Search

This article discusses the evolution of retirement benefits in the United States over the past 50 years, with a focus on the role of the Bureau of Labor Statistics (BLS) in tracking these changes. The passage of the Employee Retirement Income Security Act (ERISA) in 1974 had a significant impact on retirement benefits, establishing regulations for employer-provided plans. The article explores the shift from defined benefit plans to defined contribution plans, as well as the various provisions and requirements of these plans. BLS has collected data on retirement benefits, including participation rates and plan details, since the late 1970s, providing valuable information on the changing retirement landscape. [Extracted from the article]

The ongoing crisis in teacher pension funding has led states to consider various reforms in plan design to replace the traditional benefit formulas, based on years of service and final average salary (FAS). One such design is a cash balance (CB) plan, long deployed in the private sector, and increasingly considered, but rarely yet adopted, for teachers. Such plans are structured with individual 401(k)-type retirement accounts, but with guaranteed returns. In this paper I examine how the nation's first CB plan for teachers, in Kansas, has played out for system costs, and the level and distribution of individual benefits, compared with the FAS plan it replaced. My key findings are: (1) employer-funded benefits were modestly reduced, despite the surface appearance of more generous employer contribution matches; (2) more importantly, the cost of the pension guarantee, which is off-the-books under standard actuarial accounting, was reduced quite substantially. In addition, benefits are more equitably distributed between short-term teachers and career teachers than under the back-loaded structure of benefits characteristic of FAS plans. The key to the plan's cost reduction is that the guaranteed return approximates a low-risk market return, considerably lower than the assumed return on risky assets. [ABSTRACT FROM AUTHOR]

The environment surrounding Japanese corporate pension and retirement benefit accounting has been rapidly diversifying in recent years. The qualified retirement pension system, which has supported the corporate pension system for many years, was abolished at the end of March 2012. In addition, the other welfare pension fund system has also been reformed with a view to abolishing it in the future. These rapid changes in the environment require business owners to make important choices regarding company performance and employee benefits. For example, it is a decision to shift to a defined contribution pension plan or a defined benefit pension plan, or to abolish or dissolve it. There are already many studies on the defined contribution pension plan system and cash balance pension plan in Japan, including research in the United States. However, it is hard to say that much research on the qualified retirement pension system and the welfare pension fund system has been accumulated. Therefore, in this paper, we are trying to analyze the system and empirical analysis of the welfare pension fund system that is scheduled to be abolished. In the factor analysis regarding the abolition of the welfare pension fund, we will consider in detail by hypothesis setting and estimation formula. [ABSTRACT FROM AUTHOR]

Defined benefit (DB) pension plans are the dominant retirement program for state and local governments in the United States. However, in the last 15 years, some have given new employees a choice of alternatives to stand-alone DB pension plans such as cash balance (CB), defined contribution (DC), and hybrid retirement plans. This article examines this shift through survival analysis using panel data of 190 state and local pension plans across the United States. From 2001 to 2019, we modeled five change factors found in the pension reform literature, namely, financial constraints, interest group influence, plan membership, and liability, along with other state factors. Our analysis shows that all five of these factors impacted the shift to alternative retirement plans from stand-alone DB plans. Notable findings are that well-funded pensions were more likely to shift to alternative retirement plans, and interest groups such as police, fire, and teachers were more likely to keep stand-alone plans. [ABSTRACT FROM AUTHOR]

The environment surrounding Japanese corporate pension and retirement benefit accounting has been rapidly diversifying in recent years. The qualified retirement pension system, which has supported the corporate pension system for many years, was abolished at the end of March 2012. In addition, the other welfare pension fund system has also been reformed with a view to abolishing it in the future. These rapid changes in the environment require business owners to make important choices regarding company performance and employee benefits. For example, it is a decision to shift to a defined contribution pension plan or a defined benefit pension plan, or to abolish or dissolve it. There are already many studies on the defined contribution pension plan system and cash balance pension plan in Japan, including research in the United States. However, it is hard to say that much research on the qualified retirement pension system and the welfare pension fund system has been accumulated. Therefore, in this paper, we are trying to analyze the system and empirical analysis of the welfare pension fund system that is scheduled to be abolished. In the factor analysis regarding the abolition of the welfare pension fund, we will consider in detail by hypothesis setting and estimation formula. [ABSTRACT FROM AUTHOR]

