When Do State and Local Pension Plans Encourage Workers to Retire?

Brief

When Do State and Local Pension Plans Encourage Workers to Retire?

Abstract

Traditional defined benefit pension plans that cover nearly all state and local government employees generally penalize work at older ages. In more than three-fifths of state-administered plans, employees hired at age 25 will receive lower lifetime pension benefits if they continue working after age 57 because retirement-eligible workers cannot receive benefit checks while they remain on the job. This reduction in benefits can create strong retirement incentives, which are hard to justify as the population ages and health gains and declines in physical work enable more older people to work. Well-designed public pension reforms could eliminate these work disincentives.

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