Imputation of Property Income in
the Case of Liabilities Between the
Sponsor and the Pension Fund
Brent Moulton
Advisory Expert Group on National Accounts
Washington, DC
8 September 2014
www.bea.gov
Overview
▪ SNA 2008 recognizes defined-benefit pension
entitlements as contractual agreements
 Liabilities of sponsors
 Assets of households
▪ Pension entitlements are based on net present
value calculations
▪ If the pension fund is underfunded, SNA 2008
does not provide explicit guidance on whether the
increase in sponsor’s liability due to the passage of
time (the “unwinding of the discount factor”)
should be treated as property income
www.bea.gov
2
Background – SNA 2008 framework
▪ “The 2008 SNA recognizes that employment-related
pension entitlements are contractual engagements, that are
expected or likely to be enforceable. They should be
recognized as liabilities towards households, irrespectively
of whether the necessary assets exist in segregated schemes
or not.” (A3.127)
▪ The level of the employer’s contribution and the liability of
the pension fund to the employee are based on actuarial
calculations of the net present value of future benefits.
▪ Any excess of the liabilities of the pension fund over the
available assets may represent a claim on the sponsor.
www.bea.gov
3
SNA 2008 – compensation of employees
▪ Defined-benefit plan promises to pay future benefits
according to a formula based on level of pay and time
in service
▪ Pension component of compensation of employees is
based on future benefits accrued through service
 Claims to benefits accrued through service (or “normal cost”)
 Add service charge (for expenses of administering fund) and
subtract employees’ actual contributions to get total
employers’ pension contributions
▪ Employers’ imputed pension contributions
 Subtract employers’ actual pension contributions from total
employers’ pension contributions
www.bea.gov
4
SNA 2008 – property income
▪ Under SNA 1993, property income earned by
pension fund was shown flowing to households
 Property income attributable to policyholders
 Flow from pension fund to households in allocation of
primary income account
▪ Under SNA 2008, property income payable to
households is based on “unwinding” of the
discount rate for the pension entitlement
 Property income payable on pension entitlements
 Increase in pension entitlement coming from past
service
www.bea.gov
5
SNA 2008 – claim of pension fund on pension sponsor
▪ If pension plan sponsor (usually the employer) is
responsible for meeting the liabilities of the
pension fund in case of any shortfall:
 Any excess of pension entitlements over assets held by
fund is a liability of the sponsor and asset of the pension
fund
 Any excess of assets over pension entitlements is an
asset of the sponsor and liability of the pension fund
 Net worth of the pension fund exactly zero at all times
www.bea.gov
6
Conceptual issue – interest on claim on sponsor
▪ SNA 2008 doesn’t give much guidance on transactions
or other changes in assets required to keep net worth
of pension fund exactly zero
▪ If fund is underfunded, unwinding of the discount rate
affects claim of pension fund on pension sponsor
▪ Consistent with general SNA principles to treat the
unwinding of the discount rate as property income
▪ US national accounts have introduced imputed interest
on plans’ claim on sponsor
 Calculated applying same discount rate used in actuarial
calculations to claims of pension funds on pension sponsors
 Payable by sponsor to pension fund
 If fund is overfunded, interest payable by fund to sponsor
www.bea.gov
7
Example – results for United States
▪ In 2012, employers’ imputed pension contributions, –0.4%
of GDP
 Negative for private and federal government plans
 Positive for state & local government
▪ Claims on sponsors (underfunded pension entitlements on
balance sheet)
 2.7% of GDP for private plans in 2012
 9.1% for state & local government
 11.0% for federal government
▪ Imputed property income on plans’ claims on sponsors
 0.1% of GDP for private plans in 2012
 0.5% for state & local government
 0.6% for federal government
www.bea.gov
8
Shares of US DB plans funded by assets
www.bea.gov
9
Other suggested minor clarifications
▪ Terminology – SNA 2008 uses “pension manager”
to refer to the institutional unit with
“responsibility for any deficit in funding”
 In contrast, in financial services industry, “pension
manager” usually refers to individual or unit managing a
pension fund’s investments
 We suggest that “pension sponsor” would be clearer
▪ We also suggest that the example in SNA 2008
table 17.8 should explicitly show the production
costs associated with pension fund output
 Table now shows output, but not costs, affecting saving
www.bea.gov
10
Questions for the AEG
1.
2.
3.
4.
Does the AEG agree that a property income transaction
between the pension fund and the pension sponsor should
be recorded to reflect the unwinding of the discount
factor when the pension fund is underfunded or
overfunded?
Does the AEG agree that a property income flow from the
fund to the sponsor should be recorded in the cases of
overfunding?
Does the AEG agree with the proposed methodology,
using the same discount factor used in calculating the
property income payable on pension entitlements?
Does the AEG agree with substituting “pension sponsor”
for “pension manager” and with modifying Table 17.8 to
show production costs of pension fund?
www.bea.gov
11