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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. 16: August 25, 2005
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Publisher: Employment, Labor, Compensation & Pension Law Journals
a division of
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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:
Pension Issues
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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
"The Influence of Automatic Enrollment, Catch-Up, and IRA
Contributions on 401(k) Accumulations at Retirement"
EBRI Issue Brief, No. 283, July 2005
SARAH HOLDEN
Investment Company Institute
JACK VANDERHEI
Temple University
Risk Management & Insurance & Actuarial Science
Employee Benefit Research Institute (EBRI)
"The Effects of Employer Matching in 401(k) Plans"
Industrial Relations, Vol. 44, No. 3, pp. 525-549, July
2005
WILLIAM E. EVEN
Miami University of Ohio
Department of Economics
Institute for the Study of Labor (IZA)
DAVID A. MACPHERSON
Florida State University
Department of Economics
Institute for the Study of Labor (IZA)
"Retirement Income Security: A Look at Social Security,
Employment-Based Retirement Plans, and Health Savings Accounts"
EBRI Notes, Vol. 26, No. 8, August 2005
JOHN A. MACDONALD
Employee Benefit Research Institute (EBRI)
"Pension Funding Reform: It's Time to Get the Rules Right (Part
1)"
Tax Notes, Vol. 108, No. 9, August 22, 2005
KATHRYN J. KENNEDY
John Marshall Law School
WORKING PAPERS
"Better Plans for the Better-Paid: Determinants and Effects of
401(k) Plan Design"
STEPHEN P. UTKUS
Vanguard Center for Retirement Research
TONGXUAN YANG
University of Pennsylvania
Insurance & Risk Management Department
OLIVIA S. MITCHELL
University of Pennsylvania
Insurance & Risk Management Department
National Bureau of Economic Research (NBER)
"Is the Equalizing Effect of Retirement Wealth Wearing Off?"
EDWARD N. WOLFF
New York University
Department of Economics
National Bureau of Economic Research (NBER)
The Levy Economics Institute of Bard College
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EDITORIAL POLICIES
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Benefits, Compensation & Pension Law we do not referee working
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Benefits, Compensation & Pension Law whose topics suit the
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scholarly discourse.
N E W and F O R T H C O M I N G Articles
_________________________________________________________________
"The Influence of Automatic Enrollment, Catch-Up, and IRA
Contributions on 401(k) Accumulations at Retirement"
EBRI Issue Brief, No. 283, July 2005
BY: SARAH HOLDEN
Investment Company Institute
JACK VANDERHEI
Temple University
Risk Management & Insurance & Actuarial Science
Employee Benefit Research Institute (EBRI)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=770425
Contact: SARAH HOLDEN
Email: Mailto:sholden@ici.org
Postal: Investment Company Institute
Research Department
1401 H Street, NW
Washington, DC 20005 UNITED STATES
Phone: (202) 326-5915
Co-Auth: JACK VANDERHEI
Email: Mailto:TEMPLE@VANDERHEI.COM
Postal: Temple University
Risk Management & Insurance & Actuarial Science
489 Ritter Annex
Fox School of Business and Management
1301 Cecil B. Moore Ave.
Philadelphia, PA 19122 UNITED STATES
ABSTRACT:
This paper builds on the model scenarios presented in Holden and
VanDerhei ("Can 401(k) Accumulations Generate Significant Income
for Future Retirees?" ICI Perspective, Vol. 8, no. 3, and EBRI
Issue Brief 251, November 2002; and Appendix: EBRI/ICI
Accumulation Projection Model, ICI Perspective, Vol. 8, no. 3A,
November 2002 - Appendix). It presents new scenarios that
examine the role that 401(k) accumulations might play in
retirement by analyzing certain factors that influence outcomes
for 401(k) participants, including: plan design, through
automatic enrollment; tax policy, through catch-up
contributions; and individuals themselves, through saving in
IRAs when not offered 401(k) plans.
JEL Classification: D31, D91, J26, J33
______________________________
"The Effects of Employer Matching in 401(k) Plans"
Industrial Relations, Vol. 44, No. 3, pp. 525-549, July
2005
BY: WILLIAM E. EVEN
Miami University of Ohio
Department of Economics
Institute for the Study of Labor (IZA)
DAVID A. MACPHERSON
Florida State University
Department of Economics
Institute for the Study of Labor (IZA)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=739940
Contact: WILLIAM E. EVEN
Email: Mailto:evenwe@muohio.edu
Postal: Miami University of Ohio
Department of Economics
208 Laws Hall
Oxford, OH 45056 UNITED STATES
Phone: 513-529-2865
Fax: 513-529-6992
Co-Auth: DAVID A. MACPHERSON
Email: Mailto:DMACPHER@MAILER.FSU.EDU
Postal: Florida State University
Department of Economics
Tallahassee, FL 30306-2180 UNITED STATES
ABSTRACT:
This paper uses data from the April 1993 pension supplements to
the Current Population Survey (CPS) to investigate the impact of
employer matching and employee tenure on participation levels in
401(k) plans. While earlier studies examine similar issues, this
study makes several advances. First, consistent with the theory
that employers may use matching contributions to satisfy
nondiscrimination rules, the study shows that correcting for the
endogeneity of employer matching substantially increases the
estimated effect of matching on participation levels. Second,
the study provides evidence that the large positive association
between employee tenure and 401(k) participation is because
"stayers" tend to be "savers".
