Pension funds
In public policy debates, it has often been suggested that saving and saving rates in the United States are too low to permit adequate capital formation. The saving measures being considered in these policy debates frequently are those from the national income and product accounts produced by the Bureau of Economic Analysis. Classifications, attributions, and imputations related to pensions also play important roles in shaping national income and product accounts savings measures. Because private and public pensions involve significantly different treatments in the national income and product accounts, it is helpful to discuss them separately .
The National Income Product Account treatment of a private pension funds, private noninsured pension funds and funds operated by life insurance carriers is especially significant in the determination of personal saving because most of the investment earnings and operating expenses of these funds are attributed to persons. Additional smaller effects arise as a result of the related treatments of contributions and benefits .
II. PRIVATE PENSION FUNDS:.
The attribution to persons of investment earnings by private pension funds is accomplished through imputations. Pension fund reserves are viewed as though they are owner by individuals. Consequently, the investment earnings on these reserves are shown as imputed interest to persons to recognize that these earnings belong to the ultimate beneficiaries. The earnings are attributed in the year they accrue .
To maintain a consistent treatment of private pension funds, an estimate of the operating expenses of these funds is attributed to persons as part of personal consumption expenditure. Because operating expenses, which exclude benefit payments, are much less than the income items, and because these income items are not subject to personal taxes, private pension funds account for a significant positive contribution to personal saving .
Employer contributions to private pension funds are considered current compensation and are classified as other labor income. This classification also means these contributions are part of personal income and disposable personal income. Because income is recorded at the time of the employer contribution, it is necessary to exclude private pension benefits from income at the time they are received to avoid double counting. Consequently, benefits received do not appear in the national income and product accounts, although estimates are prepared by Bureau of Economic Analysis. The convention of treating contributions rather than benefits as part of personal income affects personal saving partly through differences in the amounts of contributions and benefits .
III.PUBliC PENSION FUNDS: .
Public pension funds are treated differently. The most important types of public pensions are social security, federal civilian retirement, and state and local government retirement. The national income and product account treatment of these funds affects the government surplus or deficit and personal saving. The most import national income and product account conventions concern the treatment of contributions, benefits, and earnings of the funds. These treatments, arise because the saving of these funds is considered to be part of government saving rather than private saving. Both employer and employee contributions to public pension funds are classified as contributions for social insurance. This classification means that they are excluded from personal income and disposable personal income but included in government receipts. Benefits paid are classified as government transfer payments. This means that they are included in government expenditures and in personal income. Thus, public pensions affect the government surplus or deficit through their effects on receipts and expenditures. They affect personal saving through their effects on personal income. The treatment of the investment earnings by public pension funds is less complicated than the treatment of private funds. .
IV. FEDERAL PENSION FUNDS: .
In the case of federal pension funds, all funds must be invested in federal government securities until 1988. Therefore, interest on federal pension funds has no effect on federal net interest paid and no effect on the government surplus or deficit. This limitation on investment is a major reason for the present treatment of federal pension funds. Starting in 1988, investment options in federal civilian pension funds will be more flexible and more like state and local government pension funds .
V. STATE AND LOCAL GOVERNMENT PENSION FUNDS: .
State and local government pension funds, unlike federal pension funds, can be invested in a wide variety of securities, including corporate stocks. Earnings from these securities include both interest and dividends and are recorded as offsets to expenditures. Consequently, the investment earnings of state and local pension funds affect the government surplus or deficit to the extent that these earnings are not from municipal securities .
VI.SUMMARY: .
These treatments of contributions, benefits, and earnings highlight an important distinction between private pension funds and public pension funds. The income to persons from private pension funds is attributed when paid into the funds or when earned in the funds in the case of investment earnings ; the income to persons from public pension funds is attributed when transfer payments are received .
Partly because of this difference between income flows, and because of similarities between the objectives of private and public pension funds, it has sometimes been suggested that the treatment of private and public pensions, at least state and local government funds, should be more consistent. This point is explored more lately in the paper .
A final point concerning the national income product accounts treatment of pensions is that there is no attempt to introduce estimates of the discounted present value of unfunded liabilities associated with public pension funds. Estimates of unfunded liabilities are often discussed in connection with social security. Such estimates would obviously be extremely sensitive to assumed parameters and could cause very large swings in national income product account gross saving .
Other Articles
