Potential implications of mandating choice in corporate defined benefit plans
Published online by Cambridge University Press: 21 December 2004
Abstract
The evolution of hybrid conversions has prompted a number of high-profile legal challenges. In response, policymakers have attempted to force companies transitioning from a traditional DB to a hybrid plan to offer all workers the open-ended choice of remaining in the old DB plan, versus switching to the new hybrid plan. This paper evaluates ‘winners’ and ‘losers’ under these plan conversions and estimates the cost to plan sponsors of such a mandate. We find that mandating choice could increase plan sponsors' pension expenses above their current cost for traditional defined benefit plans. In the end, rising costs of pensions could endanger plan sponsorship altogether. Policymakers seeking to mandate pension choice should take into account these possible undesirable outcomes of such a law.
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- © 2004 Cambridge University Press
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