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Teachers' Characteristics Influence Their Pension Choices, Study Suggests

Certain kinds of teachers, including those teaching math and science, may be more likely than others to select a 401(k)-style teacher-pension plan over a traditional pension plan given the choice.

That's the key finding from an analysis of Florida data released earlier this week by the Thomas B. Fordham Institute, a conservative-learning Washington think tank.

For the paper, authors Matthew Chingos of the Brookings Institution, another think-tank, and Martin R. West of the Harvard Graduate School of Education analyzed data on teachers from Florida between 2002-03 and 2008-09 from the state's education and retirement databases. Records for some 75,000 teachers were analyzed in all.

During this time, new Florida teachers were given the option of enrolling in either a defined-contribution plan similar to a 401(k), in which wealth is based on how selected investments perform, or a defined-benefit pension plan, in which pension wealth is related to a calculation based on final salary and years worked.

There were some tradeoffs in the decision: The vesting period was much shorter for the DC plan (one year) than the DB plan (six years) and portable. On the other hand, after about six years, the value of the DB plan was projected to exceed that of the DC plan. (Neither plan required teachers themselves to contribute to the funds during the period studied.)

Among the findings:

• A quarter to a third of teachers elected to join the DC plan during the time period.
• Black and Hispanic teachers were much less likely to join the DC plan (at 20 percent) than white teachers (at 33 percent).
• Math and science teachers, at 33 percent, were somewhat more likely to join the DC plan than teachers of other subjects (29 percent to 31 percent).
• Charter school teachers (36 percent) and those with advanced degrees (36 percent) were also more likely to join the DC plan than teachers with bachelor's degrees (27 percent) and noncharter teachers (30 percent).
• In general, there was little evidence that teachers choosing a DC plan were more- or less-effective on average than teachers choosing a DB plan. This calculation was based on a subset of math and reading teachers in the sample for whom value-added scores were available. Teachers in the lowest value-added quartile were slightly less likely to join the DC plan, though.
• Teachers who elected to join the DC plan had greater attrition rates in the first six years of teaching than those in the DB plan (13 percent higher in year 6), though the data can't determine definitely why this is. (Did they join the DC plan because they expected to leave early, or did being in the DC plan somehow influence their decision to leave?)

The bottom line is that "these results suggest that some new teachers in Florida are making choices that maximize their total compensation," the report's authors conclude. They note, though, that this was not the case for all teachers; 40 percent of the 2002-03 teachers who chose the DB factor left before the six-year vesting period was up, meaning they forfeited a huge chunk of cash.

The Fordham group has tended to be critical of defined-benefit plans, so its interpretation of the finding—that teachers don't appear to be entirely opposed to DC plans and therefore, that offering a choice of plans might save states cash—probably aren't terribly surprising. But even if you don't agree with its reading of the findings, the analysis adds to a burgeoning research base about how pensions affect the teacher workforce—important information for anyone interested in upcoming pension-reform debates.

For instance, scholars have theorized that pension plans affect how long teachers stay in the workforce. This analysis is among several new papers that lend credence to that idea.

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