IB#14  

Introduction

The dominant story in the pension world for much of the past decade has been the shift in coverage from defined benefit plans to 401(k)s and other defined contribution plans. The percentage of households covered solely by a defined benefit plan dropped by nearly half between 1992 and 2001, while those covered solely by a defined contribution plan increased nearly 50 percent. Still, 40 percent of households covered by a pension have some form of defined benefit plan. At the same time, a notable shift has also occurred within defined benefit pensions — away from traditional plans and towards hybrid plans, such as cash balance plans. The changing face of defined benefit plans is the focus of this Issue in Brief. This brief explains how cash balance pension plans work, why firms have adopted them, and what their impact will be on employees and employers...

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