What’s Driving Disability (and What to Do About It).

Harvard economist Edward Glaeser, writing for Bloomberg, discusses the research on the factors driving increased disability applications and the policies that might – and might not – help to keep the disabled on the job:

“The two primary alternative hypotheses for the rise are that either work has become less attractive or that disability insurance has become more attractive and available. The disability-claims approval process and the wider society itself have become more accepting of people receiving the benefits even if they have no visible ailment.”

“Duggan and Imberman argue that changes in the award formulas for recipients have made disability substantially more generous for poorer workers. For example, a male worker who is 30 to 39 and in the bottom 25th percentile of earnings distribution could expect disability insurance to pay 41 percent of his previous earnings in 1984 and 49 percent of his previous earnings in 2002.”

“The economists say the most important cause of the increasing number of recipients is the loosening of eligibility criteria. In 1984, Congress “shifted the criteria for DI eligibility from a list of specific impairments to a more general consideration of a person’s medical condition and ability to work.” As a result, the typical disability recipient today is far less likely to have an easily verifiable ailment.”

“As we reform the tax code, we must focus on providing stronger incentives to work, through the earned-income tax credit and reductions in the payroll tax for poorer Americans. The future of America depends on preventing a temporary economic crisis from becoming a permanent labor market catastrophe.”

Read more!

Jason Fichtner on the Chained CPI

My former SSA colleague Jason Fichtner, now of the Mercatus Center at George Mason University, wrote on the chained CPI for Marketwatch. And if you want to listen to Jason – along with Henry Aaron and Robert Kuttner – you can tune into NPR online.

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10 Reasons to Oppose the Chained CPI

Writing for the Huffington Post, Daniel Marans gives ten reasons  the chained CPI is “terrible policy.” I don’t buy all of them, but if you oppose the chained CPI and are looking for your talking points, this is the place to go.

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Pro and Con on the Chained CPI

USA Today’s editors argue for shifting to the chain-weighted CPI for Social Security, while Rep. Jerrold Nadler argues against.

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New blog: Policy Memos

Former Treasury Department economist David Bernstein has a new blog, Policy Memos, and his first post is on the use of the chained CPI for Social Security COLAs. He concludes:

“The decision by the Obama Administration to include a permanent change to the Social Security COLA as part of an annual budget exercise is a really large concession. The change in the COLA is sensible fiscal policy but it will increase poverty among elderly Americans and will not protect the Social Security system from demands for future cuts.”

But read the whole blog post to see why.

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Good summary of potential reforms in Washington Post

The Post's Wonkblog discusses a range of potential Social Security reform options, giving particular emphasis to the distributional side: who gets hit and by how much. The Post relies heavily on work from my former colleagues in SSA’s Office of Retirement Policy, Mark Sarney, Kevin Whitman and Dave Shoffner. A good summary by the Post of good research by SSA.

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New papers from the Social Science Research Network

SOCIAL SECURITY, PENSIONS & RETIREMENT INCOME eJOURNAL

"Employment-Based Retirement Plan Participation: Geographic Differences and Trends, 2011"
EBRI Issue Brief, No. 378 (November 2012)

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

This paper examines the level of participation by workers in public- and private-sector, employment-based pension or retirement plans, based on the U.S. Census Bureau’s March 2012 Current Population Survey (CPS), the most recent data currently available. It begins with an overview of retirement-plan types and participation in these types of plans and describes the data used in this study, along with their relative strengths and weaknesses. From these data, results on participation in employment-based retirement plans are analyzed for 2011 across various worker and employer characteristics. The report then explores retirement plan participation across U.S. geographic regions, including comparisons by state and by certain consolidated statistical areas (CSAs). In addition to the results for 2011, trends from 1987-2011 in employment-based retirement plan participation are presented across many of the same worker and employer characteristics as used for 2011. Furthermore, an accounting of the number of workers who work for an employer that does not sponsor a plan and of workers who do not participate in a plan is provided by various demographic and employer characteristics.
In 2011, 39.7 percent of all workers, or 61.0 million Americans, participated in an employment-based retirement plan. Among full-time, full-year wage and salary workers ages 21 to 64 -- those with the strongest connection to the work force -- 53.7 percent participated. This percentage of participating workers varied significantly across various worker and employer characteristics. Being nonwhite, younger, female, never married; having lower educational attainment, lower earnings, poorer health status, no health insurance through one’s own employer; not working full time, full year, and working in service occupations or farming, fisheries, and forestry occupations were all associated with lower levels of participation in a retirement plan. In addition, those working for smaller firms, private-sector firms, or firms in the “other” (not professional) services industry were also less likely to participate. Another factor in the likelihood of workers’ participation in a retirement plan was their geographic location, with workers in the South and West less likely to participate than those in other regions of the country. The increase in the number of workers participating in 2011 halted the three-year decline from 2008-2010, leaving the percentage of workers participating in a retirement plan essentially unchanged from 2010, while some of the categories examined had increases in the probability of workers participating and others showed decreases. Many of the categories of workers remained near their 2009 levels of participation. The downturns in the economy and stock market in 2008 and into 2009 showed a two-year decline in both the number and percentage of workers participating in an employment-based retirement plan. The 2010 and 2011 levels stabilized as the economy was more stable but not experiencing strong growth. As things stand now, the current economic environment is likely to result in 2012 participation numbers that are essentially unchanged or decreasing, though many other underlying factors will continue to affect the future direction of this trend.

"All or Nothing? An Expanded Perspective on Retirement Readiness"
EBRI Notes, Vol. 33, No. 11 (November 2012)

JACK VANDERHEI, Employee Benefit Research Institute (EBRI)
Email: vanderhei@ebri.org

Past analysis using EBRI’s proprietary Retirement Security Projection Model® (RSPM) has found that roughly 44 percent of Baby Boomer and Gen X households are projected to be at-risk of running short of money in retirement, assuming they retire at age 65 and retain any net housing equity in retirement until other financial resources are depleted. However, that includes a wide range of personal circumstances, from individuals projected to run short by as little as a dollar to those projected to fall short by tens of thousands of dollars. This paper takes a closer look at where different types of people are likely to fall within the range of retirement income adequacy. Looking specifically at Gen X households (those born between 1965-1978, currently ages 34-47), EBRI’s RSPM analysis finds that (1) nearly one-half (49.1 percent) will have substantially more (at least 20 percent more) than the income threshold deemed adequate to afford basic retirement expenses and uninsured health care costs; (2) approximately one-third (31.4 percent) will be close to the threshold for retirement adequacy (between 80-120 percent) of the financial resources necessary to cover basic retirement expenses and uninsured health care costs; (3) about 1 in 5 (19.4 percent) are projected to be substantially below (less than 80 percent) of what is needed. EBRI also finds that a worker’s future years of eligibility in a defined contribution retirement plan makes a huge difference in his or her likelihood of having enough money to cover basic retirement expenses and uninsured health care costs. Among Gen Xer single females simulated to have no future years of defined-contribution-plan eligibility, nearly two-fifths (39 percent) are in the most vulnerable (less than 80 percent) category, although this shrinks to only 8 percent for those with 20 or more years of future eligibility in a defined contribution plan.
The PDF for the above title, published in the November 2012 issue of EBRI Notes, also contains the fulltext of another November 2012 EBRI Notes article abstracted on SSRN: “Self-Insured Health Plans: State Variation and Recent Trends by Firm Size.”

