A Study on the Value of Retirement Benefit Guaranty Considering Financial Status of Pension Plan (연금재정상황을 고려한 퇴직급여 지급보증가치에 관한 연구)

Kyung-jin Choi (최경진); Han,Dong (한동); Sung Jooho (성주호)

A Study on the Value of Retirement Benefit Guaranty Considering Financial Status of Pension Plan

Journal of Insurance and Finance
2015, 26(1), pp.109-139
Publisher : Korea Insurance Research Institute
Research Area : Social Science > Business Management

Kyung-jin Choi ¹, Han,Dong ², Sung Jooho ²

¹근로복지공단 근로복지정책연구센터
²경희대학교

Accredited

ABSTRACT

This study proposed a model for calculating the value of benefit guaranty in the retirement benefit guaranty system and analyzed the model by applying it to actual data. The Ronn & Verma(1986) model used in previous study has more or less shortcoming in respect of modelling on grounds, which fails to consider the financial status of DB funds. In order to solve this kinds of problems, we adopted the exchange option model proposed by Margrabe(1978) for calculating the value of retirement benefit guaranty. By applying the model, we find out that the value of benefit guaranty is higher, when the correlation between return on assets and the liability growth rate is low and also we have the same results in each of following cases that (ⅰ) the funded ratio was low and (ⅱ) the volatility on asset returns and on liability growth rates each is high. These findings are also supported by the results of empirical analysis on five companies, whose funded ratio is between 60‐100%. Therefore, if the value of benefit guaranty obtained by the exchange option model is used as the risk‐based premium of the guaranty system, it may prevent companies’ moral hazards and adverse selections and then it would maintain the finance soundness of benefit guaranty corporations. Moreover, it would be expected to have a positive effect on the activation of ALM.

KEYWORDS

Retirement Benefit Guaranty, Pension Put Option, Volatility of Pension Asset and Liability, Funded Ratio, Exchange Option

Citation status

* References for papers published after 2023 are currently being built.

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