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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
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© 2003 Juilia Lynn Coronado and Phillip C. Copeland. All Rights Reserved.
We thank Karen Dynan, Andreas Lehnert, Peter Orszag, and Karen Pence for helpful comments. The views expressed in this paper are those of the authors and do not necessarily reflect the views of the Federal Reserve Board or its staff. Opinions and errors are solely those of the authors and not of the institutions with whom the authors are affiliated.
Date Posted: 04 September 2019