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Rate of return guarantees for mandatory defined contribution plans

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  • John A. Turner
  • David M. Rajnes

Abstract

Many mandatory defined contribution systems provide a rate of return guarantee. The guarantees provided have generally been backed by a sequential combination of two or more of six different financing sources. Those sources are (1) reserve funds established within the pension fund, using investment earnings on the fund; (2) reserve funds established using funds provided by the owners of the pension fund management companies; (3) a defined benefit plan associated with the defined contribution plan; (4) central guarantee funds financed by contributions from pension funds; (5) funds provided by employers; and (6) the government. Nearly all the guarantees are first backed by a limited liability guarantee derived from investment earnings that would otherwise accrue to workers. In some instances, the guarantee may be funded by employers. Then they are backed by a guarantee financed by capital market institutions — pension fund managers directly or a central guarantee fund. Lastly, they are backed by an unfunded governmental guarantee with unlimited liability that is contingent on the insufficiency of private sector guarantees.

Suggested Citation

  • John A. Turner & David M. Rajnes, 2001. "Rate of return guarantees for mandatory defined contribution plans," International Social Security Review, John Wiley & Sons, vol. 54(4), pages 49-66.
    • Handle: RePEc:wly:intssr:v:54:y:2001:i:4:p:49-66
    DOI: 10.1111/1468-246X.t01-1-00104
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    Cited by:

    1. Pedraza, Alvaro & Pulga, Fredy, 2019. "Asset price effects of peer benchmarking: Evidence from a natural experiment," International Review of Economics & Finance, Elsevier, vol. 62(C), pages 53-65.
    2. Sule Sahin & Adem Yavuz Elveren, 2009. "A Cost Analysis of a Minimum Pension Guarantee for the Individual Pension System in Turkey," Working Paper Series, Department of Economics, University of Utah 2009_13, University of Utah, Department of Economics.
    3. Morales, Alvaro Pedraza, 2014. "Strategic interactions and portfolio choice in money management : evidence from Colombian pension funds," Policy Research Working Paper Series 6994, The World Bank.

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