We evaluate the impact of the 2017 Tax Cuts & Jobs Act (TCJA) pension tax break on sponsor contributions to defined-benefit retirement plans. We exploit cross-sectional variation in ex-ante exposure to the tax break. We find that the tax break induced an extra $2.8 billion of sponsor contributions to medium- and large-scale plans in 2017. However, we find strong evidence of reversal, both in terms of sponsor contributions and plan funding ratios by 2018. Our contributions model indicates that this reversal is consistent with more binding financial constraints in 2018 relative to 2019. Our results suggest that the TCJA did not have a long-lasting impact on corporate defined-benefit pension funds.

We study the incidence of Social Security taxes on teacher wages and employment. On average, we estimate teachers with Social Security coverage take home 9.6 percent less in wages than observationally similar teachers in similar districts without Social Security coverage. This accounts for about three-fourths of the 12.4-percent total Social Security tax. Moreover, our analysis suggests this is likely a lower-bound estimate of the true incidence of Social Security taxes – under reasonable assumptions, we cannot rule out full (100%) tax incidence on teacher wages. We find no evidence of tax incidence on teacher staffing levels.

The papers in this 20th Anniversary Special Issue reflect to a large extent how the fields of pension economics and pension finance have developed in the past two decades, although there remain very clear connections to the research published in the Journal's first issue. While there has been great progress in research on pensions and retirement economics over the last 20 years, there remain important outstanding questions for future study.

This paper investigates a well-known downside protection strategy called the constant proportion portfolio insurance (CPPI) in defined contribution (DC) pension fund modeling. Under discrete time trading CPPI, an investor faces the risk of portfolio value hitting the floor which denotes the process of guaranteed portfolio values. In this paper, we question how to deal with so-called ‘gap risk’ which may appear due to uncontrollable events resulting in a sudden drop in the market. In the market model considered, the risky asset price and the labor income are assumed to be continuous-time stochastic processes, whereas trading is restricted to discrete-time. In this setting, an exotic option (namely, the ‘cushion option’) is proposed with the aim of reducing the risk that the portfolio value falls below the defined floor. We analyze the effectiveness of the proposed exotic option for a DC plan CPPI strategy through Monte Carlo simulations and sensitivity analyses with respect to the parameters reflecting different setups.

Despite a decade-long bull market between the financial crisis and the COVID-19 recession, state defined benefit pension plans had accrued more than $1.37 trillion in unfunded liabilities. However, little work has investigated the actuarial sources of these unfunded liabilities. This paper uses original data hand collected from publicly available financial reports between 2000 and 2020 for 145 state-administered pension plans to determine the sources of unfunded liabilities. The largest unfunded liability contributor is investment experiences (when actual investment returns do not match assumed returns). The second and third largest contributors are changes to actuarial assumptions and expected changes (or interest accruing on existing unfunded liabilities). Benefit experience and legislative changes, demographic experience, and explicit funding shortfalls account for relatively little of the growth in unfunded liabilities. Moreover, the specific sources of unfunded liabilities are heterogeneous over time and across plans.

Declining labor force participation of older men throughout the 20th century and recent increases in participation have generated substantial interest in understanding the effect of public pensions on retirement. The National Bureau of Economic Research's International Social Security (ISS) Project, a long-term collaboration among researchers in a dozen developed countries, has explored this and related questions. The project employs a harmonized approach to conduct within-country analyses that are combined for meaningful cross-country comparisons. The key lesson is that the choices of policy makers affect the incentive to work at older ages and these incentives have important effects on retirement behavior.

Embedding mandatory investment guarantees in individual retirement accounts (IRAs) can protect workers from equity market shortfalls, but policymakers must understand the economic costs of such guarantees as well as their incidence. Using a life cycle model calibrated for Germany, where investors have access to stocks, bonds, and tax-qualified IRAs, we show that abandoning the guarantee could enhance old-age consumption for over 75% of retirees without harming pre-retirement consumption. Investors averse to equity losses accumulate only moderately more in guaranteed accounts, as these offer only limited protection against market crashes.

