ANNUITY OPTIONS IN PUBLIC PENSION PLANS:

THE CURIOUS CASE OF SOCIAL SECURITY LEVELING

Robert L. Clark, North Carolina State University and NBER

Robert G. Hammond, North Carolina State University

Melinda Sandler Morrill, North Carolina State University

David Vanderweide, Fiscal Research Division, North Carolina General Assembly

Please do not cite or circulate without authors’ permission

Preliminary Draft: September 2016*

Abstract:

Public pension plans often offer retirees an annuity option that allows participants

to receive a larger benefit prior to age 62 but the pension benefit is then lowered

at age 62 when the individual is expected to claim Social Security benefits, in our

case called a Social Security Leveling option. The objective of this annuity is to

produce a level annual retirement income before and after age 62. Little is known

about how this option is used in practice and its impact on well-being in

retirement. In this analysis, we describe the level income annuity option available

to public sector retirees in North Carolina and provide analysis of the risks and

benefits of this option to various groups. Using a combination of administrative

records and survey data of retirees, we describe the characteristics of recent

retirees choosing this option. We find that one-third of all retirees selecting a

single-life annuity between 2009 and 2014 opted for Social Security Leveling.

Those selecting the level income option over the standard single-life annuity

claimed at younger ages, were more likely to be retiring under an early retirement

benefit, and had longer tenures. Survey data among retirees finds these

individuals selecting the level income single-life annuity option had less financial

security, higher perceived mortality risk, and lower confidence in their retirement

decision-making.

* This paper was prepared for presentation at the 2016 SIEPR Conference on Working Longer. This

research is part of an on-going project that is being conducted in partnership with the North Carolina

Retirement Systems Division and is being funded by the Sloan Foundation, Grant Number 2013-10-20.

The authors gratefully acknowledge the help and support of Janet Cowell, North Carolina State Treasurer,

Steven C. Toole, Director of the Retirement Systems Division, Mary Buonfiglio, Deputy Director of

Supplemental Retirement Plans, and Sam Watts, Policy Director of the Retirement Systems Division.

The authors would like to thank Nino Abashidzek, Bryan Allard, Emma Hanson, Christelle Khalaf, and

Aditi Pathak for research assistance. The opinions and conclusions expressed herein are solely those of

the authors and do not represent the opinions or policy of the North Carolina Retirement System or any

other institution with which the authors are affiliated.

1

ANNUITY OPTIONS IN PUBLIC PENSION PLANS:

THE CURIOUS CASE OF SOCIAL SECURITY LEVELING

I. Introduction

One of the most important, but least studied, choices participants in defined benefit

pension plans must make concerns the disposition of funds at retirement. Prior research has

explored the tendency of individuals to under-annuitize wealth.1 The choice of annuity type in

the private sector is heavily influenced by default options as required by the Employee

Retirement Income Security Act (ERISA). Public sector plans are not subject to ERISA, and in

many states there is no default to a joint and survivor option. Defined benefit plans in the public

sector typically allow career retirees to begin full or unreduced benefits at relatively young ages.

Individuals retiring in their 50s must determine the best way to receive pension payouts that

maximizes well-being over 30 or so years of retirement. These young retirees must also consider

the need to finance consumption prior to commencing Social Security benefits as well as in later

years of retirement.

This paper explores an annuity option available in some defined benefit plans that allows

individuals retiring before Social Security eligibility age to opt to receive a higher initial

payment in order to receive a “level” retirement income before and after they start receiving

Social Security benefits. In other words, the employer pension benefit received prior to age 62 is

equal to the pension plus Social Security benefits after age 62. This annuity option is designed to

help retirees smooth consumption, but might have unintended consequences if it discourages

1 For example, see Benatzi, Previtero, and Thaler 2011; Brown et al 2008; Brown 2001; Chalmers and

Reuter 2012; and Butler and Teppa 2007.

2

work after leaving one’s career job or encourages earlier than optimal retirement or Social

Security claiming. Typically, defined benefit plans offer workers a variety of annuity choices

and a lump sum option.

An option that levels retirement benefits with Social Security benefits is called by various

names in defined benefit pension plans, such as ‘Social Security Leveling,’ ‘Level-up,’ ‘Level

Income,’ or ‘Accelerated.’ There is limited evidence of some use of this type of annuity option

by private plans toward the end of the twentieth century as reported in several articles in the

Monthly Labor Review; however, we could find no systematic data indicating the incidence

Social Security level income options.2 Conversations with senior managers in the Bureau of

Labor Statistics and the Office of Policy and Research of the Department of Labor confirm that

there were no recent data on private sector defined benefit plans offering Social Security

Leveling, and the general assessment was that it is rare to find this type of annuity option in a

private plan.3 In contrast, as shown below, Social Security level income options are rather

common in large state-managed public plans.

This paper first documents that Social Security level income options are used by about

one-third of public defined benefit plans whose participants are also covered by Social Security.

2 Wiatrowski (1990) reported that data from the 1988 Employee Benefits Survey indicated that one in

eight defined benefit plan participants was in a plan that offered a transitional benefit to early retirees;

however, these benefits were typically in the form of a “uniform dollar amount for all plan participants

regardless of salary or length of service.” This type of early retirement incentive is not the same as the

annuity option we are examining. Blostin (2003) has a brief statement that indicates that Social Security

Leveling was used by some plans but provides no data on how frequent this option is offered and when

offered it is selected.

3 An on-line search by the authors did reveal a few private plans that offer a Social Security level income

annuity option.

3

We then explore the Social Security Leveling annuity option available to state and local

government retirees in North Carolina using both administrative and survey data. We focus on

public sector retirees that initiated retirement benefits between 2009 and 2014 and were younger

than age 62 at the time of claiming. This analysis indicates that about one-third of those

selecting a single-life annuity opted for the leveling option, or approximately one quarter of all

retirees during this period. In North Carolina, leveling is not an option for retirees who have

selected a joint and survivor annuity.

The idea behind offering a level income with Social Security is to allow individuals to

borrow against future pension benefits in order to smooth consumption throughout the remaining

years of life. However, this option might also appeal to individuals that are ‘impatient’ or those

who see a larger dollar value today without properly considering that claiming will lead to a

lower benefit in the future. We provide an example of how personal discount rates will affect the

present value of the two benefit options. We predict that only those individuals who do not plan

to continue working, who have lower than average life expectancy, and who have no other

source of post-retirement income would be most likely to benefit from leveling.

While we do observe some of these patterns in the data, we also find that individuals

claiming the level income option are actually more likely to be working in retirement. We also

observe lower levels of self-reported financial literacy and confidence in retirement decision-

making, along with higher rates of financial fragility. These patterns suggest that the choice of a

Social Security Leveling annuity is not being driven by a preference for smooth income and

instead is more consistent with a preference for a higher immediate benefit.

Throughout this analysis, we do not consider decisions made about the timing of

retirement or the decision to claim a single life instead of a joint and survivor annuity type.

4

Rather, we model only the choice between the maximum benefit and the Social Security

Leveling options among those who have chosen to retire, immediately claim benefits, and who

have decided not to request one of the joint and survivor annuity options offered by the plan.

Our analysis includes a discussion of the policy implications of the curious choice of

public plans to offer Social Security Leveling. The importance of the assumptions used in

calculating the amount of income to ‘level’ is highlighted along with the implications of the

discount rate used in calculating the benefit amount. We conclude by illustrating that allowing

leveling at age 66 as compared to leveling at age 62, as is done in some plans, may result in

lower present value of pension income for the majority of these young retirees, despite recent

evidence that delaying claiming Social Security is generally a preferable option.

Our work contributes to the debate on the welfare implications of the age of Social

Security claiming. In a series of papers, Shoven and Slavov argue that, in the current low

interest rate environment, it is present-value maximizing for most individuals to delay claiming

Social Security, in some cases to delay until age 70 (Shoven and Slavov 2013, 2014a, 2014b).

This literature distinguishes between the timing of job separation and the timing of retirement

benefit claiming. For individuals who retire from a pension system with a Social Security level

income option, the optimal path is less clear since the discount rate used by the pension system

and the benefit reductions imposed by Social Security may have different effects on the present

value of lifetime income.

The crucial question is how an individual should finance consumption in the early years

of retirement and how this impacts future retirement income security. Claiming Social Security

at age 62 is one way to do this; however, the Shoven and Slavov argument is that, at near-zero

real interest rates, liquidating retirement savings (e.g., IRAs) is preferable to early Social

5

Security claiming. Thus, one might predict that accessing defined pension benefits early would

have a similar appeal. However, we illustrate that in North Carolina the (arguably too high)

discount rate that the pension system uses in valuing the Social Security Leveling option results

in the opposite conclusion. It is still the case, though, that individuals may benefit from

accessing other forms of savings before claiming Social Security. In addition, individuals with

little to no assets who retire prior to Social Security eligibility might also benefit from leveling in

order to finance consumption in early retirement years.

II. Background on Public Sector Annuity Options

A. Is Social Security Leveling a Widely Offered Annuity Option?

Clark and Cowell (2016) reviewed the annuity options of 85 large state-managed public

plans which cover teachers, state, and/or local employees and found that 20 of these plans

offered a Social Security Leveling annuity option.4 Employees and teachers in 17 of the plans

are not covered by Social Security and so none of these plans offer a leveling option. Thus,

about 30 percent of the 68 plans in which participants are included in the Social Security system

offer a Social Security Leveling option.

