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SOCIAL SCIENCE RESEARCH NETWORK
EMPLOYEE BENEFITS, COMPENSATION & PENSION LAW ABSTRACTS
Sponsored by Pension Governance, LLC
Vol. 8, No. 11: March 29, 2007
Editor: PAMELA J. PERUN
Urban Institute
PAMELA@PLANETNOW.COM
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Topic of This Issue:
Pensions
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T A B L E O F C O N T E N T S
"Uncovering and Understanding Hidden Fees in Qualified Retirement
Plans, 2nd Edition - Published February 1, 2007"
MATTHEW D. HUTCHESON
Independent Pension Fiduciary
"How to Invest Over the Life Cycle: A Review"
MARTIN WALLMEIER
University of Fribourg (Switzerland) - Faculty of
Economics and Social Science
FLORIAN ZAINHOFER
University of Fribourg (Switzerland) - Chair for
Financial Management
"The Performance of US Pension Funds"
RIK G.P. FREHEN
University of Maastricht - Limburg Institute of
Financial Economics (LIFE), Netspar
ROB BAUER
University of Maastricht - Limburg Institute of
Financial Economics (LIFE)
ROGER OTTEN
University of Maastricht - Limburg Institute of
Financial Economics (LIFE)
HUBERT LUM
CEM Benchmarking Inc.
"Retirement Plan Participation and Asset Allocation, 2004"
CRAIG COPELAND
Employee Benefit Research Institute (EBRI)
"A Fatal Mis-Match: Employer-Centric Benefits in a Boundaryless
Workplace"
KATHERINE V.W. STONE
University of California, Los Angeles - School of Law
"Heuristics and Biases in Retirement Savings Behavior"
SHLOMO BENARTZI
University of California at Los Angeles
RICHARD H. THALER
University of Chicago - Graduate School of Business,
National Bureau of Economic Research (NBER)
_________________________________________________________________
"Uncovering and Understanding Hidden Fees in Qualified Retirement
Plans, 2nd Edition - Published February 1, 2007"
Contact: MATTHEW D. HUTCHESON
Independent Pension Fiduciary
Email: mdh@gfiduciary.com
Auth-Page: http://ssrn.com/author=685290
Full Text: http://ssrn.com/abstract=961996
ABSTRACT: In the United States, the level of concern over 401(k)
fees is steadily increasing. However, very few employers
understand the nature and scope of the retirement plan industry's
business model. Not even the Federal Government fully grasps the
issue. Understanding how hidden fees came about, and recognizing
the specific types and amounts of such fees, will help employers
make better decisions regarding 401(k)services. That
understanding will help create a more secure retirement for
American workers.
Notwithstanding the obscure nature of retirement plan economics
there is a rigorous way to determine the costs of any such plan.
Directors, officers, and executives of plan sponsors have a
fiduciary duty to know, manage, and control all of the fees
assessed to plan assets.
Modern fee structures are the result of mingling fiduciary and
non-fiduciary philosophies. Hidden and excessive fees can be
corrected by embracing an independent fiduciary only approach
toward plan management.
There is more at stake than is generally contemplated. Correcting
errant business practices in the 401(k) industry is important for
participants, plan sponsors, and society as a whole.
______________________________
"How to Invest Over the Life Cycle: A Review"
Author: MARTIN WALLMEIER
University of Fribourg (Switzerland) - Faculty of
Economics and Social Science
Email: martin.wallmeier@unifr.ch
Auth-Page: http://ssrn.com/author=137356
Contact: FLORIAN ZAINHOFER
University of Fribourg (Switzerland) - Chair for
Financial Management
Email: florian.zainhofer@unifr.ch
Auth-Page: http://ssrn.com/author=505898
Full Text: http://ssrn.com/abstract=951167
ABSTRACT: We analyse the state of the art in the field of life
cycle portfolio choice, a recent strand of the literature on
intertemporal portfolio selection. Life cycle models are designed
to identify optimal savings and portfolio policies over the
lifetime of investors. They can help to improve pension schemes
by showing how these could be specifically tailored to the
individual employee's circumstances to overcome the
"one-size-fits-all" philosophy still prevailing in parts of the
mandatory retirement savings system. To facilitate comparison, we
first describe set-up, solution method and characteristic results
for a basic model and then derive a general framework to classify
existing contributions. We highlight the models' strengths and
weaknesses and assess their ability to resolve existing portfolio
puzzles. Lessons from the literature are summarized and promising
areas for further research identified.
