Keywords

public pensions, defined benefit plans, retirement savings

Abstract

We describe the pension plan features of the states and the largest cities and counties in the U.S. Unlike in the private sector, defined benefit (DB) pensions are still the norm in the public sector. However, a few jurisdictions have shifted towards defined contribution (DC) plans as their primary savings plan, and fiscal pressures are likely to generate more movement in this direction. Holding fixed a public employee‘s work and salary history, we show that DB retirement income replacement ratios vary greatly across jurisdictions. This creates large variation in workers‘ need to save for retirement in other accounts. There is also substantial heterogeneity across jurisdictions in the savings generated in primary DC plans because of differences in the level of mandatory employer and employee contributions. One notable difference between public and private sector DC plans is that public sector primary DC plans are characterized by required employee or employer contributions (or both), whereas private sector plans largely feature voluntary employee contributions that are supplemented by an employer match. We conclude by applying lessons from savings behavior in private sector savings plans to the design of public sector plans.

Original Publication Citation

“Behavioral Economics Perspective on Public Sector Pension Plans.” 2011. Journal of Pension Economics and Finance 10(2): 315-336 (with John Beshears, James J. Choi and David Laibson). http://doi:10.1017/S1474747211000114

Document Type

Peer-Reviewed Article

Publication Date

2011

Publisher

Journal of Pension Economics and Finance

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Full Professor

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