A Note on Coordinating Defined Benefit and Defined Contribution Benefits in a Multi-Pillar Pension Plan

2008 ◽  
Author(s):  
David P. Bernstein
Keyword(s):  
Pension Plan ◽  
Defined Benefit ◽  
Defined Contribution

How defined contribution plans and 401(k)s affect employer pension costs

2006 ◽  
Vol 5 (2) ◽  
pp. 175-196 ◽  
Author(s):  
TERESA GHILARDUCCI ◽  
WEI SUN
Keyword(s):  
Fixed Effects ◽  
Pension Plan ◽  
Ordinary Least Squares ◽  
Pension Plans ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Defined Contribution Plans ◽  
Pension Costs ◽  
Administrative Expenses ◽  
Pension Contribution

We investigate the pension choices made by over 700 firms between 1981 and 1998 when DC plans expanded and overtook DB plans. Their average pension contribution per employee dropped in real terms from $2,140 in 1981 to $1,404 in 1998. At the same time, the share of their pension contributions attributed to defined contribution plans was 23% in 1981 and increased to 68% in 1998. By analyzing pension plan data from the IRS Form 5500 and finances of the plan's sponsoring employer from COMPUSTAT with a fixed-effects ordinary least squares model and a simultaneous model, we find that a 10% increase in the use of defined contribution plans (including 401(k) plans) reduces employer pension costs per worker by 1.7–3.5%. This suggests firms use DCs and 401(k)s to lower pension costs. Lower administrative expenses may also explain the popularity of DC plans. Although measuring a firm's pension cost per worker may be a crude way to judge a firm's commitment to pensions, this study suggests that firms that provide both a traditional defined benefit and a defined contribution plan are the most committed because they spend the most on pensions. Further research, especially case studies, is vital to understand employers' commitment to employment-based pension plans.

scholarly journals Considering Jumping Ship? A Pirate Looks At Retirement

2011 ◽  
Vol 4 (8) ◽  
pp. 1
Author(s):  
Bob G. Kilpatrick
Keyword(s):  
Pension Plan ◽  
Defined Benefit ◽  
Defined Contribution ◽  
State University ◽  
Senior Faculty ◽  
Budget Cuts ◽  
Faculty Position ◽  
Maximum Benefit ◽  
Senior Faculty Member ◽  
The Right

If youre like me, a senior faculty member at a public state university facing significant budget cuts, recently youve probably thought about leaving your current position for another faculty position in a different state. A possible reason for considering jumping ship is envisioning a clearer picture of your retirement as it nears on the horizon a retirement that does not look quite what you had projected ten years ago, due to the that fact that you elected the defined contribution (DC) plan (often referred to as an optional or alternate retirement plan at universities) rather than the traditional defined benefit (DB) state employee pension plan when you first arrived at your university 20-odd years ago (which was the right choice, at that time, given the information availablekeep reminding yourself of that), and then seeing the value of that retirement account drop considerably two-three years ago. Although your retirement account may have mostly recovered, there are still those lost years of growth that may have you second-guessing your previous decision. Alas, that decision cannot be undone, but a new decision can be created by moving to another state. It is this possible decision that is the topic of this paper. What factors should be considered in choosing between the traditional DB plan and the optional DC plan for an individual who cannot necessarily reach the maximum benefit under the DB plan?

scholarly journals Lessons for public pensions from Utah's move to pension choice

2016 ◽  
Vol 15 (3) ◽  
pp. 285-310 ◽  
Author(s):  
ROBERT L. CLARK ◽  
EMMA HANSON ◽  
OLIVIA S. MITCHELL
Keyword(s):  
Cost Savings ◽  
Pension Plan ◽  
The State ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Public Employment ◽  
Potential Cost ◽  
Active Choice ◽  
Defined Contribution Plan ◽  
New Hires

AbstractWe explore what happened when the state of Utah moved away from its traditional defined benefit pension. In its place, it offered new hires a choice between a conventional defined contribution plan and a hybrid plan option, where the latter has both a guaranteed benefit component and a defined contribution plan where employees bear investment risk. We show that around 60% of new hires failed to make any active choice and, as a result, were automatically defaulted into the hybrid plan. Slightly more than half of those who made an active choice elected the hybrid plan. Post-reform, employees who failed to actively elect a primary retirement plan were also far less likely to enroll in a supplemental retirement account, compared with new hires who actively selected a plan. We also find that employees hired following the reform were more likely to leave public employment, resulting in higher separation rates. This could reflect a reduction in the desirability of public employment under the new pension design and an improving economic climate in the state. Our results imply that public pension reformers must consider employee responses in addition to potential cost savings, when developing and enacting major pension plan changes.

The decline of defined benefit plans and job tenure

2008 ◽  
Vol 8 (3) ◽  
pp. 259-290 ◽  
Author(s):  
ALLISON SCHRAGER
Keyword(s):  
Pension Plan ◽  
Job Turnover ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Job Tenure ◽  
Benefit Plan ◽  
Job Separation ◽  
Defined Benefit Plans ◽  
Defined Contribution Pension Plan ◽  
Defined Contribution Plan

AbstractThis paper investigates the consequences of relying on assets accumulated in a defined contribution pension plan compared to an annuity based on salary from a defined benefit plan. Although a defined contribution plan varies with asset returns, it may be more desirable than a defined benefit plan when wage variability and job turnover are adequately considered. It is found that both job separation rates and wage variance increased in the 1990s. The new calibrations of these variables are used in a life-cycle model where a worker chooses between a defined benefit and a defined contribution plan. It is shown that the increase in job turnover made defined contribution the dominant pension plan.

