Retiree Health Benefits as Deferred Compensation: Evidence from the Health and Retirement Study

Authors

James Marton, Georgia State UniversityFollow
Stephen A. Woodbury, Michigan State University and W.E. Upjohn Institute for Employment ResearchFollow

Upjohn Author ORCID Identifier

https://orcid.org/0000-0002-4474-2415

Series

Upjohn Institute working paper ; 12-182

**Published Version**

In Public Finance Review 41(1): 64-91

DOI

10.17848/wp12-182

Issue Date

March 2012

Abstract

Are early retiree health benefits (RHBs) a form of deferred compensation that binds workers to an employer? Most employers who offer RHBs offer them only to workers who have 10 or more years of tenure with the firm and have reached age 55. Accordingly, workers in firms offering RHBs have an incentive to stay with a firm in the years before they attain eligibility for RHBs, and a greater incentive than otherwise to retire thereafter. We test for the existence of such a pattern of incentives by examining the age-specific relationship between workers’ eligibility for RHBs and retirement. The findings suggest that workers in RHB-offering firms are less likely to retire at ages 50 and 51 than similar workers in firms that do not offer RHBs. Also, RHB-eligible workers aged 60 and 61 are more likely to retire than similar RHB-ineligible workers. Such a pattern is consistent with RHBs acting as part of a delayed-payment contract of the kind described by Lazear (1979, 1981).

Subject Areas

LABOR MARKET ISSUES; Retirement and pensions