What the 2008 stock market crash means for retirement security

The 2008 stock market crash raises concerns about retirement security, especially since the increased prevalence of 401(k) and similar retirement saving plans means that more Americans are now stakeholders in the equity market than in the past. Using a dynamic microsimulation model, this paper explores the ability of alternate future stock market scenarios to restore retirement assets. The authors find that those near retirement could fare the worst because they have no time to recoup their losses. Mid-career workers could fare better because they have more time to rebuild their wealth. They may even gain income if they buy stocks at low prices and get above-average rates of return. High-income groups will be the most affected because they are most likely to have financial assets and to be invested in the stock market.     

Retirement plans, personal saving, and saving adequacy

This Issue Brief addresses three questions raised by recent trends in personal saving: How are national savings measured and what is the meaning of the trends in measured personal saving rates, given what is included and what is not included in those measures? What is the effect of retirement saving programs--in particular, 401(k) plans and individual retirement accounts (IRAs)--on personal saving levels? What are the implications of existing saving behavior for the retirement income security of today's workers? The National Income and Product Accounts (NIPA), the most commonly referenced gauge of personal saving, is a widely misunderstood measure. One could argue that a complete measure of saving would include increases in wealth through capital gains, but NIPA does not factor accrued and realized capital gains on stocks and other assets into the saving rate. By one measure, accounting for capital gains results in an aggregate personal saving rate of 33 percent--more than double the rate of four decades ago. A major policy question is the impact of tax-qualified retirement saving plans (i.e., IRAs and 401(k) plans) on personal saving rates. Empirical analysis of this issue is extremely challenging and findings have been contradictory. These programs now represent an enormous store of retirement-earmarked wealth in tax-deferred vehicles: Combined, such tax-deferred retirement accounts currently have assets of about $4 trillion. Ninety percent of IRA contributions are now the result of "rollovers" as employees leave employer plans, like 401(k) plans. While leakage from the system remains a challenge, the majority of the assets in the system can be expected to be available to fund workers' retirements. One could argue that, from a retirement income security perspective, workers in general are better off because IRA and 401(k) programs exist. Surely, many of the dollars in these programs would have been saved even without the programs; but they would not necessarily have been earmarked for retirement and been available to fund retirement expenses. As rollovers become larger, this "partnership" of employment-based qualified plans and IRAs will grow even more important. The evidence indicates that many groups of American workers appear unlikely to be able to afford a retirement that maintains their current lifestyle (at least not without working more years than currently planned). Consensus does not exist on how many workers are at risk or the typical magnitude of their retirement saving shortfall. There is a consensus, however, that a substantial number of individuals are at risk. This is not surprising--despite the fact that the 70 percent of workers are saving for retirement--since relatively few workers know how much it is that they need to accumulate to fund their retirement.     

Taking risks in investing in the equity market: racial and ethnic differences

Some policy makers and policy analysts have proposed that Social Security should be privatized to enable participants to achieve higher returns through investment in the stock market. How well individual retirees would fare financially under a privatized system largely depends on their decision to invest in the equity market, rather than in other types of investment vehicles. For that reason, it is important to investigate the degree to which minority people are currently investing in this market. This article presents the findings of a study that compared the investment behavior of black and Hispanic people aged 51 to 61 with the investment behavior of their white counterparts. The major findings indicate that black and Hispanic people: (a) are less likely to invest in the equity market than are white people, and (b) tend to invest smaller percentages of their assets in the equity market. Implications for policy are discussed.     

