Skip to main content
SpringerLink
Log in

Changes in Firm Pension Policy: Trends Away from Traditional Defined Benefit Plans

  • Published:
Journal of Labor Research Aims and scope Submit manuscript

Abstract

In light of the recent concerns regarding the solvency of Social Security’s Old-Age, Survivors and Disability Insurance (OASDI), private pensions may play an increasingly important role in retirement welfare of US retirees. However, the private pension landscape has evolved in ways that may result in lower private pension wealth for retirees. One recent such phenomenon involves the conversion of traditional defined benefit pension plans to cash balance plans, which results in lower pension benefits for many workers. In this study, I investigated how characteristics of the firm’s workforce influenced whether the firm converted their traditional pension plan to a cash balance plan and how these characteristics related to the firm’s pension plan policy more generally. Using the Longitudinal Employer-Household Data and pension plan data from the Department of Labor/Internal Revenue Service and the Pension Benefit Guaranty Corporation, I found little evidence of workforce age distribution effects on the likelihood of DB plan conversion to a cash balance plan in the 1990s. More generally, I consistently found positive associations between firms with older and more female workforces and defined contribution plans during the same time.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. Most of these conversions occurred in the 1990s. The IRS issued a moratorium on cash balance conversions in 1999. The 2006 Pension Protection Act remedied many of the perceived problems with these conversions and the moratorium was lifted in December 2006 (Pension Protection Act 2006).

  2. The exception is Niehuas and Yu’s work (2005). Niehaus and Yu (2005) examined all DB plans that either were converted to a cash balance plan or were terminated and subsequently replaced by a defined contribution (DC) plan. They found that in this sample, firms with excess assets were more likely to convert during the 1990s.

  3. Results available upon request.

  4. The DOL reports that 5500 data prior to 1991 is unavailable due to data corruption. Though the first conversion was in 1985, most conversions occurred in the 1990s.

  5. This restricts the analysis to firms located in the following states: California, Colorado, Florida, Idaho, Illinois, Maryland, Maine, Montana, North Carolina, New Jersey, New Mexico, Oregon, Texas, Virginia, Washington, and Wisconsin.

  6. I chose age 44 as the cut-off due to the structure of the QWI data. For each firm, I know the number of employees in different age groups (<22, 22–34, 45–54, 55–64, and 65+). I wanted to capture the fraction of employees approaching retirement. As a robustness check, I also used the fraction of employees who are older than 54 years of age in all of the analysis. The results are consistent with those presented here.

References

  • Aaronson S, Coronado J (2005) "Are firms or workers behind the shift away from DB pension plans?” Finance and Economics Discussion Series Working Paper, #2005-17

  • Abowd JM, Stephens BE, Vilhuber V, Andersson F, McKinney KL, Roemer M, Woodcock S (2005) The LEHD infrastructure files and the creation of the quarterly workforce indicators. Technical Paper No. TP-2006-01 LEHD, US Census Bureau

  • Balan D (2003) "Have lazear-style implicit contracts disappeared?” Working paper, #256

  • Blau F, Kahn LM (2006) The US gender pay gap in the 1990s; slowing convergence. Industrial and labor relations review 60(1):45–66

    Google Scholar 

  • Copeland C (2007) Employment-based retirement plan participation: geographic differences and trends, 2006. Employee Benefit Research Institute Issue Brief, No. 311

  • Coronado JL, Copeland PC (2004) Cash balance pension plan conversions and the new economy. J Pension Econ Finance 3(3):297

    Article  Google Scholar 

  • D'Souza, Julia M, Jacob J, Lougee B (2006) “Why do firms convert to cash balance pension plans? An Empirical Investigation.” Cornell University working paper

  • Freeman RB (1981) The effect of unionism on fringe benefits. Industrial & Labor Relations Review 34(4):489

    Article  Google Scholar 

  • Friedberg L, Owyang M (2004) "Explaining the evolution of pension structure and job tenure.” National Bureau of Economics Working Paper Series, #10714

  • Gustman AL, Steinmeier TL (1989) An analysis of pension benefit formulas, pension wealth, and incentives from pensions. In: Ehrenberg R (ed) Research in labor economics, vol 10. JAI Press, Greenwich, CT, pp 33–106

    Google Scholar 

  • Gustman A, Steinmeier T (1992) The stampede toward defined contribution pension plans: fact or fiction? Ind Relat 31(2):361–369

    Article  Google Scholar 

  • Hustead EC (1998) Trends in retirement income plan administrative expenses. In: Mitchell OS, Schieber SJ (eds) Living with defined contribution pensions. Pension Research Council Publications, Philadelphia, pp 166–177

    Google Scholar 

  • Ippolito RA (1985) The labor contract and true economic pension liabilities. Am Econ Rev 75(5):1031

    Google Scholar 

  • Ippolito RA (1995) Toward explaining the growth of defined contribution plans. Ind Relat 34(1):1

