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Cash balance pension plan conversions and the new economy

Author

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  • CORONADO, JULIA LYNN
  • COPELAND, PHILIP C.

Abstract

Many firms that sponsor traditional defined benefit pensions have converted these plans to cash balance plans in the last en years. Cash balance plans in the last ten years combine features of defined benefit and defined contribution plans, and yet their introduction has proven considerably more controversial than has the increasing popularity of defined contribution 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 thus can be viewed at least in part as a response to better compensate a more mobile labor force. Indeed, many firms appear to increase their pension liabilities through such conversions.

Suggested Citation

  • Coronado, Julia Lynn & Copeland, Philip C., 2004. "Cash balance pension plan conversions and the new economy," Journal of Pension Economics and Finance, Cambridge University Press, vol. 3(3), pages 297-314, November.
    • Handle: RePEc:cup:jpenef:v:3:y:2004:i:03:p:297-314_00
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    Citations

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    Cited by:

    1. Kandice Kapinos, 2009. "On the Determinants of Defined Benefit Pension Plan Conversions," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 30(2), pages 149-167, June.
    2. Kandice Kapinos, 2011. "Changes in Firm Pension Policy: Trends Away from Traditional Defined Benefit Plans," Working Papers 11-36, Center for Economic Studies, U.S. Census Bureau.
    3. Robert Novy-Marx & Joshua D. Rauh, 2012. "Linking Benefits to Investment Performance in US Public Pension Systems," NBER Working Papers 18491, National Bureau of Economic Research, Inc.
    4. Dirk Broeders & An Chen & David Rijsbergen, 2013. "Valuation of liabilities in hybrid pension plans," Applied Financial Economics, Taylor & Francis Journals, vol. 23(15), pages 1215-1229, August.
    5. Tang, Chun-Hua, 2018. "Subjective value of the guarantees embedded in public cash-balance pension plans," Journal of Pension Economics and Finance, Cambridge University Press, vol. 17(2), pages 231-250, April.
    6. Stephanie Aaronson & Julia Lynn Coronado, 2005. "Are firms or workers behind the shift away from DB pension plan?," Finance and Economics Discussion Series 2005-17, Board of Governors of the Federal Reserve System (U.S.).
    7. Kandice Kapinos, 2012. "Changes in Firm Pension Policy: Trends Away from Traditional Defined Benefit Plans," Journal of Labor Research, Springer, vol. 33(1), pages 91-103, March.
    8. Cathy Beaudoin & Nandini Chandar & Edward M. Werner, 2010. "Are potential effects of SFAS 158 associated with firms' decisions to freeze their defined benefit pension plans?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 9(4), pages 424-451, November.
    9. Dirk Broeders & An Chen & David Rijsbergen, 2013. "Valuation of liabilities in hybrid pension plans," Applied Financial Economics, Taylor & Francis Journals, vol. 23(15), pages 1215-1229, August.
    10. Kandice Kapinos, 2009. "On the Determinants of Defined Benefit Pension Plan Conversions," Journal of Labor Research, Springer, vol. 30(2), pages 149-167, June.
    11. Vafeas, Nikos & Vlittis, Adamos, 2018. "Independent directors and defined benefit pension plan freezes," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 505-518.

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