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Employee Retirement and a Firm's Pension Plan

In: The Economics of Aging

  • Laurence J. Kotlikoff
  • David A. Wise

The provisions of the pension plan in a large corporation are described in detail. The implications of the provisions are indicated by pension accrual profiles. These profiles are set forth, together with standard age-earnings and Social Security accrual profiles, in the form of life-time budget constraints. The plan provided very strong incentives to retire beginning at age 55. After age 65, negative pension and negative Social Security accruals effectively impose almost a 100 percent tax rate on wage earnings for many employees of the firm. Departure rates from the firm are compared with economic incentives inherent in the plan provisions. The inducements in the plan provisions to retire early have had a very substantial effect on departure rates from the firm. Over 50 percent of those employed by the firm at age 50 leave before 60 and 90 percent before age 65. The jumps in departure rates at specific ages coincide precisely with the discontinuities and kink points in the worker compensation profiles that result from the pension plan provisions together with wage earnings profiles and Social Security accrual.

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This chapter was published in:
  • David A. Wise, 1989. "The Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise89-1.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 11586.
    Handle: RePEc:nbr:nberch:11586
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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    1. Laurence J. Kotlikoff & David A. Wise, 1985. "Labor Compensation and the Structure of Private Pension Plans: Evidence for Contractual versus Spot Labor Markets," NBER Chapters, in: Pensions, Labor, and Individual Choice, pages 55-88 National Bureau of Economic Research, Inc.
    2. Burtless, Gary, 1986. "Social Security, Unanticipated Benefit Increases, and the Timing of Retirement," Review of Economic Studies, Wiley Blackwell, vol. 53(5), pages 781-805, October.
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