Friday, December 27, 2013

WSJ: SSA cracking down on disability judges

According to the Wall Street Journal, the Social Security Administration is seeking to increase the agency’s control over the administrative law judges who decide many disability cases. In the wake of scandals in West Virginia and Puerto Rico, SSA is imposing new standards to generate more uniformity of standards from judge to judge and to reduce outliers who approve or disapprove applications at extraordinary rate. The Journal says:

The Social Security Administration, smarting from recent scandals, this weekend is set to tighten its grip on 1,500 administrative law judges to ensure that disability benefits are awarded consistently and to rein in fraud in the program.

The agency is rewriting the job descriptions of its judicial corps, allowing officials more latitude to crack down on judges who are awarding disability benefits outside the norm.

Many judges have operated as if they were independent of the agency and awarded or denied benefits based on their own judgments. A few weeks ago, the SSA notified the judges of the changes.

The job descriptions will no longer include the words "complete individual independence," and will also clarify that the judges are "subject to the supervision and management" of other agency officials, according to a draft reviewed by The Wall Street Journal.

The Journal also has a blog item with more details.

Read more!

Monday, December 23, 2013

Blahous: Don’t Worsen Social Security’s Soaring Cost Problem

Chuck Blahous, one of Social Security’s public trustees and a senior research fellow at the Mercatus Center, writes on proposals to increase Social Security benefits. Check it out over at e21.


Read more!

Friday, December 20, 2013

Social Security: Big deal or no deal?

George Mason economist Bryan Caplan weighs in over at EconLog.

Read more!

New papers from the Social Science Research Network

"The Future of Old Age Income Security"
Lee Kuan Yew School of Public Policy Research Paper No. 13-20

MUKUL G. ASHER, National University of Singapore - Lee Kuan Yew School of Public Policy

This is the revised version of the Robert Butler Memorial Lecture delivered at the International Centre Global Alliance Symposium on ‘The Future of Ageing’ on 21 June 2013 in Singapore. The lecture covers and discusses about the future of income security and social welfare discussing global trends in developed and developing countries using the 2012 Revision of the UNDESA’s World Population Prospects.

"Can Pensions Be Restructured in (Detroit’s) Municipal Bankruptcy?"
The Federalist Society, White Paper Series, October 2013
U of Penn, Inst for Law & Econ Research Paper No. 13-33

DAVID A. SKEEL, New York University School of Law, University of Pennsylvania Law School, European Corporate Governance Institute (ECGI)

This paper, which was written as a White Paper for the Federalist Society, describes and assesses the question whether public employee pensions can be restructured in bankruptcy, with a particular focus on Detroit. Part I gives a brief overview both of the treatment of pensions under state law, and of the Michigan law governing the Detroit pensions. Part II explains the legal argument for restructuring an underfunded pension in bankruptcy. Part III considers the major federal constitutional objections to restructuring. Part IV discusses arguments based on the Michigan Constitution and Part V assesses several Chapter 9 arguments against restructuring. None of these arguments appear to prevent restructuring. Assuming that pensions can in fact be restructured, Part VI discusses the Chapter 9 factors that may affect the extent to which they are or can be restructured in a particular case.

"The Cost of 'Choice' in a Voluntary Pension System"
2013 New York University Review of Employee Benefits and Executive Compensation 6-1 to 6-55

JONATHAN BARRY FORMAN, University of Oklahoma College of Law

The United States and most other industrialized nations have multi-pillar retirement systems that fit within the World Bank’s multi-pillar model for retirement savings consisting of a first-tier public system, a second-tier employment-based pension system, and a third-tier of supplemental voluntary savings. While in many countries, the second-tier occupational pension is mandatory or quasi-mandatory, in the United States, both the second and third-tier retirement savings systems are voluntary. That is, employers are not required to offer pensions, and when they do, they have considerable choice over the type of pension plan to have and over many of that plan’s features. Moreover, when employers do offer a pension plan, it is probably a 401(k)-type plan that offers employees considerable choice about whether to participate, about how much to contribute, about how to invest those contributions (and prior accumulations), and about the timing and nature of distributions. In short, unlike our first-tier, mandatory Social Security system, America’s second-tier, private pension system is replete with choice: choices about the type of pension plan, choices about the amount and timing of contributions, choices about investments, and choices about the timing and nature of distributions.
To be sure, the availability of pension choices may be of value to employers and individuals, but, on the whole, the costs of choice almost certainly exceed the benefits. Pertinent here, one of the major problems with the current pension system is its incredible complexity. That complexity imposes significant costs on individuals, employers, and government, especially when compared to the relatively rigid, but straightforward, Social Security system. As more fully discussed below, the administrative costs for Social Security’s retirement system are well under 1% of benefits paid. Meanwhile, other than the cost for a payroll withholding service, employers incur almost no costs because of Social Security; and almost the only choice that workers face is the choice about when to take their benefits, at which point in time, a costless and simple application leads to a lifetime of inflation-adjusted retirement income.
On the other hand, employers, individuals, and government all incur significant costs in connection with the current pension system. Employers incur significant costs in choosing, designing, administering, or even outsourcing their pensions; individuals incur significant costs in connection with the management, investment, and distribution of their contributions and benefits; and the government incurs significant costs in regulating thousands of disparate pension plans and millions of Individual Retirement Accounts (IRAs). Also, because of the voluntary nature of our second-tier, private pension system, coverage and participation rates are low, and retirement savings may be inadequate for many retirees.
All in all, this Article focuses on the costs of choice in America’s voluntary private pension system. At the outset, Part II of this Article provides an overview of the current U.S. retirement system — both Social Security and private pensions. Next, Part III of this Article looks at the costs associated with the current Social Security and private pension systems. Finally, Part IV of this Article outlines some ways to reduce the costs associated with the private pension system. In particular, Part IV discusses how to reduce costs by moving to a universal, second-tier pension system; and Part IV also discusses some more modest approaches for reducing the costs associated with the current private pension system.

"Pensions, Employment, and Family Programs"
Well-Being and Social Policy 9 (1): 23-43, 2013

MARTHA MIRANDA-MUÑOZ, Interamerican Conference for Social Security (CISS)
NELLY AGUILERA, Interamerican Conference for Social Security (CISS)
GABRIEL MARTINEZ, Instituto Tecnológico Autónomo de México (ITAM)

Pension, employment, family, and health insurance programs constitute the four major categories of social policy. This report discusses the options for the design of programs within the first three categories based on a framework that aims at providing universal social security protection throughout Mexico. Although the core benefits of these programs are monetary benefits, their provision requires application of solid strategies specific to each program for the regulation of suppliers, provision of a fiscal framework, and interaction with other programs and institutions. Employment programs require use of a seamless design within the educational system and business training programs, as well as the adoption of an unemployment insurance program. Family programs, including the main programs that combat extreme poverty, should be incorporated into a general framework to allow them to serve as vehicles for the integration of the beneficiaries into society. At the same time, implementation of family programs is key to solving the special challenges of female workers, integrating the disabled into the labor market, adopting a policy for the comprehensive development of young children, and addressing the growing problem of long-term disability care. Finally, realization of successful pension programs requires a platform upon which to articulate the fiscal aspects, service solutions, and multiplicity of the increasing number of programs that serve the elderly and disabled.

