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Post-Retirement Increases in Pensions in the 1980s: Did Plan Finances Matter?

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  • Steven G. Allen
  • Robert L. Clark
  • Ann A. McDermed
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Abstract

Many firms give post-retirement increases in pension benefits to retirees even though the pension contract does not require such increases. A leading explanation of this behavior is that benefit increases are part of an implicit contract where retirees accept lower initial benefits in return for the option of receiving a share of the plan's financial returns above the risk-free rate. The paper reports mixed evidence on the linkage between the financial performance of pension plans and post-retirement increases. Between 1980 and 1985, benefit increases were larger in plans with high funding ratios and lofty rates of return. However, the practice of giving post-retirement increases became much less widespread in the 1980s, despite dramatically improved financial performances across all pension plans.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4413.

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Date of creation: Aug 1993
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Handle: RePEc:nbr:nberwo:4413

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  1. Alan J. Auerbach, 1988. "Corporate Takeovers: Causes and Consequences," NBER Books, National Bureau of Economic Research, Inc, number auer88-1, September.
  2. Pesando, James E, 1984. "Employee Evaluation of Pension Claims and the Impact of Indexing Initiatives," Economic Inquiry, Oxford University Press, vol. 22(1), pages 1-17, January.
  3. Andrei Shleifer & Lawrence H. Summers, 1989. "Breach of Trust in Hostile Takeovers," NBER Working Papers 2342, National Bureau of Economic Research, Inc.
  4. Alan L. Gustman & Thomas L. Steinmeier, 1991. "Pension COLAs," NBER Working Papers 3908, National Bureau of Economic Research, Inc.
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