Investments

Pension Finance Resources (Home) Page | Key Points | Changes Needed in Actuarial Practice | Accounting | Funding | Investments | Plan Design | Public Funds | Views of Others

(Note: Where available, an online link to the resource is provided; in some cases, we are only able to provide the reference information)

• An Actuary Looks at Financial Insurance

(Page 4, by Richard Q. Wendt, February 1999: Risk and Rewards, SOA Investment Section Newsletter)
This article discusses the differences between traditional actuarial analysis of financial insurance and and option based analysis.

• The Case Against Stock in Corporate Pension Funds

(Page 17)
A company has $1 million of stock in a pension fund. The liability can be matched with a $1–million dedicated bond portfolio. This article looks at the consequences of shifting the pension fund from stock to bonds.

• The Case Against Stock in Public Pension Funds

A government has $1 million of stock in a pension fund that covers its employees. The liability can be matched with a $1–million dedicated bond portfolio. What are the consequences of shifting the pension fund from equities to bonds?

• Creating Value in Pension Plans (or, Gentlemen Prefer Bonds)

This article asserts that taxable corporate sponsors of defined benefit plans should invest their pension assets entirely in debt instruments.

• Defined Benefit Plans are More Successful with Bonds

(page 5)
This article discusses the risk of investing in stocks by using some traditional actuarial tools, like measuring the "probability of ruin."

• Did Pension Plan Accounting Contribute to a Stock Market Bubble?

by Julia Lynn Coronado and Steven A. Sharpe
During the 1990s, the asset portfolios of defined–benefit (DB) pension plans ballooned with the booming stock market. Due to current accounting guidelines, the robust growth in pension assets resulted in a stealthy but substantial boost to the profits of sponsoring corporations. This study assesses the extent to which equity investors were fooled by pension accounting.

Presented at Current Pension Actuarial Practice in Light of Financial Economics Symposium, sponsored by the SOA, Vancouver, June 2003.

Do a Firm's Equity Returns Reflect the Risk of Its Pension Plan
by Li Jin, Robert C. Merton, and Zvi Bodie
This paper examines the empirical question of whether systematic equity risk of U.S. firms as measured by beta from the Capital Asset Pricing Model reflects the risk of their pension plans.

• Financial Economics for Pension Plans

(Page 3)

• Group Variable Annuity Pension Plan

(Page 5)

• Pension Funds–A Company Manager's View

Presented at Current Pension Actuarial Practice in Light of Financial Economics Symposium, sponsored by the SOA, Vancouver, June 2003.

• Pension Funds and the UK Economy

This paper considers the impact of U.K. defined benefit (DB) pension scheme funding and investment on the U.K. economy, and suggests that many conventional theories are based on incomplete or inconsistent economics.

• Pension Funds–Bonds Only?

From UK Actuary, May 2004
David Blake and Zaki Khorasanee consider whether pension funds should invest only in bonds.–Answer: NO

• Pensions and Capital Structure: Why Hold Equities in the Pension Fund?

This paper considers the pension plan as part of the capital structure of the sponsoring employer.

The Risk of Stocks in the Long Run
This paper examines the proposition that investing in common stocks is less risky the longer an investor plans to hold them.

Yikes! How to Think About Risk
(by Alicia H. Munnell, Steven A. Sass, and Mauricio Soto, January 2005: Center for Retirement Research, Boston College)
This article describes how equities have performed over the last 75 years and how economists, accountants, and actuaries handle the high returns/high risks associated with equities in the real world. It also explores the implications of the risk discussion for evaluating Social Security reform proposals.