"Race, Trust, and Retirement Decisions"

TERRANCE KIERON MARTIN, University of Texas - Pan American - College of Business Administration - Department of Economics & Finance, Texas Tech University

Using the 2008 National Longitudinal Survey of Youth, this study investigates whether racial differences in trust can explain decisions to consult a financial planner and the variation in accumulated retirement wealth. Black and Hispanics are more likely to report having low trust compared to non-Black, non-Hispanic respondents. The results show evidence that low trust impacts the two outcome decisions of Blacks more relative to non-Black, non-Hispanic respondents. Low trust minimally affects Hispanics relative to non-Black, non-Hispanic respondents as it related to the decision to consult a financial planner and the accumulation of retirement wealth. Marginal effects of Tobit regression analysis show no evidence of racial difference in the effect of a financial planner.

"Non-Contributory Pensions"

SEBASTIAN GALIANI, University of Maryland
PAUL J. GERTLER, University of California, Berkeley - Haas School of Business, National Bureau of Economic Research (NBER)
ROSANGELA BANDO, Inter-American Development Bank

The creation of non-contributory pension schemes is becoming increasingly common as countries struggle to reduce poverty. Drawing on data from Mexico’s Adultos Mayores Program (Older Adults Program) -- a cash transfer scheme aimed at rural adults over 70 years of age -- we evaluate the effects of this program on the well-being of the beneficiary population. Exploiting a quasi-experimental design whereby the program relies on exogenous geographical and age cutoffs to identify its target group, we find that the mental health of elderly adults in the program is significantly improved, as their score on the Geriatric Depression Scale decreases by 12%. We also find that the proportion of treated individuals doing paid work is reduced by 20%, with most of these people switching from their former activities to work in family businesses; treated households show higher levels of consumption expenditures (on average, an increase of 23%). Very importantly, we also rule out significant anticipation effects that might have been associated with the program transfers. Thus, overall, we find that non-contributory pension schemes target to the poor in developing countries can improve the well-being of poor older adults without having any indirect impact (through potential anticipation effects) on the earnings or savings of future program participants.

Read more!

Wednesday, December 18, 2013

CBO Releases New Social Security Projections

The Congressional Budget Office has released new projections for Social Security’s finances over the next 75 years, for which they project an actuarial deficit of 3.36 percent of taxable payroll. CBO states:

That means, for example, that if the Social Security payroll tax rate was increased immediately and permanently by 3.36 percentage points—from the current rate of 12.40 percent to  15.76 percent—or if scheduled benefits were reduced by an equivalent amount, then the trust funds’ projected balance at the end of 2087 would equal projected outlays for 2088.

In addition, CBO provides a closer focus on how Social Security’s finances will evolve over the next quarter century.

This, folks, is how it’s done: solid, detailed analysis, presented with plenty of charts and tables to make it understandable. Check it out here.


Read more!

Tuesday, December 10, 2013

New paper: “The Social Security Windfall Elimination and Government Pension Offset Provisions for Public Employees in the Health and Retirement Study”

A new Michigan Retirement Research Center Working Paper is available for download. View the Abstract and Key Findings below.


The Social Security Windfall Elimination and Government Pension Offset Provisions for Public Employees in the Health and Retirement Study (WP 2013-288)

by Alan L. Gustman, Thomas L. Steinmeier and Nahid Tabatabai


This paper uses data from the Health and Retirement Study to investigate the effects of Social Security’s Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) provision on Social Security benefits received by individuals and households. WEP reduces the benefits of individuals who worked in jobs covered by Social Security and also worked in uncovered jobs where a pension was earned. WEP also reduces spouse benefits. GPO reduces spouse and survivor benefits for persons who worked in uncovered government employment where they also earned a pension. Unlike previous studies, we take explicit account of pensions earned on jobs not covered by Social Security, a key determinant of the size of WEP and GPO adjustments. Also unlike previous studies, we focus on the household. This allows us to incorporate the full effects of WEP and GPO on spouse and survivor benefits, and to evaluate the effects of WEP and GPO on the assets accumulated by affected families. Among our specific findings: About 3.5 percent of households are subject to either WEP or to GPO. The present value of their Social Security benefits is reduced by roughly one fifth. This amounts to five to six percent of the total wealth they accumulate before retirement. Households affected by both WEP and GPO lose about one third of their benefit. Limiting the Social Security benefit to half the size of the pension from uncovered employment reduces the penalty from WEP for members of the original HRS cohort by about 60 percent.

Key Findings:

* About 3.5 percent of households in the Health and Retirement Study (HRS) are subject to either the Windfall Elimination Provision (WEP) or Government Pension Offset (GPO) provision, features of the Social Security benefit determination process that limit the benefits of employees who worked in jobs not covered by Social Security, but who are also are eligible for Social Security benefits.

* The present value of the Social Security benefits of affected households is reduced by roughly one fifth, amounting to five to six percent of the total wealth affected households accumulate before retirement.

* Households affected by both WEP and GPO lose about one third of their benefit.

* Limiting WEP adjustments to Social Security benefits to half the size of the pension from uncovered employment, as in current law, reduces the penalty from WEP for members of the original HRS cohort by about 60 percent and substantially affects any interpretation of the law’s impact that is based solely on the provisions of the adjustment to the Primary Insurance Amount formula (PIA) under WEP.

View/Download Working Paper (PDF):

Read more!

Tuesday, December 3, 2013

Job opportunity: Income Security Program Analyst

Position Opening for Income Security Program Analyst

The National Academy of Social Insurance (NASI) seeks a mid-level Program Analyst for policy analysis, research, outreach and education activities on income security and related issues. The Academy is a nonprofit, nonpartisan organization devoted to research and education on Social Security, health care financing, and related public and private programs. Its 1,000 members are among the nation’s leading experts on social insurance programs and policy.

Responsibilities: The Income Security Program Analyst will be part of an interdisciplinary team that conducts and disseminates NASI’s policy analysis, research, and education activities on income security and related issues. S/he will work with the team on public education campaigns on Social Security and related issues, including developing and implementing strategic partnerships and new outreach initiatives. S/he will collect, analyze, and synthesize research and policy analyses. S/he will plan events and participate in outreach and dissemination of NASI materials with the goal of promoting deeper understanding of social insurance programs – to include Social Security, unemployment insurance, disability income policy, and related issues – among the public and among policymakers and their staffs.  The Program Analyst reports to the Academy’s Vice President for Income Security Policy.

Specific responsibilities include:

Manage partnerships with professional intermediaries, community organizations, and others that relate to NASI’s public education effort on Social Security:

  • Manage a project that funds four organizations to carry out Social Security public education activities;
  • Develop and implement strategic partnerships to maximize the impact of publications, events, and other activities in the area of income security;
  • Field requests and inquiries from partner organizations and others;
  • Interact with project advisory committees;
  • Contribute to developing videos, infographics, and other public education materials;
  • Represent NASI at coalition meetings and other events;
  • Track partners’ progress and accomplishments; and
  • Plan and produce synthesis reports on project activities for the funder and the public.

Plan and implement events:

  • Events include workshops, Hill briefings, large conferences, and expert roundtables;
  • Schedule and coordinate meetings between NASI staff and policymakers, including members of Congress and the Administration;
  • Coordinate travel and logistics with VIP speakers and their staff; and
  • Work with other staff to promote event participation and track event outcomes.

Research and writing:

  • Research income security issues and draft reports, articles, and other materials suitable for varied audiences;
  • Edit materials written by others to create policy briefs and other products;
  • Coordinate reviews of draft reports and briefs and incorporate expert comments; and
  • Draft blogs or other materials to bring attention to NASI content.

Other project activities:

  • Coordinate work with members of relevant committees and staff their meetings;
  • Work with VP to commission work from outside experts, monitor progress and arrange for review of products;
  • Coordinate reviews of draft reports and other documents; and
  • Work with development staff to research and identify new sources of funding and draft funding proposals and grant reports on issues related to income security.


