How Much Would It Take? Achieving Retirement Income Equivalency Between Final-Average-Pay Defined Benefit Plan Accruals and Automatic Enrollment 401(k) Plans in the Private Sector

2019 ◽  
Author(s):  
Jack VanDerhei
Keyword(s):  
Private Sector ◽  
Retirement Income ◽  
Defined Benefit ◽  
Benefit Plan

The Evolution of Private Sector Retirement Income From Defined-Benefit Pensions to Target-Date 401(k) Plans

2019 ◽  
Vol 51 (2) ◽  
pp. 77-85
Author(s):  
John G. Kilgour
Keyword(s):  
Private Sector ◽  
Pension Reform ◽  
Pension Plans ◽  
Retirement Income ◽  
Defined Benefit ◽  
Investment Control ◽  
Target Date ◽  
Target Date Funds ◽  
Market Plan ◽  
Defined Benefit Pensions

Traditional employer-sponsored defined-benefit pension plans in the private sector that provided lifetime benefits have declined precipitously since 1985. They have been largely replaced by Section 401(k) plans in which investment control, market risk and longevity risk have been transferred from the employer to the participant. Most participants opted for the low-yielding money market plan default option, which proved inadequate for providing viable retirement income. The Pension Reform Act of 2006 made two important changes to 401(k) plans: (1) allowed automatic enrollment and (2) allowed target-date funds as a “qualified default investment alternative.” This article examines the evolution from defined-benefit pensions to target-date funds and the closely related collective investment trusts.

Transitions from career employment among public- and private-sector workers

2019 ◽  
Vol 18 (04) ◽  
pp. 529-548 ◽  
Author(s):  
Joseph F. Quinn ◽  
Kevin E. Cahill ◽  
Michael D. Giandrea
Keyword(s):  
Public Sector ◽  
Private Sector ◽  
Pension Plans ◽  
Full Time ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Private And Public ◽  
Public And Private Sector ◽  
Career Employment ◽  
Public Sector Workers

AbstractDo the retirement patterns of public-sector workers differ from those in the private sector? The latter typically face a retirement landscape with exposure to market uncertainties through defined-contribution pension plans and private saving. Public-sector workers, in contrast, are often covered by defined-benefit pension plans that encourage retirement at relatively young ages and offer financial security at older ages. We examine how private- and public-sector workers transition from full-time career employment, with a focus on the importance of gradual retirement. To our surprise, we find that the prevalence of continued work after career employment, predominantly on bridge jobs with new employers, is very similar in the two sectors, a result with important implications in a rapidly aging society.

scholarly journals The impact of aggregate mortality risk on defined benefit pension plans

2010 ◽  
Vol 9 (4) ◽  
pp. 481-503 ◽  
Author(s):  
IRENA DUSHI ◽  
LEORA FRIEDBERG ◽  
TONY WEBB
Keyword(s):  
Mortality Risk ◽  
Pension Plans ◽  
Defined Benefit ◽  
Benefit Plan ◽  
Defined Benefit Plans ◽  
The Impact ◽  
Carter Model ◽  
Male Workers ◽  
Defined Benefit Pension Plans

AbstractWe calculate the risk faced by defined benefit plan providers arising from uncertain aggregate mortality – the risk that the average participant will live longer than expected. First, comparing the widely cited Lee–Carter model to industry benchmarks that are commonly employed by plan providers, we show that these benchmarks appear to substantially underestimate longevity. The resultant understatement of liabilities may reach 12.2% for typical male participants in defined benefit plans and may reach 22.4% for male workers aged 22. Next, we consider consequences for plan liabilities if aggregate mortality declines unexpectedly faster than is predicted by a putatively unbiased projection. There is a 5% chance that liabilities of a terminated plan would be 3.1% to 5.3% higher than what is expected, depending on the mix of workers covered.

Retirement and Pensions in American Economic History

2018 ◽  
pp. 354-374
Author(s):  
Robert Clark ◽  
Lee A. Craig
Keyword(s):  
Public Sector ◽  
Private Sector ◽  
Economic History ◽  
Pension Plans ◽  
Federal State ◽  
Defined Benefit ◽  
Retirement Plans ◽  
The Us ◽  
Defined Benefit Plans ◽  
State And Local

The proportion of the US population that survives to retirement age has increased over time, as has the share of the older population that retires. Higher incomes at older ages explain the increase in the incidence of retirement. Pensions provide much of that income. In general, public-sector workers, especially military personnel, were covered by pensions before their private-sector counterparts, and coverage in the public sector remains more widespread, and generous, than it is in the private sector. Public-sector pension plans are more likely to be defined benefit plans than are private-sector plans. Many public-sector employers have promised their employees more in benefits than they have set aside to pay for those benefits. Estimates suggest that the federal, state, and local retirement plans currently in operation are underfunded by as much as $5 trillion.

