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Funding Discipline For Us Public Pension Plans
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Book Synopsis Funding Discipline for U.S. Public Pension Plans by : Natalya Shnitser
Download or read book Funding Discipline for U.S. Public Pension Plans written by Natalya Shnitser and published by . This book was released on 2015 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using newly collected data on over 100 state-administered pension plans, this Article shows that previously overlooked differences in institutional design are associated with the striking variation in funding discipline across U.S. public pension plans. As state and local governments grapple with unfunded pension obligations, this Article presents a timely examination of public plan governance across two key dimensions: the allocation of control over funding decisions and the transparency with respect to funding liabilities. It shows empirically that greater constraints on legislative control over funding decisions -- typically through the delegation of control to pension-system boards -- have been associated with better funding discipline. Conversely, liability-pooling arrangements that have shrouded individual employer responsibility for underfunding have been associated with worse funding discipline. These findings should inform current reform efforts to address the multi-trillion dollar shortfall in pension funding. To date, such state and local government efforts have focused primarily on scaling back benefits for public employees but have overlooked the role of institutions in explaining why some public employers have consistently contributed to the pension funds while others have failed to set adequate contribution rates or have withheld promised funds.
Book Synopsis Public pension funding in practice by : Alicia Haydock Munnell
Download or read book Public pension funding in practice written by Alicia Haydock Munnell and published by . This book was released on 2010 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: Public pension funding has recently become a front-burner policy issue in the wake of the financial crisis and given the pending retirement of large numbers of baby boomers. This paper examines the current funding of state and local pensions using a sample of 126 plans, estimating an aggregate funded ratio in 2009 of 78 percent. Projections for 2010-2013 suggest that some continued deterioration is likely. Funded status can vary significantly among plans, so the paper explores the influence of four types of factors: funding discipline, plan governance, plan characteristics, and the fiscal situation of the state. Judging the adequacy of funding requires more than just a snapshot of assets and liabilities, so the paper examines how well plans are meeting their Annual Required Contribution and what factors influence whether they make them. The paper also addresses the controversy over what discount rate to use for valuing liabilities, concluding that using a riskless rate of return could help improve funding discipline but would need to be implemented in a manageable way. Finally, the paper assesses whether plans face a near-term liquidity crisis and finds that most have assets on hand to cover benefits over the next 15-20 years. The bottom line is that, like private investors, public plans have been hit hard by the financial crisis and their full recovery is dependent on the rebound of the economy and the stock market.
Download or read book Public Pension Plans written by and published by . This book was released on 1990 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Public Pension Funding in Practice by : Alicia Haydock Munnell
Download or read book Public Pension Funding in Practice written by Alicia Haydock Munnell and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: "The NBER Bulletin on Aging and Health provides summaries of publications like this. You can sign up to receive the NBER Bulletin on Aging and Health by email. Public pension funding has recently become a front-burner policy issue in the wake of the financial crisis and given the pending retirement of large numbers of baby boomers. This paper examines the current funding of state and local pensions using a sample of 126 plans, estimating an aggregate funded ratio in 2009 of 78 percent. Projections for 2010-2013 suggest that some continued deterioration is likely. Funded status can vary significantly among plans, so the paper explores the influence of four types of factors: funding discipline, plan governance, plan characteristics, and the fiscal situation of the state. Judging the adequacy of funding requires more than just a snapshot of assets and liabilities, so the paper examines how well plans are meeting their Annual Required Contribution and what factors influence whether they make them. The paper also addresses the controversy over what discount rate to use for valuing liabilities, concluding that using a riskless rate of return could help improve funding discipline but would need to be implemented in a manageable way. Finally, the paper assesses whether plans face a near-term liquidity crisis and finds that most have assets on hand to cover benefits over the next 15-20 years. The bottom line is that, like private investors, public plans have been hit hard by the financial crisis and their full recovery is dependent on the rebound of the economy and the stock market"--National Bureau of Economic Research web site.
