Essays On Pension Finance And Dynamic Asset Allocation
Source: Tilburg University
In most countries, pensions are provided in two major forms: Defined Benefit (DB) and Defined Contribution (DC). Under DB pension schemes, the employee's pension benefit is determined by a formula that takes into account such factors as years of service for the employer and in most cases, wages or salary. Pension legislation often requires plan sponsors to make good on these promises even if the underlying value of the pension reserve falls short. Thus, pension sponsors, rather than pension plan participants, bear pension investment and longevity risks. The aging population and the international move towards the market-based accounting standard, however, have placed substantial funding pressure on DB plans.