Wharton Pension Research Council Working Papers

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Working Paper

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We analyze the risks and rewards of moving from an unfunded defined benefit pension system to a funded plan for civil servants in Germany, allowing for alternative portfolio mixes using a Monte Carlo framework and a Conditional Value at Risk metric. First, we estimate contributions as a percent of salary that would fully fund future benefit promises for active employees. Second, we identify an investment strategy for plan assets that will minimize worst-case pension costs; this turns out to be 22% in equities, 47% in bonds, and 30% in real estate. Third, we explore the time path of pension fund asset shortfalls and the chances of contribution holidays for current and future generations. We show that moving toward a funded pension system for German civil servants can be beneficial to both taxpayers and civil servants.


The published version of this Working Paper may be found in the 2009 publication: The Future of Public Employee Retirement Systems.

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Copyright/Permission Statement

© 2008 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.


This research was conducted with support from the TransCoop Program of the Alexander von Humboldt Foundation. Additional research support was provided by the Pension Research Council (PRC) at The Wharton School of the University of Pennsylvania. We are grateful for useful comments from Peter Brady, Peter König, Steven Haberman and for data support by the Hessian Statistical Office. Opinions and errors are solely those of the authors and not of the institutions with whom the authors are affiliated. © 2008 Maurer, Mitchell and Rogalla. All rights reserved.

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Date Posted: 07 August 2019