Table 1 lists each public plan with this annuity option along with the type of employees

covered by the plan, the number of active workers covered by the plan, and the age at which the

pension benefit is reduced if Social Security Leveling is chosen. In total, these plans covered 2.3

million active workers in 2012. Fifteen of the twenty plans specify age 62 as the age at which

benefits are reduced while two plans set age 65, one age 66, one uses the full retirement age for

Social Security benefits, and Virginia allows retirees to select any age between age 62 and the

4 These plans are described in bi-annual reports by the Wisconsin Legislative Council (2013).

6

full retirement age for Social Security benefits.5 Obviously, only plans in which participants are

also covered by Social Security have a level income option. In addition, rules regarding normal

and early retirement ages will influence whether the plans will offer a benefit option that links

pension benefits to Social Security claiming.

[Table 1]

B. North Carolina Retirement Plans and Annuity Options

Teachers and state employees in North Carolina are covered by the Teachers’ and State

Employees’ Retirement System (TSERS), while local government workers participate in the

Local Governmental Employees’ Retirement System (LGERS).6 Participants in both plans are

also generally covered by Social Security. The parameters of the two plans are very similar.

Both plans have five-year vesting, the same eligibility and retirement requirements, and are

managed by the Department of State Treasurer. There is a slight difference in the generosity of

the two plans in that the benefit formula for LGERS is 1.85 percent of final average salary per

year of service while the TSERS formula is 1.82 percent of final average salary per year of

service. Final average salary is determined by the four highest consecutive years of earnings.

In order to qualify for normal or unreduced benefits, the employee must have satisfied

one of three criteria: reached age 65 with 5 years of membership service; reached age 60 with 25

years of service; or have attained 30 years of service at any age. Early retirement with reduced

5 Georgia offers it retirees an “Accelerated Benefit” option which if chosen provides a monthly benefit

equal to 135 percent of the single life benefit for the first five years of retirement after which time benefits

are actuarially reduced.

6 The important characteristics of TSERS and LGERS are described in

https://www.nctreasurer.com/ret/Benefits%20Handbooks/TSERShandbook.pdf and

https://www.nctreasurer.com/ret/Benefits%20Handbooks/LGERShandbook.pdf

7

benefits are available to those who have reached age 50 and completed 20 years of creditable

service and those who have reached age 60 and completed 5 years of service.

For many public employees in North Carolina, these plans provide a strong economic

incentive to retire in their 50s well before qualifying for Social Security at age 62. Upon

termination and achieving the age and service requirements, retirees must request from the

retirement system that their benefits begin and the annuity option they desire. This is a one-time

option and no benefits are paid until the benefit request has been finalized, i.e., there is no default

benefit, retirees must submit a request for benefits to be paid, and a choice of payout must be

made. Both plans have the same six annuity options which include a single life annuity, a 100%

Joint and Survivors (J&S), a 50% J&S, Social Security Leveling, and two additional J&S options

with a pop-up provision if the retiree’s spouse dies first.

The retirement plan for teachers and state employees and the state-managed pension plan

for local employees in North Carolina are typical of state and local pension plans across the

country. These plans offer retirees a variety of annuity choices along with a lump sum

distribution option. Public sector retirement plans are not subject to ERISA rules regarding the

calculation of a lump sum distribution or the requirement that joint and survivor annuities be the

default annuity option. In most public defined benefit plans, lump sum distributions are based

solely on employee contributions plus accrued interest. Most benefit claimants with long careers

who have attained retirement eligibility find that the present value of the annuity exceeds the

lump sum distribution amount (see Clark, Morrill, and Vanderweide, 2014 for a discussion of

lump sum distributions in North Carolina). The benefit formula stated in plan documents

determines the annual benefit based on the single life of the retiree. Typically, this option,

8

sometimes called a maximum benefit, provides the largest monthly benefit a retiree can receive

given their work history.

Plan actuaries set the terms of all annuity options so that they are present value neutral,

relative to the maximum benefit option, to the retirement system using plan discount rates and

mortality assumptions, described in detail in Appendix A. At the time of claiming, the retiree

must choose an annuity option and will then have a set benefit amount for the rest of their own,

or in the case of a J&S annuity their spouse’s, life.7 Upon request, retirees are given the actual

values for each of the annuity options and can then select the annuity option that seems best for

their personal financial situation.

The Social Security Leveling option was added to the two North Carolina plans in 1955.

In the 1955 leveling option, the benefit assumed Social Security claiming at age 65, which at that

time was the earliest age at which one could collect Social Security benefits. In 1959, the target

age for leveling was reduced to age 62 for women but age 65 was retained for men. Finally, the

terms of the annuity option were amended in 1963 so that both men and women could select

Social Security Leveling with the leveling age set at 62.8 While we have found no record

confirming the reason why the state modified the Social Security Leveling option to target age

62 instead of 65, one can speculate that the modification was influenced by the change in federal

law allowing early claiming at age 62 and the subsequent surge in Social Security claiming age

at age 62.

7 Historically, the General Assembly has awarded cost-of-living adjustments to retirees in both systems

that averaged close to the annual increase in CPI; however, in recent years, there have been few increases

in benefits and they have averaged much less than the increase in CPI.

8 These changes were driven by changes in federal legislation which first introduced early retirement

benefits for women in 1956 and then for men in 1961.

9

III. Modeling the Social Security Leveling Benefit

A. Social Security Leveling Benefit Calculations

The first step in determining the value of the leveling benefit is to calculate the single life

annuity benefit, known as the ‘maximum benefit,’ which is derived directly from the benefit

formula specified by the retirement system. The maximum benefit calculation is:

We refer to the maximum benefit level as BMAX. YOS is the number of years of service at

separation, and AFC is the average final compensation calculated using the highest four years of

earnings. The pension multiplier, M, is 0.0182 for workers in TSERS and 0.0185 for workers in

LGERS. Early is an early retirement reduction factor that is imposed for an individual claiming

benefits prior to attaining the age and service requirements for unreduced benefits. The

reduction factor is a function of claiming age and the number of years the retiree is short of

qualifying for unreduced benefits.9

Retirees selecting the Social Security Leveling option must submit an estimate of the

anticipated Social Security benefit that they will be eligible to receive at age 62 provided by the

Social Security Administration based on the assumption that they will not have any further

9 See the benefit handbooks of the two retirement plans at

https://www.nctreasurer.com/ret/Benefits%20Handbooks/TSERShandbook.pdf and

https://www.nctreasurer.com/ret/Benefits%20Handbooks/LGERShandbook.pdf

For most employees, Early is one minus the lesser of 5% per year prior to 30 years of service and 3% per

year between age 60 and 65 plus 5% per year prior to age 60.

10

earnings between their retirement and age 62.10

The retirement system then calculates an initial

retirement benefit that can be paid immediately to the retiree and a lower benefit that will be paid

after age 62. The leveling benefits in these two periods are priced relative to the maximum

benefit. Before age 62 (period 1), the pension benefit amount is equal to the maximum benefit

plus the expected Social Security payment (SS) times a leveling factor, F. After age 62 (period

2), the Social Security Leveling pension benefit is equal to the period 1 benefit minus the

expected Social Security benefit, thus providing a ‘level’ income throughout retirement of

pension plus Social Security payments.

(1)

(2)

The calculation of the leveling benefit does not depend on whether the individual actually

intends to claim Social Security at age 62, and the system does not check to see if Social Security

benefits are initiated at age 62 or whether the benefit received is equal to the estimated value

used for leveling.

The leveling factor is a function of the gender specific mortality experience of the

system, the ratio of male to female retirees, and the interest rate specified by the system. The

objective is to determine the period 1 and period 2 benefit amounts so that the present value of

10

The request for an estimate of the Social Security benefit beginning at age 62 is described in page 35 of

https://www.nctreasurer.com/ret/Employers/TSERSEmployerManual.pdf “If, at retirement, the member

wants an estimate under Option 4, he or she must furnish the Retirement Systems Division with an

estimate, obtained by the member from the Social Security Administration, of the Social Security benefit

available to him or her at age 62. The member should request the age 62 Social Security estimate, in

today’s dollars, if he or she stops working at the age he or she will be on his or her effective date of

retirement. This estimate should be obtained within 2 years prior to his or her effective date of

retirement.”

11

the Social Security Leveling option is equal to the present value of the maximum benefit from

the perspective of the retirement system. The benefit calculations use gender-specific mortality

rates that are then combined using proportions of males and females that reflect the participants

in the plan. Thus, the Leveling benefits before and after age 62 are the same for men and women.

To calculate the present value of the two benefit streams, the retirement system uses

survival probabilities taken from the retirement system’s experience study reports and the

mortality tables referenced therein along with the assumed nominal interest rate of 7.25

percent.11

Both of the North Carolina retirement plans assume that they will earn an annual

return on investments of 7.25 percent so that benefit adjustments in the leveling option are made

using the expected value of the return that the system could have earned if they had not moved

payments forward using the leveling option.12

Thus, theoretically the Social Security Leveling

option is cost-neutral to the retirement system relative to the maximum benefit option, using the

assumptions established by the Board of Trustees of the two retirement plans. However, as

shown below, the high discount rate used in the calculation implies that the two options do not

provide the same present value, from the perspective of the retiree, using conventional levels of

personal discount rates.

11

Appendix A describes the calculation of the leveling benefit in detail by discussing the development of

the leveling factor and how it has changed over time. The system updated its mortality experience in 2012

to reflect improvements in life expectancy, which resulted in higher leveling factors. This change may

have made leveling slightly more appealing for post-2012 retirees by a very small amount, but take-up

rates for leveling actually dropped slightly.

12 Most public defined benefit plans assume that they will earn an annual return of between 7.0 and 8.5

percent on their investments. These relatively high assumed returns have been criticized by many

economists (Novy-Marx and Rauh, 2011.

