scholarly journals Cash Balance Pension Plan Conversions and the New Economy

2003 ◽  
Vol 2003 (63) ◽  
pp. 1-29 ◽  
Author(s):  
Julia Lynn Coronado ◽  
◽  
Phillip C. Copeland
Keyword(s):  
New Economy ◽  
Pension Plan ◽  
Cash Balance

scholarly journals Cash balance pension plan conversions and the new economy

2004 ◽  
Vol 3 (3) ◽  
pp. 297-314 ◽  
Author(s):  
JULIA LYNN CORONADO ◽  
PHILIP C. COPELAND
Keyword(s):  
Labor Markets ◽  
New Economy ◽  
Pension Plan ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Cash Balance ◽  
Defined Contribution Plans ◽  
Defined Benefit Pension Plan ◽  
Pension Liabilities ◽  
Defined Benefit Pensions

Many firms that sponsor traditional defined benefit pensions have converted these plans to cash balance plans in the last en years. Cash balance plans in the last ten years combine features of defined benefit and defined contribution plans, and yet their introduction has proven considerably more controversial than has the increasing popularity of defined contribution plans. The goal of this study is to estimate a hierarchy of the influences on the decision of a firm to convert its traditional defined benefit pension plan to a cash balance plan. Our results indicate that cash balance conversions have been undertaken in competitive industries with tight labor markets and thus can be viewed at least in part as a response to better compensate a more mobile labor force. Indeed, many firms appear to increase their pension liabilities through such conversions.

scholarly journals Life After Defined Benefit Plans

2011 ◽  
Vol 4 (8) ◽  
Author(s):  
Martin A. Goldberg ◽  
Robert E. Wnek ◽  
Michael J. Rolleri
Keyword(s):  
Pension Plan ◽  
Profit Sharing ◽  
Pension Plans ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Cash Balance ◽  
Benefit Plan ◽  
Defined Contribution Plans ◽  
Defined Benefit Plans ◽  
Recent Developments

Employers have moved from traditional pension plans to cash balance and other alternative defined benefit plans. However, it may be that the best approach lies beyond defined benefit plans completely. The Employee Retirement Income Security Act of 1974 (ERISA) was enacted to protect workers. Its focus was on the defined benefit plan, which at that time meant a traditional pension plan that provided lifetime income to retired workers. Over the years traditional pension plans have declined in number, often due to their increasing costs. Many of these plans have been replaced by the 401(k) plan, a profit-sharing plan partly or wholly funded by employee contributions. There has also been a rise in hybrid plans, plans that have features of both defined benefit and defined contribution plans. Recent developments highlight the weaknesses in traditional pension plans. Replacing a traditional pension plan with a cash balance plan, a hybrid plan that qualifies as a defined benefit plan, does not fully address all the problems. It may be that there is limited advantage to the continued emphasis on defined benefit plans. Instead, defined contribution plans that contain some features of defined benefit plans may better address the current retirement-plan issues.

Cash Balance Pension Plan Conversions

2001 ◽  
Author(s):  
Jonathan Barry Forman ◽  
Amy Nixon
Keyword(s):  
Pension Plan ◽  
Cash Balance

Securing pension benefits in DB private schemes with priority rules: an insight from contracting theory

2009 ◽  
Vol 9 (1) ◽  
pp. 25-42 ◽  
Author(s):  
ANNE LAVIGNE ◽  
JESUS HERELL NZE-OBAME
Keyword(s):  
Pension Fund ◽  
Pension Plan ◽  
Optimal Level ◽  
Fund Management ◽  
Priority Rules ◽  
Cash Balance ◽  
Pension Fund Management ◽  
Financial Contract ◽  
Pension Benefits ◽  
The Relationship

