Working Paper: NBER ID: w3084
Authors: Rebecca A. Luzadis; Olivia S. Mitchell
Abstract: Some contend the US labor market will fail to adapt smoothly to an aging workforce, whereas others argue that employee pensions can and will play an important role in helping companies induce desired turnover patterns. This paper undertakes a longitudinal examination of pension retirement incentives in several dozen plans observed between about 1960 to 1980. The plans under study instituted many changes over this period, several of which enhanced the financial payoff to early retirement. These alterations included increases in benefit levels, reductions in early, normal and mandatory retirement ages, and cuts in the age at which pension present values peak (with retirement after that age penalized). We also find that simple indicators of pension plans' structural features (e.g. the plan's early retirement age) do not adequately summarize the complex financial incentives inherent in pensions, so that most of our attention is directed to analysis of financial benefit level measures. Three major explanations for observed pension outcomes are evaluated empirically. Of special policy interest is an evaluation of pension responses to changes in Social Security benefit rules. Additionally, key differences in behavior are discovered between single employer and multiemployer pension plans. We conclude that pension plan behavior is systematically related to both labor and product market characteristics, and is responsive to retirement income policy.
Keywords: Pension Plans; Retirement Behavior; Social Security
JEL Codes: J26; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| changes in pension structures (H55) | retirement decisions (J26) |
| increases in benefit levels (J32) | early retirement rates (J26) |
| reductions in retirement ages (J26) | early retirement rates (J26) |
| changes in social security benefit rules (H55) | pension dynamics (H55) |
| pension responses (H55) | employee turnover (J63) |
| pension plan behavior (H55) | labor market conditions (J29) |
| pension plan behavior (H55) | retirement income policies (J26) |