Missing Participants and Beneficiaries From Private-Sector Pension Plans

2021 ◽  
pp. 088636872110451
Author(s):  
John G. Kilgour
Keyword(s):  
Pension Plan ◽  
The United States ◽  
Pension Plans ◽  
Pension Benefit ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Social Security Administration ◽  
Retirement Benefits ◽  
Department Of Labor ◽  
For Profit

This article examines the problem of missing and nonresponsive participants and beneficiaries from defined-benefit (DB) and especially defined-contribution (DC) pension plans, mainly in the private (for profit) sector of the United States. It focuses on the current search requirements of the three government agencies involved in finding missing participants and beneficiaries: the Pension Benefit Guaranty Corporation (PBGC), the Department of Labor (DOL) and its Employee Benefit Services Administration (EBSA), and the Internal Revenue Service (IRS). The article also reviews the efforts of the Social Security Administration (SSA) in this area. It then reviews proposed legislation, the Retirement Savings Lost and Found Act of 2020 (now S. 1730; RSLFA). The issue of missing participants and beneficiaries often becomes critical when an employer goes out of business or for some other reason stops sponsoring a pension plan. The missing participants are owed their earned retirement benefits. They, not the employer, own them.

Case Study

1998 ◽  
Vol 30 (6) ◽  
pp. 25-31 ◽  
Author(s):  
Harold W. Burlingame ◽  
Michael J. Gulotta
Keyword(s):  
Pension Plan ◽  
Pension Plans ◽  
Defined Benefit ◽  
Corporate America ◽  
Defined Contribution ◽  
Cash Balance ◽  
Retirement Benefits ◽  
Strategic Objectives

The potential for using a cash balance pension plan as a restructuring tool is one reason it is gaining favor throughout corporate America. Another reason is that it can give employees a better understanding and appreciation of their retirement benefits. Both reasons are important at a time when companies are changing rapidly and sometimes downsizing and when employees are less likely to stay in one place long enough to anticipate reaping the rewards of a defined bene-fit plan. Cash balance plans combine some of the best features of defined contribution (DC) and defined benefit (DB) plans. For employers, they provide more flexibility than traditional DB plans and help companies achieve their strategic objectives. For employees, they better meet the needs of a changing workforce by delivering portable, easily understood benefits. Since 1985, more than 200 companies have replaced their DB pension plans with a cash bal-ance design. One of the newest and most enthu-siastic proponents is AT&T, which, with the help of consulting firm ASA, Inc., designed a cash bal-. ance plan to help meet its restructuring goals.

How defined contribution plans and 401(k)s affect employer pension costs

2006 ◽  
Vol 5 (2) ◽  
pp. 175-196 ◽  
Author(s):  
TERESA GHILARDUCCI ◽  
WEI SUN
Keyword(s):  
Fixed Effects ◽  
Pension Plan ◽  
Ordinary Least Squares ◽  
Pension Plans ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Defined Contribution Plans ◽  
Pension Costs ◽  
Administrative Expenses ◽  
Pension Contribution

We investigate the pension choices made by over 700 firms between 1981 and 1998 when DC plans expanded and overtook DB plans. Their average pension contribution per employee dropped in real terms from $2,140 in 1981 to $1,404 in 1998. At the same time, the share of their pension contributions attributed to defined contribution plans was 23% in 1981 and increased to 68% in 1998. By analyzing pension plan data from the IRS Form 5500 and finances of the plan's sponsoring employer from COMPUSTAT with a fixed-effects ordinary least squares model and a simultaneous model, we find that a 10% increase in the use of defined contribution plans (including 401(k) plans) reduces employer pension costs per worker by 1.7–3.5%. This suggests firms use DCs and 401(k)s to lower pension costs. Lower administrative expenses may also explain the popularity of DC plans. Although measuring a firm's pension cost per worker may be a crude way to judge a firm's commitment to pensions, this study suggests that firms that provide both a traditional defined benefit and a defined contribution plan are the most committed because they spend the most on pensions. Further research, especially case studies, is vital to understand employers' commitment to employment-based pension plans.

scholarly journals Life After Defined Benefit Plans

2011 ◽  
Vol 4 (8) ◽  
Author(s):  
Martin A. Goldberg ◽  
Robert E. Wnek ◽  
Michael J. Rolleri
Keyword(s):  
Pension Plan ◽  
Profit Sharing ◽  
Pension Plans ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Cash Balance ◽  
Benefit Plan ◽  
Defined Contribution Plans ◽  
Defined Benefit Plans ◽  
Recent Developments

Employers have moved from traditional pension plans to cash balance and other alternative defined benefit plans. However, it may be that the best approach lies beyond defined benefit plans completely. The Employee Retirement Income Security Act of 1974 (ERISA) was enacted to protect workers. Its focus was on the defined benefit plan, which at that time meant a traditional pension plan that provided lifetime income to retired workers. Over the years traditional pension plans have declined in number, often due to their increasing costs. Many of these plans have been replaced by the 401(k) plan, a profit-sharing plan partly or wholly funded by employee contributions. There has also been a rise in hybrid plans, plans that have features of both defined benefit and defined contribution plans. Recent developments highlight the weaknesses in traditional pension plans. Replacing a traditional pension plan with a cash balance plan, a hybrid plan that qualifies as a defined benefit plan, does not fully address all the problems. It may be that there is limited advantage to the continued emphasis on defined benefit plans. Instead, defined contribution plans that contain some features of defined benefit plans may better address the current retirement-plan issues.

