Journal articles: 'Defined benefit pension'

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de Thierry, Ebony, Helen Lam, Mark Harcourt, Matt Flynn, and Geoff Wood. "Defined benefit pension decline: the consequences for organizations and employees." Employee Relations 36, no. 6 (September 30, 2014): 654–73. http://dx.doi.org/10.1108/er-02-2013-0020.

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Purpose – The purpose of this paper is to use the theoretical and empirical pension literatures to question whether employers are likely to gain any competitive advantage from degrading or eliminating their employees’ defined benefit (DB) pensions. Design/methodology/approach – Critical literature review, bringing together and synthesizing the industrial relations, economics, social policy, and applied pensions literature. Findings – DB pension plans do deliver a number of potential performance benefits, most notably a decrease in turnover and establishment of longer-term employment relationships. However, benefits are more pronounced in some conditions than others, which are identified. Research limitations/implications – Most of the analysis of pension effects to date focuses primarily on DB plans. Yet, these are declining in significance. In the years ahead, more attention needs to be paid to the potential consequences of defined contribution plans and other types of pension. Practical implications – In re-evaluating DB pensions, firms have tended to focus on savings made through cost cutting. Yet, this approach tends to view a firm's people as an expense rather a potential asset. Attempts to abandon, modify, or otherwise reduce such schemes has the potential to save money in the short term, but the negative long-term consequences may be considerable, even if they are not yet obvious. Originality/value – This paper is topical in that it consolidates existing research evidence from a number of different bodies of literature to make a case for the retention of DB pension plans, when, in many contexts, they are being scaled back or discarded. It raises a number of important issues for reflection by practitioners, and highlights key agendas for future scholarly research.

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Cowling, C. A., T. J. Gordon, and C. A. Speed. "Funding Defined Benefit Pension Schemes." British Actuarial Journal 11, no. 1 (April 1, 2005): 63–97. http://dx.doi.org/10.1017/s1357321700003159.

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ABSTRACTThis paper puts the case for the Actuarial Profession revising and tightening its standards on actuarial funding advice in relation to United Kingdom occupational pension schemes. We critique current actuarial practice and advocate principles for measuring solvency and providing funding advice. In particular, we advocate that funding targets should be clearly and unambiguously related to scheme solvency. The paper also covers optimal investment strategy, treatment of the ‘company covenant’ when giving funding advice and governance issues relating to pension schemes.

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Cowling, C. A., T. J. Gordon, and C. A. Speed. "Funding Defined Benefit Pension Schemes." British Actuarial Journal 11, no. 3 (August 1, 2005): 497–518. http://dx.doi.org/10.1017/s135732170000324x.

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SCHMÄHL, WINFRIED. "Dismantling an Earnings-Related Social Pension Scheme: Germany's New Pension Policy." Journal of Social Policy 36, no. 2 (March 5, 2007): 319–40. http://dx.doi.org/10.1017/s0047279406000626.

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A paradigm shift in pension policy decided by the German red–green coalition government will considerably affect the level and structure of pension benefits as well as the mix of public and private old-age security arrangements. The article starts with a brief outline of the pension schemes as they had been designed before the recent decisions, and with a few remarks on the reasons for current reform debates. The major measures of the 2001 Pension Reform are then described. The focus of the article is on the effects of the reform for (personal) income distribution and institutional design. A partial shift from (mandatory) public (pay-as-you-go financed) pensions to (voluntary) private (capital-funded) pensions and from defined benefit towards defined contribution will, among other things, reduce the benefit level in the social pension insurance. A large number of contributors – even after many years of paying contributions – will only receive benefits below the social assistance level. It can be expected that this development will transform the present earnings-related statutory pension scheme – which has a strong contribution–benefit link and is aimed at income smoothing over the lifecycle – into a basic, highly redistributive pension scheme, aimed mainly at avoiding poverty. Income inequality in old age is expected to increase as a result of the new strategy in pension policy.

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Sweeting, Paul J. "The cost and value of UK pensions." Annals of Actuarial Science 12, no. 1 (June 13, 2017): 49–66. http://dx.doi.org/10.1017/s1748499517000082.

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AbstractOver the last 20 years, the extent of defined benefit provision has declined substantially in the United Kingdom. Whilst most of the focus has been on deficits relating to past benefit accrual, the increasing cost of future benefit accrual is also important. There are two reasons for this. First, the change in the cost of defined benefit accrual represents the difference in the earnings for employees with membership of a defined benefit scheme and those with membership of a defined contribution scheme. Second, the current cost of defined benefit accrual gives an indication of the cost of an adequate pension. As such, it can be compared with levels of contribution to defined contribution schemes to determine whether these are adequate. I therefore look at how the cost of pensions has changed relative to the cost of non-pensions earnings. I also look at the main components of the change in pensions cost – those relating to benefits payable, discount rates and longevity – to analyse their relative importance. I find that the cost of employing a member of defined benefit pension scheme has consistently outpaced the cost of employing someone in a defined contribution arrangement. I also find that the current cost of accrual is significantly higher than the average level of payments to defined contribution schemes.