12

A simple example illustrates the impact of Social Security Leveling on the amount and

time pattern of the pension benefit. Figure 1 illustrates the values of the two options facing an

individual claiming benefits prior to age 62. Assume that a worker reaches age 57 and could

retire and immediately begin a benefit based on the maximum benefit option of $2,000. The

retiring worker reports to the retirement system that her expected Social Security benefit at age

62 is $1,200. Using this information and the leveling factor, the system would determine that the

benefit would be $2,761 per month until age 62 and then $1,561 per month for the rest of the life

of the retiree. Together with a Social Security benefit of $1,200, the post-62 total retirement

income is ‘level’ at $2,761.

[Figure 1]

This calculation does not yield clear guidance on whether the individual is ‘better off’

receiving a total of $2,761 per month beginning when the pension benefit is first claimed for the

remainder of her life or receiving $2,000 per month in pension benefits prior to age 62 and then a

total of $3,200 per month after age 62 (i.e., $1,200 per month from Social Security and $2,000

per month from the pension). Answering this welfare question is complicated by a number of

factors. If an individual plans to continue paid employment after claiming a pension benefit,

then she may not need to access pension benefits early to smooth consumption. If an individual

has a shorter than average life expectancy due to poor health, she may benefit from receiving the

higher benefit earlier. And, of course, a high personal discount rate will lead one to more highly

value the near term larger income stream.

Table 2 uses a simple present value formula, derived in Appendix A, to calculate the

present value of both the maximum benefit and leveling options. For simplicity, we present

estimates for men with a table for women in the appendix. Note that the only difference in the

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present value calculation between genders is the survival rate, with women living longer than

men. The survival difference is small but leads to a difference in the present value calculation

from the retiree’s perspective since women will be receiving the smaller post-62 leveling benefit

for more years relative to men. Thus, even though the present value of the leveling benefit is

higher for women than men, the relative value of the maximum benefit to leveling benefit means

that leveling is a “better deal” for men than women, all else equal. However, the difference due

to survival probabilities is small and empirically this effect is likely to be swamped by the impact

of the personal discount rate. Note that individual’s perceived mortality will operate in a similar

direction to the male/female difference where longer lifespans will lead one to more often prefer

(holding all else equal) the maximum benefit option. We observe both of these patterns in the

data.

First, consider the present value of the maximum benefit option evaluated by both the

system and the individual at 7.25 percent. The retirement systems perform all calculations using

a blended mortality rate, so that the factor used price Social Security leveling is the same for men

and women. The entries in Table 2 for the benefits for both annuity options are based on a

hypothetical retiree that would qualify for a maximum benefit of $2000 and a Social Security

benefit at age 62 of $1,200 with no further work after retirement from public employment at age

57, as shown in Figure 1. Given these values, the present value of a pension benefit of $2,000

for life is $267,128 for men assuming a personal discount rate of 7.25 percent.

[Table 2]

If the derivation of B1 and B2 is cost neutral to the system relative to paying the

maximum benefit and the discount rate used by the individual is also 7.25 percent, the present

value of leveling would be the same as that for the single life annuity, the maximum benefit

14

option, for both the system and the retiree. When comparing between the Social Security

Leveling benefit and Maximum Benefit options, we see that using a personal discount rate of

7.25 percent the leveling benefit is slightly larger. This is because we are using the male-only

survival rates while the system prices using a blended rate. Note that for women, the maximum

benefit option is slightly larger in present value terms than the Social Security Leveling option

($276,954 versus $276,100), details presented in the appendix.

Economists have argued that a lower personal discount rate such as 2.9 percent would be

a more reasonable representation of the rate used by the average retiree.13

This rate is also more

closely aligned with potential market yields to an individual investor. The impact of this lower

discount rate on the present value of the maximum benefit compared to the leveling option is

also shown in Table 2. Note that the benefits before and after age 62 are those calculated by the

system using the 7.25 percent discount rate. The assumed lower discount rate used by the retiree

results in a higher present value of both benefit options; however, the present value of the

maximum benefit is now 6.3 percent higher than that of the leveling benefit option. Clearly the

relative “value” to the retiree of the two options hinges on an individual’s personal discount rate

and need to smooth consumption. The present value as viewed by the retiree of the maximum

benefit compared to leveling options is greater the lower the interest rate used by the retiree.

The implication of this exercise is that, for the typical retiree, Social Security Leveling

yields a lower present value of their lifetime pension benefit if their personal discount rate is

lower than 7.25%. This suggests that retirees with lower life expectancies, higher personal

discount rates, and those with an immediate need for income in the pre-62 years will find

leveling a desirable option.

13

See papers by Shoven and Slavov for a discussion of appropriate discount rates for recent retirees.

15

The bottom two rows of Table 2 report the present value of Social Security benefits for

an individual with a benefit of $1,200 per month if take at age 62 and a benefit of $1,600 per

month if claimed at age 66. The present values are calculated at age 57 when, in our example,

the retiree is making a decision on whether to select the leveling option. This comparison yields

results that are consistent with Shoven and Slavov indicating that at low discount rates the

present value of claiming Social Security benefits at age 66 is greater than at age 62. It should

also be noted that if one assumes a personal discount rate of 7.25% then claiming Social Security

at age 62 yields a higher present value of lifetime benefits. These patterns are similar for

women, as shown in Appendix Table A2.

B. Model Predictions

Given this understanding of how Social Security Leveling works, we now present several

hypotheses for why an individual might choose this annuity option when claiming their pension

benefit. First, it is clear from the framing of Social Security leveling that a consumption

smoothing motivation should play a role for some individuals separating from career

employment at an age earlier than Social Security eligibility.14

Second, the larger initial monthly

benefit under Social Security Leveling paid at ages younger than 62, relative to the benefit paid

in these early years under the “maximum” benefit option, should be important to individuals for

whom immediate spending needs are important in the decision making process, which we refer

to as “myopic benefit maximization.”

14

Obviously, some individuals will have other resources that would allow them to smooth consumption

over their retirement years such as IRAs, 401(k) account balances, and other assets. In this paper, we do

not attempt to model the use of these funds to level consumption. See Goda, Ramnath, Shoven, and

Slavov, (2015) for a discussion of these issues.

16

Individuals motivated by consumption smoothing are conforming to well-known decision

rules advocated by economists. However, questions remain about the empirical validity of

consumption smoothing as a predominant factor in explaining intertemporal consumption and

savings behavior. Myopic benefit maximization as a motivation for choosing Social Security

Leveling could be used to describe the behavior of individuals in two very different situations.

Under myopic benefit maximization, an individual could seek to finance consumption in the

early years of retirement in a deliberate way that reflects consideration of alternative income

streams for consumption in these years. However, myopic benefit maximization also applies to

individuals who are attracted to a higher immediate benefit because they place a high weight on

immediate consumption needs because they perceive their retirement and other asset holdings at

separation as insufficient. In short, some individuals may choose Social Security Leveling

because they feel that they need the larger benefit now.

To shed some light on the relative importance of these hypotheses, we analyze data on

older public sector workers in the North Carolina Teachers’ and State Employees’ Retirement

System (TSERS) and Local Governmental Employees’ Retirement System (LGERS). As

previously discussed, a meaningful fraction of individuals separating from employment and

beginning a benefit from these plans choose Social Security Leveling. We perform our analysis

using a matched dataset of administrative records and survey data.

IV. Data Description

The data used in this analysis are from two sources. First, we obtained administrative

data files for all participants in TSERS and LGERS who initiated pension benefits between 2009

and 2014. The administrative records contain detailed information about each retiree including

earnings, job information, years of service, creditable service, year of retirement, annuity option

17

chosen, and benefit amount. From the universe of recent retirees, we extracted a stratified

random sample who were sent a survey developed by the authors in spring 2015. The survey

focused on obtaining additional personal information not contained in the administrative

questions about race/ethnicity, education level, household income and wealth, work status after

claiming retirement benefits and marital status, along with questions about their spouses’

characteristics (if applicable) and time spent caregiving. In addition, the survey obtained

information on the annuity choice of the retiree, whether in retirement they were happy with this

choice, and other questions targeted to assess the annuity choice and its impact on well-being in

retirement.

After the survey was closed, responses were matched to the administrative records. In

the following analysis, where possible, we examine individual behavior using all retirees in the

administrative records. We then add the personal information obtained in the survey to provide a

more complete analysis of retiree choices and attitudes. Appendix B provides detail on the

sample construction and data used. The total number of recent benefit claimants is 72,350,

shown in Table 3, Column 1. Of these, 36,883 retired prior to age 62 and were thus eligible for

the leveling option (see Column 2). Column 3 reports means when the sample is further limited

to only individuals who selected a benefit based on a single life annuity, i.e., either the maximum

benefit or the leveling benefit. We then merge this set of records with the survey data, so that

Column 4 provides sample means for our survey respondents claiming benefits at an age younger

than 62 and selecting a single life annuity option.15

Comparing Columns 3 and 4 illustrates that

15

The survey is part of a larger project and covers all benefit claimants from 2009 to 2014. Our overall response

rate on the survey was 22%. For the sample used in this paper, the survey was sent to 9,650 individuals with 2,256

useable responses yielding a response rate of roughly 23%. For more detail on the larger project, please see our

website: https://sites.google.com/site/publicsectorretirement/. Note that Column 4 excludes two survey respondents

who met all other criteria but who have both a TSERS and LGERS account.

18

our survey sample is reasonably representative of the population of interest. Some notable

differences are that the survey respondents tended to have higher final average salary and

maximum initial benefit amounts and were more likely to have more than 30 years of service at

retirement.

