Olivia Mitchell - Faculty Research in Knowledge@Wharton

Not With the Plan: State Budget Woes Create a Black Hole for U.S. Stimulus Funds

Wed, 05 Aug 2009 16:41:52 EST

From California to Connecticut, the global recession has squeezed state finances, forcing many state governments to slash services, raise taxes or find unusually creative ways to close the gap. According to experts, the widespread budget shortfalls -- expected to continue through at least 2011 -- threaten to put a drag on the nation's economic recovery and undermine President Obama's stimulus plan. "The states aren't really playing the game like Obama hoped they would," says one Wharton finance professor.

Social Security and Medicare: Trying to Tackle Two 800-pound Gorillas

Wed, 13 May 2009 16:53:27 EST

While many people worry about the billions of dollars spent bailing out banks, auto makers and other sectors, shortfalls in Medicare and Social Security are what could ultimately sink efforts to revive the U.S. economy. As 78 million baby boomers begin to retire, funding for the government's two primary old-age security plans grows increasingly precarious, suggest several Wharton faculty. A report released earlier this week by trustees of Social Security and Medicare echoes those concerns.

Not So Golden: Employees -- and Employers -- Feel the Pinch from Shortfalls in Retirement Funding

Wed, 01 Apr 2009 17:13:39 EST

The golden years for most Americans appear increasingly threatened by the global financial crisis. Retirement accounts have lost from $2 trillion to $4 trillion as stocks have tumbled nearly 50% from their peak in 2007. Pension funds -- which typically invest between 60% and 70% in equities -- are also finding their accounts billions of dollars below minimum requirements. For Americans facing retirement, the details of how these plans work may be fuzzy, but the big picture is clear: Whatever comfortable cushion retirees may have had is now gone, and the process of building it back up will be arduous and long.

Avoiding the Tough Issues: The Candidates on Health Care and Entitlements

Wed, 15 Oct 2008 16:48:07 EST

"We were so concerned about the $700 billion in the bailout bill, but nobody is talking seriously about the $12 trillion we need to make Social Security whole and the $65 trillion we need to make Medicare whole," says Wharton professor Olivia Mitchell, referring to issues being debated in the U.S. presidential campaign. Meanwhile, the candidates promise to expand health care coverage without offering details about how they can finance their proposals.

The $700 Billion Question: How Much Is That Exotic Security?

Wed, 01 Oct 2008 17:12:09 EST

Economists and financial experts don't all agree that the Bush Administration's $700 billion Wall Street rescue plan -- a taxpayer-funded purchase of troubled mortgage securities -- is the best way to attack the credit crunch. However, even those who support the plan acknowledge that there is an unanswered question at its core: How would the government know if it is paying the right price for the exotic securities it plans to buy?

AIG Rescued: Was an $85 Billion Loan the Right Answer?

Wed, 17 Sep 2008 20:25:57 EST

After refusing to bail out Lehman Brothers, the government agreed to an $85 billion loan to insurance giant AIG, effectively taking over the company. Knowledge@Wharton talked to Wharton insurance professors Olivia Mitchell and Kent Smetters to find out how the world's largest insurer got into this situation and how it can be prevented from happening again.

A Lot to Learn: Many Sovereign Wealth Fund Managers Come up Short in Measures of Sophistication

Wed, 06 Aug 2008 17:31:38 EST

Many public funds don't adhere to basic norms of modern money management and most don't even appear to make an effort to match their investment strategies with their future financial obligations. "As [sovereign wealth funds] have grown, they appear to be demonstrating an increasing risk appetite, very little transparency and virtually no clarity of objectives," write three researchers, including Wharton professor of insurance and risk management Olivia Mitchell, in a soon-to be-published paper titled, "Managing Public Investment Funds: Best Practices and New Questions."

Growing Value and Activism Bring New Scrutiny to Public Pension Funds

Wed, 11 Jun 2008 16:25:47 EST

Controlling about $3 trillion, public pension funds are too big to ignore. Some use their influence to boost shareholder rights or support social causes. In the face of "pension envy" from private sector workers, some governments have adopted defined contribution plans – and some of those have regretted the decision. The issues were explored at a Wharton Impact Conference called, "The Future of Public Employee Retirement Systems."

