Abstract
The preeminent challenge to employee pension plans is universal coverage. This objective will not be achieved if the cost of coverage is arbitrarily inflated by extending vesting to too early ages and by attempts to put each individual plan on an actuarially sound basis. Universal coverage would strengthen the pension promise more effectively than early vesting and, from an economic point of view, at a saving in cost. However, it is a pooling of risks through a guaranty fund that, by permitting reductions in contribution costs, would help most in making it easier to sell coverage, those covered would have a more reliable promise, and the economy would be relieved of a large and inflexible compulsory saving burden. Following a period of dependency, an individual enters upon his adult life with an initial endowment of embodied and disembodied capital. He has a stream of annual incomes over his mature life. This income comprises earnings, property income (including asset appreciation) and transfers to him from other individuals directly (gifts and inheritances) or indirectly through government and other institutions. To his annual income, he may add receipts from borrowing (negative wealth accumulation). Each year he allocates some part of his current income and net wealth accumulation to consumption. His annual Nelson McClung, Ph.D., is Director of Program Research for the President's Commission on Income Maintenance Programs. He has been Economist for the U.S. Treasury Department, the Joint Economic Committee of the U.S. Congress, and for the Federal Reserve Bank of San Francisco. Dr. MeClung has taught at George Washington University and at Smith College. This paper was presented at the A.R.I.A. 1968 Annual Meeting. 1 Opinions expressed or implied in this paper are those of the author and not necessarily those of the U.S. Treasury Department, the U.S. Congress Joint Economic Committee, or the President's Commission on Income Maintenance Programs. net saving (positive or negative) is his annual income minus his annual consumption. At the end of life, he leaves some endowment of disembodied capital. Very few start out with significant endowments of disembodied capital and very few leave a significant value of disembodied capital at the end. Typically, a young person has only his skills and little experience. During the early years of adult life, income is low and consumption outlays are high. It is during these years that he will be making investments in consumption assets, financed to some extent from borrowing, and he will be supporting a family. The he, of course, may be a she, either the head of a household or an earning member in a household headed by a male. As the children leave home and the rate of investment in consumption assets levels off, outlays for consumption decline. Meantime, annual income continues to rise.2 Net saving becomes positive, or 2Juanita Kreps and Donald Pursell, Lifetime Earnings and Income in Old Age, in 90th Congress, 1st Session, Joint Economic Committee, Old Age Income Assurance, Washington: U.S. Government Printing Office, 1967, Part II, pDp. 260-279.
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