GAOBO PANG, Watson Wyatt Worldwide
Email: Gaobo.Pang@watsonwyatt.com
MARK J. WARSHAWSKY, Watson Wyatt Worldwide
Email: mark.warshawsky@watsonwyatt.com

With the passage of the Pension Protection Act of 2006 and the Department of Labor regulation regarding qualified default investment alternatives, automatic enrollment and default investments featuring more equities are likely to become more popular. This analysis compares the investment performance of a balanced fund and a lifecycle fund, using average asset allocations observed on the market. Simulations show that the balanced fund is more likely to outperform the lifecycle fund, but its more aggressive approach also leaves plan participants vulnerable to losses as retirement approaches. The lifecycle fund is better at safeguarding wealth in a downward market, while still doing a reasonable job of building wealth. The typical lifecycle fund, however, with a large cash position at retirement, forgoes hedging opportunities for the purchase of immediate life annuities. Neither fund is a sure win over the near-risk-free Treasury Inflation-Protected Securities.

PAMELA J. PERUN, Aspen Institute - Initiative on Financial Security
Email: pamela@planetnow.com

Designed to promote retirement saving, the Pension Protection Act of 2006 clarified auto-enrollment, auto-contribution, and auto-investment rules in employer 401(k) plans. Early evidence suggests that the legislation boosted these plan features and increased employee participation in 401(k) plans. It is too soon to gauge the act's ultimate success, however, because it hinges on the number of new participants that will eventually amass substantial account balances. Adding to the uncertainty, the recent LaRue Supreme Court decision, which highlights the legal liability that employers face as plan fiduciaries, could undermine future retirement security by making some employers reluctant to sponsor plans.

SUSAN HARTHILL, Florida Coastal School of Law
Email: sharthill@fcsl.edu

This Article explores whether the treatises and cases support the application of the doctrine of make-whole relief to ERISA Section 502(a)(3). The argument that Section 502(a)(3) equitable relief includes make-whole relief is not novel, having been propounded by Professor Langbein and advocated by the Department of Labor for many years. Further, Professor Medill has cogently and comprehensively presented the theoretical case for the Department of Labor's long-standing litigation position. What has not been considered in the scholarly literature to date are the counter-arguments to the application of the doctrine - that make-whole relief was only available for fiduciary breaches that harmed the trust corpus, and that, to the extent it was available, any monetary recovery went to the trust corpus, not to the individual beneficiary. Thus, this Article seeks to build on previous scholarly work addressing the availability of make-whole relief, by assessing and deconstructing both the arguments in favor of the Department of Labor's litigation position and the counter arguments.

This Article is a modest attempt to reconcile these competing views of make-whole relief by revisiting make-whole relief under the common law of trusts as articulated in the "standard current works" and pre-fusion trust law cases. The Article first concludes that equity courts recognized two types of make-whole relief, one of which contemplated recovery to the trust and is echoed in Section 502(a)(2), and one which contemplated recovery to the aggrieved beneficiary and is echoed in Section 502(a)(3). The Article also concludes that the argument that make-whole relief required harm to the trust corpus is a red herring. The traditional trust law corpus finds its analogue in the present-day employee welfare benefit plan, either the policy or the policy proceeds - the very res that the employer-settler entrusted to the participant or beneficiary. And, in any event, although make-whole relief against a breaching fiduciary typically involved situations where the trust corpus was harmed, such relief was nevertheless available even where there was no trust corpus, or no harm to the trust corpus itself.

PAUL EMMS, City University London - Faculty of Actuarial Science
Email: p.emms@city.ac.uk
STEVEN HABERMAN, City University London - Faculty of Actuarial Science
Email: s.haberman@city.ac.uk

In retirement a pensioner must often decide how much money to withdraw from a pension fund, how to invest the remaining funds, and whether to purchase an annuity. These decisions are addressed here by introducing a number of income drawdown schemes, which are relevant to a defined-contribution personal pension plan. The optimal asset allocation is defined so that it minimizes the expected loss of the pensioner as measured by the performance of the pension fund against a benchmark. Two benchmarks are considered: a risk-free investment and the price of an annuity. The fair-value income drawdown rate is defined so that the fund performance is a martingale under the objective measure. Annuitization is recommended if the expected fair-value drawdown rate falls below the annuity rate available at retirement. As an illustration, the annuitization age is calculated for a Gompertz mortality distribution function and a power law loss function.

