Op-ed: “Disability program needs reform, not merely revenue reallocation.”

Over at The Hill, I look at the new House rule regarding revenue transfers from Social Security’s retirement program over to the disability program, which faces insolvency next year.

“Republicans target disability,” say the headlines. A rule passed by the newly elected Republican-controlled House prohibits a supposedly “routine” reallocation of revenues between Social Security’s retirement and disability insurance programs, threatening dramatic benefit cuts for the disabled. In reality, the House rule may force Congress to finally enact substantive reforms for the troubled Disability Insurance (DI) program.

You can check out the whole piece here.

Read more!

Dear NASI: What’s Behind Door #4?

The National Academy of Social Insurance (NASI), of which I’m a nominal member, published a blog post “clarifying the choices” available to reform the Social Security Disability Insurance program, which is projected to run short of funds in 2016. William J. Arnone, the Chair of NASI’s Board, and G. Lawrence Atkins, NASI’s President, point to three ways to strengthen the disability program’s finances.

These include:

1. Transfer tax revenues from Social Security’s retirement program to the disability program;
2. Raise the payroll tax rate for the disability program; or
3. Raise taxes for both the retirement and disability programs.

That’s it? Those are my only choices? What’s behind door #4?

Arnone and Atkins make no mention of disability reforms such as those passed in the Netherlands in the late 1990s and early 2000s, which created incentives for employers to provide accommodations for workers with disabilities and required workers to undergo rehabilitative services before they could apply for disability benefits. The Netherlands once was a disability basket-case, with among the highest disability rates in the world. Today, they’ve reduced their intake of disability cases by 60%. Worth mentioning?

Reform proposals in the U.S. draw from these experiences. One plan developed for the Center for American Progress and the Brookings Institution by David Autor of MIT and Mark Duggan of Stanford would require employers to cover the initial period of disability, during which time workers would receive rehabilitative services. Likewise, Richard Burkhauser of Cornell and Mary Daly of the San Francisco Federal Reserve, in a book published by the American Enterprise Institute, would institute “experience rating” for employers’ disability payroll taxes, such that employers who keep disabled employees on the job are rewarded with lower taxes.

The bipartisan Social Security Advisory Board has stated that the disability program should be reformed to “support an integrated approach that provides and emphasizes an alternate path — one directed to self-support, independence, and contribution that can help those who might, by taking that path, avoid, delay, or minimize their need for dependence on the programs of last resort.”

There’s been a tremendous amount of research work on disability in recent years. For an ostensible research organization to bypass all of that and reflexively turn to tax increases and only tax increases strikes me as bizarre.

Read more!

Social Security Trust Funds to Run Out in 2029?

That’s what Jed Graham of Investors Business Daily crunches out of the latest budget numbers from the CBO. Says Jed:

CBO's updated financial path for Social Security runs through fiscal 2025, in which year the program's benefits are projected to exceed its tax revenues by $359 billion, up from a $73 billion shortfall in 2014, as the $2.8 trillion trust fund shrinks to $1.6 trillion.

Plugging in CBO's long-term Social Security projections detailed in December for 2026 and later leaves little doubt that its estimates now put the trust fund's depletion in the fall of 2029. A similar analysis correctly predicted that CBO would move up the trust fund's end date by two years (to 2031) in 2013.

Click here to read the whole story.

Read more!

House Budget Chair: Social Security Reforms Coming

The Atlanta Journal-Constitution reports that Rep. Tom Price (R-GA), the incoming chair of the House Budget Committee, said that he wants the Committee to take up Social Security reform.

“On the issue of Social Security, it has indeed been the third rail as Tim [Chapman, COO for Heritage Action] mentioned, and what I’m hopeful is what the Budget Committee will be able do is to is begin to normalize the discussion and debate about Social Security. This is a program that right now on its current course will not be able to provide 75 or 80 percent of the benefits that individuals have paid into in a relatively short period of time. That’s not a responsible position to say, ‘You don’t need to do anything to do it.’

“So all the kinds of things you know about – whether it’s means testing, whether it’s increasing the age of eligibility. The kind of choices — whether it’s providing much greater choices for individuals to voluntarily select the kind of manner in which they believe they ought to be able to invest their working dollars as they go through their lifetime. All those things ought to be on the table and discussed.”

