- Series: Pension Research Council Series
- Hardcover: 272 pages
- Publisher: Oxford University Press (September 1, 2006)
- Language: English
- ISBN-10: 0199204659
- ISBN-13: 978-0199204656
- Product Dimensions: 9.3 x 0.9 x 6.1 inches
- Shipping Weight: 1 pounds (View shipping rates and policies)
- Average Customer Review: 1 customer review
- Amazon Best Sellers Rank: #1,491,671 in Books (See Top 100 in Books)
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Restructuring Retirement Risks (Pension Research Council Series)
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About the Author
David Blitzstein is the Director of the United Food and Commercial Workers International Union (UFCW) Negotiated Benefits Department where he advises local unions in collective bargaining on pension and health insurance issues and consults with the Union's 150 jointly trusted health and welfare and pension plans nationwide. Mr. Blitzstein also serves as trustee of the UFCW Industry Pension Fund, and the UFCW National Health and Welfare Fund. Mr. Blitzstein represents the UFCW as a member of the working committee of the National Coordinating Committee for Multiemployer Plans. In addition he serves on the Pension Research Council Advisory Board at the Wharton School; he is a member of the Employee Benefits Research Institute and the National Academy of Social Insurance. He received the BS degree from the University of Pennsylvania and he received the MS in Labor Studies from the University of Massachusetts in Amherst.
Olivia S. Mitchell is the International Foundation of Employee Benefit Plans Professor of Insurance and Risk Management, the Executive Director of the Pension Research Council, and the Director of the Boettner Center on Pensions and Retirement Research at the Wharton School. Concurrently Dr. Mitchell is a Research Associate at the National Bureau of Economic Research and a Co Investigator for the AHEAD/ Health and Retirement Studies at the University of Michigan. Dr. Mitchell's main areas of research and teaching are private and public insurance, risk management, public finance and labor markets, and compensation and pensions, with a US and an international focus. She received the BA in Economics from Harvard University and the MA and PhD degrees in Economics from the University of Wisconsin-Madison.
Stephen P. Utkus is the Director of the Vanguard Center for Retirement Research, where he conducts and sponsors research on retirement savings and retirement benefits. His current research examines attitudes and expectations regarding retirement, financial markets and employer-sponsored retirement plans; the psychological and behavioral aspects of participant decision-making; trading and investment behavior among retirement plan participants; fiduciary issues arising from retirement programs; and global trends in public and private pension plans. Mr. Utkus serves on the Pension Research Council Advisory Board and he is also a Visiting Scholar at the Wharton School. He received the BS in Computer Science from MIT and the M.B.A. in Finance from The Wharton School.
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Restructuring Retirement Risks. Edited by David Blitzstein, Olivia S.
Mitchell, and Stephen P. Utkus. Oxford University Press, 2006, ISBN 0-19-
920465-9, 272 pages. doi:10.1017/S1474747207003484
University of Illinois
This volume consists of 12 essays focusing on public as well as private pension systems, with an
additional chapter containing a comprehensive analysis of financing retiree medical benefits by
Wagoner, Rappaport, Fuller, and Yeager. The volume's essays are written at a level that is
accessible to a non-academic audience, but their contents will also be valuable to researchers in
Book reviews 363
the field of retirement security. Readers will come away with a deeper understanding of the
challenges society faces in financing retirement expenditures.
After an introduction, the book begins with an overlapping generations (OLG) model by
Bohn who puts it through its paces to study intergenerational risk-sharing possibilities
with respect to uncertain productivity growth, asset returns, fertility and longevity, medical
technology and expenses, and war expenditure. The author examines how a government's
ability to tax future generations on the behalf of more current generations, via institutions such
as Social Security and Medicare, has the potential to improve risk-sharing vis-a` -vis a laissez
faire system. The results provide interesting policy implications. For example, it may be optimal
to more heavily tax a baby-bust generation to pay the social security benefits of their baby
boom predecessors, since with a higher capital-to-labor ratio, the wages of the baby bust
generation are relatively high. While this single-economy OLG model results are insightful,
it would be interesting to extend it to the international context to consider how international
risk-sharing might alter the recommendations.
