By offering lifetime retirement benefits based on service years and final average salaries, defined benefit pensions generally provide secure retirement incomes to workers who devote their entire careers to government service. These states have not broken even on pensions and provide little retirement income security to most government employees with shorter tenures, even many who spend 20 years with a single public-sector employer. It makes sense then that some employees would be concerned about being able to break even on a pension
Virtually every plan requires participants to contribute toward the cost of their retirement benefits, and employees must work many years before their future benefits exceed the value of their required contributions. Those who leave public service before reaching that milestone do not receive any employer-financed retirement benefits, despite their often lengthy careers. Recent pension reforms, focused mainly on cutting costs, generally force new hires to work even longer before they benefit from their pension plans. Alternative benefit designs like cash balance plans would enable all state and local government employees to accumulate retirement savings, including those with shorter careers.
This brief reports how long state and local government employees hired at age 25 must serve to earn any employer-financed pension benefits from their traditional plans and if they break even on a pension. The analysis identifies the first year that employees could leave public employment with promised future pension payments worth more than their own plan contributions.
See here to read the full policy brief.
Also, see this 2017 analysis just of pension plans covering teachers in EducationNext.
This article republishes selections from “How Long Must State and Local Employees Work to Accumulate Pension Benefits?” by Richard W. Johnson, Barbara Butrica, Owen Haaga, Benjamin G. Southgate, a policy brief by Urban Institute in April 2014.