Corporate Pension Research Articles

Розвиток недержавного пенсійного забезпечення в Україні

The article examines the evolution of approaches the construction of a multi-level pension provision model proposed by the leading international financial institutions and organizations. This model must meet the criteria of sufficiency, cost-effectiveness, sustainability, and reliability. It underlies of the concept of pension reform in Ukraine, which involves the implementation of measures of parametric and systemic character. Non-state pension provision, as an integral component of the pension system, is intended the voluntary accumulation of savings the additional pensions. The basic legislation on non-state pension provision came into force in Ukraine in 2004, but the amount of funds attracted by non-state pension funds remains insignificant at this time. Till 2008, an extensive growth of the non-state pension provision market was taking place: against the backdrop of a low base, the value of non-state pension funds assets actually doubled, the number of non-state pension funds, their contributors and participants increased dynamically. After the crisis of 2008-2009, annual growth rates of assets of non-state pension funds stabilized at the level of 25-30%, reaching, at the end of 2014, UAH 2 469.2 million, while the number of contributors and participants remained almost unchanged, and the number of non-state pension funds began to decrease, which is explained by the beginning of consolidation in this market. As a result of the crisis of 2014-2015, a decapitalization of non-state pension funds took place and their total assets at the beginning of 2016 decreased to UAH 1,980.0 million. The two main forms of decapitalization were net outflow of capital (exceeding the amount of pension payments above the amount of pension contributions) and loss-making activities (depreciation of securities, loss of deposits in banks and assets in the Crimea and in the east of the country). In 2016, despite the fact that the net outflow of capital continued, the process of growth of the non-state pension funds assets resumed. The two main categories of non-state pension fund contributors are individuals (households) and corporations (employers). Till 2015, in the total contributions, the share of the former was from 3 to 6%, and that of the latter from 94 to 97% (the phenomenon of growth of the share of individuals in 2016 in the total contributions to 16.4% requires additional study, but there is a high probability that such an increase occurred under the influence of employers, who prompted employees to co-finance corporate pension schemes). According to sociological surveys, only 10% of households in Ukraine saved part of their income, while giving preference to short-term investments, and about 40% of households indicated that they were forced to direct all income received to current needs. Statistics from other countries confirm the thesis of a direct relationship between household income and their inclination to save on an additional pension. Corporations (employers) are considering the introduction of supplementary pension schemes as a manifestation of corporate social responsibility and as an effective HR tool. As a rule, corporations of those sectors of the economy, where there is a higher level of competition in the labour market (labour demand), resort to such programs, and there is a need to expand the tools stimulating personnel through a social package: the financial sector, telecommunications, the pharmaceutical industry, etc. Cross-country comparisons make it possible to conclude that other motivational factors and incentives, such as the use of retirement assets as sources of investment resources and the creation of a favourable tax regime, have a limited impact on employer participation in supplementary pension provision programs. Consequently, prospects the development of non-state pension provision are primarily associated with an increase in incomes and increased competition in the labour market (labour demand). Participation of households in non-state pension provision is possible only in the long run, after meeting the priority investment objectives, such as for the rainy day savings, the purchase of expensive durable goods, etc. Increasing competition in the labour market would encourage employers to have a range of HR tools, including a social package with additional pension provision.

2017 Corporate Pension Funding Study

Milliman’s Pension Funding Study analyzes the largest corporate pension plans sponsored by 100 U.S. public companies. In 2016, these pension plans experienced a $21.7 billion decrease in funded status, the result of a $54.0 billion increase in the projected benefit obligation (PBO) that was only partially offset by a $32.3 billion increase in the market value of plan assets. As a result, these Milliman 100 plans finished off the year with a funded ratio of 81.2%, down from 81.9% the year before. But the $21.7 billion deterioration and incremental drop in funded status mask a year that experienced volatility across the board for pension plans.

The Impact of Corporate's Attributes on Corporate Pension Insurance Products & Type Preference

The Impact of Corporate's Attributes on Corporate Pension Insurance Products & Type Preference

Corporate Pensions and the Maturity Structure of Debt

AbstractIn this article, we investigate the role of pension obligations, the most significant off‐balance‐sheet item, in determining corporate debt maturity and spreads. We begin by showing a significant and robust positive relationship between pension liabilities and corporate short‐term debt ratio. We also find that more pension obligations cause a significant increase in the cost of debt, but this effect is mitigated by short‐maturity debt. Overall, our study shows that short‐term debt can reduce asymmetric information costs related to pensions.

Роль корпоративных пенсионных программ в архитектуре пенсионной системы России

Роль корпоративных пенсионных программ в архитектуре пенсионной системы России

Corporate Pensions and the Maturity Structure of Debt

In this paper, we investigate the role of pension obligations, the most significant off-balance-sheet item, in determining corporate debt maturity and spreads. We begin by showing a significant and robust positive relationship between pension liabilities and corporate short-term debt ratio. We also find that more pension obligations cause a significant increase in the cost of debt, but this effect is mitigated by short-maturity debt. Overall, our study shows that short-term debt can reduce asymmetric information costs related to pensions.

