Underfunding of Defined Benefit Pension Plans and Benefit Guarantee Insurance - An Overview of Theory and Empirics
We review the theoretical literature on defined benefit (DB) pension plans, particularly focusing on the issue of plan underfunding and benefit guarantee insurance schemes. The literature shows that underfunding can, under reasonable assumptions, be an equilibrium outcome even in the absence of benefit insurance. The introduction of benefit guarantee funds was a reaction to the problem of underfunding, and we summarize the ensuing standard problems of moral hazard and adverse selection. We briefly discuss the small empirical research on the subject and propose directions for future research.
|Date of creation:||May 2007|
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- Timothy Besley & Andrea Prat, 2004.
LSE Research Online Documents on Economics
24822, London School of Economics and Political Science, LSE Library.
- Fiona Stewart, 2007. "Benefit Security Pension Fund Guarantee Schemes," OECD Working Papers on Insurance and Private Pensions 5, OECD Publishing.
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- Cooper, Russell W. & Ross, Thomas W., 2001. "Pensions: theories of underfunding," Labour Economics, Elsevier, vol. 8(6), pages 667-689, December.
- David W. Wilcox, 2006. "Reforming the Defined-Benefit Pension System," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(1), pages 235-304.
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