February 2017

04Feb

Do Pension Plans with Participant Investment Choice Teach Households to Hold More Equity?

By Scott Weisbenner Some retirement plans allow the participant to choose how funds are invested. Having to direct investments may provide the participant with financial education. This paper finds that households covered by pension plans in which the employee chooses investments are significantly more apt to hold stock outside of their retirement plan than are households with pension plans offering no such choice. The effect of investment choice upon non-pension asset allocation cannot be explained by portfolio rebalancing or differences...

February 4, 2017
Articles, Investing, Labor Market, Savings,
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04Feb

Non-Contributory Pensions Number-Gender Effects on Poverty and Household Decisions

By Miguel Ángel Borrella, Mariano Bosch & Marcello Sartarelli Non-contributory pensions, designed to reduce old-age poverty particularly in countries with low contributory coverage, may induce a variety of household behavioural responses. This paper tests whether they vary with beneficiaries number and gender in Bolivia, one of the countries with the lowest contributory coverage worldwide. Taking advantage of a discontinuity in eligibility at age 60 in the Renta Dignidad pension, we estimate these effects by using a bi-dimensional regression discontinuity design,...

February 4, 2017
Articles, Pension design, Savings, , ,
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04Feb

What Replacement Rates do Households Actually Experience in Retirement?

By Alicia H. Munnell & Mauricio Soto This paper estimates how much people actually receive in retirement relative to earnings before retirement when all sources of income, including income generated by homeownership, are combined. Previous studies find that middle class people need between 70 and 75 percent of their pre-retirement earnings to maintain their life style once they stop working. The objective of this study is to determine what people are actually receiving in retirement. Regardless of how retirement income and...

February 4, 2017
Articles, Investing, Savings, ,
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04Feb

Borrowing from the Future: 401(k) Plan Loans and Loan Defaults

By Timothy (Jun) Lu, Olivia S. Mitchell, Stephen P. Utkus & Jean A. Young Tax-qualified retirement plans seek to promote saving for retirement, yet most employers permit pre-retirement access by letting 401(k) participants borrow plan assets. This paper examines who borrows and why, and who defaults on their loans. Our administrative dataset tracks several hundred plans over 5 years, showing that 20% borrow at any given time, and almost 40% do at some point over five years. Employer policies influence...

February 4, 2017
Labor Market, Savings,
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04Feb

The Separation of Intelligence and Control: Retirement Savings and the Limits of Soft Paternalism

By Jacob Russell “Soft paternalism” is in vogue among academics and lawmakers, but too much is being asked of it. This Article studies soft paternalist techniques — including nudging and disclosure — that have been used in the employer-sponsored retirement system. Defined-contribution retirement plans represent an ideal test case for libertarian paternalism: there has been extensive experimentation, and it has often been held up as a success by nudge advocates. In particular, this Article focuses on investment allocation decisions in...

February 4, 2017
Articles, Regulation, Savings,
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04Feb

The Life-Cycle Personal Accounts Proposal for Social Security: An Evaluation

By Robert J. Shiller The life-cycle accounts proposal for Social Security reform has been justified by its proponents using a number of different arguments, but these arguments generally involve the assumption of a high likelihood of good returns on the accounts. A simulation is undertaken to estimate the probability distribution of returns in the accounts based on long-term historical experience. U.S. stock market, bond market and money market data 1871-2004 are used for the analysis. Assuming that future returns behave...

February 4, 2017
Articles, Labor Market, Savings
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04Feb

Financial Literacy and Financial Education: Review and Policy Implications

By Annamaria Lusardi In recent years, as workers have gained an unprecedented degree of control over their pensions and savings, the importance of financial literacy and financial education has increased considerably. Large changes in the structure of financial markets, labor markets, and demographics in developed countries have led to this change. Consumers have a bewildering array of complex financial products - from reverse mortgages to annuities - to choose from, making saving decisions increasingly complex. Knowledge about the working of...

February 4, 2017
Articles, Regulation, Savings,
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04Feb

World Bank Pension Reforms and Development Patterns in the World System and in the Wider Europe: A 109 Country Investigation Based on 33 Indicators of Economic Growth, and Human, Social and Ecological Well-Being, and a European Regional Case Study

By Arno Tausch On the first anniversary of the death of Nobel Laureate Professor Franco Modigliani, the Luxembourg Institute for European and International Studies (LIEIS) organised a conference on 'Reforming European Pension Systems' on 24 and 25 September 2004 in Schengen. Initially, the intention was to hold this conference in the presence of Professor Modigliani who had written a comprehensive paper for the LIEIS. However, due to ill health, such a meeting had to be postponed repeatedly. A third date was...

February 4, 2017
Adequacy, Articles, Regulation, Savings, , ,
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04Feb

Strategic and Tactical Allocation to Commodities for Retirement Savings Schemes

By Theo Nijman & Adrianus Petrus Swinkels We examine whether the variance risk of investment portfolios of pension schemes investing in traditional asset classes can be reduced by extending the set of traditional investment opportunities with commodities. We investigate the economic and statistical significance of shifts in the strategic (three year), myopic (quarterly), and tactical (quarterly rebalancing) mean-variance frontier for pension schemes with a fixed liability portfolio. We find substantial differences in optimal strategic allocations for pension schemes with nominal...

February 4, 2017
Articles, Investing, Savings,
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03Feb

Risky Choices: Simulating Public Pension Funding Stress with Realistic Shocks

By James Farrell, Daniel Shoag State and local government pension funds in the United States collectively manage a very large and diverse pool of assets to meet the even large sum of accrued liabilities. Recent research has emphasized that widely-used accounting practices, like matching discount rates to expected asset returns, understate the market value of these liabilities. Less work has explored the risks inherent in existing diverse set asset allocations, and the accounting practices used by most state and local...

February 3, 2017
Articles, Investing, Savings, ,
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