Thursday, June 21, 2012

June 25 AEI book forum: “The predictable surprise: The unraveling of the U.S. retirement system,” with author Sylvester Scheiber

The predictable surprise: The unraveling of the U.S. retirement system 

Monday, June 25, 2012
9:00 - 10:30 a.m.

AEI, Tenth Floor
1150 Seventeenth Street, NW
Washington, DC 20036
Two blocks from Farragut North Metro
This event will be livestreamed.


Andrew Biggs, AEI

Sylvester J. Schieber, Former Chairman of the Social Security Advisory Board

Social Security will be insolvent by the early 2030s, and many Americans have saved too little on their own to make up the difference. In "The Predictable Surprise: The Unraveling of the U.S. Retirement System," Sylvester J. Schieber, former head of the Social Security Advisory Board and one of the nation's leading experts on private-sector pensions, shows that policymakers should have seen and heeded the signs of trouble decades ago.

In this AEI book forum, AEI resident scholar Andrew Biggs, a former principal deputy commissioner of the Social Security Administration, will speak with Schieber about his book, including where things went wrong and ideas for how to put American retirement systems, public and private, back on track.

  RSVP to attend this event.
  Watch live online if you cannot attend in person.

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Wednesday, June 20, 2012

Businessweek: “Federal Disability Insurance Nears Collapse”

BusinessWeek looks at the financial pressures facing Social Security’s Disability Insurance program:

The bottom line: The number of Americans on disability has jumped 23 percent since 2007. They face 21 percent cuts to their benefits in 2016.

Check it out here.

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Tuesday, June 19, 2012

OECD Online Pensions Briefing: June 20, 11 am Eastern Time.

OECD Pensions Outlook
Why college education is good but maybe not good enough

Web briefing for the U.S. and Canada
Wednesday, June 20th, 11am Eastern Time

Pension systems in OECD countries are facing the double challenge of increasing life expectancy and demographic change. How should countries respond to keep their national systems both affordable and adequate? How should they strike a balance between public and private pension schemes? What should countries do to prevent old age poverty?

This inaugural edition of ‘Pensions Outlook’ provides an analysis of pension policies in OECD countries, covering both public and private systems, as well as an assessment of trends in retirement income systems. It also includes the first comprehensive evaluation of national Defined Contribution systems that have been set up in a number of OECD countries.

Who: Pablo Antolin, Principal Economist, OECD Directorate for Financial and Enterprise Affairs;  Edward Whitehouse, Principal Administrator, OECD Directorate for Employment, Labor and Social Affairs.

When: Wednesday, June 20th, 11am Eastern Time.

Where: The convenience of your own computer (registration required, see instructions below).

To register for this online briefing

1. Go to
2. Select the event and click "Register".
3. On the registration form, enter your information and then click "Submit".

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Friday, June 15, 2012

New papers from the Social Science Research Network


"Retirement Income Adequacy for Boomers and Gen Xers: Evidence from the 2012 EBRI Retirement Security Projection Model®"
EBRI Notes, Vol. 33, No. 5 (May 2012)

JACK VANDERHEI, Employee Benefit Research Institute (EBRI)

Measuring retirement security -- or retirement income adequacy -- is an extremely important topic. EBRI launched a major project to provide this type of measurement in the late 1990s for several states concerned whether their residents would have sufficient income when they reached retirement age. After conducting studies for Oregon, Kansas, and Massachusetts, a national model -- the EBRI Retirement Security Projection Model® (RSPM) -- was developed in 2003, and in 2010 it was updated to incorporate several significant changes, including the impacts of defined benefit plan freezes, automatic enrollment provisions for 401(k) plans, and the recent crises in the financial and housing markets. EBRI has recently updated RSPM for changes in financial and real estate market conditions as well as underlying demographic changes and changes in 401(k) participant behavior since January 1, 2010 (based on a database of 23 million 401(k) participants). This paper provides updates for the previously published EBRI Retirement Readiness Ratings™ as well as the Retirement Savings Shortfalls. EBRI’s updated 2012 Retirement Security Projection Model® finds that for Early Baby Boomers (individuals born between 1948-1954), Late Baby Boomers (born between 1955-1964) and Generation Xers (born between 1965-1974), roughly 44 percent of the simulated lifepaths were projected to lack adequate retirement income for basic retirement expenses plus uninsured health care costs. These “at-risk” levels are some 5-8 percentage points LOWER than what was found in 2003, largely due to the growing adoption of automatic enrollment by 401(k) plan sponsors. Eligibility for a workplace defined contribution retirement plan has a significant positive impact on “at-risk” levels. The aggregate retirement income deficit number, taking into account current Social Security retirement benefits and the assumption that net housing equity is utilized “as needed,” is currently estimated to be $4.3 trillion for all Baby Boomers and Gen Xers.
The PDF for the above title, published in the May 2012 issue of EBRI Notes, also contains the fulltext of another May 2012 EBRI Notes article abstracted on SSRN: “Trends in Employment-Based Coverage Among Workers, and Access to Coverage Among Uninsured Workers, 1995-2011.”

