Pension Financing Alternatives: Traditional DB vs Double DB®
Each U.S. public sector retirement system will want to consider converting its funding mechanism to “fixed cost as a percentage of payroll financing” instead of remaining exposed to troubling cost increases attributable to likely future market volatility.
Following are three comparative illustrations between traditional DB financing and Double DB® financing which reflect how Double DB reverses the pension financing role of “fixing” the financing stream vs. “fixing” the benefits. The red lines reflect traditional DB costs and benefits over the years and the blue lines reflect corresponding outcomes if Double DB® were the financing mechanism in place. Notice the elimination of volatility. Double DB® benefits move up and down modestly to accommodate fixed cost funding. This is in contrast to DB costs which move up and down in volatile fashion to accommodate fixed benefits delivery.
Graph Examples 5 Year AVA with tags