Hostname: page-component-7479d7b7d-qs9v7 Total loading time: 0 Render date: 2024-07-14T00:14:30.541Z Has data issue: false hasContentIssue false
  • English
  • Français

Which plan to choose? The determinants of pension system choice for public school teachers*

Published online by Cambridge University Press:  12 November 2014

DAN GOLDHABER  and
CYRUS GROUT
DAN GOLDHABER
Affiliation:
University of Washington, Center for Education Data and Research, 3876 Bridge Way N, Seattle, WA 98103, USA (e-mail: dgoldhab@uw.edu, cyrusgrout@gmail.com).
CYRUS GROUT
Affiliation:
University of Washington, Center for Education Data and Research, 3876 Bridge Way N, Seattle, WA 98103, USA (e-mail: dgoldhab@uw.edu, cyrusgrout@gmail.com).
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper examines a natural experiment in which Washington State teachers were offered the opportunity to choose between enrolling in a traditional defined benefit (DB) plan and a hybrid plan with DB and defined contribution (DC) components. We find plan preference is weakly related to estimates of the relative financial benefits of being in either the DB or hybrid system and strongly related to teacher age. Importantly, we also find that the majority of teachers prefer the hybrid plan, and that teachers opting into the hybrid plan tend to be more effective based on student output measures of teacher productivity. These results suggest that policy shifts toward pension systems that include DC options do not necessarily make teaching a less desirable profession, particularly for the most productive employees.

Keywords

G18H75Public pensionspension choiceeducation financevalue-added
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 15 , Issue 1 , January 2016 , pp. 30 - 54
Copyright
Copyright © Cambridge University Press 2014 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

We are grateful to the Washington State Department of Retirement Systems and the Office of the Superintendent of Public Instruction for providing the confidential data used in this study. We also gratefully acknowledge the financial support of the Joyce Foundation and the Center for Analysis of Longitudinal Data in Education Research (CALDER), which is funded through Award #R305C120008 by the Institute of Education Sciences, US Department of Education. We also benefitted from input on early drafts of this paper from Wes Bignell, Annie Pennucci, Cory Koedel, Josh McGee, and James Cowan, and two anonymous reviewers. Any and all errors are solely the responsibility of the study's authors, and the views expressed are those of the authors and should not be attributed to their institutions, the study's funders, or the agencies supplying data.

