A Termination Rule for Pension Guarantee Funds

Abstract

A termination rule based on a critical funding ratio is proposed for a pension guarantee fund (PGF) that considers closing an underfunded pension plan. This ratio is determined by solving an expected utility maximization problem on behalf of plan beneficiaries subject to two constraints designed to preserve the PGF's viability. The first is an upper bound on the PGF's annual intervention probability; the second, a restriction on the expected shortfall of an underfunded pension plan that is not closed. Both too low and too high critical funding ratios hurt beneficiaries' interests, depending on their degree of risk aversion.Chunli Cheng is at the Bonn Graduate

Fair Transition From Defined Benefit to Target Benefit

“…. It would be very difficult for a DB plan to recover from such a funding level as low as 40%; see, for example,Cheng and Uzelac (2018); e p = 10% represents a 10% expense rate on default, or the market cost for annuitisation.3. InWang et al (2018), the authors add a linear penalty terms (i.e., r × (C r t − b t )).…”

Modelling Development of Voluntary Pension Fund Using Mathematical Model of Approximation with Lagrange Interpolation Polynomials

“…The influence of various factors in society on the development of pension funds, as well as the possibility of predicting development in this domain, are the subject of a number of papers from different countries and parts of the world, on which we based our research in this paper (Benediktsson H.C., et al 2001;Blake D, 2004;Chlon S, 2002;Dellvaand W.L., et al 1998;Ottenand R, et al 2002;Shamsuddin, A.F.M. 2001;Marti C., et al 2009;Bikker J, et al 2011;Cheng Ch., et al 2016;Gerke W, et al 2008).…”