Journal articles: 'Defined benefit and defined contribution plans'

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Ezra, Don. "Defined-Benefit and Defined-Contribution Plans of the Future." Financial Analysts Journal 63, no. 1 (January 2007): 26–30. http://dx.doi.org/10.2469/faj.v63.n1.4404.

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Ezra, Don. "Defined-Benefit and Defined-Contribution Plans of the Future." Financial Analysts Journal 71, no. 1 (January 2015): 56–60. http://dx.doi.org/10.2469/faj.v71.n1.8.

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Ezra, Don. "Defined-Benefit and Defined-Contribution Plans of the Future." CFA Digest 37, no. 2 (May 2007): 87–88. http://dx.doi.org/10.2469/dig.v37.n2.4615.

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Kilgour, John G. "Public Sector Pension Plans: Defined Benefit Versus Defined Contribution." Compensation & Benefits Review 38, no. 1 (February 2006): 20–28. http://dx.doi.org/10.1177/0886368704273214.

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CLARK, ROBERT L., and SYLVESTER J. SCHIEBER. "Adopting cash balance pension plans: implications and issues." Journal of Pension Economics and Finance 3, no. 3 (November 2004): 271–95. http://dx.doi.org/10.1017/s1474747204001738.

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Over the past 15 to 20 years, many companies have converted their traditional defined benefit plans to cash balance or pension equity plans. In a cash balance plan, the worker's ‘account’ is based on an annual contribution rate for each year of employment, plus accumulating interest on annual contributions. A pension equity plan defines the benefit as a percentage of final average earnings for each year of service under the plan. Both types of plans specify the benefit as a lump sum payable at termination. In contrast, traditional defined benefit plans specify benefits in terms of an annuity payable at retirement. From the employees' perspective, cash balance and pension equity plans look somewhat like defined contribution plans. However, they are funded, administered, and regulated as defined benefit plans.

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Quelhas, Ana Paula. "On the distinction between defined benefit pension plans and defined contribution pension plans: myths and facts." Boletim de Ciências Económicas 57, no. 3 (2014): 2733–64. http://dx.doi.org/10.14195/0870-4260_57-3_7.

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Ilmanen, Antti, David G. Kabiller, Laurence B. Siegel, and Rodney N. Sullivan. "Defined Contribution Retirement Plans Should Lookand Feel More Like Defined Benefit Plans." Journal of Portfolio Management 43, no. 2 (January 31, 2017): 61–76. http://dx.doi.org/10.3905/jpm.2017.43.2.061.

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Poterba, James, Joshua Rauh, Steven Venti, and David Wise. "Defined contribution plans, defined benefit plans, and the accumulation of retirement wealth." Journal of Public Economics 91, no. 10 (November 2007): 2062–86. http://dx.doi.org/10.1016/j.jpubeco.2007.08.004.

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HAINAUT, DONATIEN, and GRISELDA DEELSTRA. "Optimal funding of defined benefit pension plans." Journal of Pension Economics and Finance 10, no. 1 (June 25, 2010): 31–52. http://dx.doi.org/10.1017/s1474747210000016.

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AbstractIn this paper, we address the issue of determining the optimal contribution rate of a defined benefit pension fund. The affiliate's mortality is modelled by a jump process and the benefits paid at retirement are function of the evolution of future salaries. Assets of the fund are invested in cash, stocks, and a rolling bond. Interest rates are driven by a Vasicek model. The objective is to minimize both the quadratic spread between the contribution rate and the normal cost, and the quadratic spread between the terminal wealth and the mathematical reserve required to cover benefits. The optimization is done under a budget constraint that guarantees the actuarial equilibrium between the current asset and future contributions and benefits. The method of resolution is based on the Cox–Huang approach and on dynamic programming.

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Maher, John J., and J. Edward Ketz. "Defined-Benefit versus Defined-Contribution Pension Plans: How to Compare." Compensation & Benefits Review 23, no. 3 (May 1991): 49–56. http://dx.doi.org/10.1177/088636879102300308.

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Ali, Susannah Bruns, and Howard A. Frank. "Retirement Planning Decisions: Choices Between Defined Benefit and Defined Contribution Plans." American Review of Public Administration 49, no. 2 (April 12, 2018): 218–35. http://dx.doi.org/10.1177/0275074018765809.

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As states move toward offering defined contribution retirement plans as an alternative or addition to traditional defined benefit pensions, they need to consider the preferences and long-term consequences for different groups of employees. This study looks at which plan employees choose when given the option of either a defined contribution or defined benefit plan. The strongest driver of that choice is education level where the most educated prefer defined contribution plans and the least educated stay in defined benefit plans. A unique contribution of this study is that we include region of origin as a study and determine that cultural differences influence plan selection. The study also explores the role of sex, age, and tenure. Challenging other studies on financial planning, these findings indicate that sex and age are not significant factors. This research was conducted using data from more than 4,000 employees from Florida International University and an interview with HR professionals. By understanding retirement preferences in a more nuanced way, we can better craft our approaches to retirement security and financial literacy training in public sector organizations.

