The Federal Reserve Board and the U.S. Treasury Department have managed to buffer the U.S. stock market and the U.S. bond market against most of the effects of the COVID-19 pandemic.
Portfolio managers at life insurers and pension funds have generally done what was necessary to keep the sky from falling, today.
But Olivia Mitchell, the International Foundation of Employee Benefit Plans Professor at the University of Pennsylvania’s Wharton School, says in a new working paper that severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) has done serious damage to defined benefit pension plans all around the world.
- A copy of Olivia Mitchell’s new working paper is available here.
- An article about another retirement protection paper, which lists Mitchell as a co-author, is available here.
Mitchell, who is an economist and executive director of the Pension Research Council as well as a Wharton professor, has rushed the working paper out onto the website of the National Bureau of Economic Research. A working paper is a research paper that has not gone through a full academic peer process.
Her paper focuses on employers’ defined benefit pension plans, and on Social Security and similar programs around the world.
If she’s right, her analyses and predictions could help annuity advisors understand what’s happening to clients’ pension plans.
Her analysis of what’s happening to pension plans’ investments could reflect some of the forces also hitting life insurance companies’ investment managers.
And her work could have a direct effect on what the Fed, the Treasury Department and Congress do about Americans’ retirement security. She’ll be one of the first people they call when they’re looking for thoughts about what to do now.
Here are five ideas in the paper.
1. Many pension plans’ funded status has plummeted.
In the United States, for example, average plan funding at state and local public employee pension plans had fallen to 37% of what’s needed, from 52%.
At Dutch plans, which are highly regarded, funding has fallen below 70%, from 105%, Mitchell writes.