Check out the whole story for more details.

Read more!

New paper: “Who Would Pay More if the Social Security Payroll Tax Cap Were Raised or Scrapped?”

Who Would Pay More if the Social Security Payroll Tax Cap Were Raised or Scrapped?

January 2015, Nicole Woo, Cherrie Bucknor, and John Schmitt

On January 1^st, the maximum amount of annual earnings subject to the Social Security tax – a.k.a. the payroll tax cap – increased to $118,500. Every year, this cap is adjusted to keep up with inflation. However, many American workers are not aware that any wages above the cap are not taxed by Social Security.

This issue brief analyzes Census Bureau data to determine how many workers would be affected if the Social Security payroll tax cap were raised or phased out. We find that the richest 6.1 percent of workers (less than 1 in 15) would pay more if the cap were scrapped. Only the top 1.5 percent (1 in 67) and 0.7 percent (1 in 140) would be affected if the tax were applied to earnings over $250,000 and $400,000, respectively.

When we look at the wage earners according to gender, race or ethnicity, age, or state of residence, the share of workers who would be affected by increasing or phasing out the cap varies widely.

Click here to read the whole paper.

Read more!

New papers from the Social Science Research Network

"From Status-Based Privilege to Old Age Security: Rethinking Public Pension Reform in China"
UMKC Law Review, Volume 82, Number 4, Summer 2014

QIAN HAO, China University of Political Science and Law
Email: haoqian010@gmail.com

Pension reform poses a formidable challenge to China’s development and has become a topic of intensive debate in recent years. Nonetheless, various reform measures based on legislations adopted since the 1980s have largely failed to be implemented, including the 1997 three-pillar pension plan. While the current debate on pension reform in China centers on how to address the financial crisis of the public pension system, this article argues that widening pension deficit has been only a symptom rather than the root cause of the reform stalemate. China’s old socialist pension benefits were developed as a status-based privilege rather than provision of old age economic security. As China transits from a centrally planned economy to a market economy, the old pension system has increasingly become inadequate and inequitable. The remaining socialist pension obligations are incompatible with the emerging market, and the majority of the population is exposed to market risks without protection in retirement. However, those structural challenges have not been successfully addressed by deficit-driven reform plans or short-sighted measures that focus on having current workers pay for the heavy cost of pensions for retirees under the previous system. The right reform strategy will require that efforts be redirected towards addressing the fundamental transition issues.

"Recruiting and Retaining High-Quality State and Local Workers: Do Pensions Matter?"
Center for Retirement Research at Boston College Working Paper No. 2015-1

ALICIA H. MUNNELL, Boston College - Center for Retirement Research
Email: MUNNELL@BC.EDU
JEAN-PIERRE AUBRY, Boston College - Center for Retirement Research
Email: aubryj@bc.edu
GEOFFREY SANZENBACHER, Boston College Economics Department
Email: geoffrey.sanzenbacher.1@bc.edu

Many state and local governments have responded to challenges facing their pension plans by cutting benefits. Will these cuts make it harder for state and local governments to recruit and retain high-quality workers? To date, the answer has been difficult to obtain; most micro-level datasets contain information on the existence of pensions but not on pension generosity. To get around this constraint, this study uses a unique source, the Public Plans Database, to obtain data on the pension generosity of state and local workers’ pensions. These data are merged with the Current Population Survey to investigate how pension generosity affects the gap between the private sector wage of workers that states and localities recruit from the private sector relative to the workers that they lose to it. The findings suggest relatively generous pensions help reduce this “quality gap,” making it easier for state and local employers to recruit high-earning workers from the private sector and retain those workers. The effect is similar regardless of whether employer or employee contributions finance the benefits. The study suggests states should be cautious as they cut their pension benefits and that a strategy to maintain benefits by shifting some costs onto employees may help maintain states’ ability to recruit and retain high-quality workers.

