Hostname: page-component-78c5997874-dh8gc Total loading time: 0 Render date: 2024-11-06T09:16:38.228Z Has data issue: false hasContentIssue false
  • English
  • Français

The decline of defined benefit plans and job tenure

Published online by Cambridge University Press:  15 December 2008

ALLISON SCHRAGER
ALLISON SCHRAGER
Affiliation:
Integrated Finance Ltd., 245 Park Avenue, 44th Floor, New York, NY 10167, USA (e-mail: [email protected])
Get access Rights & Permissions [Opens in a new window]

Abstract

This 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.

Type
Articles
Information
Journal of Pension Economics & Finance , Volume 8 , Issue 3 , July 2009 , pp. 259 - 290
Copyright
Copyright © 2008 Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Aaronson, Stephanie R. and Coronado, Julia Lynn (2005) Are firms or workers behind the shift away from DB pension plans? FEDS paper No. 2005–17.Google Scholar
Andrietti, Vincenzo and Hildebrand, Vincent (2001) Pension portability and labor mobility in the United States: new evidence from SIPP data. Center for Research on Pensions and Welfare Policies working paper 10/01 2001.Google Scholar
Bodie, Zvi, Marcus, Alan J., and Merton, Robert C. (1988) Defined benefit versus defined contribution pension plans: what are the real trade-offs? In Bodie, Z., Shoven, J., and Wise, D. (eds) Pensions in the US Economy. Chicago, IL: University of Chicago Press.CrossRefGoogle Scholar
Brown, Jeffrey R. (2001) Private pensions, mortality risk, and the decision to annuitize. Journal of Public Economics, 71(1): 29–62.CrossRefGoogle Scholar
Bureau of Labor Statistics (2003) Employee benefits in medium and large private establishments 2002 to 2003. US Department of Labor Bulletin 2003.Google Scholar
Carroll, Christopher and Samwick, Andrew (1997) The nature of precautionary wealth. Journal of Monetary Economics, 40: 41–71.CrossRefGoogle Scholar
Clark, Robert L. and McDermed, Ann (1990) The Choice of Pension Plans in a Changing Regulatory Environment. Washington, DC: The AEI Press.Google Scholar
Cocco, Joao F. and Lopes, Paula (2004) Defined Benefit or Defined Contribution?: An Empirical Study of Pension Choices. UBS Pensions series.Google Scholar
Fallick, Bruce and Fleischman, Charles (2004) Employer-to-employer flows in the US labor market: the complete picture of gross worker flows. Finance and Economics Discussion Series Working Paper 2004–34, Board of Governors of the Federal Reserve System.CrossRefGoogle Scholar
Farber, Henry S. (1995) Are lifetime jobs disappearing? Job duration in the United States, 1973–1993. In Haltiwanger, John, Manser, Marilyn, and Topel, Robert (eds) Labor Statistics Measurement Issues, Chicago, IL: University of Chicago Press.Google Scholar
Farber, Henry S. (1997) The changing face of job loss in the United States, 1981–1995. Brookings Papers on Economics Activity: Microeconomics. June 1997.CrossRefGoogle Scholar
Farber, Henry S. (2007) Is the company man an anachronism? Trends in long term employment in the US, 1973–2006. Princeton University working paper no. 518.Google Scholar
Feldstein, Martin S. and Ranguelova, Elena (2001) Individual risk in an investment-based social security system. NBER working paper no.W8074, January.CrossRefGoogle Scholar
Foster, Ann C. (1994) Portability of pension benefits among jobs. Monthly Labor Review, July.Google Scholar
Friedberg, Leonora and Owyang, Michael T. (2004) Explaining the evolution of pension structure and job tenure. Working Paper 2002–022B, Federal Reserve Bank of St Louis.CrossRefGoogle Scholar
Gottschalk, Peter and Moffit, Robert (1988) Trends in the variances of permanent and transitory earnings in the US and their relation to earnings mobility. Boston College Working Papers in Economics, 444. Boston College Department of Economics, November.Google Scholar
Gottschalk, Peter and Moffit, Robert (1994) The growth of earnings instability in the US labor market. Brookings Papers on Economic Activity, 2: 217–54.CrossRefGoogle Scholar
Gottschalk, Peter and Moffit, Robert (1999) Changes in job instability and insecurity using monthly survey data. Journal of Labor Economics, 17(4).CrossRefGoogle Scholar
Gustman, Alan L. and Steinmeier, Thomas L. (1999) What people don't know about their pensions and social security: an analysis using linked data from the Health and Retirement Study. NBER working paper no. W7368.Google Scholar
Hubbard, Glenn, Skinner, Jonathan, and Zeldes, Stephen P. (1995) Precautionary saving and social insurance. Journal of Political Economy, 53(2): 360–99.CrossRefGoogle Scholar
Hustead, Edwin C. (1998) Trends in retirement income plan expenses. In Olivia, Mitchell and Sylvester, Schieber (eds) Living with Defined Contribution Pension: Remaking Reasonability, Philadelphia, PA: University of Pennsylvania Press.Google Scholar
Jaeger, David A. and Huff Stevens, Ann (1999) Is job stability in the United States falling? Reconciling trends in the current Population Survey and Panel Study of Income Dynamics. Journal of Labor Economics, 17(4).CrossRefGoogle Scholar
James, Poterba, Joshua, Rauh, Steven, F. Venti and David, Wise. Defined Contribution Plans, Defined Benefit Plans, and the Accumulation of Retirement Wealth NBER Working paper w12597.2006.CrossRefGoogle Scholar
MacCurdy, Thomas E. (1982) The use of time series processes to model the error structure of earnings in longitudinal data analysis. Journal of Econometrics 1982, 18: 83–114.Google Scholar
McCarthy, David (2003) A life-cycle analysis of defined benefit pension plans. Journal of Pension Economics and Finance, 2: 99–126.CrossRefGoogle Scholar
Poterba, James M., Venti, Steven F., and Wise, David A. (2001) The transition to personal accounts and increasing retirement wealth: macro and micro evidence. NBER Working Paper 8610.CrossRefGoogle Scholar
Shimer, Robert (2005) The cyclicality of hires, separations, and job-to-job transitions. Federal Reserve Bank of St Louis Review, 87(4): 493–507.Google Scholar
Skinner, Jonathan and Samwick, Andrew A. (2004) How will 401(k) pension plans affect retirement income? American Economic Review, 94(1).Google Scholar
Topel, R. H. and Ward, M. P. (1992) Job mobility and the careers of young men. Quarterly Journal of Economics, 107: 439–79.CrossRefGoogle Scholar
US Government Accounting Office (2003) Private pensions: participants need information on risks they face in managing pension assets at and during retirement. Report to Congressional Requestors GAO-03–8.Google Scholar
Yaari, Menahem E. (1965) Uncertain lifetime, life insurance, and the theory of the consumer. Review of Economic Studies, 32: 137–50.CrossRefGoogle Scholar
Zeldes, Stephen P. (1984) Optimal consumption with stochastic income: deviations from certainty equivalence. Ph.D. Thesis, MIT.Google Scholar
Zeldes, Stephen P. (1989) Optimal consumption with stochastic income: deviations from certainty equivalence. Quarterly Journal of Economics, 106(2): 275–98.CrossRefGoogle Scholar