_________________________________________________________________
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. 6, No. 11: June 2, 2005
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Publisher: Employment, Labor, Compensation & Pension Law 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. 2005. All rights reserved.
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Topic of This Issue:
Employee Benefits
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T A B L E of C O N T E N T S
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NEW and FORTHCOMING ARTICLES
"Female Dual Labour Markets and Employee Benefits"
Scottish Journal of Political Economy, Vol. 52, No. 1, pp.
18-37, February 2005
TERESA GHILARDUCCI
University of Notre Dame
Department of Economics
M. LEE
University of Notre Dame
Laboratory for Social Research
"The Promise and Peril of Ownership Society Health Care Policy"
Tulane Law Review, Vol. 80
AMY MONAHAN
University of Missouri at Columbia
School of Law
"The Impact of HSAs on Health Care Reform: Preliminary Results
After One Year"
Wake Forest Law Review, Vol. 40, No. 4, Winter/December
2005
EDWARD J. LARSON
University of Georgia School of Law
MARC DETTMANN
University of Virginia Health Services Foundation
WORKING PAPERS
"Employee Cost-sharing and the Welfare Effects of Flexible
Spending Accounts"
WILLIAM G. JACK
Georgetown University
Department of Economics
ARIK M. LEVINSON
Georgetown University
Department of Economics
National Bureau of Economic Research (NBER)
SJAMSU RAHARDJA
Georgetown University
Department of Economics
"The Implicit Costs and Benefits of Family Friendly Work
Practices"
JOHN S. HEYWOOD
University of Wisconsin at Milwaukee
University of Birmingham
Department of Commerce
STANLEY SIEBERT
University of Birmingham
Institute for the Study of Labor (IZA)
XIANGDONG WEI
Lingnan College
"Are Firms or Workers Behind the Shift Away from DB Pension
Plan?"
STEPHANIE R. AARONSON
Government of the United States of America
Macroeconomic Analysis Section
JULIA LYNN CORONADO
Federal Reserve Board - Research & Statistics
"What's in Your 403(b)? Academic Retirement Plans and the Costs
of Underdiversification"
JOHN ANGUS
Claremont Graduate University - School of
Mathematical Sciences
WILLIAM O. BROWN
Clarmont McKenna College - Department of Economics
JANET KIHOLM SMITH
Claremont Colleges
Department of Economics
RICHARD L. SMITH
Claremont Graduate University - Drucker Graduate
School of Management
S S R N I N F O R M A T I O N
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EDITORIAL POLICIES
To provide the broadest coverage of research in Employee
Benefits, Compensation & Pension Law we do not referee working
papers. We accept abstracts of working papers in Employee
Benefits, Compensation & Pension Law whose topics suit the
coverage of the journal and which are part of the worldwide
scholarly discourse.
N E W and F O R T H C O M I N G Articles
_________________________________________________________________
"Female Dual Labour Markets and Employee Benefits"
Scottish Journal of Political Economy, Vol. 52, No. 1, pp.
18-37, February 2005
BY: TERESA GHILARDUCCI
University of Notre Dame
Department of Economics
M. LEE
University of Notre Dame
Laboratory for Social Research
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=672742
Contact: TERESA GHILARDUCCI
Email: Mailto:TERESA.GHILARDUCCI.1@ND.EDU
Postal: University of Notre Dame
Department of Economics
Notre Dame, IN 46556 UNITED STATES
Phone: 219-631-7581
Co-Auth: M. LEE
Email: Mailto:Mary.J.Lee.82@nd.edu
Postal: University of Notre Dame
Laboratory for Social Research
945 Flanner Hall
Notre Dame, IN 46556 UNITED STATES
ABSTRACT:
The American workforce and the role of employee benefits have
changed dramatically since the 1980s when economists seriously
considered dual labour market models to describe pay and
employment patterns. Then, dual labour market models described
men's labour markets, but not women's and the tests applied to
wages and salaries, not total compensation including employee
benefits. Applying a switching regression technique using the
2000 Current Population Survey and including women workers and
employee benefits, we find that the dual labour market
hypothesis is consistent with both female and male labour market
structures, especially when total compensation is considered.
