Panel Paper: Benefit Enhancements to Educator Pension Plans and Their Consequences for Teacher Recruitment and School Staffing

Friday, November 9, 2012 : 2:00 PM
Jefferson (Sheraton Baltimore City Center Hotel)

*Names in bold indicate Presenter

Cory Koedel1, Shawn Ni2 and Michael Podgursky1, (1)University of Missouri, (2)University of Missouri, Columbia

During the late 1990s and early 2000s public pension funds across the United States accrued large short-term actuarial surpluses. In many states these surpluses facilitated legislation that substantially enhanced retirement benefits for public workers. Pension funds covering public educators were no exception, and in fact, in many states the formulas that determine educator pension benefits were among the most significantly enhanced. In this study we examine the benefit enhancements to the educator pension fund in Missouri. The benefit gains resulted in large windfalls for teachers who were in the late stages of their careers around the time when the enhancements were enacted. By contrast, young teachers, and teachers who had not yet entered the labor force, were made worse off by the enhancements. Other things equal, the teaching profession is now less appealing for incoming workers in Missouri than it was before the benefit enhancements occurred. A key reason is that front-end contribution rates, which serve as a distortionary tax, have been raised for current teachers to offset past liabilities accrued from the enhancements. A general lesson from our study is that public pensions are not riskless investments for pensioners.

Full Paper: