Pension Plans Research Articles

Time-consistent strategies between two competitive DC pension plans with the return of premiums clauses and salary risk

. In practice, there is always competition among different pension managers. The competitive pension managers are concerned about their relative performance to make better decisions. In addition, to protect the rights of plan members who die before retirement, most of the defined contribution (DC) pension plans contain return of premiums clauses. In this article, we introduce the return of premiums clauses into two competitive DC pension plans with salary risk. Each pension manager cares about not only his own terminal wealth but also his relative wealth versus his competitor. Both the pension managers are allowed to invest the premiums in a financial market, which consists of one risk-free asset and one risky asset whose price process follows the constant elasticity of variance (CEV) model. We investigate the time-consistent investment strategies of the two pension managers under the mean-variance (MV) criterion. The aim of each pension manager is to maximize the mean and minimize the variance of his relative terminal wealth. The explicit expressions of the time-consistent strategies and the efficient frontiers are obtained via applying the extended stochastic optimal control theory. Some special cases are also discussed in detail. Finally, a numerical simulation demonstrates the results obtained.

Optimal Investment Strategies for DC Pension Plan with Administrative Fees and Return of Premiums Clauses Under the Heston Model

Optimal Investment Strategies for DC Pension Plan with Administrative Fees and Return of Premiums Clauses Under the Heston Model

Optimal VIX-linked structure for the target benefit pension plan

AbstractIn this paper, we study the optimal VIX-linked target benefit (TB) pension design. By applying the dynamic programming approach, we show the optimal risk-sharing structure for the benefit payment exhibits a linear form that consists of three components: (1) a model-robust performance adjustment, (2) a counter-cyclical volatility adjustment that depends on the VIX index, and (3) a TB level that is partially indexed to the cost-of-living adjustment. Differences between our results and the previous literature are highlighted via both theoretical derivations and numerical illustrations.

Retirement Plan and Long-term Savings Pattern among Private College Faculty

In contemporary years, there has been an increasing acknowledgement of the significance of retirement planning and long-term savings patterns among faculty members in academic institutions. As the landscape of higher education continues to evolve, faculty members are increasingly being encouraged to take a proactive approach to securing their financial futures. Traditionally, tenure-track positions offered a sense of job security and retirement benefits through pension plans. However, the shifting dynamics within academia, including the rise of adjunct and part-time positions, have prompted a reevaluation of retirement planning strategies. Faculty members are now faced with a more diverse range of employment arrangements, leading to varying access to retirement benefits and different savings challenges. In response, universities and colleges have begun to offer more comprehensive financial education and planning resources tailored to faculty needs. Seminars, workshops, and one-on-one consultations are being provided to help faculty members navigate the complexities of retirement options, investment strategies and other investment accounts. Moreover, faculty members are increasingly encouraged to diversify their retirement portfolios, considering a mix of traditional and alternative investments to mitigate risks and potentially enhance returns. This shift aligns with the broader trend in personal finance toward a more proactive and adaptable approach to retirement planning. The Coimbatore city is the study area and 200 college faculty members from private college have been selected for the study. The primary data have been collected using Google forms. In conclusion, the retirement plan and long-term savings pattern among faculty are undergoing significant changes in response to the evolving landscape of higher education and the diverse employment arrangements available. With universities taking a more active role in providing tailored financial guidance, faculty members are better equipped to make informed decisions about their retirement futures and secure their financial well-being.

Robust time-consistent strategy for the defined contribution pension plan with a minimum guarantee under ambiguity

Robust time-consistent strategy for the defined contribution pension plan with a minimum guarantee under ambiguity

Sustaining Retirement during Lockdown: Annuitized Income and Older American’s Financial Well-Being before and during the COVID-19 Pandemic

The landscape of employer-sponsored retirement plans in the U.S. has changed dramatically during the past few decades as more and more private-sector employers have decided to freeze or terminate traditional pension plans. Defined contribution (DC) plans became the primary choice or the only choice for employees to participate in employer-sponsored retirement plans. In the next ten to twenty years, the income from pension plans will only count for a third of the total retirement income for GenXers when compared to their baby boomer counterparts. It is important for research to provide evidence on how the change in retirement income resources impacts retirees’ retirement security and financial wellness. Using Health and Retirement Study (HRS) data before and during the COVID-19 pandemic, this study examines the association between annuitized income and various measures of older Americans’ financial well-being over time, particularly during the pandemic. This study finds that receiving annuitized income has a statistically significant relationship with reduced subjective financial well-being for both measurements, while only one of the measures of objective well-being, having liquid assets greater than the median household income, has a statistically significant positive relationship with receiving annuitized income.