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Wilson, C. Nick. "Health Care Insurance is Changing from Defined Benefit to Defined Contribution Plans." Hospital Pharmacy 35, no. 7 (July 2000): 694–97. http://dx.doi.org/10.1177/001857870003500710.

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GERRANS, PAUL, and GORDON L. CLARK. "Pension plan participant choice: Evidence on defined benefit and defined contribution preferences." Journal of Pension Economics and Finance 12, no. 4 (June 7, 2013): 351–78. http://dx.doi.org/10.1017/s1474747213000061.

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AbstractWe report analysis of voluntary switching from defined benefit (DB) to defined contribution (DC) plans in an environment best characterised as benign. Using a large Australian fund database we identify socio-demographic correlates and the macroeconomic circumstances associated with DB to DC switching. The age of participants is an important correlate of switching behaviour, suggesting a degree of risk tolerance previously not recognised in the literature. It is also noted, however, that this type of switching behaviour may involve secondary behaviour such that uncertainties of DC investment performance are managed by reference to an asset allocation formula that maps to the previous DB investment strategy.

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SCHRAGER, ALLISON. "The decline of defined benefit plans and job tenure." Journal of Pension Economics and Finance 8, no. 3 (December 15, 2008): 259–90. http://dx.doi.org/10.1017/s1474747208003570.

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AbstractThis 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.

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Ilmanen, Antti, David G. Kabiller, Laurence B. Siegel, and Rodney N. Sullivan. "Practical Applications of Defined Contribution Retirement Plans Should Look and Feel More Like Defined Benefit Plans." Practical Applications 5, no. 2 (September 1, 2017): 1.8–5. http://dx.doi.org/10.3905/pa.2017.5.2.239.

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Hyatt, Douglas E., and James E. Pesando. "The Distribution of Investment Risk in Defined Benefit Pension Plans: A Reconsideration." Articles 51, no. 1 (April 12, 2005): 136–57. http://dx.doi.org/10.7202/051078ar.

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The "textbook " description is that members of defined benefit pension plans bear no investment risk, in sharp contrast to members of defined contribution plans. Yet formal or informal bargaining may focus on the size of required employer contributions to a defined benefit plan. If at least some of the costs of such employer contributions are shifted back to workers, then members of defined benefit plans do bear investment risk. We utilize three sources of empirical evidence (a survey of pension specialists, econometric analysis, and case studies) to support the proposition that employees do bear at least some of the investment risk associated with pension fund performance. Poor fund performance leads to larger employer contributions to maintain the defined benefit obligation and this in turn leads to lower levels of other forms of compensation. We conclude that riskshifting does occur, in at least some plans, and that the textbook distinction is overstated.

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GHILARDUCCI, TERESA, and WEI SUN. "How defined contribution plans and 401(k)s affect employer pension costs." Journal of Pension Economics and Finance 5, no. 2 (May 11, 2006): 175–96. http://dx.doi.org/10.1017/s1474747205002386.

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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.

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Gómez Hernández, Denise, and Michael Demmler. "Collective Defined Contribution Schemes as an Alternative to Pension PlansCollective Defined Contribution Schemes as an Alternative to Pension Plans." Mercados Y Negocios, no. 45 (January 1, 2022): 5–26. http://dx.doi.org/10.32870/myn.vi45.7651.g6730.

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Traditional pension plans, such as defined contribution and defined benefit, face several risks: being the most known, the increase of the life expectancy. To reduce this risk, many hybrid pensions plans have been proposed, to mitigate this risk. The objective of this study is to explore the financial and actuarial sustainability of a hybrid pension plan known as collective defined contribution (CDC) by accumulating a pension fund with the methodology found in Aon (2020). The results of the simulations in this study show that the replacement rate defined in the design of a CDC pension plan is reached by all the members in the plan. Moreover, that through the same pension fund, deficits and gains are financed by it.

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Gómez Hernández, Denise, and Michael Demmler. "Collective Defined Contribution Schemes as an Alternative to Pension PlansCollective Defined Contribution Schemes as an Alternative to Pension Plans." Mercados Y Negocios, no. 45 (January 1, 2022): 5–26. http://dx.doi.org/10.32870/myn.vi45.7651.

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Traditional pension plans, such as defined contribution and defined benefit, face several risks: being the most known, the increase of the life expectancy. To reduce this risk, many hybrid pensions plans have been proposed, to mitigate this risk. The objective of this study is to explore the financial and actuarial sustainability of a hybrid pension plan known as collective defined contribution (CDC) by accumulating a pension fund with the methodology found in Aon (2020). The results of the simulations in this study show that the replacement rate defined in the design of a CDC pension plan is reached by all the members in the plan. Moreover, that through the same pension fund, deficits and gains are financed by it.

