Discussion of the relative merits of the current pay-as-you-go and a funded Personal Retirement Account (PRA) system is often hampered by a limited understanding of the potential features of both systems. We proposed to facilitate discussion of the features of the two systems by developing a formal description of the two types of plans that allows their features to be compared on an even keel. To this end, the project will develop analytical models of Social Security that highlight the functional features of the program, whether those features are administered through the current structure, or through private accounts.[back]
A series of questions was included in the 2004 Health and Retirement Study as an experimental module, asking over 1,000 respondents whether they would be willing to give up half their lifetime Social Security benefits in exchange for a single lump-sum cash payment at age 65. The project will analyze these data to assess how responses co-vary with demographic, preference, and economic factors.Project NB07-02: Who Values the Social Security Annuity? New evidence on the Annuity Puzzle [back]
This multi-phase project analyzes the retirement policy decisions made by employees who are offered a choice between a personal account retirement system (a defined contribution plan) and a tradicional defined Benedit pension system. We will analyze administrative data from the State University Retirement System of Illinois, where new participants must choose between a personal account and a traditional defined benefit system.Project NB06-03: When Given the Option, Who Chooses a DC Plan and Who Chooses a DB Plan [back]
Researchers in this project are drawing on what they have learned from default experiments in 401(k) plans to inform the design of an investment-based component to Social Security. The project has two key components. The first focuses on the passive behavior of 401(k) investors, the importance of default provisions, and how defaults might be applied most effectively to Social Security Personal Retirement Accounts. The second is an analysis of why so many people who could unequivocally and significantly gain financially by contributing more to a 401(k) plan - because of the employer matching provisions and penalty-free withdrawals from the plan - still don't do it. In this analysis too, the focus is on the program defaults, the factors influencing saving decisions, and the implications for designing an investment-based component to Social Security
Project NB04-08: How Would Default Options Affect Participation and Saving?
The design of a Personal Retirement Account (PRA) program will have a great deal to do with its success. The choice of investment can have a large effect on the accumulation of individual assets. Is there a way to present information abut investment options that will increase the likelihood that participants make the best choices? The goal of this project is to explore ways that investment choices can be improved. It focuses particularly on management fees, and the how clear information about management fees might serve to reduce them.
With a diversity of tax-favored savings vehicles available in the marketplace, an important policy question is the extent to which policies that promote saving in one type of vehicle generate net new savings, versus displacing - or crowding out - saving that would have taken place anyway. In this project, we analyze whether discretionary employee contributions to 401(k) plans are reduced when the employer increases the employer-provided contribution to the plan.[back]
This project considers the relationship between the structure of personal accounts and four aspects of participant investment behavior: 1) how the set of investment alternatives available to participants affects their portfolio allocations, 2) the effect of investment restrictions, such as floors or caps on particular assets, on portfolio choice, 3) the role of inertia, how investment allocations change when new investment options are made available to participants, and 4) how contributions across asset classes (e.g., stocks versus bonds) respond to past returns. The analysis is based on 401(k) data, with the lessons from 401(k) plans used to draw lessons for the structure of Personal Retirement Accounts.
Project NB04-04: Individual Account Investment Options and Portfolio Choice: Behavioral Lessons from 401(k) Plans[back]
If there were a Personal Retirement Account (PRA) component to the Social Security system, the accumulation of individual wealth at retirement would depend on the investment choices that individuals make. This project will consider how the structure of PRA investment options is likely to affect accumulation of individual retirement wealth.
Project NB05-03: 401(k) Investment Options, Portfolio Choice and Retirement Wealth
This project considers the role of nominal bonds in a retirement saving portfolio for both individual retirement saving programs and traditional pension funds. Are nominal bonds risky investments, which investors must be rewarded to hola, or are they safe investments whose price movements are Esther inconsequential or possibly even beneficial to investors as a hedge against other risks? What is the relation between nominal bonds and inflation-indexed bonds such as TIPS issued by the US Treasury? And what weights should investors saving for retirement give to these different types of bonds?
Project NB07-12: Inflation Bets or Deflation Hedges? The Changing Risks of Nominal Bonds
The goal of this research is to analyze whether a pay-as-you-go Social Security System affects the optimal allocation of household saving across alternative investments. We will consider the influence of Social Security on optimal investment portfolios across households at different income levels, and expect the optimal allocation to vary, base don differences in their relative reliance on Social Security, ando n the correlation between equito returns and expected Social Security benefits in the future.
Project NB07-08: Should Lower Income Workers Hold Stocks? The Role of Social Security
This project uses proprietary individual-level data on annuity choices in the United Kingdom to investigate the relative importante of adverse selection and preferente heterogeneity in annuity choices. We will use these estimates to compare the benefits of choice (allowing individuals to self select their optimal annuity level) and its costs (due to adverse selection) in social insurance programs.
Project NB07-16: The Welfare Cost of Asymmetric Information: Evidence from the U.K. Annuity Market[back]
In recent years, there has been a marked change in the ability of individuals to tap into "illiquid" assets, using, for example, home equity loans and mortgages, lump-sum payouts from pension plans, the loan provisions of retirement saving plans, or credit card debt. The goal of this project is to explore the implications of this growing liquidity, using 401(k) savings plans as a case study. We will analyze the availability of 401(k) loans, how the loan provisions affect borrowing, the magnitude of borrowing and repayment, and the implications for asset accumulation.
Project NB08-09: The Liquification and mid-Life Consumption of Retirement Assets: Evidence from 401(k) Loans[back]