1117 - Henry Yuen

Stochastic Modeling of Economic Variables for Pension Plan
Projections

Key economic variables for pension plan projections are identi ed. These variables are mod-
eled based on data since 1955. Several time series models are considered including regime
switching models and a simpli ed Wilkie Model. To investigate the dynamics of di erent
models, simulations are carried out to project the economic series for the next 50 years using
di erent starting values. All the models for each series are then compared using di erent
criteria including economic theories and common actuarial practice. The best model out of
the considered models for each series is selected for pension plan projections. Using actual
starting values, simulation is performed again to project the economic series to model a
sample de ned bene t (DB) pension plan and a sample de ned contribution (DC) pension
plan. The total employer contributions as a percentage of wages for the DB plan, and the
replacement ratio for the DC plan are studied.


Keywords: Time Series; Parameter Estimation; Simulation; Pension Plan Projection; Em-
ployer Contributions; Replacement Ratio