DISCUSSION PAPER PI-0825
Designing a Defined-Contribution Plan: What to Learn from Aircraft Designers
David Blake, Andrew Cairns and Kevin Dowd
Why are pension plans not designed in the same way as commercial aircraft?
At first blush, this question might seem a strange one to ask. It is also, however,
an instructive one, and many similarities exist between the two things.
Given the astounding success of aircraft design over the last century,
we show that designers of pension plans have much to learn from aircraft
designers. This article spells out these lessons by using the framework of
designing a commercial aircraft to illustrate how a personal defined-contribution
(DC) pension plan should be designed if it is to achieve its objective of delivering
an adequate and secure pension to the retired pension plan member. Understanding
the process of designing an aircraft can greatly enhance one’s understanding
of how an optimal DC pension plan might be designed and can considerably
simplify the task of the pension plan trustees, sponsoring employers, and regulators
who oversee personal DC pension plans