State and local retirement plans: innovation and renovation

This Special Report/Issue Brief examines the universe of state and local retirement plans. It describes how these plans have developed and continue to evolve in a number of areas, including plan features, regulatory framework, governance, and asset management. While these retirement programs differ in many respects from private-sector plans, the disparity in some areas has narrowed. This report also includes a discussion of trends and the underlying forces for change. Public-sector retirement programs provide an important source of pension coverage in the United States, and are a significant part of the total retirement market: Combined public-sector retirement assets (state, local, and federal governments) comprised 29 percent of the $11.2 trillion U.S. retirement market in 1998. State and local plans are dominant in the public-sector retirement market, holding $2.7 trillion in assets, compared with $696 billion held by federal plans (both military and civilian). More than 16 million individuals are employed by state and local jurisdictions in the United States. State and local retirement plans share certain common features because of the environment in which they operate. Legal statutes, governance, and tradition all play a role in defining what is sometimes referred to as a "public-sector culture." Despite common features, there is considerable diversity among public-sector retirement plans. To attract and retain a skilled work force, public-sector employers have increased their use of defined contribution (DC) plans to supplement defined benefit (DB) plans (or, to a lesser extent, replace or serve as an alternative to them) and improve cost-of-living adjustments. At the same time, a combined federal-state regulatory framework has encouraged certain plan design features, unavailable in the private sector, which include multiple tiers for successive generations of employees in a single plan and different strategies to increase portability. State and local retirement plans reflect an increasing role by the federal government in pension system design and operation, which has led to greater complexity in such areas as Social Security participation and deferred compensation arrangements. Complexity can be expected to increase with the recent passage of P.L. 107-16, the Economic Growth and Tax Relief Reconciliation Act of 2001. The latest full-year data included in this report are for 1999 and in some cases 2000. After this report went to press, the Federal Reserve issued significantly revised quarterly data for state, local, and federal retirement plan assets, which were not incorporated in this Issue Brief.     

The changing face of private retirement plans

A rapidly growing public policy concern facing the United States is whether future generations of retired Americans, particularly those in the "baby boom" generation, will have adequate retirement incomes. One reason is that Social Security's projected long-term financial shortfall could result in a reduction in the current-law benefit promises made to future generations of retirees. Another reason is that many baby boomers will be retiring with employment-based defined contribution (DC) plans, as opposed to the "traditional" defined benefit (DB) plans that historically have been the predominant source of employer-provided retirement income. These factors are likely to reduce the amount of life annuity benefits that future retirees will receive relative to current retirees, raising questions as to whether other sources of retirement income--such as individual account plans (DC plans and individual retirement accounts, or IRAs)--will make up the difference. This Issue Brief highlights the changes in private pension plan participation for DB and DC plans and provides some possible explanations for these changes. Results are presented from the Employee Benefit Research Institute's (EBRI) Retirement Income Projection Model that quantify how much the importance of individual account plans is expected to increase because of these changes. This Issue Brief also discusses the risk of outliving one's assets, since a greater fraction of pension wealth is projected to come from "nonguaranteed" sources. Results of the model are compared by gender for cohorts born between 1936 and 1964 in order to estimate the percentage of retirees' retirement wealth that will be derived from DB plans versus DC plans and IRAs over the next three decades. Under the model's baseline assumptions, both males and females are found to have an appreciable drop in the percentage of private retirement income that is attributable to defined benefit plans (other than cash balance plans). In addition, results show a clear increase in the income retirees will receive that will have to be managed by the retiree. This makes the risk of longevity more central to retirees' expenditure decisions. The implications of these model results for retirees are significant. First, individuals--rather than the pension plan sponsor--increasingly will have to manage their retirement assets and bear the risk of investment losses. Second, since most retirees' non-Social Security retirement income will be distributed as a lump sum or in periodic payements (from a defined contribution plan or IRA) rather than as a regular paycheck for life (from a defined benefit plan), retirees will need either to purchase an annuity from an insurance company or carefully manage their individual rate of spending in order to avoid outliving their assets.     

