OECD Working Papers on Finance, Insurance and Private Pensions

ISSN :
2079-7117 (online)
DOI :
10.1787/20797117
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Selected studies on finance, insurance and private pensions policy prepared for dissemination in order to stimulate wider discussion and further analysis and obtain feedback from interested audiences. The studies provide timely analysis and background on industry developments, structural issues, and public policy in the financial sector. Topics include risk management, governance, investments, benefit protection, and financial education. Previous papers addressing these policy issues are available via http://dx.doi.org/10.1787/19936397.
 

The Impact of the Financial Crisis on Defined Benefit Plans and the Need for Counter-Cyclical Funding Regulations You or your institution have access to this content

Authors:
Juan Yermo1, Clara Severinson1
Author Affiliations
  • 1: OECD, France

Publication Date
01 July 2010
Bibliographic information
No.:
3
Pages
32
DOI
10.1787/5km91p3jszxw-en

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Three essential goals of pension plan funding are the long-term viability, stability and security of member benefits. Reform of funding regulations for defined benefit (DB) pension schemes to make them more counter-cyclical in nature can help achieve these goals as well as make DB schemes more attractive to plan sponsors that are increasingly moving away from DB towards defined contribution plans. If designed properly, funding regulations could help maintain DB systems for the long-term and provide greater member security. Broadly speaking, DB funding regulations should (i) encourage deficit reduction contributions and appropriate build up of surplus when plan sponsor finances are strong; (ii) help maintain predictable costs and dampen volatility; and, (iii) give plan sponsors more control to manage risks and costs. This paper discusses the impact of the crisis on DB pension schemes and the temporary responses taken by regulators to help ease financially strained plan sponsors. Furthermore, the paper presents suggestions to governments and policy-makers for making funding regulations more counter-cyclical in nature. Such measures could strengthen the security of DB benefits and help to maintain DB plans for future workers.
Keywords:
pensions, surplus, marked-to-market, financial crisis, deficit, funding, contribution, defined benefit, counter-cyclical, regulation
JEL Classification:
  • D21: Microeconomics / Production and Organizations / Firm Behavior: Theory
  • E32: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Business Fluctuations; Cycles
  • G01: Financial Economics / General / Financial Crises
  • G15: Financial Economics / General Financial Markets / International Financial Markets
  • G23: Financial Economics / Financial Institutions and Services / Non-bank Financial Institutions; Financial Instruments; Institutional Investors
  • G32: Financial Economics / Corporate Finance and Governance / Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
  • J33: Labor and Demographic Economics / Wages, Compensation, and Labor Costs / Compensation Packages; Payment Methods
  • K20: Law and Economics / Regulation and Business Law / General
  • M40: Business Administration and Business Economics; Marketing; Accounting / Accounting and Auditing / General
  • M52: Business Administration and Business Economics; Marketing; Accounting / Personnel Economics / Compensation and Compensation Methods and Their Effects