References

Aaronson, D., Barrow, L. and Sander, W. (2007) Teachers and student achievement in the Chicago Public High Schools. Journal of Labor Economics, 25(1): 95–135. Retrieved from http://www.journals.uchicago.edu/doi/abs/10.1086/508733Google Scholar
Aldeman, C. and Rotherham, A. J. (2014) Friends without Benefits: How States Systematically Shortchange Teachers’ Retirement and Threaten their Retirement Security. Time. Volume 179, p. 25. Retrieved from http://www.nchttp:////www.teacherpensions.org/sites/default/files/Bellwether_PensionPaper_032714_Web.pdfbi.nlm.nih.gov/pubmed/23979784Google Scholar
Asch, B., Haider, S. J. and Zissimopoulos, J. (2005) Financial incentives and retirement: evidence from federal civil service workers. Journal of Public Economics, 89(2–3): 427–440. doi: 10.1016/j.jpubeco.2003.12.006.Google Scholar
Boivie, I. (2011) The Three Rs of Teacher Pension Plans: Recruitment, Retention, and Retirement, National Institute on Retirement Security, Washington DC. p. 18.Google Scholar
Börsch-Supan, A. H. (2012) Entitlement reforms in europe: policy mixes in the current pension reform process. NBER Working Paper Series No. 18009.Google Scholar
Boyd, D. J., Lankford, H., Loeb, S. and Wyckoff, J. H. (2005) Explaining the short careers of high-achieving teachers in schools with low-performing students. The American Economic Review, 95(2): 166–171. Retrieved from http://www.teacherpolicyresearch.org/portals/1/pdfs/Explaining_the_short_careers_of_high_achieving_teachers_AER_final.pdfGoogle Scholar
Boyd, D. J., Grossman, P. L., Lankford, H., Loeb, S. and Wyckoff, J. (2007) Teacher Attrition, Teacher Effectiveness and Student Achievement. In Annual Conference of the American Education Finance Association. Baltimore, MD.Google Scholar
Brown, J. R. and Weisbenner, S. J. (2009) Who chooses defined contribution plans? In Brown, J., Liebman, J. and Wise, D. A. (eds), Social Security Policy in a Changing Environment. Chicago, IL: University of Chicago Press, pp. 131–161.Google Scholar
Brown, J. R. and Weisbenner, S. J. (2014) Why do individuals choose defined contribution plans? Evidence from participants in a large public plan. Journal of Public Economics, 116: 35–46. doi: 10.1016/j.jpubeco.2013.05.004.CrossRefGoogle Scholar
Chan, S. and Stevens, A. H. (2004) Do changes in pension incentives affect retirement? A longitudinal study of subjective retirement expectations. Journal of Public Economics, 88(7–8): 1307–1333. doi: 10.1016/S0047-2727(02)00223-2.Google Scholar
Chan, S. and Stevens, A. H. (2008) What you don't know can't help you: pension knowledge and retirement decision-making. Review of Economics and Statistics, 90(2): 253–266. doi: 10.1162/rest.90.2.253.Google Scholar
Chetty, R., Friedman, J. N. and Rockoff, J. E. (2014) Measuring the impacts of teachers II: Teacher value-added and student outcomes in adulthood. American Economic Review, 104(9), 2633–79.Google Scholar
Childs, P. D., Fore, D., Ott, S. H. and Lilly, C. C. (2002) Defined benefit vs. defined contribution: optimal employee and employer retirement plan choice. TIAA CREF Institute Working Paper Series 9-060102.Google Scholar
Chingos, M. M. and West, M. R. (forthcoming) Which teachers choose a defined contribution pension plan? evidence from the florida retirement system. Education Finance and Policy, (forthcoming).Google Scholar
Chingos, M. M. and West, M. R. (2012) Do more effective teachers earn more outside of the classroom? Education Finance and Policy, 7(1): 8–43.Google Scholar
Clark, R. L., Ghent, L. S. and McDermed, A. A. (2006) Plan choice among university faculty. Southern Economic Journal, 72(3): 560–577.Google Scholar
Corcoran, S. P., Evans, W. N. and Schwab, R. S. (2004) Changing labor market opportunities for women and the quality of teachers 1957–1992. American Economic Review, 94(2): 230–235. Retrieved from http://links.jstor.org/sici?sici=0002-8282(200405)94:2<230:CLOFWA>2.0.CO;2-PCrossRefGoogle Scholar
Costrell, R. M. and Podgursky, M. (2009) Peaks, cliffs, and valleys: the peculiar incentives in teacher retirement systems and their consequences for school staffing. Education Finance and Policy, 4(2): 175–211. doi: 10.1162/edfp.2009.4.2.175.Google Scholar
Croson, R. and Gneezy, U. (2009) Gender differences in preferences. Journal of Economic Literature, 47(2): 448–474. doi: 10.1257/jel.47.2.448.Google Scholar
DeArmond, M. and Goldhaber, D. (2010) Scrambling the nest egg: how well do teachers understand their pensions, and what do they think about alternative pension structures? Education Finance and Policy, 5(4): 558–586. doi: 10.1162/EDFP_a_00010.Google Scholar
