In the U.S., public pension vesting periods vary widely by state. There are many reasons why states might offer longer or shorter vesting periods. But understanding the vesting terms of a public retirement plan can be a helpful metric for public employees to determine whether or not a retirement plan meets their needs.
In short, A vesting period is the amount of time an employee must work to qualify for retirement benefits. Retirement plan vesting periods are common in both the public and private sector. There are vesting rules for pension plans, defined contribution plans, guaranteed return plans, hybrid plans, and anything in between.
In this article, we will discuss how how vesting periods have changed over time for U.S. public retirement plans and provide a list of the current pension vesting periods by state, along with vesting periods for other types of public retirement plans.
JUMP TO: Vesting Periods by State
What is “Vesting”?
The minimum number of years a state or local employee needs to work in a state in order to be entitled to receive a pension benefit or the money their employer has contributed to their individual retirement account.
Why Government Employers Use Vesting Periods
The primary reason that employers give for having vesting periods is to help them with retaining staff talent. The basic logic is that people will stick around longer if they know they haven’t vested in their retirement benefits. While this logic may work for a small number of individuals who are within a few months of reaching their vesting period, in practice, the value of the retirement benefits available after just a few years are rarely sufficient to be a reason on their own for an employee to stay in civil service.
The political reality is that most state governments use retirement plan vesting periods as a way to save money. By setting vesting periods at 5, 7, or sometimes even 10 years, state governments are reducing the amount of future pensions they will have to distribute (or the employer payments to defined contribution plans they will have to release).
How Public Pension Vesting Periods Changed After the Financial Crisis
One of the ways that states responded to the Great Recession and Financial Crisis of 2007-09 was to look for ways to save money on retirement benefits. A common way that states have done this is to increase the number of years that public employees have to work to qualify for a pension.
For example, in Illinois, teachers and state workers hired before January 1, 2011 have to work four (4) years to order to vest in their pension benefits, whereas those hired from 2011 onward have to work eight (8) years.
Or in New York, public employees hired before January 2010 have a five (5) year vesting period to qualify for pension benefits while those hired after that point were, until recently, required to work 10 years to vest. Notably, in 2022, the New York state legislature reduced this vesting period back to five (5) years after a sustained campaign that demonstrated how problematic of a policy this was from the perspective of providing adequate retirement benefits to public workers.
The chart below shows the average vesting period over time for pension plans that are open to new members.
Public Pension Vesting Periods by State
Vesting periods range by state, hire date, and employee type. Vesting periods for teachers and public school employees average 6.4 years, while public safety officers have 8 year vesting periods on average. Pension plans for general civilian state and local employees average 6.9 year vesting periods.
The table below shows average public pension vesting periods by state, including data for traditional final average salary pensions, defined benefit guaranteed return plans, and hybrid plans that include a pension portion.
Defined Contribution Vesting Periods
The approach to vesting for defined contribution plans can sometimes look different than for pension benefits. In this context, employees are not vesting in the right to draw a pension check, instead they are vesting in the right to claim employer contributions made to individual accounts on their behalf.
A typical vesting period for defined contribution plans might look like this:
- After one year of service, a member has vested in 50% of the employer contributions made to their defined contribution account
- After two years of service, 75% vested
- After three years of service, 100% vested
This would be considered a three-year “graded” vesting period. Different states use a range of graded vesting period approaches. South Carolina immediately vests employees in their defined contribution benefits.
The table below lists the statewide defined contribution plans for public workers and the vesting approach that they use.