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Benefit or Burden? On the Intergenerational Inequity of Teacher Pension Plans

Author

Listed:
  • Ben Backes

    (American Institutes for Research)

  • Ben Backes

    (American Institutes for Research)

  • Dan Goldhaberb

    (American Institutes for Research and University of Washington)

  • Cyrus Grout

    (University of Washington)

  • Cory Koedel

    (University of Missouri)

  • Shawn Ni

    (University of Missouri)

  • Michael Podgursky

    (University of Missouri)

  • P. Brett Xiang

    (University of Missouri)

  • Zeyu Xu

    (American Institutes for Research)

Abstract

Most public school teachers in the United States are enrolled in defined benefit (DB) pension plans. Using administrative micro data from four states, combined with national pension funding data, we show these plans have accumulated substantial unfunded liabilities – effectively debt – owing to previous plan operations. On average across 49 state plans, an amount that exceeds 10 percent of current teachers’ earnings is being set aside to pay for previously-accrued pension liabilities. To the extent that the costs of the unfunded liabilities drag on teacher compensation, they may exacerbate problems of teacher recruitment and retention. We briefly discuss three policy changes that could end or reduce the accumulation of unfunded liabilities in educator pension plans: (1) transition teachers to defined-contribution retirement plans, (2) transition teachers to cash-balance retirement plans, and (3) tighten the link between funding and benefit formulas within the current defined-benefit structure.

Suggested Citation

  • 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.
    • Handle: RePEc:umc:wpaper:1517
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    References listed on IDEAS

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    Cited by:

    1. Fuchsman, Dillon & McGee, Josh B. & Zamarro, Gema, 2023. "Teachers’ willingness to pay for retirement benefits: A national stated preferences experiment," Economics of Education Review, Elsevier, vol. 92(C).
    2. Papke, Leslie E., 2019. "Retirement choices by state and local public sector employees: the role of eligibility and financial incentives," Journal of Pension Economics and Finance, Cambridge University Press, vol. 18(4), pages 515-528, October.
    3. Fuchsman, Dillon & McGee, Josh B. & Zamarro, Gema, 2023. "Teachers’ willingness to pay for retirement benefits: A national stated preferences experiment," Economics of Education Review, Elsevier, vol. 92(C).
    4. Kim, Dongwoo & Koedel, Cory & Xiang, P. Brett, 2021. "The trade-off between pension costs and salary expenditures in the public sector," Journal of Pension Economics and Finance, Cambridge University Press, vol. 20(1), pages 151-168, January.
    5. Robert M. Costrell & Josh McGee, 2019. "Cross-Subsidization of Teacher Pension Costs: The Case of California," Education Finance and Policy, MIT Press, vol. 14(2), pages 327-354, Spring.
    6. Kim, Dongwoo & Koedel, Cory & Ni, Shawn & Podgursky, Michael, 2017. "Labor market frictions and production efficiency in public schools," Economics of Education Review, Elsevier, vol. 60(C), pages 54-67.

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    More about this item

    Keywords

    Pensions; teacher pensions; pension liabilities; pension debt; teacher quality;
    All these keywords.

    JEL classification:

    • I20 - Health, Education, and Welfare - - Education - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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