©1995, Association for Financial Counseling and Planning Education 53 The Impact of Salary Growth, Inflation, Employee Age, and Career Length on the

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 Pension plans typically come in two distinct forms: defined benefit (DB) and defined contribution (DC). If a person is considering a job offer from a firm, the terms of the pension plan as well as the salary and all other benefits and perquisites should be a critical part of the decision of whether on not to accept the job offer. If a person is considering more than one job offer, some offers may include DC pensions and others ma