JULIO J. ROTEMBERG, Harvard University - Business, Government and the International Economy Unit, National Bureau of Economic Research (NBER)
Email: JRotemberg@hbs.edu

A new instrument (the Mutual Inheritance Fund or MIF) is proposed whose purpose is to help people carry their savings forward from the moment they retire into their old age. Like annuities, this instrument requires an up-front payment before people receive any benefits while also protecting people from the risk that they will live a long time. The funds that individuals contribute to a MIF are invested in a mutual fund. The proceeds from the fund's underlying assets are reinvested until the contributor dies or he turns an age specified in advance. If a contributor dies before this pre-specified age, his shares are liquidated and the proceeds are distributed to the other contributors to the MIF. Contributors who are alive at the pre-specified age are also paid the value of their accumulated shares. Like tontines, of which MIF is a variant, this instrument has returns that are more tilted towards old age than annuities. Several advantages of this are discussed, including some that may explain why tontines have proven popular with consumers in the past.

LAURA ALBAREDA VIVO, affiliation not provided to SSRN
MARIA ROSARIO BALAGUER FRANCH, affiliation not provided to SSRN

During the last few decades, globalization of finance markets has come under increasing pressure to manage the many risks that companies face due to the negative impact that certain financial crises have had on securities quoted on the stock exchange. Simultaneously, there is a growing tendency among different institutional investors to take into account nonfinancial aspects social, environmental, and ethical values of company management. In this respect, increasing numbers of asset managers are aware of the importance of nonfinancial aspects of company management for finance markets. Asset managers integrate corporate social responsibility, sustainability policies and corporate governance strategies as indicators in risk management and the search for long-term investments. The largest segment of socially responsible investment (SRI) screened and mutual funds are portfolios that are privately managed on behalf of institutions. Socially responsible investors include private and public pension funds, mutual funds, and private accounts that are managed on behalf of institutional investors such as corporations, universities, hospitals, religious institutions, and nonprofit organizations, among others. The aim of this paper is to analyze the development of SRI-screened management corporate pension plans in the Spanish finance market. Spain is one of the European countries with a less developed SRI institutional market. Since SRI is still at the fledgling stage in the Spanish institutional market, this analysis is restricted to the awareness of SRI among a sample of the total number of corporate pension funds or schemes in Spain. The paper concludes with some proposals to encourage wider SRI acceptance and practice in Spain.

ALICIA H. MUNNELL, Boston College - Center for Retirement Research
Email: MUNNELL@BC.EDU
MAURICIO SOTO, Boston College - Department of Finance and Department of Economics
Email: rhoder@bc.edu
ROBERT K. TRIEST, Federal Reserve Bank of Boston - Research Department, Boston College
Email: robert.triest@bos.frb.org
NATALIA ZHIVAN, Center for Retirement Research at Boston College
Email: natalia.jivan.1@bc.edu

Economic conditions and labor force participation vary significantly across the states of the Union. Despite these marked differences, little is known about the reasons for such variations in retirement patterns. Using the Current Population Survey for the period 1977-2007, this paper demonstrates that the differences in the labor force participation of men age 55-64 are related to the labor market conditions, the nature of employment, and the employee characteristics in each state as well as a pseudo replacement rate. These variables explain more than one-third of the total variation. Even moving to a fixed-effects model only cuts the explanatory power by half. The question remains, however, whether these relationships reflect different populations or unique aspects of the state. To answer that question we turn to the Health and Retirement Study (HRS). We estimate equations for the probability of working and for the expected retirement for men in their late fifties and early sixties. In each case, the first equation includes just the state-level variables and the second the state-level variables and the HRS demographic and economic information for each individual. The results show that the state-level variables explain almost none of the variation in the probability of working or the expected retirement age, but most of the state-level variables are statistically significant both before and after the inclusion of the HRS information.

AUSTIN NICHOLS, The Urban Institute
Email: ANichols@ui.urban.org
MELISSA FAVREAULT, The Urban Institute
Email: MFAVREAU@UI.URBAN.ORG

Over the last several decades, the volatility of family income has increased markedly, and own earnings volatility has remained relatively flat. Volatility may affect retirement wealth, depending on whether volatility affects accrued pension contributions or withdrawals or earnings credited toward future Social Security benefits. This project assesses the effect of the volatility of individual and family earnings on asset accumulation and projected retirement wealth using survey data matched to administrative earnings records.

LEORA FRIEDBERG, University of Virginia - Department of Economics, National Bureau of Economic Research (NBER)
Email: LFRIEDBERG@VIRGINIA.EDU
MICHAEL OWYANG, Federal Reserve Bank of St. Louis - Research Division
Email: owyang@stls.frb.org
ANTHONY WEBB, Boston College - Center for Retirement Research
Email: webbaa@bc.edu

The ability to retire at an age and in a manner of one's choosing depends on one's ability to retain or find employment at older ages, which depends in turn on local labor market conditions. We investigate how local labor markets affect retirement transitions. We match households from the Health and Retirement Study to MSA unemployment rates and estimate multinomial logit regressions on annual job transitions.

