Pension Substitution in the 1980s: Why the Shift toward Defined Contribution?

The relative decline of defined benefit (DB) pension plans, and growth of defined contribution (DC) plans, has been often noted but not extensively explored. This paper reports on the construction of a new longitudinal company‐based data set on pension plans for the years 1980‐86 (including all U.S....

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Published inIndustrial relations (Berkeley) Vol. 34; no. 2; pp. 218 - 241
Main Author KRUSE, DOUGLAS L.
Format Journal Article
LanguageEnglish
Published Oxford, UK Blackwell Publishing Ltd 01.04.1995
Wiley Subscription Services, Inc
Subjects
Changes
Costs
Deferred compensation
Defined benefit plans
Defined contribution plans
Employee benefits
Employees
Employers
Flexibility
Labor market
LBO
Leveraged buyouts
Pension plans
Pensions
Personal retirement pensions
Savings
Studies
Trends
USA
Wages & salaries
United States > US
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Summary:The relative decline of defined benefit (DB) pension plans, and growth of defined contribution (DC) plans, has been often noted but not extensively explored. This paper reports on the construction of a new longitudinal company‐based data set on pension plans for the years 1980‐86 (including all U.S. companies with large plans, and a 10 percent sample of companies with small plans, at any point during this period). The decline in DB coverage is primarily due to fewer participants in companies maintaining such plans, while very little of the growth in DC coverage is due to companies terminating DB plans. Also, multinomial logit analysis of manufacturing company choices indicates that the higher administrative costs of DB plans lead new adopters to favor DC plans, but this explains little of the tremendous growth in DC plans. In addition, higher industry variability and capital intensity, and smaller company size, lead new adopters to favor DC plans.
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School of Management and Labor Relations, Rutgers University, and National Bureau of Economic Research. This work was supported by a Henry Rutgers Fellowship. Useful advice and encouragement is acknowledged from Mark Killingsworth, Olivia Mitchell, Richard Ippolito, Joseph Blasi, Mike Stein, Steve Director, Dan Beller, and Leslie Papke, although none bears responsibility for errors or conclusions.
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ISSN:0019-8676
1468-232X
DOI:10.1111/j.1468-232X.1995.tb00370.x