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Benefit or Burden? On the Intergenerational Inequity of Teacher Pension Plans

Ben Backes, Ben Backes, Dan Goldhaberb, Cyrus Grout, Cory Koedel, Shawn Ni (), Michael Podgursky, P. Xiang and Zeyu Xu
Additional contact information
Ben Backes: American Institutes for Research
Ben Backes: American Institutes for Research
Dan Goldhaberb: American Institutes for Research and University of Washington
Cyrus Grout: University of Washington
P. Xiang: University of Missouri

No 1517, Working Papers from Department of Economics, University of Missouri

Abstract: Most public school teachers in the United States are enrolled in defined benefit (DB) pension plans. Using administrative micro data from four states, combined with national pension funding data, we show these plans have accumulated substantial unfunded liabilities – effectively debt – owing to previous plan operations. On average across 49 state plans, an amount that exceeds 10 percent of current teachers’ earnings is being set aside to pay for previously-accrued pension liabilities. To the extent that the costs of the unfunded liabilities drag on teacher compensation, they may exacerbate problems of teacher recruitment and retention. We briefly discuss three policy changes that could end or reduce the accumulation of unfunded liabilities in educator pension plans: (1) transition teachers to defined-contribution retirement plans, (2) transition teachers to cash-balance retirement plans, and (3) tighten the link between funding and benefit formulas within the current defined-benefit structure.

Keywords: Pensions; teacher pensions; pension liabilities; pension debt; teacher quality (search for similar items in EconPapers)
JEL-codes: I20 H55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age and nep-edu
Date: 2015-11-01, Revised 2016-04
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