MARK C. WILLIAMSON, affiliation not provided to SSRN
Email: LAWCAMB@MSN.COM

The SEC has considered whether the federal securities laws should apply to Collective Trusts and Separate Accounts that are investment vehicles for employee benefit plans in 1992 and 1996. Thus far, the SEC has declined to take action necessary to ensure Congress amends the federal securities laws to remove existing exemptions. Lawyers and accountants are not the preferred parties to speak on behalf of investors or employee participants in regards to whether amendments are needed due to the conflict of interest between protection of investors and their own interest in new fee generating activities. The SEC has implemented employee education programs and prospectus simplification for those investment vehicles that already require the issuance of a prospectus, such as interests in mutual funds. The values of the SEC Chairman shall ultimately guide the proper course of action in whether reforms of the current exemptions are needed. It is the authors hope that the SEC Chairman will, indeed, adopt policies that favor reforms eliminating the current exemptions in a manner that is consistent with the ICI proposals of 1996.

STEPHAN MEIER, Federal Reserve Bank of Boston, Institute for the Study of Labor (IZA)
Email: stephan.meier@bos.frb.org
CHARLES SPRENGER, Federal Reserve Bank of Boston
Email: charles.sprenger@bos.frb.org

Many policy makers and economists argue that financial literacy is key to financial well-being. But why do many individuals remain financially illiterate despite the apparent importance of being financially informed? This paper presents results of a field study linking individual decisions to acquire personal financial information to a critical, and normally unobservable, characteristic: time preferences. We offered a short, free credit counseling and information program to more than 870 individuals. About 55 percent chose to participate. Independently, we elicited time preferences using incentivized choice experiments both for individuals who selected into the program and those who did not. Our results show that the two groups differ sharply in their measured discount factors. Individuals who choose to acquire personal financial information through the credit counseling program discount the future less than individuals who choose not to participate. Our results suggest that individual time preference may explain who will and who will not choose to become financially literate. This has implications for the validity of studies evaluating voluntary financial education programs and policy efforts focused on expanding financial education.

ALBERT FEUER, Law Offices of Albert Feuer
Email: afeuer@aya.yale.edu

The filings in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 497 F.3d 426 (5th Cir. 2007), cert. granted, 2008 U.S. LEXIS 1291 (U.S. Feb. 19, 2008) are complete, and oral argument is scheduled for October 7, 2008.

The case, which is a dispute about who is entitled to a participant's death benefits, has many curious elements. In my view, neither party addresses the certified question which refers to the entitlements of an ERISA beneficiary rather than the payment obligations of an ERISA plan administrator. The AARP amicus brief suggests that ERISA should no longer protect entitlements to retirement benefits after their distribution. Under the approach of the amicus brief of the United States, that the Department of Treasury, the Internal Revenue Service, and the Department of Labor presented, for which the Solicitor General was the counsel of record, divorcing spouses may not retain spousal survivor benefits with qualified domestic relations orders ("QDROs"), even though Congress introduced QDROs for this very purpose, because the United States approach limits QDROs to orders that transfer benefit rights and no right is transferred if rights are retained.

The result may be a Supreme Court decision or dicta that substantially change basic ERISA provisions with respect to benefit entitlements, benefit designations, the alienation prohibition and QDROs

GENG LI, Federal Reserve Board
Email: Geng.Li@frb.gov
PAUL A. SMITH, Federal Reserve Board of Governors
Email: paul.a.smith@frb.gov

We examine 401(k) borrowing since 1992 and identify a puzzle: despite potential gains from borrowing against 401(k) assets instead of from other sources, most eligible households eschew 401(k) loans, including many who carry relatively expensive balances on credit cards and auto loans. We estimate that households with access to 401(k) loans could have saved about $3.3 billion in 2004 - about $200 per household - by shifting debt to 401(k) loans. We find that liquidity constrained households are most likely to borrow against their accounts; however, the fastest growth has been among higher income, less liquidity constrained households. From 1992 to 2004, we do not find significantly different growth in wealth between households eligible for loans and those ineligible for loans. The recent tightening of terms and standards in mortgage and consumer lending has likely increased 401(k) borrowing, which could improve household balance sheets, if handled correctly. However, the improvement could be short-lived if the economic downturn leads to reduced contributions or significantly higher 401(k) loan defaults.