The impact of collectivism on savings behavior: a case study of Mexican-Americans and non-Mexican Latinos

This interdisciplinary study combines anthropological and economic theories and methods to understand how Mexican-Americans’ collectivist cultural values affect their savings behavior and their preparation for retirement. Mexican-Americans are the fastest growing immigrant group in the United States and they are both younger and expected to live longer than other groups. Yet they are the most insecure in relation to funding retirement. Even when Mexican-American workers are eligible to participate in retirement savings plans at work, they have low participation rates. We analyze data from a Chicago area survey in light of broader anthropological and economic scholarship to argue that Mexican-Americans’ collectivist values influence the choices they make about how to build assets and resources differently from other Latino groups. Latinos are a diverse group by national origin, citizenship and immigration status, characteristics that strongly influence their employment prospects, asset building and retirement savings and security. Financial policy makers need to understand the heterogeneity of financial behavior within the Hispanic community. The collectivist informal economy of Mexican immigrants and their children is at odds with the formal defined contribution retirement savings system, which is geared toward both autonomous individuals and higher-income workers who benefit from the program’s tax deductions. Since these plans penalize participants who withdraw funds before retirement age, they can be deleterious to those who expect both to loan funds to and to borrow money from members of their collectivist social networks.     

Stock Market Wealth and Consumer Spending

This article investigates the effects of stock market wealth on consumer spending. Traditional macroeconometric models estimate that a dollar's increase in stock wealth boosts consumption by three to seven cents. With the substantial 1990s rise in stock prices, the nature and magnitude of this "wealth effect" have been much debated. After describing the issues and previous research, I present new evidence from a well‐known consumer survey. The results are broadly consistent with life‐cycle saving and a modest wealth effect: most stockholders reported no appreciable effect of stock prices on their saving or spending, but many mentioned "retirement saving" in explaining their behavior.     

EBRI 2008 recent retirees survey: report of findings

Understanding how to achieve longer work lives: The 2008 Recent Retirees Survey was undertaken to better understand the tools and practices that might encourage workers to postpone their retirement and remain longer with their company. Why do people retire when they do? Respondents typically retired from employers for one of four reasons: retirement becomes affordable, lack of job satisfaction, a desire for more personal or family time, and/or their own health status. Narrow window for asking people to work longer: One of the major findings from the survey is that employers have a narrow window of up to two years in which they may be able to intervene to change retiring workers' decisions by offering them incentives to remain with the company. Employers may just need to ask: Many retirees report they would have been open to an approach from their employer asking them to stay longer with the company. Sixty-one percent say they would have viewed the experience positively. Just 10 percent indicate they would have reacted negatively to an approach asking them to delay their retirement. Work incentives vary in appeal: The survey tested a total of 19 possible incentives that might encourage retiring workers to postpone retirement. Four of these appear especially likely to be successful: Half of retirees (48 percent) indicate that feeling truly needed for an assignment would have been extremely or very effective in encouraging them to delay their retirement. Moreover, of those ranking this as one of the top two most effective incentives, 72 percent say it might have prompted them to stay at least two more years with the company. Half of retirees with a defined benefit pension state receiving a full pension while working part time would have been effective in delaying their retirement (50 percent), and almost as many feel this way about receiving a partial pension while working part time (44 percent). Seven in 10 of those rating each among the top two most effective incentives report they would likely have stayed at least two more years if it had been offered to them (72 percent for full pension, 71 percent for partial pension). However, this would necessitate a change in federal law and several other compensation-related incentives may be almost as compelling. Thirty-eight percent report that being able to work seasonally or on a contract basis would have been effective in encouraging them to delay retirement. Among those rating this as one of the top two incentives, more than three-quarters (77 percent) say it might have prompted them to stay two years or more with the company.     

