Pension System Choice for Public School Teachers

Dan Goldhaber and Cyrus Grout
Publication Date: 

This paper studies the pension preferences of Washington State public school teachers by examining two periods of time during which teachers were able to choose between enrolling in a traditional defined benefit plan and a hybrid plan with defined benefit and defined contribution components. Our findings suggest that a large share of teachers are willing to transfer from a traditional DB plan to a hybrid pension plan, and that the probability that a teacher will choose to transfer is related to financial incentives and factors related to risk preferences. Among new hires, observable teacher and job characteristics explain little of the pension decision, but there is some evidence that more effective teachers are more likely to enroll in the hybrid pension plan. The general popularity of the hybrid plan suggests that states could reduce the financial risk associated with DB pensions without sacrificing the desirability of pension plans to employees.