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New Trends in Pension Benefit and Retirement Provisions

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  • Olivia S. Mitchell

Abstract

This study illustrates and interprets changes in pension plan retirement formulas and benefit provisions over the last two decades, using extensive information on private sector pension plans gathered by the U.S. Department of Labor since 1980. Data generated from the Employee Benefits Survey (EBS) of medium and large firms shows that pension provisions have changed a great deal in companies that have traditionally been the most consistent providers of employer-sponsored retirement benefits in the US. In the defined benefit environment, vesting rules were loosened somewhat; plans have eased access to normal retirement; and pension benefit formulas have moved toward final rather than career earnings, with increased weight on straight-time pay. In addition, these plans became more integrated with social security, but the form of this integration has changed substantially. Defined benefit pension replacement rates appear to have fallen over time, though the time series is not complete. In addition, benefit caps remain in place, generally by limiting years of service in the formula; disability benefit provisions have also become more stringent; and it is increasingly possible to take a lump sum from one's defined benefit pension. The defined contribution environment has also seen substantial change, as documented in the BLS series. Participation and vesting rules appear most lenient for workers in 401(k) plans; most employees must contribute to their plans, generally as a function of earnings; and employee access to pension fund assets appears to be on the upswing over time. Participants in these plans have also gained access to diversified stock and bond funds, with fewer permitted to invest in own-employer stock, common stock funds and guaranteed insurance contracts. We conclude with a discussion of how future data collection efforts could be improved.

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Bibliographic Info

Paper provided by Wharton School Pension Research Council, University of Pennsylvania in its series Pension Research Council Working Papers with number 2000-1.

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Handle: RePEc:wop:pennpr:2000-1

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Postal: The Wharton School, 3641 Locust Walk, 304 CPC, Philadelphia, PA 19104-6218
Phone: 215-898-7620
Fax: 215-898-0310
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Web page: http://www.pensionresearchcouncil.org/
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  1. Rebecca A. Luzadis & Olivia S. Mitchell, 1989. "Explaining Pension Dynamics," NBER Working Papers 3084, National Bureau of Economic Research, Inc.
  2. Phillip B. Levine & Olivia S. Mitchell & John W. Phillips, . "Worklife Determinants of Retirement Income Differentials Between Men and Women," Pension Research Council Working Papers 99-19, Wharton School Pension Research Council, University of Pennsylvania.
  3. Alan L. Gustman & Olivia S. Mitchell & Andrew A. Samwick & Thomas L. Steinmeier, . "Evaluating Pension Entitlements," Pension Research Council Working Papers 98-20, Wharton School Pension Research Council, University of Pennsylvania.
  4. Olivia S. Mitchell & Rebecca A. Luzadis, 1988. "Changes in pension incentives through time," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 42(1), pages 100-108, October.
  5. Olivia S. Mitchell, 1991. "Trends in Pension Benefit Formulas and Retirement Provisions," NBER Working Papers 3744, National Bureau of Economic Research, Inc.
  6. Alan L. Gustman & Olivia S. Mitchell & Andrew A. Samwick & Thomas L. Steinmeier, . "Pension and Social Security Wealth in the Health and Retirement Study," Pension Research Council Working Papers 97-3, Wharton School Pension Research Council, University of Pennsylvania.
  7. Alan L. Gustman & Olivia S. Mitchell, 1990. "Pensions and the U.S. Labor Market," NBER Working Papers 3331, National Bureau of Economic Research, Inc.
  8. Mitchell, Olivia S & Fields, Gary S, 1984. "The Economics of Retirement Behavior," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 84-105, January.
  9. Olivia S. Mitchell & David McCarthy & Stanley C. Wisniewski & Paul Zorn, . "Developments in State and Local Pension Plans," Pension Research Council Working Papers 99-4, Wharton School Pension Research Council, University of Pennsylvania.
  10. Gustman, A.L. & Mitchell, O.S. & Steinmeier, T.L., 1993. "The Role of Pensions in the Labor Market," Papers 93-07, Cornell - Center for Advanced Human Resource Studies.
  11. Alan Gustman & Olivia S. Mitchell & Thomas L. Steinmeier, . "Retirement Measures in the Health and Retirement Survey," Pension Research Council Working Papers 94-2, Wharton School Pension Research Council, University of Pennsylvania.
  12. Phillip B. Levine & Olivia S. Mitchell & James F. Moore, . "Women on the Verge of Retirement: Predictors of Retiree Well-being," Pension Research Council Working Papers 97-2, Wharton School Pension Research Council, University of Pennsylvania.
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