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Gómez Hernández, Denise, and Michael Demmler. "Collective Defined Contribution Schemes as an Alternative to Pension PlansCollective Defined Contribution Schemes as an Alternative to Pension Plans." Mercados Y Negocios, no. 45 (January 1, 2022): 5–26. http://dx.doi.org/10.32870/myn.vi45.7651.g6725.

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Traditional pension plans, such as defined contribution and defined benefit, face several risks: being the most known, the increase of the life expectancy. To reduce this risk, many hybrid pensions plans have been proposed, to mitigate this risk. The objective of this study is to explore the financial and actuarial sustainability of a hybrid pension plan known as collective defined contribution (CDC) by accumulating a pension fund with the methodology found in Aon (2020). The results of the simulations in this study show that the replacement rate defined in the design of a CDC pension plan is reached by all the members in the plan. Moreover, that through the same pension fund, deficits and gains are financed by it.

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Kasaoka, Eriko. "Corporate Pension Systems and Pension Funding Status in ASEAN Countries." Asian Academy of Management Journal of Accounting and Finance 17, no. 1 (June 30, 2021): 153–90. http://dx.doi.org/10.21315/aamjaf2021.17.1.6.

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National pension systems will vary among countries because of several factors. The role of the corporate pension in sustaining and supporting a country’s retirees is also different among nations. There are two main pension plans defined in International Accounting Standard No. 19: Employee Benefits, namely, defined benefit plans and defined contribution plans. The defined benefit plan requires a company to recognise its pension funding status on the balance sheet. In contrast, in a defined contribution plan, only the contribution amount to the plan is recognised as an expense on the firm’s income statement. The aim of this paper is to investigate in ASEAN countries the relationship between the presence of corporate pension plans and specific financial factors in companies. The result of the empirical research shows companies with higher profitability and efficiency tend to provide corporate pension plans to their employees.

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Forsyth, Peter A., and Kenneth R. Vetzal. "Defined Contribution Pension Plans: Who Has Seen the Risk?" Journal of Risk and Financial Management 12, no. 2 (April 24, 2019): 70. http://dx.doi.org/10.3390/jrfm12020070.

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The trend towards eliminating defined benefit (DB) pension plans in favour of defined contribution (DC) plans implies that increasing numbers of pension plan participants will bear the risk that final realized portfolio values may be insufficient to fund desired retirement cash flows. We compare the outcomes of various asset allocation strategies for a typical DC plan investor. The strategies considered include constant proportion, linear glide path, and optimal dynamic (multi-period) time consistent quadratic shortfall approaches. The last of these is based on a double exponential jump diffusion model. We determine the parameters of the model using monthly US data over a 90-year sample period. We carry out tests in a synthetic market which is based on the same jump diffusion model and also using bootstrap resampling of historical data. The probability that portfolio values at retirement will be insufficient to provide adequate retirement incomes is relatively high, unless DC investors adopt optimal allocation strategies and raise typical contribution rates. This suggests there is a looming crisis in DC plans, which requires educating DC plan holders in terms of realistic expectations, required contributions, and optimal asset allocation strategies.

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SIEGMANN, ARJEN. "Minimum funding ratios for defined-benefit pension funds." Journal of Pension Economics and Finance 10, no. 3 (November 23, 2010): 417–34. http://dx.doi.org/10.1017/s1474747210000296.

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AbstractWe compute minimum nominal funding ratios for defined-benefit (DB) plans based on the expected utility that can be achieved in a defined-contribution (DC) pension scheme. Using Monte Carlo simulation, expected utility is computed for three different specifications of utility: power utility, mean-shortfall, and mean-downside deviation. Depending on risk aversion and the level of sophistication assumed for the DC scheme, minimum acceptable funding ratios are between 0.87 and 1.20 in nominal terms. For relative risk aversion of 5 and a DC scheme with a fixed-contribution setup, the minimum nominal funding ratio is between 0.87 and 0.98. The attractiveness of the DB plan increases with the expected equity premium and the fraction invested in stocks. We conclude that the expected value of intergenerational solidarity, providing time-diversification to its participants, can be large. Minimum funding ratios in real (inflation-adjusted) terms lie between 0.56 and 0.79. Given a DB pension fund with a funding ratio of 1.30, a participant in a DC plan has to pay a 2.7 to 6.1% point higher contribution on average to achieve equal expected utility.

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McCARTHY, DAVID. "A life-cycle analysis of defined benefit pension plans." Journal of Pension Economics and Finance 2, no. 2 (July 2003): 99–126. http://dx.doi.org/10.1017/s1474747203001288.