______________________________
"The Promise and Peril of Ownership Society Health Care Policy"
Tulane Law Review, Vol. 80
BY: AMY MONAHAN
University of Missouri at Columbia
School of Law
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=711361
Contact: AMY MONAHAN
Email: Mailto:monahana@missouri.edu
Postal: University of Missouri at Columbia
School of Law
Missouri Avenue & Conley Avenue
Columbia, MO 65211 UNITED STATES
Phone: (573) 882-6753
ABSTRACT:
There has been a fundamental shift in tax policy over the past
many years away from paternalistic social policies to the
embrace of personal responsibility and ownership. The shift in
retirement savings tax policy has received the most attention,
but the shift which is taking place in health care tax policy is
just as profound. Ownership society proponents believe that
introducing market incentives into the demand-side of health
care financing will help to control increasing costs, while
having the additional benefit of allowing tax-favored individual
ownership of health care savings. In 2003, the tax code was
amended to grant tax benefits to the ownership society version
of health care - a tax-favored health savings account coupled
with high deductible health insurance coverage. This tax policy
shift is consistent with the broader fundamental shift in social
tax policy that has taken place over the past several years.
This article considers both the promise of this fundamental
shift in health care policy, as well as the potential perils.
There is much that is appealing about ownership society health
care policy. It empowers individuals to make their own medical
spending decisions, rather than putting such power in the hands
of physician gatekeepers or health insurance administrators. It
also promises to lower costs, by creating for the first time
incentives for Americans to be cost-conscious in their medical
spending decisions. Unfortunately, as the article concludes,
there are many perils that must be adequately addressed and
dealt with if ownership society health care is to truly effect
health care reform.
______________________________
"The Impact of HSAs on Health Care Reform: Preliminary Results
After One Year"
Wake Forest Law Review, Vol. 40, No. 4, Winter/December
2005
BY: EDWARD J. LARSON
University of Georgia School of Law
MARC DETTMANN
University of Virginia Health Services Foundation
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=692882
Contact: EDWARD J. LARSON
Email: Mailto:EDLARSON@UGA.EDU
Postal: University of Georgia School of Law
Department of History
Athens, GA 30602 UNITED STATES
Phone: 706-542-2660
Fax: 706-542-2455
Co-Auth: MARC DETTMANN
Email: Mailto:MD8J@hscmail.mcc.virginia.edu
Postal: University of Virginia Health Services Foundation
Charlottesville, VA 22903 UNITED STATES
ABSTRACT:
Over one year having passed since Congress authorized the
creation of the first individual Health Savings Account (HSA),
this article reviews the context, structure, promise, and impact
of this new type of tax-advantaged accounts. Proponents of these
accounts claim that, coupled with high-deductible health
insurance policies, HSAs can increase access to and decrease
cost of health care. Opponents counter that HSAs could decrease
access and raise cost for some. The article begins by
summarizing current trends in health-care access and cost. It
then analyzes the HSA legislation itself, H.R. 2596 (2003), and
how HSAs operate. After reviewed the claims made for HSAs when
H.R. 2596 passed, the article takes a preliminary look at the
impact of HSAs one year after their creation.
The enactment of H.R. 2596 may benefit some individuals and
families by providing an additional tax-subsidized
health-insurance option that may better fit their needs than
other options. For some, it may make the difference between
having health insurance and not having health insurance. For
others, it may result in lower costs or better quality. Despite
the claims of proponents, however, the record so far suggests
that HSAs will have little overall impact on rising health-care
costs or on shrinking health-care access. Fundamental
health-care reform will not be so easily or painlessly
implemented.