The 'Eldercare Generation' Cares About Continuing to Work: Are Companies Interested in Keeping Them?

Wed, 17 Oct 2007 15:24:43 EST

When the AARP recently announced its seventh annual "Best Employers for Workers over 50" awards, the winners didn't get there by offering the traditional fringe benefit trio of health, life and disability insurance. Instead, the AARP recognized companies for providing workers over 50 with "forward-looking" benefits packages that include, for example, alternative work schedules and lifelong learning and career training opportunities. But are companies interested in offering jobs, or job security, to older workers? And why aren't these workers following the retirement path their parents did?

You've Worked Hard, Saved and Just Retired: How Do You Manage Your Finances Now?

Wed, 13 Jun 2007 14:33:58 EST

As baby boomers retire and start spending their nest eggs, they will need new financial products to make their money last, according to speakers at a recent Wharton Impact Conference titled, "Managing Retirement Payouts: Positioning, Investing and Spending Assets." The conference explored emerging patterns in spending during retirement and debated new ideas to help retirees manage their finances after leaving the workforce.

Do Americans Save Enough? It Depends on What Calculator You Use

Wed, 07 Feb 2007 15:59:14 EST

Every week one financial services firm or another releases findings of its latest retirement study: Americans aren't saving enough. Americans are saving too much. The savings rate is abysmal. People are borrowing against their homes to pay for luxuries, and so forth. Who's right? It turns out, not surprisingly, that the future is hard to predict, and that many calculators designed to make those predictions are flawed in their basic assumptions. Wharton experts try to help navigate the challenges of planning for retirement.

Longer Lives and the 'Lump-Sum Illusion' Are Just Two of the Challenges Retiring Baby-Boomers Face

Wed, 26 Jul 2006 12:03:13 EST

In the United States alone, an unprecedented 77 million baby-boomers will be living the next 20 to 30 years in retirement. With long lives ahead of them -- and without adequate planning -- what are the risks they are facing? According to Olivia Mitchell, Wharton professor of insurance and risk management, and Christopher "Kip" Condron, president and CEO of AXA Financial, the world's largest financial services firm, the rising tide of boomers in the U.S. and around the world needs to meet challenges that previous generations never faced, including changes to key retirement institutions, as well as medical-care cost inflation and the "lump-sum illusion." Knowledge@Wharton spoke with Mitchell and Condron about how the financial services industry is working to meet the needs of this next wave of retirees.

Hands-off: Holders of 401(k) Retirement Accounts Are Not Your Typical Investors

Wed, 08 Mar 2006 16:27:20 EST

With $2.5 trillion invested in 401(k) retirement accounts, 60 million Americans control a powerful chunk of cash. So how much attention do investors pay to this vast pool of savings? Not much. According to a new Wharton analysis of retirement accounts managed by The Vanguard Group in 2003 and 2004, participants in 401(k) plans made little effort to tend their defined-contribution plans once they were set up. Even among those who did trade regularly, turnover rates were one-third those of professional money managers. Olivia S. Mitchell, executive director of Wharton's Pension Research Council, Stephen P. Utkus, principal, Vanguard Center for Retirement Research, and researchers Gary Mottola and Takeshi Yamaguchi present their findings in a paper entitled, "The Inattentive Participant: Portfolio Trading Behavior in 401(k) Plans."

Unlike Death and Taxes, Pensions Are No Longer Guaranteed

Wed, 08 Feb 2006 16:31:18 EST

IBM. Verizon. Sears. Hewlett-Packard. Motorola. The list of corporations that have put a halt to guaranteed pension plans comes as a jolt to Baby Boom employees entering what they thought would be their peak pension-building years. At the same time, new accounting rules and Congressional legislation are being drafted to close the U.S. pension-funding gap, now estimated at $450 billion. While some proposals under discussion could make it easier for companies to discontinue defined-benefit plans, others would create incentives to support defined-contribution programs, such as 401(k) plans, according to Wharton faculty and pension experts. Amid all this flux, they add, one thing seems certain: Pension plans have become risky business.