We find that the MSA unemployment rate has large and statistically significant effects on job transitions. The estimated effects are stronger for men than women and tend to be stronger for semi-skilled workers. The unemployment rate has a negative effect on the likelihood of voluntary exit to either a new job (especially part-time) or retirement, and a positive effect on involuntary exit to retirement. A one percentage point increase in the MSA unemployment rate raises the likelihood of voluntary exit to a new job by 8.5%, reduces the likelihood of voluntary exit to retirement by 1.9%, and raises the likelihood of involuntary exit to retirement by 5.7%. Thus, high unemployment rates raises involuntary exits and constrains the ability of others to transition into retirement in a manner of their choosing.

CHRISTINA ATANASOVA, Simon Fraser University
Email: catanaso@sfu.ca
KAREL HRAZDIL, Simon Fraser University
Email: karel_hrazdil@sfu.ca

We examine firms' decision to freeze their defined benefit pension plans and the effect it has on shareholders' wealth. We find evidence that plan freezes help sponsors relieve themselves from implicit promises to their employees for future compensation. A pension plan freeze has an impact on sponsor's equity returns and credit rating. Firms that choose to freeze their pension plans experience an increase in equity return and a decrease in the probability of credit downgrade.

YOUNGKYUN PARK, Employee Benefit Research Institute (EBRI)
Email: park@ebri.org

This paper explores (1) whether plan demographic characteristics would affect individual participant contribution rates and target-date fund investments and (2) equity glide paths for participants in relation to plan demographics by considering target replacement income and its success rate. This study finds empirical evidence that 401(k) plan participants? contribution rates and target-date investments differ in the demographics of participants in the plan by income and/or tenure. In particular, participants in plans dominated by those with low-income and short-tenure tend to have lower contribution rates than those in plans dominated by middle-income and mid-tenure or high-income and long-tenure participants. With respect to investments, target-date fund users with 90 percent or more of their account balances in target-date funds, who are in low-income and short-tenure plans, tend to have target-date funds with lower equity allocations in their early- or mid-working career (e.g., up to age 54) than those in their counterpart groups. This analysis finds that although target-date funds with different equity glide paths affect the retirement income replacement success rate, participant contribution rates corresponding to different plan demographic characteristics have a stronger impact.

KENNETH J. MCDONNELL, Employee Benefit Research Institute (EBRI)
Email: MCDONNELL@EBRI.ORG

The U.S. retirement income system -- including employment-based retirement plans, Social Security, individual saving, and post-retirement employment -- can be assessed in part by examining the income of the current elderly population (age 65 and older). This paper reviews the latest available data on the older population?s income (from the U.S. Census Bureau?s March 2008 Current Population Survey) and how it has changed over time, as well as how the elderly?s reliance on these sources varies across demographic characteristics.

The PDF for the above title, published in the May 2009 issue of EBRI Notes, also contains the fulltext of another May 2009 EBRI Notes article abstracted on SSRN: ?Consumer Engagement in Health Care: The Use of Lower Cost-Sharing.?

RICHARD W. JOHNSON, Urban Institute - Income and Benefits Policy Center, National Academy of Social Insurance (NASI)
Email: rjohnson@ui.urban.org
GORDON MERMIN, affiliation not provided to SSRN
Email: merming@gao.gov

Although poverty rates for Americans ages 65 and older have plunged over the past half century, many people continue to fall into poverty in their late fifties and early sixties. This study examines financial hardship rates in the years before qualifying for Social Security retirement benefits at age 62 and investigates how the availability of Social Security improves economic well-being at later ages. The analysis follows a sample of adults from the 1937-39 birth cohort for 14 years, tracking their employment, disability status, and income as they age from their early 50s until their late 60s. It measures the share of older adults who appear to have been forced into retirement by health or employment shocks and the apparent impact of involuntary retirement on low-income rates. The study also estimates models of the likelihood that older adults experience financial hardship before reaching Social Security's early eligibility age. The results show that the likelihood of experiencing financial hardship increases significantly as people approach Social Security's early eligibility age. The increase in hardship rates is concentrated among workers with limited education and health problems. For example, among those who did not complete high school, hardship rates increase from 23 percent at ages 52 to 54 to 31 percent at ages 60 to 61, a relative increase of 36 percent. Hardship rates decline after age 62, when most people qualify for Social Security retirement benefits. These findings highlight the fragility of the income support system for Americans in their fifties and early sixties.