Bethlehem

Bethlehem case study

1. Many U.S. corporations have offered defined - benefit (DB) pension plans. Who are all the stakeholders in this U.S. corporate defined - benefit system?

Broadly speaking, the stakeholders in the U.S. corporate defined - benefit system are creditors, directors, employees, government (and its agencies), owners (shareholders), suppliers, unions, and the community from which the business draws its resources.

2. For what type of firms and institutions does offering a DB pension plan still make sense today? Why?

DB pension programs still make sense for some large corporations and especially for state and local governments. A defined benefit plan is an employer-sponsored plan in which a retired individuals are scheduled to receive a certain amount (usually based on salary and years of service) in his/her retirement years. Usually an employee may not direct where the money is invested and must be with the company for a period of time before the rights to the account are yours. Defined benefit plans put a constraint on a business and are often more complex and, thus, more costly to establish and maintain than other types of plans. However, there are also some advantages of DB plans.

* DB plans enhance the ability of firms and governments to attract and retain qualified employees.

* DB plans help manage their workforce by providing flexible incentives that encourage employees to work longer or retire earlier, depending on the circumstances.

* DB plans earn higher investment returns and pay lower investment management fees, on average, than DC plans.

To sum up, one of the problems of DB plans is its riskiness and related volatility of a firm that offers DB plan. However, as General Motors Pension Risk transfer shows, it is always possible to successfully de-risk DB pension plans. Taking into account that fact and aforementioned advantages of DB plans, we might assume that DB plans still make sense for some institutions.

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