Mitchell, Olivia S

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  • Publication
    The Future of Public Employee Retirement Systems
    (2008-06-01) Mitchell, Olivia S
  • Publication
    Optimal Social Security Claiming Behavior under Lump Sum Incentives: Theory and Evidence
    (2023-01-13) Maurer, Raimond; Mitchell, Olivia S; Rogalla, Ralph; Schimetschek, Tatjana
    People who delay claiming Social Security receive higher lifelong benefits upon retirement. We survey individuals on their willingness to delay claiming later, if they could receive a lump sum in lieu of a higher annuity payment. Using a moment-matching approach, we calibrate a lifecycle model tracking observed claiming patterns under current rules and predict optimal claiming outcomes under the lump sum approach. Our model correctly predicts that early claimers under current rules would delay claiming most when offered actuarially fair lump sums, and for lump sums worth 87% as much, claiming ages would still be higher than at present.
  • Publication
    Footnotes Aren’t Enough: The Impact of Pension Accounting on Stock Values
    (2008-01-01) Coronado, Julia; Sharpe, Steven A; Mitchell, Olivia S; Nesbitt, S. Blake
    Some research has suggested that companies with defined benefit (DB) pensions are sometimes significantly misvalued by the market. This is because the measures of pension cost and pension net liabilities embedded in financial statements, taken at face value, can provide very misleading picture of pension finances. The more pertinent information on pension finances is relegated to footnotes, but might not receive much attention from portfolio managers. But dramatic swings in the financial conditions of large DB plans around the turn of the decade focused widespread attention on pension accounting practices, and dissatisfaction with current accounting standards has recently prompted the Financial Accounting Standards Board (FASB) to take up a project revamp DB pension accounting. Arguably, the increased attention should have made investors wise to the informational problems, thereby eliminating systematic mispricing in recent years. We test this proposition and conclude that investors continued to misvalue DB pensions, inducing sizable valuation errors in the stock of many companies. Our findings suggest that FASB’s current reform efforts could substantially aid the market’s ability to value firms with DB pensions.
  • Publication
    The Effect of Uncertain Labor Income and Social Security on Life-cycle Portfolios
    (2009-09-01) Maurer, Raimond; Mitchell, Olivia S; Rogalla, Ralph
    This paper examines how labor income volatility and social security benefits influence life-cycle household portfolios. We examine how much the individual saves, and where, taking into account liquid financial wealth and annuities, and stocks versus bonds. Higher labor income uncertainty and lower old-age benefits boost demand for stable income in retirement, but also when young. In addition, a declining equity glide path with age is appropriate for the worker with low income uncertainty but for the high income risk worker, equity exposure rises until retirement. We also evaluate how changes in social security benefits influence retirement risk management.
  • Publication
    Building Better Retirement Systems in the Wake of the Global Pandemic
    (2020-06-30) Mitchell, Olivia S
    In the wake of the global pandemic known as COVID-19, retirees, along with those hoping to retire someday, have been shocked into a new awareness of the need for better risk management tools to handle longevity and aging. This paper offers an assessment of the status quo prior to the spread of the coronavirus, evaluates how retirement systems are faring in the wake of the shock. Next we examine insurance and financial market products that may render retirement systems more resilient for the world’s aging population. Finally, potential roles for policymakers are evaluated.
  • Publication
    Turning Wealth into Lifetime Income: The Challenge Ahead
    (2010-09-01) Mitchell, Olivia S; Piggott, John
    Longevity risk management was a family obligation in the old days; in the 20th century, as development, migration, and the scattering of families became more common, government and employers took over the role of providing longevity insurance. In the 21st century, demographic shift and government overspending has put all of these sources under stress. This chapter asks whether the future will be an era of more general and formalized private longevity insurance provision through annuities, and we explore answers across several different countries. Some nations have adopted mandatory annuitization; others have mandatory accumulation plans without requiring annuitization; and still others remain heavily dependent on traditional social security with private annuities representing what might best be described as a residual market. Also in some nations, innovations in longevity insurance products have been embraced, apparently rather successfully, while in others – notably among emerging economies, people lack a significant annuity market.
  • Publication
    An Empirical Analysis of 401(k) Loan Defaults
    (2010-11-01) Lu, Timothy (Jun); Mitchell, Olivia S; Utkus, Stephen P
    Many 401(k) pensions allow plan participants access to their pension saving before retirement via a plan loan. This paper investigates the determinants of defaults on such loans, using a rich dataset of over 100,000 participants who terminate employment with a plan loan outstanding. Overall, one in ten plan loans results in a default, and eight of ten workers who leave a job with a plan loan outstanding then default on that loan. Explanations relate to employee characteristics and plan design features: those with little non-retirement wealth, low income, and smaller 401(k) balances, are more likely to default than repay their loans at job termination. Moreover, borrowers with several smaller loans are more likely to default than are participants with a single loan of the same total size, perhaps due to heterogeneity in credit demand or lack of self-control. Local economic conditions have little impact on 401(k) loan defaults during the period we analyze
  • Publication
    Trading in 401(k) Plans during the Financial Crisis
    (2011-09-01) Tang, Ning; Mitchell, Olivia S; Utkus, Stephen P
    Most 401(k) participants did not trade much in their retirement accounts during the recent financial crisis. Yet the proportion of plan participants trading did rise by almost a quarter and the mean portfolio fraction shifted away from equities rose almost eightfold during the crisis. Traders’ responsiveness to monthly stock market volatility also more than doubled, contributing to a sharp increase in the sale of equities. At the same time, traders’ equity selling was offset by their reaction to returns. They shifted from a momentum approach pre-crisis selling equities on weak returns, to a contrarian strategy during the crisis and buying stocks ‘on the dips.’ Also firsttime traders during the crisis reacted more negatively to volatility than did experienced traders; these inexperienced traders were nevertheless, and paradoxically, more likely to be contrarian in their return response. Finally, participant plan statements sent during the crisis encouraged net shifts into equities, thereby acting as a modest stabilizing factor.
  • Publication
    Collective Investments for Pension Saving: Lessons from Singapore’s Central Provident Fund Scheme
    (2010-01-01) Koh, Benedict SK; Mitchell, Olivia S; Fong, Joelle HY
    Singapore’s mandatory national defined contribution pension system permits participants to invest their retirement savings in a wide range of investment instruments if they wish, rather than leaving their savings in CPF accounts to earn interest rate by default. This paper asks whether workers seeking to earn higher returns can expect to do better than the CPF-managed default, by moving their money into professionally-managed unit trusts. We use historical data to investigate whether fund managers possess superior stock-picking and market-timing skills, as well as whether they exhibit persistence in performance and offer diversification benefits to participants. The evidence is mixed, which could explain why so few participants opt out of the CPF-run default fund.
  • Publication
    Reforming the German Civil Servant Pension Plan
    (2008-07-01) Maurer, Raimond; Mitchell, Olivia S; Rogalla, Ralph
    We analyze the risks and rewards of moving from an unfunded defined benefit pension system to a funded plan for civil servants in Germany, allowing for alternative portfolio mixes using a Monte Carlo framework and a Conditional Value at Risk metric. First, we estimate contributions as a percent of salary that would fully fund future benefit promises for active employees. Second, we identify an investment strategy for plan assets that will minimize worst-case pension costs; this turns out to be 22% in equities, 47% in bonds, and 30% in real estate. Third, we explore the time path of pension fund asset shortfalls and the chances of contribution holidays for current and future generations. We show that moving toward a funded pension system for German civil servants can be beneficial to both taxpayers and civil servants.