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SOCIAL SCIENCE RESEARCH NETWORK
EMPLOYEE BENEFITS, COMPENSATION & PENSION LAW ABSTRACTS
Sponsored by Pension Governance, LLC
Vol. 8, No. 38: November 1, 2007
Editor: PAMELA J. PERUN
Policy Director, Aspen Institute - Initiative on
Financial Security
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
"Pension Plan Characteristics and Framing Effects in Employee
Savings Behavior"
DAVID CARD
University of California, Berkeley - Department of
Economics, Institute for the Study of Labor (IZA),
National Bureau of Economic Research (NBER)
MICHAEL R. RANSOM
Brigham Young University - Department of Economics,
Institute for the Study of Labor (IZA)
"A Legislative and Political History of ERISA Preemption, Part 1"
JAMES A. WOOTEN
University at Buffalo Law School, SUNY
"A Legislative and Political History of ERISA Preemption, Part 2"
JAMES A. WOOTEN
University at Buffalo Law School, SUNY
"401(k)-Type Plans and Individual Retirement Accounts (IRAs)"
CRAIG COPELAND
Employee Benefit Research Institute (EBRI)
"Why Did Trust Law Become Statute Law in the United States?"
JOHN H. LANGBEIN
Yale University - Law School
"The Impact of Employer Matching on Savings Plan Participation
Under Automatic Enrollment"
JOHN BESHEARS
Harvard University - Department of Economics
JAMES J. CHOI
Yale School of Management, National Bureau of Economic
Research (NBER)
DAVID LAIBSON
Harvard University - Department of Economics, National
Bureau of Economic Research (NBER)
BRIGITTE C. MADRIAN
Harvard University - John F. Kennedy School of
Government, National Bureau of Economic Research (NBER)
"The Dynamics of Lifecycle Investing in 401(k) Plans"
OLIVIA S. MITCHELL
University of Pennsylvania - Insurance & Risk Management
Department, National Bureau of Economic Research (NBER)
GARY R. MOTTOLA
Vanguard Center for Retirement Research
STEPHEN P. UTKUS
Vanguard Center for Retirement Research
TAKESHI YAMAGUCHI
University of Pennsylvania - The Wharton School
"The Expected Impact of Automatic Escalation of 401(k)
Contributions on Retirement Income"
JACK VANDERHEI
Temple University - Risk Management & Insurance &
Actuarial Science, Employee Benefit Research Institute
(EBRI)
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"Pension Plan Characteristics and Framing Effects in Employee
Savings Behavior"
NBER Working Paper No. W13275
Contact: DAVID CARD
University of California, Berkeley - Department of
Economics, Institute for the Study of Labor (IZA),
National Bureau of Economic Research (NBER)
Email: card@econ.berkeley.edu
Auth-Page: http://ssrn.com/author=138220
Co-Author: MICHAEL R. RANSOM
Brigham Young University - Department of Economics,
Institute for the Study of Labor (IZA)
Email: ransom@byu.edu
Auth-Page: http://ssrn.com/author=79472
Full Text: http://ssrn.com/abstract=1002054
ABSTRACT: In this paper we document the importance of framing
effects in the retirement savings decisions of college
professors. Pensions in many post-secondary institutions are
funded by a combination of an employer contribution and a
mandatory employee contribution. Employees can also make
tax-deferred contributions to a supplemental savings account. A
standard lifecycle savings model predicts a dollar-for-dollar
tradeoff between supplemental savings and the combined regular
pension contributions made on behalf of an employee. Contrary to
this prediction, we estimate that each additional dollar of
employee contributions leads to a 70 cent reduction in
supplemental savings, whereas each dollar of employer
contributions generates only a 30 cent reduction. The asymmetry -
which is consistent with different mental accounts for employer
and employee contributions - provides further evidence of the
sensitivity of individual savings decisions to the precise
details of their pension plan.
