Implicit Promises and the Timing of Defined-Benefit Pension Plan Freezes

Abstract

Firms time defined-benefit (DB) plan freezes after CEO turnovers to protect CEO retirement benefits from cost cuts affecting the wider workforce. We document a significant increase in voluntary CEO turnovers just before the freeze, without notable post-freeze changes. Our results suggest that firms prioritize retaining their CEOs and avoiding reputational costs over cost-cutting measures that could negatively impact their top talent. Overall, the study uncovers the timing of the freeze as a strategy that firms use to honor pension promises to their CEOs and informs the academic debate on the relation between DB plans and employee mobility.