Misleading Motives: Incentives for Accounting Bias in Not-for-Profit Pension Plans

In this study, we examine whether not-for-profit organizations actively manage their pension accounting assumptions and whether their assumptions are, as prior research suggests, more aggressive than those of for-profit organizations. Using a 17-year panel dataset collected from audited financial statements, we compare the accounting assumptions (the expected rate of return and the discount rate) of not-for-profit and for-profit firms. We also examine the not-for-profit sample alone to test for accounting bias motivated by various financial incentives. We model accounting assumptions as levels (between-firms) as well as changes over time (within-firms). Contrary to prior research, we find no evidence that not-for-profits use more aggressive assumptions than for-profits. Furthermore, we find that most of the accounting biases of not-for-profits are explained by between-firm variation rather than within-firm variation, suggesting that although not-for-profits use biased assumptions, they may not actively adjust them to target financial benchmarks.

Global Governance Implications for Responsible Investing in Canada: An Analysis of Public Service Pension Plans Investment Policies

Global Governance Implications for Responsible Investing in Canada: An Analysis of Public Service Pension Plans Investment Policies

The gender gap in life expectancy and lifespan disparity as social risk indicators for international countries: A fuzzy clustering approach

The careful monitoring of longevity risk has a pivotal role in many fields such as the economy, demography, and social sciences. Despite the life expectancy at birth has increased steadily over the last century, it conceals gender-specific differences worldwide. Indeed, longevity risk varies according to gender-specific risk, where, a single-risk-factor effect differs from different lifestyles. This can create problems for life insurers, pension plans and social security schemes that provide benefits linked to people’s illness, death or survival. This study considers gender differences in longevity heterogeneity in 32 international countries with the aim of identifying homogeneous groups of countries. To do this, we conduct a longitudinal analysis over the period 1990–2015 using the Dynamic Time Warping-based Fuzzy C-Medoids, and two cross-sectional analyses, one for the first year of the series (1990) and one for the last (2015), using the Fuzzy C-Medoids. We analyze longevity patterns with the double lens of lifespan disparity and life expectancy gender gap. The analyses allow us to highlight the characteristics of the countries considered and their trends according to their longevity dynamics, taking into account gender-related risk differences.

New Jersey

This article is a brief summary and update of the public school funding in the state of New Jersey for FY2022. The state of New Jersey’s per pupil expenditure rate is among the highest in the nation. The public education funding formula is a complex, student-based design that has bever been fully funded by the legislature. The New Jersey legislature passed the largest state budget in history during the 2021 session at $46.4 billion. The education budget is approximately 20% of the entire state budget. New Jersey public schools will receive $9.9 billion, an increase of $650 million in funding. Since 2018, the Murphy administration has increased K–12 formula aid by more than $1.8 billion. Charter schools are the main alternative to traditional public schooling in New Jersey. As of June 2021, there are 91 charter schools and approximately 57,453 students enrolled in these programs within the state. The major issues impacting P–12 include underfunded pension plans, equity of school funding, and special education funding. The legislature approved the governor’s recommended addition of $649.8 million in K–12 formula aid. This increase puts New Jersey on track to fully fund the formula by 2025.

Political budget cycle and unfunded pension liabilities in states in the USA

IMPACT Evidence shows that gubernatorial elections affect pension funding in US states. Contrary to expectations, this article shows that pension plans in election and post-election years tend to be better funded. Other political factors, such as partisanship and unionization, also play a role in funding state employees’ pension plans—the higher the level of unionization, the lower the pension funding. Institutional factors, including tax and expenditure limits (TELs), ‘rainy day funds’ (RDFs), and balanced budget requirements (BBRs), also affect pension funding. TELs positively affect pension funding, while the level of RDFs and the stringency of BBRs tend to reduce pension funding. These findings caution state fiscal administrators and state-level policy-makers as they indicate that political factors along with fiscal institutions are important to consider for their long-term impacts on the viability of pension plans. This article informs policy-makers in the USA and in other countries to exercise more caution during election years as electoral politics may affect pension funding. Political factors are critical in making fiscal decisions, and while this study focuses on the USA states, the lessons are equally important for pension administrators and policy-makers in other countries.

