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Evidence on the Relationship between Pension-Driven Financial Incentives and Late-Career Attrition: Implications for Pension Reform

Author

Listed:
  • Dan Goldhaber
  • Cyrus Grout
  • Kristian L. Holden
  • Josh B. McGee

Abstract

Retirement plans can create strong financial incentives that have important labor market implications, and many states have adopted alternative plan designs that significantly change these incentives. The authors use longitudinal data to investigate the impact of Washington State’s 1996 introduction of a hybrid retirement plan on late-career attrition. The unique setup of Washington’s plans allows them to provide empirical evidence on the influence of financial incentives created by statutory retirement eligibility thresholds. Findings show that despite facing very different financial incentives, teachers enrolled in the hybrid and traditional plans respond similarly to reaching a key retirement eligibility threshold. The authors hypothesize that teachers are anchoring to the eligibility thresholds, muting the influence of the financial incentives. They also provide evidence that, in the presence of bright-line eligibility thresholds that can anchor workers’ separation behavior, commonly used structural models may overpredict workers’ responsiveness to the financial incentives embedded in retirement plans.

Suggested Citation

  • Dan Goldhaber & Cyrus Grout & Kristian L. Holden & Josh B. McGee, 2024. "Evidence on the Relationship between Pension-Driven Financial Incentives and Late-Career Attrition: Implications for Pension Reform," ILR Review, Cornell University, ILR School, vol. 77(2), pages 175-198, March.
    • Handle: RePEc:sae:ilrrev:v:77:y:2024:i:2:p:175-198
    DOI: 10.1177/00197939231221784
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    References listed on IDEAS

    as
    1. Brown, Kristine M., 2013. "The link between pensions and retirement timing: Lessons from California teachers," Journal of Public Economics, Elsevier, vol. 98(C), pages 1-14.
    2. repec:hal:pseose:hal-00772844 is not listed on IDEAS
    3. Kristine M. Brown & Ron A. Laschever, 2012. "When They're Sixty-Four: Peer Effects and the Timing of Retirement," American Economic Journal: Applied Economics, American Economic Association, vol. 4(3), pages 90-115, July.
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    6. Robert M. Costrell & Michael Podgursky, 2009. "Peaks, Cliffs, and Valleys: The Peculiar Incentives in Teacher Retirement Systems and Their Consequences for School Staffing," Education Finance and Policy, MIT Press, vol. 4(2), pages 175-211, April.
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    8. Michael DeArmond & Dan Goldhaber, 2010. "Scrambling the Nest Egg: How Well Do Teachers Understand Their Pensions, and What Do They Think about Alternative Pension Structures?," Education Finance and Policy, MIT Press, vol. 5(4), pages 558-586, October.
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    Cited by:

    1. Kim, Dongwoo & Koedel, Cory & Gorina, Eugenia & Harrington, James, 2025. "Rule-of-X and the retirement timing of public school teachers," Economics Letters, Elsevier, vol. 256(C).

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