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

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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.

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  • 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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    References listed on IDEAS

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    1. Nicole Ernsberger & Alicia H. Munnell, 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).
    2. David Rosnick & Dean Baker, 2012. "Pension Liabilities: Fear Tactics and Serious Policy," World Economic Review, World Economics Association, vol. 2012(1), pages 1-57, September.
    3. Dean Baker, 2011. "The Origins and Severity of the Public Pension Crisis," CEPR Reports and Issue Briefs 2011-04, Center for Economic and Policy Research (CEPR).
    4. repec:wea:worler:v:2012:y:2012:i:1:p:4 is not listed on IDEAS

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