Declining labor force participation of older men throughout the 20th century and recent increases in participation have generated substantial interest in understanding the effect of public pensions on retirement. The National Bureau of Economic Research's International Social Security (ISS) Project, a long-term collaboration among researchers in a dozen developed countries, has explored this and related questions. The project employs a harmonized approach to conduct within-country analyses that are combined for meaningful cross-country comparisons. The key lesson is that the choices of policy makers affect the incentive to work at older ages and these incentives have important effects on retirement behavior.

Despite a decade-long bull market between the financial crisis and the COVID-19 recession, state defined benefit pension plans had accrued more than $1.37 trillion in unfunded liabilities. However, little work has investigated the actuarial sources of these unfunded liabilities. This paper uses original data hand collected from publicly available financial reports between 2000 and 2020 for 145 state-administered pension plans to determine the sources of unfunded liabilities. The largest unfunded liability contributor is investment experiences (when actual investment returns do not match assumed returns). The second and third largest contributors are changes to actuarial assumptions and expected changes (or interest accruing on existing unfunded liabilities). Benefit experience and legislative changes, demographic experience, and explicit funding shortfalls account for relatively little of the growth in unfunded liabilities. Moreover, the specific sources of unfunded liabilities are heterogeneous over time and across plans.

Two timely reviews of Australia’s transfer and tax systems were commissioned by the incoming government in 2008, although the GST, tax exemption of superannuation payments to people aged over 60, and pre-announced personal income tax cuts were placed outside the scope of inquiry. Most of the recommendations of the Harmer Pension Review have been implemented, but most of the recommendations of the Henry Tax Review have not. The Henry recommendations provided for enhanced equity and efficiency through a broader and simplified base, concentrating revenue raising on personal and business income, private consumption, and economic rents from natural resources and land. They provide an integrated blueprint for ongoing debate over tax reform.

In recent years, a growing number of capital market professionals have projected a low-return environment in US investment portfolios – where returns in most asset classes are expected to drop below historical rates. While these specific forecasts may not fully materialize, it is natural for cyclical investment markets to go through extended periods of lower returns, creating significant risks for public pension systems which rely on investment returns to sustain their long-term solvency and offset budgetary contributions. This paper uses a simulation method to examine the long-term effect of a low-return environment on the unfunded liabilities and contribution costs of US public pension systems while considering the moderating effects of asset allocation strategies, amortization approaches, and contribution policies.

This paper tests whether in a PAYG system there is an inter-generational balance between the contributions made during the working-career and the pension benefit received in retirement; covering different cohorts. The analysis takes Malta as a case study. Though the dependency ratio is comparatively low, the population is rapidly ageing. The results show that there is a generational imbalance with the young cohort unlikely to be any better off than those who have already retired. This however is sensitive to the assumed discount rate and the ‘no policy’ change scenario. The results also show that future generations may be net-gainers assuming a sustained level of wage growth. If, on the other hand, wage growth slows, the younger generation may become increasingly reliant on the bequests of older generations. This would explain why pressure has increased to regularly adjust the existing PAYG system as well to introduce other forms of pension schemes.

This study documents an important role for Social Security income in workers’ retirement timing. About 40% of public school teachers are not covered by Social Security. This provides an opportunity to analyze the causal impact of Social Security on retirement timing by comparing covered and non-covered teachers. Using individual-level data from the American Community Survey, we find robust evidence of higher rates of retirement among covered teachers at Social Security eligibility ages. This pattern is confirmed using an alternative regression model of participation in the teacher labor force. These estimates suggest that, should the federal government mandate full inclusion in Social Security for all public sector workers, the retirement timing patterns of newly covered teachers and other public sector workers would likely change.

I analyze the effects of state public pension parameters on the retirement of public employees. Using a panel data set of public sector workers from 12 waves of the Health and Retirement Study, I model the probability of retirement as a function of pension wealth at early and normal retirement eligibility and Social Security coverage in the public sector job. I find that becoming eligible for early retirement, or receiving an early-out offer, significantly increases the probability of retiring. I do not find any effect of retirement wealth levels. These findings suggest that state legislative action to affect retirement decisions and reduce future pension costs would be most effective operating through plan eligibility rules and early-out incentives.

