The voices of Urban Institute's researchers and staff
January 28, 2015

Build your own pension plan : An interactive tool for public pension policy

January 28, 2015

Over the past half decade, many states and municipalities have been tinkering with the retirement benefits they offer government employees. These changes consist primarily of raising mandatory employee contributions to the retirement plan and trimming cost-of-living adjustments for retirees.

It’s clear that these reforms have successfully cut costs—their primary goal—but how have they affected future retirement security for public-sector workers and the distribution of benefits across the workforce? Have these reforms made it more difficult for young employees who change jobs fequently to accumulate retirement benefits? Do they reward work at older ages? Are there better ways to reform state and local pension plans? 

Our new interactive public pension tool has the answers. It allows you to design your own pension plan and see how employees would fare.


You choose the plan benefit rules and make some underlying assumptions about how the economy will perform. The tool then tells you how many retirement benefits plan members will receive at age 75 and over their lifetime, how their retirement incomes will compare with their pre-retirement earnings, and how much these benefits will cost employers. Fiddle with the benefit rules to find the combinations that give the best outcomes.

As an example, let’s examine the result of increasing the normal retirement age (NRA) on the benefits provided in a Final Average Salary plan. Specifically, we will examine  the present value of pension wealth of workers, excluding their own contributions (net wealth). Examining the plot below, which assumes the default NRA of 62, we see that net wealth peaks at age 62 for a worker starting at age 25, and then begins to decrease.

The decrease comes from the fact that continuing to work after the normal retirement age means fewer years of benefits before death. If we use the control to increase the NRA to 65, we see that the peak has shifted to the right, as an employee’s benefits continue to increase after age 62.

In developing this tool, I wanted those interested in public pension policy to be able to directly connect changes in plan components (such as the salary multiplier in Final Average Salary type plans) or economic assumptions (like real wage growth) to workers’ benefits.

Other than plots of worker benefit outcomes, the model provides information about the expected per-capita cost to employers, as well as grades using Urban’s SLEPP Report Card criteria. All outcomes immediately respond to changes in plan settings and economic assumptions, allowing for fast comparisons of alternate plans.

Finally, users can share specific plans that they have designed by clicking on “share” and using the resulting link. This allows for potential collaboration around plan design, and provides clear, consistent illustration of outcomes.

For developers/policy wonks interested in extending the model or running simulations locally through NodeJS,  the source code is available on GitHub.

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