_________________________________________________________________
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. 34: November 16, 2006
Editors: PAMELA J. PERUN
Urban Institute
PAMELA@PLANETNOW.COM
_________________________________________________________________
BROWSE all abstracts in this subject:
http://www.ssrn.com/link/benefits-compensation-pension-law.html
SEARCH entire eLibrary at: http://ssrn.com/search
If this document is misaligned, please set type face to a
non-proportional font such as Courier 10.
_________________________________________________________________
Topic of This Issue:
Retirement Income
_________________________________________________________________
T A B L E O F C O N T E N T S
"Pension Investments in Employer Stock"
DAVID A. MACPHERSON
Florida State University - Department of Economics,
Institute for the Study of Labor (IZA)
WILLIAM E. EVEN
Miami University, Institute for the Study of Labor (IZA)
"Employer Matching and 401(k) Saving: Evidence from the Health
and Retirement Study"
GARY V. ENGELHARDT
Syracuse University - Center for Policy Research,
Dartmouth College - Department of Economics, National
Bureau of Economic Research (NBER)
ANIL KUMAR
Federal Reserve Bank of Dallas - Research Department
"Annuity Markets in Chile: Competition, Regulation - and Myopia?"
EDUARDO WALKER
School of Business Administration - Pontificia
Universidad Catolica de Chile
"On the Financial Sustainability of Earnings-Related Pension
Schemes with Pay-As-You-Go Financing and the Role of Government
Indexed Bonds"
DAVID A. ROBALINO
World Bank
ANDRAS BODOR
Georgetown University
"The Perfect Storm of Retirement Security: Fixing the
Three-Legged Stool of Social Security, Pensions, and Personal
Savings"
STEPHEN F. BEFORT
University of Minnesota Law School
_________________________________________________________________
"Pension Investments in Employer Stock"
IZA Discussion Paper No. 2376
Contact: DAVID A. MACPHERSON
Florida State University - Department of Economics,
Institute for the Study of Labor (IZA)
Email: DMACPHER@MAILER.FSU.EDU
Auth-Page: http://ssrn.com/author=56889
Co-Author: WILLIAM E. EVEN
Miami University, Institute for the Study of Labor
(IZA)
Email: evenwe@muohio.edu
Auth-Page: http://ssrn.com/author=58715
Full Text: http://ssrn.com/abstract=941110
ABSTRACT: This study examines the consequences of a pension fund
investing in the stock of the sponsoring firm. Using a merger of
data on pension asset holdings from IRS Form 5500 filings and
financial data on the company's stock from CRSP, two broad
questions are addressed: First, what factors influence the extent
of a pension fund's investments in the employer's stock? Second,
when a pension invests in the employer's stock, how much is lost
as a result of poor diversification? The empirical results
suggest that investments in employer stock are responsive to
non-diversification costs, tax consequences, and employee ability
to diversify the risk. There is also evidence that employers and
employees weight these factors differentially in their decision
of how much employer stock to include in the pension. Using
actual return data on pension plans, we also find that
concentrated investments in employer stock substantially reduce
risk-adjusted return performance.
______________________________
"Employer Matching and 401(k) Saving: Evidence from the Health
and Retirement Study"
NBER Working Paper No. W12447
Contact: GARY V. ENGELHARDT
Syracuse University - Center for Policy Research,
Dartmouth College - Department of Economics,
National Bureau of Economic Research (NBER)
Email: gvengelh@maxwell.syr.edu
Auth-Page: http://ssrn.com/author=16147
Co-Author: ANIL KUMAR
Federal Reserve Bank of Dallas - Research
Department
Email: anil.kumar@dal.frb.org
Auth-Page: http://ssrn.com/author=386899
Full Text: http://ssrn.com/abstract=924537
ABSTRACT: Employer matching of employee 401(k) contributions can
provide a powerful incentive to save for retirement and is a key
component in pension-plan design in the United States. Using
detailed administrative contribution, earnings, and pension-plan
data from the Health and Retirement Study, this analysis
formulates a life-cycle-consistent econometric specification of
401(k) saving and estimates the determinants of saving accounting
for non-linearities in the household budget set induced by
matching. The participation estimates indicate that an increase
in the match rate by 25 cents per dollar of employee contribution
raises 401(k) participation by 3.75 to 6 percentage points, and
the estimated elasticity of participation with respect to
matching ranges from 0.02-0.07. The parametric and
semi-parametric estimates for saving indicate that an increase in
the match rate by 25 cents per dollar of employee contribution
raises 401(k) saving by $400-$700 (in 1991 dollars). The
estimated elasticity of 401(k) saving to matching is also small
and ranges from 0.09-0.12 overall, with just under half of this
effect on the intensive margin. Overall, the analysis reveals
that matching is a rather poor policy instrument with which to
raise retirement saving.
