IDEAS home Printed from https://ideas.repec.org/a/tpr/edfpol/v11y2016i4p449-481.html
   My bibliography  Save this article

Pension Choices and the Savings Patterns of Public School Teachers

Author

Listed:
  • Dan Goldhaber

    () (Center for Education Data& Research University of Washington–Bothell Seattle, WA 98103)

  • Cyrus Grout

    () (Center for Education Data& Research University of Washington–Bothell Seattle, WA 98103)

Abstract

This paper examines the savings behavior of public school teachers who are enrolled in a hybrid pension plan that includes a defined contribution (DC) component. Few states have incorporated DC features into teacher pension systems and little is known about how providing teachers with greater control over deferred compensation might affect their savings behavior—an important determinant of retirement security. We find the retirement savings choices of teachers—how much they opt to contribute to a DC retirement account—to be generally consistent with that of their peers in the private sector. In particular, age and salary are positively correlated with contribution rates, and contribution rates increase with teaching experience. Importantly, our analysis of retirement wealth suggests that Washington's hybrid plan is likely to provide a level of retirement security for a typical teacher that is comparable to or greater than that provided by the state's pure defined benefit plan.

Suggested Citation

  • Dan Goldhaber & Cyrus Grout, 2016. "Pension Choices and the Savings Patterns of Public School Teachers," Education Finance and Policy, MIT Press, vol. 11(4), pages 449-481, Fall.
  • Handle: RePEc:tpr:edfpol:v:11:y:2016:i:4:p:449-481
    as

