OR PRACTICE—Assisting Defined-Benefit Pension Plans

OR PRACTICE—Assisting Defined-Benefit Pension Plans

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Article ID: iaor200942195
Country: United States
Volume: 56
Issue: 5
Start Page Number: 1066
End Page Number: 1078
Publication Date: Sep 2008
Journal: Operations Research
Authors: , , , ,
Keywords: investment, economics
Abstract:

The defined–benefit pension system poses substantial, long–term risks for the U.S. economy. We describe a flexible asset–liability management (ALM) system for pension planning. The primary goals are to improve the performance and survivability of the pension trust. We first employ a stochastic program for enhancing investment strategies in light of company and other goals and pension risk constraints. The results are linked with a policy simulator for further analysis. We illustrate the concepts via two disparate real–world companies. The first is a slowly growing auto company, and the second a profitable pharmaceutical enterprise. We show that a stochastic program can help in the process of discovering sound policy rules. The ALM system has been employed extensively throughout the world by a large global actuarial firm.

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