Public-Employee Pensions and Retirements

• Author: John Brooks
• DOI: http://doi.org/10.1177/0160323X221127387
• Published date: 01 March 2023
• Date: 01 March 2023
• Subject Matter: Original Research General Interest Articles

https://doi.org/10.1177/0160323X221127387

State and Local Government Review

2023, Vol. 55(1) 11 –26

© The Author(s) 2022

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DOI: 10.1177/0160323X221127387

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Original Research General Interest Article

Governments frequently insist that pensions aid

in public management, facilitating the production

of public goods and services. For example,

Arkansas’ 2012 Comprehensive Annual Financial

Report (CAFR) states: “The retirement system

benefits the entire state and all Arkansans, not

just public employees.” Pensions, which provide

regular retirement income to vested employees,

might offer one tool to help manage the supply

of personnel via recruitment, retention, and

retirement. Around the time of their adoption,

reformers argued that pensions would help

efficiently manage these behaviors in routin-

ized ways (Clark, Craig, and Wilson 2003;

Graebner 1980; Lazear 1979). Pensions also

might be especially useful in the public sector,

where there long has been concern talented

employees either choose not to enter or leave

for private-sector work (Gorina and Hoang

2020; Lewis 1991; Perry and Wise 1990).

Here, I ask what relationship pensions have

with state-employee retirements within plans

and over time.

Pension formulas are products of employees’

years of service and average earnings. Plans

typically stipulate normal and early retirement

ages. Employees and employers make contribu-

tions, which are then invested. I focus on defined

benefit (DB) pensions, which place risk with

employers. While some governments have

expanded defined contribution (DC) pensions

in recent years, which place risk with employ-

ees, 89% of public employees still belonged to

1127387SLGXXX10.1177/0160323X221127387State and Local Government ReviewBrooks

research-article2022

1Department of Government and Justice Studies,

Appalachian State University, Boone, NC, USA

Corresponding Author:

John Brooks, Department of Government and Justice

Studies, Appalachian State University, 351 G Anne Belk

Hall, 224 Joyce Lawrence Lane, Boone, NC 28608-0001,

USA.

Email: brooksje1@appstate.edu

Public-Employee Pensions

and Retirements

John Brooks1

Abstract

Around the time of their adoption, reformers argued pensions would help encourage public

employees to retire rather than remain in their jobs indefinitely. However, the significance of

specific pension policies for retirements within numerous plans is not well-known. Using new data

on service retirements from 81 state-employee defined-benefit plans between 2001 and 2019, I

examine pensions’ relationship with retirements, while also accounting for other variables that

might matter. The results indicate that early retirement incentives, relaxed post-retirement work

restrictions, and higher employee pension contributions are all associated with more retirements,

while increased employer contributions and cost-of-living adjustments are associated with fewer.

As governments continue to consider fiscal reforms to retirement plans, they also should keep

their personnel needs and pensions’ relationships with them in mind.

Keywords

pensions, states, retirement, personnel

12 State and Local Government Review 55(1)

DB plans in 2014 (Ali and Frank 2019).1 Aside

from employees, politicians also benefit from

pensions, which spread costs into the future.

Complicated rules and payment automaticity

also reduce visibility and insulate officials from

blame (Anzia and Moe 2017; Weaver 1986).

Pensions incentivize labor by tying retirement

income to tenure, but also subsidize exits by pro-

viding income to non-workers. Employees need

to remain with the same employer or within the

same system in order to maximize their payouts.

Individual workers could react to these incen-

tives in different ways, though: some might leave

earlier, while others keep working. Pensions also

are packages of policies, some of which could

matter more than others. Plan complexity also

could muddle workers’ awareness or understand-

ing, undermining pensions’ behavioral incentives

(Brown 2013; Clark, Morrill, and Vanderweide

2014; Mitchell 1988).

There is extensive variation in state and local

pensions, as the national government plays little

role in their governance. In light of rising costs,

a number of states have made reforms in recent

years, generally reducing generosity and increas-

ing contributions (Anzia 2022; Novy-Marx and

Rauh 2011; Peng and Wang 2017; Quinby and

Sanzenbacher 2020). Prior research has not

examined pensions and retirements across

numerous plans and over time, alongside these

types of reforms and other “large forces” that

might matter (see Roberts 2013).

I argue that visible policies that make work

less alluring will be associated with increased

retirements. I outline several hypotheses, which

I examine with original data from over 1,000

reports in 40 states between 2001 and 2019.

Using a Poisson model, I regress service retire-

ments in the following year and four-years-later

on pension, economic, and political variables to

consider these relationships in both the shorter

and longer terms.

The findings show several policies are asso-

ciated with increased retirements in the short

term: early retirement incentives and relaxed

post-retirement work restrictions. Additionally,

retirements are greater as employee contribu-

tions are higher and employer contributions are

lower, and especially so in plans with greater

numbers of older workers. Enhancements in

COLAs, in comparison, are associated with

fewer retirements in both the short and long

terms. Retiring pension-plan members, of

course, cease making contributions and begin

collecting their deferred income. Increased

retirements due to generational change present

challenges to plans’ fiscal health alongside

national-level programs like Social Security and

Medicare. Such reforms also potentially might

detract from diversity in public-sector employ-

ment. As concerns linger about the attractive-

ness of public service, governments ought to

appreciate these linkages between personnel and

pensions, especially as they consider reforms.

Pensions and Public Personnel

Prior research shows that fringe benefits matter

for shaping the public-sector workforce, both in

terms of recruitment and retention (Asseburg

and Homberg 2020; Condrey and Battaglio

2007; Lee and Wilkins 2011; Perry and Wise

1990). Pensions are an important such benefit,

and can be thought of as kinds of contracts

between employers and employees. Though

recipients give up some short-term compensa-

tion, pension income helps them smooth spend-

ing over their life-cycles. Retirement plans also

are a form of insurance for beneficiaries who

cannot know how long they will live, and

whether they will be healthy enough to work.

Pensions might shape employees’ expectations

over their careers, especially as they come to

understand their benefits (Blinder 1981; Clark,

Morrill, and Vanderweide 2014; Mitchell 1988).

Pensions could aid in public management if

they help attract motivated and long-term work-

ers (see Gailmard and Patty 2007; Ippolito

1987; Lazear and Moore 1988; Munnell,

Haverstick, and Soto 2007). They might work

alongside job protections to help recruit and

retain employees, which is why their initial

growth happened around the same time as the

transition from the spoils to the merit system in

the early 20th century (Asseburg and Homberg

2020; Clark, Craig, and Wilson 2003; Condrey

and Battaglio 2007; Lee and Wilkins 2011;

Quinby and Sanzenbacher 2020).

While pensions are not the only factors shap-

ing workers’ careers, they could matter on the