Can the Government Deliver, On Time, Major Reform of Japan's Postal Service?

Wed, 01 Mar 2006 17:07:06 EST

The reawakening of Japan's economy following more than a decade of decline comes after a series of major economic reforms, but the biggest change may be yet to come. Privatization of Japan's massive postal savings system, which holds savings and insurance assets valued at $3 trillion for 85% of Japan's population, is set to take place over the next 12 years. The proposal, overwhelmingly endorsed by voters in a September special election, will shift a mountain of assets from government control to private markets. Wharton faculty say the long timetable for carrying out the plan -- which stretches to 2017 -- may help blunt political opposition that is likely to continue, even after the process starts.

A Bumpy Road for Delphi, GM and U.S. Auto Workers

Mon, 21 Nov 2005 14:54:45 EST

On the heels of an announcement that Delphi, the nation's largest auto parts manufacturer, is filing for Chapter 11 bankruptcy, GM announced on October 17 that it had reached a tentative agreement with the United Auto Workers to cut the healthcare benefits of unionized retirees. These events and others that followed may forever alter the relationship between America's Big Three carmakers and the UAW, and they underscore the degree to which globalization is exerting downward pressure on the wages and benefits paid to U.S. workers. Meanwhile, experts at Wharton and elsewhere say the road ahead could get quite a bit bumpier for American auto industry employees and retirees.

How Well Has Chile's Retirement Program Aged?

Wed, 07 Sep 2005 15:24:58 EST

Viewed as one of the world's most innovative pension systems when it was created a quarter century ago, the Chilean retirement program is receiving new scrutiny as participants begin to reach retirement age, and President Bush promotes elements of the plan as a way to reform Social Security in the United States. An upcoming Presidential election in Chile has prompted additional debate about whether the Chilean system provides enough coverage to prevent old-age poverty, according to Olivia Mitchell, Wharton professor of risk management, who recently led a panel entitled, "Exporting the Pension Revolution: Chile and Beyond," at the Wharton Global Alumni Forum in Santiago.

Retirement Programs Face an "Aging-Population Tsunami"

Wed, 01 Jun 2005 17:22:46 EST

Against the backdrop of rising concerns over both public and private pension systems in the U.S., industry experts convened at a recent Wharton conference to debate ways in which retirement programs can be better managed. Participants discussed such topics as the problems facing Social Security, the solvency of the Pension Benefit Guaranty Corp., and the consequences of an increase in defined contribution plans like 401(k)s along with a corresponding decline in defined benefit plans. The conference was titled "The Evolution of Risk and Reward Sharing in Retirement."

Older Workers: Untapped Assets for Creating Value

Wed, 09 Feb 2005 16:50:03 EST

The days when an executive could look forward to a leisurely retirement out on the golf course are over, thanks to a possible looming job shortage, a graying population, low savings rates and an insecure Social Security system. The impact of these factors on both workers and companies was the subject of the Symposium on Older Workers, co-sponsored recently by the AARP Global Aging Program along with Wharton's Center for Human Resources and Boettner Center for Pensions and Retirement Research. Speakers included AARP CEO William D. Novelli, Olivia Mitchell, executive director of Wharton's Pension Research Council, and Thomas Dowd, a deputy assistant secretary at the U.S. Department of Labor.

United Airlines' Pension Problem: Who, Ultimately, Is Going to Pay?

Wed, 08 Sep 2004 14:39:32 EST

United Airlines' proposal to halt payments to its pension funds suggests serious problems for the nation's pension-guarantee system, according to Wharton faculty and pension experts. The troubled airline, which declared bankruptcy in December 2002, said in July that it would stop funding its pension plans while it struggles to restructure under bankruptcy protection. The question is, how many other companies will renege on their pension obligations? And if the pension system collapses, will taxpayers foot the bill, just as they did for the S&L crisis in 1989?

