Pensions as Retirement Income Insurance

46 Pages Posted: 25 Jun 2004 Last revised: 27 Sep 2008

See all articles by Zvi Bodie

Zvi Bodie

Boston University - Department of Finance & Economics

Date Written: April 1989


This paper develops the view that employer-sponsored pension plans are best understood as retirement income insurance for employees and from that perspective addresses a number of questions regarding the reasons for their existence, their design, and their funding and investment policies. The most important of these questions are: - Why do employers provide pension plans for their employees and why is participation usually mandatory? - Why is the defined benefit form of pension plan the dominant one rather than defined contribution? - Why are the payout options under most plans limited to life annuities? - Why are most plans integrated with Social Security? - Why don't corporate pension plans follow the extreme funding and asset allocation policies that seem to be optimal from the perspective of shareholder wealth maximization? - Why do employers often make ad hoc increases in pension benefits not strictly required under the formula in defined benefit plans? - Why don't private pensions offer inflation insurance?

Suggested Citation

Bodie, Zvi, Pensions as Retirement Income Insurance (April 1989). NBER Working Paper No. w2917, Available at SSRN:

Zvi Bodie (Contact Author)

Boston University - Department of Finance & Economics ( email )

United States


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