%0 Journal Article %A John M. Mulvey %A Lionel Martellini %A Han Hao %A Nongchao Li %T A Factor- and Goal-Driven Model for Defined Benefit Pensions: Setting Realistic Benefits %D 2019 %R 10.3905/jpm.2019.45.3.165 %J The Journal of Portfolio Management %P 165-177 %V 45 %N 3 %X 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.TOPICS: Factor-based models, pension funds, futures and forward contracts %U https://jpm.pm-research.com/content/iijpormgmt/45/3/165.full.pdf