Venezuela's Fate Is Tied to Oil, and That's the Problem

Wed, 08 Sep 2004 14:39:32 EST

The link between the August 15 presidential referendum in Venezuela and the state of the global energy markets is clear. Once incumbent Hugo Chávez demonstrated his ability to get re-elected, oil markets calmed down, at least temporarily, even though Chávez is unpopular among foreign economists and analysts. Uncertainty about the future of the Chávez regime had been one of several factors pushing world oil prices to record highs in recent months. But looking ahead, how solid is Chávez's support, and what would happen to this struggling economy if oil prices drop?

Redefining Retirement in the 21st Century

Wed, 16 Jun 2004 15:47:10 EST

The demographics of today’s workforce, employee expectations about retirement and the types of retirement options offered are all in a state of flux, making retirement policy a moving target for those charged with researching and administering pension plans. That was the message at a recent Wharton conference titled “Reinventing the Retirement Paradigm” co-hosted by Wharton’s The Pension Research Council. Experts from academia, government and industry debated what’s ahead for the baby boomers, and those coming up behind them.

How Should Retirement Policy Be Reformed? Don't Speak All Together, Please

Wed, 02 Jun 2004 12:53:06 EST

Changing demographics, the high cost of pension benefits, and workers’ continued failure to save enough for old age are all driving changes in the nation’s retirement prospects, according to speakers at a recent Wharton Impact Conference titled “Reinventing the Retirement Paradigm.” In the first of two articles, Knowledge@Wharton covers discussion by conference participants of policy issues ranging from pension fund management to accounting reform to transparency. The second article, to appear in the next issue, will address trends in demographics and workers’ expectations.

Chile: A Beacon of Prosperity in a Turbulent Region

Wed, 19 Nov 2003 14:50:39 EST

Even as many Latin American countries continue to face tough times both economically and politically,

Chile

chugs along with a strong currency, falling unemployment and a stock market that is up nearly 50% since the beginning of the year. What is behind’s

Chile

’s success, and can this country of 15 million people sustain its already numerous advantages?

"Our Agenda is to be Mr. Asia"

Wed, 05 Nov 2003 13:40:57 EST

Of all the business processes that are moving to the developing world, one of the fastest-growing areas is human resources. As the costs of complying with complex HR regulations increase, companies are starting to recognize that outsourcing offers a way of lowering them. The explosion in demand for HR business-process outsourcing (BPO) has attracted entrepreneurs such as Manish Sabharwal, founder of India Life Hewitt, India's first and largest HR BPO provider. Sabharwal spoke to Knowledge@Wharton recently about the challenges of building and managing an HR BPO firm.

How Much Money Will You Need for Retirement? More Than You Think

Wed, 27 Aug 2003 00:00:00 EST

Most people generally understand that the sooner they begin planning for retirement the better. Putting money aside now rather than later means that you will have more assets in the long run. What many people don�t know, however, is the amount of money they will need to live on in their golden years. Experts at Wharton examine the reasons why people don�t save enough for retirement, and what strategies are available to change that.

Underfunded Pensions: Causes, Cures and Questions

Wed, 20 Oct 2004 17:11:02 EST

Battered by a triple whammy of falling interest rates, a stalled stock market and an anemic economy, U.S. corporate pension plans face an estimated shortfall of $300 billion. The crisis, which affects mainly defined benefit plans, came to a head last week when the federal Government Accounting Office described the Pension Benefit Guaranty Corp., a quasi-government insurer of last resort, as a "high risk" program. The Bush Administration is staking its credibility on finding a solution to the crisis, which affects some 43 million workers and retiree''''s. Experts at Wharton and elsewhere examine the causes of the crisis and the proposed solutions.

Fate Worse than Debt: Can the U.S. Deficit Rise to $45.47 Trillion?

Wed, 18 Jun 2003 00:00:00 EST

The U.S. government�s future obligations outweigh its projected revenues so heavily that it would need a permanent income tax increase of 66% or the immediate elimination of all federal discretionary spending to put it on track for balancing its finances. Such is the startling conclusion of a report by Wharton insurance and risk management professor Kent Smetters and Cleveland Federal Reserve Bank economist Jagadeesh Gokhale. The two argue that the government�s accounting system is backward looking and so has failed to properly account for future outlays such as Social Security and Medicare.