EXPERIENCE OF IMPLEMENTATION OF CORPORATE PENSION PLANS IN NON-STATE INSTITUTIONS OF HIGHER EDUCATION

In this article problems of implementation of corporate pension plans for non-state institutions of higher professional education are considered. Benefits inherent for employers and their employees are analysed when using system of additional pension provision. Need of participation of non-state pension funds for development of corporate pension plans for the purpose of the problem resolution of worthy existence of the workers who reached a retirement age is revealed and proved. On the basis of the conducted research the author offers to make implementation of corporate pension plans for the purpose of increase in level of financial wellbeing of the faculty in case of achievement of the pension bases, and also acquisitions of image of socially oriented educational institution that will provide the high level of motivation of skilled employees for the long period of time.

Pensions and Financial Reporting

This note serves a wide audience. At Darden, it is used in two elective courses: Financial Reporting and Analysis and Financial Statement Analysis and Corporate Valuation, as well as in the open executive education program, Financial Management for Non-Financial Managers. It will also be used in the EMBA and Global EMBA programs. Depending on the type of pension plan offered, accounting for pensions can present one of the more difficult and challenging financial reporting issues that companies encounter. This note outlines the differences between defined benefit and defined contribution pension plans. It is written for students, managers and executives who have an interest in the topic but have limited accounting and financial reporting backgrounds. It covers the two major types of pension plans and the accounting and financial reporting challenges they present. It also includes an explanation of how corporate pension plans affect financial statements and the footnotes. It also mentions public pension plans. It includes an example from an actual corporate annual report. Pensions are a major global issue for corporations, countries, states and cities. Excerpt UVA-C-2340 Feb. 7, 2013 PENSIONS AND FINANCIAL REPORTING Since the 1940s, U.S. corporations have been providing some type of pension benefits for their employees, primarily as a means of attracting and retaining desired personnel. Depending on the type of pension plan offered, accounting for pensions can present one of the more difficult and challenging financial reporting issues that companies encounter. The reason for this is that the traditional type of pension plan offered to employees can result in benefits that are earned over a 40- to 50-year period, which creates a promised payout period of 20 years or more. As a consequence, pension accounting can be heavily dependent on estimates, judgments, and discounting assumptions. This traditional type of plan is known as a defined benefit pension plan. Before describing this pension plan, however, we will first describe a much simpler type of plan known as a defined contribution (DC) pension plan. Defined Contribution Plans DCs are the simplest and most straightforward corporate pension plans. These plans promise a specific monetary contribution to an employee's pension account. The employee usually has an opportunity to influence where the contributed funds are invested and, in return, bears the responsibility for the investment risk. For example, a plan might promise to contribute 8% of an employee's salary to an investment account for the employee's benefit. Typically, these plans (e.g., 401(k) plans) have the employer matching employee contributions to approved investments. Upon retirement, there is often an opportunity to cash out with a lump-sum payment or to select an annuity where a payment is made to the retiree over some specified period of time. The accounting for (DC) plans is also simple and straightforward. In each accounting period, the promised contributions are reported as an expense, and a payment is made to the employee's account or trust. After that, the employer has no further responsibility or obligation. . . .

The Impact of Employee's Attributes on Corporate Pension Insurance Products Preference

The Impact of Employee's Attributes on Corporate Pension Insurance Products Preference

Recovery measures of underfunded pension funds: higher contributions, no indexation or pension cuts?

AbstractUsing recovery plan data of 213 underfunded Dutch pension funds for the years 2011, 2012 and 2013, discrete choice models are estimated describing pension funds' choices between three recovery measures: higher contributions, no indexation and pension cuts. The estimation results suggest, first, that pension cuts are more likely when the funding ratio is very low, there is little time left for recovery, the pension fund is not a corporate pension fund, and its participants are still relatively young. Second, the results suggest that Dutch pension funds consider contribution increase first, no indexation second and pension cuts only as a last resort.

Long Bonds for the Short Run

Will the supply of long corporate bonds be sufficient to meet demand for corporate pension funds? This question has been percolating for years, and this article digs deeper than past analyses by using new market information. The authors analyze scenarios in which there may be a shortage of long bonds or pension plans may find a plentiful supply. They also assess options for mitigating the impact of any potential shortage of long corporate bonds.

