There is an inverse relationship between the generosity of a local government defined benefit plan and its employees’ contributions to a supplemental retirement plan, a team of North Carolina State University researchers found.
Reporting on their study in a recent issue brief, “Importance of Supplemental Retirement Saving Plans for City and County Employees,” the Center for State and Local Governmental Excellence reports that the NCSU researchers looked at data from 20 local governments from every U.S. region, including six of the 10 most populous U.S. cities, as well localities of more modest size. All of the jurisdictions studied offer 457 plans; some offer 401(k)s as well.
The brief says that at least among the local governments included in the study, public employees whose plans are more generous are less likely to contribute to a supplemental retirement plan. For instance, 0% and 45% of the employees of Houston and Alexandria, Va., respectively, participated in supplemental plans; their DB plans provide retirees with 80% and 73.5% of preretirment income. Meanwhile, 70% of the employees of Milwaukee participated; their city DB plan provides replacement income of 48%.
Similarly, the study found that participation in supplemental retirement plans was higher among employees whose cities required them to contribute no more than 6% of their pay to the DB plan than it was among cities requiring higher contributions.
The study suggests that higher participation in supplemental plans may result from employees seeing the lower balances that result from smaller contributions to their DB plans.
The study also says that retirement benefits help public employers attract and keep employees, and that length of tenure enhances the value of those benefits. It concludes that supplemental retirement plans are an important way to help shorter-term employees save for retirement.
