Cross-subsidization of teacher pension benefits: the impact of the discount rate

Robert M. Costrell

Journal of Pension Economics and Finance, 2020, vol. 19, issue 2, 147-162

Abstract: This paper builds on previous work (Costrell and McGee, 2017a, Education Finance and Policy) on the redistribution of teacher pension benefits, as measured by the wide variation in individual normal cost rates by age of entry and exit, and the associated cross-subsidies. The further steps taken here are: (i) to examine the impact of the discount rate on the degree of redistribution, and the analytics behind it; and (ii) to identify the distribution of the market value of the pension guarantee. Using the example of the California State Teachers’ Retirement System, I find that: (i) high-assumed returns substantially understate the extent to which costs are redistributed for back-loaded plans; and (ii) the market value of the pension guarantee is highly concentrated among long-term teachers.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jpenef:v:19:y:2020:i:2:p:147-162_1

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