Size and Investment Performance: Defined Benefit vs. Defined Contribution Pension Plans

2020 ◽  
Author(s):  
Donghyeok Jang ◽  
Youchang Wu
Keyword(s):  
Pension Plans ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Investment Performance

Transitions from career employment among public- and private-sector workers

2019 ◽  
Vol 18 (04) ◽  
pp. 529-548 ◽  
Author(s):  
Joseph F. Quinn ◽  
Kevin E. Cahill ◽  
Michael D. Giandrea
Keyword(s):  
Public Sector ◽  
Private Sector ◽  
Pension Plans ◽  
Full Time ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Private And Public ◽  
Public And Private Sector ◽  
Career Employment ◽  
Public Sector Workers

AbstractDo the retirement patterns of public-sector workers differ from those in the private sector? The latter typically face a retirement landscape with exposure to market uncertainties through defined-contribution pension plans and private saving. Public-sector workers, in contrast, are often covered by defined-benefit pension plans that encourage retirement at relatively young ages and offer financial security at older ages. We examine how private- and public-sector workers transition from full-time career employment, with a focus on the importance of gradual retirement. To our surprise, we find that the prevalence of continued work after career employment, predominantly on bridge jobs with new employers, is very similar in the two sectors, a result with important implications in a rapidly aging society.

scholarly journals Retirement Security in an Aging Population

2014 ◽  
Vol 104 (5) ◽  
pp. 1-30 ◽  
Author(s):  
James M. Poterba
Keyword(s):  
Well Being ◽  
Pension Plans ◽  
Support Program ◽  
Standard Of Living ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Private Pensions ◽  
Elderly Individuals ◽  
Income Sources ◽  
Retirement Security

Elderly individuals exhibit wide disparities in their sources of income. For those in the bottom half of the income distribution, Social Security is the most important source of support; program changes would directly affect their well-being. Income from private pensions, assets, and earnings are relatively more important for higher-income elderly individuals, who have more diverse income sources. The trend from private sector defined benefit to defined contribution pension plans has shifted responsibility for retirement security to individuals. A significant subset of the population is unlikely to be able to sustain their standard of living in retirement without higher pre-retirement saving.

scholarly journals Contribution volatility and public pension reform

2017 ◽  
Vol 17 (4) ◽  
pp. 513-533 ◽  
Author(s):  
TRAVIS ST. CLAIR ◽  
JUAN PABLO MARTINEZ GUZMAN
Keyword(s):  
Local Governments ◽  
Pension System ◽  
Pension Reform ◽  
Pension Plans ◽  
Fiscal Sustainability ◽  
Economic Downturn ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Unfunded Liabilities

AbstractIn the wake of the economic downturn of 2008–2009, researchers and policymakers have focused considerable attention on the extent of unfunded liabilities in US public sector pension plans and the implications for the long term fiscal sustainability of state and local governments. In response to the growth in liabilities, many states have introduced legislation that cuts back on defined benefit (DB) plan commitments, in some cases even shifting the pension system from a DB to a defined contribution or hybrid plan. This paper explores the factors that have led states to engage in pension reform, focusing particular attention on one factor that has only recently gained attention in the research literature: contribution volatility. While unfunded liabilities have significant long-term solvency implications, in the short term fluctuations in the amount of required contributions pose substantial difficulties for the ability of plan sponsors to balance budgets and engage in strategic planning. We begin by quantifying the volatility in the required contributions US states were expected to make between 2001 and 2013 and comparing the volatility of pension spending to other relevant tax and spending measures. Next, we describe the various types of pension reforms that states have implemented and examine the fiscal pressures facing those states that have engaged in reform. States with greater fluctuations in their required payments have been more likely to reduce benefits and increase employee contributions; they have also been more likely to institute these reforms sooner.

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 Are Cash Balance Pension Plans A Viable Retirement Program For Corporate America?

2012 ◽  
Vol 10 (8) ◽  
pp. 451
Author(s):  
John J. Lucas
Keyword(s):  
Pension Plans ◽  
Defined Benefit ◽  
Corporate America ◽  
Defined Contribution ◽  
Cash Balance ◽  
Benefit Plan ◽  
Recent Trends ◽  
Program Option ◽  
Cash Balance Pension Plans

Cash Balance Pension Plans are a defined benefit plan where employees have a hypothetical account that increases annually, as a result of compensation credit as well as interest credit. In essence, cash balance pension plans combine elements of both a traditional defined benefit plan and a defined contribution plan (Lucas, 2007). This paper examines the recent trends and legal ruling regarding cash balance pension plans. The paper also provides an examination of the role of the Pension Protection Act (PPA) of 2006 and its impact on cash balance pension plans. An evaluation will also be presented to determine if cash balance pension plans are a viable retirement program option in corporate America.

scholarly journals Mismeasurement of pensions before and after retirement: the mystery of the disappearing pensions with implications for the importance of Social Security as a source of retirement support

2013 ◽  
Vol 13 (1) ◽  
pp. 1-26 ◽  
Author(s):  
ALAN L. GUSTMAN ◽  
THOMAS L. STEINMEIER ◽  
NAHID TABATABAI
Keyword(s):  
Social Security ◽  
Pension Plans ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Bottom Line ◽  
Pension Income ◽  
Before And After ◽  
Social Security Wealth ◽  
Pension Benefits ◽  
Pension Wealth

AbstractA review of the literature suggests that when pension values are measured by the wealth equivalent of promised defined benefit pension benefits and defined contribution balances for those approaching retirement, pensions account for more support in retirement than is suggested when their contribution is measured by incomes received directly from pension plans by those who have already retired. Estimates from the Health and Retirement Study for respondents in their early fifties suggest that pension wealth is about 82% as valuable as Social Security wealth. In data from the Current Population Survey (CPS), for members of the same cohort, measured when they are 65–69, pension incomes are about 58% as valuable as incomes from Social Security. Our empirical analysis uses data from the HRS to examine the reasons for these differences in the contributions of pensions as measured in income and wealth data. Key factors accounting for these differences include: a difference in methodology between surveys affecting what is included in pension income; some pension wealth ‘disappears’ at retirement because respondents change their pension into other forms that are not counted as pension income; and the form of annuitization may influence the measure of pension income. A series of caveats notwithstanding, the bottom line is that CPS data on pension incomes received in retirement understates the full contribution pensions make to supporting retirees.

scholarly journals Asset management in public DB and non-DB Pension Plans

2015 ◽  
Vol 15 (4) ◽  
pp. 379-406 ◽  
Author(s):  
JAMES FARRELL ◽  
DANIEL SHOAG
Keyword(s):  
Asset Management ◽  
Nationwide Survey ◽  
Pension Plans ◽  
Individual Investors ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Data Set ◽  
Management Fees ◽  
Asset Class ◽  
State And Local

AbstractState and local pension plans are increasingly moving from the traditional defined benefit (DB) model to non-DB models that generally allow for participant-directed investment. This shift has important implications for the management of the more than US$3 trillion in assets held to finance public employee retirement benefits. To investigate these implications, we introduce new data from a nationwide survey of public DB and non-DB plans and a unique data set on thousands of individual investors in the state of Florida's defined contribution (DC) plan. Using these sources, we explore how participant involvement in the public sector affects the distribution of asset class allocations, management fees, investment outcomes, and portfolio rebalancing at both the individual and aggregate levels. We found that there is little difference between the DB and non-DB plans in terms of asset mix, returns, and fees, except that DB plan have greater access and allocations to alternative investments. We also found that while the average individual DC plan participant allocated their asset similarly to the DB plan, black females and older white males, on average, invested on opposite tails of the risk spectrum.

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