"Measuring and Communicating Social Security Earnings Replacement Rates"

ANDREW G. BIGGS, American Enterprise Institute
Email: andrew.biggs@aei.org
GAOBO PANG, Towers Watson
Email: gaobo.pang@towerswatson.com
SYLVESTER J. SCHIEBER, Towers Watson
Email: syl.schieber@gmail.com

Financial advisors commonly use earnings replacement rates to assist workers in their retirement planning. Policymakers and analysts use them to gauge the adequacy of Social Security benefits and other retirement income in allowing retirees to maintain preretirement living standards. In recent years, the Social Security trustees regularly published replacement rates that have been widely interpreted as the extent to which Social Security benefits replace earnings of workers at various points in the lifetime earnings distribution. However, the trustees’ replacement rates are calculated differently than those generally used for retirement planning purposes possibly leading to confusion among policymakers and others regarding how much of workers’ earnings are replaced by Social Security and how much those workers need to save on their own for retirement. Financial planners calculate replacement rates by comparing an individual’s retirement income to that same individual’s pre-retirement earnings, generally earnings in the years immediately preceding retirement. The Social Security Administration, by contrast, effectively calculates replacement rates by comparing retiree incomes to the incomes of contemporaneous workers. This latter measure is often used in other countries, but differs both qualitatively and quantitatively from the more common replacement rate calculations used for financial planning purposes. We find that replacement rates calculated on a financial planning basis are generally higher than those published by the Social Security trustees and that Social Security benefits generally replace somewhat more of individual workers’ earnings than the trustees’ rates suggest.

"Reforming Old Age Security: Effects and Alternatives"
Industrial Alliance Research Chair on the Economics Working Paper 14-10

NICHOLAS-JAMES CLAVET, Laval University
Email: nicholas-james.clavet.1@ulaval.ca
JEAN-YVES DUCLOS, Laval University, Institute for the Study of Labor (IZA)
Email: jyves@ecn.ulaval.ca
BERNARD FORTIN, Laval University
Email: bfor@ecn.ulaval.ca
STEEVE MARCHAND, Laval University
Email: steeve.marchand@ecn.ulaval.ca

The federal government announced in its 2012 budget its intention to delay the age of eligibility for Old Age Security and the Guaranteed Income Supplement from 65 to 67 years. By the time the policy is fully implemented (i.e., in 2030), this delay will have increased net revenues of the federal government by 7.1 billion dollars per year (in constant 2014 dollars), but will reduce net provincial revenues by 638 million dollars. With constant labour and savings behaviour, this delay would also increase the percentage of individuals aged 65 and 66 years who are in the low income group from 6% to 17% (for an additional 100,00 low-income seniors in this age group) and would be most harmful to low-income seniors and to women. Alternative reforms to the Old Age Security could make it possible to achieve similar effects on public finances without having such large impacts on the low income rate among seniors.

"The Implications of Differential Trends in Mortality for Social Security Policy"

JOHN BOUND, University of Michigan, National Bureau of Economic Research (NBER)
Email: jbound@umich.edu
ARLINE T. GERONIMUS, University of Michigan at Ann Arbor - School of Public Health
Email: ARLINE@UMICH.EDU
JAVIER M RODRIGUEZ, University of Michigan at Ann Arbor
Email: rodrigjm@umich.edu
TIMOTHY WAIDMANN, The Urban Institute
Email: twaidman@ui.urban.org

While increased life expectancy in the U.S. has been used as justification for raising the Social Security retirement ages, independent researchers have reported that life expectancy declined in recent decades for white women with less than a high school education. However, there has been a dramatic rise in educational attainment in the U.S. over the 20th century suggesting a more adversely selected population with low levels of education. Using data from the National Vital Statistics System and the U.S. Census from 1990-2010, we examine the robustness of earlier findings to several modifications in the assumptions and methodology employed. We categorize education in terms of relative rank in the overall distribution, rather than by credentials or years of education, and estimate trends in mortality for the bottom quartile. We also consider race and gender specific changes in the distribution of life expectancy. We found no evidence that survival probabilities declined for the bottom quartile of educational attainment. Nor did distributional analyses find any subgroup experienced absolute declines in survival probabilities. We conclude that recent dramatic and highly publicized estimates of worsening mortality rates among non-Hispanic whites who did not graduate from high school are highly sensitive to alternative approaches to asking the fundamental questions implied. However, it does appear that low SES groups are not sharing equally in improving mortality conditions, which raises concerns about the differential impacts of policies that would raise retirement ages uniformly in response to average increases in life expectancy.