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.

Missing Participants and Beneficiaries From Private-Sector Pension Plans

2021 ◽  
pp. 088636872110451
Author(s):  
John G. Kilgour
Keyword(s):  
Pension Plan ◽  
The United States ◽  
Pension Plans ◽  
Pension Benefit ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Social Security Administration ◽  
Retirement Benefits ◽  
Department Of Labor ◽  
For Profit

This article examines the problem of missing and nonresponsive participants and beneficiaries from defined-benefit (DB) and especially defined-contribution (DC) pension plans, mainly in the private (for profit) sector of the United States. It focuses on the current search requirements of the three government agencies involved in finding missing participants and beneficiaries: the Pension Benefit Guaranty Corporation (PBGC), the Department of Labor (DOL) and its Employee Benefit Services Administration (EBSA), and the Internal Revenue Service (IRS). The article also reviews the efforts of the Social Security Administration (SSA) in this area. It then reviews proposed legislation, the Retirement Savings Lost and Found Act of 2020 (now S. 1730; RSLFA). The issue of missing participants and beneficiaries often becomes critical when an employer goes out of business or for some other reason stops sponsoring a pension plan. The missing participants are owed their earned retirement benefits. They, not the employer, own them.

Operating costs of pension funds: the impact of scale, governance, and plan design

2007 ◽  
Vol 8 (1) ◽  
pp. 63-89 ◽  
Author(s):  
JACOB A. BIKKER ◽  
JAN DE DREU
Keyword(s):  
Economies Of Scale ◽  
Pension Plan ◽  
Pension Funds ◽  
Operating Costs ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Defined Benefit Plans ◽  
Plan Design ◽  
Using Data ◽  
The Impact

AbstractAdministrative and investment costs per participant appear to vary widely across pension funds. These costs are important because they reduce the rate of return on the investments of pension funds and consequently raise the cost of retirement security. This article examines the impact of determinants of these costs, such as the size, governance, pension plan design and outsourcing decisions, using data on all Dutch pension funds across the 1992–2004 period, including more than 10,000 observations. We find that economies of scale dominate the strong dispersion in both administrative and investment costs across pension funds. Industry-wide pension funds are significantly more efficient than company funds and other funds. The operating costs of pension funds' defined contribution plans are lower than those of defined benefit plans. Higher shares of pensioners make funds more costly, whereas the reverse is true when relatively many participants are inactive.

Which Teachers Choose a Defined Contribution Pension Plan? Evidence from the Florida Retirement System

2015 ◽  
Vol 10 (2) ◽  
pp. 193-222 ◽  
Author(s):  
Matthew M. Chingos ◽  
Martin R. West
Keyword(s):  
Science Teachers ◽  
Value Added ◽  
Pension Plan ◽  
Revealed Preferences ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Advanced Degrees ◽  
Retirement System ◽  
Plan Choice ◽  
Defined Contribution Pension Plan

Since 2002, public school teachers in Florida have been permitted to choose between a defined benefit (DB) and a defined contribution (DC) retirement plan. We exploit this unique policy environment to study new teachers’ revealed preferences over pension plan structures. Roughly 30 percent of teachers hired between 2003 and 2008 selected the DC plan, despite the fact that teachers not actively deciding within six months were defaulted into the DB plan. The share choosing the DC plan was higher among teachers with advanced degrees, math and science teachers, and teachers in charter schools. It was lower among special education teachers and especially among black and Hispanic teachers. There was only a slight relationship between plan choice and teacher value added to student achievement, with teachers in the bottom value-added quartile roughly 2 percentage points less likely to choose the DC option.

Behavioral effects of employer-sponsored retirement plans

2007 ◽  
Vol 6 (3) ◽  
pp. 251-285 ◽  
Author(s):  
STEVEN A. NYCE
Keyword(s):  
Perceived Value ◽  
Selection Effect ◽  
Employee Commitment ◽  
Pension Plan ◽  
Behavioral Effects ◽  
Independent Effect ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Retirement Plans ◽  
Attitude Survey

AbstractMany organizations have either already terminated their defined benefit (DB) plans or are thinking about it, in order to offload the financial and regulatory risks these programs pose. But plan sponsors should think carefully about how their decision might affect their workers' commitment and productivity – and ultimately their organization's success.To answer those and other retirement questions, Watson Wyatt set out to learn how DB and defined contribution (DC) plans affect employees' workforce behavior and decisions. Watson Wyatt's Retirement Attitude Survey (WWRAS) found that, while most workers value both types of plans very highly, workers with DB plans generally appreciate their retirement programs significantly more than those with only a DC plan. This was particularly the case for those with a hybrid pension plan. This analysis found that retirement plan generosity and effective communication strongly affect a plan's perceived value to employees. This has important implications for plan sponsors, since greater plan appreciation is strongly linked to employee commitment. In fact, we found that workers covered by a defined benefit plan express a very strong commitment to their current employer, while DC plan coverage has no effect on employee commitment. This is partly owing to a selection effect, whereby firms with DB plans tend to attract more committed workers. However, even after controlling for the selection effect, DB plans exert an independent effect on the likelihood that employees will stay with their employer.

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