Subject category:
Finance, Accounting and Control
Published by:
IBS Case Development Center
Length: 9 pages
Data source: Published sources
Topics:
American pension funds bailout; Pension Funding Equity Act (HR 3108); Pension Benefit Guaranty Corporation (PBGC); Internal Revenue Code; Pre tax contribution; 401(k) pension plan; Congressional Budget Office (CBO); Premium receipts; Cash-balance plans; Enron pension funds; Defined benefit (DB) and defined contribution (DC); Employee pension plan; Labour department; Restructuring of benefits; Funded corporate pension plans
Abstract
American pension funds performed extremely well during the stock market boom in the 1990s prompting both the institutional and the individual investors to bet their savings on the stock market. Corporates were even more aggressive; they ignored the basic accounting principle ''conservatism'' and assumed ''discount rate'' that suited them the best when calculating their pension liabilities. When the stock markets produced less than the normal returns, these pension funds went belly-up. American Congress passed the ''Pension Funding Equity Act 2004''. Nevertheless the problem remains to be tackled. This case study is intended to emphasise the importance of ''diversification of portfolio'' and the centrality of ''discount rate'' when calculating the present value of future obligation. This case elicits a discussion on the effectiveness of bailing out public or private financial institutions.
Location:
Other setting(s):
2004
About
Abstract
American pension funds performed extremely well during the stock market boom in the 1990s prompting both the institutional and the individual investors to bet their savings on the stock market. Corporates were even more aggressive; they ignored the basic accounting principle ''conservatism'' and assumed ''discount rate'' that suited them the best when calculating their pension liabilities. When the stock markets produced less than the normal returns, these pension funds went belly-up. American Congress passed the ''Pension Funding Equity Act 2004''. Nevertheless the problem remains to be tackled. This case study is intended to emphasise the importance of ''diversification of portfolio'' and the centrality of ''discount rate'' when calculating the present value of future obligation. This case elicits a discussion on the effectiveness of bailing out public or private financial institutions.
Settings
Location:
Other setting(s):
2004