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Smoothing the waves of pension funding: Could changes in funding rules help avoid cyclical under-funding?

Author

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  • Christian Weller
  • Dean Baker

Abstract

Defined benefit pensions are still an important part of retirement income security for 44 million people. After 2000, these plans experienced extreme difficulties. Although the magnitude of the problem was unprecedented, its causes were not. Interest rate and asset prices decline in a recession, when earnings are low. Pension funding rules reflect this regularity. This requires additional contributions when times are bad. We address this counter-cyclicality through three proposed rule changes. We use a simulation model to evaluate these. Our results indicate that counter-cyclicality would have diminished, while funding adequacy would have improved.

Suggested Citation

  • Christian Weller & Dean Baker, 2005. "Smoothing the waves of pension funding: Could changes in funding rules help avoid cyclical under-funding?," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 8(2), pages 131-151.
  • Handle: RePEc:taf:jpolrf:v:8:y:2005:i:2:p:131-151
    DOI: 10.1080/13841280500086339
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    File URL: http://www.tandfonline.com/doi/abs/10.1080/13841280500086339
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    References listed on IDEAS

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    1. Alicia H. Munnell & Nicole Ernsberger (assistant), 1987. "Pension contributions and the stock market," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 3-14.
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    Cited by:

    1. Dean Baker & Nick Buffie, 2015. "Pension Funding and the Economy: Would “Proper” Funding Cost Jobs?," CEPR Reports and Issue Briefs 2015-22, Center for Economic and Policy Research (CEPR).

    More about this item

    Keywords

    Defined benefit pension plans; funding rules; discount rate; liability valuation; asset valuation JEL Classifications: G23; J26; J32; J38;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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