Monday, October 5, 2015

Upcoming event: Savings & Retirement Foundation

TUESDAY, OCTOBER 13: Join us on  for a luncheon discussion of the Department of Labor's Update to Fiduciary Rules with Charles Gabril, Kent Mason, and Ike Brannon. Please RSVP through the link below if you plan to attend.

Join us on Tuesday, October 13th at Noon
for a special event on Capitol Hill
A Panel Discussion on The U.S. Department of Labor's Updated Fiduciary Rules
Confirmed Panelists
Charles Gabriel
Capital Alpha
Kent Mason
Davis & Harman
Ike Brannon 
President of Capital Policy Analytics
Tuesday October 13, 2015
Noon-1:00 p.m.

Dirksen Senate Office Building
Room G11

Lunch will be provided.
This is a widely attended event.







Charles Gabriel
President, Capital-Alpha

Kent Mason
Partner, Davis & Harman

Ike Brannon
President, Capital Policy Analytics

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CBO projects lower interest rates for Social Security Trust Fund bonds

The Congressional Budget Office has posted a presentation on their projections for long-term interest rates, which play an important part in Social Security trust fund and solvency measures (though no real part in annual payroll tax and benefit outlay measures). The presentation was made to the Social Security Trustees Working Group, which  meets throughout the year to consider issues as the Trustees work to construct the following year's annual report.

The punchline to this presentation can be found on page 10: the CBO projects that from 2015-2040, interest rates on trust fund bonds will average 4.5%, versus the 5.3% projected by Social Security's Trustees. From 2040 onward, CBO projects an average bond yield of 4.7%, versus 5.6% from the Trustees. This difference would explain part of why CBO projects a substantially larger long-term Social Security shortfall than do the Social Security Trustees, though other factors weigh larger in that outcome.

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New report: “The Windfall Elimination Provision: It's Time to Correct the Math”

The Windfall Elimination Provision: It's Time to Correct the Math

The Social Security Advisory Board is pleased to announce publication of The Windfall Elimination Provision: It’s Time to Correct the Math. The report recommends that Congress replace the Windfall Elimination Provision (WEP) for new retirees starting in 2017, when earnings data for workers not covered by Social Security will become available. These data will make it possible for SSA to calculate these workers’ benefits proportional to their contributions. The Board’s full report can be found here.

Highlights of the report include:

  • About one quarter of state and local government employees do not contribute to Social Security;
  • The WEP unevenly adjusts benefits for low earners vs. high earners;
  • The WEP is often confusing to those affected;
  • Using newly available earnings data for non-covered employment, SSA has the ability to calculate benefits proportional to contributions.

Replacing the WEP for future retirees would gradually phase out an unpopular and imprecise tool for calculating retirement benefits. The Board urges Congress to implement this fix.

Contact: Anita Kelly (202) 475-7700

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Brookings event October 7: “Are new directions needed in state pension policy?”

Join us on October 7 for a discussion of new directions for state-sponsored retirement savings plans.


Brookings Event Invitation

REMINDER: We hope you will join us Wednesday morning for a discussion of the role of states in boosting retirement plan coverage and retirement adequacy.  
Register to attend this event in person » Register for the live webcast »

Are new directions needed in state pension policy?

Wednesday, October 7, 2015, 9:45 AM — 12:00 PM
The Brookings Institution, Falk Auditorium, 1775 Massachusetts Ave, NW
Washington, DC  20036

RSVP to Attend


RSVP for the webcast


Recent developments have raised many issues about the role of the states in boosting retirement plan coverage and retirement adequacy.  State-run retirement systems are, in aggregate, well short of the funding they need to finance promised benefits.  Many workers are not covered in any retirement plan.
On October 7, the Retirement Security Project will host an event to discuss these and related issues.  Presenters will examine options for structuring state-sponsored retirement savings plans for small businesses and revisit the question of whether state and local government workers should be covered by Social Security.  Following each presentation, discussants will add their thoughts and all participants will take questions from the moderator and the audience.
Join the conversation on Twitter at #Retirement.

