Two concerns Americans have about retirement savings are whether their savings will result in retirement income that will last throughout retirement and whether they will have the ability to move their savings with them if they change jobs. A new report from the National Institute on Retirement Security (NIRS) contends that public pension plans address both these concerns.
Looking at 89 public employee retirement systems, the research found almost all public retirement systems offer defined benefit (DB) pensions that provide a modest, but stable retirement income that lasts through retirement. Eighty percent offer new members a defined benefit (DB) plan only; 11% offer a combination of DB plan and defined contribution (DC) plan; 5% offer new members a cash balance plan; and only 5% offer new members only a DC plan.
According to the report, “Preserving Retirement Income for Public Sector Employees,” many public pension plans have adopted features that allow individuals who change jobs to retain and even increase their benefits. Employee contributions can follow employees to new employers, often at market or better interest rates. Most plans allow members to later rejoin a system and repay any refunds with interest.
Nearly all public DB systems allow members to purchase additional service credits to increase their pension benefits in retirement. Specifically, all public DB plans allow for the purchase of service credits for prior military service, and more than half of the plans surveyed allow for the purchase of credits for prior out-of-state government service. Some plans allow for the purchase of credits for other specified types of service and leave.
A number of plans have features that increase benefits for short or moderate-term employees. Modifications include increasing the value of the deferred annuity benefits paid to former employees, rewarding employees who choose to keep their member accounts in the plan with interest, and providing even higher matching amounts. These features can encourage workers who leave before retirement to preserve the lifetime retirement income benefits they have earned, rather than spend their refund.
“One pervasive misconception about public DB pensions relates to the benefits when an employee leaves a job before retirement,” says Diane Oakley, NIRS executive director. “Our research finds that most public pensions have adopted retirement plan features that allow employees who change jobs to not only retain benefits, but also to increase retirement benefits.”
The full report is here.