Another look at the determinants of the financial condition of state pension plans

James Barth, Sunghoon Joo () and Kang Bok Lee ()
Additional contact information
Sunghoon Joo: Auburn University
Kang Bok Lee: Auburn University

Journal of Economics and Finance, 2018, vol. 42, issue 3, No 1, 450 pages

Abstract: Abstract Given the financial troubles facing state pension plans in recent years, we examine determinants of the ratio of assets to liabilities, or the funded ratio, based on data for 153 pension plans from 2001 to 2014. The focus is on the relationship between both the actual investment return on pension assets and the assumed return used to discount pension liabilities, or the funded ratio. Importantly, only when appropriate empirical techniques are employed to address potential econometric problems do we find that these two factors have the expected relationship with the funded ratio. Surprisingly, we also find the actual and assumed returns are negatively correlated, even though the correlation is quite low. Furthermore, the assumed return is on average higher than the actual return and has a much larger marginal effect on the funded ratio. We therefore show how a relatively high value can be assigned to the assumed return to make a pension plan appear to far healthier than actually is the case.

Keywords: Pensions; Funded ratios; Defined benefit plans; State retirement systems (search for similar items in EconPapers)
JEL-codes: H55 H75 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s12197-017-9402-1 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:jecfin:v:42:y:2018:i:3:d:10.1007_s12197-017-9402-1

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/12197/PS2

DOI: 10.1007/s12197-017-9402-1

Access Statistics for this article

Journal of Economics and Finance is currently edited by James Payne

More articles in Journal of Economics and Finance from Springer, Academy of Economics and Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().