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Pensions as Retirement Income Insurance

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  • Zvi Bodie

Abstract

This paper develops the view that employer-sponsored pension plans are best understood as retirement income insurance for employees and from that perspective addresses a number of questions regarding the reasons for their existence, their design, and their funding and investment policies. The most important of these questions are: - Why do employers provide pension plans for their employees and why is participation usually mandatory? - Why is the defined benefit form of pension plan the dominant one rather than defined contribution? - Why are the payout options under most plans limited to life annuities? - Why are most plans integrated with Social Security? - Why don't corporate pension plans follow the extreme funding and asset allocation policies that seem to be optimal from the perspective of shareholder wealth maximization? - Why do employers often make ad hoc increases in pension benefits not strictly required under the formula in defined benefit plans? - Why don't private pensions offer inflation insurance?

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File URL: http://www.nber.org/papers/w2917.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2917.

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Date of creation: Apr 1989
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Handle: RePEc:nbr:nberwo:2917

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