It is widely recognized that there has been a massive shift from defined-benefit (DB) to defined-contribution pension plans. However, the full extent of that shift from fully functioning DB plans is generally understated. This article measures and relates the extent of that understatement and its importance for retirement income. It then discusses the increasing importance of cash balance and pension equity plans and their legality. It then conducts an in-depth discussion of large (Fortune 500) employers, small- and medium-sized employers, and then very small employers (25 or fewer active participants). It concludes that retirement income plans in the United States are far from static. Indeed, they have evolved throughout the era and will continue to do so in the future. [ABSTRACT FROM AUTHOR]

The author, upon reading the title of the July Journal article "Are Cash-Balance Plans Really Dead?" was prepared to take strong exception to the presumed answer of its author, but found his only disagreement was with the failure of the July article to note that the decision that has brought cash-balance planning to a standstill--Cooper v. IBM--was totally flawed, arriving at the unsupportable conclusion that age discrimination occurs when the interest credit shrinks from year to year with advancing age. The error of the judge was to confuse (a) the annual benefit accumulation that is distinctive to cash-balance formulas with (b) the hypothetical projection of the statutory "accrued benefit" concept to retirement age that, under an IRS methodology developed for a purpose entirely unrelated to age discrimination, provides for the forecasting of annual iterative interest credits through retirement age at the time of each year's pay credit. [ABSTRACT FROM AUTHOR]

After many years of uncertainty, the IRS and Treasury have stepped up and, from their perspective, have clearly resolved the cash-balance dilemma. In December 2002, the Treasury released final regulations that gave the pension community long-awaited guidance on how to design and administer cash-balance plans. While employers, attorneys and actuaries were still in the process of analyzing those regulations and determining how to incorporate those guidelines within the plans that were already in place, a number of unanticipated events immediately pushed cash-balance plans even further back into the world of confusion than where they were to begin with. [ABSTRACT FROM AUTHOR]

The article discusses the U.S. Pension Protection Act of 2006 (PPA 2006) and its impact on the 401(k) benefit plan. The author states that PPA 2006 created a new plan design that combines the security of a traditional pension with the market potential of an investment-based account. The design, which becomes available in 2010, may make it easier for companies that already have a 401(k) plan to add a defined-benefit component. The article describes the features of the defined-benefit plan including contribution requirements, eligible employers, investments, and other requirements. The market for the new plans includes small businesses with up to 500 employees. An advantage will be more predictable funding.

Some public sectors provide cash-balance pension plans with guaranteed interest credits. We use the certainty-equivalence framework to derive the subjective value of the guarantee perceived by the participant. Numerical results show that in many scenarios the subjective value is lower than the cost of the guarantee derived by option pricing approaches, implying that public sectors potentially spend too much in providing the guarantee. However, the subjective value could be higher than the cost of the guarantee under some scenarios, depending on the participant's level of risk aversion, the feasibility of diversification, and so forth. [ABSTRACT FROM AUTHOR]

The article presents information on the ways a defined-benefit plan can be converted and the future direction that conversions may take. Many of the fundamental issues for keeping the tax advantage retirement plans were settled in 1974 with the adoption of the U.S. Employee Retirement Income Security Act, which ended practices as widespread discrimination against lower-paid workers, decades-long vesting requirements and ambiguous or non-existent standards for fiduciary practices. A cash-balance plan is essentially a hybrid; it is a pension that is accounted for like a defined-contribution plan. Part of the negative press arises from the fact that cash-balance plans usually replace traditional defined-benefit plans, which are seen by many as the ultimate in retirement security. For younger employees, switching to a cash-balance plan is more likely to be favorable, resulting in higher accruals and greater portability. A cash-balance plan promises a defined benefit but hypothetical individual accounts are maintained for accounting purposes. Employers looking to make the transition at a lower cost sometimes take the total conversion approach. Some employers offer older employees the option of remaining in the defined-benefit plan or moving to the cash-balance plan.

