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
The new study, published this month in the
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
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
In the study, the researchers used individual administrative and pension data
“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.
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Original text here: https://www.usf.edu/business/news/2022/08-08-pensionable-overtime-study.aspx