AbstractThis contribution aims at enriching the debate on the priority of unfunded pension rights in the case of a sponsoring firm's bankruptcy. Starting from the idea that pension promises in DB schemes are part of a financial contract between a sponsor and participants to a sponsored pension plan, we argue that plan participants are not ordinary creditors and should be given the same priority as other claimants in the event of underfunding and a sponsoring firm's bankruptcy. We build up a model consistent with this view, which gives room for more participants' involvement in pension fund management. We assume that the sponsoring firm chooses the optimal share of a pension fund deficit that it commits to cover in case of underfunding, while participants choose the contribution rates that maximize their expected utility. We show that two regimes govern the pattern of the relationship between the optimal level of funding chosen by the sponsor and the optimal contribution rates chosen by the plan participants. Allowing plan participants to determine their desired contribution rates gives the entrepreneur the proper incentive for funding the pension plan. In a certain way, our pension contract resembles a cash-balance contract and our model suggests that more security can be given to plan participants in their pension savings by offering them a cash-balance plan which states a priority of unfunded pension rights in case of a firm's bankruptcy.

Case Study

1998 ◽  
Vol 30 (6) ◽  
pp. 25-31 ◽  
Author(s):  
Harold W. Burlingame ◽  
Michael J. Gulotta
Keyword(s):  
Pension Plan ◽  
Pension Plans ◽  
Defined Benefit ◽  
Corporate America ◽  
Defined Contribution ◽  
Cash Balance ◽  
Retirement Benefits ◽  
Strategic Objectives

The potential for using a cash balance pension plan as a restructuring tool is one reason it is gaining favor throughout corporate America. Another reason is that it can give employees a better understanding and appreciation of their retirement benefits. Both reasons are important at a time when companies are changing rapidly and sometimes downsizing and when employees are less likely to stay in one place long enough to anticipate reaping the rewards of a defined bene-fit plan. Cash balance plans combine some of the best features of defined contribution (DC) and defined benefit (DB) plans. For employers, they provide more flexibility than traditional DB plans and help companies achieve their strategic objectives. For employees, they better meet the needs of a changing workforce by delivering portable, easily understood benefits. Since 1985, more than 200 companies have replaced their DB pension plans with a cash bal-ance design. One of the newest and most enthu-siastic proponents is AT&T, which, with the help of consulting firm ASA, Inc., designed a cash bal-. ance plan to help meet its restructuring goals.

scholarly journals Cash Balance Pension Plan Conversions: An Analysis Of Motivations And Pension Costs

2013 ◽  
Vol 29 (2) ◽  
pp. 621 ◽  
Author(s):  
Julia D’Souza ◽  
John Jacob, (Deceased) ◽  
Barbara Lougee
Keyword(s):  
Pension Plan ◽  
Pension Plans ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Cash Balance ◽  
Expected Return ◽  
Defined Contribution Plans ◽  
Prior Service ◽  
Pension Costs ◽  
Positive Effect

In recent years, many corporations have replaced their traditional defined benefit (DB) pension plans with cash balance (CB) plans, which share many of the characteristics of defined contribution plans. This study provides empirical evidence on the characteristics of CB converters and the behavior of pension costs and obligations pre- and post-conversion. We find that CB converters are larger than firms that retain traditional DB plans as well as those that terminate DB plans. They are less profitable than the former, but more profitable than the latter. CB conversions are not associated with proxies for greater labor mobility (e.g., firm-specific employee turnover rate). They are associated with a workforce that is closer to retirement, on average, lending credence to the breach of implicit contract rather than the labor market hypothesis as a motivator of CB conversions. Consistent with this intuition, we document that CB converters recognize a reduction of unrecognized prior service costs in the year of conversion, consistent with a negative plan amendment. Unlike pre-conversion, pension costs and obligations are significantly lower for CB firms post-conversion than for a matched sample of firms retaining traditional DB plans. CB conversions are more popular than DB plan terminations among firms with overfunded pension plans in periods when expected return on plan assets is likely to be high, with a consequent positive effect on reported income.

The Meaning of Work in the New Economy

2007 ◽  
Author(s):  
Chris Baldry ◽  
Peter Bain ◽  
Phil Taylor ◽  
Jeff Hyman ◽  
Dora Scholarios ◽  
...  
Keyword(s):  
New Economy ◽  
Meaning Of Work

India's New Economy

2009 ◽  
Author(s):  
Jati Sengupta ◽  
Chiranjib Neogi
Keyword(s):  
New Economy
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