E M P L O Y E E B E N E F I T S , C O
M P E N S A T I O N
A N D P E N S I O N L A W
Vol. 2, No. 10: May 24, 2001
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Publisher: LSN Subject Matter Journals
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Topic of This Issue: Pension Finance
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T A B L E of C O N T E N T S
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WORKING PAPERS
"Employees, Pensions, and the New Economic Order"
JEFFREY N. GORDON
Columbia Law School
"Myth of the Industrial Scrap Heap: A Revisionist View of
Turn-of-the-Century American Retirement"
SUSAN B. CARTER
University of California
at Riverside
Dept. of Economics
National Bureau of Economic
Research (NBER)
RICHARD C. SUTCH
University of California
at Riverside
Dept. of Economics
National Bureau of Economic
Research (NBER)
"Longevity-Insured Retirement Distributions from Pension Plans:
Market and Regulatory Issues"
JEFFREY R. BROWN
Harvard University
John F. Kennedy School of
Government
National Bureau of Economic
Research (NBER)
MARK J. WARSHAWSKY
Teachers Insurance and Annuity
Association,
TIAA-CREF Institute
"The Design and Production of New Retirement Savings Products"
ZVI BODIE
Boston University
School of Management
DWIGHT B. CRANE
Harvard Business School
"Pension Fund Capitalism: A Causal Analysis"
GORDON LESLIE CLARK
University of Oxford
School of Geography
"Retirement Investing: A New Approach"
ZVI BODIE
Boston University
School of Management
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EDITORIAL POLICIES
To provide the broadest coverage of research in Employee
Benefits, Compensation and Pension Law we do not referee working
papers. We accept abstracts of working papers in Employee
Benefits, Compensation and Pension Law whose topics suit the
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scholarly discourse.
W O R K I N G P A P E R Abstracts
_________________________________________________________________
"Employees, Pensions, and the New Economic Order"
BY: JEFFREY N. GORDON
Columbia Law School
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=39400
Paper ID: Columbia Univ. Center for Law and Economic Studies
Working
Paper No. 124
Date: March 1997
Contact: JEFFREY N. GORDON
Email: Mailto:jgordon@law.columbia.edu
Postal: Columbia Law School
Ctr. for
Law and Economic Studies
435 West
116th Street
New York,
NY 10027 USA
Phone: 212-854-2316
Fax: 212-854-7946
Paper Requests:
Contact Thelma Twyman: Center for Law and Economic Studies,
Columbia Law School, 435 West 116th St., New York, NY
10027-7201. Phone:(212)854-3937. Fax:(212) 854-0221.
Mailto:ttwyman@law.columbia.edu
ABSTRACT:
The "New Economic Order" in the United States is a regime of
trade liberalization, a robust market in corporate control, and
labor market flexibility. Among the consequences over the
1980-1995 period is a divergence between the growth rate of
corporate profits and stocks prices, which have increased by
approximately 250% in real terms, and wages, which have barely
increased at all, except for the top quintile. Contrary to
popular belief, employees have not significantly participated
through their pension funds in this stock market appreciation.
In the historically dominant defined benefit pension plan, the
sponsoring firm, not the employee, is the residual claimant.
Although employees are residual claimants of defined
contribution plans, these funds have been underinvested in
equity. In part this is because employees fear the volatility
of
equity returns. The article proposes a new capital market
instrument, a "pension equity collar," that would take advantage
of the longterm nature of pension fund investing to provide a
guarantee of a minimum return close to the longterm average
equity return in exchange for giving up (or sharing) the upside
above the longterm average. Such an instrument could encourage
greater employee equity investment and thus widen the
distribution of the benefits of the New Economic Order. The
article proposes that the U.S. Department of Labor initiate a
rulingmaking project under Section 404(c) of ERISA to determine
if such an instrument should be among the menu of choices
provided to employees in defined contribution plans.