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SWEETING, PAUL. "The cost and value of UK defined benefit pension provision." Journal of Pension Economics and Finance 7, no. 1 (December 6, 2007): 3–36. http://dx.doi.org/10.1017/s1474747207003320.

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SUMMARYThe purposes of this paper are to consider the effect on remuneration of defined benefit pension accrual and the factors that have resulted in changes to the cost and value of this accrual. In this paper, I look at the effect of the change in the cost to an employer of providing a defined benefit pension on the overall cost of remunerating an employee and compare that with the cost of remunerating an employee with no such pension benefits. I allow for the additional cost to the employer of national insurance contributions (‘NICs’). I also look at the change in value of an employee's remuneration, taking into account the value of defined benefit pension accrual and compare this with the change in remuneration for an employee with no such benefits. Here, I allow for employee national insurance contributions and income tax. These assessments look at the cost and value of pension accrual rather than any surplus or deficit relating to previously accrued pension entitlements. I find that costs of employment have risen significantly more for members of defined benefit pension schemes compared with other employees, and that this has largely been as a result of falling long-term interest rates and their effect on the cost of defined benefit pension accrual. The increase in the value of remuneration to employees has shown a similar pattern.

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Mulvey, John M., Frank J. Fabozzi, William R. Pauling, Koray D. Simsek, and Zhuojuan Zhang. "Modernizing the Defined-Benefit Pension System." Journal of Portfolio Management 31, no. 2 (January 31, 2005): 73–82. http://dx.doi.org/10.3905/jpm.2005.470580.

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Dempster, Michael A. H., Matteo Germano, Elena A. Medova, James K. Murphy, Dermot Ryan, and Francesco Sandrini. "Risk-Profiling Defined Benefit Pension Schemes." Journal of Portfolio Management 35, no. 4 (July 31, 2009): 76–93. http://dx.doi.org/10.3905/jpm.2009.35.4.076.

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Wilcox, David W. "Reforming the Defined-Benefit Pension System." Brookings Papers on Economic Activity 2006, no. 1 (2006): 235–304. http://dx.doi.org/10.1353/eca.2006.0020.

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MITCHELL, OLIVIA S., and JANEMARIE MULVEY. "Potential implications of mandating choice in corporate defined benefit plans." Journal of Pension Economics and Finance 3, no. 3 (November 2004): 339–54. http://dx.doi.org/10.1017/s1474747204001805.

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The evolution of hybrid conversions has prompted a number of high-profile legal challenges. In response, policymakers have attempted to force companies transitioning from a traditional DB to a hybrid plan to offer all workers the open-ended choice of remaining in the old DB plan, versus switching to the new hybrid plan. This paper evaluates ‘winners’ and ‘losers’ under these plan conversions and estimates the cost to plan sponsors of such a mandate. We find that mandating choice could increase plan sponsors' pension expenses above their current cost for traditional defined benefit plans. In the end, rising costs of pensions could endanger plan sponsorship altogether. Policymakers seeking to mandate pension choice should take into account these possible undesirable outcomes of such a law.

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Furgeson, Joshua, Robert P. Strauss, and William B. Vogt. "The Effects of Defined Benefit Pension Incentives and Working Conditions on Teacher Retirement Decisions." Education Finance and Policy 1, no. 3 (July 2006): 316–48. http://dx.doi.org/10.1162/edfp.2006.1.3.316.

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The retirement behavior of Pennsylvania public school teachers in 1997–98 and 1998–99, a period when state early retirement incentives were temporarily increased, is modeled using a choice framework that emphasizes both pecuniary and nonpecuniary factors of the retirement decision under a defined benefit retirement plan. We find each to have large and statistically significant effects on the decision to retire. The present value of inflation-adjusted pension benefits of a public defined benefit plan is found to be an important and sizable determinant of retirement. A $1,000 (or .4 percent) increase in the real present value of pension benefits is estimated to increase the probability of retirement for female teachers by .02 to .08 percentage points; this implies an elasticity of retirement for female teachers with respect to the present value of real pensions of between 2.0 to 3.5. These estimated defined benefit pension elasticities for female teachers are higher than for male teachers, whose comparable retirement elasticity was 1.9 to 2.5. A $1,000 increase in current salary is found to reduce themean probability of retirement by .1 percentage points, implying an elasticity of −1.4. Thus, substantial salary increases systematically reduce the probability of older teachers retiring.

