Retirement Shares Plan: A New Model of Risk Sharing
Published in Mitchell, O. and R. Shea (Eds.) (2016). Reimagining Pensions: The Next 40 Years. Oxford, UK: Oxford University Press.
Posted: 14 Nov 2014 Last revised: 3 Apr 2020
Date Written: September 1, 2014
Abstract
Investment risk and longevity risk are borne by the plan sponsor in a defined benefit (DB) plan or by the plan participant in a defined contribution (DC) plan. By contrast, our proposed Retirement Shares Plan (RSP) allocates the longevity risk to the plan sponsor and investment risk to the plan participant. The RSP allows the participant sufficient control over the investment risk to tailor that risk to his specific circumstances. This allocation of risk provides predictable and stable cost to the plan sponsor with little chance of unfunded liabilities. The retiree receives lifetime income and potential inflation protection.
Keywords: investment risk, longevity risk, Retirement Shares Plan
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