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.     

Corporate taxes and defined benefit pension plans

The Tepper–Black arguments for tax-arbitrage opportunities from overfunding pension plans are critically examined and modifications proposed. Tax status, a function of current marginal tax rates and expected future taxable income, is predicted to determine funding policy. Tests of this modified tax benefits view suggest that 1) tax status declines are associated with pension contribution reductions, 2) reductions in contributions are related to previous excess contributions as well as non-pension tax shield increases causing the decline in tax status, and 3) cross-sectionally, tax status is related to fund levels, choice of actuarial variables, and the use of defined benefit plans.     

Making medical and disability benefit plans more manageable

Good managed care health systems require two criteria for success: They must offer a set of checks and balances, and employees need to be given incentive to act in the best interest of the organization by acting in their own best interests. The authors discuss six principles that they claim are likely to reduce the complexity of making routine coverage decisions, while achieving the above two criteria.     

Understanding the real risks of changing employee benefit plans

In an environment of constant change, corporations are looking to alter employee benefits programs to make them more responsive to employee and business needs. A complete risk assessment process is the key to preparing for changes to employee benefits programs by providing employers with an analysis of cost savings against the potential negative ramifications of change. This article outlines the steps involved in a complete review of risk assessment. It then discusses how employers can develop successful change management communication strategies if, after conducting a risk assessment, employers decide to move forward with alterations to their employee benefits programs.     

Pension plan accounting estimates and the freezing of defined benefit pension plans

This study provides evidence that, when “hard” freezing their defined benefit pension plans, employers select downward biased accounting assumptions to exaggerate the economic burden of their benefit plans. Downward biased expected rates of return and discount rates allow managers to increase reported pension expenses and, for discount rates, allow managers to increase reported pension liabilities. We find that prior to the Sarbanes-Oxley Act, both rates are downward biased when firms freeze their plans, whereas after SOX the bias is lower. This finding is consistent with managers opportunistically biasing pension estimates to obtain labor concessions during periods of reduced regulatory scrutiny.     

Employers and health plans: purposeful partnerships

This article discusses the advantages of developing a partnership between the employer and the health benefit vendor. The author explains that there are three types of employer/vendor relationships ranging from the minimal transaction based to the value based and finally to a partnership-based arrangement. Success depends upon whether the chosen relationship strategy supports the business objectives, organizational culture and effective plan execution.     

A new way of looking at the risk in defined benefit pension plans

The portability feature of a defined contribution (DC) pension greatly reduces the risk to the accumulation of pension wealth. Conversely, defined benefit (DB) pensions have a variety of default risks that decrease the expected value of DB pension wealth. This paper examines those risks. Accrual of DB pension wealth is characterized in terms of purchases of risky bonds. Changing jobs triggers default on these bonds. Simulations are presented to show the potential loss in pension wealth from default. In addition, a methodology used to price corporate bonds is applied to generate estimates of the implied risk premiums of DB pension bonds over comparable riskless bonds.     

Evolutionary theory in public health and the public health of evolutionary theory

Evolutionary theory is the most powerful explanatory system in the life sciences and is the only framework that can unify knowledge in otherwise disparate fields of research. Considerable advances have been made in the application of evolutionary biology to health issues in recent decades. Health researchers and practitioners could benefit considerably from an understanding of the basic principles of evolution and how humans have been shaped by natural and sexual selection, even if they are not explicitly testing evolutionary hypotheses. Life History Theory is a powerful framework that can be used for examining modern human environments and developing environments that maximize opportunities for positive health outcomes. Many of the recommendations derived from this framework converge with the visions of current public health advocates. Despite the benefits of an evolutionary framework, the challenges that face those attempting to integrate evolutionary theory into public health are perhaps greater than those in the social sciences. Although considerable advancements in the understanding of health issues have already been made, health researchers with an evolutionary perspective are very few in number and face constraining disciplinary attributes. Advances in medical technology will continue to extend the boundaries of saving lives in danger, however traditional public health efforts may be reaching their limits of effectiveness in encouraging health-promoting behaviors. This may partially account for the current interest in broad social and policy change to enhance health and reduce health disparities amongst sub-populations. Such substantial physical and social restructuring will face many challenges and gradual progress may be enhanced by a strong foundation of evolutionary human science. The slow but eventual integration of evolutionary principles will gradually enhance the effectiveness of health interventions and provide an ultimate explanation for patterns in health outcomes that are otherwise puzzling. The speed at which the field of public health adopts a Darwinian framework has yet to be determined, and several futures are possible. This pace will depend on several factors, including the visible utility of evolutionary theory for addressing the health promotion goals of the field.     

The value relevance of superannuation disclosures by Australian-listed firms sponsoring defined benefit plans

This paper investigates the value relevance of (employer sponsored defined benefit plan) superannuation disclosures required by AASB 1028. It addresses the competing claims by standard setters and lobbyists that such disclosures would (not) enhance the relevance and reliability of financial statements. It presents three principal findings. First, disclosed superannuation information is value relevant in the industrial sector, where these items tend to be material. Second, the market weights on the required disclosures are typically higher than those on recognised assets and liabilities. Third, and in contrast to the findings in similar US studies, accrued benefits do not have higher explanatory power relative to vested benefits.