Annuity Buyouts:<i>An Empirical Analysis</i>

Cantor, David R.; Hood, Frederick; Power, Mark L.

doi:10.3905/sp.2017.2017.1.010

Cited by 1 publication

(2 citation statements)

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“…For example, in an enterprise risk management framework, Lin et al (2017) develop a theoretical model that integrates the risks of the operation and pension divisions and show that pension buyouts are more effective in increasing firm value than longevity swaps. Cantor et al (2017) examine market reactions to firms' pension buyout announcements and find that large investment‐grade companies are rewarded for the transactions with positive abnormal stock returns while small speculative‐grade companies suffer negative abnormal stock returns on the announcement date. Silverstein (2021) shows that firms increase aggregate corporate risk‐taking after pension buyouts.…”

Section: Introductionmentioning

confidence: 99%

“…Furthermore, this study is the first to address the question of whether buyouts help or hurt the interests of employees. Recent studies have focused on corporations and shown how pension buyouts affect firm operations and value (e.g., Lin et al, 2017; Cantor et al, 2017; Silverstein, 2021; Simasek, 2021). Ellen Kleinstuber, the chairperson of the Pension Committee of the American Academy of Actuaries, pointed out, “pension risk transfers can have significant implications for the financial security and responsibilities of different plan stakeholders” (Manganaro, 2016).…”

Section: Introductionmentioning

confidence: 99%

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Do pension buyouts help or hurt employees (retirees)?

Lin

MacMinn

Shi

2023

J of Risk & Insurance

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This article compares expected pension default losses of employees and retirees before and after pension buyouts. The comparisons are made using a stochastic model calibrated with market data. The analysis shows that the lower protection level provided by the State Guarantee Association relative to that of the Pension Benefit Guaranty Corporation (PBGC) is a critical factor that explains the welfare reduction, or equivalently, larger expected pension default losses, of most retirees who become annuity holders in the buyouts.The analysis also shows that the employee welfare, or equivalently expected pension default gains or losses, depends on the continued PBGC protection and, critically, their employers' postbuyout default risk and pension funding status. Moreover, these employee welfare changes are quite different for the corporations included in this analysis. Our results suggest that welfare improvements depend on the PBGC and state insurance regulators' cooperation in protecting pension participants and supervising buyout insurers. K E Y W O R D Sdefined benefit pension plan, pension buyout, pension default, plan participants

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Section: Introductionmentioning

confidence: 99%