Illinois Mobile App Master Calendar

Title:
The Big Thaw: Unfreeze Defined Benefit Pension with Cash Balance Plans

Abstract:
The recent resurgence of defined benefit (DB) pensions through cash balance (CB) plans has sparked discussions and captured the attention of employers, unions, and benefits experts. However, there remains limited understanding of how unfreezing DB pensions impacts a firm. To address this gap, we explore the cost and benefit tradeoffs associated with pension unfreezing using a model calibrated to market data within a stochastic framework. Our analysis reveals that the extent to which restarting DB pensions affects a firm’s total pension cost depends on factors such as pension surplus magnitude, employee salaries, firm financial stability, and Pension Benefit Guaranty Corporation (PBGC) premiums. In particular, with a high funding surplus and elevated employee salaries, unfreezing a CB plan can yield greater cost efficiency for companies than pension risk transfer, especially in a high interest rate environment. Our findings provide valuable insights for pension sponsors contemplating the reopening of DB pensions through CB plans, which could potentially counteract the current trends in pension de-risking.

Speaker's Bio:
Dr. Yijia Lin earned her Ph.D. from Georgia State University, her B.A. and M.A. from Beijing Technology and Business University, and has a Chartered Financial Analyst professional designation. She is currently the V. J. Skutt Distinguished Professor of Finance at the University of Nebraska–Lincoln and her teaching interests include corporate risk management, enterprise risk management and advanced finance. Her research interests include risk management, insurance and longevity/mortality securitization. Dr. Lin has published papers in the Journal of Risk and Insurance, the North American Actuarial Journal, the Insurance: Mathematics and Economics, the Journal of Management, and others. She is also an Editor of the ASTIN Bulletin and a Co-Editor of the North American Actuarial Journal and serves in the Editorial Board of the Journal of Risk and Insurance. Dr. Lin won the Harold D. Skipper Best Paper Award from the Asia-Pacific Risk and Insurance Association in 2006, the Ernst Meyer Prize for University Research Work from the Geneva Association in 2007, the Annual Prize for the Best Paper Published in 2007 from the North American Actuarial Journal in 2009, the Brockett-Shapiro Actuarial Journal Award from the American Risk and Insurance Association in 2014, the Robert I. Mehr Award for a literature contribution having a ten-year impact in the field of risk management and insurance from the American Risk and Insurance Association in 2015, and the Early Career Scholarly Achievement Award from the American Risk and Insurance Association in 2016.