Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/167847
Authors: 
Chen, An
Uzelac, Filip
Year of Publication: 
2015
Citation: 
[Journal:] Risks [ISSN:] 2227-9091 [Volume:] 3 [Year:] 2015 [Issue:] 1 [Pages:] 77-102
Abstract: 
This paper compares two different types of private retirement plans from the perspective of a representative beneficiary: a defined benefit (DB) and a defined contribution (DC) plan. While salary risk is the main common risk factor in DB and DC pension plans, one of the key differences is that DB plans carry portability risks, whereas DC plans bear asset price risk. We model these tradeoffs explicitly in this paper and compare these two plans in a utility-based framework. Our numerical analysis focuses on answering the question of when the beneficiary is indifferent between the DB and DC plan. Most of our results confirm the findings in the existing literature, among which, e.g., portability losses considerably reduce the relative attractiveness of the DB plan. However, we also find that the attractiveness of the DB plan can decrease in the level of risk aversion, which is inconsistent with the existing literature.
Subjects: 
defined benefit plan
defined contribution plan
portability risk
asset price risk
salary risk
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/4.0/
Document Type: 
Article
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