Problems with State-Local Final Pay Plans and Options for Reform
The brief’s key findings are:
- Defined benefit plans based on final pay:
- “backload” benefits, so younger shorter-service employees get virtually nothing;
- favor those with high earnings growth, who tend to be higher paid; and
- invite sudden late-career “spikes” in earnings.
- Moving to career-average earnings would:
- provide reasonable benefits for younger shorter-service employees;
- treat high- and low-paid employees more equitably; and
- avoid late-career spikes in earnings.