Risk Pooling and the Market Crash: Lessons from Canada’s Pension Plan

Source: Ashby H.B. Monk and Steven A. Sass, Center for Retirement Research at Boston College, Issue in Brief, IB#9-12 , June 2009

The brief’s key findings are:

In the United States, workers hold equities in their 401(k)s, fully exposing them to a stock market crash.

Canada’s Pension Plan (CPP) offers an alternative approach – it pools equity risk, dampening the effects on individual households.

The CPP responds to a market crash by prompting policymakers to modestly adjust taxes and/or benefits.

With a very long-term horizon, the CPP can also respond to a market decline by buying assets at low prices, which helps stabilize the financial market.
This brief is available here.

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