EDWARD A. ZELINSKY, Benjamin N. Cardozo School of Law
Email: ZELINSKY@PRODIGY.NET

The appellate decisions upholding cash balance pensions against the claim of age discrimination are unconvincing. Nevertheless, these decisions reach the proper result as a matter of pension policy. These decisions read the statutory term "benefit accrual" as meaning employer contributions for purposes of measuring for age-based pension discrimination in the defined benefit context. However unpersuasive this reading may be as a textual matter, it reaches a sound outcome in terms of pension policy. In particular, this reading of the pension age discrimination statutes enables employers sponsoring traditional, annuity-paying defined benefit pensions to control their costs by decreasing the annual growth of the accrued benefits earned by older employees. This ability to subdue costs will encourage employers to remain with their traditional defined benefit plans rather than move to the cash balance format or 401(k). On the other hand, controlling costs by reducing the rates at which older workers accrue additional benefits will disappoint the reasonable pension expectations of some, perhaps many, of those older workers.

MICHAEL E. JOHNSON-CRAMER, Bucknell University - Department of Management
Email: mjohncra@bucknell.edu
ROBERT A. PHILLIPS, Robins School of Business
Email: rap.uva@gmail.com

This paper explores the ethical issues arising from the conversion to cash balance pension plans in medium and large U.S. corporations. The conventional critique of these controversial plans centers on fundamental questions of distributive justice and rests on arguments dating back to the formulation of U.S. pension law. Since that time, however, the conditions which gave rise to these arguments have changed. Absent a persuasive argument concerning the distributional patterns of cash balance plans, we address them as a question of organizational ethics. Integrating insights from stakeholder theory, integrative social contracts theory, and empirical research on these conversions, we advance a critique of cash balance plan conversions based on common procedural approaches to these conversions.

JEFFREY L. KWALL, Loyola University of Chicago - School of Law
Email: jkwall@luc.edu

This Article explores the circumstances in which tax deferral is beneficial, and derives some basic rules that refine the prevailing view that deferring taxes saves money. It demonstrates that Roth IRAs are often more attractive than traditional tax-deferred retirement plans but for a reason that generally is not emphasized. Specifically, when the tax on monies contributed to a Roth IRA is paid out of funds invested outside the plan, the benefit derived from the tax-free accumulation often will exceed the tax on the contribution. Moreover, the benefit of the Roth IRA is magnified when contributions are invested in high growth vehicles.

MARIACRISTINA DE NARDI, Federal Reserve Bank of Chicago, National Bureau of Economic Research (NBER) - Public Economics
Email: mariacristina.denardi@chi.frb.org
ERIC FRENCH, Federal Reserve Bank of Chicago
Email: eric.french@frbchi.org
JOHN BAILEY JONES, State University of New York
Email: jbjones@albany.edu

Rich people, women, and healthy people live longer. We document that this heterogeneity in life expectancy is large. We use an estimated structural model to assess the impact of life expectancy variation on the elderly's savings. We find that the differences in life expectancy related to observable factors such as health, gender, and income have large effects on savings, and that these factors contribute by similar amounts. We also show that the risk of outliving one's expected lifespan has a large effect on the elderly's saving behavior.

BENJAMIN ALARIE, University of Toronto - Faculty of Law
Email: ben.alarie@utoronto.ca

Tax-free savings accounts ("TFSAs") will be available in Canada in January 2009. A TFSA is a "tax prepaid" or "yield-exempt" investment account that does not provide any deduction for contributions and allows for tax-free compounding of investment returns in addition to tax-free withdrawals at any time. This article examines the theory surrounding TFSAs, briefly outlines the empirical evidence from the UK and the US with similar accounts, and identifies the consequences that are likely to emerge with the advent of TFSAs within the existing Canadian tax system. TFSAs can be expected to generate some modest new savings by Canadians with low and middle incomes and to give rise to asset shifting from taxable investments to TFSAs by those who have savings that are currently held outside of tax-advantaged accounts. The analysis suggests that the TFSA regime should probably be regarded ambivalently from the perspectives of efficiency and equity on account of having a small effect on savings and investment behaviour that will come at the cost of significant forgone tax revenue.

