Discounting and the market valuation of defined benefit pensions

Abstract Unlike defined benefit pensions, 401(k) plans provide little guidance on how to turn accumulated assets into income. The key risk that retirees face is outliving their assets. Insurance against such risk is available through several routes, including immediate annuities, deferred annuities, and additional Social Security through delayed claiming. Under this Social Security bridge option, participants would tap their 401(k) for payments equal to their Social Security to delay claiming. This paper compares these three options in simulations against a baseline in which no assets are used to obtain lifetime income. In each option, assets not allocated to purchasing lifetime income are consumed following the Required Minimum Distribution rules. The analysis finds that, when market and health shocks are included alongside longevity uncertainty, the Social Security bridge option is generally the best for households with median wealth. Wealthier households can benefit from combining the bridge option with a deferred annuity. Part of a symposium sponsored by the Economics of Aging Interest Group.

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Financing UK Pensions

Britain's Pensions Crisis ◽

10.5871/bacad/9780197263853.003.0012 ◽

2006 ◽

Cited By ~ 2

Author(s):

John Hills

Keyword(s):

Life Expectancy ◽

Occupational Pension ◽

Defined Benefit ◽

Occupational Pensions ◽

The Past ◽

The Government ◽

Future Policy ◽

Set Up ◽

Defined Benefit Pensions

A key feature of the pension challenges currently facing Britain is the decline of the system of occupational pensions, particularly the decline of defined-benefit pensions. Here, it is often argued that the villain has been the government (in fact a succession of governments). In this view, over the past decades successive governments have delivered a catalogue of regulation and legislation that, though often well intentioned, has ultimately worked to the detriment of occupational pension provision. Alternatively, one might argue that we could have seen it all coming. It is important that future policy should be set up in a way that is sustainable and robust enough to cope with the huge uncertainty around the increase in life expectancy which we are hoping for. This chapter examines why, and when, things began to go wrong with the financing of British pensions.

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The Evolution of Private Sector Retirement Income From Defined-Benefit Pensions to Target-Date 401(k) Plans

Compensation & Benefits Review ◽

10.1177/0886368719864480 ◽

2019 ◽

Vol 51 (2) ◽

pp. 77-85

Author(s):

John G. Kilgour

Keyword(s):

Private Sector ◽

Pension Reform ◽

Pension Plans ◽

Retirement Income ◽

Defined Benefit ◽

Investment Control ◽

Target Date ◽

Target Date Funds ◽

Market Plan ◽

Defined Benefit Pensions

Traditional employer-sponsored defined-benefit pension plans in the private sector that provided lifetime benefits have declined precipitously since 1985. They have been largely replaced by Section 401(k) plans in which investment control, market risk and longevity risk have been transferred from the employer to the participant. Most participants opted for the low-yielding money market plan default option, which proved inadequate for providing viable retirement income. The Pension Reform Act of 2006 made two important changes to 401(k) plans: (1) allowed automatic enrollment and (2) allowed target-date funds as a “qualified default investment alternative.” This article examines the evolution from defined-benefit pensions to target-date funds and the closely related collective investment trusts.

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Individual Biases in Retirement Planning and Wealth Management

10.1093/acprof:oso/9780190269999.003.0019 ◽

2017 ◽

Author(s):

James E. Brewer ◽

Charles H. Self

Keyword(s):

Retirement Planning ◽

Developed Countries ◽

Defined Benefit ◽

Defined Contribution ◽

Market Returns ◽

Wealth Transfer ◽

Investor Returns ◽

Certified Financial Planner ◽

And Behavior ◽

Defined Benefit Pensions

Around the globe, the gradual move from defined benefit pensions to defined contribution pensions has increased the need for individual retirement planning. Examples of this include U.S. savings rates at historic lows, poor retirement prospects for citizens in developed countries, and the disparaging gap between investor returns and market returns. Research indicates that individuals working with a financial advisor generally receive better results than those who do not. Working with a Certified Financial Planner (CFP) gives an added level of security because a CFP takes an oath to keep the client’s interests ahead of his or her own. This chapter puts describes giving nudges to help individuals close the savings, investing, and behavior gaps that will improve their total wealth and wealth-transfer picture.

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