Download or read book Bridging the Gaps written by Ingo Walter and published by . This book was released on 2019-07-16 with total page 150 pages. Available in PDF, EPUB and Kindle. Book excerpt: America faces two public finance challenges that - if left unaddressed - will have serious implications for the fiscal stability of state and local governments and for the quality of life of all Americans. The funded status of public pension plans and the state of the country's critical infrastructure are generally viewed as distinct subjects. This book argues otherwise. Over the long term, when one of them deteriorates, the other is sure to follow. Moreover, infrastructure investments are well suited to the portfolio needs of public pension plans, which themselves comprise the single largest pool of capital potentially available for the financing needs of American infrastructure and today are under-allocated to this asset type. This book begins with an analysis of the $4.3 trillion U.S. public pension system, drawing on a primary dataset comprising thousands of observations drawn from a decade of annual reports of the 25 largest American public pension systems - which together comprise about 55% of all public pension assets in the country. It then links sustainable pension finance to investments in real assets, specifically infrastructure projects. "Bridging the Gaps" is intended to provide greater transparency to the complex public finance challenges that mark these issues. Those with an interest in the public pension system will learn much from the discussion of these complex organizations - so critical to sustainability of retirement benefits. Asset managers and other advisors, who sell to these investors, will benefit from an empathic approach to understanding the needs of their most important clients. The book concludes with a range of ideas that can be explored by responsible public officials and policymakers as well as infrastructure agencies and their advisors. The ultimate objective is to help in the search for solutions to the persistent gaps facing America's public pension system and at the same time unlocking capital to reduce America's persistent infrastructure problems - creating winners on both ends of the financial chain.
Book Synopsis U.S. Public Pension Handbook: A Comprehensive Guide for Trustees and Investment Staff by : Von M. Hughes
Download or read book U.S. Public Pension Handbook: A Comprehensive Guide for Trustees and Investment Staff written by Von M. Hughes and published by McGraw Hill Professional. This book was released on 2019-07-26 with total page 320 pages. Available in PDF, EPUB and Kindle. Book excerpt: The first comprehensive guide to mastering the roles and responsibilities of a public pension fiduciary in the U.S. In an ever-changing financial and political landscape, your job as a public pension fiduciary continues to get more difficult. Now, you have the help you need. U.S. Public Pension Handbook is the only one-stop resource that covers the various areas of public pension governance, investment management, infrastructure, accounting, and law. This comprehensive guide presents critical data, information, and insights in topic-specific, easy-to-understand ways—providing the knowledge you need to elevate your expertise and overall contribution to your pension plan or system. U.S. Public Pension Handbook covers: •Today’s domestic and global public pension marketplace•The ins and outs of the defined benefit model, the defined contribution, and hybrid pension designs•Financial concepts central to the actuarial valuation of pension benefits•Public pension investment policies and philosophies•Asset allocations and how they have changed over time•State and local government pension contribution policies•The impact of governance structure and board composition on organizational results•Fiduciary responsibility and the general legal/regulatory framework governing trustees•How changes in trust law may affect public pension trustee fiduciary responsibility and liability•Best practices in pension governance and organizational design Public pension trustees are the unsung heroes of the world of finance, collectively managing over $6 trillion in retirement assets in this country alone. U.S. Public Pension Handbook provides the grounding you need to make sure you perform your all-important with the utmost expertise and professionalism.
Book Synopsis State and Local Pensions by : Alicia H. Munnell
Download or read book State and Local Pensions written by Alicia H. Munnell and published by Rowman & Littlefield. This book was released on 2012-08-27 with total page 266 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the wake of the financial crisis and Great Recession, the health of state and local pension plans has emerged as a front burner policy issue. Elected officials, academic experts, and the media alike have pointed to funding shortfalls with alarm, expressing concern that pension promises are unsustainable or will squeeze out other pressing government priorities. A few local governments have even filed for bankruptcy, with pensions cited as a major cause. Alicia H. Munnell draws on both her practical experience and her research to provide a broad perspective on the challenge of state and local pensions. She shows that the story is big and complicated and cannot be viewed through a narrow prism such as accounting methods or the role of unions. By examining the diversity of the public plan universe, Munnell debunks the notion that all plans are in trouble. In fact, she finds that while a few plans are basket cases, many are functioning reasonably well. Munnell's analysis concludes that the plans in serious trouble need a major overhaul. But even the relatively healthy plans face three challenges ahead: an excessive concentration of plan assets in equities; the risk that steep benefit cuts for new hires will harm workforce quality; and the constraints plans face in adjusting future benefits for current employees. Here, Munnell proposes solutions that preserve the main strengths of state and local pensions while promoting needed reforms.
