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Unions Approve Omaha Pension Reforms

A third union has approved a contract with the city of Omaha, Nebraska that features major pension changes.

Among the changes: new employees will be shifted into a cash balance plan and the full retirement age will be raised. In exchange, Omaha will increase its payments into the city’s pension fund and employees will receive a raise.

From NBC Omaha:

Monday, Omaha Mayor Jean Stothert’s office announced a third and final civilian union in contract negotiations has approved an offer which includes changing to a cash balance pension plan for new employees.

A news release from the office says the offer “solves the underfunded pension liability and achieves unprecedented pension reform.”

CMPTEC members were the last union group to accept an offer changing from defined benefits to a cash balance plan. The change only impacts new employees hired after January 1st.

The unions include CMPTEC, Local 251 and the Functional Employees Group. A fourth group, AEC, is not represented by a bargaining unit, but it will receive the same benefits.

Each group’s agreement allows current employees to remain in the existing pension plan with reduced benefits and an extension to the number of years required to achieve normal retirement.

In return, the City agreed to increase contributions to the pension fund by 7% over the five-year agreement, give employees a 9% raise over the five-year period, and a 1% one-time “lump sum supplement” for 2013 when wage freezes were enacted.

“I am grateful to the membership, the union negotiators and our negotiating team led by Mark McQueen and Steve Kerrigan for agreements that are good for our employees and the taxpayers,” said Mayor Jean Stothert.

The Personnel Board has already approved the Local 251 agreement. In January, they will meet to approve the other two. The City Council must also approve the contracts.

The contracts run through 2017.

In Congress, Leadership Shifts Could Lead to Retirement Plan Changes

Republicans control both houses of Congress, and there are many leadership shifts underway at the committee level as well. These shifts open the door for changes to retirement plans coming from the federal level.

One idea sure to be brought up is Senator Orrin Hatch’s SAFE Retirement Act. From Pensions and Investments:

At the committee level, the change of leadership raises the prospects for serious consideration of new retirement ideas, like incoming Senate Finance Committee Chairman Orrin Hatch’s SAFE Retirement Act proposal, which would expand the use of multiple employer plans, allow public defined benefit pension funds to purchase private annuities, and create a “starter 401(k) plan” for small, private-sector employers.

Lawmakers could also take a closer look at defined-contribution plans and cash balance plans. From P&I:

As the tax reform debate heats up, “Republicans are going to want to cut expenses and raise revenue,” said Michael Webb, vice president of Cammack Retirement Group, Wellesley, Mass., a consulting firm specializing in defined contribution plans. “How do you do that? By changing things like deductibility on retirement plan contributions.”

Along with those discussions, “there might be opportunities in 2015 for retirement plan proposals that would enhance coverage and benefits,” said Kent Mason, an attorney at law firm Davis & Harman LLP, Washington, who is outside counsel for the American Benefits Council, Washington. He and others note that multiple employer plans enjoy bipartisan support in Congress, which could convince regulators to make them easier to create.

Both Republicans and Democrats would like to see more automatic enrollment and escalation in defined contribution plans. “This is showing up in bipartisan bills because (current default rates) are not high enough” for retirement security,” said Mr. Mason. “This is an area where I could see common ground.”

Hybrid retirement ideas like cash balance plans will come up early, starting with a Jan. 9 hearing on IRS regulations finalized in September for plan years after 2015. “I do think there is pent up demand for some type of DB (proposal),” said Alan Glickstein, Dallas-based senior retirement consultant at Towers Watson & Co. Hybrid pension plans for the military will also come up early in the year, when recommendations from the Military Compensation and Retirement Modernization Commission are due, sources said.

Read the full article here.

Video: A Closer Look At Phoenix’s Proposition 487

Proposition 487 is a Phoenix ballot measure that would close off the city’s defined-benefit pension plan for new hires and instead shift them into a 401(k)-style system. The measure would also prohibit pension “spiking” practices.

Prop. 487 has been surrounded by debate about its true cost, and whether it would reduce death and disability benefits for public safety workers — even though the measure is not intended to change public safety benefits.

The video [above] tackles these issues, and others, in an analysis of the measure.

Would Phoenix’s Proposition 487 Hurt Public Safety Workers?

In exactly one week, Phoenix voters will determine the fate of Proposition 487 – the controversial ballot measure that would, among other things, end the city’s defined-benefit plan for all new hires and shift them into a 401(k)-style plan.

