Balance Plans Research Articles

Could Different Retirement Benefits Result in More Effective Teachers?

We evaluate the chance that changing retirement benefits will lead to greater teacher effectiveness. Changing from defined benefit pensions to defined contribution or cash balance plans would raise initial compensation and effectiveness, while it would increase turnover and thus lower effectiveness. We simulate the effects of higher initial compensation and greater turnover on teacher effectiveness from changing retirement plans and calculate the potential transition costs. There is a 60–70 percent chance that effectiveness would fall if retirement benefits are changed. Transition costs could amount to 0.8 percent of payroll in the third decade after changing retirement benefits.

Achieving accurate ligament balancing using robotic-assisted unicompartmental knee arthroplasty.

Unicompartmental knee arthroplasty (UKA) allows replacement of a single compartment in patients with limited disease. However, UKA is technically challenging and relies on accurate component positioning and restoration of natural knee kinematics. This study examined the accuracy of dynamic, real-time ligament balancing using a robotic-assisted UKA system. Surgical data obtained from the computer system were prospectively collected from 51 patients (52 knees) undergoing robotic-assisted medial UKA by a single surgeon. Dynamic ligament balancing of the knee was obtained under valgus stress prior to component implantation and then compared to final ligament balance with the components in place. Ligament balancing was accurate up to 0.53 mm compared to the preoperative plan, with 83% of cases within 1 mm at 0°, 30°, 60°, 90°, and 110° of flexion. Ligamentous laxity of 1.31 ± 0.13 mm at 30° of flexion was corrected successfully to 0.78 ± 0.17 mm (P < 0.05). Robotic-assisted UKA allows accurate and precise reproduction of a surgical balance plan using dynamic, real-time soft-tissue balancing to help restore natural knee kinematics, potentially improving implant survival and functional outcomes.

Changes in Firm Pension Policy: Trends Away from Traditional Defined Benefit Plans

In light of the recent concerns regarding the solvency of Social Security’s Old-Age, Survivors and Disability Insurance (OASDI), private pensions may play an increasingly important role in retirement welfare of US retirees. However, the private pension landscape has evolved in ways that may result in lower private pension wealth for retirees. One recent such phenomenon involves the conversion of traditional defined benefit pension plans to cash balance plans, which results in lower pension benefits for many workers. In this study, I investigated how characteristics of the firm’s workforce influenced whether the firm converted their traditional pension plan to a cash balance plan and how these characteristics related to the firm’s pension plan policy more generally. 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 found 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 found positive associations between firms with older and more female workforces and defined contribution plans during the same time.

Life After Defined Benefit Plans

Employers have moved from traditional pension plans to cash balance and other alternative defined benefit plans. However, it may be that the best approach lies beyond defined benefit plans completely. The Employee Retirement Income Security Act of 1974 (ERISA) was enacted to protect workers. Its focus was on the defined benefit plan, which at that time meant a traditional pension plan that provided lifetime income to retired workers. Over the years traditional pension plans have declined in number, often due to their increasing costs. Many of these plans have been replaced by the 401(k) plan, a profit-sharing plan partly or wholly funded by employee contributions. There has also been a rise in hybrid plans, plans that have features of both defined benefit and defined contribution plans. Recent developments highlight the weaknesses in traditional pension plans. Replacing a traditional pension plan with a cash balance plan, a hybrid plan that qualifies as a defined benefit plan, does not fully address all the problems. It may be that there is limited advantage to the continued emphasis on defined benefit plans. Instead, defined contribution plans that contain some features of defined benefit plans may better address the current retirement-plan issues.

