scholarly journals PENSION FUND RESTORATION POLICY IN GENERAL EQUILIBRIUM

2019 ◽  
Vol 24 (7) ◽  
pp. 1785-1814
Author(s):  
Pim B. Kastelein ◽  
Ward E. Romp
Keyword(s):  
Risk Sharing ◽  
Pension Fund ◽  
Pension Funds ◽  
New Keynesian ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Negative Effects ◽  
Keynesian Model ◽  
Intergenerational Risk Sharing ◽  
The Business Cycle

When the financial positions of pension funds worsen, regulations prescribe that pension funds reduce the gap between their assets (invested contributions) and their liabilities (accumulated pension promises). This paper quantifies the business cycle effects and distributional implications of various types of restoration policies. We extend a canonical New-Keynesian model with a tractable demographic structure and, as a novelty, a flexible pension fund framework. Fund participants accumulate inflation-indexed or non-indexed benefits and funding adequacy is restored by revaluing previously accumulated pension wealth (Defined Contribution (DC)) or changing the pension fund contribution rate on labor income (Defined Benefit (DB)). Economies with DC pension funds respond similarly to adverse capital quality shocks as economies without pension funds. DB pension funds, however, distort labor supply decisions and exacerbate economic fluctuations. While DB pension funds achieve intergenerational risk-sharing, welfare analyses indicate that the negative effects of the induced distortions are sizeable.

Pension fund governance: expertise and organizational form

2004 ◽  
Vol 3 (2) ◽  
pp. 233-253 ◽  
Author(s):  
GORDON L. CLARK
Keyword(s):  
Pension Fund ◽  
Codes Of Conduct ◽  
Pension Funds ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Internal Governance ◽  
Codes Of Practice ◽  
Anglo American ◽  
Fund Governance ◽  
Equitable Treatment

Responsible for the welfare of beneficiaries, pension funds have many tasks and functions. Consequently, their governance and regulation are issues of public concern with direct bearing on the interests of stakeholders and ultimately the performance of Anglo-American financial markets. Subject to common law expectations regarding proper trustee behaviour, also important are statutory requirements regarding the equitable treatment of beneficiaries and the management of assets and liabilities. At one level, discretion is an essential attribute of the trust institution – trustees act on behalf of others not so well placed to manage their own long-term welfare because of lack of knowledge and/or ability. At another level, pension funds are presumably regulated by a well-defined purpose – the welfare of beneficiaries. In this paper, I look at the internal governance of pension funds emphasizing codes of practice, the rules and procedures for decision making, and trustee competence and expertise. While it is important to observe codes of conduct like those advocated by the OECD, there may be significant problems with any system of governance that relies upon rules and procedures. Inertia rather than innovation may be the net result. These issues are developed with reference to defined benefit and defined contribution schemes (and their variants). Ultimately, pension fund governance reflects, more often than not, its nineteenth-century antecedents rather than the financial imperatives of the twenty-first century.

scholarly journals Pension fund finance and sponsoring companies

2012 ◽  
Vol 11 (3) ◽  
pp. 439-463 ◽  
Author(s):  
E. PHILIP DAVIS ◽  
LEO DE HAAN
Keyword(s):  
Capital Market ◽  
Small Firms ◽  
Pension Fund ◽  
Pension Funds ◽  
Portfolio Allocation ◽  
Special Focus ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Capital Market Imperfections ◽  
Corporate Pension

AbstractWe present empirical evidence on the funding and portfolio allocation of around 200 Dutch corporate pension funds over the period 1996-2005, with a special focus on the influence of the sponsoring firm. We find that unprofitable and small firms contribute less to their pension funds than profitable and large firms, consistent with theories of capital market imperfections. Sponsor contributions are found to be positively correlated with leverage, suggesting that tax effects play a role. Defined benefit funds invest relatively more in equity and less in bonds than their defined contribution counterparts, which is in accordance with the risk shifting theory.

Pension funds and value-based generational accounting

2003 ◽  
Vol 2 (3) ◽  
pp. 295-325 ◽  
Author(s):  
EDUARD H. M. PONDS
Keyword(s):  
Risk Sharing ◽  
Pension Fund ◽  
Economic Value ◽  
Pension Plan ◽  
Pension Funds ◽  
Defined Benefit ◽  
Funding Policy ◽  
Generational Accounting ◽  
Alternative Funding ◽  
Ex Post

The raison d'être of wage-indexed defined benefit pension funds is to provide insurance against standard-of-living risk after retirement, based on intergenerational risk sharing. Pension funds necessarily have to accept mismatch risk in providing this kind of insurance. Mismatch risk taken by the pension fund is risk for the fund's stakeholders. We combine the value-based approach and the method of generational accounting to analyze the economic value of the stakes of the different generations and the issue of who gains and who loses (transfers of value between generations) from alternative funding and indexation policies. Rules concerning the allocation of a funding surplus or funding shortage in particular are decisive to the direction and to the size of transfers of value between stakeholders. We put forward two criteria to evaluate alternative policies employed by pension funds: the funding policy and allocation rules must give an ex ante fair compensation for risk taken by generations and the sustainability of a pension plan must be checked with respect to ex post redistributive effects for current and future generations. Value-based generational accounting provides a tool for testing a pension fund policy for these two criteria.

