Reforming the Valuation and Funding of Pension Promises: Are Occupational Pension Plans Safer?
31 Pages Posted: 13 Aug 2008
Date Written: September 1, 2007
Abstract
This paper assesses current regulatory and accounting developments in the OECD area against their purported goals. It specifically considers the different approaches to valuing pension liabilities and questions the possibility of convergence between funding and business accountants' valuation standards for pension liabilities. It concludes that the trend towards market-based valuation methods in business accounting is not entirely consistent with the parallel exercise undertaken by many pension regulators. Since valuation methods for funding purposes are likely to continue moving towards a market-based model, policymakers should be all the more cautious in setting funding regulations so as to provide sufficient flexibility to pension funds in covering funding deficits while providing incentives to establish funding buffers in good economic times. We also argue that accounting rules and regulatory changes are driving plan design in some OECD countries such as Japan, the Netherlands and the United Kingdom and can lead to procyclical investment behaviour by pension funds.
Keywords: Pension funds, defined benefit, funding rules, investment, discount rates, accounting, valuation
JEL Classification: G18, G23, J32, M41, M43, M44, M47
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Limits of Market-Based Risk Transfer and Implications for Managing Systemic Risks
By Todd Groome, Nicolas Blancher, ...
-
Aging, Asset Allocation, and Costs: Evidence for the Pension Fund Industry in Switzerland
By David S. Gerber and René Weber
-
How the Financial Crisis Affects Pensions and Insurance and Why the Impacts Matter
By Gregorio Impavido and Ian Tower
-
Pension Fund Regulation and Risk Management: Results from an Alm Optimisation Exercise
By Juan Yermo
-
The Importance of Defined-Benefit Occupational Pension Schemes in Selected OECD Countries
By Frank Eich
-
The Impact of the Global Financial Crisis on the Kenyan Retirement Benefits Industry
By Nzomo Mutuku