GREGORY G. BRUNNER, Affiliation Unknown
RICHARD HINZ, World Bank - Human Development Network
Email: rhinz@worldbank.org
ROBERTO DE REZENDE ROCHA, National Bureau of Economic Research (NBER)
Email: rrocha@worldbank.org

This paper provides a review of the design and experience of risk-based pension fund supervision in several countries that have been leaders in the development of these methods. The utilization of risk-based methods originates primarily in the supervision of banks. In recent years it has increasingly been extended to other types of financial intermediaries including pension funds and insurers. The trend toward risk-based supervision of pensions is closely associated with movement toward the integration of pension supervision with that of banking and other financial services into a single national authority. Although similar in concept to the techniques developed in banking, the application to pension funds has required modifications, particularly for defined contribution funds that transfer investment risk to fund members. The countries examined provide a range of experiences that illustrate both the diversity of pension systems and approaches to risk-based supervision, but also a commonality of the focus on sound risk management and effective supervisory outcomes. The paper provides a description of pension supervision in Australia, Denmark, Mexico and the Netherlands, and an initial evaluation of the results achieved in relation to the underlying objectives.

KANDICE KAPINOS, ISR, University of Michigan
Email: kkapinos@isr.umich.edu

This paper endeavors to explain the likelihood that a given firm would have converted its traditional pension plan to a more controversial cash balance plan during the 1990s. Drawing upon the theory of implicit contracts, I argue that firms endeavoring to reduce their stocks of firm specific human capital, with younger and more mobile workforces in rapidly changing industries would have been most likely to utilize such a plan. Using data mainly from the Department of Labor, the Current Population Survey, and Compustat, I find plans with more educated and older workers were more likely to convert, and plans covering unionized workers were less likely to convert. I find no support that over-funded plans were more likely to convert.

JOHN L. CAMPBELL, University of Arizona - Department of Accounting
Email: johnc@email.arizona.edu
DAN S. DHALIWAL, University of Arizona - Department of Accounting
Email: dhaliwal@eller.arizona.edu
WILLIAM C. SCHWARTZ JR., University of Arizona - Department of Accounting
Email: SCHWARTZ@ELLER.ARIZONA.EDU

We investigate the equity valuation effects of the Pension Protection Act of 2006 (hereafter PPA 2006). The PPA 2006 has two main provisions: (1) firms are required to fully fund their pension plans within seven years (previously allowed 30 years to fund 90 percent of the pension liability), and (2) firms receive a tax deduction for qualifying contributions of 150 percent (previously 100 percent). We examine pension firms' abnormal returns surrounding key dates in the legislative process leading to the adoption of the PPA 2006. We also estimate a multivariate model that isolates the equity valuation effects by the key provisions of the legislation. Third, we amend the multivariate model to assess whether there are differential valuation effects for firms in the different at risk categories defined by the PPA 2006. We find a mean negative abnormal return of -4.08 percent during the period in which the PPA 2006 was first voted on by Congress. The mean (median) firm in our sample experienced a $340 million ($60 million) decline in market capitalization. We find that the equity valuation effect was more negative for firms with larger unfunded pension liabilities and larger capital expenditure requirements, while firms with higher marginal tax rates experienced a positive effect. We find no evidence of differential valuation effects for firms in different at risk categories as defined by the PPA 2006. We find a significant number of pension freezes occurred during our sample period. Our results are unchanged when excluding these firms from our sample.

MICHAEL D. GRUBB, MIT Sloan School of Management
PAUL OYER, Stanford Graduate School of Business, National Bureau of Economic Research (NBER)
Email: pauloyer@stanford.edu

We use university parking permits to study how firms and employees split the value of employee benefit tax subsidies. Starting in 1998, the IRS allowed employees to pay for parking passes with pre-tax income. This subsidized the parking pass purchases of faculty and staff, but did not affect students. We show that the typical university raised its parking rates by 8-10% extra when it implemented a pre-tax payment system, but that this increase was the same for those affected by the tax change and those that were not affected. We conclude that university employees captured much of the new tax benefit, that faculty and staff that purchase permits benefited relative to those that do not purchase permits, and that students that purchase permits were made worse off relative to those that do not buy permits. We discuss what these results suggest about universities' objectives in setting their parking prices and about the demand for university parking.