Several chapters analyze government policy with respect to private defined benefit (DB)
pension plans. Work by Warshawsky, McCall, and Worth outlines regulatory flaws exacerbating
the losses experienced by the Pension Benefit Guaranty Corporation (PBGC), the US
government corporation insuring employer-provided DB plans. The chapter summarizes the
economic justification for Bush Administration proposals to make DB plan accounting more
transparent and reduce plan managers' moral hazard. The chapter by Hammond and Fore also
emphasizes transparency, arguing that DB accounting rules should be standardized to make
them market-value oriented. This, and targeting funding levels above full funding, would make
DB pensions portable as in the Netherlands.
Three chapters push further on how to manage risk in the DB environment a range of
countries. Coronado and Liang employ an empirical model to confirm that PBGC-insured
plans in the US engaged in moral hazard. They find that, as corporate sponsors of DB plans
became more financially distressed, their contributions to their DB plans declined, thereby
increasing plan underfunding and, ultimately, raising PBGC losses. Turning to the UK,
McCarthy and Neuberger present a stochastic model of that government's recently established
Pension Protection Fund (PPF) which, like the PBGC, insures private defined benefit plans.
The authors calculate fair insurance premia sufficient to cover taxpayer losses due to plan
failures, but they then assess the probability that extreme losses from providing DB guarantees
would wipe out the PPF's reserves. Taking as a base case the pension fund of the European
Central Bank pension, Albrecht, Coche, Maurer, and Rogalla also analyze alternative guarantees
on returns of hybrid pension plans that combine elements of DB and defined contribution
(DC) plans. Again, they focus on the probability of extreme losses from providing such
guarantees. While potentially useful for risk management, the emphasis on extreme losses
detracts from the arguably more important issue of determining the market value of these
guarantees, a value that can be derived using contingent claims (option pricing) theory.
Several other chapters in this volume consider the economics of DC plans. Borzi's essay
takes a rather negative view of DC plans because they place more responsibility for retirement
savings on employees. But given the poor performance of many DB plans, including the lack of
portability and losses of benefits due to bankruptcies, it is unclear that DC plans are actually
riskier than DB ones. This discussion drives the need to appropriately design DC plans, a topic
taken up by Mitchell, Utkus, and Yang who analyze more than 500 401(k) plans. They find that
U.S. tax laws and plan regulations give plan sponsors an incentive to be more generous in
matching employee contributions when the average employee is a relatively highly-paid individual.
Holden and VanDerhei simulate retirement payouts from 401(k) plans, and they find
that even lower-paid employees who make continuous 401(k) contributions and who do not
retire early achieve relatively high retirement incomes. This is especially true when their DC
savings are combined with Social Security benefits. But employees not continuously enrolled in
401(k) plans and who fail to contribute to IRA accounts during times of non-enrollment can
fall short of retirement security. The authors also note that ``catch-up'' contributions availableto employees over the age of 50 have the largest impact on higher wage individuals' retirement
One of the more intriguing essays in this volume is by Valde's-Prieto, who presents a
theoretical argument for converting a Pay-As-You-Go (PAYGO) defined benefit Social
Security scheme into a DC individual account system. His plan, which is worthy of serious
consideration, overcomes a potential political roadblock by eliminating transition costs
associated with the conversion. This is done by recognizing that additional future payroll taxes
and/or benefit cuts implicitly exist under the current PAYGO system. Cash flows from making
these additional taxes explicit can be securitized as Covered Wage Bill (CWB) securities and
issued to social security beneficiaries at their market values. These wage-based securities
could then be held in individuals' private accounts whose value is increased by regular payroll
contributions, or they can be traded for shares in a limited menu of balanced mutual funds.