"Creating French-Style Pension Funds: Business, Labour and the Battle Over Patient Capital"

MAREK NACZYK, Sciences Po Paris - Centre d’études européennes, Sciences Po Paris - LIEPP
Email: marek.naczyk@sciencespo.fr

Over the past few decades, European governments have increasingly retreated from public pension provision and promoted the expansion of private retirement savings accounts. Analysts of comparative social policy have traditionally considered that the politics of pension privatisation has been driven by politicians’ and socio-economic actors’ concerns about the relative generosity and costs of different pension arrangements. But, when they are fully-funded instead of being financed on a pay-as-you-go basis, pension arrangements generate funds that are injected into the financial system. The existence of such a welfare-finance nexus means that stakeholders in the pension system are also attentive to how pension funds invest their assets, and may try to actively shape the institutional design of old-age pensions in accordance with such concerns. This paper focuses on the role of socio-economic actors – employers, trade unions and the financial services industry – in pension privatisation and develops theoretical expectations on how these actors’ interest in maximising control over private pension plans’ financial assets affects pension politics. The argument is tested with a case study of French pension debates between the 1980s and the 2000s.

Read more!

Confessions of a Social Security Mooch?

Is Social Security actually a great deal? For some people, as Brenton Smith writes over at Fedsmith.com. You can check it out here.

Read more!

Blahous: Disability Insurance Heading for a Wall

Chuck Blahous of the Mercatus Institute, one of Social Security’s public trustees, has a very good article over at e21 on the impending insolvency of Social Security’s Disability Insurance program:

The problem in a nutshell is that Social Security’s disability trust fund is running out of money.  The latest trustees’ report projects a reserve depletion date in late 2016.  By law Social Security can only pay benefits if there is a positive balance in the appropriate trust fund (there are two: one for old-age and survivors’ benefits (OASI), the other for disability benefits).  Absent such reserves, incoming taxes provide the only funds that can be spent.  Under current projections, by late 2016 there will only be enough tax income to fund 81 percent of scheduled disability benefits.  In other words, without legislation benefits will be cut 19 percent. 

Check out the whole article here.

Read more!

Disability Rubber-Stamping is What Some in Congress Seem to Want

Just prior to Christmas, the House Government Reform and Oversight Committee released a troubling report on how the Social Security Administration has overseen the adjudication of disability insurance applications. SSA has long had a backlog of applications awaiting decisions, due to a process (set in place by Congress) that gives applicants multiple levels of appeal before a final decision is made. As a result, applicants usually wait a year or more before getting a hearing. This Washington Post article provides some interesting background.

All of this puts pressure on the agency to move applicants as quickly as possible. As the Committee’s report states:

The agency was singularly focused on churning out a large volume of dispositions, which led to inappropriate benefit awards. It takes significantly less time for an ALJ to award benefits than to deny them, and decisions awarding benefits are not appealed.

In effect, some SSA disability judges were rubber-stamping applications and, the Committee argues, the agency wasn’t doing much to stop it. To be fair, since the judges are nominally independent, it’s not an easy problem to fix. At any rate, since each incorrect granting of disability benefits costs the program about $300,000 in future benefits, rubber-stamping is a big deal.

I wouldn’t go so far to say as that SSA doesn’t care about the quality of disability decisions. But here’s how the incentives work: higher quality decisions demand more staff and more time. The agency doesn’t have a lot of each and Congress isn’t so keen on paying for more. When wait times are long, constituents complain to their Congressmen, who then complain to the agency.

Moving decisions quickly eases this pressure and many elected officials don’t seem to care if adding people to the disability rolls exhausts the program’s trust fund more quickly. The consensus position among most Democratic lawmakers (and, I’m guessing, some Republicans) is simply to paper over the disability program’s funding gap with tax revenues taken from the retirement program, with no reforms to make the program or its decision-making work better. Republicans recently passed a rule against fixing disability solely through a revenue transfer, but will need to come up with reform ideas of its own.

