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DISCUSSION PAPER PI-0202

Relative Rate of Return Guarantees for Social Security Defined
Contribution Plans: What Do They Accomplish?

John A. Turner and David M. Rajnes

ABSTRACT

Many social security defined contribution systems provide a rate of return
guarantee. Relative guarantees, the most common type used, are tied to an
index. This article compares the guarantees used by Argentina, Chile and
Poland, which represent the range of relative guarantees provided around
the world in mandatory defined contribution systems. This comparison indicates
that the structure of guarantees does matter. The guarantee in Chile generally
provides a higher real rate of return, less variability in the real rate of return,
and better protection against inflation than do the guarantees in Argentina
and Poland.