The impact of surplus sharing on the portfolio mix of public sector defined benefit pension plans: a public choice approach
- 103 Downloads
The riskiness of state employee pension plan portfolios varies across states. We investigate whether this variation is related to how public employees and taxpayers share actuarial surpluses of pension accounts. We focus on two determinants of a plan’s asset mix: the relative influence of public employees to taxpayers; and whether a surplus-sharing contract is specified. Our theoretical model demonstrates that the effect of public employee influence on the asset mix is ambiguous. Our empirical results corroborate this complex theoretical result. In our theoretical and empirical analyses, if a surplus sharing rule is specified, plans adopt a more aggressive investment allocation.
Unable to display preview. Download preview PDF.
- Bolton, P., & Dewatripont, M. (2005). Contract theory. Cambridge: MIT. Google Scholar
- Che, Y.-K., & Hausch, D. (1999). Cooperative investments and the value of contract. American Economic Review, 89, 125–147. Google Scholar
- Coronado, J., Engen, E., & Knight, B. (2003). Public funds and private capital markets: the investment practices and performance of state and local pension funds. National Tax Journal, 56, 579–594. Google Scholar
- Gordon, M., Michell, O., & Twinney, M. (1997). Positioning pensions for the twenty-first century, pension research council. Philadelphia: University of Pennsylvania Press. Google Scholar
- Greene, W. (2003). Econometric analysis. Upper Saddle River: Prentice Hall. Google Scholar
- Mitchell, O., & Hsin, P.-L. (1994). Public pension governance and performance. NBER Working Paper 4632. Google Scholar
- Mueller, D. (1989). Public choice II. Cambridge: Cambridge University Press. Google Scholar
- Munnell, A. H., & Sunden, A. (2002). Investment practices of state and local pension funds. In O. Mitchell & E. Hustead (Eds.), Pensions in the public sector (pp. 153–194). Philadelphia: University of Pennsylvania Press. Google Scholar
- Rajnes, D. (2001). State and local retirement plans: innovation and renovation. Washington: Employee Benefits Research Institute. Google Scholar
- Useem, M., & Mitchell, O. (2000). Holders of the purse strings: governance and performance of the public retirement systems. Social Science Quarterly, 81, 489–506. Google Scholar