NO.PZ2023010409000011
问题如下：
Fiona Heselwith is a
40-year-old US citizen who has accepted a job with Lyricul, LLC, a UK-based
company. Her benefits package includes a retirement savings plan. The company
offers both a defined benefit (DB) plan and a defined contribution (DC) plan but
stipulates that employees must choose one plan and remain with that plan throughout
their term of employment.
The DB plan is
fully funded and provides full vesting after five years. The benefit formula
for monthly payments upon retirement is calculated as follows:
Final monthly salary × Benefit
percentage of 2% × Number of years of service
The final monthly salary is equal to average monthly earnings for
the last five financial years immediately prior to the retirement date.
The DC plan
contributes 12% of annual salary into the plan each year and is also fully
vested after five years. Lyricul offers its DC plan participants a series of
life-cycle funds as investment choices. Heselwith could choose a fund with a target
date matching her planned retirement date. She would be able to make additional
contributions from her salary if she chooses.
Discuss the
features that Heselwith should consider in evaluating the two plans with
respect to the following:
i. Benefit payments
ii. Contributions
iii. Shortfall risk
iv. Mortality/longevity risks
解释：
Benefit Payments
- DB has a clearly defined benefit payment is affected by final monthly salary, number of years of service, and benefit payment 2%
- DC does not have the payment defined in advance, and the payment is affected by the investment result of the Heselwith chosen fund.
Contributions
- DB plan: company bears the risk of making additional contribution if the fund turns to underfunded and need additional input to main the fund status
- DC pan: Heselwith needs to bear the risk of making additional contribution if the investment laters become less profitable than expected even through it is 12% for now.
Shortfall risk
- DB’s shortfall risk is bear by the company. The company needs to pay fixed benefit no matter what. Thus, if shortfall risk occurs and the fund ends with very little value. The company needs to bear the risk.
- DC plan’s shortfall is bear by the investor. The investor needs to take the risk that the value of the fund is not enough to meet the retirement objectives.
Mortality/Longevity risk
- DB plan pools the mortality and longetivity risk. Employees who die early saves money for the fund to make more payments to those who live longer than expected.
- DC plan introduces the risk of running out of money in late years for employees.