SHAWN ALLEN COLE, Harvard Business School
Email: scole@hbs.edu
GAURI KARTINI SHASTRY, University of Virginia
Email: shastry@virginia.edu

Household financial market participation affects asset prices and household welfare. Yet, our understanding of this decision is limited. Using an instrumental variables strategy and dataset new to this literature, we provide the first precise, causal estimates of the effects of education on financial market participation. We find a large effect, even controlling for income. Examining mechanisms, we demonstrate that cognitive ability increases participation; however, and in contrast to previous research, financial literacy education does not affect decisions. We conclude by discussing how education may affect decision-making through: personality, borrowing behavior, discount rates, risk-aversion, and the influence of employers and neighbors.

LORETTI DOBRESCU, University of Venice - Department of Economics
Email: lorettiis-abella.dobrescu@unipd.it
LAURENCE J. KOTLIKOFF, Boston University - Department of Economics, National Bureau of Economic Research (NBER), CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Email: kotlikof@bu.edu
ALBERTO MOTTA, University of Padua - Department of Economics
Email: alberto.motta@unipd.it

National saving rates differ enormously across developed countries. But these differences obscure a common trend, namely a dramatic decline over time. France and Italy, for example, saved over 17 percent of national income in 1970, but less than 7 percent in 2006. Japan saved 30 percent in 1970, but only 8 percent in 2006. And the U.S. saved 9 percent in 1970, but only 2 percent in 2006. What explains these international and intertemporal differences? Is it demographics, government spending, productivity growth or preferences? Our answer is preferences. Developed societies are placing increasing weight on the welfare of those currently alive, particularly contemporaneous older generations. This conclusion emerges from estimating two models in which society makes consumption and labor supply decisions in light of uncertainty over future government spending, productivity, and social preferences. The two models differ in terms of the nature of preference uncertainty and the extent to which current society can control future societies' spending and labor supply decisions.

CRAIG COPELAND, Employee Benefit Research Institute (EBRI)
Email: COPELAND@EBRI.ORG

This paper focuses on the decisions that workers at job change make on receipt of a lump-sum payment from an employment-based retirement plan: whether to roll the account balance over to another tax-qualified savings vehicle, spend the assets, or invest/save the assets in another manner. The number and amounts of lump-sum distributions are estimated, followed by a discussion of what individuals are doing with these distributions and an analysis of important determinants of the decision to roll over the distribution versus using the assets for other reasons. These results are derived from recently released data from the U.S. Census Bureau -- The Pension and Retirement Plan Coverage Topical Module 7 of the 2004 Survey of Income and Program Participation (SIPP) -- which includes lump-sum data for individuals through 2006. This research updates prior studies on lump-sum distributions done by the Employee Benefit Research Institute.

About 16.2 million working-age Americans reported ever having received a lump-sum distribution from a retirement plan when changing jobs, through April of 2006. The average amount of these distributions was $32,219 (in 2006 dollars) and the median (mid-point) amount was $10,000. For the most part, the amounts of the lump-sum distributions were relatively small -- just over 21 percent of the distributions were less than $2,500. Just over 16 percent were $50,000 or more. The rest of the distributions (about 63 percent) were between $2,500 and $50,000. The data show that an increasing percentage of retirement plan participants are rolling over all of their lump-sum distributions on job change, and fewer are spending any of their distributions on consumption. However, the data also show that approximately 60 percent of those who took a lump-sum payment did not roll all of it into tax-qualified savings, although not all of those distributions were spent exclusively on consumption but instead were used for home purchases, starting a business, or paying down debt. This behavior varied significantly across participants' ages and the amount of the distribution, with older individuals (up to age 65) and those with higher balances more likely to roll over their assets.

SALVADOR VALDES-PRIETO, Pontifical Catholic University of Chile - Institute of Economics, CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Email: SVALDES@VOLCAN.FACEA.PUC.CL

Chile approved in early 2008 the replacement of her two current non-contributory subsidies for the old poor for a unified program with a pioneering design, with phase-in ending in 2012. This paper describes the political economy of this reform and evaluates it with regards to efficiency and equity. The design is analogous to one adopted in Finland in 1957, with two differences: First, the subsidy withdrawal rate in response to the individual's contributory pension benefit is lower, about 30% rather than 50%. Second, preserving a tradition introduced in 1975, benefits are also withdrawn in response to per capita household income.