New Research Finds Pension Plans Alone Often Don’t Provide Retirement Income Adequacy for State and Local Government Employees

The National Institute on Retirement Security and Aon to Host Webinar on December 15th to Review Report Findings

WASHINGTON, D.C., December 8, 2022 – A first-of-a-kind analysis finds that retirement is growing more challenging for public sector workers. State and local employees in a typical public defined benefit (DB) pension plan need to save about four to six percent of their salary on their own to ensure adequate retirement income. The report also finds that defined contribution (DC) plans provide less retirement income than DB plans in a typical cost-equivalent conversion for career employees.

These findings are detailed in a new study released today by the National Institute on Retirement Security (NIRS) and Aon, The Real Deal for the Public Sector: Retirement Income Adequacy Among U.S. Public Sector Employees. The report is authored by Eric Atwater, Aon partner, Tyler Bond, NIRS research manager, Dan Doonan, NIRS executive director, and Emily Swickard, Aon consultant.

Download the research.

Register for a webinar on Thursday, December 15, 2022, at 3:00 PM ET with a review of the findings with the report authors.

“This new report illustrates the growing challenge of retirement. With longer lives, healthcare costs increasing faster than wages, and more modest expectations of investment markets, even workers with a DB plan would be wise to have additional resources to shore up a secure retirement,” Doonan said. “This is particularly true for workers with less generous benefits, for women, and for younger workers. Rising costs are a major culprit, particularly healthcare costs, and this means that public employees must save more on their own to ensure a secure retirement. Fortunately, most public employers offer a range of supplemental savings programs that help set aside additional money for retirement.”

The report’s key findings regarding retirement income adequacy are as follows:

  • A “retirement number” is elusive because key factors are individual-based.
  • Retirement is growing more challenging for younger generations serving in state and local government.
  • Employees in the average public sector pension plan need to save about four to six percent of their salary on their own for an adequate retirement.
  • Rising medical costs have younger public employees less prepared for retirement than prior generations.
  • Female public employees are less ready than their male counterparts because of longer life expectancies.

The following are the key findings regarding retirement plan design:

  • DC plans provide less retirement income than DB plans in a typical “cost-equivalent” conversion for career public employees.
  • The average DB public pension plan with a two percent COLA provides employees with adequate retirement income without additional employee savings in the baseline scenario, which assumes Social Security coverage and retiree health care.
  • Not participating in Social Security requires a higher multiplier and higher employee savings for an adequate retirement.
  • Lack of a retiree medical plan increases an employee’s shortfall, requiring an expected additional six percent of pay during an employee’s career to cover the gap.

Aon and NIRS partnered to evaluate retirement income adequacy of public sector retirement plans because few employees know what is needed for an adequate retirement; public sector employees have long thought that the benefits provided would provide an adequate retirement after a full career; and most public sector retirement reform has focused on cost and not factored in retirement adequacy, nor the impact of employees not being able to retire in an orderly fashion.

The Real Deal for the Public Sector explores different metrics for evaluating retirement income adequacy for public sector employees. The analytical model for this research is based upon previous work done by Aon in analyzing retirement adequacy for the private sector through previous The Real Deal reports. This new research takes that model and adapts it to the unique features and characteristics of a typical public sector pension plan. It also considers differences in public sector retirement plan provisions, such as whether a worker is in a DB or DC plan, and whether or not they participate in Social Security.

The National Institute on Retirement Security is a non-profit, non-partisan organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers and the economy as a whole. Located in Washington, D.C., NIRS’ diverse membership includes financial services firms, employee benefit plans, trade associations, and other retirement service providers. More information is available at