Book Synopsis Causes and Consequences of the Crises in State and Local Pension Funding by : David M. Knapp
Download or read book Causes and Consequences of the Crises in State and Local Pension Funding written by David M. Knapp and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many state and local pension systems are facing funding crises. The average U.S. public pension plan cannot cover a quarter of its obligations to provide pension benefits to current, retired, and former employees, and 17 systems are unable to cover more than half of their obligations. Using a comprehensive approach based on a synthesis of multidisciplinary research and discussions with stakeholders, the authors examine the recent history of pension finance, possible consequences for sponsoring government finances and services, reforms to pension financing and benefits aimed at shoring up system's funding, and characteristics of local institutions and politics that limit reforms. An overarching finding is that there is not a single national pension crisis. There are many small crises that reflect local circumstance, history, and constraints, including legacy pension costs. The authors identify a set of key insights for informing a tailored road map for reform that meets the objectives of its stakeholders.
Book Synopsis Fiduciary Accountability for Managing Funding Ratios in Florida's Local Government Pension Plans Or 'You've Got to be Very Careful If You Don't Know Where You're Going, Because You Might Not Get There' - Yogi Berra by : Herbert A. Whitehouse
Download or read book Fiduciary Accountability for Managing Funding Ratios in Florida's Local Government Pension Plans Or 'You've Got to be Very Careful If You Don't Know Where You're Going, Because You Might Not Get There' - Yogi Berra written by Herbert A. Whitehouse and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Fundamental fiduciary investment practice standards require the development of an investment policy in order to further a plan's funding policy objectives. Until now, local government pension plans used almost the opposite approach. Under this old paradigm, local government plans used “long-term” investment policies regardless of the plan's financial and cash flow needs; and then used the “expected return” from that policy as the dominant element of a faux funding policy; namely, the actuarial valuation. On October 1, 2000, the City of Fort Myers had fully funded the accrued liabilities of its general employee pension plan. By October of 2010, plan assets were insufficient to cover any liabilities for either the accrued benefits of its covered active employees, or for the contributions that employees themselves had made to the plan. Moreover, only 83.2% of obligations for existing retirees were covered by assets, even at the high 7.75% discount rate used to value liabilities. This decline to 0% coverage also occurred in the large general employee pension plans of nine other Florida cities. The thesis here is that, at least in Florida, where a local government is required to make its ARC (actuarially required contribution) that this kind of decline is a result of funding policy discipline failures. The paper reviews the performance of a range of standard asset allocation portfolios to confirm that the market over this period was generally consistent with 7% expected returns, if not the above average actuarial expected return assumptions returns used by each of these 10 general employee pension plans. A changing public pension paradigm, best illustrated by the Robert Novy-Marx burning money hypothetical, is at the core of this discipline failure. This hypothetical showed how a public pension plan could improve its apparent funded status by actually burning bonds in order to get rid of stable, but relatively low expected return investments. The objective of the burning was so that the remaining assets would be invested - for the long-term - in high volatility / high expected return equity assets. Under the old “long-term” only paradigm, the actuary would then discount liabilities by this higher equity expected return rate rather than a blended portfolio rate, showing an actuarially better funded plan. GASB (Government Accounting Standards Board) principles for liability accounting and disclosure have changed such that a “long-term” liability discount rate can, for future disclosures, only be used to the extent that an investment policy with that expected return will be used on real assets. This paper helps to show how many of the conclusions of recent LeRoy Collins Institute research on Florida's underfunded municipal pension plans relate to a plan's funding ratio objective. One of the most significant of these conclusions is that the cash flow out of many local government plans are now very significant; and can be much larger than the monies being contributed for the plan's unfunded accrued liability. The GASB change is very significant, not just because of its new standards, but also because these standards reinforce fundamental fiduciary practice standards. These practice standards require that investment policies further a plan's funding policy objectives rather than the other way around. The GASB change will also help to remove the moral hazard in public sector pension governance that had restricted both investment consultants and actuaries from helping plans achieve a plan's funding ratio objectives. Local government pension trustees should be setting and managing to plan funding ratio objectives; and they now should have additional valuable resources for helping them in this role; namely, the actuary and the investment consultant.
