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A Termination Rule for Pension Guarantee Funds

journal contribution
posted on 2025-02-12, 04:02 authored by Chunli Cheng, Filip Uzelac
AbstractA termination rule based on a critical funding ratio is proposed for a pension guarantee fund (PGF) that considers closing an underfunded pension plan. This ratio is determined by solving an expected utility maximization problem on behalf of plan beneficiaries subject to two constraints designed to preserve the PGF's viability. The first is an upper bound on the PGF's annual intervention probability; the second, a restriction on the expected shortfall of an underfunded pension plan that is not closed. Both too low and too high critical funding ratios hurt beneficiaries’ interests, depending on their degree of risk aversion.

History

Journal

Journal of Risk and Insurance

Volume

85

Pagination

275-300

Location

London, Eng.

Open access

  • No

ISSN

0022-4367

eISSN

1539-6975

Language

eng

Issue

1

Publisher

Wiley