![]() Lower administrative expenses may also explain the popularity of DC plans. ![]() This suggests firms use DCs and 401(k)s to lower pension costs. By analyzing pension plan data from the IRS Form 5500 and finances of the plan's sponsoring employer from COMPUSTAT with a fixed-effects ordinary least squares model and a simultaneous model, we find that a 10% increase in the use of defined contribution plans (including 401(k) plans) reduces employer pension costs per worker by 1.7–3.5%. At the same time, the share of their pension contributions attributed to defined contribution plans was 23% in 1981 and increased to 68% in 1998. Their average pension contribution per employee dropped in real terms from $2,140 in 1981 to $1,404 in 1998. We investigate the pension choices made by over 700 firms between 19 when DC plans expanded and overtook DB plans.
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