For many people, working after beginning retirement benefit collection is a way to enhance financial security by increasing income. Existing research has shown that retirees are sensitive to the Social Security earnings test, which restricts the amount of earnings some beneficiaries can receive. However, little is known about the effects of other types of policies on post-retirement employment. Instead of restricting earnings, many public pension plans restrict the number of hours beneficiaries can work. I use return-to-work rules limiting the number of hours of employment in a state's public pension plan and administrative data on employment and retirement to determine the rules’ effects on retirement decisions and post-retirement labor supply. I find that the increases in the maximum number of hours of post-retirement employment lead to no change in retirement benefit collection and to increases in part-time work among retirees. As such, these policies appear to be binding on the labor supply decisions of some employees. These results are relevant for designing policies aimed at extending work-lives or improving the health of pension systems.

This paper builds on previous work (Costrell and McGee, 2017a, Education Finance and Policy) on the redistribution of teacher pension benefits, as measured by the wide variation in individual normal cost rates by age of entry and exit, and the associated cross-subsidies. The further steps taken here are: (i) to examine the impact of the discount rate on the degree of redistribution, and the analytics behind it; and (ii) to identify the distribution of the market value of the pension guarantee. Using the example of the California State Teachers’ Retirement System, I find that: (i) high-assumed returns substantially understate the extent to which costs are redistributed for back-loaded plans; and (ii) the market value of the pension guarantee is highly concentrated among long-term teachers.

We estimate the impact of increasing the female early retirement age (ERA) on household living standards. Examining the increase in the female ERA from 60 to 63 in the UK, we find increased earnings only partially offset lost public pension income, leaving affected women's household incomes £32 per week lower on average. The proportional effect was substantially larger for women in lower income households. This increased the income poverty rate among affected women by 6.4 percentage points. We find no evidence of an increased inability to afford important material items, potentially suggesting that material deprivation has been avoided through smoothing of consumption.

In the wake of the economic downturn of 2008–2009, researchers and policymakers have focused considerable attention on the extent of unfunded liabilities in US public sector pension plans and the implications for the long term fiscal sustainability of state and local governments. In response to the growth in liabilities, many states have introduced legislation that cuts back on defined benefit (DB) plan commitments, in some cases even shifting the pension system from a DB to a defined contribution or hybrid plan. This paper explores the factors that have led states to engage in pension reform, focusing particular attention on one factor that has only recently gained attention in the research literature: contribution volatility. While unfunded liabilities have significant long-term solvency implications, in the short term fluctuations in the amount of required contributions pose substantial difficulties for the ability of plan sponsors to balance budgets and engage in strategic planning. We begin by quantifying the volatility in the required contributions US states were expected to make between 2001 and 2013 and comparing the volatility of pension spending to other relevant tax and spending measures. Next, we describe the various types of pension reforms that states have implemented and examine the fiscal pressures facing those states that have engaged in reform. States with greater fluctuations in their required payments have been more likely to reduce benefits and increase employee contributions; they have also been more likely to institute these reforms sooner.

This paper provides a methodological critique of an influential method for assessing the impact on the Unfunded Accrued Liabilities (UAL) of the gap between assumed and actual investment returns over extended periods, and offers a sound replacement. The method in question simply sums over time the components of the annual actuarial gain/loss report. This implicitly assumes that in the counterfactual exercise, the interest on the additional UAL is covered dollar-for-dollar by amortization. But under actual funding formulas amortization usually varies less than interest. This means there are large intertemporal interactions between the gap in investment returns and subsequent shortfalls between contributions and interest. Using the actual funding formula in the counterfactual can lead to much higher estimates of the UAL impact of the gap in investment returns because it does not assume away these interactions. This method can more accurately inform policy-makers, regarding the importance of cutting the assumed rate of return.

