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

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 the retirement welfare of U.S. retirees. However, the private pension landscape is also evolving in ways that may result in lower private pension wealth for retirees. One recent such phenomenon involves the conversion of traditional defined benefit (DB) pension plans to cash balance plans, resulting in lower pension benefits for workers. In this study, I investigated how characteristics of the firm’s workforce influence whether the firm converted its 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 female workforces and having defined contribution plans during the same time.

Keywords: Defined benefit pension plans, cash balance pension plans, pension plan terminations, firm pension plan policy

JEL Classification: J32, J26