Risk-Taking Behavior Of Public Pension Plans Before And After The Financial Crisis Of 2008

This paper investigates whether public pension plans risk-taking behavior has changed after the recent financial crisis of 2008 by testing two contrasting hypotheses on pension funding: risk transfer and risk management hypotheses. In managing pension assets, public pension plan sponsors may have an incentive for risk transfer because underfunded pension obligations can be shifted to future taxpayers (risk transfer hypothesis). Facing a budget constraint, they may also have an incentive for risk management because they would prefer to stabilize their contributions (risk management hypothesis). Using a sample of 126 public pension plans for the period of 2001?2011, this paper finds that public pension plans risk-taking behavior has changed after the financial crisis of 2008. Before the financial crisis, public pension plan sponsors invest more in equities when a large required contribution is expected, which is consistent with the risk transfer hypothesis. After the financial crisis, however, the plan sponsors invest less in equities when a large required contribution is expected, which is consistent with the risk management hypothesis. The findings suggest that public pension plans risk-taking behavior is not constant over time, but can be varied depending on market conditions.

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Risk Transfer in Public Pension Plans

The Pension Challenge ◽

10.1093/0199266913.003.0006 ◽

2003 ◽

pp. 102-115

Author(s):

Olivia S. Mitchell ◽

Kent Smetters

Keyword(s):

Pension Plans ◽

Public Pension ◽

Risk Transfer ◽

Public Pension Plans

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Pension reform and return-to-work policies

Journal of Pension Economics and Finance ◽

10.1017/s1474747218000367 ◽

2018 ◽

Vol 18 (04) ◽

pp. 500-514 ◽

Cited By ~ 1

Author(s):

Maria D. Fitzpatrick

Keyword(s):

Return To Work ◽

Labor Supply ◽

Pension Reform ◽

Pension Plan ◽

Pension Plans ◽

Public Pension ◽

Work Lives ◽

Retirement Benefit ◽

Public Pension Plans ◽

Social Security Earnings Test

AbstractFor many people, working after beginning retirement benefit collection is a way to enhance financial security by increasing income. Existing research has shown that retirees are sensitive to the Social Security earnings test, which restricts the amount of earnings some beneficiaries can receive. However, little is known about the effects of other types of policies on post-retirement employment. Instead of restricting earnings, many public pension plans restrict the number of hours beneficiaries can work. I use return-to-work rules limiting the number of hours of employment in a state's public pension plan and administrative data on employment and retirement to determine the rules’ effects on retirement decisions and post-retirement labor supply. I find that the increases in the maximum number of hours of post-retirement employment lead to no change in retirement benefit collection and to increases in part-time work among retirees. As such, these policies appear to be binding on the labor supply decisions of some employees. These results are relevant for designing policies aimed at extending work-lives or improving the health of pension systems.

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Public Pension Plan Reform: The Legal Framework

Education Finance and Policy ◽

10.1162/edfp_a_00014 ◽

2010 ◽

Vol 5 (4) ◽

pp. 617-646 ◽

Cited By ~ 19

Author(s):

Amy B. Monahan

Keyword(s):

Pension Plan ◽

Legal Framework ◽

Pension Plans ◽

State Regulation ◽

Public Pension ◽

Retirement Plans ◽

School Employees ◽

Contractual Approach ◽

Public Pension Plans ◽

Pension Benefits

There is significant interest in reforming retirement plans for public school employees, particularly in light of current market conditions. This article presents an overview of the various types of state regulation of public pension plans that affect possibilities for reform. Nearly all of the various approaches to public pension plan protection taken by the states have significant flaws. These flaws include a lack of clarity regarding what plan changes the relevant legal standard will allow, combined with either too much or too little protection for plan participants. This article argues that states would be well served to adopt a contractual approach to public pension benefits but to limit that contractual protection to accrued benefits. This approach is clear, protects legitimate participant interests, and preserves an employer's ability to respond to changing economic conditions.

