Reading 44, "The Present and Future of Pension Insurance" (Chapter 22)

Reading 44 is "The Present and Future of Pension Insurance." This reading discusses the functions and financial health of the Pension Benefit Guarantee Corporation (PBGC) and evaluates reforms to pension insurance pricing that would strengthen the system's financial position.

1. Define the following terms used in the reading:
   1. defined benefit pension plan
   2. underfunding
   3. net position

2. When and why was the Pension Benefit Guarantee Corporation (PBGC) created? What are the sources of funding for the PBGC?

3. What events can cause the PBGC to terminate and take over a pension plan? How does this affect the pension plan's participants?

4. What factors brought the PBGC to the large negative net position discussed in the reading?

5. Describe the PBGC’s current premium structure. What reforms to the pension insurance premiums are recommended to restore the PBGC to long-run financial soundness?

Source: "The Present and Future of Pension Insurance." Simon Kwan, Federal Reserve Bank of San Francisco FRBSF Economic Letter, No. 2003-25, August 29, 2003, pp. 1-3.