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This paper employs a lifecycle model from the consumption–savings literature to examine the tradeoffs between defined benefit and defined contribution pension plans. We examine the effects of varying risk aversion, varying initial income and financial wealth, and varying wage processes (that may be correlated with returns on the risky asset).Results indicate that wage-indexed claims are not an optimal vehicle for retirement policy if the decision to participate is made early in life, because individuals hold most of their wealth in their human capital and would not wish to increase their exposure to income shocks. Later in life, after most of a worker's human capital has been converted to financial assets, defined benefit pension plans help increase diversification by reducing exposure to financial market risk. The access that defined benefit plans provide to annuities markets and possible guaranteed rates of return over the risk-free rate increase the value of defined benefit plans to workers. The model also predicts that wage-indexed claims will be more valuable when equity markets provide low expected returns or are highly variable and when annuity markets are inefficient.The model illustrates two economic functions performed by defined benefit plans. Firstly, DB plans pool individual wage risks. This allows older workers to buy a wage-linked security that increases their exposure to wage risks. Secondly, they create a group annuities market that reduces the cost of adverse selection.

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Hansen, Janet S. "An Introduction to Teacher Retirement Benefits." Education Finance and Policy 5, no. 4 (October 2010): 402–37. http://dx.doi.org/10.1162/edfp_a_00012.

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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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Johnston, K. "A comparison of state university defined benefit and defined contribution pension plans: a Monte Carlo simulation." Financial Services Review 10, no. 1-4 (2001): 37–44. http://dx.doi.org/10.1016/s1057-0810(01)00085-3.

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Weiden, Kathleen, and Jane Mooney. "The use of stock options and retirement plans to retain non-executive employees." Corporate Ownership and Control 7, no. 3 (2010): 57–72. http://dx.doi.org/10.22495/cocv7i3p5.

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Firms expend significant resources to retain employees. In this paper, we examine how firms that use stock options grant them differently when they also utilize retirement plans in non-executive employee compensation contracts. Using a large sample of US firms, we examine the relation between the stock option proportion of pay of non-executive employees and firms’ use of a retirement plan of any type. We then examine how firms’ use of stock options is affected by the type of plan (defined benefit or defined contribution) used by the firm. We find that firms reduce their use of stock options when there are other deferred pay mechanisms in place, suggesting they act as substitutes. We also find that firms with defined benefit retirement plans reduce their use of stock options for non-executives to a greater extent than firms with defined contribution plans, suggesting a greater degree of substitutability between defined benefit plans and stock options than between defined contribution plans and stock options.

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HAVERSTICK, KELLY, ALICIA H. MUNNELL, GEOFFREY SANZENBACHER, and MAURICIO SOTO. "Pension type, tenure, and job mobility." Journal of Pension Economics and Finance 9, no. 4 (April 6, 2010): 609–25. http://dx.doi.org/10.1017/s1474747209990321.

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AbstractOver the last 25 years, the United States has seen a dramatic shift in the private sector away from defined benefit plans and towards defined contribution plans. While commentators constantly cite an increase in labor mobility as a major reason for the shift in the private sector from defined benefit to defined contribution plans, researchers to date have not been able to document any difference in mobility by pension type. This study argues that the inability to find such a relationship stems from ignoring the important role of job tenure. Using data from the Survey of Income and Program Participation (SIPP) and the Panel Study of Income Dynamics (PSID), the results of duration analyses that include the interaction of job tenure and pension type reveal that workers with between five and ten years of tenure at a firm are 23% more likely to leave a job with a defined contribution plan than with a defined benefit plan. This difference is consistent with differences in the timing of benefit level entitlement between the two types of plans.

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CORONADO, JULIA LYNN, and PHILIP C. COPELAND. "Cash balance pension plan conversions and the new economy." Journal of Pension Economics and Finance 3, no. 3 (November 2004): 297–314. http://dx.doi.org/10.1017/s1474747204001684.

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Many firms that sponsor traditional defined benefit pensions have converted these plans to cash balance plans in the last en years. Cash balance plans in the last ten years combine features of defined benefit and defined contribution plans, and yet their introduction has proven considerably more controversial than has the increasing popularity of defined contribution plans. The goal of this study is to estimate a hierarchy of the influences on the decision of a firm to convert its traditional defined benefit pension plan to a cash balance plan. Our results indicate that cash balance conversions have been undertaken in competitive industries with tight labor markets and thus can be viewed at least in part as a response to better compensate a more mobile labor force. Indeed, many firms appear to increase their pension liabilities through such conversions.

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Chetouane, Mabrouk. "How can defined contribution pension plans benefit from momentum and mean reversion?" European Actuarial Journal 1, S2 (July 2011): 199–231. http://dx.doi.org/10.1007/s13385-011-0031-3.

