Taking features of both defined contribution and defined benefit structures when it comes to retirement plan design might improve governance and create better, and less volatile, investment outcomes.
In a paper for the 300 Club — a group of pension fund and investment management executives that want to highlight the potential impact of current market thinking and behaviors — David Villa examines “The third way: A hybrid model for pensions.”
Mr. Villa is chief investment officer at the $104 billion State of Wisconsin Investment Board, Madison.
Mr. Villa states the hybrid model, which has been tried and tested by SWIB for three decades, better balances risk between the sponsoring employer and participants.
His paper features the basics of Wisconsin's model, which he says is “easily replicable.” According to this model, a minimum level of benefit is guaranteed by the sponsor, and any value that is created above that at the point of retirement is split between the sponsor and the participant.
The paper is available at pionline.com/300-club.