Examining the effects of guarantee funds on pension plans

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dc.contributor.authorNielson, Normaeng
dc.date.accessioned2011-08-16T17:39:12Z
dc.date.available2011-08-16T17:39:12Z
dc.date.issued2009
dc.description© Society of Actuaries, Schaumburg, Illinois. Posted with permission granted August 5, 2011.eng
dc.description.abstractBankruptcy risk falls to pension plan participants if a plan sponsor fails when a defined benefit (DB) pension plan is underfunded. This article examines the incidence of that risk and how it changes when public policy provides a guarantee fund. Although government-based guarantee funds are in a unique position to provide pension protection, primarily because of the extent to which the risk of sponsor default is systematic in nature, a looming question is the extent to which such guarantees are exposed to moral hazard. The article focuses on that question using data from four Canadian provinces, including one (Ontario) that operates a guarantee fund for pensions. The findings show that plan assets per DB-plan participant increase with the earnings of workers and decrease with higher unemployment, and that level of assets also is moderated by the influence of taxes, with higher plan assets observed when and where tax rates are higher. Plans in Ontario had on average $20,035 less in asset value per participant, and Ontario plans covered by the guarantee fund had an average of $16,497 less per participant than other Canadian DB plans not backed by a guarantee fund. A separate model finds the presence of a guarantee fund to be one of a very small number of variables significant in explaining variability in the plans’ funded ratios. These empirical results are consistent with the existence of moral hazard.eng
dc.description.refereedYeseng
dc.identifier.citationNielson, N. L. “Examining the effects of guarantee funds on pension plans", in North American Actuarial Journal, Vol. 13, No.2 (2009) pp. 157-169.eng
dc.identifier.doihttp://dx.doi.org/10.11575/PRISM/33990
dc.identifier.issn1092-0277
dc.identifier.urihttp://hdl.handle.net/1880/48708
dc.language.isoengeng
dc.publisherSociety of Actuarieseng
dc.publisher.corporateUniversity of Calgaryeng
dc.publisher.facultyHaskayne School of Businesseng
dc.publisher.urlhttp://www.soa.org/news-and-publications/publications/journals/naaj/naaj-detail.aspxeng
dc.subjectDefined benefit planseng
dc.subjectPension fundseng
dc.subject.otherMoral hazardeng
dc.titleExamining the effects of guarantee funds on pension planseng
dc.typejournal article
thesis.degree.disciplineRisk Management & Insuranceeng
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