Article ID: | iaor201112136 |
Volume: | 78 |
Issue: | 4 |
Start Page Number: | 931 |
End Page Number: | 960 |
Publication Date: | Dec 2011 |
Journal: | Journal of Risk and Insurance |
Authors: | Cocco Joo F, Lopes Paula |
Keywords: | insurance, pensions |
We solve an empirically parameterized life‐cycle model of consumption and pension choices to show how expected earnings growth and risk affect the benefits of final‐salary defined benefit (DB) pension plans, relative to pension plans that are defined contribution (DC) in nature. We use micro data on the pension choices of individuals to provide evidence consistent with the model predictions: (1) individuals who expect a higher growth rate of earnings are more likely to choose DB final‐salary schemes, and (2) individuals who face a higher variance of