Stochastic investment returns and contribution rate risk in a defined benefit pension scheme

We consider the “contribution rate risk” for defined benefit occupational pension schemes, and compare different approaches to funding from the viewpoint of minimising the variability in the present value of future contributions as a means of controlling this type of risk to the schemeʹs sponsor. This leads to a discussion of which periods for spreading valuation surpluses and deficiencies should be chosen to minimise this measure of risk. The underlying model of investment returns used is that real rates of investment return are independent and identically distributed.