"The Case for Reforming the Program's Spouse Benefits While 'Saving Social Security'"
Cornell Legal Studies Research Paper No. 12-67

PETER W. MARTIN, Cornell Law School
Email: peter-martin@lawschool.cornell.edu

The Social Security Act currently provides secondary benefits to the wives or widows of covered workers who retire, become disabled, or die. To qualify, a woman must have been married to the worker for a short period and must be old (sixty-two, dropping to sixty in the case of a widow, fifty in the case of a disabled widow) or caring for children under sixteen. If a wife’s or widow’s primary retired-worker or disability benefits equal or exceed her secondary benefit entitlement, she receives only the primary benefits. However, if her secondary benefit amount is greater she receives both her primary benefit and enough of the secondary benefit to bring the total up to its level.
Men can also qualify for benefits based solely on their status as husband or widower of a worker; but spouse benefits go overwhelmingly to women.
No additional payroll tax is levied on the employee-spouse to cover spouse benefits nor do they constitute a shift in the payout pattern between spouses of a set amount of benefits. These are quite simply additional payments based on marriage.
Appended to Social Security in 1939 and dramatically liberalized since, spouse benefits represent a discrete and increasingly problematic feature of the program. At a time when analysts and politicians of nearly all persuasions agree that the long-term fiscal health of Social Security calls for legislative revision, one might expect serious proposals for spouse benefit reform, but so far that has not occurred. No doubt, that is because any prospective reduction in spouse benefits that promised to contribute to Social Security’s long-term fiscal balance would, standing alone, quite properly be perceived as having a negative impact on women. Costly, outdated, and inequitable, these marriage-based benefits may be, but unless supplanted by some less arbitrary way to connect Social Security to families and alternative measures to assure adequate retirement income for women they cannot be got rid of. On the other hand, any package of Social Security reforms that fails to rethink and revise the spouse-benefit provisions will miss a rare opportunity to improve the fairness and adequacy of the program’s benefits for women and run the risk of disadvantaging them as a group.
The article traces the history of the provisions governing entitlement to and the amount of spouse benefits, exploring why a program addition that seemed so attractive in the program’s early years has become a source of disturbing arbitrariness and inequity and how a measure specifically designed to improve retirement income for women has become less and less effective. The deficiencies of the present system are illuminated through comparison with alternative methods of connecting a family’s covered earnings with later benefits modeled on state marital property regimes and the law’s treatment of other forms of spousal retirement income. The article concludes with a survey of the challenges, administrative and political, that would confront any serious effort to pursue so dramatic a reform.

"Automatic Enrollment, Employee Compensation, and Retirement Security"
Center for Retirement Research at Boston College Working Paper No. 2012-25

BARBARA A. BUTRICA, Urban Institute
Email: bbutrica@ui.urban.org
NADIA KARAMCHEVA, Boston College - Department of Finance and Department of Economics
Email: karamche@bc.edu

This study uses restricted microdata from the National Compensation Survey to examine the impact of auto enrollment on employee compensation. By boosting plan participation, automatic enrollment likely increases employer costs when previously unenrolled workers receive matching retirement plan contributions. Our data show significant negative correlation between employer match rates and automatic enrollment provision. We find no evidence that total costs differ between firms with and without automatic enrollment, and no evidence that defined contribution costs crowd out other forms of compensation, suggesting that firms might be lowering their potential and/or default match rates enough to completely offset the higher costs of automatic enrollment without needing to reduce other compensation costs.

"Changing Sources of Income Among the Aged Population"
Center for Retirement Research at Boston College Working Paper No. 2012-27

BARRY BOSWORTH, Brookings Institution - Economic Studies Program
Email: bbosworth@brookings.edu
KATHLEEN BURKE, Brookings Institution
Email: Kathleen.BURKE@cec.eu.int

This paper focuses on an explanation for the large shift over the past two decades in the composition of the income of the aged (65 ), increasing the role of earned income and reducing the importance of income from their own assets. We find that the pattern of change is consistently reported in all of the major household surveys. The increase in the importance of labor income can be attributed to delayed exit from the labor force by workers at older ages. We attribute the increase in work time to a rise in the proportion of more educated workers who choose to continue working, changes within the pension system that previously encouraged early retirement, and a decline in the availability of retiree health insurance. The increase in work time is concentrated among the highest income groups and those with the most education, suggesting that it is largely voluntary. The fall in asset income can be traced to lower interest rates and a reduced propensity for the aged to convert their wealth to annuities. It does not reflect reduced wealth at older ages. A measure of the annuity equivalent of their wealth holdings suggests that there has been no decline for aged units. We also find only a weak relationship between changes in asset income and the decision to remain in the workforce.

"An Insurer's Accountability for Variable Pension Annuity"
The IUP Journal of Applied Economics, Vol. XI, No. 4, pp. 60-71, October 2012

MAHITO OKURA, Nagasaki University
Email: okura@nagasaki-u.ac.jp

The purpose of this research is to investigate the insurer’s accountability effort associated with the sale of variable pension annuities. For the purpose of the study, a very simple model is built and two propositions are derived. The success probability of the investment exceeding a certain value is the necessary condition for selling the variable pension annuities. An increase in this success probability always increases the level of equilibrium pension premium, but not necessarily the level of equilibrium accountability effort.

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Entin: "Leave the CPI and COLAs Out of the Budget Talks

Stephen Entin, writing for the Tax Foundation, argues that switching to the chain-weighted CPI isn’t a good fix either for Social Security or the tax code. Excessive COLAs, Entin argues (correctly) aren’t the cause of Social Security’s funding shortfalls. Moreover, Entin points out, lowering inflation-adjustment of the income tax brackets generates “bracket creep,” where a greater share of worker’s incomes fall into higher tax brackets. This would increase taxes over time without any adjustments by Congress.

I made a similar argument here.

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Kaus: Why Social Security is Different From Medicare

Mickey Kaus gives an interesting discussion of why most Democrats oppose cutting entitlement benefits for the rich – solidarity – but argues that Social Security, where you merely cash a check, differs from Medicare, where individuals are actually participating in a health care system themselves.

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New paper from the NCPA: “Lifetime Income, Longevity and Social Security Progressivity”

From the NCPA’s daily policy email:

December 11, 2012

Should we raise the age of eligibility for Social Security and Medicare? Life expectancy has increased seven years since 1970. So, should the eligibility age be raised seven years as well? One problem. Over the past 20 years, life expectancy at age 65 has risen five years for men with above average income but only one year for men with below average income. In a new study, NCPA Senior Fellow and former Social Security and Medicare Trustee Thomas Saving and NCPA Senior Fellow Andrew Rettenmaier explain how we can skirt this problem: raise the age of eligibility for Social Security and at the same time make the benefit formula more progressive. For Medicare, you could make the premium payments more progressive.

The authors find:

• Once longevity differences are accounted for, Social Security's progressivity is lessened, relative to estimates based on average longevity estimates by birth year.
• However, even for the most recent group of new retirees analyzed, the program remains progressive.
• Further, the study finds that within birth years, the program redistributes from high to low earning workers, even after accounting for income-related differences in longevity.

Combining an increase in the retirement age for all workers with an adjustment to the benefit formula would result in a program that could be financed in the long run at the current tax rate and would retain the program's relative lifetime progressivity.

Progressive price indexing is a reform by which low-income workers' past earnings continue to be indexed by average wages whereas high income workers earnings would be indexed by price level changes. Progressive price indexing would further address concerns about the growth in total benefit payments while retaining and perhaps enhancing the system's progressivity.

Source: Liqun Liu, Andrew J. Rettenmaier, and Thomas R. Saving, "Lifetime Income, Longevity and Social Security Progressivity," National Center for Policy Analysis, December 2012.

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PolitiFact on Social Security and the Budget Deficit

Check it out here.

