The promise of defined-ambition plans: Lessons for the United States
This paper explores proposals for defined-ambition plans in Dutch occupational pensions. Firms no longer act as external risk sponsors but continue to provide a distributional platform for pensions, thereby addressing behavioral and agency issues as well as imperfections of insurance and financial markets. Pension entitlements are defined in terms of (deferred) annuities, and participants share the risks of assets and a joint liability pool on the basis of complete contracts. We investigate risk management and valuation of these plans, explore their strengths and weaknesses, and analyze whether such plans hold promise for the United States.