Document Type



Doctor of Philosophy (PhD)


Business Administration

First Advisor's Name

Edward Lawrence

First Advisor's Committee Title

Committee Chair

Second Advisor's Name

Mustafa Caglayan

Second Advisor's Committee Title

Committee Member

Third Advisor's Name

Krishnan Dandapani

Third Advisor's Committee Title

Committee Member

Fourth Advisor's Name

Weidong Xia

Fourth Advisor's Committee Title

Committee Member


retirement, defined benefit, pension plan

Date of Defense



This dissertation examines the concerning funding situation of US State Pension Plans.

In the first essay we explore the conflict between pension plan managers and financial theory pertaining to the discount rate of future liabilities. Pension plans currently use overstated discount rates, achieving a seemingly healthier funding at the cost of future underfunding. Conversely, during periods of zero-interest-rate policy (ZIRP), the proposals of a US Treasuries discount rate would result in overstated funding gaps and stylized contribution increases. We resolve such a limitation of Treasuries by proposing an alternative discount rate set by the most conservative risk assessment among risky assets. Under this approach, required contributions are 50% lower than required using a Treasuries rate. Our proposed rate attains improved funding in 78% of funds during 2001-2016, contrasting a 90% failure with current practices.

The second essay exploits the differences between Republicans and Democrats when managing pension plans. Given a more conservative ideology, we expect pension funds corresponding to states affiliated to the Republican Party to adopt a lower portfolio risk, lower return assumptions, and to provide lower retirement benefits. The lower return assumption implies that funds will require higher retirement contributions.

These differences allow us to identify the best practices to manage the current underfunding of pension plans, by cross-examining the associated outcomes pertaining the funding status of the respective plans. We utilize a time varying indicator of the party affiliation of the governor of each state, which we include as a dummy variable in our model. Additionally, a fixed categorization in red or blue states complements our findings. We find that funds affiliated to the Republican Party exhibit a lower funding ratio than those affiliated to the Democratic Party. We explain such difference through the choice of the return assumption.

In the third essay, we propose an investment strategy that enhances the likelihood of reaching a retirement savings goal. We do so adopting a goals-based wealth management portfolio selection criteria where resolution of uncertainty is possible. Giving room to intra-period liquidation of assets when the target retirement savings goal is attained, increases the likelihood that an investor will reach a financial goal at the end of the investment horizon. In long term horizons, the probability of success increases with the level of the risk of the portfolio of investments.






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