Pension benefit guarantees have been introduced in several countries to protect private plan members from the loss of income associated with the termination of an underfunded plan. Most such schemes face financial difficulty. Consequently, policy reforms are being contemplated. Economic theory suggests that such schemes will suffer moral hazard problems. We test a specific theoretical prediction: insured plans will invest more heavily in risky assets. Our test exploits policy differences across Canadian jurisdictions. We find that insured plans invest about 5% more in equities than do similar plans without benefit guarantees.
Authors
Thomas F. Crossley
Research Fellow University of Michigan
Tom is a Research Fellow at IFS, a Research Professor for the Institute for Social Research at the University of Michigan.
Mario Jametti
York University, Toronto
Journal article details
- DOI
- 10.1162/REST_a_00216
- Publisher
- MIT
- Issue
- March 2013
Suggested citation
Crossley, T and Jametti, M. (2013). 'Pension Benefit Insurance and Pension Plan Portfolio Choice' (2013)
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