M. Zaki Khorasanee
Abstract
We propose a defined contribution pension plan with an explicitly defined benefit formula. Such a plan is expected to pay more stable and predictable benefits over time than one based on the money purchase principle. The properties of the plan are investigated through simulation. Methods for distributing surpluses and eliminating deficiencies that involve adjusting the rate of benefit accrual (rather than varying the rate of contribution) are discussed. The behavior of the plan under a scenario of persistently unfavorable investment experience is simulated, and methods for satisfactorily dealing with such a scenario are considered. The plan actuary is expected to play an important role in maintaining an appropriate balance between solvency and stability.
Key words and phrases: money purchase plan, simulation, equity index, investment
M. Zaki Khorasanee