RetireSecure Blog

April 21, 2015

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

Filed under: New Research,Planning for Retirement — The Pension Research Council @ 8:34 am

Timothy (Jun) Lu, Olivia S. Mitchell, Stephen P. Utkus, and Jean A. Young

Abstract — 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 borrowing behavior, in that workers are more likely to borrow and borrow more in aggregate, when a plan permits multiple loans. We estimate loan default “leakage” at $6 billion annually, more than prior studies.

April 20, 2015

Prudential Joins Wharton’s Pension Research Council as Associate Member

Filed under: Uncategorized — The Pension Research Council @ 1:28 pm

Olivia S. Mitchell, Director of the Pension Research Council, is pleased to announce that Prudential has joined the Council for 2015. Read the full press release here.

April 17, 2015

Lessons for Public Pensions from Utah’s Move to Pension Choice

Filed under: New Research,Planning for Retirement — The Pension Research Council @ 1:51 pm

Robert L. Clark, Emma Hanson, and Olivia S. Mitchell

Abstract — This paper explores what happened when the state of Utah moved away from its traditional defined benefit pension. Instead, it offered new hires a choice between a conventional defined contribution plan, versus a hybrid plan option having both a guaranteed benefit component and a defined contribution plan shifting investment risk to employees. We show that some 60 percent of new hires failed to make any active choice and, as a result, they were automatically defaulted into the hybrid plan. Slightly more than half of those who made an active choice elected the hybrid plan. Slightly more than half of those who made an active choice elected the hybrid plan. Interestingly, post-reform, employees who failed to actively elect a primary retirement plan were also far less likely to enroll in a supplemental retirement plan, compared to new hires who made an active plan choice. We also find that employees hired following the reforms were more likely to leave public employment, resulting in higher turnover rates than previously. This could reflect a reduction in the desirability of public employment under the new pension design. Our results imply that public pension reformers must consider employee responses, in addition to potential cost savings, when developing and enacting major pension plan changes.

To read this paper CLICK HERE.

April 15, 2015

Pensions & Investments Joins Wharton’s Pension Research Council

Filed under: Uncategorized — The Pension Research Council @ 11:55 am

Olivia S. Mitchell, Director of the Pension Research Council, is pleased to announce that Pensions & Investments has joined the Council for 2015. Read the full press release here.

April 10, 2015

Mercer Joins Wharton’s Pension Research Council

Filed under: Uncategorized — The Pension Research Council @ 3:30 pm

Olivia S. Mitchell, Director of the Pension Research Council, is pleased to announce that Mercer has joined the Council for 2015. Read the full press release here.

April 8, 2015

Narrow Framing and Long-Term Care Insurance

Filed under: New Research,Retirement Research — The Pension Research Council @ 9:45 am

Daniel Gottlieb and Olivia S. Mitchell

Abstract — We propose a model of narrow framing in insurance and test it using data from a new module we designed and fielded in the Health and Retirement Study. We show that respondents subject to narrow framing are substantially less likely to buy long-term care insurance than average. This effect is distinct from, and much larger than, the effects of risk aversion or adverse selection, and it offers a new explanation for why people underinsure their later-life care needs.

To Read this Paper CLICK HERE.

March 31, 2015

Morgan Stanley Joins Wharton’s Pension Research Council

Filed under: Uncategorized — The Pension Research Council @ 2:42 pm

Olivia S. Mitchell, Director of the Pension Research Council, is pleased to announce that Morgan Stanley Wealth Management has joined the Council for 2015. Read the full press release here.

March 23, 2015

The Lump of Labor: Is it Still a Fallacy?

Filed under: Planning for Retirement,PRC Partners — The Pension Research Council @ 10:14 am

by Mike Orszag, TowersWatson

Some of the key questions people must ask themselves when planning for retirement include how long they can continue to work, how much they can earn, and whether they can count on their job still being around. In this day and age, these worries are compounded by a concern that older individuals could be ‘forced out’ by the younger generation. That is, even if someone is not ready to retire, he or she might feel pressured to leave “to give the young folks a chance.”

This perspective arises from a belief that there are only so many jobs than can be filled in the economy – the so-called “Lump of Labor” view. In fact few arguments irritate mainstream economists more, as history has shown that there’s not a fixed demand for a set lump of labor. Instead, over our history, when labor supply has changed, wages adjusted and the economy grew.

A related argument is that people’s skills become obsolete over time, so technological change dooms us to ever-higher un- and under-employment. Certainly technological change has forced re-invention of the workplace time and again, so it’s critical to invest in one’s knowledge to avoid job loss. But the productivity improvements flowing from new technology do not lead to aggregate job loss; rather they produce job evolution. Of course the adjustments can take a long time and may be painful for some, but a more productive economy will float many boats.

Nevertheless, there’s good reason to worry that the lump of labor ‘fallacy’ may now be more right than wrong, due to the changing nature of skill revolution. In the old days, there were always some jobs that unskilled workers could take, but this may not be true in the future. For instance, during the industrial revolution, machines took the place of many simple and repetitive tasks. Yet there were plenty of other jobs where people were more productive than machines. Additionally, new jobs appeared that had not been anticipated previously, as a result of the new technologies.

What seems different today is that machines are now growing smarter than people. What this implies is that the range of alternative jobs which people can do better will shrink. This could make labor market adjustment more painful and longer for the individuals involved.

The reality that our human capital is increasingly risky is rarely acknowledged by financial advisers and pension sponsors. Yet most people are unable to accurately estimate how likely it is that their own skills will be relevant a decade or two hence. Nevertheless, the nature of technological change should make human capital risk more important for those looking ahead and planning for retirement. Not only is obsolescence a bigger risk, but mitigation steps are far less clear.

Views of our Guest Bloggers are theirs alone, and not of the Pension Research Council, the Wharton School, or the University of Pennsylvania

March 11, 2015

International Foundation of Employee Benefit Plans Joins Wharton’s Pension Research Council

Filed under: PRC Partners — The Pension Research Council @ 1:22 pm

Olivia S. Mitchell, Director of the Pension Research Council, is pleased to announce that the International Foundation of Employee Benefit Plans has rejoined the Council for 2015. Read the full press release here.

February 26, 2015

Mutual of America Joins the Pension Research Council

Filed under: PRC Partners — The Pension Research Council @ 10:52 am

Olivia S. Mitchell, Director of the Pension Research Council, is pleased to announce that Mutual of America has rejoined the Council for 2015. Read the full press release here.

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