Optimal supervisory rules for pension funds under diverse pension security mechanisms

Abstract

The present paper analyzes optimal supervisory rules for pension funds taking account of diverse pension security mechanisms: support provided by either a plan sponsor, a pension guarantee fund or by both. Assuming that the regulatory rule is either to control the shortfall probability or expected shortfall, we show that both the security mechanisms and risk measures used by the regulators have a substantial impact on the optimal regulation and hence need to be considered adequately when setting regulatory rules.