Pension Adjustment Research Articles

Pension adjustment and its problems. A critical overview of the measures, exemplified on the basis of the German pension scheme

German citizens claiming an old-age pension have long been encouraged to have benefits coming from different pension schemes. It is not known, however, whether this mixed source system can continue to perform adequately since measures for adjusting pension payments to reflect economic changes vary according to the sources of pension income. A pensioner who finds their income from one strand of their pension scheme reducing cannot be sure that another strand will compensate, and that poses a threat to their level of financial security. The aim of this paper is to analyse the adjustments made to retirement incomes from the theoretical point of view, as well as to show the opportunities and risks presented by the mixed source systems of old-age pension provision. The paper gives a brief overview of the German pension adjustment system, which will be used to illustrate purchasing power risks. The results will provide useful information for social partners and policy makers, which could assist a target-oriented review of pension schemes.

Efficient Indexation of Social Insurance Pensions

This paper tries to formulate conclusions about the indexation of old-age pensions. Pensions can be adjusted and indexed taking into consideration a wage increase. The point of indexation with regard to wages lies in the increment of pensions on to a new, higher nominal level of consumption opportunities (the pension increases), but leaving it at the same relative or potential level of consumption opportuni­ties (the pensions-to-earnings ratio remains constant). Pensions can also be adjusted and indexed according to an increase in the price level. The adjustment of pensions with respect to the price level maintains the real level of consumption (a person is always able to buy the same set of goods). The aim of this study is to identify the conditions of efficient indexation; to summarize the methods of indexation; to draw con­clusions as to which of these methods maximizes the wealth of taxpayers.

Konjunkturabhängigkeit der Gesetzlichen Rentenversicherung am Beispiel der aktuellen Finanz- und Wirtschaftskrise

Abstract The financial and economic crisis has drawn attention again on the question how sensitive the German public pension system (Gesetzliche Rentenversicherung) reacts to cyclical shocks. We identify three important channels through which business cycle movements may affect the pension system: (1) An effect caused by changes in the wage sum of the insured labour force (Beitragsgrundlageneffekt), (2) an effect caused by changes in the size of the government subsidy (Bundeszuschusseffekt) and (3) an effect caused by changes in the size of the annual pension adjustments (Rentenanpassungseffekt). We quantify these effects for the current financial and economic crisis using a detailed simulation model of the German pension system (MEA-PENSIM). Our simulation results show that the public pension system is able to cope with cyclical shocks in the sense that there are no longrun effects on the pension benefit level or the contribution rate. This cyclical stability is inherent in the system’s pension adjustment formular that links the size of benefits to the development of wages. However, it can be shown that cyclical shocks lead to increases in the contribution rate in the short and medium run. The new law that was passed in spring 2009, which forbids a decrease in nominal pension adjustments in case of decreasing wages (Rentengarantie), extends and intensifies these negative short and medium run effects because it partially offsets the automatic stability mechanism via the wage orientated pension adjustment formula.

2010 Report of the ASHP Treasurer

The Society’s financial year is from June 1 through May 31, coinciding with its policy development year. This year I will report on (1) the final audited prior-year numbers (for the fiscal year 2009), (2) the current year (2010) projected performance, and (3) the budget for the fiscal year ending May 31, 2011. The audit of the May 31, 2009, financial statements of the Society and the Society’s subsidiary, the 7272 Wisconsin Building Corp., resulted in an unqualified opinion. Copies of the audited statements are available by contacting the ASHP Executive Office. Last year I reported to you that falling market values in the Society’s reserve portfolio, falling core revenue, and an anticipated pension adjustment would combine to produce a projected $23.398 million loss. We did in fact end the year with a deficit, but thanks to an improvement in the financial markets just before year’s end, our loss for the 2009 fiscal year was $18.368 million (Figure 1). Net worth, which was projected to decrease to $12.005 million, 22% of total annual expense, actually ended the fiscal year at $17.035 million, 33% of total annual expense.