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Frank, Howard, Gerasimos (Jerry) Gianakis, and Milena I. Neshkova. "Critical Questions for the Transition to Defined Contribution Pension Systems in the Public Sector." American Review of Public Administration 42, no. 4 (April 28, 2011): 375–99. http://dx.doi.org/10.1177/0275074011406712.

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Unfunded liabilities of pension plans sponsored by state and local governments have drastically increased in the past few years. This article examines the potential challenges faced by states and municipalities in meeting their pension obligations and explores the cost and benefits of a switch from traditional defined benefit (DB) plans to defined contribution (DC) plans. The authors draw on the experience of the private sector to depict the potential cost savings for governments and the likely impacts on employees. The authors also identify several issues that are unique to governments if a shift in pension coverage plans is to occur. One of the attractions of public sector employment has been the generous benefits offered; the authors examine whether it will be harder to recruit people in the public sector if the government does not offer DB pensions. The authors explore equity issues and the effects of eroding political support for public sector DB systems in light of their demise in the private sector. The authors also address the issue of financial illiteracy in the work place and its impact on the human resource function in the context of DC plan implementation. Finally, the authors pose critical questions regarding DC plan rollout and its inherent difficulties.

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Humphreys, Richard W. "Defined benefit versus defined contribution pension plans: How are the interests of employees and the public best served?" Employee Responsibilities and Rights Journal 6, no. 1 (March 1993): 21–31. http://dx.doi.org/10.1007/bf01384754.

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de Thierry, Ebony, Helen Lam, Mark Harcourt, Matt Flynn, and Geoff Wood. "Defined benefit pension decline: the consequences for organizations and employees." Employee Relations 36, no. 6 (September 30, 2014): 654–73. http://dx.doi.org/10.1108/er-02-2013-0020.

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Purpose – The purpose of this paper is to use the theoretical and empirical pension literatures to question whether employers are likely to gain any competitive advantage from degrading or eliminating their employees’ defined benefit (DB) pensions. Design/methodology/approach – Critical literature review, bringing together and synthesizing the industrial relations, economics, social policy, and applied pensions literature. Findings – DB pension plans do deliver a number of potential performance benefits, most notably a decrease in turnover and establishment of longer-term employment relationships. However, benefits are more pronounced in some conditions than others, which are identified. Research limitations/implications – Most of the analysis of pension effects to date focuses primarily on DB plans. Yet, these are declining in significance. In the years ahead, more attention needs to be paid to the potential consequences of defined contribution plans and other types of pension. Practical implications – In re-evaluating DB pensions, firms have tended to focus on savings made through cost cutting. Yet, this approach tends to view a firm's people as an expense rather a potential asset. Attempts to abandon, modify, or otherwise reduce such schemes has the potential to save money in the short term, but the negative long-term consequences may be considerable, even if they are not yet obvious. Originality/value – This paper is topical in that it consolidates existing research evidence from a number of different bodies of literature to make a case for the retention of DB pension plans, when, in many contexts, they are being scaled back or discarded. It raises a number of important issues for reflection by practitioners, and highlights key agendas for future scholarly research.

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Munnell, Alicia, Gal Wettstein, and Wenliang Hou. "Addressing Longevity Risk: How Best to Annuitize Defined Contribution Assets?" Innovation in Aging 4, Supplement_1 (December 1, 2020): 686. http://dx.doi.org/10.1093/geroni/igaa057.2395.

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Abstract Unlike defined benefit pensions, 401(k) plans provide little guidance on how to turn accumulated assets into income. The key risk that retirees face is outliving their assets. Insurance against such risk is available through several routes, including immediate annuities, deferred annuities, and additional Social Security through delayed claiming. Under this Social Security bridge option, participants would tap their 401(k) for payments equal to their Social Security to delay claiming. This paper compares these three options in simulations against a baseline in which no assets are used to obtain lifetime income. In each option, assets not allocated to purchasing lifetime income are consumed following the Required Minimum Distribution rules. The analysis finds that, when market and health shocks are included alongside longevity uncertainty, the Social Security bridge option is generally the best for households with median wealth. Wealthier households can benefit from combining the bridge option with a deferred annuity. Part of a symposium sponsored by the Economics of Aging Interest Group.

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Cheng, Qiang, and Laura Swenson. "Executive compensation and cash contributions to defined benefit pension plans." Journal of Business Finance & Accounting 45, no. 9-10 (July 30, 2018): 1224–59. http://dx.doi.org/10.1111/jbfa.12339.

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Švedienė, Milda, and Astrida Slavickienė. "The impact of notional defined contribution system (NDC) from the point of view of individual." Buhalterinės apskaitos teorija ir praktika, no. 15A (July 9, 2014): 96–105. http://dx.doi.org/10.15388/batp.2014.15a.8.

