Annuity pricing in public pension plans: importance of interest rates

Abstract

This study examines the distribution options of 85 large public retirement plans covering general state employees, teachers, and local government employees. The interest rates used to price annuities vary considerably across the plans. As a result, retirees with the same monthly benefit if a single life benefit is chosen will have substantially different monthly benefits if they select a joint and survivor annuity. We examine the impact of variation in the pricing of annuity options using both cross-plan differences in interest rates and the change in the choice of annuity options in one plan after the price of options changes due to new assumed interest rates and mortality rates.

Factors Influencing the Choice of Pension Distribution at Retirement

“…By contrast, those authors reported that among public DC plans, an annuity was never the default distribution; moreover, some DC plans did not even offer an annuity option. Abashidze et al (2021) provide a review of the type of retirement plans offered by states and the benefit options included in these plans. 10…”

Influencing the choice of pension distribution at retirement

“…By contrast, those authors reported that among public DC plans, an annuity was never the default distribution; moreover, some DC plans did not even offer an annuity option. Abashidze et al (2021) provide a review of the type of retirement plans offered by states and the benefit options included in these plans. 10 6 There are currently proposals in Congress to delay the RMD age to 75; see Waddell (2019).…”