Do State and Local Pensions Lock In Mid-Career Employees?

Brief

Do State and Local Pensions Lock In Mid-Career Employees?

Abstract

State and local pension plans often allow employees who have completed 25 or 30 years of service to collect benefits regardless of their age, instead of waiting until they reach their plans normal retirement age. The lifetime value of their pension surges when they qualify for early benefits. Our analysis shows that on average, half the benefits employees have accumulated by their early 50s or late 40s are earned from a single year of work. These patterns create strong incentives for mid-career workers to remain on the payroll until they realize these windfalls, including those ill-suited for their jobs.

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