_________________________________________________________________
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
& P E N S I O N L A W
Vol. 3, No. 14: August 1, 2002
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Publisher: LSN Employment, Labor, Compensation & Pension Journals
a division of
Social Science Electronic Publishing, Inc. (SSEP)
and Social Science Research Network (SSRN)
Editor: PAMELA PERUN
Urban Institute
Mailto:pamela@planetnow.com
Copyright: SSEP, Inc. 2002. All rights reserved.
Leading Social Science Research Delivered To Your Desktop
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Topic of This Issue:
Social Security Reform
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T A B L E of C O N T E N T S
_________________________________________________________________
NEW and FORTHCOMING ARTICLES
"Assessing the Plans Proposed by the President's Commission to
Strengthen Social Security"
Tax Notes, Vol. 96, No. 5, July 29, 2002
PETER A. DIAMOND
Massachusetts Institute of Technology
National Bureau of Economic Research (NBER)
PETER ORSZAG
The Brookings Institution
"Income of the Retired Population"
EBRI Notes, Vol. 22, No. 6, June 2001
KEN MCDONNELL
Employee Benefit Research Institute (EBRI)
WORKING PAPERS
"The New Social Security Commission Personal Accounts: Where Is
the Investment Principal?"
ALAN L. GUSTMAN
Dartmouth College
Department of Economics
National Bureau of Economic Research (NBER)
THOMAS STEINMEIER
Texas Tech University
Department of Economics
National Bureau of Economic Research (NBER)
"Social Security and the Private Pension System: The Significance
of Integrated Plans"
PAMELA PERUN
Urban Institute
"Social Security Expectations and Retirement Savings Decisions"
JEFF DOMINITZ
Carnegie Mellon University
H. John Heinz III School of Public Policy and
Management
CHARLES F. MANSKI
Northwestern University
Department of Economics
National Bureau of Economic Research (NBER)
JORDAN HEINZ
Northwestern University
Department of Economics
"Finding a Way Out of America's Demographic Dilemma"
LAURENCE J. KOTLIKOFF
Boston University
National Bureau of Economic Research (NBER)
KENT SMETTERS
U.S. Department of Treasury
Congressional Budget Office
National Bureau of Economic Research (NBER)
The Wharton School, University of Pennsylvania
JAN WALLISER
International Monetary Fund (IMF)
Fiscal Affairs Department
S S R N I N F O R M A T I O N
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N E W and F O R T H C O M I N G Articles
_________________________________________________________________
"Assessing the Plans Proposed by the President's Commission to
Strengthen Social Security"
Tax Notes, Vol. 96, No. 5, July 29, 2002
BY: PETER A. DIAMOND
Massachusetts Institute of Technology
National Bureau of Economic Research (NBER)
PETER ORSZAG
The Brookings Institution
Contact: PETER A. DIAMOND
Email: Mailto:pdiamond@mit.edu
Postal: Massachusetts Institute of Technology
Room E52-344
50 Memorial Drive
Cambridge, MA 02142 UNITED STATES
Phone: 617-253-3363
Fax: 617-253-1330
Co-Auth: PETER ORSZAG
Email: Mailto:porszag@brook.edu
Postal: The Brookings Institution
Economic Studies
1775 Massachusetts Ave. NW
Washington, DC 20036-2188 UNITED STATES
ABSTRACT:
The President's Commission to Strengthen Social Security
proposed three plans for reforming Social Security. All of them
would create individual accounts financed by diverting funds
from the Social Security Trust Fund. One of the three commission
proposals (Model 1) would not restore long-term balance to
Social Security. This analysis focuses on the other two
proposals - Models 2 and 3 - that would restore long-term
balance. Models 2 and 3 contain a number of elements and are
quite complicated. To understand the plans, the authors describe
their overall financing first and then examine their proposed
changes to Social Security benefits (which they refer to as
traditional benefits), the individual accounts that the plans
would establish, and the combined effect on retirement income
from the changes in traditional Social Security benefits and the
individual accounts.
