Defined Benefit Pension Plan Distribution Decisions by Public Sector Employees

Robert L. Clark, Melinda S. Morrill, David Vanderweide

NBER Working Paper No. 18488
Issued in October 2012
NBER Program(s):   AG   LS   PE

Studies examining pension distribution choices have found that the tendency of private-sector workers is to select lump sum distributions instead of life annuities. In the public sector, defined benefit pensions usually offer lump sum distributions equal to employee contributions, not the present value of the annuity. 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 important benefits due to lack of knowledge, understanding, or accessibility of benefits. In contrast to prior research in the private sector, we find no evidence of a bias toward cash distributions for public employees in North Carolina.

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Document Object Identifier (DOI): 10.3386/w18488

Published: Defined Benefit Pension Plan Distribution Decisions by Public Sector Employees, Robert L. Clark, Melinda Sandler Morrill, David Vanderweide. in Retirement Benefits for State and Local Employees: Designing Pension Plans for the Twenty-First Century, Clark, Rauh, and Duggan. 2014

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