Division for Public Administration and Development Management (2006) Republic of France Public Administration Country Profile. Retrieved from http://unpan1.un.org/intradoc/groups/public/documents/un/unpan023308.pdfGoogle Scholar
Doherty, K. M., Jacobs, S. and Madden, T. M. (2012) No One Benefits: How Teacher Pension Systems are Failing Both Teachers and Taxpayers. National Council on Teacher Quality, Washington DC.Google Scholar
Dohmen, T. and Falk, A. (2011) Performance pay and multidimensional sorting: productivity, preferences, and gender. American Economic Review, 101(2): 556–590.Google Scholar
Dorsey, S. (1995) Pension portability and labor market efficiency: a survey of the literature. Industrial and Labor Relations Review, 48(2): 276–292.Google Scholar
Furgeson, J., Strauss, R. P. and Vogt, W. B. (2006) The effects of defined benefit pension incentives and working conditions on teacher retirement decisions. Education Finance and Policy, 1(3): 316–348. Retrieved from http://uwashington.worldcat.org/oclc/89693972Google Scholar
Gerrans, P. and Clark, G. L. (2013) Pension plan participant choice: evidence on defined benefit and defined contribution preferences. Journal of Pension Economics and Finance, 12(04): 351–378. doi: 10.1017/S1474747213000061.Google Scholar
Glaeser, E. L. and Ponzetto, G. A. (2014) Shrouded costs of government: The political economy of state and local public pensions, doi: 10.1016/j.jpubeco.2013.05.005.Google Scholar
Goldhaber, D. (2006) Teacher Pay Reforms: The Political Implications of Recent Research. Washington, DC: Center for American Progress. Retrieved from http://www.americanprogress.org/issues/2006/12/teacher_pay.htmlGoogle Scholar
Goldhaber, D. (2010) When the Stakes Are High, Can We Rely on Value-Added? Exploring the Use of Value-Added Models to Inform Teacher Workforce Decisions. Washingon, DC. Retrieved from http://www.americanprogress.org/issues/2010/12/pdf/vam.pdfGoogle Scholar
Goldhaber, D. and Liu, A. (2003) Occupational choices and the academic proficiency of the teacher workforce. In Fowler, W. (ed.), Developments in School Finance 2001–2002. Washington, DC: National Center for Educational Statistics, pp. 53–75. Retrieved from http://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2003403Google Scholar
Goldhaber, D., Gabele, B. and Walch, J. (2013) Does the model matter? Exploring the relationship between different achievement-based teacher assessments. Statistics, Politics, and Policy, 1(1): 28–39.Google Scholar
Goldhaber, D., Gross, B. and Player, D. (2011) Teacher career paths, teacher quality, and persistence in the classroom: are public schools keeping their best? Journal of Policy Analysis and Management, 30(1): 57–87. doi: 10.1002/pam.Google Scholar
Goldhaber, D., Grout, C., Pennucci, A. and Bignell, W. (2012) Teacher Pension Choice: Surveying the Landscape in Washington State. CEDR Working Paper 2012-8. University of Washington, Seattle, WA.Google Scholar
Goldhaber, D. and Hansen, M. (2013) Is it just a bad class? Assessing the long-term stability of estimated teacher performance. Economica, 80(319), 589–612.Google Scholar
Goldhaber, D. and Walch, J. (2014) Gains in teacher quality. Education Next, 14(1).Google Scholar
Gutter, M. S., Fox, J. J. and Montalto, C. P. (1999) Racial differences in investor decision making. Financial Services Review, 8: 149–162. Retrieved from http://www2.stetson.edu/fsr/abstracts2/V8-3Google Scholar
Hallahan, T. A., Faff, R. W. and McKenzie, M. D. (2004) An empirical investigation of personal financial risk tolerance. Financial Services Review, 13: 57–78.Google Scholar
Hanushek, E. A. and Pace, R. R. (1995) Who chooses to teach (and Why)? Economics of Education Review, 14(2): 101–117.Google Scholar
Hanushek, E. A., Kain, J. F. and Rivkin, S. G. (2004) Why public schools lose teachers. Journal of Human Resources, 39(2): 326–354. Retrieved from http://links.jstor.org/sici?sici=0022-166X(200421)39:2<326:WPSLT>2.0.CO;2-GGoogle Scholar
Hanushek, E. A. and Rivkin, S. G. (2010) The Quality and Distribution of Teachers under the No Child Left Behind Act. Journal of Economic Perspectives, 24(3), 133–150.Google Scholar
Hoxby, C. M. and Leigh, A. (2004) Pulled away or pushed out? Explaining the decline of teacher aptitude in the United States. American Economic Review, 94(2): 236–240. Retrieved from http://proquest.umi.com.offcampus.lib.washington.edu/pqdweb?did=663187731&sid=1&Fmt=4&clientId=8991&RQT=309&VName=PQDCrossRefGoogle Scholar
Institutional Investor (2013) The 2013 Pension 40. Institutional Investor. Retrieved from http://www.institutionalinvestor.com/Article/3277088/Search/The-2013-Pension-40.htmlGoogle Scholar
