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Pensions as Retirement Income Insurance

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  • Bodie, Zvi

Abstract

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?
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Suggested Citation

  • Bodie, Zvi, 1990. "Pensions as Retirement Income Insurance," Journal of Economic Literature, American Economic Association, vol. 28(1), pages 28-49, March.
    • Handle: RePEc:aea:jeclit:v:28:y:1990:i:1:p:28-49
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    References listed on IDEAS

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    1. James H. Stock & David A. Wise, 1990. "The Pension Inducement to Retire: An Option Value Analysis," NBER Chapters, in: Issues in the Economics of Aging, pages 205-230, National Bureau of Economic Research, Inc.
    2. B. Douglas Bernheim & John B. Shoven, 1988. "Pension Funding and Saving," NBER Chapters, in: Pensions in the U.S. Economy, pages 85-114, National Bureau of Economic Research, Inc.
    3. Kotlikoff, Laurence J & Spivak, Avia, 1981. "The Family as an Incomplete Annuities Market," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 372-391, April.
    4. Zvi Bodie, 1988. "Inflation, Index-Linked Bonds, and Asset Allocation," NBER Working Papers 2793, National Bureau of Economic Research, Inc.
    5. repec:hoo:wpaper:e-88-29 is not listed on IDEAS
    6. Zvi Bodie, 1988. "Pension Fund Investment Policy," NBER Working Papers 2752, National Bureau of Economic Research, Inc.
    7. Robert C. Merton & Zvi Bodie & Alan Marcus, 1987. "Pension Plan Integration As Insurance Against Social Security Risk," NBER Chapters, in: Issues in Pension Economics, pages 147-172, National Bureau of Economic Research, Inc.
    8. Jeremy I. Bulow, 1982. "What are Corporate Pension Liabilities?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 97(3), pages 435-452.
    9. Zvi Bodie & Alex Kane & Robert L. McDonald, 1986. "Risk and Required Returns on Debt and Equity," NBER Chapters, in: Financing Corporate Capital Formation, pages 51-66, National Bureau of Economic Research, Inc.
    10. Gary S. Fields & Olivia S. Mitchell, 1984. "Retirement, Pensions, and Social Security," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262060914, April.
    11. Zvi Bodie & John B. Shoven & David A. Wise, 1988. "Introduction to "Pensions in the U.S. Economy"," NBER Chapters, in: Pensions in the U.S. Economy, pages 1-8, National Bureau of Economic Research, Inc.
    12. Hemming, Richard & Kay, John A, 1982. "The Costs of the State Earnings Related Pension Scheme," Economic Journal, Royal Economic Society, vol. 92(366), pages 300-319, June.
    13. Clark, Robert L. & Gohmann, Stephan F. & McDermed, Ann A., 1988. "Declining Use Of Defined Benefit Pension Plans: Is Federal Regulation The Reason?," Department of Economics and Business - Archive 259433, North Carolina State University, Department of Economics.
    14. Bodie, Zvi & Shoven, John B. & Wise, David A. (ed.), 1987. "Issues in Pension Economics," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226062846.
    15. Zvi Bodie & John B. Shoven & David A. Wise, 1988. "Pensions in the U.S. Economy," NBER Books, National Bureau of Economic Research, Inc, number bodi88-1.
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