Assessing the Sustainability of China’s Basic Pension Funding for Urban and Rural Residents

This paper uses an actuarial model to evaluate the effect of poverty alleviation policy on the sustainability of China’s basic pension funding for urban and rural residents (BPFUUR). Because of the poverty alleviation policy, China’s basic endowment insurance for urban and rural residents (BEIURR) has been given the responsibility of helping the poor through insurance and by increasing the income of the elderly. On the basis of summarizing the current situation of BEIURR, this paper simulated and predicted the impact of poverty alleviation policy on the short term (2020–2025) and medium term (2025–2050) sustainability of China’s BPFUUR. The results show that: (1) The sustainability of the fund will inevitably face challenges; (2) The per capita contribution level will be at a low level for a long time; (3) The birth tide brought by the two-child policy has a positive impact on the medium-term sustainability of the fund; (4) Poverty eradication mainly affects the short-term current deficit, but not the medium-term accumulated deficit; (5) The higher the payment, the better the sustainability of the funding in the short and medium term. According to the above results, this paper puts forward some countermeasures, such as insisting on family planning, optimizing the adjustment system for basic pension funds, and improving the treatment of basic pensions.

The effect of GAAP conformity on pension underfunding

Purpose The purpose of this paper is to examine the association between conformity with generally accepted accounting principles (GAAP) indicated by Governmental Accounting Standards Board (GASB) 34 presentation and pension underfunding in Illinois. Design/methodology/approach The authors used a fixed effects regression and employed a sample of Illinois municipalities (n=2,565 municipal-year observations) over the period 2009–2014. Findings The findings show that GAAP is inversely associated with pension underfunding, but only among the subsample of municipalities that are within the healthy pension funding range, i.e., above 80 percent funded. These municipalities may be in a better position to increase pension funding in response to the disciplining effect of broad GAAP conformity. Research limitations/implications The paper focuses solely on one state and one multi-employer plan. Future studies should consider assessing the applicability of the results to other states and plan settings. Social implications The results inform the standard-setting process, particularly as the implementation of the new GASB standards is evaluated and as GASB 34 is reexamined. Originality/value Despite concerns associated with state and local pension underfunding, academic studies examining its determinants are few. The sample setting is representative of municipal pension plans in the USA (with a comparable average pension funding ratio of 74.2 percent) and provides variability in GAAP conformity (the state encourages, but does not require, financial statement presentation consistent with GASB 34), as well as homogeneity in actuarial assumptions across observations (all sample municipalities participate in a large multi-employer municipal pension plan). The sample period immediately precedes the implementation of GASB Statements Nos 67 and 68, which increase the scope of pension reporting, providing the opportunity to consider the effects of broad GAAP conformity and a baseline for subsequent consideration of the effects of the new standards.