After a few spectacular failures (Nortel, GM) the pension world is not the wonderland it used to be. Both employees and regulators should consider the safety of their pensions when valuing their personal balance sheet.
As an employee:
Consider the future of your company and the likelihood of its survival. It may encourage you to save more lest you end up getting 60-something cents on the dollar like the Nortel pensioners. Your biggest decision will be when you leave the company - do you take a commuted value and truncate your risk to the pension fund's potential demise or do you retain the pension inside the fund?
As a regulator:
Consider the survival of a company. Use default swaps as a guide. Examine the solvency ratio of the company's pension fund. Consider its asset mix relative to the exposure of its liabilities. What is its net risk exposure? Should a company with matched assets and liabilities and a 105% solvency ratio pay the same PBGF/PBGC (pension benefit guarantee fund/corp) premium as one with a significant mismatch and a 75% solvency ratio? Now that is an easier question to answer than the same one with the second fund also having a 105% solvency ratio....after all the greater mismatch has a wider array of potential solvency ratios one year hence.
Call it risk based charges on the regulator side and employees better managing their credit risk.
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