Published online by Cambridge University Press: 28 October 2016
We explore how the contract values of the various stakeholders of a typical US state civil servants pension fund are affected under the continuation of current policies and under alternative policies, such as changes in contribution, indexation and investment allocation policies. We find that all participant cohorts derive a substantial net benefit from the current pension contract, while all tax-paying cohorts make substantial contributions. The shift in value from tax payers to participants can be reduced substantially by having the latter make larger contributions or making indexation less generous. Under our baseline calibration, and continuation of existing policies, the chances are high that the fund's assets get depleted in the coming decades.
We are grateful to two anonymous referees and the editor for their helpful comments. We also thank Hindrik Angerman, Jean-Pierre Aubry, Larry Beeferman, Mario Catalan, Henk Hoek, Frank de Jong, Stephen Lerch, Allan Milligan, Joshua Rauh, Matthew Smith, Sjoerd Timmermans, Peter Vlaar, Bas Werker and participants at the ICPM Discussion Forum (Sacramento, 2013), the International Conference in Economics and Finance (Minsk, 2014), the Netspar International Pension Workshop (Venice, 2014), the International Workshop on Pension, Insurance and Saving (Paris, 2015) and the Actuarial Research Conference (Toronto, 2015) for helpful and detailed discussions. We also thank ICPM for financial support. The usual disclaimer applies.