JEL Classification: J26, J31
______________________________
"Myth of the Industrial Scrap Heap: A Revisionist View of
Turn-of-the-Century American Retirement"
BY: SUSAN B. CARTER
University of California at Riverside
Dept. of Economics
National Bureau of Economic Research (NBER)
RICHARD
C. SUTCH
University of California at Riverside
Dept. of Economics
National Bureau of Economic Research (NBER)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=190412
Paper ID: NBER Working Paper No. H0073
Date: October 1995
Contact: SUSAN B. CARTER
Email: Mailto:sbcarter@ucrac1.ucr.edu
Postal: University of California at Riverside
Dept.
of Economics
1150 University
Ave.
Riverside,
CA 92521 USA
Phone: (909) 787-5037 x1589
Fax: (909) 787-5685
Co-Auth: RICHARD C. SUTCH
Email: Mailto:richard.sutch@ucr.edu
Postal: University of California at Riverside
Dept.
of Economics
217 Highlander
Hall, Bldg. B
1150 University
Ave.
Riverside,
CA 92521 USA
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
Using the census survival method to calculate net flows across
employment states between 1900 and 1910, we find that
approximately one-fifth of all men who reached the age of 55
eventually retired before their death. Many of these retirees
appear to have planned their withdrawal from paid employment
by
accumulating assets, becoming self-employed, and then
liquidating their assets to provide a stream of income to
finance consumption in old age. This 'modern' retirement
behavior, we argue, has important implications for the economic
history of capital and labor markets, of saving and investment,
of insurance and pensions, and of the family economy.
JEL Classification: N31
______________________________
"Longevity-Insured Retirement Distributions from Pension Plans:
Market and Regulatory Issues"
BY: JEFFREY R. BROWN
Harvard University
John F. Kennedy School of Government
National Bureau of Economic Research (NBER)
MARK J.
WARSHAWSKY
Teachers Insurance and Annuity Association,
TIAA-CREF Institute
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=255366
Paper ID: NBER Working Paper No. W8064
Date: January 2001
Contact: JEFFREY R. BROWN
Email: Mailto:Jeffrey_Brown@harvard.edu
Postal: Harvard University
John F.
Kennedy School of Government
79 John
F. Kennedy Street
Cambridge,
MA 02138 USA
Phone: (617) 495-1648
Co-Auth: MARK J. WARSHAWSKY
Email: Mailto:mwarshawsky@tiaa-cref.org
Postal: Teachers Insurance and Annuity Association, TIAA-CREF
Institute
24th Floor
730 Third
Avenue
New York,
NY 10017-3206 USA
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
This paper explores the extent to which retirees can and do
insure themselves against longevity risk in private pension
plans. We first review the theoretical and empirical results
on
the value of annuities, and discuss reasons why households may
choose not to further insure themselves against longevity risk.
We then analyze current trends in the private pension market,
and find that the shift from defined benefit plans to defined
contribution plans is likely to reduce annuitization rates among
future retirees. This is driven primarily by the fact that the
majority of DC plans, such as 401(k) plans, do not even offer
participants a life annuity option at retirement. Thus,
individuals who wish to annuitize generally must do so in the
individual market where payouts are lower due to a healthier
mortality pool. Hence, we can forecast that in the coming
decades, absent institutional and regulatory changes, overall
annuitization rates may fall and households may be increasingly
exposed to the risk of outliving their financial resources,
while the currently small private individual annuity market may
witness significant growth. Finally, we discuss several policy
options designed to increase annuitization of retirement
resources.
JEL Classification: H55, J14, G22, G23
______________________________
"The Design and Production of New Retirement Savings Products"
BY: ZVI BODIE
Boston University
School of Management
DWIGHT
B. CRANE
Harvard Business School
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=72608
Paper ID: Harvard Business School Working Paper No. 98-070
Date: January 28, 1998
Contact: DWIGHT B. CRANE
Email: Mailto:dcrane@hbs.edu
Postal: Harvard Business School
Finance
Soldiers
Field
Boston,
MA 02163 USA
Phone: 617-495-6679
Fax: 617-495-8103
Co-Auth: ZVI BODIE
Email: Mailto:zbodie@bu.edu
Postal: Boston University
School
of Management
Finance/Economics
595 Commonwealth
Ave
Boston,
MA 02215 USA
Paper Requests:
Contact Harvard Business School Publishing, 60 Harvard Way,
Boston, MA 02163. Phone: (800)545-7685 or (001)617-783-7600
(outside US & Canada). Mailto:custserv@hbsp.harvard.edu
Web: http://www.hbsp.harvard.edu or contact author(s)directly.
