Pensions as Retirement Income Insurance

Probably not a substantial claim: may not pass S3 (load-bearing).

Recently several financial institutions have introduced financial instruments linked to the CPI.

“Indeed, recently several financial institutions have introduced financial instruments linked to the CPI.”

• cites Bodie (1988) sourceSupported

Probably not a substantial claim: may not pass S3 (load-bearing).

The author has been regarded with suspicion and sometimes hostility when presenting this analysis to acquaintances requesting retirement income planning advice.

“This author has found himself regarded with great suspicion and sometimes downright hostility when he has presented this analysis to acquaintances who have requested advice about retirement income planning.”

May combine two claims.

The present value of the costs of the indexed plan is $54,729.50, compared to $23,383.29 for the conventional plan assuming 5% inflation and $17,312.72 assuming 10% inflation.

“The present value of the costs of the indexed plan is $54,729.50 as compared to $23,383.29 for the conventional plan assuming 5% inflation and $17,312.72 assuming 10% inflation.”

May combine two claims.

With 5% annual inflation, the first benefit payment at age 65 from a nominal $10,000 annuity has purchasing power in today's dollars of $3,589, and the last benefit payment at age 85 is worth $1,113.

“inflation of 5% per year, your first benefit payment at age 65 will have a purchasing power in terms of today's dollars of only $3,589, and your last benefit payment at age 85 will be worth only $1,113.”

Probably not a substantial claim: may not pass S2 (checkable).

Employer-sponsored pension plans are best understood as retirement income insurance for employees.

“This paper develops the view that employer-sponsored pension plans are best understood as retirement income insurance for employees and from that perspective addresses a number of questions regarding the reasons for their existence, their design, and their funding and investment policies.”

• Also stated in: § Introduction · plain

  “This paper takes the view that the primary economic function of a pension plan is to provide retirement income security to plan participants and that the behavior of plan sponsors with regard to plan design, funding and investment policies can best be understood from that perspective.”

• AssumptionRests on an assumption: Employees are risk-averse and would like to insure against retirement income risks.

Probably not a substantial claim: may not pass S2 (checkable), S4 (based).

The behavior of plan sponsors with regard to plan design, funding and investment policies can best be understood from the perspective that pensions provide retirement income security.

“This paper takes the view that the primary economic function of a pension plan is to provide retirement income security to plan participants and that the behavior of plan sponsors with regard to plan design, funding and investment policies can best be understood from that perspective.”

• AssumptionRests on an assumption: Employees are risk-averse and would like to insure against retirement income risks.

Probably not a substantial claim: may not pass S4 (based).

Even in the absence of tax advantages, there are other reasons to view employers as logical providers of retirement income insurance.

“But even in the absence of these tax advantages, there are other reasons to view employers as logical providers of this insurance.”

• AssumptionRests on an assumption: People have enough in common regarding lifetime financial planning preferences that a standard retirement savings plan can prove suitable to a vast number of people.

Probably not a substantial claim: may not pass S3 (load-bearing), S4 (based).

If an attitude of trust and good will towards the employer develops in employees, motivation and labor productivity may be enhanced.

“If an attitude of trust and good will towards the employer develops in the minds of the employees, then motivation and labor productivity may be enhanced.”

Probably not a substantial claim: may not pass S3 (load-bearing), S4 (based).

The trust of employees is enhanced when they know that the sponsor's own management team is covered by the same pension plan as other employees.

“The trust of the employees is further enhanced when they know that the sponsor's own management team is covered by the same pension plan as the other employees.”

• AssumptionRests on an assumption: The sponsor's own management team is often covered by the same pension plan as other employees.

Classified as probably not a substantial claim. May combine two claims.

Employers and employees often have conflicting economic interests, but in many respects their interests coincide.

“While it is certainly true that employers and employees often have conflicting economic interests, in many respects their interests coincide.”

Classified as probably not a substantial claim.

Insurance agents, stock brokers, and others providing retirement planning services may be less trustworthy than the employer because they may be interested in selling the individual some product or service that the individual would not choose were he well-informed.

“Insurance agents, stock brokers, and others who are often engaged in providing these services to individual households may be less trustworthy than the employer because they may be interested in selling the individual some product or service that the individual would not choose were he well-informed.”

Probably not a substantial claim: may not pass S2 (checkable).

Other possible providers of retirement planning services may be less suitable as beneficial agents of the employee than employers.

“Other possible providers of retirement planning services may be less suitable as beneficial agents of the employee.”

Classified as probably not a substantial claim.

By making participation in the plan mandatory and offering life annuities as the only payout option, the cost of insuring each participant can be kept low.

