Pierre Devolder and Valérie Goffin
Abstract
We compare the unit credit and the unprojected individual level premium cost methods in a continuous time environment and show that the latter may produce unstable contribution rates in a dynamic environment. Specifically, assuming there are no unfunded liabilities, we prove that the unprojected individual level premium cost method may produce non-bounded contributions if benefits change too close to the normal retirement age.
Key words and phrases: pension funding, unit credit cost, individual level premium, unfunded liability
Corresponding Author:
Pierre Devolder
Institut des Sciences Actuarielles
Université Catholique de Louvain,
6 rue des Wallons
B-1348 Louvain-la-Neuve
E-mail: devolder@fin.ucl.ac.be
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