Keywords: Pensions, labor markets, cash balance pensions
Abstract: Many firms that sponsor traditional defined benefit pensions have converted their plans to cash balance
plans in the last ten years. Cash balance plans combine features of defined benefit (DB) and defined
contribution (DC) plans, and yet their introduction has proven considerably more controversial than has
the increasing popularity of DC plans. The goal of this study is to estimate a hierarchy of the
influences on the decision of a firm to convert its traditional defined benefit pension plan to a
cash balance plan. Our results indicate that cash balance conversions have been undertaken in competitive
industries with tight labor markets and can be viewed largely as a response to better compensate a more
mobile labor force. Indeed, many firms appear to increase their pension liabilities through such conversions.
The results also shed light on the possible determinants of the broader shift from DB to DC pension coverage.
Full paper (278 KB PDF)
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Last update: December 15, 2003