BRIAN A. BENKO, Affiliation Unknown
Email: bbenko1064@gmail.com

The new requirements under Code §409A have created compliance issues for executives and their corporations. All nonqualified deferred compensation plans must comply with the requirements under Code §409A(a) in form and in operation. The esoteric nature of Code §409A(a) and its regulations make administration difficult. Consequently, the U.S. Department of the Treasury and the Internal Revenue Service have decided to create a program for correcting certain nonqualified deferred compensation plan failures.

Instituting a correction program for employee benefit plan failures is not a new concept. For several years, the Service has administered the Employee Plans Compliance Resolution System (EPCRS ) to allow a plan qualified under Code §401(a) to correct certain failures that would otherwise cause the plan to be disqualified. While the current EPCRS program has undergone several reconstructions, the current Code §409A(a) correction program is in its infant stage. On December 20, 2007, the Treasury Department and the Service released Notice 2007-100 outlining a limited self-correction program.

This article reviews the current Code §409A(a) correction program and analyzes several issues related to creating the program, including whether the Treasury Department and the Service have legal authority to create it.

PAUL FRONSTIN, Employee Benefit Research Institute (EBRI)
Email: FRONSTIN@EBRI.ORG
DALLAS L. SALISBURY, Employee Benefit Research Institute (EBRI)
Email: SALISBURY@EBRI.ORG
JACK VANDERHEI, Temple University - Risk Management & Insurance & Actuarial Science, Employee Benefit Research Institute (EBRI)
Email: TEMPLE@VANDERHEI.COM

This paper provides estimates for savings needed to cover health insurance to supplement Medicare and out-of-pocket expenses for health care services in retirement. It finds that a male age 65 in 2008 and retiring at age 65 will need anywhere from $64,000 to $159,000 in savings to cover health insurance premiums and out-of-pocket expenses in retirement if they are comfortable with a 50 percent chance of having enough money and $196,000 to $331,000 if they prefer a 90 percent chance. Women age 65 retiring in 2008 will need anywhere from $86,000 to $184,000 in savings to cover health insurance premiums and out-of-pocket expenses in retirement if they are comfortable with a 50 percent chance of having enough money, and $223,000 to $390,000 if they prefer a 90 percent chance. Persons currently age 55 will need even greater savings when they turn 65 in 2018.

Past EBRI research has examined how much money an individual needs for health care expenses in retirement, focusing on how savings varies by length of life and health care cost increases. Past research was based on computer modeling that used deterministic (non-random) analytical techniques. The research presented in this paper builds on that earlier work by introducing random (stochastic) computer modeling to more realistically examine the uncertainty of longevity and investment risk as well as future health care cost increases. This paper begins with a brief discussion of the modeling technique, followed by main findings and updated data on trends in retiree health benefits.

ARTHUR B. LAFRANCE, Lewis & Clark Law School
Email: lafrance@lclark.edu

Although national efforts at healthcare reform in the United States have largely stalled, reform efforts at the state level have enjoyed surprising success - either independently of federal programs or within the latitude allowed by federal funding for the states. These state efforts hold great promise of extending access and healthcare coverage to uninsured Americans, improving quality of care, containing costs, and raising new revenues. These efforts are of great importance not only to other states, but also to other nations that already have universal healthcare and are now struggling with issues of coverage, cost, and quality.

It is commonly understood that reform of the United States healthcare system is greatly needed. Total national healthcare expenditures exceed $1 trillion annually and, at the present rate of increase, will surpass $2 trillion within the present decade. This burden is unacceptable, whether viewed as a percentage of domestic national product, exceeding 18 percent, or as a per capita expenditure, exceeding by nearly a factor of two to three times expenditures by other industrialized nations. The burden on individuals is onerous, unequal, and increasing.

At the same time, there are major deficiencies in coverage and quality. As to coverage, the U.S. Census Bureau reports that over 47 million Americans are uninsured. As to quality, the Institute of Medicine estimates tens of thousands Americans die from negligence in hospitals annually. By most quality measures, American outcomes fall far short of international standards, whether the criteria are simple mortality or more complex quality-of-life measures.

There is consensus that the United States cannot continue on the present path. A recent analysis by the Center on Budget and Policy Priorities concluded that if present budget policies are continued, by 2050, the national debt will increase from 37 percent of the national economy to 231 percent.