New papers from the Social Science Research Network

SOCIAL SECURITY, PENSIONS & RETIREMENT INCOME eJOURNAL

"Target-Date Fund Use in 401(k) Plans and the Persistence of Their Use, 2007-2009"

EBRI Issue Brief, No. 361, August 2011

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

This paper examines the use of target-date funds (TDFs) by a consistent group of 401(k) participants in plans that offered them in 2007 through 2009. The consistent group of participants were those who were in a plan that offered a TDF in 2007, were in plans that were still offering TDFs in 2008 and 2009, and were still in the data source in 2008 and 2009. This study uses the unique richness of the data in the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project, which for each year from 2007-2009 had more than 20 million 401(k) plan participants from more than 50,000 plans across a spectrum of plan administrators. In this database in 2007, 67.3 percent of the plans offered target-date funds as an investment option. This study follows those 401(k) participants identified as being in plans that offered target-date funds in 2007 and remained in the database, if they continued to be in a plan offering target-date funds in 2008 and 2009. In 2007, of those participants in this database, 38.9 percent had at least some of their account balance in TDFs. By 2008, 42.6 percent had at least some of their account balance in TDFs, reaching 43.2 percent in 2009. Furthermore, 36.6 percent of this consistent group of 401(k) plan participants had some of their account balance allocated to TDFs in 2007 and 2008. Just over 35 percent of these participants had at least some assets allocated to TDFs in 2007, 2008, and 2009. Among participants who were identified as auto-enrollees in 2007, 97.2 percent were still using TDFs in 2008, and 95.7 percent used them in 2008 and 2009. While those not identified as auto-enrollees continued to invest in TDFs at a lower rate than those identified as auto-enrollees, there was a very high overall persistence rate in TDF use from 2007-2009: just over 90 percent. Of the consistent group of participants using TDFs in 2007, 36.9 percent had all of their account allocated to TDFs. The remaining 63.1 percent of those using a TDF had less than 100 percent of their allocation in TDFs. In 2009, slightly more participants (67.2 percent) had less than 100 percent of their allocation in TDFs. Among only those participants who had all of their account allocated to TDFs, a very high rate (83.0 percent) stayed at a 100 percent TDF allocation in 2009. Almost 13 percent of those who had a total allocation to TDFs in 2007 had an allocation lower than 100 percent (but not a zero) allocation in 2009. Only 4 percent of participants with a 100 percent TDF allocation in 2007 had stopped using them by 2009.

"The Impact of Repealing PPACA on Savings Needed for Health Expenses for Persons Eligible for Medicare"

EBRI Notes, Vol. 32, No. 8, August 2011

PAUL FRONSTIN, Employee Benefit Research Institute (EBRI)
Email: fronstin@gmail.com
DALLAS L. SALISBURY, Employee Benefit Research Institute (EBRI)
Email: SALISBURY@EBRI.ORG
JACK VANDERHEI, Employee Benefit Research Institute (EBRI)
Email: vanderhei@ebri.org

In 2003, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) added outpatient prescription drugs as an optional benefit. When the program was originally enacted, it included a controversial feature: a coverage gap, more commonly known as the "donut hole." The Patient Protection and Affordable Care Act of 2010 (PPACA) included provisions to reduce this coverage gap. This paper examines the impact that repealing PPACA would have on savings targets for health care expenses in retirement. The estimates suggest that retirees with high levels of prescription drug use throughout retirement would see their savings targets increase roughly 30-40 percent were the coverage gap reduction in PPACA repealed. Individuals at the median (midpoint) level of prescription drug use throughout retirement would not see any change in savings targets. This analysis uses a Monte Carlo simulation model to estimate the amount of savings needed to cover health insurance premiums and out-of-pocket health care expenses in retirement. Estimates are presented for persons who supplement Medicare with a combination of individual health insurance through Plan F Medigap coverage and Medicare Part D for outpatient prescription drug coverage. For each source of supplemental coverage, the model simulated 100,000 observations allowing for uncertainty related to individual mortality and rates of return on assets in retirement, and it computed the present value of the savings needed to cover health insurance premiums and out-of-pocket expenses in retirement at age 65. These observations were used to determine asset targets for having adequate savings to cover retiree health costs 50 percent, 75 percent, and 90 percent of the time. Estimates are also jointly presented for a stylized couple both of whom are assumed to retire simultaneously at age 65.

The PDF for the above title, published in the August 2011 issue of EBRI Notes, also contains the fulltext of another August 2011 EBRI Notes article abstracted on SSRN: "The Importance of Defined Benefit Plans for Retirement Income Adequacy."

"Challenges of Formal Social Security Systems in Sudan"

Global Journal of Human Social Science, Vol. 11, No. 2, March 2011

ISSAM A.W. MOHAMED, Al-Neelain University - Department of Economics
Email: issamawmohamed@hotmail.com

The present paper discusses issues of challenges of social security systems in Sudan. Following parameters advanced by ILO and UNCOSOC, those systems are analyzed. The conclusions focus on their applicability that faces axial difficulties mainly presented in the state of institutional interregnum facing the country. Moreover, it is important to revisit aspects of social cohesion that serves greater role in traditional social security in the Sudan.

"Pension Reform and Income Inequality Among the Elderly in 15 European Countries"

OLAF VAN VLIET, Leiden Law School - Department of Economics, Leiden University
Email: o.p.van.vliet@law.leidenuniv.nl
JIM BEEN, Leiden University - Department of Economics
Email: j.been@law.leidenuniv.nl
KOEN CAMINADA, Leiden Law School - Department of Economics
Email: C.L.J.CAMINADA@LAW.LEIDENUNIV.NL
KEES GOUDSWAARD, Leiden Law School - Department of Economics
Email: K.P.GOUDSWAARD@LAW.LEIDENUNIV.NL

The aging of populations and hampering economic growth increase pressure on public finances in many advanced capitalist societies. Consequently, governments have adopted pension reforms in order to relieve pressure on public finances. These reforms have contributed to a relative shift from public to private pension schemes. Since private social security plans are generally less redistributive than public social security, it can be hypothesized that the privatization of pension plans has led to higher levels of income inequality among the elderly. Existing empirical literature has mainly focused on cross-country comparisons at one moment in time or on time-series for a single country. This study contributes to the income inequality and pension literature by empirically analysing the distributional effects of shifts from public to private pension provision in 15 European countries for the period 1995-2007, using pooled time series cross-section regression analyses. Remarkably, we do not find empirical evidence that shifts from public to private pension provision lead to higher levels of income inequality or poverty among elderly people. The results appear to be robust for a wide range of econometric specifications.