Hostname: page-component-8448b6f56d-c47g7 Total loading time: 0 Render date: 2024-04-19T07:10:05.961Z Has data issue: false hasContentIssue false
  • English
  • Français

Deferred compensation for career employees in public defined benefit pension plans: evidence from Colorado PERA

Published online by Cambridge University Press:  09 May 2008

MICHAEL V. MANNINO  and
ELIZABETH S. COOPERMAN
MICHAEL V. MANNINO*
Affiliation:
University of Colorado Denver
ELIZABETH S. COOPERMAN*
Affiliation:
University of Colorado Denver
*
Correspondence Address: The Business School, University of Colorado Denver, Campus Box 165, P.O. Box 173364, Denver, CO. 80217-3364, USA.
Correspondence Address: The Business School, University of Colorado Denver, Campus Box 165, P.O. Box 173364, Denver, CO. 80217-3364, USA.
Get access Rights & Permissions [Opens in a new window]

Summary

With significant under funding of public defined benefit pension plans, public debate often focuses on funding problems, neglecting benefit-side factors that contribute to under funding. In this study we examine the benefit side by calculating the value of deferred compensation, using a unique dataset of salary histories for recent university retirees covered by the Colorado Public Employees Retirement Association plan. We find sizable levels of deferred compensation that is associated with retirement age and period, job class, service years, and to some extent gender, with administrators receiving the highest levels. We also find wage–earning profiles to underestimate salary growth for higher-paid employees.

