Abstract

https://ssrn.com/abstract=2070054
 
 

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Pension Fund Asset Allocation and Liability Discount Rates


Aleksandar Andonov


Erasmus University Rotterdam, Erasmus School of Economics

Rob Bauer


Maastricht University

Martijn Cremers


University of Notre Dame

September 30, 2016


Abstract:     
The unique regulation of U.S. public pension funds links their liability discount rate to the expected return on assets, which gives them incentives to invest more in risky assets in order to report a better funding status. Comparing public and private pension funds in the U.S., Canada, and Europe, we find that U.S. public pension funds act on their regulatory incentives. U.S. public pension funds with a higher level of underfunding per participant, as well as funds with more politicians and elected plan participants serving on the board, take more risk and use higher discount rates. The increased risk-taking by U.S. public funds is negatively related to their performance.

Number of Pages in PDF File: 52

Keywords: pension funds, defined benefit, regulation, liability discount rates, asset allocation, risk-taking, funding status, governance, board members.

JEL Classification: G11, G18, G23, H55.


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Date posted: May 29, 2012 ; Last revised: October 1, 2016

Suggested Citation

Andonov, Aleksandar and Bauer, Rob and Cremers, Martijn, Pension Fund Asset Allocation and Liability Discount Rates (September 30, 2016). Available at SSRN: https://ssrn.com/abstract=2070054 or http://dx.doi.org/10.2139/ssrn.2070054

Contact Information

Aleksandar Andonov
Erasmus University Rotterdam, Erasmus School of Economics ( email )
Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands
Rob Bauer
Maastricht University ( email )
P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 3883871 (Phone)
K. J. Martijn Cremers (Contact Author)
University of Notre Dame ( email )
P.O. Box 399
Notre Dame, IN 46556-0399
United States
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