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"The Performance of US Pension Funds"
Contact: RIK G.P. FREHEN
University of Maastricht - Limburg Institute of
Financial Economics (LIFE), Netspar
Email: r.frehen@finance.unimaas.nl
Auth-Page: http://ssrn.com/author=760607
Co-Author: ROB BAUER
University of Maastricht - Limburg Institute of
Financial Economics (LIFE)
Email: R.BAUER@BERFIN.UNIMAAS.NL
Auth-Page: http://ssrn.com/author=184949
Co-Author: ROGER OTTEN
University of Maastricht - Limburg Institute of
Financial Economics (LIFE)
Email: r.otten@finance.unimaas.nl
Auth-Page: http://ssrn.com/author=165088
Co-Author: HUBERT LUM
CEM Benchmarking Inc.
Email: hubert@cembenchmarking.com
Auth-Page: http://ssrn.com/author=761366
Full Text: http://ssrn.com/abstract=965388
ABSTRACT: We document the net equity performance of US defined
benefit and defined contribution schemes at plan level, using a
unique and comprehensive database. Pension fund performance is
measured taking into account fund-specific benchmarks and
multiple cost components. Pension funds perform close to their
benchmarks, whereas size-matched mutual funds strongly
underperform. Cost, risk and style differences do not explain the
performance gap between the two institutional arrangements. Our
results are consistent with the notion that pension funds are
less exposed to hidden agency costs than mutual funds. Efficient
fund pooling provides pension boards with enough negotiating
power and monitoring capacity to ensure that institutional asset
managers serve the interests of participants.
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"Retirement Plan Participation and Asset Allocation, 2004"
EBRI Notes, Vol. 28, No. 2, February 2007
Contact: CRAIG COPELAND
Employee Benefit Research Institute (EBRI)
Email: COPELAND@EBRI.ORG
Auth-Page: http://ssrn.com/author=255137
Full Text: http://ssrn.com/abstract=963466
ABSTRACT: This paper updates previous EBRI research on asset
allocation in defined contribution plans and individual
retirement accounts (IRAs) using the latest data from the Survey
of Consumer Finances (SCF), a triennial interview survey of U.S.
families sponsored by the Federal Reserve Board in cooperation
with the U.S. Department of the Treasury. The SCF measures the
financial characteristics and status of American families. The
SCF data show that the sponsorship rate is steady and the level
of participation is down. Individuals who own both 401(k) plans
and IRAs are more likely to have higher allocations of stocks
than those who own only one or the other.
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"A Fatal Mis-Match: Employer-Centric Benefits in a Boundaryless
Workplace"
UCLA School of Law, Law-Econ Research Paper No. 07-01
Lewis & Clark Law Review, Vol. 11, 2007
Contact: KATHERINE V.W. STONE
University of California, Los Angeles - School of
Law
Email: stone@law.ucla.edu
Auth-Page: http://ssrn.com/author=184684
Full Text: http://ssrn.com/abstract=961615
ABSTRACT: In this article, Katherine V. W. Stone traces the
origins of the uniquely American system of private,
employer-centered welfare institutions and argues that the
prevailing model must be replaced with an alternative that is
both more portable and more affordable for the vast majority of
workers. Stone shows how the current employer-centric system of
benefits originated in the industrial era of the last century
when employers sought to secure a stable workforce through
internal labor markets. She argues that this employer-centered
model of social insurance and welfare benefits has largely
outlived its usefulness in the new "boundaryless" workplace of
the twenty-first century. In response to the aging of the
population and a rapidly changing economy characterized by global
competition, shorter production cycles, increased use of
contingent and temporary employment and rising healthcare costs,
in the last two decades employers have reduced their benefits
coverage, shifted away from risk-pooling plans, such as defined
benefits plans, in favor of a personal responsibility approach
characterized by more portable but riskier defined contribution
plans. She shows that these changes have generally shifted the
costs and risks of healthcare and old age assistance onto their
employees. As a result, the U.S. system of employer-centered
benefits is irrelevant for large numbers of employees who have no
coverage and increasingly inadequate, uncertain and costly for
those who are covered.
______________________________
"Heuristics and Biases in Retirement Savings Behavior"
Journal of Economic Perspectives, Forthcoming
Contact: SHLOMO BENARTZI
University of California at Los Angeles
Email: sbenartz@ucla.edu
Auth-Page: http://ssrn.com/author=75169
Co-Author: RICHARD H. THALER
University of Chicago - Graduate School of
Business, National Bureau of Economic Research
(NBER)
Email: richard.thaler@gsb.uchicago.edu
Auth-Page: http://ssrn.com/author=74929
Full Text: http://ssrn.com/abstract=958585
ABSTRACT: Saving for retirement is a difficult problem, and most
employees have little training upon which to draw in making the
relevant decisions. Perhaps as a result, investors are relatively
passive. They are slow to join advantageous plans; they make
infrequent changes; and they adopt naïve diversification
strategies. In short, they need all the help they can get.
Fortunately, many effective ways to help participants are also
the least costly interventions: namely, small changes in plan
design, sensible default options and opportunities to increase
savings rates and rebalance portfolios automatically. These
design features help less sophisticated investors while
maintaining flexibility for more sophisticated types.