359 research outputs found

    How does public infrastructure affect regional economic performance?

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    Infrastructure (Economics) ; Public policy ; Regional economics ; Capital investments

    Are pensions worth the cost?

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    The U.S. Treasury estimates that personal income tax receipts in fiscal 1992 would be 51billionhigherwithoutthespecialprovisionsaccordedemployersponsoredpensionplans.Pensionprovisions,infact,werethesinglelargestiteminthetaxexpenditurebudget.Likemostothertaxexpenditures,andunlikedirectexpenditures,therevenuelossfromfavorabletaxprovisionsforemployersponsoredplansisnotsubmittedtoaformalandsystematicrevieweachyearbyCongress.Therefore,thequestionofwhethertaxpayersaregettingtheirmoneysworthfromthisverylargeimplicitoutlayshouldbeaddressedperiodically.;Tothatend,thispaperfirsttakesacloserlookatthetaxexpenditureforemployersponsoredpensionsanumberthathasbeenthesubjectofconsiderablecontroversy.Afterestablishingthattheforgonerevenuesaresubstantialnomatterhowtheyareestimated,thefollowingsectionsexplorewhethertheexpendituresproducethedesiredresults.SectionIIaddressesthesavingissueandconcludesthatsupportforemployersponsoredpensionplansshouldnotrestontheassumptionthattheyincreasenationalsaving.;Thelastthreesectionsassesstheeffectivenessofpensionsasaproviderofsupplementaryretirementincome.Theydiscussthreeseriousweaknesseswiththecurrentsystem.SectionIIIfocusesonthecoverageproblem;only46percentoftheprivateworkforceiscurrentlycoveredandcoveragecontinuestodecline.SectionIVexplorestheerosioninthevalueofbenefitsexperiencedbymobileemployeesunderdefinedbenefitplans.SectionVaddressesthelackofcostoflivingadjustmentstoannuitypaymentstoretiredemployees,undereitherdefinedbenefitordefinedcontributionplans.;Theconclusionthatemergesfromthisreviewisthatdespiteamyriadoflegislativechanges,allofwhichcombinetoincreasethelikelihoodthatpersonscoveredbypensionplanswillactuallyreceivebenefits,theU.S.pensionsystemisstillaveryerraticandunpredictablewaytoprovideretirementincomeanditbenefitsonlyaprivilegedsubsetofthepopulation.Inshort,the51 billion higher without the special provisions accorded employer-sponsored pension plans. Pension provisions, in fact, were the single largest item in the tax expenditure budget. Like most other tax expenditures, and unlike direct expenditures, the revenue loss from favorable tax provisions for employer-sponsored plans is not submitted to a formal and systematic review each year by Congress. Therefore, the question of whether taxpayers are getting their money’s worth from this very large implicit outlay should be addressed periodically. ; To that end, this paper first takes a closer look at the tax expenditure for employer-sponsored pensions--a number that has been the subject of considerable controversy. After establishing that the forgone revenues are substantial no matter how they are estimated, the following sections explore whether the expenditures produce the desired results. Section II addresses the saving issue and concludes that support for employer-sponsored pension plans should not rest on the assumption that they increase national saving. ; The last three sections assess the effectiveness of pensions as a provider of supplementary retirement income. They discuss three serious weaknesses with the current system. Section III focuses on the coverage problem; only 46 percent of the private work force is currently covered and coverage continues to decline. Section IV explores the erosion in the value of benefits experienced by mobile employees under defined benefit plans. Section V addresses the lack of cost-of-living adjustments to annuity payments to retired employees, under either defined benefit or defined contribution plans. ; The conclusion that emerges from this review is that despite a myriad of legislative changes, all of which combine to increase the likelihood that persons covered by pension plans will actually receive benefits, the U.S. pension system is still a very erratic and unpredictable way to provide retirement income and it benefits only a privileged subset of the population. In short, the 51 billion is not well spent. If the government is going to use taxpayers’ money to subsidize supplementary retirement income, it should do so in a fashion whereby all citizens enjoy the subsidy. If this seems unrealistic in the current environment, the alternative is to recoup the subsidy. One way to accomplish this goal would be simply to levy an annual tax of roughly 2.5 percent on the stock of pension assets; of course, numerous other approaches are possible. The important message is that it is time to explore the alternatives for revising the tax treatment of employer-sponsored pension plans.Pensions