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"A Legislative and Political History of ERISA Preemption, Part 1"
Buffalo Legal Studies Research Paper No. 2007-017
Journal of Pension Benefits, Vol. 14, No. 1, pp. 31-35,
Autumn 2006
Contact: JAMES A. WOOTEN
University at Buffalo Law School, SUNY
Email: JWOOTEN@BUFFALO.EDU
Auth-Page: http://ssrn.com/author=290814
Full Text: http://ssrn.com/abstract=1022632
ABSTRACT: This article recounts the key role of preemption issues
in Congress's decision to pass ERISA. Until shortly before
ERISA's enactment, employers and the AFL-CIO opposed
comprehensive pension reform legislation. When states threatened
to regulate private pension and welfare plans, however, the
business community's and the AFL-CIO's strong desire for
preemption all but forced them to support a federal pension
reform law. Their support made passage of such legislation a
virtual certainty.
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"A Legislative and Political History of ERISA Preemption, Part 2"
Buffalo Legal Studies Research Paper No. 2007-018
Journal of Pension Benefits, Vol. 14, No. 3, pp. 5-10,
Spring 2007
Contact: JAMES A. WOOTEN
University at Buffalo Law School, SUNY
Email: JWOOTEN@BUFFALO.EDU
Auth-Page: http://ssrn.com/author=290814
Full Text: http://ssrn.com/abstract=1023699
ABSTRACT: This article explains how preemption issues led
Congress to pass a broader pension reform law than it might
otherwise have done. Business groups and the Nixon Administration
hoped the congressional tax committees would limit the scope of
federal regulation of pension plans. The congressional rules,
however, gave jurisdiction over Congress's power to preempt state
employment laws to the labor committees. Their control over
preemption allowed the labor committees to bargain for broader
regulation than business groups and the Administration preferred.
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"401(k)-Type Plans and Individual Retirement Accounts (IRAs)"
EBRI Notes, Vol. 28, No. 10, October 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=1022357
ABSTRACT: Individual account retirement plans, such as 401(k)
plans and individual retirement accounts (IRAs), have continued
to increase their share of retirement assets (currently totaling
about $7.5 trillion in assets), and this share is projected to
grow further, particularly for private-sector workers.
Consequently, tracking how many individuals have these plans and
how much has been accumulated in them is an important indicator
of how workers are preparing for retirement financially. This
paper uses the most recent data from the Survey of Income and
Program Participation (SIPP), conducted by the U.S. Census
Bureau, to examine the prevalence of these accounts among workers
ages 21-64. The paper begins with an examination of the ownership
of IRAs and participation in 401(k)-type plans (singularly and in
combination) among workers ages 21-64. Next, it investigates the
average contribution, the percentage of participants contributing
the maximum amount, and the average earnings in 401(k)-type plans
and IRAs. Finally, it presents the latest official government
data on the assets and participants, where they are available for
these accounts.
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"Why Did Trust Law Become Statute Law in the United States?"
Yale Law & Economics Research Paper No. 341
Alabama Law Review, Vol. 58, No. 5, 2007
Contact: JOHN H. LANGBEIN
Yale University - Law School
Email: john.langbein@yale.edu
Auth-Page: http://ssrn.com/author=169038
Full Text: http://ssrn.com/abstract=1014236
ABSTRACT: The Uniform Trust Code, the first national-level
codification of the American law of trusts, was promulgated in
2000. The Code was the product of a five-year Uniform Law
Commission drafting process that entailed extensive consultation
with the trust and estates bar and the trust banking industry.
The Code is being widely enacted. Eighteen states and the
District of Columbia have thus far adopted it, and many others
are likely to follow. Alabama's enactment comes into effect in
2007. For the future, trust law in Alabama and the other Code
states will be prevailingly statute law, although the principles
developed in prior case law will continue to inform the
interpretation and application of the Code. In one sense, the
Code marks a great departure by codifying a previously uncodified
field. In another sense, however, the Code is simply the latest
step in a trend toward statutory intervention in American trust
law that has been underway for decades. If we focus on the
Uniform Laws, and I shall have more to say about why uniform
legislation has so characterized the trust field, we can identify
a steady progression of enactments from the 1930s onward.