    Article  Google Scholar 

  • Ippolito RA (2001) Reversion taxes, contingent benefits, and the decline in pension funding. J Law Econ 44:199–232

    Article  Google Scholar 

  • Ippolito RA, Thompson JW (2000) The survival rate of defined-benefit plans, 1987–1995. Ind Relat 39(2):228

    Article  Google Scholar 

  • Kapinos K (2009) On the determinants of defined benefit pension plan conversions. J Lab Res 30(2):149–167

    Article  Google Scholar 

  • Kruse D (1995) Pension substitution in the 1980's: why the shift toward defined contribution plans? Ind Relat 34(2):218–241

    Article  Google Scholar 

  • Lazear EP (1979) Why is there mandatory retirement. J Polit Econ 87(6):1261

    Article  Google Scholar 

  • Leimer DR (2007) Cohort-specific measures of lifetime social security taxes and benefits. ORES Working Paper Series, No. 110. Social Security Administration, Office of Policy, Office of Research, Evaluation, and Statistics

  • Lumsdaine RL, Stock JH, Wise DA (1994) Retirement incentives: the interaction between employer-provided pensions, Social Security, and retiree health benefits. NBER Working Paper No. 4613

  • McGill DM, Brown KN, Haley JJ, Schieber SJ (2005) Fundamentals of private pensions. Oxford University Press, Oxford

    Google Scholar 

  • Mitchell OS, Schieber SJ (1998) Defined contribution pensions: new opportunities, new risks. In: Mitchell OS, Schieber SJ (eds) Living with defined contribution pensions. Pension Research Council Publications, Philadelphia, pp 1–14

    Google Scholar 

  • Munnell AH, Soto M (2007) Why are companies freezing their pensions? Boston College Center for Retirement Research Working Paper # 2007–22

  • Munnell AH, Golub-Sass F, Soto M, Vitagliano F (2006a) Why are healthy employers freezing their pensions? Issue in Brief #42. Center for Retirement Research, Chestnut Hill, MA

    Google Scholar 

  • Munnell AH, Haverstick K, Sanzenbacher G (2006) Job tenure and pension coverage. Center for Retirement Research at Boston College Working Paper 2006–18

  • Niehaus G, Yu T (2005) Cash-balance plan conversions: evidence on excise taxes and implicit contracts. Journal of Risk and Insurance 72(2):321–352

    Article  Google Scholar 

  • Papke L (1999) Are 401(k) plans replacing other employer-provided pensions? Evidence from panel data. J Hum Resour 34(2):346–368

    Article  Google Scholar 

  • Papke L, Petersen MA, Poterba J (1996) Do 401(K) plans replace other employer provided pensions? In: Wise DA (ed) Advances in the economics of aging. University of Chicago Press, Chicago, pp 219–240

    Google Scholar 

  • Pension Protection Act of 2006, H.R. 4

  • Purcell PJ (2006) H.R. 2830: the pension protection Act of 2005. Journal of Pension Planning and Compliance 31(4):1

    Google Scholar 

  • Social Security Administration (2006) Income of the aged chartbook, 2004. SSA Publication No. 13–11727. Social Security Administration, Office of Policy, Office of Research, Evaluation, and Statistics

  • Zelinsky EA (2000) The cash balance controversy. Virginia Tax Review 19(4):683

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Center for Chronic Disease Outcomes Research, Department of Veterans Affairs Medical Center, One Veterans Drive, Minneapolis, MN, 55417, USA

    Kandice Kapinos

  2. Department of Medicine, University of Minnesota, Minneapolis, MN, 55455, USA

    Kandice Kapinos

Authors
  1. Kandice Kapinos
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Kandice Kapinos.

Additional information

Disclaimer

Any opinions and conclusions expressed herein are those of the author(s) and do not necessarily represent the views of the U.S. Census Bureau, the Department of Veteran Affairs, the position or the United States government. All results have been reviewed to ensure that no confidential information is disclosed.

This research reported herein was pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium (RRC). The findings and conclusions expressed are solely those of the author and do not represent the views of SSA, the Department of Veterans Affairs, any agency of the Federal Government or the RRC. I am grateful to a Steven H. Sandell Grant from the Center for Retirement Research at Boston College. I also thank Charlie Brown, Robert Costrell and seminar participants the Labor and Employment Relations Association for comments on an earlier version of this paper. This research uses data from the Census Bureau's Longitudinal Employer Household Dynamics Program, which was partially supported by the following National Science Foundation Grants SES-9978093, SES-0339191 and ITR-0427889; National Institute on Aging Grant AG018854; and grants from the Alfred P. Sloan Foundation.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Kapinos, K. Changes in Firm Pension Policy: Trends Away from Traditional Defined Benefit Plans. J Labor Res 33, 91–103 (2012). https://doi.org/10.1007/s12122-011-9126-5

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s12122-011-9126-5

Keywords

Search

Navigation