Risk Budgeting and Longevity Insurance:
Risk Budgeting and Longevity Insurance:
Strategies for Sustainable Defined Benefit Pension Funds
The extreme losses incurred in defined benefit pension plans during the financial crisis have called into question the conventional approach to managing pension risk. Defined benefit pension plans around the world are closing in response to years of intense market volatility and dramatic increases in life expectancy. The key question today is whether the defined benefit plans that remain open and continue to accrue benefits for employees can be sustained. Risk budgeting and disciplined risk management, combined with new techniques to insure longevity risk, can be used to sustain more pension funds and safeguard the health of the plan sponsors.
Keywords: Longevity risk, intergenerational risk, pension risk transfer, mortality shocks, financial crisis
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