______________________________
"Retirement Income Security: A Look at Social Security,
Employment-Based Retirement Plans, and Health Savings Accounts"
EBRI Notes, Vol. 26, No. 8, August 2005
BY: JOHN A. MACDONALD
Employee Benefit Research Institute (EBRI)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=788071
Contact: JOHN A. MACDONALD
Email: Mailto:macdonald@ebri.org
Postal: Employee Benefit Research Institute (EBRI)
Suite 600
2121 K Street, NW
Washington, DC 20037-1896 UNITED STATES
Phone: 202-775-6349
ABSTRACT:
This paper presents issues examined and discussed by
participants at the Employee Benefit Research Institute's spring
policy forum in Washington, DC, held May 5, 2005. EBRI President
Dallas Salisbury said the forum was designed to pull together
research that touched on the "total integration of all aspects
of financial security." About 100 participants examined the
different forces at work that threaten economic security in
retirement, and heard EBRI researchers and others discuss three
topics: Social Security overhaul, 401(k) enrollment and
accumulations, and health savings accounts. Before the forum
ended, participants appeared to agree on the need to include
health care expenses as part of retirement planning, and on the
idea of automatically enrolling all workers who are eligible to
participate in 401(k) plans. But they expressed widely divergent
views in a debate on the president's proposal to restructure
Social Security.
JEL Classification: D91, H55, I1, J26, J33
______________________________
"Pension Funding Reform: It's Time to Get the Rules Right (Part
1)"
Tax Notes, Vol. 108, No. 9, August 22, 2005
BY: KATHRYN J. KENNEDY
John Marshall Law School
Contact: KATHRYN J. KENNEDY
Email: Mailto:7kennedy@jmls.edu
Postal: John Marshall Law School
315 South Plymouth Court
Chicago, IL 60604 UNITED STATES
Phone: 312-427-2737 ext. 515
ABSTRACT:
In this two-part article, the author explains how and why
ERISA's historical pension funding rules - although
well-intentioned - nevertheless led employers, such as United
Airlines' parent UAL Corp., to have seriously underfunded
pension plans, and the Pension Benefit Guaranty Corp. to assume
billions of dollars of those unfunded liabilities. Before future
pension reform measures should be considered, Kennedy believes
that we should learn from the past. Mistakes created through
legislative rules should not be repeated, but instead their
lessons should help forge effective pension funding reforms.
The second part of the article will discuss various
legislative proposals pending before Congress and the policy
considerations relevant to those proposals, in light of the
historical mistakes that should be avoided in impending
legislation.
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W O R K I N G P A P E R Abstracts
_________________________________________________________________
"Better Plans for the Better-Paid: Determinants and Effects of
401(k) Plan Design"
BY: STEPHEN P. UTKUS
Vanguard Center for Retirement Research
TONGXUAN YANG
University of Pennsylvania
Insurance & Risk Management Department
OLIVIA S. MITCHELL
University of Pennsylvania
Insurance & Risk Management Department
National Bureau of Economic Research (NBER)
Paper ID: PRC Working Paper No. 2005-5
Date: 2005
Contact: STEPHEN P. UTKUS
Email: Mailto:steve_utkus@vanguard.com
Postal: Vanguard Center for Retirement Research
100 Vanguard Boulevard, J24
Malvern, PA 19355 UNITED STATES
Phone: 610-669-6308
Co-Auth: TONGXUAN YANG
Email: Mailto:tongxuan@wharton.upenn.edu
Postal: University of Pennsylvania
Insurance & Risk Management Department
Philadelphia, PA 19104-6365 UNITED STATES
Co-Auth: OLIVIA S. MITCHELL
Email: Mailto:mitchelo@wharton.upenn.edu
Postal: University of Pennsylvania
Insurance & Risk Management Department
Philadelphia, PA 19104-6365 UNITED STATES
ABSTRACT:
This paper seeks to understand why plan sponsors design their
401(k) plans the way they do. Drawing on a rich dataset of
several hundred 401(k) plans, we find support for the argument
that these plans are principally a form of tax-motivated
compensation. In other words, to appeal to better-paid workers,
employers provide more generous matching contributions and
non-cash plan design features. At the same time, complex federal
tax rules restrict pay discrimination in favor of the
highly-paid, so these plans must also incorporate monetary and
non-monetary incentives to induce a minimum level of
participation by lower-paid workers. We show that, since all
employees do not avail themselves of these saving incentives,
the median employer promises a match equivalent to 3% of pay yet
spends only about 2%. Also, generous match rates enhance
participation by the lower-paid, but do not do much to increase
plan-wide saving rates. Overall, employer 401(k) matching
contributions are an imperfect vehicle for advancing broad-based
retirement security objectives, and they have an uneven impact
across firms.
______________________________
"Is the Equalizing Effect of Retirement Wealth Wearing Off?"
BY: EDWARD N. WOLFF
New York University
Department of Economics
National Bureau of Economic Research (NBER)
The Levy Economics Institute of Bard College
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=698203
Paper ID: Levy Economics Institute Working Paper No. 420
Contact: EDWARD N. WOLFF
Email: Mailto:edward.wolff@nyu.edu
Postal: New York University
Department of Economics
269 Mercer Street, 7th Floor
New York, NY 10011 UNITED STATES
Phone: 212-998-8917
Fax: 212-995-4186
ABSTRACT:
Retirement wealth is often viewed as a great equalizer,
offsetting the inequality in standard household net worth. One
of the most dramatic changes in the retirement income system
over the last two decades has been a decline in traditional
Defined Benefit (DB) pension plans and a sharp rise in Defined
Contribution (DC) pensions. Using data from the Federal Reserve
Board's Survey of Consumer Finances, I find that retirement
wealth (the sum of pension and Social Security wealth) has a
considerably weaker offsetting effect on wealth inequality in
2001 than in 1983. Whereas standard net worth inequality
increased modestly between 1983 and 2001, the inequality of
augmented wealth (the sum of retirement wealth and net worth)
surged from 1983 to 2001, very much in line with income
inequality. Moreover, whereas median net worth climbed
substantially from 1983 to 2001, median augmented wealth
actually fell over this period.