George E. Rejda

Perspectives on insurance

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The Impact of the Social Security Program on Private Pension Contributions

The impact of OASDHI taxes on private pensions is analyzed for the period 1950-75. The major result is a statistically significant inverse relationship between OASDHI taxes and contributions into insured private pension plans. This relationship does not hold for noninsured plans. One explanation is that insured pension plans typically are smaller plans, and smaller firms have limited amounts for fringe benefits. As OASDHI taxes increase, private pension contributions tend to be crowded out. In contrast, increases in OASDHI taxes do not appear to depress contributions into noninsured plans. Monopoly pricing powers allow large corporations to pass both higher OASDHI taxes and pension costs to the public through higher prices. Thus, contributions into noninsured plans need not decline as OASDHI taxes increase. Some observers argue that rapid expansion of the Old-Age, Survivors, Disability, and Health Insurance (OASDHI) program may have adversely affected the growth of private pension contributions in the past and may also retard the future growth of private pensions if legislated increases in both the tax rate and maximum taxable wage base are permitted to go into effect. The primary purpose of this paper is to determine if the level of OASDHI tax contributions significantly affects private pension contributions. As private pension benefits and OASDHI benefits are substitutes for each other,1 one would expect, ceteris paribus, that private pension contributions would decline in real terms as the OASDHI program expands over time. Thus, the hypothesis to be examined is the suspected inverse relationship between real

The impact of zero population growth on the OASDHI program.

The United States Bureau of Census estimates that replacement level fertility can be achieved by a 2.11 birth average per woman. At current fertility levels zero population growth (ZPG) in the United States will be achieved by the year 2050. ZPG will result in an increased ratio of aged to active workers. With a higher proportion of older people in the population Medicare financing and benefits will be affected. The welfare or unearned portion of OASDHI payments will rise. The real financial burden of the OASDHI program will fall on an ever smaller base of active workers. When the OASDHI tax and income tax are combined the burdens will fall heaviest on middle income workers. The burdens can only be lessened if per capita income increases yearly at a rate higher than it is reasonable to expect. General revenue financing of the OASDHI program would be most desirable under ZPG conditions.

The Impact of Social Security and ERISA on Insured Private Pension Contributions

The impact of Social Security taxes and the ERISA legislation and insured pension contributions is analyzed for the period 1950-1981. Social Security taxes provided an adverse impact on insured pension contributions during the period, but ERISA did not have a significant effect on such contributions during the subperiod of 1975-198 1. The absence of a significant effect from ERISA holds even after deducting IRA contributions from the pension contribution total. Although private pensions provide considerable economic security to covered workers, the private pension movement may be adversely affected by the Social Security program and by complex federal laws and regulations. OASDHI payroll taxes have increased rapidly from about

Unemployment Insurance and Full-Cost Experience Rating: The Impact on Seasonal Hiring

2.7 billion in 1950 to about

Unemployment Insurance and State Economic Activity

173 billion in 198 1. During this same period, Congress passed numerous complex federal laws and regulations. One of the most significant laws is the Employee Retirement Income Security Act of 1974 (ERISA), which has had a profound impact on the operations of private pension plans. The primary purpose of this paper is to examine the impact of OASDHI tax contributions and the ERISA law on pension contributions into insured private pension plans. The paper is an extension of an earlier study by the authors concerning the effect of the Social Security program on private pension contributions [18]. However, the present study also attempts to measure the impact that ERISA has had on insured private pension contributions. Since private pensions and OASDHI retirement benefits are substitutes for each other, one would expect, ceteris paribus, that private pension contributions into insured pension plans would be aversely affected as OASDHI benefits and contributions increase over time. Likewise, the overall effect of George E. Rejda is V.J. Skutt, Distinguished Professor of Insurance, at the University of Nebraska-Lincoln. He earned his Ph.D. at the University of Pennsylvanias Wharton School. Dr. Rejda is the author of two texts and numerous articles in professional journals. He is a Past President of the American Risk and Insurance Association and served for many years as a Communications Editor for this Journal. James R. Schmidt, Ph.D., is Associate Professor of Economics at the University of Nebraska-Lincoln. He earned his Ph.D. at Rice University. Dr. Schmidt is also the author of several articles published in professional journals. This content downloaded from 157.55.39.163 on Wed, 21 Sep 2016 05:00:57 UTC All use subject to http://about.jstor.org/terms Social Security and ERISA 641 ERISA through complex regulations, reporting requirements, and severe penalties may be to retard the growth of contributions into insured private pension plans. Thus, the following two null hypotheses are examined in the study: 1.No significant relationship exists between real contributions into insured private pension plans and real OASDHI tax contributions. 2. No significant relationship exists between real contributions into insured private pension plans and the presence of the ERISA law. The time period under investigation is 1950-81. The analysis is limited to insured private pension plans because data for noninsured private pension plans were not available for part of the period under investigation (1976-81) at the time of the study. Growth of Insured Private Pension Plans: 1950-1981 Insured private pension plans have grown substantially over time. Table 1 illustrates the growth of insured pension plans from 1950 through 1981. The number of covered persons increased from about 2.8 million in 1950 to about 28 million in 1981. Pension contributions into insured plans also increased from a modest

State Unemployment Compensation Programs: Immediate Reforms Needed

935 million in 1950 to about

The Family Assistance Plan as a Solution to the Welfare Crisis

25 billion by the end of 1981. Focusing upon recent experience, contributions into group annuities increased from about

Insurance and risk

7.3 billion in 1975 to about

Principles of Risk Management and Insurance

10.4 billion in 1976, an increase of about 42 percent. This sharp increase in group annuity contributions was due largely to the introduction and rapid adoption of guaranteed income contracts (GIC) under immediate participation guarantee plans. Because of the substantial decline in common stock prices in 1973 and 1974, employers became disillusioned with common stock investments. As a result, private pension contributions moved away from equities into fixed income securities. A guaranteed income contract is a fixed income instrument that is usually sold as a group annuity. Maturities generally range from five to 20 years, and interest is guaranteed at a fixed annual rate. Because of relatively high interest rates, guaranteed income contracts became increasingly popular with large employers and multi-employer pension plans interested in minimizing their investment risk. Thus, if the impact of ERISA on insured pension contributions is to be assessed correctly, special consideration must be given to the sharp increase in group annuity contributions. Factors Affecting Contributions into Insured Pension Plans If an inverse relationship exists between OASDHI tax contributions and contributions into insured pension plans, it can be argued that the OASDHI program has adversely affected the private pension movement. Likewise, if the ERISA law has adversely affected private pension plans, insured pension contributions should be at levels that are lower than would have been the case in the absence of ERISA. Thus, determining the impact that the OASDHI program and ERISA have on insured pension plans involves consideration of This content downloaded from 157.55.39.163 on Wed, 21 Sep 2016 05:00:57 UTC All use subject to http://about.jstor.org/terms I 6-1 4 2 The Journal of Risk and Insurance