Post-Retirement Increases in Pensions in the 1980s: Did Plan Finances Matter?

Steven Allen (), Robert L. Clark and Ann A. McDermed

No 4413, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Many firms give post-retirement increases in pension benefits to retirees even though the pension contract does not require such increases. A leading explanation of this behavior is that benefit increases are part of an implicit contract where retirees accept lower initial benefits in return for the option of receiving a share of the plan's financial returns above the risk-free rate. The paper reports mixed evidence on the linkage between the financial performance of pension plans and post-retirement increases. Between 1980 and 1985, benefit increases were larger in plans with high funding ratios and lofty rates of return. However, the practice of giving post-retirement increases became much less widespread in the 1980s, despite dramatically improved financial performances across all pension plans.

JEL-codes: E31 J14 (search for similar items in EconPapers)
Date: 1993-08
Note: AG LS
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