Are 401(k) Plans Replacing Other Employer-Provided Pensions? Evidence from Panel Data

Abstract

This paper examines whether sponsors of traditional defined benefit (DB) plans are replacing them with 401(k) or other defined contribution (DC) plans. I compare pension plan offerings by sponsors of a DB plan in 1985 with their offerings in 1992 using Form 5500 filings from those two years. I find that 401(k) and other DC plans are substituting for terminated DB plans and that offering a DC plan of any type increases the probability of a DB termination. Thus, it appears that, at the sponsor level, many of the new 401(k) plans may not be avenues for net saving but are replacements for the more traditional pension forms. Using several specifications, I estimate that a sponsor that starts with no 401(k) or other DC plan and adds a 401(k) is predicted to reduce the number of DB plans offered by at least 0.3. That is, the estimates imply that one sponsor terminates a DB plan for about every three sponsors that offer one new 401(k) plan. The addition of a non-401(k) DC plan is estimated to reduce DB plan offerings by at least 0.4. Plan-level point estimates indicate that if a 401(k) plan is added by a sponsor, the DB termination probability increases by about 18 percentage points to 35 percent. The addition of a non-401(k) DC plan similarly increases the probability that an accompanying DB plan will be terminated.