An empirical examination of mark-to-market accounting for corporate pension plans

Since 2010, a small but growing number of firms have voluntarily switched from the prevailing corridor approach (i.e., continuous smoothing) to a mark-to-market (MTM) alternative (i.e., immediate recognition) when accounting for pension gains and losses for their pension plans. This paper investigates the determinants of, and market reactions to, this voluntary adoption as well as its financial reporting and operational consequences. We find that larger firms and firms with greater deferred pension losses are more likely to adopt the MTM approach. On the other hand, we do not find an association between a firm’s level of financial transparency or earnings volatility and MTM adoption. Further, our market tests reveal that investors reacted positively to the standalone announcements of MTM adoption and to the magnitude of the one-time pension loss adjustment upon adoption. Finally, in examining the consequences of MTM adoption, we find a reduction in earnings informativeness and an increase in plan assets allocated to debt relative to matched non-adopters. Overall, our study provides early evidence on the implications of MTM pension accounting.

Underfunding or distress? An analysis of corporate pension underfunding and the cross-section of expected stock returns

The pension underfunding anomaly (Franzoni & Marín, 2006) is mainly concentrated in financially distressed sponsors. The predictability of pension underfunding levels on the cross-sectional stock returns disappears after considering sponsor financial distress. It exists when underfunding is primarily due to poor operating performance and during the initial five years of underfunding; it diminishes when underfunding is due to bad pension investment returns and when firms underfund for more than five years. The potential financial distress inherent in the most underfunded firms and the prospect of intervention by the Pension Benefit Guaranty Corporation make the arbitrage opportunity not entirely risk free.

The Association between Board Composition and Corporate Pension Policies

AbstractThis study examines the role of board composition in the determination of pension policies. The results suggest that the proportion of outside directors serving on the board is positively related with pension plan funding levels. In addition, the proportion of outside directors mitigates the relation between financial distress risk and plan underfunding. Last, as firms approach distress, boards with a greater proportion of outside directors tend to allocate a lower fraction of plan assets to riskier securities. Together, our findings suggest that outside directors are mindful of their obligations toward pension plan beneficiaries.

Корпоративные пенсионные программы как инструмент комплексной модернизации пенсионной системы Российской Федерации

Корпоративные пенсионные программы как инструмент комплексной модернизации пенсионной системы Российской Федерации

Influencing Factors on Life Satisfaction after Retirement: A Comparison of Public Pension versus Specific Corporate Pension Recipients

Influencing Factors on Life Satisfaction after Retirement: A Comparison of Public Pension versus Specific Corporate Pension Recipients

“Prince Charming Syndrome?” Gender gap in preferences for defined contribution pensions in Japan

ABSTRACTUsing survey data collected by the Japan Institute of Life Insurance in 2002, this study finds that a significant gender gap existed in defined contribution (DC) pension knowledge among workers employed at small- to medium-sized private firms in Japan. Even with similar DC knowledge, however, men and women reveal different preferences for DC pensions, indicating that their perceptional responses may widely differ from actual behaviors. Apart from the knowledge gap, the result shows evidence of the Prince Charming Syndrome among female employees as a significant source of the gender gap in DC participation rates. Among corporate pension-covered employees, the gender difference in the efficacy of DC portability is a more significant gap-generating factor. DC tax advantage is particularly favored by pension-covered female employees over male counterparts, reducing the DC preference gap. No similar evidence is found for employees with no corporate pension coverage.

The Information Content of Corporate Pension Funding Status in Japan

AbstractThis paper tests if a firm's pension funding ratio (pension assets/PBO) reveals the management's private information about the firm's operation when the firm can exercise discretion in pension funding. The lax enforcement of pension funding rules and the prevalence of management forecasts make Japanese firms an ideal testing ground. We show that, among firms with large business uncertainty, large accruals, or high effective tax rates, the pension funding ratio predicts the firm's management forecast errors significantly beyond conventional control variable and the effects of pension accounting management. However, the stock market does not appear to incorporate this information immediately.

Мировой опыт инвестирования пенсионных средств корпоративными пенсионными фондами

Basing on the reports of leading consulting corporations and sustainable investment forums, the article makes an attempt to define the place of corporate pension funds in the global pension market. In particular, the role of the government regulations in the process of pension funds’ investment is revealed. Moreover, there is an emphasis on socially responsible investment policy of corporate pension funds as the most promising direction of development that contributes to the improvement of standard of living.

Growth Opportunities, Stockholders' Claim/Liability on Pension Plans, and Corporate Pension Policies

In this study, I derive the value of stockholders' claim on a pension surplus and stockholders' liability for a pension deficit in the post‐Employee Retirement Income Security Act regulatory environment. Based on that valuation, I develop a model of corporate pension policies in which sponsoring firms weigh contributions to their pension plan against the exercise of growth options in the allocation of limited financial resources. The model shows how corporate pension funding and asset allocation policies are shaped by the sponsoring firms' characteristics, such as growth options, the marginal corporate tax rate, and regulatory variables such as the deficit reduction contribution rate, the variable‐rate insurance premium, and the maximum possible fraction of operating assets that can be seized by the Pension Benefit Guaranty Corporation. I discuss policy and empirical implications of the theoretical results. Copyright © 2016 John Wiley & Sons, Ltd.