Managing Financially Distressed Pension Plans in the Interest of Beneficiaries

27 Pages Posted: 15 May 2017

See all articles by Joachim Inkmann

Joachim Inkmann

University of Melbourne - Department of Finance; Financial Research Network (FIRN)

David P. Blake

City University London - Cass Business School

Zhen Shi

University of Melbourne; Financial Research Network (FIRN)

Date Written: June 2017

Abstract

The beneficiaries of a corporate defined benefit pension plan in financial distress care about the security of their promised pensions. We propose to value the pension obligations of a corporate defined benefit plan using a discount rate that reflects the funding ability of the pension plan and its sponsoring company, and therefore depends, in part, on the chosen asset allocation. An optimal valuation is determined by a strategic asset allocation that is optimal given the risk premium a representative pension plan member demands for being exposed to funding risk. We provide an empirical application using the General Motors pension plan.

Suggested Citation

Inkmann, Joachim and Blake, David P. and Shi, Zhen, Managing Financially Distressed Pension Plans in the Interest of Beneficiaries (June 2017). Journal of Risk and Insurance, Vol. 84, Issue 2, pp. 539-565, 2017. Available at SSRN: https://ssrn.com/abstract=2967608 or http://dx.doi.org/10.1111/jori.12090

Joachim Inkmann (Contact Author)

University of Melbourne - Department of Finance ( email )

Level 12, 198 Berkeley Street
University of Melbourne, Victoria 3010
Australia
0061 3 9035 8177 (Phone)

HOME PAGE: http://orcid.org/0000-0002-5526-7648

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

David P. Blake

City University London - Cass Business School ( email )

London, EC2Y 8HB
Great Britain
+44 (0) 20-7040-5143 (Phone)
+44 (0) 20-7040-8881 (Fax)

Zhen Shi

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia
0061 3 9035 8173 (Phone)
0061 3 8344 6914 (Fax)

HOME PAGE: http://www.finance.unimelb.edu.au/who/staffweb.cfm?StaffNo=135

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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