[Table 3]

Considering the means reported in Table 3, Column 2, we see that almost two-thirds of

individuals retiring before age 62 had sufficient years of service to be eligible for an unreduced

retirement benefit. About 80 percent of all retirees were state employees and teachers with the

remainder being city and county employees throughout the state. The average age of starting

retirement benefits for all retirees is 60.7 and for those that retired prior to age 62, the mean age

is 56.9. In general, the public sector tends to be predominantly composed of female employees

as the modal occupation is teacher. The North Carolina data are consistent with this observation

as about two-thirds of the retirees during the sample period were women. Interestingly, when

comparing Columns 2 and 3, we note that a higher percentage of women compared to men select

a single life annuity.

The initial question for this research is whether Social Security Leveling is an important

annuity option for retirees, in other words, is Social Security Leveling simply a curious anomaly

made available to public employees or an important annuity choice that demands attention and

therefore should be a topic for policy review. To answer this question, we examine annuity

choices of all retirees claiming benefits prior to the age of 62 between 2009 and 2014. At the

bottom of Table 3, we see that 23.4 percent of retirees younger than age 62 chose the leveling

option. If the sample is restricted to individuals who chose a single life annuity, in Table 3,

Column 3, we see 33.4 percent of these retirees opted for Social Security leveling. Figure 2

19

indicates that the proportion of retirees selecting a single life annuity is relatively constant with

age but that over time, a lower percentage of retirees were choosing a single life option.16

[Figure 2]

The value of selecting Social Security Leveling to a retiree is likely to decline with age as

the number of years that one is eligible to receive the higher leveling benefit declines. This

pattern is clearly shown in Table 4 and Figure 3 as about half of all individuals claiming a single

life annuity prior to age 55 chose Social Security Leveling. This rate declined to over one third

of single life claimants age 55 to 59 and further to 15.0 percent for those aged 60-61. In

summary, over one quarter of all participants claiming benefits prior to age 60 selected the Social

Security Leveling option. This relatively high rate of selecting Social Security Leveling

highlights the importance of an analysis of why retirees find this to be their preferred form of

income in retirement. We now examine what types of retirees are selecting the leveling option.

[Table 4]

[Figure 3]

V. Social Security Leveling Uptake Among Retiring Workers in North Carolina

Thus far, we have shown that Social Security Leveling is relatively common option in

public pension plans across the country and that in North Carolina, approximately, one quarter of

all retirees eligible to select this annuity option have done so. Throughout this exercise, we

assume an individual makes many decisions leading up to the point of choosing Social Security

Leveling. First, she chooses the timing of separation from a career employer. At that point, she

chooses either to withdraw funds as a lump sum, take a joint and survivor benefit, or a single life

16

The increase in the use of J&S annuities coincides with the 2012 shift in pricing of the J&S options

relative to the maximum benefit.

20

annuity. Once the retiree has decided on a single life annuity, she then decides between the

maximum benefit which provides a constant monthly benefit for life or the leveling option that

offers a higher benefit before age 62 followed by a lower benefit after age 62.

A. Theoretical Predictions

We begin modeling the decision made between the maximum benefit and the Social

Security Leveling option once all other decisions have been made. We note that any parameters

that impact prior choices will in turn affect the sample composition of who might be facing the

Social Security Leveling option choice. Thus, one must be cautious about interpreting patterns

as the sample composition is likely changing over time due to macroeconomic conditions and

retirement timing, as well as the relative pricing of J&S to single life annuities.

The lifetime consumption smoothing model suggests that, all else equal, an individual

will maximize utility by consuming a level amount throughout her lifetime. If an individual

expects to receive an annuity payment from Social Security, she should prefer to access a higher

proportion of her pension benefit at younger ages in order to smooth consumption over her

lifetime. On the other hand, behavioral biases such as hyperbolic discounting will lead an

individual to prefer immediate consumption over delayed consumption, even when it does not

actually maximize lifetime utility. In the case of the “annuity puzzle,” individuals under-insure

for longevity risk because they prefer immediate consumption. Thus, an individual may be

harmed if an option for a higher pension payout today is appealing simply because of a myopic

consideration of a high immediate benefit rather than as part of a fully rational spending plan.

Given the front-loaded nature of leveling benefits, there are several hypotheses of

interest. We divide the considerations into two categories: factors that will affect desirability of

consumption smoothing and factors associated with myopic considerations or behavioral biases.

21

Note that we model only the decision between Social Security Leveling and the Maximum

Benefit options. To reach this decision, an individual has already chosen an optimal retirement

age and a single-life rather than joint-and-survivor annuity.

Demographics and Socioeconomic Status. The Social Security Leveling annuity option

is designed to allow individuals to smooth consumption before and after claiming Social Security

benefits. We predict that the younger one claims retirement benefits, the more likely one is to

select Social Security Leveling since the need for smoothing is potentially greater over longer

time periods, conditional on not working. However, if one plans to work at another job after

claiming retirement benefits, then one should find the leveling option less appealing. To the

extent that younger individuals are more likely to work after retirement, we would actually

expect younger individuals to be less likely to choose leveling, all else equal.

Similarly, those that have a higher potential market wage will be more likely to choose to

work after retirement. Thus, we expect that individuals with higher education and earnings to be

less likely to choose leveling relative to the maximum benefit option. In addition, the size of the

retirement benefit might influence the need to consumption smooth as individuals that have less

income will find that Social Security is a larger share of their retirement wealth. Thus, for this

reason as well, we anticipate that those with lower initial benefits are more likely to choose the

leveling option.

It is ambiguous whether individuals that are claiming reduced benefits under early

retirement should prefer leveling or not. On the one hand, the initial benefit is lower and there is

more time until Social Security eligibility, so that would make an early retiree more likely to

choose leveling. In addition, the observation that one is claiming benefits early reveals

something about their preferences. On the one hand, it could be that her perceived life

22

expectancy is lower. On the other hand, it could be that the claimant has high wage outside

options and is retiring early to begin a new career. Thus, the predictions for the association

between early benefit and leveling option are theoretically ambiguous.

All system benefits are based on a unisex life table developed by system actuaries from

the mortality experience of participants. Given their shorter average life expectancies, men

should be more likely to select Social Security Leveling than women, all else equal. In general,

individuals with a lower perceived life expectancy should be more likely to select Social Security

Leveling. Similarly, individuals in good health should be less likely to choose leveling both

because they have longer subjective survival probabilities and because they have higher labor

market potential earnings. Conditional on having decided to take some form of single-life

annuity, it is unclear how marital status or spouse’s earnings might impact the decision to take

the leveling option.

Interest Rates. The leveling benefit is calculated using a discount rate of 7.25% (or 7.5%

prior to 2012). Claimants with discount rates that exceed the interest rate used to calculate the

Leveling benefit will be more likely to choose Social Security Leveling. While the fall in

interest rates over the last decade has increased the value of delaying the age of claiming Social

Security benefits, a lower personal discount rate is predicted to yield a higher present value of

the Maximum Benefit option relative to the Social Security Leveling option. Moreover, as

Social Security Leveling pushes individuals to claim Social Security benefits at age 62, we might

anticipate that fewer individuals would choose Social Security Leveling over time. Of course,

time patterns in the decision to take-up leveling over the Maximum Benefit option will also

reflect changes in retirement age and uptake of the joint-and-survivor option.

23

Because the discount rate used to calculate the leveling option is higher than market rates,

retirees that have other sources of wealth would be better off by self-financing the early years of

retirement rather than selecting the leveling option. If the retirement benefit represents a higher

fraction of household wealth, the individual might be more likely to select leveling over the

maximum benefit in order to better smooth consumption. Thus, we predict that, all else equal, an

individual who is unmarried or who is the primary earner in the family will be more likely to

choose the leveling option.

Myopic Benefit Maximization. Some individuals may choose the leveling option

simply from the myopic observation that the immediate check received will be higher, so that the

selection of leveling does not reveal a preference for consumption smoothing as part of a

retirement plan. We test for myopic benefit maximization by analyzing individual characteristics

that we hypothesize are correlated with myopic behavior across a range of financial decisions:

measures of financial literacy and educational attainment. If myopic behavior plays an important

role in the choice of leveling, individuals with lower levels of financial literacy and those with

fewer years of education should be more likely to choose the leveling annuity option. Further,

we observe several measures of retirees’ well-being. If individuals are choosing leveling simply

to receive a larger payment initially, we would observe that responses to retirement well-being

will differ before and after age 62.

B. Empirical Findings from Administrative Records

We test these hypotheses using the universe of retirees and the smaller survey sample by

estimating a LPM model with the dependent variable equaling one if the retiree selected the

leveling option, zero otherwise. The samples are based on all retirees who claimed a single life

annuity and who were younger than age 62 at the time of claiming. Again, we model only the

24

decision between Social Security Leveling and the Maximum Benefit option, acknowledging that

retirees will have chosen retirement timing and single-life versus joint-and-survivor annuity prior

to that point. First, we use the administrative records to model the decision to take-up the

leveling option. The sample is identical to Table 3, Column 3. Here the dependent variable is

having selected the leveling option. The results from the administrative records for the entire

sample are presented in Column 1 of Table 5 and separately for men and women in Columns 2

and 3. As expected, the pooled results indicated men are about 4 percentage points more likely

to choose leveling. This is consistent with the fact that men have shorter life expectancies, on

average, so that the ratio of the present value of leveling relative to maximum benefit is higher

for men than women.

