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The Impact of a DROP Program on the Age of Retirement and Employer Pension Costs


  • Samson Alva
  • Norma B. Coe
  • Anthony Webb


This paper investigates the impact of a Deferred Retirement Option Plan (DROP) on the age of retirement of employees covered by defined benefit pension plans provided by the City of Philadelphia. We show that the program results in significant and substantial increases in the age of retirement: 1.25 years on average for municipal employees. Employees make use of the program in ways that maximize the expected present value of their pension benefits, with municipal employees entering the program an average 2.1 years before the age at which they would otherwise have retired. Consequently, the program results in a substantial increase in pension cost. We estimate that the program has cost the city around $258 million over the period to 31 December 2009. We construct an indicator of employee quality and find that some classes of high-quality employees are disproportionately likely to delay retirement as a result of the program.

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  • Samson Alva & Norma B. Coe & Anthony Webb, 2010. "The Impact of a DROP Program on the Age of Retirement and Employer Pension Costs," Working Papers, Center for Retirement Research at Boston College wp2010-10, Center for Retirement Research, revised Sep 2010.
  • Handle: RePEc:crr:crrwps:wp2010-10

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    1. Bosworth, Barry & Burtless, Gary, 2004. "Pension Reform and Saving," National Tax Journal, National Tax Association, vol. 57(3), pages 703-727, September.
    2. Milton H. Marquis, 2002. "What's behind the low U.S. personal saving rate?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar29.
    3. Heinz Stapf-Finé & Martin Rein, 2001. "Income Packaging and Economic Well-Being at the Income Last Stage of the Working Career," LIS Working papers 270, LIS Cross-National Data Center in Luxembourg.
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