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New pension papers from the IMF

Working Paper No. 12/283: A Tradeoff between the Output and Current Account Effects of Pension Reform Author/Editor: Catalan, Mario ; Magud, Nicolas

Summary: We compare the long-term output and current account effects of pension reforms that increase the retirement age with those of reforms that cut pension benefits, conditional on reforms achieving similar fiscal targets. We show the presence of a policy trade-off. Pension reforms that increase the retirement age have a large positive effect on output, but a small (and often negative) effect on the current account. In contrast, reforms that cut pension benefits improve the current account balance but reduce output. Mixed pension reforms, which extend the working life and cut pension benefits, can simultaneously boost output and the current account.
http://www.imf.org/external/pubs/cat/longres.aspx?sk=40133.0

Working Paper No. 12/285: Pension Reforms in Japan Author/Editor: Kashiwase, Kenichiro ; Nozaki, Masahiro ; Tokuoka, Kiichi

Summary: This paper analyzes various reform options for Japan’s public pension in light of large fiscal consolidation needs of the country. The most attractive option is to increase the pension eligibility age in line with high and rising life expectancy. This would have a positive effect on long-run economic growth and would be relatively fair in sharing the burden of fiscal adjustment between younger and older generations. Other attractive options include better targeting by “clawing back” a small portion of pension benefits from wealthy retirees, reducing preferential tax treatment of pension benefit incomes, and collecting contributions from dependent spouses of employees, who are currently eligible for pension benefits even though they make no contributions. These options, if implemented concurrently, could reduce the government annual subsidy and the government deficit by up to 1¼ percent of GDP by 2020.
http://www.imf.org/external/pubs/cat/longres.aspx?sk=40141.0

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New SSI study from the National Academy of Social Insurance

The National Academy of Social Insurance has released a new brief on SSI by Shawn Fremstad and Rebecca Vallas. The brief examines the importance of SSI for families of children with disabilities.

About 8 to 9 percent of children in the United States have a relatively serious disability. Families caring for these children are more likely to experience various economic hardships than other families with children, even when their incomes are the same. Recent research finds that costs associated with raising a disabled child, including lost parental income, average at least $6,150 a year. Costs at the high end, which are more likely to reflect the subset of disabled children who are most impaired, are around $20,000 a year.

Supplemental Security Income (SSI)—run by the Social Security Administration, but separate from the Social Security program—offsets some of these costs and helps parents provide the basics that children with disabilities need to thrive and become successful adults. In 2012, the maximum monthly SSI supplement was $698 and the average amount received by child beneficiaries was $619. About 1.3 million low-income children with disabilities—fewer than 1 in 4 children with disabilities—received SSI in August 2012. This relatively low number is mostly due to SSI’s means-test and strict disability standard. Recent research finds that SSI increases family economic security, reduces reliance on food stamps and other means-tested assistance, and does not reduce parental employment. Download a full PDF of the brief here.

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New papers from the Social Science Research Network

SOCIAL SECURITY, PENSIONS & RETIREMENT INCOME eJOURNAL

"Portability of Pension, Health, and Other Social Benefits: Facts, Concepts, and Issues"
CESifo Working Paper Series No. 4002

ROBERT HOLZMANN, University of Malaya, Institute for the Study of Labor (IZA), CESifo (Center for Economic Studies and Ifo Institute for Economic Research), World Bank
Email: robert.holzmann@um.edu.my
JOHANNES KOETTL, World Bank - Human Development Sector, Institute for the Study of Labor (IZA)
Email: johannes.koettl@gmx.at

Portability of social benefits across professions and countries is an increasing concern for individuals and policy makers. Lacking or incomplete transfers of acquired social rights are feared to negatively impact individual labor market decisions as well as capacity to address social risks with consequences for economic and social outcomes. The paper gives a fresh and provocative look on the international perspective of the topic that has so far been dominated by social policy lawyers working within the framework of bilateral agreements; the input by economists has been very limited. It offers an analytical framework for portability analysis that suggests separating the risk pooling, (implicit or actual) pre-funding, and redistributive elements in the benefit design, and explores the proposed alternative approach for pensions and health care benefits. This promising approach may serve both as a substitute and complement to bi- and multilateral agreements.

"An Overview of American Indians and Alaska Natives in the Context of Social Security and Supplemental Security Income"
Social Security Bulletin 72(4): 1-10, 2012

NOLAN SMITH-KAPROSY, affiliation not provided to SSRN
Email: nolan.smith.kaprosy@gmail.com
PATRICIA P. MARTIN, Government of the United States of America - Social Security Administration
Email: Patricia.P.Martin@ssa.gov
KEVIN WHITMAN, U.S. Social Security Administration
Email: Kevin.Whitman@ssa.gov

This article examines the economic security of the American Indian and Alaska Native (AIAN) population by exploring AIAN receipt of Social Security benefits and Supplemental Security Income (SSI). This analysis uses data from the 2005–2009 American Community Survey Public Use Microdata Sample, which provides a larger AIAN sample size than many other sources, thereby enabling more reliable estimates. We find that adult AIANs are less likely to receive Social Security benefits and more likely to receive SSI than are adults in the total population. In both programs, median benefit amounts are lower for AIAN recipients than for recipients in the total population.

"Holding Out or Opting Out? Deciding between Retirement and Disability Applications in Recessions"
Center for Retirement Research at Boston College, CRR WP 2012-26

MATTHEW S. RUTLEDGE, Boston College
Email: rutledma@umich.edu

Workers over age 55 with chronic health conditions must choose between applying for Social Security Disability Insurance (SSDI) benefits or continuing to work until their Social Security retirement benefits become available. Previous research has investigated the influence of macroeconomic conditions on disability application and, separately, on retirement claiming. This project uses data from the Survey of Income and Program Participation Gold Standard File to determine whether there is a relationship between national and state unemployment rates and disability applications, taking into account the current or future receipt of Social Security retirement benefits. First, reduced-form estimates indicate that retirement beneficiaries are more likely to apply for SSDI as unemployment increases – and, conversely, eligible individuals who have not yet claimed benefits are less likely to apply when unemployment rises. But after accounting for unobserved characteristics associated with both the decision to apply for disability insurance and Social Security benefits, individuals are no more likely to apply for disability benefits when unemployment is high. Second, we find that the probability of SSDI application among individuals age 55-61 is unrelated to macroeconomic conditions and unrelated to proximity to one’s 62nd birthday. These results suggest that, unlike prime-age adults, the decision among older individuals to apply for disability is based primarily on health, and not financial incentives.

"Mismeasurement of Pensions Before and after Retirement: The Mystery of the Disappearing Pensions with Implications for the Importance of Social Security as a Source of Retirement Support"
NBER Working Paper No. w18542

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

A review of the literature suggests that when pension values are measured by the wealth equivalent of promised DB pension benefits and DC balances for those approaching retirement, pensions account for more support in retirement than is suggested when their contribution is measured by incomes received directly from pension plans by those who have already retired. Estimates from the Health and Retirement Study (HRS) for respondents in their early fifties suggest that pension wealth is about 86 percent as valuable as Social Security wealth. In data from the Current Population Survey (CPS), for members of the same cohort, measured when they are 65 to 69, pension incomes are about 56 percent as valuable as incomes from Social Security. Our empirical analysis uses data from the Health and Retirement Study to examine the reasons for these differences in the contributions of pensions as measured in income and wealth data.
A number of factors cause the contribution of pensions to be understated in retirement income data, especially data from the CPS. One factor is a difference in methodology between surveys affecting what is included in pension income, especially in the CPS, which ignores irregular payments from pensions. In CPS data on incomes of those ages 64 to 69 in 2006, pension values are 59 percent of the value of Social Security. For the same cohort, in HRS data, the pension value is 67 percent of the value of Social Security benefits.

Some pension wealth “disappears” at retirement because respondents change their pension into other forms that are not counted as pension income in surveys of income. Altogether, 16 percent of pension wealth is transformed into some other form at the time of disposition. For those who had a defined benefit pension just before termination, the dominant plan type for current retirees, at termination 12 percent of the benefit was transformed into a state that would not count as pension income after retirement.
For those who receive benefits soon after termination, there is a 3.5 percent reduction in DB pension value at termination compared to the year before termination. One reason may be the form of annuitization that is chosen.
A series of caveats notwithstanding, the bottom line is that CPS data on pension incomes received in retirement understates the full contribution pensions make to supporting retirees.
Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

"Corporate Governance and Pension Fund Performance"
Contemporary Economics, Vol. 6, No. 1, pp. 14-44, 2012

OSKAR KOWALEWSKI, Kozminski University, Warsaw School of Economics - World Economy Research Institute
Email: okowale@kozminski.edu.pl

This study provides new evidence on the impact of governance on the performance of privately defined contribution pension plans. Using a hand collected data set on governance factors, the study shows that the external and internal governance mechanisms in pension plans are weak. One explanation for this weakness is the potential conflict between the pension beneficiaries and the fund’s owner, which depends on who bears the investment risk in the pension plan. Hence, different governance factors are found to be important for pension fund return on invested assets and also for its economic performance. Consequently, the overall policy conclusion is that more focus should be put on the governance of the pension funds, taking into account the different interests of the beneficiaries and owners as it may determine their performance.

