The Impact of Salary Growth, Inflation, Employee Age, and Career Length on the Relative Desirability of Pension Fund Type

Written By: Walt Woerheide

The purpose of this paper is to examine how the variables of salary growth rate, inflation, employee age, and career length affect the relative desirability of defined contribution (DC) plans compared to defined benefit (DB) plans. High salary growth rate and employee age favor DB pensions. A longer career favors DC pensions. The impact of inflation is theoretically ambiguous although an example indicates that high rates of inflation favor DC plans. This study is of interest to people with multiple job offers that include both DC and DB pensions. KEY WORDS: pensions, personal finance, retirement planning

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