In any case, if Congress shows that it cares about the speed of disability decisions but not their quality, it’s likely they’ll get what they want.

Read more!

Saving and Retirement Foundation: “Growth in New Disabled-Workers Entitlements, 1970-2008”

Join us Thursday, January 22nd  for a luncheon discussion with Hillary Waldron and David Pattison on "Growth in New Disabled-Workers Entitlements, 1970-2008". RSVP Below.

View this email in your browser

LUNCH FORUM
Join us on Thursday, January 22nd
with Hillary Waldron and David Pattison of the Social Security Administration discussing 
Growth in New Disabled-Workers Entitlements, 1970-2008

Thursday, January 22
Noon - 1:00 p.m.
RSVP
When you RSVP please provide your name, title, company, email and phone 
number.  This information is needed in order to enter the building. 
Location: 
Wells Fargo
1750 H Street, NW
5th Floor
Washington, D.C. 20006
(Lunch will be provided)
This is a widely attended event.

Abstract
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.

Read more!

Senate Finance Committee: “Social Security: Is a Key Foundation of Economic Security Working for Women?”

I missed posting this hearing from before Christmas, but think it’s worth checking out.

Watch Now

United States Senate Committee on Finance
Tuesday, December 9, 2014, 9:30 AM
215 Dirksen Senate Office Building

Member Statements

Ron Wyden
(D-OR)

Download Statement [275.3 KB]

Orrin G. Hatch
(R-UT)

Download Statement [298.8 KB]

Witness Testimony

Ms. Barbara Perrin, Beneficiary, Eugene, OR

Download Testimony

Dr. Catherine J. Dodd, Ph.D, RN, Chair of the Board of Directors, National Committee to Preserve Social Security and Medicare, Washington, DC

Download Testimony

Dr. Sita Nataraj Slavov, Ph.D, Professor of Public Policy, George Mason University, Visiting Scholar, American Enterprise Institute, Washington, DC

Download Testimony

Ms. Janet M. Barr, MAAA, ASA, EA, Actuary, on behalf of the American Academy of Actuaries, Chicago, IL

Download Testimony

Read more!

2015 Dissertation Fellowship Deadline Reminder

The Center for Retirement Research at Boston College is accepting applications for the 2015 Dissertation Fellowship Program.  The program is 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 three fellowships of $28,000 will be awarded.
• The submission deadline for proposals is Saturday, January 31, 2015. Award recipients will be announced by April 2015.
• The proposal guidelines are available online.

For questions, please contact:
Marina Tsiknis
tsiknis@bc.edu
617-552-1092 Read more!

Will we have to work forever?

Charles Ellis, Alicia Munnell and Andrew Eschtruch of the Center for Retirement Research at Boston College think it’s possible:

Just 30 years ago, most American workers were able to stop working in their early sixties and enjoy a long and comfortable retirement. This “golden age” of retirement security reflected the culmination of efforts that started more than a century ago when employers first set up pensions. Gradually, over decades, we built an effective system with Social Security and Medicare as the universal foundation and traditional pensions—where the employer was responsible for all the saving and investment decisions—providing a solid supplement for about half the workforce. The increasing provision of retirement support allowed people to retire earlier and earlier.

This brief golden age is now over. Because of economic and demographic developments, our retirement income systems are contracting just as our need for retirement income is growing. On the income side, Social Security is replacing less of our preretirement income; traditional defined benefit pension plans have been displaced by 401(k)s with modest balances; and employers are dropping retiree health benefits. On the needs side, longer lifespans, rising health care costs, and low interest rates all require a much bigger nest egg to maintain our standard of living. The result of all these changes is that millions of us will not have enough money for the comfortable retirement that our parents and grandparents enjoyed.

Click here to read the whole article.

Read more!