    Download full text from publisher

    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/EDFP_a_00208
    Download Restriction: Access to PDF is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Maria Donovan Fitzpatrick, 2015. "How Much Are Public School Teachers Willing to Pay for Their Retirement Benefits?," American Economic Journal: Economic Policy, American Economic Association, vol. 7(4), pages 165-188, November.
    2. Eric A. Hanushek & EJohn F. Kain & Steven G. Rivkin, 2004. "Why Public Schools Lose Teachers," Journal of Human Resources, University of Wisconsin Press, vol. 39(2).
    3. Cory Koedel & Jason A. Grissom & Shawn Ni & Michael Podgursky, 2011. "Pension-Induced Rigidities in the Labor Market for School Leaders," Working Papers 1115, Department of Economics, University of Missouri.
    4. Dan Goldhaber & Michael Dearmond & Scott Deburgomaster, 2011. "Teacher Attitudes about Compensation Reform: Implications for Reform Implementation," ILR Review, Cornell University, ILR School, vol. 64(3), pages 441-463, April.
    5. Gur Huberman & Sheena Iyengar & Wei Jiang, 2007. "Defined Contribution Pension Plans: Determinants of Participation and Contributions Rates," Journal of Financial Services Research, Springer;Western Finance Association, vol. 31(1), pages 1-32, February.
    6. Goldhaber, Dan & Grout, Cyrus, 2016. "Which plan to choose? The determinants of pension system choice for public school teachers," Journal of Pension Economics and Finance, Cambridge University Press, vol. 15(1), pages 30-54, January.
    7. Martin Browning & Thomas F. Crossley, 2001. "The Life-Cycle Model of Consumption and Saving," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 3-22, Summer.
    8. Beshears, John & Choi, James J. & Laibson, David & Madrian, Brigitte C., 2011. "Behavioral economics perspectives on public sector pension plans," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(2), pages 315-336, April.
    9. Cory Koedel & Michael Podgursky & Shishan Shi, 2013. "Teacher Pension Systems, the Composition of the Teaching Workforce, and Teacher Quality," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 32(3), pages 574-596, June.
    10. Donald Boyd & Hamilton Lankford & Susanna Loeb & James Wyckoff, 2005. "Explaining the Short Careers of High-Achieving Teachers in Schools with Low-Performing Students," American Economic Review, American Economic Association, vol. 95(2), pages 166-171, May.
    11. Murnane, Richard J & Olsen, Randall J, 1989. "The Effects of Salaries and Opportunity Costs on Duration in Teaching: Evidence from Michigan," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 347-352, May.
    12. Annamaria Lusardi & Olivia S Mitchelli, 2007. "Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 42(1), pages 35-44, January.
    13. Modigliani, Franco, 1986. "Life Cycle, Individual Thrift, and the Wealth of Nations," American Economic Review, American Economic Association, vol. 76(3), pages 297-313, June.
    14. Poterba, James & Rauh, Joshua & Venti, Steven & Wise, David, 2007. "Defined contribution plans, defined benefit plans, and the accumulation of retirement wealth," Journal of Public Economics, Elsevier, vol. 91(10), pages 2062-2086, November.
    15. 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.
    16. Franco Modigliani, 2005. "The Collected Papers of Franco Modigliani, Volume 6," MIT Press Books, The MIT Press, edition 1, volume 6, number 0262134543, September.
    17. Shlomo Benartzi & Richard Thaler, 2007. "Heuristics and Biases in Retirement Savings Behavior," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 81-104, Summer.
    18. Annamaria Lusardi & Olivia Mitchell, 2006. "Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education Programs," Working Papers wp144, University of Michigan, Michigan Retirement Research Center.
    19. Eric M. Engen & William G. Gale & John Karl Scholz, 1996. "The Illusory Effects of Saving Incentives on Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 113-138, Fall.
    20. Dan Goldhaber & Betheny Gross & Daniel Player, 2011. "Teacher career paths, teacher quality, and persistence in the classroom: Are public schools keeping their best?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 30(1), pages 57-87, December.
    21. Scafidi, Benjamin & Sjoquist, David L. & Stinebrickner, Todd R., 2007. "Race, poverty, and teacher mobility," Economics of Education Review, Elsevier, vol. 26(2), pages 145-159, April.
    22. Christian E. Weller, 2011. "What Does the Literature Tell Us About the Possible Effect of Changing Retirement Benefits on Public Employee Effectiveness?," Working Papers wp270, Political Economy Research Institute, University of Massachusetts at Amherst.
    23. Robert Novy‐Marx & Joshua Rauh, 2011. "Public Pension Promises: How Big Are They and What Are They Worth?," Journal of Finance, American Finance Association, vol. 66(4), pages 1211-1249, August.
    24. Michael Pfaffermayr & Peter Egger & Andrea Weber, 2007. "Sectoral adjustment of employment to shifts in outsourcing and trade: evidence from a dynamic fixed effects multinomial logit model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(3), pages 559-580.
