A framework for analyzing defined benefit pension insurance

The survivor benefit plan for veterans

Authors

  • William W. Jennings Department of Management, United States Air Force Academy
  • Jeffrey C. Merrell Leeds School of Business, University of Colorado
  • Thomas C. O’Malley Department of Management, United States Air Force Academy
  • Brian C. Payne College of Business, University of Colorado-Colorado Springs

DOI:

https://doi.org/10.61190/fsr.v27i2.3389

Keywords:

Simulation, Retirement, Pension, Valuation, Insurance, Survivor Benefit Plan

Abstract

Millions of defined benefit pensioners must select a pension insurance method. We present a framework for making this decision within the context of U.S. military veterans’ Survivor Benefit Plan (SBP). Federal government subsidies generate a positive expected net payout for SBP. While insurance outcomes are typically skewed, the asymmetry of SBP outcomes is stark. In a common scenario, five percent of participants receive 60% of benefits. An alternative financial planning approach incorporates private insurance and investments and often bests the SBP. Actuarially correct life expectancy, moral hazard, taxes, and individual financial needs all play important roles in selecting a pension insurance program.

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Published

2018-06-30

How to Cite

Jennings, W. W., Merrell, J. C., O’Malley, T. C., & Payne, B. C. (2018). A framework for analyzing defined benefit pension insurance: The survivor benefit plan for veterans. Financial Services Review, 27(2), 147–172. https://doi.org/10.61190/fsr.v27i2.3389

Issue

Vol. 27 No. 2 (2018): Summer 2018

Section

New Original Submission

License

Copyright (c) 2018 Academy of Financial Services

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