    Lessons from the income maintenance experiments: an overview

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    Public welfare ; Income distribution ; Taxation ; Public policy

    Is there a shortfall in public capital investment? An overview

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    Capital investments ; Public policy ; Infrastructure (Economics)

    Economic consequences of tax simplification

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    Tax reform ; Taxation

    The Affordable Care Act, Medicare Costs, and Retirement Security

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    Rising Medicare costs have been a major contributor to projected long-run budget deficits, and rising outof-pocket costs have become an increasing challenge to individuals' retirement security. The 2010 Patient Protection and Affordable Care Act (ACA) made substantial changes to Medicare, designed both to improve the program's finances and to reduce the outof-pocket costs faced by retirees. However, the Office of the Actuary (OACT) at the Centers for Medicare & Medicaid Services (CMS) warns that the assumed impact of the ACA may be overly optimistic and that realized savings may be far more muted. As a result, since 2010, OACT each year has released a set of alternative projections to illustrate Medicare expenditures if current-law payment reductions are not sustained.This brief compares the baseline projections in the annual Medicare Trustees Report with OACT's alternative projections

    Are Retirement Savings Too Exposed to Market Risk?

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    The stock market, as measured by the broad-based Wilshire 5000, declined by 42 percent between its peak in October 9, 2007 and October 9, 2008. Over that one-year period, the value of equities in pension plans and household portfolios fell by 7.4trillion.Ofthat7.4 trillion. Of that 7.4 trillion decline, 2.0trillionoccurredin401(k)sandIndividualRetirementAccounts(IRAs),2.0 trillion occurred in 401(k)s and Individual Retirement Accounts (IRAs), 1.9 trillion in public and private defined benefit plans, and $3.6 trillion in household non-pension assets. This brief documents where the declines occurred. This information is interesting and important in its own right. But the declines also highlight the fragility of our emerging pension arrangements. Today the declines were divided equally between defined benefit and defined contribution plans, but in the future individuals will bear the full brunt of market turmoil as the shift to 401(k)s continues. Much of the reform discussion regarding private sector employer-sponsored pensions has focused on extending coverage. But the current financial tsunami also underlines the need to construct arrangements where the full market risk does not fall on pension participants.

    401(k) Plans and Race

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    Many data sources show a disparity among racial and ethnic groups regarding participation in and contributions to 401(k) plans. White workers participate at a higher rate and contribute a higher percentage than African American and Hispanic workers. However, few studies have explored whether these differences persist once other factors expected to impact these decisions are taken into consideration. One recent study by Ariel/ Hewitt using client data found lower participation and contributions rates in 401(k) plans for African Americans and Hispanics than for Whites, even after controlling for age, tenure, and earnings.

    Why Did Some Employers Suspend Their 401(k) Match?

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    The employer match of employee contributions is an important characteristic of 401(k) plans. The match was designed to encourage participation and contributions ñ particularly by lower-paid employees. However, at many companies, the employer match became a casualty of the financial collapse and ensuing recession. While several large companies have restored their match, it is still important to understand what causes such a response. This Issue in Brief attempts to explain why some firms suspended their match while others did not. It proceeds as follows. The first section explains the rationale for, and mechanics behind, employer matching of employee contributions. The second section considers the economic impact of the match. The third section describes the companies that have suspended their match. The fourth section examines how several factors impact the probability of an employer suspending its match. The results suggest that liquidity constraints, rather than profitability issues, are the main reasons for suspending the match. The fifth section speculates about the likely impact of the 401(k) match suspensions on employees. The final section concludes that cash-strapped companies appear to have been forced to cut back, and, if the pattern follows that of the 2001 recession, most companies are likely to restore their match once the economy recovers. To the extent that the match is quickly restored, little harm may have been done ñ especially compared with the alternative of laying off workers.

    ERISA-The First Decade: Was the Legislation Consistent with Other National Goals?

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    Although ERISA explicitly sanctioned defined contribution plans as a legitimate form of retirement saving, this Article focuses almost exclusively on defined benefit plans. ERISA aimed at changing the basic provisions of defined benefit plans, not at modifying the nature of defined contribution plans. Therefore, although a study of the consistency of pension plan provisions with national economic goals would necessarily include an analysis of both defined benefit and defined contribution plans, a study of the impact of ERISA seems appropriately limited to defined benefit plans
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