______________________________
"Annuity Markets in Chile: Competition, Regulation - and Myopia?"
World Bank Policy Research Working Paper No. 3972
Contact: EDUARDO WALKER
School of Business Administration - Pontificia
Universidad Catolica de Chile
Email: EWALKER@PUC.CL
Auth-Page: http://ssrn.com/author=242976
Full Text: http://ssrn.com/abstract=923279
ABSTRACT: The author studies annuity rates in Chile and relates
them with industry competition. He finds (1) that annuity
insurance companies paying higher broker commissions paid lower
annuity rates; and (2) a structural break of the long-run
elasticity of annuity rates to the risk-free rate in 2001.
Moreover, this structural break coincided with the submission of
a new draft pension law proposing greater transparency in annuity
markets and a generalized drop in broker commissions. The high
commissions charged in the 1990s were partly returned to
annuitants as informal (and illegal) cash rebates. Myopic
pensioners preferred cash rebates over present values. Thus, the
legal threat caused the drop in broker commissions, reduced the
illegal practice of cash rebates, increased competition by way of
annuity rates, and raised the long-run elasticity to one.
______________________________
"On the Financial Sustainability of Earnings-Related Pension
Schemes with Pay-As-You-Go Financing and the Role of Government
Indexed Bonds"
World Bank Policy Research Working Paper No. 3966
Contact: DAVID A. ROBALINO
World Bank
Email: drobalino@worldbank.org
Auth-Page: http://ssrn.com/author=430652
Co-Author: ANDRAS BODOR
Georgetown University
Auth-Page: http://ssrn.com/author=651398
Full Text: http://ssrn.com/abstract=923273
ABSTRACT: In this paper the authors reconsider the idea of an
earnings-related pension system with reserves invested in indexed
government bonds as a mechanism to both ensure financial
sustainability and improve security. They start by reviewing the
characterization of the sustainable rate of return of an
earnings-related pension system with pay-as-you-go financing. The
authors show that current proxies for the sustainable rate,
including the Swedish gyroscope, are not stable and propose an
alternative measure that depends on the growth of the
buffer-stock and the pay-as-you-go asset. Using a simple
one-sector macroeconomic model that embeds a notional account
pension system they then show how GDP indexed government bonds,
if combined with the right measure for the sustainable rate of
return on contributions, could be used to generate a sustainable
and secure earnings-related pension system, without becoming a
fiscal burden. The proposal is particularly attractive for
countries considering reforms to earnings-related systems that
have accumulated a large implicit pension debt. In this case, the
government bonds allow the financing of this debt in a
transparent way. The proposed mechanism can also facilitate the
transition to a fully-funded pension system when the government
bonds are allowed to be traded.
______________________________
"The Perfect Storm of Retirement Security: Fixing the
Three-Legged Stool of Social Security, Pensions, and Personal
Savings"
Minnesota Law Review, Vol. 91
Contact: STEPHEN F. BEFORT
University of Minnesota Law School
Email: befor001@tc.umn.edu
Auth-Page: http://ssrn.com/author=220182
Full Text: http://ssrn.com/abstract=942031
ABSTRACT: This article provides a wide-angle view of the looming
crisis in retirement security. The impending confluence of a
burgeoning retiree cohort and a diminishing resource base
threatens to wreck havoc with the financial well-being of the
coming generation of retirees. This article first reviews the
current status of retirement security in the United States and
finds that all three legs of the retirement stool - Social
Security, pensions, and private savings - are projected to fall
short of contributing adequate resources for future retirees. The
article then turns toward a discussion of the possible responses
for averting this potential crisis. After exploring various
alternatives and reviewing the principal changes wrought by the
Pension Protection Act of 2006, the article sets out a three-step
reform plan that addresses each leg of the retirement stool.
First, the article suggests that the Social Security system could
be saved from insolvency through a mix of relatively small
payroll tax hikes and benefit reductions, including a slight rise
in the retirement age. Second, with defined contribution plans
becoming the new pension norm, changes in setting account default
options could encourage both greater plan participation and
improved plan security. Third, the article recommends the
adoption of a modest refundable tax credit designed to encourage
low and middle-income earners to build their own supplemental
next eggs.