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The Effect of Pension Plan Type on Retirement Age: Distinguishing Plan Incentives from Career Length Preferences

Colleen Flaherty Manchester ()

Working Papers from Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus)

Abstract: The widespread movement from defined benefit (DB) plans to defined contribution (DC) plans over the past few decades has transferred much of the retirement savings risk from the institution to the individual, particularly in the private sector. This study uses the Retirement Confidence Survey of College and University Faculty, 2005 to ex- amine the use of DC plans relative to DB plans among faculty and the impact of plan incentives on expected retirement age. This study finds that the difference in retirement wealth accrual patterns between the two types of plans generates an eight-month difference in expected retirement ages for individuals in a DC plan relative to those in a DB plan. Preferences over career length double the effect of incentives: individuals who elect to enroll in a DB plan expect to retire sixteen months earlier than those who chose to enroll in a DC plan. In addition, this paper finds that individuals choose retirement plans to diversity their sources of retirement income, which has implications for proposed policies that incorporate individual accounts into Social Security.

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