Designing A Defined-contribution Plan: What To Learn From Aircraft Designers

摘要

We believe that pension plan designers have a lot to learn from aircraft designers. A typical commercial aircraft journey involves very few passenger instructions-little more than "please fasten your seat belt"-because all the risk management has already been taken care of by the aircraft's designers. A well-designed pension plan would have similar attributes. Like an aircraft journey, it would be designed from back to front (i.e., from desired outputs to required inputs), with the goal of delivering an adequate target pension with a high degree of probability. Once a few key parameters about the plan member are known, the pension plan provider can be left to do what is needed to get the plan safely to its destination, so long as the member believes in the benefits of the pension journey and is willing and able to maintain the required contribution schedule. Risks cannot be completely eliminated, of course, but they can be understood and managed. In the future, pension plans may be thought of as pension planes, with the safety instruction to "fasten your seat belt" replaced by "just sign up and we'll take care of the rest."