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The decline of defined benefit plans and job tenure

Published online by Cambridge University Press:  15 December 2008

ALLISON SCHRAGER
ALLISON SCHRAGER
Affiliation:
Integrated Finance Ltd., 245 Park Avenue, 44th Floor, New York, NY 10167, USA (e-mail: allisonschrager@gmail.com)
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Abstract

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.

Type
Articles
Information
Journal of Pension Economics & Finance , Volume 8 , Issue 3 , July 2009 , pp. 259 - 290
Copyright
Copyright © 2008 Cambridge University Press

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