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New paper: “What Makes Annuitization More Appealing?”

The National Bureau of Economic Research released “What Makes Annuitization More Appealing?” by John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian, and Stephen P. Zeldes. 

Abstract:

Abstract: We conduct and analyze two large surveys of hypothetical annuitization choices. We find that allowing individuals to annuitize a fraction of their wealth increases annuitization relative to a situation where annuitization is an "all or nothing" decision.

Very few respondents choose declining real payout streams over flat or increasing real payout streams of equivalent expected present value. Highlighting the effects of inflation increases demand for cost of living adjustments. Frames that focus on flexibility, control, and investment risk significantly reduce annuitization. A majority of respondents prefer to receive an extra "bonus" payment during one month of the year that is funded by slightly lower payments in the remaining months. Concerns about later-life income, spending flexibility, and counterparty risk are the most important self-reported motives that influence the annuitization decision, whereas the desire to leave a bequest has little influence on this decision.

http://papers.nber.org/papers/W18575?utm_campaign=ntw&utm_medium=email&utm_source=ntw

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Barone: American men find careers in collecting disability

AEI’s Michael Barone writes on rising disaiblity rolls for the Washington Examiner. Check it out here.

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Samuelson: Put Social Security on the Table

Washington Post columnist Robert Samuelson says that Social Security reform should be included as part of larger budget talks. He argues that three main objections to doing so don’t hold much water:

“One argument is that most elderly are poor; benefit cuts will further impoverish them. Not so. The Administration on Aging reports that in 2010, 25.9 percent of households headed by someone 65 or older had incomes exceeding $75,000; 19.4 percent had incomes from $50,000 to $74,999; and 18.8 percent had incomes from $35,000 to $49,999.”

“Another argument is that recipients "earned" benefits through their payroll taxes, which (many believe) were saved. But they weren't saved; they paid the benefits of earlier retirees. Even had they been saved and earned interest, they typically wouldn't cover lifetime Social Security and Medicare benefits, estimate the Urban Institute's Eugene Steuerle and Caleb Quakenbush. A couple with average wages retiring in 2010 would receive $966,000 in benefits against taxes of $722,000.”

“Finally, it's often said that Social Security -- no one makes this argument for Medicare -- doesn't add to the budget deficit because benefits are still covered by payroll taxes. Again, not true. In 2010, benefits exceeded taxes and are expected to do so indefinitely. The Congressional Budget Office estimates the gap to average 10 percent over the next decade and to be 20 percent by 2030. This bloats deficits.”

Click here to read the whole article.

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Another Social Security commission?

Sen. Dick Durbin (D-IL) says yes. Read all about it at the Washington Post…

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“Repeat after Me: Social Security Adds To The Deficit”

So argues Veronique de Rugy over at National Review Online.

I explored this issue recently for Real Clear Markets. Check out that piece here.

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Killing Social Security With a Smile?

So says liberal columnist Froma Harrop. I don’t agree with her, but she puts her points well.

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New paper from the Social Science Research Network: “Will Delayed Retirement by the Baby Boomers Lead to Higher Unemployment Among Younger Workers?”

"Will Delayed Retirement by the Baby Boomers Lead to Higher Unemployment Among Younger Workers?"
Boston College Center for Retirement Research Working Paper No. 2012-22

ALICIA H. MUNNELL, Boston College - Center for Retirement Research
Email: MUNNELL@BC.EDU
APRIL YANYUAN WU, Boston College - Center for Retirement Research
Email: wuuv@bc.edu

Using 1977-2011 data from the Current Population Survey, this paper investigates the often-repeated claim that delayed retirement by baby boomers will result in higher unemployment among the young, a claim which has been garnering increased attention from the media during the Great Recession. It explores both time-series and cross-state variation, and uses state-level regressions and instrumental-variable models to determine the extent to which such “crowding out” exists in the United States. The estimates show no evidence that increasing the employment of older persons reduces the job opportunities or wage rates of younger persons.

Indeed, the evidence suggests that greater employment of older persons leads to better outcomes for the young in the form of reduced unemployment, increased employment, and a higher wage. The patterns are consistent for both men and women and for groups with different levels of education. Estimates using elderly male mortality rates as instrumental variables also produce no consistent evidence that changes in the employment rates of older workers adversely affect the employment and wage rate of their younger counterparts. If anything, the opposite is true. Finally, despite the fact that the labor market downturn that accompanied the Great Recession was the most severe experienced in the post-war era, the effects of elderly employment on other segments of the labor market do not differ from those during typical business cycles.

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New paper: “Mismeasurement of Pensions Before and After Retirement: The Mystery of the Disappearing Pensions with Implications for the Importance of Social Security as a Source of Retirement Support”

The National Bureau of Economic Research has released a new article, titled “Mismeasurement of Pensions Before and After Retirement: The Mystery of the Disappearing Pensions with Implications for the Importance of Social Security as a Source of Retirement Support,” by Alan L. Gustman, Thomas L. Steinmeier, and Nahid Tabatabai.

Abstract:

A review of the literature suggests that when pension values are measured by the wealth equivalent of promised DB pension benefits and DC balances for those approaching retirement, pensions account for more support in retirement than is suggested when their contribution is measured by incomes received directly from pension plans by those who have already retired. Estimates from the Health and Retirement Study (HRS) for respondents in their early fifties suggest that pension wealth is about 86 percent as valuable as Social Security wealth. In data from the Current Population Survey (CPS), for members of the same cohort, measured when they are 65 to 69, pension incomes are about 56 percent as valuable as incomes from Social Security. Our empirical analysis uses data from the Health and Retirement Study to examine the reasons for these differences in the contributions of pensions as measured in income and wealth data.

A number of factors cause the contribution of pensions to be understated in retirement income data, especially data from the CPS.

One factor is a difference in methodology between surveys affecting what is included in pension income, especially in the CPS, which ignores irregular payments from pensions. In CPS data on incomes of those ages 64 to 69 in 2006, pension values are 59 percent of the value of Social Security. For the same cohort, in HRS data, the pension value is 67 percent of the value of Social Security benefits.

Some pension wealth "disappears" at retirement because respondents change their pension into other forms that are not counted as pension income in surveys of income. Altogether, 16 percent of pension wealth is transformed into some other form at the time of disposition. For those who had a defined benefit pension just before termination, the dominant plan type for current retirees, at termination 12 percent of the benefit was transformed into a state that would not count as pension income after retirement.

For those who receive benefits soon after termination, there is a 3.5 percent reduction in DB pension value at termination compared to the year before termination. One reason may be the form of annuitization that is chosen.

A series of caveats notwithstanding, the bottom line is that CPS data on pension incomes received in retirement understates the full contribution pensions make to supporting retirees.

Read more!

New paper: “Understanding Social Security Benefit Adequacy: Myths And Realities Of Social Security Replacement Rates” Charles Blahous

The Mercatus Center at George Mason University has released “Understanding Social Security Benefit Adequacy: Myths And Realities Of Social Security Replacement Rates,” by Chuck Blahous, one of Social Security’s public trustees. Here’s the abstract:

“Discussions of Social Security benefit adequacy are often framed in terms of the replacement rate, defined as the ratio of one’s retirement benefits to pre-retirement income. Three aspects of Social Security replacement rates are often misunderstood. First, the rising tax costs of maintaining constant replacement rates cause
pre-retirement standards of living to decline relative to post-retirement standards of living. Second, Social Security’s actual replacement rates are substantially higher than many understand because they are not reported as defined by most financial planners. Third, the Social Security benefit formula causes replacement rates to rise over time for a given level of real wages. Removing these quirks that arise under the current benefit formula could both reduce projected cost growth and strengthen system finances, while still honoring the replacement rate concept.”

