Paper Status Tracking

Article
Author(s)

James Bishop, Phyllis Schumacher, Alan Olinsky

Affiliation(s)

James Bishop, Ph.D., Professor in Mathematics, Mathematics Department, Bryant University.
Phyllis Schumacher, Ph.D., Professor in Mathematics, Mathematics Department, Bryant University.
Alan Olinsky, Ph.D., Professor in Mathematics, Mathematics Department, Bryant University.

ABSTRACT

The focus of this paper is the effect of changes to employer sponsored retirement plans on employee retirement benefits. Today’s retirement benefits consist mainly of three types of plans: defined benefit (DB), defined contribution (DC), and “hybrid” plans. Many employers have changed the type of plan they offered in recent years. Specifically, there is a shift from DB plans to DC plans. A retirement benefit comparison is made between a DB plan and a DC plan under different scenarios which depend on years of work, market yield, interest rates, and predicted wage increases. Using simulation modeling, DB and DC benefits are compared over different career lengths for a worker with a starting salary of $50,000. Simulated fluctuations in annual market yield and average national wage increases are used to project DC balances. DB benefits are simulated using random fluctuations in both wage increases and interest rates used for lump sum conversions. The resulting simulated benefits show that DC plans are generally inferior to DB plans. In addition, simulated DC retirement account balances have a much higher standard deviation than the present value of traditional DB plan annuities. However, DB benefits that are converted to lump sums have standard deviations closer to those of DC lump sums due to the variability of interest rates used in the conversion of DB annuities to a lump sum. 

KEYWORDS

retirement, benefit projection, retirement simulation, defined contribution (DC), defined benefit (DB)

Cite this paper

References
Bishop, J., Schumacher, P., & Heeder, K. (2011). Comparison of retirement benefit plans in a changing economy. China-USA Business Review, 10(6), 469-474.
Coombes, A. (2009, October 6). Steady savers gained over 5-year period. Retrieved from http://www.marketwatch.com/story/401ks-took-big-but-not-devastating-hit-in-2008-2009-10-06
Green, L. (2003, October 29). What is a pension equity plan? Retrieved from http://www.bls.gov/opub/cwc/cm20031016ar01p1.htm 
Hamilton, B., & Burns, B. (2001, December 31). Reinventing retirement income in America. Retrieved from http://www.ncpa.org/pub/st248?pg=5
IRS. (2009, September 5). Choosing a retirement plan: Defined benefit plan. Retrieved from http://www.irs.gov/retirement/article/0,,id=108950,00.html
Kamenir, J. (2009). How to make defined benefit pension plans attractive to 21st century employers. Benefits Quarterly, 25(2), 51-56. 
Lowman, T. (2000, July 7). Actuarial aspects of cash balance plans. Retrieved from http://www.soa.org/files/pdf/actuarial_aspects.pdf
McGill, D., Brown, K., Haley, J., & Schieber, S. (2005). Fundamentals of private pensions. Oxford, N.Y.: Oxford University Press.

About | Terms & Conditions | Issue | Privacy | Contact us
Coryright © 2015 David Publishing Company All rights reserved, 616 Corporate Way, Suite 2-4876, Valley Cottage, NY 10989
Tel: 1-323-984-7526, 323-410-1082; Fax: 1-323-984-7374, 323-908-0457 , www.davidpublisher.com, Email: order@davidpublishing.com