Panel Paper: What Happens to State and Local Workers After They Retire?

Friday, November 9, 2012 : 10:45 AM
Poe (Sheraton Baltimore City Center Hotel)

*Names in bold indicate Presenter

Richard Johnson and Janice Park, Urban Institute

Nearly all state and local government workers are covered by traditional defined benefit pension plans that provide generous retirement benefits and typically encourage workers to retire early. Once they qualify for early retirement benefits, workers lose a month of benefits every month they remain on the payroll. The monthly checks they eventually receive usually increase with additional years of service (especially as the early retirement penalty diminishes), and for a time these gains typically more than compensate for the checks they forfeit. However, once workers reach the normal retirement age, they typically lose pension wealth if they remain on the job. The turning point usually occurs by age 60, but sometimes much earlier, leading many state and local workers to retire unusually early. As the nation’s labor force ages and the pool of potential younger workers stagnates, many policymakers and policy experts are beginning to question whether a retirement system that encourages experienced workers to leave the labor force still makes sense.

            Very little is known, however, about what state and local pensioners do after they begin collecting their retirement benefits. Do they leave the labor force completely, move into private-sector employment, or switch to another government job? If they take a new job, how does it compare to the career public-sector job? Do they move into new occupations, or pursue their previous line of work? Do they tend to work part-time? What kinds of benefits do they receive on their post-retirement job? This paper examines these questions using data from the Health and Retirement Study, a biannual longitudinal survey of Americans older than age 50. We use data spanning 1992 to 2010. In addition to collecting contemporaneous data on employment and earnings, the survey asks retrospective questions about prior employment, allowing us to identify retirees who left government employment before they were first surveyed.