A Comprehensive Review of the Evolution of Accounting Standards for State and Local Government Pensions and Other Postemployment Benefits in The United States

2019 ◽  
Vol 46 (1) ◽  
pp. 57-77
Author(s):  
Dale L. Flesher ◽  
Craig Foltin ◽  
Gary John Previts ◽  
Mary S. Stone
Keyword(s):  
United States ◽  
Local Government ◽  
Accounting Standards ◽  
The United States ◽  
Pension Funds ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Defined Contribution Plans ◽  
State And Local Government ◽  
State And Local

ABSTRACT Both the business media and the popular press have emphasized the underfunding problems associated with pension funds that are set aside for state and local government workers, a group that also includes teachers and professors at state-affiliated colleges and universities. The realization that pension funds are typically underfunded stems from the fact that the accounting standards associated with state and local government employee pension funds have led to greater transparency since 2011. This paper examines, explains, and interprets the historical development over the last 70 years of accounting standards for state and local government pension funds in the United States. Changing accounting standards, along with economic and social change, have led to consequences such as employers transforming their pension programs to avoid substantial costs and significant liabilities, for example by changing from defined benefit to defined contribution plans.

Minimum funding ratios for defined-benefit pension funds

2010 ◽  
Vol 10 (3) ◽  
pp. 417-434 ◽  
Author(s):  
ARJEN SIEGMANN
Keyword(s):  
Risk Aversion ◽  
Expected Utility ◽  
Pension Fund ◽  
Equity Premium ◽  
Pension Scheme ◽  
Defined Benefit ◽  
Intergenerational Solidarity ◽  
Defined Contribution ◽  
Power Utility ◽  
Time Diversification

AbstractWe compute minimum nominal funding ratios for defined-benefit (DB) plans based on the expected utility that can be achieved in a defined-contribution (DC) pension scheme. Using Monte Carlo simulation, expected utility is computed for three different specifications of utility: power utility, mean-shortfall, and mean-downside deviation. Depending on risk aversion and the level of sophistication assumed for the DC scheme, minimum acceptable funding ratios are between 0.87 and 1.20 in nominal terms. For relative risk aversion of 5 and a DC scheme with a fixed-contribution setup, the minimum nominal funding ratio is between 0.87 and 0.98. The attractiveness of the DB plan increases with the expected equity premium and the fraction invested in stocks. We conclude that the expected value of intergenerational solidarity, providing time-diversification to its participants, can be large. Minimum funding ratios in real (inflation-adjusted) terms lie between 0.56 and 0.79. Given a DB pension fund with a funding ratio of 1.30, a participant in a DC plan has to pay a 2.7 to 6.1% point higher contribution on average to achieve equal expected utility.

scholarly journals South African pension fund conversions: Dealing with environmental change

2007 ◽  
Vol 7 (1) ◽  
Author(s):  
D. T. George ◽  
R. J.O. Joubert
Keyword(s):  
Environmental Change ◽  
South African ◽  
Pension Fund ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Structured Interviews ◽  
Value Analysis ◽  
Stakeholder Interests ◽  
Environmental Shock ◽  
Organisational Behaviour

Purpose: The purpose of this paper is to analyse South African pension fund conversions from defined benefit to defined contribution structures and to develop a model for dealing with environmental change. Design/Methodology/Approach: Qualitative research methodology was used. Industry experts were interviewed to obtain a macro view of the phenomenon and specific manifestations of the phenomenon were also considered in case studies.Feedback from semi-structured interviews was categorised into several emergent themes. Within-case and cross-case analyses were conducted. Findings: Results indicated that an environmental shock exerted a substantial influence on the course of events. Under these: Various factors combined to drive organisational evolution (i.e. adaptation to the environment). Adaptation speed was inappropriate and exceeded that which was required for sufficient thought. Uncertainty and vacuum circumstances arose leading to consequences that require redress. The relative power of the stakeholders changed and influenced the strategic outcome. An imbalance in stakeholder interests arose and ethical factors became consequential. Business acted to restore certainty for itself.Implications: This paper provides insight into organisational behaviour during periods of environmental shock. Environmental shock can be defined as "a condition that arises where business or societal rules are inadequate, or do not exist, to deal with unfolding events". An environmental shock has greater magnitude than a competitive shock, and can include several competitive shocks.Originality/Value: Analysis of pension fund conversions revealed organisational behaviour during periods of environmental shock and the emerging model can be applied in other instances of environmental shock, such as broad-based black economic empowerment (B-B BEE), land redistribution, sanctions and constitutional development.

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