NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Marie-Eve Lachance

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Working Papers

September 2002Understanding Individual Account Guarantees
with Olivia S. Mitchell: w9195
Demographic aging renders workers vulnerable to the inherent uncertainty of unfunded social security systems. This realization has set off a global wave of social security reforms, and numerous countries have now set up Individual Accounts (IA) plans in response. Strengths of IAs are that participants gain ownership in their accounts, and they also may diversify their pension investments; additionally, they produce a capitalized, funded system that enhances old-age economic security. While IAs reduce the risk participants face due to unfunded social security systems, participants holding capital market investments in IAs are exposed to fluctuations in the value of their pension assets. Concern over market volatility has prompted some to emphasize the need for guarantees' of pension acc...
January 2002Guaranteeing Defined Contribution Pensions: The Option to Buy-Back a Defined Benefit Promise
with Olivia S. Mitchell: w8731
After a long commitment to defined benefit (DB) pension plans for US public sect or employees, many state legislatures have introduced defined contribution (DC) plans for their public employees. In this process, investment risk which was previously borne by state DB plans has now devolved to employees covered by the new DC plans. In light of this trend, some states have proposed a guarantee mechanism to help protect DC plan participants. One such guarantee takes the form of an option permitting DC plan participants to bu y back their DB benefit for a price. This paper develops a theoretical framewor k to analyze the option design and illustrate how employee characteristics influ ence the option's cost. We illustrate the potential magnitude of a buy-back opt ion value enacted recently b...

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