Changes in Firm Pension Policy: Trends Away from Traditional Defined Benefit Plans

In light of the recent concerns regarding the solvency of Social Security’s Old-Age, Survivors, and Disability Insurance (OASDI), private pensions may play an increasingly important role in the retirement welfare of U.S. retirees. However, the private pension landscape is also evolving in ways that may result in lower private pension wealth for retirees. One recent such phenomenon involves the conversion of traditional defined benefit (DB) pension plans to cash balance plans, resulting in lower pension benefits for workers. In this study, I investigated how characteristics of the firm’s workforce influence whether the firm converted its traditional pension plan to a cash balance plan and how these characteristics related to the firm’s pension plan policy more generally. 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 found 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 found positive associations between firms with older and female workforces and having defined contribution plans during the same time.

The cash balance plan as a real option: Financial innovation and implicit contacts

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.

Changes in Firm Pension Policy: Trends Away from Traditional Defined Benefit Plans

In light of the recent concerns regarding the solvency of Social Security’s Old-Age, Survivors and Disability Insurance (OASDI), private pensions may play an increasingly important role in retirement welfare of US retirees. However, the private pension landscape has evolved in ways that may result in lower private pension wealth for retirees. One recent such phenomenon involves the conversion of traditional defined benefit pension plans to cash balance plans, which resulted in lower pension benefits for many workers. In this study, I investigate how characteristics of the firm’s workforce influenced whether the firm converted their traditional pension plan to a cash balance plan and how these characteristics related to the firm’s pension plan policy more generally. 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 found 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 more female workforces and defined contribution plans during the same time.

The effect of feeding ensiled alternative forages compared with ensiled ryegrass on excreta losses from growing lambs

An experiment investigated the effects of using ensiled alternative forages compared with ensiled ryegrass on lamb productivity, nutrient use efficiency and total excreta losses in a lamb finishing system. Lambs offered alternative forages had a higher liveweight gain and nitrogen use efficiency than lambs offered ryegrass silage (P &lt; 0.001) (Marley et al., 2007). However, balancing the input and output of nutrients within the farm system is critical to ensure both short-term productivity and long-term sustainability, as producers aim to establish whole-farm nutrient balance plans and reduce reliance on bought-in fertilisers. Here we present the findings of the effects of feeding ensiled red clover (Trifolium pratense), lucerne (Medicago sativa), pea (Pisum sativum), kale (Brassica oleracea) compared with ensiled hybrid ryegrass (Lolium hybridicum) on excreta losses from these growing lambs and, therefore, the potential impact of incorporating these forages on nutrient budgets within livestock systems.

On the Determinants of Defined Benefit Pension Plan Conversions

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.

Cash Balance Plans: Pushing Back Against the 401(k) in a Post—Pension Protection Act World

Keywords Pension Protection Act, SFAS No. 158, cash balance plan, 401(k), conversion, benefits, pension plans

On the Determinants of Defined Benefit Pension Plan Conversions

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.

Cash balance pension plans: A case of standard-setting inadequacy

Accounting for and ownership of U.S. private employee pensions has long been a controversial and politically contested terrain. The uniqueness in the U.S. of using employers as the principal provider of pensions makes the reporting of pensions more problematic since the corporate employers providing pensions are not strictly accountable to only the pensioners. Over the last quarter century there has been a marked swing in power toward management and away from employees making it possible for increasing numbers of U.S. companies to switch from conventional defined benefit plans to cash balance plans. This paper provides a “case” study of how accounting standard-setters framed the pension reporting problem vis-a-vis how they frame the “reporting problem” in general. Utilizing various sources of commentary about the phenomenon of cash-balance conversions, we triangulate on the pension problem to demonstrate how current FASB disclosure rules fail to satisfy the condition of neutrality and how those rules have facilitated the shifting of economic risk from shareholders to employees.