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Retirement benefit plans are the relevant theme in the world and in Lithuania as well. The demographic challenges such as ageing and shrinking labour force cause the problem which usual PAYG system is not able to solve. Whereas this problem is very important in Lithuania simulation of notional defined contribution system is suggested. The influence of new pension system to individuals is analysed in this paper. The analysis of theoretical works showed that NDC system is defined contribution (DC) system financed as in pay-as-you-go (PAYG) system. This pension scheme is different from others because of it accounting mechanism: contributions of individuals are accumulated on their individual accounts but whereas real capital is not accumulated the balance is notional. All accumulated sum is converted to pension benefit when individuals are at retirement age depending on cohort’s life expectancy. It is said that NDC pension system helps to solve problems such as sensitivity to changes in economic growth, decreasing volume of savings or create a better link between contributions and benefits. Nevertheless it is recognized that benefit return in NDC pension system is less than in usual defined contribution system. The results of simulation have showed that notional defined contribution system in Lithuania would not be the way out from problems in pension system. The system would be balanced in 30-year period and indexation would be acceptable for individuals but from 2040 interest rate would be reduced by the relevant part of the balance ratio. Depending on the changes in interest rate from 2040 notional capital would be less than all sum of contribution paid and it would negatively impact individuals’ finances. It was found that the more years individuals spend in labour market the bigger capital they accumulate and the bigger benefit get when they are at retirement age. Nevertheless it was noticed that replacement rate would be approximately 25 percent and it would not be adequate for the required use of retirees.

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Nascimento, Igor Ferreira do, and Pedro H. M. Albuquerque. "Fair and balance rate for benefits not scheduled in defined contribution plans." Revista Contabilidade & Finanças 32, no. 87 (December 2021): 560–76. http://dx.doi.org/10.1590/1808-057x202112630.

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ABSTRACT The objective of this study is to propose a methodology that, using multiple decreases, in addition to classified by actuarial profile and source of social security costs, calculates actuarially fair and balanced rates for unscheduled collective costing benefits from Defined Contribution (DC) pension plans. There are no studies in Brazil about costing rates for benefits not scheduled in pension plans of the DC modality. Any institution that pays collective cost social security benefits must determine an actuarial rate that is not insufficient, generating a financial imbalance in the fund, nor excessive, compromising the participant’s income. This work is the first study on costing rates for collective costing benefits from pension plans with DC modalities. Actuarially fair rates are obtained considering multiple decreases and equalizing the present value of contributions and the present value of pension and disability benefits, classified by actuarial profile and source of social security cost. The specific balance rate is determined for each source of social security costs and is obtained considering the actuarially fair rates for each actuarial profile. The general balance rate is obtained by the marginal contribution of each specific balance rate. The proposed methodology was used to calculate the rates of unscheduled benefits with collective costing in DC modality plans. The proposed methodology estimated that the legal changes, resulting from Constitutional Amendment 103/2019, indirectly increased by more than 4% the general balance rate of the unscheduled benefits of the Supplementary Social Security Foundation of the Federal Public Servant of the Executive Branch of the Federal Government (FUNPRESP-Exe).

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Lucas, John J. "Are Cash Balance Pension Plans A Viable Retirement Program For Corporate America?" Journal of Business & Economics Research (JBER) 10, no. 8 (August 1, 2012): 451. http://dx.doi.org/10.19030/jber.v10i8.7173.

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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.

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DOWDELL, THOMAS D., BONNIE K. KLAMM, and ROXANNE M. SPINDLE. "Predicting cash flows related to defined benefit plan contributions." Journal of Pension Economics and Finance 9, no. 4 (February 15, 2010): 505–32. http://dx.doi.org/10.1017/s1474747209990333.

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AbstractFuture contributions to defined benefit pension plans are a significant cash flow item that can be difficult to estimate. Funding ratios – pension assets relative to pension liabilities – have long been considered important for estimating cash flows needed for current and future pension contributions (Ballester et al., 1998). However, US GAAP or IFRS funding ratios that companies report in their financial statements may differ from funding ratios used by pension regulators. These regulatory funding ratios may be more useful for predicting future contributions.We investigate whether US regulatory and GAAP funding ratios are different and whether regulatory funding ratios provide useful information for predicting future contributions. For 3,877 firm years from 1995 through 2002, we observe that regulatory and GAAP funding ratios differ by more than 5% for 73% of our sample. We also find that predictions of future contributions are improved by using regulatory funding ratios in addition to GAAP funding ratios. Our results are relevant to accounting standard setters' ongoing review of pension accounting rules.