And for anyone interested, here’s Glenn Springstead and my take on replacement rates from a few years back. The main takeaway is that Social Security’s benefit adequacy depends a lot upon how you measure it, and SSA’s definition of replacement rates (as Chuck notes above) differs from the conventional one.

Read more!

Social Security: Off the Table or On?

The Washington Times reports that Sen. Majority Leader Harry Reid has declared Social Security reform to be “off the table” in terms of a budget deal to address the looming “fiscal cliff”:

“Mr. Reid said Democrats have already made changes to Medicare as part of President Obama's health law, and said Social Security is solvent for the time being and shouldn't be tapped to pay for other government needs.”

"’Social Security is not part of the problem, That's one of the myths the Republicans have tried to create,’ he said. "Social Security is sound for the next many years. But we want to make sure that in the outer years people are protected also, but it's not going to be part of the budget talks, as far as I'm concerned.’"

On the other hand, the Washington Post weighed in with an editorial arguing that Social Security should be included in budget talks:

“Social Security’s retirement age is already headed to 67, which is one reason that program is no longer a major cause of government insolvency. Still, it can and should be rendered more sustainable. The disability component’s explosive recent growth, at a time when the nation’s general health is stable, suggests that reform would not harm those who truly need help.”

I don’t know whether a rush-job reform of Social Security is what’s needed to avert the fiscal cliff, which is more of a short-term issue. But any broader budget talks should put everything on the table, including Social Security.

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Are Social Security payroll taxes regressive?

That’s the claim made by Paul Krugman, among others.

But it’s not true when you count the benefits they generate, argue Kip Hagopian and Lee Ohanian in the Wall Street Journal. While taxes are a flat rate capped at earnings of around $110,000, benefits are paid on a progressive basis.

“Given the design of Social Security, the only way the program could be regressive is if the mortality rate differences between the group of higher-income and lower-income workers were so large that higher-income people received greater lifetime benefits for each dollar contributed. But this is not the case, according to a 2009 study by the Social Security Administration's Office of Retirement and Disability Policy. Rather, the study concludes that ‘Social Security is modestly progressive on a lifetime basis; currently, the program lies approximately halfway between paying a benefit directly proportional to lifetime taxable earnings and paying a flat dollar benefit to each retiree.’"

For anyone interested, the SSA study was written by me, Mark Sarney and Chris Tamborini during the time I was at the agency. Both Mark and Chris continue their good work at Social Security.

Read more!

New paper: “Growth in Health Consumption and Its Implications for Financing OASDI: An International Perspective”

Via the Social Science Research Network:

"Growth in Health Consumption and Its Implications for Financing OASDI: An International Perspective"
Boston College Center for Retirement Research Working Paper No. 2012-21

BARRY BOSWORTH, Brookings Institution - Economic Studies Program
Email: bbosworth@brookings.edu
GARY BURTLESS, Brookings Institution, Boston College - Retirement Research Center
Email: GBURTLESS@BROOK.EDU

The rising cost of U.S. health care has reduced the share of compensation that is taxable by Social Security. Between 1960 and 2010, non-taxable employer premiums for worker health plans increased from 1 percent of employee compensation to 7 percent. We use international data to examine the determinants of trends in health care spending and the reasons that the U.S. experience has differed from that of other high-income countries. In 2010, the share of U.S. gross domestic product devoted to health care was 7.2 percentage points higher than the share in other rich countries. We document the growth of this gap in the past five decades. Much of it developed between 1980 and the mid-1990s, though we also find another episode of outsized growth in the early 2000s. We identify six countries, including most of Scandinavia, which have seen a slowdown in health spending growth. These were also countries that had higher-than expected health spending, given their average incomes, in the 1960s and 1970s. The slowdown in health expenditure growth may simply reflect a reversion of their spending toward the OECD mean. We find no mean reversion in U.S. health spending growth. Our review of other literature suggests that the current excess in U.S. health costs is mainly traceable to higher prices for health care goods and services. Compared with other OECD countries, the United States has been slow to develop institutions or global budget constraints that restrain the pace of growth in health costs.

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New paper: “Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age”

From the American Economic Journal: Economic Policy:

Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age

Luc Behaghel and David M. Blau

We use a US Social Security reform as a quasi-experiment to provide evidence on framing effects in retirement behavior. The reform increased the full retirement age (FRA) from 65 to 66 in two-month increments per year of birth. We find strong evidence that the spike in the benefit claiming hazard at 65 moved in lockstep along with the FRA. Results on self-reported retirement and exit from employment go in the same direction. The responsiveness to the new FRA is stronger for people with higher cognitive skills. We interpret the findings as evidence of reference dependence with loss aversion. (JEL D91, H55, J14, J26)

Full-Text Access | Supplementary Materials

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Why is Obama not making a bigger deal of Social Security?

Social Security has largely been absent from the campaign, and President Obama even went so far as to say that he and Gov. Romney have very similar positions on how to fix the program. (I actually don’t agree that they do, but the point is that Obama said it.)

The question is why? The conspiratorial mind of Dean Baker has an answer:

“But there is another set of economic considerations affecting the politics of social security. These considerations involve the economics of the political campaigns and the candidates running for office. The story here is a simple one: while social security may enjoy overwhelming support across the political spectrum, it does not poll nearly as well among the wealthy people – who finance political campaigns and own major news outlets. The predominant philosophy among this group is that a dollar in a workers' pocket is a dollar that could be in a rich person's pocket – and these people see social security putting lots of dollars in the pockets of people who are not rich.”

Could this be true? Sure. But given that the rest of Obama’s campaign has consisted largely of bashing the rich for failing to pay their fair share, I personally doubt it.

Read more!

More short hours at SSA offices?

U.S. News & World Report reports that SSA may further reduce hours in its field offices in response to budget cuts.

“Beginning November 19, 2012, we will close Social Security field offices to the public 30 minutes early each day," [an SSA spokesman] wrote. "For example, a field office that is usually open to the public Monday through Friday from 9:00 am to 3:30 pm will close daily at 3:00 pm; and beginning January 2, 2013, we will close Social Security field offices to the public at 12:00 pm on Wednesdays." Staffers will not lose normal hours, but will be much less likely to require overtime to finish helping members of the public who arrive at the offices late in the day.”

In addition, SSA will once again suspend mailings  of the annual Social Security Statement, although the Statement will continue to be available online.

Read more!

New paper: “When Does It Pay to Delay Social Security?”

The National Bureau of Economic Research has released a new paper by John Shoven of Stanford and my AEI colleague Sita Slavov titled “When Does It Pay to Delay Social Security? The Impact of Mortality, Interest Rates, and Program Rules.”

Here’s the summary:

“Social Security benefits may be commenced at any time between ages 62 and 70. As individuals who claim later can, on average, expect to receive benefits for a shorter period, an actuarial adjustment is made to the monthly benefit to reflect the age at which benefits are claimed. In earlier work (Shoven and Slavov, 2012), we investigated the actuarial fairness of this adjustment for individuals with average life expectancy for their cohort. We found that for current real interest rates, delaying is actuarially advantageous for a large subset of people, particularly for primary earners in married couples. In this paper, we quantify the degree of actuarial advantage or disadvantage for individuals whose mortality differs from the average. We find that at real interest rates close to zero, most households – even those with mortality rates that are twice the average – benefit from some delay, at least for the primary earner. At real interest rates closer to their historical average, however, singles with mortality that is substantially greater than average do not benefit from delay; however, primary earners with high mortality can still improve the present value of the household’s benefits through delay. We also investigate the extent to which the actuarial advantage of delay has grown since the early 1960s, when the choice of when to claim first became available, and we decompose this growth into three effects: (1) the effect of changes in Social Security's rules, (2) the effect of changes in the real interest rate, and (3) the effect of changes in life expectancy.”

 

Some questions: Do people react to this change in incentives? If so, do they simply delay claiming benefits or do they both delay claiming AND remain in the workforce? If the latter, would increased payroll tax revenues compensate Social Security for offering delayed retirement benefit adjustments that are more than actuarially fair?

