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Traditionally, occupation pension plans are fully funded and
based on an architecture either in Defined Benefits (DB) or in
Defined Contributions (DC). In DB, the plan describes the
level of pension benefits (generally based on salaries and career
duration) and the contributions have then to be actuarially
computed. In DC, the plan describes the level of contributions and
the benefits are simply generated by the financial accumulation of
these contributions. However, hybrid solutions have emerged in the
international pension landscape, trying to combine in some sense
the logic of DB and of DC.
These new kinds of pension schemes have appeared as well for the
first pillar (social security) (Notional accounts or NDC for
instance) as for occupational pension plans (Cash Balance- CB). The
starting idea of CB (which are still fully funded solutions) is
similar to DC: The plan describes a level of contribution accrued
for each affiliate. Then these notional contributions are
accumulated using a notional return (fixed rate or interest rate
index defined ex ante) to deliver at retirement the pension
benefits. The return is notional because on the asset side, the
real financial returns of the pension fund can be different. This
discrepancy of returns generates real contributions to be paid by
the sponsor, different from the notional contributions allocated to
the individual accounts.
The objective of this web session is to give an overview of these
Cash Balance mechanisms and illustrate some interesting actuarial
problems of the topic. In a first part, we will define the concept
of CB and compare it with other pension schemes. We will present
advantages and disadvantages for all the parties. We will look at
the effect of introducing a legal minimum return in the system. The
second part is devoted to more quantitative studies. First, we will
develop some financial valuation issues induced by the technique.
We will look also at preferences between CB and DC in terms of
utility function as well for the sponsor as for the affiliates; we
will show in particular that we can express the problem as the Nash
equilibrium of a game between the sponsor and the
affiliates.
Your early-bird registration fee is € 150.00 plus 19% VAT for
bookings by 18 January 2024. After this date, the fee will be €
205.00 plus 19% VAT.
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