Teacher Pension Incentives and the Timing of Retirement
AbstractThe rising costs and large unfunded liabilities of defined benefit (DB) teacher retirement systems raise questions about their efficacy and viability. Reform of teacher pension plans depends critically on reliable predictions of behavioral responses to alternative pension rules. We estimate an option-value model of individual teacher retirement using administrative data for Missouri teachers. The model fits the observed aggregate retirement behavior very well. We use the estimated structural parameters to simulate retirement behavior under alternative pension rules. Our simulations show that on net the enhancements of Missouri teacher pension benefits in the 1990's lowered the average retirement age for teachers. Conversion from the current DB plan to a defined contribution (DC) plan would have the opposite effect, and would dampen "spikes" in teacher retirement timing. The 1990's enhancements raised welfare for all teachers, however, the DC plan that we simulate has a mixed welfare impact, raising welfare for teachers near retirement but reducing it for teachers with less experience.
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Bibliographic InfoPaper provided by Department of Economics, University of Missouri in its series Working Papers with number 1111.
Length: 34 pgs.
Date of creation: 14 Sep 2011
Date of revision:
teacher pensions; school staffing; school finance;
Find related papers by JEL classification:
- H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
- I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
- J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
- J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
This paper has been announced in the following NEP Reports:
- NEP-AGE-2011-10-01 (Economics of Ageing)
- NEP-ALL-2011-10-01 (All new papers)
- NEP-CMP-2011-10-01 (Computational Economics)
- NEP-LAB-2011-10-01 (Labour Economics)
- NEP-LMA-2011-10-01 (Labor Markets - Supply, Demand, & Wages)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Joshua Furgeson & Robert P. Strauss & William B. Vogt, 2006. "The Effects of Defined Benefit Pension Incentives and Working Conditions on Teacher Retirement Decisions," Education Finance and Policy, MIT Press, vol. 1(3), pages 316-348, June.
- Asch, Beth & Haider, Steven J. & Zissimopoulos, Julie, 2005. "Financial incentives and retirement: evidence from federal civil service workers," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 427-440, February.
- Leora Friedberg & Anthony Webb, 2005.
"Retirement and the Evolution of Pension Structure,"
Journal of Human Resources,
University of Wisconsin Press, vol. 40(2).
- Stern, Steven, 1997. "Approximate Solutions to Stochastic Dynamic Programs," Econometric Theory, Cambridge University Press, vol. 13(03), pages 392-405, June.
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