Read more!

AARP: No more payroll tax cuts

The Washington Post’s Ezra Klein writes that the AARP has drawn the line on payroll tax cuts, which have been extended in an attempt to boost the economy but which, in the view of AARP and others across the spectrum, threaten to undermine Social Security as a self-financing program generating “earned benefits” for participants.

Klein writes:

“When Congress agreed to extend payroll taxes by another year in 2011, it did so by replacing the lost funds with general revenue for the first time in history. That addressed some policymakers’ concerns about the Social Security Trust Fund’s insolvency. But it was a worrisome step for the AARP and other Social Security advocates, who believed it undermined the entitlement program’s protected status, lumping it in with a general budget  that could be subject to future cuts and trade-offs. ”Social Security is a separate, off-budget program, with a dedicated funding source—messing with the formula shouldn’t even be a part of the budget debate,” Certner added. “The promise of this was that it would be temporary. Going beyond two years—you’re going way beyond temporary country.’”

Read more!

What’s Your Social Security Rate of Return?

Writing for Reuters, Mark Miller runs through a SSA Office of the Actuary analysis of rates of return paid to different types of people from Social Security. You can check out the SSA study directly here.

Miller states “[The SSA analysis] showed that some workers might beat Social Security's returns in some years if they took risks in the stock market. But over a lifetime, Social Security's consistent, risk-free and inflation-adjusted returns would be very tough to beat.”

I’m not so sure.

One mistake Miller makes is to look at “current law” benefits, which assumes that Social Security can pay full benefits forever without raising taxes. In other words, it overlooks the multi-trillion dollar funding shortfalls that are the main reason we think about Social Security reform.

A more accurate analysis, and one that is truly reflective of current law, assumes that full benefits will be paid through the early 2030s, when the trust fund is projected to run out. Following that, benefits are reduced to the level that can be paid through payroll tax receipts alone, a cut of around one-fifth. That obviously would reduce returns from Social Security.

While there are other (and better) ways to fix Social Security’s finances, no matter how we do it, rates of return paid by Social Security will on average be consistent with this “payable benefits scenario.” We might raise taxes rather than cut benefits, or we might cut benefits gradually rather than all at once, or we might cut benefits for some but not for others, but the net effect on rates of return will on average be the same.

And under this realistic baseline rates of return aren’t exactly staggering. For instance, a typical couple retiring today would receive a return of less than 3.2 percent, which is about what you’d get on government bonds. But considering the political risk of Social Security, my guess is people would consider government bonds to be a better deal. Going forward returns will be lower. And for single individuals or higher-earning couples, returns can be well below the government bond rate.

Is Social Security a terrible deal? For a low-risk investment, no. But is it a good deal? Not really.

Read more!

Is Social Security a War on Working Wives?

Over at Real Clear Markets, my AEI colleague Sita Slavov writes on how Social Security treats married women who choose to work:

“We've heard a great deal about the "war on women" lately, mostly in connection with hot-button issues like abortion and birth control. But beyond all this rhetoric, there is in fact a large program whose design reflects antiquated, sexist thinking about women. It's called Social Security.”

“Social Security's spousal and survivor benefit provisions - which date back to 1939 - make the program a terrific deal for spouses who stay out of the labor force. As such, they are unfair to the growing number of two-earner families, and they discourage married women from working outside the home. We will soon need to undertake serious reforms to keep Social Security solvent. Redesigning the program to reflect the changing role of women could be a rare opportunity for bipartisan agreement.”

Check out the whole article.

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Did VP Biden exaggerate his role in 1983 Social Security reforms?

ABC News’ Jake Tapper reports:

Asked about Medicare reform, the vice president said, "Look, I was there when we did that with Social Security in 1983. I was one of eight people sitting in the room that included Tip O'Neill negotiating with President Reagan. We all got together and everybody said, as long as everybody's in the deal, everybody's in the deal, and everybody is making some sacrifice, we can find a way."

So did Biden exaggerate his role in the 1983 reforms? If you can’t already guess the answer to that question, read the full story to find out…

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2013 Social Security COLA to be 1.7%

Today the SSA announced a 1.7% cost-of-living adjustment (COLA) for benefits, payable as of January 2013. Last year the COLA was larger at 3.6%, although no COLAs were paid in 2009 or 2010.

The maximum taxable wage for Social Security also will rise to $113,700, from the 2012 value of $110,100.

Click here for more information from SSA.

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Is it the end for Social Security as a self-financing program?

Writing for the Mercatus Center at George Mason University, Social Security Trustee Chuck Blahous raises concerns that Social Security’s self-funding status – which has help maintain both political support and budget discipline over the years – is at risk.

KEY POINTS

• FDR designed Social Security as a self-financed program to distinguish it from welfare, to impose fiscal discipline within the program, and to ensure all working people had a sense of having earned their benefits—all of which worked together to protect benefits from political pressure and budgetary competition.
• Since its inception, Social Security has enjoyed a unique level of political support because it was structured on the self-financing principle. With relatively minor exceptions, there remained a strong bipartisan consensus through the mid 1990s to preserve this structure.
• Over the past several years, commitment to this practice has progressively weakened as lawmakers have become less willing to tax workers, particularly lower-income workers, at the level required to finance rising benefit costs.
• While several policies had already been enacted to shift Social Security financing burdens tacitly from individual payroll tax payers to the general government fund, the self-financing link remained formally intact until the payroll tax cut was enacted in 2010 and made effective for 2011–12.
• In 2010, President Obama and Congress formally severed the Social Security program’s contribution-benefit link with the enactment of the payroll tax cut, which included a provision to tap general revenues to subsidize Social Security benefit payments. 
• If Social Security’s contribution-benefit link continues to deteriorate, it could transform public perceptions of the program into something more akin to welfare.

Read more!

Where do the candidates stand on Social Security?

In a typical presidential campaign, Social Security would have by now reared its head, either though a candidate’s thoughtful presentations of reform proposals or, more often, accusations that the opposing candidate’s plans would doom the program and the millions of retirees who depend upon it. Al Gore promoted the famed “lock box” while George W. Bush discussed his ideas for personal retirement accounts.

In 2012, however, Social Security has been conspicuous by its absence. Yet the issue remains as important as ever. Social Security is today running deficits, and the system’s Trustees project that the trust fund – meaningful or not – will be depleted by around 2034. When this happens, by law benefits whole be cut across the board by around one-fifth. Social Security’s 75-year deficit totals roughly $8.6 trillion, and for each year we delay addressing it the shortfall only grows larger.

So where do President Obama and Gov. Mitt Romney stand on Social Security. At first glance, you’d think their positions were the same – at least if you took President Obama’s word for it. In the first debate with Romney, Obama said, “I suspect that on Social Security, we've got a somewhat similar position.” These were about the last words I’d expected to hear from the President, if only because beating the GOP over Social Security is on page 1 of the Democratic political playbook.

Obama himself has put forward nothing on Social Security since his 2008 campaign, in which he called for a surtax of 2 to 4 percent on earnings over $250,000. As I argued at the time, this plan would fix only around half the Social Security deficit. More recently, Vice President Biden told Virginia voters “I guarantee you, flat guarantee you, there will be no changes in Social Security. I flat guarantee you.” Assuming Biden let the President know of their new position, this doesn’t leave Obama many options beside more tax increases.

Romney, however, has proposed a different approach. Romney’s campaign website puts forward two principles for Social Security reform:

• First, for future generations of seniors, Mitt believes that the retirement age should be slowly increased to account for increases in longevity.
• Second, for future generations of seniors, Mitt believes that benefits should continue to grow but that the growth rate should be lower for those with higher incomes.

Together, these would address most of Social Security’s long-term deficit.

The question is where Obama’s views truly lie. His 2008 proposal has lain dormant for four years and Biden’s statements are almost surely the extemporaneous statements of what Clint Eastwood termed “the grin with a body behind it.” If Obama, whose campaign is surely aware of Romney's positions on Social Security, is willing to adopt a similar approach then there may be hope for a post-election resolution regardless of who wins the election. But with the race so tight, the temptation to fall back on old demagoguery may be difficult to resist.

