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Postretirement Adjustments of Pension Benefits

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

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.

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Article provided by University of Wisconsin Press in its journal Journal of Human Resources.

Volume (Year): 21 (1986)
Issue (Month): 1 ()
Pages: 118-137

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Handle: RePEc:uwp:jhriss:v:21:y:1986:i:1:p:118-137
Contact details of provider: Web page: http://jhr.uwpress.org/

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  1. Martin Feldstein, 1981. "Should Private Pensions Be Indexed?," NBER Working Papers 0787, National Bureau of Economic Research, Inc.
  2. 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 366-79, October.
  3. Olivia S. Mitchell & Emily S. Andrews, 1981. "Scale economies in private multi-employer pension systems," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 34(4), pages 522-530, July.
  4. Richard B. Freeman, 1983. "Unions, Pensions, and Union Pension Funds," NBER Working Papers 1226, National Bureau of Economic Research, Inc.
  5. Steven G. Allen & Robert L. Clark, 1985. "Unions, Pension Wealth, and Age-Compensation Profiles," NBER Working Papers 1677, National Bureau of Economic Research, Inc.
  6. Barnow, Burt S & Ehrenberg, Ronald G, 1979. "The Costs of Defined Benefit Pension Plans and Firm Adjustments," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 523-40, November.
  7. Ronald G. Ehrenberg, 1980. "Retirement system characteristics and compensating wage differentials in the public sector," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 33(4), pages 470-483, July.
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