Hedging longevity risk under non-Gaussian state-space stochastic mortality models: A mean-variance-skewness-kurtosis approach

Longevity risk has recently become a high profile risk among insurers and pension plan sponsors. One way to mitigate longevity risk is to build a hedge using derivatives that are linked to mortality indexes. Longevity hedging methods are often based on the normality assumption, considering only the variance but no other (higher) moments. However, strong empirical evidence suggests that mortality improvement rates are driven by asymmetric and fat-tailed distributions, so that existing longevity hedging methods should be expanded to incorporate higher moments. This paper fills the gap by adopting a mean-variance-skewness-kurtosis approach based on non-Gaussian extensions of commonly-used stochastic mortality models, formulated in a state-space setting. On the basis of a general representation of these models, the authors derive (approximate) analytical expressions for the moments of the present values of the hedging instruments and the liability being hedged. These expressions are then integrated with a polynomial goal programming model, from which the optimal hedge portfolio is identified. Finally, the paper demonstrates the theoretical results with a real mortality data set and a range of hedger preferences.

Aged-adjusted pension plan, evidence from Israel

ABSTRACT We investigate the results of the Israeli pension reform that started at the beginning of 2016. This reform created aged, adjusted pension plans that are aimed to fit better the different age categories and protect the over 60 years old savers from the occurrence of a financial crisis close to their retirement. We find that all the over 60 years old funds have outperformed the financial market according to their preferred level of risk. On the other hand, because the financial market blossomed in recent years, they lost a yearly potential return of 1.64%. The pension tracks for under 50 years old savers have gained an extra of 0.73% return per year; however, not all funds in this age category have outperformed the market benchmarks. The reform did not have a substantial impact on the 50–60 years old track since the risk ingredient has not changed dramatically.

A Genetic Algorithm Approach to Optimal Asset Allocation of Defined Contribution Pension Funds: Evidence From India’s National Pension System

Life cycle asset allocation has recently gained popularity and is the default option in pension funds worldwide. A line of recent studies has refuted its glory and argues that a balanced fund with a fixed allocation throughout the investment horizon may yield better results. The question arises from these studies: What should be the balanced fund’s optimum asset allocation weight? Therefore, the present study uses Genetic Algorithm to obtain the optimum asset allocation weight for India’s defined contribution pension plan subscribers. To validate our result, the study compares the results of a Genetic Algorithm to the outcomes of widely used asset allocation techniques, notably the life cycle and equally weighted strategies. This study holds important policy implications as, given the size of the pension asset and the long investment duration, even a trivial increase in return will substantially impact investment outcomes, affecting the subscribers’ well-being in old age.

Resilience in a time of crisis: how COVID-19 pandemic insights are supporting a vibrant longevity risk transfer market

AbstractPension risk transfer and longevity risk transfer are now growing secular trends. From North America to Europe, companies are de-risking pension plans in near-record volumes and have continued to boldly do so throughout the pandemic—at or near the most favorable pricing experienced in years. The arrival of funded reinsurance on both sides of the Atlantic is bringing reinsurer capital and private assets to support the steady growth in the pension risk transfer market. Additionally, we have observed that the enduring low-rate environment and quest for uncorrelated risk has the world's largest investors directing billions into life reinsurance sidecars. How have these markets thrived during the worst global outbreak in a century? Key research on the pandemic's impact on pensioner life expectancy allowed prices to be set and transactions to proceed through a time of significant uncertainty.

Buy-ins, buy-outs, longevity bonds, and the creation of value

AbstractLongevity risk is the risk that people on average will live longer than expected. That potential increase in life expectancy exposes corporations and pension funds to the risk of having insufficient funds to pay a more extended stream of annuity benefits. Buy-ins, buy-outs, and longevity bonds provide pension funds with insurance and financial market instruments to hedge their longevity risk. The most straightforward instruments and the most robust markets are currently for buy-ins and buy-outs. The model developed here shows that these instruments transfer value to pension holders and, other things being equal, would not be used by firms since shareholder value is reduced. The analysis, however, also shows that these instruments can be used to solve the under-investment problem created by underfunded pension plans and so increase not only the pension fund value but also the corporate stock value.

