Public Plans and Short-Term Employees

64 Pages Posted: 13 Oct 2012

See all articles by Alicia H. Munnell

Alicia H. Munnell

Boston College - Center for Retirement Research

Jean-Pierre Aubry

Boston College - Center for Retirement Research

Joshua Hurwitz

Boston College - Center for Retirement Research

Laura Quinby

Boston College - Center for Retirement Research

Date Written: October 2012

Abstract

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.

Suggested Citation

Munnell, Alicia and Aubry, Jean-Pierre and Hurwitz, Joshua and Quinby, Laura, Public Plans and Short-Term Employees (October 2012). NBER Working Paper No. w18448. Available at SSRN: https://ssrn.com/abstract=2161195

Alicia Munnell (Contact Author)

Boston College - Center for Retirement Research ( email )

Fulton Hall 550
Chestnut Hill, MA 02467
United States
617-552-1762 (Phone)

Jean-Pierre Aubry

Boston College - Center for Retirement Research ( email )

Fulton Hall 550
Chestnut Hill, MA 02467
United States

Joshua Hurwitz

Boston College - Center for Retirement Research ( email )

Boston, MA
United States

Laura Quinby

Boston College - Center for Retirement Research ( email )

140 Commonwealth Avenue
Boston, MA 02467
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
9
Abstract Views
246
PlumX Metrics