Cash Balance Plans and the Distribution of Pension Wealth

Recent pension plan conversions by numerous large employers have sparked debate about the merits of cash balance plans. This article compares pension wealth in traditional defined benefit (DB) plans and cash balance plans for a national sample of covered Americans aged 51 to 61. The simulations indicate that replacing DB plans with cash balance plans would redistribute pension wealth from those with long-term jobs to those with multiple short-term jobs and from those with substantial pension benefits to those with more limited benefits. Perhaps unexpectedly, women at midlife in 1992 with DB coverage would lose wealth in cash balance plans, but future cohorts of women are likely to fare better.     

Pension Substitution in the 1980s: Why the Shift toward Defined Contribution?

The relative decline of defined benefit (DB) pension plans, and growth of defined contribution (DC) plans, has been often noted but not extensively explored. This paper reports on the construction of a new longitudinal company-based data set on pension plans for the years 1980-86 (including all U.S. companies with large plans, and a 10 percent sample of companies with small plans, at any point during this period). The decline in DB coverage is primarily due to fewer participants in companies maintaining such plans, while very little of the growth in DC coverage is due to companies terminating DB plans. Also, multinomial logit analysis of manufacturing company choices indicates that the higher administrative costs of DB plans lead new adopters to favor DC plans, but this explains little of the tremendous growth in DC plans. In addition, higher industry variability and capital intensity, and smaller company size, lead new adopters to favor DC plans.     

The Stampede Toward Defined Contribution Pension Plans: Fact or Fiction?

This paper questions recent conclusions that the trend in primary plan type toward defined contribution plans and away from defined benefit plans is due to increased pension regulation. Analysis of data from IRS 5500 filings by pension administrators shows that at least half of the trend is due to a shift in employment mix toward firms with industry, size, and union status that have historically been associated with lower defined benefit plan rates. Not more than half of the trend can be attributed to a "stampede" by firms with given industry, size, and union status toward defined contribution pension coverage.     

Faculty Choice of a Pension Plan: Defined Benefit versus Defined Contribution

Worker preferences between defined-benefit and defined-contribution pension plans are estimated using a sample of faculty members at North Carolina State University. Newly hired faculty must decide between the state retirement plan (a final pay, defined-benefit plan) and one of three defined-contribution plans (TIAA/CREF, VALIC, Lincoln National). This analysis allows the authors to estimate the choice of a pension plan holding constant the place of employment. The study uses both university employment records and a faculty survey to examine the factors that determine the choice of a pension.     

Pension Type and Retirement Wealth

In this article I analyze the effect of a shift from defined-benefit pensions to defined-contribution pensions on retirement wealth. Regressions results suggest that workers with a defined-benefit pension appear to have more retirement resources than those who either have no pension or have a defined-contribution pension, although individual savings is generally insufficient. I use the Health and Retirement Survey (HRS), which contains data on individuals 51 to 61 years of age.     

Incentive and Redistributive Effects of Private-Sector Union Pension Plans in Canada

Using data for pension plans in the private sector for males in Canada, this paper examines flat benefit plans, which predominate in the union sector, documenting their work and retirement incentives, the extent to which retroactive enrichments redistribute wealth within union membership, and the impact of anticipated enrichments on the timing of early retirement decisions     

Toward Explaining the Growth of Defined Contribution Plans

Since 1980, defined benefit plans have steadily lost market share to defined contribution plans. In 1979, defined contribution plans had 17 percent of the primary pension market. By 1988, it was 34 percent. About half of the shift is attributable to a loss of employment in large unionized firms where defined benefit plans are used intensively. But evidence of large changes in preferences is also found in the data. One likely explanation is the introduction of a new variety of defined contribution plans, so-called 401(k)s. These pension plans have productivity traits that make them more effective competition for defined benefit plans.     

Does Pension Wealth Peak at the Age of Early Retirement?

Once an employee has qualified for early retirement, continuing to work involves an implicit tax in the form of forgone pension payments. We explore this implicit pension tax in a Canadian setting and find that, contrary to Lazear (1983), but consistent with most U.S. studies, pension wealth generally does not peak at the date of first eligibility for early retirement. We highlight the importance of the earnings path posited for older workers, anticipated enrichments to flat benefit formulas, and the distinction between reduced and unreduced early retirement as determinants of this result.     

Scale Economies in Union Pension Plan Administration: 1981–1993

We confirm previous findings that as the pension plan size increases, administrative costs per participant and asset fall after controlling for the proportion of retirees in a plan. However, we question the inference that the high costs of administering small plans partly explains why small firms generally do not sponsor pension plans. This study uses Internal Revenue Service annual data to compare the administrative costs of Taft-Hartley plans from 1981 to 1993. Centralization may save costs but also may inhibit formation. Union plans are naturally small; they form at the local level.     

Can off farm employment affect the privatization of social safety net? The case of self-employed farm households

This study uses a two-stage econometric framework with farm household level data to investigate whether off-farm work of operators and spouses influences healthcare expenditures and retirement savings. Results indicate that agricultural policy discourages off-farm work by farm operators and spouses. However, off-farm work decisions of farm couples significantly decrease healthcare expenditures and increase retirement savings of farm households in the US. The effect of farm spouse’s off-farm employment on household retirement saving is more pronounced. These conclusions can extend to middle-income countries where off-farm work may enable farmers to afford better healthcare and retirement pension plans.     

