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Teacher Pensions and Labor Market Behavior: A Descriptive Analysis Michael Podgursky, University of Missouri - Columbia Mark Ehlert, University of Missouri- Columbia Robert Costrell, University of Arkansas – Fayetteville Center for Analysis of Longitudinal Data in Education Research - PowerPoint PPT Presentation
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1
Teacher Pensions and Labor Market Behavior:A Descriptive Analysis
Michael Podgursky, University of Missouri - ColumbiaMark Ehlert, University of Missouri- Columbia
Robert Costrell, University of Arkansas – Fayetteville
Center for Analysis of Longitudinal Data in Education Research(CALDER)
CALDER Data Conference Washington, DC October 4, 2007.
2
Why study teacher retirements?
• Teacher retirements generate vacancies• Teacher retirements generate costs
– Teacher pensions– Retiree health insurance
• Incentives in retirement systems may have significant effects on labor supply and mobility– Pension system incentives are large
• Retirement systems can affect the quantity and quality of the teaching workforce
3
Research literature
• Large labor economics literature on pensions and retirements
• Very small literature on teachers– Furgeson, Strauss, Vogt (2006), PA teachers– Brown (2006), CA teachers– Harris and Adams(2007), CPS
• Absence of basic data – Type of benefits and costs (esp. retiree HI)– Parameters of systems (NEA, NASRA, Loeb and Miller, 2006)– Incentive structure of teacher pensions– Teacher labor market data
• SASS TFS• Longitudinal state data (SEA records linked to pension data)
4Source: Harris and Adams (2007)
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Teacher Pensions: Some Stylized Facts
• Mostly state-wide systems• Roughly 70 percent of teachers are in Social Security.
Generally state decision.• Nearly all (vested) teachers are in Defined Benefit plans.
DC and CB options limited• Mean retirement age is well below Social Security and
Medicare ages– 58 years (retired and stopped teaching, SASS TFS)
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Incentives in Teacher Pension Systems
• In public sector DB pension systems accrual of pension wealth is highly non-linear and back-loaded
• State systems generally have sharp “spikes” in accrual rates
– Pull teachers to spike– Push out after
• Not inherent in DB pension systems.– “cash balance” (IBM and other firms)– Can smooth spikes
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Annual Pension = S x FAS x r(S,A)
S = service yearsFAS = final average salaryr(S,A) = replacement factor
Typical DB teacher pension
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Table 1 Key Features of Selected State Defined Benefit Teacher Pension Plans
Ohio Arkansas California Massachusetts Missouri In Social Security
No Yes No Yes No
Vesting (years) 5 5 5 10 5 Retirement Eligibility
Age=60; or Age=55 if Service = 25; or Service = 30
Age = 60; or Service = 25
Age = 55; or Age = 50 if Service = 30
Age = 55; or Service = 20
Age = 60; or Service = 30; or Age + Service = 80
Contribution Rates
District 14% Teacher 10%
Employer 14% Teacher 6%
District 8.25% Teacher 6%*
State, varies Teacher 11%
District 11.5% Teacher 11.5%
Replacement factor (percent per year of service)
Yrs 1-30: 2.2% Yr 31: 2.5% Yr 32: 2.6%, … For S ≥ 35, add 6% to total For S < 30 and age < 65, adjustment % applies
2.15% + $900 For S < 28, benefit reduced 5% x (28-S)
Linear segments: 1.1% at age 50 1.4% at age 55 2.0% at age 60 2.4% at age 63 For S ≥ 30, add 0.2% to factor, to max of 2.4%
Linear: 0.1% at age 41 to 2.5% at age 65 For S ≥ 30, add 2% x (S-24) Max replacement = 80%
2.5%
COLA formula 3%, simple 3%, simple 2%, simple, plus floor of 80% initial purchasing power
CPI to max of 3%, simple, on first $12,000
CPI, compound, up to 1.80 maximum factor
Sources: State pension fund web sites. * An additional 2% contributes to a supplemental defined contribution plan.
