A Framework for Analyzing Defined Benefit Pension Insurance: The Survivor Benefit Plan for Veterans

Posted: 1 Feb 2018

See all articles by William W. Jennings

William W. Jennings

U.S. Air Force Academy - Department of Management

Jeff Merrell

University of Colorado at Boulder - Leeds School of Business

Thomas O'Malley

U.S. Air Force Academy - Department of Management

Brian Payne

US Air Force Academy

Date Written: January 19, 2018

Abstract

Millions of defined benefit pensioners must select a pension insurance method. We present a framework for making this decision within the context of US 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, 5% (95%) of participants receive 60% (40%) of benefits. An alternative 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.

Keywords: pension, retirement, simulation, survivor benefit plan, insurance

JEL Classification: G23, H55, J38

Suggested Citation

Jennings, William W. and Merrell, Jeff and O'Malley, Thomas and Payne, Brian, A Framework for Analyzing Defined Benefit Pension Insurance: The Survivor Benefit Plan for Veterans (January 19, 2018). Available at SSRN: https://ssrn.com/abstract=3109019 or http://dx.doi.org/10.2139/ssrn.3109019

William W. Jennings

U.S. Air Force Academy - Department of Management ( email )

2354 Fairchild Drive
Suite 6H-94
Academy, CO 80840-2944
United States

Jeff Merrell

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Thomas O'Malley

U.S. Air Force Academy - Department of Management ( email )

2354 Fairchild Drive
Suite 6H-94
Academy, CO 80840-2944
United States

Brian Payne (Contact Author)

US Air Force Academy ( email )

Colorado Springs, CO
United States

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