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The B.E. Journal of Economic Analysis & Policy Contributions Volume 12, Issue 1 2012 Article 23 Timing of Retirement Plan Contributions and Investment Returns: The Case of Defined Benefit versus Defined Contribution Tomas Dvorak∗ ∗Union College, dvorakt@union.edu Recommended Citation Tomas Dvorak (2012) “Timing of Retirement Plan Contributions and Investment Returns: The Case of Defined Benefit versus Defined Contribution,” The B.E. Journal of Economic Analysis & Policy: Vol. 12: Iss. 1 (Contributions), Article 23. DOI: 10.1515/1935-1682.3110 Copyright c©2012 De

1 Introduction In the context of defined benefit and pension liabilities, Chambers et al. (2005) identify the main risk factors as: 1. interest rate risk, which affects the valuation of liabilities at any point of time; 2. salary inflation risk, in the case of salary-linked benefits; 3. mortality risk, the risk that future mortality is heavier or lighter than that assumed currently. The last of these risks is difficult to manage from a financial viewpoint (though reinsurance of pensions is a possibility). Bai et al. (2008) discuss how mortality risks can be

315 Thomas Fessler und Larry Sher Do Defined Benefit Plans Have a Future? Inhaltsübersicht I. The Rise of Defined Benefit Plans II. Law Changes Restrict Flexibility III. Impact of the Perfect Storm IV. The Enron Fallout V. The Prospect of Higher and More Volatile Contributions VI. Evolving Human Resources Trends VII. The Emergence of Defined Contribution Plans VIII.Enter Cash Balance Plans IX. The Cash Balance Saga X. US Government Support for Defined Benefit Plans Unclear 1. Social Security Could Be Shifting to Defined Contribution 2. Funding Proposals 3. Cash

Volume 5, Issue 1 2010 Article 2 Asia-Pacific Journal of Risk and Insurance IFRS Convergence: The Role of Stochastic Mortality Models in the Disclosure of Longevity Risk for Defined Benefit Plans Yosuke Fujisawa, University of Waterloo Johnny Siu-Hang Li, University of Waterloo Recommended Citation: Fujisawa, Yosuke and Li, Johnny Siu-Hang (2010) "IFRS Convergence: The Role of Stochastic Mortality Models in the Disclosure of Longevity Risk for Defined Benefit Plans," Asia-Pacific Journal of Risk and Insurance: Vol. 5: Iss. 1, Article 2. DOI: 10

5 Defined Benefit versus Defined Contribution Pension Plans: What are the Real Trade-offs? Zvi Bodie, Alan J. Marcus, and Robert C. Merton Although employer pension programs vary in design, they are usually classified into two broad types: defined contribution and defined ben- efit. These two categories are distinguished in the law under ERISA. Under a defined contribution (DC) plan each employee has an account into which the employer and, if it is a contributory plan, the employee make regular contributions. Benefit levels depend on the total contri

1 Who Owns the Assets in a Defined-Benefit Pension Plan? Jeremy 1. Bulow and Myron S. Scholes 1.1 Introduction Who owns the assets in the defined-benefit pension plans of corpora- tions? Some may feel that this question is easy to answer: pension funds are legal entities separate from the corporation. This distinction was made more explicit with the enactment of the Employees Retirement Income Security Act of 1974 (ERISA). The provisions of the Act reg- ulate the funding and investments of the fund as well as the benefits to employees. In addition, the

population of older people in the United States and around the world might lead to lower returns in finan- cial markets in the decades ahead. This chapter examines the effect of population aging on the demand for financial assets in retirement saving plans, particularly defined benefit (DB) plans, in the United States. It is part of a larger project that aims to evaluate the potential empirical importance of demographic trends on fi- nancial market returns in the United States. Our analysis focuses on re- 10 The Decline of Defined Benefit Retirement Plans and Asset Flows

-related regulations 8 Prefunding in a Defined Benefit Pension System The Finnish Case Jukka Lassila and Tarmo Valkonen 8.1 Introduction The pension system of Finland consists of earnings-related pensions that cover almost all paid work, and a residence-based national pension. There has been considerable rivalry, even battle, between these two parts, with the former now the undisputed winner. The Finnish earnings-related system has some rather unique features: It is statutory by law but largely privately run, and it has collected funds to smoothe the contribution in- creases due to

151 6 Adding Actuarial Estimates of Defined- Benefit Pension Plans to National Accounts Dominique Durant, David Lenze, and Marshall B. Reinsdorf The paucity of data on the growing risks to Wnancial stability during the run-up to the Wnancial crisis of 2007– 2008 has highlighted the need for better data on the entities classiWed in the Wnancial corporations sector in the System of National Accounts (SNA). For countries with high levels of participation in employer- sponsored deWned- beneWt (DB) plans, national accounts will take an important step toward

4 Optimal Funding and Asset Allocation Rules for Defined-Benefit Pension Plans J. Michael Harrison and William F. Sharpe 4.1 Introduction Considerable attention has been devoted to the funding of defined- benefit pension plans. Both the level of funding and the allocation of fund assets have been considered from the viewpoints of various interested parties (beneficiaries, corporate managers, corporate shareholders, and the Pension Benefit Guaranty Corporation). Both practical and theo- retical investigations have tended to characterize the asset