Hostname: page-component-cd9895bd7-fscjk Total loading time: 0 Render date: 2024-12-23T08:31:29.360Z Has data issue: false hasContentIssue false
  • English
  • Français

Movements of pension contributions and fund levels when rates of return are random

Published online by Cambridge University Press:  20 April 2012

Daniel Dufresne
Daniel Dufresne
Affiliation:
Department of Mathematics, Statistics and Actuarial Science, Laval University, Quebec
Get access Rights & Permissions [Opens in a new window]

Extract

This paper proposes a simple model for studying the variability of contribution rates and fund levels, when rates of return are random. The funding methods considered are those which (1) produce an actuarial liability (AL) and a normal cost (NC), and which (2) adjust the latter by a constant fraction ‘k’ of the difference between AL and the actual fund (this discrepancy is known as the ‘unfunded liability’; for a description of actuarial cost methods the reader is referred to Trowbridge (1952), Winklevoss (1977) or Turner et al. (1984)). Thus at every valuation date

total contribution = normal cost + k × (unfunded liability).

Type
Research Article
Information
Journal of the Institute of Actuaries , Volume 115 , Issue 3 , September 1988 , pp. 535 - 544
Copyright
Copyright © Institute and Faculty of Actuaries 1988

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Dufresne, D. (1986a). Pension funding and random rates of return, In: Insurance and Risk Theory, ed. by Goovaerts, M. et al. Riedel, Dordrecht, Holland.Google Scholar
Dufresne, D. (1986b). The Dynamics of Pension Funding. Ph.D. Thesis, The City University, Department of Mathematics.Google Scholar
Panjer, H. H. & Bellhouse, D. R. (1980). Stochastic modelling of interest rates with applications to life contingencies. J.R.I. 47, 91–110.Google Scholar
Trowbridge, C. L. (1952). Fundamentals of pension funding. T.S.A. 4, 17–43.Google Scholar
Turner, M. J. et al. (1984). Codification of Pension Funding Methods. Pension Standards Joint Committee of the Institute and Faculty of Actuaries.Google Scholar
Wilkie, A. D. (1987). Stochastic investment models-theory and applications. Insurance; Mathematics and Economics 6, 65–83.CrossRefGoogle Scholar
Winklevoss, H. E. (1977). Pension Mathematics: With Numerical Illustrations. Irvin, Homewood, Illinois.Google Scholar