[Table 5]

The regression coefficients reported in Table 5 reveal a clear age pattern as each year of

age results in a lower probability of choosing leveling of 3 percentage points for both men and

women. While this is consistent with individuals further from Social Security eligibility age

having a stronger need to smooth consumption, it is not consistent with younger individuals

having a higher potential to engage in post-retirement work. Note that the estimated coefficient

on age at claiming is holding constant whether the retirement was early or normal, as well as the

years of service.

Next, we see that having chosen an early retirement, conditional on years of service, is

also associated with a higher uptake of Social Security Leveling, with an even stronger

relationship for women than men. This is inconsistent with early retirement being used as an

option to engage in outside work post-retirement. However, it may be that the same underlying

preferences result in myopic benefit maximization and claiming benefits as soon as eligible.

25

When considering years of service, we see an opposite pattern whereby the omitted category,

having at least 30 years of service, has the highest rate of uptake for leveling.

We observe that a higher maximum initial benefit amount is associated with a lower take-

up of leveling, with a slightly stronger relationship for men than for women. A higher maximum

benefit is likely associated with higher potential labor market earnings and higher levels of

wealth accumulation to self-finance. It may be that the variable is only significant for men as

their earnings are more likely to represent a larger portion of the household-level income in

retirement. We observe that the highest take-up of the leveling benefit is to those that retire from

primary state government (the omitted category). Finally, the utilization of leveling has declined

slightly over time.17

C. Empirical Findings from Survey Responses

The survey of retirees provides us with the opportunity to examine annuity choice

process utilizing personal information that is not available on the administrative records.

Individuals were surveyed in 2015, so the responses are between one to five years after initiating

retirement benefits. Table 6 presents sample means for the survey respondents for respondents

less than age 62 who selected a single life annuity, and then separately for individuals selecting

the maximum benefit and the leveling annuity. We present the p-value of the difference in

means.

[Table 6]

17

The regression model also includes indicators for having multiple benefit accounts. As described in

more detail in the appendix, individuals have the option to combine accounts or to claim accounts

separately. If an account has been combined, we only observe the merged account in the data. Thus,

opting to keep the accounts separate indicates something about an individual’s preferences regarding

pension payouts.

26

First, we consider the individuals’ current work status in retirement. The consumption

smoothing motive suggests that individuals choosing leveling should be less likely to work in

retirement. However, there is no statistically significant difference in work status in retirement

between those choosing Maximum Benefit and Leveling and the mean is 36 percent. We again

find that men are more likely to select leveling, but we observe that those choosing leveling are

more likely to be married men and less likely to be married women. This is consistent with

predictions that if pension benefits are a higher proportion of family income, one should be more

likely to desire to smooth that benefit. As predicted, retirees who report that they are in good

health and have a higher probability of living past age 85 are less likely to choose the leveling

benefit. Individuals with higher levels of education are more likely to have chosen the maximum

benefit.

The results in Table 6 allow us to assess the relative importance of consumption

smoothing as a key factor in explaining the choice of a leveling annuity option. The fact that

individuals who chose leveling are more likely to be working after separating from their career

employer, and more likely to have a working spouse, suggests that a level income is not a

predominant motivation. To consider whether myopic benefit maximization plays an important

role, we look at individuals with less education and lower level of financial literacy. These

individuals are more likely to choose leveling and are more likely to engage in myopic behavior,

suggesting that myopic behavior plays a role in the choice of leveling, in contrast to consumption

smoothing. Further, those choosing leveling have lower levels of household income, suggesting

the higher immediate benefit provided by the Social Security leveling option is an important

consideration.

27

To look further at the importance of myopic benefit maximization as a motivation for

choosing the leveling option, Table 7 considers several measures of well-being in retirement

using survey responses. The questions used for the dependent variables in Table 7 are listed in

Appendix A. Each column presents the results from an LPM model, where the well-being

measures are as follows: whether the individual reported that they had enough information in

their annuity choice, had saved enough upon retirement, have been able to maintain a satisfactory

standard of living, and are not financially fragile. The first three measures are from stated

perceptions in response to questions with an agree/disagree/neither set of answer choices. The

fourth measure is derived from the response to whether the individual could “come up with

$2,000 if an unexpected need arose within the next month.”

[Table 7]

Table 7 indicates that individuals who chose Social Security Leveling have a higher level

of financial fragility in retirement, although the estimated coefficients are not statistically

significant. We interpret this result as being consistent with the findings in Table 6 that leveling

is chosen by individuals who feel that the “need” the higher immediate benefit, perhaps because

they perceive that they have inadequate retirement savings. Interestingly, we see that those with

fewer years of service are less financially fragile, perhaps because of additional work experience

outside of the public sector. We see that those with higher pension benefits and more education

are more financially secure, while single women and non-Hispanic black individuals are

significantly less likely to be financially secure in retirement.

The second measure of retirement well-being, had saved enough upon retirement,

provides directional support for the hypothesis that leveling is chosen by those who need to

“make up” for inadequate savings, where the estimated effect is large but statistical insignificant:

28

individuals who chose leveling and were older than 62 are nine percentage points less likely to

report having saved enough for retirement. Those that claimed at older ages are more likely to

have saved enough, as are those with higher pension benefits.

Columns 3 and 4 also suggest that perceived retirement well-being for those who chose

leveling depends on whether the survey respondent is older than 62 or not. This is intuitive

because a 61 year old “leveler” is responding to the survey while receiving an annuity that is

larger than the maximum benefit, while a 62 year old “leveler” is responding while receiving a

smaller benefit. Our findings suggest that levelers who are now in the lower-benefit period (i.e.,

post-62) no longer believe they had enough information when they chose their benefit (consistent

with regret) and no longer report having been able to maintain a satisfactory standard of living.

Interestingly, we find that those selecting leveling are significantly more likely to be able to

maintain their standard of living prior to age 62 but then after age 62 are not. The effect sizes of

these two results are similar but only the sufficient information result is statistically significant.

In total, we interpret the results in Tables 6 and 7 are suggestive than myopic benefit

maximization is an important factor in understanding which individuals select the Social Security

leveling annuity option.

VI. Discussion and Future Work

Our analysis has shown that Social Security Leveling is an annuity option offered by 20

large public defined benefit plans. The experience of recent retirees in North Carolina shows

that a substantial proportion of younger retirees are selecting this option, which changes the

lifetime pattern of their retirement income. Clearly, Social Security Leveling is not merely just a

curious oddity but instead is a significant policy issue that merits consideration and review.

We have documented that the retirement system offers leveling in a manner that is cost

29

neutral to the system. The pricing is based on an interest or discount rate of 7.25 percent. This is

the same rate that the system assumes that it will make on its investments. It seems unlikely that

individuals in today’s economic climate would use such a high discount rate for future income

when market interest rates hover near zero. Our calculations show that when individuals use a

lower discount rate, the present value of leveling is less than the present value of the maximum

benefit annuity. Thus, for the average retiree, Social Security Leveling would seem to be a

suboptimal choice from a present-value perspective.

Despite this finding, it is easy to see why some retirees will select the leveling option.

Individuals with shorter than average expected lifetimes will have a higher present value of

benefits paid under leveling compared to the maximum benefit. Retirees with immediate income

needs may also find leveling a superior choice. Thus, individual and household differences can

explain some of the sorting of retirees into those selecting leveling as their best option.

Is Social Security Leveling at age 62 a wise public policy? The answer to this question

depends on how selecting leveling affects other choices by retirees. Our results suggest that,

rather than the obvious smoothing motivation, at least some individuals who chose leveling

appear to be motivated by the simple fact that leveling provides a higher immediate benefit. We

attempt to distinguish between two reasons to prefer a higher immediate benefit, at the cost of a

lower later benefit, noting that this preference can be a part of a calculated retirement plan or can

be a myopic approach to front-loading benefits. We find evidence that favors myopic benefit

maximization as an important component of the choice of the leveling option for at least some

retirees.

Our future research will consider how the availability and uptake of this option affects

retirees’ and their spouses’ well-being both immediately after retirement and throughout their

30

retirement years. We are currently building a longitudinal data file for older workers and retirees

in North Carolina through a series of surveys beyond the survey responses reported in this paper.

These data will be used to examine the annuity choices of new retirees, how leveling affects

retirement income, and the post-retirement work patterns of public employees.

31

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33

Figure 1. Illustration of Single Life Annuity Options for a Hypothetical Retiree

Notes: Calculations are provided in Appendix A. The numbers assume a retiree claims benefits

at age 57 and is eligible for a maximum single-life benefit of $2,000 per month. We assume the

retiree is eligible for a reduced Social Security benefit of $1,200 at age 62 (this implies a PIA of

$1,600). The Social Security Leveling benefit would then be $2,761 prior to age 62 and $1,561

after age 62 ($1,561 + $1,200 yield a level income of $2,761).

Max Benefit = $2,000 Monthly

Post-62 Leveling Benefit = $1,561

Pre-62 Leveling Benefit = $2,761

Age 62 Current Age

34

Figure 2. Time Pattern of Single Life Annuity Choice

Notes: Sample is all benefit claimants from 2009 to 2014 who were ages 46 to 70 at the time of

claiming.

.3.4

.5.6

.7.8

New

Be

ne

fit A

ccou

nts

45 50 55 60 65 70Age at Claiming

2009 2010

2011 2012

2013 2014

Percent Selecting a Single-Life Annuity

35

Figure 3. Time Pattern of Social Security Leveling

Notes: Sample is all benefit claimants from 2009 to 2014 who were ages 46 to 70 at the time of

claiming.

0.2

.4.6

.8

New

Be

ne

fit A

ccou

nts

45 50 55 60 65 70Age at Claiming

2009 2010

2011 2012

2013 2014

Percent Selecting Social Security Leveling

36

Table 1. State Annuity Options Social Security Leveling

State Plan Information

Alaska PERS Age of leveling 65 for DB participants. Left SS in 1986, DC in 2006.