Book Synopsis A Pirate Looks at Forty-One by : CFA Higgins (CFP®, Mark)
Download or read book A Pirate Looks at Forty-One written by CFA Higgins (CFP®, Mark) and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: At the end of 2021, many public pension trustees find themselves in a position that seemed unlikely a mere ten years ago. Aided by more than a decade of strong investment returns across most asset classes, the aggregate funded status of U.S. public pension plans improved meaningfully. State systems fared especially well, with the average state pension system reporting a funded ratio above 80%. These improvements are welcome news, but it would be wise to refrain from excessive celebration. Students of financial history know that periods of exceptional returns are often followed by leaner years. In addition, COVID-related supply chain disruptions are driving higher inflation, placing new pressure on pension trustees to introduce (or increase) cost of living adjustments.These challenges may seem unique, but there is historical precedence. In fact, the very first funded pension plan in the United States, the U.S. Navy Pension Plan, faced similar challenges in the early 1800s. Their failure to address them skillfully led to full liquidation of the portfolio by 1841. Nearly 200 years have passed since the sinking of the U.S. Navy Pension Plan, but several valuable lessons remain applicable today. These include: (1) remaining wary of political influence, (2) being mindful of the long-term consequences of benefit expansions; (3) managing the risk of potential mean reversion of asset class returns; and (4) sharpening one's skepticism when venturing into unfamiliar markets.This paper elaborates on these lessons by recounting the history of the U.S. Navy Pension Plan and the fateful decisions of the Plan's Trustees and the U.S. Congress. The hope is that trustees can apply these lessons and avoid making similar mistakes in the years to come.
Book Synopsis Assessing Chile's Pension System: Challenges and Reform Options by : Samuel Pienknagura
Download or read book Assessing Chile's Pension System: Challenges and Reform Options written by Samuel Pienknagura and published by International Monetary Fund. This book was released on 2021-09-10 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: Chile’s pension system came under close scrutiny in recent years. This paper takes stock of the adequacy of the system and highlights its challenges. Chile’s defined contribution system was quite influential when introduced, and was taken as an example by other countries. However, it is now delivering low replacement rates relative to OECD peers, as its parameters did not adapt over time to changing demographics and global returns, while informality persists in the labor market. In the absence of reforms, the system’s inability to deliver adequate outcomes for a large share of participants will continue to magnify, as demographic trends and low global interest rates will continue to reduce replacement rates. In addition, recent legislation allowing for pension savings withdrawals to counter the effects from the COVID-19 pandemic, is projected to further reduce replacement rates and increase fiscal costs. A substantial improvement in replacement rates is feasible, via a reform that raises contribution rates and the retirement age, coupled with policies that increases workers’ contribution density.
Book Synopsis Reforming American Public-Sector Pension Plans by : Roel M. W. J. Beetsma
Download or read book Reforming American Public-Sector Pension Plans written by Roel M. W. J. Beetsma and published by . This book was released on 2014 with total page 10 pages. Available in PDF, EPUB and Kindle. Book excerpt: Most public-sector pension plans in the United States provide quite generous defined benefits. Long-term projections show that full payment of these promises threatens the finances of many state and local employers, which implies that taxes will have to be increased or pensions and/or other public expenditures reduced. This article analyzes the effectiveness of measures aimed at improving the sustainability of these plans. We consider the impact of contribution increases, benefit reductions, and adjustments in the pension fund's investment strategy. Since a pension fund can be seen as a zero-sum game, these interventions imply value redistributions among current and future plan participants and current and future tax payers. We use the value-based asset-liability management (ALM) method to estimate the value of those transfers. These imply massive value redistributions from taxpayers to plan participants that could exceed 20% of American GDP. Hence, plan sustainability may be achieved only through either substantially higher contributions or lower benefits.