JEL Classification: I18, J32, H20
______________________________
W O R K I N G P A P E R Abstracts
_________________________________________________________________
"Employee Cost-sharing and the Welfare Effects of Flexible
Spending Accounts"
BY: WILLIAM G. JACK
Georgetown University
Department of Economics
ARIK M. LEVINSON
Georgetown University
Department of Economics
National Bureau of Economic Research (NBER)
SJAMSU RAHARDJA
Georgetown University
Department of Economics
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=716081
Paper ID: Georgetown Economics Working Paper No. 05-12
Date: May 2, 2005
Contact: WILLIAM G. JACK
Email: Mailto:WGJ@GEORGETOWN.EDU
Postal: Georgetown University
Department of Economics
ICC 580
Washington, DC 20057 UNITED STATES
Phone: (202) 687-0773
Co-Auth: ARIK M. LEVINSON
Email: Mailto:AML6@georgetown.edu
Postal: Georgetown University
Department of Economics
Washington, DC 20057 UNITED STATES
Co-Auth: SJAMSU RAHARDJA
Email: Mailto:rahardja@georgetown.edu
Postal: Georgetown University
Department of Economics
Washington, DC 20057 UNITED STATES
ABSTRACT:
In recent years, employees have been shouldering an increasing
share of the costs of employee-provided health care. At the same
time, more and more employers have been allowing employees to
pay their out-of-pocket health care costs using pre-tax
earnings, through tax-subsidized flexible spending accounts
(FSAs). We use a cross-section of firm-level data from 1993 to
show empirically that these FSAs can explain a significant
fraction of the shift in health care costs to employees, and
that this shift may be efficient, given the distortionary
effects of the existing tax-subsidy to premiums. Correcting for
selection effects, we find that FSAs are associated with
insurance contracts with coinsurance rates that are about 7
percentage points higher, relative to a sample average
coinsurance rate of 17 percent. Meanwhile, coinsurance rates net
of the subsidy are approximately unchanged, providing evidence
that FSAs are welfare-neutral.
JEL Classification: D60, H21, I18
______________________________
"The Implicit Costs and Benefits of Family Friendly Work
Practices"
BY: JOHN S. HEYWOOD
University of Wisconsin at Milwaukee
University of Birmingham
Department of Commerce
STANLEY SIEBERT
University of Birmingham
Institute for the Study of Labor (IZA)
XIANGDONG WEI
Lingnan College
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=719923
Paper ID: IZA Discussion Paper No. 1581
Date: May 2005
Contact: JOHN S. HEYWOOD
Email: Mailto:HEYWOOD@CSD.UWM.EDU
Postal: University of Wisconsin at Milwaukee
210 N. Maryland Avenue
Milwaukee, WI 53211 UNITED STATES
Phone: 414-229-4437
Fax: 414-229-3860
Co-Auth: STANLEY SIEBERT
Email: Mailto:W.S.Siebert@bham.ac.uk
Postal: University of Birmingham
Birmingham B15 2TT, UNITED KINGDOM
Co-Auth: XIANGDONG WEI
Email: Mailto:xdwei@ln.edu.hk
Postal: Lingnan College
8 Castle Peak Road
Hong Kong, CHINA
ABSTRACT:
This paper posits that the provision of family friendly
practices is, on balance, costly to firms and valuable to
workers. As a consequence, we anticipate the emergence of a
hedonic equilibrium in which workers provided with such
practices face an implicit reduction in their earnings. Using
WERS98 linked employer-employee data, we show that the ability
to confirm this compensating wage differential depends
critically on an appropriate treatment model designed to purge
typical estimates of the income effect. We find that family
friendly jobs may be associated with as much as a 20 percent
reduction in earnings. Our estimates can be used to inform
impact assessments of new UK legislation extending family
friendly practices.
JEL Classification: J31, J32
______________________________
"Are Firms or Workers Behind the Shift Away from DB Pension
Plan?"
BY: STEPHANIE R. AARONSON
Government of the United States of America
Macroeconomic Analysis Section
JULIA LYNN CORONADO
Federal Reserve Board - Research & Statistics
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=716383
Paper ID: FEDS Paper No. 2005-17
Date: April 2005
Contact: STEPHANIE R. AARONSON
Email: Mailto:stephanie.r.aaronson@frb.gov
Postal: Government of the United States of America
Macroeconomic Analysis Section
20th & C. St., N.W.