______________________________
"Income of the Retired Population"
EBRI Notes, Vol. 22, No. 6, June 2001
BY: KEN MCDONNELL
Employee Benefit Research Institute (EBRI)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=273733
Contact: KEN MCDONNELL
Email: Mailto:mcdonnell@ebri.org
Postal: Employee Benefit Research Institute (EBRI)
Suite 600
2121 K Street, NW
Washington, DC 20037-1896 UNITED STATES
Phone: 202-775-6342
Fax: 202-775-6312
Paper Requests:
Contact Alicia Willis at Mailto:publications@ebri.org, or 2121 K
St., NW, Suite 600, Washington, DC 20037-1896.
Phone:(202)572-7422, Fax:(202)775-6312. Full-Text downloads are
available from SSRN Online for $7.50.
ABSTRACT:
The performance of the U.S. retirement income system - including
employment-based retirement plans, Social Security, individual
saving, and post-retirement employment - can in part be assessed
by examining the income of current retirees. This paper reviews
the latest available data from the U.S. Census Bureau's March
2000 Current Population Survey (CPS) on the retired population's
income, how it has changed over time, and how retirees' reliance
on particular sources of income varies across income levels.
Keywords: Aged, Retirement income
The PDF for the above title, published in the June 2001 issue
of EBRI Notes, also contains the full text of another June 2001
EBRI Notes article abstracted on SSRN: "Characteristics of
Individual Retirement Account Owners."
JEL Classification: J14
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W O R K I N G P A P E R Abstracts
_________________________________________________________________
"The New Social Security Commission Personal Accounts: Where Is
the Investment Principal?"
BY: ALAN L. GUSTMAN
Dartmouth College
Department of Economics
National Bureau of Economic Research (NBER)
THOMAS STEINMEIER
Texas Tech University
Department of Economics
National Bureau of Economic Research (NBER)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=318470
Paper ID: NBER Working Paper No. W9045
Date: July 2002
Contact: ALAN L. GUSTMAN
Email: Mailto:alan.l.gustman@dartmouth.edu
Postal: Dartmouth College
Department of Economics
6106 Rockefeller Center
Hanover, NH 03755 UNITED STATES
Phone: 603-646-2641
Fax: 603-646-2122
Co-Auth: THOMAS STEINMEIER
Email: Mailto:Thomas.Steinmeier@TTU.EDU
Postal: Texas Tech University
Department of Economics
Lubbock, TX 79409-2101 UNITED STATES
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
The President's Commission to Strengthen Social Security
suggests three plans for reforming Social Security. These plans
divert various amounts of the payroll tax to a personal account
if the worker chooses to participate in the account. In return,
Social Security benefits are offset using accounts with real
returns ranging from 2% to 3.5%. In addition, the second and
third plans proposed by the Commission include features that are
designed to balance the finances of the system by reducing the
rate of growth of benefits relative to the levels prescribed
under current law, to make the system more redistributive, and
to make other changes. The measures to increase redistribution
and resolve the solvency of the system are relatively separate
from the personal accounts. When 'personal accounts' are
mentioned, most people think of accounts that are in some sense
separate and shielded from the uncertainties of the Social
Security system. That is not the case for the personal accounts
proposed by the Commission. Because the participating individual
is not entitled to the principal in the account, participating
in the account does not shield the individual from the political
risks of being in the Social Security system. The offset to the
plan essentially taxes away the principal in the account, but
leaves intact the full Social Security benefit, so that any
change in retirement income due to the account reflects the
difference in interest earned on the portfolio beyond a stated
real rate of interest offset. Thus our analysis describes the
account as a financial instrument equivalent to a bet that the
real return will exceed the level of offset specified in the
plan, ranging from 2 percent to 3.5 percent real. As a result,
the reduction in political risk fostered by the Commission's
proposals comes mainly from the improvement in the financial
status of the system fostered by other provisions of the
recommended plans. Measures to improve the benefits of low
income individuals, widows and widowers and to enhance the
rewards to retirement all create incentive effects that are also
discussed in the paper.
