Problems with State-Local Final Pay Plans and Options for Reform

The brief’s key findings are:

• Defined benefit plans based on final pay:
• “backload” benefits, so younger shorter-service employees get virtually nothing;
• favor those with high earnings growth, who tend to be higher paid; and
• invite sudden late-career “spikes” in earnings.

• Moving to career-average earnings would:
• provide reasonable benefits for younger shorter-service employees;
• treat high- and low-paid employees more equitably; and
• avoid late-career spikes in earnings.