New paper from the Social Science Research Network

"The Employment Effects of Terminating Disability Benefits"
Melbourne Institute Working Paper No. 2/15

TIMOTHY MOORE, George Washington University
Email: tim_moore@gwu.edu

Few Social Security Disability Insurance (DI) beneficiaries return to the labor force, making it hard to assess their likely employment in the absence of benefits. Using administrative data, I examine the employment of individuals who lost DI eligibility after the 1996 removal of drug and alcohol addictions as qualifying conditions. Approximately 22 percent started working at levels that would have disqualified them for DI, an employment response that is large relative to their work histories. Those who received DI for 2-3 years had the largest response, suggesting that a period of public assistance may maximize the employment of some disabled individuals.

Read more!

New Working Paper on Social Security Replacement Rates

Back in July, I co-authored a Wall Street Journal article with Syl Schieber, the former chair of the Social Security Advisory Board, in which we raised questions regarding how Social Security’s actuaries calculate “replacement rates,” which measure retirees’ income as a percentage of their pre-retirement earnings. We argued that SSA’s method significantly overstates individuals’ pre-retirement earnings by indexing them to nationwide wage growth, which is even faster than inflation. Overstating their earnings causes their replacement rates to look lower, which make Social Security seem less generous and encourages the view that Americans face a “retirement crisis.” We argued that comparing Social Security benefits to retirees’ inflation-adjusted pre-retirement earnings gives a better measure of how well Social Security lets retirees maintain their pre-retirement standard of living.

These differences matter. For instance, a recent CBO report measured replacement rates both ways. Relative to wage indexed earnings, the average person born in the 1980s will receives a social security replacement rate of 48%. But relative to inflation-adjusted career earnings, Social Security provided a replacement rate of 64%, one-third higher. If you assume that the typical person requires a replacement rate of around 70% -- a common financial advisors benchmark, as well as calculated in some academic studies – these two figures paint very different pictures regarding the adequacy of Social Security benefits and retirement incomes overall.

Our op-ed coincided with the Social Security Trustees’ decision to delete the actuaries’ replacement rate calculations from their annual report. After that, it was game on: Boston College professor Alicia Munnell, whose National Retirement Risk Index uses a method similar to SSA’s actuaries, pushed back hard on our article. As did SSA’s actuaries themselves, publishing a defense of their methods back in July. More recently, the CBO and OECD issued reports that can be taken to support our point of view. I recently spoke to the Social Security Advisory Board regarding this issue, and the Board’s own Technical Panel on Assumptions and Methods – which is chaired by Munnell – took up the replacement rates question at their opening meeting.

To move the debate along, I have a new AEI working paper on replacement rates co-authored with Syl Schieber and Gaobo Pang, an economist at the pension consulting firm Towers Watson. Among the points we make:

• Until recently the Social Security Trustees calculated replacement rates relative to career average earnings indexed to wage growth; SSA’s actuaries continue to do so. This measure effectively compares the benefits paid to new retirees to the earnings of today’s workers, not to retirees’ own pre-retirement earnings. These “wage-indexed replacement rates” understate the ratio of retirees’ benefits to their own real pre-retirement earnings.
• We argue, and recent reports from the CBO and the OECD concur, that calculating replacement rates relative to inflation-adjusted average pre-retirement earnings is a better shorthand representation of the life cycle approach to retirement planning, as well as being more understandable to policymakers and individuals saving for retirement.
• The SSA actuaries’ method of calculating replacement rates for hypothetical worker examples is calibrated to produce a pre-determined result. Prior to 2002, SSA calculated replacement rates using a different method and using different hypothetical workers. But these previous hypothetical workers had very unrealistic earnings patterns, so SSA updated to more realistic stylized earners. But SSA then calibrated its methods to produce the same replacement rates figures as before: it changed its method of calculating replacement rates and increased the earnings of its stylized workers in order to reduce measured replacement rates to its previous value of around 40%. There is no reason these calculations should be given any special importance.
• A recent SSA actuarial study using administrative data concluded that wage-indexed replacement rates closely replicate those calculated relative to final earnings, a common practice for financial advisors. But the SSA OACT study excluded all spousal and widow benefits, thereby reducing measured replacement rates. Over one-third of female retired worker beneficiaries receive auxiliary benefits and, on average, auxiliary benefits increase their monthly payments by 78%. An analysis that included all beneficiaries and all benefits received by them would show higher replacement rates.