ABSTRACT:
As pension plans in the U.S. and other countries shift from
defined benefit to defined contribution plans, employees are
being asked to bear investment risk formerly borne by employers
and/or governments. Using a simulation model, this paper
examines the performance of alternative investment strategies
and products over the working life of a hypothetical employee.
The results illustrate the uncertainty inherent in standard
investment products and suggest the need for new products that
would help employees manage investment risk. The paper explores
the performance of investment products that provide a floor on
the value of the worker's investment over some period of time,
say five years, and also provide some share of the upside of
the
equity market. These products appear to work well; for example,
workers who invest their annual retirement contributions in a
series of five-year insured products appear to have a higher
chance of achieving their retirement income target than if they
were to invest the same amount in the S&P 500 index.
JEL Classification: G1, G12, G14
______________________________
"Pension Fund Capitalism: A Causal Analysis"
BY: GORDON LESLIE CLARK
University of Oxford
School of Geography
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=73366
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Paper ID: University of Oxford WPG 98-1
Date: January 1998
Contact: GORDON LESLIE CLARK
Email: Mailto:gordon.clark@geog.ox.ac.uk
Postal: University of Oxford
School
of Geography
Mansfield
Road
Oxford
OX1 3TB, UK
Phone: +44 1865 271930
Fax: +44 1865 271940
Paper Requests:
Contact Jan Magee at Mailto:jan.magee@geog.ox.ac.uk Postal:
University of Oxford, School of Geography, Mansfield Road,
Oxford, OX1 3TB, UK. Phone:+44 (1865) 271928. Fax:+44 (1865)
271923.
ABSTRACT:
Since 1980, U.K. individual pension and retirement assets have
increased about 10 fold to about 1.1 trillion Pounds. Over the
same time, U.S. household retirement assets have increased about
7 fold to more than $5 trillion. High rates of asset growth have
also been observed for Australia and Canada. Notwithstanding
their current high standards of living, much of continental
Europe has not shared in these extraordinary rates of growth
of
pension assets. In fact, many analysts believe that their
long-term prosperity is threatened (relatively speaking) by
inefficient, institutionally cumbersome finance sectors. While
saving now for retirement has significant advantages for
beneficiaries, less important is the fact that the growth of
pension assets in the Anglo-American economies have profoundly
changed the financial structure of these countries. Here I
explain how and why pension assets have grown so large in the
Anglo-American countries, beginning with an historical account
to identify the reasons why German and continental European
countries excluding The Netherlands and Switzerland have not
shared the same rates of growth of pension assets. In doing so,
the paper develops an explanatory model which discriminates
between various causes of Anglo-American pension fund
capitalism: structural determinants (institutional framework),
second-order determinants (post-war conditions), and third-order
determinants (contributions). The identified causal logic relies
upon Ehring's conception of causality, integrating structure
with historical and geographical contingency. Implications are
also drawn regarding the significance of Anglo-American pension
funds for global capitalism.
JEL Classification: G23, G28
______________________________
"Retirement Investing: A New Approach"
BY: ZVI BODIE
Boston University
School of Management
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=260628
Paper ID: Boston University School of Management Working Paper
No. 2001-03
Date: February 2001
Contact: ZVI BODIE
Email: Mailto:zbodie@bu.edu
Postal: Boston University
School
of Management
Finance/Economics
595 Commonwealth
Ave
Boston,
MA 02215 USA
Phone: (617) 353-4160
Fax: (617) 353 6667
ABSTRACT:
This paper proposes a new approach to investing for retirement
that takes advantage of recent market innovations and advances
in finance theory to improve the risk/reward opportunities
available to individual investors before and after retirement.
The approach introduces three new elements:
- It uses inflation-protected bonds to hedge a minimum
standard of living after retirement.
- It takes account of a person's willingness to postpone
retirement.
- It uses option "ladders" to lever growth in retirement
income.