Scale Economies in Private Multi-Employer Pension Systems

Abstract

This paper examines the efficiency of pension plan operations in the private sector, focusing on the relationship between plan size and administrative expenses of pension fund management. The authors estimate cost equations for multi-employer, defined benefit plans with funds held totally by a trust, using data from a stratified sample of plan reports for 1975 filed with the U.S. Department of Labor. Equations are estimated for individual industries and for the private sector as a whole. In all cases economies of scale in plan administration are evident, suggesting that policymakers should investigate measures to encourage plan consolidation in the private sector and perhaps in the public sector as well.

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