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The decline of defined benefit plans and job tenure


This 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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Zvi Bodie , Alan J. Marcus , and Robert C. Merton (1988) Defined benefit versus defined contribution pension plans: what are the real trade-offs? In Z. Bodie , J. Shoven , and D. Wise (eds) Pensions in the US Economy. Chicago, IL: University of Chicago Press.

Christopher Carroll and Andrew Samwick (1997) The nature of precautionary wealth. Journal of Monetary Economics, 40: 4171.

Peter Gottschalk and Robert Moffit (1999) Changes in job instability and insecurity using monthly survey data. Journal of Labor Economics, 17(4).

David A. Jaeger and Ann Huff Stevens (1999) Is job stability in the United States falling? Reconciling trends in the current Population Survey and Panel Study of Income Dynamics. Journal of Labor Economics, 17(4).

R. H. Topel and M. P. Ward (1992) Job mobility and the careers of young men. Quarterly Journal of Economics, 107: 439–79.

Menahem E. Yaari (1965) Uncertain lifetime, life insurance, and the theory of the consumer. Review of Economic Studies, 32: 137–50.

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Journal of Pension Economics & Finance
  • ISSN: 1474-7472
  • EISSN: 1475-3022
  • URL: /core/journals/journal-of-pension-economics-and-finance
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