Pensionable overtime raises retirement costs by nearly 20%, study finds – InsuranceNewsNet

SARASOTA, Florida, August 10 (TNSjou) — The University of South Florida sarasota–Manatee campus published the following news:

State and local municipalities facing underfunded public pensions may want to add an overlooked bargaining tool to the bargaining table: award rules that stipulate which workers have preferential access to overtime.

It is well known that national and local pension schemes are grossly underfunded. This is why a University of South Florida researcher examined whether pensionable overtime increased the cost of a pension and, if so, by how much.

The new study, published this month in the Journal of Risk and Insurancefound that making overtime pensionable, where rules typically distribute shifts to older workers, raises retirement costs by nearly 20% and costs about 2.9% of payroll, according to a sample data on pensions philadelphia cream city ​​employees.

But when the researchers apply a counterfactual, the “equal allocation rule,” where overtime is randomly distributed among workers, so older workers don’t have the right of first refusal, the change could help save 4% of retirement costs or 0.7% of payroll.

“Who you ask to work overtime is important. Pensionable overtime and overtime award rules are important factors that drive up retirement costs yet are ignored,” said Po Lin Wangprincipal investigator of the study and assistant professor of risk management and insurance at the University Muma College of Business.

As a result, state and local governments should consider controlling pension costs by adjusting retirement incentives such as overtime allocation rules, he said.

Wang, who teaches in School of Risk and Insurance Managementco-author of the article, “Wait Your Turn: Retirement Incentives, Workplace Rules, and Labor Supply among philadelphia cream municipal workers”, which was published in the Journal of Risk and Insurancea leading peer-reviewed academic journal in the discipline of risk management and insurance.

In the study, the researchers used individual administrative and pension data philadelphia cream city ​​employees in all areas, including prisons, water service and street service. He added that these findings can be applied to other municipalities, not just philadelphia cream.

“From a policy perspective, our results suggest that in order to control the pension costs associated with overtime, employers should focus on internalizing the true cost of overtime allocation rules when negotiating with employees,” Wang said.

“This approach can serve to reduce the extent to which overtime award rules add to pension underfunding without requiring substantial changes in benefit design,” he said.

* * *

LOG: Journal of Risk and Insurance

* * *

Original text here: https://www.usf.edu/business/news/2022/08-08-pensionable-overtime-study.aspx