The Effects of Defined Benefit Pension Incentives and Working Conditions on Teacher Retirement Decisions

Abstract

The retirement behavior of Pennsylvania public school teachers in 1997–98 and 1998–99, a period when state early retirement incentives were temporarily increased, is modeled using a choice framework that emphasizes both pecuniary and nonpecuniary factors of the retirement decision under a defined benefit retirement plan. We find each to have large and statistically significant effects on the decision to retire. The present value of inflation-adjusted pension benefits of a public defined benefit plan is found to be an important and sizable determinant of retirement. A $1,000 (or .4 percent) increase in the real present value of pension benefits is estimated to increase the probability of retirement for female teachers by .02 to .08 percentage points; this implies an elasticity of retirement for female teachers with respect to the present value of real pensions of between 2.0 to 3.5. These estimated defined benefit pension elasticities for female teachers are higher than for male teachers, whose comparable retirement elasticity was 1.9 to 2.5. A $1,000 increase in current salary is found to reduce themean probability of retirement by .1 percentage points, implying an elasticity of −1.4. Thus, substantial salary increases systematically reduce the probability of older teachers retiring.

Pensions and Late-Career Teacher Retention

“…Findings from Dolton and von der Klaauw (1995), Feng (2009), Glazerman et al (2012), and Hanushek, Kain, and Rivkin (2004) imply inelastic labor supply, while studies by Clotfelter et al (2008), Falch (2010), and Feng and Sass (2016) find somewhat larger labor-supply elasticities. However, in contrast to the mixed findings from research on the teaching workforce as a whole, studies of senior teachers consistently show a high degree of responsiveness to pension system incentives (Furgeson et al, 2006;Costrell and McGee, 2010;Brown, 2013;Fitzpatrick and Lovenheim, 2014;Ni and Podgursky, 2016;Knapp et al, 2016). Traditional teacher pension plans (i.e., final average salary defined-benefit) contain strong incentives designed to "pull" teachers to certain combinations of age or experience, and then "push" them into retirement.…”

Between Successful and Unsuccessful Ageing: Selected Aspects and Contexts

“…The key predisposing factors to age reduction on paper entail the prestige attached to the given positions in work organizations in society (Ferguson, Strauss and Vogt, 2005;Gough et al, 2008), weakening of traditional social support system (Aboderin, 2006;Dovie, , 2019bTonah, 2009) albeit remote, the lack of planning culture, poor time management and poor resource management (Dovie, 2017).…”

Surplus deferred pension compensation for long-term K-12 employees: an empirical analysis for the Denver Public School Retirement System and four state plans

“…Testing the hypothesis using pension formula data for 1957-1971 for 1 % of workers covered by Social Security provided by the Social Security Administration's Longitudinal Employer-Employee data file, the results are partially consistent with the hypothesis. To measure retirement incentives, Furgeson et al (2006) calculated the present value of future defined benefits. Benefit formulas for early and later retirement significantly affected the value of deferred pension compensation benefits.…”