Hybrid Cash Balance and Pension Equity Plans: Origins and Development

2021 ◽  
pp. 088636872110052
Author(s):  
John G. Kilgour
Keyword(s):  
The United States ◽  
Fortune 500 ◽  
Pension Plans ◽  
Retirement Income ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Cash Balance ◽  
Fully Functioning ◽  
Small Employers ◽  
Do So

It is widely recognized that there has been a massive shift from defined-benefit (DB) to defined-contribution pension plans. However, the full extent of that shift from fully functioning DB plans is generally understated. This article measures and relates the extent of that understatement and its importance for retirement income. It then discusses the increasing importance of cash balance and pension equity plans and their legality. It then conducts an in-depth discussion of large (Fortune 500) employers, small- and medium-sized employers, and then very small employers (25 or fewer active participants). It concludes that retirement income plans in the United States are far from static. Indeed, they have evolved throughout the era and will continue to do so in the future.

scholarly journals Implicaciones del consumo y de la flexibilidad de la oferta laboral en el bienestar de los partícipes de planes de pensiones del Sistema de Empleo

2020 ◽  
Vol 30 (3) ◽  
pp. 1069
Author(s):  
Francisco J. Peláez Fermoso ◽  
Ana García González ◽  
Jesús Mª. Gómez García
Keyword(s):  
Intertemporal Choice ◽  
Pension Plan ◽  
Pension Plans ◽  
Point Of View ◽  
Pension Scheme ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Employment System ◽  
Defined Contribution Plans ◽  
Markovian Processes

This work aims to carry out a comparative analysis of the pension plans of the employment system (both defined benefit and defined contribution plans) from the point of view of the welfare perceived by each worker. Considering flexibility in the labor supply of the promoting company of the pension scheme, we seek to maximize the utility of the time preferences of consumption and leisure for each employee. We propose a dynamic optimization problem of intertemporal choice, and we describe both the returns on the investments of the Fund and the annual wage growth rates as discrete markovian processes. For each type of pension plan, we analyse the optimal consumption and leisure values that maximize the utility (welfare) of the worker over several periods of time.

Fiduciary Principles in Pension Law

2019 ◽  
pp. 165-186
Author(s):  
Dana M. Muir
Keyword(s):  
Service Providers ◽  
Pension Plan ◽  
Pension Plans ◽  
Fiduciary Duty ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Fiduciary Duties ◽  
Legal Obligations ◽  
Investment Advice ◽  
Default Rules

This chapter examines the underlying fiduciary principles of pension law, focusing on two forms of pension plans: defined contribution (DC) plan and defined benefit (DB) plan. It first considers the ERISA principles and how they differ from public-sector pension law, along with the extent to which the courts have applied general principles of trust law when interpreting and filling gaps in ERISA. It then discusses the fiduciary triggers of pension law, laying emphasis on the definition of fiduciary in pension law and the ways in which that definition is circumscribed. It also tackles the fiduciary status that arises when investment advice is given in the case of DC plans, co-fiduciary liability that exists under ERISA, how ERISA circumscribes the extent to which fiduciaries owe duties, and the “two hat” problem that arises when the plan sponsors act as fiduciaries. The chapter proceeds by analyzing the fiduciary duties of loyalty, care, and diversification as applied in the pension plan context; breach of fiduciary duty associated with the selection of investment options and service providers; employer stock as an investment option in DC plans; and economically targeted investments. Finally, it explains ERISA’s periodic and episodic disclosure obligations that intersect with fiduciary duties, along with other legal obligations, mandatory and default rules governing a pension plan fiduciary’s obligations, and remedies under ERISA available to pension plan participants in cases of breach of fiduciary duty.

scholarly journals Automatic enrollment and employer match: an experiment with the choice of pension plans

2020 ◽  
Vol 27 (3) ◽  
pp. 281-299
Author(s):  
Antonio Gualberto Pereira ◽  
Luís Eduardo Afonso
Keyword(s):  
Pension System ◽  
Pension Plan ◽  
The United States ◽  
Pension Plans ◽  
Low Risk ◽  
Control Group ◽  
Retirement Savings ◽  
Defined Contribution ◽  
Content Type ◽  
Treatment Groups

