[.ca] The Pension Challenge: Risk Transfers and Retirement ... (ISBN 0199266913)

The Pension Challenge:
The publication of this book is timely insofar as it explores ways of enhancing retirement security in the volatile financial environment many employees find themselves in. It is the first in a new series produced by the Pension Research Council of the Wharton School of the University of Pennsylvania in collaboration with Oxford University Press.

The Pension Challenge:
The chapter I enjoyed the most-and thought excellent-was the one on the role of company stock in defined contribution plans by Olivia S. Mitchell (also an Editor of the volume) and Stephen P. Utkus. It is beatifully clear and explains, among other things, why defined contribution plans in the United States were not made subject to the 10% limit on employer stock that defined benefit plan holdings became subject to under the Employment Retirement Income Security Act. When ERISA became law (in 1974) Congress chose not to extend the limit to defined contribution plans because they were mainly profit-sharing plans, to which employers made variable plan contributions based on company earnings, and Employee Stock Ownership Plans, which by design encouraged employers to make employer stock contributions in an effort to encourage employee ownership. They were thus not widely used as a retirement income vehicle and in many large companies they were in additon to defined benefit plans. Remember, also, that this was an era well before the use of 401(k) plans. Employees therefore did not have all their eggs in one basket. This lack of a limit for defined contribution plans explains how Enron employees-and those in similar companies-could be hit so devastatingly in respect of their future retirement income as well as losing their jobs when their companies folded nearly 30 years after the enactment of ERISA (a piece of social legislation), something that has bemused pension practitioners outside the United States ever since. Mitchell and Utkus comment that one striking finding is that 401(k) plan participants tend to believe that their own company's stock is safer than other individual company stock and also safer than a stock-market index. The authors outline policy options for future plan design so that this problem can be avoided.

The Pension Challenge:
On the global side, there is a chapter on money-back guarantees in individual pension accounts, featuring Germany. There are also chapters on retirement guarantees in compulsory defined contribution systems and in voluntary defined contribution plans, with the latter covering: -Belgium, -Brazil, -Denmark, -Germany, -Japan, -New Zealand -Sweden, -the UK, and -the USA.

Pension Challenge:
This book explores several types of risk that confront employees, retirees, companies, and governments in the retirement context. The focus in this volume is on how pension systems can help protect against such risks, particularly in light of the current uncertain economic and financial global environment. Of particular interest is the question of whether and how financial products and systems can be better designed to meet and manage retirement risks. Examples considered in this book include guarantees and hedges for pension investments, catastrophe bonds, and alternative regulatory structures and investment restrictions intended to protect unwary or unwitting pension plan participants. Chapters draw important lessons from a wide range of countries, focusing on both developed and developing countries. Contributors include finance and insurance sector experts, development economists, regulators, and academics.

Note for the poor:
A lot of the technical detail in this book can be obtained for free from the working papers on the Wharton School Pension Reasearch Council web site - http://prc.wharton.upenn/prc