State Pension Plans

Similarities and Differences Between Federal and State Designs Gao ID: GGD-99-45 March 19, 1999

This report discusses the design components of retirement programs that states offer to their general employees and compares them to the design components of the two principal federal retirement programs for federal workers--the Federal Employees' Retirement System and the Civil Service Retirement System. GAO also describes the changes that the states have considered and made to their retirement programs.

GAO noted that: (1) all states used two or more of the four design components, but few of their retirement programs had all of the same components as the Federal Employees' Retirement System (FERS) or the Civil Service Retirement System (CSRS); (2) the majority of states--35--included three components and differed by only one component from either FERS or CSRS; (3) the lack of employer contributions to defined contribution (DC) plans distinguished these programs from FERS, and the inclusion of social security coverage distinguished them from CSRS; (4) in the final analysis, three state programs had the same components as FERS and six had the same components as CSRS; (5) GAO's review showed that all states have in some way changed the design components of their retirement programs since the programs were established; (6) developments in federal law that might enhance employee benefits prompted most of these changes; (7) officials representing 21 of the 48 state retirement programs with a defined benefit (DB) component told GAO that their states had recently considered dropping their DB plan component in favor of a program consisting solely of a DC component with an employer contribution and social security; (8) however, only two states have no DB plan, and one of these states--Michigan--recently dropped its DB plan and switched to a DC plan with an employer contribution for its state-sponsored retirement benefits; (9) officials from the 21 states cited reducing government costs, enhancing portability, and lobbying by special interests as the major reasons for considering such a change; (10) they also cited a number of reasons for not dropping their DB plans, the most common were that: (a) studies showed no need for the change; (b) further study was needed; (c) labor unions opposed the change; or (d) there was lack of interest or support for the change; (11) officials representing the other 27 state programs told GAO that their states had never considered dropping their DB component; and (12) the most common reasons state officials gave for not considering such a change were that: (a) the DB component provided greater benefits, including survivor and disability benefits; and (b) they regarded the DB plan as a better way to retain employees.

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