Collective Defined Contribution Pension Plan with Explicit Stabilization Mechanisms

Supervisors: Barbara Sanders and Jean-François Bégin

In Collective Defined Contribution (CDC) pension plans, savers pool their money into a fund and share investment and longevity risks. Many of these plans include explicit stabilization mechanisms such as countercyclical buffers and contingency reserves. Most of the academic literature, however, assumes mandatory participation when studying these plans even though it is often not the case in real life. Given that Allen and Gale (1997) showed that, without mandatory participation, the plan would break down, some conclusions from prior studies might not be valid. 

This USRA project (May 2020 to August 2020) aims to understand CDC pension plans with explicit stabilization mechanisms and the impact of mandatory participation. Specifically, this research project is divided into two parts: (1) derive and analyze optimal pension arrangements with explicit stabilization mechanisms—so-called corridor plans—and (2) investigate the issue of mandatory participation. The student will be responsible for:

  1. Familiarizing themselves with the current literature on CDC plans.
  2. Analyzing explicit stabilization features for CDC plans in the spirit of Cui et al. (2011).
  3.  Relaxing the mandatory participation assumption and finding ways to mitigate potential breakdowns.
  4. Writing code to implement the model.
  5. Documenting all work.

Parts of this research project builds on Lu Yi’s Master’s thesis (i.e., Yi, Sanders and Bégin, 2019).