2007•Zhōngguó cáiwù xuékānRequires access
Analysis of Switch Option under New Labor Pension Plan
Jennifer L. Wang, Sharon S. Yang, Hongyu Huang, Yung-Tsung Lee
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Abstract
Recent pension reform in Taiwan has changed our Labor Pension Plan from defined benefit plan into defined contribution plan. To mitigate the risks under defined contribution plan, this paper develops a theoretical framework to analyze the switch option design between Individual Retirement Account and Annuity Insurance Plan under new Labor Pension Plan. We estimate the optimal timing to exercise the switch option and calculate the increase in the retirement wealth after employees switch their pension plan choice. Our research results show if employees were to exercise the switch option optimally, the switch option design could help to increase the retirement wealth and decrease investment risk under new Labor Pension Plan.
Key words: Labor Pension Plan, defined benefit plan, defined contribution, Individual Retirement Account, Annuity Insurance Plan, option