“Understanding Relationships Using Copulas,” Edward Frees and Emiliano Valdez,January 1998

Abstract

The problem of how to fund a defined-benefit pension plan is detached from the problem of how the cost of such a plan should be recognized. An approach to funding based on the projection of aggregate cash flows and the explicit modeling of new entrants is presented. It is shown that commonly used funding methods can be derived from the cash-flow approach. A generalized funding method for a plan subject to a stationary distribution of new entrants is derived. It is concluded that plan actuaries might need to modify existing funding methods to incorporate useful information about the expected number and distribution of future entrants.