Responding to the challenges of demographic ageing, the German system of old-age provision has undergone substantial changes during the past two decades and is in fact still under reconstruction. Benefit levels deriving from the public pay-as-you-go scheme will decline until 2060, while contribution rates may still go up substantially. Additional cover from private or occupational pension schemes is urgently needed. Thus far, steps in this direction have been half-hearted. The continuing crisis in financial markets and a more profound distrust in financial institutions and market-based instruments of old-age provision currently create obstacles to progress with this overhaul. Nevertheless, despite the differing traditions, Germany could learn important lessons now from other developed countries that have longer experience of funded pensions.

Fiscal stress pressures state legislators to either raise taxes or cut spending, but public pensions provide a vehicle to postpone tax increases and maintain current spending. I estimate that states cut their pension contributions at seven times the rate of other spending in response to fiscal stress. The cumulative impact of state undercontributions due to fiscal stress explains about 4% of mid-2008 actuarial underfunding. States not paying actuarially required contributions for reasons other than fiscal stress explains an additional quarter of underfunding. As investment returns explain little underfunding, much underfunding appears due to insufficient employee and actuarially required government contributions to keep up with growing pension liabilities.

Traditionally, collective defined benefit pension schemes have played an important role in the provision of pensions. Various trends such as population ageing put these schemes under serious pressure, however. Whether this is good or bad depends among other things on two factors: one is the value of the risk sharing between generations that is organized by pension schemes, and another is the cost of the distortions of labour supply decisions that these collective schemes imply. This paper constructs a model with overlapping generations of households and a pension scheme to assess the role of these two factors. The paper finds that the welfare gain from intergenerational risk sharing generally dominates the cost of labour supply distortions.

Financial economics holds that payment streams should be valued using discount rates that reflect the cash flows’ risks. In the case of pension liabilities, the appropriate discount rate for a pension fund's liabilities is the expected rate of return on a portfolio that would be held under a liability-driven investment policy. The valuation of defined benefit pension obligations involves choices revolving around deciding: (1) what future benefit payments to recognize today (i.e., which liability concept to use); and (2) from whose point of view to value the liabilities. Moving towards modeling, the distribution of future liabilities using a ‘risk-neutral’ framework, would allow for calculating the present value of the future liabilities more accurately. This would provide policymakers with information more relevant for the decision-making, and it would also permit easier communication of the risks facing the Pension Benefit Guaranty Corporation's PIMS model via a single univariate statistic.

State and local pension plans are increasingly moving from the traditional defined benefit (DB) model to non-DB models that generally allow for participant-directed investment. This shift has important implications for the management of the more than US$3 trillion in assets held to finance public employee retirement benefits. To investigate these implications, we introduce new data from a nationwide survey of public DB and non-DB plans and a unique data set on thousands of individual investors in the state of Florida's defined contribution (DC) plan. Using these sources, we explore how participant involvement in the public sector affects the distribution of asset class allocations, management fees, investment outcomes, and portfolio rebalancing at both the individual and aggregate levels. We found that there is little difference between the DB and non-DB plans in terms of asset mix, returns, and fees, except that DB plan have greater access and allocations to alternative investments. We also found that while the average individual DC plan participant allocated their asset similarly to the DB plan, black females and older white males, on average, invested on opposite tails of the risk spectrum.

We investigate the impact of receiving a public pension on total expenditures, food expenditures, and private transfers of the elderly in South Korea. Using a natural experiment that occurred in 1999, we are able to explore the impacts of a large public pension program expansion which newly incorporated people who had been self-employed, unemployed, and out of the labor force. We find that receipt of a public pension did not allow the elderly to increase total expenditures or food expenditures because the expansion of public pensions largely crowded out financial transfers from adult children and/or own siblings.

This paper examines a natural experiment in which Washington State teachers were offered the opportunity to choose between enrolling in a traditional defined benefit (DB) plan and a hybrid plan with DB and defined contribution (DC) components. We find plan preference is weakly related to estimates of the relative financial benefits of being in either the DB or hybrid system and strongly related to teacher age. Importantly, we also find that the majority of teachers prefer the hybrid plan, and that teachers opting into the hybrid plan tend to be more effective based on student output measures of teacher productivity. These results suggest that policy shifts toward pension systems that include DC options do not necessarily make teaching a less desirable profession, particularly for the most productive employees.