Public Defined Benefit Pension Plans Research Articles

Floods and Deserts: Why the Dream of a Secure Pension for Everyone Is Still Unattained

Many public defined-benefit pension plans, after entering this century adequately funded, have become seriously underfunded because pension sponsors behaviorally “anchored” on exceptionally high stock market returns in 1982–1999. They made pension promises and budgeted for pension contributions as if these high returns would continue. Instead, starting in 2000, returns were well below expectations. In addition, the present values of plan liabilities have mushroomed because interest rates have fallen to historic lows. The authors suggest that public plan sponsors and beneficiaries can contribute to fixing their pension programs by improving public sector productivity and using the cost savings from these gains to fill current funding gaps.

Determinants of Expected Returns at Public Defined-Benefit Pension Plans

Estimated expected returns are important for pension plans, as they influence many plan characteristics including required asset levels, annual contributions, and the extent of plan under- or overfunding. Yet, there seems to be little prior literature on the factors influencing these estimated future returns. In an attempt to fill this gap, this paper presents the results of a panel analysis of data on the determinants of such returns used by US public defined-benefit (DB) pension plans for the period 2001–2011. As expected, we find that real return estimates by DB public pension funds are positively related to fund size, fund age, international asset diversification, state income, and corruption levels. However, more interestingly and importantly, we document that real return estimates by public US DB pension funds are positively related to cultural measures of individualism and masculinity, and negatively related to uncertainty avoidance. These results should be of much interest not only to scholars and pension benefi ciaries, but also to fund managers, other capital market participants, and policymakers.

Determinants of Expected Returns at Public Defined-Benefit Pension Plans

Determinants of Expected Returns at Public Defined-Benefit Pension Plans

An analysis of risk-taking behavior for public defined benefit pension plans

This paper presents the first comprehensive study on the determinants of public pension fund investment risk and reports several new important findings. Unlike private pension plans, public funds undertake more risk if they are underfunded and have lower investment returns in the previous years, consistent with the risk transfer hypothesis. Furthermore, pension funds in states facing fiscal constraints allocate more assets to equity and have higher betas. There also appears to be a herding effect in that CalPERS equity allocation or beta is mimicked by other pension funds. Finally, our results suggest that government accounting standards strongly affect pension fund risk, as higher return assumptions (used to discount pension liabilities) are associated with higher equity allocation and portfolio beta.

Deferred Compensation for K-12 Public Defined Benefit Pension Plans: An Empirical Analysis for Five State Plans

State K-12 education defined benefit (DB) retirement plans have received renewed attention for severe under funding problems. Less attention has been given to the benefit side of plans that often incorporate behavioral incentives contributing to under funding problems. To extend understanding of deferred compensation in K-12 pension plans, this study uses a unique dataset of retiree characteristics and salary histories to analyze deferred compensation in a selected sample of K-12 pension plans. Results indicate sizable levels of deferred compensation for each plan using five alternative measures of deferred compensation, with substantial differences across plans, job classes, and age groups. Our results contradict the assertion that large pension values are largely the result of large employee/employer contributions, with the largest pension values for plans with the lowest historical funding levels. We also find that reduced benefits for early retirement provided an even larger incentive for younger retirement than full, unreduced benefits.

White Matter Impairment in Rett Syndrome: Diffusion Tensor Imaging Study with Clinical Correlations

RTT, caused by mutations in the methyl CPG binding protein 2 (MeCP2) gene, is a disorder of neuronal maturation and connections. Our aim was to prospectively examine FA by DTI and correlate this with certain clinical features in patients with RTT. Thirty-two patients with RTT underwent neurologic assessments and DTI. Thirty-seven age-matched healthy female control subjects were studied for comparison. With use of a 1.5T MR imaging unit, DTI data were acquired, and FA was evaluated to investigate multiple regional tract-specific abnormalities in patients with RTT. In RTT, significant reductions in FA were noted in the genu and splenium of the corpus callosum and external capsule, with regions of significant reductions in the cingulate, internal capsule, posterior thalamic radiation, and frontal white matter. In contrast, FA of visual pathways was similar to control subjects. FA in the superior longitudinal fasciculus, which is associated with speech, was equal to control subjects in patients with preserved speech (phrases and sentences) (P = .542), whereas FA was reduced in those patients who were nonverbal or speaking only single words (P < .001). No correlations between FA values for tracts and clinical features such as seizures, gross or fine motor skills, and head circumference were identified. DTI, a noninvasive technique to assess white matter tract pathologic features, may add specificity to the assessment of RTT clinical severity that is presently based on the classification of MeCP2 gene mutation and X-inactivation.

Deferred compensation for career employees in public defined benefit pension plans: evidence from Colorado PERA

SUMMARYWith significant under funding of public defined benefit pension plans, public debate often focuses on funding problems, neglecting benefit-side factors that contribute to under funding. In this study we examine the benefit side by calculating the value of deferred compensation, using a unique dataset of salary histories for recent university retirees covered by the Colorado Public Employees Retirement Association plan. We find sizable levels of deferred compensation that is associated with retirement age and period, job class, service years, and to some extent gender, with administrators receiving the highest levels. We also find wage–earning profiles to underestimate salary growth for higher-paid employees.

Implicit Compensation for Career Employees in Public Defined Benefit Pension Plans: The Colorado PERA Case

We report on implicit compensation provided by the Colorado Public Employees Retirement Association plan using a unique data set of salary histories of recent university retirees. Implicit compensation is the difference between the expected present discounted value of retirement benefits and retirement account balances. Our results indicate sizable implicit compensation across four measures with strong evidence of significant relations on job class, retirement age, retirement period, and service years and some evidence of a gender effect. The results provide a historical baseline that should be useful in the design of compensation models with more realistic estimates of implcit retirement compensation.

The Economic Function of Underfunded Pension Plans

The Economic Function of Underfunded Pension Plans