  • Bachelors or Masters in social science or public policy with a strong academic record;
  • 3-5 years of work experience, preferably in policy analysis, research, and/or project management in the area of income security policy;
  • Experience developing and implementing strategic partnerships and outreach;
  • Excellent oral and written communication skills;
  • Ability and willingness to perform multiple tasks in a small office environment and work with other members of the Academy’s interdisciplinary staff;
  • Ability and willingness to meet deadlines, and to adapt priorities in response to changing opportunities and demands;
  • Strong organizational and time management skills;
  • Strong interpersonal skills;
  • Proven analytic skills; and
  • Familiarity with social insurance programs, such as Social Security, unemployment insurance, and other income security programs.

Compensation: Salary is commensurate with experience. Benefits include health insurance, pension, paid vacation, sick leave, and all federal holidays.

To Apply: Send cover letter, resume, writing sample and three references to with the subject line “Program Analyst.”  Or by mail to: National Academy of Social Insurance, 1776 Massachusetts Avenue NW, Suite 400, Washington, DC 20036.  Applicants are encouraged to apply early, as applications are being reviewed on a rolling basis.

The National Academy of Social Insurance is an equal opportunity employer. Minorities and persons with disabilities are encouraged to apply.

Read more!

New publication: “Will the Rebound in Equities and Housing Save Retirement?”

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

“Will the Rebound in Equities and Housing Save Retirement?”

By Alicia H. Munnell, Anthony Webb, and Rebecca Cannon Fraenkel

The brief’s key findings are:

  • The 2010 National Retirement Risk Index showed that 53 percent of households will not be able to maintain their standard of living in retirement.
  • But equity and house prices have both increased since then.
  • Interestingly, updating the asset values only reduces the Index to 50 percent because:
    • the rise in house prices has been relatively modest in real terms; and
    • the more robust growth in stocks mainly benefits the top third of households.

This brief is available here.

Read more!

Social Security Bulletin, Vol. 73 No. 4

Social Security Bulletin, Vol. 73 No. 4

Released November 2013

Download entire publication

How Do Trends in Women's Labor Force Activity and Marriage Patterns Affect Social Security Replacement Rates?

by April Yanyuan Wu, Nadia S. Karamcheva, Alicia H. Munnell, and Patrick J. Purcell

Changes in the role of women in the economy and in the family have affected both the amount and the type of Social Security benefits they receive in retirement. Women's labor force participation rate increased from less than 40 percent in 1950 to more than 70 percent in 2011. Over much of the same period, marriage rates fell and divorce rates rose. This article examines how women's higher earnings and lower marriage rates have affected Social Security replacement rates over time for individuals and for households.

Growth in New Disabled-Worker Entitlements, 1970–2008

by David Pattison and Hilary Waldron

We find that three factors—(1) population growth, (2) the growth in the proportion of women insured for disability, and (3) the movement of the large baby boom generation into disability-prone ages—explain 90 percent of the growth in new disabled-worker entitlements over the 36-year subperiod (1972–2008). The remaining 10 percent is the part attributable to the disability “incidence rate.” Looking at the two subperiods (1972–1990 and 1990–2008), unadjusted measures appear to show faster growth in the incidence rate in the later period than in the earlier one. This apparent speedup disappears once we account for the changing demographic structure of the insured population. Although the adjusted growth in the incidence rate accounts for 17 percent of the growth in disability entitlements in the earlier subperiod, it accounts for only 6 percent of the growth in the more recent half. Demographic factors explain the remaining 94 percent of growth over the 1990–2008 period.

The Supplemental Poverty Measure (SPM) and the Aged: How and Why the SPM and Official Poverty Estimates Differ

by Benjamin Bridges and Robert V. Gesumaria

In November 2011, the Census Bureau released its first report on the Supplemental Poverty Measure. The SPM addresses many criticisms of the official poverty measure and is intended to provide an improved statistical picture of poverty. This article examines the extent of poverty identified by the two measures. First, we look at how the SPM and official estimates differ for various aged and nonaged groups. Then, we look at why the SPMpoverty rate for the aged is much higher than the official rate.

Read more!

Wednesday, November 27, 2013

New paper: “Growth in New Disabled-Worker Entitlements, 1970–2008”

"Growth in New Disabled-Worker Entitlements, 1970–2008"
Social Security Bulletin 73(4): 25-48, 2013

DAVID PATTISON, Government of the United States of America - Social Security Administration
HILARY WALDRON, U.S. Social Security Administration

In this article, we analyze the growth in new disabled-worker entitlements from 1970 through 2008. The number of newly entitled workers has increased along with the working-age population because more women worked and became insured for disability, and the baby boom generation moved into disability-prone ages. We decompose this incidence growth into the part attributable to those factors and a residual part attributable to factors like program changes or business cycle fluctuations.

We find that the three factors — (1) population growth, (2) growth in the proportion of women insured for disability, and (3) movement of the large baby boom generation into disability-prone ages — explain 90 percent of the growth in new disabled-worker entitlements over the 36-year subperiod (1972–2008) and 94 percent of the growth over the second half of that period (1990–2008). Comparing the earlier period to the later, a seeming speedup in disability incidence in 1990–2008 relative to 1972–1990 disappears once we account for the changing demographic structure.

Read more!

Monday, November 18, 2013

Washington Post: Harkin-Sanchez benefit increase/tax max plan “wrong-headed”

The Washington Post’s editors weigh in against legislation from Sen. Tom Harkin and Rep. Linda Sanchez that would increase social security benefits and COLAs, funded by eliminating the Social Security “tax max”:

The fiscal predicament facing the U.S. government is a double one: how to bring taxes and spending into rough long-term balance while ending the squeeze on non-entitlement spending enshrined in current law. It’s not an easy task. It won’t get any easier if progressives define progressivism as opposition to budgetary realism.

Check it out here.

Read more!

Friday, November 15, 2013

Do seniors steal jobs from younger workers?

Ask my AEI colleague Sita Slavov, over at AEIdeas…

Read more!

Urban Institute’s updated lifetime Social Security and Medicare taxes and benefits

Gene Steurle and Caleb Quackenbush of the Urban Institute have updated their figures showing the lifetime Social Security and Medicare taxes people pay, based on when they’re born, and the lifetime benefits they can expect to receive.

There’s an interesting pattern here: for early cohorts, say the 1960 cohort shown on the left, the real money was in Social Security: you paid a little Social Security taxes and received a load of benefits. Medicare was a bonus: people at that time paid next to no Medicare taxes, but the lifetime benefits weren’t all that much.

Today, it’s a different story. Social Security has turned the corner, both through higher taxes and relatively lower benefits (through the retirement age increase), meaning that a typical person retiring today will pay more in Social Security taxes than they’ll receive back in benefits.

So we’ve saved the budget, right? Wrong. Medicare has grown so much in terms of cost/generosity that a typical person retiring today will receive around $260,000 more in Medicare benefits than they paid in taxes.

Where’s the money going to come from to pay for that? Well, that’s the question…

Read more!

Wednesday, November 13, 2013

Has Social Security redistributed from whites to minorities – or is it the othe rway around?

Caleb Quakenbush, Karen E. Smith and Eugene Steuerle of the Urban Institute have an interesting new study looking at how Social Security redistributes according to race, a topic which has long generated controversy in policy circles. But the authors take a new angle on things: looking not only at how Social Security taxes and benefits are distributed within a single birth cohort, but also across time. For instance, Social Security was far more generous to earlier birth cohorts (who tend to be more predominantly white) and less generous to later ones (who have greater numbers of minorities). As a result, the program may be redistributing from these younger, less-white generations to older, ‘whiter’ generations.

