"Liquidity Constraints, Household Wealth, and Self-Employment: The Case of Older Workers" 

RAND Working Paper Series WR- 725

JULIE M. ZISSIMOPOULOS, The RAND Corporation
Email: ziss@rand.org
LYNN A. KAROLY, RAND Corporation - Santa Monica CA Offices
Email: karoly@rand.org
QIAN GU, RAND Corporation
Email: qiangu@rand.org
RAND WORKING PAPER SERIES, RAND Corporation
Email: bwong@rand.org

Evidence of liquidity constraints affecting entrepreneurship includes increasing rates of business formation with increases in household wealth and no relationship between the likelihood of business formation and wealth at high wealth levels. Using longitudinal data from the Health and Retirement Study on workers over age 50 and employing probit regressions with a non-linear specification of household wealth and liquid wealth, the authors find the relationship between wealth and business formation is consistent with this pattern. The paper also finds that wealth matters more for the formation of businesses requiring high starting capital. Employing the availability of a lump-sum distribution option (LSO) of an employer-provided pension plan as a new proxy for liquidity, the results show that workers with an LSO are more likely than workers with a pension and without an LSO to transition into self-employment. This provides further evidence of the existence and importance of liquidity constraints.

"The Research Contributions of the Center for Retirement Research at Boston College" 

Social Security Bulletin, Vol. 69, No. 4, pp. 35-49, 2009

STEPHEN SASS, affiliation not provided to SSRN
Email: StephenSass@bc.edu

This article reviews the research contributions of the Center for Retirement Research at Boston College over its 10-year history and their implications for Social Security and retirement income policy in three major areas: (1) Social Security's long-term financing shortfall, (2) the adequacy of retirement incomes, and (3) labor force participation at older ages as a means to improve retirement income security. The center has received substantial funding support from the Social Security Administration (SSA) in each area and has also successfully leveraged SSA's investment by attracting funding from other sources.

"The Impact of Response Error on Participation Rates and Contributions to Defined Contribution Pension Plans" 

Social Security Bulletin, Vol. 70, No. 1, pp. 45-60, 2010

HOWARD IAMS, U.S. Social Security Administration
Email: Howard.m.iams@ssa.gov
IRENA DUSHI, Social Security Administration
Email: irenad1@gmail.com

The accuracy of information about coverage and contributions to defined contribution (DC) pension plans is important in understanding the economic well-being of future retirees because these plans are an increasingly important part of retirement income security. Using data from the 1996 and 2004 panels of the Survey of Income and Program Participation (SIPP) merged with information from W-2 tax records, we examine the extent to which estimated participation rates and contribution amounts to DC plans derived from SIPP reports differ from estimates obtained from tax-deferred contributions in the W-2 tax records. Findings indicate that the participation rate in DC plans is about 11 percentage-points higher when using W-2 tax records rather than survey reports. The analysis of possible sources of reporting error regarding plan participation indicates that an error is more likely to occur when missing data are imputed by the Census Bureau than in actual reports by respondents.

"The Next Generation of Preemption Cases: State Regulation of 401(K) Plans" 

Hofstra Labor and Emploment Law Journal, Vol. 26, No. 355, 2009

DEBRA A. DAVIS, John Marshall Law School
Email: debra_davis@cox.net

It is not uncommon for state legislatures and the federal government to enact laws that involve similar issues. However, the Employee Retirement Income Security Act of 1974, as amended (ERISA) provides that state laws are preempted to the extent they relate to employee benefit plans. Since its enactment in 1974, most of the state laws that have been preempted focused on health matters. However, this is likely to change.

With many of their constituents lacking adequate retirement benefits as well as the increased attention being placed on 401(k) plans, states are likely to start attempting to legislate in the area of retirement plans. In fact, some states have already begun to propose legislation in this area. States that want to help bolster their constituents’ ability to save for retirement will enact bills designed to address the amount of workers covered by 401(k) plans, the fees charged to these types of plans, and the adequacy of the benefits received by workers who participate in 401(k) plans.

However, a uniform system is necessary for plans to operate efficiently and effectively. Interested persons and organizations should not be required to spend their time and resources interacting with the multitude of states in addition to the federal government. Furthermore, workers should be able to take comfort that the same rules apply regardless of where they are located and that they can freely transfer between their employer’s locations without having to worry that their retirement benefits will change. As a result, ERISA’s preemption provisions should be interpreted broadly to provide a uniform set of rules for retirement plans that does not differ based on where the employer and its workers are located.

This Article argues that the federal government is optimally suited to address coverage, cost, and benefit adequacy issues related to 401(k) plans.

"Labor Force Participation Rates: The Population Age 55 and Older, 2008" 

EBRI Notes, Vol. 31, No. 2, February 2010

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

This paper examines recent U.S. Census Bureau data on labor-force participation among Americans age 55 and older, which includes both the near elderly (ages 55-64) and the elderly (64 and above). The first section uses annualized data on labor-force participation from the Current Population Survey (available from the Bureau of Labor Statistics Web site). However, these data provide only an overall picture, not specific demographic details. In order to examine demographic trends of the U.S. population, the second section uses data from the March Current Population Survey (CPS). The percentage of civilian noninstitutionalized Americans age 55 or older who were in the labor force declined from 34.6 percent in 1975 to 29.4 percent in 1993. However, since 1993, the labor-force participation rate has steadily increased, reaching 39.4 percent in 2008 -- the highest level over the 1975-2008 period. For those ages 55-64 (the near elderly), this is being driven almost exclusively by the increase of women in the work force; the male participation rate is flat to declining. However, among those age 65 and older (the elderly), labor-force participation is increasing for both males and females. Education is a strong factor in an individual’s participation in the labor force at older ages: Individuals with higher levels of education are significantly more likely to be in the labor force than those with lower levels of education. This upward trend among the working near elderly and elderly is not surprising and is likely to continue because of workers’ need for access to employment-based health insurance and for more earning years to accumulate assets in defined contribution (401(k)-type) plans -- especially after the 2008 downturn in the stock market and economy. Many Americans also want to work longer, especially among those with more education.

The PDF for the above title, published in the February 2010 issue of EBRI Notes, also contains the full text of another February 2010 EBRI Notes article abstracted on SSRN: “Choice of Health Plan: Findings from the 2009 EBRI/MGA Consumer Engagement in Health Care Survey.”

"Roth IRA Conversions in 2010: Issues and Opportunities" 

CPA Journal, January 2010
Fordham Graduate School of Business Research Paper

ROBIN LOVELL KNOWLES, University of Connecticut - Department of Accounting
Email: robin.knowles@business.uconn.edu
STANLEY VELIOTIS, Fordham University - Accounting Area
Email: veliotis@fordham.edu

In 2010, a restriction limiting the ability of many taxpayers to convert traditional Individual Retirement Accounts (IRA) to a Roth IRA will be lifted. Also, as tax rates are expected to increase after 2010, many taxpayers may find 2010 an ideal time to convert their traditional IRA to a Roth IRA. This article summarizes the taxation of investing in various vehicles, as well as the current restriction on IRA conversions and the changes taking place in 2010. It then examines the advantages and disadvantages of converting a traditional IRA to a Roth IRA and suggests preferred investments to be held in each type of account, in light of the dramatically different tax treatments provided to traditional and Roth IRAs, as well as currently taxable accounts.