JEL Classification: H55, J26, J14, D31, I3
______________________________
"Social Security and the Private Pension System: The Significance
of Integrated Plans"
BY: PAMELA PERUN
Urban Institute
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=319975
Other Electronic Document Delivery:
http://www.bc.edu/crr/papers/wp_2002-02.pdf
SSRN only offers technical support for papers
downloaded from the SSRN Electronic Paper Collection
location. When URLs wrap, you must copy and paste
them into your browser eliminating all spaces.
Paper ID: Boston College Center for Retirement Research Working
Paper No. 2002-02
Date: July 2002
Contact: PAMELA PERUN
Email: Mailto:pamela@planetnow.com
Postal: Urban Institute
2100 M Street, NW
Washington, DC 20037 UNITED STATES
Phone: (202) 261-5320
Paper Requests:
Contact Amy Chasse, Communications Specialist, Center for
Retirement Research, Boston College, Fulton Hall 550, Chestnut
Hill, MA 02467-3808. Phone: (617)552-6783. Fax: (617)552-1750.
Mailto:chassea@bc.edu
ABSTRACT:
Since the enactment of Social Security, the concept of
"integration" with Social Security has been a feature of the
private pension system. Integration permits employers to take
their contributions to Social Security into account and reduce
the benefits of low-paid workers in their tax-qualified
retirement plans. Prior studies suggest that (1) integration is
declining among defined benefit plans and (2) integration among
defined contribution plans is rare.
This study contradicts those findings. Using Form 5500 data
obtained from about 1,000,000 plans from 1993 to 1997, this
research finds that integration is a persistent and stable
feature of the private pension system. One out of every four
plans is integrated, and their numbers increased by 7% between
1993 and 1997. The number of participants covered by integrated
plans grew by 11% to about 24,000,000 by 1997.
Slightly less than one out of every three defined benefit
plans is integrated. As measured by the number of participants,
integration in such plans does not appear to be decreasing.
Integrated defined benefit plans tend to be large and represent
almost half of all plans with 2,000 or more participants. Their
assets grew to $774 billion by 1997, equivalent to about 42% of
the assets in non-integrated defined benefit plans. Annual
employer contributions fell from $11 billion in 1993 to $9
billion in 1997, about half the amount contributed to
non-integrated defined benefit plans in that year.
Integrated defined contribution plans represent the wave of
the future for integrated plans. Integration in such plans is
not rare. As measured by the number of plans, about one in four
of all defined contribution plans is integrated, and their
numbers increased at the same rate (14%) as non-integrated
defined contribution plans from 1993 to 1997. As measured by the
number of participants, some 5,600,000 people participated in an
integrated defined contribution plan by 1997. Integrated defined
contribution plans tend to be small with 75% having fewer than
20 participants. Even so, the number of participants in
integrated defined contribution plans of all sizes increased in
every year from 1993-1997. Moreover, yearly employer
contributions increased to about $6 billion by 1997 while their
total assets were about $205 billion, a 63% increase over 1993
values.
Regression analyses were reasonably successful in estimating
the likelihood of integration in defined benefit plans but
defined contribution plans remain a puzzle. Understanding which
employers choose to integrate their defined contribution plans
and why will require additional research with relevance beyond
the integration context. This research suggests that integration
may make plan sponsorship more attractive to small employers
where pension coverage issues are most acute. More research
could contribute to an enhanced understanding of the dynamics of
pension coverage. In addition, learning more about integration
in defined contribution plans is critical to the debate over
Social Security reform. The primary effect of plan integration
is to make low-paid workers even more dependent on Social
Security for retirement income, and responsible proposals for
reform will need to take that consequence into consideration.