State and local employees, 11,688 active employees

Idaho PERS SS FRA

State, local, and teachers, 65,270 actives

Illinois SRS Age 66

State employees, 62,732 activities

Illinois MRF Age 62

Locals, 174,381 actives

Indiana PERF Age 62. Hybrid plan annuity from DB component.

State and local employees, 145,519 activities

Indian TRF Age 62. Hybrid plan annuity from DB component.

Teachers, 72,872 activities

Kentucky KERS Age 62

State employees, 46,282 activities

Kentucky CERS Age 62

Local employees, 92,182 activities

Michigan SERS Age 65. DB plan frozen March 31, 1997. All new hires after in DC plan.

State employees

Michigan PSERS Age 62.

Teachers, 236,660 employees

NC TSERS Age 62

State employees and teachers, 310,627 activities

NC LGERS Age 62

Local employees, 121,638 employees

North Dakota TRF Age 62 or SS FRA

Teachers, 10,138 activities

Rhode Island ERS Age 62

State employees and teachers, 24,378 activities

South Dakota SDRS Age 62

State and local employees and teachers, 38,207 activities

Tennessee CRS Age 62

State and local employees and teachers, 214,860 activities

Vermont SRS Age 62

State employees, 8,158 employees

Vermont TRS Age 62

Teachers, 10,101 activities

Virginia SRS Retiree chooses any age between 62 and SS FRA

State and local employees and teachers, 341,826 activities

Wisconsin WRS Age 62

State and local employees and teachers, 257,254 activities

Similar Annuity Option

37

Georgia ERS Accelerated Benefit. A monthly benefit equal to 135% of the Maximum

Plan Benefit, payable for the first five continuous years of your retirement.

After five years, your monthly benefit will be actuarially reduced, and the

reduced benefit will be paid for your lifetime.

Information on Social Security Leveling annuity option and type of covered employees is based

on a review of retirement system websites. The number of active employees covered by the

retirement systems is provided in the 2012 report by the Wisconsin Legislative Council.

38

Table 2. Present Values of Retirement Benefit Options Using Male Survival Rates

Present Value Using

Personal Discount Rate ri

Annuity Type Monthly $

Age 57-61

Monthly $

Ages 62+ ri =7.25% ri =2.9%

Maximum Benefit $2,000 $2,000 $267,128 $412,529

Social Security Leveling $2,761 $1,561 $268,279 $388,058

Social Security Age 62 $1,200 $119,434 $225,413

Social Security Age 66 $1,600 at age

66 $112,284 $237,802

Notes: These calculations assume a male retiree with survival expectations equivalent to the

experience study assumptions. The leveling benefits are offered by the retirement system and are

based on blended survival probabilities so that men and women are offered the same leveling

benefits if they have the same maximum benefit. The retiree claims a retirement benefit at age

57. The maximum benefit is assumed to be $2,000, with the Social Security leveling benefit

equal to $2,761 before age 62 and $1,561 after age 62. The assumed Social Security benefit at

age 62 is $1,200, which corresponds to a benefit of $1,600 if claiming is delayed to age 66. The

present value is calculated using the personal discount rate indicated accounting for age-specific

survival rates according to the experience studies of the TSERS/LGERS retirement systems

effective in 2012. Details of the calculations are provided in the Appendix A.

39

Table 3 Means of Individuals Claiming Retirement Benefits between 2009 and 2014

Variables All

Retirees

Claiming

Before 62

Claiming

Before 62

and Selecting

a Single Life

Annuity

Survey

Respondents

(Response

Rate 23%)

(1) (2) (3) (4)

Number of Benefit Accounts 72,350 36,883 25,839 2,256

Age at Claiming 60.7 56.9 56.9 56.6

Age at Termination 60.7 56.8 56.8 56.6

Early Retirement 36.1% 37.3% 39.8% 34.9%

TSERS 79.1% 80.9% 83.0% 83.2%

Community College 4.3% 3.3% 3.2% 4.1%

Local Government 21.0% 19.1% 17.0% 16.8%

Primary Government (and

Proprietary Unit)

19.7% 19.4% 18.3% 15.7%

Public Schools 46.9% 51.3% 55.0% 55.6%

University 8.1% 6.8% 6.5% 7.7%

Receiving Health Insurance 100% 78.3% 81.1% 83.1% 83.5%

Receiving Health Insurance 50% 0.02% 0.01% 0.02% 0.04%

Male 34.2% 31.1% 24.7% 19.1%

Years of Service 22.9 26.9 26.51 27.45

Years of Service 5-19 35.1% 14.6% 15.6% 13.2%

Years of Service 20-24 15.6% 13.5% 14.5% 11.6%

Years of Service 25-29 19.2% 24.9% 24.5% 22.5%

Years of Service 30+ 30.1% 47.0% 45.4% 52.7%

Final Average Salary $51,447 $55,208 $53,199 $61,116

Maximum Initial Benefit Amount $1,876 $2,264 $2,142 $2,534

Annuity Type:

SS Leveling 12.0% 23.4% 33.4% 31.8%

Max 56.0% 46.7% 66.6% 68.2%

OPT2 10.5% 8.2%

OPT3 3.7% 3.3%

OPT62 11.0% 11.1%

OPT63 6.9% 7.4%

Has any other account 7.5% 5.5% 4.3% 1.7%

Has both TSERS/LGERS 0.13% 0.12% 0.09% 0.0%

Notes: Only primary TSERS and LGERS accounts are included in the sample, as described in

Appendix A1. The bottom row indicates the percent of the sample that has both a TSERS and

LGERS account in the data. Column 4 excludes survey respondents meeting all other criteria but

who have both a TSERS and LGERS account.

40

Table 4. Proportion of new single life benefit claims selecting Social Security Leveling

Year of Claiming Age 44-54 Age 55-59 Age 60-61

2009 59.08% 37.23% 15.66%

2010 51.90% 37.07% 17.65%

2011 50.41% 36.35% 14.13%

2012 51.37% 40.30% 17.54%

2013 49.83% 36.12% 17.13%

2014 47.70% 33.44% 16.86%

Total 2009-2014 51.77% 36.80% 16.47%

Notes: Percent of newly claimed retirement benefit accounts that chose Social Security

Leveling versus the maximum benefit option. Rows are the year of claiming. See Table 3,

Column 3, for a description of the sample, N = 26,056.

41

Table 5. Choice of Social Security Leveling Among Single Life Annuitants

All Men Women

(1) (2) (3)

Male 0.043*** (0.007) Age at Claiming -0.034*** -0.033*** -0.034*** (0.001) (0.002) (0.001) Early Retirement 0.114*** 0.082*** 0.125*** (0.012) (0.023) (0.014) Years of Service 5-19 -0.258*** -0.230*** -0.270*** (0.019) (0.039) (0.022) Years of Service 20-24 -0.187*** -0.193*** -0.187*** (0.016) (0.032) (0.018) Years of Service 25-29 -0.074*** -0.070*** -0.075*** (0.010) (0.021) (0.011) Maximum Initial Benefit Amount (1K) -0.052*** -0.064*** -0.047*** (0.007) (0.013) (0.009) Maximum Initial Benefit Amount (1K)

2 0.000 0.001 -0.000

(0.001) (0.001) (0.001) Community College (TSERS) -0.028* -0.054* -0.017 (0.017) (0.032) (0.020) Local Government (All LGERS) -0.087*** -0.106*** -0.077*** (0.009) (0.016) (0.012) Public Schools (TSERS) -0.103*** -0.088*** -0.104*** (0.008) (0.014) (0.009) University (TSERS) -0.090*** -0.123*** -0.076*** (0.013) (0.023) (0.015) Claimed in 2010 -0.014 -0.004 -0.017 (0.010) (0.020) (0.011) Claimed in 2011 -0.031*** -0.037* -0.028*** (0.009) (0.019) (0.011) Claimed in 2012 -0.005 -0.030 0.003 (0.010) (0.020) (0.011) Claimed in 2013 -0.027*** -0.030 -0.026** (0.010) (0.020) (0.011) Claimed in 2014 -0.042*** -0.042** -0.042*** (0.010) (0.020) (0.011) Mean Dependent Variable 0.334 0.389 0.315

Observations 25,839 6,370 19,469

Notes: Dependent variable is having chosen Social Security Leveling. Data are from administrative

records on pension benefit claimants who initiated benefits between 2009 and 2014. Individuals are ages

44 to 61 and all chose a single-life option. Regression is a linear probability model with standard errors

in parentheses. Omitted category of agency class is ‘primary government’ and ‘proprietary unit’

(TSERS) and omitted claiming year is 2009. A constant term and control variables for having multiple

benefit accounts are included by not reported. *** p<0.01, ** p<0.05, * p<0.1

42

Table 6. Leveling Decision among Current Benefit Claimants Who Responded to Survey

N Total

Max

Option

Leveling

Option

Mean Difference

p-value

Currently Working 2263 36.00% 35.10% 37.90% 0.207

(0.480) (0.478) (0.485)

Married Male 2263 12.50% 11.60% 14.50% 0.052

(0.331) (0.320) (0.352)

Single Male 2263 6.60% 6.50% 7.00% 0.662

(0.249) (0.246) (0.255)

Single Female 2263 32.40% 32.20% 32.70% 0.814

(0.468) (0.468) (0.470)

Married Female 2263 48.50% 49.70% 45.80% 0.085

(0.500) (0.500) (0.499)

White 2263 80.70% 84.50% 72.40% 0.000

(0.395) (0.362) (0.447)