During the COVID-19 pandemic, Chile enacted three exceptional laws allowing withdrawals from affiliates’ pension accounts. We analyze how these withdrawals affected pension savings and the projected retirement income of affiliates and their households, finding that lower-income households withdrew a higher percentage of their savings. Simulations of worker contributions until retirement show an average reduction of 21% in contributory pensions, but increased non-contributory pension benefits reduce the average total income loss to 8%. Under a no-reform scenario, these withdrawals and higher non-contributory pensions may imply fiscal costs around 15.8% of the pre-pandemic gross domestic product (GDP). The current pension reform should reduce it to 12.4% of pre-pandemic GDP.

In this paper, we study the relative tax advantages of traditional and Roth retirement accounts in the United States by examining the retrospective tax benefits of each account type for the 2003 cohort of retirees. We use the actual history of marginal tax rates at the individual level to estimate that the average tax shields of traditional and Roth retirement accounts‒the excess value of retirement consumption financed by those accounts relative to brokerage accounts‒were 68 percent and 47 percent, respectively. Traditional accounts were better for this cohort largely due to tax cuts in 2001 and 2003. Under a counterfactual with inflation-adjusted 2019 law, the average tax shields for traditional and Roth accounts would have been much closer (33% and 30%, respectively), and nearly half of savers would have achieved higher retirement by saving in Roth accounts rather than in traditional accounts. This is the first paper to apply the history of marginal tax rates‒informed by administrative income records‒to compare Roth and traditional accounts for a particular cohort of retirees.

Twenty years ago, the adjustment to monthly Social Security benefits for early or delayed claiming was, on average, roughly actuarially fair, although some subsets of individuals could gain from delay. Since then, delaying claiming has become much more attractive thanks to three factors: a more generous delayed retirement credit, improvements in mortality, and historically low real interest rates. In this article, I examine how these three factors influence optimal claiming behavior. I also discuss empirical patterns of claiming across individuals and over time, as well as explanations for these patterns. I argue that although many people appear to claim suboptimally early, this behavior may be changing as information spreads about the importance of the claiming decision. Finally, I discuss policy toward claiming and the impact that an increase in strategic claiming could have on Social Security's finances.

We estimate labor demand elasticities to predict the employment effects of an employer’s contributory pillar in Chile’s pension system. The Chilean system has been a model for reform in many countries worldwide. We find labor demand to be inelastic, with baseline estimates ranging from −0.27 to −0.91. We predict that the implementation of an employer contributory pillar with contribution rates of 1% increase would increase unemployment rates by 0.20 to 0.71 percentage points (pp) from a baseline unemployment of 6.51%. Our results show sizable differences in labor demand elasticities and employment impacts by industry and workforce characteristics. Simulations imply implementing a uniform employer contributory pillar would especially reduce employment for low-skilled workers and workers in industries where labor is easily substitutable.

Is it possible to achieve almost riskless, nonfluctuating investment payoffs in the long run, at a fraction of the traditional funding requirement, using equity investments? What is their shortfall risk? These questions are motivated by the need to increase yields, while limiting the variability of investment results. We show how to use contingent claims, denominated in units of a stock index, to achieve an almost riskless investment outcome. To control the risk of the proposed hedge portfolios, we introduce an overfunded scheme and show its reliability using bootstrapping. Results show that a modest amount of overfunding is an effective risk-management approach that brings the probability of not achieving the target to less than 1 percent. Our results are based on the use of the minimal market model and a change of numeraire. Robustness tests support their validity under different market specifications.

We investigate the direct effect of the oldest spouse’s statutory retirement age on the retirement behavior of couples. We find a positive direct effect of the statutory retirement age on the labor participation and hours worked of both partners. In particular, we find that younger partners decrease their participation by up to almost 2 percentage points once the oldest spouse reaches the statutory retirement age. Male younger partners are twice as responsive than women. The responsiveness is also about twice as strong in high-income households than in low-income households.

This paper investigates the relationship between growth and quality of pension funds. It measures growth in terms of changes in the number of participants and cash flow transfers and appreciates the quality of the funds through the set of information on past results and costs published in the official prospectuses. The results show that growth rewards the best performing funds in the long term, while annual performance and costs have no relevance. Nevertheless, other factors, such as market power and commercial pressure, appear to be more powerful. The existence of conditions of market power capable of attracting investors beyond the actual quality of pension products is undesirable as it harms future pensioners. These results have implications for the Authority, as mandatory information should be suitable to induce investors to identify the best products and direct individual choices toward the public objective of a more efficient market.

