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Scholarly Works

Scholarly Works is designed to give you an overview of specialized topics in relation to pensions. In each edition, you will find links to various websites and articles published in academic journals that will touch on a number of issues related to the topic. First, the topic is introduced. Second, you will find our picks, or our favorite academic articles. Third, you will find a Q&A section that attempts to answer some of your questions about how the issues impact employees, employers, trade unions, pension trustees and society at large.

1. The Big Shift—from Defined Benefit Plans to Defined Contribution Plans
The past few decades have witnessed a significant shift in pension provision in many nations around the world. In the past, employers offered defined benefits (DB) pension plans to all employees. Today, they are increasingly backing away from this provision and instead are proffering self-directed defined contribution (DC) pension plans.

2. Funding Pension Plans
Falling equity markets and interest rates have devastated a number of pension funds around the world over the past few years. In 1999, the S&P 500 Index companies enjoyed a collective pension surplus of $250 billion; by 2003 they faced a deficit of $168 billion. These circumstances highlight the weaknesses of the current funding practices for corporate defined benefits plans. This edition of Scholarly Works addresses the under-funding issue: its origins, the present situation and what lies ahead.

3. Socially Desirable Investing
Socially responsible investing includes all financial decision-making processes that are part of a prudent investment management approach, combined with the careful selection of investments based on sustainability or social responsibility. Pension funds accumulate vast financial resources on behalf of millions of ordinary workers. They are in a unique position to make real changes by investing in socially responsible funds. In this Scholarly Works, you can read about the history of socially responsible investments, their rate of return, and related legal issues that must be taken into account when managing such investments. For the purposes of this Scholarly Works, the terms socially desirable investments and socially responsible investments are used interchangeably.

4. Corporate Governance
What is corporate governance? How can large shareholders such as pension funds monitor and control the activities of management to limit the agency problem? Are they successful? These are some of the questions that this edition of Scholarly Works attempts to answer. In light of recent scandels in the financial industry, issues pertaining to corporate governance are becoming increasingly important.

5. Mandatory Retirement
In late 2005, Ontario effectively banned mandatory retirement, following in the footsteps of the USA, and other Canadian provinces including New Brunswick, Manitoba, Quebec, Alberta, Prince Edward Island, Nova Scotia, and the 3 Territories. The reasons underpinning the ban are as varied and complex as the rationale behind having mandatory retirement provisions. This edition of Scholarly Works attempts to shed light on some of these issues, as well as the impact the ban might have on pension governance. It also addresses how the structure of pension plans can impact the age at which one chooses to retire, and it relays organized labour’s response to the ban on mandatory retirement in Ontario. Lastly, we interviewed an expert on mandatory retirement regarding the ban in Ontario and its likely impact on pension plans. Morley Gunderson is a Professor at the Centre for Industrial Relations and the Department of Economics at the University of Toronto. Check out the ‘Chat with an Expert’ to learn his take on this topical issue.

6. Pensions: A Risky Business?
This edition of Scholarly Works focuses on the concept of risk, principally for pension fund trustees. First, we review articles that point out the kinds of risks that pension fund administrators face when making investments, and second we provide information on how to mitigate those risks. Third, we address the issue of the appropriate mix of investing in equities versus bonds. Fourth, we consider the risk of shifting from a defined benefit scheme to a defined contribution scheme and the repercussions for investors, employers and employees. (You can find out more about this shift in pension coverage from an earlier Scholarly Works called ‘The Big Shift’.) Finally, we set up a debate concerning the appropriateness of engaging in socially responsible investment, and question whether the risks are prudent. Although we do not provide clear-cut answers to address any of these risks, the articles provide information from which you can inform your investment decisions.

7. International Corporate Governance
This edition of Scholarly Works reviews the theoretical and research literature that compares corporate governance structures in different countries around the world. A comparison enables us to look beyond our own borders to not only learn about the way firms are governed elsewhere, but also to reflect on our own way of dealing with corporate governance issues. This edition begins by looking at articles that examine how ownership structure impacts corporate governance. Countries vary in how firms are owned and managed, and studies show that there may be more variation than what financial textbooks assume. Second, it examines articles that assess the extent to which nations are converging towards a common global model of corporate governance and third, it summarizes the new role that pension funds may play as ‘universal owners’ of multinational corporations. It also highlights the role of pension fund investment in developing nations, how the liquidity of stock markets impact corporate governance, and reviews articles that outline the 2003 EU Directive on pension funds. Finally, it provides some information on corporate social responsibility in select nations.

8. Investor Psychology and Behavioural Finance
Behavioral finance is a relatively new branch of economics that has recently become a ‘hot topic’ for investment professionals. It relaxes the assumptions held under traditional finance by incorporating observable and systematic departures from rationality into models of market and investor behavior. Since the field is so new, many professionals responsible for large portfolios have not been exposed to the principles of behavioral finance. Hence, this edition of Scholarly Works is an attempt to fill that gap.

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