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Pensions - Definition of cost neutral

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asked Oct 27, 2017 in BUS 3024S - Contingencies by patrick_ziet (290 points)

Could someone please give a definition of "cost neutral"? We were told in class that if a DC fund is considered to be cost neutral then the pre-retirement mortality is to be ignored. 

1 Answer

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answered Oct 28, 2017 by asilmotala (2,610 points)

So it would be best to clarify this with your lecture, but from what I understand cost neutral is the same as actuarially neutral.

This means that in the case of pre-retirement mortality, the death benefit and all associated costs will be the same as the accumulated fund value, and therefore no allowance for death benefits need to be made in the contributions. I hope that clarifies the definition of cost neutral for you.