Pension Plan Choice in the Public Sector: the Case of Michigan State Employees

In 1997, the State of Michigan closed its DB pension plan to new state employees. New employees are automatically enrolled in a 401(k) plan with a mandatory state contribution. Existing employees chose between staying in the DB plan, or transferring the present value of their vested pension benefits to a DC plan. This paper surveys the event and analyzes the choice made by corrections workers, about 25 percent of Michigan public employment. An analysis of the switch to individual accounts may inform Federal estimates of take-up rates in a possible privatization of Social Security.