The Economic Consequences of SFAS No. 158

This study examines the economic consequences of Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans. SFAS No. 158 requires the funded status of postretirement benefit plans be reported on the face of the balance sheet. The study adds to the debate regarding the equivalence of recognition versus disclosure and to the ongoing discussion of postretirement benefit reporting. The study finds that managers responded to the requirement to recognize previously disclosed net pension and postretirement benefit obligations by first lobbying against the standard’s implementation and then by attempting to mitigate its negative impact by increasing the discount rate in subsequent periods. Firms with larger SFAS No. 158 balance sheet adjustments and more volatile pension assets and obligations were more likely to lobby and increase discount rates. The study further documents a negative stock price reaction around the release of the SFAS No. 158 exposure draft. The study finds that the market reaction is positively related to the SFAS No. 158 adjustment and it is driven by the OPEB adjustment rather than the pension adjustment. The findings presented in the study have important implications for the recognition versus disclosure debate, because they document a significant market reaction to the relocation of already disclosed information from the financial statements footnotes to the balance sheet.

Divoy v. Secretary-General

37International organizations — Staff — Administrative tribunal — OECD Council decisions postponing salary and pension adjustments — OECD official lodging administrative appeal — Scope of dispute — Admissibility of application — Whether Council decisions in breach of Article 8.1 of Annexe I to Staff Regulations — Application of Article 8.3.2 of Annexe I — Whether Council decisions amounting to misuse of powers — Whether Council obliged to give reasons — Whether breach of obligation to inform staff

Les modes d’équilibrage des systèmes de retraite : éléments analytiques du débat

Restoring equilibrium in pension systems : an analytical presentation We analyze the four main possibilities for restoring equilibrium of pension schemes in front of future demographic changes. Relying exclusively on a downward adjustment of pensions would imply a very large reduction of pensioners' relative standard of living. Relying exclusively on increases of contributions seems more realistic, but this would be at the expense of other social needs, and the neutrality of such a policy for employment levels cannot be warranted. Funding consists in anticipating requested financial efforts : its only advantage is that this financial effort will be lower in the long run, if returns on capital are permanently higher than economic growth. Raising the retirement age, at last, would be a logical answer to an increasing life expectancy, bur relying exclusively on this tool would, once again, imply a very large adjustment. On the whole, the answer to demographic changes will, probably, require a mix of these four instruments. JEL classification : D3, H55, J22, J26

An Empirical Analysis of Factors Associated with Changes in Pension-Plan Interest-Rate Assumptions

This study examines factors motivating managers to adjust pension-expense and pension-plan contributions by altering actuarial-interest-rate assumptions. These changes have implications for firm cash flows, tax costs, and reported accounting numbers. The empirical analysis focuses on identifying the impact these factors have on decisions to change interest-rate assumptions. In addition, the role basic contracting factors play in this decision are examined. The results indicate that managers are likely to increase interest-rate assumptions in response to declines in earnings, increasingly restrictive dividend constraints, and tightening debt covenants. These findings suggest that the motivations for changing rate assumptions differ from managers' motivations for making other discretionary pension adjustments such as terminations, settlements, or other changes in either actuarial assumptions or benefit allocation methods.

The '1992 Reform' of Public Pensions in Germany: Main Elements and Some Effects

This article gives an overview of central aspects (aims and measures) of the German Pension Reform Act decided upon in 1989 and implemented m 1992. One main element is the redefinition of the pension adjustment procedure (introducing net pension adjustment) aiming at a constant net pension level. It is integrated in a self-regulating mechanism making financing (for contribution payments as well as from federal grant) a dependent variable. Other important measures are aimed at increasing the (average) retirement age and introducing a partial pension (phased retirement) into social insurance. The article discusses possible economic effects of these measures as well as consequences of their introduction in East Germany after the German unification, taking into account the quite different situations m East and West Germany.

