Public Sector Workers Enjoy Greater Retirement Coverage

November 14, 2007 (PLANSPONSOR.com) - A new Issue Brief from the Center for State and Local Government Excellence shows the retirement plan landscape for state and local government workers is significantly different than that for private sector workers.

The report of the initial findings of a two-year research study by the Center for Retirement Research (CRR) at Boston College indicates state and local plans are primarily defined benefit, coverage is virtually universal, and only 72% of workers participate in Social Security. In contrast, private plans are mostly 401(k)s, less than half of the workforce is covered, and everyone participates in Social Security.

The data shows 80% of state and local government workers are covered by a defined benefit plan only, versus 10% of private sector workers. Meanwhile, 14% of state and local government workers and 64% of private sector workers are covered by a defined contribution plan only. Six percent of the government workers and 26% of the private sector workers participate in both types of plans.

Not only do public sector worker enjoy greater plan coverage, but public sector defined benefit plans also tend to provide larger benefits than their private sector counterparts. Additionally, most public plans offer post-retirement cost-of-living adjustments, unlike private sector plans. According to the report, these adjustments can increase the value of a retiree’s benefit stream by as much as 40%.

The researchers pointed out that the cost of defined benefit plans is substantially larger in the public sector than the pri­vate sector. However, employer contributions as a percent of payroll are roughly the same for state and local and private sectors; the cost difference is made up through employee contributions.

The research did find some similarities for plans in both sectors. About 70% of assets are invested in equities, and defined benefit plans for both sectors are 80% to 90% funded.

The Issue Brief is here .

Panelists at PLANSPONSOR’s 2006 DB Summit also discussed the differences between public and private retirement plan landscapes and offered an idea for a best scenario (See Do Public Plans Provide the Model for Retirement Offerings? ).

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