Pension Enhancements and the Retention of Public Employees: Evidence from Teaching

Cory Koedel and P. Brett Xiang
Publication Date: 
Politicians and advocates for pensions argue that they boost increase worker retention, and that enhancements to pension plans will further boost retention. This working paper from the Center for Analysis of Longitudinal Data in Education Research (CALDER), however, could not find any evidence that this theory played out after St. Louis enacted a large pension enhancement for public school teachers. In 1999, the St. Louis teacher pension plan boosted benefits with an immediate 60 percent increase in pension wealth for all workers. Comparing the retention effects throughout the teaching workforce and across experience levels, the researchers found no behavior differences amongst teachers not yet eligible for retirement.   
There was one exception: teachers already eligible for retirement. Upon the passage of the enhancements, these teachers actually delayed their retirement, remaining in the classroom for one additional year, and so were able to reap the large benefit enhancements. The authors estimate the cost of retaining this single cohort of teachers for one additional year was roughly $166 million (in 2013 dollars).
Two possible explanation for the lack of retention effects lie in how workers value their pensions. Other research suggests that teachers value their pension benefits but at amounts that are much lower than the costs to provide them. Or, teachers may lack knowledge about the full value of their pensions and thus under-react to changes in pension benefits. 
Either way, this paper provides an important caution to policymakers and others who may otherwise overestimate the impact of pension enhancements on teacher retention.