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HAINAUT, DONATIEN, and GRISELDA DEELSTRA. "Optimal funding of defined benefit pension plans." Journal of Pension Economics and Finance 10, no. 1 (June 25, 2010): 31–52. http://dx.doi.org/10.1017/s1474747210000016.

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AbstractIn this paper, we address the issue of determining the optimal contribution rate of a defined benefit pension fund. The affiliate's mortality is modelled by a jump process and the benefits paid at retirement are function of the evolution of future salaries. Assets of the fund are invested in cash, stocks, and a rolling bond. Interest rates are driven by a Vasicek model. The objective is to minimize both the quadratic spread between the contribution rate and the normal cost, and the quadratic spread between the terminal wealth and the mathematical reserve required to cover benefits. The optimization is done under a budget constraint that guarantees the actuarial equilibrium between the current asset and future contributions and benefits. The method of resolution is based on the Cox–Huang approach and on dynamic programming.

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Blankley, Alan I., Philip Keejae Hong, and Kristin C. Roland. "Expected Benefit Payments and Asset Allocation in Defined Benefit Plans Post-SFAS 132(R)." Accounting Horizons 32, no. 3 (March 1, 2018): 71–82. http://dx.doi.org/10.2308/acch-52098.

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SYNOPSIS We contribute to the literature examining defined benefit pension plan asset allocation in the post-SFAS 132(R) reporting environment. SFAS 132(R) requires firms to disclose the expected annual pension benefit payments, thus providing a direct way to measure pension plan payout horizon. Controlling for previously documented determinants of pension asset allocation, we find evidence that a payout horizon measure constructed from SFAS 132(R) disclosures is associated with the firm's pension investment decisions. Specifically, we document that firms with a greater proportion of pension obligations due in the short horizon allocate a smaller portion of their plan assets to equity investments. Additionally, we provide evidence that our proposed measure explains asset allocation over and above previously used proxies representing plan horizon, confirming the usefulness of the 132(R) mandated disclosures.

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Quelhas, Ana Paula. "On the distinction between defined benefit pension plans and defined contribution pension plans: myths and facts." Boletim de Ciências Económicas 57, no. 3 (2014): 2733–64. http://dx.doi.org/10.14195/0870-4260_57-3_7.

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CLARK, ROBERT L., and SYLVESTER J. SCHIEBER. "Adopting cash balance pension plans: implications and issues." Journal of Pension Economics and Finance 3, no. 3 (November 2004): 271–95. http://dx.doi.org/10.1017/s1474747204001738.

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Over the past 15 to 20 years, many companies have converted their traditional defined benefit plans to cash balance or pension equity plans. In a cash balance plan, the worker's ‘account’ is based on an annual contribution rate for each year of employment, plus accumulating interest on annual contributions. A pension equity plan defines the benefit as a percentage of final average earnings for each year of service under the plan. Both types of plans specify the benefit as a lump sum payable at termination. In contrast, traditional defined benefit plans specify benefits in terms of an annuity payable at retirement. From the employees' perspective, cash balance and pension equity plans look somewhat like defined contribution plans. However, they are funded, administered, and regulated as defined benefit plans.

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Kilgour, John G. "The Evolution of Private Sector Retirement Income From Defined-Benefit Pensions to Target-Date 401(k) Plans." Compensation & Benefits Review 51, no. 2 (April 2019): 77–85. http://dx.doi.org/10.1177/0886368719864480.

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Traditional employer-sponsored defined-benefit pension plans in the private sector that provided lifetime benefits have declined precipitously since 1985. They have been largely replaced by Section 401(k) plans in which investment control, market risk and longevity risk have been transferred from the employer to the participant. Most participants opted for the low-yielding money market plan default option, which proved inadequate for providing viable retirement income. The Pension Reform Act of 2006 made two important changes to 401(k) plans: (1) allowed automatic enrollment and (2) allowed target-date funds as a “qualified default investment alternative.” This article examines the evolution from defined-benefit pensions to target-date funds and the closely related collective investment trusts.

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Kilgour, John G. "Public Sector Pension Plans: Defined Benefit Versus Defined Contribution." Compensation & Benefits Review 38, no. 1 (February 2006): 20–28. http://dx.doi.org/10.1177/0886368704273214.

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DRAPER, NICK, ED WESTERHOUT, and ANDRÉ NIBBELINK. "Defined benefit pension schemes: a welfare analysis of risk sharing and labour market distortions." Journal of Pension Economics and Finance 16, no. 4 (July 14, 2015): 467–84. http://dx.doi.org/10.1017/s1474747215000074.

