Policy Simulation Group

Pension Projection Models

Enhancements Introduced in Current 2/20/10 Version of the PSG Models

1. Add a new GEMINI output results file that reports for each age the aggregate OASDI benefits received and OASDI payroll taxes paid by all native-born individuals in a birth cohort sample. For details on this new .bta GEMINI output results file, read its documentation using the 'View output file documentation' item on the RSF menu of the RSF Toolkit. Read the revised documentation on the GEMINI STATS input database table for information about how to activate the new output file.
2. Add a new GEMINI output analyzer program that calculates several statistics that value the aggregate OASDI benefit minus aggregate OASDI payroll tax cashflow for all native-born individuals in a birth cohort sample as reported in the GEMINI .bta output results file. This new wtpcalc (willingness-to-pay calculator) program computes not only conventional money's worth net present value (NPV) and internal rate of return (IRR) statistics for the cohort sample, but also uses modern asset pricing methods to price the cohort's aggregate benefit-minus-tax cashflow. In addition, the wtpcalc analyzer program computes the multiplicative scaling factor that, when applied to the cohort's aggregate payroll tax cashflow, produces a zero price for the benefit-minus-scaled-tax cashflow. A scaling factor less than one implies that at birth an individual in the cohort sample finds the value of OASDI benefits to be less than the value of OASDI payroll taxes, while a scaling factor greater than one implies the value of OASDI benefits to be greater than the value of OASDI payroll taxes. The numerical value of the scaling factor indicates the amount by which payroll taxes would have to be decreased or increased to equate the value of OASDI benefits and taxes. The use of modern asset pricing methods permits the relaxation of two restrictions inherent in conventional money's worth methods: (1) the assumption that future annual discount rates are know with certainty and (2) the assumption that the OASDI benefit-minus-tax cashflow is uncorrelated with individual consumption (that is, the insurance value of the OASDI program is ignored). The modern asset pricing methods nest the conventional money's worth methods in the sense that the modern methods produce the same results as the conventional methods when the extreme assumptions of no future discount rate uncertainty and no OASDI insurance value are both made. For details on the new wtpcalc output analyzer program, read its documentation using the 'Output analyzer program documentation' item on the Analyze menu of the RSF Toolkit. To make these calculations transparent, the C++ source code for the wtpcalc program has been included in the GEMINI installation package.
3. Add a new GEMINI output results file that reports the present value of nominal adult-equivalent couple earnings and the present value of nominal OASDI benefit minus taxes for each native-born individual in a birth cohort sample, thus providing individual detail on the aggregate statistics reported in the new .bta output results file. For details on this new .bti GEMINI output results file, read its documentation using the 'View output file documentation' item on the RSF menu of the RSF Toolkit. Read the revised documentation on the GEMINI STATS input database table for information about how to activate the new output file.
4. Upgrade SQLite database source code and dynamic-link library to the current 3.6.22 version.
5. Add to PENSIM input database a new field in the TRACE table that shows during run execution the (positive) id number of the sample individual who marries a non-sample individual with a specified (negative) id number. Read the revised documentation of the PENSIM input database for more information about the new TRACE.indid4spid field.
6. Revise PENSIM logic that simulates how the saver's credit that is received by a married couple filing income taxes jointly is split between the two individuals. In prior versions of the model, the whole credit was assigned to the individual who is a member of the cohort sample being simulated. Beginning with this version, the credit is split in proportion to the individual's (net) pension contribution. This more realistic approach requires the development of a new saver's credit account for accumulating the credits assigned to non-sample individuals while married to a sample individual and received before they marry a sample individual, investing the accumulated credits, and withdrawing a fraction of the accumulated credits each year following disability or retirement.