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Who Benefits from Pension Enhancements?

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Abstract

During the late 1990s public pension funds across the United States accrued large actuarial surpluses. The seemingly flush conditions of the pension funds led legislators in most states to substantially improve retirement benefits for public workers, including teachers. In this study we examine the benefit enhancements to the teacher pension system in Missouri. These enhancements resulted in large windfall gains for teachers who were close to retirement when the legislation was enacted. By contrast, novice teachers, and teachers who had not yet entered the labor force, were made worse off. The reason is that front-end contribution rates have been raised for current teachers to offset past liabilities accrued from the enhancements. Other things equal, the teaching profession in Missouri is now less appealing for young teachers as a result of the pension enhancements.

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File URL: http://economics.missouri.edu/working-papers/2012/WP1207_koedel.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Missouri in its series Working Papers with number 1207.

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Length: 33 pgs.
Date of creation: 23 May 2012
Date of revision: 08 Jun 2012
Handle: RePEc:umc:wpaper:1207

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Web page: http://economics.missouri.edu/
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Keywords: pension; pension risk; defined-contribution pension; teacher pension; teacher pension risk;

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  1. Reis, Ricardo, 2006. "Inattentive consumers," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1761-1800, November.
  2. Robert Novy-Marx & Joshua D. Rauh, 2009. "The Liabilities and Risks of State-Sponsored Pension Plans," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 191-210, Fall.
  3. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
  4. Charles T. Clotfelter & Helen F. Ladd & Jacob L. Vigdor, 2006. "Teacher-Student Matching and the Assessment of Teacher Effectiveness," NBER Working Papers 11936, National Bureau of Economic Research, Inc.
  5. Courtney Coile & Jonathan Gruber, 2007. "Future Social Security Entitlements and the Retirement Decision," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 234-246, May.
  6. Cory Koedel & Michael Podgursky, 2011. "Teacher Pension Systems, the Composition of the Teaching Workforce, and Teacher Quality," Working Papers 1109, Department of Economics, University of Missouri, revised 10 Apr 2012.
  7. Jeffrey R. Brown, 2008. "Guaranteed Trouble: The Economic Effects of the Pension Benefit Guaranty Corporation," Journal of Economic Perspectives, American Economic Association, vol. 22(1), pages 177-198, Winter.
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