Working Paper: NBER ID: w16728
Authors: John Beshears; James J. Choi; David Laibson; Brigitte C. Madrian
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.
Keywords: Public Sector; Pension Plans; Behavioral Economics
JEL Codes: G23; G28; H76
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| DB plans (Y10) | higher retirement income replacement rates (J26) |
| jurisdiction type (K29) | retirement savings outcomes (D14) |
| DB plans (Y10) | higher replacement rates compared to DC plans (H55) |
| mandatory contributions in DC plans (J32) | savings generated (E21) |
| public sector DC plans (J45) | adequate retirement savings (D14) |
| tenure (M51) | adequacy of retirement income (J26) |
| plan design (C90) | employee savings behavior (D14) |