IDEAS home Printed from https://ideas.repec.org/h/nbr/nberch/6853.html
   My bibliography  Save this book chapter

Corporate Pension Policy and the Value of PBGC Insurance

In: Issues in Pension Economics

Author

Listed:
  • Alan Marcus

Abstract

This paper derives the value of PBGC pension insurance under two scenarios of interest. The first allows for voluntary plan termination, which appears to be legal under current statutes. In the second scenario, termination is prohibited unless the firm is bankrupt. Optimal pension funding strategy under each scenario is examined. Finally,empirical estimates of PBGC liabilities are calculated. These show that a small number of funds account for a large fraction of total prospective PBGC liabilities, that those total liabilities greatly exceed current PBGC reserves for plan terminations, and that PBGC liabilities could be substantially reduced by the prohibition of voluntary termination.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Alan Marcus, 1987. "Corporate Pension Policy and the Value of PBGC Insurance," NBER Chapters,in: Issues in Pension Economics, pages 49-80 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:6853
    as

    Download full text from publisher

    File URL: http://www.nber.org/chapters/c6853.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Treynor, Jack L, 1977. "The Principles of Corporate Pension Finance," Journal of Finance, American Finance Association, vol. 32(2), pages 627-638, May.
    2. J. Michael Harrison & William F. Sharpe, 1983. "Optimal Funding and Asset Allocation Rules for Defined-Benefit Pension Plans," NBER Chapters,in: Financial Aspects of the United States Pension System, pages 91-106 National Bureau of Economic Research, Inc.
    3. Sharpe, William F., 1976. "Corporate pension funding policy," Journal of Financial Economics, Elsevier, vol. 3(3), pages 183-193, June.
    4. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters,in: Theory Of Valuation, chapter 8, pages 229-288 World Scientific Publishing Co. Pte. Ltd..
    5. Robert L. McDonald & Daniel Siegel, 1982. "The Value of Waiting to Invest," NBER Working Papers 1019, National Bureau of Economic Research, Inc.
    6. Langetieg, T. C. & Findlay, M. C. & da Motta, L. F. J., 1982. "Multiperiod Pension Plans and ERISA," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(04), pages 603-631, November.
    7. Sosin, Howard B, 1980. " On the Valuation of Federal Loan Guarantees to Corporations," Journal of Finance, American Finance Association, vol. 35(5), pages 1209-1221, December.
    8. 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.
    9. Irwin Tepper, 1981. "Taxation and Corporate Pension Policy," NBER Working Papers 0661, National Bureau of Economic Research, Inc.
    10. Geske, Robert, 1979. "The valuation of compound options," Journal of Financial Economics, Elsevier, vol. 7(1), pages 63-81, March.
    11. Tepper, Irwin, 1981. "Taxation and Corporate Pension Policy," Journal of Finance, American Finance Association, vol. 36(1), pages 1-13, March.
    12. 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.
    13. Smith, Clifford Jr., 1976. "Option pricing : A review," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 3-51.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cotter, John & Blake, David & Dowd, Kevin, 2006. "Financial Risks and the Pension Protection Fund: Can it Survive Them?," MPRA Paper 3498, University Library of Munich, Germany.
    2. Zvi Bodie & Alan J. Marcus & Robert C. Merton, 1988. "Defined Benefit versus Defined Contribution Pension Plans: What are the Real Trade-offs?," NBER Chapters,in: Pensions in the U.S. Economy, pages 139-162 National Bureau of Economic Research, Inc.
    3. Dirk Broeders & An Chen, 2013. "Pension Benefit Security: A Comparison of Solvency Requirements, a Pension Guarantee Fund, and Sponsor Support," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(2), pages 239-272, June.
    4. Joseph G. Haubrich & James B. Thomson, 1994. "A conference on federal credit allocation," Economic Review, Federal Reserve Bank of Cleveland, issue Q III, pages 2-13.
    5. Chen, An, 2011. "A risk-based model for the valuation of pension insurance," Insurance: Mathematics and Economics, Elsevier, vol. 49(3), pages 401-409.
    6. Kent Smetters, 2001. "The Effect of Pay-When-Needed Benefit Guarantees on the Impact of Social Security Privatization," NBER Chapters,in: Risk Aspects of Investment-Based Social Security Reform, pages 91-112 National Bureau of Economic Research, Inc.
    7. Kalra, Raman & Jain, Gautam, 1997. "A continuous-time model to determine the intervention policy for PBGC," Journal of Banking & Finance, Elsevier, vol. 21(8), pages 1159-1177, August.
    8. Chen, An & Uzelac, Filip, 2014. "A risk-based premium: What does it mean for DB plan sponsors?," Insurance: Mathematics and Economics, Elsevier, vol. 54(C), pages 1-11.
    9. John Cotter & David Blake & Kevin Dowd, 2012. "What Should Be Done About The Underfunding of Defined Benefit Pension Schemes?," Working Papers 201202, Geary Institute, University College Dublin.
    10. Smetters, Kent, 2002. "Controlling the cost of minimum benefit guarantees in public pension conversions," Journal of Pension Economics and Finance, Cambridge University Press, vol. 1(01), pages 9-33, March.
    11. Joshua Rauh, 2007. "Risk Shifting versus Risk Management: Investment Policy in Corporate Pension Plans," NBER Working Papers 13240, National Bureau of Economic Research, Inc.
    12. Móricz, Dániel, 2004. "Vállalati szolgáltatási nyugdíjprogramok optimális befektetési politikája és fedezettségi szintje az Egyesült Államokban
      [Optimal investment and funding policy of US defined-benefit pension plans]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1113-1131.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:6853. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.