In any case, here’s the abstract:

This brief considers how Social Security’s many benefit and tax features have redistributed across groups over time. Using Current Population Survey data from 1970 through 1994 and microsimulation projections from the Urban Institute’s DYNASIM3 model, we find that for many decades, Social Security redistributed from blacks, Hispanics, and other people of color, to whites. These transfers will likely to continue in future decades. Our findings suggest that future reforms that place the burden of Social Security reform solely on younger, more diverse generations may have undesired distributional consequences if the aim of the program is to provide greater relative protections to more vulnerable groups.

You can check out the whole article here.

Read more!

Tuesday, November 12, 2013

Upcoming event: “The Chained CPI and Its Impact on Social Security”

National Economists Club
11/14/13 with Michael Horrigan, Bureau of Labor Statistics Chinatown Garden Restaurant 618 H St NW
Date: 14 Nov 2013 12:00 PM

Mike Horrigan

Michael Horrigan

Associate Commissioner for Prices and Living Conditions

U.S. Bureau of Labor Statistics

“The Chained CPI and Its Impact on Social Security”

There is a tremendous amount of policy interest in the potential use of the chained CPI-U for cost of living adjustments to various social programs, including social security.  This statistical / survey methodology talk is intended to provide the audience with a thorough background on and understanding of the building blocks of the CPI-U, the CPI-W, the chained CPI-U as well as the much discussed experimental CPI for the elderly (CPI-E). How social security payments are adjusted using the CPI-W is presented as well as how social security payments would have varied in the past using alternative indexes for cost-of-living adjustments.  Finally, the challenge of constructing a production ready non-experimental CPI for a demographic group such as the elderly is discussed.

Reservations are open through Wednesday, 11-13-13

Press: Please email with your attendance status and the date of attendance. It will be assumed that lunch is NOT requested.   If lunch is requested, please contact me in advance, prior to the date of the event, for registration and payment instructions at the member rate.

Credit Card payment is non refundable but you may substitute someone in your place for attendance.

Read more!

Center for Retirement Research Dissertation Fellowships

The Center for Retirement Research at Boston College announces the 2014 Dissertation Fellowship Program for research on retirement income and policy issues, funded by the U.S. Social Security Administration.

  • The Dissertation Fellowships support doctoral candidates writing dissertations on retirement income and policy issues. The program is open to scholars in all academic disciplines.
  • Up to two fellowships of $28,000 will be awarded.
  • The submission deadline for proposals is Friday, February 14, 2014. Award recipients will be announced by April 2014.
  • Visit the Dissertation Fellowship website to view the proposal guidelines.
For questions, please contact:
Marina Tsiknis
617-552-1092 Read more!

Monday, November 11, 2013

New paper: “Technological Progress and the Earnings of Older Workers”

A new Michigan Retirement Research Center Working Paper is available.

“Technological Progress and the Earnings of Older Workers” (WP 2013-280) by Yuriy Gorodnichenko, John P. Laitner, Jae Song, and Dmitriy Stolyarov


Economists’ standard model assumes that improvements in total factor productivity (TFP) raise the marginal product of labor for all workers evenly. This paper uses an earnings dynamics regression model to study whether, in practice, older workers benefit less from TFP growth than younger workers. We utilize panel earnings data from the Social Security Administration’s Continuous Work History Sample. The data include workers of all ages, and we use annual figures for 1950-2004. Our first specification relies on BLS measurements of TFP. Our second model develops a new TFP measure using a principal components analysis. We find that although the earnings of younger workers track TFP growth 1-for-1, the earnings of older workers do not: we find, for example, that a 60-year-old male’s earnings grow only 85-90% as fast as TFP. Nevertheless, our analysis implies that in an economy with an aging labor force, gains from experience tend to outweigh older workers’ inability to benefit fully from TFP improvements.

Key Findings:

• We develop an earnings dynamics model that shows how technological progress affects workers’ earnings at different ages.

• Analyzing earnings data from 1950-2004, we find that earnings of younger workers rise commensurately with increases in productivity, whereas, earnings of 60-year old workers grow only about 90% as fast as overall technological progress.

• However, we find that earnings growth from accumulating experience for older workers more than compensates for declines in ability to benefit from improvements in technology.

• Although increases in longevity presumably encourage workers to consider longer careers, declines in earning power likely have the opposite effect, especially during eras of rapid technological change.

View/Download Working Paper (PDF):

Read more!

Friday, November 1, 2013

Brannon: “Growth won’t save entitlements”

The Bush Center’s Ike Brannon blogs against the idea that, to fix entitlements, all we need is a little more economic growth. In reality, he says, growth is good but not nearly enough. Check it out here.

Read more!

Generalized Benefit Offset: A Fix for Social Security Disability Insurance

The NCPA’s Daily Policy Digest reports on a new paper by the Cato Institutes Jagadeesh Gokhale, titled “Generalized Benefit Offset: A Fix for Social Security Disability Insurance.”

October 1, 2013

The Social Security Disability Insurance (SSDI) program is rapidly approaching insolvency. According to the Social Security Trustees, the program's trust fund will be exhausted some time in early 2016, forcing a reduction in financial support for individuals with a disability. Although many lawmakers in Congress appreciate this problem, most of them appear unwilling to propose reforms to the program, says Jagadeesh Gokhale, a senior fellow with the Cato Institute and a member of the Social Security Advisory Board.

  • One explanation for this inaction is the availability of an easy short-term fix: temporarily transferring funds from SSDI's larger companion trust fund, the Social Security Old Age and Survivors Insurance (OASI) program. According to the Trustees, the OASI trust fund will not be exhausted until 2034.
  • Another explanation for congressional inaction is that the two major political parties are so far apart on how to reform SSDI that there is little chance of developing a workable coalition.

Gokhale proposes a different approach to providing work incentives to SSDI beneficiaries, one that involves benefit offsets but provides greater flexibility to beneficiaries in selecting their level of work activity. The Generalized Benefit Offset (GBO) program that Gokhale proposes would eliminate the cash cliff (the loss of benefits and valuable health care coverage), but it conditions the change on observed earnings. GBO allows reversion to beneficiary status when labor force attachments cease, at the full discretion of SSDI beneficiaries.

  • Under GBO, one would expect beneficiaries to sort themselves according to their work abilities along the GBO schedule rather than park at the Substantial Gainful Activity earnings level.
  • The distribution of resulting work and earning choices by SSDI beneficiaries would generate direct benefits to the economy and to SSDI beneficiaries themselves.
  • GBO should receive broad support from disability advocates, policy practitioners, and (most importantly) lawmakers from both sides of the aisle because it combines key elements that their constituents are demanding: better support for individuals with disabilities but also opportunities to work whenever their health impairments permit market participation.
  • GBO eliminates the cash cliff and would, if adopted, introduce stronger and more effective work incentives for work-capable beneficiaries while retaining SSDI insurance for individuals with disabilities.

Source: Jagadeesh Gokhale, "A New Approach to SSDI Reform," Regulation, Fall 2013.

Read more!

Thursday, October 31, 2013

Response to Kevin Drum on Social Security reform

Mother Jones’ Kevin Drum is one of the more sober analysts of Social Security reform on the left. But apparently my recent podcast with AEI’s Jim Pethokoukis on my own ideas for Social Security left him unconvinced. He calls it “How to Save Social Security By Slashing Benefits.”

There’s certain merit to what he says. If you want to save Social Security and you don’t want to raise taxes – I explain why not here and here – then cutting/“slashing” benefits is tough to avoid. But if you read my recent National Affairs article, which I hope Drum will do, it outlines some of the problems with Social Security that go well beyond solvency. Social Security is not a program that’s perfectly fine with the exception of being a couple trillion dollars short of cash.

