Optimal Choice between Defined Contribution and Cash Balance Pension Schemes: Balancing Interests of Employers and Workers
In the context of pension plans, the employer and the worker have distinct interests and face different risks. The worker seeks higher retirement benefits, while the employer aims to minimize the cost of fulfilling his obligations. To address these diverse needs, the defined contribution plan manage...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
MDPI AG
2023-07-01
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| Series: | Risks |
| Subjects: | |
| Online Access: | https://www.mdpi.com/2227-9091/11/7/135 |
| _version_ | 1797587605583298560 |
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| author | Vanessa Hanna Pierre Devolder |
| author_facet | Vanessa Hanna Pierre Devolder |
| author_sort | Vanessa Hanna |
| collection | DOAJ |
| description | In the context of pension plans, the employer and the worker have distinct interests and face different risks. The worker seeks higher retirement benefits, while the employer aims to minimize the cost of fulfilling his obligations. To address these diverse needs, the defined contribution plan managed with participating life insurance (DC-PL) and the cash balance plan managed with unit-linked insurance (CB-UL) serve as suitable choices. The multi-criteria analysis is conducted using the cumulative prospect theory model to measure the utility of the parties involved toward a mixed product combining these two pension plans. By assigning weights to risk measures and maximizing utilities, the paper employs both additive utility and Nash equilibrium approaches. The results reveal that the CB-UL plan aligns with employers’ interests, offering potential financial gains, while the DC-PL plan attracts workers due to its profit-sharing aspect. Significantly, when equal importance is given to both parties, the CB-UL plan emerges as the prevailing choice. This study contributes to the understanding of pension plan design and decision-making dynamics between employers and workers, providing valuable insights for achieving a balance between retirement benefits and cost management. |
| first_indexed | 2024-03-11T00:41:17Z |
| format | Article |
| id | doaj.art-b428a6f6e8ee44cea0b525425d612602 |
| institution | Directory Open Access Journal |
| issn | 2227-9091 |
| language | English |
| last_indexed | 2024-03-11T00:41:17Z |
| publishDate | 2023-07-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Risks |
| spelling | doaj.art-b428a6f6e8ee44cea0b525425d6126022023-11-18T21:14:56ZengMDPI AGRisks2227-90912023-07-0111713510.3390/risks11070135Optimal Choice between Defined Contribution and Cash Balance Pension Schemes: Balancing Interests of Employers and WorkersVanessa Hanna0Pierre Devolder1Institute of Statistics, Biostatistics and Actuarial Sciences, Université Catholique de Louvain, 1348 Louvain-la-Neuve, BelgiumInstitute of Statistics, Biostatistics and Actuarial Sciences, Université Catholique de Louvain, 1348 Louvain-la-Neuve, BelgiumIn the context of pension plans, the employer and the worker have distinct interests and face different risks. The worker seeks higher retirement benefits, while the employer aims to minimize the cost of fulfilling his obligations. To address these diverse needs, the defined contribution plan managed with participating life insurance (DC-PL) and the cash balance plan managed with unit-linked insurance (CB-UL) serve as suitable choices. The multi-criteria analysis is conducted using the cumulative prospect theory model to measure the utility of the parties involved toward a mixed product combining these two pension plans. By assigning weights to risk measures and maximizing utilities, the paper employs both additive utility and Nash equilibrium approaches. The results reveal that the CB-UL plan aligns with employers’ interests, offering potential financial gains, while the DC-PL plan attracts workers due to its profit-sharing aspect. Significantly, when equal importance is given to both parties, the CB-UL plan emerges as the prevailing choice. This study contributes to the understanding of pension plan design and decision-making dynamics between employers and workers, providing valuable insights for achieving a balance between retirement benefits and cost management.https://www.mdpi.com/2227-9091/11/7/135cash balancedefined contributionparticipating contractunit-linked contractcumulative prospect theorymulti-criteria approach |
| spellingShingle | Vanessa Hanna Pierre Devolder Optimal Choice between Defined Contribution and Cash Balance Pension Schemes: Balancing Interests of Employers and Workers Risks cash balance defined contribution participating contract unit-linked contract cumulative prospect theory multi-criteria approach |
| title | Optimal Choice between Defined Contribution and Cash Balance Pension Schemes: Balancing Interests of Employers and Workers |
| title_full | Optimal Choice between Defined Contribution and Cash Balance Pension Schemes: Balancing Interests of Employers and Workers |
| title_fullStr | Optimal Choice between Defined Contribution and Cash Balance Pension Schemes: Balancing Interests of Employers and Workers |
| title_full_unstemmed | Optimal Choice between Defined Contribution and Cash Balance Pension Schemes: Balancing Interests of Employers and Workers |
| title_short | Optimal Choice between Defined Contribution and Cash Balance Pension Schemes: Balancing Interests of Employers and Workers |
| title_sort | optimal choice between defined contribution and cash balance pension schemes balancing interests of employers and workers |
| topic | cash balance defined contribution participating contract unit-linked contract cumulative prospect theory multi-criteria approach |
| url | https://www.mdpi.com/2227-9091/11/7/135 |
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