Wharton Pension Research Council Working Papers

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Working Paper

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Mandatory programs for old-age benefits tend to require periodic adjustments due to demographic and economic uncertainty. Relying on discretionary legislation for these Social Security adjustments creates political risk for workers and beneficiaries, and it can also raise risks borne by taxpayers. An alternative approach is rule-based adjustment, as in the case of funded mutual funds and life insurance plans that offer annuities. This paper argues that rule-based adjustments can be adopted in an unfunded system, without incurring transition costs and without increasing the public debt. We evaluate an approach to this problem which would endow the Trust Fund with property rights over the revenue of a (much reduced) residual payroll tax paid by future workers. Revenue on the future taxes would be securitized and the resulting securities priced in financial markets. The new securities created in the process would allow beneficiaries to obtain safe real pensions protected from investment risk.


The published version of this Working Paper may be found in the 2006 publication: Restructuring Retirement Risks.

Working Paper Number


Copyright/Permission Statement

All findings, interpretations, and conclusions of this paper represent the views of the author(s) and not those of the Wharton School or the Pension Research Council. Copyright 2005 © Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.

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Economics Commons



Date Posted: 30 August 2019