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Phan, Hieu V., and Shantaram P. Hegde. "Pension Contributions and Firm Performance: Evidence from Frozen Defined Benefit Plans." Financial Management 42, no. 2 (September 4, 2012): 373–411. http://dx.doi.org/10.1111/j.1755-053x.2012.01218.x.

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Yao, Rui, Weipeng Wu, and Cody Mendenhall. "Use of Advisors and Retirement Plan Performance." Journal of Financial Counseling and Planning 31, no. 2 (April 27, 2020): 342–56. http://dx.doi.org/10.1891/jfcp-18-00087.

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As defined contribution (DC) plans become more popular than defined benefit (DB) plans, American workers are increasingly responsible for their retirement savings. Because retirement plan participants' portfolio allocation is constrained by the available funds in the plan, the construction of a plan's investment menu has become extremely important. No research has evaluated fund selection in retirement plans or compared plans involving an advisor with self-directed plans. To fill this research gap, this study employs cross-sectional, nationwide data that include 5,570 retirement plans with 100 or more participants in 2013, 2014 and 2015. Results show that in most cases, using advisors is not related to plan performance. Plan sponsors should require advisors to periodically evaluate the performance of plans under their management using objective measures.

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Scott, Frank A., Mark C. Berger, and John E. Garen. "Do Health Insurance and Pension Costs Reduce the Job Opportunities of Older Workers?" ILR Review 48, no. 4 (July 1995): 775–91. http://dx.doi.org/10.1177/001979399504800411.

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Using a 1991 nationwide survey of employers and 1979, 1983, 1988, and 1993 data from the Employee Benefits Supplement of the Current Population Survey, the authors examine the effects of fringe benefit provision on the decision to hire older workers. They find that higher health insurance costs, in the presence of prohibitions against age discrimination and discrimination in the provision of fringe benefits, adversely affected older workers' employment opportunities. In all five data sets over a fourteen-year period, the probability that a new hire was aged 55–64 was significantly lower in firms with health care plans than in those without, and was also significantly lower in firms with relatively costly plans than in those with less costly plans. On the other hand, neither the cost nor the presence of a defined contribution or defined benefit pension plan significantly affected that probability.

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Aguirre Farías, Francisco Miguel, Francisco Miguel Aguirre Villarreal, and José Daniel López-Barrientos. "Comparison of the costs of the defined-benefit and the defined-contribution schemes under an actuarial methodology." Revista Mexicana de Economía y Finanzas 14, no. 4 (October 1, 2019): 671–91. http://dx.doi.org/10.21919/remef.v14i4.383.

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El objetivo de este trabajo es utilizar herramientas básicas de análisis actuarial para demostrar por primera vez que el costo del financiamiento del esquema de beneficio-definido es igual al de un esquema de contribución-definida siempre que estos planes otorguen beneficios iguales en términos de cantidad y condiciones para obtenerlos, y llevamos a cabo nuestros cálculos usando las mismas hipótesis financieras y biométricas. Enunciamos nuestros resultados en términos de un cálculo individual y de un modelo grupal (en el segundo caso, el esquema de beneficio definido requiere del cómputo de una prima media general); y en ambos escenarios, estudiamos la posibilidad de la jubilación anticipada con portabilidad total y parcial. Nuestra recomendación general es abandonar el debate sobre qué esquema es más caro. La principal limitante de nuestra investigación es también su mayor fortaleza: hemos demostrado que no hay predominio de ninguno de los planes sobre el otro cuando no hay otras distorsiones del mercado laboral; lo que significa que la discusión podría continuar vigente si consideramos la presencia de tales factores.

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Zhao, Qian, Yang Shen, and Jiaqin Wei. "Mean-variance investment and contribution decisions for defined benefit pension plans in a stochastic framework." Journal of Industrial & Management Optimization 13, no. 5 (2017): 0. http://dx.doi.org/10.3934/jimo.2020015.

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Leonce, Tesa E. "The Inevitable Rise in Dual-Income Households and the Intertemporal Effects on Labor Markets." Compensation & Benefits Review 52, no. 2 (January 20, 2020): 64–76. http://dx.doi.org/10.1177/0886368719900032.

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The number of dual-income households has been steadily increasing over the past few decades. This study supports the hypothesis that given a household’s desire to remain above a minimum threshold standard of living, the rise in the number of dual-earner households is inevitable mostly due to inflationary pressures in product markets including rising housing prices and child care costs coupled with relatively flat wage trends. Mitigating uncertainty and risk associated with shifts in retirement plan offerings—moving away from defined benefit plans such as pensions toward defined contribution options such as 401(k) plans—was also cited as a factor contributing to the rising number of dual earners. This study highlights the costs and benefits of dual-earning decisions and the intertemporal implications for households, labor markets and overall societal welfare.