It’s a program that discourages saving, labor force participation, delayed retirement, and even fertility, all of which are important to its own future financing health, not to mention the overall economy. Likewise, as I discuss here, Social Security offers a very leaky safety net. Due to the complexity of the benefit formula, some low earners do very well from the program but a lot of others don’t. While Social Security is progressive on average, it isn't consistently so. Think of it as a social insurance policy that may or may not pay off if you need it.

My proposal, which combines a flat poverty-level benefit for all retirees with a supplementary pension savings account, improves in all these areas. It would do less to discourage work and saving, eliminate the payroll tax on older workers to encourage delayed retirement, and cut taxes on parents to avoid penalties for larger families. Moreover, unlike current proposals to cut COLAs, my plan would pay a COLA 1 percentage point above the rate of inflation, to raise benefits for older retirees who are at greater risk of poverty. Yes, it cuts benefits over a period of decades, but it also would boost the economy and take the poverty rate for seniors from around 9 percent to around zero percent.

The point isn’t just to make a Social Security program that’s solvent. It’s to make a Social Security program that really works.

Read more!

Wednesday, October 30, 2013

Biggs Podcast on Social Security reform

In a podcast recorded for AEI’s Ricochet series, I discuss my recent National Affairs article on how to fix Social Security – not just to make it solvent, but to make it truly effective for those who need it the most. You can check it out here.

Read more!

CBO report on “Medicare and Social Security Payroll Taxes and Benefits for People in Different Birth Cohorts”

CBO has an interesting report on the lifetime social security and Medicare taxes Americans pay and the benefits they can expect to receive, and how these “money’s worth” factors have changed over time. You can check out the report here.

Median Lifetime Scheduled Social Security Payroll Taxes and Benefits for Various Cohorts, by Decade of Birth

Read more!

1.5% Social Security COLA. Should it be more or less?

The Social Security Administration today announced that it will pay a Cost of Living Adjustment of 1.5 percent to benefits beginning in January. You don’t have to look far in the next few days to find comments that this COLA is too low, that, as the AARP states, “it will quickly be consumed by the rising costs of basic needs like food, utilities and health care.” In particular, many argue that COLAs, which are calculated based on changes in the prices of goods purchased by the general population, don’t reflect rising prices for goods particularly used by seniors, such as health care. Many argue for basing COLAs on the experimental CPI-E, which tracks prices based on the buying habits of the over-65 population.

On the other hand, most economists – and, it seems, the Obama administration – believe that current COLAs overstate inflation. They favor using the so-called “chained CPI” that accounts for how purchasing habits change in response to changing prices. This will usually produce lower inflation and, thus, a lower COLA.

There are better alternatives. For one, a chain-weighted version of the CPI-E, which accounts both for the buying habits of the elderly as well as how their purchases change when prices change.

Alternately, I’ve proposed a COLA that deliberately raises benefits by more than the rate of inflation, coupled with a lower initial benefit to keep total costs constant. A higher COLA would reduce poverty in truly old age, where it’s most prevalent, and the lower initial benefit would encourage near-retirees to work a little longer.

So the issue isn't simply technical; it’s a policy question about what you want Social Security to do.

Read more!

Tuesday, October 22, 2013

AARP's fuzzy math on Social Security

See my recent piece in the Wall Street Journal that looks at AARP’s claims that Social Security benefits are a multi-trillion dollar stimulus to the economy. Maybe so, but you need to think about Social Security taxes as well. Once you do, the net effect isn’t trillions in GDP or millions of jobs, it’s basically about zero.

Read more!

New paper: “The On-Budget Effects of Trust Funds Surpluses”

The Private Enterprise Research Center at Texas A&M University released

“The On-Budget Effects of Trust Funds Surpluses”
Liqun Liu
Private Enterprise Research Center
Andrew J. Rettenmaier
Private Enterprise Research Center
Thomas Saving
Texas A&M University
Zijun Wang
Private Enterprise Research Center

Theoretical models constructed in this paper predict that the on-budget surplus decreases, by an amount less than dollar-for-dollar, in response to an increase in the trust fund surplus. While consistent with the estimates based on cross-sectional data, the prediction is at odds with the estimates based on time series data. The paper then extends the existing time series analyses by introducing a length-of-lag dimension in differencing. By choosing alternative lengths of lag in differencing or not differencing at all, we not only are able to reproduce the range of existing time series estimates, but also generate estimates that are in line with the theoretical prediction. Using variables differenced with the three-year lag, we find that a one-dollar increase in the trust fund surplus causes the on-budget surplus to decrease by an amount of $0.62 - $0.79.

Click 1308 to view the paper in pdf format. Read more!

Monday, October 7, 2013

The Economist: “Missing Millions” Lost to Disability

The Economist reports on the rising tide of Disability Insurance applications and how it interacts with the U.S. labor market.

In theory, disability and unemployment should not be correlated—and from 1966 to 1985 they were not, according to a new study prepared for the Brookings Papers on Economic Activity by Olivier Coibion and two others. But in 1984 DI eligibility criteria were eased so that applicants could qualify based on a combination of conditions rather than just one. Since then, highly subjective conditions such as back pain and mental illnesses have grown to account for most DI beneficiaries, and claims have become more correlated with unemployment . That strongly suggests that many workers find a way to qualify for DI when other benefits have been exhausted.

Between 2007 and 2012 the number of applicants for DI shot up from 11.2 per 1,000 working-age people to 14. Unpublished research by Mary Daly of the San Francisco Fed, Richard Burkhauser of Cornell University and Brian Lucking, a graduate student, estimates that this rise in applications equates to 2.6m people. Depending on how many of those applicants are eventually awarded benefits, this could explain between 31% and 59% of the decline in participation among 16-to-64-year-olds.

These results suggest that if it were not for people receiving disability insurance, reported unemployment would be far higher. Although DI recipients may initially have climbed because the economy was weak, their numbers will almost certainly not decline when it strengthens again; only 4% of beneficiaries return to work within ten years. The proportion of working-age adults on DI has risen from 1.3% in 1970 to 4.6% in 2013. The impact on participation rates may be cyclical at first and then become structural.

Check out the whole article here.

Read more!