Opening remarks

William G. Gale, Co-Director, Urban-Brookings Tax Policy Center; Director, Retirement Security Project; Senior Fellow, Economic Studies, The Brookings Institution

Session one: Structuring state retirement saving plans -- A practical guide to policy issues

Presenter: David C. John, Deputy Director, Retirement Security Project, The Brookings Institution
Moderator: Joshua Gotbaum, Guest Scholar, Economic Studies, The Brookings Institution
Discussant: Daniel Biss, State Senator (D), Illinois 9th District
Discussant: Lisa Bleier, Managing Director, Public Policy and Advocacy, SIFMA

Session two: Social Security coverage for state and local government workers -- A reconsideration

Presenter: William G. Gale, Co-Director, Urban-Brookings Tax Policy Center; Director, Retirement Security Project; Senior Fellow, Economic Studies, The Brookings Institution
Moderator: Annamaria Lusardi, Denit Trust Chair of Economics and Accountancy and Academic Director, Global Financial Literacy Excellence Center (GFLEC), The George Washington University
Discussant: Jason Fichtner, Senior Research Fellow, Mercatus Center, The George Washington University 
Discussant: Teresa Ghilarducci, Professor, Bernard L. and Irene Schwartz Chair in Economic Policy Analysis and Director, Schwartz Center for Economic Policy Analysis (SCEPA), The New School

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Friday, October 2, 2015

New papers from the Social Science Research Network

"What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Account Balances, 2007-2013"
EBRI Issue Brief, Number 418 (September 2015)

JACK VANDERHEI, Employee Benefit Research Institute (EBRI)
SARAH HOLDEN, Investment Company Institute
LUIS ALONSO, Employee Benefit Research Institute (EBRI)
STEVEN BASS, Investment Company Institute

This paper analyzes changes in 401(k) account balances of consistent participants in the EBRI/ICI 401(k) database over the six-year period from year-end 2007 to year-end 2013. Two major insights emerge from looking at consistent participants in the EBRI/ICI 401(k) database over this six-year time period: The average 401(k) account balance fell 25.8 percent in 2008, and then rose from 2009 through year-end 2013. Overall, the average account balance increased at a compound annual average growth rate of 10.9 percent from 2007 to 2013, to $148,399 at year-end 2013. The median (midpoint) 401(k) account balance increased at a compound annual average growth rate of 15.8 percent over the period, to $75,359 at year-end 2013. At year-end 2013, the average account balance among consistent participants was more than twice the average account balance among all participants in the EBRI/ICI 401(k) database. The consistent group’s median balance was more than four times the median balance across all participants at year-end 2013. Three primary factors affect account balances: contributions, investment returns, and withdrawal/loan activity. The percentage change in average account balance of participants in their 20s was heavily influenced by the relative size of their contributions to their account balances and increased at a compound average growth rate of 46.6 percent per year between year-end 2007 and year-end 2013. The asset allocation of the 4.2 million 401(k) plan participants in the consistent group was broadly similar to the asset allocation of the 26.4 million participants in the entire year-end 2013 EBRI/ICI 401(k) database. On average at year-end 2013, about two-thirds of 401(k) participants’ assets were invested in equities, either through equity funds, the equity portion of target-date funds, the equity portion of non-target-date balanced funds, or company stock. Younger 401(k) participants tend to have higher concentrations in equities than older 401(k) participants. Equity holdings by consistent 401(k) participants increased slightly among younger participants and decreased slightly for older participants. High allocations to equities dropped for both groups from 2007 to 2013. More consistent 401(k) plan participants held target-date funds at year-end 2013 than at year-end 2007, on net; many of those with target-date funds held all of their 401(k) account in target-date funds.

"How Much Longer Do People Need to Work?"