Read more!

New Social Security projections from CBO

The Congressional Budget Office has released its latest projections for the financial health of the Social Security program. Among the highlights:

- DI Trust Fund exhausted in 2016

- OASI TF exhausted in 2038

- Combined OASDI trust fund exhausted in 2034

- The 75-year imbalance is 2.4% of taxable payroll

- Payable benefits will be 19% lower than scheduled benefits

These projections are similar to those made by Social Security’s Trustees as part of their annual report.

Read more!

Upcoming event: NASI annual conference, “Medicare and Social Security in a Time of Budget Austerity”

Register now to take advantage of the early bird discount (until 11/30) on top of the reduced rate for NASI members.

Medicare and Social Security in a Time of Budget Austerity

Thursday, January 31 – Friday, February 1, 2013
National Press Club, Washington, DC

Conference Co-Chairs:

Janet Shikles, Health Policy Consultant
Eugene Steuerle, Institute Fellow and Richard B. Fisher Chair, Urban Institute
Fernando Torres-Gil, Associate Dean and Professor, UCLA School of Public Affairs

JANUARY 2013: A new Congress… possibly a new President. Much will have changed — but the nation will still be struggling to recover fully from the Great Recession, and policymakers will still be under enormous pressure to rebalance the federal budget. Some will advocate major changes to the nation’s great social insurance programs. The one certainty is that doing nothing will not be a viable option. How changes will impact Medicare, Social Security, and the vast numbers of Americans served by these vital programs remains to be seen.

Since its founding in 1986, the National Academy of Social Insurance has become the nation’s leading nonpartisan, nonprofit organization dedicated to advancing public understanding of Social Security, Medicare, and other social insurance programs. NASI’s 2013 conference takes place at a critical moment when serious policy discussions will require an infusion of fresh and provocative proposals for constructive change. Count on it: they’ll be heard at NASI’s 25^thannual conference.

Join your colleagues for a two-day program featuring seven plenary sessions, including four keynotes -- featuring speakers like David Wessel (economics editor for the Wall Street Journal and author of Red Ink: Inside the High Stakes Politics of the Federal Budget), who will give the luncheon keynote on Day 1.

New at the 2013 conference: You will choose from three breakout sessions on either Medicare or Social Security (across Thursday and Friday afternoon), plus choose from at least five roundtable sessions (on Friday morning) that will cover a range of salient topics in social insurance. Outstanding speakers and leading experts from many fields will address key questions, such as whether Social Security and Medicare need only a tune-up or major changes – and how social insurance can better meet the needs of all Americans in the years ahead.

Register online or complete the registration form (attached). Detailed program and more speakers will be announced in the coming weeks. Please check the 2013 NASI Conference page for updates.

Federal “Fire Sale”: Are you a federal employee? Make the most out of your budget by taking advantage of a special group rate. For groups of four or more, you and your colleagues can attend the conference at the deeply discounted rate of $450/attendee ($250 less than the non-member early bird rate, and $50 off the NASI member early bird rate). Registrations must be received by Monday, Oct. 1, 2012. To register, please use the Federal Fire Sale registration form (attached). Online registration is not available for this rate. Further instructions can be found in the form.

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New issue brief: "Are Aging Baby Boomers Squeezing Young Workers Out of Jobs?"

The Center for Retirement Research at Boston College has released a new Issue in Brief: "Are Aging Baby Boomers Squeezing Young Workers Out of Jobs?"

By Alicia H. Munnell and April Yanyuan Wu

The brief’s key findings are:

• Individuals need to work longer for a secure retirement, but critics argue that more work by older people reduces jobs for the young.
• An exhaustive analysis, however, covering the 1977-2011 period found absolutely no evidence of such “crowding out.”
• This finding holds for both men and women, for groups with different educational levels, and even during the Great Recession.

This brief is available here.

Read more!

New papers from the Social Science Research Network

SOCIAL SECURITY, PENSIONS & RETIREMENT INCOME eJOURNAL

"Social Pensions for the Elderly in Asia: Fiscal Costs and Financing Methods"
Lee Kuan Yew School of Public Policy Research Paper No. LKYSPP 12-12
Asian Development Bank Economics Working Paper

MUKUL G. ASHER, National University of Singapore - Lee Kuan Yew School of Public Policy
Email: sppasher@nus.edu.sg

There is a strong consensus that social pensions can potentially play a significant role in reducing old-age poverty in Asian countries. This chapter examines the determinants of the short- and long-term fiscal costs of social pensions in Asia, and avenues for enhancing fiscal space for financing these pensions. The analysis suggests that in the short and medium term (3-5 years), additional fiscal space equivalent to 1%-1.5% of gross domestic product (GDP) will be needed, and 2%-2.5% in the longer run.
The long-run fiscal costs of social pensions will be influenced by factors such as demographic trends, behavioral responses, political economy, and public aspirations and expectations. The extent of the needed fiscal space can, however, be moderated by better design, implementation, and governance of social pensions, and their coordination with the rest of the pension system.
To enhance fiscal space, generating the requisite reallocation of budgetary expenditure and improving its outcome orientation, as well as obtaining additional revenue from conventional and nonconventional sources, are needed.
The chapter suggests that those Asian countries that find an appropriate balance between development and the fiduciary perspective of fiscal space are more likely to be successful in using social pensions as an important instrument for reducing old-age poverty.

"International Trade with Pensions and Demographic Shocks"
Netspar Discussion Paper No. 05/2012-027

IGOR FEDOTENKOV, Tilburg University
Email: I.fedotenkov@uvt.nl
A. C. MEIJDAM, Tilburg University - Center for Economic Research (CentER), Tilburg University - Department of Economics
Email: A.C.Meijdam@uvt.nl
BAS VAN GROEZEN, Tilburg University, Tilburg University - Center for Economic Research (CentER)
Email: B.J.A.M.vanGroezen@uvt.nl

The central question of this paper is how international trade and specialization are affected by different designs of pension schemes and asymmetric demographic changes. In a model with two goods, two countries and two production factors, we find that countries with a relatively large unfunded pension scheme will specialize in the production of labour intensive goods. If these countries are hit by a negative demographic shock, this specialization will intensify in the long run, which is contrary to the prediction of the classical Heckscher-Ohlin-Samuelson model. Eventually, these countries may even completely specialize in the production of those goods. The effects spill over to other countries, which will move away from complete specialization in capital intensive goods as the relative size of their labour intensive goods sector will also increase.

"Cultural Cognition Insights into Judicial Decisionmaking in Employee Benefits Cases: Lessons from Conkright v. Frommert"
American University Labor & Employment Law Forum, Vol. 3, Issue 1, Forthcoming
Marquette Law School Legal Studies Paper No. 12-20

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

Decisionmaking hubris with cognitive origins is present today in many labor and employment law cases in the United States. In two previous law review articles, I explored whether anthropological and psychological explanations of judicial decisionmaking could provide meaningful insights into how U.S. Supreme Court Justices decided some of the more controversial labor and employment law decisions.
Indeed, motivated cognition of the cultural variety, or “cultural cognition,” did robustly explain how Justices’ values in two different labor and employment law cases led to different perceptions of legally-consequential facts in those cases. Culturally-motivated cognition is “the ubiquitous tendency of people to form perceptions, and to process factual information generally, in a manner congenial to their values and desires.” The resulting opinions by the Justices in these cases suffered from “cognitive illiberalism,” which too readily discounted the views of dissenters in favor of the majority’s views of the case. Thus, in these same works, I considered potential social science and legal debiasing techniques for ridding these decisions of delegitimizing bias, while simultaneously making them more acceptable to a larger segment of society.
This article proposes to investigate how these opinion-writing and institutional debiasing strategies could work in practice in the particularly arcane and maddeningly complex area of employee benefits law under the Employee Retirement Income Security Act of 1974 (ERISA). The hope is that the professionalization of the judicial corps through the establishment of ERISA courts based on the bankruptcy court model might promote opinion-writing debiasing techniques that reduce the amount of cognitive illiberalism in employee benefits law opinions. Although no system of judicial decisionmaking will be completely free of the effects of cultural cognition, such debiasing strategies hold out the promise that employee benefit decisions will be more likely based on widely accepted perceptions of fact and evaluation of legal arguments, rather than based on the subconscious cultural biases of the sitting judge.

