Supplemental Retirement Savings Plans in the Public Sector: Participation and Contribution Decisions by School Personnel

Virtually all full-time state and local government employees are covered by a retirement plan, typically a defined benefit plan, in which they are required to participate. In addition, most school employees have the option of choosing to contribute to a voluntary retirement savings plan offered by their school district. Relative to private sector workers, public employees face an expanded choice of retirement savings plans. Federal tax policies allow state and local governments the opportunity to offer both 401(k) plans and 457 plans to their employees. In addition to these plans, public schools and certain other organizations can offer 403(b) plans to their employees. This paper examines the decision to participate in a voluntary savings plan and the level of contributions for those that enroll in at least one of the plans. The analysis begins by describing the savings options available to public school employees and how these plans differ. The findings indicate that the same economic and demographic factors that influence saving decisions by private workers also drive the decisions of school employees. The three savings plans offered to public employees have many similar characteristics; however, several differences in the plans imply that certain workers may prefer one plan type over the others. Probit and Tobit models of participation in any plan and total annual contributions are estimated. Finally, we estimate the determinants of the decision to choose any one or a combination of savings plans.