Johnson, R. W., Chingos, M. M. and Whitehurst, G. J. (2013) Are Public Pensions Keeping Up with the Times? Brown Center on Education Policy at Brookings, Washington, DC.Google Scholar
Kane, T. J. and Staiger, D.O. (2008) Estimating teacher impacts on student achievement: An experimental evaluation. National Bureau of Economic Research Working Paper Series No 14607.Google Scholar
Katz, E. (2001) Bias in Conditional and Unconditional Fixed Effects Logit Estimation. Political Analysis, 9(4), 379–384.CrossRefGoogle Scholar
Koedel, C., Podgursky, M. and Shi, S. (2013) Teacher pension systems, the composition of the teaching workforce, and teacher quality. Journal of Policy Analysis and Management, 32(3): 574–596.Google Scholar
Krieg, J. M. (2006) Teacher quality and attrition. Economics of Education Review, 25(1): 13–27.CrossRefGoogle Scholar
Lakdawalla, D. (2001) The Declining Quality of Teachers. Working Paper No. 8263: National Bureau of Economic Research. Retrieved from http://www.nber.org/papers/w8263.Google Scholar
Lewin, D., Keefe, J. H. and Kochan, T. A. (2012) Unionism and collective bargaining in U.S. government. Industrial and Labor Relations Review, 65(4): 749–778.Google Scholar
Lusardi, A. and Mitchell, O. S. (2007) Financial literacy and retirement preparedness: evidence and implications for financial education. Business Economics, 42(1): 35–44.Google Scholar
Lusardi, A. and Mitchell, O. S. (2011) Financial literacy around the world : an overview. Journal of Pension Economics and Finance, 10(4): 497–508.CrossRefGoogle ScholarPubMed
Mahler, P. P., Chingos, M. M. and Russ, G. J. (2014) Improving Public Pensions: Balancing Competing Priorities, Brown Center on Education Policy at Brookings, Washington DC. pp. 1–31.Google Scholar
McCarthy, D. (2003) A life-cycle analysis of defined benefit pension plans. Journal of Pension Economics and Finance, 2(2): 99–126.CrossRefGoogle Scholar
McCaffrey, D. F., Lockwood, J. R., Koretz, D., Louis, T. A. and Hamilton, L. (2004) Models for value-added modeling of teacher effects. Journal of Educational and Behavioral Statistics, 29(1), 67–101.CrossRefGoogle ScholarPubMed
Murnane, R. J. and Olsen, R. J. (1989) Will there be enough teachers? American Economic Review, 79(2): 242–246. Retrieved from http://links.jstor.org/sici?sici=0002-8282(198905)79:2<242:WTBET>2.0.CO;2-0Google Scholar
Nadler, C. and Wiswall, M. (2011) Risk aversion and support for merit pay: theory and evidence from Minnesota's Q comp program. Education Finance and Policy, 6(1): 75–104.Google Scholar
National Education Association (2010) Characteristics of Large Public Education Pension Plans. Washington, DC, p. 182.Google Scholar
Novy-Marx, R. and Rauh, J. (2011) Public pension promises: how big are they and what are they worth? Journal of Finance, 66(4): 1211–1249.Google Scholar
OECD (2013) Pensions at a Glance 2013: OECD and G20 Indicators. OECD Publishing, Paris, France.Google Scholar
Office of the State Actuary (2011) 2010 Actuarial Valuation Report. Olympia, WA, p. 48. Retrieved from http://osa.leg.wa.gov/Actuarial_Services/Publications/PDF_Docs/Valuations/2010AVR.pdfGoogle Scholar
Pew Center on the States (2010) The Trillion Dollar Gap: Underfunded State Retirement Systems and the Roads to Reform. The Pew Charitable Trusts, Washington, DC, p. 61.Google Scholar
Pew Center on the States (2012) The Widening Gap Update. The Pew Charitable Trusts, Washington, DC, p. 13.Google Scholar
Scafidi, B., Sjoquist, D. L. and Stinebrickner, T. R. (2007) Race, poverty, and teacher mobility. Economics of Education Review, 26(2): 145–159. Retrieved from http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VB9-4HWXP46-2&_user=582538&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_version=1&_urlVersion=0&_userid=582538&md5=fde3483d68494607b53087c1ea7888ebGoogle Scholar
Thaler, R. H. and Sunstein, C. R. (2008) Nudge: Improving Decisions about Health, Wealth, and Happiness. Yale University Press, New Haven, CT.Google Scholar
Weller, C. E. (2011) What Does the Literature Tell Us About the Possible Effect of Changing Retirement Benefits on Public Employee Effectiveness? (No. 270). The Political Economy Research Institute, Amherst, MA, p. 28.Google Scholar
Yang, T. (2005) Understanding the Defined Benefit versus Defined Contribution Choice. The Pension Research Council, The Wharton School, U Penn., Philadelphia, PA.Google Scholar
Yao, R., Gutter, M. S. and Hanna, S. D. (2005) The financial risk tolerance of blacks, hispanics and whites. Financial Counseling and Planning, 16(2): 51–62.Google Scholar