WALLACE MOK, Chinese University of Hong Kong (CUHK)
ZAHRA SIDDIQUE, Institute for the Study of Labor (IZA)
Email: siddique@iza.org

This paper examines differences in two important components of non-wage compensation, employer provided health insurance and pensions, across African Americans and the whites in the United States. Using data from the Current Population Survey (CPS) and the National Longitudinal Survey of Youth (NLSY), we study the recent trends in the recipiency of this non-wage compensation across race groups. Our results show that African American men on average are significantly less likely to receive employer provided health insurance and pension than whites in the last decade. We also find that the inclusion of racial differences in ability as measured by the Armed Forces Qualification Test (AFQT) score reduces the unexplained racial gap in fringe benefit offers, highlighting the importance of human capital variables in fringe benefit recipiency. Finally, we re-examine racial inequality in the labor market by examining within-group inequality in compensation over the last decade and also the role of ability in between-group inequality in compensation.

PAUL J. M. KLUMPES, Imperial College London - Tanaka Business School
Email: p.klumpes@imperial.ac.uk
MARK WHITTINGTON, University of Aberdeen
Email: mark.whittington@abdn.ac.uk
YONG LI, University of Stirling - Department of Accounting and Finance
Email: yong.li@stir.ac.uk

During the last ten years of regulatory change, many UK companies have curtailed their defined benefit pension scheme. We test three competing explanations of UK corporate pension curtailments: integration, separation and risk management. We predict and find an association between the use of managerial discretion over changes in UK firms' expected rate of return on pension assets (ERR) assumptions, and subsequent decisions to curtail future defined benefit pension obligations. These findings are consistent with a risk management-based explanation, even after controlling for other factors identified by prior literature as significant in explaining pension benefit reductions. We also find that curtailments and the risk management of ERR assumptions are associated with subsequent corporate restructuring decisions. The findings support the view that pension curtailment decisions are driven by the failure to adapt to new economic and regulatory pressures and that they are ultimately determined by strategic corporate risk management considerations.

HANS J. BLOMMESTEIN, Tilburg University - Center and Faculty of Economics and Business Administration, Organization for Economic Co-Operation and Development (OECD)
Email: Hans.Blommestein@oecd.org
PASCAL JANSSEN, PGGM Investments
Email: Pascal.Janssen@pggm.nl
NIELS KORTLEVE, affiliation not provided to SSRN
Email: Niels.Kortleve@pggm.nl
JUAN YERMO, Organization for Economic Co-Operation and Development (OECD)
Email: juan.yermo@oecd.org

This article analyzes the tradeoffs between uncertainties in contributions and benefits embedded in different pension arrangements. The two key criteria for evaluating the risk-sharing characteristics of a private pension plan from the perspective of the plan member are the funding ratio (ratio of assets to liabilities) and the replacement rate (ratio of benefits to salaries). The stochastic simulations performed (considering financial risks only) show that hybrid plans (those in between traditional defined benefit and individual defined contribution) can offer efficient and sustainable forms of risk-sharing. The appeal of different hybrid plans depends very much on the regulatory, social, and economic environment. In situations where funding excesses can be efficiently and fairly apportioned, conditional indexation plans appear to have the greatest potential as sustainable forms of risk-sharing. However, the appropriate design of hybrid plans requires careful consideration of the relative pension plan risks that can be borne by working and retired individuals.

TIM JONES, Personal Accounts Delivery Authority
Email: tim.jones2@dwp.gsi.gov.uk

British pension reform comprises three related strands of activity. The first centers on ensuring access to a State Pension that is fairer, more generous, and more widely available, tackling the historical inequalities in entitlement, especially for women. The second addresses a lack of demand for private pensions by placing a duty on employers to automatically enroll all eligible workers in a workplace pension and to contribute to that pension. The third addresses a perceived supply-side failure by setting up a new low-charge, simple pension scheme for those currently without access to a good quality workplace pension scheme - in particular, low-to middleincome earners. This article provides the historical context of these initiatives, and describes the strategies being employed to implement them.

