union College - Department of Economics
"Longevity and Aggregate Savings"
EYTAN SHESHINSKI
Hebrew University of Jerusalem, National Bureau of
Economic Research (NBER), CESifo (Center for Economic
Studies and Ifo Institute for Economic Research)
"Efficiency and Tax Incentives: The Case for Refundable Tax
Credits"
LILY BATCHELDER
New York University School of Law
FRED T. GOLDBERG
Skadden, Arps, Slate, Meagher & Flom LLP
PETER R. ORSZAG
The Brookings Institution, Sebago Associates
"Are Americans Saving 'Optimally' for Retirement?"
JOHN KARL SCHOLZ
University of Wisconsin - Madison - Department of
Economics, National Bureau of Economic Research (NBER)
ANANTH SESHADRI
University of Wisconsin - Madison - Department of
Economics
SURACHAI KHITATRAKUN
ERS Group
"How Employment Agreements and Settlements of Employment Disputes
May Affect Pension Benefits"
ALBERT FEUER
Law Offices of Albert Feuer
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"The Effect of Subjective Survival Probabilities on Retirement
and Wealth in the United States"
NBER Working Paper No. W12688
Contact: DAVID E. BLOOM
Harvard University - Harvard School of Public
Health, National Bureau of Economic Research (NBER)
Email: dbloom@hsph.harvard.edu
Auth-Page: http://ssrn.com/author=52269
Co-Author: DAVID CANNING
Harvard University - Harvard School of Public
Health
Email: dcanning@hsph.harvard.edu
Auth-Page: http://ssrn.com/author=349685
Co-Author: MICHAEL MOORE
Queen's University (Belfast) - School of Management
and Economics
Email: m.moore@qub.ac.uk
Auth-Page: http://ssrn.com/author=276643
Co-Author: YOUNGHWAN SONG
Union College - Department of Economics
Email: songy@union.edu
Auth-Page: http://ssrn.com/author=336379
Full Text: http://ssrn.com/abstract=944177
ABSTRACT: We explore the proposition that expected longevity
affects retirement decisions and accumulated wealth using micro
data drawn from the Health and Retirement Study for the United
States. We use data on a person's subjective probability of
survival to age 75 as a proxy for their prospective lifespan. In
order to control for the presence of measurement error and focal
points in responses, as well as reverse causality, we instrument
subjective survival probabilities using information on current
age, or age at death, of the respondent's parents. Our estimates
indicate that increased subjective probabilities of survival
result in increased household wealth among couples, with no
effect on the length of the working life. These findings are
consistent with the view that retirement decisions are driven by
institutional constraints and incentives and that a longer
expected lifespan leads to increased wealth accumulation.
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"Longevity and Aggregate Savings"
CESifo Working Paper Series No. 1828
Contact: EYTAN SHESHINSKI
Hebrew University of Jerusalem, National Bureau of
Economic Research (NBER), CESifo (Center for
Economic Studies and Ifo Institute for Economic
Research)
Email: mseytan@mscc.huji.ac.il
Auth-Page: http://ssrn.com/author=277744
Full Text: http://ssrn.com/abstract=940355
ABSTRACT: For the last fifty years, countries in Asia and
elsewhere witnessed a surge in aggregate savings per capita. Some
empirical studies attribute this trend to the increases in life
longevity of the populations of these countries. It has been
argued that the rise in savings is short-run, eventually to be
dissipated by the dissaving of the elderly, whose proportion in
the population rises along with longevity. This paper examines
whether these conclusions are supported by economic theory. A
model of life cycle decisions with uncertain survival is used to
derive individuals' consumption and chosen retirement age
response to changes in longevity from which changes in individual
savings are derived. Conditions on the age-profile of
improvements in survival probabilities are shown to be necessary
in order to predict the direction of this response. Population
theory (e.g. Coale, 1952) is used to derive the state-state
population age density function, enabling the aggregation of
individual response functions and a comparative steady-state
analysis. Under certain conditions, increased longevity is shown
to increase aggregate savings per capita. These conclusions
pertain to an economy with a competitive annuity market. The
absence of such market compels individuals to leave unintended
bequests, whose size depends on the (random) age of death. While
an increase in longevity raises individual savings for given
endowments, it is shown that the effect on expected steady-state
aggregate savings, taking into account the endogenous ergodic
distribution of endowments, cannot be determined a-priori.
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"Efficiency and Tax Incentives: The Case for Refundable Tax
Credits"
New York University, Law and Economics Research Paper No.
