Prudent investors: the asset allocation of public pension plans
AbstractAfter 2000, the vast majority of defined benefit (DB) pension plans encountered a decrease in their funding ratios, largely due to a drop in asset prices. It is possible that public sector pension plans may have acted imprudently by chasing returns, once they encountered underfunding. We identify four indicators for DB plansâ imprudent investment behavior: no portfolio rebalancing, employer conflicts of interest, trustee conflicts of interest, and failure to implement best investment practices. To see if public sector pension plans rebalance their portfolios, we use data from the Federal Reserveâs Flow of Funds, dating from 1952 to 2007. To test for the remaining three hypotheses, we use data from the Censusâ State and Local Government Employee Retirement Systems data base, where consistent data for state and local government plans are available from 1993 to 2005. Our results suggest that there is no evidence that public sector plans systematically engaged in imprudent investment behavior and that this did not systematically differ after 2000 from the earlier period.
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Bibliographic InfoArticle provided by Cambridge University Press in its journal Journal of Pension Economics and Finance.
Volume (Year): 8 (2009)
Issue (Month): 04 (October)
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Other versions of this item:
- Christian E. Weller & Jeffrey Wenger, 2008. "Prudent Investors: The Asset Allocation of Public Pension Plans," Working Papers wp175, Political Economy Research Institute, University of Massachusetts at Amherst.
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