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

Research output: Contribution to journalArticle

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.

Original languageEnglish (US)
Pages (from-to)1-13
Number of pages13
JournalJournal of Public Economics
Volume145
DOIs
StatePublished - Jan 1 2017

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Retirement
Defined contribution
Public sector
Pensions
Employees
Defined benefit
Wealth
Pension system
Financial markets
Standard deviation
Federal government
Stock market returns
Labor income
Market returns

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Cite this

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