EconStor >
Federal Reserve Bank of Boston >
Public Policy Discussion Papers, Federal Reserve Bank of Boston >

Please use this identifier to cite or link to this item:
Title:Managing the risk in pension plans and recent pension reforms PDF Logo
Authors:Kopcke, Richard W.
Issue Date:2007
Series/Report no.:Public policy Discussion Papers, Federal Reserve Bank of Boston 06,7
Abstract:This paper examines the characteristics of three funding strategies for pension plans and analyzes the investment strategies that complement these strategies. Although the primary focus is on defined benefit plans, which include Social Security, it also applies to employees' defined contribution plans, which, when their beneficiaries set specific goals for their future retirement benefits, are essentially defined benefit plans. The findings suggest that pension plans should use interest rates on Treasury securities instead of yields on corporate bonds to calculate the value of their liabilities. Defined benefit plans, including Social Security, could stabilize the balance between the value of their assets and their obligations if they financed only the value of the benefits that their beneficiaries have accrued and they invested their assets in Treasury securities. In this case, the required contribution per dollar of wages would need to change significantly with the rate of growth of employment. By funding the obligation entailed by employees' projected income at retirement, contributions per dollar of wages would change less with the growth of employment. However, in this case, plans would need to invest in a broader range of assetsincluding Treasury inflation-protected securities, stocks, and real assetsto prevent the balance between their assets and liabilities from varying too greatly. Furthermore, plans would need to hold surplus assets to minimize the risk of becoming underfunded.
Document Type:Working Paper
Appears in Collections:Public Policy Discussion Papers, Federal Reserve Bank of Boston

Files in This Item:
File Description SizeFormat
568695658.pdf659.81 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.