Growing Old

Growing Old: Paying for Retirement and Institutional Money Management after the Financial Crisis

YASUYUKI FUCHITA
RICHARD J. HERRING
ROBERT E. LITAN
Copyright Date: 2011
Pages: 151
https://www.jstor.org/stable/10.7864/j.ctt12630v
  • Cite this Item
  • Book Info
    Growing Old
    Book Description:

    While the immediate dangers from the recent financial crisis have abated -much of the financial system has returned to profitability and the economy is growing, albeit slowly -the damage to the economy will linger for years. Among the many impacts is the problem that may be most acute in the United States: how state and local governments and private companies will honor their obligations under defined benefit (DB) pension plans. Institutional investors also confront new difficulties in the low-interest-rate environment that has prevailed since the onset of the crisis. East Asian economies, namely in Japan, Korea, and China, also face pension issues as their populations age.

    InGrowing Old, experts from academia and the private sector consider the hard questions regarding the future of pension plans and institutional money management, both in the United States and in Asia. This volume is the latest collaboration between the Brookings Institution and the Nomura Institute of Capital Markets Research on issues confronting the financial sector of common interest to audiences in the United States and Japan.

    Contributors: Olivia S. Mitchell (Wharton School, University of Pennsylvania), Akiko Nomura (Nomura Institute of Capital Markets Research), Robert Novy-Marx (Simon Graduate School of Business, University of Rochester), Betsy Palmer (MFS Investment Management), Robert Pozen (Harvard Business School), Joshua Rauh (Kellogg School of Management, Northwestern University), Natalie Shapiro (MFS Investment Management)

    eISBN: 978-0-8157-2154-3
    Subjects: Finance, Political Science

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Preface
    (pp. vii-viii)
  4. 1 Introduction
    (pp. 1-10)
    YASUYUKI FUCHITA, RICHARD J. HERRING and ROBERT E. LITAN

    The recent financial crisis and subsequent recession resulted from a series of major failings: excessive incentives for lenders to originate subprime mortgages and for others to securitize them; poor risk management by financial institutions; serious failures of oversight by state and federal financial regulators; and far too much leverage in too many financial institutions and households. While the immediate dangers from the crisis have abated—the financial system has returned to profitability and the economy is growing, albeit slowly—the damage to the economy will linger for years.

    Among the many impacts of the crisis is the growing interest in...

  5. 2 Trends in Pension System Reform in East Asia: Japan, Korea, and China
    (pp. 11-46)
    AKIKO NOMURA

    A number of developed countries have been reforming their pension systems to adapt to their aging populations. Three trends in those reforms can be briefly summarized as a shift from public to private pensions, an increase in the level of prefunding, and a shift from defined benefit plans to defined contribution plans, all aimed at improving both the adequacy and sustainability of pensions.

    The pension reforms under way in three East Asian countries—Japan, Korea, and the People’s Republic of China—seem to be following basically the same path. A closer look at the details, however, indicates that each country...

  6. 3 The Crisis in Local Government Pensions in the United States
    (pp. 47-74)
    ROBERT NOVY-MARX and JOSHUA RAUH

    State and local governments follow the same accounting framework for measuring the value of their pension promises. The value of those promises is disclosed in accordance with Government Accounting Standards Board (GASB) statement 25, which stipulates that benefit promises are to be discounted at an assumed return on pension plan assets. That assumed return determines how the future stream of cash benefits that the state or local government has promised is converted into a present value liability measure. It also governs the actuarial recommendation for the annual amount that state and local governments set aside to fund newly promised benefits....

  7. 4 Managing Risks in Defined Contribution Plans: What Does the Future Hold?
    (pp. 75-94)
    OLIVIA S. MITCHELL

    In many countries, traditional defined benefit (DB) pensions have become less popular over the last two decades, during which they have been supplemented—and in some cases replaced— by defined contribution (DC) plans. While DC plans have many appealing features, including transparency and portability, they also require participants to take an active role in managing them to achieve their ultimate purpose, namely, meeting participants’ consumption needs in retirement. And, noting that participants sometimes have difficulty managing their retirement plans effectively, some critics have charged that DC plans are not up to the task. Accordingly, analysts and policymakers are now asking...

  8. 5 Asset Allocation by Institutional Investors after the Recent Financial Crisis
    (pp. 95-142)
    ROBERT C. POZEN, BETSY PALMER and NATALIE SHAPIRO

    Asset allocation is the key to the long-term performance of institutional investors; it has determined more than 90 percent of their performance over several decades.¹ For example, if an institutional investor held a diversified portfolio of U.S. stocks from 1991 to 1999, it would have recorded excellent performance regardless of the individual stocks selected. Conversely, that institution would have recorded relatively poor performance from 2000 to 2008 if it held a diversified portfolio of U.S. stocks regardless of the individual stocks selected.

    By asset allocation, we mean the division of an institution’s capital among a variety of asset classes in...

  9. Contributors
    (pp. 143-144)
  10. Index
    (pp. 145-151)
  11. Back Matter
    (pp. 152-153)