"Comments on 'The End of Informality in Mexico? Fiscal Reform for Universal Social Insurance' by Arturo Anton, Fausto Hernandez and Santiago Levy"

GABRIEL MARTINEZ, Interamerican Conference for Social Security (CISS)

This is a review of the paper by Anton, Hernandez and Levy (2012), which is motivated by the analysis by Santiago Levy (2008) on the impact on the labor market of subsidized programs that deviate demand from funded social insurance programs. The paper deals with the evaluation of a fiscal reform and proposes an hypothesis on the determinants of the evolution of social policy. The first issue is amenable to empirical verification, while on the second, the arguments presented are not consistent with history or with a view based on the competition of ideas.

"The Pension Option in Labor Insurance and Precautionary Savings: Evidence from Taiwan"

HUA CHEN, Temple University - Department of Risk, Insurance and Healthcare Management
WENYEN HSU, Feng Chia University - Department of Risk Management and Insurance
MARY A. WEISS, Temple University - Risk Management & Insurance & Actuarial Science

Starting in 2009, the Labor Insurance (LI) program in Taiwan has allowed workers to choose between pension old-age benefits and one-time old-age benefits. The introduction of the pension option not only mitigates longevity risk for workers but also provides a higher expected present value of old-age benefits to workers than the one-time benefit option (on average). Based on a lifecycle model with uncertain lifespan, we expect that workers will increase current consumption and reduce savings in response to this policy intervention. We use data from the Survey of Family Income and Expenditure (SFIE) in Taiwan to empirically test this prediction. In order to isolate other systematic structural changes or economic shocks from the true impact of the pension option on savings and consumption, we adopt a difference-in-differences (DID) approach in this study. Our results demonstrate that the implementation of pension benefits in LI lowers households’ savings by 9.25% (NT$ 50,798) and raises consumption by 5.27% (NT$ 42,663) for LI workers. In addition, younger households tend to be more responsive to this policy in terms of increasing consumption, while some older households experience a significant decrease in savings.

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AARP: Options for Reforming Social Security

The AARP has released a paper titled “Perspectives: Options for Reforming Social Security” by Virginia Reno of The National Academy of Social Insurance and David John of the Heritage Foundation. Each co-author provides their own perspective on various options to make Social Security financially sustainable for the future. 

The full paper is available here, or you can click on individual options below:

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Tuesday, June 12, 2012

New issue brief: “Should You Buy an Annuity from Social Security?”

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

"Should You Buy an Annuity from Social Security?" by Steven A. Sass

The brief's key findings are:

  • Households now retiring need to transform their 401(k) and IRA savings into retirement income.
  • One way is to delay claiming Social Security to increase their monthly benefit, using savings to pay current expenses while they wait.
  • In effect, they are buying an annuity from Social Security:  The savings used is the “price” and the increase in their monthly benefit the annuity income it “buys.”
  • Buying an annuity from Social Security is generally the best deal in town, especially in today’s low interest-rate environment.

The brief is available here.

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Friday, June 8, 2012

New papers from the Social Science Research Network

"Borrow Less Tomorrow: Behavioral Approaches to Debt Reduction"

DEAN S. KARLAN, Yale University
JONATHAN ZINMAN, Dartmouth College, Innovations for Poverty Action, Jameel Poverty Action Lab, National Bureau of Economic Research (NBER)

Mounting evidence suggests that behavioral factors depress wealth accumulation. Although much research and policy focuses on asset accumulation, for many households debt decumulation is more efficient. Yet the mass market for debt reduction services is thin. So we develop and pilot test Borrow Less Tomorrow (BoLT), a behavioral approach to debt reduction that combines a simple decision aid, social commitment, and reminders. Results from a sample of free tax-preparation clients with eligible debt in Tulsa (N=465) indicate strong demand for debt reduction: 41% of those offered BoLT used it to make a plan to accelerate debt repayment. Using random assignment to BoLT offers, we find weak evidence that the BoLT package offered reduces credit card debt.

