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

Author

Listed:
  • Steven G. Allen
  • Robert L. Clark
  • Ann A. McDermed

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.

Suggested Citation

  • Steven G. Allen & Robert L. Clark & Ann A. McDermed, 1993. "Post-Retirement Increases in Pensions in the 1980s: Did Plan Finances Matter?," NBER Working Papers 4413, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4413
    Note: AG LS
    as

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    References listed on IDEAS

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    5. Laurence J. Kotlikoff & Daniel E. Smith, 1983. "Pensions in the American Economy," NBER Books, National Bureau of Economic Research, Inc, number kotl83-1, March.
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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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