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AbstractTraditionally, collective defined benefit pension schemes have played an important role in the provision of pensions. Various trends such as population ageing put these schemes under serious pressure, however. Whether this is good or bad depends among other things on two factors: one is the value of the risk sharing between generations that is organized by pension schemes, and another is the cost of the distortions of labour supply decisions that these collective schemes imply. This paper constructs a model with overlapping generations of households and a pension scheme to assess the role of these two factors. The paper finds that the welfare gain from intergenerational risk sharing generally dominates the cost of labour supply distortions.

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DOWDELL, THOMAS D., BONNIE K. KLAMM, and ROXANNE M. SPINDLE. "Predicting cash flows related to defined benefit plan contributions." Journal of Pension Economics and Finance 9, no. 4 (February 15, 2010): 505–32. http://dx.doi.org/10.1017/s1474747209990333.

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AbstractFuture contributions to defined benefit pension plans are a significant cash flow item that can be difficult to estimate. Funding ratios – pension assets relative to pension liabilities – have long been considered important for estimating cash flows needed for current and future pension contributions (Ballester et al., 1998). However, US GAAP or IFRS funding ratios that companies report in their financial statements may differ from funding ratios used by pension regulators. These regulatory funding ratios may be more useful for predicting future contributions.We investigate whether US regulatory and GAAP funding ratios are different and whether regulatory funding ratios provide useful information for predicting future contributions. For 3,877 firm years from 1995 through 2002, we observe that regulatory and GAAP funding ratios differ by more than 5% for 73% of our sample. We also find that predictions of future contributions are improved by using regulatory funding ratios in addition to GAAP funding ratios. Our results are relevant to accounting standard setters' ongoing review of pension accounting rules.

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Hansen, Janet S. "An Introduction to Teacher Retirement Benefits." Education Finance and Policy 5, no. 4 (October 2010): 402–37. http://dx.doi.org/10.1162/edfp_a_00012.

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Like most other state and local government employees, teachers participate primarily in defined benefit pension plans whose benefits are largely based on final average salaries and length of service. Such pensions have been replaced in many private sector firms by defined contribution pensions. A number of questions have arisen about the feasibility and desirability of continuing to rely on defined benefit pensions for teachers. This article provides a brief history of teacher pensions and an overview of teacher retirement benefits today, including differences in the legal and economic context for public and private sector pensions that are important considerations in plan design. It then introduces issues related to financial sustainability, teacher mobility, and teacher shortages. The article concludes with an overview of key differences between traditional defined benefit and defined contribution plans and raises the possibility of adopting a “hybrid” kind of plan that includes features from both kinds of traditional plans.

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Thomas, Jacob K. "Corporate taxes and defined benefit pension plans." Journal of Accounting and Economics 10, no. 3 (July 1988): 199–237. http://dx.doi.org/10.1016/0165-4101(88)90003-1.

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Mulvey, John M., Koray D. Simsek, Zhuojuan Zhang, Frank J. Fabozzi, and William R. Pauling. "OR PRACTICE—Assisting Defined-Benefit Pension Plans." Operations Research 56, no. 5 (October 2008): 1066–78. http://dx.doi.org/10.1287/opre.1080.0526.

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Oxner, Karen M., and Thomas H. Oxner. "Defined Benefit Pension Plans: Blue-Chip Benchmark." Journal of Corporate Accounting & Finance 29, no. 1 (January 2018): 89–97. http://dx.doi.org/10.1002/jcaf.22308.

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Iyer, Subramaniam. "Stochastic Actuarial Modelling of a Defined-Benefit Social Security Pension Scheme: An Analytical Approach." Annals of Actuarial Science 3, no. 1-2 (September 2008): 127–85. http://dx.doi.org/10.1017/s174849950000049x.

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ABSTRACTAmong the systems in place in different countries for the protection of the population against the long-term contingencies of old-age (or retirement), disability and death (or survivorship), defined-benefit social security pension schemes, i.e. social insurance pension schemes, by far predominate, despite the recent trend towards defined-contribution arrangements in social security reforms. Actuarial valuations of these schemes, unlike other branches of insurance, continue to be carried out almost exclusively on traditional, deterministic lines. Stochastic applications in this area, which have been restricted mainly to occasional special studies, have relied on the simulation technique. This paper develops an analytical model for the stochastic actuarial valuation of a social insurance pension scheme. Formulae are developed for the expected values, variances and covariances of and among the benefit expenditure and salary bill projections and their discounted values, allowing for stochastic variation in three key input factors, i.e., mortality, new entrant intake, and interest (net of salary escalation). Each deterministic output of the valuation is thus supplemented with a confidence interval, that is, a range with an attached probability. The treatment covers the premiums under the different possible financial systems for these schemes, which differ from the funding methods of private pensions, as well as the testing of the level of the Fund ratio when the future contributions schedule is pre-determined. Although it is based on a relatively simplified approach and refers only to retirement pensions, with full adjustment in line with salary escalation, the paper brings out the stochastic features of pension scheme projections and illustrates a comprehensive stochastic valuation. It is hoped that the paper will stimulate interest in further research, both of a theoretical and a practical nature, and lead to progressively increasing recourse to stochastic methods in social insurance pension scheme valuations.

