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Underfunding of Defined Benefit Pension Plans and Benefit Guarantee Insurance: An Overview of Theory and Evidence

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Author Info
Mario Jametti

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Abstract

I review the theoretical literature on defined-benefit pension plans, particularly focusing on the issue of plan underfunding and benefit guarantee insurance schemes. Under reasonable assumptions underfunding can be an equilibrium outcome even in the absence of benefit insurance. The introduction of benefit guarantee funds was a reaction to the problem of underfunding, and I summarize the ensuing problems of moral hazard and adverse selection. I then discuss the still rather small body of empirical research on the subject and propose directions for future research.

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File URL: http://economics.ca/cgi/jab?journal=cpp&view=v34s1/CPPv34s1p039.pdf
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Publisher Info
Article provided by University of Toronto Press in its journal Canadian Public Policy.

Volume (Year): 34 (2008)
Issue (Month): s1 (November)
Pages: 39-46
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Handle: RePEc:cpp:issued:v:34:y:2008:i:s1:p:39-46

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. David W. Wilcox, 2006. "Reforming the Defined-Benefit Pension System," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(2006-1), pages 235-304. [Downloadable!]
  2. Jeffrey R. Brown, 2008. "Guaranteed Trouble: The Economic Effects of the Pension Benefit Guaranty Corporation," Journal of Economic Perspectives, American Economic Association, vol. 22(1), pages 177-198, Winter.
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  3. Cooper, Russell W. & Ross, Thomas W., 2001. "Pensions: theories of underfunding," Labour Economics, Elsevier, vol. 8(6), pages 667-689, December. [Downloadable!] (restricted)
  4. Niehaus, Gregory R., 1990. "The PBGC's flat fee schedule, moral hazard, and promised pension benefits," Journal of Banking & Finance, Elsevier, vol. 14(1), pages 55-68, March. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Thomas Crossley & Mario Jametti, 2008. "Pension Benefit Insurance and Pension Plan Portfolio Choice," Working Papers 2008_05, York University, Department of Economics. [Downloadable!]
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