Deterministic Modeling of Defined-Contribution Pension Funds

Zaki Khorasanee

North American Actuarial Journal, 1997, vol. 1, issue 4, 83-99

Abstract: Formulas are derived to model the response of a money purchase, defined-contribution pension fund to the following types of investment shock: (1) an instantaneous fall in the value of the fund assets and (2) a permanent, uniform reduction in the rate of earned interest. An alternative defined-contribution fund, incorporating a variable defined-benefit scale, is then proposed, and its responses to the same investment shocks are compared with those of the money purchase fund. The comparison shows that the variable defined-benefit approach offers a useful alternative to the money purchase principle for defined-contribution pension funds.

Date: 1997
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DOI: 10.1080/10920277.1997.10595653

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