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

To establish existing savings behavior, it is necessary to estimate the percentage of workers with an employment-based retirement plan, and to know the characteristics of workers with and without a plan - the subject of this paper. The findings show that there has been a significant increase in the percentage of family heads with a defined contribution plan (typically a 401(k)-type plan). In 2007, 18.1 percent of family heads who participated in an employment-based retirement plan had a defined benefit plan only. Approximately 63.5 percent had a defined contribution plan only, while the remaining 18.5 percent had both a defined benefit and a defined contribution plan. This was a significant change from 1992, when 42.3 percent had a defined benefit plan only and 40.8 percent had a defined contribution plan only. However, virtually all of the change occurred prior to 1998, except for a significant decline in defined benefit only coverage that occurred from 2004-2007. Consequently, the manner in which participants allocate their defined contribution balances among asset categories will have a significant impact on the funds available for these participants in retirement. The EBRI-ERF Retirement Security Projection Model (RSPM) allows for estimation of the additional savings that current workers would need - beyond savings that would be generated assuming existing saving behavior within tax-qualified plans - in order to maintain the same standard of living throughout retirement. To estimate future retirement income security, this paper discusses the types of results that are incorporated in RSPM related to participation in employment-based retirement plans, and the asset allocation in defined contribution plans and IRAs. In addition, the paper updates previous EBRI research on these topics with results from the 2007 Survey of Consumer Finances. The SCF is a triennial interview survey of U.S. families sponsored by the Board of Governors of the Federal Reserve System in cooperation with the U.S. Department of the Treasury, which measures the financial characteristics and status of U.S. families.

The PDF for the above title, published in the November 2009 issue of EBRI Notes, also contains the fulltext of another November 2009 EBRI Notes article abstracted on SSRN: “Availability, Contributions, Account Balances, and Rollovers in Account-Based Health Plans, 2006-2009.”

PAUL M. SECUNDA, Marquette University - Law School
Email: paul.secunda@marquette.edu

Amici curiae law professors filed this brief to urge the U.S. Supreme Court to affirm the decision of the Second Circuit Court of Appeals and not to import inappropriate administrative law deference principles into ERISA denial of benefit claims under Section 502(a)(1)(B).

The brief argues that the Court should reject Petitioners' effort to engage in serial attempts to reinterpret its pension plan and also reject Petitioners' attempt to introduce administrative law deference into the ERISA benefit claims process. Such an approach would be inconsistent with the language and intent of ERISA and Supreme Court precedent.

ANNE ALSTOTT, Harvard University - Harvard Law School
Email: aalstott@law.harvard.edu

Since 1975, the earned income tax credit (EITC) has transformed from a small, obscure provision of the federal tax code into one of the largest programs in the U.S. social welfare system. Today, the EITC provides $47 billion in benefits each year to 24 million workers and their families. Bill Clinton famously called the EITC “a cornerstone of our effort to reform the welfare system and make work pay.”

But a closer look calls into question the claim that the EITC makes work pay. U.S. law entrenches family poverty in the United States, making it impossible for the EITC - or any other modest earnings subsidy - to make meaningful reductions in poverty, even among workers. According to realistic measures of social inclusion and economic well-being, the EITC reduces poverty only modestly, and even the maximum credit falls short of closing the gap between low-wage earnings and poverty. At the same time, gaps in other social welfare programs leave low-income workers vulnerable to the job disruptions that characterize low-wage work - when the EITC provides no assistance at all.

This symposium paper highlights - and challenges - two assumptions that underlie conventional praise for the EITC. First, analysts often adopt the official poverty line as the metric for success in “making work pay,” despite its inadequacy as a measure of economic distress and social exclusion. Adopting a more realistic version of the poverty line reveals how little the EITC accomplishes - or, put another way, how ambitious a program would have to be to make work pay. Second, discussions of the EITC typically focus on the situation of workers while they hold jobs, ignoring the frequent spells of job disruption due to unemployment, disability, and family needs that are common among low-wage workers. This limited perspective may be appropriate for technocratic discussions of EITC program design, because the EITC, like any wage or earnings subsidy, is designed only to assist the employed. It is, thus, a shortcoming of wage subsidies in general, and not the EITC in particular, that gaps in the social safety net leave low-income workers vulnerable to involuntary work disruption. But the contours of complementary programs should inform claims about the success of the EITC in “making work pay” - that is, in assuring a decent standard of living to those willing to work, even if (like many low-income workers) they do not succeed in working full-time, year-round.

IRENA DUSHI, Social Security Administration
Email: irenad1@gmail.com
MARJORIE HONIG, Hunter College, City University of New York - Department of Economics
Email: Marjorie.Honig@hunter.cuny.edu

We use information from Social Security earnings records to examine the accuracy of survey responses regarding participation in tax-deferred pension plans. As employer-provided defined benefit pensions are replaced by voluntary contribution plans, employees’ understanding of the link between their annual contribution decisions and their post-retirement wealth is becoming increasingly important. We examine the extent to which wage-earners in the Health and Retirement Study correctly report their inclusion in tax-deferred contribution plans and, conditional on inclusion, their annual contributions. We use two samples representing different cohorts in two different periods: the original HRS cohort interviewed in 1992 at ages 51-61, and a combination of the War Babies and Early Baby Boomer cohorts at the same ages interviewed twelve years later. Our findings indicate that while respondents interviewed in 2004 were more likely to report correctly whether they were included in DC plans, they were no more accurate in reporting whether they contributed to their plans than respondents interviewed in 1992. Respondents in both cohorts, moreover, overestimated their annual contributions. In both 1992 and in 2004, the mean absolute difference between respondent-reported and Social Security earnings record contributions was 1.5 times larger than the mean earnings record contribution.

