##agnation in the stock market. the proposals that have emerged from our discussions fit into three categories : ( i ) noting that pension plans have exceeded that fifty percent limit because of the sharp use in equity prices, some stakeholders advocate valuing equities at original cost with a premium adjustment of, say 25 percent. this approach has several practical difficulties in that the valuation basis for the same equity will differ according to the time of purchase. there are also practical difficulties involved in retrieving data on historical costs. perhaps more importantly, however, this proposed valuation procedure goes against the current dominant trend ( best practice ) of market valuation. ( ii ) there is also a proposal for increasing the limit from the current 50 percent to 60 percent. while this has the merit of simplicity, it has serious drawbacks in failing to recognize that a fifty percent equity limit is already too high for pension plans that are underfunded and that lack even rudimentary investment policies and guidelines. ( iii ) the third option which has much support, uses the principles of the investment regime now applicable to insurance companies. the main elements of this option are : ( a ) define a funding threshold of one hundred and fifty ( 150 ) percent of pension liabilities to which the fifty percent equity limit is applicable. put differently, all plans with a surplus of less than fifty percent of pension liabilities will remain subject to the equity limit of fifty percent. ( b ) plans with a funding ratio in excess of one hundred and fifty percent will be allowed to invest in equities beyond the fifty percent limit. put another way, trustees will be able to make additional equity investments with any surplus in excess of fifty percent of pension liabilities ( up to a maximum level, to be determined ). the merit of this option is that it provides the additional room to wellfunded pension plans. the additional equity is really financed out of pension fund ’ s surplus after providing a buffer, equivalent to fifty percent of pension liabilities. as you may know, the investment regime for insurance companies allows for fifty percent of the statutory fund to be held in equities. however, the statutory fund must only be sufficient to cover policy holder ’ s liabilities and thus any excess or surplus assets are not subject any limits, but need to be an examination of thirty - seven pension plans which account for eightyfive percent of total equity investments of pension funds indicate that there are about 10 plans which are way below the 50 percent equity limit, and which

s momentum. the downside risks, if they materialize, could weigh on economic activity. basic principles of risk management in a low neutral rate environment with compressed conventional policy space would argue for softening the expected path of policy when risks shift to the downside. 3 our review with recent indicators suggesting the expansion is continuing at a solid pace and unemployment at a 50 - year low, inflation has not yet moved to our goal on a sustained basis. in many ways, that can be viewed as an opportunity, with the sustained expansion providing critical job opportunities to a broader set of applicants. in parallel, it is also vital that a central bank meets its inflation target on a sustained basis, which will provide more capacity to buffer the economy if it encounters headwinds. 1 / 4 bis central bankers'speeches we are undertaking our review to ensure we are well positioned to meet our goals for many years to come, especially in light of the way the economy is changing, which i have been referring to as the “ new normal. " 4 there are a few key features of that new normal. first, interest rates have stayed very low in recent years in the united states and in many other advanced economies, and it seems likely that equilibrium interest rates will remain low in the future. low interest rates present a challenge for traditional monetary policy in recessions. in the past, the federal reserve has typically cut interest rates 4 to 5 percentage points in order to support household spending and business investment. however, when equilibrium interest rates are low, we have less room to cut interest rates and less room to buffer the economy using our conventional tool. another big change in the economy is that inflation does not move as much with economic activity and employment as it has in the past, which is what economists mean when they say the phillips curve is very flat. a flat phillips curve has important advantages : the labor market can strengthen a lot and pull many workers who may have been sidelined back into productive employment without an acceleration in inflation, unlike what we saw in the 1960s and 1970s. on the other hand, today ’ s low sensitivity of inflation to slack, along with the limited ability to cut interest rates in a recession, means it can be more difficult to achieve our 2 percent inflation objective on a sustainable basis. the limited ability to cut interest rates could provide less ability to buffer the economy in a downturn, while the very flat phillips curve could make it harder to boost inflation during an expansion. and that could further compress