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Does bank governance affect risk and efficiency? Evidence from Islamic banks in GCC countries

International Journal of Islamic and Middle Eastern Finance and Management ◽

10.1108/imefm-05-2020-0206 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Samir Srairi ◽

Khawla Bourkhis ◽

Asma Houcine

Keyword(s):

Risk Management ◽

Financial Crisis ◽

Risk Taking ◽

Audit Committee ◽

Governance Structure ◽

Board Structure ◽

Islamic Banks ◽

Bank Efficiency ◽

Content Type ◽

Gcc Countries

Purpose The motivation of the study is to shed further light on the question of whether the governance structure of Islamic banks (IBs) has an impact on the efficiency and risk of Islamic banks operating in the Gulf Cooperation Council (GCC) after the global financial crisis and during the period 2010–2018. This study aims to examine the extent of governance structure on the efficiency and risk of IBs as the effect of the financial crisis has been less on IBs. In addition, the authors are interested in the GCC region as it represents the hub of Islamic finance. Design/methodology/approach In this study, the authors examine how the banking governance structure affects the risk-taking and performance of IBs in the GCC countries between 2010 and 2018. The authors construct a banking governance index (CGI) composed of sub-indices for the board structure, risk management, transparency and disclosure, audit committee, Sharia supervisory board and investment account holders. Unlike the majority of previous studies, bank performance is measured with technical efficiency scores using a data envelopment analysis and the authors use a comprehensive CGI. Findings The results show that IBs in GCC countries adhere to 54% of the attributes covered in the CGI. The authors also note a lack of disclosure regarding the investment account holders and the audit committee. As well, the results indicate that bank governance is positively associated with risk-taking and bank efficiency. Banking risk is influenced by the Sharia board and risk management while bank efficiency is affected by the characteristics of the board structure and investment account holders. Originality/value To the best of the authors’ knowledge, this is the first study that has developed a comprehensive governance index for IBs in GCC countries that includes a wide range of governance dimensions. The study contributes to the literature on governance in the banking sector by simultaneously examining its impact on the risk-taking and efficiency of IBs and recognizes the dynamic relation between these three variables for IB.

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Annuity Pricing in Public Pension Plans: Importance of Interest Rates

10.3386/w25343 ◽

2018 ◽

Author(s):

Nino Abashidze ◽

Robert Clark ◽

Beth Ritter ◽

David Vanderweide

Keyword(s):

Interest Rates ◽

Pension Plans ◽

Public Pension ◽

Public Pension Plans

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Can Public Pension Plans Survive under PERISA?

Labor/Management Relations Among Government Employees ◽

10.1201/9781315224275-9 ◽

2020 ◽

pp. 75-82

Author(s):

Joseph W. Wilson

Keyword(s):

Pension Plans ◽

Public Pension ◽

Public Pension Plans

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Risk-taking behavior, earnings quality, and bank performance: A profit frontier approach

BRQ Business Research Quarterly ◽

10.1177/2340944420966870 ◽

2020 ◽

Vol 23 (4) ◽

pp. 285-304

Author(s):

M. Pilar García-Alcober ◽

Diego Prior ◽

Emili Tortosa-Ausina ◽

Manuel Illueca

Keyword(s):

Financial Crisis ◽

Interest Rates ◽

Risk Taking ◽

Banking System ◽

Jel Classification ◽

Bank Risk ◽

Bank Performance ◽

Bank Efficiency ◽

Savings Banks ◽

Risk Taking Behavior

After the financial crisis of 2007–2008, some bank performance dimensions have been the subject of debate, two of which are bank efficiency and bank risk-taking behavior. The literature on bank efficiency and productivity has grown considerably over the past three decades, and has gained momentum in the aftermath of the financial crisis. Interest in bank risk-taking behavior, usually focusing on its links to monetary policy, has been relatively low, but has also increased exponentially in more recent years. This article combines these two streams of research. Specifically, we test whether more inefficient banks take greater risks when selecting borrowers, charging interests, and requiring collateral, and whether these links between inefficiency and risk change according to the type of bank. Our analysis centers on the Spanish banking system, which has been severely affected by the burst of the housing bubble and has undergone substantial restructuring. To test our hypotheses, we created a database with information on banks and savings banks, their borrowers (non-financial firms), and the links between them. The study also contributes to the literature by considering a novel profit frontier approach. Our results suggest that more inefficient banks take greater risks in selecting their borrowers, and that this high-taking behavior is not offset by higher interest rates. JEL CLASSIFICATION C14; C61; G21; L50

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