"Winners and Losers: The Inequities within Government-Sector, Defined-Benefit Pension Plans"
Commentary No. 347, April 2012, ISBN 978-0-88806-867-5

C.D. HOWE INSTITUTE LIBRARY, affiliation not provided to SSRN

There are little-acknowledged yet striking inequities built into the payout formulas of defined-benefit (DB) pension plans, which are typically provided to government employees across Canada. An analysis of representative DB plans shows they systematically transfer income away from groups of employees in occupations with slow wage growth to employees in occupations or careers with higher wage growth rates; this often means from low-income clerks to high-income deputy ministers. The winners are “high-flying” employees who are likely to enjoy pensions that exceed the value of the accumulated employee and employer contributions in their “accounts” at retirement, while the losers are those who would be better off if they simply received the value of their contributions plus interest rather than rely on future payments from a discounted pension. However, public-sector DB plans could be redesigned to retain much of their appealing certainty and efficiency without redistributing retirement income among
members to the extent that they now do.

"Pension Deals and Value-Based ALM"

NIELS KORTLEVE, affiliation not provided to SSRN
EDUARD PONDS, Algemene Pensioen Groep (APG), Tilburg University - Department of Economics, Netspar

We use the new approach of value-based ALM to investigate pension deals ranging from pure defined benefit to pure defined contribution and to asset allocations of 100% in equities versus 100% in bonds. We will show that seemingly attractive pension deals, that have for instance low average contribution rates and high expected surpluses, may have low present values for certain stakeholders. Value-based ALM will show who will gain and loose from changing the current pension deal. This information in our opinion will help to construct a more sustainable pension deal.
Value-based ALM adds new information relative to classical ALM in the form of present values of future cash flows, the economic value of future surpluses and deficits as well as stakeholder information, showing the intergenerational solidarity expressed in economic value terms. We think this information should no longer be disregarded and should be included in doing ALM and constructing pension deals in the future.

"Measuring Social Security Proposals by More than Solvency: Impacts on Poverty, Progressivity, Horizontal Equity, and Work Incentives"
Center for Retirement Research at Boston College Working Paper No. 2012-15

MELISSA FAVREAULT, The Urban Institute
C. EUGENE STEUERLE, Urban Institute

As interest in proposals to restore Social Security solvency rises, it’s timely to examine whether current policy analyses provide adequate information on important distributional questions. This project explores measures of changes in Social Security benefits’ adequacy, horizontal equity, and efficiency under different proposals. We apply the measures to simulation output from the Urban Institute’s Dynamic Simulation of Income Model under the National Commission on Fiscal Responsibility and Reform Social Security proposal. A series of exhibits illustrates how they work and could inform policymakers about the relative merits of varied options to restore the program’s long-run solvency and meet other objectives.

"Need and Viability of a Benefit Protection Fund for Retirement Benefits Schemes in Kenya"

NZOMO MUTUKU, Retirement Benefits Authority

Retirement benefits schemes in Kenya are exposed to a number of risks that may jeopardise their ability to ultimately pay adequate retirement benefits to their members. Protection funds have been established for other parts of the financial sector, including banking, capital markets and insurance but there is none in place for retirement benefits. The paper examines the need and viability of putting in place a benefit protection fund for retirement benefits.
The paper finds that though most of the risks faced by schemes have been mitigated either through: the regulatory framework in place; risk based supervision by the Retirement Benefits Authority; changes in scheme design; or, existing protection funds, schemes are still exposed to elements of counterparty default and fraud risk. The paper finds that there is need to set up a retirement benefits protection fund in Kenya that will cover counterparty default and fraud risk The fund should cover both defined benefit and defined contribution schemes and be modeled on best practices in benefit protection including: risk based premiums; mitigation of moral hazard; and, institutional autonomy from the regulator.

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