Risk Sharing Pension Plans
Mary Hardy, University of Waterloo
David Saunders, University of Waterloo
Xiaobai Zhu, Southwestern University of Finance and Economics
This project adapts results from theoretical, stylized work on pension design, to explore a form of Target Benefit (TB) plan that allows for structured, transparent intergenerational risk sharing (IRS). It compares the IRS plan design with the traditional Defined Benefit (DB) design, based on five broad areas of comparison: affordability (average cost), sustainability (volatility of costs), efficiency, adequacy of benefits, and fairness. The TB design presented in this project is simple and transparent, especially compared with some of the target benefit plans that have been implemented, and yet works well to meet the needs of both contributors and beneficiaries.
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