Keywords: Social Security, Private Pension System, Integrated
Plans, integration
JEL Classification: H55, J32
______________________________
"Social Security Expectations and Retirement Savings Decisions"
BY: JEFF DOMINITZ
Carnegie Mellon University
H. John Heinz III School of Public Policy and
Management
CHARLES F. MANSKI
Northwestern University
Department of Economics
National Bureau of Economic Research (NBER)
JORDAN HEINZ
Northwestern University
Department of Economics
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=297344
Paper ID: NBER Working Paper No. W8718
Date: January 2002
Contact: CHARLES F. MANSKI
Email: Mailto:cfmanski@nwu.edu
Postal: Northwestern University
Department of Economics
2003 Sheridan Road
Evanston, IL 60208 UNITED STATES
Phone: 847-491-8223
Fax: 847-491-7001
Co-Auth: JEFF DOMINITZ
Email: Mailto:dominitz@andrew.cmu.edu
Postal: Carnegie Mellon University
H. John Heinz III School of Public Policy and
Management
Pittsburgh, PA 15213-3890 UNITED STATES
Co-Auth: JORDAN HEINZ
Email: Mailto:jheinz@northwestern.edu
Postal: Northwestern University
Department of Economics
and School of Education and Social Policy
2003 Sheridan Road
Evanston, IL 60208 UNITED STATES
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
Retirement savings decisions should depend on expectations of
Social Security retirement income. Persons may be uncertain of
their future Social Security benefits for several reasons,
including uncertainty about their future labor earnings, the
formula now determining social security benefits, and the future
structure of the Social Security system. To learn how Americans
perceive their benefits, we have elicited Social Security
expectations from respondents to the Survey of Economic
Expectations. We have also performed a more intensive
face-to-face survey on a small sample of respondents. This paper
presents the empirical findings. It also illustrates how data on
expectations may help predict how Social Security policy affects
retirement savings.
JEL Classification: H55, D84, E2
______________________________
"Finding a Way Out of America's Demographic Dilemma"
BY: LAURENCE J. KOTLIKOFF
Boston University
National Bureau of Economic Research (NBER)
KENT SMETTERS
U.S. Department of Treasury
Congressional Budget Office
National Bureau of Economic Research (NBER)
The Wharton School, University of Pennsylvania
JAN WALLISER
International Monetary Fund (IMF)
Fiscal Affairs Department
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=268369
Paper ID: NBER Working Paper No. W8258
Date: April 2001
Contact: LAURENCE J. KOTLIKOFF
Email: Mailto:kotlikof@bu.edu
Postal: Boston University
Department of Economics
595 Commonwealth Avenue
Boston, MA 02215 UNITED STATES
Phone: 617-353-4002
Fax: 617-353-4449
Co-Auth: KENT SMETTERS
Email: Mailto:smetters@wharton.upenn.edu
Postal: U.S. Department of Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220 UNITED STATES
Co-Auth: JAN WALLISER
Email: Mailto:JWALLISER@imf.org
Postal: International Monetary Fund (IMF)
Fiscal Affairs Department
700 19th Street, NW
Washington, DC 20431 UNITED STATES
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
Notwithstanding the rosy short-term fiscal scenarios being
advanced in Washington, the demographic transition presents the
United States with a very serious fiscal crisis. In 30 years
there will be twice the number of elderly, but only 15 percent
more workers to help pay Social Security and Medicare benefits.
A realistic reading of the government demographic projections
suggests a two thirds increase in payroll tax rates over the
next three to five decades. However, these forecasts ignore
macroeconomic feedback effects. In particular, they ignore the
possibility that the nation will have more capital per worker as
the number of elderly wealth-holders rises relative to the
number of young workers. More capital per worker would mean
higher worker productivity, higher real wages, and the lower
return to capital that worries Wall Street. It would also mean a
bigger payroll tax base and a smaller rise in tax rates. On the
other hand, a higher payroll tax will leave workers with less
after-tax income out of which to save and, therefore, fewer
retirement assets than would otherwise be the case. Thus capital
deepening is not a foregone conclusion. This study develops a
dynamic general equilibrium life-cycle simulation model to study
these conflicting forces. The model is the first of its kind to
admit realistic patterns of fertility and lifespan extension. It
also features heterogeneity, within as well as across
generations, and, thus, can be used to study both intra- and
intergenerational equity. Unfortunately, our baseline
demographic simulation, which assumes the continuation of
current social security policy, shows deteriorating
macroeconomic conditions that will exacerbate, rather than
mitigate, our fiscal problems. Real wages per effective unit of
labor fall 4 percent over the next 30 years and 10 percent over
the century. For Wall Street, this bad news about real wages is
good news