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Pensions as Retirement Income Insurance

  • Zvi Bodie

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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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
Date of revision:
Publication status: published as Journal of Economic Literature, March 1990, Vol. 28, No. 1.
Handle: RePEc:nbr:nberwo:2917
Note: ME
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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Web page: http://www.nber.org
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  1. Gary S. Fields & Olivia S. Mitchell, 1984. "Retirement, Pensions, and Social Security," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262060914, June.
  2. Zvi Bodie, 1988. "Pension Fund Investment Policy," NBER Working Papers 2752, National Bureau of Economic Research, Inc.
  3. Zvi Bodie & Alex Kane & Robert L. McDonald, 1986. "Risk and Required Returns on Debt and Equity," NBER Chapters, in: Financing Corporate Capital Formation, pages 51-66 National Bureau of Economic Research, Inc.
  4. Zvi Bodie & John B. Shoven & David A. Wise, 1988. "Introduction to "Pensions in the U.S. Economy"," NBER Chapters, in: Pensions in the U.S. Economy, pages 1-8 National Bureau of Economic Research, Inc.
  5. Bulow, Jeremy I, 1982. "What Are Corporate Pension Liabilities?," The Quarterly Journal of Economics, MIT Press, vol. 97(3), pages 435-52, August.
  6. Zvi Bodie & John B. Shoven & David A. Wise, 1987. "Issues in Pension Economics," NBER Books, National Bureau of Economic Research, Inc, number bodi87-1, June.
  7. Laurence J. Kotlikoff & Avia Spivak, 1979. "The Family as an Incomplete Annuities Market," UCLA Economics Working Papers 151, UCLA Department of Economics.
  8. Zvi Bodie & John B. Shoven & David A. Wise, 1988. "Pensions in the U.S. Economy," NBER Books, National Bureau of Economic Research, Inc, number bodi88-1, June.
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