臺大管理論叢 NTU Management Review VOL.29 NO.2

165 NTU Management Review Vol. 29 No. 2 Aug. 2019 2.2 Money’s Worth Ratio Mitchell, Poterba, Warshawsky, and Brown (1999) and Cannon and Tonks (2004) apply the money’s worth ratio to comparison of social insurance and corporate pension plans, assessing these welfare plans as an investment of employees by considering employee contribution to be the cost and pension benefit to be the payoff. Fong (2002) adopts a similar approach to compare different annuity products. Wang (2011) utilizes the money’s worth ratio for all pension systems in Taiwan and reveals that labor insurance and the public pension system provide unsustainably high benefits. For pension scheme j , we define the money’s worth ratio W j as follows: , (2) where is what the employee receives after h years from retirement in pension scheme j . We also assume that the employee begins to work at time t and retires at time T . Here, Ŵ is the employee’s wage, h P T is the probability for the employee to live more than h years, C k is the contribution of the employee in this scheme, r is the risk-free rate, and δ is the discount factor. 2.3 Financial Deficit In pension fund management, the cash-inflows from an individual’s contribution and fund investment and the cash-outflows for pension benefits should be balanced. We denote the financial cash flow deficit amount D(t) for time t as follows: D(t) = Max(0, P t – W t-1 – B t – I t ), t = 1, 2, 3, ⋯ , n , (3) where P t is the benefit payment in time t , W t–1 is the period-end balance of the pension fund, B t is the contribution amount from individuals, and I t is the investment profit. We estimate D(t) using the information provided in each pension system’s actuarial report of government pension funds.