RetireSecure Blog

December 18, 2015

To Be Relevant, Annuity Market Must Change

Filed under: Planning for Retirement,Retirement Research — The Pension Research Council @ 2:25 pm

To Be Relevant, Annuity Market Must Change

Matt Carey, co-founder of the online annuity marketplace Abaris and former policy advisor at the US Department of Treasury, discusses the reasons why annuities have failed to fill the gaps between an aging population and the declining portion of Americans with pension plans.

Click here to read the full article.


July 21, 2015

Public Pension Changes Can Be Costly

Filed under: New Research,PRC in the News,Retirement Research — The Pension Research Council @ 3:16 pm

A recent study, “Lessons for Public Pensions from Utah’s Move to Pension Choice,” showed that many public sector workers offered less generous pensions did not boost their supplemental saving to make up for it. Robert L. Clark (Poole College of Management at North Carolina State University); Olivia S. Mitchell (Wharton Professor of Insurance/Risk Management & Applied Economics/Policy  and Director of the Pension Research Council); and Emma Hanson (North Carolina Department of State Treasurer Retirement Systems Division) coauthored the study.

The team followed pension reforms in Utah implemented in 2011 that closed the state’s defined benefit plan to new employees and established a less-generous two-option replacement. To make up the shortfall, new hires could contribute to a state supplemental plan, but many people did not.

The authors report that nearly three of five new hires failed to elect between the two-option plan, so they were defaulted to the hybrid pension. And defaulters also saved less, on average, than did the active choosers. Moreover, turnover rates rose by one-third among the new hires. The researchers conclude that plan administrators should be aware of possible side effects of changing plan generosity.

To read more on this story click here.

July 7, 2015

Borrowing from Your Retirement?

Filed under: Financial Literacy,Planning for Retirement,Retirement Research — The Pension Research Council @ 2:20 pm

Two-fifths of workers allowed to borrow from their plans have done so within the past five years, according to a recent Pension Research Council study, “Borrowing from the Future: 401(k) Plan Loans and Loan Defaults .”

Co-authors Timothy Lu Jun, Olivia S. Mitchell, Steve Utkus, and Jean Young also show that younger and lower-paid employees are most likely to take out 401(k) loans. Those who borrow against their retirement and leave their jobs are most likely to default on the loans – meaning that they own income tax on what they’ve borrowed plus a 10 percent tax penalty.

Money taken from a retirement plan but not returned becomes part of retirement plan “leakage.” To learn more about this, click here to read the full article on

May 19, 2015

Capping Pension Costs? Cautionary Lessons from the UK

Filed under: Financial Literacy,PRC Partners,Retirement Research — The Pension Research Council @ 8:03 am

by Mike Orszag, TowersWatson

Economists typically criticize price regulation because, for most products, competition is seen as sufficient to drive pricing to reasonable economic levels. Moreover, consumers are usually better off as a result of the competitive process. Exceptions would include cases where significant economies of scale exist, as in the case of utilities, and also where imperfect information impedes the orderly operation of markets.

Many would argue that pension plans and related long-term savings products fit into the latter category: that is, the complex and abstract nature of long-term saving can make it difficult for market pressures to drive down product fees and charges. International experience suggests that these markets do not function particularly well when there is no regulation at all.

Countries have taken various different approaches to deal with such market failures, including:

  • Product regulation making the underlying product simpler and more comparable;
  • Cost regulation capping product costs;
  • Intermediary regulation regulating the sales process so it works more smoothly.

Interestingly, the UK has experimented with all three approaches over time, and hence its experience offers insights into concerns likely to arise for other countries. After the introduction of personal pensions in 1988, the UK heavily regulated intermediaries via a “polarization” regime for retail financial services. The term “polarization” was used because financial advisers either had to represent a single investment company, or remain independent and represent all companies on the market. During the early years of the UK personal pension model, administrative costs proved to be very high, and surrender values sometimes eroded years of contributions. By the mid-1990s, it had become clear that the regime did not work at all well, perhaps because the regulation was inadequate, or the approach on its own may have been insufficient to prevent product complexity and high costs. In particular, the regime did not eliminate the payment of commissions to intermediaries, possibly misaligning incentives. And in addition while various disclosure regimes were tried, all had serious deficiencies.

Next, the UK adopted stakeholder pensions in 2001, with prescribed charges, minimum contribution levels, and flexibility on timing of contributions. The regulatory regime accompanying this new pension model included a mix of product and cost regulation. Annual administrative charges were capped at 1% of assets. The government’s effort to cap charges did succeed in driving down overall pension management costs, and the regulatory change forced an industry-wide wave of cost reduction and modernization. Nevertheless, the reduction in surrender charges produced unexpected consequences, because surrender charges had subsidized fund distribution; accordingly, lowering these provided less incentive for companies to seek consumers. As a result, the regulatory and capital burden imposed under the new regime reduced the number of firms in the industry and hence narrowed options for consumers.

Even today, 15 years after the launch of stakeholder pensions in 2001, the move to impose charge caps on pensions remains incomplete. For instance, earlier this year, the government proposed a 75-basis point cap on the default investment funds used by participants who were automatically enrolled into pension savings products. This may sound straightforward in theory, but it has not been simple to implement in practice.

