Earth with a coronavirus virion(Credit: NIH; NASA)

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The Federal Reserve Board and the U.S. Treasury Department have managed tobuffer the U.S. stock market and the U.S. bond market againstmost of the effects of the COVID-19 pandemic.

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Portfolio managers at life insurers and pension funds have generally done what wasnecessary to keep the sky from falling, today.

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But Olivia Mitchell, the International Foundation of EmployeeBenefit Plans Professor at the University of Pennsylvania's WhartonSchool, says in a newworking paper that severe acute respiratory syndromecoronavirus 2 (SARS-CoV-2) has done serious damage to definedbenefit pension plans all around the world.

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Mitchell, who is an economist and executive director of thePension Research Council as well as a Wharton professor, has rushedthe working paper out onto the website of the National Bureau ofEconomic Research. A working paper is a research paper that has notgone through a full academic peer process.

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Her paper focuses on employers' defined benefit pension plans,and on Social Security and similar programs around the world.

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If she's right, her analyses and predictions could help annuityadvisors understand what's happening to clients' pension plans.

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Her analysis of what's happening to pension plans'investments could reflect some of the forces also hitting lifeinsurance companies' investment managers.

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And her work could have a direct effect on what the Fed, theTreasury Department and Congress do about Americans' retirementsecurity. She'll be one of the first people they call when they'relooking for thoughts about what to do now.

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Here are five ideas in the paper.

1. Many pension plans' funded status has plummeted.

In the United States, for example, average plan funding at stateand local public employee pension plans had fallen to 37% of what'sneeded, from 52%.

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At Dutch plans, which are highly regarded, funding has fallenbelow 70%, from 105%, Mitchell writes.

2. Some efforts to help employers may hurt the pensionplans.

The new Secure Act of 2020 lets employers with defined benefitpension plans conserve cash, by making their 2020 pension plancontributions in 2021.

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"This will not improve DB plan funding levels, to say theleast," Mitchell writes.

3. Death is probably not riding to the rescue.

In theory, COVID-19 could help the finances of pension plans, bykilling many participants.

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Mitchell cites research suggesting in the United Kingdom, forexample, the effects of COVID-19 on mortality rates of thesurviving population "will likely to be modest, in that survivors'life expectancies are unlikely to differ much from prior to thepandemic.," Mitchell writes. "In other words, the two century-longtrend toward population aging is likely to continue and maybe evenrise more, insofar as the older population in some countries hasapparently attained a 'mortality plateau.'"

4. Some of Mitchell's proposed solutions couldhelp individual retirement advisors.

Some of Mitchell's ideas include the creation of new and betterof streams of data that could be useful to life insurers,retirement advisors and retirement savers as well as to pensionplan managers, and pension researchers.

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Mitchell suggests, for example, that policymakers shouldconsider generating and making available better quality and moregranular data about mortality and morbidity, and a consistent andeconomically coherent set of rules for measuring and forecastinggovernment retirement program and pension assets andliabilities.

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She also supports the idea of de-linking retirement benefitsfrom employment.

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"Instead of pensions, healthcare, and insurance programs beingoffered though the workplace, these could be made available byassociations or multiple-employer programs, or indeed workplaceplatform," Mitchell writes.

5. At least one of Mitchell's ideas could involve you.

"Widespread financial education programs could also be extremelybeneficial both for older workers and their younger counterparts,"Mitchell writes. "With more information, people do a better jobplanning, saving, and decumulating during retirement, and theycould also do better handling complex financial products such asmortgages, loans, and annuities. Indeed, recent research hasdemonstrated a strong positive effect of financial literacy andfinancial education on financial behaviors and retirementpreparedness."

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Allison Bell

Allison Bell, ThinkAdvisor's insurance editor, previously was LifeHealthPro's health insurance editor. She has a bachelor's degree in economics from Washington University in St. Louis and a master's degree in journalism from the Medill School of Journalism at Northwestern University. She can be reached at [email protected] or on Twitter at @Think_Allison.