An Inquiry into the Costs Imposed by Legislative Involvement in the Administration of Defined Benefit Pension Plans

Benjamin A. Tisdale

Department of Economics

Faculty Sponsor: Dr. Howard Baetjer

(2004)

In 1979, 83 percent of workers covered by retirement plans were covered by defined benefit plans. By 2001, below 40 percent were covered by defined benefit pension plans. A sizeable amount of this drop in participation is attributable to growth in alternate retirement schemes such as 401(k) plans. Another part of this decline is explained by the employment shift from unionized industrial sectors (e.g. the steel industry) to jobs in industries better suited by retirement schemes other than defined benefit plans. A significant percentage of this decline in participation, however, can also be attributed to government interference, and that portion of the decline can only be viewed as detrimental. The proposed presentation is an account of government involvement in defined benefit pension plans and an analysis of its negative economic effects, including explicit regulatory compliance costs and implicit costs of lost benefits (due to plan terminations) for both plan administrators (employers) and participants.

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Updated July 9, 2004