Measuring defined benefit plan replacement rates with PenSync

A synthetic pension data set created with regression and statistical matching procedures utilizes IRS data to evaluate the effectiveness of a defined benefit pension plan in meeting the income needs of retirees; the findings suggest that variations in replacement rates stem from differences in benefit formulas, earnings, years in the plan, and employment characteristics. In an effort to better understand retirement income security, the Social Security Administration (SSA) developed a microsimulation model, called Modeling Income in the Near Term (MINT), to project the retirement income of persons born between 1926 and 1965. There are 3 main sources of retirement income: Social Security, employer pension benefits (from both defined benefit and defined contribution pension plans), and personal savings. This article focuses on the method for projecting income from defined benefit pension plans.