Besley, Timothy and Prat, Andrea (2003) Pension fund governance and the choice between defined benefit and defined contribution plans. Financial Markets Group Discussion Papers (454). Financial Markets Group, The London School of Economics and Political Science, London, UK.
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Abstract
Recent events in several countries have underscored the importance of good governance in private occupational pension plans. The present paper uses contract theory to analyze the interplay of residual claims and control rights in private pensions. The residual claimant is the plan sponsor in a defined benefit (DB) plan and the pool of beneficiaries in a defined contribution (DC) plan. The main control rights we examine relate to decisions on funding, asset allocation, and asset management. Under complete contracting, governance can be shown to be neutral: DC and DB plans di.er only on risk allocation. If instead contracts are incomplete, a DB (DC) plan should: (1) Assign more vigilance responsibility to the sponsor (beneficiaries); (2) Rely less (more) on trustees; (3) Tend to employ trustees that are professional experts (caring insiders); (4) Assign asset allocation rights tothe sponsor (beneficiaries); (5) have strict funding requirements.
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | http://fmg.ac.uk |
| Additional Information: | © 2003 The Authors |
| Divisions: | Financial Markets Group |
| Subjects: | H Social Sciences > HG Finance H Social Sciences > HB Economic Theory |
| JEL classification: | G - Financial Economics > G2 - Financial Institutions and Services > G23 - Pension Funds; Other Private Financial Institutions |
| Date Deposited: | 13 Aug 2009 10:33 |
| Last Modified: | 25 Nov 2022 14:39 |
| URI: | http://eprints.lse.ac.uk/id/eprint/24853 |
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