Faculty Choice of a Pension Plan: Defined Benefit versus Defined Contribution

Clark, Robert L.; Pitts, M. Melinda

doi:10.1111/0019-8676.00108

Cited by 56 publications

(66 citation statements)

References 5 publications

(4 reference statements)

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“…Further research is needed in this area to understand the impact of phased retirement programs in other sectors of the labor market. 4 Clark and Pitts (1999) examine the choice of a pension plan for newly hired faculty at NC State University. They report a significant increase over time in the proportion of new faculty selecting one of the optional retirement programs.…”

Section: Discussionmentioning

confidence: 99%

The Impact of a New Phased Retirement Option on Faculty Retirement Decisions

2001

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Life-cycle theory suggests that workers would prefer to gradually enter retirement from their career jobs. Using data from 15 campuses of the University of North Carolina system, this study provides a first look at the effects of the introduction of a phased retirement program on faculty retirement decisions. Our analysis indicates that most of the faculty members choosing phased retirement would have likely remained full-time at their universities had the phased retirement option not been available.

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Section: Discussionmentioning

confidence: 99%

The Impact of a New Phased Retirement Option on Faculty Retirement Decisions

2001

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“…Those higher-income, better-educated plan enrollees will prefer the DC option, whereas the lower-income participants with shorter life expectancies will stick to the safer DB model (Bodie, Marcus, & Merton, 1988;Clark & Pitts, 1999). The midcareer employees will suffer most from the pension paradigm shift, while younger and mobile workers may favor the conversion and those near-retiring are unaffected by the change (Munnnell, Golub-Sass et al, 2006).…”

Section: Adequacy For Recruitment and Retentionmentioning

confidence: 99%

Sustainable Public Pension System for Florida Local Governments: Financial Solvency, Paradigm Switch, and Interperiod Equity

Cong¹

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Incremental changes to amend the existing defined benefit plans (DB plans), and the pension model switch from the DB model to defined contribution plans (DC plans).This study aims to uncover reform strategies to cope for public pension systems. The results suggest that incremental reform strategies that reduce benefits and increase contributions are not effective in improving the financial solvency of public DB plans. The alternative reform approach-the DB-to-DC transition-is attractive to local governments because it will relieve the employer of the pension cost burden and transfer the investment risk to employees themselves. The transition is also politically palatable because the taxpayer sentiment is not supportive of what are perceived to be generous retirement benefit of public employees. Meanwhile, local governments are hesitant to implement the paradigm switch due to prohibitive transition costs, political pressure, and perhaps more importantly, the potential negative impacts to public recruitment and retention. Local officials do not perceive a reduction of morale with the two-tier benefit structure at the present time; they believe this issue will solve itself along the retirement of senior employees.

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“…Both worker characteristics and types of risks borne by employees are contributory factors to differences in the expected value of benefits derived from defined benefit and accumulation plans (Clark & Pitts 1999). Worker characteristics include age at initial employment, years of service, salary levels during employment and at retirement, and longevity post-retirement.…”

Section: Risks Associated With Superannuation Choicementioning

confidence: 99%

“…Clark and Pitts (1999) suggest that workers in defined benefit plans bear the risk of labour market mobility because total working life benefits are reduced due to the use of final earnings benefit formulas. They argue that in the context of their study of U.S. academics' choices between defined benefit and accumulation plans, frequent job changes will lead to multiple defined benefit plans and erosion of the overall benefits.…”

Section: Risks Associated With Superannuation Choicementioning

confidence: 99%

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Employees’ Choice of Superannuation Plan: Effects of Risk Transfer Costs

Brown

Gallery

et al. 2004

Journal of Industrial Relations

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Consistent with a worldwide trend away from defined benefits towards accumulation benefits, many Australian employers who traditionally offered their workers defined superannuation benefits are closing their defined benefit plans to new members and/or offering existing members the option of transferring to an accumulation plan. There has also been a push to allow members greater choice in terms of both funds and investments. Against this background, the Superannuation Scheme for Australian Universities (SSAU) made an offer to its members in 1998 to transfer from the defined benefit section to an accumulationstyle plan. Their position was that the choice of fund for employees should be a matter for the employer and the employees at the workplace or their respective representative organizations.At the conclusion of the offer period only one-third of SSAU members had elected to transfer to the Investment Choice Plan (ICP). This study seeks to explain why the majority of SSAU members chose to remain in the defined benefit plan when offered the option of transferring to the accumulation-style ICP. We propose that 'risk transfer costs' explain the low ICP acceptance rate. Research findings show that both those who chose to stay in the DBP and those who elected to transfer to the ICP were prepared to accept tradeoffs in their choice. DBP members were prepared to forego a higher quantum of expected benefits for greater security of benefits expected in the DBP, whereas the ICP members were prepared to forego such security and accepted higher investment risk in return for a higher expected quantum and greater control over their benefits. Differences in financial proficiency and differences 2 across academic disciplines confirm that risk transfer costs were a key reason for the majority of SSAU members rejecting the ICP choice. Important implications arising from this study include the need for greater transparency of the risk transfer costs involved in offers of benefit structure change, such as that offered by the SSAU, and the need to incorporate compensation for such costs into the offer. Cognizance also needs to be taken of the major risk transfer cost of becoming informed about superannuation and the consequences of such costs for the Government's intentions to mandate superannuation fund choice for all Australian workers.

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Faculty Choice of a Pension Plan: Defined Benefit versus Defined Contribution

Cited by 56 publications

References 5 publications

The Impact of a New Phased Retirement Option on Faculty Retirement Decisions

The Impact of a New Phased Retirement Option on Faculty Retirement Decisions

Sustainable Public Pension System for Florida Local Governments: Financial Solvency, Paradigm Switch, and Interperiod Equity

Employees’ Choice of Superannuation Plan: Effects of Risk Transfer Costs

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