scholarly journals Optimization of the Actuarial Model of Defined Contribution Pension Plan

2014 ◽  
Vol 2014 ◽  
pp. 1-7
Author(s):  
Yan Li ◽  
Yuchen Huang ◽  
Yancong Zhou
Keyword(s):  
Pension Plan ◽  
Pension Plans ◽  
Current Status ◽  
Defined Contribution ◽  
Replacement Ratio ◽  
Investment Rate ◽  
Defined Contribution Pension Plan ◽  
Actuarial Model

The paper focuses on the actuarial models of defined contribution pension plan. Through assumptions and calculations, the expected replacement ratios of three different defined contribution pension plans are compared. Specially, more significant considerable factors are put forward in the further cost and risk analyses. In order to get an assessment of current status, the paper finds a relationship between the replacement ratio and the pension investment rate using econometrics method. Based on an appropriate investment rate of 6%, an expected replacement ratio of 20% is reached.

scholarly journals Determining Equivalent Administrative Charges for Defined Contribution Pension Plans under CEV Model

2018 ◽  
Vol 2018 ◽  
pp. 1-10
Author(s):  
Hongjing Chen ◽  
Zheng Yin ◽  
Tianhao Xie
Keyword(s):  
Pension Plan ◽  
Pension Plans ◽  
Defined Contribution ◽  
Power Utility ◽  
Cev Model ◽  
Constant Elasticity ◽  
Constant Elasticity Of Variance ◽  
The Maximum Principle ◽  
Equivalent Equation ◽  
Defined Contribution Pension Plan

In defined contribution pension plan, the determination of the equivalent administrative charges on balance and on flow is investigated if the risk asset follows a constant elasticity of variance (CEV) model. The maximum principle and the stochastic control theory are applied to derive the explicit solutions of the equivalent equation about the charges. Using the power utility function, our conclusion shows that the equivalent charge on balance is related to the charge on flow, risk-free interest rate, and the length of accumulation phase. Moreover, numerical analysis is presented to show our results.

The effect of age on portfolio choices: evidence from an Italian pension fund

2014 ◽  
Vol 13 (4) ◽  
pp. 389-419 ◽  
Author(s):  
GIUSEPPE CAPPELLETTI ◽  
GIOVANNI GUAZZAROTTI ◽  
PIETRO TOMMASINO
Keyword(s):  
Stock Prices ◽  
Older Workers ◽  
Fixed Effects ◽  
Pension Plan ◽  
Defined Contribution ◽  
Risky Assets ◽  
Portfolio Choices ◽  
Defined Contribution Pension Plan ◽  
Recent Financial Crisis ◽  
Effect Of Age

AbstractAccording to optimal portfolio theories, investors should reduce their exposure to stock market risk as they grow old. Indeed, older workers, with only a few years left before retirement, are particularly vulnerable to unexpected falls in stock prices. Despite the theoretical and – as shown by the recent financial crisis – policy relevance of the issue, empirical evidence on this topic has been scant and inconclusive. The aim of the present paper is to assess the effect of age on portfolio choices, using a new panel dataset from an Italian defined-contribution pension plan. We find that on average holdings of risky assets do indeed significantly decrease with age. However, the effect is non-linear, being much stronger in the last part of one's career. Moreover, we also document that inertial behaviour is quite widespread, and can be very costly. Results are confirmed when we control for individual fixed effects and cohort effects.

The effects of risk aversion and density of contribution on comparisons of administrative charges in individual account pension systems

2016 ◽  
Vol 16 (1) ◽  
pp. 1-20 ◽  
Author(s):  
LUIS CHAVEZ-BEDOYA
Keyword(s):  
Risk Aversion ◽  
Pension System ◽  
Pension Plan ◽  
Defined Contribution ◽  
Individual Retirement Accounts ◽  
Terminal Wealth ◽  
Individual Account ◽  
Retirement Accounts ◽  
Defined Contribution Pension Plan ◽  
Accumulation Phase

AbstractThis paper studies the effects of risk aversion and density of contribution (DoC) on comparisons of proportional charges on flow (contributions) and balance (assets) during the accumulation phase of a defined-contribution pension plan in a system of individual retirement accounts. If the participant's degree of risk aversion increases and both charges yield the same expected terminal wealth, then the charge on balance improves with respect to the charge on flow when performing comparisons that examine the ratio between the resulting expected utilities of terminal wealth. When this methodology is applied to the Peruvian Private Pension System, empirical results demonstrate that the aforementioned result also holds for arbitrary charges on flow and balance and that the effect of DoC on these comparisons is nearly negligible for most of the assessed scenarios.

How defined contribution plans and 401(k)s affect employer pension costs

2006 ◽  
Vol 5 (2) ◽  
pp. 175-196 ◽  
Author(s):  
TERESA GHILARDUCCI ◽  
WEI SUN
Keyword(s):  
Fixed Effects ◽  
Pension Plan ◽  
Ordinary Least Squares ◽  
Pension Plans ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Defined Contribution Plans ◽  
Pension Costs ◽  
Administrative Expenses ◽  
Pension Contribution

We investigate the pension choices made by over 700 firms between 1981 and 1998 when DC plans expanded and overtook DB plans. Their average pension contribution per employee dropped in real terms from $2,140 in 1981 to $1,404 in 1998. At the same time, the share of their pension contributions attributed to defined contribution plans was 23% in 1981 and increased to 68% in 1998. By analyzing pension plan data from the IRS Form 5500 and finances of the plan's sponsoring employer from COMPUSTAT with a fixed-effects ordinary least squares model and a simultaneous model, we find that a 10% increase in the use of defined contribution plans (including 401(k) plans) reduces employer pension costs per worker by 1.7–3.5%. This suggests firms use DCs and 401(k)s to lower pension costs. Lower administrative expenses may also explain the popularity of DC plans. Although measuring a firm's pension cost per worker may be a crude way to judge a firm's commitment to pensions, this study suggests that firms that provide both a traditional defined benefit and a defined contribution plan are the most committed because they spend the most on pensions. Further research, especially case studies, is vital to understand employers' commitment to employment-based pension plans.

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