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"The Impact of Employer Matching on Savings Plan Participation
Under Automatic Enrollment"
NBER Working Paper No. W13352
Author: JOHN BESHEARS
Harvard University - Department of Economics
Email: beshears@fas.harvard.edu
Auth-Page: http://ssrn.com/author=576924
Contact: JAMES J. CHOI
Yale School of Management, National Bureau of
Economic Research (NBER)
Email: jameschoi@yale.edu
Auth-Page: http://ssrn.com/author=239442
Co-Author: DAVID LAIBSON
Harvard University - Department of Economics,
National Bureau of Economic Research (NBER)
Email: dlaibson@harvard.edu
Auth-Page: http://ssrn.com/author=20341
Co-Author: BRIGITTE C. MADRIAN
Harvard University - John F. Kennedy School of
Government, National Bureau of Economic Research
(NBER)
Email: brigitte_madrian@harvard.edu
Auth-Page: http://ssrn.com/author=85592
Full Text: http://ssrn.com/abstract=1009802
ABSTRACT: Existing research has documented the large impact that
automatic enrollment has on savings plan participation. All the
companies examined in these studies, however, have combined
automatic enrollment with an employer match. This raises a
question about how effective automatic enrollment would be
without a direct financial inducement not to opt out of
participation. This paper's results suggest that the match has
only a modest impact on opt-out rates. We estimate that moving
from a typical matching structure - a match of 50% up to 6% of
pay contributed - to no match would reduce participation under
automatic enrollment at six months after plan eligibility by 5 to
11 percentage points. Our analysis includes a firm that switched
from a match to a non-contingent employer contribution. This
firm's experience suggests that non-contingent employer
contributions only weakly crowd out employee participation.
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"The Dynamics of Lifecycle Investing in 401(k) Plans"
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: GARY R. MOTTOLA
Vanguard Center for Retirement Research
Email: gmottola@vanguard.com
Auth-Page: http://ssrn.com/author=569864
Contact: STEPHEN P. UTKUS
Vanguard Center for Retirement Research
Email: steve_utkus@vanguard.com
Auth-Page: http://ssrn.com/author=328294
Co-Author: TAKESHI YAMAGUCHI
University of Pennsylvania - The Wharton School
Email: tyamaguc@wharton.upenn.edu
Auth-Page: http://ssrn.com/author=347056
Full Text: http://ssrn.com/abstract=1018891
ABSTRACT: In an effort to improve 401(k) portfolio choices, many
US plan sponsors are offering target maturity date (TM) lifecycle
funds, which place younger workers into higher-equity-share
portfolios and then automatically rebalance them into more
conservative holdings as they near retirement age. Our study of
over a quarter-million participants offered TM funds shows that
sponsor-driven menu decisions do influence adoption patterns. Yet
many participants also prove to be active decision-makers,
particularly new plan entrants and seemingly less financially
literate employees. Comparing portfolios before and after TM fund
adoption, we observe that such funds meaningfully change the age
structure of equity exposure, eliminate zero- or all-equity
portfolios, and reduce the share of idiosyncratic portfolio risk.
We conclude that recent pension legislation sanctioning TM as
default funds will modify 401(k) investment patterns. The speed
with which behavior changes will depend both on employer plan
menu decisions as well as voluntary choice by new entrants and
low-literacy employees.
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"The Expected Impact of Automatic Escalation of 401(k)
Contributions on Retirement Income"
EBRI Notes, Vol. 28, No. 9, September 2007
Contact: 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=1015547
ABSTRACT: The Pension Protection Act (PPA) of 2006 allows
employers to automatically enroll workers in the company's 401(k)
plan and to automatically increase a worker's 401(k) contribution
to coincide with a raise or a work anniversary -- though the
employee can decline both enrollment and the increase. To qualify
for nondiscrimination protections, automatic (or default)
contributions must be at least 3 percent in the first year and
increase regularly. The provision was added in an attempt to
boost 401(k) accounts, the primary vehicle for worker retirement
savings. This paper uses data from the 2007 Retirement Confidence
Survey (RCS), fielded several months after the enactment of PPA,
which asked workers how high they would allow their default
401(k) contributions to go. The result is a first approximation
for the expected impact of automatic escalation under the PPA
safe harbors for a number of different assumptions about worker
and employer reactions.