TOWARD EXPLAINING THE GROWTH OF DEFINED CONTRIBUTION PLANS

Since 1980, defined benefit plans have steadily lost market share to defined contribution plans. In 1979, defined contribution plans had 17 percent of the primary pension market. By 1988, it was 34 percent. About half of the shift is attributable to a loss of employment in large unionized firms where defined benefit plans are used intensively. But evidence of large changes in preferences is also found in the data. One likely explanation is the introduction of a new variety of defined contribution plans, socalled 401(k)s. These pension plans have productivity traits that make them more effective competition for defined benefit plans.