James M. Poterba’s research while affiliated with The National Bureau of Economic Research and other places

Precautionary demand for liquidity manifests itself as a preference for holding assets in an accessible form not because of any current liquidity need but because of a possible future need. We explore such demand by analyzing employer-sponsored retirement saving plans in France, where firms must offer medium-term investment vehicles that cannot be accessed for five years. Some also offer long-term vehicles that cannot be accessed until retirement. Plan take-up is lower when there is a long-term option; more workers opt out of the plan default when it includes one; and when hardship strikes, workers tend to withdraw long-term funds before medium-term funds.

Executors of estates for decedents in 2010 could choose between an estate tax regime and a basis carry-over regime. This typically created a tradeoff between a current estate tax payment and a future capital gains tax liability for beneficiaries who inherited assets with carryover-basis. Some executors chose to file estate tax returns, but these filings yielded very little estate tax revenue. Evidence from tax returns suggest that an increase of one percent of estate value in the difference between estate tax liability and prospective tax liability under the carryover basis regime reduced the likelihood of filing an estate tax return by between 0.3 and 1.5 percentage points.

This paper investigates how the one-year suspension in 2009 of the Required Minimum Distribution (RMD) rules associated with qualified retirement plans affected the distribution elections of participants at a large retirement services provider. Roughly one third of those who were affected by the RMD rules in 2008 discontinued their distributions in 2009. The suspension probabilities of those for whom 2008 distributions equaled the RMD amount, a plausible indication that the RMD rules were a binding constraint, were not very different from the corresponding probabilities of those for whom 2008 distributions exceeded the RMD amount. Participants who died within six years of the distribution holiday were less likely to suspend than those who were still alive in late 2015, suggesting that RMD rules are more likely to bind for those with longer retirement horizons. The probability of suspension declined substantially with age and rose modestly with financial resources. Individuals taking monthly distributions were less likely to suspend distributions than those taking annual distributions, particularly at higher wealth levels, perhaps because they use their distributions to finance monthly consumption. The findings offer insights on the relationship between participant attributes and distribution behavior, bear on the choice between competing models of saver behavior, and provide some evidence on the revenue consequences of changing RMD rules.

In 2010, the U.S. estate tax expired and executors of wealthy decedents were not required to file estate tax returns. In the absence of the estate tax, beneficiaries received assets with carryover rather than stepped-up basis. Unrealized capital gains accounted for 44 percent of the fair market value of non-cash assets in estates that chose the carryover basis regime, and an even higher percentage for some asset categories. Many of the largest gains were on assets that had been held for at least two decades.

Executors of 2010 estates had an unusual choice: either to file an estate tax return and possibly pay a 35% estate tax on amounts above $5 million or instead to choose to have assets pass without an estate tax but with a carryover in basis. The data are now in, and we can see that on average, executors of 2010 estates made the right decision. Thousands did choose to voluntarily file an estate tax return, but they wound up paying little or no estate tax.

Taxable investors who are considering purchasing mutual fund shares around the dates when a mutual fund is planning a taxable distribution can reduce the present discounted value of their tax liability by delaying their purchase until after the distribution date. Non-taxable shareholders, such as those who invest through IRAs and other tax-deferred accounts, face no such incentive for delaying a purchase of the fund. This paper compares daily shareholder transactions by taxable and non-taxable investors in the mutual funds of a single no-load fund complex around distribution dates. Gross inflows to taxable accounts are significantly lower in the weeks preceding distribution dates than in the weeks following them, but gross inflows to tax-deferred accounts do not change around these dates. This finding suggests that some taxable shareholders time their purchase of mutual fund shares to avoid the tax acceleration associated with distributions. Taxable shareholders who purchase shares just before distribution dates also have shorter holding periods, on average, than those who buy after a distribution. Since the cost of the distribution-related tax acceleration for pre-distribution buyers is related to the expected holding period of the shares, this finding provides some evidence of clientele formation among the buyers of mutual fund shares. .

Elderly individuals exhibit wide disparities in their sources of income. For those in the bottom half of the income distribution, Social Security is the most important source of support; program changes would directly affect their well-being. Income from private pensions, assets, and earnings are relatively more important for higher-income elderly individuals, who have more diverse income sources. The trend from private sector defined benefit to defined contribution pension plans has shifted responsibility for retirement security to individuals. A significant subset of the population is unlikely to be able to sustain their standard of living in retirement without higher pre-retirement saving.

This article tests for asymmetric information in the U.K. annuity market of the 1990s by trying to identify “unused observables,” attributes of individual insurance buyers that are correlated both with subsequent claims experience and with insurance demand but that insurance companies did not use to set insurance prices. Unlike the widely used positive correlation test for asymmetric information, which searches for a positive correlation between insurance demand and risk experience, the unused observables test is not confounded by heterogeneity in individual preference parameters that may affect insurance demand. We identify residential location as an unused observable in the U.K. annuity market of this period. Even though residential location was observed by all market participants, the decision not to condition prices on it created the same types of market inefficiencies that arise when annuity buyers have private information about mortality risk. Our findings raise questions about how insurance companies select the set of buyer attributes that they use in setting policy prices. In the decade following the period that we study, U.K. insurance companies changed their pricing practices and began to condition annuity prices on a buyer's postcode.