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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
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    File URL: http://www.nber.org/papers/w4413.pdf
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    References listed on IDEAS

    as
    1. Kotlikoff, Laurence J. & Smith, Daniel E., 1984. "Pensions in the American Economy," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226451466, December.
    2. 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.
    3. Pesando, James E, 1984. "Employee Evaluation of Pension Claims and the Impact of Indexing Initiatives," Economic Inquiry, Western Economic Association International, vol. 22(1), pages 1-17, January.
    4. Alan J. Auerbach, 1988. "Corporate Takeovers: Causes and Consequences," NBER Books, National Bureau of Economic Research, Inc, number auer88-1.
    5. Alan L. Gustman & Thomas L. Steinmeier, 1991. "Pension COLAs," NBER Working Papers 3908, National Bureau of Economic Research, Inc.
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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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