This paper documents trends over the last two decades in retirement behavior and retirement income choices of participants in TIAA, a large and mature defined contribution plan. From 2000 and 2018, the average age at which TIAA participants stopped contributing to their accounts, which is a lower bound on their retirement age, rose by 1.2 years for female and 2.0 years for male participants. There is considerable variation in the elapsed time between the time of the last contribution to and the first income draw from plan accounts. Only 40% of participants take an initial income payment within 48 months of their last contribution. Later retirement and lags between retirement and the first retirement income payout led to a growing fraction of participants reaching the required minimum distribution (RMD) age before starting income draws. Between 2000 and 2018, the fraction of first-time income recipients who took no income until their RMD rose from 10% to 52%, while the fraction of these recipients who selected a life-contingent annuitized payout stream declined from 61% to 18%. Among those who began receiving income before age 70, annuitization rates were significantly higher than among those who did so at older ages. Aggregating across all income-receiving beneficiaries at TIAA, not just new income recipients, the proportion with a life annuity as part of their payout strategy fell from 52% in 2008 to 31% in 2018. By comparison, the proportion of all income recipients taking an RMD payment rose from 16% to 29%. About one-fifth of retirees received more than one type of income; the most common pairing was an RMD and a life annuity. In the later years of our sample, the RMD was becoming the de facto default distribution option for newly retired TIAA participants.

We study the 2017 pension reform in Finland, raising the statutory retirement age of the studied cohorts from 63 to 63 years and 6 months. Using monthly-based register data and a differences-in-differences approach, we estimate the reform’s impact on retirement, employment, unemployment, disability, sickness, and inactivity. Results indicate a significant 19-percentage-point increase in employment between the old and new retirement ages, alongside notable rises in unemployment, inactivity, and disability. Largely – but not entirely – this stems from the persistence of the previous labor market state. Gender differences are not large, but the effects vary considerably across education, income, employment sector, and self-employment status.

We analyze the effects of different pay-as-you-go public pension systems on financial imbalance, rate of return, and inequality of heterogeneous generations in terms of gender and education. We include aspects that are relevant for developing countries such as labor informality and payment of an old-age and social benefit. We introduce a new mixed system that combines components of the defined benefit (DB) and the defined contribution (DC) systems. Results show the new mixed system represents a compromise between the DB and DC systems and that a scheme (inspired in the German system) exhibits the highest rates of return and horizontal equity.

We analyze the disclosures of sustainable investing by Dutch pension funds in their annual reports by introducing a novel textual analysis approach using state-of-the-art natural language processing techniques to measure the awareness and implementation of sustainable investing. We find that a pension fund's size increases both the awareness and implementation of sustainable investing. Moreover, we analyze the role of signing a sustainable investment initiative. Although signing this initiative increases the specificity of pension fund statements about sustainable investing, we do not find an effect on the implementation of sustainable investing.

At the onset of the Covid-19 crisis, and with one of the largest and best-funded defined contribution programs in Latin America, Chile held over USD $200 bn in assets (or more than 80% of GDP). Reacting to populist pressures during the pandemic, however, the Congress gave non-retired participants three separate opportunities to tap into their retirement accounts, leaving some 4.2 million participants with zero retirement savings and draining around $50 bn from the system. This paper explores several hypotheses regarding why people withdrew their pension money early, and it also presents evidence regarding the likely impact of this short-term policy on long-term retirement wellbeing. We conclude with lessons for global policymakers seeking to protect pension assets critical for retirement security.

Due to the implementation of several pension reforms, Italian individuals have to take more complex financial decisions and have more responsibilities on their retirement well-being which also includes the choice of whether to participate in pension funds. Relying on novel survey data, we empirically investigate the effect of pension and financial knowledge on the probability of pension plan participation in Italy. Despite documenting the already well-known trends about disparities in the level of such knowledge, we are able to establish that only pension literacy has a positive and causal effect on the probability to participate in a private pension fund.