At the end of 2014, corporate balance sheets were overflowing with a record level of cash and other liquid investments. While congressional leaders have implored U.S. businesses to use those cash balances to fund capital investments and employ more Americans, in recent years academic researchers have explored the potential for those cash holdings to impact firms' refinancing risk, operating performance metrics, stock returns, and other elements related to firm value. This article reports the findings of four studies published in recent years in accounting and finance journals on the subject of cash holdings and various topics of interest to chief financial officers, controllers, and other financial professionals. © 2015 Wiley Periodicals, Inc. [ABSTRACT FROM AUTHOR]

This article provides an overview of the unique issues that normally arise under a cash balance pension plan to conform with qualified domestic relations orders (or QDRO). Presently, many plan administrators treat a cash balance plan just like a defined contribution plan only to find that the benefits within a cash balance plan are not as easily divided as those within a defined contribution plan. The apparent similarity of hypothetical account balances in a cash balance plan and the actual account balances in a 401(k) plan can result in mishandled QDROs. The similarities between a cash balance plan and a traditional defined benefit plan can also confound plan administrators, particularly when a defined benefit plan was subsequently converted to cash balance plan. Then all or a part of a participant’s benefit subject to a QDRO has the option to be determined under a traditional defined benefit formula, such as a percentage of final average pay. And while a QDRO administered under a pure cash balance plan can split the benefit in a fashion similar to that used for 401(k) plans, QDROs remain distinct and involve important differences between a cash balance plan and a 401(k) or other defined contribution plans. These unique features of a cash balance plan can drastically affect the monetary impact on alternate payees. To fulfill the duties prescribed under both ERISA and the IRC, plan administrators must engage in a very targeted fact-specific analysis involving the participant (employee), alternate payee and the Plan within a taut web of federal laws, regulations and mandates. [ABSTRACT FROM PUBLISHER]

This article explores the motivation to change their defined benefit pension plan by either terminating the plan and replacing it with a defined contribution plan or converting it to a cash balance plan. Using Form 5500 data as well as firm financial data, we find firms wishing to change their defined benefit plans are motivated by potential wealth transfer and tax implications. Firms terminating pension plans tend to have lower potential wealth transfers and lower taxes than firms converting to a cash balance plan, indicating a desire to modify the implicit contract instead of terminating the plan. [ABSTRACT FROM AUTHOR]

This study examines the impact of financial flexibility on the investment and performance of East Asian firms over the period 1994-2009. We employ a sample of 1,068 firms and place particular emphasis on the periods of the Asian crisis (1997-1998) and the recent credit crisis (2007-2009). The results show that firms can attain financial flexibility, primarily through conservative leverage policies and less commonly by holding large cash balances. Financial flexibility appears to be an important determinant of investment and performance, mainly during the Asian 1997-1998 crisis. In particular, firms that are financially flexible prior to this crisis (1) have a greater ability to take investment opportunities, (2) rely much less on the availability of internal funds to invest, and (3) perform better than less flexible firms during the crisis. Our analysis covering the credit crisis period of 2007-2009 suggests that some of the advantages of flexible firms towards investing persist but are significantly less pronounced over that period. We also find that the value of financial flexibility is region/country specific, which may be explained by the fact that different regions/countries often adopt different macroeconomic policies and operate in diverse economic/legal environments. [ABSTRACT FROM AUTHOR]

This stochastic simulation analysis compares funding costs and volatilities for private sponsors of traditional defined benefit (DB), pension equity (PE), cash balance (CB), and defined contribution (DC) retirement plans. Plan provisions of equivalent benefit generosity in the different plan types are determined. The modeling includes current funding requirements and practices as well as a comprehensive set of uncertainties in asset and labor markets. The results show that costs and risks for sponsors vary significantly with plan types, investment and funding strategies, and participant demographics. The hybrid PE and CB plans exhibit characteristics of cost efficiency, as in the DB plan, and risk reduction, as in the DC plan, for plan sponsors under conventional investment strategies. These features are more saliently observed in the CB plan, but it is also more difficult to implement effective asset-liability management strategies for it. [ABSTRACT FROM AUTHOR]

An essay about pension plans in the U.S. private industry is presented. Particular focus is given to the decline in defined benefit plans provided to private industry employees based on data from the Bureau of Labor Statistics (BLS). Several charts are provided showing the percentage of employees participating in defined benefit pension plans from 1981 to 2011, the percentage of those in open and frozen plans in 2011 and the percentage of those in cash balance plans in 2010.