Friday, October 4, 2013

New papers from the Social Science Research Network

"Pensions and Fertility: Back to the Roots - The Introduction of Bismarck's Pension Scheme and the European Fertility Decline"
CESifo Working Paper Series No. 4383
ROBERT FENGE, University of Rostock - Department of Economics
BEATRICE D. SCHEUBEL, European Central Bank (ECB), Ludwig Maximilians University of Munich - Center for Economic Studies (CES)
Fertility has long been declining in industrialised countries and the existence of public pension systems is considered as one of the causes. This paper is the first to provide detailed evidence based on historical data on the mechanism by which a public pension system depresses fertility. Our theoretical framework highlights that the effect of a public pension system on fertility works via the impact of contributions in such a system on disposable income as well as via the impact on future disposable income that is related to the internal rate of return of the pension system. Drawing on a unique historical data set which allows us to measure these variables a jurisdictional level for a time when comprehensive social security was introduced, we estimate the effects predicted by the model. We find that beyond a general depressing effect of social security on birth, a lower internal rate of return of the pension system is associated with a higher birth rate and a higher contribution rate is associated with a lower birth rate.
"Reducing Retirement Risk with a Rising Equity Glide-Path"
WADE D. PFAU, The American College
MICHAEL E. KITCES, The Kitces Report & Nerd's Eye View, Pinnacle Advisory Group
This study explores the issue of what is an appropriate default equity glide-path for client portfolios during the retirement phase of the life cycle. We find, surprisingly, that rising equity glide-paths in retirement – where the portfolio starts out conservative and becomes more aggressive through the retirement time horizon – have the potential to actually reduce both the probability of failure and the magnitude of failure for client portfolios. This result may appear counter-intuitive from the traditional perspective, which is that equity exposure should decrease throughout retirement as the retiree’s time horizon (and life expectancy) shrinks and mortality looms. Yet the conclusion is actually entirely logical when viewed from the perspective of what scenarios cause a client’s retirement to “fail” in the first place. In scenarios that threaten retirement sustainability – e.g., an extended period of poor returns in the first half of retirement – a declining equity exposure over time will lead the retiree to have the least in stocks if/when the good returns finally show up in the second half of retirement (assuming the entire retirement period does not experience continuing poor returns). With a rising equity glide-path, the retiree is less exposed to losses when most vulnerable in early retirement and the equity exposure is greater by the time subsequent good returns finally show up. In turn, this helps to sustain greater retirement income over the entire time period. Conversely, using a rising equity glide-path in scenarios where equity returns are good early on, the retiree is so far ahead that their subsequent asset allocation choices do not impact the chances to achieve the original retirement goal.
"Public Sector Pensions: Options for Reform from the Saskatchewan NDP" Free Download
Fraser Institute Publication, Sept. 2013
MARK MILKE, Fraser Institute
GORDON B. LANG, Gordon B. Lang & Associates Inc.
In 2011, just over six million Canadians were enrolled in some type of registered pension plan (RPP). In the public sector, 87.1% of employees were covered by an RPP — up from 75.5% in 1978. In the private sector, just 24.4% of employees were enrolled in an RPP in 2011, down from 35.2% in 1978.
In 1974, of those enrolled in a registered pension plan, 98.8% of public sector workers were in a defined benefit plan, which had decreased 94.0% by 2011. In the private sector, 88.0% of private sector workers were in a defined benefit plan in 1974 but that declined to 52.3% by 2011. In the private sector, significant growth has occurred in defined contribution and “other” registered plans.
Actuarial assumptions about major provincial public sector pension plans have been too optimistic, which has had consequences for public treasuries. In fact, increased contribution rates and/or bailouts for public sector pension plans have been the norm among the major plans, not the exception. Since the year 2000, taxpayers have seen repeated increases in the contribution rates to public sector pension plans, this to ameliorate pension fund shortfalls. In addition, taxpayers have also been required to bail out the public sector pension plans through special payments.
Given the tight connection between the cost of public sector pension plans and the public treasury — and thus to taxpayers, one notable Canadian-made option for reform comes from Saskatchewan. There, the province stopped adding to pension liabilities and did so over three decades ago. The NDP’s 1970s-era reforms can serve as a useful model for long-term reform to any government, provincial or federal.
"Lightening of Citizenship and Its Implication for Social Policy: 'Social Security Lite' in the Making?"
'Citizenship' has frequently been used as a key concept in Migration Studies. It has also become commonplace to feature the concept in Welfare State Studies, especially in these ten years. Marshallian linear evolutionary view of citizenship is, however, of little help in the analysis of current social policy development in Europe any more. What we are witnessing in Europe is the transformation of the meaning of 'citizenship'.
In concrete, this paper builds on Christian Joppke's hypothesis on the 'lightening of citizenship'. My initial hunch is that lightening of citizenship would have a substantial impact on internal aspects of citizenship, namely what a state expects from its citizenry and what it guarantees in return. Taking recent social policy developments in Europe as an example, this paper contends that lightening of citizenship entails universalisation and lightening of social policy. In other words, the lightening of citizenship coincides with the lightening of social security.
The paper highlights the roles of the EU institutions in this transformation. Especially, this paper features the effect of the leading role of the judiciary in the EU and contends that the judiciary-induced policy making affects the content of the policy. Substantially, we argue that the universalisation and lightening of social security corresponds to functional requirement of the internal market in the first place, but it is also a plausible answer to the increasingly diversified and de-stylised life career of its citizenry. In this regard, 'lightening' should be conceptually separated from mere 'retrenchment' of welfare or 'neo-liberalization'. This direction has been augmented by the intervention of the ECJ, whose judgements has built on the Union Citizenship and enhanced individual social rights protection.
This trend may be called 'rights revolution' European style, but not without price. Featuring citizenship as a universal status, individual rights are protected, but collective ordering of social relations, which has been an important part of the social rights, would take a back seat. Therefore, the paper contends that a new perspective of "the individual versus the collective" is relevant in the analysis of EU social and employment policy.
"Housing in Retirement Across Countries"
Boston College Center for Retirement Research Working Paper No. 2013-18
MAKOTO NAKAJIMA, Federal Reserve Bank of Philadelphia
IRINA TELYUKOVA, University of California, San Diego (UCSD) - Department of Economics
The “retirement saving puzzle” is a phenomenon in which many households U.S. households have significant wealth late in life, contrary to the predictions of a simple life-cycle model. In this project, we examine cross-country differences in the saving behavior of retirees in order to weigh in on the discussion of the puzzle. First, we find that countries in our sample vary noticeably in terms of the extent of the puzzle: one group of countries, in South and Central Europe, look like the United States, while in Northern Europe, retirees spend down their wealth much more rapidly. Second, it appears that the rate of dissaving in retirement is correlated with the extent of public coverage of healthcare and long-term care, and these differences in saving happen predominantly through dissaving of financial assets, while housing assets are less affected. In a quantitative experiment using a life-cycle model of saving in retirement, we measure the role of out-of-pocket medical spending risk in accounting for differences in observed saving patterns among retirees in the United States and Sweden, considering housing and financial assets separately. The model predicts that this risk accounts, on average across age, for one-half of the difference in median net worth between United States and Sweden, and for about 70 percent of the difference in median financial assets. The role of risk diminishes with age, and is seen primarily in financial asset saving, while housing assets do not appear to respond to spending risk, suggesting that housing is not a precautionary asset. Read more!

Thursday, September 26, 2013

Why did the CBO change its Social Security projections?

Joyce Manchester, the Chief of the Long-Term Analysis Unit in CBO’s Health, Retirement, and Long-Term Analysis Division, blogs on how the CBO came to view longevity differently than the Social Security Trustees, and how those changes translated into a more pessimistic forecast for Social Security’s future finances. Check it out here.

Various Analysts' Estimates of What Life Expectancy Will Be in 2060

Read more!

Tuesday, September 24, 2013

New issue brief: “How Sensitive is Public Pension Funding to Investment Returns?”

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

“How Sensitive is Public Pension Funding to Investment Returns?”

by Alicia H. Munnell, Jean-Pierre Aubry, and Josh Hurwitz

The brief’s key findings are:

  • To assess the sensitivity of pension funding to investment returns, the analysis projects funded ratios through 2042 for large public plans using:
    • a stochastic model of year-to-year returns; and
    • a median real return of 4.45 percent, the average used by plans in 2012.
  • The baseline results show that the funded ratio for the 50th-percentile outcome does not reach 100 percent because:
    • plans pay only 80 percent of annual required contributions (ARC); and
    • amortization approaches produce inadequate contributions.
  • Paying 100 percent of the ARC and using more robust funding approaches leads to near full funding by the end of the period.
  • However, even under these more favorable scenarios, the variability of returns still poses risks of funding shortfalls.

This brief is available here.

Read more!