“By making participation in the plan mandatory and offering life annuities as the only payout option, the cost of insuring each participant can be kept low.”

• AssumptionRests on an assumption: Employees are risk-averse and would like to insure against retirement income risks.

May combine two claims.

Supplementary voluntary defined contribution plans do not currently offer cost-of-living guarantees and are not strictly speaking inflation insurance.

“While these supplementary plans certainly offer participants the opportunity to save more for retirement, they do not currently offer cost-of-living guarantees, and in that sense are not strictly speaking inflation insurance.”

• AssumptionRests on an assumption: Employees are risk-averse and would like to insure against retirement income risks.

Probably not a substantial claim: may not pass S3 (load-bearing). May combine two claims.

Management negotiates a total compensation package with the union every two or three years and the dollar amount of the flat pension benefit is part of that package.

“Management negotiates a total compensation package with the union every two or three years and the dollar amount of the flat pension benefit is part of that package.”

May combine two claims.

The inflation protection afforded by pension plans is far from complete and in most cases is implicit rather than explicit.

“But even the advocates of the”

May combine two claims.

An increase in the rate of inflation reduces the value of accrued benefits to all participating employees, but especially for those who switch employers during their working careers.

“Thus an increase in the rate of inflation reduces the value of accrued benefits to all participating employees, but especially for those who switch employers during their working careers.”

Probably not a substantial claim: may not pass S2 (checkable), S3 (load-bearing), S4 (based).

Most people would prefer to believe that they need to save only $1,784 per year rather than $4,564.

“Most people would prefer to believe that they need to save only $1,784 per year to achieve their goal rather than $4,564.”

May combine two claims.

In competitive equilibrium, the average individual will find the equilibrium price of life annuities unattractive and will tend to self-insure against longevity risk by providing an extra reserve of retirement savings.

“In the competitive equilibrium the average individual will find the equilibrium price unattractive and will tend to self-insure against longevity risk by providing an extra reserve of retirement savings.”

Probably not a substantial claim: may not pass S3 (load-bearing).

Even professional financial planners often fall into the trap of treating nominal annuities as if they were real for retirement planning purposes.

“More to the point even professional financial planners often fall into the trap of treating nominal annuities as if they were real for retirement planning purposes.”

Probably not a substantial claim: may not pass S3 (load-bearing).

By having employer automatically defer a portion of earnings through a pension plan, employees may impose a saving discipline on themselves that otherwise might be lacking.

“By having your employer automatically defer a portion of your earnings through a pension plan, you may be able to impose a saving discipline on yourself that otherwise might be lacking.”

• AssumptionRests on an assumption: Most people do not even make rough estimates of how much they should be saving to insure an adequate level of retirement income.

May combine two claims.

For the conventional plan, the backloading is more pronounced and is due to expected inflation as well as the effect of the real interest rate.

“But for the conventional plan the backloading is more pronounced and is due to expected inflation as well as the effect of the real interest rate.”

Probably not a substantial claim: may not pass S3 (load-bearing), S4 (based). May combine two claims.

The firm's management usually participates in the plan for salaried employees, so one might expect that its terms would be more generous than plans that do not cover them.

“First, the firm's management usually participates in the plan for salaried employees, so one might expect that its terms would be more generous than plans that do not cover them.”

Classified as probably not a substantial claim.

Pension planners seem convinced that plan participants are not willing to pay for inflation insurance through salary reduction, whether explicitly or implicitly.

“Pension planners seen to be convinced that plan participants are not willing to pay for inflation insurance through salary reduction whether explicitly or implicitly.27”

• cites [27] 27. Summers, Lawrence, "Observations on the Indexation of Old Age Pensions," Chapter 9 in Financial Aspects of the U.S. Pension System, op. cit.Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Probably not a substantial claim: may not pass S3 (load-bearing), S4 (based). May combine two claims.

Younger employees are the group least likely to place much value on pension benefits in general and on inflation insurance in particular.

“This is precisely the group that is least likely to place much value on pension benefits in general and on inflation insurance in particular.”

Classified as probably not a substantial claim.

If employees recognized the additional cost and valued the additional benefit accordingly, then plan sponsors might be inclined to offer inflation insurance.

“employees recognized this additional cost and valued the additional benefit accordingly, then presumably plan sponsors might be inclined to offer this kind of inflation insurance.”

Probably not a substantial claim: may not pass S3 (load-bearing), S4 (based).

DC plans in the U.S. also do not currently offer inflation insurance.

“DC plans in the u.s. also do not currently offer inflation insurance.”