Mailstop 80
Washington, DC 20551 UNITED STATES
Co-Auth: JULIA LYNN CORONADO
Email: Mailto:JCORONADO@FRB.GOV
Postal: Federal Reserve Board - Research & Statistics
Washington, DC 20551 UNITED STATES
ABSTRACT:
One of the most striking changes in the composition of household
retirement savings over the past 20 years has been the shift
from defined benefit to defined contribution pension plans.
Understanding the factors underlying this shift is important for
determining its impact on retirement saving adequacy. Yet
previous research, which has mostly focused on factors affecting
all firms, such as regulation or increased longevity, has
yielded little consensus. In this study we estimate the
contribution of changing workforce characteristics and
production environments to the shift in pension coverage. Our
findings suggest that, while aggregate factors explain a large
part of the movement, changes in worker demand, due to evolving
workforce characteristics, also contributed notably. On the
supply side, we find support for the theory that technical
change has reduced the value of DB plans. These supply and
demand factors are particularly important for explaining the
significant variation in cross-industry trends in pension
coverage.
JEL Classification: J32, J41, J26
______________________________
"What's in Your 403(b)? Academic Retirement Plans and the Costs
of Underdiversification"
BY: JOHN ANGUS
Claremont Graduate University - School of
Mathematical Sciences
WILLIAM O. BROWN
Clarmont McKenna College - Department of Economics
JANET KIHOLM SMITH
Claremont Colleges
Department of Economics
RICHARD L. SMITH
Claremont Graduate University - Drucker Graduate
School of Management
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=733804
Date: June 1, 2005
Contact: JANET KIHOLM SMITH
Email: Mailto:janet_smith@mckenna.edu
Postal: Claremont Colleges
Department of Economics
500 E. Ninth St.
Claremont, CA 91711-6420 UNITED STATES
Phone: 909-607-3276
Co-Auth: JOHN ANGUS
Email: Mailto:john_angus@cgu.edu
Postal: Claremont Graduate University - School of Mathematical
Sciences
150 E. Tenth Street
Claremont, CA 91711 UNITED STATES
Co-Auth: WILLIAM O. BROWN
Email: Mailto:wbrown@benson.mckenna.edu
Postal: Clarmont McKenna College - Department of Economics
500 E. Ninth St.
Claremont, CA 91711-6420 UNITED STATES
Co-Auth: RICHARD L. SMITH
Email: Mailto:Richard.Smith@cgu.edu
Postal: Claremont Graduate University - Drucker Graduate School of
Management
1021 N. Dartmouth Ave.
Claremont, CA 91711 UNITED STATES
ABSTRACT:
Many college and university 403(b) plans restrict the menu of
investment choices to funds offered by TIAA-CREF, the current
manager of over half of all 403(b) contributions. Further, in
the face of Internal Revenue Code changes that will take effect
in 2006 and will make 403(b) plan ERISA compliance more
difficult, some sponsors are dropping their existing
alternatives to TIAA-CREF. Using eight years of historical
performance data, we study the efficiency of the TIAA-CREF
opportunity set relative to a somewhat larger set that includes
several standard index funds, and we estimate the lifetime
opportunity losses to participants who are constrained to invest
only in TIAA-CREF. Based on efficient frontier analysis, and
assuming optimal rebalancing by a loss-averse individual as time
to retirement approaches, our analysis demonstrates that the
opportunity losses are economically significant. Depending on
loss-aversion, and diversification constraints, over a
forty-year work-life an employee who is restricted to TIAA-CREF
would lose approximately half of terminal wealth, compared to
investing in the expanded menu that includes index funds.
Moreover, limiting the choices to TIAA-CREF does not appear to
help even unsophisticated investors. TIAA-CREF equity funds
offer little meaningful diversification and are no less risky
than the alternative index funds. Even when a naive
diversification strategy of equally-weighting (1/n) all
available funds is applied, the expanded menu outperforms the
restricted portfolio by about 26 percent over the employee's
work-life. The findings have direct implications for the over
6.8 million enrollees in 403(b) plans, who currently make around
$27 billion in annual contributions, and indirect implications
for the much larger population of 401(k)-type defined
contribution plans.