scholarly journals New Dutch pension contracts and lessons for other countries

2018 ◽  
Vol 18 (3) ◽  
pp. 331-346 ◽  
Author(s):  
LANS BOVENBERG ◽  
THEO NIJMAN
Keyword(s):  
Financial Risk ◽  
Contract Design ◽  
Retirement Income ◽  
Financial Assets ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Occupational Pensions ◽  
Systematic Risks ◽  
Recent Developments ◽  
Insurance Decisions

AbstractThis paper summarizes recent developments in Dutch occupational pensions of both the defined contribution and defined benefit (DB) types. A reform of DB schemes is discussed that introduces financial assets as individual entitlements. At the same time, the reformed schemes derive (dis)saving, financial risk management and insurance decisions from the explicit objective of adequate and stable lifelong retirement income. The proposed system also involves an insurance contract pooling longevity risks and possibly collective buffers that share systematic risks with future pension savers. The paper identifies the strengths and weaknesses of the Dutch contract design and draws lessons for other countries.

Predicting cash flows related to defined benefit plan contributions

2010 ◽  
Vol 9 (4) ◽  
pp. 505-532 ◽  
Author(s):  
THOMAS D. DOWDELL ◽  
BONNIE K. KLAMM ◽  
ROXANNE M. SPINDLE
Keyword(s):  
Cash Flow ◽  
Financial Statements ◽  
Cash Flows ◽  
Pension Plans ◽  
Defined Benefit ◽  
Pension Accounting ◽  
Accounting Standard ◽  
Benefit Plan ◽  
Accounting Rules ◽  
Pension Liabilities

AbstractFuture contributions to defined benefit pension plans are a significant cash flow item that can be difficult to estimate. Funding ratios – pension assets relative to pension liabilities – have long been considered important for estimating cash flows needed for current and future pension contributions (Ballester et al., 1998). However, US GAAP or IFRS funding ratios that companies report in their financial statements may differ from funding ratios used by pension regulators. These regulatory funding ratios may be more useful for predicting future contributions.We investigate whether US regulatory and GAAP funding ratios are different and whether regulatory funding ratios provide useful information for predicting future contributions. For 3,877 firm years from 1995 through 2002, we observe that regulatory and GAAP funding ratios differ by more than 5% for 73% of our sample. We also find that predictions of future contributions are improved by using regulatory funding ratios in addition to GAAP funding ratios. Our results are relevant to accounting standard setters' ongoing review of pension accounting rules.

scholarly journals Are Cash Balance Pension Plans A Viable Retirement Program For Corporate America?

2012 ◽  
Vol 10 (8) ◽  
pp. 451
Author(s):  
John J. Lucas
Keyword(s):  
Pension Plans ◽  
Defined Benefit ◽  
Corporate America ◽  
Defined Contribution ◽  
Cash Balance ◽  
Benefit Plan ◽  
Recent Trends ◽  
Program Option ◽  
Cash Balance Pension Plans

Cash Balance Pension Plans are a defined benefit plan where employees have a hypothetical account that increases annually, as a result of compensation credit as well as interest credit. In essence, cash balance pension plans combine elements of both a traditional defined benefit plan and a defined contribution plan (Lucas, 2007). This paper examines the recent trends and legal ruling regarding cash balance pension plans. The paper also provides an examination of the role of the Pension Protection Act (PPA) of 2006 and its impact on cash balance pension plans. An evaluation will also be presented to determine if cash balance pension plans are a viable retirement program option in corporate America.

Investing for Retirement in a Low Returns Environment

2018 ◽  
Author(s):  
Catherine Reilly ◽  
Alistair Byrne
Keyword(s):  
Social Security ◽  
Financial Services ◽  
Financial Assets ◽  
Defined Benefit ◽  
Market Returns ◽  
Savings Behavior ◽  
Benefit Plan ◽  
The Past ◽  
Investment Returns ◽  
Near Term

Low returns on financial assets and increasing longevity mean saving for retirement is becoming more challenging than it has been in the past. Generations retiring in the near term face increased longevity but have lived through periods with strong market returns boosting their assets, and many also have defined benefit plan entitlements. Younger generations, who also face increasing longevity, are unlikely to earn historical investment returns on their retirement portfolios, and few have traditional pensions. We model the likely outcomes for different cohorts under scenarios for savings behavior, investment returns, and longevity. While younger generations do face substantial challenges, we show that plausible courses of action involve increased contributions and delayed or partial retirement, which can provide reasonable income replacement rates in retirement. We map out the steps that the retirement industry (government, employers, and financial services providers) must take to support people in following these courses of action, such as providing more flexibility over social security.

Replicating Default Risk in a Defined-Benefit Plan

2002 ◽  
Vol 58 (6) ◽  
pp. 31-40 ◽  
Author(s):  
Richard A. Ippolito
Keyword(s):  
Default Risk ◽  
Defined Benefit ◽  
Benefit Plan
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