DEFINED CONTRIBUTION PLANS, DEFINED BENEFIT PLANS, AND THE ACCUMULATION OF RETIREMENT WEALTH.

TitleDEFINED CONTRIBUTION PLANS, DEFINED BENEFIT PLANS, AND THE ACCUMULATION OF RETIREMENT WEALTH.
Publication TypeJournal Article
Year of Publication2007
AuthorsPoterba, JM, Rauh, J, Venti, SF, Wise, DA
JournalJ Public Econ
Volume91
Issue10
Pagination2062-2086
Date Published2007 Nov 01
ISSN Number0047-2727
Call Numbernewpubs20080229_Poterba_etal.pdf
Abstract

The private pension structure in the United States, once dominated by defined benefit (DB) plans, is currently divided between defined contribution (DC) and DB plans. Wealth accumulation in DC plans depends on the participant's contribution behavior and on financial market returns, while accumulation in DB plans is sensitive to a participant's labor market experience and to plan parameters. This paper simulates the distribution of retirement wealth under representative DB and DC plans. It uses data from the Health and Retirement Study (HRS) to explore how asset returns, earnings histories, and retirement plan characteristics contribute to the variation in retirement wealth outcomes. We simulate DC plan accumulation by randomly assigning individuals a share of wages that they and their employer contribute to the plan. We consider several possible asset allocation strategies, with asset returns drawn from the historical return distribution. Our DB plan simulations draw earnings histories from the HRS, and randomly assign each individual a pension plan drawn from a sample of large private and public defined benefit plans. The simulations yield distributions of both DC and DB wealth at retirement. Average retirement wealth accruals under current DC plans exceed average accruals under private sector DB plans, although DC plans are also more likely to generate very low retirement wealth outcomes. The comparison of current DC plans with more generous public sector DB plans is less definitive, because public sector DB plans are more generous on average than their private sector counterparts.

DOI10.1016/j.jpubeco.2007.08.004
User Guide Notes

http://www.ncbi.nlm.nih.gov/pubmed/21057597?dopt=Abstract

Endnote Keywords

Pensions/Retirement Wealth/defined benefits/defined contribution pension plans

Endnote ID

18440

Alternate JournalJ Public Econ
Citation Key7172
PubMed ID21057597
PubMed Central IDPMC2972552
Grant ListP01 AG005842 / AG / NIA NIH HHS / United States
P01 AG005842-120002 / AG / NIA NIH HHS / United States
P01 AG005842-160011 / AG / NIA NIH HHS / United States