Consumer Behavior and Changes in the Prices of Monetary Aggregates 1

Today, COLA's are routinely used in labor contracts, social security and pension adjustments and in many other bilateral agreements where uncertainty about the future is part of the nego­ tiating process. Neo-classical economic theory attempted to deal with this concept through the development of the true cost-of-living index (TCLl). This will be discussed in greater detail below. This article examines the sensitivity of the cost-of-living to some aspects of price changes (and con­ sequently real income changes) that have not been analyzed before. Specifically, we examine the impact of changes in the prices of commodities and monetary aggregates on consumer preferences.

Actuarial approaches to pension schemes

Do pension schemes which are referred to as “assessment schemes” or, to be more precise, those which provide for and take into account the adjustment of pensions, need the contribution of actuarial science? If so, what is its function?These questions were raised in the early 1930s by Albert Thomas, Director of the ILO, and his colleagues, especially by Adrien Tixier, Chief of the Social Insurance Section (later a Division). Since then, they have been the subject of extensive and remarkably high‐level discussion. In this article, one of the people who contributed most to this discussion gives his personal answer to this question and bases it on the use of tables showing projections.Through its Permanent Committee of Actuaries and Statisticians, the ISSA has devoted great efforts to studying “demographic and financial projections in social security”. The subject remains on this Committee's programme of work and in going into it more thoroughly, the Committee proposes to limit itself to the invalidity, old‐age and death risks. The present article forms part of this research work: it concentrates on schemes which provide for the adjustment of pensions.

A Method of Automatically Adjusting the Maximum Earnings Base under OASDI

The benefits of the flat pension systems of several countries (Denmark, Finland, Iceland, Israel, and Sweden) are adjusted automatically at intervals to reflect changes in the cost of living (i.e., prices), as measured by a statistical index.' The U.S. Civil Service Retirement system, following amendment in 1962, and the retirement system for members of the uniformed services of the United States, also provide for adjustment of pensions according to changes in the cost of living.2 In some countries that have earningsrelated pension systems, the procedure has been followed of converting all wage records (and the resulting benefits) to index numbers, and then each year paying benefits on the basis of the current (or recent) wage level. The maximum earnings base

ILLINOIS PSYCHIATRIC SOCIETY

One of the most rejected men in society is the industrially injured workman who has a protracted convalescence for psychologic reasons. These are men who have been determined by the surgeons as able to return to work; yet their behavior is a hostile denial of this opinion. This hostile dependent behavior is confronted not only with the traditional contempt of society for those who do not accept responsibilities but also with the contempt of the employer milieu and family. An even severer critic is his own conscience, which does not permit him to face his dependent attitude but, instead, forces him to behave as a sick man needing medical care. The paradox is that, though his complaints are many, what he seeks is not treatment but a diagnosis that will appease his conscience. The state compensation laws and the general lack of understanding of the psychologic factors involved are largely responsible for the existence of this behavior. At the state-operated Veterans' Rehabilitation Center of Chicago, experience has been gained in the rehabilitation of veterans with psychoneuroses which can be utilized in the treatment of the industrially injured with a psychologically pro¬ tracted convalescence. The treatment at the center has as its basis an under¬ standing of the psychologic factors in human relationships. It utilizes an all-day therapy involving recreational and physical educational activities, the arts and crafts, socialization activities and individual and group psychotherapy, all prescribed by the psychiatrist to fit the individual needs of the veteran, so that the rehabilitated veteran will better be able to face the vicissitudes of life and avoid future break¬ downs. This vocational rehabilitation program is recommended on a basis of study by a staff psychologist and social worker, as well as a psychiatrist. Important in the treatment at the center is an integration of the teamwork, psychologically oriented, among all members of the staff. The advantage of treatment at a stateoperated rehabilitation center is that there is responsibility only to the veteran, the matter of adjustment of pensions requiring no consideration by the staff at the center. It is believed that the psychotherapeutic lessons learned at the center offer an