In this paper, a closed-form solution for future cash flows of defined benefit pension plans is derived. Cash inflows include contributions from active employees and transfer payments from newly recruited employees. Cash outflows involve benefit payments to disabled and retired beneficiaries, lump sum payments to widows and orphans as well as the payment of vested benefits to resigned beneficiaries. The derivation of the plans future cash flow profile requires the specification of both demographic and economic variables. As for the former, the dynamics of the pension funds population are modelled by employing a Markov process. As for the latter, future salary and savings levels serve as reference variables for the calculation of associated contributions and benefits; while salaries grow at a constant salary growth rate, hitherto accumulated savings earn interest at a guaranteed rate and get periodically augmented by employees contributions. Finally, contribution and benefit rates are exogenously determined by the plan sponsor.