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GHILARDUCCI, TERESA, and WEI SUN. "How defined contribution plans and 401(k)s affect employer pension costs." Journal of Pension Economics and Finance 5, no. 2 (May 11, 2006): 175–96. http://dx.doi.org/10.1017/s1474747205002386.

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We investigate the pension choices made by over 700 firms between 1981 and 1998 when DC plans expanded and overtook DB plans. Their average pension contribution per employee dropped in real terms from $2,140 in 1981 to $1,404 in 1998. At the same time, the share of their pension contributions attributed to defined contribution plans was 23% in 1981 and increased to 68% in 1998. By analyzing pension plan data from the IRS Form 5500 and finances of the plan's sponsoring employer from COMPUSTAT with a fixed-effects ordinary least squares model and a simultaneous model, we find that a 10% increase in the use of defined contribution plans (including 401(k) plans) reduces employer pension costs per worker by 1.7–3.5%. This suggests firms use DCs and 401(k)s to lower pension costs. Lower administrative expenses may also explain the popularity of DC plans. Although measuring a firm's pension cost per worker may be a crude way to judge a firm's commitment to pensions, this study suggests that firms that provide both a traditional defined benefit and a defined contribution plan are the most committed because they spend the most on pensions. Further research, especially case studies, is vital to understand employers' commitment to employment-based pension plans.

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MAURER, RAIMOND. "Integrated risk management for defined benefit pensions: models and metrics." Journal of Pension Economics and Finance 14, no. 2 (December 22, 2014): 151–60. http://dx.doi.org/10.1017/s1474747214000456.

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AbstractThe Pension Benefit Guaranty Corporation (PBGC) insures private sector defined benefit (DB) pension plans, when an employer becomes insolvent and is unable to pay the pension liabilities. In principle, the insurance premiums collected by PBGC should be sufficient to cover potential losses; this would ensure that PBGC could pay the insured benefits of terminated pension plan without additional external funding (e.g., from taxpayers). Therefore, the risk exposure of the PBGC from insuring DB pension plans arises from the probability of the employer insolvencies; and the terminating plans’ funding status (the excess of the value of the insured plan liabilities over the plan assets). Here we explore only the second component, namely the impact of plan underfunding for the operation of the PBGC. When a DB plan is fully funded, the PBGC's risk exposure for an ongoing plan is low even if the plan sponsor becomes insolvent. Thus the questions most pertinent to the PBGC are: what key risk factors can produce underfunding in a DB plan, and how can these risk factors be quantified? We discuss the key risk factors that produce DB pension underfunding, namely, investment risk and liability risk. These are interrelated and must be considered simultaneously in order to quantify the risk exposure of a DB pension plan. We propose that an integrated risk management model (an Integrated Asset/Liability Model) can help better understand DB pension plan funding risk. We also examine the Pension Insurance Modeling System developed by the PBGC in terms of its own use of some of the building blocks of an integrated risk management model.

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GUSTMAN, ALAN L., THOMAS L. STEINMEIER, and NAHID TABATABAI. "Mismeasurement of pensions before and after retirement: the mystery of the disappearing pensions with implications for the importance of Social Security as a source of retirement support." Journal of Pension Economics and Finance 13, no. 1 (May 31, 2013): 1–26. http://dx.doi.org/10.1017/s1474747213000176.

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AbstractA review of the literature suggests that when pension values are measured by the wealth equivalent of promised defined benefit pension benefits and defined contribution balances for those approaching retirement, pensions account for more support in retirement than is suggested when their contribution is measured by incomes received directly from pension plans by those who have already retired. Estimates from the Health and Retirement Study for respondents in their early fifties suggest that pension wealth is about 82% as valuable as Social Security wealth. In data from the Current Population Survey (CPS), for members of the same cohort, measured when they are 65–69, pension incomes are about 58% as valuable as incomes from Social Security. Our empirical analysis uses data from the HRS to examine the reasons for these differences in the contributions of pensions as measured in income and wealth data. Key factors accounting for these differences include: a difference in methodology between surveys affecting what is included in pension income; some pension wealth ‘disappears’ at retirement because respondents change their pension into other forms that are not counted as pension income; and the form of annuitization may influence the measure of pension income. A series of caveats notwithstanding, the bottom line is that CPS data on pension incomes received in retirement understates the full contribution pensions make to supporting retirees.

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Kasaoka, Eriko. "Corporate Pension Systems and Pension Funding Status in ASEAN Countries." Asian Academy of Management Journal of Accounting and Finance 17, no. 1 (June 30, 2021): 153–90. http://dx.doi.org/10.21315/aamjaf2021.17.1.6.