Страхування життя як додаткове соціальне забезпечення

Introduction. Life insurance arises from the need for individuals to provide financial protection and security for themselves and their families. It can be used as a tool for accumulating financial resources and as a means of pension planning. Life insurance in Ukraine remains less developed compared to other European countries due to low confidence in insurance companies, a difficult economic situation in the country, and the lack of proper legislative regulation in this area of insurance. Problem Statement. The increasing proportion of elderly people, according to demographic projections, determines the corresponding requirements for reforming primarily the social security sphere, and life insurance could become one of the effective ways of supplemental social security. Purpose. To highlight the potentialities of using life insurance as supplemental social security. Methods. We used general scientific and special methods, i.e. analysis, synthesis, grouping, description, comparison, theoretical generalization, and abstract-logical methods. Results. It is emphasized that life insurance inherently aims at additional protection and support of the financial and social welfare of the population. It is noted that in most developed countries, life insurance is integrated into the social security system. It is proved that life insurance in Ukraine is not a mandatory part of the social security system, but is available on a voluntary basis through insurance companies. The number of insured citizens and life insurance contracts concluded by life insurers in Ukraine during the last 5 years has been analyzed. Research of the voluntary life insurance market in Ukraine has been conducted and an overview of the programs offered by insurance companies according to the classes of insurance has been made. Conclusions. Life insurance as an opportunity for supplemental social security has a significant potential in our country. However, the impact of some negative factors, in particular, military aggression, and an underdeveloped stock market hinders the development of the voluntary life insurance market and the possibility to expand the share of the insured population of our country. Taking into account statistics, which are aggravated by the military situation in the country, there is a need for clearly defined legislative conditions for the use of life insurance as a supplemental method of social security.

Corporate governance and shareholder-employee risk-shifting: Evidence from corporate pension plan sponsors

This study examines how corporate governance affects pension plan sponsors’ conflicting motives—risk-shifting vs. risk management—and their future pension funding status, R&D investments, and shareholder values. We focus on managers’ discretionary choices of expected rates of return on plan assets and discount rates for pension liabilities to capture risk-shifting motives and measure corporate governance quality through foreign equity ownership (strong monitoring) and stable equity ownership (weak monitoring). The evidence shows that well-governed firms use managerial risk-shifting to finance R&D and increase shareholder values. Risk-shifting by poorly-governed firms results in larger pension underfunding without increasing shareholder values.

An Equilibrium Strategy for Target Benefit Pension Plans with a Longevity Trend and Partial Information

This paper considers the problem of portfolio selection and adjustment for target benefit plans (TBP) with longevity trends and partial information. The longevity trends are modeled by a time-varying force function. The financial market consists of risk-free assets and stocks, in which the return rate of stocks is a stochastic process and cannot be completely observed. This paper adopts the mean-variance utility model as an optimization criterion. The aim is to maximize the terminal value of the pension fund and the excess pension benefit after the participant’s retirement. The optimization equations are developed in game theory to obtain explicit solutions for the equilibrium strategies. Finally, the influence of the longevity trend on the internal structure of the pension system and the sensitivity of the equilibrium strategies to the related parameters are explored by numerical analysis. The conclusion shows that this model’s results can provide stable and adequate retirement benefits for participants.

A STUDY ON LIC SCHEMES WITH REFERENCE TO CHILDREN AND WOMEN

Indian financial system is highly influenced by the banking and insurance sector which attracts a flow of savings and investments to the country. The Insurance sector in India is one of the growing sectors of the economy. The insurance sector, along with other elements of marketing, as well as financial infrastructure, have been touched and influenced by the process of liberalization and globalization in India. The customer is the king of the market. Life Insurance Company(LIC) deals in Intangible products, such as Insurance plans, Pension Plans, Unit Linked Plans, Micro Insurance Plans, Withdrawn Plans and, Health Plans. The process of insurance has evolved to safeguard the interests of people from uncertainty by providing certainty of payment at a given contingency. Issuing insurance policies at affordable rates helps to protect the capital of the people by investing funds into government securities. It provides customized insurance solutions based on their unique financial needs and risk profile, as well as assistance in resolving them. LIC is an insurance firm headquartered in Mumbai with 8 zone offices and 101 divisional offices. LIC provides mutual funds, health insurance, and investment management services in addition to life insurance. LIC is India’s largest firm, with 2048 completely computerized branches, 8 zonal offices, 113 divisional offices, 1381 satellite offices, and corporate offices spread around the country. In various Indian cities and towns, the country is divided into 54 customer zones and 25 service centers. For selling life insurance to the general public, LIC has 1,337,064 individual agents, 242 corporate agents, 89 referral agents, 98 brokers, and 42 banks. LIC aims to deploy the funds to the best advantage of the investors and the community as well. This research paper attempts to study the various schemes for a child and women, to know the factors influencing the choice of investors in choosing LIC Policy, and to analyze the performance of LIC by knowing customers' opinions.