    25. James M. Poterba, 2014. "Retirement Security in an Aging Population," American Economic Review, American Economic Association, vol. 104(5), pages 1-30, May.
    26. Clark, Robert L. & Craig, Lee A., 2011. "Determinants of the generosity of pension plans for public school teachers, 1982–2006," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(1), pages 99-118, January.
    27. repec:mpr:mprres:6857 is not listed on IDEAS
    28. Lancaster, Tony, 2000. "The incidental parameter problem since 1948," Journal of Econometrics, Elsevier, vol. 95(2), pages 391-413, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Laura D. Quinby, 2020. "Do Deferred Retirement Benefits Retain Government Employees?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 39(2), pages 469-509, March.
    2. Mitchell, O.S. & Piggott, J., 2016. "Workplace-Linked Pensions for an Aging Demographic," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 865-904, Elsevier.
    3. Cory Koedel & Shawn Ni & Michael Podgursky, 2014. "Who Benefits from Pension Enhancements?," Education Finance and Policy, MIT Press, vol. 9(2), pages 165-192, March.
    4. Kim, Dongwoo, 2020. "Worker retirement responses to pension incentives: Do they respond to pension wealth?," Journal of Economic Behavior & Organization, Elsevier, vol. 173(C), pages 365-385.
    5. Patten Priestley Mahler, 2017. "Are Teacher Pensions "Hazardous" for Schools?," Upjohn Working Papers and Journal Articles 18-281, W.E. Upjohn Institute for Employment Research.
    6. Li Feng & Tim R. Sass, 2017. "Teacher Quality and Teacher Mobility," Education Finance and Policy, MIT Press, vol. 12(3), pages 396-418, Summer.
    7. Karbownik, Krzysztof, 2020. "The effects of student composition on teacher turnover: Evidence from an admission reform," Economics of Education Review, Elsevier, vol. 75(C).
    8. Shawn Ni & Michael Podgursky, 2016. "How Teachers Respond to Pension System Incentives: New Estimates and Policy Applications," Journal of Labor Economics, University of Chicago Press, vol. 34(4), pages 1075-1104.
    9. Florina Salaghe & Dimitra Papadovasilaki & Federico Guerrero & James Sundali, 2020. "Temptation and Retirement Accounts: A Story of Time Inconsistency and Bounded Rationality," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 6(3), pages 173-198, April.
    10. Joshua M. Cowen & Marcus A. Winters, 2013. "Do Charters Retain Teachers Differently? Evidence from Elementary Schools in Florida," Education Finance and Policy, MIT Press, vol. 8(1), pages 14-42, January.
    11. Fitzpatrick, Maria D., 2014. "Retiree health insurance for public school employees: Does it affect retirement?," Journal of Health Economics, Elsevier, vol. 38(C), pages 88-98.
    12. Don Boyd & Hamp Lankford & Susanna Loeb & Matthew Ronfeldt & Jim Wyckoff, 2011. "The role of teacher quality in retention and hiring: Using applications to transfer to uncover preferences of teachers and schools," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 30(1), pages 88-110, December.
    13. Scafidi Benjamin & Sjoquist David L. & Stinebrickner Todd R., 2006. "Do Teachers Really Leave for Higher Paying Jobs in Alternative Occupations?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 6(1), pages 1-44, December.
    14. Robert Novy-Marx & Joshua D. Rauh, 2012. "The Revenue Demands of Public Employee Pension Promises," NBER Working Papers 18489, National Bureau of Economic Research, Inc.
    15. Renuka Sane & Susan Thomas, 2015. "In Search of Inclusion: Informal Sector Participation in a Voluntary, Defined Contribution Pension System," Journal of Development Studies, Taylor & Francis Journals, vol. 51(10), pages 1409-1424, October.
    16. Cowen, Joshua M. & Butler, J.S. & Fowles, Jacob & Streams, Megan E. & Toma, Eugenia F., 2012. "Teacher retention in Appalachian schools: Evidence from Kentucky," Economics of Education Review, Elsevier, vol. 31(4), pages 431-441.
    17. Feng, Li & Figlio, David & Sass, Tim, 2018. "School accountability and teacher mobility," Journal of Urban Economics, Elsevier, vol. 103(C), pages 1-17.
    18. Gerhard, Patrick & Gladstone, Joe J. & Hoffmann, Arvid O.I., 2018. "Psychological characteristics and household savings behavior: The importance of accounting for latent heterogeneity," Journal of Economic Behavior & Organization, Elsevier, vol. 148(C), pages 66-82.
    19. Lührmann, Melanie & Serra-Garcia, Marta & Winter, Joachim, 2015. "Teaching teenagers in finance: Does it work?," Journal of Banking & Finance, Elsevier, vol. 54(C), pages 160-174.
    20. Beshears, John & Choi, James J. & Laibson, David & Madrian, Brigitte C. & Zeldes, Stephen P., 2014. "What makes annuitization more appealing?," Journal of Public Economics, Elsevier, vol. 116(C), pages 2-16.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tpr:edfpol:v:11:y:2016:i:4:p:449-481. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ann Olson). General contact details of provider: https://www.mitpressjournals.org/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.