EBRI Issue Brief

Spending and Saving Behavior of Public-Sector Defined Contribution Plan Participants

Sep 22, 2022 21  pages


Public-sector workers have traditionally been covered by defined benefit (DB) plans that pay annuities or guaranteed streams of income in retirement. However, since the recession of 2008–2009, states have made many reforms to the pension plans they offer their employees. In fact, in just 2010 and 2011, 18 and 27 states, respectively, enacted major pension reforms. For the most part, public-sector employers have retained their DB plan offerings along with a supplemental DC plan. In rare cases, the DC plan has become the primary plan offered by the public-sector employer, and in other cases, public-sector employers have offered hybrid plans (combination plans that offer features of both DB and DC aspects). As a result of these structural changes, newly hired public-sector employees’ benefits will often be different (lower in most cases when different) than their longer-tenured colleagues’.

This research is part of a joint effort between the Public Retirement Research Lab (PRRL) — a collaborative partnership between the Employee Benefit Research Institute (EBRI) and the National Association of Government Defined Contribution Administrators (NAGDCA) to provide an enhanced understanding of the design and utilization of public-sector defined contribution retirement plans — and JPMorgan Asset Management to deliver data-driven research to further the retirement success of Americans, with a commitment to providing unique fact-based insights to policymakers, plan sponsors, and plan providers to help build a stronger retirement system. This study examines public-sector DC plan participants’ spending and saving behaviors to see if cohorts of workers who have different primary plans (DB vs. non-DB) or different generosity of DB plan benefits have differences in these behaviors.

Key Findings:

  • Households with public-sector DC plan participants who have a primary DB plan feel more comfortable spending than those without a primary DB plan. This comfort level may be short-sighted for the households with newly hired public-sector DC plan participants, as the benefits from the primary plan are likely to be less than those of longer-tenured or retired cohorts. As a result, the households with new hires may not be as prepared for retirement as they expect.
  • Public-sector households are, at the median, spending at or above their net income.
  • Savings rates in DC plans are correlated with the type of primary employer-sponsored plan (e.g., defined benefit, defined contribution, or hybrid).
  • Households with employees with a primary employer-sponsored DB plan are less likely to contribute to a DC plan.
  • The presence or absence of Social Security coverage appears not to have an impact on spending behavior.
Public-sector employees, and in particular newly hired employees, could benefit from more education about their retirement plan offerings and finances overall to better understand their plan benefit structure, how that can impact spending both currently and in the future, and the potential need to save more. Given many states having tight budgets, employees’ use of their DC plans could make the difference in how comfortable their retirements are financially.