In recent years, many companies have converted their defined benefit pension plans into so-called "cash balance" plans. A recent analysis performed by Julie D'Souza of Cornell University, John Jacob of the University of Colorado, and Barbara Lougee of Morgan Stanley analyzes the reasons behind this phenomenon.
Among other things, the authors conclude that while corporate defenders have argued that the end of the defined benefit plan is a good thing for workers -- because cash balance plans are more portable than defined benefit plans -- this advantage does not adequately explain why corporations abandon their defined benefit plans. Instead, and not surprisingly, the authors believe that corporations convert to cash balance plans in order to save costs, and that they often do so as their workforce gets older.
Click here for a link to the study.
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