"'After' Math: The Impact and Influence of Incentives on Benefit Policy"
EBRI Issue Brief, No. 374

NEVIN E. ADAMS, Employee Benefit Research Institute (EBRI)
Email: nadams@ebri.org

Whichever political party prevails in November 2012, it is likely that the next Congress will, of necessity, address issues of the federal deficit, entitlements, and tax policy -- specifically, proposals to modify or reduce existing tax preferences for health and retirement benefits. In that context, EBRI’s 70th policy forum focused on a range of topics, from tax policy and design incentives, to international trends and current drawdown rates, and how they might influence, and be impacted by, future events. This paper recaps the presentations and panel discussions at that event. Among the key points made at the policy forum:
As important as retirement and health benefits are to Americans’ short- and long-term economic security, the sheer size of their tax preferences makes them vulnerable in the battles over deficit reduction and tax reform. Private-sector health benefits alone rank as the largest single “tax expenditure” in the federal budget.
Retirement benefits are a tax deferral rather than an exclusion from income -- meaning the federal government will eventually recoup the forgone revenue. This distinguishes retirement plan deferrals from other tax exclusions.
Because the tax expenditure on 401(k)-type plans is a deferral, rather than an exclusion, reducing the tax expenditure in the current period also reduces the positive stream of revenue in the future.
The biggest difference between tax-expenditure estimates and revenue estimates for scoring tax reform is that the latter incorporates taxpayer behavior; tax expenditure estimates do not.
Ten percent or fewer of those ages 55-60 are making withdrawals from their IRA, compared with 80 percent of those 71 and older.
On a historical basis, depending on the period measured, pre-retiree balances in defined contribution retirement plans double about every eight to nine years.
Employer match levels seemed to have a bigger impact on older workers, but automatic enrollment seems much more significant in terms of getting younger employees to participate in retirement plans.
Common challenges for underfunded retirement systems worldwide include the need to increase the state pension age and/or “normal” retirement age for full benefits; to promote higher labor-force participation at older ages; to encourage or require higher levels of private saving; to increase retirement coverage of employees and/or the self-employed; and to reduce savings “leakage” prior to retirement.

"An Overview of the U.S. Retirement Income Security System and the Principles and Values It Reflects"
Comparative Labor Law & Policy Journal, Vol. 33, No. 1, 2011

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

This article is designed to provide an overview of the U.S. retirement income security system from a comparative law perspective. Like many countries, the U.S. has a three tier pension or retirement income system, with the three tiers consisting of (1) Social Security, (2) employment-based pensions, and (3) individual savings. Thus, superficially, the U.S. retirement income security system resembles that of many around the world. Yet, in other ways, such as its focus on individual rights and responsibility, the U.S. system is unique.
The article begins by discussing the nine guiding principles of the U.S. Social Security system as identified by the late Robert Ball. It then describes the principal elements of employment-based pension plans in the U.S and provides a brief overview of individual savings. The article then turns to the values reflected in the U.S. retirement income security system. It discusses how the U.S. system does, and does not, reflect the European values of (1) responsibility, (2) protection, (3) solidarity, (4) nondiscrimination, and (5) participation.

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New issue brief: “Using Participant Data to Improve 401(k) Asset Allocation”

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

“Using Participant Data to Improve 401(k) Asset Allocation” By Zhenyu Li and Anthony Webb

The brief’s key findings are:

• Since many households fail to shift their 401(k) assets towards less risky investments as they age, target date funds do it automatically.
• Conventional target date funds rely only on the participant’s age to determine the asset allocation strategy.
• In contrast, semi-personalized target date funds add information on the participant’s earnings, 401(k) balance, and savings rate.
• Both investment strategies are better than leaving individuals on their own, but the semi-personalized approach generally outperforms the conventional approach.
• These results can be further improved by including information on the household rather than simply the individual and by accounting for earnings uncertainty.

This brief is available here.

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Small COLA for 2013

The Associated Press reports that Social Security’s Cost of Living Adjustment for 2013 will likely be between 1 and 2 percent. While based on preliminary data, if true this would be one of the lowest figures since automatic COLAs began in the 1970s. Read more here.

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Blahous: Is it too late to save Social Security?

Writing for e21, Social Security public trustee Chuck Blahous asks whether it is too late to save Social Security as a self-financing program, meaning an independent system that supports itself from payroll taxes rather than general tax revenues.

Blahous points to three roadblocks to reform: first, the Baby Boomers are now beginning to retire, rapidly increasing costs for the program; second, neither political party has shown the ability to compromise, which will be necessary under most foreseeable political circumstances; and third, many political leaders fail to treat Social Security’s financial problems with the seriousness they deserve.

Social Security has gained political strength by being independent and self-financing, but over time the payroll tax increases or benefit reductions needed to restore solvency may be more than our political processes can handle. As a result, it may be inevitable that Social Security ends up financed with general tax revenues, ending the claim that Social Security is an ‘earned benefit” and making the program compete with the rest of the budget for resources.

Blahous says, “If this all happens, and renders tomorrow’s Social Security benefits less secure than today’s, it would be a tragic irony: the outcome would have been brought about largely by supporters of Social Security having countenanced the tactics of delay to the point that the program’s unique political protections could no longer be preserved. Those who care about the Social Security program need to clearly understand the consequence of this ongoing neglect; that time for a realistic financing solution has nearly run out.”

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Should you claim Social Security early?

Over at the Huffington Post, Tom Sightings gives four reasons why, contrary to common advice, you might want to claim benefits before the full retirement age of 66 (followed by my comments):

You need the money: Yes, if you need the money more at age 62 than you will at ages 72, 82 or 92, then by all means claim early. But there are fewer of those people than you’d think.

You’re in poor health: If you’re single and you KNOW you won’t be living that long, then claim early. But even for groups with known short average life expectancies – say, African-American males – there’s a ton of variation in life spans, and a higher Social Security benefit protects against outliving your assets. Moreover, if you have a spouse retiring later will provide her with a higher survivors benefit once you’re gone. You might want to delay retirement even if you know you won’t live past the average life expectancy.

You’re a financial genius: Delaying Social Security benefits gives you a guaranteed return on your money. By claiming early, you can invest that cash and maybe do better. Maybe.

If benefits change: This one is basically just wrong. First, Social Security reform is unlikely to substantially effect current retirees. And second, to the degree it does – say, by reducing COLAs – claiming early won’t exempt you. In fact, if you think COLAs might be cut that’s a reason to put off retirement, not claim earlier.

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A bigger problem than you think

It’s common to hear that the Social Security shortfall is modest in size and easily fixed. Compared to Medicare, that’s true. Compared to pretty much anything else in the budget, it’s false. Ramesh Ponnuru, writing for Bloomberg, explains.

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Poll: Public favors raising taxes, retirement age over benefit cuts

An Associated Press-GfK public opinion poll finds that most Americans would prefer to fix Social Security by raising taxes or increasing the retirement age rather than reducing monthly benefits.

“Social Security is facing serious long-term financial problems. When given a choice on how to fix them, 53 percent of adults said they would rather raise taxes than cut benefits for future generations, according to the poll. Just 36 percent said they would cut benefits instead.”

“The results were similar when people were asked whether they would rather raise the retirement age or cut monthly payments for future generations — 53 percent said they would raise the retirement age, while 35 percent said they would cut monthly payments.”

Since raising the retirement age would reduce monthly benefits, what people seem to approve of is increasing both the normal retirement age (currently 66) and early retirement age of 62. Doing so would force people to delay collecting benefits, but wouldn’t reduce benefits once they did retire.

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