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SOCIAL SCIENCE RESEARCH NETWORK
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. 7, No. 25: September 4, 2006
Editors: PAMELA J. PERUN
Urban Institute
PAMELA@PLANETNOW.COM
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Topic of This Issue:
Defined Contribution Plans
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T A B L E O F C O N T E N T S
"Individual Account Retirement Plans: An Analysis of the 2004
Survey of Consumer Finances"
CRAIG COPELAND
Employee Benefit Research Institute (EBRI)
"Designated Roth Contributions Under Section 401(k) Plans - IRS
Gives Us the Details"
STANLEY BAUM
Dechert LLP
"Employee Share Ownership Plans: Evaluating the Role of Tax and
Other Factors Using Two Case Studies"
IAN MALCOLM RAMSAY
University of Melbourne - Faculty of Law
ANDREW BARNES
University of Melbourne - Melbourne Law School
TANYA JOSEV
University of Melbourne - Faculty of Law
JARROD LENNE
University of Melbourne - Faculty of Law
SHELLEY D. MARSHALL
University of Melbourne - Centre for Corporate Law and
Securities Regulation
RICHARD MITCHELL
University of Melbourne - Faculty of Law
CAMERON RIDER
University of Melbourne - Faculty of Law
"Dimensions of 401(k) Plan Design"
OLIVIA S. MITCHELL
University of Pennsylvania - Insurance & Risk Management
Department, National Bureau of Economic Research (NBER)
STEPHEN P. UTKUS
Vanguard Center for Retirement Research
TONGXUAN YANG
University of Pennsylvania - Insurance & Risk Management
Department
"Benefits of Contribution: Individual Asset Allocation,
Diversification and Welfare in a Defined Contribution Pension
System"
ANDERS KARLSSON
Stockholm University - Department of Corporate Finance
LARS L. NORDEN
Stockholm University - School of Business
"The Cost of Owning Employer Stocks: Lessons from Taiwan"
NING ZHU
Yale School of Management, University of California,
Davis - Graduate School of Management
YI-TSUNG LEE
National Chengchi University - Department of Accounting
YU-JANE LIU
National Chengchi University - Department of Finance and
Banking
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"Individual Account Retirement Plans: An Analysis of the 2004
Survey of Consumer Finances"
EBRI Issue Brief, No. 293, May 2006
Contact: CRAIG COPELAND
Employee Benefit Research Institute (EBRI)
Email: COPELAND@EBRI.ORG
Auth-Page: http://ssrn.com/author=255137
Full Text: http://ssrn.com/abstract=900845
ABSTRACT: This paper assesses how prepared Americans are for
retirement by examining the incidence of individual account plans
among families, as well as the average amount of assets
accumulated in these accounts. The Survey of Consumer Finances
(SCF), the Federal Reserve Board's triennial survey of wealth, is
the basis for this study. SCF is a leading source of data on
Americans' wealth, as it provides detailed data on retirement
plan incidence and account balances that families have
accumulated.
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"Designated Roth Contributions Under Section 401(k) Plans - IRS
Gives Us the Details"
Journal of Taxation, Vol. 104, p. 268, May 2006
Contact: STANLEY BAUM
Dechert LLP
Email: stanley.baum@dechert.com
Auth-Page: http://ssrn.com/author=493584
Abstract: http://ssrn.com/abstract=913000
ABSTRACT: Due to potential tax advantages, there has been a
growing interest in allowing Roth contributions to be made to a
401(k) plan. As with almost any tax-advantaged feature, the rules
pertaining to Roth 401(k) contributions are numerous and complex.
Fortunately, the Internal Revenue Service has provided guidance
as to how these rules are to apply, in the form of final and
proposed regulations. This article describes in detail the rules
relating to Roth 401(k) contributions, such as those dealing with
elections to make, accounting for, limitations on and
distributions of Roth 401(k) contributions, as explained in the
Internal Revenue Service's guidance.
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"Employee Share Ownership Plans: Evaluating the Role of Tax and
Other Factors Using Two Case Studies"
U of Melbourne Legal Studies Research Paper No. 151
Contact: IAN MALCOLM RAMSAY
University of Melbourne - Faculty of Law
Email: i.ramsay@unimelb.edu.au
Auth-Page: http://ssrn.com/author=178811
Co-Author: ANDREW BARNES
University of Melbourne - Melbourne Law School
Email: abarnes@unimelb.edu.au
Auth-Page: http://ssrn.com/author=394367
Co-Author: TANYA JOSEV
University of Melbourne - Faculty of Law
Email: Tanya.Josev@aar.com.au
Auth-Page: http://ssrn.com/author=651084
Co-Author: JARROD LENNE
University of Melbourne - Faculty of Law
Email: jlenne@unimelb.edu.au
Auth-Page: http://ssrn.com/author=376881
Co-Author: SHELLEY D. MARSHALL
University of Melbourne - Centre for Corporate Law
and Securities Regulation
Email: s.marshall@unimelb.edu.au
Auth-Page: http://ssrn.com/author=371858
Co-Author: RICHARD MITCHELL
University of Melbourne - Faculty of Law
Email: r.mitchell@law.unimelb.edu.au
Auth-Page: http://ssrn.com/author=232660
Co-Author: CAMERON RIDER
University of Melbourne - Faculty of Law
Email: c.rider@unimelb.edu.au
Auth-Page: http://ssrn.com/author=651086
Full Text: http://ssrn.com/abstract=917065
ABSTRACT: Employee share ownership (ESO) has been the subject of
significant public policy debate. In these debates, ESO plans are
usually said to be implemented for a variety of reasons including
alignment of employer and employee interests, increased employee
productivity, improved workplace harmony, and increased employee
remuneration. This study explores, through case studies of ESO
plans at two Australian companies, three key issues relevant to
the implementation of ESO plans and the policy and regulation
applicable to ESO plans. These issues are: (1) whether ESO plans
better align the interests of employees with those of their
employer, leading to better enterprise performance; (2) whether
the objectives of companies in implementing ESO plans are
primarily "ownership objectives," "remuneration objectives" or
"workplace change objectives;" and (3) whether the concessional
taxation treatment of ESO plans provides an incentive for the
implementation of plans in a way that leads to improved
enterprise performance.
