From Stand-Alone Pensions to Alternative Retirement Plans: Examining State and Local Governments

Defined benefit (DB) pension plans are the dominant retirement program for state and local governments in the United States. However, in the last 15 years, some have given new employees a choice of alternatives to stand-alone DB pension plans such as cash balance (CB), defined contribution (DC), and hybrid retirement plans. This article examines this shift through survival analysis using panel data of 190 state and local pension plans across the United States. From 2001 to 2019, we modeled five change factors found in the pension reform literature, namely, financial constraints, interest group influence, plan membership, and liability, along with other state factors. Our analysis shows that all five of these factors impacted the shift to alternative retirement plans from stand-alone DB plans. Notable findings are that well-funded pensions were more likely to shift to alternative retirement plans, and interest groups such as police, fire, and teachers were more likely to keep stand-alone plans.

Pareto-improving transition to fully funded pensions under myopia

Under dynamic efficiency, a pay-as-you-go (PAYG) pension scheme helps the current generation of retirees but hurts future generations because they are forced to saveviaa return-dominated scheme. Abandoning it is deemed welfare-improving but typically not for all generations. But what if agents are present-biased (hence, undersave for retirement) and the “paternalistically motivated forced savings” component of a PAYG scheme motivated its existence in the first place? This paper shows it is possible to transition from such a PAYG scheme on to a higher return, mandated fully-funded scheme; yet, no generation is hurt in the process. The results inform the debate on policy design of pension systems as more and more policy makers push for the transition to take place but are forced to recognize that current retirees may get hurt along the way.

Complementary funded pensions and economic growth: Theoretical and empirical evidence using an overlapping generations model applied to the case of Tunisia

This paper presents a prospective analysis to guide effective pension reform. Using an overlapping generations model with differing returns on free savings and compulsory returns on funded pensions, we put into perspective the results largely supported in the economic literature that assume that replacing a pay-as-you-go pension scheme by funded plans boosts economic growth. We show that this reform is not necessarily synonymous with economic growth due to a crowding-out effect. Our contribution is not limited to theoretical results: we also assess the impacts empirically. Thus, we extend the theoretical model to take into account several periods and 55 generations. Simulation results, using a dynamic overlapping generations computable general equilibrium model calibrated for the Tunisian case, indicate that whether pension reform promotes capital accumulation and economic growth depends on the rate of return on funded pension savings relative to free savings.

Overview of recent cases before the Court of Justice of the European Union for the special issue on strategies for Social Europe

Being part of the special issue on strategies for Social Europe, this overview of recent cases before the Court of Justice is focused on matters that are high on the European agenda for Social Europe. Firstly, in the aftermath of the economic crisis, many Member States had to reduce their generous pension schemes. The YS case, rendered by the Grand Chamber on the 23rd September 2020, deals with the limits afforded by the Member States when they reduce an occupational pension scheme in order to secure the continuity of State-funded pensions. Secondly, the status of “self-employed” delivery carriers operating in the gig economy is being discussed in many Member States’ courts. In the Yodel case, the Court of Justice clarified in July 2020 whether such delivery carriers should be considered as “self-employed persons” or as “workers” for the purposes of the Working Time Directive. Lastly, the AFMB case concerns the underlying issue of using a company situated in a Member State as the formal employer of international transport workers in order to benefit from more advantageous social security legislation. The Court then determined in April 2020 the criteria to establish who is the actual employer of international transport workers.

АДМІНІСТРУВАННЯ ПЕНСІЙНИХ ВНЕСКІВ В КРАЇНАХ – ЧЛЕНАХ ЄВРОПЕЙСЬКОГО СОЮЗУ: ДОСВІД ДЛЯ УКРАЇНИ

The article analyzes the state management of pension systems for the organization of the exercise of powers to administer pension contributions in the countries − members of the European Union. The models of organization of administration of pension contributions are investigated. As suggestions for priority areas of modernizing the pension system of Ukraine on the example of the experience of countries − members of the European Union, the following are highlighted: attracting employees to participate in financing the pension system; the introduction of mandatory funded pensions with the payment of additional contributions by employees in excess of the unified social contribution to compulsory state pension insurance and the transition to a conditional savings system; differentiation of the unified social contribution rate for compulsory state pension insurance taking into account the state of economic development of the regions (high, medium, below average).

Funded pensions under the conditions of consistently low and negative interest rates

developed countries sovereign bonds yields are going down, and this trend has been going on for a few decades already. Currently, in most countries whose sovereign debt is considered safe even long-term government bonds' nominal yields are close to zero (or even negative), and their real (i.e. inflation-adjusted) yields are even lower. This means that today there are virtually no safe assets in which pension funds could invest their clients' retirement savings with reasonably high rate of return. Therefore pensions funds in order to provide even barely satisfactory returns to their clients turn to riskier investment strategies. As a result, funded pensions are no longer a reliable financial protection for a persons' life after retirement; rather, it is just another type of speculative assets, which in case of good luck may bring a good return sufficient for a comfortable life after retirement, but in case of bad luck in investment or in case of a large-scale financial crisis, a significant part of the person's retirement savings will be lost. In this case, if the funded component constitutes a large part of the person's pension benefits structure, such person may end up without enough money for mere survival. Such situation is unacceptable for pension system, so state pension system should be of the pay-as-you-go (PAYG) type, while funded pensions can only be a voluntary supplement to people's PAYG pensions.