Valuation of (German) Defined Benefit Plans - Introducing Financial Theory to Financial Accounting

2012 ◽  
Author(s):  
Ute Merbecks
Keyword(s):  
Financial Accounting ◽  
Defined Benefit ◽  
Defined Benefit Plans

Getting More from Less in Defined Benefit Plans

2018 ◽  
Author(s):  
Daniel W. Wallick ◽  
Daniel B. Berkowitz ◽  
Andrew S. Clarke ◽  
Kevin J. DiCiurcio ◽  
Kimberly A. Stockton
Keyword(s):  
Interest Rates ◽  
Pension Plan ◽  
Defined Benefit ◽  
Portfolio Risk ◽  
Defined Benefit Pension Plan ◽  
Increased Risk ◽  
Investment Returns ◽  
Defined Benefit Plans ◽  
Asset Class ◽  
Reduced Costs

As global interest rates hover near historic lows, defined benefit pension plan sponsors must grapple with the prospect of lower investment returns. We examine three levers that can enhance portfolio outcomes in a low-return world: increased contributions; reduced investment costs; and increased portfolio risk. We use portfolio simulations based on a stochastic asset class forecasting model to evaluate each lever according to two criteria: the magnitude of impact and the certainty that this impact will be realized. We show that increased contributions have the greatest and most certain impact. Reduced costs have a more modest, but equally certain impact. Increased risk can deliver a significant impact, but with the least certainty.

scholarly journals The impact of aggregate mortality risk on defined benefit pension plans

2010 ◽  
Vol 9 (4) ◽  
pp. 481-503 ◽  
Author(s):  
IRENA DUSHI ◽  
LEORA FRIEDBERG ◽  
TONY WEBB
Keyword(s):  
Mortality Risk ◽  
Pension Plans ◽  
Defined Benefit ◽  
Benefit Plan ◽  
Defined Benefit Plans ◽  
The Impact ◽  
Carter Model ◽  
Male Workers ◽  
Defined Benefit Pension Plans

AbstractWe calculate the risk faced by defined benefit plan providers arising from uncertain aggregate mortality – the risk that the average participant will live longer than expected. First, comparing the widely cited Lee–Carter model to industry benchmarks that are commonly employed by plan providers, we show that these benchmarks appear to substantially underestimate longevity. The resultant understatement of liabilities may reach 12.2% for typical male participants in defined benefit plans and may reach 22.4% for male workers aged 22. Next, we consider consequences for plan liabilities if aggregate mortality declines unexpectedly faster than is predicted by a putatively unbiased projection. There is a 5% chance that liabilities of a terminated plan would be 3.1% to 5.3% higher than what is expected, depending on the mix of workers covered.

Optimal risk-taking in corporate defined benefit plans under risk-shifting

2019 ◽  
Vol 45 (8) ◽  
pp. 1076-1091
Author(s):  
Tomoki Kitamura ◽  
Kozo Omori
Keyword(s):  
Risk Taking ◽  
Optimal Solution ◽  
Empirical Literature ◽  
Defined Benefit ◽  
Content Type ◽  
Investment Problem ◽  
Middle Range ◽  
Equity Funds ◽  
Defined Benefit Plans ◽  
Vulnerable Option

Purpose The purpose of this paper is to theoretically examine the risk-taking decision of corporate defined benefits (DB) plans. The equity holders’ investment problem that is represented by the position of a vulnerable option is solved. Design/methodology/approach The simple traditional contingent claim approach is applied, which considers only the distributions of corporate cash flow, without the model expansions, such as market imperfections, needed to explain the firms’ behavior for DB plans in previous studies. Findings The authors find that the optimal solution to the equity holders’ DB investment problem is not an extreme corner solution such as 100 percent investment in equity funds as in the literature. Rather, the solution lies in the middle range, as is commonly observed in real-world economies. Originality/value The major value of this study is that it develops a clear mechanism for obtaining an internal solution for the equity holders’ DB investment problem and it provides the understanding that the base for corporate investment behavior for DB plans should incorporate the fact that in some cases the optimal solution is in the middle range. Therefore, the corporate risk-taking behavior of DB plans is harder to identify than the results of the empirical literature have predicted.

Retirement and Pensions in American Economic History

2018 ◽  
pp. 354-374
Author(s):  
Robert Clark ◽  
Lee A. Craig
Keyword(s):  
Public Sector ◽  
Private Sector ◽  
Economic History ◽  
Pension Plans ◽  
Federal State ◽  
Defined Benefit ◽  
Retirement Plans ◽  
The Us ◽  
Defined Benefit Plans ◽  
State And Local

The proportion of the US population that survives to retirement age has increased over time, as has the share of the older population that retires. Higher incomes at older ages explain the increase in the incidence of retirement. Pensions provide much of that income. In general, public-sector workers, especially military personnel, were covered by pensions before their private-sector counterparts, and coverage in the public sector remains more widespread, and generous, than it is in the private sector. Public-sector pension plans are more likely to be defined benefit plans than are private-sector plans. Many public-sector employers have promised their employees more in benefits than they have set aside to pay for those benefits. Estimates suggest that the federal, state, and local retirement plans currently in operation are underfunded by as much as $5 trillion.

The Inevitable Rise in Dual-Income Households and the Intertemporal Effects on Labor Markets

2020 ◽  
Vol 52 (2) ◽  
pp. 64-76 ◽  
Author(s):  
Tesa E. Leonce
Keyword(s):  
Labor Markets ◽  
Housing Prices ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Dual Earner ◽  
Societal Welfare ◽  
Defined Benefit Plans ◽  
Dual Income ◽  
Care Costs ◽  
Dual Earners

The number of dual-income households has been steadily increasing over the past few decades. This study supports the hypothesis that given a household’s desire to remain above a minimum threshold standard of living, the rise in the number of dual-earner households is inevitable mostly due to inflationary pressures in product markets including rising housing prices and child care costs coupled with relatively flat wage trends. Mitigating uncertainty and risk associated with shifts in retirement plan offerings—moving away from defined benefit plans such as pensions toward defined contribution options such as 401(k) plans—was also cited as a factor contributing to the rising number of dual earners. This study highlights the costs and benefits of dual-earning decisions and the intertemporal implications for households, labor markets and overall societal welfare.

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