1887

OECD Working Papers on Insurance and Private Pensions

Selected studies on insurance and private pensions policy prepared for use within the OECD and addressing such policy issues as risk management, governance, types of investments, and benefit protection. This working papers series has been discontinued; it is superseded by ‘OECD Working Papers on Finance, Insurance and Private Pensions’ available via: http://dx.doi.org/10.1787/20797117.

English

Funding Regulations and Risk Sharing

This paper provides a description of the risk-sharing features of pension plan design in selected OECD and non-OECD countries and how they correspond with the funding rules applied to pension funds. In addition to leading to a better understanding of differences in funding rules across countries with developed pension fund systems, the study considers the trend towards risk-based regulation. While the document does not enter the debate over the application of risk-based quantitative funding requirements to pension funds (as under Basel II or Solvency II), it identifies the risk factors that should be evaluated and considered in a comprehensive risk-based regulatory approach, whether prescriptive or principles-based. The three main risk factors identified are the nature of risks and the guarantees offered under different plans designs, the extent to which benefits are conditional and can be adjusted, and the extent to which contributions may be raised to cover any funding gap. In addition, the strength of the guarantee or covenant from the sponsoring employer(s) and of insolvency guarantee arrangements should be carefully assessed when designing funding requirements.

English

Keywords: defined contribution, risk sharing, pension fund, fair value, defined benefit, hybrid plans, funding
JEL: G23: Financial Economics / Financial Institutions and Services / Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors; J32: Labor and Demographic Economics / Wages, Compensation, and Labor Costs / Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
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