New papers from the Social Science Research Network

"Borrow Less Tomorrow: Behavioral Approaches to Debt Reduction"

DEAN S. KARLAN, Yale University
Email: dean.karlan@yale.edu
JONATHAN ZINMAN, Dartmouth College, Innovations for Poverty Action, Jameel Poverty Action Lab, National Bureau of Economic Research (NBER)
Email: jzinman@dartmouth.edu

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
Email: library@cdhowe.org

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
Email: Niels.Kortleve@pggm.nl
EDUARD PONDS, Algemene Pensioen Groep (APG), Tilburg University - Department of Economics, Netspar
Email: eduard.ponds@apg.nl

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
Email: MFAVREAU@UI.URBAN.ORG
C. EUGENE STEUERLE, Urban Institute
Email: esteuerl@ui.urban.org

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
Email: mutuku@rba.go.ke

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.