ALICIA H. MUNNELL, Boston College - Center for Retirement Research
ANTHONY WEBB, Boston College - Center for Retirement Research
ANQI CHEN, Center for Retirement Research at Boston College

Working longer is a powerful lever to enhance retirement security. Individuals should be able to extend the number of years they work because, on average, they are healthier, live longer, and face less physically demanding jobs. But averages are misleading when discrepancies in health, job prospects, and life expectancy have widened between individuals with low and high socioeconomic status (SES). To understand the magnitude of the problem, this paper, using data from the Health and Retirement Study, specifies how much longer households in each SES quartile would need to work to maintain their pre-retirement standard of living and compares those optimal retirement ages with their planned retirement ages to calculate a retirement gap. It then uses regression analysis to explore whether the gap reflects poor circumstances or poor planning – that is, the extent to which the retirement gap results from health, employment, and marital shocks that occur before the HRS interview but too late for the household to adjust saving (between ages 50 and 58), as opposed to a gap resulting from inadequate foresight. The analysis shows that households in lower-SES quartiles have larger retirement gaps, and this pattern remains true even after controlling for late-career shocks. In short, the most vulnerable have the largest retirement gaps, and these gaps arise from poor planning rather than late-career shocks.

"Pension Management between Financial Market Development and Intergenerational Solidarity: A Socio-Economic Analysis and a Comprehensive Model"
EGPA 2015 Annual Conference, Toulouse, 26-28 August 2015

YURI BIONDI, French National Center for Scientific Research (CNRS)
MARION BOISSEAU, Université Paris Dauphine

In recent decades, management modes for pension obligations has been coevolving with political and financial economic strategies aimed to prompt and promote active financial markets and institutional investors, as well as transnational harmonisation and convergence of accounting standards between private and public sectors. In this context, our article provides a theoretical analysis of these management modes for pension obligations, drawing upon a comprehensive review of existing practice and regulation. The latter are still inconsistent with the actuarial representation that has been fostered by international institutions, including the World Bank, the European Commission and the International Public Sector Accounting Standards (IPSAS) Board. According to our frame of analysis, a variety of viable modes of pension management exists and may be acknowledged. Our article elaborates a model of pension management in view to clarify and improve on pension protection, that is, the assurance of continued provision of pension payments at their agreed levels under viable alternative modes of pension management. Drawing upon this model, we further develop policy recommendations for accounting and prudential regulations concerned with pension obligations.

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Monday, September 28, 2015

New paper from the NBER: “The Cost of Uncertainty about the Timing of Social Security Reform”

The Cost of Uncertainty about the Timing of Social Security Reform by Frank N. Caliendo, Aspen Gorry, Sita Slavov - #21585 (AG PE)


We develop a model to study optimal decision making in the face of uncertainty about the timing and structure of a future event. The model is used to study optimal decision making and welfare when individuals face uncertainty about when and how Social Security will be reformed. When individuals save optimally for retirement, the welfare cost of uncertainty about the timing and structure of reform is just a few basis points of total lifetime consumption. In contrast, the cost of reform uncertainty can be greater than 1% of total lifetime consumption for individuals who do not save.

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Friday, September 25, 2015

New paper: “How Has Shift to Defined Contribution Plans Affected Saving?”

The Center for Retirement Research at Boston College has released a new Issue in Brief:

“How Has Shift to Defined Contribution Plans Affected Saving?”

by Alicia H. Munnell, Jean-Pierre Aubry, and Caroline V. Crawford

The brief’s key findings are:

  • Many believe that people are saving less for retirement due to the shift from defined benefit (DB) to defined contribution (DC) plans.
  • The analysis uses National Income and Product Accounts data, with adjustments, to compare DB benefit accruals with DC contributions from 1984-2012.
  • The results show that the percentage of total salaries going to retirement saving has declined slightly during this period.
  • But if returns on asset accumulations are included, the annual change in pension wealth is relatively steady, so the shift to DC plans has not led to less total saving.
  • What has changed is that individuals, rather than plan sponsors, now bear all of the risk.

This brief is available here



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