A recent study, “Lessons for Public Pensions from Utah’s Move to Pension Choice,” showed that many public sector workers offered less generous pensions did not boost their supplemental saving to make up for it. Robert L. Clark (Poole College of Management at North Carolina State University); Olivia S. Mitchell (Wharton Professor of Insurance/Risk Management & Applied Economics/Policy and Director of the Pension Research Council); and Emma Hanson (North Carolina Department of State Treasurer Retirement Systems Division) coauthored the study.
The team followed pension reforms in Utah implemented in 2011 that closed the state’s defined benefit plan to new employees and established a less-generous two-option replacement. To make up the shortfall, new hires could contribute to a state supplemental plan, but many people did not.
The authors report that nearly three of five new hires failed to elect between the two-option plan, so they were defaulted to the hybrid pension. And defaulters also saved less, on average, than did the active choosers. Moreover, turnover rates rose by one-third among the new hires. The researchers conclude that plan administrators should be aware of possible side effects of changing plan generosity.
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