The market sensitivity of retirement and defined contribution pensions: Evidence from the public sector

Matthew T. Gustafson

Journal of Public Economics, 2017, vol. 145, issue C, 1-13

Abstract: I provide evidence that defined contribution (DC) pensions make retirement more positively correlated with stock market returns as compared to defined benefits (DB) pensions. To identify the effect, I exploit the U.S. federal government's switch in 1984 from a DB pension system (CSRS) to a hybrid-DC pension system (FERS). I estimate that FERS exposes approximately 24% more pension wealth to the financial markets. Compared to untreated employees, employees treated with the hybrid-DC pension respond to a one standard deviation shock to quarterly market returns by adjusting their retirement date by approximately one month, approximately offsetting changes in DC pension wealth with labor income.

Keywords: Defined contribution pensions; Retirement; Stock market returns; Federal employees (search for similar items in EconPapers)
JEL-codes: D14 H55 J22 J26 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:145:y:2017:i:c:p:1-13

DOI: 10.1016/j.jpubeco.2016.11.008

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