Probably not a substantial claim: may not pass S3 (load-bearing).

The union rather than the employer is typically viewed as the appropriate trustee for the beneficial interests of its membership.

“Finally, the union rather than the employer is typically viewed as the appropriate trustee for the beneficial interests of its membership.”

May combine two claims.

The adverse selection problem in life annuities is that people with higher than average life expectancy have high demand and those with lower than average life expectancy have relatively low demand.

“In this context the adverse selection problem is that there will be a tendency for people with a higher than average life expectancy to have a high demand for this kind of insurance, and those with lower than average life expectancy to have a relatively low demand.”

Probably not a substantial claim: may not pass S3 (load-bearing), S4 (based). May combine two claims.

Salaried employees are usually more highly compensated than wage earners, so the tax advantage of deferring compensation through the pension plan is worth more to them.

“Second, salaried employees are usually more highly compensated than wage earners, so the tax advantage of deferring compensation through the pension plan is worth more to them.”

Probably not a substantial claim: may not pass S2 (checkable), S4 (based).

Had there been a demand for risk-free real rate of return instruments by pension funds, there is little doubt that they would have come into existence.

“While it is true that in the past there have been no financial instruments offering a risk-free real rate of return in the u.s., had there been a demand for them by pension funds there is little doubt that they would have come into existence.”

Probably not a substantial claim: may not pass S2 (checkable), S4 (based).

The labor relations, corporate finance, and tax-shelter perspectives leave unanswered a number of important questions.

“But the labor relations, corporate finance, and tax-shelter perspectives leave unanswered a number of important questions.”

May combine two claims.

Large companies tend to have defined benefit plans as their primary plan, usually supplemented with voluntary defined contribution plans, whereas small plans tend to have defined contribution plans only.

“Large companies tend to have defined benefit plans as their primary plan usually supplemented with voluntary defined contribution plans whereas small plans tend to have defined contribution plans only.28”

• cites [28] 28. Turner, John A., and Daniel J. Belier, eds., Trends in Pensions U.S. Government Printing Office, Washington D.C., 1989.Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Probably not a substantial claim: may not pass S3 (load-bearing).

Plans for salaried employees usually have benefit formulas that link benefits to average pay in the last few years of employment.

“Plans for salaried employees usually have benefit formulas that link benefits to average pay in the last few years of employment.”

May combine two claims.

A risk faced by an individual employee may be uninsurable directly through the capital markets but may be insurable through the employer.

“Thus while a risk faced by an individual employee may be uninsurable directly through the capital markets, it may be insurable through the employer.”

May combine two claims.

The problem with DB plans is not lack of portability but that the annuity is not indexed to the cost of living or to wages, so its value is greatly diminished if the employee switches jobs or if the plan is terminated.

“Rather the problem is that since this annuity is not indexed to the cost of living or to wages its value is greatly diminished if the employee switches jobs or if the plan is terminated.”

Classified as probably not a substantial claim.

Employer pensions can be viewed as a supplement to Social Security designed to insure that combined income from both sources will enable retirees to maintain their preretirement standard of living.

“Employer pensions can be viewed as a supplement to Social Security designed to insure that the combined income from both sources will enable retirees to maintain their preretirement standard of living.”

• AssumptionRests on an assumption: Social Security retirement benefits are indexed to wages during the preretirement years and to the CPI after retirement.

Probably not a substantial claim: may not pass S2 (checkable), S4 (based).

These questions are best answered by viewing pensions as retirement income insurance.

“These questions are best answered by viewing pensions as retirement income insurance.”

• AssumptionRests on an assumption: Employees are risk-averse and would like to insure against retirement income risks.

May combine two claims.

Much personal saving takes the form of investment in residential real estate, which while not riskless, is probably hedged against inflation risk.

“Furthermore much personal saving takes the form of investment in residential real estate, which while not riskless, is probably hedged against inflation risk.”

• cites Feldstein (1983)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

• cites Summers (1983)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Probably not a substantial claim: may not pass S3 (load-bearing).

Sponsors usually fund these past service liabilities gradually over the time allowed by ERISA.

“past service liabilities gradually over the time allowed by ERISA.”

Probably not a substantial claim: may not pass S4 (based). May combine two claims.

The tax effects are the first, and for most companies, the most important, part of this game.

“The tax effects are the first, and for most companies, the most important, part of this game.”

Probably not a substantial claim: may not pass S1 (asserted).

According to this view, the corporation's accrued pension benefit obligations are money-fixed liabilities of the shareholders.

“According to this view, the corporation's accrued pension benefit obligations are money-fixed liabilities of the shareholders.”

