The Economic Functions of Private Pensions: An Empirical Analysis

Abstract

This paper presents an empirical analysis of the economic functions of defined benefit (DB) pensions. Firms providing pensions choose between DB and defined contribution formats. The latter is essentially a tax-preferred savings account; the former may fill other roles. Determinants of firms' choice of plan are estimated using plan sponsors' reports to the Internal Revenue Service. Firms that are larger, are unionized, employ mainly one sex, invest in specific training, and pay lower wages are more likely to provide DB coverage. These results suggest that the economic role of pensions is broader than mere provision of tax-preferred savings accounts.

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