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Teacher Pension Incentives, Retirement Behavior, and Potential for Reform in Arkansas

Author

Listed:
  • Robert M. Costrell

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

  • Josh B. McGee

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

Abstract

The authors analyze the Arkansas teacher pension plan and empirically gauge the behavioral response to incentives embedded in that plan and to possible reforms. The pattern of pension wealth accrual creates sharp incentives to work until eligible for early or normal retirement, often in one's early fifties, and to separate shortly thereafter. We estimate the effect of pension wealth accrual on teacher separation decisions using a new longitudinal data set of Arkansas teachers and find a significant impact. We then simulate the response to eliminating early retirement and raising the service requirement for normal retirement. We also simulate a shift to a constant accrual retirement plan. The response to both reforms is complex, as some would leave earlier and others stay longer. A constant accrual plan smoothes the pattern of retirement behavior as individuals tailor decisions to their own preferences instead of those built into the pension formula. © 2010 American Education Finance Association

Suggested Citation

  • Robert M. Costrell & Josh B. McGee, 2010. "Teacher Pension Incentives, Retirement Behavior, and Potential for Reform in Arkansas," Education Finance and Policy, MIT Press, vol. 5(4), pages 492-518, October.
  • Handle: RePEc:tpr:edfpol:v:5:y:2010:i:4:p:492-518
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    Citations

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    Cited by:

    1. Figlio, D. & Karbownik, K. & Salvanes, K.G., 2016. "Education Research and Administrative Data," Handbook of the Economics of Education, Elsevier.
    2. 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.
    3. 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.
    4. 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.
    5. 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 benefits; teacher pension plans; pension reform;

    JEL classification:

    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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