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Do pension cuts for current employees increase separation? (Quinby & Wettstein, 2019)

Absence of conflict of interest.

Citation

Quinby, L., D. & Wettstein, G. (2019). Do pension cuts for current employees increase separation? Center for Retirement Research at Boston College.

Highlights

  • The study's objective was to examine the impact of 2005 reform to the Employees' Retirement System of Rhode Island (ERSRI) on employee separation. The reform enacted reductions to retirement benefits.  

  • The study design is a triple-difference design to examine the separation behavior stemming from the benefits changes. The study authors were given access to employment records for two different groups of government employees: those who were enrolled in ERSI and those who were enrolled in MERS (Municipal Employees' Retirement System). These data were available for the years 2003 through 2017. The authors used a statistical model to compare the separation of ERSRI employees before and after the reform, then comparing them to Rhode Island public employees in the Municipal Employees Retirement System (MERS) which did not experience reductions in retirement benefits.  

  • The study findings indicate a statistically significant and negative relationship between pension cuts for public sector employees and K-12 teachers and employee separation. The study also found that public sector employees separated at higher rates than K-12 teachers.   

Intervention Examined

Rhode Island Employment Retirement System (ERSRI)

Features of the Intervention

Rhode Island's employee retirement system (ERSRI) underwent reform in 2005, causing significant reductions to benefits, including pensions, for non-vested state employees. The reform to ERSRI included the following changes to the state's retirement benefits: an extension of the normal retirement age, a reduction of the annual pension benefit, and limited post-retirement cost-of-living adjustments for current public-school teachers and state government employees. This reduction in benefits only affected ERSRI members who had not vested by June 30, 2005, which meant they had less than 10 years of government service on that date. This intervention impacts state employees of Rhode Island. 

Features of the Study

The study design is a triple-differences design. The study authors identify four cohorts of workers to examine with the treatment group consisting of ERSRI members who were disqualified from vesting before 2005 (those who had fewer than 8 years of service in 2003), and the three control groups were identified to examine (1) ERSRI members that could potentially vest by 2005 (those that had at least 8 years of tenure in 2005), (2) MERS members who will not vest by 2005, and (3) MERS members who could potentially vest by 2005. The study authors obtained datasets of employment records for all ERSRI and MERS members between 2003 and 2017 and analyzed data for 23,676 workers.

Findings

Employment

  • The study authors found that cuts to retirement benefits for current mid-career public sector employees encourage individuals separate from their jobs.  

Considerations for Interpreting the Findings

  • There are a number of factors to take into consideration in interpreting the findings of this study.
  • First, some benefit reduction and reduced wage growth had begun before 2005. Second, there are differences in ERSRI and MERS, such as a different retirement age and a different cost-of-living adjustments during retirement.

  • The study is limited to public sector workers in Rhode Island, which has implications for generalizability.

  • Finally, subsequent employment options following retirement may vary in important ways, such as the limited transferability of teaching skills to other occupations.

Causal Evidence Rating

The quality of causal evidence presented in this report is moderate because it was based on a well-implemented non-experimental design. This means we are somewhat confident that the estimated effects are attributable to the Employees' Retirement System of Rhode Island (ERSRI) but other factors might also have contributed. 

Reviewed by CLEAR

January 2023