1. Leslie E. Papke Michigan State University
Identifying State and Local Public Sector Workers in the Health and Retirement Study
Leslie E. Papke
Michigan State University
National Tax Association Meetings
November 9, 2017

2. Motivation
Sustainability of state and local pension systems remains a major issue
Source: National Council on Teacher Quality (2015)

3. Motivation
State legislatures have reduced public sector pension generosity, but defined benefit plans remain the norm in public employment.
From 2009 to 2011, 43 states introduced changes in state plans for general employees and teachers to address long-term funding problems.
Examples include adjustments to contribution rates, benefit reductions, and changes to early retirement compensation rules.
Benefit reductions include an increase in the number of years until vesting, the number of years used in the FAS calculation, and reduction or elimination of inflation adjustments.

4. Motivation
Example (NY): includes higher contribution rate, higher retirement age, increase in vesting to 10 years.
Source: National Council on Teacher Quality (2012)

5. Motivation
My focus is on the behavioral effects of these pension parameters on the timing of retirement and re-employment following retirement from the public sector.
Ultimately, plan to estimate value placed on DB pension. Offer lump sum payment in exchange for annuity? (Fitzgerald, 2010; Papke, 2011)
Shortcomings of administrative data
There is much variation across states in pension plans for state/local employees, teachers, and public safety employees.
Over 5.25 million public employees do not participate in Social Security.

6. Simulation Evidence

7. Health and Retirement Study
Most complete longitudinal survey of pre-retirement population – nationally representative of older population
Four cohorts enter at age in 1992, 1998, 2004, and 2010
Surveyed every two years. Active time for public pensions
Publicly available data: employment, income, assets, health, retirement, insurance, and family structure
Rand HRS data files (v. P), Rand-enhanced Fat Files (one per wave)

8. Health and Retirement Study
Restricted Data:
Geographic codes for state of residence to identify public pension plan parameters (Public Fund Survey) and state tax rates, other state level policy
Detailed industry and occupation codes to identify public sector job type (especially teachers)
Pension calculator and pension parameters from employer Summary Plan Descriptions. Calculates early retirement present value, peak present value

9. Identifying a public employee
Response to prompt at entry, 2006 and 2010
Trace forward and backward using job length
Gustman, Steinmeier, and Tabatabai (2013) find substantial underreporting of public employment compared to report of lack of Social Security coverage
SS participation asked in 2004, also third wave for HRS
Trace this response
Detailed industry and occupation data
Identify teachers, public administrators, police and firefighters

10. First year in survey

11.  Government Employees in 1992, 1998, 2004, 2010
2,930 observations
Variables
Mean
Std. Dev.
Pension Characteristics
Female
0.61
0.49
Age
53.41
5.02
Married
0.73
0.44
No SS
0.14
0.34
Local gov’t employee
0.25
0.43
Teacher
0.21
0.41
Ever a teacher
Police
0.02
0.15
Firefighter
0.01
0.09
Retiree health insurance
0.66
0.47
Works full time
0.79

12.  Government Employees in 1992, 1998, 2004, 2010 2,930 observations
Variables
Mean
Std. Dev.
Median non-housing assets
$39,600.00
Median household income
$59,000.00
Median earnings
$30,000.00
Median spousal earnings
23,000.00
Self employment income?
0.03
0.17
Poor health
0.12
0.33
Eventually retired from gov’t job
0.49
0.50
HRS (1992)
0.44
WB-CODA (1998)
0.13
0.34
EBB (2004)
0.37
MBB (2010)
0.26

13. Conclusions & Future Work
Have substantially increased public sector sample size in HRS and documented job changes – by about a third in entry year.
Next:
Study retirement decision as a function of pension peak value, Social Security coverage, and spousal characteristics
Estimate re-employment probabilities after retirement from public employment
Estimate wage/benefit tradeoff for employees with and without Social Security coverage