Vesting Requirements and Key Benefit-Formula Features of State and Local Government Pension Plans



This article provides a quantitative analysis of some key features of state and local pensions, including vesting requirements, the FAS period, and the benefit formula multiplier. This analysis focuses on public pensions in states that account for large numbers of noncovered public-sector workers. Among its unique contributions is the weighting of the summary statistics by population—in this instance, by the active membership in each benefit tier. This weighting mechanism is of special importance for occupation groups such as teachers, whose number of benefit tiers are underrepresented relative to active members, and public safety workers, whose tiers are overrepresented relative to active membership.

The findings in this article provide supporting evidence of a benefit retrenchment across state and local pensions, at least in states where noncovered employment is most common. Benefit tiers that are not open to new hires tend to have shorter vesting periods, shorter FAS periods (resulting in higher FASs), and higher benefit multipliers. As states have sought to reduce pension expenses, they have tightened eligibility requirements by increasing vesting periods, and have lowered benefits by increasing the FAS period and reducing the benefit formula’s multiplier.

This is not particularly surprising, given the recent economic conditions and plan funding levels that have led to pension reforms. However, the analysis shows that those changes have not affected all types of state and local workers equally. Changes in the FAS period, for example, affect public safety workers and local-level general government employees more than they affect teachers.

Author: Glenn R. Springstead

Publication Date: February 2021

Publication Site: Social Security Administration, Social Security Bulletin