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National pension systems will vary among countries because of several factors. The role of the corporate pension in sustaining and supporting a country’s retirees is also different among nations. There are two main pension plans defined in International Accounting Standard No. 19: Employee Benefits, namely, defined benefit plans and defined contribution plans. The defined benefit plan requires a company to recognise its pension funding status on the balance sheet. In contrast, in a defined contribution plan, only the contribution amount to the plan is recognised as an expense on the firm’s income statement. The aim of this paper is to investigate in ASEAN countries the relationship between the presence of corporate pension plans and specific financial factors in companies. The result of the empirical research shows companies with higher profitability and efficiency tend to provide corporate pension plans to their employees.

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Brown, Jeffrey R. "Guaranteed Trouble: The Economic Effects of the Pension Benefit Guaranty Corporation." Journal of Economic Perspectives 22, no. 1 (February 1, 2008): 177–98. http://dx.doi.org/10.1257/jep.22.1.177.

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How did the Pension Benefit Guaranty Corporation, a government corporation created to insure the pensions of workers and retirees in bankrupt firms, end up facing financial distress of its own? How did an organization designed to strengthen retirement security come to be seen as contributing to retirement insecurity? The superficial answer is that the PBGC's current funding problem arises from the decline in stock market prices in 2000, which reduced pension assets, and the fall in interest rates at about the same time, which boosted the present value of pension liabilities. But more fundamentally, much of the blame for the poor financial state of the PBGC, as well as the defined benefit system more generally, lies in some major design flaws of the PBGC pension insurance program. Specifically, the PBGC has: 1) failed to properly price insurance and thus encouraged excessive risk-taking by plan sponsors; 2) failed to promote adequate funding of pension obligations; and 3) failed to promote sufficient information disclosure to market participants. Together, these three flaws produced a system in which many firms fail to adequately fund their pension obligations, knowing that in financial distress, they can dump their pension liabilities onto the PBGC. Though the Pension Protection Act of 2006 made some progress in improving the PBGC program, it failed to correct these three major problems fully. Absent further reform, substantial problems will continue to plague the private defined benefit pension system in decades to come. To prevent this deterioration, this paper concludes that Congress should transfer much of the responsibility for defined benefit pension insurance to compulsory private markets.

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SIEGMANN, ARJEN. "Optimal investment policies for defined benefit pension funds." Journal of Pension Economics and Finance 6, no. 1 (February 14, 2007): 1–20. http://dx.doi.org/10.1017/s1474747205002398.

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This paper analyzes optimal investment policies for pension funds of a defined benefit (DB) type. The nature of a DB fund induces a natural modeling of preferences being of the mean-downside risk type. With compensation for inflation as an explicit goal of a pension fund, a natural reference point for the risk measure is the future (indexed) value of the liabilities. Results are presented for different levels of inflation uncertainty and its correlation with stock returns. The optimal decision rules show increased risk-taking for funding ratios moving away from the discounted value of the reference point. Furthermore, it is shown that the outcomes are comparable with those using a mean-downside deviation criterion. We provide intuition for the results and compare the outcomes with actual investment policies of six large Dutch pension funds.

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Maher, John J., and J. Edward Ketz. "Defined-Benefit versus Defined-Contribution Pension Plans: How to Compare." Compensation & Benefits Review 23, no. 3 (May 1991): 49–56. http://dx.doi.org/10.1177/088636879102300308.

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Cocco, João F., and Paula Lopes. "Defined Benefit or Defined Contribution? A Study of Pension Choices." Journal of Risk and Insurance 78, no. 4 (June 6, 2011): 931–60. http://dx.doi.org/10.1111/j.1539-6975.2011.01419.x.

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Stubbs, John, and Jacob Adetunji. "UK pension changes in 2015: some mathematical considerations." Mathematical Gazette 100, no. 548 (June 14, 2016): 193–202. http://dx.doi.org/10.1017/mag.2016.55.

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Since April 2015 there has been no legal requirement in the UK to purchase an annuity with pension savings [1] while for those who reach state pension age on or after 6th April 2016 the UK Government changed the state pension deferral arrangements [2]. The latter refers to an arrangement whereby a pensioner can receive an enhanced state pension by deferring its uptake for an arbitrary number of years. These two changes raise certain questions for prospective pensioners which are worthy of some mathematical consideration.An annuity is a guaranteed income for life in exchange for a certain sum of money: the pension pot. An alternative to the annuity since April 2015 is a ‘draw down scheme’ in which the pension pot can be used almost like an ordinary bank account and money periodically withdrawn. These two choices arise from ‘defined contribution’ pension arrangements. By contrast ‘defined benefit’ work-based (company) pensions allow no such choice and are not considered further here apart from the special case of the UK state pension. With an annuity a further option to consider, and one which predates the 2015 changes, is whether to take payments that are fixed or index-linked to inflation. Only the UK state pension offers a late retirement enhanced pension if its uptake is deferred.

