Volume 11 / Number 2 / Summer 2007

 

BUSINESS LAW FORUM: 
THE AGING OF THE BABY BOOMERS AND AMERICA’S CHANGING RETIREMENT SYSTEM

FORUM OVERVIEW

The Aging of the Boomers and the Coming Crisis in America’s Changing Retirement and Elder Care Systems

Henry H. Drummonds

11 Lewis & Clark L. Rev. 267 (2007)

An aging population, coupled with a trend toward shifting risk from employers to individual employees, has created a variety of issues within America’s retirement system. In searching for a solution to the coming crisis, this Article steps back to analyze the retirement system as a whole. Instead of examining each type of retirement plan individually, the author argues for fundamental change within the entire retirement framework. Because the policy behind ERISA—creating tax benefits to reward long-term employment—has changed, America needs a new comprehensive retirement policy that accounts for the crisis facing the current pension system. The author contends that rather than fashioning individual solutions for each problem, the situation requires a broad solution governed by an overarching theme. Professor Drummonds calls for a “new ERISA,” integrating all of the disparate parts of America’s emerging retirement system. He argues the social security system should be maintained as a social, not retirement program, guaranteeing every worker some subsistence level income against the vicissitudes of life. He calls for the conversion and phasing out of defined benefit plans in the private and public sector toward the defined contribution/individual account model as fairer to the children and grandchildren of the Boomer generation. Professor Drummonds believes the individual account model is less subject to the funding and moral hazard problems seen pervasively in the defined benefit plans. To address the underfunding and non-participation in defined contribution plans, Professor Drummonds would mandate that employers offer such plans, with opt-out features and diversified default portfolios, and a mandatory employer match of voluntary employee contributions up to 6%. He would eliminate less than market premium rates for termination insurance in remaining defined benefit plans and require a standardized and accurate accounting system for those plans.

FORUM ARTICLES 

Is It Time to Admit the Failure of an Employer-Based Pension System?

Susan J. Stabile

11 Lewis & Clark L. Rev. 305 (2007)

In her contribution to the Business Law Forum, Susan Stabile paints a pessimistic picture of the state of retirement security in the United States. She examines two aspects of the failure of an employer-based pension system, focusing first on the problems associated with defined contribution plans such as 401(k) plans, which have become the dominant means by which employers offer their employees pension coverage, and second, on the reality that millions of employees lack any pension coverage at all. She argues that the failures of the employer-based system can not be rectified by incremental changes and that serious consideration must be given to alternative models of providing Americans with retirement security. Although recognizing that neither of the models she discusses—i.e., the provision of a government pension for everyone and movement to a mandatory employment-based system with more stringent regulation than currently exists—would be politically easy to enact, she argues that some major overhaul is needed if we remain convinced that adequate retirement security is an important social goal.

The Shift from Defined Benefit Plans to Defined Contribution Plans

Samuel Estreicher and Laurence Gold

11 Lewis & Clark L. Rev. 331 (2007)

The U.S. has undergone a major shift in recent years from defined benefit pension plans to defined contribution plans. The shift has important consequences for most Americans because defined contribution plans, in granting decision-making authority to participants, will often fail to provide adequate retirement income to individuals with median earning capacity. The authors propose a number of legal changes to reduce some of the regulatory handicaps that have attended defined benefit plans and improve the reliability of defined contribution plans as a principal source of retirement income.

Social Security Reform:
Fundamental Restructuring or Incremental Change

Kathryn L. Moore

11 Lewis & Clark L. Rev. 341 (2007)

In light of Social Security’s long-term deficit, reform of the system appears inevitable. Commentators and policymakers have offered a wide range of possible reforms. This Article describes and analyzes five possible types of reform: (1) individual accounts, (2) progressive price indexing, (3) general revenue and/or estate tax revenue financing, (4) increasing the maximum taxable wage base, and (5) increasing the normal retirement. The Article opposes the first two proposed changes, individual accounts and progressive price indexing, because they would fundamentally restructure the current system. The Article recommends that Social Security’s financing difficulties be addressed by a combination of estate tax revenue financing, a higher taxable wage base, and a higher normal retirement age. A combination of these three reforms would retain the current structure of the system and distribute the costs of reform so that no single class of participants or beneficiaries would bear the entire brunt of reform.

Pensions and Risk Aversion:
The Influence of Race, Ethnicity, and Class on Investor Behavior

Dorothy A. Brown

11 Lewis & Clark L. Rev. 385 (2007)

Defined contribution plans have greatly expanded over the last two decades. Defined contribution plans place the investment risk on employees. Employee investment decision making should be examined to determine whether those decisions are influenced by race, ethnicity and/or class.