There is a lot of new information in our paper about what replacement rates mean and how they have been measured and I believe we add a great deal to the current debate.

Read more!

The Coming Congressional War Over Social Security Disability

A good piece from Howard Gleckman at Forbes.

A technical rule change engineered by House Republicans on the first day of the new Congress may signal the beginning of a major battle over the future of the Social Security Disability program—and, more broadly, other federal programs for people with disabilities.

Check it out here.

Read more!

New papers from the Social Science Research Network

"Multiemployer Defined Benefit Pension Plans' Liability Spillovers: Important Connections in U.S. Unionized Industries"

BARBARA CHAMBERS, University of Utah
Email: barbara.chambers@utah.edu

A Multiemployer Defined Benefit Pension Plan (MDBP) is a collectively bargained pension plan maintained by two or more employers and a labor union. MDBPs pool risks, contributions, assets and liabilities. Bankruptcy by MDBP firms generally results in essentially constant MDBP total liabilities but a shrinking pool of contributing MDBP employers, thus increasing MDBP liabilities for the remaining MDBP employers and exposing them to “liability spillover risks”. I document the economic magnitudes of public firms’ MDBP liabilities and expected MDBP liability spillovers from other public companies, information relevant to both finance academics and policy makers. I find that nine public companies have MDBP liabilities exceeding 10% of their market value of equity and in a few cases expected liability spillovers are bigger than 30% of a firm’s market value of equity. On average, leverage ratios increase by 6% once MDBP liabilities and expected liability spillovers are consolidated into capital structure.

"Reverse Mortgages: What Homeowners (Don’t) Know and How It Matters"

THOMAS DAVIDOFF, University of British Columbia (UBC) - Sauder School of Business
Email: thomas.davidoff@sauder.ubc.ca
PATRICK GERHARD, Maastricht University
Email: p.gerhard@maastrichtuniversity.nl
THOMAS POST, Maastricht University - School of Business and Economics - Department of Finance, Netspar
Email: T.Post@maastrichtuniversity.nl

Reverse mortgages help elderly homeowners to unlock and consume home equity while continuing residing in their homes. Demand for reverse mortgage is far behind predictions. Based on a representative survey of U.S. homeowners aged 58 we assess the role of product knowledge (literacy) for reverse mortgage demand. We find that awareness of the product is very high while knowledge is fairly low. Lack of product knowledge relates to low demand. Respondents that would benefit most from reverse mortgages (lower income, insufficient savings) are more likely to accept a reverse mortgage. But, those respondents do not have good knowledge about the product. They may not make an informed decision and fail to evaluate alternative retirement planning options. We find no effect of knowledge transfer on reverse mortgage demand. This result suggests that a way to increase reverse mortgage demand might be the reduction of the product’s inherent complexity.

"Do Tax Incentives Increase 401(K) Retirement Saving? Evidence from the Adoption of Catch-Up Contributions"
CRR WP 2014-17

MATTHEW S. RUTLEDGE, Boston College
Email: rutledma@umich.edu
APRIL YANYUAN WU, Boston College - Center for Retirement Research
Email: wuuv@bc.edu
FRANCIS M. VITAGLIANO, Boston College - Center for Retirement Research
Email: vitaglif@bc.edu

The U.S. government subsidizes retirement saving through 401(k) plans with $61.4 billion in tax expenditures annually, but the question of whether these tax incentives are effective in increasing saving remains unanswered. Using longitudinal U.S. Social Security Administration data on tax-deferred earnings linked to the Survey of Income and Program Participation, the project examines whether the “catch-up provision,” which was enacted in 2001 and allows workers over age 50 to contribute more to their 401(k) plans, has been effective in increasing earnings deferrals. Compared with similar workers under age 50, the study finds that contributions increased by $540 more among age-50-plus individuals who had approached the 401(k) tax-deferral limits prior to turning 50, suggesting that the older individuals respond to the expanded tax incentives. For this group, the elasticity of retirement savings to the tax incentive is quite high: a one-dollar increase in the tax-deferred limit leads to an immediate 49-cent increase in 401(k) contributions.

Read more!