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Exley, C. J., S. J. B. Mehta, and A. D. Smith. "The Financial Theory of Defined Benefit Pension Schemes." British Actuarial Journal 3, no. 4 (October 1, 1997): 835–966. http://dx.doi.org/10.1017/s135732170000516x.

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ABSTRACTIncreasingly, modern business and investment management techniques are founded on approaches to measurement of profit and risk developed by financial economists. This paper begins by analysing corporate pension provision from the perspective of such financial theory. The results of this analysis are then reconciled with the sometimes contradictory messages from traditional actuarial valuation approaches and the alternative market-based valuation paradigm is introduced. The paper then proposes a successful blueprint for this mark-to-market valuation discipline and considers whether and how it can be applied to pension schemes both in theory and in practice. It is asserted that adoption of this market based approach appears now to be essential in many of the most critical areas of actuarial advice in the field of defined benefit corporate pension provision and that the principles can in addition be used to establish more efficient and transparent methodologies in areas which have traditionally relied on subjective or arbitrary methods. We extend the hope that the insights gained from financial theory can be used to level the playing field between defined benefit and defined contribution arrangements from both corporate and member perspectives.

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COOPER, RUSSELL W., and THOMAS W. ROSS. "Protecting underfunded pensions: the role of guarantee funds." Journal of Pension Economics and Finance 2, no. 3 (November 2003): 247–72. http://dx.doi.org/10.1017/s1474747203001343.

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Employer-related pensions are a common and extremely important component of the compensation paid to workers in both the public and private sectors of developed economies. Many private pensions are insufficiently funded, exposing workers to the risk of a loss should their employer cease operations and not be available to meet pension obligations.In this paper we study the role of guarantee funds as providers of insurance to workers against the failure of firms with underfunded defined benefit pension plans. Employing a model that predicts pension underfunding, we consider first how private guarantee funds might operate and then explore some potential advantages of public funds.Overall, we do find that both public and private funds provide insurance benefits. However, private guarantee funds requiring ex ante premia payments may be infeasible in the presence of capital market imperfections, and funds which rely upon ex post contributions may suffer from strategic uncertainty. A public fund can overcome this coordination problem. However, a public fund, such as that administered by the US Pension Benefit Guaranty Corporation, may lead to: (i) greater underfunding of pensions, (ii) distortions in the market participation decisions of firms and (iii) the inclusion of excessively risky assets in the pension portfolio. In some cases, a guarantee fund is not welfare improving.

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CORONADO, JULIA LYNN, and PHILIP C. COPELAND. "Cash balance pension plan conversions and the new economy." Journal of Pension Economics and Finance 3, no. 3 (November 2004): 297–314. http://dx.doi.org/10.1017/s1474747204001684.

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Many firms that sponsor traditional defined benefit pensions have converted these plans to cash balance plans in the last en years. Cash balance plans in the last ten years combine features of defined benefit and defined contribution plans, and yet their introduction has proven considerably more controversial than has the increasing popularity of defined contribution plans. The goal of this study is to estimate a hierarchy of the influences on the decision of a firm to convert its traditional defined benefit pension plan to a cash balance plan. Our results indicate that cash balance conversions have been undertaken in competitive industries with tight labor markets and thus can be viewed at least in part as a response to better compensate a more mobile labor force. Indeed, many firms appear to increase their pension liabilities through such conversions.

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Gerard, Marc. "Reform Options for Mature Defined Benefit Pension Plans." IMF Working Papers 19, no. 22 (January 25, 2019): 1. http://dx.doi.org/10.5089/9781484395912.001.

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Muralidhar, Arun, and Ronald van der Wouden. "Optimal ALM strategies for defined benefit pension plans." Journal of Risk 2, no. 2 (2000): 47–69. http://dx.doi.org/10.21314/jor.2000.024.

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Vafeas, Nikos, and Adamos Vlittis. "Independent directors and defined benefit pension plan freezes." Journal of Corporate Finance 50 (June 2018): 505–18. http://dx.doi.org/10.1016/j.jcorpfin.2017.10.003.

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SIEGMANN, ARJEN. "Minimum funding ratios for defined-benefit pension funds." Journal of Pension Economics and Finance 10, no. 3 (November 23, 2010): 417–34. http://dx.doi.org/10.1017/s1474747210000296.

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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.

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Kilgour, John G. "“De-Risking” Private Sector Defined Benefit Pension Plans." Compensation & Benefits Review 46, no. 1 (September 30, 2013): 32–40. http://dx.doi.org/10.1177/0886368713500561.

