WHY ARE FINANCIALLY HEALTHY EMPLOYERS FREEZING THEIR DEFINED BENEFIT PENSION PLANS?
Open Access
- Author:
- Shultz, Allison L.
- Area of Honors:
- Actuarial Science
- Degree:
- Bachelor of Science
- Document Type:
- Thesis
- Thesis Supervisors:
- David Arthur Cather, Thesis Supervisor
David Arthur Cather, Thesis Supervisor
Ron Gebhardtsbauer, Faculty Reader
David Arthur Cather, Thesis Honors Advisor - Keywords:
- pension
defined benefit
defined contribution - Abstract:
- Employer-sponsored pension plans are one of the most important ways that Americans save for retirement. Over the past 30 years, the landscape of employer-sponsored pension plans has drastically changed. Prior to 1980, most workers were covered by defined benefit plans that guarantee participants a certain benefit for the life of the employee. In the mid-1980’s however defined contribution plans became more prevalent. In a defined contribution plan, contributions are made to individual funds for participants; the assets in the fund are invested and the total amount in the fund upon retirement is the employee’s retirement benefit. One of the most influential factors driving this change is the trend for plan sponsors to freeze defined benefit plans. While cost is the most common factor stated for such a change, recently financially healthy employers - those who can afford to continue offering defined benefit plans - have also frozen these plans. During the past decade, two weak economies resulting in poor investment returns has fueled the debate over the validity and benefits of freezing defined benefit plans in favor of defined contribution plans. This paper examines economic and industry factors that have influenced this trend and the impact such a decision has on plan sponsors and individuals. The issue is examined from the perspective of each party in order to fully examine the benefits and weaknesses of each retirement plan structure.