TERESA GHILARDUCCI, University of Notre Dame - Department of Economics
Email: TERESA.GHILARDUCCI.1@ND.EDU

Policy makers in the United States reacted swiftly to the recession by restructuring the nation’s collapsing financial institutions, yet they ignored the failing pension system. President Obama is now proposing pension reforms that will likely exacerbate its current problems of asset volatility and inadequate income replacement. This article offers an alternative: Guaranteed Savings Accounts administered by the Social Security Administration. At the start, retirement savings accumulated in Defined Contribution plans could be swapped for Guaranteed Savings Accounts guaranteeing a minimum three percent real rate of return. Over time, Guaranteed Savings Accounts would grow through contributions from employers and employees. Tax expenditures related to current 401(k) pension contributions could be distributed more fairly. This would allow lower-income workers to build their Guaranteed Savings Accounts further through pension tax credits. Accumulating retirement savings would be co-mingled, and professionally managed at low-cost. On retirement, Guaranteed Savings Accounts would be converted into life annuities. Guaranteed Savings Accounts would eliminate four major problems besetting the current American Defined Contribution-based pension system: High asset volatility, high fees, and the hedging difficulties with longevity and inflation risks.

JOSHUA D. RAUH, Northwestern University - Department of Finance, National Bureau of Economic Research (NBER)
Email: joshua-rauh@kellogg.northwestern.edu
IRINA STEFANESCU, Indiana University, Bloomington - Finance
Email: stefanei@indiana.edu

This article investigates why many publicly listed corporations in the United States reduced or terminated the availability of defined benefit plans during 1998-2007. Firms limited benefit accruals in a variety of ways, including standard and distress terminations, freezes, and conversions to cash balance plans. While the decision to change the pension plan is related to the financial health of the sponsor, total benefit costs do not immediately decline when pension plans are frozen, as contributions to defined contribution plans increase almost immediately. However, we find that ‘freeze firms’ experience significant reductions in their projected benefit obligations of their defined benefit plans. This implies that most of the cost savings are generated from avoiding defined benefit plan accruals relating to future salary increases for current plan participants.

CRAIG COPELAND, Employee Benefit Research Institute (EBRI)
Email: COPELAND@EBRI.ORG

This paper closely examines the level of participation by workers in public- and private-sector employment-based pension or retirement plans, based on the U.S. Census Bureau’s March 2009 Current Population Survey (CPS), the most recent data currently available. About 56 percent of all working-age (21-64) wage and salary employees work for an employer or union that sponsors a retirement plan. Among full-time, full-year wage and salary workers ages 21-64 (those with the strongest connection to the work force), just under 63 percent worked for an employer or union that sponsors a plan, and just under 55 percent participated in a retirement plan. The paper begins with an overview of retirement plan types and participation in these types of plans. Next, it describes the data used in this study, along with their relative strengths and weaknesses. From these data, results on participation in employment-based retirement plans are analyzed for 2008 across various worker characteristics and those of their employers. The paper then explores retirement plan participation across U.S. geographic regions, including a state-by-state comparison and a comparison of certain consolidated statistical areas (CSAs). In addition to the results for 2008, trends from 1987-2008 in employment-based retirement plan participation are presented across many of the same worker and employer characteristics as used for 2008. Furthermore, an accounting of the number of workers who work for an employer that does not sponsor a plan and of workers who do not participate in a plan is provided by various demographic and employer characteristics. The paper concludes with a discussion of this study’s findings.

ALAN L. GUSTMAN, Dartmouth College - Department of Economics, National Bureau of Economic Research (NBER)
Email: Alan.L.Gustman@dartmouth.edu
THOMAS L. STEINMEIER, Texas Tech University - Department of Economics and Geography
Email: thomas.steinmeier@ttu.edu
NAHID TABATABAI, Dartmouth College - Department of Economics
Email: nahid.tabatabai@dartmouth.edu

This paper investigates the effect of the current recession on the near-retirement age population. Data from the Health and Retirement Study suggest that those approaching retirement age (early boomers ages 53 to 58 in 2006) have only 15.2 percent of their wealth in stocks, held directly or in defined contribution plans or IRAs. Their vulnerability to a stock market decline is limited by the high value of their Social Security wealth, which represents over a quarter of the total household wealth of the early boomers. In addition, their defined contribution plans remain immature, so their defined benefit plans represent sixty five percent of their pension wealth. Simulations with a structural retirement model suggest the stock market decline will lead the early boomers to postpone their retirement by only 1.5 months on average. Health and Retirement Study data also show that those approaching retirement are not likely to be greatly or immediately affected by the decline in housing prices. We end with a discussion of important difficulties facing those who would use labor market policies to increase the employment of older workers.