Measuring Defined Benefit Plan Replacement Rates Using PenSync

This paper creates a synthetic pension data set through the use of regression and statistical matching procedures, and as a by-product, updates income replacement rates from defined benefit plans. This new data set contains detailed socioeconomic variables along with in-depth, employer-provided pension data. Through the use of data from the Internal Revenue Service (IRS) Form W-2, two earnings-based measures of replacement rates are calculated to evaluate the effectiveness of a defined benefit pension plan in meeting the income needs of retirees. The findings suggest that variation in pension replacement rates stem from differences in the types of benefit formulas, individual earnings, years of participation in the pension plan, and employment characteristics.