Monday, September 23, 2013

New working paper: “The Social Security Windfall Elimination and Government Pension Offset Provisions for Public Employees in the Health and Retirement Study”

The Michigan Retirement Research Center has released a new working paper, titled “The Social Security Windfall Elimination and Government Pension Offset Provisions for Public Employees in the Health and Retirement Study” by Alan L. Gustman, Thomas L. Steinmeier and Nahid Tabatabai.


This paper uses data from the Health and Retirement Study to investigate the effects of Social Security’s Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) provision on Social Security benefits received by individuals and households. WEP reduces the benefits of individuals who worked in jobs covered by Social Security and also worked in uncovered jobs where a pension was earned. WEP also reduces spouse benefits. GPO reduces spouse and survivor benefits for persons who worked in uncovered government employment where they also earned a pension. Unlike previous studies, we take explicit account of pensions earned on jobs not covered by Social Security, a key determinant of the size of WEP and GPO adjustments. Also unlike previous studies, we focus on the household. This allows us to incorporate the full effects of WEP and GPO on spouse and survivor benefits, and to evaluate the effects of WEP and GPO on the assets accumulated by affected families. Among our specific findings: About 3.5 percent of households are subject to either WEP or to GPO. The present value of their Social Security benefits is reduced by roughly one fifth. This amounts to five to six percent of the total wealth they accumulate before retirement. Households affected by both WEP and GPO lose about one third of their benefit. Limiting the Social Security benefit to half the size of the pension from uncovered employment reduces the penalty from WEP for members of the original HRS cohort by about 60 percent.

Key Findings:

* About 3.5 percent of households in the Health and Retirement Study (HRS) are subject to either the Windfall Elimination Provision (WEP) or Government Pension Offset (GPO) provision, features of the Social Security benefit determination process that limit the benefits of employees who worked in jobs not covered by Social Security, but who are also are eligible for Social Security benefits.

* The present value of the Social Security benefits of affected households is reduced by roughly one fifth, amounting to five to six percent of the total wealth affected households accumulate before retirement.

* Households affected by both WEP and GPO lose about one third of their benefit.

* Limiting WEP adjustments to Social Security benefits to half the size of the pension from uncovered employment, as in current law, reduces the penalty from WEP for members of the original HRS cohort by about 60 percent and substantially affects any interpretation of the law’s impact that is based solely on the provisions of the adjustment to the Primary Insurance Amount formula (PIA) under WEP.

View/Download Working Paper (PDF):

Read more!

Wednesday, September 18, 2013

Big Social Security Changes from CBO

The Congressional Budget Office released on Tuesday its annual Long Term Budget Outlook, which includes updated projections for the financial health of the Social Security program. And those updates are significant – CBO projects Social Security’s 75-year deficit will equal 3.4 percent of taxable payroll. That means that an immediate and permanent 3.4 percentage point increase in the current 12.4 percent Social Security payroll tax would be sufficient to keep the trust fund solvent for 75 years (though not beyond). Last year, CBO projected the long-term deficit at only 1.9 percent of wages, meaning that this year’s projections raise the shortfall by roughly 79 percent.
What’s driving this change? Up until now, CBO has accepted the demographic projections made by Social Security’s Trustees, grafting onto them CBO’s own projections for economic variables. But CBO is now making its own demographic projections, including:
· Longer life expectancies: CBO projects slightly longer life spans than SSA, assuming life spans in 2060 of around 84.9 years rather than SSA’s 83.6 years. As a result, retirees will collect benefits longer.
· Longer work lives: CBO project that for each additional year of life, Americans will choose to work an additional 3 months, partially offsetting the negative budgetary effects of higher life spans
· Higher disability rolls: CBO projects that the ultimate disability rate will equal 5.6 individuals per 1000, versus 5.2 in previous reports.
· Higher unemployment: CBO projects a long-term average unemployment rate of 5.3 percent, versus 5.0 percent in prior reports.
The net result is a long-term Social Security deficit considerably worse than previously thought.
None of this changes how large the Social Security shortfall will be. These, after all, are projections and only the future will tell how things will turn out.
But for those who previously said that there’s no hurry to fix Social Security because the long-term deficit is small and easily managed, a near-doubling of that deficit should cause them to reconsider their positions.
Update: Jed Graham of Investors Business Daily notes that CBO now projects that the combined Social Security trust funds will become insolvent in the year 2031, which would trigger across the board benefit cuts throughout the program. And Jed himself predicted that CBO would make this change. Check out his article here. Read more!

Friday, September 13, 2013

New papers from the Social Science Research Network

"The Impact of a Retirement Savings Account Cap"
EBRI Issue Brief No. 389 (August 2013)

JACK VANDERHEI, Employee Benefit Research Institute (EBRI)

This paper provides an initial analysis of the potential financial impact on private-sector retirement benefits of the retirement savings account cap included in the Obama administration’s FY 2014 budget proposal. This cap would limit the amounts accumulated in specified retirement accounts to that necessary to provide the maximum annuity permitted for a tax-qualified defined benefit plan under current law. The budget proposal is targeted at a wide range of retirement plan vehicles; and, if enacted by Congress, the Obama administration’s proposal would be effective with respect to contributions and accruals for taxable years beginning on or after Jan. 1, 2014. This analysis finds that although a very small percentage of current 401(k) participants with IRA accounts have combined balances sufficient to be immediately affected by the proposed limit, over time (and depending on the applicable discount rates, whether a defined benefit pension is involved, and the size of the 401(k) plan) the impact could be much greater.

Simulation results for 401(k) participants assuming no defined benefit accruals and no job turnover show that more than 1 in 10 current 401(k) participants are likely to hit the proposed limit sometime prior to age 65, even at the current historically low discount rate of 4 percent. When the simulation is rerun with discount rate assumptions closer to historical averages, the percentage of 401(k) participants likely to be affected by these proposed limits increases substantially: For example, with an 8 percent discount rate, more than 20 percent of the 401(k) participants are simulated to reach the limit prior to retirement.

When the impact of stylized, defined benefit account assumptions are added to the analysis, the percentage of 401(k) participants simulated to reach the proposed limits increases even more: In fact, for 401(k) participants assumed to be covered by a 2 percent, three-year, final-average plan with a subsidized early retirement at 62, nearly a third are assumed to be affected by the proposed limit at an 8 percent discount rate. Additional analysis is performed for small plans (those with less than 100 participants) to assess the potential impact of eventual plan terminations if and when the owners and/or key decision makers of the firms reach the cap threshold. Depending on plan size, this may involve as few as 18 percent of the firms (at a 4 percent discount rate) or as many as 75 percent of the firms (at an 8 percent discount rate).

"Retirement Plan Participation: Survey of Income and Program Participation (SIPP) Data, 2012"
EBRI Notes, Vol. 34, No. 8 (August 2013)

CRAIG COPELAND, Employee Benefit Research Institute (EBRI)

This paper presents results from the latest Survey of Income and Program Participation (SIPP) data on retirement plan participation. SIPP is conducted by the U.S. Census Bureau to examine Americans’ participation in various government and private-sector programs that relate to their income and well-being. These latest data are from Topical Module 11 of the 2008 Panel, fielded from December 2011-March 2012. The SIPP data have the advantage of providing relatively detailed information on workers’ retirement plans, but they also have the drawback of being fielded only once every three to five years. By comparison, the Census Bureau’s Current Population Survey (CPS) provides overall participation levels of workers on an annual basis but does not provide information on the specific types of plans in which the workers are participating. The Bureau of Labor Statistics’ (BLS) National Compensation Survey annually surveys establishments’ offerings of employee benefit programs, including retirement plans; however, it has limited information on worker characteristics.