The measure excludes public safety workers, so nothing would change for police and firefighters. Or would it?

In recent weeks, a fiery debate has emerged over whether Prop 487 would actually harm the retirement security of the city’s public safety workers.

Dustin Gardiner at the Arizona Republic writes:

Hundreds of firefighters and police officers chant “No on 487!” outside an upscale Biltmore office tower, rallying against a ballot initiative they contend will gut their most critical benefits.

They say the measure…would jeopardize their retirement security and death and disability benefits.

That dire situation they portrayed at the protest earlier this month — suggesting Prop. 487 will eviscerate the pensions of officers and firefighters and leave families of fallen first responders without benefits — is improbable given that state law prohibits it.

Nevertheless, the hotly disputed claim has become the dominant argument in the final stretches of the campaign over the measure, which would close Phoenix’s employee-pension system for new hires and replace it with a 401(k)-type plan. The initiative is on the Nov. 4 ballot for city voters.

[…]

“Given that police officers and firefighters don’t receive Social Security and judges are apt to make unpredictable rulings, we refuse to take such risks with the public safety of our community,” leaders of the city’s police and fire unions wrote in a joint letter this week.

The Arizona Republic editorial board published a piece on Monday calling the arguments of public safety unions “thin”:

Prop. 487, which applies only to the Phoenix-run retirement system for non-public-safety employees, expressly excludes police and fire pensions. State law requires cities to contribute to the statewide public-safety pension system. The Arizona Constitution explicitly protects personnel already enrolled. Legal precedent clearly is on the side of public safety.

Even attorneys opposing Prop. 487 acknowledge that their arguments are thin. So why the fierce opposition?

Part of the explanation must be set at the feet of the Phoenix City Council, a majority of which opposes the proposition. The council created ballot language that disingenuously depicts the proposition taking action that is constitutionally forbidden.

The council majority and staff have made it clear which side they favor. It isn’t the side of the city’s taxpayers, who must bear the rapidly increasing expense of the city’s grossly underfunded pension plans.

But, largely, the anti-Prop. 487 campaign appears to be a statement by the city’s public-safety unions, which will adamantly oppose any effort to change any public-employee retirement system that promises to lessen the financial burden on the city’s taxpayers.

Even to the point of rising up against a ballot measure that will in no way affect their benefits.

But union leaders call the measure “poorly written” and maintain that the ambiguity of the measure doesn’t bode well for public safety workers. From a column in the Arizona Republic authored by the presidents of three Arizona public safety unions:

Prop. 487 will impact Phoenix police officers and firefighters. The only question is: Exactly how much?

Because of this measure’s contradictory language and because, according to the city’s analyses, Prop. 487 has the potential to make it illegal for the city to contribute to the public-safety retirement system, our groups oppose this ballot measure. Simply put: It is the wrong kind of reform.

Inevitably, Prop. 487 will end up in court for a years-long legal fight. Our opponents and The Arizona Republic editorial board have discounted that risk — and the looming massive legal bills.

However, given that police officers and firefighters don’t receive Social Security and judges are apt to make unpredictable rulings, we refuse to take such risks with the public safety of our community. We hope Phoenix residents will refuse, as well.

Read the entire column from the union leaders here.

You can read the Arizona Republic’s editorial board piece here.

How Would Phoenix Officials Handle The Up-Front Costs of Proposition 487?

In two weeks, Phoenix voters will decide the fate of Proposition 487 – the ballot measure that would close off the city’s defined-benefit plan from new hires and shift them into a 401(k)-style plan.

The plan, if passed, would cost the city millions up front – but the tradeoff, proponents of the plan say, is a more sustainable pension system.

There are ways to offset the initial cost of the plan. One option is to eliminate deferred compensation for workers.

Would city officials support eliminating deferred compensation as a cost-saving measure?

The Arizona Republic asked them:

We asked: If Prop. 487 is approved, would you support removing deferred compensation without providing employees its value in another form? Please explain.

“It is important to provide employees fair compensation and to ensure the city remains a competitive employer. With that said, should Prop. 487 pass, the city will comply with the law and not provide deferred compensation. However, I would not want to presume what the end point or other forms of compensation could or could not be. We are required to negotiate in a fair and neutral manner per our Meet and Confer ordinance and to do so without a predetermined outcome. The city would negotiate in good faith with employee groups as required and practice good labor relations practices.”

