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Abstract
A factor and goal-driven framework for assessing asset allocation and contribution decisions within defined-benefit pension plans is developed in this article. A critical element is setting future benefits with reference to the ability of the pension sponsors to support liabilities under reasonable investment expectations. The approach suggested by the authors combines a micro study of a representative cohort of individuals with an aggregation across a target population to estimate consistency between the micro and macro environments. A stochastic inflation risk factor affects both contribution and spending cash flows. This agent-based model suggested by the authors provides a more realistic framework than traditional approaches for setting pension benefits.
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