Another look at the determinants of the financial condition of state pension plans

Another look at the determinants of the financial condition of state pension plans Given the financial troubles facing state pension plans in recent years, we examine determinants of the ratio of assets to liabilities, or the funded ratio, based on data for 153 pension plans from 2001 to 2014. The focus is on the relationship between both the actual investment return on pension assets and the assumed return used to discount pension liabilities, or the funded ratio. Importantly, only when appropriate empirical techniques are employed to address potential econometric problems do we find that these two factors have the expected relationship with the funded ratio. Surprisingly, we also find the actual and assumed returns are negatively correlated, even though the correlation is quite low. Furthermore, the assumed return is on average higher than the actual return and has a much larger marginal effect on the funded ratio. We therefore show how a relatively high value can be assigned to the assumed return to make a pension plan appear to far healthier than actually is the case. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economics and Finance Springer Journals

Another look at the determinants of the financial condition of state pension plans

Loading next page...
 
/lp/springer_journal/another-look-at-the-determinants-of-the-financial-condition-of-state-k0DohbRbtd
Publisher
Springer Journals
Copyright
Copyright © 2017 by Springer Science+Business Media, LLC
Subject
Economics; Economics, general; Macroeconomics/Monetary Economics//Financial Economics; Finance, general
ISSN
1055-0925
eISSN
1938-9744
D.O.I.
10.1007/s12197-017-9402-1
Publisher site
See Article on Publisher Site

Abstract

Given the financial troubles facing state pension plans in recent years, we examine determinants of the ratio of assets to liabilities, or the funded ratio, based on data for 153 pension plans from 2001 to 2014. The focus is on the relationship between both the actual investment return on pension assets and the assumed return used to discount pension liabilities, or the funded ratio. Importantly, only when appropriate empirical techniques are employed to address potential econometric problems do we find that these two factors have the expected relationship with the funded ratio. Surprisingly, we also find the actual and assumed returns are negatively correlated, even though the correlation is quite low. Furthermore, the assumed return is on average higher than the actual return and has a much larger marginal effect on the funded ratio. We therefore show how a relatively high value can be assigned to the assumed return to make a pension plan appear to far healthier than actually is the case.

Journal

Journal of Economics and FinanceSpringer Journals

Published: Jun 30, 2017

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create lists to
organize your research

Export lists, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off