— Michael Nowakowski,District 7, southwest Phoenix and parts of downtown

“Yes. Prop. 487 lets current employees choose between their pensions or deferred compensation. They get to keep what they earned, but going forward, they can’t have both. Pensions are out of control — costs ballooned from $56 million in 2003 to $240 million in 2013. ‘Yes’ on Prop. 487 saves over $400 million by eliminating pension spiking and secondary retirement. This year, taxpayers saw a new water tax and cuts in police, after-school programs, seniors and libraries to fund the ballooning pension costs and $19 million in pension spiking. Prop. 487 treats employees and you fairly. Ask yourself, what do you get?”

— Sal DiCiccio, District 6, Ahwatukee and east Phoenix

“I support 487. We must end pension spiking, and the prohibitively expensive status quo. I have voted against all final labor contracts as a councilman. By the time the initiative kicks in, the current contracts would have 18 months to run. I believe we must honor the voters’ decision and meet our contractual obligations (even though I voted against the contracts) by re-opening the contracts to mitigate loss of deferred compensation. In subsequent negotiations in 2016 and beyond, we should take a much more realistic approach to negotiations. The ‘we’ve always done it this way’ approach to negotiation must stop.”

— Jim Waring, vice mayor (District 2), northeast Phoenix

“If deferred compensation is contained in contractual minutes — and rightfully owed to city employees — the city will be required to renegotiate its contract and provide payment in the form of wages. Ultimately, courts will decide the outcome at significant cost to taxpayers.”

— Thelda Williams, District 1, northwest Phoenix

When Given A Choice, Why Do People Choose DC Plans Over DB Plans?

In many states, newly hired public employees are faced with a choice: enrollment in a traditional defined-benefit plan, or a 401(k)-style defined-contribution plan.

What drives the decision-making of those who choose DC plans? Scott J. Weisbenner and Jeffrey R. Brown examined the topic in a recent paper in the Journal of Public Economics.

They studied employees in the State Universities Retirement System (SURS) of Illinois, a system that gives every employee a one-time, permanent choice between enrolling in a DB or a DC plan. Here’s what they found about why people might choose DC plans:

First, we find sensible patterns with regard to economic and demographic factors: the probability of choosing the DC plan decreases with the relative financial generosity of the DB plans versus the DC plans and rises with education and income. However, while the relative generosity of the plans does have a nontrivial effect on pension plan choice, it certainly is not a “sufficient statistic” in explaining that choice nor is it the most important determinant in terms of its economic magnitude.

Second, we find that the ability to control for beliefs, preferences, financial skills, and plan knowledge – variables that are not available in standard administrative data sets – increases the amount of variation in plan choice that we are able to explain by approximately seven-fold, relative to using standard economic and demographic variables alone. Specifically, as measured by adjusted R-squared, economic and demographic characteristics such as gender, marital status, presence of children, education, income, net worth, occupation, and (self-reported) health can explain only 6.2% of the overall variation in the DB versus DC plan choice (adjusted R-squared = 0.062). When we expand our regression to include information about beliefs, preferences, financial skills, and plan knowledge, the adjusted R-squared rises to 0.471. Among the important factors in the DB/DC plan choice are respondent attitudes about risk/return trade-offs, financial literacy, beliefs about plan parameters, and attitudes about the importance of various plan attributes.

Third, we note that beliefs about plan parameters are important even when these beliefs are incorrect. In general, people seem to make sensible choices based on what they believe to be true about the plans, but they do not always have accurate beliefs (and thus may not be making optimal decisions). Finally, we provide evidence that preferences over the attributes of the retirement system (e.g., the degree of control provided) are also significant determinants of the DB/DC plan decision.

The paper is titled “Why do individuals choose defined contribution plans? Evidence from participants in a large public plan” and can be read in full here.

Photo by TaxCredits.net

Kolivakis: Time To Face The “Brutal Truth” About Defined-Contribution Plans

Leo Kolivakis, the man behind the Pension Pulse blog, has long been a critic of replacing defined-benefit plans with 401(k)-style plans as a means of reforming public pension systems.

The Canadian Public Pension Leadership Council released a report last week arguing that converting large public DB pension plans to DC plans would be costly and ineffective. In light of that report, Kolivakis took to his blog to re-explain his aversion to the oft-considered reform tactic. From Pension Pulse:

I’m glad Canada’s large public pension funds got together to fund this new initiative to properly inform the public on why converting public sector defined-benefit plans to private sector defined-contribution plans is a more costly option.