Defined benefit pension schemes in deficit have long been a matter of concern. The outcome in October 2011 of linked appeals by the administrators of the groups of both Nortel and Lehman Brothers were a notable triumph for the UK Pensions Regulator and scheme trustees. However, the adverse consequences of these cases on lenders and insolvency practitioners, created by the 'oddities, anomalies and inconveniences' of a 'legislative mess' are also likely to generate important knock-on effects for corporates and scheme trustees. [ABSTRACT FROM AUTHOR]

This study examines, from the employer's perspective, the conversion from a defined benefit plan to a cash balance plan. The conversion to a cash balance plan presents a real option that is a financial innovation for the firm. The reasons to exercise this option (convert from a defined benefit plan to a cash balance plan) are discussed. The conversion can offer several benefits for the company. The firm may profit by taking the surplus assets of the pension plan without a tax penalty; the firm can increase risk sharing between the company and the employee (by reducing the company's pension liability risk and improving the predictability of the company's pension costs); the firm may choose to reduce future pension liabilities (by changing contribution and accrual patterns); and if the firm converts to a cash balance plan, the firm may improve recruitment and employee retention. The real option approach does not necessarily conflict with the implicit contract theory of pension plans. From the real option point of view, the fuzzy nature of defined benefit plans includes more than one possible real option. Most discussions of implicit contracts for pension plans focus on the concept of an implicit lifetime employment guarantee. The implied contract of the defined benefit plan could be included in the legal provisions of a cash balance pension contract. Even though a lifetime employment guarantee is not included in the current legal contract agreement, a cash balance plan can be structured to offer alternatives that provide the benefits that current employees would expect based on the implicit promises. The real option alternatives for converting to a cash balance plan can be used by the company to change provisions for the un-accrued pension benefits in ways that benefit the company and the employees. Owing to the difficulties in valuing these complex options, the model developed and analysed focuses on the potential value to the company of the option to change future pension plan contributions and the concomitant pension fund accruals for employees. A model is developed to find an optimal conversion time for employers based on the accrual patterns of the two types of plans. [ABSTRACT FROM AUTHOR]

An essay is presented on the lawsuit filed by employees against International Business Machines Corp. (IBM) regarding IMB's cash balance pension plan in the U.S. It notes that the employees wanted their accrual benefits be constant. It states that Frank H. Easterbrook, a panel judge, defined accrual benefits as an addition to the annual salary of the employees and not the actual payout.

During the last ten years of regulatory change, many UK companies have curtailed their defined benefit pension scheme. We test three competing explanations of UK corporate pension curtailments: integration, separation and risk management. We predict and find an association between the use of managerial discretion over changes in UK firms' expected rate of return on pension assets (ERR) assumptions, and subsequent decisions to curtail future defined benefit pension obligations. These findings are consistent with a risk management-based explanation, even after controlling for other factors identified by prior literature as significant in explaining pension benefit reductions. We also find that curtailments and the risk management of ERR assumptions are associated with subsequent corporate restructuring decisions. The findings support the view that pension curtailment decisions are driven by the failure to adapt to new economic and regulatory pressures and that they are ultimately determined by strategic corporate risk management considerations. [ABSTRACT FROM AUTHOR]

This study utilizes pension plan level 5500 data from the Department of Labor and Internal Revenue Service to investigate the determinants of traditional defined benefit plan conversion to hybrid cash balance plans during the 1990s. Incorporating the possibility of plan termination instead of plan conversion, the author finds a negative effect of plan funding status, union status, the number of total defined benefit plans at the firm, and plan contributions on the likelihood of plan conversion. The number of active participants and total defined contribution plans at the firm positively affect the probability of conversion. Plans at firms with at least one union plan were less likely to terminate. Additionally, the number of defined benefit plans at the firm and plan contributions had a negative effect on the likelihood of plan termination. Industry fixed effects were significant in all specifications. [ABSTRACT FROM AUTHOR]