Black 2263 16.10% 12.50% 23.80% 0.000

(0.367) (0.331) (0.426)

Other Race 2263 2.00% 1.90% 2.40% 0.441

(0.141) (0.136) (0.152)

Less than BA 2263 27.00% 23.00% 35.50% 0.000

(0.444) (0.421) (0.479)

Bachelor’s Degree 2263 32.30% 32.90% 30.90% 0.338

(0.468) (0.470) (0.462)

Master’s Degree 2263 35.90% 38.80% 29.70% 0.000

(0.480) (0.487) (0.457)

Professional Degree/PhD 2263 4.10% 4.60% 2.90% 0.061

(0.198) (0.209) (0.169)

Self-reported health good 2263 63.70% 66.00% 58.90% 0.001

(0.481) (0.474) (0.492)

Self-reported financial knowledge

HIGH

2263 47.40% 48.50% 45.00% 0.121

(0.499) (0.500) (0.498)

If married, spouse’s health is good 1380 54.40% 55.30% 52.40% 0.314

(0.498) (0.497) (0.500)

If married, spouse currently works 1380 55.90% 53.30% 61.40% 0.005

(0.497) (0.499) (0.487)

Self-reported HH income <50K 2263 36.60% 35.80% 38.30% 0.249

(0.482) (0.480) (0.486)

Self-reported HH income >=50K 2263 59.70% 60.30% 58.60% 0.464

(0.491) (0.490) (0.493)

Missing HH income 2263 3.70% 3.90% 3.10% 0.298

(0.188) (0.195) (0.172)

Expect to live less than 85 2236 29.60% 28.40% 32.10% 0.073

(0.456) (0.451) (0.467)

Expect to live more than 85 2236 48.80% 51.10% 43.80% 0.001

(0.500) (0.500) (0.497)

Don’t know own mortality 2236 21.60% 20.50% 24.00% 0.061

(0.412) (0.404) (0.428)

Notes: Standard deviations are in parentheses. Last column presents p-values for pr-test for binary

variables and for t-test for continues variables.

43

Table 7. Well-being in Retirement

Not

Financially

Fragile

Saved

Enough

Had Enough

Information

Maintain

Standard of

Living

(1) (2) (3) (4)

SS Leveling Annuity -0.045 -0.026 0.015 0.059**

(0.028) (0.031) (0.016) (0.027)

SS Leveling * Current Age >= 62 -0.017 -0.064 -0.069*** -0.060

(0.046) (0.051) (0.026) (0.044)

Age at Claiming 0.006 0.014** 0.003 0.006

(0.005) (0.006) (0.003) (0.005)

Current Age >= 62 0.025 -0.009 0.011 0.033

(0.036) (0.040) (0.021) (0.034)

Early Retirement -0.021 0.005 -0.032 -0.025

(0.044) (0.049) (0.025) (0.042)

Years of Service 5-19 0.224*** 0.140* 0.035 0.046

(0.074) (0.083) (0.042) (0.071)

Years of Service 20-24 0.135** 0.041 0.040 -0.051

(0.063) (0.070) (0.036) (0.060)

Years of Service 25-29 0.039 0.025 -0.013 -0.029

(0.036) (0.040) (0.020) (0.034)

Maximum Initial Benefit Amount (1K) 0.135*** 0.088** 0.042** 0.094***

(0.034) (0.038) (0.020) (0.033)

Maximum Initial Benefit Amount (1K)2 -0.011*** -0.006 -0.005* -0.008*

(0.004) (0.005) (0.002) (0.004)

Community College (TSERS) 0.037 0.135** 0.023 0.061

(0.056) (0.063) (0.033) (0.054)

Local Government (All LGERS) 0.018 0.105*** 0.019 0.012

(0.034) (0.038) (0.020) (0.033)

Public Schools (TSERS) -0.055* 0.010 -0.004 0.013

(0.030) (0.033) (0.017) (0.028)

University (TSERS) 0.092** 0.082* -0.004 -0.003

(0.043) (0.048) (0.025) (0.041)

Married Male 0.051 0.018 -0.010 0.040

(0.032) (0.036) (0.019) (0.031)

Single Male 0.018 -0.001 -0.037 -0.036

(0.042) (0.047) (0.024) (0.040)

Single Female -0.109*** -0.091*** 0.019 -0.085***

(0.023) (0.025) (0.013) (0.022)

Non-Hispanic Black -0.274*** -0.178*** -0.038** -0.058**

(0.029) (0.032) (0.016) (0.028)

Other Race/Ethnicity -0.114 0.058 0.029 -0.058

(0.071) (0.079) (0.041) (0.069)

BA Degree or more 0.129*** 0.029 -0.005 -0.069***

(0.027) (0.030) (0.016) (0.026)

Year of Claiming 0.002 0.002 0.012*** 0.002

(0.007) (0.007) (0.004) (0.006)

Constant 0.049 -0.424 0.644*** 0.323

(0.270) (0.301) (0.154) (0.258)

Number of Obs. 1,969 1,937 1,939 1,926

44

Mean Dependent Variable 0.688 0.572 0.934 0.773

Notes: Data are from a survey of individuals who initiated retirement benefits from 2009-2014, chose a

single-life annuity option (max benefit or SS leveling), and were younger than age 62 at the time of

claiming. Administrative records and survey responses are as of spring 2015. Specification includes all

variables presented in Table 5 and adds self-reports from survey responses. Dependent variables are

indicated in the column headings, details are provided in the appendix. *** p<0.01, ** p<0.05, * p<0.1

Appendix Page 1

Appendix A: Social Security Leveling Calculations

In this appendix, we present detailed calculations on how the North Carolina retirement

systems derive the initial benefit at retirement for the two single life annuity options offered to

retirees: the maximum benefit and the Social Security Leveling annuity. The initial monthly

benefit amount at retirement for individuals selecting the Social Security Leveling benefit is

calculated relative to the initial maximum benefit available to the retiree, as described in the

manuscript text. Throughout this exercise, we assume no cost of living increases (COLAs) in

future benefits to be consistent with the way that the retirement system performs their valuations

for all annuity options.18

The administrative records combined with plan documents include

information on all inputs to this benefit formula, as well as the value for BMAX.

The leveling factor, F, is derived from taking a present value calculation of the maximum

benefit option taken at different ages. We define Ann(A,C) as the present value at retirement age

A of the maximum benefit annuity claimed at the age of starting Social Security, C. This value is

then compared to the present value of an immediate maximum benefit annuity at age A, referred

to as Ann(A,A). In the current policy, the age of assumed Social Security claiming, C, is age

62. To calculate the present values, the retirement system uses an assumed maximum lifespan of

120 years with survival probabilities taken from the retirement system’s experience study reports

and the mortality tables reference therein. Prior to 2012, the retirement system used the 1984

experience study estimates, (“Early and Optional Retirement Factor Tables”, October 1, 1984).

18

An assumption of no COLAs is also appropriate given the recent historical rates at which COLA’s have

been given; specifically, COLAs of 1% were given in both 2012, and 2014, while inflation averaged

1.6% since July 2007.

Appendix Page 2

Beginning in 2012, the retirement system now uses the 2012 experience study report estimates.19

The discount rate, rN, was 7.5% prior to 2012 and was modified to 7.25% in 2012.

The present value of an annuity deferred to age C calculated at age A is:

(A.1)

The value of Ann(A,C) is calculated separately for men and women and then the rates are

“blended” by multiplying male by 0.4 and female by 0.6 and summing together.20

The annuity

values are also adjusted by the industry-standard 11/24ths adjustment for monthly payment,

denoted CtsAdj in equation (A.1). Thus, theoretically the Social Security Leveling option is

cost-neutral to the retirement system relative to the maximum benefit option, using the

assumptions established by the Board of Trustees of the two retirement plans. However, the

discount rates of 7.25% or 7.5% are quite high relative to market rates, so the two options are not

necessarily identical in present value terms for the retiree unless she also has a high personal

discount rate.

To construct the factor that is applied to the maximum benefit, the retirement system

takes the ratio of the present value of the annuity benefit deferred to age C relative to the present

value of the annuity benefit claimed at the current age, A.

(A.2) )

19

In 2017, the retirement system is adopting new estimates, but this is outside the timeframe studied in

this paper.

20 The convention of using a fixed proportion of males and females could lead to an underestimate of the

true cost-neutral discounting since we find about three-quarters of those selecting a single-life annuity are

women.

Appendix Page 3

Thus, the Social Security Leveling factor is only a function of age at initial claiming and

age at deferral, since the benefit level BMAX will cancel out. The current policy only allows for

deferral to age 62. Using these values, one can theoretically construct alternative leveling

policies that would use Social Security claiming ages at 66 or even 70.

Present Value:

For present value calculations, we retain the pension system experience study survival

rates and use alternative personal discount rates ri. In calculating the present value of the benefit

streams, we first use the discount rate employed by the retirement system to calculate the

leveling benefit, 7.25 percent. Next, we repeat the analysis using a rate of 2.9 percent that

adopted by Shoven and Slavov (2012) in their analysis of the present value of Social Security

benefits. We define two time periods: Period (1) is the time from initiating the employer pension

benefit until initiating Social Security; Period (2) is the time from assumed claiming of Social

Security until death. Here A denotes the age at claiming the retirement pension and C denotes

the age at claiming Social Security. The notation uses ri for the discount rate used in the present

value calculation and rN for the discount rate used by the retirement system for calculating the

leveling factors. We adopt the retirement system’s approach of using mortality tables to derive a

probability of survival and sum the present value until age 120.

