UM20-05: Underfunded Public Sector Pension Plans, Social Security Participation, and the Retirement Decisions of Public Employees



Abstract: This research compares the retirement choices and economic well-being of public sector employees who are covered by Social Security to those who are uncovered. I use a data set of public employees from 12 waves of the HRS that includes detailed pension wealth, personal early and normal retirement eligibility ages, detailed occupation information, and state of residence. I match these respondents to the funding status of their pension plan and to measures of state revenue capacity to estimate how personal characteristics, pension plan features, and pension plan financial risk affect their choice of retirement age, possible unretirement, and Social Security claiming. Over the period 2009 to 2012, 44 states introduced changes in state pension plans for general employees and teachers to address long-term underfunding—some states more than once. There is limited research to inform us on the relative importance of plan parameters and plan financial risk on the retirement choices and economic well-being of public sector workers—many of whom are not participating in Social Security. This work addresses this shortfall by analyzing how the structure and financial health of these plans affect participant choice of retirement age from the public sector job, subsequent work in the private sector and, if eligible, age of Social Security claiming.

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