Corporate Pension Policy and the Value of PBGC Insurance

   (454 K)

This paper derives the value of PBGC pension insurance under two scenarios of interest. The first allows for voluntary plan termination, which appears to be legal under current statutes. In the second scenario, termination is prohibited unless the firm is bankrupt. Optimal pension funding strategy under each scenario is examined. Finally,empirical estimates of PBGC liabilities are calculated. These show that a small number of funds account for a large fraction of total prospective PBGC liabilities, that those total liabilities greatly exceed current PBGC reserves for plan terminations, and that PBGC liabilities could be substantially reduced by the prohibition of voluntary termination.

Published:

• Marcus, Alan J. "Spinoff/Terminations And The Value Of Pension Insurance," Journal of Finance, 1985, v40(3), 911-924. ,
• Marcus, Alan J. "Corporate Pension Policy and the Value of PBGC Insurance," Issues in Pension Economics, edited by Z. Bodie, J. Shoven, D. Wise, Chicago: UCP, 1987. ,
• Corporate Pension Policy and the Value of PBGC Insurance, Alan Marcus, in Issues in Pension Economics (1987), University of Chicago Press
  

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