The retirement system in transition: the 2007 Retirement Confidence Survey

WORKERS SLOW TO SEE OR ADAPT TO A CHANGING U.S. RETIREMENT SYSTEM: The 17th annual wave of the Retirement Confidence Survey (RCS) suggests that American workers may be slow to recognize how the U.S. retirement system is changing, and those who are aware of these changes may not be adapting to them in ways that are likely to secure them a comfortable retirement. HALF OF WORKERS LESS CONFIDENT ABOUT PENSION BENEFITS: The RCS finds pension-plan changes by employers have left nearly half of workers less confident about the benefits they will receive from a traditional pension plan, but that those experiencing a decline in retirement benefits often fail to react constructively. Moreover, although Americans will rely increasingly on 401(k) retirement savings plans and other personal savings and investments to fund their retirement security, data suggest that many may not follow professional investment advice when it is offered to them. MANY WORKERS COUNTING ON BENEFITS THAT WON'T BE THERE: Many workers are counting on employer-provided benefits in retirement that are increasingly unavailable. Only 41 percent of workers indicate they or their spouse currently have a defined benefit pension plan, yet 62 percent say they are expecting to receive income from such a plan in retirement. Likewise, workers are as likely to expect as retirees are to receive retiree health insurance through an employer, even though the number of employers offering this benefit to future retirees is declining. MANY WORKERS UNLIKELY TO HEED INVESTMENT ADVICE EVEN IF THEY GET IT: More than half of workers indicate they would be likely to take advantage of professional investment advice offered by companies that manage employer-sponsored retirement plans. However, two-thirds of these workers say they would probably implement only some of the recommendations they receive and 1 in 10 think they would implement none of them. AMERICANS OVERESTIMATE LONG-TERM CARE COVERAGE: One-quarter of workers and more than one-third of retirees report they have long-term care insurance (separate from health insurance, Medicare, and Medicaid) to help pay for care they might need in a nursing home, assisted living facility, or at home. But only 10 percent of Americans age 65 and older are estimated to have had private long-term care insurance in 2002, suggesting that many are counting on coverage they do not actually have. MOST SAVINGS LEVELS ARE MODEST: Almost half of workers saving for retirement report total savings and investments (not including the value of their primary residence or any defined benefit plans) of less than $25,000. The majority of workers who have not put money aside for retirement have little in savings at all: Seven in 10 of these workers say their assets total less than $10,000. CONTINUED IGNORANCE ABOUT SOCIAL SECURITY COVERAGE: Despite the longstanding increase in the eligibility age for Social Security, only a small minority of workers are aware of the age at which they can receive full retirement benefits from Social Security without a reduction for early retirement.     

Retirement Confidence Survey 2000 including results from the RCS Minority Survey and the Small Employer Retirement Survey

The year 2000 represents the 10th anniversary of the Retirement Confidence Survey (RCS), and the third year for the Minority RCS and Small Employer Retirement Survey (SERS). Key RCS findings over the past 10 years include: The fraction of workers saving for retirement has trended upward, and today 80 percent of households report that they have begun to save. The fraction of workers who have attempted to calculate how much they need to save for retirement has risen noticeably over the past several years. Today, 56 percent of households report that they have attempted the calculation. One-half of workers who have attempted such a calculation report that it has changed their behavior, such as saving more and/or changing where they invest their retirement savings. Workers who have done the calculation appear to be in better shape regarding their retirement finances. Worker confidence in the ability of Social Security to maintain benefit levels bottomed out in 1994 and 1995. Workers today are just as confident as they were in 1992, although the majority remain not confident in Social Security. Regarding overall retirement confidence, Hispanic-Americans tend to be the least confident among the surveyed minority groups that they will have enough money to live comfortably throughout their retirement years. Key SERS findings include: While cost and administrative issues do matter to small employers, they are not the primary reasons for low plan sponsorship rates. Employee-related reasons are most often cited as the most important factor for not offering a retirement plan. Business-related reasons, such as profitability, are also a main decision-driver. It is important to note what small employers without plans do not know about plan sponsorship. Small employers that do sponsor a retirement plan report that offering a plan has a positive impact on both their ability to attract and retain quality employees and the attitude and performance of their employees. The survey results indicate that many small company nonsponsors may not be aware of such potential business benefits from plan sponsorship. In addition, many nonsponsors are unaware of the plan options available to them, in particular the ones created specifically for small employers, such as SIMPLE and SEP retirement plans. Therefore, some small employers may be making a premature decision not to sponsor a plan based on incomplete information.     

