There are significant changes happening to occupational retirement saving schemes in the US, the principal one being the conversion of benefits from DB to DC.
This 2011 report suggests this might mean “lower private pension wealth for retirees”:
“One recent such phenomenon involves the conversion of traditional defined benefit (DB) pension plans to cash balance [DC] plans, resulting in lower pension benefits for workers.”
The report looked at the issues that seemed to influence a firm’s decision to convert.
“Using the Longitudinal Employer-Household Data and pension plan data from the Department of Labor/Internal Revenue Service and the Pension Benefit Guaranty Corporation, I find little evidence of workforce age distribution effects on the likelihood of DB plan conversion to a cash balance plan in the 1990s. More generally, I consistently find positive associations between firms with older and female workforces and having defined contribution plans during the same time.”
The firms’ decisions to convert seemed unrelated to both the employees’ average age and male/female mix. It had been thought that a workforce with a greater proportion of female workers might prefer conversion but that seems not to be the case.
On the other hand, DC schemes seem to be more prevalent in forms with younger workforces. The reason for that seems unclear to the author:
“For example, was it the case that firms with younger workforces started offering cash balance or DC plans to accommodate worker demand and preferences for such plans, or did firms’ offering of such plans attract younger employees…?”
The prevalence of DB schemes seems more explainable:
“In my analysis investigating more generally the correlates of firm pension plan policy, I consistently find that firms with older workforces are less likely to have DC or DC-like plans relative to DB plans. Similarly, I find that firms with more female and unionized employees are more likely to have DB plans than DC plans.”
PensionReforms wonders whether the issue is more related to the ‘age’ of the industry rather than the age of workers in a particular firm. The world seems to be certainly moving in a DC direction and the report confirms that in firms with younger workforces that may also be firms in ‘younger’ industries.
Regardless, PensionReforms suggests that the days of the DB occupational retirement saving scheme seem numbered. Not only is that a function of more intrusive regulatory supervision but some employers now seem to understand that DB schemes are expensive, complex, distortionary, inequitable and also unnecessarily expose sponsoring employers to volatility in financial markets. At best, it seems unclear why employers should be concerned about whether employees are saving ‘enough’ for retirement. That is surely a matter for individual concern, just as are other decisions about employees’ financial lives such as housing, education and the protection of dependants and assets. (File size 104 KB; 25 pp) 727