Employee Valuation of Pension Claims and the Impact of Indexing Initiatives
There is discussion in both Canada and the United States of the government's requiring private pension plans to provide contractual cost-of-living protection. This paper employs both an auction and an implicit contract model to identify the compensating wage differentials required of possible indexing initiatives. The contract model, motivated by the prevalence (especially in Canada) of ad hoc cost-of-living adjustments to pensions in pay, presumes that workers have a call option on the investment earnings in excess of the interest rate assumption used to value the plan. The case for policy action would appear to rest on either (1) the assumption that workers misperceive the value (and, possibly, the security) of pension benefits or (2) the presumption that society should subsidize pension income by providing to pension plans an investment vehicle (such as an index bond) whose risk-return characteristics cannot be duplicated by portfolios of existing assets.
|Date of creation:||Sep 1981|
|Publication status:||published as Pesando, James E. "Employee Valuation of Pension Claims and the Impact of Indexing Initiatives." Economic Inquiry, Vol. 22, No. 1, (January 1984), pp. 1-17.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
- Blinder, Allan S., 1977. "Indexing the economy through financial intermediation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 69-105, January.
- Siegel, Jeremy J & Warner, Jerold B, 1977. "Indexation, the Risk-Free Asset, and Capital Market Equilibrium," Journal of Finance, American Finance Association, vol. 32(4), pages 1101-1107, September.
- Burt S. Barnow & Ronald G. Ehrenberg, 1979. "The Costs of Defined Benefit Pension Plans and Firm Adjustments," The Quarterly Journal of Economics, Oxford University Press, vol. 93(4), pages 523-540.
- Jeremy I. Bulow, 1979. "Analysis of Pension Funding Under Erisa," NBER Working Papers 0402, National Bureau of Economic Research, Inc.
- Arnott, Richard J. & Gersovitz, Mark, 1980. "Corporate financial structure and the funding of private pension plans," Journal of Public Economics, Elsevier, vol. 13(2), pages 231-247, April.
- Sharpe, William F., 1976. "Corporate pension funding policy," Journal of Financial Economics, Elsevier, vol. 3(3), pages 183-193, June.
- Irwin Tepper, 1981. "Taxation and Corporate Pension Policy," NBER Working Papers 0661, National Bureau of Economic Research, Inc.
- Feldstein, Martin, 1980.
"Inflation and the Stock Market,"
American Economic Review,
American Economic Association, vol. 70(5), pages 839-847, December.
- Liviatan, Nissan & Levhari, David, 1977. "Risk and the Theory of Indexed Bonds," American Economic Review, American Economic Association, vol. 67(3), pages 366-375, June.
- Bodie, Zvi, 1976. "Common Stocks as a Hedge against Inflation," Journal of Finance, American Finance Association, vol. 31(2), pages 459-470, May.
- Stanley Fischer, 1979. "Corporate Supply of Index Bonds," NBER Working Papers 0331, National Bureau of Economic Research, Inc.
- Tepper, Irwin, 1981. "Taxation and Corporate Pension Policy," Journal of Finance, American Finance Association, vol. 36(1), pages 1-13, March.
- Zvi Bodie, 1980. "Purchasing-Power Annuities: Financial Innovation for Stable Real Retirement Income in an Inflationary Environment," NBER Working Papers 0442, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:0767. 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: ()
If references are entirely missing, you can add them using this form.