This article identifies the current trend toward a defined contribution based system and the impact of the Pension Protection Act of 2006, the Statement of Financial Accounting Standards No. 158 and the Proposed Regulations for Hybrid Plans on this shift. More specifically, the article focuses on the cash balance plan and its increased significance following the PPA and the SFAS 158. Ultimately, this article finds that the cash balance model will still flourish in the post-PPA world because the hybrid plan structure reduces volatility associated with funding levels, produces financial accounting incentives and provides the employee with guaranteed retirement benefits. [ABSTRACT FROM AUTHOR]

Firms that wish to switch from a traditional defined-benefit pension plan to a defined-contribution-type plan have a choice between converting to a cash-balance plan or replacing the defined-benefit plan with a full-fledged defined-contribution plan. According to(1999;Industrial Relations, 39: 228-245) excise tax avoidance hypothesis, a number of firms have switched to cash-balance plans because conversion allows the firm to avoid excise taxes on its excess pension assets. In contrast to existing studies, our evidence supports the excise tax avoidance hypothesis. Cash-balance plan conversions also have been criticized for imposing pension losses on older employees. The implicit contract theory of pensions predicts that poorly performing firms would be the ones that would impose losses on employees. However, our evidence indicates that firms converting to cash-balance plans typically are not poor performers. [ABSTRACT FROM AUTHOR]

Although cash balance plans are attractive to employers, they also pose greater litigation risks than traditional plans. Minimum funding requirements, complicated conversion transactions, and allegations of discrimination have emerged as prominent features in ERISA litigation over cash balance plans in recent years. In addition, in the post-Enron environment, Congress and regulatory agencies have shown renewed interest in cash balance and other non-traditional ERISA plans, Nonetheless, prudent employers can employ cash balance plans to their benefit, so long as they are mindful of and manage the risks involved. [ABSTRACT FROM AUTHOR]

Recent pension plan conversions by numerous large employers have sparked debate about the merits of cash balance plans. This article compares pension wealth in traditional defined benefit (DB) plans and cash balance plans for a national sample of covered Americans aged 51 to 61. The simulations indicate that replacing DB plans with cash balance plans would redistribute pension wealth from those with long-term jobs to those with multiple short-term jobs and from those with substantial pension benefits to those with more limited benefits. Perhaps unexpectedly, women at midlife in 1992 with DB coverage would lose wealth in cash balance plans, but future cohorts of women are likely to fare better. [ABSTRACT FROM AUTHOR]

Converting your firm's traditional pension plan to a cash balance plan will reduce pension expense. It will also help you attract younger, more mobile employees, since the plan is portable. But you'll be penalizing older employees for their loyalty to the company. Instead of receiving their traditional pensions, they'll end up with smaller ones. Some may even sue the company. So should you convert? The authors discuss the complex issues involved, and provide a checklist to help you decide. [ABSTRACT FROM AUTHOR]

In the late 1970's Tammany Bank concentrated on consumer and commercial banking. As a sideline the bank provided custodian services for a limited number of mutual and pension funds. The bank's activities were typical for the industry, but Tammany had a strong reputation for its mainframe computer systems. Relying on these systems, Tammany made a strategic decision in the early 1980's to expand its custodian services. The timing was outstanding. Between 1980 and 1994 the number of mutual funds grew from about 550 to 5,400, and assets grew correspondingly. The result was a rapidly growing demand for custodian services. Demand was stimulated further by the passage of the Employee Retirement Income Security Act and its increased reporting requirements for pension funds. Each working day, a mutual fund's custodian updates the books and calculates two key statistics. By 10:30 p.m. the custodian's provides the fund's managers with the day's cash balance, the amount of money initially available for investing. By 5:40 p.m. the custodian must report the fund's net asset value, the value of a fund's share, which is published daily in newspaper stock tables across the country.

Presents information on a case study regarding the advantages of cash balance pension plan for AT&T. Terms of settlements under the plan at AT&T; Why cash balance plan is gaining favor throughout corporate America; Advantages of cash balance plan to the employee. INSET: Cash balance--An international perspective.