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The Costs of Defined Benefit Pension Plans and Firm Adjustments

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Show full item recordAuthor
Barnow, Burt S.; Ehrenberg, Ronald G.
Abstract
[Excerpt] While it is obvious that the costs of term life insurance vary directly with age, it is less obvious how employers' contributions to pension funds, which comprise a major share of nonwage compensation, vary. As such, we focus in this paper on the most common variant of pension plans and demonstrate how an employer's cost of fully funding a plan varies with the age and service characteristics of his work force. This cost, as a percent of annual salary, is seen to increase with employees' ages and, in some cases, years of service. This variation has important implications for the level and shape of life-cycle earnings profiles, for labor turnover, and for the likely impact of pension reform legislation, such as the Employees Retirement Income Security Act of 1974 (ERISA), on the well-being of workers. These implications are discussed in this paper.
Date Issued
1979-11-01Subject
pension funds; workforce; defined benefits; age; length of service; nonwage compensation
Rights
Required Publisher Statement: © Massachusetts Institute of Technology Press. Reprinted with permission. All rights reserved.
Type
unassigned