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Cost Saving and the Freezing of Corporate Pension Plans

Joshua D. Rauh, Irina Stefanescu, Stephen P. Zeldes

NBER Working Paper No. 27251
Issued in May 2020
NBER Program(s):Economics of Aging, Corporate Finance, Labor Studies, Public Economics

Companies that freeze defined benefit pension plans save the equivalent of 13.5 percent of the long-horizon payroll of current employees. Furthermore, firms with higher prospective accruals are more likely to freeze their plans. Cost savings would not be possible in a benchmark model in which i) all workers receive compensation equal to their marginal product and ii) workers value equally all identical-cost forms of pension benefits. We find evidence consistent both with firms’ reneging on implicit contracts to provide workers with high pension accruals later in their careers and with shifts in employee valuation of different forms of retirement benefits.

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Document Object Identifier (DOI): 10.3386/w27251

Published: Joshua D. Rauh & Irina Stefanescu & Stephen P. Zeldes, 2020. "Cost saving and the freezing of corporate pension plans," Journal of Public Economics, vol 188.

 
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