Document Type

Essays, Studies, and Works


This paper analyzes the actuarial adequacy of PBGC in providing insurance coverage to employees participating in single employer, defined benefit pension plans. The first part of this investigation examines the micro and macro economic factors that impact the financial stability and actuarial viability of PBGC. A second section discusses externalities that may contribute to suboptimal premiums and adverse selection for PBGC. A linear control model is introduced to analyze the most effective way PBGC might use its $100 million credit line with the Department of the Treasury. In addition, a model based on the economic theory of clubs develops relationships between the size of a pension, its level of benefits and the motivations of employers to fully fund a plan or lay it off to PBGC. Within this framework, this investigation examines how changes in the actuarial discount rate or the actuarial cost method for valuing postretirement obligations may significantly alter PBGC’s future claim experience and reserve adequacy. The paper concludes with a discussion of possible funding solutions to address potential inadequacies in PBGC reserves against bankrupt plans in the industrial manufacturing sector of the U.S. economy.

Publication Date

Fall 2007

Journal Title






First Page


Last Page



©2007 Andrew Frank Thompson



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