Lessons for Public Pensions from Utah’s Move to Pension Choice

Loading...
Thumbnail Image
Penn collection
Wharton Pension Research Council Working Papers
Degree type
Discipline
Subject
Behavioral Economics
Funder
Grant number
License
Copyright date
Distributor
Related resources
Author
Clark, Robert L
Hanson, Emma
Mitchell, Olivia S
Contributor
Abstract

This paper explores what happened when the state of Utah moved away from its traditional defined benefit pension. Instead, it offered new hires a choice between a conventional defined contribution plan, versus a hybrid plan option having both a guaranteed benefit component and a defined contribution plan shifting investment risk to employees. We show that some 60 percent of new hires failed to make any active choice and, as a result, they were automatically defaulted into the hybrid plan. Slightly more than half of those who made an active choice elected the hybrid plan. Interestingly, post-reform, employees who failed to actively elect a primary retirement plan were also far less likely to enroll in a supplemental retirement plan, compared to new hires who made an active plan choice. We also find that employees hired following the reforms were more likely to leave public employment, resulting in higher turnover rates than previously. This could reflect a reduction in the desirability of public employment under the new pension design. Our results imply that public pension reformers must consider employee responses, in addition to potential cost savings, when developing and enacting major pension plan changes.

Advisor
Date Range for Data Collection (Start Date)
Date Range for Data Collection (End Date)
Digital Object Identifier
Series name and number
Publication date
2015-03-01
Volume number
Issue number
Publisher
Publisher DOI
Journal Issue
Comments
The research described in this paper began with a conversation with Richard Ellis, State Treasurer of Utah, who provided introductions to the leaders of the Utah Retirement System (URS) and supported our examination of the impact of pension reform in Utah.
Recommended citation
Collection