Do Deferred Retirement Benefits Retain Government Employees?

Abstract

AbstractThis study explores how deferred retirement benefits affect employee retention in the U.S. public sector. State government employees in Michigan transitioned from a defined‐benefit pension with 10‐year vesting to a defined‐contribution plan with immediate vesting and less generous retiree health insurance benefits. Participation in either plan depends on date of hire, permitting a regression discontinuity research design. The shift away from generous deferred benefits caused a 5 percentage point decrease in the probability of remaining in state employment for at least a decade. The probability of leaving with four to nine years of tenure increased commensurately. Older professional workers were quite responsive to the design of their retirement benefits, whereas younger workers did not adjust their labor supply.