What Happens to Defined Contribution Accounts When Labor Markets and Financial Markets Move Together?

The relationship among earnings, savings, and retirement is well known; however, the linkage between labor market outcomes and financial market performance is generally unacknowledged. We examine the implications of the link between labor markets and financial markets for workers who save money in individual retirement accounts. Specifically, differences in labor market outcomes across groups may imply differences in the timing of investments, which may reduce savings over time for these groups compared to their counterparts. Using monthly data from the Current Population Survey (1979–2002), we generate hypothetical investment portfolios using stock and bond indices. We exploit differences across demographic groups in unemployment and wage growth and use these differences to examine each group's investment outcomes. We then disaggregate the total effects into short-term and long-term components. We find some evidence of short-term market timing effects on investment, but we find much larger long-term effects for some groups. Our findings suggest that, for many people, the retirement savings losses associated with the timing of markets are similar to the costs of annuitizing savings upon retirement. The differences are especially pronounced by education and gender.     

Analyzing equity impacts of transit fare changes: Case study of Alameda–Contra Costa Transit,California

Many public transit agencies consider increasing fares when faced with budget shortfalls. This paper analyzes the Alameda–Contra Costa (AC) Transit District's five alternative fare proposals introduced for public discussion in March 2005. The proposals combined fare hikes, base fare reductions, eliminations of free transfers, and discontinuation of periodic passes. Using the agency's 2002 on-board survey data, the study assessed the impacts of individual fare proposals on different subsets of riders and evaluated if they were equitable; and estimated potential fare revenues, using alternative price elasticities to estimate changes in ridership due to changes in price. The analysis revealed that proposals that increased the cost of transfers or eliminated unlimited-use passes produced dramatically unequal impacts on certain riders. Proposals for flat fares per ride were found to be least equitable, even when the base fare was lowered, because lower income riders, youth, and minorities made more trips and transferred more frequently than their more affluent counterparts. Proposals that maintained existing pass instruments and allowed transfers for small fees were the most favorable. The paper demonstrates the utility of on-board surveys and details an approach that could be widely used for evaluation of equity in public transit and other areas.     

The 2012 Retirement Confidence Survey: job insecurity, debt weigh on retirement confidence, savings

Americans' confidence in their ability to retire comfortably is stagnant at historically low levels. Just 14 percent are very confident they will have enough money to live comfortably in retirement (statistically equivalent to the low of 13 percent measured in 2011 and 2009). Employment insecurity looms large: Forty-two percent identify job uncertainty as the most pressing financial issue facing most Americans today. Worker confidence about having enough money to pay for medical expenses and long-term care expenses in retirement remains well below their confidence levels for paying basic expenses. Many workers report they have virtually no savings and investments. In total, 60 percent of workers report that the total value of their household's savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000. Twenty-five percent of workers in the 2012 Retirement Confidence Survey say the age at which they expect to retire has changed in the past year. In 1991, 11 percent of workers said they expected to retire after age 65, and by 2012 that has grown to 37 percent. Regardless of those retirement age expectations, and consistent with prior RCS findings, half of current retirees surveyed say they left the work force unexpectedly due to health problems, disability, or changes at their employer, such as downsizing or closure. Those already in retirement tend to express higher levels of confidence than current workers about several key financial aspects of retirement. Retirees report they are significantly more reliant on Social Security as a major source of their retirement income than current workers expect to be. Although 56 percent of workers expect to receive benefits from a defined benefit plan in retirement, only 33 percent report that they and/or their spouse currently have such a benefit with a current or previous employer. More than half of workers (56 percent) report they and/or their spouse have not tried to calculate how much money they will need to have saved by the time they retire so that they can live comfortably in retirement. Only a minority of workers and retirees feel very comfortable using online technologies to perform various tasks related to financial management. Relatively few use mobile devices such as a smart phone or tablet to manage their finances, and just 10 percent say they are comfortable obtaining advice from financial professionals online.     