The latest SIPP data show that 61 percent of all workers over age 16 had an employer that sponsored a pension or retirement plan for any of its employees in 2012, up from 59 percent in 2009. Workers participating in a plan increased to 46 percent in 2012, up slightly from 2009 (45 percent) but below 2003 (48 percent). The vesting rate (the percentage of workers who say they were entitled to some pension benefit or lump-sum distribution if they left their job) stood at 43 percent in 2012, up from 24 percent in 1979. This increase is largely due to the increased number of workers participating in defined contribution retirement plans (such as 401(k) plans), where employee contributions are immediately vested, and faster vesting requirements in private-sector pension plans.

Defined contribution (401(k)-type) plans were considered the primary plan by 78 percent of workers with a plan. Defined benefit (pension) plans were the primary plan for 21 percent of workers. Primary plan is the plan type -- defined benefit (DB) versus defined contribution (DC) -- that retirement plan participants regard as their most important. The last section of the paper examines participation in, and contributions to, salary-reduction plans (401(k)-type plans). The workers in this study include those from both the private and the public sectors.

The PDF for the above title, published in the August 2013 issue of EBRI Notes, also contains the full text of another August 2013 EBRI Notes article abstracted on SSRN: “Satisfaction With Health Coverage and Care: Findings from the 2012 EBRI/MGA Consumer Engagement in Health Care Survey.”

"RRSPs and an Expanded Canada Pension Plan"
Fraser Institute Studies in Economic Prosperity, June 2013

CHARLES LAMMAM, Fraser Institute
JASON CLEMENS, Fraser Institute

After their meeting in December 2012 at Meech Lake, Quebec, the federal and provincial-territorial finance ministers decided to put expansion of the Canada Pension Plan (CPP) and its sister program, the Quebec Pension Plan (QPP), back on the policy agenda. The idea of expanding the CPP is not new and, over the years, various individuals and groups have called for a more generous mandatory public pension system as a way to boost the overall retirement income of Canadians. With the global financial crisis of 2008-2009 and attendant decline in the value of retirement-savings portfolios, these calls have been renewed.

Recent proposals to expand the CPP call for an increase in the mandatory CPP contribution rate (payroll tax) to help fund larger benefits. Unfortunately, the debate about expanding the CPP has downplayed the basic economic insight that increasing mandatory contributions to the CPP could displace voluntary savings. Failure to account for this tendency could lead one to overestimate the increase in overall retirement savings that would result from an expanded CPP.

To find out if increases in mandatory contributions tend to displace voluntary savings, in RRSPs and an expanded Canada Pension Plan we provide a preliminary investigation of readily available historical data from the Canada Revenue Agency (CRA) on contributions to the Canada Pension Plan (CPP) and also to Registered Retirement Savings Plans (RRSPs), an important voluntary retirement savings vehicle in Canada. The period examined is 1993 to 2008, which includes several increases to the CPP contribution rate. Indeed, the CPP contribution rate nearly doubled between 1993 and 2003.

This preliminary investigation suggests that mandatory increases in CPP savings result in reduced voluntary savings in RRSPs. If the preliminary analysis is validated by more detailed microanalysis, the discussion about the efficacy of increasing the CPP contribution rate for all Canadian workers should then include the costs of reduced RRSP savings compared to increased CPP savings. Other aspects of this trade-off, such as the comparative benefits of the CPP (defined benefit in retirement) compared to the benefits of RRSPs (flexibility and choice), also need to be assessed and discussed.

The key to a successful system for providing retirement income through savings is a set of rules that allow for an optimal mix of savings for different people in different stages of their lives and with different preferences. There may be benefits to a compulsory expansion of the CPP. However, these benefits need to be weighed against the costs, which, as our analysis shows, likely include a reduction in voluntary RRSP savings.

"The Financial Well-Being of Elderly People in Europe and the Redistributive Effects of Minimum Pension Schemes"
Rivista Italiana degli Economisti, Vol. 2, August 2013

FRANCESCO FIGARI, ISER - University of Essex
MANOS MATSAGANIS, Athens University of Economics and Business
HOLLY SUTHERLAND, University of Essex - Institute for Social and Economic Research (ISER)

This study analyses the financial well-being of elderly people across Europe. Using the European microsimulation model EUROMOD, which facilitates the identification of minimum pension schemes in a comparable way across countries, we gather together new empirical findings on the redistributive effects of the minimum pension schemes in a range of European countries. In particular, we quantify the extent to which these schemes contribute to alleviate elderly poverty across Europe. Nevertheless, the financial well-being of older people depends crucially on the pension system as a whole. Countries with generous minimum pension schemes seem to allocate relatively fewer resources to other pillars of the pension system. On the one hand, they are more effective in reducing elderly poverty rates. On the other hand, they fail to ensure a level of financial well-being of older people in line with the overall population

Read more!

Burkhauser: Reform Social Security Disability Now

One of the voices outside Congress calling for Disability Insurance reform is Cornell Prof. Richard Burkhauser, who is also an adjunct scholar at AEI. In Roll Call, he writes:

The Americans with Disabilities Act of 1990, ratified 23 years ago last month, is based on what was then a radical idea: that the physical and social environment people with disabilities face is as much responsible for their inability to fully integrate into society as their health-based impairments. But despite the improvements mandated by the ADA, the employment rate of working-age Americans with disabilities (aged 16-64) hit an all-time low of 14.5 percent in March 2012 (latest number available) — by comparison, it was 28.6 percent in March 1990 and 18.7 percent in March 2007, just before the Great Recession.

Congress must recognize that this precipitous drop in employment is not the result of an increase in the severity of work limitations or of growing discrimination in our society. Rather, it is the unintended consequence of their failure to reform Social Security Disability Insurance — a program that discourages Americans with disabilities from working.

Nearly the half the increase in DI enrollment since the mid-1980s, he writes, “consists of individuals who, with different interventions and incentives, might have continued productive employment but are instead discouraged from working by the law of the land.”

Check out the whole article here.

Read more!

Trouble for Social Security's other fund

The Christian Science Monitor reports on the fading Disability Insurance trust fund, and what is driving DI’s financial problems.

As a disabled man, Matthew Rini of Harwood Heights, Ill., struggles to survive on sporadic earnings as a tour guide in Chicago and about $400 a month from the Social Security Disability Insurance(SSDI) program. His live-in companion, Maria, helps with household expenses.

But even as Mr. Rini grapples with a deteriorating ability to work, he and millions of others face another potential woe: a looming insolvency of the SSDI trust fund, whose reserves are set to run dry in three years. Unless Congress acts, disability benefits would then be cut 20 percent.

For some SSDI recipients, the result could be grim, requiring cutbacks in food purchases or other daily necessities. But as the 2016 deadline draws near, remedies for fixing SSDI are stirring up debate, complicating the path toward a resolution and highlighting the polarized views among Americans about government-run social programs. Politically, it's a trial run for the debate over shoring up Social Security, whose combined funds are expected to be depleted in 2033.

Given the importance of DI benefits to so many and the short time until the program becomes insolvent, you’d guess that many Members of Congress would have proposed plans to fix the program. Guess again: while some outside analysts have ideas on how to reform DI, Congress is mostly silent.

Check it out here.

Read more!

CBO may need new headline writers…

CBO released two new publications on the federal budget. It looks like the second answers the question posed in the first…


New from CBO

Has the Fundamental Federal Budgetary Challenge Been Addressed?

blog post

The deficit has fallen faster than we expected a few years ago, but the fundamental federal budgetary challenge remains.

Email to a friend

The Federal Budget: The Deficit is Down But the Fundamental Challenge Remains


Presentation by Doug Elmendorf, CBO Director, to the Macroeconomic Advisers’ Washington Policy Seminar

Email to a friend

Read more!