Classified as probably not a substantial claim.

The tax effects of pensions should induce corporations to follow extreme policies: fully funded or overfunded pension plans should place their assets entirely in taxable bonds.

“The tax effects of pensions should therefore induce corporations to follow extreme policies.Fully funded or overfunded pension plans should place their assets entirely in taxable bonds.”

Probably not a substantial claim: may not pass S3 (load-bearing), S4 (based). May combine two claims.

While there has been close to a national consensus that the government should encourage voluntary employer provision of retirement benefits, there is no such consensus regarding whether preference should be given to defined benefit or defined contribution pension plan designs.

“While there has been close to a national consensus that the government should encourage voluntary employer provision of retirement benefits, there is no such consensus regarding the issue of whether preference should be given to defined benefit or defined contribution pension plan designs.”

Classified as probably not a substantial claim.

The recent finance theory literature on corporate pension policy has viewed pension fund assets and liabilities as an integral part of the sponsor's assets and liabilities.

“which has viewed pension fund assets and liabilities as an integral part of the sponsor's assets and liabilities.”

Probably not a substantial claim: may not pass S2 (checkable).

This paper has taken the view that employer-sponsored pension plans are best understood as retirement income insurance for employees.

“This paper has taken the view that employer-sponsored pension plans are best understood as retirement income insurance for employees.”

Probably not a substantial claim: may not pass S3 (load-bearing), S4 (based). May combine two claims.

Current public policy seems to be neutral on the DB vs DC issue in both intent and action.

“Current public policy seems to be neutral on this issue in both intent and action.”

Probably not a substantial claim: may not pass S2 (checkable).

This view helps to answer a number of questions regarding the reasons for the existence of employer-provided pension plans, their design, and their funding and investment policies.

“This view helps to answer a number of questions regarding the reasons for the existence of employer-provided pension plans, their design, and their funding and investment policies.”

Probably not a substantial claim: may not pass S3 (load-bearing), S4 (based).

DB plans for salaried employees tend to be well funded.

“DB plans for salaried employees tend to be well funded.”

Probably not a substantial claim: may not pass S3 (load-bearing), S4 (based).

In subsequent amendments to ERISA, Congress has sought to prevent practices that seem to thwart this objective.

“In subsequent amendments to that act, Congress has sought to prevent practices that seem to thwart this objective.”

Probably not a substantial claim: may not pass S2 (checkable), S4 (based).

If the reason for an absence of inflation insurance in most employer pension plans is money illusion, then a case can be made for some type of government intervention to increase the informational efficiency of the system.

“If the reason for an absence of inflation insurance in most employer pension plans is money illusion, then a case can be made for some type of government intervention to increase the informational efficiency of the system in this regard.”

May combine two claims.

Because firms can effectively earn a pretax rate of return on assets held in the pension fund and pass these returns through to shareholders, the comparative advantage of a pension fund lies in its ability to be invested in the most heavily taxed assets.

“the comparative advantage of a pension fund lies in its ability to be invested in the most heavily taxed assets.”

May combine two claims.

Most large firms sponsor defined benefit plans offering relatively low cost standardized retirement income insurance and supplement them with a selection of voluntary defined contribution plans that offer employees considerable flexibility in adjusting benefit levels to their own unique circumstances.

“Most large firms sponsor defined benefit plans offering relatively low cost standardized retirement income insurance and supplement them with a selection of voluntary defined contribution plans that offer employees considerable flexibility in adjusting benefit levels to their own unique circumstances.”

Classified as probably not a substantial claim.

From this perspective a firm's defined benefit pension fund is an insurance company subsidiary.

“From this perspective a firm's defined benefit pension fund is an insurance company subsidiary.”

Probably not a substantial claim: may not pass S2 (checkable), S3 (load-bearing), S4 (based). May combine two claims.

In light of the recent issuance of private index-linked securities by several financial institutions in the U.S., such government initiatives may be unnecessary, however desirable they may still be.

“In the light of the recent issuance of private index-linked securities by several financial institutions in the U.S., such governnent initiatives may be unnecessary, however desirable they may still be.”

Probably not a substantial claim: may not pass S2 (checkable).

If pensions are regarded primarily as retirement income insurance policies, then the natural perspective for understanding pension funds is as financial intermediaries that issue such policies.

“If pensions are to be regarded primarily as retirement income insurance policies then the natural perspective for understanding pension funds is as financial intermediaries that issue such policies.”

Probably not a substantial claim: may not pass S3 (load-bearing).

In the U.S., advocates of indexation have long urged the U.S. Treasury to issue index-linked bonds to serve as the asset base for indexed private pensions.

