The conversion of traditional defined benefit plans to cash balance plans is among the most controversial aspects of pension policy today. Because the controversy has focused on the treatment of older workers, however, the debate has generally ignored the long-term implications for retirement...

This article develops a model, with deferred compensation and severance pay, that predicts that workers bear all the costs and receive all the returns of human capital investments and that specific investments yield higher returns than general investments. This model also predicts that pensions,...