Lots of moving parts…
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• Compute pension wealth at each year of work life
• Compute growth of pension wealth from an additional year of work
• Representative teacher– Enters at 25, continuous spell of work– Standard assumptions concerning PV of
pension wealth. (see Costrell and Podgursky (2007) )
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Increment to PV of Pension Wealth from Working an Additional Year:Missouri
53
60 60 60 60 60 60 60 60 60 60 60 60 606060
59
58
57
56
55
54
53
54 55
56
57 5859
60 6162 63
64-50%
0%
50%
100%
150%
200%
25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65
age at separation (entry age = 25)
pe
rce
nt
of
sa
lary
After 2001
Before 2001
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Figure 2B. Annual deferred income: Arkansasage of first pension draw indicated
60606060606060606060606060606060606060
50
535251
-100%
0%
100%
200%
300%
400%
500%
25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65
age at separation (entry age = 25)
pe
rce
nt
of
sa
lary
Source: Costrell and Podgursky (2007)
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Figure 2C. Annual deferred income: Massachusettsage of first pension draw indicated
626160
59
54
585756
55
656463
62
616059585756545454545454545454555555555555555555
55
-100%
-50%
0%
50%
100%
150%
200%
250%
300%
25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65
age at separation (entry age = 25)
pe
rce
nt
of
sa
lary
prior to 2001
since 2001
Source: Costrell and Podgursky (2007)
13
Figure 2D. Annual deferred income: Californiaage of first pension draw indicated
62
61
56
5657 58 59
63 64 65
60
5757 57 57 57 57 57 57 57 57 57 57 57 57 57 57 57 57 57
57
57 57 5757 5757
61 62
-50%
0%
50%
100%
150%
200%
25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65
age at separation (entry age = 25)
pe
rce
nt
of
sa
lary
prior to 1999
since 1999
Source: Costrell and Podgursky (2007)
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Annual deferred income: FLage of first pension draw indicated
55
58575655 55 55 55
55 55
-50%
0%
50%
100%
150%
200%
250%
300%
350%
400%
2526272829303132333435363738394041424344454647484950515253545556575859606162636465
age at separation (entry age = 25)
pe
rce
nt
of
sa
lary
15
Figure 6. Annual deferred income, as % of earningsage of first pension draw indicated
55
64
636261
60
59
585756
55
55
55
55
55
60606060606060606060606060606060606060
-50%
0%
50%
100%
150%
200%
25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65
age at separation (entry age = 25) (Assumptions: see Figure 3)
pe
rce
nt
of
sa
lary
Ohio
16
17
1990-91A + E ≥ 45Full-TimeTeachersN= 31,060
2005-06
21,240Retirements
Missouri Longitudinal Teacher Data File(excluding KC and STL districts)
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Frequency Distribution of Age + Missouri Experience"Rule of 80"
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
47
49
52
54
56
58
60
62
64
66
68
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
100
102
104
106
108
110
112
114
116
118
120
122
125
127
134
Age + MOEXP
Pe
rce
nt
80
Distribution of Age + Experience
19
0
2
4
6
8
10
12
50 o
r younger
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70 o
r old
er
Age
Perc
en
t
Median Age
Distribution of Age
20
0
2
4
6
8
10
12
14
16
15
or fe
we
r
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
or m
ore
MOEXP
Perc
en
t
Median Experience
29
Distribution of Experience
21
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
50
or yo
un
ge
r
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
or o
lde
r
Age Group
Cu
mu
lati
ve
Pe
rce
nt
Male
Female
Cumulative Distribution of Retirement Age: Male vs Female
Median = 56 males, 57 females
22
Cumulative Distribution of Retirement Age: Rural vs Urban
0.000
10.000
20.000
