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Annuity pricing in public pension plans: importance of interest rates

Published online by Cambridge University Press:  13 November 2019

Nino Abashidze ,
Robert L. Clark ,
Robert G. Hammond ,
Beth M. Ritter  and
David Vanderweide
Nino Abashidze
Affiliation:
Department of Economics, North Carolina State University, Raleigh, NC, USA
Robert L. Clark*
Affiliation:
Department of Economics, North Carolina State University, Raleigh, NC, USA
Robert G. Hammond
Affiliation:
Department of Economics, Finance, and Legal Studies, University of Alabama, Tuscaloosa, AL, USA
Beth M. Ritter
Affiliation:
Department of Management, Innovation, and Entrepreneurship, North Carolina State University, Raleigh, NC, USA
David Vanderweide
Affiliation:
Fiscal Research Division, North Carolina General Assembly, Raleigh, NC, USA
*
*Corresponding author. Email: robert_clark@ncsu.edu
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Abstract

This study examines the distribution options of 85 large public retirement plans covering general state employees, teachers, and local government employees. The interest rates used to price annuities vary considerably across the plans. As a result, retirees with the same monthly benefit if a single life benefit is chosen will have substantially different monthly benefits if they select a joint and survivor annuity. We examine the impact of variation in the pricing of annuity options using both cross-plan differences in interest rates and the change in the choice of annuity options in one plan after the price of options changes due to new assumed interest rates and mortality rates.

Keywords

Joint & survivor annuitiespricing of annuitiespublic pension plansH7J26J45
Type
Article
Information
Journal of Pension Economics & Finance , Volume 20 , Issue 1 , January 2021 , pp. 27 - 48
Copyright
Copyright © Cambridge University Press 2019

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