Type
Articles
Information
Journal of Pension Economics & Finance , Volume 8 , Issue 1 , January 2009 , pp. 35 - 61
Copyright
Copyright © 2008 Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Altonji, Joseph G. and Shakotko, Robert A. (1987) Do wages rise with job security. Review of Economic Studies, 54(3): 437–59.CrossRefGoogle Scholar
Altonji, Joseph G. and Williams, Nicolas (1998) The effects of labor market experience, job seniority, and job mobility on wage growth. Research in Labor Economics, 17: 233–76.Google Scholar
Anderson, Gary W. and Brainard, Keith (2004) Profitable prudence: the case for public employer defined benefit plans. Pension Research Council, Working Paper No. PRC 2004-6, in Olivia, Mitchell and Robert, Clark (eds) Reinventing the Retirement Paradigm. Oxford: Oxford University Press.Google Scholar
Brown, Jeffrey R. (2000) Differential mortality and the value of individual account retirement annuities. Working Paper Presentation, National Bureau of Economic Research Conference on Distributional Aspects of Social Security and Social Security Reform, 31 January.Google Scholar
Brown, Jeffrey R., Mitchell, Olivia S., and Poterba, James M. (2000a) Mortality risk, inflation risk, and annuity products. Working Paper No. W7812, National Bureau of Economic Research, Cambridge, MA, July.CrossRefGoogle Scholar
Brown, Jeffrey R., Mitchell, Olivia S., and Poterba, James M. (2000b) The role of real annuities and indexed bonds in an individual accounts retirement program. In John, Campbell and Martin, Feldstein (eds) Risk Aspects of Investment-Based Social Security Reform. Chicago: University of Chicago Press, pp. 321–60.Google Scholar
Childs, Paul D., Fore, Douglas, Ott, Steven H., and Lilly, Claude C. III (2002a) Defined benefit vs. defined contribution? Determining the optimal benefit plan choice using a real options framework. Working Paper No. 9-060102, 2002a,TIAA-CREF Institute, New York, NY.Google Scholar
Childs, Paul D., Fore, Douglas, Ott, Steven H., and Lilly, Claude C. III (2002b) Defined benefit vs. defined contribution optimal employee and employer retirement plan choice. Working Paper, 2002b, TIAA-CREF Institute, New York, NY.Google Scholar
Clingman, M. and Nichols, O. (2004) Scaled factors for hypothetical earnings examples under the 2004 Trustees Report assumptions. Social Security Administration Actuarial Note, No. 2004.3, December. Available from www.socialsecurity.gov.Google Scholar
Cohen, J. (1977) Statistical Power Analysis for the Behavioral Sciences. New York, NY: Academic Press.Google Scholar
Costrell, R. and Podgursky, M. Peaks (2007) Cliffs and valleys: the peculiar incentives in teacher retirement systems and their consequences for school staffing. Educational Resources Information Center, November. Available at www.eric.ed.gov.Google Scholar
Duggan, James E., Gillingham, Robert, and Greenlees, John S. (1993) Returns paid to early social security cohorts. Contemporary Economic Policy, 11(4): 1–13.CrossRefGoogle Scholar
Forman, Jonathan Barry (2000) Public pensions: choosing between defined benefit and defined contribution plans. Law Review: 187–212.Google Scholar
Geanakopolos, John, Mitchell, Olivia S., and Zeldes, Stephen P. (1998) Social security moneys' worth. Working Paper, No. W6722, National Bureau of Economic Research, Cambridge, MA, September. and Cowles Foundation Paper (New Haven: Yale University) Working Paper No. 1005, 2000.Google Scholar
Johnson, Richard W. (1997) Pension underfunding and liberal retirement benefits among state and local government workers. National Tax Journal, 50(1): 113–42.CrossRefGoogle Scholar
Johnston, Ken, Forbes, Shawn, and Hatem, John A (2001) Comparison of state university defined benefit and defined contribution pension plans: a Monte Carlo simulation. Financial Services Review, 10: 37–44.CrossRefGoogle Scholar
Lazear, Edward P. (1985) Incentive Effects of Pensions, in Pension Labor and Individual Choices. Edited by David, A. Wise. Chicago: University of Chicago Press, pp. 253–82.Google Scholar
Lovejoy, L. (1988) The comparative value of pensions in the public and private sectors. Monthly Labor Review, 111(12): 18–26.Google Scholar
McCarthy, David (2003) A life-cycle analysis of defined pension plans. Journal of Pension Economics and Finance, 2(2): 99–126.CrossRefGoogle Scholar
McNeil, Michele. (2008) Retiree obligations cloud fiscal horizon. Education Week, 27(21): 22–4.Google Scholar
Milstead, David. (2005) ‘Fire Sale’ on pension credit. Rocky Mountain News, 15 August. Available at www.insidedenver.com.Google Scholar
Milkovich, G. and Newman, J. (2002) Compensation. 7th edn, McGraw-Hill Higher Education.Google Scholar
Mitchell, Olivia S., Poterba, James M., and Warshawsky, Mark J., and Brown, Jeffery (1999) New evidence on the money's worth of individual annuities. American Economic Review, 89(5): 1299–318.CrossRefGoogle Scholar
Munnell, Alicia H. and Connolly, A. (1979) Comparability of public and private compensation: the issue of fringe benefits. New England Economic Review (July–August): 27–45.Google Scholar
Phillips, Kristen (1992) State and local government pension benefits. In John, Turner and Daniel, J. Beller (eds) Trends in Pensions, Washington, DC: US Department of Labor.Google Scholar
Passantino, George and Summers, Adam B. (2005) The gathering pension storm: how government pension plans are breaking the bank and strategies for reform. Reason Foundation, Policy Study 335, June 2005.Google Scholar
Poterba, James and Warshawsky, M. (1999) The costs of annuitizing retirement payouts from individual accounts. National Bureau of Economic Research, Working Paper 6918, January.CrossRefGoogle Scholar
Rodgers, James D., Brookshire, Michael L., and Thornton, Robert J. (1996) On the interpretation of age–earnings profiles. Journal of Forensic Economics, 9(2): 169–210.CrossRefGoogle Scholar
Samwick, Andrew A. and Skinner, Jonathan (2004) How will 401(k) pension plans affect retirement income? American Economic Review, 94(1): 329–43.CrossRefGoogle Scholar
Segal, Donald (2001) Letter to Mr Mark Weinberger about Mortality Table Recommendations. 27 April.Google Scholar
Sharpe, W. (1994) The Sharpe ratio. Journal of Portfolio Management (Fall): 49–58.CrossRefGoogle Scholar
Shiller, Robert J. (2003) Social security and individual accounts as elements of overall risk-sharing. American Economic Review, 93(2): 343–7.CrossRefGoogle Scholar
Shiller, Robert J. (2005) The life-cycle personal accounts proposal for social security: an evaluation. Yale ICF Working Paper No. 05-06, Cowles Foundation Discussion Paper No. 1504, March. Available at SSRN: http://ssrn.com/abstract=703221.Google Scholar
Sidak, Z. (1967) Rectangular Confidence Regions for the Means of Multivariate Normal Distributions, Journal of the American Statistical Association, 62 626–33.Google Scholar
Society of Actuaries Group Annuity Valuation Table Task Force (1995) Group annuity mortality table and 1994 group annuity reserving table. Transactions of Society of Actuaries, 47.Google Scholar
Society of Actuaries. The RP-2000 Mortality Tables. Available from the Society of Actuaries website www.soa.org/ccm/content/.Google Scholar
Sortino, F. and Price, L. (1994) Performance measurement in a downside risk framework. Journal of Investing (Fall): 59–65.CrossRefGoogle Scholar
Spriggs, William E. and Ratner, David (2005) Social security price indexing proposal means benefit cuts for workers. EPI Issue Brief #209, Economic Policy Institute, 1 June. Available from www.epi.org/content.cfm/index_pubs_ib.Google Scholar
Thornton, Robert J., Rodgers, James D., and Brookshire, Michael L. (1997a) On the interpretation of age–earnings profiles. Journal of Labor Research, 18(2): 351–65.CrossRefGoogle Scholar
Thornton, Robert J., Rodgers, James D., and Brookshire, Michael L. (1997b) Forecasting earnings using age–earnings profiles and longitudinal data. Journal of Labor Research, 18(2): 351–65.CrossRefGoogle Scholar
Woerheide, Walt and Fortner, Rick (1991) comparing defined benefit and defined contribution pensions. Journal of Financial Planning (January): 42–9.Google Scholar