06-50
Contact: LILY BATCHELDER
New York University School of Law
Email: lily.batchelder@nyu.edu
Auth-Page: http://ssrn.com/author=371646
Co-Author: FRED T. GOLDBERG
Skadden, Arps, Slate, Meagher & Flom LLP
Email: fgoldber@skadden.com
Auth-Page: http://ssrn.com/author=153334
Co-Author: PETER R. ORSZAG
The Brookings Institution, Sebago Associates
Email: PORSZAG@BROOK.EDU
Auth-Page: http://ssrn.com/author=244915
Full Text: http://ssrn.com/abstract=941582
ABSTRACT: Each year the federal individual income tax delivers
over $500 billion worth of incentives intended to encourage
socially beneficial activities. Despite their efficiency
rationale and substantial price tag, relatively little attention
has been paid to the question of what is the most efficient form
for these tax incentives. Currently the vast majority operate
through deductions or exclusions, which link the size of the tax
benefit to the taxpayer's marginal tax bracket. This Article
argues that uniform refundable credits are a more efficient
approach for tax incentives intended to correct for positive
externalities, absent evidence that externalities or elasticities
associated with the subsidized activity vary by income class.
This conclusion holds even if no positive externalities are
present. Moreover, even when evidence of differences in
externalities or elasticities does exist, the most efficient
subsidy is almost certainly still some type of refundable credit.
The efficiency benefits of refundable credits are further
magnified by their tendency to automatically smooth household
income and macroeconomic demand. This Article therefore proposes
a dramatic change in how the government should provide tax
incentives for socially valued activities: the default for all
such tax incentives should be a uniform refundable tax credit.
This Article also considers the arguments of refundable credit
opponents. It concludes that concerns based on administrative and
compliance costs are generally overstated. In addition, it finds
that the vast majority of those who benefit from current-law
refundable credits have positive income tax liability over time.
Refundable credits are thus frequently the "rough justice"
equivalent of allowing carryovers and carrybacks, which are
common in other parts of the tax code. The Article therefore
argues that the objection that tax incentives should not be
structured as refundable credits because all Americans should pay
some income tax is not only conceptually problematic; it is
generally empirically unpersuasive on its own terms.
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"Are Americans Saving 'Optimally' for Retirement?"
Journal of Political Economy, Vol. 114, pp. 607-643, August
2006
Contact: JOHN KARL SCHOLZ
University of Wisconsin - Madison - Department of
Economics, National Bureau of Economic Research
(NBER)
Email: Jkscholz@wisc.edu
Auth-Page: http://ssrn.com/author=55901
Co-Author: ANANTH SESHADRI
University of Wisconsin - Madison - Department of
Economics
Email: ASESHADR@SSC.WISC.EDU
Auth-Page: http://ssrn.com/author=327020
Co-Author: SURACHAI KHITATRAKUN
ERS Group
Email: skitatrakun@ersgroup.com
Auth-Page: http://ssrn.com/author=364645
Abstract: http://ssrn.com/abstract=941137
ABSTRACT: We solve each household's optimal saving decisions
using a life cycle model that incorporates uncertain lifetimes,
uninsurable earnings and medical expenses, progressive taxation,
government transfers, and pension and social security benefits.
With optimal decision rules, we compare, household by household,
wealth predictions from the life cycle model using a nationally
representative sample. We find, making use of household-specific
earnings histories, that the model accounts for more than 80
percent of the 1992 cross-sectional variation in wealth. Fewer
than 20 percent of households have less wealth than their optimal
targets, and the wealth deficit of those who are undersaving is
generally small.
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"How Employment Agreements and Settlements of Employment Disputes
May Affect Pension Benefits"
NYSBA Labor & Employment Newsletter, Vol. 31, No. 2, p. 26,
Fall 2006
Contact: ALBERT FEUER
Law Offices of Albert Feuer
Email: afeuer@aya.yale.edu
Auth-Page: http://ssrn.com/author=508291
Full Text: http://ssrn.com/abstract=952237
ABSTRACT: The Federal Circuits have generally held that ERISA
prohibits waivers of claims to vested pension benefits. The D.C.
Circuit prohibits waivers of vesting rights. The Seventh Circuit
prohibits waivers of vested pension benefits, but allows
individuals to settle non-pension disputes by choosing settlement
payments which may not have the most favorable associated pension
plan benefits. The Second Circuit also prohibits the waiver of
vested benefits but has found that waivers of the right to
participate in pension plans may be effective. Nevertheless, a
number of Second Circuit district courts have permitted the
waiver of vested pension benefits. The Fifth Circuit upheld a
waiver of vested pension benefits in an employment termination
agreement when the agreement addressed a bona fide pension
dispute but not one which was part of a general release in a
severance agreement. Each Circuit looks beyond the face of the
waiver of pension benefits for those limited waivers that each
permits to verify that those waivers were knowing and voluntary.
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