30.000
40.000
50.000
60.000
70.000
80.000
90.000
100.000
50 or younger
51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 or older
Age Group
Cu
mu
lati
ve P
erce
nt
RURAL
URBAN
23
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
50
or yo
un
ger
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
or o
lde
r
Age Group
Cu
mu
lati
ve
Pe
rce
nt
WHITE
BLACK
Cumulative Distribution of Retirement Age: White vs Black
24
Cumulative Distribution of Retirement Age: High and Low Achieving Schools
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
50
or yo
ung
er
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
or o
lde
r
Age Group
Cu
mu
lati
ve
Pe
rce
nt
High Performing
Low Performing
25
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
50 o
r youn
ger
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70 o
r old
er
Age Group
Cu
mu
lati
ve
Pe
rce
nt
ELEMENTARY
SECONDARY
Cumulative Distribution of Retirement Age: Elementary vs Secondary
26
Increment to PV of Pension Wealth from Working an Additional Year:Missouri
53
60 60 60 60 60 60 60 60 60 60 60 60 606060
59
58
57
56
55
54
53
54 55
56
57 5859
60 6162 63
64-50%
0%
50%
100%
150%
200%
25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65
age at separation (entry age = 25)
pe
rce
nt
of
sa
lary
After 2001
Before 2001
r = 2.5% S ≤ 30r = 2.55% S ≥ 31
Changed in July 2001
27
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
11.00
12.00
13.00
14.00
15.00
16.00
17.001 2 3 4 5 6 7 8 9 10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
56
MOEXP
Pe
rce
nt
1995-2000
2002-2006
Distribution of Years of Experience at Retirement Before and After 2001 Change In Replacement Rate
28
Replacement Factor Marginal GainYears Experience (after July 2001) in Annuity Distribution of Retirees, %
at Retirement % of Salary % of Salary 1995-00 2002-06 change30 2.50 2.50 16.00 11.40 -4.6031 2.55 4.05 7.60 10.60 3.0032 2.55 2.55 4.60 6.00 1.40
29
0.5
11.5
De
nsity
5 7 9 11 13 15ln_sal
Distributionof ln (salary)
30
0.5
11.5
De
nsity
5 7 9 11 13 15ln_sal
Distributionof ln (salary)
0.0
5.1
.15
.2.2
5D
ensity
5 7 9 11 13 15ln_pw
Distribution of ln (pension wealth)
31
“Retired”
• Retired (Collecting teacher pension)
• Retired and not teaching
• “Double Dipping”– DROP– withdrawal– change pension systems– part time teaching
32
Cumulative Distribution of Teacher Retirement Ages:Teacher Follow Up Surveys, Schools and Staffing Surveys, 2001 and 2005
0
10
20
30
40
50
60
70
80
90
100
50
or y
ou
ng
er
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
or o
lde
r
Age
Cu
mu
lati
ve
Pe
rce
nt
TFS 2001
TFS 2005
Source: Schools and Staffing Surveys: 2001 & 2005 Teacher Follow Up Survey
58
“Retired” = collecting pension and not teaching
33
Retirement Age in Missouri and the US:Missouri and SASS Teacher Follow Up Survey 2001.
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
50 or younger
51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 or older
Age
Cu
mu
lati
ve P
erce
nt
MO Age -Retired
MO Age -Retired &QuitWorking
TFS 2001
Source: Schools and Staffing Surveys: 2001 & 2005 Teacher Follow Up
34
Labor Market Experience of Teachers Who Retired in 2000:Percent of Teachers Working Full and Part-Time in Missouri Public Schools in Subsequent Years
4.8%
3.9%
3.3%
2.7%2.6%
2.4%
4.8%
5.2% 5.2%
4.0%4.1%
3.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
2000 - 01 2001 - 02 2002 - 03 2003 - 04 2004 - 05 2005 - 06
Year found working
Pe
rce
nt
FT
PT
35
Structure of 2004-05 SASS Teacher Follow Up Survey
SASSTeacherFollow-UpSurvey2003-04
Current TeacherSurvey
Former TeacherSurvey
Collecting Teacher Pension?
5.3%(4.9% of total pop.)
91.6%
8.4%
36
Lesson
Total Compensation = Current + Deferred Compensation
37
• Papers at www.caldercenter.org
• Slides at http://economics.missouri.edu/
• Ohio report www.edexcellence.net