When taking the present value of Social Security benefits, we assume a growth in Social

Security benefits of α = 2% that begins at age 62. The value of the initial Social Security benefit

is denoted SS and the pension benefit is B with the subscript denoting the annuity option type

(leveling age or maximum benefit) and the superscript denoting the time period. We calculate all

Appendix Page 4

present values separately for men and women and use the gender-specific survival rates provided

by the pension system.

Because the maximum benefit is simply the same dollar value monthly until death, the

present value can be written as:

(A.3)

The present value of the leveling option must consider separately the two time periods:

(A.4)

Here, F is the ratio of the present value of benefits at age A of an annuity claimed at age C to the

present value of benefits at age A claimed immediately. Thus, if the personal discount rate and

subjective survival probabilities are identical to the assumptions used in calculating F, then the

second two terms basically cancel out and the present value of the Maximum Benefit and Social

Security Leveling options are nearly identical.

Alternatively, we now calculate the present value of both pension benefit options using

gender-specific survival rates and three alternative personal discount rates. To get the present

value at age A of claiming Social Security at age C, we use a simple present value formula with

gender-specific survival rate from the pension plan experience studies. We again simulate three

personal discount rates, ri. We assume a growth in Social Security benefits of α = 2%.

(A.5)

Appendix Page 5

Simulation Exercise:

For this exercise, we create a hypothetical retiree that is eligible for an immediate TSERS

Maximum Benefit of $2,000. This individual has a Social Security early retirement estimate of

$1,200 and a normal Social Security estimate of $1,600 at age 66.21

Using the notation from the

equations above, Appendix Table A1 presents the comparison between the Maximum Benefit

option and the Social Security Leveling option. The present values are calculated as above and

include both the pension and Social Security benefit.

Definitions:

rN: Discount rate used by the retirement system to price the factors.

A: Age at pension benefit claiming.

C: Age at Social Security benefit claiming.

B1: Pension benefit during time period 1 (before Social Security Claiming)

B2: Pension benefit during time period 2 (after Social Security Claiming)

SS: Social Security benefit starting at age C.

ri: Discount rate used by the individual to weigh future benefits at time 0.

Appendix Table A1: Comparison of Max and Social Security Leveling

Annuity

Type

Chosen

rN A C F B1 B

2 SS

Max N/A 57 62 N/A $2,000 $2,000 $1,200

Level

62 7.25% 57 62 0.634 $2,761 $1,561 $1,200

21

https://www.ssa.gov/oact/quickcalc/early_late.html In the case of early retirement, a benefit is reduced

5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of

months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.

For example, if the number of reduction months is 60 (the maximum number for retirement at 62 when

normal retirement age is 67), then the benefit is reduced by 30 percent. This maximum reduction is

calculated as 36 months times 5/9 of 1 percent plus 24 months times 5/12 of 1 percent. The $1,600 benefit

at age 66 does not reflect the COLA that applies from age 62.

Appendix Page 6

Appendix Table A.2: Present Value Calculations Using Female Survival Rates

Present Value Using

Personal Discount Rate ri

Annuity Type Monthly $

Age 57-61

Monthly $

Ages 62+ ri =7.25% ri =2.9%

Maximum Benefit $2,000 $2,000 $276,954 $441,494

Social Security Leveling $2,761 $1,561 $276,100 $410,840

Social Security Age 62 $1,200 $128,080 $252,988

Social Security Age 66 $1,600 at age

66 $123,411 $274,028

Notes: These calculations assume a female retiree with survival expectations equivalent to the

experience study assumptions. The retiree claims a retirement benefit at age 57. The maximum

benefit is assumed to be $2,000, with the Social Security leveling benefit equal to $2,761 before

age 62 and $1,561 after age 62. The assumed Social Security benefit at age 62 is $1,200, which

corresponds to a benefit of $1,600 if claiming is delayed to age 66. The present value is

calculated using the personal discount rate indicated accounting for age-specific survival rates

according to the experience studies of the TSERS/LGERS retirement systems effective in 2012.

Details of the calculations are provided in the Appendix A.

Appendix Page 7

Appendix B: Sample construction and restrictions

1. Administrative Records

The retirement system maintains records for several retirement plans including

firefighters, judicial classes, and the legislature.22

We construct our data using administrative

records on active retirement benefit accounts that were initiated between January 1, 2009 and

December 31, 2014. We only consider retirement accounts from the TSERS or LGERS

retirement systems. We exclude any accounts that are suspended. We do not include ancillary

accounts from other systems but do retain an indicator if the individual has other benefit

accounts, which might include the transfer benefit option or another retirement system such as

the legislature or firefighters. We also exclude any accounts that were closed for any reason,

including disability, withdrawal, or transfer of benefits. We exclude firefighters and law

enforcement officers that are within TSERS and LGERS, since the eligibility rules are different

for those plans.

We confirm that the remaining 80,241 benefit records are unique accounts – individuals

may only receive one benefit from TSERS and one benefit from LGERS. We make further

exclusions as listed in Appendix Table B1 below. These include: recorded years of service is

less than 5 years, termination of employment before 2008, days between termination and

claiming greater than one year, and missing gender code. We end up with 72,350 unique benefit

accounts representing 72,254 individuals with one account and 96 individuals with both a

TSERS and LGERS account.

22

While we focus solely on those accounts in TSERS and LGERS, individuals may also have accounts with these

other systems. Where relevant, we include an indicator variable for the individual having an additional membership

in another retirement plan. About 1% of our sample has both an active TSERS and LGERS retirement benefit. For

those individuals we keep both records and treat them as separate observations but retain an indicator variable.

Appendix Page 8

To create the sample for Table 3, Column 2, we exclude individuals claiming at age 62

and above. We also exclude individuals whose age at claiming or years of service combination

does not match the requirements for either an early or normal benefit account. This yields

36,883 observations. To create the sample for Table 3, Column 3, we only keep those choosing

a maximum benefit or Social Security leveling option, N = 25,839.

2. Key Policy Details

Here we outline some key policies that were in place during the 2009-2014 time period.

Return to work:

Our data will include some individuals that have “retired” but are still working within the system

according to the rules below.

o Pension benefits can be received while working at any other job not covered by

that pension. This includes a TSERS employee working under LGERS and vice

versa.

o Pension benefits can be received while working for a job at the prior employer as

long as the position is not eligible for pension benefits (typically a part-time

position).

o Pension benefits will be suspended if an individual works in a job that is covered

by the same pension. After 3 years of service, the earned benefits can be

combined into one account. If 3 years of service are not reached, the new account

is not eligible for pension benefits and must be withdrawn as a lump sum.

Multiple benefit accounts:

We retain individuals that have multiple benefit accounts and include TSERS and LGERS

accounts separately in the data. The rules on maintaining multiple benefit accounts are below.

Appendix Page 9

o Each retirement benefit account can be paid separately and there are no

restrictions on coordinating annuity type or timing. Individuals with multiple

accounts have the option to consolidate them by transferring service from one

account to another. The average final compensation (AFC) used is that from the

receiving account, while the years of service is the sum of all accounts. We

cannot track in the data whether the benefit account is the sum of multiple

benefits earned under different retirement systems.

o An individual may have multiple membership accounts due to:

Long break in work

Return to work

Work with a different retirement system (first TSERS, then LGERS etc.)

Years of Service:

In our data, we only observe creditable service, which is a combination of tenure and optional

purchased service. Using date of hire and date of termination, which are measured with some

error, we estimate that most individuals have about 6-8 months of purchased service on top of

membership service.

o Creditable service: service calculation used for determining benefit level

Membership service

Purchased service: withdrawn service, military service, out-of-state,

temporary, educational leave, workers’ compensation, community service,

parental leave, extended illness leave, etc.

Purchased service from other benefit account, Unused sick leave, vacation

time

o Contributory service: service calculation used for determining eligibility

Appendix Page 10

3. Survey Questions on Retiree Well-being

The retiree well-being outcomes in Table 7 of the text are derived from the following questions.

Please indicate whether you agree or disagree with the following statements regarding your

choices at retirement [Strong Disagree; Disagree; Somewhat Disagree; Somewhat Agree;

Agree; Strongly Agree]:

I believe I had enough information to make good decisions regarding my retirement from North Carolina public employment.

I believe I saved enough for retirement while working.

I believe my standard of living is the same as, or better than, it was before I retired from NC public employment.

Dependent variables are binary outcomes equal to 1 if the individual selected one of the three

“agree” options.

How confident are you that you could come up with $2,000 if an unexpected need arose

within the next month?

ଠ I am certain I could come up with the full $2,000.

ଠ I could probably come up with $2,000.

ଠ I probably could not come up with $2,000.

ଠ I am certain I could not come up with $2,000.

Dependent variable is a binary indicator of NOT choosing the first option (including skipping

the question).

Appendix Page 11

Appendix Table B1: Sample Construction

Restriction Count of

Observations

Sample

Size

All eligible benefit accounts 80,241

Reported service credit < 5 years 368 79,873

Terminated prior to 2008 5,043 74,830

Days between termination and benefit claiming >= 366 2,454 72,376

Missing gender code 26 72,350

Full Administrative Records

Table 3, Column 1

72,350

Remove combinations of age and YOS that are not

consistent with eligibility

299 72,051

Only those claiming prior to 62 35,168 36,883

Full Administrative Records for Claimants Age <62

Table 3, Column 2

36,883

Single-Life Annuity Claimants Age <62

Table 3, Column 3

25,839

Single-Life Annuity Claimants, Age <62, Validated

Email Address and Eligible for Survey 9,650

Survey Sample Responses 2,256

Completed Survey Response

Table 3, Column 4

2,256

Note: The survey response rate was 23% for the sample used in this paper.