Pension Structure and Employee Turnover: Evidence from a Large Public Pension System

Cyrus Grout, Center for Education Data and Research, University of Washington, Bothell
Kristian L. Holden, AIR

Public pension systems in many U.S. states face large funding shortfalls. Movement toward defined contribution (DC) pension structures may reduce the likelihood of future shortfalls. We address some limitations of the existing literature by studying public-sector employees who are enrolled in either a defined benefit (DB) plan or hybrid DB-DC plan, and who at some points have been able to choose between these plans.

Using data from a pension reform plan implemented in Washington state, the report found little evidence that the hybrid plan increased employee turnover, and that turnover was significantly lower among those who transferred voluntarily into the hybrid plan. These findings cast doubt on the conventional wisdom that pension reforms will necessarily induce greater employee turnover.