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On Consumption-Indexed Public Pension Plans

  • Robert C. Merton

Using the known result that life-cycle investors will optimally hold portfolios whose returns are perfectly correlated with aggregate consumption, this paper uses a simple intertemporal general equilibrium model to explore the merits and feasibility of pension plans where both accumulations and benefits are linked to aggregate per capita consumption. Although the analysis is made within the framework of a public pension plan, it applies equally well to organized private pension plans where participation is virtually mandatory and where individually designed programs are not practical. An additional feature of the plans examined is that they provide for life annuities during both the accumulation and retirement phases of the life cycle.

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File URL: http://www.nber.org/papers/w0910.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0910.

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Date of creation: Jun 1982
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Publication status: published as Merton, Robert C. "On Consumption-Indexed Public Pension Plans." Financial Aspects of the U.S. Pension System, edited by Zvi Bodie and John B. Shoven. Chicago: UCP, (1984), pp. 259-290.
Handle: RePEc:nbr:nberwo:0910
Note: PE
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