Individual and institutional push and pull factors as predictors of retirement timing in Europe: A multilevel analysis

The number of retired people in Europe has increased significantly in recent decades. It remains unclear, however, whether individuals are more likely to be pulled toward retirement by their expectations about life after retirement than they are to be pushed out of the labour market due to poor health or dislike of one's job. The fact that retirement timing differs rather considerably between European countries suggests that not only micro, but also macro push (i.e. labour market constraints) and pull (i.e. economic incentives) factors influence retirement decisions. This duality heightens the need to determine the influence of micro-level and macro-level push and pull indicators on the retirement timing of older workers (50 +) in Europe. Results are obtained performing multilevel event history analysis using longitudinal micro data from the first (2004/05) and second (2006/07) waves of the Survey of Health, Ageing and Retirement in Europe and macro data derived from the Organisation for Economic Cooperation and Development (OECD) and Eurostat. The results indicate that at the individual level, older workers are pushed out due to health problems as well as being attracted towards retirement to spend time with their grandchildren. At the institutional level, financial incentives such as a high implicit tax on continued work and high expenditures on early exit schemes make retirement attractive, whereas the institutional push context is of lesser importance.     

GENDER-BASED RISK AVERSION AND RETIREMENT ASSET ALLOCATION

This research examines whether women have higher risk aversion than men as demonstrated by their retirement asset allocation. The analysis is extended to investigate how retirement asset investment decisions are made in married households. Initial results suggest controlling for demographic, income, and wealth differences lead to no significant difference in the proportion of retirement assets held in stocks between women and male faculty. For married households with joint investment decision making, results indicate that gender differences are a significant factor in explaining individual retirement asset allocation. Our estimates imply that women faculty are more risk averse than their male spouse. ( JEL J16, G11, D10)     

The evolution of retirement: results of the 1999 Retirement Confidence Survey

The ninth annual Retirement Confidence Survey (RCS) shows continued evidence of progress in the drive for retirement income security for American workers. However, there are still hurdles to overcome. The RCS tracks Americans' retirement planning and saving behavior and their confidence regarding various aspects of their retirement. It also categorizes workers and retirees into distinct groups based on their individual views on retirement, retirement planning, and saving. The retirement envisioned by today's workers looks different in many respects from that now experienced by current retirees. Today's workers expect to work longer than current retirees actually worked before retiring--and many say they plan to work for pay after they retire. Twenty-four percent of workers reported that they are very confident they will have enough money to live comfortably in retirement, and 45 percent reported that they are somewhat confident. However, there are indications that many may be falsely confident. The good news is that 70 percent of Americans are saving for retirement, and a growing percentage (49 percent) are going further and determining how much they need to save to fund their retirement. The bad news is that 30 percent of Americans have not begun to save for their retirement, and 51 percent have never tried to determine how much they need to save. Employers play a major role in ensuring adequate retirement preparation. Forty percent of all workers said they expect that money provided by their employer will be a major source of retirement income. Forty-six percent expect the money they put into a retirement plan at work to be a major source of income. The availability of a retirement plan at work is credited by 48 percent of savers as motivation to save. While worker education is a point of emphasis among both employers and policymakers, more remains to be done. For example, 59 percent of workers expect to be eligible for full Social Security benefits sooner than they actually will be, and an additional 19 percent admit they do not know when they will be eligible. There is evidence that education can have an impact on individual behavior. Forty percent of workers receiving educational material at work in the last year said that information caused them to begin saving (19 percent) or resume saving (21 percent) for retirement, while 40 percent said they changed the amount they were contributing to a retirement savings plan and 41 percent changed the allocation of their money in a retirement savings plan.     

