Friday, February 18, 2011

New Social Security papers from the Social Science Research Network

"Health and Retirement Effects in a Collective Consumption Model of Elderly Households" 

Boston College Center for Retirement Research Working Paper No. 2011-4

ARTHUR LEWBEL, Boston College - Department of Economics
SHANNON SEITZ, Boston College

Using data on older individuals and couples, we estimate a collective model of household consumption of a variety of goods, showing how resources are shared between husbands and wives, and how this allocation is affected by retirement and health status. We identify the extent to which shared consumption of goods by older married couples reduces the costs of living together relative to living alone. We also identify the fraction of household resources consumed by wives versus husbands, taking the jointness of some consumption into account. The results are relevant for household bargaining models and for a variety of welfare calculations.

Among other results, we find that older couples save between 24 and 40 percent on expenditures by sharing consumption of goods, that older wives consume between 30 and 42 percent of total household expenditures (taking sharing of goods into account), and that these shares are little affected by retirement, but increase dramatically when the husband's health is poorer.

"Social Security and Retirement Around the World: Historical Trends in Mortality and Health, Employment, and Disability Insurance Participation and Reforms - Introduction and Summary" NBER Working Paper No. w16719

KEVIN MILLIGAN, University of British Columbia - Department of Economics, National Bureau of Economic Research (NBER)
DAVID A. WISE, National Bureau of Economic Research (NBER), Harvard University - Harvard Kennedy School (HKS)

This is the introduction and summary to the fifth phase of an ongoing project on Social Security Programs and Retirement Around the World. The first phase described the retirement incentives inherent in plan provisions and documented the strong relationship across countries between social security incentives to retire and the proportion of older persons out of the labor force. The second phase documented the large effects that changing plan provisions would have on the labor force participation of older workers. The third phase demonstrated the consequent fiscal implications that extending labor force participation would have on net program cost-reducing government social security benefit payments and increasing government tax revenues. The fourth phase presented analyses of the relationship between the labor force participation of older persons and the labor force participation of younger persons in twelve countries. We found no evidence that increasing the employment of older persons will reduce the employment opportunities of youth and no evidence that increasing the employment of older persons will increase the unemployment of youth. This phase is intended to set the stage for and inform future more formal analysis of disability insurance programs, with this key question: Given health status, to what extent are the differences in LFP across countries determined by the provisions of disability insurance programs? Here we first consider changes in mortality over time and in particular the relationship between mortality and labor force participation, thinking of mortality as one indicator of health that is comparable across countries and over time in the same country. We then consider how mortality is related to other indicators of health status, in particular self-assessed health and then how trends in DI participation are related to changes in health. Finally we consider the effect on disability insurance participation of a natural experiment in which the disability insurance reforms were not prompted by changes in health status or by changes in the employment circumstances of older workers. We find that these exogenous reforms can have a very large effect on the labor force participation of older workers.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at

"Performance Evaluation of Balanced Pension Plans" 

Quantitative Finance, Forthcoming

LAURA ANDREU, University of Zaragoza - Faculty of Business and Economics
LAURENTIUS (LAURENS) ADRIANUS PETRUS SWINKELS, Robeco Quantitative Strategies, Erasmus University Rotterdam (EUR)

This paper examines the ability of balanced pension plan managers to successfully time the equity and bond market and select the appropriate assets within these markets. In order to evaluate both market timing abilities in these balanced pension plans, we extend the traditional equity market timing models to also account for bond market timing. As far as we know, we are among the first to apply this multifactor timing model to investigate equity and bond market timing simultaneously. This performance evaluation has been conducted on two samples of Spanish balanced pension plans, one with Euro Zone and one with World investment focus. This allows us to decompose managers' skills in three components: selectivity, equity market timing, and bond market timing. Our findings suggest that the average stock picking ability of pension plans is positive. World schemes tend to have positive bond timing skills, while Euro Zone pension plans are on average not able to time equity or bond markets.

"Regulating Investment Advice for 401(k) Plan Participants: Is More Advice the Answer?" 

NYU Review of Employee Benefits and Executive Compensation, Chapter 5, 2010

KATHRYN L. MOORE, University of Kentucky College of Law

Today, most retirement plan participants are covered by a 401(k) plan that requires the plan participants to decide how to invest their plan assets. Yet plan participants are notoriously poor investors. Thus, there has been a trend toward providing plan participants first with investment education and now with investment advice. This Article discusses whether the provision of investment advice is likely to be successful. The Article begins by providing an overview of ERISA's fiduciary rules as they apply to investment advice. It then discusses the types of investment support that were permissible under ERISA prior to the Pension Protection Act of 2006 ("PPA"). It then discusses the PPA statutory prohibited transaction and the proposed regulation implementing that exemption. Finally, it discusses whether the provision of investment advice pursuant to the statutory exemption is likely to benefit plan participants.

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