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Postretirement Adjustments of Pension Benefits

Author

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  • Steven G. Allen
  • Robert L. Clark
  • Daniel A. Sumner

Abstract

During the 1970s, defined benefit pension plans increased their liabilities by giving benefit increases to persons no longer working even though almost none of the plans were required to do so by any legally enforceable contract. Our model of these adjustments has workers and firms agreeing to implicit contracts under which postretirement increases in benefits are purchased by workers through lower wages or initial benefits. The major empirical findings are that compensating differentials exist in final salary and initial pension benefits, that large pension plans and collectively bargained plans provide larger post-retirement benefit increases, and that benefit increases are larger in percentage terms for those who have been retired the longest and for those with the most years of service.

Suggested Citation

  • Steven G. Allen & Robert L. Clark & Daniel A. Sumner, 1986. "Postretirement Adjustments of Pension Benefits," Journal of Human Resources, University of Wisconsin Press, vol. 21(1), pages 118-137.
  • Handle: RePEc:uwp:jhriss:v:21:y:1986:i:1:p:118-137
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    References listed on IDEAS

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    1. Duncan, Greg J & Holmlund, Bertil, 1983. "Was Adam Smith Right after All? Another Test of the Theory of Compensating Wage Differentials," Journal of Labor Economics, University of Chicago Press, vol. 1(4), pages 366-379, October.
    2. Burt S. Barnow & Ronald G. Ehrenberg, 1979. "The Costs of Defined Benefit Pension Plans and Firm Adjustments," The Quarterly Journal of Economics, Oxford University Press, vol. 93(4), pages 523-540.
    3. Richard B. Freeman, 1985. "Unions, Pensions, and Union Pension Funds," NBER Chapters,in: Pensions, Labor, and Individual Choice, pages 89-122 National Bureau of Economic Research, Inc.
    4. Martin Feldstein, 1983. "Should Private Pensions Be Indexed?," NBER Chapters,in: Financial Aspects of the United States Pension System, pages 211-230 National Bureau of Economic Research, Inc.
    5. Ronald G. Ehrenberg, 1980. "Retirement System Characteristics and Compensating Wage Differentials in the Public Sector," ILR Review, Cornell University, ILR School, vol. 33(4), pages 470-483, July.
    6. Olivia S. Mitchell & Emily S. Andrews, 1981. "Scale Economies in Private Multi-Employer Pension Systems," ILR Review, Cornell University, ILR School, vol. 34(4), pages 522-530, July.
    7. Steven G. Allen & Robert L. Clark, 1985. "Unions, Pension Wealth, and Age-Compensation Profiles," NBER Working Papers 1677, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Steven G. Allen & Robert L. Clark & Ann A. McDermed, 1991. "Pensions, Bonding, and Lifetime Jobs," NBER Working Papers 3688, National Bureau of Economic Research, Inc.
    2. Ann McDermed & Robert L. Clark & Steven G. Allen, 1989. "Pension Wealth, Age-Wealth Profiles, and the Distribution of Net Worth," NBER Chapters,in: The Measurement of Saving, Investment, and Wealth, pages 689-736 National Bureau of Economic Research, Inc.
    3. Gustman, Alan L. & Steinmeier, Thomas L., 1993. "Pension portability and labor mobility : Evidence from the survey of income and program participation," Journal of Public Economics, Elsevier, vol. 50(3), pages 299-323, March.
    4. Michael D. Hurd, 1994. "The Economic Status of the Elderly in the United States," NBER Chapters,in: Aging in the United States and Japan: Economic Trends, pages 63-84 National Bureau of Economic Research, Inc.
    5. Andrei Shleifer & Lawrence H. Summers, 1988. "Breach of Trust in Hostile Takeovers," NBER Chapters,in: Corporate Takeovers: Causes and Consequences, pages 33-68 National Bureau of Economic Research, Inc.
    6. Olivia S. Mitchell, 1991. "Trends in Pension Benefit Formulas and Retirement Provisions," NBER Working Papers 3744, National Bureau of Economic Research, Inc.
    7. George A. Akerlof & Lawrence F. Katz, 1986. "Do Deferred Wages Dominate Involuntary Unemployment as a Worker Discipline Device?," NBER Working Papers 2025, National Bureau of Economic Research, Inc.
    8. Alan L. Gustman & Thomas L. Steinmeier, 1994. "Retirement in a Family Context: A Structural Model for Husbands and Wives," NBER Working Papers 4629, National Bureau of Economic Research, Inc.
    9. Kathleen M. McGarry & Andrew Davenport, 1998. "Pensions and the Distribution of Wealth," NBER Chapters,in: Frontiers in the Economics of Aging, pages 463-486 National Bureau of Economic Research, Inc.
    10. Steven G. Allen & Robert L. Clark, 1987. "Pensions and Firm Performance," NBER Working Papers 2266, National Bureau of Economic Research, Inc.
    11. Michael D. Hurd, 1993. "The Effect of Labor Market Rigidities on the Labor Force Behavior of Older Workers," NBER Working Papers 4462, National Bureau of Economic Research, Inc.
    12. Alan L. Gustman & F. Thomas Juster, 1995. "Income and Wealth of Older American Households: Modeling Issues for Public Policy Analysis," NBER Working Papers 4996, National Bureau of Economic Research, Inc.
    13. Charles Brown, 2010. "Post-Retirement Adjustments in Defined Benefit Pensions," Working Papers wp242, University of Michigan, Michigan Retirement Research Center.
    14. Alan L. Gustman & Olivia S. Mitchell & Thomas L. Steinmeier, 1993. "The Role of Pensions in the Labor Market," NBER Working Papers 4295, National Bureau of Economic Research, Inc.
    15. Rebecca A. Luzadis & Olivia S. Mitchell, 1991. "Explaining Pension Dynamics," Journal of Human Resources, University of Wisconsin Press, vol. 26(4), pages 679-703.
    16. Alan L. Gustman & Olivia S. Mitchell, 1990. "Pensions and the U.S. Labor Market," NBER Working Papers 3331, National Bureau of Economic Research, Inc.
    17. Alan L. Gustman & Thomas L. Steinmeier, 1988. "An Analysis Of Pension Benefit Formulas, Pension Wealth And Incentives From Pensions," NBER Working Papers 2535, National Bureau of Economic Research, Inc.
    18. Gustman, Alan L & Steinmeier, Thomas L, 2000. "Retirement in Dual-Career Families: A Structural Model," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 503-545, July.
    19. repec:eee:labchp:v:2:y:1986:i:c:p:789-848 is not listed on IDEAS
    20. Steven G. Allen & Robert L. Clark, 1985. "Unions, Pension Wealth, and Age-Compensation Profiles," NBER Working Papers 1677, National Bureau of Economic Research, Inc.

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