Volume 21, Number 1 (Winter) 1986
Allen, Steven G., Robert L. Clark, and Daniel A. Sumner. 1986. "Postretirement Adjustments of Pension Benefits." Journal of Human Resources 21(1):118-127.
During the 1970s, defined benefit pension plans increased their liabilities by giving benefit increases to persons no longer working even though almost none of the plans were required to do so by any legally enforceable contract. Our model of these adjustments has workers and firms agreeing to implicit contracts under which postretirement increases in benefits are purchased by workers through lower wages or initial benefits. The major empirical findings are that compensating differentials I exist in final salary and initial pension benefits, that large pension plans and collectively bargained plans provide larger post-retirement benefit increases, and that benefit increases are larger in percentage terms for those who have been retired the longest and for those with the most years of service.
The authors are associate professor, professor, and associate professor of economics and business, North Carolina State University. This project was partially funded under contract J-9-P-l-OO74 from Pension and Welfare Benefit Programs, U.S. Department of Labor. Opinions stated in this document do not necessarily represent the official position or policy of the Department of Labor. Cynthia Bantilan. Ellen Berry, and Jim Comer provided excellent computing assistance. Larry Summers, Chuck Knoeber, Malcolm Morrison, Richard Ippolito, Anna Rappaport, Olivia Mitchell, Francis King, Tom Kniesner, Jim Hess and the participants of the NCSU Labor Workshop provided helpful comments. The research reported here is part of the NBER's research program in Labor Studies and project in Pensions. Any opinions expressed are those of the authors and not those of the National Bureau of Economic Research.
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