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"Dimensions of 401(k) Plan Design"
Pension Research Council Working Paper No. 2005-05
Contact: OLIVIA S. MITCHELL
University of Pennsylvania - Insurance & Risk
Management Department, National Bureau of Economic
Research (NBER)
Email: mitchelo@wharton.upenn.edu
Auth-Page: http://ssrn.com/author=41556
Co-Author: STEPHEN P. UTKUS
Vanguard Center for Retirement Research
Email: steve_utkus@vanguard.com
Auth-Page: http://ssrn.com/author=328294
Co-Author: TONGXUAN YANG
University of Pennsylvania - Insurance & Risk
Management Department
Email: tongxuan@wharton.upenn.edu
Auth-Page: http://ssrn.com/author=97924
Full Text: http://ssrn.com/abstract=912274
ABSTRACT: This paper explores why plan sponsors design their
401(k) plans the way they do. Employing a unique, rich dataset of
over five hundred 401(k) plans, we find that these plans are
principally a form of tax-motivated compensation under the
restriction of federal non-discrimination rules. In other words,
to appeal to better-paid workers, employers offer more generous
monetary and nonmonetary plan design features. At the same time,
complex federal tax rules restrict pay discrimination in favor of
the highly-paid employees.
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"Benefits of Contribution: Individual Asset Allocation,
Diversification and Welfare in a Defined Contribution Pension
System"
Contact: ANDERS KARLSSON
Stockholm University - Department of Corporate
Finance
Email: aka@fek.su.se
Auth-Page: http://ssrn.com/author=362469
Co-Author: LARS L. NORDEN
Stockholm University - School of Business
Email: ln@fek.su.se
Auth-Page: http://ssrn.com/author=327363
Full Text: http://ssrn.com/abstract=891164
ABSTRACT: We analyse the new Swedish pension system, which
constitutes a partial defined contribution plan where individuals
can choose from hundreds of mutual funds to invest part of their
pension savings, making them bearing part of the investment risks
themselves. We perform a factor analysis in order to explore the
actual asset classes that are driving the returns of the mutual
funds available to individuals. We find that the large amount of
mutual funds can be represented with only a few orthogonal
factors or distinct asset classes. Moreover, we investigate
individuals' asset allocation choices and relate the individuals'
factor exposures to a number of demographic and socio-economic
variables in order to find out who holds what, and whether asset
allocation and diversification differ with respect to individual
characteristics. We find that sophisticated individuals are more
likely to be active participants in the pension system and tend
to load less on general index and bond funds than less
sophisticated individuals. We also conduct a simulation study to
illustrate the risk in individuals' future pension holdings in
the new system. We introduce a measure called "Pension at Risk,"
which is intended to capture an individual's risk of being worse
off in the new partially defined contribution pension system,
compared with the old defined benefit system, where the future
pension payments are guaranteed by the government.
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"The Cost of Owning Employer Stocks: Lessons from Taiwan"
Contact: NING ZHU
Yale School of Management, University of
California, Davis - Graduate School of Management
Email: Ning.Zhu@yale.edu
Auth-Page: http://ssrn.com/author=289140
Co-Author: YI-TSUNG LEE
National Chengchi University - Department of
Accounting
Email: actytl@nccu.edu.tw
Auth-Page: http://ssrn.com/author=343802
Co-Author: YU-JANE LIU
National Chengchi University - Department of
Finance and Banking
Email: finyjl@nccu.edu.tw
Auth-Page: http://ssrn.com/author=241908
Full Text: http://ssrn.com/abstract=890836
ABSTRACT: Using data on all employees at listed companies in
Taiwan, where pension plans were rare, we find that bias toward
employer stocks is generic to individual investor decisionmaking,
but not limited to retirement plans. 71 percent of sample
employees invest in employer stocks and the employer stocks make
up on average 47 percent of employee equity portfolios. The
under-diversification resulting from the bias toward employer
stocks is highly costly. Holding current portfolio risk constant,
employees forego 4.89 percent per annum in raw returns by
investing in employer stocks, which represents 39.74 percent of
their average 1998 salary income. Our findings have important
implications for social security reform and retirement account
management.