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FAIR TRANSITION FROM DEFINED BENEFIT TO TARGET BENEFIT

Published online by Cambridge University Press:  29 July 2021

Xiaobai Zhu ,
Mary Hardy  and
David Saunders
Xiaobai Zhu
Affiliation:
School of Insurance Finance and Actuarial Science Southwestern University of Finance and EconomicsChengdu, China E-Mail: xiaobaizhu@swufe.edu.cn
Mary Hardy*
Affiliation:
Department of Statistics and Actuarial Science University of Waterloo Waterloo, ON N2L 3G1, Canada E-Mail: mrhardy@uwaterloo.ca
David Saunders
Affiliation:
Department of Statistics and Actuarial Science University of Waterloo Waterloo, ON N2L 3G1, Canada E-Mail: dsaunders@uwaterloo.ca
*
E-Mail: mrhardy@uwaterloo.ca
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Abstract

Target benefit (TB) plans that incorporate intergenerational risk sharing have been demonstrated to be welfare improving over the long term. However, there has been little discussion of the short-term benefits for members in a defined benefit (DB) plan that is transitioning to TB. In this paper, we adopt a two-step approach that is designed to ensure the long-term sustainability of the new plan, without unduly sacrificing the benefit security of current retirees. We propose a cohort-based transition plan for reducing intergenerational inequity. Our study is based on simulations using an economic scenario generator with some theoretical results under simplified settings.

Keywords

Pensionsintergenerational risk sharingtarget benefit planfairnessC61D64J32
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 51 , Issue 3 , September 2021 , pp. 873 - 904
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of The International Actuarial Association

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