Do All State and Local Workers Receive an Annuity in Retirement?

The conventional wisdom is that all state and local government workers receive a lifetime annuity from their employer pension plan. This brief investigates the extent to which this presumption is correct by examining the payout options offered by state and local plans, including those for the roughly 6.5 million employees who do not participate in Social Security. Since these “noncovered” workers do not earn credit towards a Social Security annuity during their time in government, they need annuitized income from their employer plan more than their covered counterparts. The discussion proceeds as follows. The first section describes the most common benefit payout options for major state and local defined benefit (DB) plans and highlights the fact that some plans allow retirees to convert a portion of their annuitized benefit into a lump-sum payout. The second section focuses on state and local workers with defined contribution (DC) plans as their primary retirement plan and highlights the fact that most of these plans offer annuitization as an option but not as a default. The final section concludes that while most state and local workers receive an annuity, a small share do not.