Encouraging workers to save: the 2005 Retirement Confidence Survey

This Issue Brief reports findings of the 15th annual Retirement Confidence Survey (RCS), which points to potential solutions to the American retirement savings problem, specifically ways that could help workers save more through their employment-based retirement plans. IMPORTANCE OF EMPLOYER MATCH: More than 7 in 10 workers not currently contributing to their employer-sponsored retirement plan say an employer contribution of up to 5 percent of their salary would make them much more or somewhat more likely to participate (72 percent). SIMPLIFIED OPTIONS: Other retirement plan options that nonparticipants say would make them more likely to contribute are an investment option that automatically becomes more conservative as their retirement date approaches (66 percent) and a feature that automatically raises workers' contributions by a fixed amount or percentage when they receive a pay raise (55 percent). Two-thirds of nonparticipants indicate they would be very or somewhat likely to remain in their employer's plan if they were automatically enrolled (66 percent). SOCIAL SECURITY: Nearly 7 in 10 of today's workers are skeptical that Social Security will continue to provide benefits of at least equal value to those received by current retirees (68 percent). This proportion has remained relatively constant in recent years, but is below the 1995 level (79 percent). Workers continue to be unable to identify the age at which they will be eligible for full Social Security benefits. MOST BEHIND SCHEDULE IN SAVING: A majority of workers believe they are behind schedule when it comes to planning and saving for retirement (55 percent). Most of those behind schedule say that high expenses, particularly everyday expenses (49 percent), child-rearing expenses (39 percent), and medical costs (35 percent), are a major factor in keeping them from saving. LESS THAN HALF HAVE TRIED TO CALCULATE NEEDED SAVINGS: Approximately 4 in 10 workers say they have tried to calculate how much they need to accumulate for retirement. More than one-third of these workers say they asked a financial advisor to calculate this number or used their own estimates; 10 percent say they simply guessed how much they will need in retirement.     

How Contexts of Reception Matter: Comparing Peruvian Migrants’ Economic Trajectories in Japan and the US

This paper examines how Peruvian migrants fare economically in two historically and culturally distinct host countries, Japan and the US, drawing upon a survey and interviews conducted in both countries. Peruvian migrants surveyed share similar socio‐economic backgrounds and migrated to both countries for similar reasons roughly around the same time. Yet, over time, they achieved more occupational upward mobility in the US than in Japan. Japan has not done quite as well as the US in providing immigrants with occupational opportunities due to its less diversified immigrant labor market, limited entrepreneurship opportunities, and restricted modes of immigrant incorporation. Does it mean, however, that Peruvian migrants are less successful in Japan than the US? Although occupational mobility is a commonly used measure of social mobility, the definitions and meanings of “success” are context‐dependent. Peruvians in the US do experience more occupational mobility, but diverge more greatly in economic achievement amongst themselves. In Japan, on the other hand, while they experience little occupational mobility, they have had more economic equality with relatively stable and high wages. The paper examines Peruvian migrants’ distinct economic trajectories over time, focusing on their occupational mobility. We conclude that occupational mobility matters, not necessarily because it accompanies higher income, but because it shapes migrants’ aspirations. In the context where immigrants’ destinations have become more diverse in the world, the paper provides insights into how immigrants “make it” and what it means to “make it” in recent destinations, such as Japan, in comparison to more traditional immigrant countries, such as the US.     

