Retirement Shares Plan: A New Model for Risk Sharing
Retirement Shares Plan: A New Model for Risk Sharing
Investment risk and longevity risk are borne by the plan sponsor in a defined benefit plan or by the plan participant in a defined contribution plan. By contrast, a proposed new Retirement Shares Plan (RSP) would allocate longevity risk to the plan sponsor and investment risk to the plan participant. The RSP also permits the participant to retain some control over the investment risk, so as to tailor that risk to his specific circumstances. This allocation of risk provides predictable and stable cost to the plan sponsor with little change of unfunded liabilities. The retiree received lifetime income and potential inflation protection.
Keywords: investment risk, longevity risk, Retirement Shares Plan, risk sharing, income protection
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