PT - JOURNAL ARTICLE AU - John M. Mulvey AU - Lionel Martellini AU - Han Hao AU - Nongchao Li TI - A Factor- and Goal-Driven Model for Defined Benefit Pensions: <em>Setting Realistic Benefits</em> AID - 10.3905/jpm.2019.45.3.165 DP - 2019 Feb 28 TA - The Journal of Portfolio Management PG - 165--177 VI - 45 IP - 3 4099 - https://pm-research.com/content/45/3/165.short 4100 - https://pm-research.com/content/45/3/165.full AB - A factor and goal-driven framework for assessing asset allocation and contribution decisions within defined-benefit pension plans is developed in this article. A critical element is setting future benefits with reference to the ability of the pension sponsors to support liabilities under reasonable investment expectations. The approach suggested by the authors combines a micro study of a representative cohort of individuals with an aggregation across a target population to estimate consistency between the micro and macro environments. A stochastic inflation risk factor affects both contribution and spending cash flows. This agent-based model suggested by the authors provides a more realistic framework than traditional approaches for setting pension benefits.TOPICS: Factor-based models, pension funds, futures and forward contracts