Pension Plan Management Manual - Administration and Investment.
James E. Burk
This book is designed to help those responsible for administering private pension plans. Treatment is mostly non-technical and aimed at general readers seeking an introductory level understanding of this subject. The book is divided into three sections: Part I, Developing the Pension Plan (five chapters); Part II, Administering the Pension Plan (four chapters); and Part III, Managing Pension Fund Investments (six chapters).
Part I covers fundamentals of private pension plans and an historical development of the pension plan movement. These chapters discuss defined benefit and defined contribution plans and their various features in sufficient detail to enable managers to understand basic design decisions. A chapter is also devoted to a hybrid type of plan, the "cash balance plan," a cross between defined benefit and defined contribution plans. The purpose of the latter plan is to help overcome some disadvantages of the traditional defined benefit plan, such as its lack of appeal to younger employees.
Throughout, the emphasis is on comparing the advantages and disadvantages of different pension plan designs in an easy-to-understand manner. This is admirably illustrated in Chapter 5, "Funding," where various funding instruments, such as insured and trusteed plans, are compared and analyzed.
The author succeeds in avoiding the trap of offering too much technical (actuarial and tax) detail which could hopelessly confuse the general reader. Even in chapters devoted to technical matters, such as Chapter 6 on ERISA, only the requirements that must be understood by a pension manager are covered, not the accounting or reporting requirements. For example, the key provisions of the tax laws affecting pensions passed in 1981, 1982, 1984, and 1986 are covered in just three pages. Vesting requirements take up two pages, minimum funding standards, two pages, and the prudent man rule, three pages. Actuarial concepts are presented at a fundamental level for the general manager's understanding.
A few quite useful tables are included to help pension managers make key design decisions. An example is a table (page 2-38) giving 50 percent joint and survivor reduction factors for employees and joint annuitants of different ages.
Part 3 of the book, covering investment aspects, continues the general treatment evident in this book. For example, ways to measure and evaluate investment performance of a fund manager occupy two chapters. Examples are kept short and promote an easy grasp of basic financial concepts, such as the internal rate of return and time-weighted rate of return methods. Ways to measure and evaluate risk receive similar treatment. Thus, the beta and alpha coefficients are explained and their results analyzed over recent market periods.
Readers expecting a "how to" treatment of pension fund management will probably be disappointed with this book. However, for those seeking an introduction to a complex subject, the book should be considered a valuable and timely treatment. The book is probably too basic to use as a main text in a college level course, but would be valuable as collateral reading.
Reviewer: Mark R. Greene, Ph.D. Professor Emeritus, University of Georgia
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|Author:||Greene, Mark R.|
|Publication:||Journal of Risk and Insurance|
|Article Type:||Book Review|
|Date:||Mar 1, 1989|
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