Description: This paper discusses some key challenges of embedding guarantees in DC plans, including setting an appropriate guarantee level, designing effective cost funding and risk management strategies, and fair treatment of plan participants with different investment strategies.

Description: With the credit interest rate floor of a cash balance plan—a simple type of option identified by the Project Oversight Group—as a model, this research uses three valuation and risk analysis approaches to explore the existing techniques to value embedded options on an economic basis.