Economic values of contribution cashflows for a sponsoring employer of a DB pension plan and measures to bring the economic costs under control within an affordable range

Original Research Paper


In many countries defined-benefit pension plans experienced sudden and significant funding gaps caused by the asset price depreciation and the interest rate decline originated from the global financial crisis erupted in August 2007. This paper explores several measures to bring under control the economic costs of contributions from the aspects of benefit designs, funding standards, and investment strategies. On funding standards, this paper proposes payout-year differentiation of funding standards, under which assets and contributions are divided by payout year and loaded, respectively, on ‘sequentially chained containers.’ This payout-year specific (PYS) funding standard then specifies a sequence of minimum admissible funded ratios (MAFRs) each of which is assigned to the corresponding container. Each MAFR will be a function of the period from the measurement date to the payout year. The MAFRs will be derived assuming a hypothetical investment strategy of switching the speculative portfolio to a complete liability-hedging portfolio immediately when the amount of assets surpasses the value of corresponding liabilities. This PYS funding standard allows taking into account the expected excess returns on risky assets to some extent in the discount rates and thus enables us to reduce the volatility of contributions.


Contribution volatility Economic value Funding standard Payout-year differentiation Double-barrier Target date fund 


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Copyright information

© DAV / DGVFM 2011

Authors and Affiliations

  1. 1.National Farmers Pension FundTokyoJapan

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