Will Baby-Boomers' Retirement Years Go Bust from a Lack of Savings?

Wed, 21 May 2003 00:00:00 EST

In recent years, the format of Americans� pension plans has changed as more companies move to a defined contribution model that places more responsibility on the shoulders of the employees. But even as it becomes more important for workers to prepare for retirement, surveys and other data indicate that many plan participants confess to having little or no understanding of these vital tools. Worse, because of the complex nature of 401(k)s and other plans, employee contributions tend to be far lower than they should. These and other issues were explored during a recent Wharton Pension Research Council conference titled �Decision-Making under Uncertainty: Implications for Pensions.�

A �Perfect Storm� of Circumstances Batters Corporate Pension Plans

Wed, 12 Feb 2003 00:00:00 EST

In 1985, the Financial Accounting Standards Board (FASB) looked at defined-benefit pension accounting issues and noted: �Measuring cost and reporting liabilities resulting from defined benefit pension plans have been sources of accounting controversy for many years.� Now, nearly two decades later, they�re still controversial as companies like General Motors Corp., IBM and others rack up billions of dollars in under-funded defined benefit pension plan liabilities. Some Wharton faculty and other experts are asking whether FASB rules as well as the Internal Revenue Code itself may have played a significant part in the strife.

The Long, Winding Road to Pension Reform in Latin America

Wed, 15 Jan 2003 00:00:00 EST

Like other nations, countries in Latin America are attempting to make their retirement systems more efficient and responsive to citizens� needs. This is difficult in the best of times. But it is more problematic when countries have to deal with economic crises involving high inflation, slow growth, defaults on debt payments and currency devaluations � all of which have afflicted Latin America in recent years. In an interview with Knowledge@Wharton, professor Olivia S. Mitchell, head of Wharton�s Pension Research Council and one of the world�s leading experts on retirement plans, discusses the challenges facing retirement systems in Latin America.

How Well Do 401(k) Plans Work, and Who Benefits Most From Them?

Wed, 20 Nov 2002 00:00:00 EST

When Enron collapsed a year ago, thousands of employees� retirement savings were wiped out, sparking quick calls for reform of 401(k) plans. Some changes were put in place earlier this year, others are still being debated in Congress. But now that the smoke of corporate scandals has begun to clear, do problems with 401(k)s still appear as bad as they did last winter? Should the system be left alone, merely tweaked, or overhauled?

Brazil: A Heady Mix of World Cup Euphoria, Election Anxiety and Economic Uncertainty

Wed, 17 Jul 2002 00:00:00 EST

On June 30, when Ronaldo redeemed himself and his country by scoring two goals and winning the World Cup, Brazilians celebrated for days and nights on end. Unfortunately, the party is now over and the contest is no longer about sports but politics. In October, Brazil will hold a presidential election whose outcome will play a large role in determining the future direction of Brazil�s struggling economy.

How Wealthy Nations Can Avoid a Looming Retirement Crisis

Wed, 05 Jun 2002 00:00:00 EST

The rapid aging of the world's industrialized nations poses problems for consumer and capital markets, including the risk that individual and government retirement plans will come up short over the next two decades. But the retirement boom will also have implications for the developing world. The global aging problem and the prospect for globally-based solutions were outlined several weeks ago during a conference sponsored by Wharton�s Pension Research Council and The Financial Institutions Center.

Post-Enron Pension Reform Aims to Educate � and Protect � Employees

Wed, 08 May 2002 00:00:00 EST

When Enron went bankrupt last year, thousands of its employees lost their life savings, spurring attempts by the U.S. House and Senate to fix some of the Enron-style problems. Although it�s too soon to say what pension reform measures Congress ultimately will adopt, the central issue is clear: how to treat the use of the company stock in employee retirement plans.

