VALUATION OF PENSION BENEFIT GUARANTEES AND TERMINATION CONDITIONS

Abstract

We develop a model to estimate salary-based premiums for pension benefit guarantees by simultaneously considering a stochastic interest rate and three practical pension plan termination conditions. We show the relationship among premium rates, a plan’s funding level, sponsoring firm’s capital position, early lapse, and a participant’s years of service. We also show how the regulatory intervention policy interacts with a plan’s funding level and a sponsor’s capital position and how it affects the pension insurance cost.

Citation

Lee, J.-P., Lee, S.-C. and Yu, M.-T. (2003), "VALUATION OF PENSION BENEFIT GUARANTEES AND TERMINATION CONDITIONS", Research in Finance (Research in Finance, Vol. 20), Emerald Group Publishing Limited, Leeds, pp. 159-180. https://doi.org/10.1016/S0196-3821(03)20009-5