Estimating and Controlling PBGC

The recent transfer of several, large defined benefit pension plans to the federal Pension Benefit Guarantee Corporation (PBGC) by U.S. airline and steel companies has drawn public attention to the potential cost to the government of this insurance program and the way its costs are reflected in the budget. This study uses an options pricing approach to estimate the cost of federal pension insurance, and identifies policy alternatives that would control risk and make program costs more transparent to the Congress and the public.