The New Business Reality

Wed, 30 Jan 2002 00:00:00 EST

ideas about what effect those events would have on business and the economy. It was clear, however, that even before the attacks, major changes were underway that would alter the business landscape. To help understand these changes, Wharton�s Aresty Institute of Executive Education held a three-day symposium in December called Wharton on the New Business Reality: Scenarios and Strategies for the Future. Knowledge@Wharton covered the symposium.

Social Security Reform? Wait Until Next Year

Wed, 16 Jan 2002 00:00:00 EST

Given the government�s focus on the war against terrorism, among other issues, it�s unlikely that Social Security reform will make much headway in 2002. But that�s just as well, says Wharton professor Olivia Mitchell, a member of the President�s Commission to Strengthen Social Security, who says more discussion is needed before instituting any changes in the current system. In this article, Mitchell describes the Commission�s three proposed models for reform.

Social Security: You Do the Math

Wed, 01 Aug 2001 00:00:00 EST

Members of President Bush�s recently-appointed Commission to Strengthen Social Security face a stark reality: Unless reforms are instituted soon, Social Security benefits will run out for retirees by the year 2016. Olivia S. Mitchell, professor of insurance and risk management, and a member of the Bush Commission, explains why there are no easy answers in the Social Security debate.

Shifting U.S. Population Calls for New Approaches to Employee Benefits

Wed, 09 May 2001 00:00:00 EST

For much of the last 200 years, the age chart of the U.S. population looked like a pyramid, with the youngest on the bottom and the oldest on the top. But recently that pyramid has mutated into a pillar, with each age group occupying about the same amount of space. How that will affect employee benefits, especially pensions, was one of the topics discussed during a recent conference organized by Wharton�s Pension Research Council.

A New Look at the Payoff from Annuity Investments

Thu, 22 Feb 2001 15:56:32 EST

Investors often regard annuities as a poor substitute for mutual funds and other investments. A new study by Wharton�s Pension Research Council shows, however, that middle-income investors approaching retirement age may be missing a good bet if they overlook annuities. �Mutual funds don�t protect you against the risk of outliving your assets,� says Olivia S. Mitchell, the council�s executive director.

Wharton Faculty Wish-list for George W. Bush

Wed, 17 Jan 2001 15:21:20 EST

There is little doubt that President-elect George W. Bush will have to hit the ground running once he is sworn into office on Jan. 20. A convergence of factors � ranging from leftover election rancor to a divided Congress to a newly sluggish economy - means Bush will have an unusually short honeymoon. Knowledge@Wharton asked Wharton faculty members to identify the most important issues � related to their own fields of expertise � that the new administration should address.

Making Retirement Saving Work Smarter

Wed, 05 Jul 2000 14:31:55 EST

Only half of Americans say they�ve thought about saving for retirement, and many of those who have tried to save don�t know if they are saving enough. Olivia S. Mitchell, executive director of Wharton�s Pension Research Council, and finance Professor Zvi Bodie of Boston University outline this problem and propose some fresh approaches to it in the introductory chapter of a forthcoming book titled Financial Innovations for Retirement Income. Among their suggestions: cash-balance pension plans, reverse annuity mortgages and inflation-indexed bonds. They also advocate more knowledgeable financial advisors and well-educated retirees.

Behind the Pension Tension at IBM

Wed, 27 Oct 1999 14:38:14 EST

Did IBM make a blunder when it decided some weeks ago to switch employees from a traditional defined benefit pension plan to the newer and more controversial cash balance? Older employees seemed to think so and they lost no time mounting a very public protest and accusing their employer of age discrimination. In the wake of IBM�s decision to revise its plan, Olivia Mitchell, director of Wharton�s Pension Research Council, looks at the pros and cons of cash-balance plans and how they fit into companies� long-range strategy.

Would Privatizing Social Security Pay a Higher Rate of Return?

Sat, 27 Mar 1999 05:02:59 EST

The political debate over privatizing social security continues to rage around the country. As politicians and public officials trade arguments and counter-arguments, two papers from the Wharton Pension Research Council take stock of the issues at stake. The bottom line: Privatizing social security will not increase benefits to everyone in the system.