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Lally, Martin. "The valuation of GSF's defined benefit pension entitlements." New Zealand Economic Papers 34, no. 2 (December 2000): 183–99. http://dx.doi.org/10.1080/00779950009544322.

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Huang, Hong-Chih, and Andrew J. G. Cairns. "On the control of defined-benefit pension plans." Insurance: Mathematics and Economics 38, no. 1 (February 2006): 113–31. http://dx.doi.org/10.1016/j.insmatheco.2005.08.005.

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Ai, Jing, Patrick L. Brockett, and Allen F. Jacobson. "A new defined benefit pension risk measurement methodology." Insurance: Mathematics and Economics 63 (July 2015): 40–51. http://dx.doi.org/10.1016/j.insmatheco.2015.03.027.

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PORTEOUS, BRUCE T., PRADIP TAPADAR, and WEI YANG. "Economic capital for defined benefit pension schemes: An application to the UK Universities Superannuation Scheme." Journal of Pension Economics and Finance 11, no. 4 (March 15, 2012): 471–99. http://dx.doi.org/10.1017/s1474747212000029.

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AbstractThis article considers the amount of economic capital that defined benefit (DB) pension schemes potentially need to cover the risks they are running. A real open scheme, the Universities Superannuation Scheme, is modelled and used to illustrate our results and, as expected, economic capital requirements are large. We discuss the appropriateness of these results and what they mean for the DB pension scheme industry and their sponsors. The article is particularly pertinent following the recent European Commission Green Paper on the future of European pensions systems, its call for advice on reviewing the Institutions for Occupational Retirement Provision Directive and the introduction of the Basel 2 and Solvency 2 risk-based regulatory regimes for banking and insurance, respectively.

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Comprix, Joseph, and Karl A. Muller. "Pension plan accounting estimates and the freezing of defined benefit pension plans." Journal of Accounting and Economics 51, no. 1-2 (February 2011): 115–33. http://dx.doi.org/10.1016/j.jacceco.2010.06.003.

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MUNNELL, ALICIA H., and MAURICIO SOTO. "The outlook for pension contributions and profits in the US." Journal of Pension Economics and Finance 3, no. 1 (March 2004): 77–97. http://dx.doi.org/10.1017/s1474747204001489.

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The bear market that began in 2000 focused attention on two issues – pensions and profits. The initial pension problem was the big decline in value of individual 401(k) accounts. The profit issue was misconduct and stock options. In fact, there is another compelling issue involving both pensions and profits – the impact of the bear market on defined benefit pension plans.Plan sponsors have a projected benefit liability, which until recently was covered by the rise in asset values during the extended bull market. When stock values fell by 50 percent, sponsors for the first time in decades had to contribute to their pensions. But even without the decline in the stock market, sponsors of defined benefit plans were going to face increased pension contributions in the coming decade. The reason is a host of regulatory and legislative changes in the late 1980s that slowed or limited pension contributions.Our analysis suggests that in the absence of the stock market boom and the regulatory and legislative changes that reduced funding, the average firm's contribution to its pension plan would have been 50 percent higher during the 1982–2001 period; corporate profits would have been roughly 5 percent lower.The deferred contributions are coming due. The decline in the stock market and an ageing population imply that contributions would double from their current level. As the economy emerges from recession and the bear market draws to a close, firms and investors must be prepared to contend with a strong headwind from pension funding obligations that could slow the recover.

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Mhango, Mtendeweka. "Pension regulation in Malawi: Defined benefit fund or defined contribution fund?" Pensions: An International Journal 17, no. 4 (November 2012): 270–82. http://dx.doi.org/10.1057/pm.2012.32.

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Clark, Robert L., and M. Melinda Pitts*. "Faculty Choice of a Pension Plan: Defined Benefit versus Defined Contribution." Industrial Relations: A Journal of Economy and Society 38, no. 1 (January 1999): 18–45. http://dx.doi.org/10.1111/0019-8676.00108.

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Stone, Kenneth E., David W. Joy, and Cynthia J. Thomas. "Opinions Of Financial Analysts On Accounting For defined Benefit Pension Plans." Journal of Applied Business Research (JABR) 11, no. 3 (September 15, 2011): 65. http://dx.doi.org/10.19030/jabr.v11i3.5861.

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Responding financial analysts preferred pension plan accounting which contrasts with requirements of SFAS No. 87. The preferred model included: (1) Plan assets and accumulated benefit obligations are on the balance sheet. (2) Prior service cost is recognized in the year of plan adoption or amendment. (3) Gains and losses are recognized when they occur. (4) Annual pension expense is computer by netting the change in fair value of plan assets, deposits to the pension plan, and the change in accumulated benefit obligations.

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Journal articles on the topic 'Defined benefit pension'

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