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Impact of Replacing a Defined Benefit Pension with a Defined Contribution Plan or a Cash Balance Plan

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  • Robert Clark
  • Fred Munzenmaier

Abstract

Four pension plan conversions are examined to determine the impact on retirement benefits of workers. The study was based on interviews with top management, employee surveys, and actuarial analysis of retirement benefits under the old and new pension plans. In general, workers who leave the firm prior to the age of early retirement can expect increased benefits under the new defined contribution and cash balance plans, whereas older, more senior workers can expect to accrue smaller benefits after the plan conversions. Recognizing these potential adverse effects, the employers in our studies provided various types of transition benefits to existing workers or gave employees the choice of remaining in the old defined benefit plan. Employee surveys reveal that younger workers are more supportive of the new pension plans than are older workers. These case studies also indicate that communication by managements with their employees is very important to the successful implementation of plan conversions.

Suggested Citation

  • Robert Clark & Fred Munzenmaier, 2001. "Impact of Replacing a Defined Benefit Pension with a Defined Contribution Plan or a Cash Balance Plan," North American Actuarial Journal, Taylor & Francis Journals, vol. 5(1), pages 32-56.
    • Handle: RePEc:taf:uaajxx:v:5:y:2001:i:1:p:32-56
    DOI: 10.1080/10920277.2001.10595952
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    Cited by:

    1. Clark, Robert L. & Hanson, Emma & Mitchell, Olivia S., 2016. "Lessons for public pensions from Utah's move to pension choice," Journal of Pension Economics and Finance, Cambridge University Press, vol. 15(3), pages 285-310, July.
    2. Robert L. Clark & Olivia S. Mitchell, 2002. "Strengthening Employment-Based Pensions in Japan," NBER Working Papers 8891, National Bureau of Economic Research, Inc.

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