We calculate the risk faced by defined benefit plan providers arising from uncertain aggregate mortality – the risk that the average participant will live longer than expected. First, comparing the widely cited Lee–Carter model to industry benchmarks that are commonly employed by plan providers, we show that these benchmarks appear to substantially underestimate longevity. The resultant understatement of liabilities may reach 12.2% for typical male participants in defined benefit plans and may reach 22.4% for male workers aged 22. Next, we consider consequences for plan liabilities if aggregate mortality declines unexpectedly faster than is predicted by a putatively unbiased projection. There is a 5% chance that liabilities of a terminated plan would be 3.1% to 5.3% higher than what is expected, depending on the mix of workers covered.

Future contributions to defined benefit pension plans are a significant cash flow item that can be difficult to estimate. Funding ratios – pension assets relative to pension liabilities – have long been considered important for estimating cash flows needed for current and future pension contributions (Ballester et al., 1998). However, US GAAP or IFRS funding ratios that companies report in their financial statements may differ from funding ratios used by pension regulators. These regulatory funding ratios may be more useful for predicting future contributions.

We investigate whether US regulatory and GAAP funding ratios are different and whether regulatory funding ratios provide useful information for predicting future contributions. For 3,877 firm years from 1995 through 2002, we observe that regulatory and GAAP funding ratios differ by more than 5% for 73% of our sample. We also find that predictions of future contributions are improved by using regulatory funding ratios in addition to GAAP funding ratios. Our results are relevant to accounting standard setters' ongoing review of pension accounting rules.

The UK's defined benefit pensions industry makes widespread use of pooled investment vehicles which are provided by a large number of fund management groups. In this paper, we provide the first comprehensive performance analysis of these funds. Using data on 734 actively managed pooled funds that had a combined value of just over £400bn at the end of 2007, ranging from UK equity to funds specialising in Pacific Basin equities, our results indicate that the performance of these institutional funds is generally better than those reported in the literature for managers of mutual funds. Nevertheless, with increasing numbers of UK fund managers purporting to be able to provide high alpha products to the UK's beleaguered pensions industry our results do not give us great confidence that the solution to the widespread deficits of the UK's pension fund industry lies in the hands of these active fund managers.

This paper evaluates the macroeconomic and welfare effects of extending the averaging period used to calculate pension benefits in a pay-as-you-go system. It also examines the complementarities between reforms extending the averaging period and those increasing the retirement age under alternative tax policies. The analysis applies a model in the Auerbach-Kotlikoff tradition to the Spanish economy. Extending the averaging period to the entire work life maximizes long-run welfare and limits expenditure pressures at the peak of the demographic shock as much as increasing the retirement age in line with life expectancy. Moreover, during the demographic transition, pension reforms induce intertemporal labor substitution effects that engender aggregate labor cycles.

We analyse the impact of various pension regimes, as shaped by recent Italian reforms, on retirement age, adequacy issues, and redistribution. We add to the literature on microsimulation by accounting for individuals' reactions to financial incentives when deciding to retire. We find that shifting from a generous defined benefit (DB) system to an actuarially fair notional defined contribution (NDC) system induces individuals, particularly men, to postpone retirement. Voluntary postponement of retirement would grant employees a replacement rate comparable to that obtained in the pre-reform DB regime, while the self-employed experience a substantial reduction in their replacement rate.

Over the last 25 years, the United States has seen a dramatic shift in the private sector away from defined benefit plans and towards defined contribution plans. While commentators constantly cite an increase in labor mobility as a major reason for the shift in the private sector from defined benefit to defined contribution plans, researchers to date have not been able to document any difference in mobility by pension type. This study argues that the inability to find such a relationship stems from ignoring the important role of job tenure. Using data from the Survey of Income and Program Participation (SIPP) and the Panel Study of Income Dynamics (PSID), the results of duration analyses that include the interaction of job tenure and pension type reveal that workers with between five and ten years of tenure at a firm are 23% more likely to leave a job with a defined contribution plan than with a defined benefit plan. This difference is consistent with differences in the timing of benefit level entitlement between the two types of plans.