Most – Not All – Public Workers Get Annuity

Retirement for workers in state, county and municipal government fits a certain picture: a regular monthly pension payment awaits them.

But there are important exceptions, which a recent study has filled in. A small minority of public sector workers get some or all of their retirement benefits in the form of a one-time cash payment. Doing so potentially comes at a cost: less financial security in old age.

Of particular concern are the 5 million people working in state and local government jobs that are not covered by Social Security. Social Security – like a pension – is a monthly annuity that provides some certainty about retirement income.

Still, in the larger scheme of things, the vast majority of state and local governments have retained their defined benefit (DB) pensions, even as these plans have virtually disappeared from the private sector, finds an analysis for the Center for Retirement Research by Jean-Pierre Aubry and Kevin Wandrei.

Some workers have the option of converting part of their DB pensions into a cash payment that reduces their regular monthly retirement benefits, and the research suggests that 6 percent of all retired state and local employees do so. Most government plans also offer a joint-survivor annuity that provides a lifelong payment to a deceased retiree’s spouse, but less than half of the workers who have this option actually choose it.

The 12 percent of public sector workers who do not have DB pensions are covered under various plans with a defined contribution (DC) feature. A majority of the workers with these retirement savings plans will take some or all of their benefits in the form of a one-time distribution of assets, the researchers found.

Among the workers who do not accrue credit in the Social Security program during their time in the public sector, about 8 percent – some 400,000 workers nationwide – take a partial cash payment from their DB pensions and sacrifice some of their regular pension income.

Workers in this situation “may find they lack steady household income in retirement,” the researchers concluded.

To read this study, authored by Jean-Pierre Aubry and Kevin Wandrei, see “Do All State and Local Workers Receive an Annuity in Retirement?”

The research reported herein was derived in whole or in part from research activities performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium.  The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the federal government, or Boston College.  Neither the United States Government nor any agency thereof, nor any of their employees, make any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report.  Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.