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The Origins of the Ownership SocietyHow the Defined Contribution Paradigm Changed America$
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Edward A. Zelinsky

Print publication date: 2008

Print ISBN-13: 9780195339352

Published to Oxford Scholarship Online: January 2009

DOI: 10.1093/acprof:oso/9780195339352.001.0001

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Why Did It Happen? And Why Social Security Accounts Didn't

Why Did It Happen? And Why Social Security Accounts Didn't

Chapter:
(p.93) CHAPTER FOUR Why Did It Happen? And Why Social Security Accounts Didn't
Source:
The Origins of the Ownership Society
Author(s):

Edward A. Zelinsky

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780195339352.003.0004

The causes of the defined contribution paradigm are varied: demographic, statutory, political, economic, cultural. Exploring those causes suggests that the defined contribution paradigm, though not originally inevitable, is now deeply-rooted. Consequently, the limits and the opportunities of the individual account paradigm will frame tax and social policy choices for years to come. Prior to the enactment of ERISA and Code Section 401(k), economic and demographic factors were depressing the traditional defined benefit system. These factors—falling union membership; the stagnation and demise of traditional manufacturing and extractive industries; an aging population; the changing, less physically taxing nature of work; the acceptance of increased employee mobility; and the desire of employers to shift to their employees the risks associated with providing retirement income—weakened the conventional defined benefit pension and thereby set the stage for the defined contribution paradigm. It took Congress's adoption of ERISA and Section 401(k) to inaugurate the defined contribution paradigm as it exists today.

Keywords:   defined contribution, ERISA, 401(k), unions, unintended consequences, path dependency, financial services industry, private ownership, employee mobility, defined benefit

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