401(k) plan asset allocation, account balances, and loan activity in 2009

CONSISTENT SAMPLE: Because 401(k) balances can fluctuate with market returns from year to year, meaningful analysis of 401(k) plans must examine how participants' accounts have performed over the long term. Looking at consistent participants in the EBRI/ICI 401(k) database over the six-year period from 2003 to 2009 (which included one of the worst bear markets for stocks since the Great Depression), the study found: After rising in 2003 and for the next four consecutive years, the average 401(k) retirement account fell 27.8 percent in 2008, before rising 31.9 percent in 2009. The average 401(k) account balance moved up and down with stock market performance, but over the entire six-year time period increased at an average annual growth rate of 10.5 percent, attaining $109,723 at year-end 2009. The median (or midpoint, half above and half below) 401(k) account balance increased at an average annual growth rate of 14.7 percent over the 2003-2009 period to $59,381 at year-end 2009. THE BULK OF 401(K) ASSETS CONTINUED TO BE INVESTED IN STOCKS: On average, at year-end 2009, 60 percent of 401(k) participants' assets were invested in equity securities through equity funds, the equity portion of balanced funds, and company stock. Thirty-six percent was in fixed-income securities such as stable-value investments and bond and money funds. MORE THAN THREE-QUARTERS OF 401(K) PLANS INCLUDED TARGET-DATE FUNDS IN THEIR INVESTMENT LINEUP AT YEAR-END 2009: At year-end 2009, nearly 10 percent of the assets in the EBRI/ICI 401(k) database was invested in target-date funds and 33 percent of 401(k) participants held target-date funds. Also known as lifecycle funds, they are designed to simplify investing and to automate account rebalancing. NEW EMPLOYEES CONTINUED TO USE BALANCED FUNDS, INCLUDING TARGET-DATE FUNDS: Across all but the oldest age group, more new or recent hires invested their 401(k) assets in balanced funds, including target-date funds. At year-end 2009, about 42 percent of the account balances of recently hired participants in their 20s were invested in balanced funds, compared with 36 percent in 2008, and about 7 percent in 1998. At year-end 2009, 31 percent of the account balances of recently hired participants in their 20s was invested in lifecycle funds, compared with almost 23 percent at year-end 2008. 401(K) PARTICIPANTS CONTINUED TO SEEK DIVERSIFICATION OF THEIR INVESTMENTS: The share of 401(k) accounts invested in company stock continued to shrink, falling by half of a percentage point (to 9.2 percent) in 2009. That continued a steady decline that started in 1999. Recently hired 401(k) participants contributed to this trend: They tended to be less likely to hold employer stock. PARTICIPANTS' 401(K) LOAN ACTIVITY ROSE IN 2009: In 2009, 21 percent of all 401(k) participants eligible for loans had a loan outstanding against their 401(k) account, compared with 18 percent at year-end 2008 and year-end 2007. Loans outstanding amounted to 15 percent of the remaining account balance, on average, at year-end 2009, compared with 16 percent at year-end 2008. Loan amounts remained in line with the past few years in terms of typical dollar amounts.     

Defined contribution health benefits

This Issue Brief discusses the emerging issue of "defined contribution" (DC) health benefits. The term "defined contribution" is used to describe a wide variety of approaches to the provision of health benefits, all of which have in common a shift in the responsibility for payment and selection of health care services from employers to employees. DC health benefits often are mentioned in the context of enabling employers to control their outlay for health benefits by avoiding increases in health care costs. DC health benefits may also shift responsibility for choosing a health plan and the associated risks of choosing a plan from employers to employees. There are three primary reasons why some employers currently are considering some sort of DC approach. First, they are once again looking for ways to keep their health care cost increases in line with overall inflation. Second, some employers are concerned that the public "backlash" against managed care will result in new legislation, regulations, and litigation that will further increase their health care costs if they do not distance themselves from health care decisions. Third, employers have modified not only most employee benefit plans, but labor market practices in general, by giving workers more choice, control, and flexibility. DC-type health benefits have existed as cafeteria plans since the 1980s. A cafeteria plan gives each employee the opportunity to determine the allocation of his or her total compensation (within employer-defined limits) among various employee benefits (primarily retirement or health). Most types of DC health benefits currently being discussed could be provided within the existing employment-based health insurance system, with or without the use of cafeteria plans. They could also allow employees to purchase health insurance directly from insurers, or they could drive new technologies and new forms of risk pooling through which health care services are provided and financed. DC health benefits differ from DC retirement plans. Under a DC health plan, employees may face different premiums based on their personal health risk and perhaps other factors such as age and geographic location. Their ability to afford health insurance may depend on how premiums are regulated by the state and how much money their employer provides. In contrast, under a DC retirement plan, employers' contributions are based on the same percentage of income for all employees, but employees are not subject to paying different prices for the same investment.