How Much Are Public School Teachers Willing to Pay For Their Retirement Benefits?

Maria Fitzpatrick
Publication Date: 
October 2014

In this working paper, Fitzpatrick finds evidence that public sectors workers undervalue their pension benefits relative to the cost of providing them. In response to a 1998 surplus in pension fund assets, Illinois allowed late-career public school teachers to buy upgraded, more generous retirement benefits. However, on average, teachers were willing to pay just 20 cents of their current compensation for a dollar of future retirement benefits; hence, these teachers preferred current wages over pension wealth by a factor of five-to-one.

A large portion of public sector lifetime income comes in the form of deferred compensionation. Given public employees undervaluing benefits, however, it seems that public employees may actually prefer a higher proportion of their compensation upfront.