“In the U.S., advocates of indexation have long urged the U.S. Treasury to issue index-linked bonds to serve as the asset base for indexed private pensions.37”

• cites Munnell (1988)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Probably not a substantial claim: may not pass S3 (load-bearing). May combine two claims.

In the U.K. the government has mandated the indexation of the minimum level of employer-provided pension benefits, and the government of the Province of Ontario, Canada is on the verge of adopting similar measures.

“the government of the Province of Ontario, Canada is on the verge of adopting similar measures.36”

• cites Friedland (1988)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

• cites Hemming and Kay (1982) sourceNot checked — no full text of the source

Classified as probably not a substantial claim.

The integrated perspective requires managing the firm's extended balance sheet, including both conventional assets and liabilities and pension assets and liabilities, in the best interests of the shareholders.

“This integrated perspective requires managing the firm's extended balance sheet, including both its conventional assets and liabilities and its pension assets and liabilities, in the best interests of the shareholders.”

Probably not a substantial claim: may not pass S3 (load-bearing).

Most scholars seem to believe that the key to understanding the funding and investment policies of financial intermediaries and insurance companies is the matching of assets and liabilities.

“most scholars seem to believe that the key to understanding the funding and investment policies of these institutions is the matching of assets and liabilities.29”

• cites [29] 29. Wise, David A., ed., Pensions. Labor, and Individual Behavior, University of Chicago Press, 1986.Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Classified as probably not a substantial claim. May combine two claims.

This means that pension funds should be invested entirely in taxable bonds, instead of common stock, real estate, or other assets that are taxed at lower marginal tax rates for most shareholders, and that the corporation should fund its pension plan to the maximum extent allowed by the IRS.

“This means that pension funds should be invested entirely in taxable bonds, instead of common stock, real estate, or other assets that in effect are taxed at lower marginal tax rates for most shareholders, and that the corporation should fund its pension plan to the maximum extent allowed by the IRS so as to maximize the value of this tax shelter to shareholders.”

Probably not a substantial claim: may not pass S3 (load-bearing).

Any benefit increases in these plans are a matter for negotiations with the union in the future as part of a total compensation package.

“Any benefit increases are a matter for negotiations with the union in the future as part of a total compensation package.”

Probably not a substantial claim: may not pass S4 (based).

These benefits are usually low enough so that PBGC insurance covers them fully.

“Third, these benefits are usually low enough so that PBGC insurance covers them fully.”

May combine two claims.

In plans for salaried employees, benefits tend to be salary-related, a proportion of either average final pay or career average pay, and the benefits actually paid often exceed those specified by the formula.

“in plans for salaried employees the benefits tend to be salary-related, a proportion of either average final pay or career average pay, and the benefits actually paid often exceed those specified by the formula.”

Probably not a substantial claim: may not pass S4 (based). May combine two claims.

These obligations are assumed to be fully guaranteed by the government, and therefore the corporation's pension decisions become a game between the shareholders and various government agencies.

“These obligations are assumed to be fully guaranteed by the government, and therefore the corporation's pension decisions become what amounts to a game between the shareholders and various government agencies, a game that can be and should be thought of as an integral part of corporate financial policy.”

• AssumptionThe authors state this as an assumption: The corporation's accrued pension benefit obligations are fully guaranteed by the government.

Probably not a substantial claim: may not pass S4 (based).

In passing ERISA in 1974 the U.S. Congress made clear its intention that private pension plans are to be managed solely to insure retirement income security for plan participants.

“In passing ERISA in 1974 the U.S. Congress made clear its intention that private pension plans are to be managed solely to insure retirement income security for plan participants.”

Probably not a substantial claim: may not pass S3 (load-bearing).

In single employer plans for unionized employees, the benefit formula usually calls for a flat dollar amount per year of service.

“in single employer plans for unionized employees, the benefit formula usually calls for a flat dollar amount per year of service.”

Probably not a substantial claim: may not pass S3 (load-bearing), S4 (based).

Unions have shown a preference for this arrangement over the alternatives available.

“Unions have shown a preference for this arrangement over the alternatives available.”

Probably not a substantial claim: may not pass S4 (based). May combine two claims.

The failure of virtually all private pension plans in the U.S. to provide inflation insurance can be explained by some combination of two possibilities: (1) the other assets of the elderly provide more than enough inflation insurance and (2) money illusion may cause plan participants to systematically undervalue this type of insurance.

“The failure of virtually all private pension plans in the U.S. to provide inflation insurance can be explained by some combination of two possibilities: (1) the other assets of the elderly provide more than enough inflation insurance and”