Skeptics will claim that this new association is biased and the findings of this paper support the continuing activities of their organizations. But if you ask me, it’s high time we put a nail in the coffin of defined-contribution plans once and for all. The overwhelming evidence on the benefits of defined-benefit plans is irrefutable, which is why I keep harping on enhancing the CPP for all Canadians regardless of whether they work in the public or private sector.

And while shifting to defined-contribution plans might make perfect rational sense for a private company, the state ends up paying the higher social costs of such a shift. As I recently discussed, trouble is brewing at Canada’s private DB plans, and with the U.S. 10-year Treasury yield sinking to a 16-month low today, I expect public and private pension deficits to swell (if the market crashes, it will be a disaster for all pensions!).

Folks, the next ten years will be very rough. Historic low rates, record inflows into hedge funds, the real possibility of global deflation emanating from Europe, will all impact the returns of public and private assets. In this environment, I can’t underscore how important it will be to be properly diversified and to manage assets and liabilities much more closely.

And if you think defined-contribution plans are the solution, think again. Why? Apart from the fact that they’re more costly because they don’t pool resources and lower fees — or pool investment risk and longevity risk — they are also subject to the vagaries of public markets, which will be very volatile in the decade(s) ahead and won’t offer anything close to the returns of the last 30 years. That much I can guarantee you (just look at the starting point with 10-year U.S. treasury yield at 2.3%, pensions will be lucky to achieve 5 or 6% rate of return objective).

Public pension funds are far from perfect, especially in the United States where the governance is awful and constrains states from properly compensating their public pension fund managers. But if countries are going to get serious about tackling pension poverty once and for all, they will bolster public pensions for all their citizens and introduce proper reforms to ensure the long-term sustainability of these plans.

Finally, if you think shifting public sector DB plans into DC plans will help lower public debt, think again. The social welfare costs of such a shift will completely swamp the short-term reduction in public debt. Only economic imbeciles at right-wing “think tanks” will argue against this but they’re completely and utterly clueless on what we need to improve pension policy for all our citizens.

The brutal truth on defined-contribution plans is they’re more costly and not properly diversified across public and private assets. More importantly, they will exacerbate pension poverty which is why we have to enhance the Canada Pension Plan (CPP) for all Canadians allowing more people to retire in dignity and security. These people will have a guaranteed income during their golden years and thus contribute more to sales taxes, reducing public debt.

Read his entire post on the subject here.

Photo by TaxCredits.net

Phoenix Politicians Weigh In On Pension Reform Measure

The Arizona Republic runs a great column every week where they ask a dozen major political players in Phoenix a question regarding an important issue.

This week, pensions were the issue. Specifically Proposition 487, which would shift new hires into a 401(k)-style system as opposed to a defined benefit plan.

There has been much debate over whether the law would impact police and firefighters, who are supposed to be shielded from the law.

Here’s what some Phoenix politicians had to say about the ballot measure, from the Arizona Republic:

We asked: Do you think Prop. 487 will impact the retirement benefits of current or future police officers and firefighters? Why or why not?

“Whatever the long-term impact of the proposition, it’s likely that if it’s passed, it will take years in court to clarify its true intent. The losers will be Phoenix taxpayers, who will bear the costs of a prolonged legal debate.”

— Thelda Williams,District 1, northwest Phoenix

“No. I don’t believe that ‘preamble’ is an accurate term given voters will support or oppose the measure in its entirety, including this language from Page 1 in the ‘preamble:’ ‘This Act is not intended to affect individuals who are members of, or are eligible to join, any other public retirement system in the State of Arizona such as the Public Safety Employees’ Retirement System.’ While I understand those in the system are unhappy with this initiative, the alternative is to do nothing. That is not acceptable. Inaction by the council led to this citizen action in the first place.”

— Jim Waring,vice mayor (District 2), northeast Phoenix

“Prop. 487, as written, impacts the retirement benefits of current and future public-safety personnel and does not exclude these employees as stated in the preamble. According to city analysis, Section 2.2 (C) runs counter to the current Public Safety Personnel Retirement Plan that is required by state statute for current and future public-safety employees. Therefore, future contributions to this plan would not be warranted and current public-safety employees would have these benefits frozen. Prop. 487 also prevents contributions to additional plans such as the Medical Expense Reimbursement Plan, Post Employment Health Plan and Fire Employee Benefit Trust.”