The State of Private Pensions: Current 5500 Data

Every year, pension plan sponsors are required to file a return with the U.S. Department of Labor. These returns, known as the Form 5500 series, contain detailed information about the plans' finances, participants, and administrators that allows government agencies to monitor compliance with the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. The comprehensive nature of the Form 5500 series makes them a primary source for examining the state of the private pension world: from participation rates to financial health to 401(k) investment in company stock to the size of employer contributions - it is all there. Unfortunately, these rich data are not available in a timely manner. The data from the Private Pension Plan Bulletins Abstract of Form 5500 Annual Reports - the official tabulations put out by the Department of Labor commonly used by practitioners and researchers - have a five-year lag. Sponsors have up to ten months to file the forms, and it can take up to two years to convert the raw forms, which generally are filed in paper, into a manageable and complete dataset. Then, these data must be cleaned, analyzed, and tabulated. The resulting lag meant that as of early 2006, official tabulations were available only up to 2000. This brief uses raw 5500 Form data from the Department of Labor to extend the tabulations to 2003 - the latest year in which the datasets are available. The estimations are done for the 1990-2003 period, and are presented as a data appendix to this brief. The 1990-2000 numbers match closely those from official reports; the 2001-2003 calculations bring the tabulations as up-to-date as currently possible. Using these recent data, this brief highlights trends that are impossible to observe in the current official releases: a notable increase in pension contributions for defined benefit plans; the decline and recovery of pension assets in the 2001-2003 period; the continued use of cash balance plans; and the sustained move in coverage towards defined contribution plans.

Promoting work at older ages: the role of hybrid pension plans in an aging population

Employers are beginning to search for ways to elicit more labor supply from older adults as the population ages, the ability to work in later life increases, and younger workers become relatively scarce. Many employers are turning to hybrid pension plans, such as cash balance plans and pension equity plans. Whereas traditional defined benefit plans often subsidize workers who retire early and penalize those who remain at work beyond the plan's retirement age, most hybrid plans reward work at older ages. This paper documents the impact of population aging on the labor market and changes over time in work capacity at older ages. It then shows how movement toward hybrid pension plans, among other types of private and public retirement plan reforms and redesigns, can be used to increase work incentives for older adults.

Cash balance pension plan conversions and the new economy

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.

Adopting cash balance pension plans: implications and issues

Over the past 15 to 20 years, many companies have converted their traditional defined benefit plans to cash balance or pension equity plans. In a cash balance plan, the worker's ‘account’ is based on an annual contribution rate for each year of employment, plus accumulating interest on annual contributions. A pension equity plan defines the benefit as a percentage of final average earnings for each year of service under the plan. Both types of plans specify the benefit as a lump sum payable at termination. In contrast, traditional defined benefit plans specify benefits in terms of an annuity payable at retirement. From the employees' perspective, cash balance and pension equity plans look somewhat like defined contribution plans. However, they are funded, administered, and regulated as defined benefit plans.

Cash Balance Plans: What Do They Mean for Retirement Security?

The conversion of traditional defined benefit plans to cash balance plans is among the most controversial aspects of pension policy today. Because the controversy has focused on the treatment of older workers, however, the debate has generally ignored the long-term implications for retirement security. This article examines the potential impact of cash balance plans on workers who spend their entire careers in these plans, and focuses on the implications for mobile workers and for labor supply at older ages. The evidence suggests that cash balance plans can often provide more retirement security than traditional defined benefit plans or defined contribution plans.

How do Cash Balance Plans Affect the Pension Landscape?

The dominant story in the pension world for much of the past decade has been the shift in coverage from defined benefit plans to 401(k)s and other defined contribution plans. The percentage of households covered solely by a defined benefit plan dropped by nearly half between 1992 and 2001, while those covered solely by a defined contribution plan increased nearly 50 percent. Still, 40 percent of households covered by a pension have some form of defined benefit plan. At the same time, a notable shift has also occurred within defined benefit pensions - away from traditional plans and towards hybrid plans, such as cash balance plans. The changing face of defined benefit plans is the focus of this issue in brief. This brief explains how cash balance pension plans work, why firms have adopted them, and what their impact will be on employees and employers.

Cash Balance Pension Plan Conversions and the New Economy

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. The results also shed light on the possible determinants of the broader shift from DB to DC pension coverage.

Cash Balance Plans and the Distribution of Pension Wealth

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.