Rethinking Pension Reform

This book presents an academic and a practical aspect on managing pension funds to clarify the global debate on social security. The authors establish the basic choices in designating any system to help policy makers develop the system that achieves their many objectives. They examine reforms in Latin America to highlight flaws and to estimate the true cost of these reforms and factors affecting these costs. The authors then discuss how the United States and Spain can implement robust systems incorporating many of the ideal features. The success of reforms depends on financial innovation to mitigate key risks and some innovations are discussed, which also demonstrates how pension reform choices affect the achievement of retirement objectives. Finally, the authors examine some proposed hybrid options to show how the beneficial features of these hybrids can be captured through good design in a single fund.

Table of Contents:
1. A primer on pension reform issues; 2. A taxonomy of pension reform issues; 3. Evaluation of pension reforms; 4. Welfare costs defined contribution schemes; 5. The transition from PAYGO to funding with a common portfolio: application to the United States; 6. Social security reform in Spain; 7. The 'two pension fund' theorem; 8. The case for mixed systems and variable contributions: improving the performance of pension systems.

About the Author :
Franco Modigliani, Institute Professor Emeritus and Senior Lecturer in Economics, Finance, and Accounting at MIT, received the Nobel Memorial Prize in Economic Science in 1985 for his pioneering work in analyzing the functioning of financial markets and the behavior of household savers. Much of his writing since that time has been devoted to issues relating to social security, capital markets, money supply, the Euro, and unemployment. He is the author, editor or coeditor of numerous books, including The Debate over Stabilization Policy (Cambridge University Press, 1986) and the autobiographical Adventures of an Economist. Professor Modigliani's professional papers were collected in five volumes and published between 1980 and 1989. Arun Muralidhar is Managing Director of FX Concepts, Inc. a private financial analysis firm. Prior to holding that position Dr. Muralidhar served as Head of Research in the Investment Department and a member of the Investment Committee of the World Bank in Washington, DC and subsequently served as Managing Director and Head of Currency Research at J. P. Morgan Investment Management. He is the author of Innovations in Pension Fund Management (2003) and articles in leading journals in finance, including the Journal of Portfolio Management, Financial Analysts Journal, Journal of Risk, Derivatives Quarterly, and the Journal of Asset Management. He received his Ph.D. in 1992 from MIT where he studied under Professor Modigliani.

Review :
'... the book is an exemplary model for policy analysis in which the crisis is diagnosed and solutions proposed, tested and related institutions recommended. This is surely a wonderful testament to Modigliani's long career as an economist and Muralidhar's hard work in realising his vision.' Gordon L. Clark, Investment & Pensions Europe '... makes a significant contribution to the growing literature on public pension reform ... valuable theoretical lessons for pension reformers of all stripes ... The authors' approach is imaginative and their economic analysis, as expected, is first-rate ... Rethinking Pension Reform represents a significant contribution to the continuing debate over public pension reform, and it constitutes a fitting legacy for its distinguished co-author.' Journal of Pension, Economics, and Finance