ROY P. M. M. HOEVENAARS, APG Asset Management
Email: roy.hoevenaars@apg-am.nl
THEO P. KOCKEN, Cardano Risk Management
Email: tkocken@cardano-riskmanagement.nl
EDUARD PONDS, APG (All Pensions Group), Tilburg University - Department of Economics, Netspar
Email: eduard.ponds@apg.nl

New accounting rules and increased scarcity of risk capital have led to growing pressure on corporations to shift pension plan risk from employers to participants. This implies a shift from Defined Benefit (DB) plans to a variety of collective and individual Defined Contributions (DC) plans. Most of these shifts have been ad-hoc and not based on clear and objective criteria. This article shows how negotiations could be clarified by using modern option pricing and financing techniques. Both the value of the guarantees regarding accrued pension rights, as well as future rights to be accrued, can be objectively determined. For example, the authors show that a shift from a typical DB to a collective DC plan should cost the employer a lump sum payment of twelve percent of the accrued pension obligations and an increase in the contribution rate at four percent of pay.

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

Our findings suggest that although the consequences of the decline in the stock market are serious for those approaching their retirement, the average person approaching retirement age is not likely to suffer a life changing financial loss from the stock market downturn of 2008-2009. Similarly, the likely effects of the stock market downturn on retirements have been greatly exaggerated. If there is any postponement of retirement due to stock market losses, on average it will be a matter of a few months rather than years. Counting layoffs, retirements may be accelerated rather than reduced. We provide background information that corrects misperceptions about pension holdings of the retirement age population. Pension coverage is much more extensive than is usually recognized. Over three quarters of the households with a person ages 51 to 56 in 2004 are currently covered by a pension, or have enjoyed pension coverage in the past. Pension wealth accounts for 23 percent of the total wealth of those on the cusp of retirement. For those nearing retirement age, defined contribution plans remain immature. As a result, almost two thirds of pension wealth held by those 51 to 56 in 2004 is in the form of a defined benefit plan. Lastly, women approaching retirement age are more likely to be covered by a pension than are women from earlier cohorts and they account for a significantly larger share of household pension wealth.

KATHRYN L. MOORE, University of Kentucky College of Law
Email: kmoore@pop.uky.edu

Arguably, 401(k) plan fees are the biggest policy issue in the retirement world today. They potentially raise questions about the fundamental business underpinnings of the principal form of retirement savings for the last twenty years. As an indication of their significance, three branches of the federal government: administrative, judicial, and legislative; are currently and simultaneously addressing 401(k) plan fees.

This Article discusses recent governmental activity regarding 401(k) plan fees. It begins by discussing three recent DOL initiatives governing the disclosure of plan fees: (1) the revision of Form 5500, and particularly Schedule C; (2) the proposed section 408(b)(2) regulations; and (3) the proposed section 404(a)/404(c) regulations. The Article then turns to the 401(k) plan fee litigation. Specifically, it discusses two leading decisions, Haddock v. Nationwide Financial Services and Hecker v. Deere, which represent opposite ends of the spectrum of judicial resolution of 401(k) plan fee disputes. Finally, the Article discusses recent legislative proposals to mandate greater disclosure of 401(k) plan fees.

JOANNE YOONG, RAND Corporation
Email: jyoong@rand.org
ANGELA HUNG, RAND Corporation - Labor and Population
Email: ahung@rand.org

Recent legislative and regulatory activity related to investment advice in 401(k) plans has focused on the issue of self-dealing. In this paper, the authors develop a framework that addresses questions of self-dealing based on the direct-marketing model introduced by Inderst and Ottaviani (2009). They specifically adapt the model to the setting of 401(k) plan advice, extend the theoretical framework to consider the implications of financial literacy and discuss various key aspects of existing and proposed 401(k) advice legislation in the context of the model's predictions.

PAULA A. MONOPOLI, University of Maryland School of Law
Email: pmonopoli@law.umaryland.edu

Congress is considering pension reform in the wake of the tremendous loss in market value of retirement plans during the current recession. This article suggests that this is a historic moment to remedy a previously unidentified, unintended but profound gender disparity embedded in the federal law governing retirement plans in this country. It explores the common perception that while contemporary law and policy aim to facilitate equality within marriage, including in the area of property ownership, embracing equitable distribution in reallocating property upon divorce, the Employment Retirement Income Security Act’s (ERISA) structuring of retirement asset accumulation runs counter to this trend and in fact incentivizes the concentration of wealth in the hands of husbands rather than wives within intact marriages. It suggests that in order to remedy this inconsistency and facilitate equality within intact marriages, Congress should amend ERISA to confer an immediate ownership interest in one-half of the assets in each spouse as they are earned and contributed by one spouse, akin to a community property theory of ownership. Each half should then be allocated to a separate account, one in each spouses’s name. While this second step may be somewhat inconsistent with the view of marriage as a partnership, it minimizes the risk that one spouse will dominate investment decisions with regard to the assets. In the alternative, ERISA should at least provide that each spouse’s defined contribution plan be held in a joint account as a default rule. A less fundamental but equally important additional reform would be to allow married couples to equalize ownership by transferring unlimited amounts between their accounts without triggering income taxation and the 10% early withdrawal penalty. This would be akin to the existing unlimited marital deduction as applied to transfers under the current federal gift tax. The article concludes that, with these amendments, Congress could align federal pension law with the overall movement toward gender equality in marital property law.