— Michael Nowakowski,District 7, southwest Phoenix and parts of downtown

“Prop. 487 will absolutely impact police and firefighters. The only section of the measure that would have the force of law makes no special exemptions for public safety — whether that was the intent of who wrote it or not. Prop. 487 is the wrong reform. It is poorly written and will have devastating effects on taxpayers, police officers and firefighters alike. These brave men and women work every day to make sure that we are safe, and we owe it to them to protect their retirement. I urge Phoenix residents to vote no on Prop. 487.”

— Daniel Valenzuela,District 5, Maryvale and west Phoenix

“The proponents of Prop. 487 did a sloppy job drafting this initiative. Prop. 487’s backers claim any harm to public-safety personnel was a careless mistake. However, this doesn’t square away with what proponents are actually trying to put in our city charter. Prop. 487 amends our charter with poorly-written language that would cost millions, making it harder for us to fund infrastructure improvements. The best-case scenario for first responders under Prop. 487 is that their status will be in jeopardy, potentially for years, as the fate of their benefits is determined by the courts following expensive litigation.”

— Kate Gallego, District 8, southwest Phoenix and parts of downtown

“Voters can fix the broken pension system, saving $500 million, by voting yes on Prop. 487. The government unions have waged an all-out campaign of disinformation to stop pension reform. Prop. 487 does not impact public safety because: 1. Public-safety pensions are administered by the state, not the city. 2. State law doesn’t allow participants in PSPRS to opt out. 3. The initiative clearly states that it does notaffect public-safety personnel. Escalating pension costs means fewer services, less police and more taxes and fees. Prop. 487 brings financial accountability. Don’t believe the disinformation the government unions are propagating.”

— Sal DiCiccio, District 6, Ahwatukee and east Phoenix

“Fellow Phoenix residents, I call it the way I see it. Prop. 487 is confusing and poorly written. If it passes, it could end up in court with the potential for millions of dollars going to legal fees, instead of supporting vital programs and services for our community. In addition, Prop. 487 could have detrimental consequences for our public-safety personnel and other city employees. Specifically, Prop. 487 could end defined-benefit pensions for Phoenix police officers and firefighters, making the women and men of public safety the only public-safety personnel in Arizona who could not earn a defined-benefit pension. Our police officers and firefighters work hard to keep our community safe, and we as a community should protect our public safety personnel’s retirement. This proposition is not the way to reform our city’s pension plan.”

— Laura Pastor,District 4, central and parts of west Phoenix

“Yes. Prop. 487 will hurt our current police officers and fire fighters, and could even end death and disability benefits for our first responders. It is one of the many reasons why I oppose this initiative. The plain language prevents the City from making contributions to the state public safety pension system. Those behind the effort have not had this intent, but this initiative was so poorly written – so badly constructed – that it will have devastating consequences for Phoenix. On top of that, it will cost taxpayers $350 million. It’s the wrong reform, and we can’t afford it.”

— Greg Stanton, mayor

Money has flooded into Phoenix in recent weeks to fund both opponents and proponents of the law. But the source of much of that money is shrouded in secrecy, as Pension360 wrote on Monday.

John Bury: 4 Things The New Jersey Pension Panel Failed To Say

Over at Bury Pensions, actuary John Bury covers New Jersey pension developments as close as anyone. And there’s been a lot to talk about lately, as the New Jersey Pension and Health Benefit Study Commission just released their first report last week.

But what wasn’t in the report is just as important as what was. While the report served as a great primer on how New Jersey’s pension mess came to be, it fell short on some counts.

Here’s John Bury’s take on what was left out.

__________________

By John Bury

The report did a good job of piecing together available public information but anyone could have done that. What this panel of experts was supposed, and failed, to do is bring their knowledge of the truth of the situation to the general public. Perhaps some did not possess that knowledge and others who did wimped out but here is what should have been in the report:

Actuaries lie

A 54% funded ratio and $37 billion shortfall for the state portion of the New Jersey pension sounds bad enough but people should be aware that these figures are generated by actuaries whose sole responsibility to their politician clients is to keep contribution amounts low. Ask yourself how a plan returning 16.9% in trust earnings when it is assuming 7.9% worsens their shortfall. It’s primarily because of a flaw in basic actuarial math which is not being adjusted for since getting it right is not what public plan actuaries are paid for when right means higher contributions. Then there is the smoothing canard that the panel completely ignores, quoting the $44 billion actuarial value of assets as real rather than the $39.5 billion market value.

