Reductions in the Generosity of State and Local Employee Pensions: Comparison of Plans with and without Social Security Coverage
We offer a concise history of retirement plans for state and local workers in the United States with a specific focus on the decreases in the generosity of these plans over the past 20 years. We survey the 85 state-managed plans that cover state, municipal and county workers, and teachers. Employees in 17 of the retirement systems are not covered by Social Security, and in 27 states teachers are in stand-alone plans separate from those of other public-sector employees. The historical review focuses on why more than half of the states chose to operate separate plans for teachers, and why a disproportionate number of plans not in Social Security are teacher-only plans (10 of 17). We find that retirees from teacher-only plans had a decline in benefits that was 12.2 percentage point smaller than all other plans, which is a 50% smaller reduction in initial benefits. Another objective is to compare benefit declines, over the past two decades, for plans not in Social Security with declines in plans covered by Social Security. We find that the average decline in initial retirement benefits, since 2000, is roughly 15%. The average decline in the plans included in Social Security are smaller than the declines in plans outside of the system. Also plans with a funding level of less than 75% had benefit declines that were about twice the size of plans with a funding ratio of greater than 75%.
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