Public Plans and Short-Term Employees
Public sector defined benefit pension plans are based on final earnings. As such, these plans are back-loaded; those with long careers receive substantial benefits and those who leave early receive little. The analysis consists of three parts. The first section discusses the design of state and local defined benefit plans, documents the extent to which traditional public sector final earnings plans are back-loaded, and explores the extent to which the incentives may reflect the preferences of employers. The second section shows how participation in final earnings plans affects the lifetime resources of state and local workers of various tenures compared to private sector workers. The third section presents plan-level data on the flows of participants out of the plan by age and tenure and explores the extent to which plan design - specifically, vesting periods, mandatory participation in a defined contribution plan, and Social Security coverage - affects the probability of vesting and the probability of remaining to the earliest full retirement age once vested. The findings suggest that complete reliance on delayed vesting and final earnings plans results in minimal benefits for most short-service public employees. Hence, the recent trend towards hybrid arrangements is a positive development not only for risk sharing between taxpayers and participants but also for a more equitable distribution of benefits between short-term and career employees.
|Date of creation:||Oct 2012|
|Date of revision:|
|Publication status:||published as Public Plans and Short-Term Employees , Alicia H. Munnell, Jean-Pierre Aubry, Joshua Hurwitz, Laura Quinby. in Retirement Benefits for State and Local Employees: Designing Pension Plans for the Twenty-First Century , Clark, Rauh, and Duggan. 2014|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gustman, Alan L. & Steinmeier, Thomas L. & Tabatabai, Nahid, 2010. "Pensions in the Health and Retirement Study," Economics Books, Harvard University Press, number 9780674048669.
- Courtney Coile & Jonathan Gruber, 2000.
"Social Security Incentives for Retirement,"
NBER Working Papers
7651, National Bureau of Economic Research, Inc.
- Robert M. Costrell & Michael Podgursky, 2009. "Peaks, Cliffs, and Valleys: The Peculiar Incentives in Teacher Retirement Systems and Their Consequences for School Staffing," Education Finance and Policy, MIT Press, vol. 4(2), pages 175-211, April.
- Leora Friedberg & Anthony Webb, 2003.
"Retirement and the Evolution of Pension Structure,"
NBER Working Papers
9999, National Bureau of Economic Research, Inc.
- Courtney Monk & Alicia H. Munnell, 2009. "The Implications of Declining Retiree Health Insurance," Working Papers, Center for Retirement Research at Boston College wp2009-15, Center for Retirement Research, revised Aug 2009.
- Norma B. Coe & Anthony Webb, 2009. "Actual and Anticipated Inheritance Receipts," Working Papers, Center for Retirement Research at Boston College wp2009-32, Center for Retirement Research, revised Dec 2009.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:18448. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.