Politicians cheat

$14,9 billion in skipped ARC payments under Christie in cahoots with the legislature who not only get to decide how much they put in but they also get to brag that their selected mini-contributions are the full statutorily required amounts though they get to define what is statutorily required.

Benefits are protected

Hinted at on page 18:

One of the reasons the reforms described above have had little impact on the unfunded liability is that many of them do not apply to all current employees.

And the reason many recent reforms are not applied successfully (witness the COLA fiasco) is that Christie Whitman in 1997 exchanged constitutional protection of those benefits for the ability to reduce contributions to a desired level (i.e. nothing). That needs to be admitted and reforms must include either paying for all those promised benefits in full or coming up with some strategy to get public employees to agree to reduce their benefits voluntarily.

Hybrid plans won’t work here

Though a Defined Contribution plan is the only type of plan that governments, run by political considerations and without independent funding discipline, should be allowed to sponsor moving new employees into these plans would only worsen the underfunding since a valuable input into the ponzi scheme New Jersey currently runs (employee contributions) would be shut off and new hires who are typically younger could wind up getting even higher benefits than under an age-weighted defined benefit system. In the private sector the shift to cash balance plans worked because older employees could be forced (or tricked into) accepting them. It would take a massive amount of ‘creativity’ and will to work the same magic in the public sector where employees have more leverage and politicians are not bargaining with their own money.

Exploring Defined Benefit Distribution Decisions By Public Employees

When public workers with defined benefit plans leave their jobs, they are usually given the option to either withdraw their accrued retirement savings as a lump sum or keep their retirement account open, to be redeemed upon retirement.

If the employee elects to go the lump-sum route, they can roll that money over into an IRA or simply accept it as taxable income and pay the associated penalty for early withdrawal.

Employees around the country make this decision every day. But it’s one with significant retirement implications, and there’s little understanding as to what drives people to decide one way or the other.

In a paper recently published in the Journal of Public Economics, Robert L. Clark, Melinda Sandler Morrill and David Vanderweide explore the decision-making process.

The basic findings of the paper:

Using administrative data from the North Carolina state and local government retirement systems, we find that over two-thirds of public sector workers under age 50 separating prior to retirement from public plans in North Carolina left their accounts open and did not request a cash distribution from the pension system within one year of separation.

Furthermore, the evidence suggests many separating workers, particularly those with short tenure, may be forgoing substantial monetary benefits due to lack of knowledge, understanding, or accessibility of benefits. We find no evidence of a bias toward cash distributions for public employees in North Carolina.

More detailed findings from the paper:

We find that fewer than one-third of all terminating public employees requested a LS [lump sum] within one year of separation, despite the finding that for over 70% of terminations, the LS was larger than the estimated PDVA. These results indicate a low probability of leakage from retirement funds, although many workers are seemingly forgoing the possibility of higher retirement income possible from rolling over funds to an IRA.

We offer several potential explanations for why the distributional choice from a public pension plan is more complex than a simple wealth comparison at a point in time. First, separating participants in TSERS qualify for retiree health insurance from the State Health Plan with no premium as long as they are receiving a monthly annuity from TSERS…Despite the difference in coverage of retiree health insurance in the two systems, we do not see a large difference in the distributional choices between separating workers that will qualify for retiree health insurance and those that will not.

Second, we consider the likelihood that terminated participants may plan to return to public employment. The expectation of returning to public employment might make maintaining the account the optimal choice for these individuals…

…workers are not responding to incentives of outside investment options. We do find that when the state unemployment rate rises, individuals are significantly less likely to withdraw funds. This could be due to selection into who is separating employment, or it may be that individuals more heavily rely on defaults in times of economic turmoil.

The final explanations we consider for why public sector workers in North Carolina do not withdraw funds at a higher rate are financial literacy, peer effects, and inertia. The default is to leave funds in the system. The behavior we observe is consistent with many individuals accepting the default option and forgoing potentially more valuable benefits.

The paper, titled “Defined benefit pension plan distribution decisions by public sector employees”, can be read in full here.

Photo by www.SeniorLiving.Org

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