Risk Sharing Alternatives for Pension Plan Design: An Overview and Case Studies

Abstract

Pension plan designs range from those that place virtually all of the risk on the plan (and plan sponsor) to those that place all of the risk on the individual covered by the plan. Traditional plans include designs that are at both ends of this spectrum, but there is increasing attention to plans that share risk. This chapter identifies different risks and discusses methods of sharing risk, both traditionally and in recent plan designs. Two case studies illustrate recent developments. We include a discussion of future directions.

Enhancing risk management for an aging world

“…The Dutch advocate a combination approach they have adopted termed a "defined ambition" plan where workers are promised variable deferred annuities based on pension assets and a mortality risk pool (Bovenberg et al 2016). Other new models include some favored by labor unions (Blitzstein 2016), public sector entities (Rappaport and Peterson 2016), and many others detailed in Mitchell and Shea (2016).…”