Determinants of Cashing Out: A Behavioral Analysis of Refund Claimants and Annuitants in the Illinois Teachers Retirement System

This paper examines pension benefit choices made by public school teachers vested in the Illinois Teachers Retirement System (TRS) who quit teaching well before retirement eligibility. Teachers who separate have the option of keeping their funds in TRS and collecting a pension at a future date or withdrawing them (cashing out). We examine how variation in pension wealth at separation affects this decision, what that reveals about individual discount rates, and how these decisions are affected by teacher characteristics such as race and gender. Results from cash out models suggest higher discount rates among male, African American, and Hispanic teachers; teachers who work in rural districts; and teachers who did not receive a degree from an elite institution in Illinois. Groups who are more likely to cash out are also less likely to roll over their contributions to an IRA or similar tax-advantaged savings vehicles. Since Illinois teachers are not covered by Social Security (as teachers), the latter finding suggests that many exiting teachers may be at risk of inadequate retirement savings.