Employer Pension Contributions and 401(k) Plans: A Note

We investigate the pension choices of over 800 firms between 1988 and 1996. Using the data on pension plan finances from the Internal Revenue Service (IRS) Form 5500, required annually from firms sponsoring plans, and on firm finances from Compustat, we find support that a 10 percent increase in the use of 401(k) plans reduces pension costs per worker by 1.8 to 2.0 percent. Collective bargaining helps to mitigate the decline in employer costs.     

The Survival Rate of Defined-Benefit Plans, 1987-1995

We look at the survival rate of defined-benefit pension plans with at least 500 participants over the period 1987–1995. We find that termination in favor of defined-contribution plans is a rare event and that the vast majority of these plans survive, albeit often under a different plan sponsor or in a new merged plan. Indeed, the frequency of mergers is an important feature in the pension market and partially explains the growing number of large defined-benefit plans.     

Growth of Participant Direction in Defined Contribution Plans

Using data from IRS Form 5500, this study examines the causes and consequences of the shift toward participant direction of investments in defined contribution plans. The analysis reveals that collective bargaining and pension investments in employer stock reduce the chance of a switch to participant direction, whereas below average returns increases the chance. Also, a switch to participant direction increases employee contributions to the pension and reduces the share of assets invested in employer securities.     

To Work or Not to Work? The Effect of Higher Pension Age on Cardiovascular Health

This study investigates the effect of pension age on hospitalization for cardiovascular diseases using administrative social security and hospital discharge records in Italy. The endogeneity of the retirement decision is addressed using an instrumental variable strategy exploiting the exogenous variation in pension age determined by quarter of birth. Results indicate a detrimental effect of higher pension age only for retirees who, before retirement, were suffering worse health and were employed in lower quality and more physically demanding jobs. Among them, a 1-year delay in pension claiming increases the risk of hospitalization for cardiovascular diseases by approximately 2.6 percentage points.     

Explaining Patterns of Profit-Sharing Activity

This paper compares the characteristics of firms that adopt deferred profit-sharing plans with those that adopt pension plans. Tax reports from a sample of 6, 000 firms in various industries are incorporated into logistic regression equations that predict whether these firms will have pension or deferred profit-sharing plans. The evidence suggests that custom in the labor market may play the greatest role in influencing the choice between the two plans.     

Changes in food purchases at retirement in France

We estimate the impact of retirement on food expenditure and food quantities purchased, using detailed home-scan panel data on food purchases and household characteristics in France. We identify a causal relationship by exploiting the French legal minimum age for retirement as an exogenous shock to retirement behavior. Upon retirement, households significantly decrease their expenditure on food and the amount of food purchased. Households with lower pre-retirement income appear to be more severely affected. Our results indicate that the decrease in food quantities purchased at the aggregate level is driven by a decline in purchases of food from animal origins. A reduced consumption of animal based food products is likely to undermine the diet balance of retirees.     

What Do Employees Know About Their Pension Plan?

Original survey data based on 529 respondents in a large organization are used to analyze how much employees know about various features of their occupational pension plan. While the level of understanding was quite low among all employees, it was quite high among those for whom the knowledge matters most in terms of their behavioral decision making. Our results show that rather than being optimal labor contracts that workers enter into with full knowledge at the time of employment, pension contracts are more like contingent claims contracts evolving under conditions of uncertainty and incomplete information.     

Intra-operator mobile plan switching: Evidence from linked survey and billing microdata

This paper examines consumers' intra-operator mobile phone plan switching in Ireland. It models the factors associated with switching outcomes, including the direction of change in expenditure and whether those who are observed to switch plans tend to arrive at more or less optimal plans given their usage. A dataset is employed that combines survey responses from mobile consumers with the same consumers' actual usage data in the period 2017–2019; this was collected by Ireland's national regulatory authority. The cost each consumer would have incurred on every plan offered in the market based on their observed usage is estimated. Using models that allow for selection into switching, associations between switching outcomes and demographic and user characteristics are modelled. Controls are included for plan and user attributes, including demographics and proxies for user sophistication and access to alternative communication options. A substantial proportion of intra-operator switchers in the sample increase expenditures when they switch plan. While many switchers move to plans that are more optimal given their usage, a slight majority move to plans that charge a higher price premium over the best available plan (based on observables) than the consumer's previous plan did. Few observable characteristics of consumers or plans seem to be significantly associated with which switches achieve greater optimality, although fixed operator effects are large and significant. These findings add to the weight of evidence which finds that many consumers fail to arrive at the best price even after switching.     

Why Do Firms Adopt Profit-Sharing and Employee Ownership Plans?

Profit-sharing and employee ownership in companies have attracted considerable interest, yet there has been little research on factors predicting the adoption and maintenance of these plans. This study uses new data from a survey of 500 US public companies, and panel data on corporate financial variables, to examine factors predicting the presence and adoption of profit- sharing and employee stock ownership plans (ESOPs) in the 1975–91 period. Several findings support productivity-related motivations for such plans (including higher R&D levels among old profit-sharing firms, and recent adoption of job enrichment programmes among new profit-sharing firms), while others support flexibility-related motivations (including higher variance in profits prior to the adoption of profit-sharing plans and ESOPs). Unionized firms were less likely to have either type of plan in 1975, but equally likely to adopt them subsequently (often in concessionary contracts). Comparisons of cross-sectional and panel results illustrate advantages of panel data in disentangling the causes and effects of profit-sharing and ESOPs.