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Peaks, Cliffs, and Valleys: The Peculiar Incentives in Teacher Retirement Systems and Their Consequences for School Staffing

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  • Robert M. Costrell

    () (Department of Education Reform, University of Arkansas)

  • Michael Podgursky

    () (Department of Economics, University of Missouri, Columbia)

Abstract

This article examines the pattern of incentives for work versus retirement in six state teacher pension systems. We do this by examining the annual accrual of pension wealth from an additional year of work over a teacher's career. Accrual of wealth is highly nonlinear and heavily loaded at arbitrary years that would normally be considered mid-career. One typical pattern exhibits low accrual in early years, accelerating in the mid- to late fifties, followed by dramatic decline or even negative returns in years that are relatively young for retirement. Key factors in the defined benefit formulas that drive such patterns are identified along with likely consequences for employee behavior. The authors examine efficiency and equity consequences of these systems as well as options for reform. © 2009 American Education Finance Association

Suggested Citation

  • 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.
  • Handle: RePEc:tpr:edfpol:v:4:y:2009:i:2:p:175-211
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    References listed on IDEAS

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    Cited by:

    1. Maria D. Fitzpatrick, 2014. "Intergovernmental (Dis)incentives, Free-Riding, Teacher Salaries and Teacher Pensions," Upjohn Working Papers and Journal Articles 15-220, W.E. Upjohn Institute for Employment Research.
    2. 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.
    3. 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.
    4. 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.
    5. Maria D. Fitzpatrick & Michael F. Lovenheim, 2014. "Early Retirement Incentives and Student Achievement," American Economic Journal: Economic Policy, American Economic Association, vol. 6(3), pages 120-154, August.
    6. Hendricks, Matthew D., 2014. "Does it pay to pay teachers more? Evidence from Texas," Journal of Public Economics, Elsevier, vol. 109(C), pages 50-63.
    7. 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.
    8. Dongwoo Kim & Cory Koedel & Shawn Ni & Michael Podgursky & Weiwei Wu, 2016. "Pensions and Late-Career Teacher Retention," Working Papers 2016-08, Department of Economics, University of Missouri, revised Jul 2017.
    9. Cory Koedel & Shawn Ni & Michael Podgursky, 2014. "Who Benefits from Pension Enhancements?," Education Finance and Policy, MIT Press, pages 165-192.
    10. 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.
    11. Fitzpatrick, Maria D., 2017. "Pension-spiking, free-riding, and the effects of pension reform on teachers' earnings," Journal of Public Economics, Elsevier, vol. 148(C), pages 57-74.
    12. Matthew M. Chingos & Martin R. West, 2015. "Which Teachers Choose a Defined Contribution Pension Plan? Evidence from the Florida Retirement System," Education Finance and Policy, MIT Press, vol. 10(2), pages 193-222, March.
    13. Podgursky, Michael & Springer, Matthew, 2011. "Teacher Compensation Systems in the United States K-12 Public School System," National Tax Journal, National Tax Association, vol. 64(1), pages 165-192, March.
    14. Alicia Munnell & Jean-Pierre Aubry & Joshua Hurwitz & Laura Quinby, 2012. "Public Plans and Short-Term Employees," NBER Working Papers 18448, National Bureau of Economic Research, Inc.
    15. Ben Backes & Ben Backes & Dan Goldhaberb & Cyrus Grout & Cory Koedel & Shawn Ni & Michael Podgursky & P. Brett Xiang & Zeyu Xu, 2015. "Benefit or Burden? On the Intergenerational Inequity of Teacher Pension Plans," Working Papers 1517, Department of Economics, University of Missouri, revised Apr 2016.
    16. 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.
    17. Cory Koedel & Shawn Ni & Michael Podgursky, 2014. "Who Benefits from Pension Enhancements?," Education Finance and Policy, MIT Press, pages 165-192.
    18. Hendricks, Matthew D., 2015. "Towards an optimal teacher salary schedule: Designing base salary to attract and retain effective teachers," Economics of Education Review, Elsevier, vol. 47(C), pages 143-167.
    19. 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.
    20. Martin F. Lueken & Michael Podgursky, 2016. "Determinants of Cashing Out: A Behavioral Analysis of Refund Claimants and Annuitants in the Illinois Teachers Retirement System," Working Papers 1605, Department of Economics, University of Missouri.

    More about this item

    Keywords

    teacher retirement; teacher pension systems; school staffing;

    JEL classification:

    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid

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