One problem is that existing plan participants who were previously defaulted into funds with charges over the new cap must be informed of the cap changes, and such communication can be costly, complex, and often difficult for many members to understand. Further complicating matters are implementing new rules, effective next year, to protect members by disallowing any commission payments that are indirectly paid by members.

Moreover, plan sponsors still have many unanswered questions about the charge caps. Practically speaking, pension charges are allocated variously into asset-based, contribution-based, and annual fees, making cross-plan comparisons difficult. Additionally, new measures will be required to ensure that non-contributing members are not forced to subsidize those who do contribute. Another practical consideration is how to obtain plan compliance certification, and how to clarify what to do when a pension plan inadvertently exceeds a cost cap.

The UK experience with capping pension fund changes suggests that such caps can drive down retirement plan costs. Yet the process is complex, and the regulatory burden may be unexpectedly heavy on providers as well as participants. In other words, charge caps have long-term consequences for the structure and nature of pension saving.

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

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.

January 9, 2015

Retirement in Baby Steps

Filed under: Planning for Retirement,Retirement Research — The Pension Research Council @ 10:48 am

Many older Americans are electing to downsize from their full-time careers and neighborhoods in steps, rather than abandoning work all at once.  Olivia S. Mitchell, Wharton Professor of Insurance/Risk Management & Applied Economics/Policy, and Director of the Pension Research Council, predicts that two-step retirement will become increasingly popular among Baby Boomers.

In previous generations, even when wives worked outside their homes, people expected that they would quit when their husbands retired. Now, more women hold jobs they find “aspirational,” Professor Mitchell said, so they want to delay a major downsizing. Furthermore, as people live longer, they must work longer to afford to retire.

To read more click here.

May 27, 2014

Financial Literacy Could Mean Bigger 401(k) Returns

Filed under: Financial Literacy,New Research,PRC in the News,PRC Partners,Retirement Research,Uncategorized — The Pension Research Council @ 2:23 pm

In a recent paper, entitled “Financial Knowledge and 401(k) Investment Performance”, Robert L. Clark, Olivia S. Mitchell, Professor of Insurance/Risk Management and Applied Economics/Policy and Director of Wharton’s Pension Research Council, and Annamaria Lusardi found that investors that were more financially knowledgeable than their peers enjoyed an estimated 1.3% higher annual return on their 401(k)s or other defined contribution plans, compared to those with the least financial savvy.  They reported:

“[M]ore financially knowledgeable people hold more equity in their portfolios, and hence they can expect higher risk-adjusted returns.”

“They can also anticipate significantly higher expected excess returns, which over a 30-year working career could build a retirement fund 25% larger than that of their less-knowledgeable peers.”

To read the full story on click here.


May 7, 2014

40 Years after ERISA: Where Are We Now?

Filed under: Planning for Retirement,PRC Events,PRC in the News,PRC Partners,Retirement Research,Uncategorized — The Pension Research Council @ 10:43 am

The Pension Research Council at the Wharton School hosted some of the top retirement policy experts from around the world. The symposium, “Reimagining Pensions: The Next 40 Years,” marked the 40th anniversary of the Employee Retirement Income Security Act (ERISA), and the 60th Anniversary of the Council.

Mark Miller from Reuters has a nice article on the event. He reports that defined benefit plans have long been on the decline in the private sector, which concerns some. Yet according to Dallas Salisbury, DB plans were never as important to retirement security as many thought. Contrary to popular belief, Americans have always switched jobs often, so “the move away from defined benefit plans has had limited or no negative impact on their financial well-being.” Moreover, many U.S. corporations would not want to start new DB plans, according to Kevin Covert, due to market volatility and exposure to lawsuits. Yet the shift of market risk to retirees remains a a worrisome trend. During the 2008-09 crash, many sustained heavy losses in their retirement accounts.

To read all of Mark Miller’s article “The Vanishing Defined-Benefit Pension and its Discontents” click here.


March 10, 2014

Mortgage Debt and Retirement across Generations

Filed under: New Research,Planning for Retirement,Retirement Research,Uncategorized — The Pension Research Council @ 12:55 pm

Economists Annamaria Lusardi of George Washington University and Olivia S. Mitchell of the Wharton School of the University of Pennsylvania are evaluating changes in older Americans’ debt patterns across the generations.

When comparing Americans looking to retire in 1992 (those born during the Depression) and those of the same age in 2008 (Baby-Boomers), they find stark contrasts. Earlier cohorts had outstanding housing debt of around $40,000, while Baby Boomers owed close to $66,000 (both in $2008).  The authors note that the housing bubble accounts for a large part of the difference. Boomers bought more expensive houses with smaller down payments, and close to a fifth of them were underwater on their mortgages as a result.

Read the full Market Watch story here at the Wall Street Journal


October 4, 2013

Prof. Olivia S. Mitchell Testifies on Debt and Retirement

Filed under: Financial Literacy,Personal Finance,PRC in the News,Retirement Research — The Pension Research Council @ 9:32 am

Prof. Olivia S. Mitchell testified last week before the Senate Special Committee on Aging about ‘The Changing Face of Retirement Security in America’. Mitchell discussed her research on debt and financial illiteracy among the Baby Boomer generation, and how it is affecting Boomers’ retirement. Watch the video below, and read the complete testimony here.

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