Book Synopsis The Challenge of Public Pension Reform in Advanced and Emerging Economies by : Mr.Benedict J. Clements
Download or read book The Challenge of Public Pension Reform in Advanced and Emerging Economies written by Mr.Benedict J. Clements and published by International Monetary Fund. This book was released on 2013-01-25 with total page 86 pages. Available in PDF, EPUB and Kindle. Book excerpt: Pension reform is high on the policy agenda of many advanced and emerging market economies. In advanced economies the challenge is generally to contain future increases in public pension spending as the population ages. In emerging market economies, the challenges are often different. Where pension coverage is extensive, the issues are similar to those in advanced economies. Where pension coverage is low, the key challenge will be to expand coverage in a fiscally sustainable manner. This volume examines the outlook for public pension spending over the coming decades and the options for reform in 52 advanced and emerging market economies.
Book Synopsis Pension Fund Capitalism by : Leokadia Oręziak
Download or read book Pension Fund Capitalism written by Leokadia Oręziak and published by Routledge. This book was released on 2022-04-10 with total page 122 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book examines the origins and consequences of so-called pension fund capitalism, which has spread around the world since 1981, when the pension system was completely privatized in Chile. The author highlights the driving forces behind the privatization of pensions, its forms and tools used in practice, and the risks and costs related to private pensions. The reader can also learn about the experiences of various developed countries (including the USA, Canada, Australia, and Germany), as well as Latin American (including Chile) and Eastern European countries, related to the privatization of pensions. Particular attention is paid to Poland as an example of a country where such privatization failed completely. This book provides a source of serious reflection on what this privatization has led to, what its real economic and social consequences are and what the likelihood is of reversing it and strengthening the public pension system. Academic researchers and students of economics and finance, as well as social and political sciences, will find the book invaluable in understanding the problems arising from the privatization of pensions. It will also be of interest to professionals: institutions that shape or influence economic and social policy, including political parties, trade unions, non-governmental organizations, the media, and institutions operating on the financial market.
Book Synopsis Strategic Asset Allocation by : John Y. Campbell
Download or read book Strategic Asset Allocation written by John Y. Campbell and published by OUP Oxford. This book was released on 2002-01-03 with total page 272 pages. Available in PDF, EPUB and Kindle. Book excerpt: Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
Book Synopsis Financial Aspects of the United States Pension System by : Zvi Bodie
Download or read book Financial Aspects of the United States Pension System written by Zvi Bodie and published by University of Chicago Press. This book was released on 2008-04-15 with total page 466 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides valuable information and analysis to managers, policymakers, and investment counselors in the rapidly expanding field of pension funding. American workers, too, need answers and insights on how to invest their money and plan for their retirement. fifteen of America's leading financial analysts address such pressing questions as -What is the current financial status of the elderly, and how vulnerable are they to inflation? -What is the impact of inflation on the private pension system, and what are the effects of alternative indexing schemes? -What roles can the social security system play in the provision of retirement income? -What is the effect of the tax code and the Employee Retirement Income Security Act of 1974 (ERISA) on corporate pension policy? -How well funded are corporate pension plans, and is a firm's unfunded pension liability fully reflected in the market value of its common stock? Many of the conclusions these experts reach contradict and challenge popular views, thus providing fertile ground for innovation in pension planning.
Author :Richard A. Ippolito Publisher :University of Pennsylvania Press ISBN 13 :9780870947605 Total Pages :428 pages Book Rating :4.9/5 (476 download)
Book Synopsis Pensions, Economics, and Public Policy by : Richard A. Ippolito
Download or read book Pensions, Economics, and Public Policy written by Richard A. Ippolito and published by University of Pennsylvania Press. This book was released on 1986 with total page 428 pages. Available in PDF, EPUB and Kindle. Book excerpt: From the Pension Research Council of the Wharton School