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Gorina, Evgenia, and Trang Hoang. "Pension Reforms and Public Sector Turnover." Journal of Public Administration Research and Theory 30, no. 1 (June 24, 2019): 96–112. http://dx.doi.org/10.1093/jopart/muz009.

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Abstract Over the past decade, many states have reformed their retirement systems by reducing benefit generosity, tightening retirement provisions, introducing non-defined-benefit (DB) plan options and even replacing DB plans with defined-contribution plans. Many of these reforms have affected post-employment benefits that public workers will receive when they retire. Have these reforms also affected the attractiveness of public sector employment? To answer this question, we use state-level data from 2002 to 2015 and examine the relationship between state pension reforms and public employee turnover following the reforms. We find that employee responsiveness to the reforms was tangible and that it differed by reform type and worker education. These results are important because the design of public retirement benefits will continue to influence the ability of the public sector to recruit and retain high-quality workforce.

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DeArmond, Michael, and Dan Goldhaber. "Scrambling the Nest Egg: How Well Do Teachers Understand Their Pensions, and What Do They Think about Alternative Pension Structures?" Education Finance and Policy 5, no. 4 (October 2010): 558–86. http://dx.doi.org/10.1162/edfp_a_00010.

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In this article we focus on two questions: How well do teachers understand their current pension plans, and what do they think about alternative plan structures? The data come from administrative records and a 2006 survey of teachers in Washington State. The results suggest that Washington's teachers are fairly knowledgeable about their pensions, although new entrants and mid-career teachers appear to be less knowledgeable than veterans. As for teachers' preferences for plan structure, the survey suggests that when it comes to investing additional retirement savings, a plurality of teachers favor defined contribution plans that offer more portability and choice but also more risk than traditional defined benefit plans. Again, perhaps unsurprisingly, the findings suggest that, all else equal, teachers newer to the profession are more likely than veterans to favor a defined contribution structure.

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DUSHI, IRENA, and MARJORIE HONIG. "How much do respondents in the health and retirement study know about their contributions to tax-deferred contribution plans? A cross-cohort comparison." Journal of Pension Economics and Finance 14, no. 3 (July 14, 2014): 203–39. http://dx.doi.org/10.1017/s1474747214000237.

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AbstractWe use information from Social Security earnings records to examine the accuracy of survey responses regarding participation in tax-deferred pension plans. As employer-provided defined benefit pensions are replaced by voluntary contribution plans, employees’ understanding of the link between their annual contributions and their post-retirement wealth is becoming increasingly important. We examine the extent to which wage-earners in the Health and Retirement Study (HRS) correctly report their inclusion in tax-deferred contribution plans and, conditional on inclusion, their annual contributions. We use three samples representing different cohorts in three different periods: the original HRS cohort interviewed in 1992 at ages 51–56, the War Babies cohort interviewed in 1998 at ages 51–56, and the Early Baby Boomer cohort interviewed in 2004 at the same ages. Our findings indicate that while respondents interviewed in 1998 and 2004 were more likely to correctly report whether they were included in defined contribution plans, they were no more accurate when reporting whether they had contributed to their plans than respondents interviewed in 1992. Contributors in the three cohorts, moreover, overstated their annual contributions and thus would be likely to realize lower than expected account balances at retirement. The magnitude of this error is not negligible. In all three cohorts, the mean reporting error (the absolute difference between respondent-reported and Social Security earnings record contributions) was approximately 1.5 times larger than the mean contribution in the W-2 earnings record.

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Burlingame, Harold W., and Michael J. Gulotta. "Case Study." Compensation & Benefits Review 30, no. 6 (November 1998): 25–31. http://dx.doi.org/10.1177/088636879803000605.

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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.

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MANNINO, MICHAEL V., and ELIZABETH S. COOPERMAN. "Surplus deferred pension compensation for long-term K-12 employees: an empirical analysis for the Denver Public School Retirement System and four state plans." Journal of Pension Economics and Finance 10, no. 3 (November 22, 2010): 457–83. http://dx.doi.org/10.1017/s1474747210000387.

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AbstractThis study uses a unique data set of retiree characteristics and salary histories for administrators, teachers, and non-professional employees of the Denver Public School Retirement System (DPSRS) to analyze surplus deferred compensation for DPSRS and four state K-12 defined benefit pension plans. We find sizable levels of surplus deferred compensation for each plan, with significant differences across plans, job classes, and age groups. Across plans, differences in cost of living allowances impact the expected present value of retirement benefits more than benefit table differences when controlling for each respective factor. Somewhat surprisingly, the plans in our study with the largest present value of future benefits had lower employee contribution rates. Pension wealth for reduced benefits showed larger wealth accrual at younger ages than full, unreduced benefits, and younger cohorts starting work at an earlier age received significantly higher surplus deferred compensation.

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Journal articles on the topic 'Defined benefit and defined contribution plans'

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