PurposeThe purpose of this study is to identify arrangements of fully funded defined contribution (FF-DC) pension plans associated with the continuity of retirement savings.Design/methodology/approachThe authors adopted an experimental design composed of a control group and two treatment groups. In all groups, individuals made decisions throughout nine periods: five during the working period and four at the postretirement stage. The authors asked participants if they wanted to join a pension plan, and which plan. The authors offered three plans with different risk profiles: plan 1 (high risk), plan 2 (moderate) and plan 3 (low risk) and one risk-free plan, plan 4. In treatment groups 1 and 2, there was an automatic enrollment of the participants in the default plan (moderate risk), and in the following periods they had to decide whether to continue contributing, and in this case, to which plan, with a defined percentage.FindingsIn treatment scenarios, participants chose the riskiest plan in all periods of the experiment, and most of them chose the risk-free plan in period 5. These findings suggest that pension plans with automatic enrollment, employer matching and low risk foster the continuation of retirement savings.Research limitations/implicationsThe research has as limitation the fact that the sample is not representative of the population and therefore does not allow generalizations. This is because the authors use social media ads to prospect respondents.Practical implicationsThe research's findings can be relevant for the design of public policies for private pension plans, suggesting that compulsory automatic enrollment can be used as default in plans offered by the employers. The results encourage the inclusion of behavioral elements in the design of the pension system, paying attention to the nudges. In this sense, it is possible to increase participation in the pension plan and develop low cost programs to increase the amount accumulated by people before retirement.Social implicationsDecision-making architecture, such as automatic enrollment, can improve individuals' retirement decisions, affecting savings and welfare in the long run.Originality/valueAlthough the effect of pension plan designs is widely studied in other countries, such as the United States and United Kingdom, the authors are unaware of a national empirical research that seeks to understand how different arrangements affect an individual choice through an experiment.

From Stand-Alone Pensions to Alternative Retirement Plans: Examining State and Local Governments

2021 ◽  
pp. 088636872110307
Author(s):  
Bruce J. Perlman ◽  
Christopher G. Reddick
Keyword(s):  
United States ◽  
Local Governments ◽  
Pension Reform ◽  
The United States ◽  
Pension Plans ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Retirement Plans ◽  
Funded Pensions ◽  
State And Local

Defined benefit (DB) pension plans are the dominant retirement program for state and local governments in the United States. However, in the last 15 years, some have given new employees a choice of alternatives to stand-alone DB pension plans such as cash balance (CB), defined contribution (DC), and hybrid retirement plans. This article examines this shift through survival analysis using panel data of 190 state and local pension plans across the United States. From 2001 to 2019, we modeled five change factors found in the pension reform literature, namely, financial constraints, interest group influence, plan membership, and liability, along with other state factors. Our analysis shows that all five of these factors impacted the shift to alternative retirement plans from stand-alone DB plans. Notable findings are that well-funded pensions were more likely to shift to alternative retirement plans, and interest groups such as police, fire, and teachers were more likely to keep stand-alone plans.

The strategic use of pensions by not-for-profit organizations

2018 ◽  
Vol 18 (3) ◽  
pp. 388-414
Author(s):  
THAD DANIEL CALABRESE ◽  
ELIZABETH A. M. SEARING
Keyword(s):  
Financial Management ◽  
Pension Plan ◽  
Pension Plans ◽  
Defined Benefit ◽  
For Profit ◽  
Management Objectives ◽  
Not For Profit ◽  
Net Assets ◽  
Earnings Targets ◽  
Pension Liabilities

AbstractDefined benefit pension plans are an important and unexplored aspect of not-for-profit compensation, covering between 15% and 21% of the estimated national not-for-profit workforce. Here we consider whether pension contributions and actuarial assumptions are mechanisms for achieving not-for-profit financial management objectives such as smoothing consumption, managing reported net earnings, and minimizing pension liabilities. The empirical results indicate a variety of these behaviors. Not-for-profit pension plan sponsors use accumulated net assets to smooth consumption. Further, not-for-profits manage reported profits downwards when they exceed expectations by increasing pension contributions, but both minimize contributions and liberalize actuarial assumptions when they underperform relative to their desired earnings targets.

An Introduction to Teacher Retirement Benefits

2010 ◽  
Vol 5 (4) ◽  
pp. 402-437 ◽  
Author(s):  
Janet S. Hansen
Keyword(s):  
Private Sector ◽  
Pension Plans ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Public And Private ◽  
Teacher Shortages ◽  
Retirement Benefits ◽  
Teacher Retirement ◽  
State And Local ◽  
Public And Private Sector

Like most other state and local government employees, teachers participate primarily in defined benefit pension plans whose benefits are largely based on final average salaries and length of service. Such pensions have been replaced in many private sector firms by defined contribution pensions. A number of questions have arisen about the feasibility and desirability of continuing to rely on defined benefit pensions for teachers. This article provides a brief history of teacher pensions and an overview of teacher retirement benefits today, including differences in the legal and economic context for public and private sector pensions that are important considerations in plan design. It then introduces issues related to financial sustainability, teacher mobility, and teacher shortages. The article concludes with an overview of key differences between traditional defined benefit and defined contribution plans and raises the possibility of adopting a “hybrid” kind of plan that includes features from both kinds of traditional plans.

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