TY  - JOUR
AU  - Bernheim,B. Douglas
AU  - Shoven,John B.
TI  - Pension Funding and Saving
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1622
PY  - 1985
Y2  - May 1985
UR  - http://www.nber.org/papers/w1622
L1  - http://www.nber.org/papers/w1622.pdf
N1  - Author contact info:
B. Douglas Bernheim
Department of Economics
Stanford University
Stanford, CA 94305-6072
Tel: 650/725-8732
Fax: 650/725-5702
E-Mail: bernheim@stanford.edu

John B. Shoven
Department of Economics
579 Serra Mall at Galvez Street
Stanford, CA 94305-6015
Tel: 650/723-3273
Fax: 650/723-8611
E-Mail: shoven@stanford.edu
M1  - published as B. Douglas Bernheim, John B. Shoven. "Pension Funding and Saving," in Zvi Bodie, John B. Shoven, and David A. Wise, eds., "Pensions in the U.S. Economy" University of Chicago Press (1988)

M2  - featured in NBER digest on 1985-11-01
AB  - This paper suggests that the nature of the funding of defined benefit pension plans may be an important reason why personal saving has not responded positively to the high real interest rites and tax incentives to encourage saving and investment of the last few years. From a firm's standpoint, funding the promised pension is a target, and higher rates of return permit reaching that target with lower contributions. According to the Flow of Funds Accounts of the Federal Reserve System between 1982 and 1984, net pension contributions declined from 6.02 percent of disposable personal income to 4.02 percent.The paper presents empirical information regarding pension contributions, unfunded liabilities, interest rates, and recent developments in pension funding. It specifies the target saving model of pension funding and derives the theoretical elasticity of pension contributions to changes in interestrates. It then investigates this elasticity with aggregate time series econometrics. In general, the estimated elasticities are consistent with the theory and indicate that one percentage point rise in real interest rates would, in the long run, reduce pension contributions between 20 and 30 percent. Such a large negative elasticity for such an important source of loanable funds in the economy suggests that the pensions funding mechanism should be taken into account in designing policies to increase the economy's saving and investment.
ER  -