Empirical data show that investor behavior is greatly influenced by race, ethnicity and/or class. Blacks and Hispanics are far less likely to invest in the stock market than whites. Low income whites are far more likely to invest in the stock market than higher income blacks or Hispanics. As a result, retirement account balances are the greatest for many white households and the least for black, Hispanic, and certain white households. This Article explores those issues and suggests solutions that will allow employees to overcome their built-in biases and make wiser investment choices.

Retirement Planning’s Greatest Gap: Funding Long-Term Care

Richard L. Kaplan

11 Lewis & Clark L. Rev. 407 (2007)

In this Article, Professor Kaplan examines the major missing component of retirement planning: how to finance the potentially explosive cost of long-term care. He reviews the wide array of long-term care options currently available, including home care, assisted living facilities, and nursing homes. Next he examines the coverage for long-term care provided by the government health program for older Americans, Medicare, and private insurance policies that supplement that program. Finding such coverage woefully deficient, Professor Kaplan then considers the governmental health care program for poor people of any age, Medicaid, and assesses that program’s coverage of long-term care and its eligibility limitations as tightened by recent legislation. He then turns to private long-term care insurance and analyzes its major components and the various pitfalls that prospective retirees encounter in purchasing such insurance. Finally, Professor Kaplan critiques the federal government’s major initiatives to encourage such insurance—namely, the tax deduction of premiums and coordination of certain long-term care insurance policies with the Medicaid program.

A Fatal Mismatch: Employer-Centric Benefits in a Boundaryless World

Katherine V. W. Stone

11 Lewis & Clark L. Rev. 451 (2007)

This Article traces the origins of the uniquely American system of private, employer-centered welfare institutions and argues that the prevailing model must be replaced with an alternative that is both more portable and more affordable for the vast majority of workers. The author shows how the current employer-centric system of benefits originated in the industrial era of the last century when employers sought to secure a stable workforce through internal labor markets. She argues that this employer-centered model of social insurance and welfare benefits has largely outlived its usefulness in the new “boundaryless” workplace of the twenty-first century. In response to the aging of the population and a rapidly changing economy characterized by global competition, shorter production cycles, increased use of contingent and temporary employment and rising healthcare costs, in the last two decades employers have reduced their benefits coverage, shifted away from risk-pooling plans, such as defined benefits plans, in favor of a personal responsibility approach characterized by more portable but riskier defined contribution plans. She shows that these changes have generally shifted the costs and risks of healthcare and old age assistance onto their employees. As a result, the U.S. system of employer-centered benefits is irrelevant for large numbers of employees who have no coverage and increasingly inadequate, uncertain and costly for those who are covered.

FORUM COMMENTARY

The “Prudent Retiree Rule”:
What To Do When Retirement Security Is Impossible?

Jeffrey N. Gordon

11 Lewis & Clark L. Rev. 481 (2007)

 

COMMENTS

Improving Patent Quality Through Identification of Relevant Prior Art: Approaches to Increase Information Flow to the Patent Office

Susan Walmsley Graf

11 Lewis & Clark L. Rev. 495 (2007)

There is rising concern about the issuance of poor quality patents by the U.S. Patent and Trademark Office; i.e., patents which are overbroad, or directed to old or obvious inventions. These patents can be particularly vulnerable to exploitation by so-called “patent trolls.” An important contributor to the issuance of quality patents is identification of the most relevant prior art during the process of examination. This can be difficult in emerging fields that do not yet have a large body of published work, as well as in established fields, where the amount of published prior art may be overwhelming. This article reviews recent patent system reform proposals that address this problem. In particular, this article discusses the use of a peer review model, either in the form of community review or a “traditional” peer review system, to ensure that the most relevant prior art is considered during the patent examination process.

Purposes-Based Sentencing of Economic Crimes after Booker

Rodney D. Perkins

11 Lewis & Clark L. Rev. 521 (2007)

18 U.S.C. section 3553(a) defines a set of purposes to be considered when sentencing defendants under the United States Sentencing Guidelines (USSG). Until the decision in United States v. Booker, 18 U.S.C. section 3553(a) was of little significance in federal criminal sentencing. Now, district courts are making frequent use of section 3553(a) to adjust Guidelines sentences. This is particularly true in the area of white-collar crimes sentenced under USSG section 2B1.1. This Comment argues in favor of using section 3553(a) purposes-based analysis to mitigate USSG section 2B1.1 sentences where Guidelines calculations exaggerate the harms caused by defendants and their role in the offense of conviction.