Optimal Investment Policies for Hybrid Pension Plans - Analyzing the Perspective of Sponsors and Members

Peter Albrecht (), Joachim Coche (), Raimond Maurer () and Ralph Rogalla ()
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Peter Albrecht: Sonderforschungsbereich 504, Postal: L 13, 15, D-68131 Mannheim
Joachim Coche: European Central Bank, Postal: P.O.Box 16 03 19, 60066 Frankfurt am Main
Raimond Maurer: Lehrstuhl fuer Investment, Portfolio Management und Alterssicherung, Postal: Johann Wolfgang Goethe-Universitaet Frankfurt am Main
Ralph Rogalla: Department of Finance, Postal: Johann Wolfgang Goethe-Universitaet Frankfurt am Main

No 05-28, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: This paper analyzes investment strategies in the context of alternative hybrid pension plans which are optimal either from the perspective of the plan sponsor or the beneficiaries. The focus is in particular on how the introduction of minimum and maximum limits for pension benefits as well as minimum guarantees and caps on the return of the members’ individual investment accounts affect the investment decision. The study finds that portfolio choice of sponsor and beneficiaries shows substantial differences depending on the exact plan design and the beneficiaries’ risk aversion. The introduction of caps on investment returns emerged a possible means to reduce such differences and to share investment risks and returns more equally between sponsor and beneficiaries.

Pages: 24 pages
Date: 2005-04-18
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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