Risk Shifting Versus Risk Management-Canadian Pension Plan Liability Discount Rates

This paper studies the choice of parameters of the pension plan design and investment strategies in the context of the regulatory environment and their institutional organization. Our objective is to infer whether these choices are driven by preferences of the pension plan members or by opportunities for unfair risk transfers that are possible thanks to perverse regulatory incentives. Empirical findings indicate that discount rates chosen by both the Canadian public and private pension plans are a reflection of risk preferences rather than of regulatory structure or political incentives.