When Teachers Choose Pension Plans: The Florida Story

Matthew M. Chingos and Martin R. West
Publication Date: 
February 14, 2013

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. Importantly, they did not find any differences in effectiveness between those who chose the defined benefit plan and those who chose the defined contribution plan, but they did find differences in attrition rates. Teachers who opted into the defined contribution plan were one percentage point more likely to leave before their second year and nine percentage points more likely to leave after their fifth year. 

The authors also looked at the thousands of teachers who will one day become ex-teachers. This paper puts numbers on just how many there are and how much money they’re losing. In the seven years of the study, Florida districts hired 92,000 first-time teachers. The authors found that roughly 40 percent of these beginning teachers stay less than six years, the amount of time Florida required a teacher to be employed before becoming eligible for pension benefits. By not meeting the vesting requirement, the authors estimate each of those ex-teachers will lose out on retirement savings of up to $27,784 in today’s dollars.