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Analysis of Pension Funding Under Erisa

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  • Jeremy I. Bulow
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    Abstract

    This paper begins by describing the tax, funding, and insurance aspects of the Pension Reform Act of 1974. Next, the implications of those laws are analyzed from the standpoint of the funding decision of the firm. The tax advantage of early funding appears to be quite small. Because there are insurance and other reasons (related to asymmetries in the pension law) why firms might wish to underfund their plans, there is no good reason to expect all firms to fund to the limit. The final section discusses the magnitude of the firms' unfunded pension liability, properly defined. This debt is shown to be quite small. A major reason for this is the substantial increase in long- term nominal interest rates, which have decreased the present value of accrued benefits and, equally, unfunded pension obligations.

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    File URL: http://www.nber.org/papers/w0402.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0402.

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    Date of creation: Nov 1979
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    Publication status: published as Bulow, Jeremy. "WHat are Corporate Pension Liabilities?" Quarterly Journal of Economics, Vol. 97, No. 3, (August 1982), pp. 435-452, Contains only a subset of WP#402.
    Handle: RePEc:nbr:nberwo:0402

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    References

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    1. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
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    Cited by:
    1. Edward P. Lazear, 1985. "Incentive Effects of Pensions," NBER Chapters, in: Pensions, Labor, and Individual Choice, pages 253-282 National Bureau of Economic Research, Inc.
    2. Gary S. Fields & Olivia S. Mitchell, 1984. "Economic Determinants of the Optimal Retirement Age: An Empirical Investigation," Journal of Human Resources, University of Wisconsin Press, vol. 19(2), pages 245-262.
    3. Pesando, James E, 1984. "Employee Evaluation of Pension Claims and the Impact of Indexing Initiatives," Economic Inquiry, Western Economic Association International, vol. 22(1), pages 1-17, January.
    4. Laurence J. Kotlikoff & David A. Wise, 1987. "Pension Backloading, Wage Taxes, and Work Disincentives," NBER Working Papers 2463, National Bureau of Economic Research, Inc.
    5. Jeremy I. Bulow & Myron S. Scholes & Peter Menell, 1982. "Economic Implications of ERISA," NBER Working Papers 0927, National Bureau of Economic Research, Inc.
      • Jeremy I. Bulow & Myron S. Scholes & Peter Menell, 1983. "Economic Implications of ERISA," NBER Chapters, in: Financial Aspects of the United States Pension System, pages 37-56 National Bureau of Economic Research, Inc.
    6. Lawrence H. Summers, 1981. "Inflation and the Valuation of Corporate Equities," NBER Working Papers 0824, National Bureau of Economic Research, Inc.
    7. Jeremy I. Bulow & Myron S. Scholes, 1983. "Who Owns the Assets in a Defined-Benefit Pension Plan?," NBER Chapters, in: Financial Aspects of the United States Pension System, pages 17-36 National Bureau of Economic Research, Inc.
    8. Feldstein, Martin & Seligman, Stephanie, 1981. "Pension Funding, Share Prices, and National Savings," Journal of Finance, American Finance Association, vol. 36(4), pages 801-24, September.
    9. Jeremy I. Bulow, 1981. "Early Retirement Pension Benefits," NBER Working Papers 0654, National Bureau of Economic Research, Inc.
    10. Jeremy I. Bulow, 1981. "Tax Aspects of Corporate Pension Funding Policy," NBER Working Papers 0724, National Bureau of Economic Research, Inc.

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