December 2013

Teacher pensions may not sound like a sexy or even high-profile issue, but keep reading: they're threatening the fiscal health of many states and could cost taxpayers thousands of dollars. But the problem doesn't just end there.

The authors study an early retirement incentive program in Illinois in the mid-1990s to provide evidence of the effects of large-scale teacher retirements on student achievement. They find the program did not reduce test scores; likely, it increased them, with positive effects especially in schools with more low-income, minority, and low-achieving students.

As this paper documents, the rule structure in educator pension plans, combined with the career-cycle timing of teachers’ promotions into administrative positions, results in senior management in K–12 education enjoying the largest net benefits from these plans. Yet it is these administrators who are expected to be the professional voice for the school districts that are bearing the heavy cost of employee pension benefits.

This paper analyzes a 2002 policy change in Florida allowing teachers to choose between a traditional defined benefit pension plan and a 401k-style defined contribution plan. The authors were able to track who chose which plan, what subject they taught, how effective they were in the classroom, how long they remained teaching, and whether the pension plan’s structure had any effect on retention. The paper also estimates how many teachers lose out under the state's defined benefit plan and how much they stand to lose in retirement savings.