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Teacher Pensions and Teacher Quality: Is There a Connection?

Guest blog post by Cory Koedel

Teacher pensions account for a significant percentage of teacher compensation but are often ignored in conversations about improving teacher quality. In a recent study, my colleagues and I examine how the incentives for teachers to remain in teaching or leave the profession created by teacher pensions impact workforce quality. We find no evidence to suggest that the pension incentive structure raises teacher quality.

Public school teachers, like most public-sector workers in the United States, are nearly universally enrolled in defined-benefit (DB) pension plans, in which the employer promises a set monthly payment in retirement that depends on the retiree's employment and earnings history. In contrast, most private sector employees have moved toward defined contribution (DC) plans, such as 401(k)s. A key feature that distinguishes DB pension plans from defined-contribution (DC) plans is that the rate of wealth accrual is heavily backloaded; in other words, the value of the defined benefit grows slowly in an employee's initial years of work, and much more rapidly later on. The backloading creates strong financial incentives for teachers to remain in teaching up to a certain point in their careers ("pull" incentives), then similarly strong incentives for them to retire shortly thereafter ("push" incentives).

In Teacher Pension Systems, the Composition of the Teaching Workforce, and Teacher Quality, we look to see whether the teachers who have the strongest incentives to stay in teaching are better than other teachers and whether the teachers who have the strongest incentives to retire are worse. Our analysis does not uncover any evidence indicating that teachers' pension incentives are positively affecting workforce quality.

It is important to recognize that the current pension structure comes with tradeoffs - there are things we could be doing with the resources devoted to fund teacher retirement benefits that we are not doing right now, like raising teacher salaries and/or funding other instructional expenditures. These resources are substantial--in Missouri, the location of our study, 29 percent of teachers' earnings are currently required to fund retirement benefits, and this still may not be enough. Moreover, evidence is emerging that teachers do not value their pension benefits at nearly the cost of providing them. If pension plans are not helping to shape a more-effective workforce, it is important to ask whether the resources that they currently consume could be put to better use to improve K-12 schools.

The most obvious reason for not shifting resources away from teacher retirement compensation is that the pension structure is positively affecting workforce quality. In light of our findings, which provide no indication that this is the case, policymakers must ask if they could do a better job of recruiting and/or retaining high-quality teachers by using the resources that are currently being used to fund teacher pensions more effectively.

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